Going on the Record for 2015

The last time I went on the record with my economic predictions was in August of this year.  It's that time ... year end ... time to look ahead to next year ... and to go on the record about what I think the macro picture will look like in 2015.   Here it goes:

Finally.  It took long enough.  But I believe 2015 is finally the year when the economy truly and undeniably breaks out.  Here's my big seven reasons why:

1. Up till now the economy did well in spite of congress.  In 2015, I think it's going to do better thanks to congress.  Look for the possibility of:
    - corporate tax reform including a means for repatriating overseas cash
    - natural gas exports and the Keystone pipeline
    - compromises on immigration with a path to citizenship
    - a way to reduce college debt
(Notice I said "possibility," not "passage.)

2. Innovations take hold across numerous industries bringing about compelling reasons to replace most everything, from cars to hips, and invest to improve your business and your life.

3. Low cost energy continues to drive USA industry.  Lower costs factors on everything, from transportation to petroleum based products, save consumers, businesses, and government an enormous amount of money which provides massive stimulus.  (The flip side of this would be the negative effects caused by an even more severe decline in oil, below $70K a barrel.  If that happens, bankruptcies and slow downs in the industries built around exploration and production, and their suppliers, which would also put a strain on investors and financial markets.  Of greater concern is the potential crisis triggered in countries such as Venezuela, Russia, Iran, etc.  How that plays out can be very risky and unsettling.  Especially with Russia already under major strain from sanctions.)

4.  Low interest rates combined with low cost steel and energy costs to make this the time to do historic levels of investment in USA roads, bridges, and rail.  We're going to need those "illegal" immigrants!  I say let them earn their citizenship by rebuilding America's infrastructure!  (It's been done before during the war!)

5. Wage growth and the work force size both jump in 2015.  This is a double dose of GDP!

6. The consumer and business confidence lead to a spending spree.  Retail comes alive - just in the (saint) nic of time!

7. HOPEFULLY the Federal Reserve stops paying interest on reserves and some of the regulation that's been discouraging banks to lend will lighten up.  Equity markets are hot enough, we need the banks to get back into the business of lending!

Need I say ... all this is good for equities!

It also goes without saying that all these ideas can go out the window at any time by some unforeseen major event.  But I learned a few years back not to speculate.  At least not about "black swains."

One Man's Ceiling Is Another Man's Floor .... Until That Other Man Take the Stairs!

With all the talk of the recent stock market highs being a bubble, I submit an alternate view.  Suppose instead that we may be about to form new support.  I think it is possible that the highs on the S & P and the Dow will turn from being a ceiling to a strong floor.

This week is not our first run at the highs, as we keep testing resistance, and once we've broken through we will no doubt test these levels from the other side.  (Old resistance becomes new support.)  If the highs hold, I can envision a chart forming a floor with strong technical support at 2000 on the S&P and 17,000 on the DOW.  Large round numbers with lots of zeroes offer a strong psychological effect - drawing you in and then holding you above.

Literally speaking, the ceiling becomes the floor once you take the stairs.  And if the animal spirits, the technicians, and traders, all start to view these historic market numbers as support, rather than resistance, this is a powerful paradigm shift.  Which would draw substantial new money into the market and squeeze out the shorts. And if volumes are good to boot, such positive market action bodes well for adding to the averages.  Focus would then shift from the fear of an imminent correction in the near term, to a renewed sense that the risk is to the upside.  Then the stage is set for a new leg up!

If this is supported with fundamentals including broad sentiment from economists, consumer & business surveys, combined with acceleration in the economy and earnings, then the ripple effects of consumer spending, CapEx, hiring, wage growth, etc. will all provide a credible basis for unseen new highs in the market - just waiting for final corroboration by the NASDAQ as it too returns to its all time record high of 5,048 reached on March 10, 2000.

And, as we shift focus from the 4Q to 2015 forward earnings, and the market starts to calculate in price multiplier expansion, there will be less justification for calling the market overpriced.  Again, corroborating the market's strength.

