I was visiting with a friend about a well-known individual who offers investing and economic advice on a national platform. This “expert” is not one I have paid a lot of attention to because he has always been so pessimistic. In fact, he takes great pride in his pessimism. As an investor a lot of math works against the pessimist. A look back at the stock market over the past 100 years shows that on an annual basis it ends the year up roughly three-fourths of the time. Using that number alone you can see that a stock market pessimist has a difficult job because three out of four years he is going to be wrong. Who would even want that job?
When contemplating what to write about in my columns I often review past work. Markets and economies tend to repeat themselves so it can be useful to look to the past for patterns that may help predict the future. As I was doing so this week I came across an article I wrote 13 years ago at a time when people were struggling to have faith in the economy. I wrote at the time about optimism and named three key reasons I believed the markets would be strong for many years to come. Ironically, and to my surprise, the three reasons I wrote about so long ago were key leaders of a very long period of market strength, but they were also the same three reasons I had written down just this week as I was thinking about the direction of our current economy.I suppose I have learned that there are certain pillars of our American economy, and I see them positioned to carry us through the next period of growth. Here they are in no real order:
Technology: Technological advancements from the telephone to the automobile to the computer to artificial intelligence have always been a huge driver of American economic growth. And it is no less so today. Just when we think there is nothing left to invent, the world changes dramatically. I was talking to a daughter this week who owns a very hands-on family business. Her family produces their own products largely from their own farm and I would have never equated what she does with a high-tech industry. Yet she told me how she has been using artificial intelligence to help make her operations and marketing more efficient and exacting. I was surprised to learn the breadth of the potential of this technology that is still in its infancy.
Energy: Our world is in a constant see-saw battle over energy. We have a huge need for it and that need will grow for as long as most of us will be around. The new administration in Washington is promising to open up the United States to more domestic exploration of energy resources and there is history to show it will likely happen. I am not here to comment on the political aspect of where we get our energy from, but I can offer an opinion on the investment impact of various options. One of the major costs of manufacturing is the cost of energy. To the degree that we are able to abundantly produce our own energy, it has been and will likely be a strength to our economy. I also believe an improved energy supply will encourage manufacturers to relocate, or to remain in the U.S..
Real Estate: The real estate market has been fairly stagnant for some time, and especially commercial real estate. Since a growing population, (and we are certainly growing), constantly needs more developed real estate, in slow times demand will build up. Real estate isn’t like food or some other asset classes. If you don’t have enough eggs to eat this year, when production increases next year you won’t eat twice as many eggs to catch up. But if enough real estate isn’t produced, then when times improve that sector will produce overtime to catch up. I think as interest rates continue to settle throughout the next two years, and as demand increases with a growing population and shortage of supply, the real estate market has the potential for another strong season of growth.
I remain optimistic for the next couple of years. A lot of changes are happening, and change can be uncomfortable, but I believe the economy as a whole is healthy and able to withstand the short-term issues while maintaining a long-term positive growth pattern. If you are a pessimist you will be able to find plenty of bad in the world to support your position, but as an investor I’ve always favored the math. As I look at things today I believe the math of the markets will continue its 100-year trend and favor the optimist.
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Dan Wyson, CFP® is a long running national financial columnist, author of several books and CEO of Wyson Financial/Wealth Management 375 E. Riverside Dr. St. George, UT 84790 – 435-986-9525
