Boats & Stocks

[Francois+Goelo]

>>> Economic Recovery on the Way...

WEEKLY UPDATE FOR: December 8, 2001 by Bob Bose...

Prior Week in Review:

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

                        12/07/01     11/30/01     %Change 
  
 S&P 500                 1,158.30     1,139.45      +1.65% 
 Dow Jones              10,049.46     9,851.56      +2.01% 
 NASD Comp               2,021.24     1,930.58      +4.70% 
 Russell 2000              481.21       460.78      +4.43% 
 SOX Index                 571.74       518.95     +10.17% 
 Value Line                366.97       354.18      +3.61% 
 MS Growth                 556.67       550.21      +1.17% 
 MS Cyclical               536.63       523.70      +2.47% 
 T - Bill                    1.65%        1.73%      -8 BP 
 Long Bond                   5.60%        5.27%     +33 BP 
 Gold - Oz-Near Month     $274.70      $274.90       -$.20 
 Silver - Oz-Near Month     $4.27        $4.16       +$.11

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

Last Week's Data Big Improvement From Prior Week
FOMC Still Likely To Take Out "Insurance" This Week
Support For Our Long Held Recovery View Strengthens


*October Personal Spending rose +2.9% - A record
But almost all the gain was in autos

*Personal Income was flat in October

*October Construction Spending rose +1.9% - Nice gain

*November's National Purchasing Managers' Index rose
To 44.5 from October's 39.8

*Jobless Claims fell -18,000 to 475,000 - Four Week
Moving Average rose +5,750 to 460,750

*Factory Orders rose +7.1% - Large "snap-back"

*3rd Qtr Productivity growth revised down to +1.5%
Still not bad given negative GDP for the quarter

*Univ. of Michigan Consumer Sentiment 85.8 - See Below

*Consumer Credit rose $7 billion in October

*Labor Department Report for November
- Unemploymnet Rate rose to 5.7% - up +.3%
- Nonfarm Payrolls fell -331,000
- Average Hourly Earnings rose $.05/hr to $14.52/hr
- Average Workweek increased +.1/hr to 34.1/hr


As noted above, last week's economic reports had a much
more upbeat "tone" than those of a week ago. And,
for us, we were particularly pleased to see that the
Univ. of Michigan Survey did not confirm the weakness
from the earlier Conference Board report. As longer term
readers know, the consumer reports are very, very
important. And, while the Labor Department Report is
also important, it must be remembered that labor market
conditions are a lagging indicator. So, a good week.

Because car sales had already been reported, and as they
are a major component of retail sales, it was a
"no-brainer" that October Retail Sales would be a huge
number. What was a pleasant surprise, though, was that
even though most of the gain was auto related, most is
not all, which to us is a minor, but, important distinction.

Auto sales remained strong in November, but the anecdotal
evidence of early holiday sales implies a soft selling
season to date as most of the major retailers are reporting
comparable store sales gains at the low end of projections.
However, it is too early to "write-off" the season because
November was a very warm month, particularly in the
Northeast, so winter clothing sales were unusually soft.

Another key report last week was the National Assn. of
Purchasing Managers' Survey. Not only was the gain
quite large, but it too did not confirm weakness of
a prior report. And, while we normally don't comment on
it, there is a separate Purchasing Managers' Index for the
service sector, which rose a huge 10.7 points from October,
and now is above the 50 level - at 51.3, implying expansion.

And, as we have often noted, the details of some reports
can be important. In this case, the Univ. of Michigan
Survey also has a subindex for expectations, much like
the Conference Board Survey. Expectations for early
December rose to 79.3 from 76.6 at the end of November.
By itself, this is not a big deal. But, remember that
the Conference Board's expectations index also rose even
as current sentiment weakened, so it appears that consumers
are feeling better about the outlook for next Spring.

One final point is that you don't need to believe me, or
my outlook - I've got a lot of company now. Just look at
the bond market. The yield curve is steepening quickly,
very quickly. A steep yield curve, that is a big difference
between short and long rates, implies an economic recovery.
Just go back through the last several newsletters, and subtract
the IRX (listed above) from the TYX (also listed above).
The difference supports our view for a Spring recovery.

Clearly the recent reports were much better than the
prior week's numbers, and even the downward revision in
third quarter productivity is still a pretty good number
and should not dissuade the Federal Open Market Committee
(FOMC) from cutting rates one more time. Not a sure thing,
but our best bet is that they will lower rates by one
quarter of one percent, and remove the bias toward further
rate cuts with some sort of statement that the economy
appears to be bottoming out.

Overall a pretty good week for economic reports, and a
very good week for the stock market. Stay tuned !



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


Tuesday: FOMC Meeting

Thursday: Jobless Claims, Producer Price Index, Retail Sales

Friday: Consumer Price Index, Business Inventories, Industrial Production, Capacity Utilization