By the same token, some stocks have high expectations already baked into their prices, and could even pull back as the market moves higher.  Other stocks, have plenty of room to run and/or have lagged the market and are undervalued.   A classic rotation, which is healthy.  Stock pickers love markets like this!

At some point we are due for a healthy correction. Nothing to suggest that the secular bull is over, but more than the short little dips we've been having. A good 8-12% drop would shake out the loose hands and take some froth out of stocks that got ahead of themselves. There have been plenty of calls for this to happen, and it will.  But I think we get it from a higher level. I am moving to the side as we approach 2050-2090 on the S & P to let the bears have a little party. What's going to hurt most is the tax consequences from selling winners, but the opportunity to buy on this correction once it settles down will make it worth while! I definitely want to exit my losers before then because tax selling on those is going to really put them in tank!

Of course, some massive Geo-political event, such as the unraveling of the Russian economy, a new regional military action, boiling over civil unrest in Europe, or even a large consequential natural disaster such as the likes of the tsunami that brought down Fukushima, could rock the boat. But there is always a potential "Black Swan" out there and it doesn't need the stock market to tell it when to strike.

As negative as things are in Europe, the ECB has been much slower than the USA or Japan to implement major quantitative easing and monetary stimulus.  With risks of deflation and a recession looming over Europe, Mario Drahgi and the ECB are becoming increasingly dovish.  If Drahgi were to go forward with some monetary "shock & awe" to kick start inflation and the European economy, then Europe would go from being a headwind on USA GDP to a tailwind.  Put that together with a long awaited housing boom and consumers heading back into the stores and things get extremely interesting for equities!  Especially, if inflation in the USA continues to hold to its low pace.

And, once the Federal Reserve ends its asset purchases in October as scheduled, and we find that the economy can stand on its own. That will send an extremely positive message to the street!  Skeptics needs to see that the markets can withstand the punch bowl being pulled away. 

Keep in mind that we've had one of the slowest recoveries on record, so just maybe it's time for this economy to finally breakout.  And, if/when it does, the most hated stock market rally in decades may give the naysayers even more reasons to hate it.  Or, better yet, maybe the hold-outs will take the stairs and join us on the new floor!

Could This Be The Moment We've Been Waiting For?

JP Morgan just released their second quarter financial results.  I'm sure people in the financial industry will be combing over them. Its a strong beat. And a good sign for your industry, financial markets, and the direction of the economy. 

From my point of view, one of most interesting components of what came out was Jamie Dimon's remarks about seeing encouraging signs in all aspects of his business towards the end of the second quarter. Thats when weather changed, and the sense that the animal spirits changed with it.

I think JPM results signal an upturn in business activities. My belief is that now we will see greater investment by businesses and that investment is also going to include wage growth and hiring.

Even negative international events can turn into a positive impact on the economy. Here are examples of why I said this. Competing with Russia for new markets and a hold on existing markets means both countries will be spending more money to generate relationships and do business. Tensions in the Middle East translate into greater expenditures on defense products and other national security related investments such as energy independence. Stresses in the European banking system, their economy and unemployment problems mean that the ECB will stay very aggressive with monetary policy that is stimulative. And Europeans will start to look for ways to move structural reforms which lead to growth.

I'm not going to worry about inflation yet. After all, before that the market has to heat up and start to test the supply side. Growth will come before worrisome or overwhelming concerns with inflation. If anything, news from the second quarter is probably going to affirm that the Federal Reserve and Janet Yellen have been on, and are on, the right track. Practically perfect when you consider that they are on track to taper purchases completely by the beginning of 4Q. And I think the taper coincides perfectly with incentives for the banks to dramatically increase lending starting in the second quarter, and that we're going to see future investment financed though debt and equity markets continuing to rise throughout the year. Considering this will be leveraged on a ridiculous amount of cash that businesses and others have, we're talking some serious coin! 

