Sunday evening, December 10, 2000

COMMENT: On December 5, Fed Chairman Alan Greenspan spoke. He said that the
"wealth effect" has been "significantly attenuated" thanks to the drop in
stock prices. He also acknowledges that our economy "is obviously at
increased risk of untoward events.." He is right, of course, and in a
position to reduce this risk by easing monetary policy. Ironically, his
latest speech follows by exactly four years the one in which the Fed
Chairman famously asked, ".how do we know when irrational exuberance has
unduly escalated asset values."

More and more these days, I hear from various well-connected business
sources that sales "fell off a cliff" since the summer. This is confirmed by
the steep drop in consumer confidence during the first half of December and
Intel's warning last week about sudden order cancellations. Despite this
warning, large/mid/small cap tech stocks were up last week by 8.1%, 15.2%,
and 9.9%, respectively. Could it be that the bad news is mostly in stocks
and that the market is starting to anticipate Fed easing soon? I think so.

SUBSCRIBERS: The risk is that Fed easing might not work to avert a recession
this time. This "pushing-on-a-string" fear was frequently raised by Asian
investors, who I met last week in Singapore, Hong Kong, and Japan. Many of
my friends in Japan see lots of disturbing parallels in the US today with
their unhappy economic and financial experience during the previous decade.
I reminded them that there are still 650 basis points left between the
federal funds rate and zero. For more on this subject, see my latest GLOBAL
PORTFOLIO STRATEGY. The topic for Monday's WEEKLY AUDIO FORUM: "Will US
follow Japan's bubble script?"

PUBLIC: You can decide for yourself whether it is too late for Fed officials
to avert a recession, and how quickly they can get us out once they start to
ease by tracking numerous KEY WEEKLY indicators on the HOME page. You'll
find initial jobless claims, bank credit, mortgage applications, and more.
In his latest speech, the Fed Chairman said he still believes that the
secular rebound in productivity growth is intact. I agree. You can find his
speech in the GREENSPAN CENTER and our updated (Dec 6) PRODUCTIVITY TRENDS
chart book on the WHAT'S NEW page.

Dr. Ed

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