While most observers are forecasting clear economic sailing, at least one Wall Street economist is warning of a recession ahead.

David B. Bostian Jr., chief economist at Herzog Heine Geduld, said he thinks corporate profits are overstated and vulnerable to declines that may shock the stock market into a sharp correction.

That would in turn supply a negative jolt to an economy in its seventh year of expansion-significantly longer than most previous upturns in the business cycle.

"I have to admit the momentum of this recovery has held up a lot better than I expected," he said last week, "but it would be the height of folly to conclude from that that no recession is out there."

Mr. Bostian not only thinks one is out there, he said it could arrive before yearend. And departing even further from the consensus, he said it could happen without another interest rate hike from the Federal Reserve.

A recession is officially defined as economic shrinkage for six months or more. The last one ended in early 1991.

Recessions in the postwar era have typically been triggered by a buildup of excesses in the economy, regarded as inflationary, that cause interest rates to rise.

Mr. Bostian said he saw excesses in extensive consumer debt and rich stock prices. He said he also saw excessive inventories-they accounted for a third of the economy's growth in the first half-which themselves are a classic precursor of downturns in the business cycle.

But, he said, he sees no inflation. In fact, he said, the economy has been enjoying something of a deflationary boom. Should the Fed hike rates again, as it did in March, the economy would suffer damage, he said, and the increase would be soon be regarded as a mistake.

The real issue is corporate profits, he said.

Deflationary forces, including the high international value of the dollar, are not being given enough credence by Wall Street right now, even though they threaten corporate profits, he said.

Indeed, some major multinational corporations have recently begun cautioning investors that their earnings will be dampened by high prices abroad for their products.

Mr. Bostian-who describes himself as a long-term optimist with short- term concerns-said he thinks more of this sort of negative earnings news is ahead and that it could prove "the Achilles heel of the stock market."

He cautions that earnings at many big companies may well be overstated because managements, increasingly compensated in line with stock prices, have been "using every trick in the book" to keep profits rising. Earnings growth momentum is the engine of stock prices.

"I'm not saying anything illegal is going on," he said. "Only that many sorts of things are allowable under corporate accounting." In particular, he questioned corporate stock repurchase programs as a dubious use of capital with stock prices so high. u

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