People are wondering what's "the next big thing." The next big thing isn't "one thing" - it's going to be many things and it will be an economic boom that will be well underway by mid-year 2011. The Fed's QE2, and the quantitative easing by the ECB and UK are the final catalyst for a huge economic upswing.
Monetizing debt (printing money) is just one factor and alone it would not be sufficient to produce the boom. Despite concerns over inflation and that currency wars leading to protectionist behavior I believe the table is set for surprising growth. Rising demand will meet rising supply unlike any time in recent memory.
There are a combination of consumer and business factors and trends that will change the equation for our economy. You'll find forces on both the supply side and demand side at work in my list below of reasons for the boom:
- Extremely low short and long term interest rates will hold for the near term
- Enormous liquidity in bank reserves and corporations will be put to use
- Banks have to start lending and borrowing demand will return
- Corporate debt is being restructured at lower rates and the savings are going to EPS
- Low interest rates, greater access to capital markets, and business growth will lead to a surge in mergers & acquisitions and new public offerings
- Corporations have lowered expenses and are managed more efficiently than ever before so they are ready to handle the growth
- Corporations are taken advantage of technology to be more productive and will do more so in the future
- Inventories are not high so there isn't a lot of slack and demand will rising lead to a rapid increase in production
- The economic "agents of capitalism" (land, labor, and capital) are in rich supply:
- Financiers and businesses will team to create highly attractive financing options for business and consumer purchases
- Available productive capacity will allow manufacturers to ramp up quickly to meet new demand
- Readily available labor is anxious to go to work
- High vacancy in commercial real estate will meet the demand for physical expansion
- New materials technology, new production methods, new energy resources, and other innovations in distribution and supply chains all provide manufacturers with benefits that support production and allow manufacturers to offer new and highly attractive consumer products
- Greater transportation capacity and methods can move raw materials, parts, and products around the world and around town better than ever
- Communications technology is facilitating business processes and consumerism in significant ways
- Technology and other forces are going to finally shift the cost curve for health care. While the health industry will continue to grow the cost per person will decline. This will yield both social and economic benefits.
- Consumer balance sheets have been under repair for some time. Consumers have saved and brought down their debt. Their stocks have recovered somewhat and offer future optimism as stocks trend higher. It's true that real estate prices have not recovered but refinancing opportunities have lowered household carrying costs. For many others, with negative equity, the choice is to default on their mortgage but they have found they could live in their home for an extended period and just stop making their payments freeing up their income to pay off other debt. While they may be foreclosed on, eventually, they will own an equally nice home at a lower cost of ownership with a real chance to build equity!
- Rust and Obsolescence - The things we own are starting to wear out. We need home improvements, a new car, new clothes, a new fridge, and more. I call that the rust. It's combined with obsolescence. All the innovations in technology, great new designs, and new ideas for products and services have created great new choices for consumers. There are lots of reasons we all want to go shopping (e.g. iPads, 3D, Droids, faster wireless, greater mileage, new plastic surgery methods, solar panels, new medical treatments, Office 2010, and much much more).
- Social media and the power of the Internet have created a new marketing and cultural phenomenon - ideas and consumer interests can now "go viral" and around the world in no time. This exponentially increases the pace at which products & services can reach markets and stimulate demand, while lowering marketing costs to businesses.
- "Mobility" is contributing to the spread of information, ideas, access to markets, shopping, and other positive factors that contribute to consumer demand and benefit business
- A USA sub-culture of illegal immigrants will start to be mainstreamed into our economy. As they do they will start to earn higher wages, begin to pay taxes, and increase the positive contribution they make to our economy - this is no small force!
- Soldiers are going to be coming home and consuming
- Export driven economies, like China and India, will shift their export driven economic model to a greater emphasis on domestic consumption. A huge trade imbalance will start to shift back and favor the USA.
- Emerging countries in Latin America, Africa, the Middle East, and elsewhere are heating up and will start to be more than fringe contributors to world GDP. Countries such a Argentina and Cuba which were once practically blacklisted because of debt or political reasons will be welcomed back into the world economy and make meaningful contributions
- Capital is an ideology just like communism. Ideologies have been called a "virus of the mind." Communism is being replaced by capitalism as the predominant or popular way of thinking in countries that were once solidly communist. (Hopefully the mentally of Unions which have been a damper on growth can be beaten down as well. It is interesting see how market forces are challenging Union expectations in Europe and the UK. I'm guessing that Unions have a lot to lose and should be punished for their anti-business behavior that ultimately hurts their regions competitiveness, its economy, and their constituents standard of living in the process.)
- America has great stuff that the world wants!! From Google to FedEx to Cisco to Johnson & Johnson to WalMart and McDonalds and Coke/Pepsi and KFC and Nike and Levi Strauss and Xbox, from Ford to Boeing to Lockheed, from Nano-tech to Bio-tech to high-tech and materials-tech - America has got more than any other country to offer and markets around the world want it!! Our media and entertainment industries spread our culture around the world. And we're still the best innovators and marketers! Try to name 3 Chinese or India brands you purchased in the last year!
- Everything I described above provides a great environment for entrepreneurs to thrive.
- Everything I described above will contribute to new jobs, hiring and a reduction in unemployment
- When everything I described above starts to become apparent there will be a massive mood swing. If the economy could be said to have a mood that swings like a pendulum, it swung very low in 2009. Today, I place the pendulum swinging back over center through the first quarter of 2011 on it's way to very high again by 2012.
- Worldwide growth will create a surprising increase in tax revenues and start to shrink government deficits & debt in the USA and abroad
As all these consumer and business factors and trends gain momentum they feed on one another. This is an important dynamic! What we have is a snowball rolling down hill that will grow into the boom! New highs in the equity markets can't be far off!
Bob Ritter
Oct. 2010
