Booms, Busts, and Recoveries Message Board

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Strategies & Market Trends : Booms, Busts, and Recoveries

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To: Bulls who wrote (7900)	8/28/2001 11:27:54 PM
From: tradermike_1999	Read Replies (1) of 74559

A few weeks ago I told you that the first leg of this bear market began last year when the smart money no longer believed in the "new economy" and cashed out of tech stocks. The 2nd leg came when it became clear to people that corporate investment and technology spending were collapsing. This final and brutal 3rd leg would come as people gave up their belief that Alan Greenspan would be able to bail them out. Today we saw another example of this. Back in the Spring, Greenspan told Congress that he believed that consumer spending would keep the economy afloat long enough for corporate investment spending to pickup. Instead of retrenching in the face of layoffs consumers would just take on more credit card debt and home equity loans because of lower interest rates. And we have seen this happen for most of this year. But when you think about this, Greenspan's idea that the consumer would save the economy and stop a recession through debt is a new theory in the field of economics. Every other recession that the US has had in its history has ended when corporate investment spending picked back up and companies began to hire workers back. Then consumer confidence and spending rose. In Greenspan's theory this time it is the consumer who must bear the burden of debt and give the corporation a helping hand. It isn't likely to work and the news and market action that we've seen today and will see tomorrow is a testament to that fact. Today at 10:00 AM consumer confidence numbers were released. Wall Street economists had been expecting to see a nice rise in consumer confidence because most people just received their Bush tax advance checks in the mail. Instead the numbers showed a decline in confidence. Right after the news came out the markets began a vicious tumble as the Nasdaq fell 2.5% and the DOW dropped over 160 points.. The consumer no longer believes in Greenspan. Why should they when they are seeing their neighbors get laid off or have gotten laid off themselves? They are becoming more interested in saving themselves then doing what Greenspan wants them to do and charging up their credit card. Greenspan's latest theory is a failure. Don't worry though. If he doesn't resign before the year is over, when he testifies to Congress he'll reinvent himself. Instead of admitting that he made a mistake, which he is incapable of, he'll create a new theory out of thin air to mystify people with. But evidence that the consumer is retrenching is troubling and sparked today's decline, although the market was poised to drop anyway. Tomorrow we'll get revised 2nd quarter GDP numbers and there is an expectation in many circles that they'll show that the economy contracted. Those worries also put pressure on the market today.

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