And not to be overlooked, is how all this leads to tax revenue which can the used on something we all agree is needed - that is infrastructure! If the Federal government would just change the tax code to reinforce corporations commitment to the good ol' USA we would have a remarkable growth cycle. And given the rhetoric out of Washington these days from both sides, partly as a result of the worrisome trend of corporations moving their domiciles overseas, it is not entirely far-fetched that we could see something happen on corporate tax reform which is backed politically by both parties. Holy shit, wouldn't it be nice if Washington finally doing something smart for change!

Watch guidance on the 2Q earnings reports. If what I'm saying is accurate, then there will be a lot of talk about things picking up in the second quarter and translating into better guidance for future quarters.

Inflation That Is Good For Your 401K

We have entered a long term cycle of inflation.  Now hold on, because I am not talking about your garden style inflation.  No, this is not your father’s inflation!

Inflation is caused when you have too many dollars chasing too few goods.  Fortunately we have plenty of labor, lots of industrial capacity, and enough materials. Plus, technology is contributing to supply of all of those.  So CPI is under control. I am not talking about inflation in the cost of living.  That's good! 

So what inflation am I speaking about?  Where are there too many dollars chasing to few goods?  Answer: Investments! 

The rise in millionaires, billionaires, and corporate cash around the world is astounding.  According to the 2014 Hurun Report on the global rich: 

WORLD’S BILLIONAIRES EXPANDED BY 414 TO 1867 INDIVIDUALS IN RECORD-BREAKING YEAR.

946 SAW WEALTH INCREASE, OF WHICH 152 BY MORE THAN 50%. ONLY 318 SAW WEALTH DECREASE.

1867 BILLIONAIRES FROM 68 COUNTRIES. OF 414 INCREASE, USA LEADS WITH 72, FOLLOWED BY CHINA 41, UK 22, JAPAN 21.
 
Record number of billionaires in 2014 - the number of billionaires in the world increased 7% over 2013.

Forbes Magazine reports that China is "minting billionaires at a phenomenal rate. --- China registered a record 152 billionaires in the 2014 list, up near 25 percent from 122 last year, while Hong Kong clocked up 45." Still, the U.S. remained home to the largest number of billionaires at 492.  And, Europe boasted the most billionaires outside of the U.S., with 468 billionaires."

One study by PWC predicts Assets Under Management (AUM) to grow 56% over the next 6 years.  That wealth needs to be invested because try as a billionaire may, they can't “consume” fast enough - they literally don't have enough time in the day.  They have a problem 99.999% of us on the planet will never experience - their money is growing faster than they can consume the “stuff” their money can buy.  Isn't that sad!  What's a billionaire to do?  Or, a corporation with billions in cash with the same dilemma.  And frankly, it is a bigger problem for a company because they are under pressure to generate a return on that cash!  They have two CHOICES. 1) Donate to charity. 2)  Invest.

I can hear some people thinking, Wait!!  There is a third choice - higher taxes!!!!  I will speak very briefly to that misguided thought. To begin with that is not a “CHOICE.” And even if it were, it is a bad one.  And in case you forgot, they WILL pay more taxes because that IS HOW THE SYSTEM WORKS NOW!  Secondly, what makes you think that when government taxes wealth that it will spend the money in ways which are better for the rest of us.  Chances are greater that the government will buy a war ship or fighter jet with those found tax dollars.  But the best reason to let the wealthy invest their spare money, rather that to excessively tax it, is that they will produce more wealth, more jobs, and more taxes anyway.  Otherwise you could make the argument to tax 100% of profit and let government pay for everything.  Besides, if you haven't noticed, when a good cause is looking for support, be it a hospital or a research organization fighting a disease, or whatever, they target big donors, not big government. So CHOICE #1, “donate to charity" is quite valid.  And America is blessed to be the most charitable nation on the planet. Therefore, let me get back to choice #2.

