12/13/2007 12:00 am EST
December 13, 2007
One thing was clear at the World Money Show in London a couple of weeks ago: not too many people are bullish on America.
Despite a fairly well-attended panel discussion called "Down But Not Out-Bargain Hunting in the US," which focused on opportunities in the US, only the most dedicated contrarians had much good to say about investing here.
The subprime mortgage crisis, the incredibly shrinking US dollar, slower economic growth, big trade, budget and current account deficits, and a perception of declining global stature because of the Iraq war all have made the US (along with Japan) the major market investors love to hate.
Meanwhile, China and India's growth is surging, a resurgent Russia is flexing its muscles, and in our own hemisphere Brazil is staking its claim as a major new economic power. Earlier this year, for the first time since World War I, the value of all European markets surpassed that of the US.
So, is this the end of the American Century, which magazine publisher Henry Luce proclaimed in a famous manifesto in Life magazine in February 1941?
Not quite. The US has its problems, and as the world's leading military and economic power, we are surely open to envy and criticism from many quarters. But we remain the only country that can project serious military power around the globe. With a GDP of $13 trillion and stock market capitalization of over $20 trillion, our economy and markets are three to four times as big as the next biggest nation.
Believe it or not, the US remains the world's leading manufacturer by a long shot, and its companies invest by far the most in research & development, maybe the best measure of future growth. US corporations poured $200 billion into R&D last year, 40% of the world's total-and almost 100 times what Chinese and Indian companies invest combined.
Individuals affiliated with US universities and research institutions have won more than two-thirds of the Nobel Prizes in science, medicine, and economics over the last 25 years. And although India is regarded as an up-and-coming technological power, its universities produce a mere 35 to 50 PhDs in computer science annually, vs. 1,000 in US institutions.
And despite the restrictions that have gone into place since 9/11 and growing public sentiment for stricter immigration laws, the US does remain relatively open to talented people from around the globe. Silicon Valley is full of people from all religious, ethnic, and national backgrounds, and the best American companies are truly global enterprises. That's why US companies are clear leaders in technology: Google, MySpace, Facebook, and others are setting the pace for Web 2.0, and venture capital firms in the Valley are actively funding promising startups again.
The US remains one of the world's freest markets and among the friendliest to entrepreneurs. And as Carlton Delfeld writes in the latest issue of Chartwell Advisor Global ETF Report, the US's "very flexible economic platform has generated 30 million net new jobs in the last 20 years, while Europe has created a net zero new jobs."
"America is still the most dynamic of the large industrialized countries," he continues, "with 75% of current Fortune 100 companies not even in existence in 1980."
Despite the image of a litigation-happy society, intellectual property is well protected and a sophisticated court system operates firmly by the rule of law. US financial markets are also among the world's most transparent, and although CEOs are paid far too much, they're much more accountable, and boards are more willing to give them the boot, as recent examples show.
US economic growth is slowing and residential real estate has suffered its biggest decline in decades-the housing market is unlikely to recover until at least 2009. But housing represents roughly 6% of GDP, and is likely to reduce GDP growth by about one percentage point. Despite all the fears about subprime loans and coming defaults, despite high oil prices and rising food prices, the US consumer has tightened his or her belt only somewhat as of now.
Thus far, employment remains strong (unemployment sits at 4.7%) and household net worth-a critical statistic that measures the difference between Americans' assets and liabilities-has hit a record $59 trillion, more than $500,000 per household. People who have money continue to spend it, and these affluent US consumers increasingly have been the engine that drives the economy. They are relatively insulated from the subprime mess and the economic pressures that are hurting consumers of more modest means (although statements this week by General Electric's chairman and chief executive Jeffrey Immelt about the impact of tightening credit on consumers are troubling.)
Thus far, the credit crunch hasn't inflicted serious damage on the big blue-chip companies that aren't in the homebuilding or financial industries. In fact, the weak dollar has helped them and harmed competitors: Airbus has had to cut back on R&D because the strong euro is hurting sales. The weak dollar has made US-based manufacturers much more competitive, and export growth has helped cut the US current accounts deficit as a percentage of GDP. That should strengthen the greenback over time, but for now it remains the world's most oversold currency.
In fact, as a natural contrarian, I can't help but notice the extremely negative sentiment about the US economy, dollar, and markets (although like everyone else, I'm worried about whether central banks will be able to keep the current credit crunch from spreading). The pessimism we saw recently about US stocks was the worst I can recall since October 2002, when the indexes hit their bear-market lows. That strikes me as more typical of market bottoms than of market tops.
Clearly the dangers of recession are rising, and certain sectors-like homebuilders and financials-may even be in bear markets already. But as I've written here repeatedly, I think the big blue-chip US growth stocks should continue to hold up well no matter what the economy does.
It's hard to be optimistic when there's so much gloom and doom around. Surveys show roughly two-thirds of Americans think the country is on the wrong track. That's nothing new. Back in February 1941 Henry Luce wrote: "We Americans are unhappy. We are not happy with America. We are nervous-or gloomy or apathetic."
Ten months later the Greatest Generation (my parents' generation) went on to fight and win World War II and set the stage for the most extraordinary burst of prosperity the world has ever seen. They were ordinary American men and women from small towns and big cities, farms and suburbs, offices, and factories.
Clearly our challenges pale next to theirs. All we need to do is have a little faith in our economy and ourselves.
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Howard R. Gold is executive editor of MoneyShow.com. The opinions expressed here are his own and not necessarily those of InterShow.