Another “genius call by this guy in Spring 2003, when the stock market began it’s 4-year ~50% run …
Basically the guy is a perma-bear. And like the perma-bulls is right as many times as he is wrong. I wouldn’t base any timing on this guys views.
“Can the economy rally too?
By Rex Nutting, CBS.MarketWatch.com
Last Update: 7:07 PM ET March 21, 2003
WASHINGTON (CBS.MW) — Nothing moves as fast as money.
As the uncertainties about the Iraqi war faded one by one, money surged back into U.S. stocks and the dollar and out of the safe havens of gold, oil and bonds.
The rally in the financial markets over the past week was every bit as dramatic as the action on the ground in Iraq.
The market obviously believes the war is going well and that victory will be good for the U.S. economy. But economists aren’t so sure the economy can recover as rapidly as the markets did.
Lehman Brothers chief economist Ethan Harris is struck by the fact that “the Fed gazes into its crystal ball and sees nothing but fog, while the markets are quickly pricing in the ‘good war’ scenario.”
Are economists like Alan Greenspan lost? Maybe the better question is “whether markets are moving swiftly on the road to nowhere,” said Bob DiClemente, economist at Salomon Smith Barney.
Markets are designed to forecast the future, so it would be folly to ignore the bets millions of individual and institutional investors are making that the worst is over. “While it usually is profitable to be one step ahead of the market, being three steps ahead can be costly,” warns Jan Hatzius, economist at Goldman Sachs.
It can also be costly for investors to be three steps ahead of the economy.
“The Wall Street propaganda machine has managed to delude itself and the public into believing that the only forces restraining a new bull market are Saddam Hussein and the uncertainty surrounding his removal from power,” said Peter Schiff, president of Euro Pacific Capital. “But even before the dust settles in Iraq, investors will soon see that the outlook for the U.S. economy and corporate earnings remains bleak.”
Lower oil prices and a bull stock market will help the economy, but not immediately. Calling your broker takes a second; it takes time to plan and implement a business expansion plan, buy equipment and hire and train workers.
Trying to predict the economy at this point can be hazardous, but investors don’t have the luxury of punting like Federal Reserve policymakers, who admitted in the past week that they don’t really know how to weigh the risks to the economy. If you have capital to invest, you must park it someplace safe or put it on the table to risk the next roll of the dice.
The economy on the brink of war was soft and getting softer. The trick for investors and policymakers alike will be to look through the incoming data that reflect pre-war nerves.
Economic data from February and March shouldn’t be totally discounted, but they should be examined in the light of the market’s rally and the early signs of success in Iraq.
Of the coming week’s data, markets would normally pay the most attention to the two consumer confidence surveys. But most of the responses to the Conference Board and University of Michigan surveys were pre-war.
Economists expect the Conference Board survey to sink further from a nine-year low of 64.0 in February to about 61.6 in March. The number is released on Tuesday.
The University of Michigan’s preliminary survey already incorporated much of the drop in consumer confidence early in the month, but the final survey may not fully reflect the likely bounce from the war’s early days and the market’s rally. The Michigan survey is expected to rise to 75.1 from 75.0, when it is released on Friday.
“I believe the bounce will be very significant,” said Scott Rasmussen, a pollster who tracks consumer and investor confidence on a daily basis. His consumer confidence gauge hit its year-to-date high on Friday, rising in one week from 88.3 to 103.4.
It might take a month for the war relief rally to show up in the monthly consumer surveys.
Consumers have more on their minds than Saddam Hussein, of course, including jobs, incomes and prices.
Consumer spending probably fell about 0.2 percent in nominal terms in February, which would be the first back-to-back declines in spending in more than decade.
Meanwhile, consumer incomes probably grew just 0.1 percent. The income and spending figures will be released on Friday.
“Many things have conspired to fatigue the consumer,” said Jill Thompson, senior economist at FleetBoston Financial. She points to huge job losses, high energy prices, high debt and buyer’s fatigue.
Jobs are probably at the top of that list. Businesses won’t hire until they are convinced that more Capital spending has been rising, “but we are not convinced that business was really stepping up to the plate,” Thompson said. A third of the gains in capital investment were merely an economic adjustment to Moore’s Law. “Nominal investment in computers actually fell,” she said.
Data on capital investment should capture some market attention on Wednesday with the release of the durable goods orders report. After an outsized 2.9 percent gain in January, economists are expecting orders to fall 1.3 percent.
As always, core capital goods orders, which exclude defense and aircraft orders, will be the crucial number. Core orders rose 4.5 percent in January, bringing year-over-year orders up 2.8 percent.
The home sales numbers are likely to get little attention. Housing is strong and has been propped up by low mortgage rates. Some softening is expected in the months ahead.
Sales of existing homes probably fell from the record 6.09 million annual pace in January to about 5.77 million in February. Sales of new homes probably rebounded from January’s 15 percent plunge to 914,000 to about 923,000.
Finally, the government will give its third estimate of fourth-quarter gross domestic product, which was estimated at 1.4 percent annualized growth. No change is expected in this revision.
Economists expect growth of 2 percent in the current quarter and 2.1 percent in the quarter than begins April 1.
“We are optimistic about war and peace and the fundamental underpinnings for recovery beyond that,” Salomon’s DiClemente said. Many other economists share his views.
Others, however, believe the true weaknesses of the economy have been hidden by the run-up to war. “There are still plenty of headwinds facing the economy,” said Lehman Brothers’ economist Joe Abate.
