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To: JDN who wrote (46490)	11/30/2001 4:08:45 PM
From: cheryl williamson	Read Replies (2) \| Respond to of 64865

JDN, Right you are. Interest rates are so low that commercial paper is barely worth holding on to. This article is based on fear. When the investing public decides that things are looking up, that $trillion+ is going right back into equities. Make no mistake about it. I remember the old saying "a little bit of inflation is good".

To: JDN who wrote (46490)	11/30/2001 6:37:05 PM
From: High-Tech East	Read Replies (2) \| Respond to of 64865

... hi JDN ... today's prognosis from America's most accurate economic forecaster at Morgan Stanley ... your buddy, Stephen Roach ... November 30, 2001 - Global: Recession Verdict, by Stephen Roach (from Hainan, China) The verdict, itself, was hardly a surprise. By the time the Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) convened its formal deliberations in late November, few would doubt that America was in recession. But the verdict came with an important twist. The academics also determined that this contraction began a full six months before the terrorist attacks of 11 September. There’s great significance to this finding. It underscores the unique character of this recession, as well the unusual dynamics that will shape its eventual recovery. The terrorist attacks on the US have deflected attention from the main event. As the NBER indicated in its recession call, the impacts of 11 September have most assuredly exacerbated this recession. Any such shock would have accomplished a similar result. An economy growing at, or below, its "stall speed" is lacking the armor that would otherwise shield it from all-too-frequent macro disturbances. But the message from the NBER underscores a critical point -- that The Attack hit a US economy that was already in recession. It’s hardly surprising that a contraction would both deepen and lengthen under such circumstances. That’s exactly what standard business cycle models would predict. The real story of this cyclical downturn is not The Shock but the pre-recessionary climate that set the stage for this contraction. If we can understand the genesis of this recession, we can also develop a deeper understanding of the forces that will eventually shape the coming economic recovery. By designating March 2001 as a business cycle peak, the NBER seems to be validating the diagnosis that I have long been sympathetic to -- namely, that this recession stems importantly from the post-bubble aftershocks now afflicting the US economy. Sure, there were other forces at work in setting the stage for this downturn -- especially the impacts of sharply rising energy prices during late 1999 and 2000. But most of the other proximate causes of this recession -- the lagged effects of Fed tightening from mid-1999 to mid-2000, a wrenching contraction in corporate profits, a collapse in IT-led capital spending, and rising layoffs -- are all traceable to the bubble-induced excesses of the US economy. The impact of the asset bubble on the real side of the US economy is not that difficult to discern. In the midst of an unprecedented five years of 25% annualized appreciation in the S&P 500 over the 1995-99 interval, both consumers and businesses went to excess. Consumers mistakenly believed that the stock market had become a new and permanent source of saving. As a result, they were perfectly content to implement a critical change in saving tactics -- shifting the mix of saving away from the paycheck and into the "automatic" returns of the mutual fund. At the same time, businesses became convinced that the capital markets would generously reward those who spent the most on new technologies. And so the IT-spending binge took on a life of its own, aided and abetted at the end by the ultimate mania of New-Economy hype -- Nasdaq 5000 and the e-commerce frenzy of B2B and B2C. Meanwhile, a saving-short US economy had little choice but to turn to foreign capital in order to fund this investment splurge. The result was a massive and unprecedented current-account deficit that not only left the United States overly dependent on foreign financing but also in the position to export its bubble-induced excesses to the rest of the world. America was living beyond its means, and the world wanted a piece of the action. Asset bubbles always pop. Alas, this one was no different. And once it popped, it was only a matter of time before the cards in the real economy came tumbling down. That’s what this recession is really all about. All it took was a bit of a Fed-engineered slowdown from the hyper-growth of the late 1990s. Rapid spending on IT and white-collar headcount suddenly morphed into bloated cost structures, unleashing an extraordinary squeeze on corporate profit margins. Cost-cutting was the only way out -- first capital and eventually labor. With the benefit of hindsight, it was this strain of post-bubble cost cutting that sowed the seeds of this recession. It’s a time-honored process as old as the business cycle itself. And it’s far from over. The metrics I use to gauge America’s bubble-induced excesses are hardly flashing the all-clear sign. The capacity overhang has not been eliminated. The capital spending share of nominal GDP was still 11.9% in 3Q01 -- down from the cycle high of a little over 13% but well above trough readings of about 10% hit in earlier downturns. The personal saving rate has moved up from close to "zero," but at 2.4% in 4Q01, our estimates leave little doubt of the shortfall from pre-bubble norms of close to 8%. And while the current account deficit has narrowed from a record 4.5% of GDP to an estimated 3.8% in 4Q01, it remains excessive by any standards of the past. Nor can America’s external imbalance be expected to narrow in a synchronous global recession; weakness in the rest of the world means any pullback in imports will be matched by a comparable reduction in exports. In short, America has only begun the long march of purging the excesses that built up during the asset bubble. This recession initiated the process but is unlikely to complete it. To the extent a post-recession US economy is still dealing with the legacy of a devastating asset bubble, there will be significant offsets to the classic forces of cyclical recovery. Aggressive policy stimulus notwithstanding, these powerful headwinds won’t die down easily. That’s not to say economic recovery won’t occur -- it’s just that it seems unlikely to conform to the bubble-free outcomes of the past. The arbiters of the US business cycle have rendered an important verdict: The seeds of this recession were sown as Nasdaq raced toward 5000. To the extent that the excesses of that bubble have not been purged, I believe that the timing and vigor of the coming recovery will prove to be a major disappointment -- especially for financial markets that are once again banking on the glorious "V." It’s been more than a year and a half since the Nasdaq bubble popped. I continue to be amazed at what little attention this event gets in shaping expectations for the US economy -- either on Wall Street or in Washington. The message from the NBER is a real wake-up call.