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Strategies & Market Trends : The Millennium Crash -- Ignore unavailable to you. Want to Upgrade?

To: WTSherman who wrote (5485)	7/3/2000 11:50:47 PM
From: LLCF	Respond to of 5676

<If anyone saw R. Rubin on the Rose show last night > Message 13989853 DAK

To: WTSherman who wrote (5485)	7/5/2000 10:05:44 AM
From: WTSherman	Read Replies (1) \| Respond to of 5676

It seems to me that the market is in a "total denial" phase right now, especially on the retail side. Monday's positive action, which was almost exclusively retail shows the underlying sentiment of the "little guys", i.e. the market can't really go down for long. I think that just about everyone is underestimating the impact of dramatically higher energy prices and interest rates on the economy. For example, if the average U.S. household has 2 vehicles(its probably more like 2.5) and was spending $40/week on gas before the price run-up, they rae now spending more like $70/week. That's an additional $1500/year. Add to that the fact that natural gas prices have doubled and that utilities are now add fuel surcharges to their bills, heating oil is almost double and you can figure that heating, cooling and lighting an average household will probably cost $1000 more over the next 12 months that it did a year ago. Add in higher interest rates on credit and its easy to see that the average household has probably taken something like a $3000 "hit" in the past few months. That's a pretty big number for most people, who run very close to the line to begin with. Something will have to give and its going to be people delaying buying that new car, getting a boat, etc. It won't affect the top 10% very much, but, for everybody else the impact is large. I think that the market's underappreciation of this change is due to the misleading economic data that comes out. The impact of paying an extra $20-30 a week for gasoline and $10/month in interest doesn't show up the week or month that the changes hit. It takes a long time before people realize that they just don't have as much money as they used to. The result is that they slowly start to cut back on their discretionary spending(restaurants, some clothes, vacations, etc.) this slowly then begins to affect sectors of the economy who then start to cut back on their purchases, hiring, etc. Right now the market is still obsessed with the issue of interest rates. I think that over the next month or two its going to start worrying about how much slowing in economic activity is taking place and what the impact on corporate profits will be. Most company's have no quick means of reducing their overhead and fixed costs, so even a small downturn in sales hits the bottom line very hard. Q2 will be the peak in corporate profits for several quarters...IMO.