(March 21) – “For the second time in two years, Wall Street is ignoring its own advice, writes Alex Berenson in today’s New York Times.

“One of the stock market’s oldest maxims is that investors should buy stocks aggressively when the Federal Reserve is lowering short-term interest rates and be much more careful when rates are rising. The logic is simple: falling interest rates put more money in consumers’ pockets and lower corporate borrowing costs, helping corporate profits. Rising rates force consumers and companies to spend more money on interest payments, hurting the economy and corporate earnings.”

“In other words, don’t fight the Fed.”

“But in late 1999 and early 2000, that is exactly what investors did, bidding technology stocks to extraordinarily expensive levels even as the Federal Reserve raised short- term interest rates six times to slow the economy and the stock market.”

“By the end of 2000, that arrogance had proved remarkably foolish, as the Fed’s rate increases succeeded in slowing economic growth and cutting corporate spending on capital equipment. Information technology companies, which some analysts had predicted would be immune to slowing economic growth, turned out to be especially hard hit by the rate jumps.”

“The technology-laden Nasdaq composite index has now fallen more than 63 percent from its highs a year ago, while the broader Standard & Poor’s 500-stock index has plunged more than 25 percent since last March.”

“Now, with investors $4 trillion poorer and economic growth slowing sharply, the chairman of the Federal Reserve, Alan Greenspan, is cutting short-term interest rates to get the economy moving again. Yesterday, he reduced rates for the third time in three months, setting short-term rates at 5 percent. Since early January, Mr. Greenspan has lowered rates by 1.5 percentage points, the fastest he has ever cut rates.”

“Yet the same investors who insisted that the Fed’s rate increases would never slow the economy last year are again fighting the Fed, this time by selling stocks as Mr. Greenspan cuts rates.”

“Stocks plunged yesterday after the Federal Reserve announced its rate cut, mainly because investors hoped Mr. Greenspan would reduce rates even more than he did. The Nasdaq skidded 4.8 percent yesterday, while the S.& P. 500 and Dow Jones industrial average each dropped 2.4 percent.”

“Mr. Greenspan, who could do no wrong in Wall Street’s eyes for the first 13 years of his tenure, is now viewed as out of touch with the economy and the market by some investors who think he should cut rates even faster.”