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To: Bobby Yellin who wrote (22180)	10/23/1998 3:34:00 PM
From: Alex	Read Replies (1) \| Respond to of 116791

Main Street doesn't see sinking margins NEW YORK - As a general rule, it is probably best if Main Street stays out of touch with Wall Street. But that is certainly not the case now, says Salomon Smith Barney strategist Marshall Acuff. Currently one of Wall Street's cautious market analysts, Acuff is finding himself out of step with bubbly individual investors across the nation. He was taken aback Monday night by the enthusiastic crowd of more than 600 individual investors who drove to the Ritz-Carlton in Tysons Corner, Va., to hear him talk about stocks. "They had to stop people from coming into the room because of the fire code," Acuff says. "Main Street loves the market," he says. "Main Street thinks things are great because they are great right now on Main Street." Indeed, the U.S. economy is growing nicely, without worrisome inflation, and there are more and more jobs to be had. "They think Wall Street is kind of crazy," he says. "I just don't think people understand what is going on." In contrast to those investors, and to the rally after last Thursday's interest-rate cut by the Federal Reserve, Acuff and many other Wall Street veterans are still wary of powerful economic storms raging in the world. "We're faced with the other side of all the bullishness about globalization," he says. The confidence produced massive investment in new business capacity in the USA and abroad. Now, the new capacity is too much, and demand is falling. Corporations can't raise prices even though their labor costs are going up. The result: Profit margins for U.S. corporations are falling and have been for a year. This isn't a new development. Various strategists warned of the coming pressure on margins before it began to register in the government statistics. And declining profits are a big reason many stocks are down sharply from their highs. But the reality and significance of the trends have been slow to sink in. There's been plenty of talk about how declining corporate earnings growth is undermining stock prices. But that cause- and-effect becomes obscured as it is put through mathematical models used to value the stock market. Acuff describes a more concrete reaction: When corporate executives see their profit margins falling, they lay off employees and cut capital spending. Layoffs, in turn, undermine consumer confidence and the U.S. economy. What else can an executive do but cut payroll? Nothing really. "Business people in the audience get it right away," Acuff says. "They know exactly what you're talking about." Restructuring, to use the euphemism, worked well after the 1990-91 recession. But restructured companies had the benefit of selling into a U.S. economy that was regaining speed. Their cost-cutting chimed with higher sales and produced higher profit margins and excess cash flow. Now margins are shrinking, and there won't be as much cash for the share buybacks that have helped stockholders, Acuff says. Also different from past times when margins were declining: Other economies in the world are slowing. Historically, corporate executives would talk about making up for any slowdown in U.S. sales with growth abroad. They can't say that now. Acuff thinks corporate executives are unusually quiet these days. "It is going to take awhile before people recognize what is going on," he says. By then, many stocks that have rallied recently will be down again. "This doesn't mean the market is going to fall apart," he says. "It just means the returns on stocks in the aggregate are going to be more modest than they have been the past decade." Then the crowds will be smaller. The market counts for him: Ten-year-old Roy "Mac" Sykes of Los Angeles, diagnosed with brain cancer, wants to ring the bell at the New York Stock Exchange. He's been buying stocks with his dad for several years. In a first for the NYSE, and with thanks to the Make-A-Wish Foundation, he is set to ring the opening bell Thursday. usatoday.com