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Other points: economic growth will hover around 3%; inflation will level off

Wall hints at possibility of brief, mild recession

JACKSON — Area business leaders gathered last week at the Jackson Hilton Convention Center to hear Stacey L. Wall predict the future — in economic terms, that is.

At the fourth-annual economic forecast luncheon, sponsored by Brandon-based Community Bank, Wall, an economist and investment advisor, and president and CEO of Pinnacle Trust in Ridgeland, said President George W. Bush’s quick move for a tax cut, supported by Federal Reserve Chairman Alan Greenspan, was a much-needed positive move for the economy.

“While it will take months to actually see some sort of positive effect on the economy, it’s a feel-good for consumers to know that one is certainly coming and will boost consumer confidence at a critical time,” Wall said. “Greenspan seems to be considerably concerned about the economy. Last week, he said that the economy is near 0% growth, which is a nice way of saying we’re close if not already in a recession. He also admitted that it would be some time before we know how all this works out. I am comforted by my belief that any recession will be mild and short-lived.”

In recent economic and market forecast luncheons, Wall accurately predicted the massive technological boom that exponentially increased business productivity in the U.S. In 1999, Wall hit the mark when he correctly predicted that concerns regarding the Y2K phenomenon were overblown. Last year, he claimed that 90% of Internet stocks were overvalued and that the mania would end abruptly, which it did last fall when the “dot-com bubble” burst.

At the 2001 luncheon, Wall cautioned investors about “stock market madness,” a term he said accurately described last year’s market, and the Goldilock’s economy syndrome: “not too hot, not too cold, just right,” which often lulls consumers into complacency. Wall stressed the importance of investment diversification and continued long-term strategy.

Thomas Colbert, chairman of the board for Community Bank’s holding company, Community Bancshares of Mississippi Inc., said he’s always pleased to help investors with financial planning by hosting the economic forecast luncheon every year.

“Last year started off on the right track with the continuation of a stock buying frenzy, but we ended with a whipsawed market that wiped out many investors that had gotten too aggressive,” Wall said. “As the year progressed, the Federal Reserve’s interest rate increases gradually took their toll. Tighter credit and muted consumer confidence dented virtually every industry, from automakers to retailers to all of those low-cost online trading firms that sought to capitalize on the investment boom.”

Economists began using a word that had virtually disappeared from the American dictionary — recession, Wall said. “And the once-invincible technology sector, with its so-called ‘New Economy’ stocks, showed that it, too, was vulnerable to the effects of an economic downturn.”

“Above all, 2000 was a year when Americans’ excessive expectations were brought back to reality,” he said. “After a historic run in the 1990s, investors came to terms with the fact that for many of us, it can be bull markets, and not investment astuteness, that make for spectacular returns. The Dow Jones Industrial Average, the S&P 500 and the NASDAQ all closed lower for the year, marking the first time in a decade that all three major indices finished the year in negative territory. The year will go down in history as one of the most tumultuous years Wall Street ever has weathered.”

Among the highlights of Wall’s economic and market forecast for 2001:

– Economic growth will hover around 2% to 3%.

– Inflation will level off. “Once again, investors will be assured that inflation will not be a major problem,” he said.

– Bonds will continue to be a safe haven for nervous investors. “The difficulty with bonds is that they just don’t pay much,” he said. “A 5% yield on a Treasury bond is just not that exciting to most investors, yet yields from corporate bonds are dramatically better than Treasuries and present real opportunity. So do foreign government issues.”

– Stocks will have a positive year, but not one as bountiful as in years past. “We’ll get some buying because people have a natural tendency to bottom fish when prices are down, but it will take some time. I’m not sure the correction in technology is entirely over, and when the performance returns, it won’t be with quite the same enthusiasm. But the overall market will get help this year from sectors other than tech, like energy and financial services,” he said.

– Analysts will begin to raise their forecasts for the second half of the year and 2002 estimates. “By year-end, the Dow and the S&P 500 should be up around 10%. We may not have seen the bottom in the NASDAQ yet, but it will be up this year, too, perhaps as much as 30% from its lows,” he said.

“The major risk in my forecast for this year is recession,” Wall said. “The interest rate cut by the Fed on Jan. 3 says to me that Alan Greenspan is considerably more worried about the health of the economy than consensus forecasts. And if things are deteriorating as rapidly as Greenspan must think, it might already be too late. I place the odds of a recession this year at 30%, so I do think it is a significant concern. But I’m comforted by my belief that any recession will be mild and brief, so for investors that have properly diversified portfolios, I think they should stick with long-term investment objectives and ride it out. Trying to time this market is much riskier than staying the course.”

Contact MBJ contributing writer Lynne Wilbanks Jeter at lwjeter@yahoo.com or (601) 853-3967.


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