by Ron Starner

CORPUS CHRISTI, Texas — The U.S. economy may have grown at a rate of 3.8 percent in the third quarter of 2005, but a period of slower growth is right around the corner, Dr. Peter Ricchiuti told IAMC Professional Forum attendees in the conference's Oct. 12 closing session.

"The interest rate yield curve tells you where the economy is headed, and we have had an inverted yield curve," said Ricchiuti, assistant dean and director of research of Burkenroad Reports at Tulane University's A.B. Freeman School of Business, and an adjunct professor of finance at Tulane.

"We will see a relative slowdown and contraction in corporate earnings in the short term," Ricchiuti, the conference's highest rated speaker, said in a fast-paced and humor-filled address. "The good news is that now is a pretty good entry point for the stock market. We are as cheap as we've been since the bull market started in 1982. This means that interest rates will rise and stock prices will increase."

Ricchiuti, who is often described as "the finance professor you wish you had back in college," entertained and informed IAMC attendees with his unique perspective on the American economy — a perspective that was further informed recently by his displacement from his New Orleans home by Hurricane Katrina.

Peter Ricchiuti

While he has had to live with relatives since that August storm, Ricchiuti remained bullish on his native Louisiana. "New Orleans is coming back," he said. "The city has already started to rebuild, and it will come back stronger than ever."

He also predicted a robust rebound for the American economy once it recovers from the slowdown he expects to occur in the first quarter of 2006. "The problem is that oil and gas prices will remain stubbornly high, but the real story is natural gas pricing, which is so high that it's slowing the production capabilities of many U.S. companies," he said.

"With 33 percent of the U.S. energy supply coming from the Gulf of Mexico, and with demand for energy remaining strong from China and India, American companies will take a hit in earnings in the short term," noted Ricchiuti.

"The Fed knows that the economy is slowing down, but they must raise interest rates to attract foreign capital," he added. "That is why you are seeing major bidders for U.S. companies, like Unocal — before it was acquired by Chevron Texaco — from China and Italy."

On the positive side of the U.S. economy, the Tulane professor noted that "American consumers are getting more for less. Companies like Dell, Toyota and Wal-Mart are all experiencing price deflation. And the big growth sectors for the American economy moving forward are financial services, health care and leisure services, especially as the Baby Boomers approach their retirement years."

Ricchiuti cautioned real estate investors to beware the housing bubble, which he called "a huge accident waiting to happen." He said that the most dangerous real estate markets in the country are in Boston, San Diego, San Francisco and New York, all markets that he said are grossly over-valued and in need of steep correction.

Ricchiuti advised stock market investors to rely on indicators other than the Dow Jones Industrial Average, which he termed "a horrific average" because it relies upon the performance of so few companies.

He said that if investors based their investment decisions strictly on the Dow, they would miss out on such prime buying opportunities as Craftmade International of Coppell, Texas, Marine Products of Atlanta, Energy South of Mobile, Gulf Island Fabrication and Superior Energy of Louisiana, and Frozen Food Exports of Dallas.

In the future, Ricchiuti said, investors should pay more attention to the deficits: the budget deficit, trade deficit and weak American dollar. "Deficits matter," he warned. "This is a big deal. Also, the third year of a presidential term is the best year for stocks."

For more information on Ricchiuti and the performance record of his investment team, go to http://www.burkenroad.org.

Ron Starner is executive director of IAMC and director of publications for Conway Data.