The Week ahead

No rate cut. Improved outlook

Alan Greenspan lifted the air of gloom and doom last week with upbeat testimony before Congress. The message was so clear that there was no need for any of the Greenspan tea leaf readers to parse the remarks. The economy is doing just fine and there is no need for further rate cuts.

Alan Greenspan has looked at the last two weeks of economic data and decided the threat indicators were much lower than expected. An economic recovery is slowly building because inventories are at very low levels, even for today’s just in time economy.

The market went up in response to the Greenspan comments. The balance seems to be shifting in favor of a sustained recovery. The question is, will stocks follow the economy.

What must be remembered is that stocks already rose in anticipation of this recovery. About a 40% rise for the NASDAQ. The Corporate profit figures rolling in are for a quarter gripped by economic recession. These figures frankly suck, and the forward looking outlook from corporate leaders is very guarded.

There is also the Enron factor. Bullish statements from the CEO on down led investors to stick with a stock that was clearly headed toward zero. That pall is going to make many companies be very careful about their comments on the future. Nobody wants to become the target of congressional investigators.

So things are looking better but the markets are not out of the woods yet.

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Shmuel Protter
investmenttool.com