In the financial news we hear a lot about Corporations buying their own stock.  Stock buybacks and cash dividends totaled $214.4b in the fourth quarter of 2013. That is the highest level since the record high of $233.2b in the final quarter of 2007, according to the Wall Street Journal. Compare that to the second quarter of 2009, when buybacks and dividends totaled a mere $71.8b.   Buybacks reduce the supply and raises the value of their stock. In addition, nearly every time you hear about a merger or acquisition of one company by another, that translates into a lower supply of equities.   Another strong demand side factor is coming in the form of inflows from international wealthy investors looking to get a piece of our equity markets, as well as foreign businesses looking to establish operations in America and see acquisitions/mergers as a efficient way to do so. 

So, what if investment dollars are running short of investment options?  What if too many investment dollars are chasing too few investment goods - you get inflation in stocks and business values!  Some call it a bubble. And if we do get runaway inflation of stock valuation that would be a troublesome sign of a bubble.  But thus far, with some notable exceptions, the valuation of equities is in line with earnings. And, if growth keeps accelerating, there is a valid argument that equities are cheap. Read Jeremy Siegel.

I do not buy the argument that stocks are at all time highs so they have to come back down!  Since when did that argument apply to population, or patents, or even the wealth of any country?  The lid on these things is not a justification for the reduction of these things. 

One area that benefits from investment is innovation and business formation. Which in turn increases the demand for jobs and helps to lift personal income. That in turn increases consumption. All of which a reason for optimism and feeds into the trends which support rising equities.

And let's not exclude the fact that billionaires, not to mention millionaires, which there are more of around the world than ever and growing, are trying to spend their money. OK, so you and I may not get to board one of their new yachts or private jets. And the closest we may get to a joy ride in a Lamborghini is hearing about Bieber's bust on the entertainment news. But building those things creates jobs. I know better than to call it "trickle down economics."  That would be too inflammatory, and then the whole point of my post would be lost in a debate about the 1% and how wealth disparity is destroying the world. Since that is NOT what this article is about, I will sum it up.

This article IS about the possibility of your stock investments going up.  (Or, they could go down.)  But if they are going up, and if the cost of living is not going up faster, that is good for your 401K.  Thank you very much.

Yellen Anticipation

Yellen, the clear favorite, has been confirmed and Bernanke's term ends this January.  It is about to get interesting.  Do you think the Fed has been overly activist? I don't. Bernanke's been great, but I believe Yellen may take the Fed's role to another level. 

I don't buy the talk that the Fed doesn't have any tools/options for stimulating the economy.  To start with, the Fed can push banks to want to lend by lowering interest on reserves and possibly redirecting Fed investment (money printing) into more effective job creation instruments than treasuries. 

If Yellen's Fed can get M2 (money supply) to accelerate the added velocity of money may finally get our economic growth above 3+% which is where it needs to be in order to turn labor force participation, wage growth, and along with it tax revenues, around! 

"Yellen sees the economy as a great ailing beast, and she wants to massage it back to life. She knows that America is in danger of becoming like Japan, with chronically slow growth that leaves real interest rates low for a long time and tends to render the Fed chairman's traditional array of monetary tools ineffective."


If you believe the counter factual suggests I'm wrong, then riddle me this. Where has a tight central bank produced a recovery from the Great recession?  Or any recession with sub-target inflation and employment?

Don't be fooled by the drop of unemployment to 6.7%!! The real "main" unemployment rate known "U-6," which is defined as "total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers," is still over 13%! To give you an idea of how bad that is, it is approx. 60% higher than the average rate between 2000 and until just before the Great Recession/financial crisis started in 2008. 

Worse still is that labor force participation dropped below 63% in December. You have to go back about 35 years to the horrible economy of 1978 to find a rate that low!! The economy can't take off if the consumer doesn't start spending and the consumer can't start spending if employment and wages don't pick up and YELLEN gets that! 

