|
Cohen still upbeat on U.S.
|
 |
January 27, 2000: 9:51 a.m. ET
Strong, if less robust, growth predicted; world economy seen tied to U.S.
By Staff Writer Tom Johnson
|
DAVOS, Switzerland (CNNfn) - A panel of top economists Thursday predicted the U.S. economy will continue to drive worldwide economic growth this year, while one of the top U.S. stock forecasters reiterated her view that U.S. equities will see strong, but less robust growth in 2000.
Abby Joseph Cohen, co-chairwoman of Goldman Sachs' investment policy committee and one of the most respected stock pickers on Wall Street, said with S&P price-to-equity valuations now in line, U.S. stock growth will be driven primarily by earnings and cash flow this year, perhaps deflating some of the unbalanced valuations of 1999.
"The returns will be good, but not as good as they have been," she told a group of business leaders, economist, academics and political leaders at the World Economic Forum in Davos Thursday.
But while she expects equity values to rise across most sectors in 2000, she noted investors have become more savvy and are less likely to inflate shares to unreasonable multiples beyond their projected earnings, as they have in the past.
"Investors are paying attention to whether companies have good business models and good profit streams," she said.
Even the technology sector, she noted, which typically has earned Wall Street's highest valuations despite the general lack of significant profits, should enjoy investor confidence this year based on recent results.
"The fourth-quarter results to date have been outstanding and most of the interest rate fears have been built into the market," she said. "It seems the 'irrational exuberance' (of last year) has been justified."
Europe hanging on U.S. performance
Other economic analysts joining Cohen on a panel discussing the state of the global economy said such performance bodes well for the rest of the world.
Europe's fortunes, in particular, will be tied to the performance of the U.S. economy, said Victor Halberstadt, a professor of public economics at Leiden University in the Netherlands.
"Basically, the combination of the Federal Reserve, the way the International Monetary Fund and the World bank have functioned, and a lot of luck carried us through this recent crisis," Halberstadt said. "If the U.S. begins to cool, we will be in big trouble."
While commending the performance of the European Central Bank thus far, Halberstadt noted Europe has yet to really battle inflation during its recovery and has not yet embraced the so-called "new economy."
"If the U.S. economy makers handle it well, I think 4 to 5 percent growth is achievable" in Europe, he said. "The key to continued growth and inflation is largely in the U.S."
Japan faces uphill struggle
The outlook for Japan is decidedly bleaker, the panelists said.
Burdened by an enormous amount of debt and the prospect of rising interest rates, Kenneth Courtis, vice president of Goldman Sachs Asia, said the turnaround in Japan will be slow.
"We are running out of wiggle room on fiscal policy, so there's only one card left to play and that's to try and bring down long-term rates," he said.
But that will be difficult, he said, without new investments in Japanese equities and a major reduction in debt.
Some audience members questioned the ability of the U.S. economy to maintain its current momentum, given the rising disparity in its trade imports and exports.
But Cohen called those fears unjustified, noting the trend would reverse as other economies improve.
"The large trade deficit is the output of problems elsewhere," she said. "I would hate to think what the rest of the world would look like if the U.S. had not allowed its trade deficit to grow." 
|
|
|
|
|
|
Goldman Sachs
|
Note: Pages will open in a new browser window
External sites are not endorsed by CNNmoney
|
|
|
|
 |
|
