VIEW FROM THE GROUND FLOOR: Analysts are usually very optimistic since they depend oninvestors believing that equities outperform cash and bonds

Twelve months, 11 rate cuts and an economy that could still be in "technical recession" is how the Fed dealt with 2001, thus beginning 2002 with a somewhat less rosy picture than the start of last year - when its unexpected first rate cut had analysts trying to decide whether it was being pre-emptive (good) or panicky (bad).

In the end it was neither. Not pre-emptive enough to stop a year of decline and not panicky enough to cause people to abandon all hope of a recovery in the next few months.

However, as I mentioned in a previous piece, analysts are always trying to spot the recovery. It's usually not as soon as people think, but within the next quarter. Or the one after, depending on how optimistic your analyst is.

Naturally, they're usually very optimistic - since their salaries depend on investors believing that equity markets always outperform cash and bonds in the long term. Which, to be fair, is right. But the short term is what most investors are focusing on at the moment and the short term still has the feel of the morning after the night before about it.

Let's face it, the 1990s were one long Christmas party, where all sorts of excesses were forgiven because you were supposed to be having a good time. And if you weren't, you were envious of everyone who was and wondering how you could join in (unfortunately, if you chose investing in TMT stocks as your entry card, you could now be nursing a woeful hangover).

For most of the world the party has shuddered to a halt and, of course, analysts are counting the days until it starts again and hoping against hope that we haven't all made New Year's resolutions to stay at home and live quieter, more sober lives in the future.

I don't make resolutions, on the basis that I can never remember them the following day and they're usually all about taking control of my life, not making emotional decisions and rejecting shopping as some kind of substitute for actually working - the kind of resolutions that seem good at midnight but a bit daft in the cold light of day.

I do, however, usually resolve to treat any bit of market analysis with a healthy dose of scepticism because of the reasons given above - not surprisingly I laughed knowingly when I read over the weekend that the prospects of recovery in 2002 were good but that we might not see improvement until the second half.

If there is one thing that makes me think that the prospects might, in fact, be somewhat better than the end of 2001, it's that the US inventory situation has improved. This is actually a good sign since it means that companies are not hoarding lots and lots of unsold goods in their warehouses.

When companies hoard lots of goods in warehouses we are in a supply-exceeding-demand situation which, as the Ladybird book of economics tells us, is not good for business and leads to cashflow problems as well as (horror of horrors) downward pressure on prices.

Downward pressure on prices can be a good thing when companies are madly overcharging, but not a good thing when they cause them to have to shift stock at below cost price - which is what was happening in some US industries over the past few months.

One of the other major economic problems of companies having far too much inventory is that, despite the prospect of monthly rate decreases, they simply don't need to borrow because they have no need to gear up or expand or hire more workers. So credit can be as cheap as you like - but it's not doing much good if companies aren't availing of it.

The other rather good indicator, as far as the US is concerned, is that consumer confidence has rebounded again and there have been strong gains in sales.

Obviously, if you don't get good sales at this time of the year you never will, but a bleak December and January on top of the past 12 months would have depressed even the most optimistic analyst.

Nevertheless, there are still equity dogs barking in the streets, simply waiting for a slightly merry investor to pick them up at a would-be bargain price before biting the hand that wants to feed them. So - in the time-honoured tradition of any equity analyst (and bearing in mind that my background was in bonds) - my only advice to investors this year is to buy stocks in companies where you have even the faintest idea of what they're doing, and why. In my own occasional flirtations with the market this is my number one rule, and whenever I break it, the shares in question usually break my heart.

Last year, I decided not to sell my very small holding in Marks & Spencer on the basis that their range was beginning to improve. Then (as not-too-hungover readers may remember) I actually spent money in-store myself in an unexpected but satisfying foray through the lingerie and knitwear departments.

I can also confess to having bought a few of my Christmas presents there too, which means that I was one of the people who helped to make M&S the best performing FTSE company of 2001. Not even the most optimistic analyst would have given them much chance of that particular accolade for the year, so it does prove that you can mess things up but that, sometimes, the light at the end of the tunnel actually is the end of the tunnel.

Not the case in Argentina though, where the shriek of the oncoming train grows ever louder.

Defaulting on sovereign debt may be popular at home but it puts you in the same position as the borrower who had the new car repossessed when you want to get credit again. Argentina's woes are plentiful - and credit abroad certainly isn't.

Markets had discounted the likelihood of default and so the cascading affect throughout Latin America has been contained, but none of it helps for the future of the region as a whole. The problems of a currency pegged to a rising dollar while the economy really needed a falling peso were utterly insurmountable for the government. The solution - to create another currency - is an Argentinian solution to an Argentinian problem.

While it might help in the very short term, it's probably storing up trouble for the future.

The bottom line is excess never pays - unless perhaps you're an equity analyst or a bargain hunter in the lingerie department of high street stores.