2003 Economic Outlook
With Maria Fiorini Ramirez
President and CEO of Maria Fiorini Ramirez, Inc.
Thursday, Dec. 19, 2002; 10 a.m. ET

Maria Fiorini Ramirez, president and chief executive officer of Maria Fiorini Ramirez, Inc., a global economic financial and strategic consulting firm, talks about the stock market of 2002 and the economic outlook for 2003.

Ramirez began her career in 1968 with American Express International Banking Corporation. She has also served as vice president and senior money market economist for Merrill Lynch, senior vice president and senior money market economist at Becker Paribas and as managing director and money market economist for Drexel Burnham Lambert.

Below is the transcript.

Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.

Maria Fiorini Ramirez: Good MOrning and Happy Holidays and I wish everyone a great Year ahead with good fortunes in health, success and good investments, Maria

Washington, D.C.: I would like to know your outlook on South American markets, especially Argentina & Brazil and how those markets will be affected by the US.

Thanks, AV

Maria Fiorini Ramirez: Hi AV- The outlook for South Ameica is not great but For Countries like Argentina and Brazil we know they have lots of problems and already - so I doubt that there will be many surprises. The economies are in shambles and there is a lot of social unrest. I would not make any investments in those countries until they get their political and economic act together. Just getting support from the World Bank or IMF its not going to do it. I am sorry to say that the policies that they adhered to in Argentina were wrong for too long. And, Brazil's economic problems were a direct result of the bad policies in Argentina. With what is now taking place in Venezuela I am afraid things will get worse before they get better.

Massachusetts: If you are only a few years from retirement,where is it best to put your money?

Maria Fiorini Ramirez: If you are only a few years from retirement you are probably paying enough taxes to make municipal bonds a worth while place where to put your money so your principal may have a great degree of safety and tax -wise it makes a lot of sense. At some point next year you may want to put some money in equities that also pay a decent dividend. But I still think the best thing to do is to be very risk averse right now. A municipal bond fund may be the best way to do it so that you spread out your credit risks.

Alexandria, Va.: I feel the underlying fundamentals of the US economy are still pretty good and I have refused to panic with respect to our retirement savings (substantial, or at least they were, and both husband and I are in our 50s). Do you advise panic?

Maria Fiorini Ramirez: I think that relatively speaking the US economy is still the best in the world. Look its not perfect but nothing is. We had a lot of fluff for too many years and sooner or later the problems that were created by too lax an environment, had to come home and haunt us. They did in a big way the last two years. We know what they were and some of the problems are getting cleaned up and that fundamentally should be good for the economy- I really think the worst is behind us but overall the economy is not going to be booming from here.

Midland, Tex.: Where do you see oil & gas prices during 2003?

Maria Fiorini Ramirez: Oil and gas prices are going up- Period. I do not know by how much and for how long- I just feel that with the problems in Venezuela which is a big supplier and now almost no longer a supplier - prices are going up. with likely conflicts in the Middle east supply is going to be squeezed either fundamentally or artificially prices are going to be moving up until the mess is over. I think its going to be a short term bubble because fundamentally with the economies around the world weak - demand is not going higher just the normal supply is being squeezed.

Baltimore, Md.: In looking over what the tax cuts have done in my life, I have not spent a single penny on new purchases ~ which would stimulate the economy. I have to much darn debt, that every penny has gone in that direction.
Question: If everyone else is in the same boat with me, is it possible for further tax cuts to stimulate the economy since addressing our individual debt problems is more pressing?
Thanks! I'm not an economist, so I don't understand how the tax cuts will change my life substantially since it won't stimulate the economy, hence won't enhance my earning power.

Maria Fiorini Ramirez: I agree with you that the tax cuts do not do much when you have a lot of debt to repay. I think you have been doing just about what every consumer with a lot of debt has done. Repay the debt or refinance the debt with lower interest costs. Companies have been doing the same thing. What the Federal tax cuts are giving you the local municipalities and states are more than taking away from you via higher real estate taxes or any other kind of taxes they can come up with. They are leaving no stones unturned! I am afraid that with this kind of situtation the economy is going to grow very slowly next year also. Its going to feel like we are in a recession but the numbers added up will not show that. If you did not have some tax cuts you would be a lot worse off because your disposable income would be going down. If you did not have low interest rates it would be even worse because the crunch you and most other consumers would be in - would be unbearable. So we will have to slug this out and try to make the best we can out of it.

Minneapolis, Minn.: I have heard a lot of talk on how the huge amount of debt America and its consumers have will be a drag on the economy for years to come. Recession, and possibly depression, will be the inevitable result. What are your thoughts on this?

