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Opportunity Cost: A Global Perspective

October 24, 2012

History has shown that cyclical patterns of global economic growth occur on very large and much smaller timeframes. The determination of what is secular and what is cyclical is immensely important as to what patterns evolve.
-Matt Lloyd, chief investment strategist, Advisors Asset Management

The global economy has evolved into more complex symbiotic relationships where the indirect impacts of such relationships have seemingly hit all-time highs. We have long been told the story of Chaos, where a butterfly flapping its wings in Hong Kong causes a rainstorm in New York. Metaphorically speaking about Chaos theory, a lay audience member can nod their head in understanding while the science to prove such an impact causes apprehension from even the most astute statistician. What we understand particularly in such a pivotal election year is that metaphors without merit often garner the biggest headlines.

One of the more consistent psychological patterns is the lack of recognizing cyclical patterns and keying in on the nuances that often differentiate the magnitude of economic peaks and troughs. These patterns occur in a micro manner such as daily sales for a catering company to the macro of watching century-long cycles of inflation and demographic patterns.

In July 2006, we presented a chart showing some of the longest patterns of global economic growth by region and its share of GDP. The patterns show some definite long-term trends that should be heeded as well as understanding some of the barriers that caused past economic world powers to decline in their influence.

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