Mmagical Millennium Tour

Cautious optimism guides this year's journey into investments and the economy

who spent years as chief investment strategist at the firm now known as First Union Securities, based in Richmond, Virginia, says political and
economic instability in parts of Asia, Latin America, Eastern Europe and Russia could derail U.S. growth. Also, growth in Western Europe, one of the U.S.’s main trading partners, has slowed down and may also put a dent in economic vitality.

Further, Hays sees little threat of inflation in an economic slowdown. “Interest rates are likely to fall,” he says. “The stock market doesn’t look appealing, with prices at current levels and corporate profits under pressure from a weaker economy. Therefore, I think investors’ best choices for [2000] will be cash and long-term, high-quality bonds,” essentially both ends of the maturity spectrum. As a result, he’s shunning intermediate-term and less-than-investment-grade bonds.

GOLDILOCKS ECONOMY TO CONTINUE
The majority of the experts be polled think that the current growth rate of the long-running Goldilocks economy-not too hot, not too cold, but just right-will continue far beyond 2000.

“The economy likely will keep growing [in 2000], and right through the year 2008,” says Claud Burks, a financial counselor with FCI Financial Group in Millis, Massachusetts. That year is significant because, according to demographer Harry Dent, at that time there will be 40 million baby boomers between 45 and 54 years of age-peak earning and spending years for this significant group-and they will drive the economy.

Napoleon Rodgers, managing director of Alpha Capital Management in Detroit, sees the economy continuing to expand at a “brisk pace” in 2000, as the U.S. continues to enjoy the longest peacetime expansion in history. (The last recession occurred back in 1990.) “I think economic growth will be in the 2.5% to 3% range,” Rodgers says. “The Federal Reserve Board is not likely to raise rates sharply, which could slow things down.”

“Fundamentally, the economy is in good shape,” says Percy Bolton, an investment consultant and head of Percy E. Bolton Associates in Los Angeles. “I expect growth of 2.5% or more in 2000.” Bolton does expect the economy to overcome some first-quarter, Y2K-related complications. Essentially, market observers think Y2K computer problems could result in some disruptions in manufacturing, distribution, and data transmission. In addition, businesses, consumers and investors may be cautious in the first quarter of the year, waiting for any Y2K problems to be resolved.

Similarly, Thomas Okomo, a financial analyst with Atlantic Capital Management in Sherborn, Massachusetts, sees the current expansion continuing, although he also sees some first-quarter problems because of Y2K glitches.

Randall R. Eley, president of the Edgar Lomax Co., an investment management firm in Springfield, Virginia, is more cautious. He sees the economy slowing down a bit in 2000, which he considers a favorable development.

But Eley warns that if the economy continues growing at a torrid pace, “corporate profits will keep growing rapidly and the trade deficit will expand. That would heighten the Fed’s concerns about inflation,” leading to a steep increase in rates, which would hurt the markets.

Although the above scenario is possible, Eley thinks it’s more likely

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