Maria Fiorini Ramirez: I hate to think about recessions and depressions. But you are right - we cannot ignore the possibilities that we get into a worse debt spiral and economic conditions that cannot respond positively. I think that although we have a lot of debt - the savings rate has gone up a bit and the debt has been refinanced at a lot lower cost - this is good news. Also on the asset side of the balance sheet home prices have gone up quite a bit the last five years offseting some of the negatives from the stock market. with interest rates down a lot the value of fixed income securities has also gone up a lot. In the 1980's every day you would read about how the goverment debt and the consumer rising debt would squeeze out the corporations and the economy would suffer. None of that happened. I just think that the reality is very different that what the academic assumptions sometimes are. To the extend that we have willing investors to buy the debt and risk takers to create economic opportunities - the debt isssue is not going to drag down growth in the long run. Bad debt which is what many companies issued the last few years is holding down growth right now. This is the mess that has to be cleaned up before the economy does better.

Arlington, Va.: I am 49 years old. I contribute $10,000 to 401k (stock market) each year. I now have $400,000 in real estate. Do you think real estate will hold for the next decade?

Maria Fiorini Ramirez: In the 1980's investors were very much involved in the real estate market because there were tax benefits that made it attractive. In the early 90's real estate was depressed because the tax law changes and regulatory changes took the bottom out of real estate. in the 90's financial assets became preferred then there was the bubble and it burst in the stock market. I think that there will always be an important part for real estate in anyone's portfolio. I do not think it should be your only asset. Your contribution should be spread annually in stock and bonds. I think real estate will hold its value but not rise as much as it did the last few years.

Fairfax, Va.: How will the economy fair in Japan next year?

Maria Fiorini Ramirez: I think in Japan the economy will remain weak for another few years- it lacks consumer confidence and the outlook internally is not positive.

San Jose, Calif.: What are the chances of a "South and Central American Union" emerging ~ sorta like the European Union? Will they finally realize that if they're not working together in world finance, you're bound to fall behind ~ into the Fourth World?

Maria Fiorini Ramirez: I think a tax increase would not accomplish much. The average consumer has been squeezed on all fronts and a tax increase would be devastating. However I am in favor of companies paying taxes and let the tax burden be moved from individuals to corporation especially those that have not been in the habit of paying taxes at all.

Annapolis, Md.: Do you predict a turn around for Telecom in 2003? Or continuing troubles? Thanks & happy holidays.

Maria Fiorini Ramirez: I do not predit a turnaround in Telecoms because we still have a lot of excess capacity- the survivors will do well in the very long run but we have too much "dead wood" to deal with before we get to that point. Prices going down will not help either. Happy holidays to you also,

San Juan Puerto Rico: Maria,

We miss you in Puerto Rico!

What is your opinion on the likelyhood of new Federal legislation that could boost the economy in light of the possible war?

Maria Fiorini Ramirez: I miss Puerto Rico and all my friends there also. Hopefully I can make it back in the winter when the weather in NY is awful. As for the likelyhood of new Federal legislation to boost the economy if there is a war, it would be differet ways to lower the tax burden on individuals. how? Payroll taxes holiday- extention of unemployment benefits and some other short term approach. What I worry is that the benefits we get from the Federal side are going to be offset by increases in local taxes because every state has a shortfall of revenues. There is nothing better than the economy growing at 5% and the stock market up 25% per year- the reality is that is not likely to happen any time soon! See you all this winter I hope and thanks for keeping in touch.

Owensboro, Ky.: Where will tax rates go over the next few years? Does the Bush Administration really plan to raise taxes on those earning $50,000 to $75,000 annually?
New Tax Plan May Bring Shift to Burden (Post, Dec. 16)

How can one innoculate oneself against such folly?

Maria Fiorini Ramirez: No that is not going to happen - taxes are not going up

Clovis, Calif.: Do you think e-commerce will increase in a recession as more business try to reach out or decrease as more business cut the bottom line? I know a lot of small businesses that are searching for customers by getting on the internet and a lot have found it very cost effective.

Maria Fiorini Ramirez: The internet and e-commerce are here to stay- yes its cost effective and small business should benefit from it. Will it increase in a recession - surely as everyone that can looks for bargains and those are available around the world through the internet.

Fargo, N.D.: What sectors of the market could be strong in 2003?

Maria Fiorini Ramirez: Sectors that can be strong are energy- defense - maybe financials also. i think you really have to be picky - its going to be very difficult to pick the right company in the right industry all the time- there is a lot going on in the Biotec world and new drugs so selectively that may work out well also.

Chicago, Ill.: Will the current administrations tax policy really have any positive effect on the economy?

Maria Fiorini Ramirez: Yes they will have a positive effect in the sense that without them the economy would be worse off.

Bethesda, Md.: With Chapter 11 filing of Conceco do you see more on in the coming year?

