Special Letter: December 2011
The Developing New Prosperity
While headlines like the one above are generally met with retorts about America's demise, this letter hopefully makes people understand that the United States is in the beginning stages of a new boom, not a final collapse. As I discussed on MarketWatch.com in the article that won me a columnist slot with them, America is in the very early stages of a technolution in energy that will not only provide jobs for the millenial generation but also pay for the baby boomer's retirement. On top of energy, food production and export is becoming an increasingly strong strategic industry.
Energy Is The Key to Every Economy
Since the industrial revolution, cheap energy has been at the heart of America's economic development. And since the 1950s, having energy has been the core factor in the United States dominance of the world economy. Going forward, energy, will continue to be at the heart of the American economy and its continued place as the most important economy on earth for decades.
Nations that are energy rich have stronger currencies, and generally higher standards of living. This relationship is easy enough to understand by experience. If your money is worth more, you can buy more, hence you live better. If you have a relatively low cost of energy, the core ingredient in virtually everything in moden life from production of goods to transportation to the temperature of your home, everything else tends to fall into place. A strong currency is one of the three main things that keeps inflation low (resources and high productivity being the other two).
A recent Goldman Sachs report projected that the United States would be a net energy exporter by 2017. While precision isn't important to us here, the accuracy of the trend is. What we have seen via Energy Information Agency (EIA) numbers is that oil imports from the middle east have plunged the past four years, oil production in the United States has surged (even with the slow down in the Gulf which is now picking up again), natural gas production is ramping up, coal production and export is robust, solar netted billions in exports the past few years and is about to make another technological jump, wind is reaching physical peaks and broad energy efficiency is helping the U.S. maintain demand levels.
On net, supply of energy in the U.S. is rising faster than the demand. Globally that is not true. The U.S. is very early in developing an energy export economy. Think about the opulance that has been built in the middle east selling the United States energy. Now imagine the wealth that can be generated for the United States selling our energy to Europe, Japan, China and developing nations. It is massive.
Food Is Pretty Important Too
While not America's largest export, as it trails both chemical and transportation exports (folks, we are still a top 3 exporter in the world), agriculture is a major and growing component of American exports. At $122 billion in 2010, food and agriculture exports are growing at a low double digit percentage as the world keeps creating more mouths to feed. The United States combination of arable land, water, agricultural technology and low population make for a potent mix for the development of further exports and generation of domestic wealth.
Americans as a group have been fairly pessimistic of late. That is understandable. The period from 2001 to 2008 was terrible for America, and the past few years the hoped for rebound has been slow to materialize.
The facts are however that things are slowly getting better. Jobless claims have been falling recently. This may be attributable to the fact that exports are rising. Regardless, the broader economic trough, in my opinion, has been made. We may skip along in a near sideways way for a few more years, but folks ought to be working towards participating in the coming boom, because it is coming.
As trends play out over the coming decades, so long as we protect the environment and make certain that the wealth generated by energy and food exports are not hoarded by only a few, America is on track to do very well going forward. All we have to do is work hard (which will require learning appropriate skills) and control cheating through appropriate regulation, and America will have a postive social evolution, not the collapse that fear sellers drone on and on about.
Investors need to resist the urge to be pessimistic. They must also be patient and resist the urge to bury their portfolios in low growth, low return investments because they are afraid of volatility. Volatility works in both directions. Portfolios that have been built for the coming positive future, like ours have been, need to stay the course. Those who do not have portfolios leveraged to a stablizing dollar brought about by energy and agriculture strength in America need to do so.
Your Positive on the Future of America Advisor,
This letter contains forward looking statements that may not come true. Past performance does not guarantee future results. This letter is intended for informational purposes only, and reflects only my thoughts and opinions in general, and do not constitute individual advice. Opinions expressed may change without prior notice.