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Seeing a bubble within a boom

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Cheery economic times are ahead in 2000 - maybe.

The "leading indicators," a statistical predictor of economic activity, last week hinted that the boom in the United States will continue at least until spring. Economists expect about 3 percent growth in the output of goods and services in 2000.

"It's a pretty optimistic outlook," says Mickey Levy, chief economist Banc of America Securities in New York.

On top of that, most retailers are delighted with their Christmas sales. Corporate profits are forecast to be healthy in 2000. The consensus of economists is that consumer prices this year will rise 2.4 percent, up a tiny bit from about 2.2 percent in 1999.

"Should auld inflation be forgot," sings David Wyss, chief economist of Standard & Poor's DRI, an economic consulting group in Lexington, Mass.

Western Europe's economy is reviving, Japan's economy looks better. The Asian economies are coming out of their crises.

A sprinkle of chocolate on the cake is the stock market, especially the technology stocks. The Nasdaq Composite Index, which includes many technology stocks, such as Microsoft and Intel, broke the 4000 level for the first time last Wednesday. Wall Street cheered.

But not Robert Parks, a Wall Street economist who frequently offers his views of the economy to managers of big investment money. He describes the tech-stock boom as "the biggest single financial bubble in US history."

Moreover, says Mr. Parks, many money managers he talks to agree that most tech stocks are overpriced. But they find they must stick them in their portfolios regardless. They are afraid that if they buy more realistically priced stocks that aren't rising so fast, their investment performance will look poor. So they will lose clients and perhaps their jobs. Those managing mutual funds worry shareholders will jump to hot funds.

Thus the technology fad feeds on itself. But such manias end.

Parks recalls forecasting the burst of the 1980s bubble in the Tokyo stock market. It did so in 1990, with stock prices bouncing back some in the past year.

Now he's betting the Nasdaq bubble will burst in the next few months, risking a small chunk of his personal investment money on that assumption.

A stock market bubble burst doesn't necessarily mean the whole economy will similarly pop. With Federal Reserve help, the US economy kept on going after the 1987 stock market crash. The Tokyo bust, though, was a factor in Japan's decade-long economic doldrums.

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