UpDate - Vol. 13, No. 12, Page 2
November 18, 1993
An insider's prognosis for finance in the '90s 

     NAFTA's going to happen. So will healthcare, but it will be watered
down, and, in 1996, President Bill Clinton will propose a middle-class tax
cut to be paid for by the rich. The prognosticator-Donald Straszheim, chief
economist for Merrill Lynch Inc.
     Straszheim's NAFTA and healthcare predictions were just a few of the
insights he shared with 150 Delaware business executives, Nov. 9, at Arsht
Hall. His speech was the second in the College of Business and
Economics/Merrill Lynch lecture series that began last year with former New
Jersey governor, Thomas Kean.
     Straszheim's job is to research and analyze the global economy so that
the broker megagiant has a factual basis for investing billions of client
dollars.
     As spokesperson for Merrill Lynch, Straszheim has mastered the art of
speaking in sound bites, which means he can and does translate the most
complex facts into language any audience can comprehend.
     "The experts say that the recession ended in March of 1991, but no one
can tell," he said. The current economic slump is the "slowest and most
sluggish recovery in the post-war era" and he said he doesn't see it
getting any better in the near future. "The problem is we've got a whole
host of structural problems that are not susceptible to a quick fix out of
Washington and will take a long, long time to resolve," Straszheim said.
     He blamed the slow recovery on three economic realities. First,
consumers and business borrowed a lot of money during the 1980s that they
now are paying for. U.S. international trade markets are weak and
weakening. Also, "Uncle Sam is raising taxes and lowering spending."
     As for wholesale corporate layoffs or downsizing, he told a reporter
after the lecture that corporations will continue cutting jobs until
American business has "hard-bodied" itself into becoming globally
competitive.
     The one plus in all of this, Straszheim said, is that Americans won't
have to struggle with inflation for a while. "Inflation. Don't worry about
it. When you talk to companies, they say three things about inflation. We
would like to raise our prices but we can't. The market just won't support
it. We can't get away with it. When our suppliers try to raise their prices
on us, we tell them no. And the third thing is, we don't have to pay our
employees big wage gains to get them to stay. They don't have any options.
Internationally, we believe inflation will be lower in '94 than in '93. We
will be in this low inflation mode for a few more years," Straszheim said.
     He predicted that, with low inflation and a slow economy, interest
rates are going to stay down. "What would drive interest rates up a lot?
Nothing," he said.
     As for how to invest in the latter '90s, Straszheim warned against
real estate. He said the baby boom is now bust, and there won't be a strong
residential real estate market for another 20 years. As for commercial real
estate, he said, "all over the country there are 40-story office buildings
that are empty with nobody to move in. It will be 2010 before we have the
next commercial real estate boom in this country."
     Some of the more appealing investments for the 1990s lie in the retail
sector, Straszheim said. Not mall and shopping center retailers, but the
discount outlets that he called "category busters," which offer a variety
of goods at 20 to 50 percent less than regular retail stores. The outlet
malls, warehouses and off-brand private labels are the wave of the future,
he said.
     He said he likes the biotechnology industry, and although he said it
is exciting and fast growing, he said he believes it will remain small.
     It is the telecommunications industry that will "drive the whole
economy for the next 20 years," Straszheim said. "For an investor, you want
to get in front of the inevitable. If there's anything inevitable in this
economy, it's this proliferation of the telecommunications revolution."
                                                  -Barbara Garrison