Stone's got that right. There's another very interesting article in today's NYT, one of the grimmest financial outlook pieces I have read in years -- about the bleak state of the corporate bond market (which is much larger than the stock market) and what it may mean as a bellwether for the economy.
The article, "Bond Believers See Prelude to a Fall" by Gretchen Morgenson, notes in part:
" ... with the stock market in a swoon, investors looking for guidance are starting to heed the distress signals that the bond market has been sending up recently. And what some observers fear they see in these signs is a storm for the United States capital markets that may be tougher to recover from than the debacle in the autumn of 1998.
"That year, a crisis was precipitated by the demise of one giant hedge fund, Long-Term Capital Management. But after the Federal Reserve Board lowered interest rates, recovery came swiftly to the stock market and the economy was relatively unscathed. This time around, market observers say, the turbulence will be set off by many troubled companies buckling under the weight of excessive debt lent to them at the height of New Economy euphoria.
"That scares the pinstripes off the pants of some who heed the bond market's signals. If worried investors continue to shun corporate bonds as they turn away from risk, many companies will find it impossible to raise the capital that leads to new job creation and continued economic growth. And since much of the economic growth in this nation over the past few years came from the big money spent by companies that had raised cash in the anything-goes bond market, the economy could slow quite sharply as the money spigots go dry.
"Finally, as more and more companies go under, their woes could turn a soft economic landing into a much bumpier one. And the longest American expansion on record could come abruptly to an end.
"Byron Wien, chief United States investment strategist at Morgan Stanley Dean Witter, sees little good in the signals the bond market is sending.
"'One,' he said, 'the hard landing possibility for next year is more realistic than the stock market believes. Two, even if there is a soft landing, corporate fixed expenses have built up during this nine-year period of prosperity and will be hard to roll back, so that a minor shortfall in revenues will cause a major shortfall in profits.'"
And that's just the intro. The article is long, detailed and relentlessly gloomy. Full text is at http://www.nytimes.com/2000/11/19/business/19BOND.html.
Carl
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