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Strategies & Market Trends : MARKET INDEX TECHNICAL ANALYSIS - MITA -- Ignore unavailable to you. Want to Upgrade?

To: J.T. who wrote (11512)	4/8/2002 10:17:59 AM
From: High-Tech East	Read Replies (2) \| Respond to of 19219

Morgan Stanley's Global Economic Forum - April 08, 2002 Global: Another Oil Shock? Stephen Roach (New York) Courtesy of an increasingly tragic chain of events in the Middle East, the world could well be facing its fourth oil shock in the past 29 years. The first three were decisive in pushing the global economy into recession. Would it be any different this time? Context is always key in assessing the macroeconomic impact of any shock. And that’s certainly the case today in attempting to gauge the impacts of another oil shock. The first three oil shocks had one key characteristic in common -- they all hit a late-cycle global economy that was ripe for a fall. The oil embargo of late 1973, which followed on the heels of the Yom Kippur War, came in a year when world GDP surged by nearly 7% -- a record that remains intact today. In response to the quadrupling of oil prices that quickly followed -- a surge from $4 to $16 per barrel -- the world economy immediately plunged into nearly two years of wrenching recession over the 1974-75 interval. The second oil shock came in the aftermath of the Iranian Revolution. With Iranian oil exports curtailed from late 1978 to the fall of 1979, the oil price nearly tripled -- rising from $13 to $34 per barrel. This price disturbance hit a world economy that was only about three years into recovery from the first oil shock. Still, global growth was running at about a 4.5% clip in 1978 -- well above its long-term trend of 3.7%. Moreover, the second oil shock hit a world that was trapped in a vicious inflationary spiral. Industrial world CPI was headed up to about 13% in 1980. The oil shock of 1979 created the political will for a full-scale assault on the ravages of the Great Inflation. It provided justification for the anti-inflationary assault of Paul Volcker -- a draconian monetary tightening in the US, which took the world back into its worst recession yet during the 1981-82 interval. The seeds of that recession were sown with the second oil shock. The third oil shock also owed its origins to hostilities in the Middle East. It followed on the heels of Iraq’s invasion of Kuwait in August 1990. Oil prices more than doubled in response, going from about $17 to $40 per barrel in late 1990. This time, the timing was quite different insofar as the global business cycle was concerned. Courtesy of Alan Greenspan’s first tightening campaign as a Fed chairman, the world economy was already coming in for a "soft landing" when Saddam Hussein marched into Kuwait. Global growth was to pierce the 3% threshold in 1990 and US GDP growth had slowed to just 2.3% (YoY) by mid-1990, closing in on the notorious "stall speed" of about 1-2%. In retrospect, it turned out that the stall was on. Lacking in cyclical resilience, America quickly went into recession in the third quarter of 1990. That downturn was more than sufficient to take world GDP through the 2.0% recession threshold in 1991. Just like the first two oil shocks, the third culminated in global recession. An oil shock is hardly assured in the current environment. But it’s not too difficult to discern the possibility under the dire circumstances in the Middle East. That’s especially the case with the Islamic segment of the oil-producing world united in support of the Palestinians. At their peak last week at $27.55, oil prices had already risen more than 60% from their mid-November 2001 lows of about $17 per barrel. While that price surge stops well short of that recorded during earlier oil shocks, it certainly hints at what could be in the cards in the event of a further escalation of geopolitical tensions. Another oil shock would hit the global economy at an especially vulnerable time. Even under the most optimistic assessment -- one that I do not share -- the world is only a few months into recovery from the rare synchronous recession of 2001. It is a global recovery that is being led by a US-driven inventory dynamic that has sparked a concomitant cyclical upturn in the global trade cycle. The optimists argue that this recovery is now being reinforced by a revival in final demand. We pessimists -- the "we" is, perhaps, a bit of a stretch -- doubt the case for a final demand follow-through and look, instead, for a relapse, or double dip, later this year. In either instance, however, there is nothing solid about the cyclical upturn in the world economy. It would be one thing if this cyclical revival were unleashing a torrent of pent-up final demand that was about to take on a life of its own. But for a US-centric global economy, the classic sources of pent-up demand -- consumer durables and homebuilding activity -- have already been exhausted, in my view. In looking back at the precedents of earlier oil shocks, none is identical to the current situation. The closest was probably the second oil shock of 1990. To be sure, the business cycle was headed the other way back then -- a late-cycle soft landing that left the US and world economy especially vulnerable to a shock. But I would argue that an early-cycle recovery -- if that’s in fact what is now unfolding -- has a very similar vulnerability. A shaky economy is always at risk in the face of another oil shock -- whether it’s headed up or down. It is lacking in the immunities it needs to withstand any type of shock. Consequently, I would conclude that barring a sustained and powerful resurgence in final demand, a nascent recovery in both the US, as well as the broader global economy seems highly vulnerable to another oil shock. I claim no special expertise in suggesting that another oil shock is in the offing. But I certainly worry a lot about that possibility in the current climate. If such a shock does, in fact, occur, I am hard-pressed to believe that it won’t take a serious toll on an otherwise tentative and fragile economic recovery. In my view, this is not the moment to argue that "this time is different." morganstanley.com

To: J.T. who wrote (11512)	4/8/2002 11:45:24 AM
From: robert b furman	Respond to of 19219

Hi JT, Right, I know last December my dealership had 10 million in new vehicle inventory - normal would be 5million. After sweating out the inventory reduction to below normal levels - one is certainly not quick to get overexposed again.I think we see that viewpoint in the somewhat tempered comments of corporations executives. To the degree that production increases to the natural level of consumption - we can increase profits and MAINTAIN them. That is the BIG question and from what I see any errors will be on the light side. Good ole level production with no overtime will maximize profits.Many tech companies have 50-65% reductions in work force numbers. Profits at lower sales rates will be surprisingly achievable and easily compared to the past years performance. JMHO Bob