I think Fed chief Alan Greenspan went too far in his remarks Friday to a gathering of central bankers from throughout the world. Uncle Alan said that central banks must consider the prices of stocks when setting monetary policy. I have been an admirer of his wise guidance of interest rates, which has earned him the respect of Wall Street and the rest of the world. But in his last utterances, Uncle Alan missed the boat. Maybe he thinks that higher stock markets breed investor confidence, and the higher spending that goes with it. I'm sure he's right on that score, but so what, as long as inflation remains in check?

If he thinks that increased wealth is bad, he's wrong, and I don't give a damn if he has a hatful of Ph.D.'s. I've been checking the papers since Friday to see if he has donated his money to the poor, in order to decrease his wealth, but I haven't turned up anything so far. I understand that he doesn't own any stocks but his wife does. Maybe he's sore that he's missed out on this exuberant stock market. Well Uncle Alan, that's your problem. Maybe you should get your investment advice from Mrs. Greenspan.

Anyway, the harm's been done, with Friday's Dow Industrials going down 108 points and the Nasdaq down 15 points. I know Alan's mad at the Nifty 50 or Nifty 100, but the problem is that when you talk them down, they take most other stocks down with them. And many stocks are way down for the last 12 months, regardless of lofty stock indices. Yes indeed, if your stocks took gas Friday, you probably got Greenspanked.

What do we do now? Well we can't tell yet how long these negative remarks will overhang the stock market. The good news is that volume was light Friday. The bad news is that Labor Day is around the corner, and historically that has meant tough days for the stock market. That would take us into October, with it's infamous market nightmares.

I am inclined to sell covered Call options, and buy Put options on very volatile stocks at strike prices way out of the money. That way for a cost of say 1/4 - 7/16, only going out to September, 1999, I would have portfolio insurance against a BIG drop in the market. You could do the same with Index Options, but when I looked at them yesterday, their risk/reward ratio was not as attractive as that of individual VOLATILE stocks. Aside from that, consider selling at least one-half of any issue you don't have much confidence in. If that's not aggressive enough for you, sell more. Because it's that time again when CASH IS KING! Stay tuned.

The Market Pro - August 29, 1999