Feb
13

Looking on the Brighter Side
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Lately I have been feeling like I have been coming off too negative in my blogs. This I believe has been caused by the duration of the negative markets and by becoming increasingly short term focused. We have been in a negative environment largely since 2000 when the Dot-Com market cracked. Sure there have been good periods, but the S&P 500 Price Index is still down 7% from its high of approximately 1450. The volume of bad news surrounding us each day draws our attention and crowds out any positive news. I find myself looking hard for people with a "glass half full" approach vs. "half empty" to offset the overwhelming gloom and piece together a long term view. So I thought I would talk about what I see that is positive and the longer term view for our country

Starting with the United States I see our recovery continuing – however cautiously, I still believe we are heading in the right direction. Think of this as GDP in the 2% range rather than the 3% that one might have expected coming out of the recession. There are continuing concerns that we will slip back into recession and while possible I think it is unlikely. The reason I say this is because once the economy starts moving in any direction it gains enormous momentum that would require a major economic shock to reverse this direction.

I also expect to see continued gains in the employment situation. One of the reasons the growth is slow is that the employment numbers have not improved as dramatically as one might have expected. This could be due to the decision to extend unemployment benefits which can be an incentive not to look for work especially where benefits are close to entry level starting salaries. Some industries like homebuilding will not likely return to the levels of employment they had at their peak. Thus many building trade laborers are unlikely to return to building homes during their working lives. These people need retraining which will allow them to find employment in other industries and help restore our growth rate.

Partisan politics is another major factor in the negativity. It will likely get worse as our election approaches. In the past I have said that politicians receive too much praise when the economy is doing well and too much blame when the economy is performing poorly. I believe in Adam Smith's "Invisible Hand", which can be described as the decisions of all Americans who each day pursues their own best interests in business, personal consumption and investments. It is clear that we face significant problems in terms of deficit spending and the level of the national debt. Our economy holds the solutions to these issues. Fortunately we have time. The bond markets do not question our survivability like they do with Greece. If you recall last summer when S&P cut the credit rating on our debt - it rose in value when it should have declined.

We should not take too much comfort in that since in the eyes of bond investors our debt appeared to be the least dirty shirt in the closet. That could change if we do not manage our overspending and our financial condition continues to deteriorate. Our principal problem lies in the area of entitlements where Social Security and Medicare are in need of significant reform. I do not think given their magnitude these issues can be overcome with tax increases and spending cuts. We will need a pro-growth agenda to resolve these two problems as well as the unemployment issue.

Unfortunately we will all have to watch "As the World Turns" in Washington. It is important to remember that the world will continue to turn and the economy will continue to grow over the long term because we Americans will continue to go about pursuing what is in best interests.

Written by David Fluett.