I get this in the email regularly and I have the copyright permissions to post this in my forum. Mickey Levy is a personal friend whom used to work with me and I trust his analysis much more than any Tom, Dick, or Harry on Wall Street. Enjoy. (for best viewing expand or maximize your browser) The economy is recovering from recession and real GDP is above its prior expansion peak, but in several key aspects, the economic recovery has been weaker than in prior cycles. Perhaps the mild contraction of real GDP in 2001 set the stage for a moderate rebound, but other dimensions of recent performance have deviated from prior cyclical patterns. In particular, the sharp, sustained declines in stock valuations and expected rates of return-lower real interest rates-stand out uniquely, with significant implications. A comparison of recent economic performance with prior cycles suggests that while the recovery remains intact and sound underlying fundamentals continue to support healthy potential growth, the return to sustainable trend expansion following recession may take longer than normal. In summary: O Real GDP declined only modestly in 2001, but economic performance was uneven and in some respects the recession was severe: consumption continued to grow at a healthy, though diminished pace and housing activity remained strong, but business investment and profits fell sharply-in real terms and relative to GDP- and there was record-breaking inventory liquidation. Manufacturing industries were hard hit. O The economic recovery has experienced soft spots: consumption has sustained a relatively healthy pace and housing has remained firm, but the rebound in industrial production has been modest, business investment has lagged behind prior recoveries, and profits, while recently rising, remain well below their prior expansion peak. O Nominal GDP growth, which decelerated significantly during recession and reached its lowest year-over-year growth rate since 1Q61, has experienced a relatively anemic pickup. This constrained growth in product demand has forced further adjustments in production and limited pricing power. O Following relatively mild declines in employment during recession, payrolls have failed to rise materially during recovery, generally mirroring their delayed rebound from the 1990-1991 recession. O Sustained healthy gains in labor productivity have supported rising real wages and disposable income; combined with gradually decelerating employment cost increases, they have generated declining unit labor costs and helped business maintain margins. O The most unique aspect of this cycle has been in financial markets: the dramatic, sustained declines in stock valuations and real interest rates throughout the recession-recovery have been unprecedented (see Chart 1). These trends reflect sharply lower expected rates of return on investment. Full report in attachment.