I'm looking forward to seeing what Yellen does to kick this economy in the butt and get it really going. And, hopefully Obama and Congress don't screw it up!!

Reasons for a Strong 2014

My Economic Outlook for 2014: 

The last 6 years, since 2008, has to be one of the most confusing and turbulent economic periods in history.  But this post is about looking forward.  Nonetheless, the past frames the future since it is the mindset most people operate from.  There is much doubt, skepticism, and fear on people's minds.  You might say that the last 6 years have been imprinted on the psyche of Americans, as well as Europeans, and others.

It is hard to imagine prosperity when so many people are still trying to recover from the dramatic losses they suffered in the Great Recession.  Many people's buying habits have changed, their risk tolerance has been adjusted, and they worry about their job security, as well as their financial security and ability to meet their personal future challenges such as college education for the children, their daughter's wedding, and their retirement.  The "equity" in their home, something they once thought of like money in the bank, is gone, for the foreseeable future.  How can one be upbeat?  Congress and our leaders in Government don't offer much hope, yet.  And the stock market rally, which most people missed, hasn't trickled down.  The wealthy are more wealthy, but what about America?  What's the outlook for 2014?  I'm writing to express my opinion. 

First of all, for those of you who remember my previous rants and posts to my blog, I have said before that I mostly write this for my personal benefit.  Einstein is attributed with saying, "my pencil is smarter than I am."  I believe the writing process makes you smarter.  If you're a writer you know exactly what I mean.  And, if you're not a writer, I'd recommend you try it and you'll see.  Write to yourself if you have to - and you'll soon discover the profound truth said so simply by Einstein.   Back to the point of my letter (post). 

As I see it, 2014 is going to be the year the economy launches into a new stratosphere of prosperity.  That's not to say we'll see an end to poverty.  Or an end to wealth inequality.  Or to people dieing because they don't receive medical attention, let alone food.  No, I'm afraid those realities are still all to real.  But fortunately, prosperity generates tax revenue and more importantly, it also leads to generosity which in turn supports charities and great causes.  Unfortunately, the middle class will still struggle, and the poor will still need to climb up.  But a rising tide lifts all boats.  So, let's not begrudge the wealth that prosperity brings about - let's be glad for it. 

Why will 2014 be the year?  What is going to happen in 2014 which will make it a trans-formative year for the USA economy?  I'll bullet it - for the sake of brevity.  The following are not in any sort of order:

1. Back To Normal - Before the economy could take off it had to get back to normal.  It's been called "the new normal."  Either way, we had to fight our way back on many fronts including but not limited to unemployment, the deficit, bank capitalization, etc.  Even the stock market had to get back to the old highs before it could go to the new highs.  This took time - and beside, if it all happened to fast, I believe that would have been a bad thing.  The fact that it has taken several years to get back to normal is a good thing!  But now that we're mostly back to normal we can take it to another level.  Old resistance is new support, as they say in the financial markets.

 

2. Obsolescence - Consumers have been making everything they own last longer.  That is what happens in a recession.  Everything you need and want to do has to wait.  Meanwhile, thanks to technology, today everything is new and better.  You know what that means?  The force of "human nature" will drive a giant replacement cycle.  What sorts of things does this include?  The question is what doesn't it include?!  From your carpet to your roof to your appliances - the home is ready for a make over.  Your car, on average in America, is 16 years old.  Now, have you seen how much cars have improved in that time and it is notable that this coming year automakers are releasing a record number of new models and designs.  Fashion is always on the move, but 2014 will be the year "wearables" is added to the dictionary. 

3. Getting Healthy - What about your health?  There are more options for living better in general than ever!  Heck, they're printing (3d) ears and noses.  The advances in drugs, devices, testing, treating, are nothing short of amazing.  And now, with the ACA (like it or not) more people have the health care coverage to afford treatments that were not available to them before.  Better yet, American's are starting to take responsibility for their health.  Which means new opportunities for products and services to help us to do so.  Some of those options will look like traditional health care.  Others won't.  In 2014, a garden, or at least access to fresh produce, is a health care strategy.  

