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

To: LLCF who wrote (133191)	11/7/2001 12:02:10 AM
From: stomper	Read Replies (1) \| Respond to of 436258

Date for new lows, please? -g- -dave

To: LLCF who wrote (133191)	11/7/2001 12:15:01 AM
From: ild	Read Replies (2) \| Respond to of 436258

comstockfunds.com Another Futile Rate Cut Don’t be fooled by today’s upward market reaction to the 50-basis point rate cut. It is unlikely to be any more effective than the nine previous rate cuts this year in boosting either the market or the economy. On May 15th, the Fed reduced rates by the same amount, and on the following day the S&P 500 soared by 35 points to 1286. It peaked only four trading days later at 1315, and then proceeded to fall 17% by September 10th, the day before the attack, despite two more cuts in between. The Nasdaq Composite did even worse. It climbed 80 points on May 16th to 2166, peaked four trading days later at 2328, and then fell 27% by September 10th. What the Fed has to worry about now is that when the Fed funds rate slips below 2%, there will be increasing talk that we are beginning to look like Japan. Neither the Fed rate cuts nor the proposed budget stimulus plan is likely to help the economy anytime soon. Consumer debt is already at record levels, and encouraging more borrowing at this time is like trying to cure a drunk by giving him more to drink. As for tax cuts, economists estimate that consumers spent only about 20% of their recent rebates, and probably will do the same with any further reductions. Increasing savings is a good idea and will benefit the economy down the road, but will not boost consumer spending much in the short-term. On the corporate side, the effect of any tax reductions will be severely dampened by the huge amount of overcapacity, poor pricing outlook, the need to pay down debt and lack of demand. Corporations are operating at only 60% of capacity, the lowest level since 1983, with high-tech companies running at only 60%. They already have a lot of plant and equipment they don’t know what to do with, and are unlikely to increase capital expenditures even with a major tax break. The economy is likely to recover only when the severe imbalances left over from the previous bubble correct themselves. These include the massive overcapacity, record debt levels, a low savings rate and major trade deficits. This will probably take a lot longer than the consensus thinks, and the economy will therefore continue to disappoint the majority of investors.