Steven T. Goldberg, a Washington, D.C.-based investment banker, has a positive outlook for the American economy. Though I’ve heard other guesses that we shouldn’t expect a positive turnaround until 2015, he’s a bit more bullish. He recently authored a column for Kiplinger noting six reasons why he sees a "major bull market" in the next year or two:
1. The long decline in housing prices is nearing an end. The excess supply in housing is dwindling. When home prices finally bottom, it will mean more employment for construction workers, real estate agents and people in related industries. It will also staunch the bleeding in the mortgage and banking industries. Plus, it will help revive consumer confidence.
2. The U.S. is undergoing a manufacturing rebirth. Higher wages in China are prompting some companies to relocate factories to the U.S. Ford and Emerson Electric recently brought back some manufacturing to the U.S., and Intel is building three new plants here. Boston Consulting Group sees China’s edge eroding because many Chinese workers this year received wage increases of 15% to 20% and because of high transportation costs to the U.S.
3. The "echo" baby boom is ready to invest. The children of the baby-boomers will soon enter the 35-39 age bracket — the time in life when, Levkovich says, they get serious about investing. He has studied actions of that group from 1900 to the present and finds a strong correlation between the size of that cohort and the direction of the S&P 500. He says the echo boom will more than make up for the pressure their parents put on stocks by selling investments to pay for their retirement.
4. Technological innovation is still spreading. Increased adoption of smart phones by individuals and companies in developed and emerging countries will lead to increased spending on these products, as well as on technology infrastructure, including better security software, faster chips, longer-lasting batteries and more broadband spectrum. The U.S. still dominates tech.
5. The U.S. is becoming less dependent on foreign energy sources. New discoveries of oil mean a near-tripling of production in the Gulf of Mexico by the end of the decade. Meanwhile, fracking and other advanced drilling techniques are dramatically increasing natural gas production and lowering its price. Also helping are tougher standards for auto fuel economy, which means we’re using less gasoline. What little oil the U.S. will have to import, Levkovich says, will come from Canada and Mexico. Energy independence would help our trade balance.
6. A solution to our fiscal crisis is on the horizon. In 2013, Levkovich thinks, Democrats and Republicans will overcome their bitter differences and adopt a debt reduction plan that will include both higher taxes and cuts in entitlement programs. If that doesn’t happen, he thinks bond investors will force a resolution in 2014 by selling Treasury debt and forcing up bond yields. "We continue to think that investors are unwilling to pay up for equities while the continuation of budget deficits and growth of national debt erodes the foundation of economic progress," Levkovich says.
Levkovich finds a lot of skeptics among individual investors, who continue to yank money out of stock funds, as well as professional investors, many of whom have decreased their allocation to stocks. But that’s just dry powder for the next raging bull market.