4. Distribution and Convenience - See it, buy it, it arrives.  Things go from eyeball to home in under 48 hours without ever leaving your sofa, or should I say you're tablet or phone.  If things are easier to acquire people acquire more things.  And, that time they save is a good thing too.  Because there are more productive uses for time than driving to stores!  America is learning all sorts of good things from the logistics revolution that is going on behind the scenes in factories, stores, shipping departments, and transportation companies.  It will lead to capital spending which will support the infrastructure demanded by our new consumer ways!

5. The Power of Travel - People can go anywhere more affordably than ever.  Travel opens markets and stimulates trade in all directions.  The "new world" is the new world of travel.  Travelers bring new ideas.  Ideas like freedom, democracy, equality, education, opportunity, and free markets can't be denied now matter how much communists and Muslim fundamentalist want them to be.  They are infectious and the germ has been exposed to China, Russia, Cuba, Iran, Egypt, and they are sneaking their way into even the most closed societies like North Korea.  When people travel more, they spend more, it's that simple!

6. Social Media and Connectivity - The influence of social media is remarkable.  But what's most amazing about social media is the speed at which it transfers ideas, information, culture, etc.  A "thing" can start anywhere and be everywhere in 24 hours.  A business or person can literally be an overnight sensation.  The potential for entrepreneurs and business, let alone a good cause, is nothing short of amazing!  And, it's never happened in the history of mankind!  This IS bigger than radio and TV combined!  The social media trend goes hand-in-hand with connectivity.  Mobility is the new connectivity.  You're never unconnected.  But that's just the beginning.  As CISCO says in their ads, "Each day, more and more people, process, data and things join what we call the Internet of Everything. And as we wake up the world, amazing things will happen."  I agree with CISCO, "It's not one thing, it's many things, it's everything."  When your car is talking to your calendar which is getting an invitation you got to a party that is big.  When your car turns to you and tells you where to go shopping for a gift and how to get there, and get gas or a bite to eat on the way, that's huge.  The possibilities are endless, and so are the economic benefits. 

7.  Intelligence - Artificial as it may be, it's still intelligence.  It's way more than computers.  Your car, your house, your phone, your watch and even your clothes, are all going to have some form of the new intelligence built into them.  Aside from the benefits brought about from a thermostat that learns on it's own, the businesses that make things smarter have a lot to gain too.  Robots that sweep our floors only scratch the surface (pun intended).  Before you know it, you won't drive your car because it will drive you.  You won't need to go to the market, because the market will know you're out of detergent and it will come to you automatically from a distribution company, possibly Amazon, that has the intelligence to know you need it as well as other essentials and automatically packs them and delivers them to you.  2014 is the year "intelligence" and robots truly take hold in our lives. 

8. A River of Capital - They call it "currency" for good reason.  And, when currency flows, the money supplies expansion.  The banks and corporations and the rich have vast amounts of money swashing around.  That dam holding it back has been the lack of confidence, disbelief, and fear.  There are cracks in the dam as we end 2013 and in 2014 that dam is going to bust, and the money is going to pour out into the greater economy.  Spreading it's way over the entire nation, and the world.  And while we were all worrying about debt an ironic thing happened.  America, the government, businesses, and households have lowered the cost of financing their debt.  One of the biggest effects of the Great Recession is the Great Refinance, and it will be paying benefits for years to come!

9. Government Get's It - Now that both parties have the lowest approval ratings in history they get it.  We're all losers when government fails to function because they are consumed with partisan politics and have lost sight of Country before Party.  I believe politicians are coming to a new conclusion about their service to America.  One that is much more conducive for the economy.

