To all G7 clients,

We are pleased to see that SOMEONE is reading our survey...hope you are too.

Best regards,

Jane Hartley
CEO
G7 Group, Inc.


CONSUMERS TOO AFRAID TO SPEND

By JOHN CRUDELE
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November 13, 2001 -- CONSUMERS are talking tough and optimistic, but acting
weak and glum.

That's the big problem in the American economy right now. And things like
yesterday's plane crash - whether caused by terrorism or not - are likely to
aggravate that situation.

The dual personality being exhibited by Americans is bothering the Federal
Reserve, whose interest-rate cuts won't be nearly as effective if consumers
are too scared to borrow money. I spoke with a source of mine who is
familiar with the Fed's thinking and he tells me that monetary authorities
are concerned, as well as perplexed, by consumers' unwillingness to part
with a dollar even as they are feigning confidence.

In particular, Alan Greenspan's outfit is troubled by a research report
dated Oct. 18 that was conducted by an independent Washington outfit called
G7 Group. The group had the Princeton Survey Research Associates interview
1,045 adults between Oct. 8 and 10.

This poll was given to me by someone close to the Fed.

The survey found that post-Sept. 11, Americans were putting on a good front.

For instance, 66 percent of the people polled said that now is a "good time"
to purchase a car or a house, but 63 percent said they "did not feel like"
making a major purchase.

Only 41 percent of the respondents felt like shopping for clothes and 75
percent felt comfortable buying only necessities like groceries.

Consumer confidence has been dropping since before the Sept. 11 terrorist
attacks. But the current level of confidence could be greatly overstated
because it measures what people are saying and not what they are doing.

And the Princeton Survey shows that consumers are talking a good game but
buckling when it comes to taking an economic turn at the plate.

Not surprisingly, job security is the chief concern, although Americans
refuse to admit it. Even though the U.S. lost 415,000 jobs last month and
our unemployment rate jumped sharply to 5.4 percent, more than 70 percent of
those surveyed said they felt the same or more optimistic than they did a
few months ago.

The Fed cut interest rates for the tenth time last week. Another rate cut is
expected in December. The Fed made an even bolder move two weeks ago when it
announced that it was going to stop selling 30-year government bonds.

The result was that interest rates on long bonds came down sharply, putting
them more in proportion with recent rate reductions. As I've said in
previous columns, the long bond has been a nuisance for the Central Bank
because it hasn't declined as much as expected. This has caused things like
mortgage rates to remain higher than they could have been.

The G7/Princeton survey explains to the Fed why its interest rate strategy
hasn't been working. But it doesn't necessarily explain why - as the
surveyors concluded - "the Sept. 11 attacks opened a chasm between what
Americans are thinking rationally about the economy and what Americans are
feeling as they now confront economic decisions."

What will yesterday's incident do to confidence?

That's anyone's guess. But unless the government quickly explains what
happened to the public - and that's unlikely in a crash investigation like
this - then Americans are likely to keep up their tough facade while being
weak in the knees.

Over the last decade America's mood has depended a lot on how Wall Street
was feeling. The stock market dipped sharply right after yesterday's plane
crash, but snapped back.

The Federal Reserve figures, I'm told, that if interest rates stay down and
the stock market remains stable, then Americans will eventually regain their
confidence.

Let's hope so. But if you are investing in a stock market that is this
overpriced, you should understand that the risks are great. And they are
getting greater.

-John Crudele, NY Post, November 13,2001