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Mutuals manager predicts recession
By HELEN HUNTLEY © St. Petersburg Times, published January 11, 2001
"Slower economic times are going to stay with us for a while," he told clients over lunch at the University Club, one of two Tampa Bay area presentations. If we aren't already in a recession, we will be, he said. And if that wasn't enough to give his audience indigestion, Herr-mann warned not to expect a quick rebound in beaten-down technology stocks. Herrmann's view of the economy is more pessimistic than that of most economists who participate in the monthly survey of Blue Chip Economic Indicators. In that report, released Wednesday, most said they expect the United States to avoid a recession, but they expect economic growth of only 2.6 percent this year, which would be the weakest performance in a decade. The question is just how slow things will get. Another report released Wednesday showed inventories rising at U.S. wholesalers in the face of stagnant sales. "A lot of companies say things just stopped in November. This is the quickest slowdown I've seen in my career," said Herrmann, 58, who started out as a junior technology analyst almost 40 years ago. Now president and chief investment officer at Waddell & Reed in Shawnee Mission, Kan., he supervises $40-billion in assets under management and runs the company's science and technology fund. Herrmann said investors do have one big trend in their favor: The Federal Reserve Board is lowering short-term interest rates, which almost always leads to a rally in both stocks and bonds. Herrmann said he thinks the Fed will have to cut short-term rates to less than 3 percent to get the economy going. Those cuts along with income tax cuts he expects Congress to deliver eventually could revive consumer spending, he said. But he said power shortages in Florida, the Northeast and California will limit growth. The sectors Herrmann thinks have the most potential are health care, aerospace, natural gas and selected financials, utilities and retailers. Herrmann said strong retailers will benefit as others such as Montgomery Ward go out of business. He said long-term investors should be rewarded, but "don't look for instant gratification." Herrmann said he is taking a defensive approach in the technology fund, maintaining 15 percent to 20 percent in cash and broadening the definition of technology to include sectors such as drugs and aerospace. Waddell & Reed distributes its mutual funds through a network of retail offices, including three in Pinellas County. - Contact Helen Huntley at huntley@sptimes.com or (727) 893-8230.
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From the Times Business report
From the AP
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