10. Energy Surplus - We aren't just becoming less dependent on the Arabs for oil.  This is just the start of it!  We are becoming the largest supplier of oil and natural gas in the world.  The money that was once sucked out of this country is being poured back into our own economy - to the tune of hundreds of billions of dollars a year.  And that's just the half of it.  America is building an entirely new infrastructure to support it.  The wealth creation from this super cycle trend is hard for people to fathom.  The implications to our lives and national security are enormously beneficial. Nothing is bigger!  Nothing!

11. Made In USA - Manufacturing is coming home. This topic is the result of of the confluence of several points I've listed, including energy surplus with low cost natural gas, developments with intelligence and robots.  Even "Government Get's It" as we find a way to encourage firms to repatriat profits from overseas back into the USA investment.  But it's more than that.  Foreign firms more and more are building in the USA for the USA.  And as bad as the NSA scandal has hurt American firms, many large corporations know they can trust the safety of their intellectual property (patents, trademarks, research, etc.) more in America than anywhere else!

12. Transportation Resurgence - The biggest and most obvious transportation improvements so far are coming in rail.  Railroad expansion in the USA is much a result of the need to transport vast oil and gas production.  But it won't end there.  Corporate fleets and trucking are converting to natural gas.  Electric/Hybrid vehicles are going to finding recharging options like never before.  The massive growth in online (internet) sales is driving a massive expansion and improvements in home delivery. In the process, the USA is learning and gaining superiority on top of capacity in logistics.  These abilities will serve us well around the world!

13. Military to Civilian Change Over - As America rounds up 3 wars, and is retisent to start another large military action, we have hundreds of thousands of troops who have to come home and go back to work.  These are disciplined workers and leaders and they will provide critical talents, skills, and dedication for USA firms for many years to come.  In addition, the Pentagon and many military subcontractors have to find civilian applications for their products and capacity.  While they won't enjoy the margins they received at the expense of USA taxpayers, they will contribute more the GDP and less to the national deficit. 

14. Mapping New Worlds - Exploration and finding new worlds has been a hallmark of Mankind and has generally led to great increases in the world GDP.  In December 2013 the National Institute of Health kicked off the "Brain Research through Advancing Innovative Neurotechnologies (BRAIN)" Initiative, part of a new Presidential focus aimed at revolutionizing our understanding of the human brain.  In the years ahead, accelerated development and application of innovative technologies will to produce a revolutionary new dynamic picture of the brain that, for the first time, shows how individual cells and complex neural circuits interact in both time and space.  Like the Human Genome Project, which produces fantastic benefits both in health and financially, the BRAIN initiative will do the same.  And, once again, America will have the lead.  I believe research projects with similar size and significance relating to the worlds oceans and seas will be launched in 2014.  The understanding and riches that can be discovered in both these areas is impossible to calculate. But one things certain as I see it, they are part of the reason for brilliant 2014 and beyond. 

15. Research to Reality - America's university research  programs and laboratories are the envy of the world.  One of the great things about the great recession is that investment into these programs was funded as a means of Federal stimulus and that students continued on for or went back for advanced degrees since the job market was so weak.  The brightest students from around the world flocked to our Universities in record numbers.  As a result, America was able to make incredible advances in leading edge technologies that will change everything. We have the edge in nanotechnology,  materials technology,  robotics, and other fields that will be behind and inside amazing developments that will fuel our economy well into the 21st century.

16. Cost Savings Funds Capital Investment and Consumption - When a consumer can go from getting 18 mpg to 35 mpg (a 94%+ increase in mileage) they have a big incentive to buy a new car!  Add to that the fact that instead of having to worry about thousands in repairs on their old vehicle they gain a worry free warranty that carries them for the next 3-5 years.  Last but not least, they can finance or lease their new car at great rates.  In 2014 you have to be an idiot to keep driving an old car, and so millions will make that purchase.  A similar economic argument can be made for energy saving appliances, a better furnace, and insulation or maybe windows.  The concept of justifying capital purchases based on the cost savings and low financing rates doesn't only apply to consumers.  Businesses of all kinds can make an economic case for consumption.  As soon as sentiment shifts from pessimism to hopeful (see bullet #19 below), we're going to see a lot of this kind of justification for purchases in 2014 and beyond!

