What fiscal cliff?
Stock prices rose last week to their best weekly gain in
five months as investors cheered the start of the holiday shopping season,
encouraging economic data from Germany and China, improved housing data, and
confidence from President Obama and Congressional leaders that the fiscal cliff
will be avoided.
Is this the beginning of a “Santa Claus rally?”
Jordan Kotick, global head of technical strategy at Barclays,
told CNBC, “We are about to head into the best seasonal time for the equity
market.” Despite this seasonal tailwind, the market’s near-term direction may
still depend on how Washington handles the pending budget and tax cliff. So
far, the market seems to be pricing in a compromise that will avoid the
worst-case scenario.
Beyond the fiscal cliff and a potential Santa Claus rally,
what’s in store for the U.S. economy? Well, here’s a not-so optimistic take
from famed money manager Jeremy Grantham:
The
U.S. GDP growth rate that we have become accustomed to for over a hundred years
– in excess of 3% a year – is not just hiding behind temporary setbacks. It is
gone forever. Yet, most business people (and the Fed) assume that economic
growth will recover to its old rates.
In his view, our economy will grow at a snail’s pace of
about 1 percent per year after inflation for the next several decades. Without getting bogged down in details, his gloomy
case rests on population and productivity changes.
However, there are some potential bright spots on the
horizon. Please read the second half of this commentary to learn about one
important part of our economy that could turn Grantham’s pessimistic view
upside down.
THE YEARS 2020, 2030, AND 2035 could turn out to be pivotal years for the United
States and the geopolitics of global energy. Here’s why. The International
Energy Agency (IEA) predicts the following will happen by those years:
·
2020
– The U.S. will overtake Saudi Arabia as the world’s largest producer of crude
oil.
·
2030
– The U.S. will become a net exporter of crude oil.
·
2035
– The U.S. will become effectively self-sufficient in meeting its total energy
needs through domestic sources.
Source:
International Energy Agency World Energy Outlook 2012
Today, the U.S.
imports about 20 percent of its total energy needs. Can you imagine a world in
which the U.S. is energy self-sufficient and not beholden to foreign energy
sources? This could deliver a huge boost to our economy.
Five years ago, the
IEA predicted the U.S. would pump 10.1 million barrels of oil per day by 2020. In
this year’s report, the IEA’s new estimate is 11.1 million barrels per day by
2020. This projected increase in production is, “driven by the
faster-than-expected development of hydrocarbon resources locked in shale and
other tight rock that have just started to be unlocked by a new combination of
technologies called hydraulic fracturing,” according to MarketWatch.
So, we have Jeremy
Grantham stating the bear case for the U.S. economy then we have the IEA
publishing a report that puts the U.S. in the driver’s seat for the world
energy market in the next couple decades.
Now, here’s the
thing. Both Grantham and the IEA are making long-range forecasts based on data
available today. Yet, we know things can change just as the IEA raised its oil
production estimate from 10.1 million barrels of oil per day to 11.1 million.
Trends take time to
develop and then, all of a sudden, they could change due to some new technology
– as in the case of “fracking.” We do
keep an eye on these long-term trends, but we also understand that investment
decisions to buy and sell have to be made based on what’s happening now. This
“bi-focal” approach is one of the many tools we use to manage your assets.
Weekly Focus – Really?
“Whoever said money
can't buy happiness simply didn't know where to go shopping.”
--Bo Derek, American actress
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