current market conditions

then you would think the january effect would be big this year because of the tax selling. so buying in late december may be best right?

Late December sounds like a plan to me. Of course if popular sentiment starts to eliminate any possibility of a late year rally then you might see the selling earlier. In any case it's going to be tons of fun!

Tom, what do you find is pointing toward a recovery in the first half of next year.

FWIW here is what I think about GDP growth in the near future. I'd like to discuss it in terms of it's constituent parts Consummer spending, government spending, net exports, and investment spending.


1) Government spending. I don't think there is much doubt that we are and will continue to see a big spike in government spending in the near term. I've even Sen. Dominici state that it would ok to run a deficit for a year or two. Also I'm fairly certain that something will be done to help consummers in the form of more disposable income. So the economy will get a boost from it.


2) Investment (capital) spending. For the last 15 months or so I would say that capital spending has been in a depression in this country. I've looked at some charts on capital spending in the last 20 years or so and there was a big trough in capital spending that preceded the last recession. Anyway I don't see how it can get much worse capital spending wise so IMO it doesn't have anywhere to go but up. Possibly with the layoffs that have come about employers will again look to increase productivity of their current work force by making the appropriate investments in their businesses. The climate for corporate financing of such activities seems to be quite good from my perspective but we'll see. Anyway I'd be shocked if capital spending declined from this point but I'm not sure how much it will pick up right away.


3) Net exports. Well actually we run a trade deficit and I haven't monitored the deficit very closely but from what I remember it has declined year to year and the trend is such that the trade deficit is narrowing. I'm sure this has a lot to do with some slow down in conummer spending. At any rate a narrowing of the trade deficit is positive for GDP growth. The value of the dollar is also important to this component. To be honest I haven't followed recent developments in the dollar but I'm fairly certain it is still very strong against the Yen, Euro, and the Pound. I'm certainly no expert but I would have to think that the dollar is a lot closer to it's top than it is to it's bottom so a weakening of the dollar could help also in increasing GDP.


4) The last component is the key component and the largest component of GDP and that's consummer spending. It's the wild card in predicting a recovery. There has been much speculation that the consummer is going to be spending a lot less as the economy becomes more uncertain and employment becomes more uncertain. The consummer has pulled back some but not to the degree that a lot of the more pessimistic people had predicted. The layoffs are having an effect but this is happening after labor markets were very tight and I think Greenspan believed they were too tight beyond what is known as the natural rate of unemployment. Interest rates are low, the consummer is retrenching as home values have stayed up fairly well, and consummer confidence does seem to be stabilizing. Consummer confidence has come down quite a bit but it is coming down from record levels. All in all I believe (maybe it's more of a hope) that the conumption will not decline a lot from this point. With all the other factors of GDP pointing to growth I'm thinking the consummer will be strong enough to show positive > 2% growth some time next year.

While there may be some short term (1-2 months) rallies (like the one we are in now) the probabilities are *very* high that the market in general will be much lower (by at least 20%) by this time next year. Key reasons:


1- in the past few years we have just lived through what is undoubtably *THE* greatest speculative mania in the entire history of the U.S. stock market. If other manias of the past are any guide, then the unwinding of the excesses created will take not just 1 1/2 years, but many years.


2- the most predominant "cycle" in the U.S. stock market is the 4 year cycle tied to the presidential elections. There is an uncanny characteristic for the market to make a bottom two years after the election. Just look back through history, you will see it time after time after time: 1998, 1994, 1990, 1987 (the only one in the past fifty years that was offtimed - it was one year late) , 1982, 1978, 1974, 1970, 1966, 1962, etc. It is hard to believe how clockworklike these 4 year cycle bottoms are! The bottom in the current cycle will not occur until 2002, next year.


3- overall market valuations, even after the extended declines we have already witnessed, are still by historic levels extremely high. Again, if history is any guide, in the ensuing unwinding of the current bubble we will see not only a return to normal values, but it is likely that stocks will actually move to *undervalued* as greed continues to be displaced by fear.


By this time next year, the Dow should be <7500; the S&P500 <900, the Nasdaq Composite should break the Sept '01 lows under 1400.


Mark Courtney

The question in my mind is real estate. I have to wonder if an S&L type crises is brewing in CA and NY due to the collapse of the dot com economy. A few properties I looked at had mortgages that were refinianced shortly after purchase (less than 1yr) for an amount that was close to the purchase price.