More Info
									                                                                                  Consulting in:
                                                                                        • Market and industry analysis
                                                                                        • Strategic business direction
                                                                                        • Growth dynamics
                                                                                         • Trend identification and analysis
                                                                                         • Keynotes and presentations
                                                                                         • Proprietary research and reports

 Trend Analysis That Builds Business Decisions

Rather than being the first of several negative                finally arrived. The Fed has injected massive
quarters of economic growth, we expect this will               amounts of liquidity, driving the federal funds rate
be a temporary capitulation to the credit crunch,              to roughly 1% – where it traded last week.
with almost all of the economic losses postponing
economic activity into what will turn out to be                Moreover, the Treasury Department has drawn
a healthy period of growth in the second half                  a line in the sand. It has decided that no more
of 2009. To be precise, we expect real GDP to                  banks will fail due to a lack of liquidity. Despite
be flat in Q1-2009 but then grow at an average                 the downside for free markets, these actions by
annual rate of 3% in the final three quarters of               the Fed and Treasury will help unlock the credit
next year.                                                     markets and turn velocity upward. With velocity
                                                               and the money supply both heading up, a “V”
The reason: This sharp drop in growth is due to                shaped recovery is likely.
a temporary drop in velocity, due to a true credit
crunch, with some panic thrown in for good                     While the conventional wisdom is betting on
measure. It is not a typical recession caused by               an “L” shaped economy, and the equity market
fundamental, economy-changing events such as                   is pricing in the risk of a prolonged slump in
higher tax rates, tighter money, protectionism                 earnings, we think the odds favor a “V” shaped
or other public policies that stifle innovation or             recovery, with only a temporary hit to earnings
entrepreneurship.                                              and a Dow Jones industrials average that recovers
                                                               to 11,000 by the end of this year, with another
If there is a slowdown in the turnover of money –              20% climb in 2009 all the way up to 13,250. The
say a 5% decline – the impact on nominal GDP                   economy has succumbed to a panicky credit crisis,
growth is no different than if the money supply                not a typical policy-induced recession. As a result,
itself shrinks by 5%.                                          the downturn is unlikely to last long.
But there is good news. After ham-handing the                  [Brian Wesbury and Robert Stein (Forbes.com,
rescue operation for months, the cavalry has                   10/21/08)]

 4 – h O W CAPItALIsM WILL sAV e u s

We are experiencing the devastating consequences               as commit to other emergency measures hitherto
of a chain of major economic policy errors, which,             unimaginable.
to use a current cliché, created the perfect st
To top