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Strategies & Market Trends : MDA - Market Direction Analysis

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Nov 14 4:00 PM EST

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To: Haim R. Branisteanu who wrote (558)	12/5/1998 11:17:00 PM
From: j g cordes	Read Replies (1) of 99985

the sharp divergence that has opened up between the excesses of consumer spending growth and a more moderate pace of income generation. All this underscores a spending binge that is living on borrowed time. Just a reversion back to trend -- a 2.8% average annual growth rate in real personal consumption expenditures -- would have the effect of lowering real GDP growth by 0.8 percentage point The divergence in income growth versus spending... yes and maybe. Its an equation whose outcome is complicated by more variables than those mentioned. I would add to his thinking that the dollar has gained in strength considerably as has spending on foreign products. There's some currency leverage here which actually increases<i/> the income side of the equation. There's also been a dramatic US rise in producton (wealth creation) efficiency which also adds to the income side of the equation. Both of these are non-tangibles that are not factored into his thinking but deserve to be if his thesis is credible. I do agree that when commodities bottom or at minimum slow from their current steep fall as they must someday, US spending must also slow.. the two are linked. Also, because of what happened after '29, where isolationist policies tried to protect local interest while collapsing further global interests... we are attempting to pass through a world recession (which I believe we are close to), by inflating the spending of consumer nations to keep the bilges running until the hull is made safe. Jim

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