F.GEMS: MICROS to GO!...

[Francois+Goelo]

***¶*** WEEKLY UPDATE FOR: September 22, 2001

WEEKLY UPDATE FOR: September 22, 2001 by Bob Bose

Prior Week in Review:

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

                        09/21/01     09/10/01     %Change 
  
 S&P 500                   965.80     1,085.78     -11.05% 
 Dow Jones               8,235.81     9,605.85     -14.26% 
 NASD Comp               1,423.19     1,687.70     -15.67% 
 Russell 2000              378.89       445.19     -14.89% 
 SOX Index                 381.01       513.91     -25.86% 
 Value Line                294.60       350.04     -15.84% 
 MS Growth                 494.21       545.73      -9.44% 
 MS Cyclical               416.25       511.82     -18.67% 
 T - Bill                    2.20%        3.18%     -98 BP 
 Long Bond                   5.59%        5.39%     +20 BP 
 Gold - Oz-Near Month     $292.90      $275.10     +$17.80 
 Silver - Oz-Near Month     $4.62        $4.18       +$.44

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

FOMC Lowers Rates - Stock Market Reopens - Truly Ugly
Greenspan Congressional Testimony Not Market Sensitive
"V" Word Coming - War Victory and "V" Shaped Recovery


*FOMC Cuts Rates Intermeeting By One Half Point -
Fed Funds now 3.0% and Discount Rate now 2.5%

*Business Inventories fell -.4% in July - Sales rose +.4%
Inventory/Sales ratio improves to 1.42 months

*August Consumer Price Index up +.1% - Core Rate -
Without Energy and Food - Rose +.2%

*International Trade Deficit eased to $28.8 bil in July

*Beige Book Summary - Prior To September 11th - Economy
Generally sluggish in August and early September

*Jobless Claims eased -49,000 to 387,000 - Four Week
Moving Average rose -3,250 to 409,000

*Philadelphia FRB Index in September improves to -7.3
From August's -23.5 - Prior to September 11 th

*August Housing Starts fell -6.9% to 1.527 mil rate -
July also revised downward, but still very strong


Obviously more time has passed since the horrific
terrorist attacks against the United States, and the
financial markets have reopened. The reaction, as
depicted in the table above, wasn't pretty - and this
after a terrible August, and a decline from the top,
basis S&P 500, of almost 30% prior to September 11th.
Our view before the attacks was that the markets
had over-reacted to the economic slowdown. And, not
surprisingly, given further significant declines in the
stock market, our conclusion hasn't changed, but the
nearer term outlook has.

First, a recession is now almost a certainty. Given a
virtual halt to economic activity because of the
attack, in part by the grounding of America's airline
industry, and as the public focused on every news report
and stayed away from the malls, third quarter GDP will
very likely be negative.

Later this coming week we will know if the second quarter
GDP growth rate is revised to negative, but even if not, the
fourth quarter will likely now be negative, rather than the
beginning of a recovery we had previously expected. So, it
is probable that the common "definition" of a recession,
two consecutive quarters of negative GDP, will be met.

But, in our view, it simply doesn't matter whether there is
a short, shallow recession or not. The year 2001 is almost
over. What matters is 2002, and whether or not a more serious
recession can be avoided, and an earnings recovery begin. We
are hopeful on both counts, as long as consumer confidence
doesn't collapse.

Predicting consumer confidence at the moment is impossible,
but there are some hopeful signs. It seems to me that
the spirit of Americans is rather high, given the incredible
outpouring of patriotism, as evidenced by nationwide
sellout of American flags of every description, to the
widespread sympathy for victims and their families, to the
appreciation of the efforts and heroism of rescue workers.

And then there were the symbolic acts, that were, and are
important - from the playing of the American National
Anthem at Buckingham Palace, and in Paris, to the visits
to America by foreign dignitaries, and NATO invoking Article V.
The message is quite clear that we are not fighting alone.

Now, I am not foolish enough to think this all translates into
retail sales instantly, but in my view it should help prevent
a long term "hunker down" mentality. If so, then the economic
impact could be more like the Gulf War, when retail spending
"hit the wall" - but only for a few weeks. And, we have the
calendar on our side.

And, for further support, the Federal Open Market Committee
(FOMC) cut rates last Monday, and I expect will lower rates
further at their next meeting on October 2nd. On top of the
unprecedented easing of monetary policy, fiscal policy will
now become even more stimulative. At first there were the
tax cuts, now there will be serious spending, not just to help
rebuild New York City, but also for security measures - just
to start. It will be a massive effort, and well financed.

But, President Bush, in his Thursday night speech, was honest
and forthright. Nothing will be quick. Maybe a few air strikes
that make the evening news, but the war against terrorism will
be a long one - in my mind a permanent one if we are to prevail
and preserve the world's Democracies hard won freedoms. It
won't be easy, but in reality there is no other path. Again, as
President Bush implied, you are either with us, or against us.

At the moment, the world, or at least all the important players,
are with us. We will prevail - period. The "V" word will
ultimately resurface in everyday vocabulary, outside the
sports world. I suspect it will also resurface in the economic
lexicon, but not perhaps until early next year.

However, as you all know, the stock market is a discounting
mechanism, at least on an intermediate to longer term basis.
If you agree, and 2002 estimates hold, to say nothing of being
revised upward based upon massive fiscal and monetary stimulus,
then the stock market is a flat out - BUY.

We'll see, but I firmly believe six months from now the stock
market will be higher. Not by a little bit, but meaningfully.
In the meantime, volatility will remain. But, what counts
for the investor is the end result, not the intermediate near
fluctuations. Stay tuned !


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

Monday: Leading Economic Indicators

Tuesday: Existing Home Sales, Consumer Confidence

Thursday: Jobless Claims, Durable Goods Orders, New Home Sales

Friday: Final 2Q Gross Domestic Product