HI JIM!
My feeling is that time in the mind of investors is somehow warped. On the one side they thought that the slowing would go away in a few weeks-this thinking was influenced by the bullishness of the parabolic bull run-, on the other hand there seem to be the other side that sees today's condition lasting forever for no hope for another decade. I don't know where the reality will be but i tend to be somewhere in the middle.
I get this weekly fundamental write up on the economy and have found it very useful. Their website is at: stockresearch.com
Here excerpts from this weekends edition showing a more bullish approach then a lot of the doomssayers:
>>Even a cursory glance at the above market statistics(he refers to the %ages lost in the indexes) could
lead one to conclude that a lot of bad things either
happened last week, or were likely to happen soon. In our
view neither is true as the economic reports were mixed,
and some important ones were slightly positive. In addition,
the global problems appear to be overblown, and not really
new news. But, given last week's wreck in the stock market,
the Federal Open Market Committee (FOMC) is now likely to
be more aggressive in cutting rates.
As longer term readers know, the FOMC has a lot of believers
in the "wealth effect" (which implies a direct link between
changes in asset values and changes in spending). Given that
the decline in stock prices spread to the broader market,
rather than being contained to the tech sector, the recent
drop will surely get the FOMC's attention, and force them to
become more aggressive in cutting rates, particularly given
the latitude provided by a very positive Producer Price
Index report.
(...)
Overall, our view is that the worst of the slowdown is already
behind us. As we noted last week, a large portion of the
inventory overhang in the auto sector has been eliminated,
housing is still strong, and the decline in consumer confidence
if it hasn't bottomed out already, is not accelerating to the
downside. But, consumer psychology is important, and fragile.
And, from minutes of FOMC meetings, consumer confidence is
a key variable to current interest rate policy.
So, it now seems probable that the FOMC will be more aggressive
in cutting rates to assure that recent gains in consumer
confidence are not eroded by last week's negative "wealth
effect." And, so our outlook has changed.
Whereas we had previously thought that the FOMC would lower
rates by one half point, and adopt a neutral stance, such
action no longer appears to be the best bet. At a minimum,
we now expect that rates will be lowered by one half point,
and that the bias toward further rates will be maintained. If
not, the pressure on stock prices could become much more serious.
More likely is that the FOMC now wants to send a message,
and resurrect the "Greenspan Put". If we are right, then
a three quarter point cut becomes the best bet, and even the
bias toward lower rates would likely be maintained as it now
seems probable the bias won't be removed until there is solid
evidence of an upturn - not just stabilization.
A long shot bet, but not implausible, is a full one point cut.
Our view is that this is a stretch, and certainly not needed,
or even wise policy given the potential "Christmas Tree"
tax cut (Congress is now trying to enlarge President Bush's
$1.6 trillion dollar cut by adding on all sorts of extras).
But, the message would be clear, and forceful, even if the
bias toward lower rates was removed.
The net bottom line is that the FOMC is probably pleased to
have broken the "tech bubble." They were hopeful that they
could let the air out of the balloon, without it bursting.
Last week there was some fear of a "burst" as stock price
declines broadened out. They will want to contain the decline
given their views of the ultimate economic impact. So, in
our view they will now be more aggressive, and a three quarter
point cut now seems most likely.<<
Have still a good rest of the weekend and let's have a better week than before.
Stefan |
