The holidays are here. Please allow me be the first to say there’s reason for optimism.
Yes… You read that right: optimism.
I have been thinking a lot about this — about optimism and pessimism and the reasons for both — in recent post-presidential election days. It’s not that I care that Obama won or Romney lost. Please don’t misunderstand me. I didn’t (and still don’t) support either of them.
It’s the whole process that gets me down. It brings out the worst in everybody. And I am always a little blue at election time anyway because the ideas I most cherish — those quaint-sounding notions of liberty and inalienable rights that so moved the Founding Fathers — seem to have no force in the national debate. Instead, we have a free-for-all to see who gets to feast at the government trough.
Yet there are reasons for optimism: big, powerful, long-term reasons to feel good about the prospects for liberty… and for your portfolio, particularly in the U.S. Though the two are related (an idea I hope to develop more in a future letter), we’ll stick with the investing side of it for now.
(As an aside, I would like to point out that the act of investing itself is optimistic. If you were really pessimistic, you wouldn’t invest in anything. You’d spend it all right away or lock down like a survivalist.)
An editorial in last week’s Wall Street Journal by William Conway, a co-founder of the Carlyle Group, titled “Why We’re Investing in America” hit on some of the reasons I’ve started to feel optimistic again — especially about the U.S. Conway writes, “A decade ago, China was the most attractive place to invest.”
But it is no longer. As Conway points out, China has emerged. It is not the same growth story it was. And there are new challenges. A Washington Post story over the weekend highlights one of them. The article was about how so many of China’s wealthier citizens want to leave the country. If it is so good in China, why do they want to come to the U.S.?
It’s not just China. Brazil has problems. It is looking like the banana republic it was and perhaps always will be. India struggles. The EU is shrinking. Japan has mega problems. These are all big markets. And they are all in trouble.
The U.S., compared with this lot, has many attractive attributes.
Conway points to some: rule of law (for the most part), deep and liquid capital markets and transparency to degrees many other markets are not yet up to snuff on. (They are getting there, as my World Right Side Up thesis says they will.) Plus, the U.S. is a big market by itself — 300 million-plus — still the world’s largest consumer market.
And there are four more big reasons to be optimistic, some of which Conway touches on:
- The housing market is clearly recovering. It is no longer a drag on the economy. Prices have begun to recover in most cities. Investment has started to come back. I’ve been a bull on housing for a while now, and this has been a good call.
- The banking sector is also recovering. U.S. banks are on the mend. The worst problems are behind them. Recent letters to my paid-up readers have much on my bullish bank thesis.
- “The discovery and production of new sources of crude oil and shale gas is lowering energy prices, jolting the U.S. into a new energy revolution,” Conway writes. Lower energy prices are good for the economy as a whole. As we’ve covered, this is also an aid to U.S. manufacturing, which leads us to…
- U.S. manufacturing is starting to come back. I’ve written a lot about this, too. There are definitely opportunities to make stuff in the U.S. and invest with a world-class set of American companies. Conway notes that of the $4.4 billion Carlyle has committed to invest in the U.S., two-thirds of it is in the manufacturing and industrial sectors.
Conway sums up:
“Many in America and beyond have been paralyzed by fear of the fiscal cliff, frustrated with Washington’s partisanship, mesmerized by the presidential election or stunned by the post-Great Recession recovery. Any way you look at it, though, now is a great time to invest — and there is no better place than America.”
I am not quite as optimistic as Conway, but I do believe it is a good time to invest in the U.S., especially as it relates to those four bullet points above — though you still need to be choosy, in particular about the price you pay.
My conclusion should not come as a surprise, really. This is especially true if you’re a reader of my newsletter Capital & Crisis. In those pages we have come to focus on U.S. opportunities – indeed, most of the global plays have been sold off. Instead, we find our focus is on American real estate, American banks and American manufacturers.
There will still be good opportunities abroad, of course. But as you celebrate over the coming holidays, go ahead and put in a few good words for the old US of A. It ain’t dead yet.
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