Chinks start appearing in economic armour

Financial markets are never complacent. In the best of times there are still prophets of doom waiting for the next accident to happen and even the most optimistic market watcher knows that what goes up usually does come down. Hard landing and soft landing are phrases used to describe whether the down move is with a bang or a whimper. People fear the former, hope for the latter and usually get something in-between.

The US stock and bond markets have been under the "must come down" scrutiny for so many years now that there is considerable worry among everyone that it will certainly be more bang than whimper. Every time someone from the Fed opens his or her mouth, they seem to express astonishment at how well the economy is doing, concern that external events (like a couple of Eastern European/Asian/Latin American crises) might derail the American dream and optimism that things look pretty okay at the moment despite whatever's happening in the rest of the world.

However, there have been a few chinks in the armour of the Goldilocks economy lately and these were highlighted in a couple of events across the pond last week.

There was a sense of shock when the US Treasury Secretary, Robert Rubin, announced his resignation. As with all of these events, there had been talk about Rubin's possible departure, but no one was certain about the timing and he could have hung around for some time to come. However, his resignation announcement did come as a surprise and there was a certain amount of soul-searching about the potential value of the dollar given that Rubin's replacement is his deputy, Larry Summers.

The relationship between authority figures and the market is one worthy of a psychologist's study. The market doesn't like being dictated to. But it likes to know that the people in charge know what they're doing.

The market doesn't like interventionist policies. But it likes to know that the authorities are ready to ride to the rescue if Armageddon lurks. The market is rather like a child at a birthday party - wants to eat all of the chocolate-covered Rice Krispie cakes in one go and won't be told otherwise, but needs to know that a loving parent will clean up the mess when the inevitable happens.

Anyway, the relationship between the market and Summers is probably a little more antagonistic than its relationship with Rubin. Summers is seen to be less diplomatic than Rubin, but all he has to do is make a few tough-but-caring speeches and the market will love him. There were similar reservations about Alan Greenspan when he took over as Fed chairman but, of course, everyone thinks the man is an absolute genius now.

Still, the change is coming at a somewhat more nervy time for markets. Last Friday's US CPI numbers were the strongest since January 1995, which had everyone chewing their pencils and rummaging around to find reasonable explanations. Seasonal factors are always a good panacea in these circumstances and, of course, you could throw in a few seasonal factors for these numbers too. Naturally, higher oil prices took the brunt of the blame. However, it doesn't much matter how you explain away the figures, the bottom line is that prices went up and everyone started punching numbers into their computers and wondering if this was it, the beginning of the end. The Dow has been especially nervy. Certainly times might be trickier ahead, but that'll just sort out the sheep from the goats and about time too.

Nothing, though, will stop people trading if they see a good opportunity; it's part of everyone's makeup whether you speculate on the lottery (matched none again - I'd do really well if they offered prizes for matching none) or whether you play around in the stock market. But if you want something different to do - combining the thrill of dealing plus a shot of glamour and without the spills - why don't you try the Hollywood Stock Exchange where you can trade away on virtual movie options? Hsx.com allows you to trade in MovieStocks (films that are being made or have been made) and StarBonds (securities that represent actors or actresses). When you register with hsx.com you receive $2 million Hollywood dollars so that you can start trading.

You can spend your Hollywood dollar profits in the HSX Store. Whether you can arbitrage between the Hollywood dollar trades and real box office receipts I've yet to discover! The hottest trades at the moment are options for The Phan- tom Menace, which is the latest Star Wars movie. I'm utterly amazed at all this Star Wars hype. It's only a film, for heaven's sake and though it was enjoyable when it first came out, it was a long, long time ago, as George Lucas would say. Little did I know that I was at the start of a cult phenomenon when I went to see it back in 1977 - once again I missed out on a valuable investment opportunity because I declined to buy a tacky plastic Princess Leia model afterwards. Crass marketing, I thought then, and I wasn't going to be taken in by it. Oh, well . . .

Personally, I prefer Star Trek to Star Wars, especially the episode where the crew of the Enterprise (the most recent lot, not the James T. Kirk ensemble) picked up some people who'd been cryogenically frozen back in the 20th century. One of the characters was a bloke who - completely unfazed by the fact that he'd just been defrosted and was cavorting around the galaxy on a starship - kept demanding to talk to his broker back on Earth. Obviously the guy's brain was still in freeze mode since his broker had long since shuffled off the mortal coil. However, Jean-Luc Picard, the captain, cheerfully explained to him that in the 24th century there was no need for money. There was no poverty. I like Jean-Luc, but he'd never have hacked it in the 20th or 21st centuries. He forgot all about the greed!

Sheila O'Flanagan is a fixed-income specialist at NCB Stockbrokers