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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (12198)	8/18/2000 6:31:39 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 436258

Soft landing? What landing? (NY Times column by Floyd Norris) nytimes.com With the Slowdown Ending, Can the Fed Stay Friendly? It is the summer of our content. The widely heralded and eagerly welcomed economic slowdown that arrived this spring has reassured investors. The Nasdaq meltdown was followed by summer stabilization. Volatility is down, and so are long-term interest rates. Initial public offerings are again soaring; four have tripled in the last month. To Wall Street, all this is wonderful news. The slowdown has sent Alan Greenspan back to his office, and the consensus is that he won't raise interest rates again for a long time. Investment banks are preparing road shows to push a new wave of technology stocks after Labor Day. And the slowdown is vanishing. "If the past year's Fed tightening was enough to slow the economy, we wouldn't be seeing a steady upward march in manufacturing output and capacity utilization, a resumption of retail sales growth and a bounce in housing," says Bob Prince, the research director of Bridgewater Associates, a money manager in Westport, Conn. The signs that growth is again on the rise are still limited, but it increasingly appears that the Fed's efforts to apply the brakes gently have only slowed the economic engine a bit, and that the engine's built-in momentum is again accelerating. Mr. Prince thinks the economy is now growing at an annual rate of about 4 percent, down from last winter but still above the gains in productivity. The dot-com panic of the spring has gone, and though you won't see any new offerings that rely on selling something to consumers through the Internet, investors seem eager to buy companies that say they are part of the Internet infrastructure. The success of such stocks has helped to start retail sales moving again in a continuation of the strong correlation between growth in retail sales and the rise of the Nasdaq market. As the economy resumes its brisk growth, the first stock market reaction is likely to be positive because strong business helps corporate profits. But at some point, concerns about inflation will begin to arise. That will be particularly true if the rest of the world continues to grow. The overall rate of consumer price inflation has been held down by cheap imported goods, whose low prices reflected weak economies overseas. (In other words, if you're a bull on American stocks, you should be rooting for a new Japanese recession, or at least a European slowdown.) Already, the inflation rate on services, which are less prone to competition from overseas, has been edging up steadily. If that continues, the Fed is likely to take notice. It won't do anything at the meeting next week, and it probably won't act on Oct. 3, only five weeks before the presidential election. But its meeting on Nov. 15, a week after the vote, could bring the start of a new set of rate increases. Mr. Prince says there have been three big sources of economic stimulus from 1996 to 1999. The Fed was one, but it was the least important. The others were the big increase in capital gains in stocks and the similar increase in such gains from rising house prices. Some of those capital gains are spent, expanding the economy for everyone. Eventually, he thinks, if the Fed wants to slow the economy, it will have to "take away some of those capital gains in housing and stocks." To fight inflation, the Fed will have to slow the economy. And the lesson of 2000 may be that to do that it will have to apply far more pain than it already has. Next winter may not be as happy as this summer has been.