For the past nine years, the US economy has “recovered” from the Great Recession at the slowest pace in modern history. Wall Street Journal lead story this weekend was, “U.S. in Weakest Recovery Since 1949”. In the article they state:
“Economic growth is now tracking at a 1% rate in 2016…That makes for an average annual rate of 2.1% growth since the end of the recession, the weakest pace of any expansion since 1949”
Stagnant economic growth has spread like a virus around the world as other politicians, and central bankers have followed the failed fiscal and monetary policies of the US. No other time in history has both the Federal Reserve and Federal government committed to Keynesian-style stimulus campaigns. Since 2008 the Federal Reserve has printed over $4 trillion along with the Federal Government nearly doubling its Federal debt to $20 Trillion. China, Japan (still in its 26-year recession), Russia, and almost all countries of the European Union are challenged by massive debt and their own versions of US fiscal policies with same results (should not be a surprise to anyone).
Nothing new to you, I know. After reading through this weekend’s reports, papers, and magazines, I thought it was time to outline the top five benefits of an ultra-slow pace of economic growth. They are in order of least to best benefit:
5. Fatal crashes are rare at 5 MPH
Imagine having been entered into a race of tricycles. Your first thought would not be what protective clothing and helmet you need to bring. You will probably be more at risk of injury from fellow racers pushing you over. As economic conditions continue to move at a snail’s pace, it provides ample opportunity for investors to research and plan out their strategies. Most importantly, the near-term boom/bust of 2000 or 2008 appears many quarters down the road.
4. Bubbles are easier to find
With the stock market on the road to nowhere, it is simpler to identify assets classes that are inflating to risks of being a bubble and popping. The highest risk would appear to be bonds as trillions have flowed into the sector which has outperformed the S&P 500 for potentially the second year in a row. In January as the US stock market imploded, bond rates plummeted as investors rushed to safe haven investments. Even now as the stock market has recovered the 10-Year Treasury yield at 1.5% has dropped by more than 25% from last year. With fewer asset classes performing well around the world those that are either providing stability or reasonable returns (e.g. utilities) will swell quicker and be easier to identify as investors rush to the few games in town.
3. Complacency breeds opportunities
As investors continue to read week in and week out about the slow growth of world economies they tire and tune out. Complacency is the friend of the astute and attentive. Yes, conditions are pathetic, but they will change at some time. Admittedly it may be a while with no apparent change on the political front and as the saying goes, “same results for the same process”. This is the time to research and pay attention to opportunities that are developing so you are the first to identify potential and first to act. There are opportunities even now, but the more likely and rewarding potential will be when a significant market condition changes such as a stock market crash or short term impacting events like Brexit.
2. People become intolerant to the same old same old
The past eight years are the result of failed fiscal policies coming out of Washington. As proof of the failure of these policies is the absolutely same effect in countries around the globe that have also implemented our policies. Eventually, people tire of stagnant repressive conditions and will eventually take dramatic actions to get out of their situation. This presidential election is an example of the intolerance and discontent brewing among Americans and eventually people will do what governments cannot, which is growing the economy.
1. Explosion of Entrepreneurialism
In the mid-2000‘s small businesses and their impact on the US economy had been declining. Historically small businesses represented as much as 65% of new job creation in the US. The good news is the entrepreneurial spirit is not only alive but blossoming. The explosion of the “gig economy”, as Hilary Clinton has derogatory referenced, is the result of massive layoffs as national companies are downsizing and limited their capital investment. Instead of receiving government handouts such as unemployment and food stamps people are taking independent contractor positions for companies like Uber or buying franchises (neither of which is tracked by Department of Labor for unemployment statistics). Entrepreneurialism is the foundation of this country, and a thriving small business community will revive the economy.
WHAT DOES THIS MEAN TO ME?
Lemons can lead to lemonade. By all measures, the past 15 years of fiscal policies have restrained the US economy. Both Ben Bernanke and Janet Yellen have stated at almost every congressional hearing the coded rebuke of “no amount of monetary policy can accommodate poor fiscal policy.” Translation is “no amount of our money can offset your mismanagement of the economy”. The Federal Reserve proved it by deploying over $4 trillion into the economy since 2008. This election cycle does not appear to offer candidates that will change attitude and government process. But this too will change and when it does opportunities will be more prevalent.
Let us know your questions or comments in the section below!