Exhibitionist's Corner

[Francois+Goelo]

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

WEEKLY UPDATE FOR: July 21, 2001 by Bob Bose

Prior Week in Review:

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

                        07/20/01     07/13/01     %Change 
  
 S&P 500                 1,210.85     1,215.68       -.40% 
 Dow Jones              10,576.65    10,539.06       +.36% 
 NASD Comp               2,029.37     2,084.79      -2.66% 
 Russell 2000              487.93       490.71       -.57% 
 SOX Index                 574.30       593.93      -3.31% 
 Value Line                387.38       390.43       -.78% 
 MS Growth                 546.30       530.56      +2.97% 
 MS Cyclical               571.18       563.74      +1.32% 
 T - Bill                    3.44%        3.52%      -8 BP 
 Long Bond                   5.53%        5.63%     -10 BP 
 Gold - Oz-Near Month     $270.20      $267.60      +$2.60 
 Silver - Oz-Near Month     $4.24        $4.31       -$.07

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

Economic Data Last Week Not Great - But Not Bad Either
Media, In Our Opinion, Distorted Greenspan's Testimony
Recovery This Year, And Accelerating In 2002, Best Bet


*May Business Inventories unchanged - May Sales rose +1.1%
Inventory/Sales Ratio drops to 1.42 months

*Industrial Production in June fell -.7% - But May Revised
Upward to -.5% from -.8%

*June Capacity Utilization fell to 77.0% from revised 77.6%

*June Housing Starts rose +3.0% to 1.66 mil annualized rate

*June Housing Permits fell -3.3% to 1.57 mil annualized rate

*Consumer Prices rose +.2% in June - But Core Index,
Excluding Volatile Food & Energy, rose +.3%

*Chairman Greenspan's Congressional Testimony - See Below

*Jobless Claims fell -35,000 to 414,000 - Four Week
Moving Average rose +2,500 to 414,500

*May International Trade Deficit falls to $28.3 bil -
Lowest in sixteen months

*Leading Indicators rose +.3% to 109.6 - See Below

*Philadelphia FRB Index eased to -3.7 in June from -12.2
But New Orders subcomponent improved modestly


Warren Buffett has often been quoted as saying that if
you are digging yourself into a hole, the first thing
you should do is - stop digging. The saying applies to the
economy, in that for it to recover, it must first stop
declining. And, for a while now, we have been of the opinion
that the economy was "bouncing along the bottom", and that a
recovery was very likely late in the second half. In Buffett's
analogy, the economy has stopped digging itself further into
a hole, a precursor of a recovery. And, the data support this
interpretation.

For instance, the Index of Leading Economic Indicators advanced
in June, the third consecutive monthly advance. This is likely
a trend, and importantly signals the beginning of an economic
recovery late this year, right on schedule given the normal six
month lag of this index. And, while the index has likely captured
the impact of monetary stimulus, it probably has not been able
to capture the near term fiscal stimulus of tax refund checks.
And the Internal Revenue Service (IRS) made it obvious last week.

As I am sure you all noted, the IRS mailed a letter that told you
that your refund check was in the works, and the amount of your
refund - very clever politics, but also not bad economics. The
point I want to make is that the "political" angle, even if you
don't receive your check until late September, helps to uphold
consumer confidence, as you have been told it is coming. And,
once you get it, you feel better all over again. Good politics,
and good economics as the Administration will get maximum fiscal
stimulus from the one/two approach.

While Chairman Greenspan noted the positive impact of the fiscal
stimulus in his semi-annual Congressional testimony, the media
"played it" quite negatively - at least in my opinion. Not only
do I not think his remarks were that negative, I think that all
the media missed the important point. And one that longer term
subscribers know that we have been focusing on.

Specifically, we have noted that we think the Federal Reserve
Open Market Committee (FOMC) is making a big bet on the
magnitude of the bounce back in productivity growth as the
economy recovers. In Chairman Greenspan's testimony, he
referenced "structural productivity" many, many times, and
acknowledged the inflationary threat. His focus is not so much
on the core price indexes as on the personal consumption index
from the quarterly Gross Domestic Product (GDP) report regarding
inflation, and he still thinks there isn't a problem.

But, he is counting on a very big increase in productivity growth,
and we, simply put, are not quite as convinced as Chairman
Greenspan that productivity will bounce back as much as necessary
to prevent the build up of inflationary pressures. After all,
there is a huge economic difference between productivity growth of
2% or 3%. It may not seem like much, but it is a 50% difference.

Net bottom line - our views haven't changed. We still believe
the economy will recover, beginning later this year, and that
economic growth will accelerate toward 3% in 2002. So far, so
good. Our concern, though, is that inflationary threats may build
as well, and it is on this issue where we disagree with Chairman
Greenspan.

I sincerely hope that my concerns are unfounded, and that Chairman
Greenspan is right. Stay tuned !



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


Wednesday: Existing Home Sales

Thursday: Jobless Claims, Q2 Employment Cost Index, Durable Goods Orders

Friday: Q2 Advance GDP, New Home Sales