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To: Softechie who wrote (748)	2/9/2001 12:42:32 AM
From: Softechie	Respond to of 2155

Wall St. economists square off in 'recession rumble' By Daniel Sternoff NEW YORK, Feb 8 (Reuters) - Call it the "recession rumble". A cluster of grey-suited economists scrapping over the depth of a U.S. downturn may not have the drawing power of a boxing match, but a New York panel of three of Wall Street's leading lights on Thursday had almost enough jabs to pass for a schoolyard brawl. Morgan Stanley Dean Witter chief economist Stephen Roach, whose firm stuck its neck out last month by forecasting the world's largest economy has slumped into recession, was forced to defend that call at the Council on Foreign Relations from fellow economists who decried his call as ``doom and gloom''. ``What a circus,'' Roach said after sparring with J.P. Morgan Chase & Co. chief economist John Lipsky and Merrill Lynch & Co. chief economist Bruce Steinberg. Roach argued that the economy was dragged into recession by six Federal Reserve interest rate hikes from through mid-2000, high energy costs, a stock market selloff, sliding consumer confidence, a glut of corporate technology investment and too much debt-financed consumer purchases of big-ticket items. ``We have an economy that has gone so far out on a limb with respect to excesses, it's not even funny,'' Roach said. His firm forecasts the economy will shrink by a 1.25 percent pace in the first two quarters of this year. Two quarters of contraction mark a recession. However, he expects the Fed's aggressive rate cuts last month to revive the economy by year's end. ``We work for securities firms that sell these things called stocks -- a recession is not a popular call,'' said Roach. ``We had a lot of trauma associated with that.'' CASSANDRA? Indeed, few on Wall Street are officially calling for a recession, and Lipsky and Steinberg tried to shoot holes in Roach's lines of reasoning. Lipsky pointed out that Roach was calling for the economy to rebound and grow at a 1 percent growth rate by year's end. ``All that drama for 1 percent?'' Lipsky, grinning, told the panel. ``We have 1.5 percent and we think that's benign.'' Roach furrowed his brow. ``That was a cheap shot,'' he later told Reuters in a telephone interview. ``I'm out there with a much more negative view of the world. I have been warning our customers long before John Lipsky said the risks are on the downside,'' he said. Roach told the panel that the Fed's aggressive campaign to slash interest rates risked reinflating a stock market bubble, delaying a bitter draught of necessary economic medicine. ``Recessions serve the purposes of purging excesses, and that is what this recession is all about,'' he said. He said the Nasdaq stock bubble ``was the single most destabilizing event to happen in the United states over the last 25 years since the inflation flare in the mid-1970s.'' Consumers, lulled by the 1990's bull stock market into the belief that their wealth would only continue to grow, have racked up record levels of debt and can no longer count on selling stock to fuel their purchases, he argued. And the Nasdaq tech stock bubble encouraged businesses to pump up their investment into high tech equipment in a similar way to the real estate boom of the late 1980s and this had left a worrying overhang now evidenced by a dramatic cutback in new investment. TAG-TEAM ``This is about a mania that allowed corporate CIOs (chief information officers) to really take charge of their companies. They won the battle against the CEO's, and the CEO's are now trying to retake the corporate boardroom,'' Roach said. ``I feel like I stepped into a WWF ring,'' cracked Lipsky, referring to the outlandish World Wrestling Federation. He and Steinberg then tag-teamed to critique Roach's thinking. ``The so-called excesses of our economy are actually quite limited,'' scoffed back Merrill's Steinberg. ``The doom and gloom scenario is overdone.'' He said the stock of U.S. consumer debt had been hitting new records for decades without jeopardizing growth, and that falling mortgage rates and Fed rate cuts translated into entirely manageable debt financing costs. As for a wasteful technology investment glut, Steinberg said spotty cellular phone service and grindingly slow Internet access were evidence the economy still needs more investment. Lipsky said the astonishing resilience of U.S. productivity growth showed U.S. business investment had been a blessing, not a curse, and that even his forecast for zero investment growth in 2001 would leave investment at high levels. ``We have been outlining the risks to the economy from the start,'' Roach told Reuters. ``They're in denial.''