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Yale Professor, Robert Shiller, quoted in the Wall Street Journal: "We face a big unknown today in how consumption and investment will evolve in the next few years. Will consumers further cut their spending in response to terrorist threats? Will they continue to cut back travel and vacations? Will they cut back their demand for housing, and reduce the price for housing, thereby further amplifying the downward wealth effect? Will business become too pessimistic to launch new campaigns, sink money in new plants and equipment, and hire and train new employees? Will entrepreneurs be unwilling to commit themselves to new risky ventures that will drain their time and emotional energy in return for some uncertain possible reward in the future?"

Questions, questions, questions. And who knows the answers?

No one. But we don't mind making a guess and proposing a reason.

The chips fell a little yesterday. Our guess is that whenever the percentage of stocks to GDP is greater than the average investor's I.Q. - the chips are too high. We wouldn't be surprised to see the chips fall and keep falling, until they are finally down to a level where people are no longer so confident of the future that they're willing to buy a stock at a price 30 times its earnings and with a measly 1% dividend yield. Unsure about the return OF their money, they're going to want a bigger, surer return ON their money to make up for the risk.

Bonds have outperformed stocks this year, but have headed down lately because investors think they see the end of the downturn. But Fed. Governor Meyer admitted yesterday that it would be "misguided" not to cut rate further if the economy refuses to respond.

So far, we see no evidence that the economy is improving...and we would not be surprised to see lower rates, and higher bond prices, in the months ahead.

Over to you, Eric.

*****

Eric Fry in Manhattan...

- Hey! What happened? Where did all those confident consumers go? Contrary to the expectations of the "imminent recovery" crowd, consumer confidence dropped in November to its lowest level in seven and half years.

- This latest confidence reading reflects unalloyed anxiety. The "present situation" component of the confidence index fell to 93.5 this month from 107.2 in October.

- What might we glean from this latest report? Not much more than what we should have known already - when unemployment rises, confidence wanes.

- Is confidence waning on Wall Street as well? Don't you believe it!

- "Call buying is off the charts," an institutional options trader informed me yesterday. "The sentiment is extremely bullish."

- Likewise, the VIX Index of options volatility indicates that fearlessly bullish investors are out in force. But then, we kind of knew that already. Many traders rely on these signals from the options market as contrary indicators. When the indicators show extreme levels of bullishness, the stock market often falls shortly thereafter. By contrast, high levels of bearishness - as existed in mid-September - often precede significant market rallies.

- At the moment, the crowd is bullish...which is bearish for stocks.

- Yesterday, the Dow tiptoed toward the 10,000-mark, before getting a little spooked and finishing 110 points lower at 9,872. The Nasdaq gyrated between a 37-point and a 23-point gain before falling 5 points to 1,936. Perhaps yesterday's negative finish heralds a change in the wind for the stock market - a change that is not bullish. Certainly, investors do not lack for reasons to sell stocks.

- Through the end of October, industrial production has dropped 7.3% year-over-year. Capacity utilization has dropped a similar amount. Both of these key manufacturing indicators have suffered their most severe yearly slumps since 1982.

- Within the other major industrialized countries, Bridgewater Associates observes, "Production growth still stinks, and if anything the industrial sector's problems look like they are getting worse, not better."

- If our economy were as robust as Abby Joseph Cohen would have us believe, why are folks taking out new mortgages for the purpose of buying almost anything except homes?

- Mortgage refinancing activity has soared 500% year-to- date. Yet, the number of new mortgages for home purchases has actually fallen this year. And so have home prices. Despite the remarkable decline in mortgage rates over the last 12 months, new single-family home prices have fallen year-over-year.

- A contributor to the DR discussion boards provides an eyewitness account from ground zero "in the HEART of the Silicon Valley." He writes, "Home sales have increased from 5 pages of ads of open houses in the local paper to 25 pages. You now have a choice of 3-4 homes on the same street...Just the tone of the valley has changed; my kids and I went to a mall on a sunny Saturday; it looked like a ghost town. Let's have a reality check: Layoffs, businesses folding, homes and apt. vacancies, lack of shoppers...believe me it's FAR from getting better."

- For every story we read about the imminent, hoped-for recovery, there is at least one troubling tale about the present, undeniable slowdown - one of the more poetic recent anecdotes being the dismal attendance two weeks ago at the technology company love-in in Las Vegas known as Comdex. "From the moment the media, exhibitors, analysts and attendees got off their respective flights at the Las Vegas International Airport, it could be seen that Comdex 2001 would not be living up to its previous self," PCstats.com reports. "The first tip-off was how easy it was to get a cab...As the cabbies themselves said, last year they averaged about 25 rides a day, this year it was down to 10 or 15."

- So just how poorly attended was this Comdex confab? "NTT DoCoMo, a Japanese firm that makes some of the wildest cell phones you will ever see on the planet, had a large booth this year with a small armada of Booth Babes. At most times, the lovely ladies equaled or outnumbered the number of visitors to the NTT pavilion."

- In hard numbers, pcstats.com writes, "When the number crunching had been completed, the attendance figures from last year, which stood at about 211,000 people, were down to a mere 57,000 in 2001."

- Better luck next bubble.

-- Bill (PlanoPa@aol.com), November 28, 2001