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Wall anticipates rate increases from the Fed

Stacey L. Wall wasn’t surprised when Federal Reserve Chairman Alan Greenspan inched key interest rates a quarter point to 5.75% Feb. 2, 2000. In fact, he had predicted it minutes earlier at Pinnacle Trust’s 2000 Economic Forecast Luncheon at Primos Northgate restaurant in Jackson.

“Greenspan took a middle of the road stance,” said Wall, president and CEO of Pinnacle Trust. “Everybody thought he would come to the table with at least a quarterpoint increase. Some thought he might go to a 50-base point increase, but it might have been somewhat of a shock to the financial market and that could have caused some volatility. However, Greenspan made it very clear that inflation was a big concern, an indication that he’ll raise it again soon. The Fed meets again in March, and I think they’ll do a 25-base point increase at that time. Then, Greenspan may take a wait-and-see stance, but there’s another meeting in May. I’m sticking to my guns because I think we’ll see a total 75-base point increase this year.”

Community Bank and Tyner Law Firm, both Brandon-based businesses, sponsored the third annual economic forecast luncheon.

“The economic forecast luncheon provides an opportunity for business leaders to get together and get some good advice and ideas about the upcoming year,” said Mitch Tyner, president and founding member of Tyner Law Firm. “It’s always held right after the first of the year, when business leaders are still in the planning stages.” Tyner Law Firm, with offices located in Pascagoula and New Orleans, will move its home office to Jackson in April while retaining its office in Brandon.

John Arledge, senior vice president of marketing for Community Bank, said the economic forecast luncheon is a great event to sponsor, particularly this year because five new board members have been added in Jackson and the bank will continue its expansion plans in the metro area.

“Our customers always enjoy Stacey’s presentation,” Arledge said. Community Bank, an $800-million holding company with 20 offices from the Tennessee border to the Gulf Coast and more than 300 staff members, was recently chosen as one of Mississippi’s 40 fastest-growing private companies.

Wall had predicted at last year’s economic forecast luncheon that Y2K would be a non-event, the economy would remain strong, inflation would rise, it would be another good year for stocks and an OK-year for bonds.

“What can be said about this economy and the bull market in stocks that hasn’t already been said?” Wall said. “It certainly seems that never before have so many had it so good, so fast, so easy. The top IPO of the year, at least in terms of the first day of trading, was up 700% in one day. The founder went from driving a 1990 Volvo and living in a 1,250-square-foot house to a net worth in excess of $340 million. Of course, the company has yet to make a dime, and by its founder’s own admission, it won’t in the foreseeable future. But in this market, earnings, track records and experience are things of the past.”

The biggest irony of 1999 is that many stocks, even whole sectors, remained immune to the Dow Jones Industrial Average’s 27% advance, the broader S&P 500’s 21% rise and the NASDAQ’s rally in technology stocks up 86%, Wall said.

“Personal savings rates are at record lows,” Wall said. “We’re bridging the gap between income and spending by depending more and more on stock market gains and by borrowing money. American consumers took on a whopping $95 billion more in installment debt last year. That’s the most new debt in four years.”

Even though the U.S. economy is booming — with 107 months of expansion, the U.S. economic boom is the longest in history — and unemployment is down to a scant 4%, wages are not going up. Workers’ wages in many jobs have barely kept up with inflation since 1991, he said.

“Several components have come together at just the right time in just the right way to keep wage growth low,” he said. “Falling interest rates allowed the average American to experience dramatic lifestyle improvements. Home ownership in the U.S. is at record levels. Refinancing has given us more money without big pay raises. Investments in the stock market have made us feel good — 48% of us now have a stake in it. Stock options, which are not included in calculated wage increases for statistics, are being used more as a replacement for salary increases. And more employers are using temporary workers in the workforce.”

Creative destruction and global competition have affected job security, which should be high because unemployment is virtually nonexistent and consumer confidence is at record levels. Creative destruction — good for the economy as a whole, not so good for job security — is a massive substitution of technology for labor, something that historically happens only once or twice a century, he said.

In the new century, capitalism around the globe will continue, technology will lead businesses to more productivity and baby boomers entering their prime savings years will influence the economy, Wall said.

“If stocks take a tumble, the slowdown in spending by consumers could easily send us into a recession,” Wall said.

Internet and tech stock stories dominated Wall Street, as there were more than 170 Internet IPOs in 1999 compared to 27 in 1998, Wall said.

“The NASDAQ’s P/E shot up 30 times in December,” he said. “But 90% of Internet stocks are overvalued because there’s too much supply. The mania will end. It always does.”

Investors will discriminate more aggressively this year, Wall said.

“My bottom line is the market isn’t cheap, but continued demand for stocks will move prices higher in 2000,” he said. “I see the Dow in a trading range this year between a low of 10,000 and a high of 13,000. More volatility and returns closer to long-term norms. Dow 15,000 will come in 2002 and by 2010, we’ll see 25,000 on the Dow.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or mbj@msbusiness.com.

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