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(March 22, 2002) STOCK INDICES: Stocks sold off this week as investors were mulling over just what the Federal Reserve might do and hoping the "gang at the Fed" does not try to pre-empt an economic turnaround with rate increases. The Fed announced its change in bias from lower to neutral as relates to rates and that was a clear sign that the next change in rates would be to the upside possibly forestalling any further indications of an economic recovery. While Mr. Greenspan has historically been "slow on the trigger" in adjusting to economic conditions his pre-emptive "strikes" two years ago to head off inflation was apparently overdone since it started the downward economic spiral that has persisted throughout last year and much of this year. Now it would appear that investors are concerned he may, in an effort to avert inflation, "jump the gun" and look to raising rates in advance of any real economic strength. His predecessor, Paul Volker, was too quick "on the trigger" and his actions sent rates skyrocketing to over 20% and then collapsed. My feeling is that the Federal Reserve, while limited in its actual ability to increase economic growth, has too much power over the psychology of the markets and his influence as exemplified by the "briefcase watchers" who try to "guess" what he will do by the way he carries his briefcase is a clear example of that influence. While we may see some end of quarter "window dressing" by the institutions, I do not anticipate that such buying will continue beyond the Easter holiday and would once again suggest investors "lighten the burden" of high ratio stocks in their portfolios or look to hedging their risk with the futures and options markets. We can assist clients in determining the most appropriate vehicles to achieve that goal.

John L. Caiazzo

www.acuvest.com

E-mail: futures@acuvest.com

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