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Last Fall, many people were annoyed, if not shocked, to hear candidate
George W. Bush talk up the notion that the U.S. economy, then in an unprecedented
10th year of growth, was heading for a slowdown or “possibly a
recession.”
His views on the financial state of the union might
well have derived from the research of John Moffatt , a Lamesa, Texas
, native who now hangs his 10-gallon hat in Hopkinton , New Hampshire
. Moffatt, whose clients in Midland , Texas , have close ties in the
Bush Administration, runs an investment-research boutique called Analytic
Systems, which uses economic-sensitivity analysis to determine the investment
prospects for various stock-market sectors.
By August 2000, Moffatt’s macro-economic indicators were already
pointing to recession, although government reports still showed, and
continue to show, U.S. gross domestic product expanding. Among the telltale
signs of trouble Moffatt cited in a report were the inverted yield curve,
which usually signifies a slowdown in GDP growth; unsustainable consumption
levels and persistent inflationary pressures, as measured by the consumer
and producer price indexes. Moffatt’s client, Nicholas Taylor ,
a Midland , Texas , corporate lawyer, says he passed Moffatt’s
report at the time to Karl Rove , Bush’s campaign manager.
The Bush camp would hear something very different,
however, if it checked in with Moffatt today. The current
quarter probably will
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mark the low
point in this economic cycle, Moffatt says now, and a recovery soon will
follow.
Specifically, Moffatt expects GDP to move into the red in this
year’s second quarter, as corporations purge inventories
and slash payrolls. But the drop in third-quarter GDP is likely
to be much less severe, as long as most consumers don’t stop
spending. “We’re looking for a V-shaped recovery,” he
says, noting that “timely and dramatic easing by the Federal
Reserve” is key to a speedy rebound. Since January, the Fed
has cut short-term rates five times, bringing the current rate
down to 4% from 6½%.
John expects GDP to grow 2½-3%
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in this year’s
fourth quarter, and suspectsrevisions to prior-quarter statistics will reveal that the “technical
parameters” of a recession – two quarters of contraction
in GDP – had, in fact, been met. But he doubts the robust
growth of the late 1990s will stage an encore performance.
His summer forecast bodes well for the shares of cyclical companies,
energy producers and retailers, although it suggests that industries
with stable earnings growth will command less of a premium in a
more robust economy. That’s the sort of guidance that many
professional investors –primarily pension-fund and mutual
- fund managers –have |
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