Boats & Stocks

[Francois+Goelo]

>>> Bob Bose: WEEKLY UPDATE FOR November 3, 2001...

Prior Week in Review:

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

                        11/02/01     10/26/01     %Change 
  
 S&P 500                 1,087.20     1,104.61      -1.58% 
 Dow Jones               9,323.54     9,545.17      -2.32% 
 NASD Comp               1,745.73     1,768.96      -1.31% 
 Russell 2000              433.07       438.65      -1.27% 
 SOX Index                 489.44       480.74      +1.81% 
 Value Line                330.89       337.19      -1.87% 
 MS Growth                 541.23       543.01       -.33% 
 MS Cyclical               481.39       488.78      -1.51% 
 T - Bill                    1.95%        2.10%     -15 BP 
 Long Bond                   4.95%        5.27%     -32 BP 
 Gold - Oz-Near Month     $280.80      $278.30      +$2.50 
 Silver - Oz-Near Month     $4.11        $4.22       -$.11

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

Economic Reports Last Week Were Uniformly Ugly
Many Are Lagging Indicators - But Not Confidence
Best Bet Still Recovery By Spring - But Risks Increase


*October Consumer Confidence tumbled to 85.5 from 97.0
Very, very sharp drop - Not Good - See Below

*Chicago Purchasing Managers' Index for October 46.2 -
Modest decline from September's 46.6

*Early 3rd Q GDP Declined -.4% - Less Than Consensus

*September Construction Spending eased -.4%

*October Nat'l Assn. of Purchasing Managers' Index 39.8
Large fall from September's 47.0

*September Personal Income Unchanged - But Personal
Spending drop a huge -1.8%

*Jobless Claims fell -10,000 to 499,000 - Four Week
Moving Average fell -9,000 to 497,250

*September Factory Orders fell -5.8%

*Labor Department Employment Report for October
- Unemployment Rate jumps +.5% to 5.4%
- Nonfarm Payrolls drop 415,000
- Average Hourly Earnings rose $.02/hr to $14.47
- Average Workweek falls -.1% to 34.0/hr



There wasn't any good news in last week's official
economic reports. About the best that can be said
is that some, like labor market conditions, are
lagging indicators. But, consumer confidence is not,
and the sharp falloff is cause for concern. One
report does not make a trend, and there are some
mitigating factors. But, risks to our forecast for
a recovery beginning by Spring have increased.

As most of you know, the consumer drives approximately
two thirds of economic activity. We have long
believed that if the consumer has the wherewithal and
confidence, then spending will be maintained at rather
solid levels - what economists refer to as the "income
effect." Both parts of that equation took a hit
last week.

Our concern is not so much with personal income as there
are mitigating factors, but with the sharp falloff in
consumer confidence. Clearly such a sharp drop can be
the beginning of a trend, but it is also possible that
the data is misleading.

Prior confidence/sentiment reports did not imply a further
deterioration to the downside, but in fact some stabilization.
Since then, the war effort has not produced any quick
"victory", which some might have expected. And, in my
opinion, the media has "worked" the anthrax attacks to a
fevered pitch - more Americans died on the highway last
night during a one hour commute than have died from anthrax.
The combination may be taking its toll.

But, as we noted last week, auto sales are at incredible
levels, which simply doesn't "square" with a very sharp
drop in consumer confidence. Obviously cheap financing
is driving sales, but one doesn't make a major purchase
without confidence about the future. So, perhaps last
week's report overstated the decline, or is simply
reflecting a volatile mood swing among consumers. My point
is not to dismiss the data, but not to accept it at face
value. Clearly risk has increased, and consumer related
data needs to be monitored closely.

However, there are a few other points worth noting. Gasoline
prices have fallen dramatically, essentially producing the
equivalent of a modest tax cut. And, the United States
Treasury has eliminated the sale of the thirty year bond.
Although I am not yet convinced that the latter is a good
idea long term, near term the announcement drove the entire
yield curve lower. And, mortgage rates will follow.

Then there is the Federal Open Market Committee (FOMC)
meeting this coming week. A rate cut is about as certain a
bet as one can make, with the only topic of discussion
whether it is a quarter point or another half point. Our
preference would be for the former as in our view much of
the economic adjustment (i.e. inventory reduction) has
already taken place. But, my best guess is that the FOMC
will adopt a half point cut - no price pressures, and a
sharp rise in the unemployment rate.

In any case, the risks of a more protracted recession have
risen because of the sharp drop in consumer sentiment. Granted,
sentiment can shift quickly in a volatile situation, and one
report does not a trend make. Our view is still for a recovery
to begin by Spring. Unfortunately the economic data now
appears to be as volatile as the markets. Stay tuned !



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



Tuesday: FOMC Meeting

Wednesday: Consumer Credit, Wholesale Trade

Thursday: Jobless Claims

Friday: Producer Price Index, Housing Starts /Housing Permits