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To: willcousa who wrote (102381)	4/15/2000 11:14:00 AM
From: Joseph Pareti	Respond to of 186894

investors start slowly to see it my way. I understand what they mean in the article below for "tech stocks" is " junk tech stocks". Did we need all this to learn about profits and P/E ? or that internuts = ponzi ? (Paul Samuelson said it again 3 months ago). The good news is that the fools are throwing away the baby with the bath tub and the smart money is ready to pick it up. ---------------------------------------------------- The outlook for high-tech stocks is highly uncertain. With the euphoria over, it seems unlikely that they will regain their previous levels for some time. But with no satisfactory valuation model available, it is impossible to say how much further they could fall. Investors are certainly being more discriminating, and now want to see evidence there is at least the potential for a dot com company to make money markets.ft.com Comment: The US and the world economy Published: April 14 2000 21:20GMT \| Last Updated: April 15 2000 02:30GMT Despite cheerful forecasts of global output growth, a cloud hangs over this weekend's meeting of the Group of Seven finance ministers. Strong US inflation figures, together with declines in equity markets, are a reminder of the serious imbalances caused by the US economic expansion. The International Monetary Fund's forecasts, published this week in its World Economic Outlook, seem like cause for celebration. World output growth should reach 4.2 per cent this year. Emerging market economies have staged a remarkable comeback, both in Asia and, to a lesser extent, Latin America. This has been made possible by the strength of the industrial economies, a pick-up in commodity prices and rapid growth in world trade. Only those economies which are being mismanaged have failed to gain from this happy set of circumstances. The US economy will continue to expand. But the pattern of industrial country growth is gradually becoming more balanced. The euro-zone recovery is finally looking robust, with output growth of 3.2 per cent predicted for this year. And even in Japan, growth may approach 1 per cent this year, after virtual stagnation in 1999, and could pick up further in 2001. Read on, though, and the degree of the IMF's concerns about the imbalances in the US economy becomes apparent. During the international financial crisis of 1997-8, the US was an anchor of stability. Interest rate cuts by the Federal Reserve Bank eased global liquidity, and kept US growth high. And when the crisis eased, the US fuelled the recovery by mopping up the huge flood of exports from emerging markets. The Fed agonised over whether this rapid output growth was sustainable. Growing evidence of a "new economy", together with a lack of evidence of inflationary pressures, convinced it that there was little risk in letting growth run on, and keeping interest rate rises to a minimum. Technology investment The new economy is no myth. The US has taken full advantage of the technological changes prompted by the widespread use of the internet. Almost certainly, the trend growth rate of the US has risen, due to strong investment and productivity growth. But even taking this shift into account, the US has been growing too quickly. The gap between private savings and investment has ballooned, and with it the current account deficit. Equity price rises contributed to the imbalances, both through the wealth effect on consumption, and by attracting foreign capital to finance the current account deficit. Now the long-anticipated crunch may be approaching. High-tech stocks are falling, and their prices are becoming increasingly volatile. Inflationary pressure Yesterday, the first real indication of inflationary pressures emerged, with the March consumer price index rising by an unexpectedly strong 0.7 per cent over the previous month. Even excluding food and energy, "core" CPI rose by 0.4 per cent from February - or 2.4 per cent on a year-on-year basis. There is a good chance that the Fed will either raise rates by 0.5 per cent at their next meeting in May, or announce an inter- meeting quarter point rate rise, with the aim of engineering the desired soft landing. The IMF warns that if growth is not slowed down to a more sustainable level very soon, there could instead be a hard landing - with a mild recession in 2001. Investors are rapidly re- appraising their assumptions about the US. The decline in high-tech stocks yesterday spread to a fall in global stock markets. It is not easy to guess what level they may now settle at. The outlook for high-tech stocks is highly uncertain. With the euphoria over, it seems unlikely that they will regain their previous levels for some time. But with no satisfactory valuation model available, it is impossible to say how much further they could fall. Investors are certainly being more discriminating, and now want to see evidence there is at least the potential for a dot com company to make money. Old economy stocks have attracted less speculation, but in the US have still been trading at a value that discounts growth in corporate earnings well above the rate of output growth. Early indications suggest that earnings growth in the first quarter of this year justified such expectations. However, the outlook further ahead is more doubtful. With the share of profits in national income already at levels last seen in the 1960s, the scope for earnings to continue to outpace output may be limited. Painful though the effects on equity markets may be in the short term, a rise in interest rates to contain demand growth represents the best hope of bringing the US to a gradual slowdown - and preserving the prospects for world growth.