A glimpse at future competition.

Author:Robbins, John M., Jr.
Position:Mortgage banks

The state of the U.S. economy has taken on a new persona. It is the hot topic on the Internet. Chat rooms are full of speculation on Corporate America's health and its relationship to anticipated stock price performance. The Internet offers access to technical information previously available only to stockbrokers. This medium also offers new ways to access investment activities. Millions of investors delight in checking their individual portfolio's performance on a daily basis, trading online or checking on the status of the yen.

Business-related television shows are more popular than ever. Newspapers and magazines carry the latest economic information on their front pages - in fact, the state of the U.S. economy is generally one of the few positive news stories.

The U.S. economy is still booming. Many market gurus are predicting that a bullish market will continue. Our society was opportunistic in the face of the recent global financial crises and continues to remain positive today.

This optimism was evident in the October 1997 stock market dislocation, when the U.S. market fell more than 500 points as a result of losses posted in foreign markets. It was the individual investor who, at that time, primarily led the rally of American stocks in the face of terrible global economic news. Why? Their rationale was based on positive signs, including:

* The unemployment rate was the lowest it had been in 30 years.

* The average wage was steadily increasing.

* Consumer spending was strong.

* Corporate performance was, with the exception of large multinational firms, expected to remain strong.

With the expectation that stocks, on a risk-adjusted basis, would return significantly more than certificates of deposits, bonds, money market investments or other alternative investments, these sophisticated investors chose to remain in equity investments, driving the market to higher levels. Only when inflation becomes a reality will these investors choose to significantly diversity their portfolios, knowing that corporate earnings will suffer, resulting in lower stock prices.

Homeownership remains at an all-time high, having reached record levels in 1998. New and diversified loan programs, as well as an active subprime market, have allowed more Americans than ever to realize the American dream of owning a home rather than renting.

Recent interest rate increases, however, have tended to cloud our view of the future, bringing the refinancing boom to an abrupt...

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