F.GEMS: MICROS to GO!...

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***¶***Weekly Economic Indicators & Second Guessing Grenspan....

WEEKLY UPDATE FOR: June 30, 2001 by Bob Bose

Prior Week in Review:

Financial Market Highlights:
============================

                        06/29/01     06/22/01     %Change 
  
 S&P 500                 1,225.47     1,225.35        UNCH 
 Dow Jones              10,497.76    10,604.59      -1.01% 
 NASD Comp               2,169.31     2,034.82      +6.61% 
 Russell 2000              510.68       488.65      +4.51% 
 SOX Index                 624.75       586.31      +6.56% 
 Value Line                399.13       386.35      +3.31% 
 MS Growth                 536.92       545.49      -1.57% 
 MS Cyclical               543.93       541.26       +.49% 
 T - Bill                    3.56%        3.36%     +20 BP 
 Long Bond                   5.74%        5.58%     +16 BP 
 Gold - Oz-Near Month     $271.30      $273.30      -$2.00 
 Silver - Oz-Near Month     $4.33        $4.30       +$.03

Economic News:
==============

Last Week's Reports Couldn't Have Been Much Better
FOMC Lowers Rates, All Indicators Imply Improvement
No Change In Our Forecast - But We Now Have Some Support


*Existing Home Sales rose +2.9% in May to 5.37 mil annual rate
April also revised upward to 5.22 million annualized rate

*May Durable Goods Orders also rose +2.9% - Nice gain
Ex Volatile Transportation sector orders up a solid +2.7%

*May New Home Sales rose +.8% to 928,000

*June Consumer Confidence rose to 117.9 from 116.1 in May
But May was revised upward from 115.5 - Solid increase

*FOMC lowers rates by one quarter of one percent - Also
Leaves bias toward further ease in place - See below

*Jobless Claims fell -16,000 to 388,000 - Four Week
Moving Average eased -7,750 to 416,000

*1st Qtr GDP revised to +1.2% - Consumer Spending revised
Upward to +3.4% from +2.9% - Imports more of a drag

*Michigan Consumer Sentiment rose to 92.6 for June -
Further strength from mid month level of 91.6

*Chicago Purchasing Managers' Index for June 44.4 - Nice
Improvement from May's 38.7 - Price Index eased to 51.0


Even President Truman would have liked last week's reports,
because for those of you that don't remember, he wanted a one
armed Economic Advisor so that he didn't get a response like -
"On the one hand ... and on the other hand." Last week's
reports were that good, and that consistent, even if the job
of an analyst is to point out options. In any case, the odds
of a second half recovery keep improving, and fortunately,
we do have some supporters on the FOMC (Federal Open Market
Committee) that are concerned about the potential build up
of inflationary pressure. A nice ending for the second quarter.

The "big news", of course, was that the FOMC lowered rates
by one quarter of one percent, and kept their bias toward
further ease in place. So far, so good, and about what we
had expected. But, the press release, in our opinion, was
somewhat inconsistent, and not what we expected, or for that
matter, hoped for. In our view, it sent the wrong message.

In simple terms, the press release was rather "gloomy" about
the continued risk to the downside. That view certainly
supports maintaining a bias toward ease, but if that was the
real concern, then why not lower rates one half point? By
lowering "only" (the percentage decrease is only slightly
less than the percentage change from 6.50% to 6.00%) one
quarter point when many market participants were expecting
a half point cut, the implication is that the easing policy
is coming to an end. But, then they missed, in my opinion,
the chance to say so, which would have provided some "relief"
to those expecting earnings to recover later this year.

My best guess for this anomaly is that there is increasing
dissension within the FOMC. The minutes from the May 15th
meeting note that Mr. Hoenig actually dissented from the
half point cut, preferring a one quarter point cut. And,
while some other members voted for the half point cut, they
too would have accepted a quarter point cut. As you know,
our view is that the outlook has improved since that vote,
so, assuming some FOMC members agree, then the "rationale"
for that press release is appeasement to avoid a full
scale uprising against Chairman Greenspan.

If we are remotely accurate, and if the data continues to
show even modest improvement, then the likely outcome from
the August meeting is removal of the bias, and no further
rate cuts. The key, of course, will be the degree of
improvement in the economic indicators, and so far, so good.

As noted above, consumer confidence has continued to firm.
Not widely reported, though, was that according to the
American Bankers Assn. only 2.99% of credit card accounts
were past due in the first quarter. That's an improvement from
the year ago level of 3.28%, and perhaps more importantly,
sequentially from the fourth quarter's 3.34%. So, given
positive balance sheet, confidence, and income trends, consumer
spending should hold up quite well, a view further supported
by the revision to first quarter GDP.

To add fuel to the fire, no pun intended, the price of gasoline
has declined since Memorial Day, and in fact the futures
market is at a seventeen month low. Clearly such a visible
price can only have a positive impact on consumer sentiment.
And, the speculation is that OPEC will leave production levels
unchanged near term, so the worst of the energy price spike
should be behind us.

For longer term subscribers, it will come as no surprise then,
that we are not altering our long held view of a second half
recovery continuing into 2002. Nor are we lessening our concern
about the potential for inflationary pressures to build. The
price index portion of the Chicago Purchasing Managers' Report
was positive, but only fragmentary information. Next Friday
the Labor Department Report will provide updated, and more
useful inputs.

But, in the meantime we were pleased that we now have some
support for our view at the FOMC. The first step in containing
a threat is realizing that there is one. Stay tuned !



Current Weekly Calendar of Economic Data:
=========================================

Monday: Personal Income/Spending, National Assn. of Purchasing Managers' Index, Construction Spending

Tuesday: Factory Orders

Wednesday: INDEPENDENCE DAY HOLIDAY - MARKETS CLOSED

Thursday: Jobless Claims

Friday: Labor Department Employment Report