Boats & Stocks

[Francois+Goelo]

¶¶ WEEKLY UPDATE FOR: January 19, 2002 by Bob Bose....

Prior Week in Review:

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

                        01/18/02     01/11/02     %Change 
  
 S&P 500                 1,127.58     1,145.60      -1.57% 
 Dow Jones               9,771.85     9,987.54      -2.16% 
 NASD Comp               1,930.34     2,022.46      -4.56% 
 Russell 2000              474.37       489.94      -3.18% 
 SOX Index                 523.04       568.89      -8.06% 
 Value Line                358.32       369.76      -3.09% 
 MS Growth                 558.74       556.92       +.33% 
 MS Cyclical               510.81       527.86      -3.23% 
 T - Bill                    1.58%        1.59%      -1 BP 
 Long Bond                   5.37%        5.36%      +1 BP 
 Gold - Oz-Near Month     $283.40      $287.70      -$4.30 
 Silver - Oz-Near Month     $4.35        $4.70       -$.35

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

Last Week's Reports Very Solid With One Exception
FRB's Beige Book Mixed - But Some Signs Of Hope
Our View More Optimistic - Recovery Underway By Spring


*December Retail Sales eased -.1% - Good News - See Below

*Consumer Price Index fell -.2% in December - Core Rate -
Ex Volatile Food and Energy rose +.1% - Non Event

*November Business Inventories fell -1.0% - Sales off -1.4%
Inventory/Sales Ratio remains at 1.39 months

*Industrial Production fell -.1% in December - Capacity
Utilization off -.1% to 74.4%

*Federal Reserve Board (FRB) Beige Book - See Below

*Housing Starts fell -3.4% in December to 1.57 mil rate

*Building Permits in December rose +3.6%

*Philadelphia FRB Index rose to 14.7 - First positive
Level in thirteen months

*Jobless Claims fell -14,000 to 384,000 - Four Week
Moving Average fell -250 to 411,000

*International Trade deficit for November narrows -4.9%

*Univ. of Michigan Consumer Sentiment 94.2 mid month
Big gain from December's 88.8


Although stock market participants focused on individual
earnings releases as the "official" earnings season got
underway, our focus remained on the economic news. And,
the reports were fairly good, and continue to support our
view of a recovery in progress by Spring.

For starters, the Retail Sales report was very good, even
though the reported number was a decline of -.1%. The
drop was fueled (pun intended) by a decline in gasoline sales,
which fell -4.2% as energy prices fell - which also drove the
trade deficit down. But, obviously a decline in gasoline
prices is not a negative for consumers. As we have pointed
out numerous times recently the decline in energy prices
has the same economic impact as a reasonable tax cut.

Not surprisingly, then, we liked the retail sales data.
The implication is that inventories will not be a problem at
the retail level after the holiday selling season. And, of
course, the strength does support our contention that
spending is driven by personal income, which continues to
hold up very well and consumer confidence, which was quite
strong at midmonth according to the Univ. of Michigan survey.

The FRB Beige Book Survey agrees - sort of, at least for
retail sales. Otherwise, they are not so sure, but seem
to imply that they think the economy is bottoming out,
with any hints at recovery very tentative. More so than
is usual, even for the FRB, this report seems to steer
clear of making any definitive statements.

In addition to the fact that economic inflection points are
very, very difficult to identify in real time, the FRB may
be trying to keep their options open for the next meeting
of the rate setting Federal Open Market Committee (FOMC).
As you know, our view is that another quarter of one point
cut is not necessary, but the FOMC may take out an "insurance
policy." In any case, as we tried to make clear last week,
the really important issue is the extent of the rebound in
productivity growth, and not the exact timing of the onset
of recovery.

One other point worth noting, from the more obscure Philadelphia
Federal Reserve Bank's Business Outlook Survey, is that
their mid-Atlantic manufacturing index turned positive. And,
the new orders subcomponent went positive as well, moving from
-6.2 to +12.6, with the shipments subcomponent even stronger.
Anecdotal evidence, yes. But directionally important, and
the magnitude of the change would imply no huge revisions
back to negative territory near term.

In any case, we believe that by Spring a recovery will be
underway. And, our view remains that the "bounce back" will
be softer than what some are assuming, and could therefore be
disappointing to those that are buying stocks that are dependent
on the economic cycle. But, even 3% GDP growth should be
positive for financial assets in general, and if the FRB is
right about productivity trends, they will allow higher trendline
growth than in the past.

In short, nothing in the economic data, or the early corporate
earnings reports for that matter, has caused us to alter our
view. We expect a recovery to be underway shortly, if it has not
already begun, and to accelerate in the second half. Last week
the economy outperformed the stock market. But, the stock
market should revert to form, as a discounting mechanism. And,
when it does, it will look to the recovery, and not the history of
the just ended quarter. Stay tuned !



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


Monday: MARTIN LUTHER KING DAY - U.S. MARKETS CLOSED

Tuesday: Leading Indicators

Thursday: Jobless Claims