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Recession reaching its end, yet, some banking that average investor won't notice opportunities

Posted: Wednesday, February 20, 2002

Here's the inside story of how some very sophisticated people would like the average investor to fall for their endless economic scare tactics when, in fact, the recession is over.

That's right. You read it here first. When all of the smoke and haze of the accounting scandals, Federal Reserve follies and congressional posturing are over, you will someday hear a pronouncement -- probably many months from now -- that government economists determined the mild recession of 2001 ended in mid-winter of 2002. So there's good reason to look for opportunities now.

But there are people without jobs, companies slowing down spending, states cutting needed services and jittery market nerves, right?

And add to that last Friday's report by at least one source that consumer expectations and confidence declined for the month of January.

So why, one might ask, would anyone be so bold as to declare the recession to be reaching its end? Much less suggest that some financial wizards are banking on the hope that we're all too stupid to see the light at the end of the tunnel?

The answer is hidden in a simple set of facts.

Remember that the decline of the value of corporate earnings, as well as the value of most stocks, was so marked over the past year and a half that the quarterly earnings reports for these companies in 2001 became overwhelmingly negative.

Tremendous values in 1999 and 2000, along with soaring revenues and profits, were being compared to more recent declines that, on charts and graphs, looked similar to a healthy electrocardiogram gone flat.

Now we will enter a year in which even moderately strong revenue and profit growth will make a company appear to be back on the right track. All of those gloomy charts will begin to show a slow but steady rise. Even the depressed world of advertising will start to grow, as corporations begin to realize that their biggest mistake during the down cycle was to cut back on marketing.

Another critical part of our recovery will be the fact that America withstood the most devastating domestic attack in its history, yet somehow held on to find, within less than six months of the tragedy, productivity rising and unemployment leveling off, if not, in some instances, starting to decline. We now know that the unthinkable catastrophe may get us down, but it will not cripple our economy.

And while the naysayers tell us that corporations will once again have to tighten their belts, the American consumer appears more than willing to keep things moving. With the exception of auto sales, consumer spending rose in the last report.

And what about that corporate world that reportedly will remain so tight-fisted? Reality doesn't necessarily support the theory. One great example can be found in the coming resurgence of technology.

For anyone who works in an office, be it a multinational giant or a small business, the story remains the same. Most are using the same computers they had two years ago. The server or network needs to be upgraded because it keeps crashing or is at the very least unable to handle all of the e-mails and Internet traffic it sends and receives. There is a huge wave of technology upgrades just waiting to be unleashed. One can only drive the same car so long. And the same can be said for the technology that has become the backbone of even the smallest of businesses.

So how are we in the general public being played as the chump?

The answer can be found in all of the other economic recoveries in recent memory. It always seems that the large institutional investors sit on the sidelines during troubled times, waiting until the public is thoroughly scared of doing anything other than putting their collective dollars under a mattress. Suddenly, the stock market starts to soar, there are new public corporations being created, and the average working person has been left behind.

This time, the so-called "accounting scandal" is being used to shake up consumer and investor confidence. Every few days, a new company is accused of having some questionable transaction, then it is revealed days or weeks later that it really wasn't such a big deal after all. Meanwhile, the big players sit back and wait for the right moment to get ahead of the curve, knowing all too well that business fundamentals are suggesting good times ahead.

We may not be headed back to the unbridled "go go" economy of the late 1990s, and signs of this recovery may be weeks or months away, but rest assured, now is the time to stare down temporary dips in stock values or "one day" negative reports about the economy. Now is the time to get ahead of those who are betting the average investor won't.

Matt Towery writes a syndicated column based out of the Florida Times-Union in Jacksonville. He can be reached at www.InsiderAdvantage.com.



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