Wednesday, January 11, 2001.

Last week, the Nasdaq market (and the venerable New York Stock Exchange) that set upwardly mobile records at beginning of last year, swung into reverse again, setting records all the way down into another negative slide at the end of 2000.

Short selling interest (the level of short sales not closed out) hit new records again by mid December 2000 as reported in the Wall Street Journal December 28.

Short interest is often considered an indication of the level of skepticism in the market. Traders who sell securities `short', borrow shares from broker/dealers and then sell the borrowed shares, betting they can profit by buying the same company stock back later at lower prices. The broker/dealer profits by charging interest on the short -seller loan.

In a continuation of negativity, five days later, in one day January 2, 2001 the largest fund out-flows in history were recorded in the mutual fund industry.

Some $10.7 billion for US stock funds and $13.7 billion for all stock funds, US and global, fled mutual funds to the safety of money markets. To properly compare these amounts, one same day one year earlier, January 2, 2000 investors placed $1.3 billion INTO mutual funds.

This is a negative swing of $15 billion dollars. Since these so called Funds Flows reports (tracked by Trimstab) are also indicators of investor sentiment; this was a very bleak picture, indeed.

Investor and consumer confidence have been shaken, just how much remains to be seen. The very next day, without any early warning the US Federal Reserve cut the interest rate 50 basis points (one-half of one percent). Whether the Fed aware of the mutual fund industry outflow is still unclear; but, rumours abound that there will another rate cut and soon. Perhaps the Fed has realised the error of their aggressive positions last year, scary to see so much power in so few.

Nevertheless, as fourth quarter earnings projections warnings continue to pile up from companies both big and small, the question in everyone's mind centres around the R-word -- recession.

Will there be one? The United States has a new president who seems determined to get consumer confidence back on track. Will he continue to lobby for a tax-cut, living up to his famous campaign mantras? A tax-cut may have some appeal to the masses, but unless it passes into law retroactive for the tax year 2000, the effect won't ripple through for at least six months, minimum.

Most likely, eighteen months if the cantankerous House of Representatives and the US Senate block it. Word filtering out from Washington political columnists is that not many politicians are in the mood to vote, especially since the US treasury is still enjoying the effect of a surplus (from all the taxes paid by investors on massive gains in the last few years). This mood could turn full circle once the lobbyists and special interest groups are let loose.