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To: ViperChick Secret Agent 006.9 who wrote (28464)	11/16/1997 11:14:00 PM
From: Autumn Henry	Respond to of 58727

From the street.com about the market: Editor's Letter: Wall Street Entering the Twilight Zone By Dave Kansas Editor-in-Chief 11/14/97 8:21 PM ET Let's face it. Since the backslapping and cheering that welcomed the big Oct. 28 rebound in stock prices, things have started to look simply terrible. The slow bleed has taken stock prices down about 10% from summertime record levels and despite a 1 1/2-session rally, few market players feel very good. Behind those smiling television faces and canned quotes, fund managers are sweating as great years slowly melt away. The unending good times look like they disappeared sometime back around Flag Day. It's bizarre how stealthily this terrible market has encroached. Check out the numbers. The Dow Jones Industrial Average is at roughly the same level it reached in mid-June. After months of record after record, the Dow hasn't clipped off a new high since Aug. 6. Though nobody's really noticed, this is the longest sustained nothingness since the ugly days of 1994. That year the market finished flat and money managers were talking about things like "total return" to anyone who would listen. Turned out the paltry dividend yields were all that could keep many funds in the black that terrible year. What's especially distressing is that the argument for recession has mounted inexorably in the past month. Not many people want to talk about this, primarily because it seems so ludicrous. Right now the U.S. enjoys record employment, incredibly robust balance sheets and a wonderful business environment. But the financial markets are telling us something altogether different. Around the world yield curves have flattened remarkably. In the U.K., the yield curve is inverted. Economists will agree on almost nothing, but they do mostly believe that flat or inverted yield curves signal slowing growth or recession ahead. In the U.S., the 30-year bond is sneaking toward 6%. In June that would've driven the Dow to 9000. Today investors believe that bond yield is moving that way because the inflation threat -- along with the economy -- is toast. Take a look at the stock market. While all the moving parts gyrate and strategists chatter on about cheap PCs and other inane things, an impressive divergence has unfolded between the Morgan Stanley Consumer Index and the Morgan Stanley Cyclical Index. The cyclical measure, which tends to perform poorly in anticipation of slowing growth or recession, has not recovered from the Oct. 27 skid and is down about 11% since the middle of that month. Conversely, the Morgan Stanley Growth Index, which tends to perform better in anticipation of slowing growth or recession, has recovered from the Oct. 27 skid and edged up 0.5% since mid-October. Is all of this true? Could we be steering right for the recessionary cliff despite all the protestations that the economy is going great guns? What is striking is that despite these roaring indications of slow growth and dying inflationary threats, many strategists and economists say the Fed still needs to raise rates. Frankly, the recessionary thinking should remain just that. The main thing the markets reflect right now is fear. Fear about Asia. Fear about Iraq. Fear about $999 PCs. Fear about preserving another year of strong gains. The U.S. economy looks pretty good right now (always does at a top, the wags will say). But here's one contra possibility that should be considered. Let's presume that the Asian situation is indeed the deflationary, depression-like nightmare that some think it is. Let's also presume that Latin America is crushed by Brazilian bungles. Let's presume still further that Eastern Europe will give Western Europe a nasty infection -- and that infection worsens due to Western Europe's obsession with EMU. Let's just say all of those bad dreams come true. Okay then, what's the only solution? Open the floodgates in the U.S. Only the U.S. can generate enough economic momentum to cushion the depressionary and deflationary forces that would be unleashed by the bear's nightmare scenario. If the only solution is exporting to the U.S., the U.S. better keep growing or else it will swiftly end up in the soup along with everyone else. Therefore, don't be surprised if the Fed eases and sets the U.S. up as the cushion for crumpling global economies. Perhaps wacky Hugh Whelan of Aeltus Investment Management had it right when he said in last Monday's TSC the Fed should/would ease. What a strange world. ******************* IPO Woe: A managing director on a syndicate desk at a large firm whom I talked to the other night says the recent relative strength in the initial public offering calendar is deceptive. Apparently deals that are doing okay on the first day are steadily getting crushed in ensuing days. "People just don't want to hold onto anything." What's even stranger is that companies are almost "desperate" to get deals done despite the terrible environment... Gold: Gold under $300? Guess the black helicopter boys aren't buying enough of the stuff. Bad leading indicator for those anticipating a U.N. takeover. Market Top? A golf outing with Michael Jordan (the hoopster, not the Westinghouse guy) went for $135,000 at an auction on Wednesday night. The winning bidder was a member of the Quick family, recently enriched by the takeover of Quick & Reilly (BQR:NYSE). Interestingly enough, another big-ticket item in the auction went to a partner at Montgomery Securities, also recently enriched by a takeover. The auction and dinner raised a lot of money for the St. Jude children's hospital in Memphis, Tenn. Organizers of the event dissed the press from the speaker's podium, but I still think it was a great event for a great organization. Also, had to love the Marlo Thomas presentation and the milk chocolate grand pianos. Travel Budget Notes: Cory Johnson at Comdex in Las Vegas. Having these former Time Inc. employees is killer on the expense claims. What do they tell these people? MCI Update: Looks like WorldCom (WCOM:Nasdaq) is a winner. We'll be getting those hats out this week -- just in time for the lovely fall weather. <Picture> <Picture> c 1997