this is rich.. -s-
Wall Street Expects a New Cycle
Sunday, 18 April 1999
N E W Y O R K (AP)
AFTER THE great bull market of the 1990s on Wall Street, the way
investors look at cycles in the U.S. economy will never be the same
again.
More than eight years have passed since the last recession in this
country. Yet the economy lately has been acting as though a new
growth phase is just beginning, rather than showing any signs of
peaking.
The old idea that booms always set the stage for their own collapse
has been seriously challenged. In particular, the optimists declare,
the current expansion has proven that strong growth doesn't have to
cause a revival of inflation and a tightening of credit conditions.
Most economists hasten to add that none of this means the cycle of
growth, retrenchment and recovery has been abolished forever.
What the current situation does demonstrate, they assert, is that each
cycle is different from all previous ones.
"Entering its ninth year of uninterrupted growth, the U.S. economy
shows none of the danger signs that have presaged the end of
previous economic expansions," says Davis Resler, chief economist at
Nomura Securities International in New York. "If anything, the
economy has become even more robust with age.
"The U.S. economy has shrugged off the deep and lingering
recession in Asia, weathered a dramatic near-meltdown of the global
financial markets, and even endured the impeachment of a president.
The soaring stock market has been a perfect barometer of seeming
invulnerability."
The domestic economy has been especially strong over the past
three years, just at the point when it appeared by many measures to
have reached the limits of its capacity. Yet because inflation hasn't
revived to date, the Federal Reserve hasn't felt compelled to adopt
any sustained policy of credit-tightening.
Now, analysts say, new growth momentum appears to be building up
with early signs of improvement in some overseas economies. "Green
shoots of cyclical revival are increasingly evident around the world,"
says Stephen Roach at Morgan Stanley Dean Witter & Co., in New
York.
"The U.S. is experiencing an incredible spending boom," observes
Bob Prince at Bridgewater Associates in Westport, Conn. "Up until
the past few months this boom was offset by extremely weak exports.
But in the past three months it has accelerated just as export demand
has improved."
That prospect raises some important concerns, including what might
happen to commodity prices, labor costs and other components of
inflation should the pace of business worldwide accelerate.
"Overall," says Prince, "conditions are contributing to rising
pressures on the Fed to tighten. The markets are not prepared for
such an event."
But some optimists on Wall Street argue that a quicker tempo could
actually improve conditions in the stock market, where many issues
have lagged behind over the past year while a few dozen blue chips
have led the market indexes to new highs.
"The U.S. equity market has been a great place to be in the past
several years, but only if you owned the right stocks," says John
Manley, equity strategist at Salomon Smith Barney Inc.
"A few large-capitalization stocks with superior earnings growth have
driven the market higher in a period of declining overall growth. But
we are now seeing the first signs of a possible turnaround in earnings
growth which, if sustained, could benefit value-oriented investment
strategies."
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