Sunday evening, October 21, 2001

COMMENT: God bless America! Let's hope American consumers are also blessed
with the resolve to keep shopping during these unsettled times! We are the
spenders of last resort. If we give in to terrorism, then the US economic
recession will worsen, and so will the global recession. That is why
President George Bush has been encouraging us to try to go back to business
as usual as best we can. Mayor Rudy Guilliani wants New Yorkers to spend
money at the stores, restaurants, and the shows. The President was right on
the money in his speech delivered Saturday in Shanghai when he observed that
the terrorists tried to disrupt the global economy. They are attacking
globalization. Mr. Bush intends to push for more globalization: "First, our
governments must keep the path of economic progress. That progress begins
with freer trade. Trade is the engine of economic advancement. On every
continent, in every culture, trade generates opportunity, enhances
entrepreneur growth. And trade applies the power of markets to the needs of
the poor."

It is hard to be bullish on the outlook for the economy and the stock
market, especially in New York City since the attack hit us so close to
home. Throughout the country, people are jittery about bio-terrorism. Yet,
we should remain optimistic that the disaster has created some opportunities
that may lead to better times again. Relations among the United States,
Russia, and China are improving as they confront the common threat of
terrorism. We are all taking this problem more seriously now as it is very
apparent that the random acts of terror around the world are not random
shocks, but rather coordinated attempts to destroy centuries of human
progress with the intent of restoring a medieval (and evil) new order. The
triumph of capitalism over communism more than a decade ago was not "the end
of history," as suggested by some. The War on Terrorism may be an even
greater challenge to capitalism, but capitalism will triumph.

The end of the Cold War was very bullish for stocks. This was one of my
major themes in numerous Topical Studies that I wrote during the 1990s.
(See www.yardeni.com/topical.asp.) The end of the War on Terrorism is likely
to be equally as bullish if it leads to increased globalization, world
trade, and prosperity. But, this war has just started, it could last years,
and it isn't likely that any particular event will mark its end, as did the
demolition of the Berlin Wall mark the end of the Cold War. Some observers
see similarities between the two wars because they see a need to contain
terror now just as the United States struggled to contain communism in the
past. The difference is that the Soviets at least valued their own lives,
while the terrorists are suicidal and readily kill civilians.

SUBSCRIBERS: In this week's GLOBAL PORTFOLIO STRATEGY, I reassess the
outlook for consumer spending. I conclude that the key is jobs, as has
always been the case. The prospects are not good because many companies
over-hired during the 1990s. I also examine two other dueling excesses:
capacity versus liquidity. I am betting that liquidity will win, but not
until the second half of next year. In Monday's WEEKLY AUDIO FORUM, I'll
discuss this subject and explain why the widely embraced "V" scenario may
not be so bullish after all. In brief: A "V" can't happen unless housing and
auto sales plunge over the next several months. DBAB analyst Rod Lache will
join me to discuss the auto industry and to explain why Ford isn't giving
workers free PCs anymore.

PUBLIC: I concluded in my recent "Global Strategist's Handbook: Stock Market
Cycles--Bottom Fishing," the panic selling during the week ended September
21 probably made a major cyclical low. Of course, another terror attack at
home could trigger a retest of that low. Heck, lousy earnings reports could
do the same. So could weaker-than-expected consumer spending caused by a
soaring unemployment rate, which could jump to 6% by the end of the year and
7% by next spring, in my opinion.

If September 21 was "the" bottom, then here are a few industries that have
had the best relative performance immediately after S&P 500 troughs since
1960: 1) Paper & Forest Products, 2) Department Stores, 3) Auto Parts, 4)
Thrifts, and 5) Truckers. If you think that we are still in store for a
1973/74 mega-recession, then the best relative performance prior to the 1974
stock market bottom was in: 1) Paper & Forest Products, 2) Chemicals, 3)
Aluminum, 4) Iron & Steel, 5) Metals Mining, 6) Containers & Packaging, 7)
Entertainment, 8) Domestic Integrated Oil, 9) Oil & Gas Drilling &
Equipment, 10) Money Center Banks, 11) Pharmaceuticals, 12) Truckers, 13)
Railroads, and 14) Gold & Precious Metals Mining.

The worst relative performers before the 1974 stock market trough were: 1)
Computer Hardware, 2) Retail Department Stores, 3) Consumer Finance, 4)
Autos, 5) Auto Parts, 6) Alcoholic and Non-alcoholic Beverages, 7) Personal
Care, 8) Property Casualty Insurance, and 10) Electric Companies. Of course,
as we all know, past performance is not a guarantee of future results.

THANKS BARRON'S: This week, in their annual ratings of web sites, Barron's
gave www.yardeni.com second place in the economics category. Other reviewers
have recommended our site. See the awards page at
http://www.yardeni.com/awards.asp.

Dr Ed

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