Economic forecast for 2002
January 18, 2002 10:00
By Jeff Meredith
i-Street Magazine
CHICAGO - For a moment, 'The Economic Outlook for 2002 and Beyond' had the appearance of a cage match. The Thursday luncheon at the Executives' Club of Chicago found James J. Cramer, markets commentator and co-founder of TheStreet.com, pitted against Wayne D. Angell, chief economist and senior managing director at Bear, Stearns & Co., Inc.
The source of contention? The epitome of broken faith and fallen expectations this year: the Enron debacle.
"Enron is a criminal enterprise. I think it was a giant pump and dump scheme. They pumped the stock up, used reckless forecasts, and bogus revenues. They dumped the stock furiously and when it was over, they locked down the employees and took all their money away," said Cramer, who proceeded in a passionate tirade against insider trading.
"I have never seen a company that set out to ruin themselves and all their employees," replied Angell, who for eight years served as a member of the Board of Governors at the Federal Reserve Bank. "Don't get government in it."
When moderator Terry Savage took an informal poll of the room, attendees overwhelmingly supported the arguments of Cramer and allowed him to proceed.
Earlier, Angell had used the forum as a means of propelling his theory that the government's efforts to reduce the national debt had simply transferred the problem to consumers. He lamented high tax rates as productivity surged between 1995 and 2000, and also took a swipe at Tom Daschle and 'class warfare' as he trumpeted the virtues of tax relief.
When Cramer took to the podium, he joked that Angell remembered the advice, 'Don't get off message.'
A markets commentator for CNBC and co-founder of SmartMoney, Cramer focused his comments on capital spending budgets. Instead of increasing budgets as promised, forecasts were lowered, particularly in the telecommunications arena. Some $2 billion was just sliced off of Intel's capital budget for 2002, for example.
Cramer said there is still a 'hangover from the great telecommunications buildup' and noted that companies like Nextel, Verizon, and SPC are still ratcheting down from last year's lows. He predicted a gloomy outlook in 2002: these budgets will be down another 20 percent off last years' lows.
However, it was not all bad news on Cramer's end - he anticipated a one to three percent growth rate in 2002, and took spirit in how well the retail arena had fared toward the end of year, citing General Motors' success - mainly driven by zero interest finance rates - as an example.
Posing a stark contrast to the verbal sparring of Angell and Cramer, Diane Swonk's remarks quieted and focused the large ballroom audience. Chief economist and senior vice president for Bank One Corporation, Swonk narrowly escaped the destruction of the World Trade Center on 9/11. She took time to talk about the importance of her family in the event's aftermath, and how she openly wept upon returning home - 52 hours after the first plane hit.
Swonk found the current unemployment rate, hovering around 6 percent, discouraging but said of growing up in Detroit, "I've seen a lot more pain than this."
The ever-optimistic Swonk said that inventories are so low that we will see an increase in production in 2002 and that the recovery will come sooner and stronger than many expect.
Although Swonk indicated that "Investment can not be a driver of economic gains," Angell stressed the impact of reduced capital spending.
"This is a jobless recovery that we have ahead" because capital spending has to get going again to have job creation. "The stock market has over-anticipated a "V" recovery that we are not going to have," explained Angell. |
