Applied Value Investing: The Practical Application of Benjamin Graham and Warren Buffett's Valuation Principles to Acquisitions, Catastrophe Pricing and ... Execution (McGraw-Hill Finance & Investing) by Joseph Calandro Jr

Author:Joseph Calandro Jr. [Calandro Jr., Joseph]
Language: eng
Format: epub
Publisher: McGraw-Hill Education
Published: 2009-08-13T22:00:00+00:00

To summarize my analysis of the new economy boom and bust, I present a chart denoting each of the eight stages of that business cycle in Figure 5-5.

NEW ECONOMY RECOVERY

As explained earlier, recovery from a business cycle is contingent upon the amount of time it takes the market to purge itself of malinvestments and once again reconcile the fundamentals (revenues, costs, capital, and so on) with market behavior (buying and selling). It was also explained that further interference in the market process would delay business cycle recovery, not jump-start it. In light of the foregoing, the following circumstances increased the risk of a protracted recovery from the new economy.

First, the level of postcycle market interference was substantial; for example, from the March 2000 Nasdaq inflection point, the money supply continued to expand dramatically (see Figure 5-3), while the fed funds rate had been reduced to incredibly low levels (see Figure 5-6).

Given such aggressive postcycle intervention, comprehensive malinvestment liquidation was at best going to be severely delayed, but at least it did occur. For example, as Wall Street Journal reporter Greg Ip observed:

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