Factors Aligning Against the Boom Cycle

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All too often the demarcation between fantasy and reality is blurred by a new vision of utopia that enters the financial psyche, as it did in the euphoria of the late 1990s. During that period, the renewed prospects of a new paradigm (a sustained economic boom characterized by the absence of cyclicality) fueled an era of uberspeculation and sky-high price earning multiples.

This notion of a transforming period of economic prosperity was popularized in July 1997 in Wired Magazine's cover story: "The Long Boom".

Authors Peter Schwartz and Peter Leyden wrote: "We're facing 25 years of prosperity, freedom and a better environment for the whole world. You got a problem with that?"

Unfortunately, the promise of a long boom proved to be, like Goldilocks, another fairy tale. And equities -- particularly of a Nasdaq-kind -- fell with a thud that plunged our economy into a recession.

While not as conspicuous as the last cycle, many are extrapolating the economic strength of the past three years to continue for the balance of the decade -- a mini long boom, if you will. In the past I have argued otherwise -- that the economic landing will be hard.

This morning I would like to go beyond my explanation of why the economy will weaken worse than many expect and discuss how difficult it will be for the economy to revive after its initial decline.