Moguls Mantra to the Markets Message Board

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Non-Tech : Moguls Mantra to the Markets

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To: $Mogul who wrote (154)	9/24/2001 12:33:24 PM
From: $Mogul	Read Replies (1) of 220

Economists are virtually unanimous in believing the Sept. 11 terrorist attacks have pushed the U.S. economy into recession. And many agree that rate cuts will spur a rebound next year, but expectations about the size and extent of that recovery vary significantly. Aubrey Lanston economists believe the September 11 terrorist attack "could not have been at a worse time" as consumer sentiment was already "crumbling" due to weak labor markets. They now predict third-quarter GDP will decline as much as 1% and the fourth quarter could show as much as 5% drop. Merrill Lynch economists also predict a 1% drop in third-quarter GDP but believe growth will rebound to average "at least" 4.5% from the second quarter of 2002 through the end of the fourth quarter. The economy "won't remain weak for long...because it is receiving far more stimulus that anyone had previously been looking for." Bear Stearns economists agree: "monetary policy is much less restrictive both in the United States and globally than it was a week ago." The massive injection of liquidity since Sept. 11 was a deliberate effort to provide a more accommodative stance even than the Fed announced in cutting its benchmark rate to 3%, they write (more on this from Morgan Stanley). Banc One Capital Markets' Anthony Karydakis also believes the economy has gone "over the cliff" into recession but expects the slowdown to be "relatively mild and short." Still, the current situation is dire: consumer retrenchment, evidenced by a 3.2% month-over-month drop in weekly chain store sales, removes the "last pillar of support" from an already teetering economy. Also, the drop in equity prices "has been particularly disconcerting," Karydakis writes. How consumer confidence holds up in the face of all of this will be the key to duration of the recession, according to PaineWebber economists. Looking at how other "shocks" have hit the economy suggests the economic environment at the time of the shock is a significant factor. The unstated conclusion appears to be that confidence is more likely to suffer the kind of sustained drop that occurred when Iraq invaded Kuwait (weak economic environment) than the temporary dip associated with other events such as the Long-Term Capital Management collapse or even the 1987 stock market crash. Morgan Stanley's Stephen Roach believes the world is at a "critical tipping point" but "for a world we judged already to be in synchronous recession before the terrorist attacks on America, the downturn now looks considerably deeper and longer than we ever suspected." He doesn't expect a v-shaped rebound either, noting that the latest shock has done nothing to change previously existing headwinds: excess capacity, an over-extended consumer, and a massive current-account deficit.

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