17. Global Warming Can't Be Stopped In Time - That's right, I don't think we can stop climate change, and the consequences.  But I do believe we can do something about it, and that in 2014 the attitude and dollars shift to this point.  We can start to protect the coastline in major population centers.  We can supply water in new ways to areas that experience drought. We can build or protect buildings from high winds.  We can improve the grid and back-up power systems to cope with severe storm damage.  There are many things and that means investment, and new jobs, and material demand!  It means economic expansion!

18. Tuned Up & Ready - American businesses, especially, have used the last 5 years to fine tune operations in order to operate at maximum efficiency and profitability.  Margins and profits are at an all time high.  When business picks up, the increase in sales & revenues will lead to two things which are good for the economy and the equity markets - greater profitability and hiring!  And, once businesses are confident that a great expansion is underway they will use the cash and financing they've accumulated to invest in everything from plant, to equipment, to technology, to training, to entering new markets, to mergers and acquisitions.  Business will lead the way as soon as they sense the consumer is ready to join them. 

19. The Pendulum Will Swing from Pessimism to Hopeful - Eventually, this 5 year tide of pessimism is going to go back out.  And, when it does, as I believe it will in 2014, the expansion is off to the races!  On Wall Street they call it "Animal Spirits."  I'm betting we see some of the most upbeat moods and positive consumer confidence ratings we've seen in decades!

So there you have it.  Now you know why I'm fully invested and have been for a few years!   I have referred to the economy as a giant snake that has been coiling up and is ready to strike.  It's a metaphor for the energy that is about to be released at a speed and with a force that will surprise us.

Advantage USA

Moving forward, as the economic recovery picks up steam, one of the bright spots is American Manufacturing.  For too long the trend has been for USA firms to move production offshore to Asia.  The tide is turning, and American Manufacturing has a number of advantages:

1. The real estate bust is a boom for USA firms seeking land and facilities.  Rapid real estate inflation in Asia only makes American space costs that much more attractive.
2. Borrowing costs in the USA have never been lower and with banks beginning to lend the cost of financing plant & equipment has never been more affordable.
3. The exceptionally low cost of natural gas as a fuel source gives American firms a huge advantage over energy intensive production overseas.  New technology for efficient co-generation means that natural gas is also a fuel for lost cost onsite electricity.  And, excess electric production can be sold back to the grid.
4. USA is safe!  The ability to secure intellectual property, such as patents, designs, formulas, processes and methods, etc., is made easier on USA soil.  Plus law enforcement and the legal system is on "our side!" Spies aren't as available and can't hide out as easily either.
5. Labor has done a 180 in the USA.  Thanks to 9% unemployment, workers and unions have come to realize job security is better when they work with their employers to make better products and compete internationally.  
6. American technology can help American manufacturers.  In conjunction with labor, technology is helping USA firms to have one of the most productive workforces on the planet.
7. Government gets it - American manufacturing means American jobs - and that means votes!  Bring the jobs home is the mantra of both parties.  Government, at every level, can do more to get out of the way and help manufacturers, but at least they see the connection between regulation and jobs.  
8. The "Made in the USA" brand is a positive marketing advantage.  Consumers are more inclined to "buy America" to "support America" than in recent memory.  Chrysler tapped into this spirit in their 2012 Superbowl half-time ad! 
9. Foreign firms that want to grab a share of the giant USA market see putting production in the USA as a critical part of their strategy.  USA firms save on shipping costs and time to market when they bring production home.  Both reduce the risk of currency fluctuation by keeping the supply chain in the USA.
10. As the manufacturing jobs come home the boost it gives to the economy feeds on itself! 

" It's halftime America, and our second half is about to begin!"  (click to see commercial)