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Your investments and the economy

By Mike Comerford
Daily Herald Business Writer
July 25, 2004

Mike Comerford recently interviewed Carl Tannenbaum of Downers Grove. Tannanbaum is Chief Economist, LaSalle Bank N.A., Chicago.

What was last week's economic highlight?

"The big highlight of the week was (Federal Reserve chairman Alan) Greenspan's semiannual appearance before Congress on how the economy is doing. The Fed is raising interest rates and the question then was, ‘How fast is it going to go up?' But the good news is he hinted the Fed could maintain measured raises."

Have a lot of technical

investors turned bearish?

"It's fair to say the economy had an off month in June. Job creation was substandard. Retail sales dropped. Industrial production declined. It made us wonder, ‘Has this economy's growth come to an end?' Our feelings are like (Greenspan's views). Industrial expectations are in very strong territory … Last month there was a significant reduction in office space and you don't need office space if you're not hiring. I suspect June was a lull and we'll be back on track in the second half."

What affect did Microsoft's massive dividend decision have on the markets?

"From an economic perspective, it puts $9 billion in people's pockets before Christmas. People are speculating that it will lead to a nice holiday buying season. Parts of the tax bill last year weren't this large. It may show that the reduction in dividend taxes may be having more of an impact on companies' decision on the amount of cash to pay."

What does it say about

Microsoft as a company?

"For Microsoft, it is a sign of maturity because for years it didn't pay any dividends. It's a sign the company is more mature and doesn't anticipate growing as fast. Its stock will now appeal to a difference community of investor, many of whom put a higher value on income based on dividends."

Is there a market momentum this summer?

"No. None. It has been trading sideways. The (Standard & Poor's 500 index) is having a lousy July. But mostly, it has been trading sideways. I think what is affecting stocks is geopolitical. There is a risk premium built into stocks these days. And, it's likely that the best news on earnings may now be behind us."

Is there anything this week the average investor should be looking for?

"It will be a little quiet. Housing sales come out. They should be strong because of mortgage rates (hovering around 6 percent). We'll get our first look at (gross domestic product) numbers for the second quarter, which are expected to rise at a 3.5 percent pace, adjusted for inflation."







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