| Monday, December 22, 2014 | Issue #2442 | |
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The Good News in
This Lousy Market Alexander Green, Chief Investment Strategist, The Oxford Club
 I often argue that the mainstream media is far too pessimistic. This causes investors to miss worthwhile investment opportunities... or avoid equities entirely.
But how about when the news is genuinely bad?
In the last few weeks, for instance, we've learned that:
- China - the world's second-largest economy - is slowing.
- Japan - the world's third-largest economy - is officially in recession.
- Russia - the world's sixth-largest economy - is undergoing a full-blown contraction.
- Plunging oil prices have caused the cancellation of more than $150 billion in worldwide exploration and development projects.
And - not surprisingly - global stock markets have tumbled in response.
Sounds dire. Until you realize that the positive news is getting short shrift.
"What positive news?" a friend recently asked in genuine puzzlement.
My point exactly. Here is just a sampling of things buried beneath the gloomy headlines over the last two weeks:
- The Labor Department reported that employers added 321,000 jobs in November, the best gain in nearly three years and confirmation that the U.S. economy has finally settled into a steady and sustainable hiring groove. And 69.7% of industries added jobs, the best since January 2008. That included many higher-paying fields like manufacturing and professional and business services.
- U.S. families' debt levels have settled at their lowest level in more than a decade. According to the Federal Reserve, total household debt, when measured as a percentage of disposable income, has fallen from a peak of 135% in 2007 to 108% this year. That is the lowest level since early 2003 and far below levels among households in Canada, Britain and Japan.
- At the same time, the housing recovery is causing Americans to borrow more. Overall, household borrowing rose at a 2.7% pace last quarter, up from a meager 0.6% pace at the end of last year. This will help lift spending and juice the economy.
- Americans are eating their vegetables, apparently. The United States spent $2.9 trillion on healthcare in 2013, just a 3.6% increase in national healthcare spending over 2012. This is the lowest annual growth rate since 1960. It also marks the fifth straight year of lower health-spending growth.
- Thomson-Reuters and the University of Michigan reported this month that Americans' confidence has surged to a post-recession high, boosting hopes for stronger consumer spending. The rating - 93.8 - was the highest in eight years.
- And while energy producers are bemoaning the recent plunge in oil prices, this will deliver a windfall to consumers and manufacturers. Despite the cancellation of some exploration and development projects, the "half-off sale" on oil is an unambiguous net positive. Some economists estimate it will provide a $1 trillion stimulus to the world economy in 2015 alone. (And it's Christmastime, so we probably shouldn't gloat about what this also means for the economies of Russia, Iran and Venezuela.)
It's true that bad news makes good headlines. But it doesn't provide a balanced perspective on the world.
You have to counter the monotonous, daily drip of negative media reports with reminders that interest rates are at rock bottom, inflation is low and headed lower still, the real estate market is recovering, the dollar is strengthening, unemployment is falling, the U.S. economy is growing, U.S. corporate earnings are at an all-time record and so are profit margins.
In sum, 2014 may have been a volatile year for investors, but it has been a pretty good one.
And there are good reasons to believe that 2015 will be another.
Good investing,
Alex | |
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