Maria Fiorini Ramirez: I am afraid there will be more Chapter 11 filings next year. The big ones are probably behind us but I doubt that its all over yet. Many companies are filing because that is the only way they can survive the lawsuits.

New York: What is your opinion of Asia's economies?

Maria Fiorini Ramirez: The only economy likely to do well -relatively speaking - for many years ahead in Asia is China. domestically they need a lot and export-wise they are the most price competive globally.

Frederick, Md.: Hi,

Thanks for taking my question. I would like to know your opinion as to how the mortgage rates would behave in early 2003 (Feb-March) and towards the end of 2003?

I will appreciate your reply
Anand

Maria Fiorini Ramirez: Mortgage rates are likely to remain low for many months. I doubt the fed is going to do anything with interest rates for many months ahead. You should not get greedy though- refinance and if you have to do it again if rates go down just do it again - try to do it in a way that you do not pay points or penalties.

Woodstock, Va.: We plan on building a new home in 2003. Completion and closing will probably be in November, 2003. We have been told that interest rates will probably begin to rise after the New Year. What are your thoughts and do you have an estimate of the rate of the rise over the next twelve months.

Maria Fiorini Ramirez: Nobody really knows where interest rates are going to be a year from now - all we can do is make a rational guess. If we assume that the economy is going to at best be growing at only 2.5 percent, its hard to make a case for interest rates going up at all. My best guess is that they may be marginally higher a year from now.

Springfield, Mo.: I own and operate a small distribution company which supplies manufacturing facilities with MRO products. For the last twenty years, I have seen one plant after another close their doors here in the U.S. only to reopen their operations in Mexico and now in Asia (China) chasing cheap labor. This trend continues and I believe has contributed to lowering the standard of living in this country, weakening our economy and making us dependent on foreign sources for our labor supply. What if anything can be done to either slow down or reverse this trend?

Maria Fiorini Ramirez: I have been observing the same thing for the last 20 years. That is what has been hurting Japan a lot and Europe too. When the Wall was up in Europe and China's door were closed there was a huge portion of the world that really did not participate in the global economy. Can we reverse that? I doubt it- I was in Mexico September last year seeing some of the plants at the border and the main worry was how they can compete with China? I have no idea if there is any possibility in doing that. I think over a long time we will have deteriorating standard of living in what used to be the leading economies as those that were not even part of world trade and economic growth benefit a lot. Especially those that really have their act together.

Ft. Lauderdale, Fla: Is there a real estate bubble and where are the prices of housing going?

Maria Fiorini Ramirez: I do not think there is a real estate bubble- but I do not think prices will rise a lot either - if anything they wil appreciate less in the next five years than the last five years.

Barcelona, Spain: Fundamentals such as consumer confidence and expenditures suggest the dollar should strengthen against the euro. Yet, due perhaps to the Bush war threats, but more likely founded on the huge US current account deficit, the dollar has declined to 3 year lows this week. Which factor do you see winning out in 2003?

Maria Fiorini Ramirez: I think the Euro is up not because of Euro fundamental strength. I think europe is lagging the US economic sickness for at least a year- that is what i thought last year also and finally the European Central Bank is accepting the fact that inflation is not as much as a problem as they thought a few months ago. the big problem in Europe is jobs and the fact that its too costly for companies to be there and they are spreading out to less costly parts of the world to make things in. I think the Euro is up and will continue to be up because-there is a lot of money from the Middle East and Europe that is staying in the Euro because they are afraid of leaving the money in the US - lawsuits and fear of assets being frozen is the number one reason. This situation is not going to change in 2003 it will just be more strength for the euro which will make it economically more painful for Europe.

Washington, D.C.: Is it safer to invest in the bond market for the upcoming year 2003.

Maria Fiorini Ramirez: I definitively think you should have some money in bonds and some in stocks. Bonds - ie government bonds and goverment agencies are yielding very low and are at record high prices. Would I put all my money in bonds now- NO- However I would be selective in putting some in a corporate bond fund maybe in the first half of next year when a lot more problems will be out in the open. Put some in muni bonds because they are very attractive on an after tax basis -

Detroit, Mich.: Lawrence Kudlow I know tends to be very bullish on the market. He says today that "Taxes matter, and money matters. Today, both appear to be moving in the right direction. Next year we could witness real GDP growth of 4% to 5% — up from this year's 3% — with inflation at 2% or less. And if productivity continues at its current 5% pace, then the economy could easily grow at 6% or 7% next year. Think of what this will mean to top-line revenue sales, cash flows, and profits.

Is there a stock boom in the making? That could very well be the case."

I take it you would disagree?

