Demand Fears

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Demand. We are all worried about demand. Let's just hope the

Fed

is equally as worried as we are. Yesterday, when the

Merrill Lynch

quarterly fax hit my desk, the first thing I turned to was not commission revenue, or income from asset management. It was information technology spending. It was still huge. It was still running in the hundreds-of-millions-of-dollars rate.

But that's strictly rear-view mirror stuff. Merrill won't be spending as it has. It can't; it's retrenching. Or take these competitive local exchange carriers and Internet service providers. These are the biggest buyers of tech out there. They take every penny they have and plow it into information technology spending. But will they run out of pennies?

America Online

(AOL)

won't. But how about all of those ISPs and CLECs bumping along on the 52-week low list? Will they spend when they can't borrow any more?

Or these merged banks. Not the little ones, but the big ones. What's

NationsBank's

(NB)

IT spending looking like now that BankAmerica and Nations no longer have separate IT budgets? Or

BancOne

-

First Chicago

? Or

Citi

-

Travelers

? Those companies amounted to a significant part of computer spending in this country. Even before the turmoil they would be cutting back by virtue of their merging. Now what will happen?

Or the RBOCs? Oh forget them, they never upgraded anyway. Didn't have to. Ruled by arcane state regulations, their principal job is to pay lawyers to stifle competition and try to cut overtime, not to modernize. We keep waiting for them to spend, but they are the

Godots

of IT.

This larger industrial demand question is what we all worry about. Of course, we worry about the consumer, too. But every Fed governor is on the tape every other day saying the consumer is doing great, so even though

Kodak's

(EK)

numbers would tell us to worry, and

CompUSA's

(CPU)

for that matter, I don't focus on it, because the Fed has it all figured out, even if it is wrong.

I don't attack the Fed lightly. I think that everybody I have ever met from the Fed has blown me away with diligence, intelligence and depth of understanding. I think it is one rigorous outfit, the

Harvard Business School's

government service alternative to working in the Southern District of New York when you get out of

Harvard Law

.

But this time they really have it wrong. They don't understand September. This was the great falloff month of all time. This was a month that will go on record as when our country simply stopped spending. If you look at numbers through June or even July, when the stock market was still flying high, you can only be impressed by our resilience. But when they are through parsing September they will realize how far behind the curve they are. And October will only be worse.

That's why buying anything is so hard. We need the Fed to see what we see when we make our calls to companies. They don't. At least not the popoffs who come on the tape everyday saying everything is fine, or the joking

Greenspan

who last week was emphasizing that economists were getting too gloomy.

I only wish that were the case.

And by the way, I am no economist. I am a guy who calls people. I don't like what I am hearing. But I don't doubt what I am hearing. People just don't make up stuff like this.

*****

Random musings:

Uh oh, the real fallout from the

Vranos

/

Ellington

debacle may be the pricing. A lot of firms are mispricing MBS (mortgage-backed) securities in order to stay afloat. They are using pricing that is close to the purchase price. But Vranos has now set a whole new price level with his liquidations. What does that do to the

Ocwens

of the world, who have not written down their portfolios, according to a

Morgan Stanley

report this week? What does it do to all of those mortgage-backed hedge funds that are using unrealistic levels to fight off the margin clerks/repo men? We now have real price levels set by the marketplace -- admittedly the Columbus Day marketplace, but it is a marketplace. Do the margin clerks then take those price levels to all of the hemorrhage/mortgage outfits out there? Look out below...

.Just when the arbs were getting whole,

Cendant

(CD)

and

Monsanto

(MTC) - Get Report

rear their ugly heads...

Bell Atlantic

(BEL)

takes a writedown? Wasn't that the upside to the story? ...Throughout all of this, it does seem like the market doesn't want to go down. Seems illusory to me, but nothing should shock anybody these days.

James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com.

At time of publication his fund is long America Online, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com at

letters@thestreet.com.