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To: davidcarrsmith who wrote (39935)	8/7/2001 10:28:52 AM
From: Jim Willie CB	Respond to of 65232

Productivity Revision Has Some Banks Turning Into Cassandras Monday, August 06, 2001 Government revisions to the nation's productivity, due on Tuesday, has some stock market naysayers predicting a crash in the coming weeks. In a report released last Friday, German-based investment bank Dresdner Kleinwort Wasserstein said past productivity readings would also have to be revised lower. This, in turn, could shatter the long-held belief among investors that high growth without inflation is sustainable -- and possibly trigger a stock market crash, Dresdner said. Other Wall Street heavyweights agreed with Dresdner that a downward revision of past productivity levels could be troublesome -- although they steered clear of predicting a market collapse. Dresdner said in a note to clients that government revisions to U.S. output made last week meant past productivity readings would have to be revised lower when they are released next Tuesday. High productivity levels are essential in keeping stock prices afloat, as their valuations are partly based on the idea of profit-boosting productivity. Federal Reserve Chairman Alan Greenspan and U.S. Treasury Secretary Paul O'Neill have noted how high recorded productivity levels have attracted strong inflows of foreign capital into U.S. asset markets. While the second-quarter reading for productivity will be at a "reassuring'' 1.7 percent versus a 1.2 percent fall in the first three months of 2001, revisions to earlier readings of productivity will put a question mark against U.S. financial market valuations, the Dresdner report said. "The revisions to productivity next week will undoubtedly leave Mr. Greenspan looking very foolish,'' it said. "The markets will be forced to confront this harsh reality on Aug. 7,'' Dresdner Global Equity Strategist Albert Edwards wrote. "Make a date in your diary! The U.S. 'new paradigm' will then be officially revised away! The risks of an equity crash are high,'' he added. Questioning the 'New Paradigm' The term "new paradigm'' arose to explain the fact that strong U.S. economic growth during the 1990s failed to trigger inflation. Many economists credited a rise in productivity, based on technology, which allowed businesses to produce more without raising costs. This helped drive up stock markets because investors believed corporate profits could grow at a faster pace than in the past. But Edwards predicted revisions included in the second quarter productivity data will knock a full percentage point off longer-term estimates of productivity growth. He said trend productivity growth could be closer to 1.5 percent than the 2.5 percent many now predict. Because earnings estimates are based on a 2.5 percent rate, Edwards said the equity market is vulnerable. The Commerce Department announced revisions to U.S. growth back to 1998, notably cutting 2000 growth from 5 percent to 4.1 percent. High productivity and the "new paradigm'' economy were used by many economists to explain the strong growth and low inflation in the United States in the last few years of the 1990s. But productivity skeptics said the miracle was merely a mirage and was due to weak growth in other parts of the world that depressed prices of commodities like oil. Others Still Believe Other investment banks take a more cautious line on the impact of the downward growth revisions. "Despite this, we remain convinced that the "new paradigm'' is still alive and kicking -- just to a smaller degree than initially,'' Lehman Brothers economists said. Lehman estimates productivity averaged 0.3 percentage point less over the last three years than previously reported as a result of the growth revisions. Goldman Sachs was also a voice of moderation: "The short-term news on productivity should become a little less dismal. Given the information currently available on output and hours, we estimate that nonfarm labor productivity grew about 1.5 percent (annualized) in the second quarter,'' the Wall Street giant said Monday But Goldman economists were also quick to caution against excessive optimism: "A lower rate of return and increased downward pressure on investment imply that the fundamental outlook for capital deepening -- which measures the contribution of investment to productivity growth -- has deteriorated further." On Tuesday, it will be up to the investors, not the economists, to decide whether the revision is a mere 'deterioration' or a signal to jump the New Paradigm ship altogether. Reuters contributed to this report.

To: davidcarrsmith who wrote (39935)	8/7/2001 10:32:02 AM
From: Jim Willie CB	Respond to of 65232

dont expect Greenspan replacement to be any better most candidates are mainstream reactionary monetary activists if you think Kudlow is in the running, you are very wrong he is a recovering alcoholic, an outspoken critic of activism, and is largely regarded as a kook the Fed has a history of market equilibrium interference this will surely continue maybe not, I hope not, but I expect it will despite being a freemarket economy, govt officials harbor a mysterious distrust for the freemarket system we are not so different from the communists in this respect the best approach is for the FedFundsRate to follow the 3-month TBill yield this will almost gaurantee never to see a "yield curve inversion" not completely then if any emergency erupts and threatens our economy, the Federal Reserve will still have the power and authority to intercede if Fed interference were within a football game then Greenspan would be parked at midfield in flowing robes sitting upon a throne, accepting bows and genuflections all he would get from me would be a hairy moon / jim