Why All The Pessimism?
There’s a wave of pessimism gripping the readers of today’s mass-circulation and popular financial press and it’s being promoted by writers of all stripes, across the political spectrum. Most of it is not grounded in fact, but rather, is based on conjecture or on simple economic ignorance.
Case in point: On several occasions over the past few weeks I received emails from clients who asked me to respond to an article they read about the “imminent collapse of the U.S. economy,” or “the coming decline in the stock market” – or some such thing. One particularly alarming piece was titled “Economist (sic) Caution: Prepare For (sic) Massive Wealth Destruction,” advised readers to “Take immediate steps to protect your wealth…NOW” and purported to offer the advice of “…many well-respected economists, billionaires, and noted authors.” Grammatical errors aside, the most remarkable thing about this article is that it didn’t offer any actual advice, at all. It was simply the opinions of a few bearish pundits, the common denominator among them being an axe to grind, their dislike for the president and/or their dissatisfaction with our current fiscal and monetary policy. “Massive Wealth Destruction” is an attention-grabbing headline, but it was easy to dismiss the demagoguery – once I saw who the “well-respected economists and billionaires” included.
What’s not as easy to dismiss and what concerns me is how willingly others embrace and share this pessimism, when nearly all of the data point overwhelmingly towards optimism. Some of this is clearly due to fear. That’s understandable, given the proportion of peoples’ savings currently allocated to “risky” investments – stocks and bonds alike. I think the rest can be explained by the dearth of objective information. So, as a public service to my clients, I offer the following incontrovertible facts and observations for your consideration:
· According to the most recent monthly survey of Business-Cycle Conditions published by the American Institute for Economic Research, 86% of the leading economic indicators, 100% of the coincident economic indicators and 75% of the lagging economic indicators are “expanding” or “showing positive trends.”
· The U.S. remains the largest and most productive economy on earth. Our 2013 GDP was $17 billion – nearly twice that of the next largest economy, China (whose own figures are under scrutiny by their own news media). U.S. 2013 nominal GDP per-capita (i.e. output after adjusting for differences in productivity) is nearly eight times that of China’s.
· Although unemployment has not yet returned to its pre-recession level, nearly 94% of Americans who are looking for work and are able to work are working.
· Two years ago, the U.S. became – for the first time since 1949 – a net exporter of refined oil products (the U.S. is barred by law from exporting crude oil supplies).
· The U.S. is currently sitting on the world’s largest reserves of energy. Estimates now suggest the U.S. may reach energy independence by 2020.
· The seven largest (publicly-traded) companies by market capitalization are U.S. companies. One of these – ExxonMobil – is the most profitable company in the world, earning over $40 billion annually. The U.S. represents nearly 40% of the entire world’s stock market capitalization.
· By mid-2013, U.S. corporate cash levels had increased to nearly $1.5 trillion. This “dry powder” will eventually fuel additional investments in plant & equipment, R&D and new hiring.
· U.S. manufacturing is undergoing a revival: According to a recent article in the Wall Street Journal, “…entire manufacturing plants are being dismantled, put on ships and sent back to the U.S.” In a recent poll, 48% of large manufacturers indicated they were planning to return production to the U.S. from offshore.
· According to the same article, the U.S. is the “…center of the biomedical, robotics, big-data and self-driving-vehicle universe.” The newest frontier in “autonomous vehicles” (like self-driving cars) is autonomous cargo vessels, which promises to revolutionize the shipping industry.
· “3-D” printing is revolutionizing manufacturing. We are already able to manufacture human tissues using 3-D printers and expect to be able to produce entire replacement organs within the coming decade. Former “Tonight Show” host Jay Leno owns a 3-D printer that he uses to fabricate replacement parts for the more than 200 cars and motorcycles that he owns.
· The U.S. continues to dominate international university rankings. Our graduates are among the best-educated and innovative in the world. Researchers at MIT have found a way to use biological organisms to build novel materials and devices like semiconductors and environmentally friendly batteries.
· In 2014, enrollment of foreign students at U.S. universities reached an all-time high.
· By 2013, household debt had declined by $1.3 trillion since the onset of the recession.
· Despite the increase in our national debt, the U.S. dollar remains the world’s only reserve currency. Despite the fear-mongers’ alarm, our debt is still considered the safest in the world. Consequently, we enjoy the lowest cost of borrowing among all nations in global capital markets. Furthermore, entire countries have adopted the U.S. dollar as their own official currency, making the “collapse” of the U.S. dollar a virtual impossibility.
· Our standard of living is so high – relative to the rest of the world – that even among those considered “poor” by official measures, 99 percent of us have (and enjoy) electricity, running water, flush toilets, and a refrigerator; 95 percent have a television, 88 percent a telephone, 71 percent a car and 70 percent air conditioning.
· Setting aside our own exceptionalism, the rest of the world is getting richer and healthier as well (http://www.youtube.com/watch?v=jbkSRLYSojo).
· The “stock market” is characterized by a series of permanent advances, punctuated by temporary declines. There is almost no meaningful period of time over which you would not have enjoyed a net increase in real (i.e. inflation-adjusted) wealth from investing in the stock market (as measured by the S&P 500 index of companies) – notwithstanding the day-to-day fluctuations in price and/or “losses” from market corrections or crashes. After the onset of the Great Depression in October of 1929, it took nearly 25 years (until May of 1954) before the “market” returned to its previous high price point. Even so, the real return on the market over that period was not a loss, but rather, a gain of 4.08% (annualized), reflecting the compound impact of dividends and dividend reinvestment. If you go to the following website: http://politicalcalculations.blogspot.com/2006/12/sp-500-at-your-fingertips.html#.U3DvxpVOWPw, you can try this yourself and calculate the return for any period in time you’d like. I used my birthdate (April 1958) to see what the return would have been over my lifetime. It’s 6.23% (annualized).
I think the evidence is clear: We are not in a state of decline and we most certainly are not facing “massive wealth destruction.” In light of this factual evidence to the contrary, it’s hard to see how anyone can make a case for pessimism today. Those who do likely have some other agenda to promote or good to sell and are doing so by appealing to your deepest fears and insecurities. Think about that the next time you read one of these silly articles.