To: sandeep who wrote (38772 ) 2/1/2000 8:42:00 PM From: John Madarasz Respond to
Maybe the market is seriously undervalued; or so shall our descendents say... ntrs.com The Greatest Generation? Brokaw Is Right In the 35 quarters ended 1969:Q4, real GDP advanced at a compound annualized growth of 4.82%. What about inflation? What about productivity? A few more words on the reasons for the longevity of this current business expansion. I think that the behavior of the global economy has had something to do with the longevity of this expansion. But not for the reasons typically ascribed to the economic virtues of globalization. Rather, because of the lack of synchronization between the US economic cycle and that of Europe and Asia, especially Japan, in this expansion, US inflation has been muted longer than it otherwise would have been. The global economic environment with respect to US inflation is becoming less benign, however. This year promises to be one in which global economic growth will be the strongest since the first half of 1997 and perhaps the most synchronized of the current US expansion. I do not believe that is was just a coincidence that the US dollar prices of industrial commodities bottomed out in early 1999 as the global economy started to recover. One final point on the longevity of this expansion. the current expansion was very slow getting out of the blocks. In the first 8 quarters of the current expansion, real GDP grew at a compound annualized growth of only 2.76%. As shown in the chart below, this was the slowest start to any expansion in 1959-99 period. The average annualized growth in the first 8 quarters of the prior four expansions (not counting the brief 1980-81 expansion) was 5.56%. Why such a slow start to this current expansion? As can be seen, real M3 was contracting in the early years of this current expansion. In contrast, in the prior four economic recoveries, real M3 growth came roaring out of the chute. Why the different behavior of M3 growth in the first two years of the current expansion? The banking system was unable to lend to the private sector because of capital deficiencies and Alan Greenspan was slow to lower rates enough to combat this problem. So, one reason that this expansion has gone on so long is that it was very slow getting into high gear.
