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On balance, therefore, the Stratfor view is this:
* The United States is undergoing a short-term correction in a long-term bull market of unprecedented proportions. Speculative fever, extremely high price earnings ratios and the appetite for profit all argue for a pause in the bull market. At the same time, sentiment figures indicate that a great deal of the enthusiasm has been beaten out of the market. We are continually startled by how quickly sentiment turns negative at the slightest correction. We find this lack of confidence in the market quite bullish, as it provides a self-correcting balance.
* The foundations for a mid-term recession lasting a year or so are simply not yet in place. They could materialize fairly quickly, particularly if the Fed wants to impose a recession, but they are not there now. The Fed is maintaining liquidity in the financial system and the yield curve is positive. Interest rates are rising, which may cool growth, but the market is not behaving as if a recession were near at hand.
* The rise in commodity prices should be a negative. However, given the deflationary threats and fears of this summer, the rise in commodity prices may even be a positive sign, if it doesn't get out of hand. With the Asian and European economies sluggish at best, we do not see the rise as a significant threat.
* There certainly ought to be a recession some time in the next 36 months, and we would not be surprised to see it sooner rather than later. This is based on the timelines of previous economic expansions. We see this expansion as extraordinary, but it will not abolish the basic laws of capitalism. Under these laws, pruning back the economy is, in the long run, a positive development rather than a negative one.
In short, the United States appears to remain on the path it has been pursuing for a generation. It is quite likely that the stock market will take a serious break from the past five years of growth. Indeed, we may well be that we will not again see such a sustained and intense bull market as sustained and as the one from 1995-1999. That is not the same as saying that the U.S. economy will crash. We simply do not see the evidence.
It is important to understand the dramatically unexpected pattern that has developed in the global economy. Rather than moving together, it has fragmented along geographical lines. Asia, the United States and Europe have all pursued radically different economic paths, sometimes behaving as if they were living on different planets. Even within geographical regions, there have been differences. Germany's economic performance has been very different from the United Kingdom's. Japan has behaved differently from South Korea.
The fragmentation of economic activity into geographical elements is based on the fact that, economically, what goes on within a nation remains more important than what goes on between nations; Japanese domestic economic structure and policy determine Japan's fate. The U.S. economy has operated under its own power for the past several years, and it will continue to do so. In our view, it may not expand as it did in the past. It may even make a cyclical contraction. But there are no structural shifts evident to us that would indicate the expansion begun in 1982 is coming to an end. Cooling off is not the same thing as crashing.