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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: Ilaine who wrote (3057)	4/6/2001 7:00:06 PM
From: Robert Douglas	Read Replies (1) of 3536

More likely that GDP growth near term is flat, maybe negative, IMO. Using forward earnings is painting a false picture, they are being revised downward daily. Over the last 50 years earnings have grown at the rate of about 6% a year. I don't see anything that would disrupt this trend. Topline growth for business is basically the growth rate of nominal GDP, this is, historically, a very tight correlation The breakdown of this growth will be: 1% growth in the labor force. 2 1/2 - 3% rate of inflation. 2 1/2 - 3 1/2% growth in productivity. In sum, I would expect topline growth to be 6 - 7 1/2%. I expect that profit margins are at the top of the range right now and that they will fall in the coming years enough to dampen bottom line growth to about 6 or 6 1/2%. A recession will certainly bring earnings down in the short-run, maybe 10 - 20% from the cycle highs. But growth will surely resume, allowing earnings to grow at the rate I am citing. An earnings stream growing at 6% with the 10 yr. interest rate around 5% is conservatively worth 17 to 25 times earnings.

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