Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Home on the range where the buffalo roam -- Ignore unavailable to you. Want to Upgrade?

To: MulhollandDrive who wrote (2023)	5/30/2000 12:54:00 PM
From: jhg_in_kc	Read Replies (1) \| Respond to of 13572

Indicators show economic weakness By Frank Cappiello, CBS MarketWatch Last Update: 12:07 PM ET May 30, 2000 Commentary Section More from Frank SAN FRANCISCO (CBS.MW) -- The Nasdaq is down about 37 percent from its peak reflecting a record drop. Now, the venerable Dow Jones Industrial Average is beginning to show some real signs of strain. The continuing stock market decline is neutralizing one of Alan Greenspan?s big problems: the so-called wealth effect. What will it take to turn this market around? I think it will be the sense that the Fed is at or near the end of its tightening blitz. Unfortunately, the U.S. economy continues to reflect strength but more than a few indictors are showing increasing weakness. Housing is historically the first major economic component to weaken when the Fed raises rates. Currently the housing sector is running true to form with high mortgage rates and housing starts declining. Recent homebuilder sales surveys showed accelerated weakness. Retail weakness Retailing is also showing signs of softening. The recent report by discount chain Costco (COST: news, msgs), showed sales deceleration in some major lines including hard goods. Analyst?s opinions reaffirm that recent sales trends have slowed. Apprehension of a slowdown in retailing has resulted in Wall Street caution on the retail sector. There have recently been downgrades on a number of retailing stocks. What wealth effect? Today on CBS MarketWatch Tech stocks back in charge IPOs: Coach to go public France Telecom to buy Orange Long weekend recharges Internet investors StockWatch: Remaining true to technology More top stories... CBS MarketWatch Columns Updated: 5/30/2000 12:09:20 PM ET The continuing stock market decline is neutralizing one of Alan Greenspan?s big problems: the so-called wealth effect. The Fed?s thesis is that the big rise in the stock market in the past few years has emboldened households to spend more. This thesis is contested by many economists but Alan Greenspan believes it. Interestingly, the biggest asset of any household is its house, which has risen in value faster than stocks. The Fed has neglected to talk about ?irrational exuberance? in the housing market but high mortgage rates are taking care of that, anyway. World stock markets are weak following the leadership of the U.S. If Alan Greenspan is right about the ?wealth effect,? the current tightening will affect foreign consumer confidence and thereby begin a global slowdown. Note that rising rates affect the weakest of the foreign nations. That was the case in Mexico in 1994 and Thailand in 1997. The Fed has to worry about how far they can tighten before another Thailand incident occurs. Finally, gold is priced at about $275 an ounce and going nowhere but down. This is an indication of inflation that Alan Greenspan is said to follow. With the Fed having raised interest rates by 50 basis points in May, we believe that when the Fed meets again on June 27-28, it will probably raise rates another 25 basis points. That could be the end of the current tightening cycle. We should then see a repetition of 1994 when the Fed raised rates constantly during that year but once investors sensed that the Fed was near the end of its interest rate increases, the stock market began to move up with technology stocks, including leaders like Intel (INTC: news, msgs) and Sun Microsystems (SUNW: news, msgs), moving higher. We think history will repeat this year.