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

To: Shack who wrote (67992)	2/15/2001 1:04:06 PM
From: Jeff Jordan	Read Replies (2) \| Respond to of 436258

BooBoo Bear is the picnic over?<g> converted? I like born again virgins!

To: Shack who wrote (67992)	2/15/2001 1:04:58 PM
From: Thomas M.	Respond to of 436258

forbes.com Welcome to the Recession James Grant, Forbes Magazine, 02.19.01 Wall Street's optimists insist that the recession is already ending. Which recession? The one that almost no one predicted but that-if you drive a truck or manage a store-you may feel in your bones. It is ending, according to the emerging consensus, because the Federal Reserve will continue to push down interest rates and the stock market will obligingly start back up again. A very cheerful consensus, but I can't bring myself to believe it. Barton Biggs of Morgan Stanley Dean Witter spoke for skeptics everywhere when he recently mused in Barron's, "Is that the way it works?" "It still boggles my imagination," said Biggs, "that everybody thinks we can come through the biggest bubble in the history of the world and certainly the longest boom that the U.S. has ever had and get out of it with a very, very mild recession." Prosperity financed with speculative capital must sooner or later hit the wall of arithmetic. Presented with ultracheap funds, entrepreneurs build and then overbuild. Before very long there is a surplus of fixed investment. Businesspeople are especially prone to an excess of enthusiasm if they believe-as many did in recent years-that economic cycles went out with the slide rule. Oddly enough, the very faith in the stability of the digital economy is what has added to the risks of a slump, notes Anirvan Banerji, director of research at the Economic Cycle Research Institute in New York. When investors trust in a recession-free future, they make the predictable adjustments. They save less-in the case of the aggregate U.S. population, nothing at all-and borrow more. In the stock market, they eagerly pay premium prices for the alleged certainty of unlimited growth. Hence, virtues become excesses. For the best catalog of millennial excess, see the fourth-quarter review of Hoisington Investment Management in Austin, Tex. (www.hoisingtonmgt.com). Ostensibly, "top-down" investing is hopelessly out of fashion, but Van Hoisington, the firm's founding partner, feasts or fasts on the strength of his macroeconomic judgments. He has been right, and he has been wrong. But his bond accounts have handily beaten the returns produced by the Lehman Aggregate Bond Index at various intervals over the past 15 years. Bullish on Treasurys, Hoisington isn't bullish on many other things. He and his colleague Lacy Hunt persuasively argue that the economy is already in a recession and that the downturn will deepen. In reply to the question posed by Barton Biggs and Peggy Lee-"Is that all there is?"-Hoisington emphatically answers: "No." Identifying the start of a recession is no easy matter. Neither, in the opening months, is predicting how long and deep the downturn will be. Hoisington is game: The slump will be long and deep, he predicts, in proportion to the severity of the preceding distortions. "What are these economic excesses?" Hoisington rhetorically asks: "First, there is the huge debt buildup in the consumer sector resulting from overconsumption and satiation of the demand for goods." "Overconsumption" and "satiation" may bring to mind a Puritan sermon, but they have precise economic meaning. They mean that consumers need a time-out from spending to rebuild their depleted savings. "Second," Hoisington continues, "businesses have taken on record debt, partially for capacity and partly for stock buybacks. Third, the fragile global economy is too dependent on U.S. imports. Fourth, the reduced-wealth impact from weak stock prices may not cease since overvaluations still exist." Corporate debt is at a record high percentage of national output. There's a wide gap-the so-called financing gap-between what corporations earn and what they invest. The shadows cast by the debt mountain fall on both the banks and the bond market. Hence, the surge in past-due loans and junk bond defaults. Hoisington's investment prescription: Prepare for a longer and deeper recession than the consensus expects; buy Treasurys. Recession is that season in the economic calendar when investment mistakes are repriced and reprocessed, a joyless but necessary time. How necessary? Consider that Japan spent the 1990s refusing to confront its errors of the 1980s. The only thing worse than a bad recession is none at all. James Grant is the editor of Grant's Interest Rate Observer. Find past columns at www.forbes.com/grant.