“This season is characterized by continued peak spending, low, flat inflation, and higher productivity.”

The second season of an 80-year economic cycle is the Growth Boom, which divides into two distinct phases, Growth Boom phase one and Growth Boom phase two. The second phase of a Growth Boom shares some similarities with the first phase, but it also presents some new investment opportunities.

As members of the innovative generation enter their late thirties and forties, they are still in the midst of their peak spending years but the nature of their expenditure changes somewhat. Inflation rates, which had been falling through the first part of the Growth Boom, now stabilize and we enjoy low, flat rates through the end of this phase. Productivity is enhanced in two ways. First, the technologies this innovative generation introduced produce radically new business models, which increase the overall productivity of the economy. Second, workers who are now highly trained reach their most productive years.

The second phase of the Growth Boom is one of only two economic seasons in which small company stocks as well as large company stocks are a great investment.

We entered the second phase of the current Growth Boom in 1998. As you can see in the chart below, productivity and spending will continue to rise, and the economy as a whole will continue to boom until around late 2008.

“This season is the time to divest yourself of bonds and buy high-end residential and resort real estate.”

One of the new investment opportunities in the second phase of the Growth Boom is resort and high-end real estate, which is in high demand because of the affluence and tastes of the aging consumer population. Select international stocks also become a good buy as lagging economic regions around the globe are forced to catch up with the business practices of leading nations like the United States. Bonds and fixed-income securities that were a good choice in the first phase of the Growth Boom due to falling inflation rates now are the worst possible investment because of the low, flat rates of inflation.

To recap, your best investment choices for the second phase of this Growth Boom are:

• Large company stocks diversified among the best sectors, which include technology, financial services, and health care
• Select small company stocks in leading edge areas such as biotech and eCommerce
• Select international stocks, especially Asia (except Japan)
• Resort and high-end residential real estate