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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: Ex-INTCfan who wrote (39365)	7/25/2001 12:46:44 AM
From: stockman_scott	Respond to of 65232

Still the Best in the World WashingtonPost.com By Fareed Zakaria Tuesday, July 24, 2001; Page A21 <<The American economy just isn't looking up these days. The growth rate for this quarter will probably be close to zero. Unemployment is rising. The stock market remains sluggish. And now many worry that the growing economic stagnation abroad will affect the United States. It will, but not in the sense most people seem to think. As in 1997-98, when financial turmoil raged across emerging markets, America will, in one sense, benefit from the world's woes. With trouble spots multiplying around the globe, investors are already coming to the conclusion that the safest place to put their money is in the U.S. of A. You see, the American economy is the worst in the world -- except for all the others. How else to explain the gravity-defying feat of the dollar? By all economic logic, the dollar should fall when the Federal Reserve cuts interest rates. But as any American tourist knows, the greenback has been firming up against the euro and the yen despite six rate cuts this year. European and Asian investors are using their savings to buy American bonds even though they can get higher interest rates in their own countries. To understand why investors are doing this, I picked up a copy of a recent Financial Times, the daily diet of the Davos set. Its page on Europe had the following stories: Italy's budget deficit will be three times the predicted size, making a "mockery" of Europe's common fiscal policy; the International Monetary Fund warns France that its economy remains too regulated and uncompetitive; the European Central Bank quashes expectation of further interest-rate cuts despite slow growth all over Europe; and finally, Germany's chancellor announces that his country will not make it easier for firms to hire and fire workers in response to economic conditions. There you have it on one page in one day. Bad fiscal policy, bad monetary policy, bad regulations and an unwillingness to change any of it. If you turn to the Asian section of the paper, the lead story is that Moody's, the global credit agency, is unimpressed by the latest set of Japanese reforms and will maintain its negative outlook on that country's economy. And emerging markets are weakening everywhere because of slow growth in the advanced world. In such a climate, is it really so surprising that money keeps pouring into America? People can now invest their money just about anywhere, and this fluidity creates a winner-take-all effect. The winner by default is the United States. America's dependence on foreign capital worries economists. But Lawrence Lindsey, President Bush's special assistant on economic affairs, argues it simply reflects the fact that "investors around the world believe that America is the best place on the planet to invest for risk-adjusted returns." It means the dollar stays high but interest rates and inflation stay low. That's a trade-off the Bush administration seems comfortable with. Don't get me wrong. America's troubles are real -- particularly the soaring personal and corporate debt. And unlike the go-go years of the late '90s our economy has stalled along with everybody elses. "America has problems," acknowledges MIT economist Rudi Dornbusch, "but it also has solutions." Look at how the country has reacted to its slowdown. The Federal Reserve began cutting interest rates aggressively; the administration and Congress passed a tax cut that will boost both consumer spending and confidence; corporations are already shedding jobs and restructuring on the basis of six months of weak profits. In Japan, it's been 10 years of stagnation and still no private-sector restructuring. In Europe, as things get worse, unions get more powerful and governments less committed to reform. It's a vicious cycle. None of this means that the American slowdown isn't going to persist for a while. Or that the stock market isn't still overvalued. Lindsey, who got out of the market two years ago, admitted to me that he has not dipped his feet back in. But the slowdown has been exaggerated. The telecommunications and Internet boom has turned to bust, and that sector has lots of excess capacity. But real estate and banking, bellwethers of the economy, are in good shape. They didn't feast during the boom, so they are not fasting right now. Home prices in particular are strong, which has a powerful effect on consumer confidence. (Most people's biggest asset is their house.) And cars are selling briskly. The administration and Federal Reserve have adopted a strategy of coupling their actions (rate and tax cuts) with sunny talk about the economy to keep consumer confidence high for the next six months, by which time they believe the economy will have turned around. It's a strategy that has a good chance of working, because two large and powerful groups of people, American consumers and foreign investors, seem willing to bet on America's growth prospects -- especially when they are compared with the alternatives. Lindsey argues that this is itself powerful evidence of America's fundamental strengths. "Economists believe that people act in their self-interest," he says. "Well, American consumers and foreign investors, by their actions, seem very optimistic about America's long-term health. Maybe they know something.">> _______________________________________________________ The writer is editor of Newsweek International and a columnist for Newsweek. © 2001 The Washington Post Company _______________________________________________________ BTW, EX-INTCfan thanks for sharing the news from the front...I appreciate the insights. Its amazing how fast capital spending has been reigned in. My hunch is that some of the companies may soon regret their short-sighted cost-cutting...=) Best Regards, Scott

To: Ex-INTCfan who wrote (39365)	7/25/2001 12:57:09 AM
From: Sully-	Respond to of 65232

Ex-, That is disconcerting to hear. It sounds like more than tight budgets & mean bean counters in charge to me. I'm not surprised to see these high paid mgmt types spend countless hours (& I'm sure there are countless meetings you never hear about too) attempting to make a moderate financial decision. Perhaps visibility & financial concerns are run amok? FWIW, I've witnessed countless times where these expert middle mgmt types spend 50 to 100 times the total cost of the product/service being considered. It never occurs to these Sr. mgmt wannabe's how much $$$ they just sent to money heaven......... Most times they actually believe they are saving their company money. I ROTFLMAO when they conclude that the product/service is too expensive & they begin their search for the next potential product/service to purchase in place of the one they just nixed. If they only knew what they had really done, they could have just gone out & purchased the most expensive product/service cart blanche & saved the company countless $$$. Aye, there's the rub. Sooner or later Sr mgmt would realize they don't need these guys after all........ that's why :-\