To:Trader J who started this subject
From: kendall harmon Sunday, Mar 18, 2001 3:17 PM
View Replies (2) | Respond to of 41438
Irwin Stelzer from the Sunday Times (London)
EUPHORIA gave way to doubt, doubt to gloom, and now gloom has given way to panic. At least that is the impression I get from talking to businessmen in America. And panic is much like foot-and-mouth disease - it spreads on the wind, or more precisely, on the myriad devices that link the world's markets in this age of instant communication.
Oddly, businessmen's panic has not spread to most of the economists whose job is to study the nation's financial entrails and predict the future. This crew, which includes academics, analysts employed by investment and central banks, and assorted pundits, talk not about meltdown or recession, but about a normal inventory adjustment, a correction of imbalances, and V-shaped economic performance, meaning a sharp dip followed by an equally sharp recovery.
In part the difference is due to the time perspectives of those on the front line and those observing from the sidelines the battle against falling earnings and share prices.
Economists, this writer included, tend to take the longer view. What we see is an inflation-free, fully employed American economy in which productivity is steadily rising, making possible continued gains in living standards as workers produce more goods and services in fewer hours.
We see a world economy that continues to integrate, so that the globe's resources are used with increasing efficiency. We also see huge new markets becoming available as centrally directed economies adopt the free-market model. Reforms in China will unleash and motivate its millions of workers, enabling them to gobble up the goods the world's industrialised economies produce. And Russia's markets will grow once Vladimir Putin disarms its cowboy capitalists and introduces the rule of law.
But Wall Street and the City are fixated on next quarter's earnings rather than long-term performance, and they force businessmen to focus on the here and now. What they see is unsettling. Apologies from former high flyers who fail to meet "profit expectations" have become so common that one would think they have become less unsettling. But this is not so. Every new disappointment causes tremors not only on stock exchanges but in boardrooms around the country.
So, too, with reports of layoffs. Never mind that overall unemployment remains low, as the construction and service sectors more than make up for the losses in manufacturing. Businessmen, having been taught by economists that unemployment is a lagging indicator, dismiss the good news and expect the job market to turn nasty soon.
Then there are inventories, which Alan Greenspan, Federal Reserve Board chairman,says are the villain of the piece. The latest reports show that goods are piling up at factories and in warehouses; inventories are now 5.8% above the level at this time last year. Although the more meaningful ratio of inventories-to-sales is at about its 1995-98 average level, nervous managers are saying that the higher level of inventories puts paid to the notion that computers and just-in-time manufacturing techniques have made excessive build-ups a thing of the past.
There is worse on the inventory front. The figures reflect only the goods piling up in manufacturers' warehouses. But there is also a large float of used equipment being sold by failed and troubled high-tech firms. Sources in the telecoms industry tell me they can buy still-in-the-box equipment at a tiny fraction of the prices that manufacturers are asking.
In this gloomy atmosphere every bit of bad news is grist for the sky-is-falling adherents. Reports that Japan is nearing meltdown, that its banks are busted, and that Kiichi Miyazawa, the finance minister, says the government's finances are "near a state of collapse" create two worries.
The vaguer one is the unsettling thought that if once-mighty Japan, which bestrode the world like a colossus in the 1980s, can be brought to its knees for a decade, so, too, can America.
The more specific fear is that a Japanese collapse will have a ripple effect throughout the world, toppling first the economies of southeast Asia, and then, as the ripple turns into a tsunami, sweeping away the last vestiges of American prosperity.
Never mind that America has had a decade of growth without any help from Japan - businessmen still see that nation's problems as a source of impending doom.
Finally, American businessmen are bombarded daily by dire predictions from their president and his advisers that the economy will lapse into a long-term recession unless Congress goes along with his proposed tax cut.
But they are well aware that his plan to cut taxes by $1,600 billion (£1,120 billion) over 10 years is too little and too late to have much immediate effect on the economy.
If Bush gets everything he wants, and that is unlikely, taxes will fall by only 1.5% of GDP, a cut equal to only half the increases imposed by Bill Clinton. And the cuts will be phased in over six to 10 years. Only a few billions, trivial in a $10,000 billion economy, will reach consumers' pockets later this year.
The irony of all this is that almost everyone I spoke to in the business community during the huge surge in the Nasdaq professed to know that the valuations being ascribed to companies that had never earned a dime and were unlikely to do so for many years, were unsustainable, and that the youngsters running these operations would one day get their comeuppance. They professed, too, to know that some sort of cooling was inevitable in an economy in which it was impossible to recruit staff, and in which consumers and businesses were adding to their debts at a blistering pace.
Indeed, they thought that a cooling would be desirable, and said that they wished for one. They are now getting their wish.
sunday-times.co.uk |
