Better late than never, and better with panache than without, today Greenspan may have re-earned his nickname, the “Maestro”. The market liked what it demanded, and likes even more the expectation of more rate reductions to prevent the economy from falling off a cliff. Add to that Greenspan’s old buddies in the new administration, and the market can look forward to freer trade, reduced regulations and an across-the-board tax cut – all hugely stimulative for the new economy (which really does exist).
Even without Congress, the new administration can reduce the buildup of regulations that add friction to business. Free trade is a lot easier to negotiate in the new global economy than most people think. The trick is to realize that the best thing that can be done for the US economy is simply to open our markets to the whole world. How fair our global trading partners play is irrelevant. This means the Bush Administration can implement freer trade unilaterally on any kind of playing field, level or not. While the American people generally worry a lot about what our trading partners give in return, economists don’t, nor will the new administration.
An across-the-board tax cut will be good structurally for business. I believe lower marginal rates imply higher rates of GDP growth possible without stoking the flames of inflation. Bush will push tax cuts as a needed fiscal stimulative, for which it is subject to serious criticism as being too clumsy and invariably untimely. But the real benefit will be structural and long-lasting. While it is true that macro fine-tuning of the economy is best left to the Fed (as opposed to fiscal policy implemented through tax cuts, or worse, through discretionary increases in spending), tax cuts are ideal for greasing new economy skids.
WIND is well-positioned to reap rewards from these developments, particularly the 50 basis points reduction in the federal funds rate. While it generally takes about six to nine months for changes in interest rates to impact the economy, the time it takes to impact WIND’s business this quarter is closer to five minutes. As everyone knows WIND closes Q4 at the end of January, not December. Further, design wins have a habit of stacking up for approval at the end of quarterly periods, with WIND’s seasonally biggest quarter doubtlessly not an exception. My guess is that prior to today any number of WIND’s customers felt deflating pressure about getting to market quickly because they didn’t know for sure if there would be a market. The Fed’s action signaled that there surely will be, and that the race is on again. This means that any potential for a slowdown in design wins in WIND’s Q4 due to concerns about the economy has just been reduced if not reversed entirely. Thanks Greenspan.
Unfortunately for companies that report on calendar quarters, their revenues are set in stone as of December 31. Many of these companies will not benefit this quarter from the instant change in market psychology caused by the recent action by the Fed, the action that for them should have occurred before the end of December.
I should all feel better about the quarter, and absolutely great about getting on with the analysis of maturing lily ponds.
Allen |
