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.