Tim Baughman

Maria Fiorini Ramirez: I would rather be wrong and see the economic miracle you refer to - The reason I disagree is that I think there are still a lot of credit problems and there is not going to be fluff in the stock market or easy money to borrow in the bond market- the amount of capital spending is going to be lean and mean regardless what the tax rate is. I hope I am wrong but as I just wrote about in a Januray issue of a magazine, I doubt this is going to be the case.

Reston, Va.: What is your outlook for housing prices across the U.S. and in particular in the markets where some speculate they are over-priced such as San Francisco, Boston, and Washington, DC. Is the housing market in a bubble?

Maria Fiorini Ramirez: I do not think the housing market overall is in a bubble but some cities were in bubble enviroment and have seen prices come down. In those cities you mentioned its impossible that prices keep rising, the economic fundamentals like job growth etc are not there to support it.

Baltimore, Md.: In your opinion, is 2003 a good year to purchase my first home or invest in the market?

Maria Fiorini Ramirez: If you need a place to live - you should purchase your home before investing in the market. the tax benefits and the fact that its something you can enjoy should be sufficient to make that decision easy.

Arlington, Va.: Where do you see employment trends going in 2003? Specifically in the finance area? Will companies still not able to forecast? Do you see many companies not meeting earnings forecasts?

Maria Fiorini Ramirez: I think that companies are going to move away from making earnings forecast. Lets face it they do not know the future and there is no sense in giving any guidance that does not feel very solid. Three years ago they had a bright view of the future,Two years ago they were saying we have "Poor visibility" and now they are starting to say that they have no view of the future. Earnings forecast are impossible to make- the future is too uncertain - financial companies have been shrinking a lot and I think they will continue to shrink next year - there will be plenty of opportunites for those that can take advantage of this big transition we are in.

Herndon, Va.: What do you think about the economics at China? Thanks!

Maria Fiorini Ramirez: China has alog way to grow- many years - but I think its hard for outside investors to make money there-

Bloomington Ind.: Is the rise in gold a temporary phenomenon or do you foresee a sustained bull market with a correponding decrease in interest in financial assets?

Maria Fiorini Ramirez: Gold always rises when there is turmoil and we have that now- as an investment I have never been a great believer in it. It will probably continue to rise as long as there is a lot of uncertainly around the world.

Potomac, Md.: What ripple effect will the bankrupcy of several major companies have on the economy in 2003?

Maria Fiorini Ramirez: Bankrupties are devastating- if its a big or small company the impact is the same. just the magnitude is different. I think the ripple impact of this year's bankruptcies has not totally been felt - it will take at least another year and that is why our outlook for job growth is very cautious.

Annandale, Va.: Hello Maria,

I plan on purchasing my first home in a few months. Since the real estate prices have been exremely high in the DC area, in your opinion do you think purchasing is a good idea? Knowing that whatever goes up must come down, what effects does this have on us planning to invest in the housing market?

Saludos.

Maria Fiorini Ramirez: I recently heard that the rental market in the DC area is soft - that indicates to me that sooner or later prices will have to come down to where there is a buyer and seller meeting of mind and prices. Take your time and look around for distressed situtations- maybe you should ck with the local banks for any foreclosures - it may take a while to see that but certainly I would think that prices are going to reflect what is happening to companies and jobs in the area.

Los Altos, Calif.: What are the best stocks (names please) you think will do well next year. Is gold going to hit $400 by next year sometime.
I think we are still in a bear market. My prediction is 5500 on the Dow. Do you agree?
Thanks.

Maria Fiorini Ramirez: I have no idea what the best stocks would be next year - If I had that crystal ball I would share it with everyone. As for gold I would not be surprised if it would go to $400 - the question is how long will it stay there and how fast it will come down? I hope we are not still in a bear market- but I do have to tell you that the multiples are still pretty expensive in many benchmarks that we look at.

Gold Hill, Ore.: I enjoy watching you on the 5:00 a.m. news.
I have telephone stock that has just about disappeared as far dividends go, so far I have lost a bundle. Do you recommend getting rid of them or will they come back. We do have to have telephones and technology. Bell
South is about the only one that hangs on.
Thank you

Maria Fiorini Ramirez: I enjoy getting up at 3:15 am to do it! Telephone stocks are in a dilemma - prices coming down and competition is all over the place and making it hard for the old companies to make money. I have no idea if and when they would come back. I just know deep inside that competition on the price front is not going away and its going to be hard for all of them to survive. Sorry about this sort of negative comment on the industry.

Maria Fiorini Ramirez: It has been a pleasure and a privilege to answer some of the questions you send to me today. I hope to answer them all in the future either on the air or over this website. I wish you and your families good health, every day full of sunshine, much happiness and good investment decisions in 2003. I hope that the economy booms, the stock market turns in miraculous returns and that the world will be a more peaceful place to live. Stay well and keep in touch. You can send us an email at maria@mfr.com

Best regards to all,

Maria

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