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Strategies & Market Trends : Booms, Busts, and Recoveries -- Ignore unavailable to you. Want to Upgrade?

To: EL KABONG!!! who wrote (39663)	10/16/2003 5:39:07 AM
From: elmatador	Respond to of 74559

<<A little bullishness from the WSJ...>> Like Elmat keep saying: this will be a constant leading to the presidential elections.

To: EL KABONG!!! who wrote (39663)	10/16/2003 10:06:21 AM
From: Seeker of Truth	Respond to of 74559

Hi Kerry, thanks for the interesting article. WSJ: Whoopee, low taxes on dividends and capital gains! Other side: Massive deficits paid for by created money. WSJ: Hurray, low interest rates! Other side: That's the initial effect of the huge flow of created money. Greek chorus: Inflation, inflation, inflation.

To: EL KABONG!!! who wrote (39663)	10/17/2003 4:48:10 AM
From: EL KABONG!!!	Read Replies (2) \| Respond to of 74559

Hmmm... online.wsj.com THE MACRO INVESTOR By STEVE LIESMAN CEOs Aren't Spending, So What Will Stimulate The Economic Recovery? Traveling last week to Business Council meeting at the Greenbrier resort in the West Virginia hills, I had expected to meet a buoyant group of the nation's top executives. After all, these executives had just closed the books on what is supposed to have been the nation's best quarterly growth showing in years. Most economists estimate third-quarter gross domestic product rose at a rate of between 5% and 6%, according to a recent Wall Street Journal Online economic forecasting survey. This is the economic recovery, isn't it? So I was a bit surprised to show up there last week and be met by such caution. I heard a lot of talk about compliance, governance and transparency. "OK, so I'm supposed to certify that I have procedures in place to ensure that none of the 40,000 people in my company will misrepresent our financial position?" said one CEO. "And if someone does, then I go to jail?" A lot of shareholders probably have a hard time feeling sympathy for CEOs these days. But you don't have to feel sorry for them to understand how it just isn't as much fun to be the boss these days. What really surprised me was how cautious the nation's top executives were about their businesses. They were all optimistic about the economy and their own profits, but few if any planned to hire; and few planned to increase their capital investments. In fact, their language was all about cost-cutting and productivity. As I interviewed one executive after another, the drumbeat became so monotonous that I told an anchor I would break in to his broadcast if I met an executive who planned to hire or expand. This is weird and worrisome. Economic growth requires risk-taking as companies try and expand into new markets and some succeed. We won't see a recovery if all companies do is replace their old computers and keep paring down their workforces. It's also weird because the CEOs, according to the Business Council's twice-annual survey, all expect stronger growth. Yet few planned to contribute greatly to that growth by boosting their capital spending or bringing on new workers. I asked Franklin Raines, vice-chair of the business council and chair of Fannie Mae (who has his own problems with regulations) whether this made him nervous about a recovery and his succinct reply was, "Yes." You probably shouldn't write columns about things you don't know the answer to, but I'm genuinely puzzled by all this. We're at a point where you would think executives would have the confidence to start increasing their investments in their businesses. All I can do is offer a few theories for why this is happening and how it will ultimately play out: THE SUGAR-SHOCK THEORY: The most pessimistic explanation is that the economy is now experiencing a sugar shock. Tax cuts and easy monetary policy from the Fed have brought consumers' glucose levels way up. But CEOs see the big come-down on the other side of this and won't commit to new spending until they are sure that the recovery has staying power. The result is that the recovery flags because businesses never believed in it. THE CEOs AS SHEEP THEORY: I have often been amazed at how much we pay top CEOs to do exactly what the other guy or gal in the same industry is doing. They all seem to merge, divest, buyback stock and then cut costs at the same time. I mean, how many companies bought back how much stock at their all-time highs and how many refused to buy it back when the market was depressed? So under this scenario, no CEO will jump in until he sees someone else doing it first. But once it happens, everyone will do it and we'll be off to the races. THE CEO/INVESTOR SLOW DANCE THEORY: CEOs are ultimately capital allocators. They aren't the source of capital. It is you, the shareholder or bondholder, who is the source of the funds that promote risk. The capital allocator can never be too far out front of or behind the risk-appetite of the source of capital. So when executives tell me they are concentrating on corporate governance, transparency, cost-cutting and profits it is because that is what they think investors want to hear. (In the '90s, they thought investors wanted to hear, "We are expanding into this or that market with this or that new product.") Just imagine going to your bank for a mortgage during a time of frequent foreclosures and admitting that you're about to leave the job you've held for 20 years and plan a Web start-up? Not a great way to get the money. I like this explanation best: The rise in the Nasdaq and the decline in corporate bond spreads (their level above riskless treasuries) tells me we are in a transition period from low-risk to moderate-risk appetites among investors. But investors won't take risks with executives and companies who don't have their house in order when it comes to transparency, governance and costs. So my best guess is we will have slow transition toward a more risk-friendly economy. It will be slow until (applying the "CEOs as sheep" theory) a few jump back into the expansion and risk-taking game and force everyone along with them. The only caveat: the sugar shock could run out before any of this has time to play out. If you'd like to reach Steve Liesman, write to him at steve.liesman@nbc.com, and place "Attn: Macro Investor" in the subject line, or write to newseditors@wsj.com to have a comment published about the Macro Investor. Updated October 17, 2003 KJC