| | | Monday, September 28, 2015 | Issue #2640 | |
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Is America in Decline? My Response to Alexander Green's Attack on Donald Trump Mark Skousen, Special to Investment U
 As the former chairman of Investment U, I have to take issue with Alex Green's attack on Donald Trump and his excessively bullish view of America and Wall Street. (Editor's Note: The perennial stance of The Oxford Club is neither bullish nor bearish. We consider ourselves "market neutral," meaning we reject economic forecasting and market timing altogether.)
Alex's optimistic assessment of America reminds me of Carly Fiorina's rosy defense of her record as CEO of Hewlett-Packard (NYSE: HPQ) from 1999 to 2005. She says that she doubled the size of the company, tripled its rate of innovation, and quadrupled its top-line growth rate and cash flow.
That's all true, but she conveniently leaves out the fact that much of that growth came from the Compaq acquisition in 2002. After the merger, profit margins fell by 40% and the stock price fell by more than 60% - more than competitors like Dell, IBM (NYSE: IBM), Intel (Nasdaq: INTC) and Microsoft (Nasdaq: MSFT). As a result, she was fired.
Alex Green should be commended for his extensive list of U.S. achievements in "[Alex] has wisely kept his Oxford Club subscribers fully invested at a time when numerous Cassandras have been predicting a stock market crash and collapse of the dollar.
"But let's not ignore the negatives..." | |
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technology, education, energy independence, foreign investment and stock market performance. There's a reason why the dollar has been so strong. And he has wisely kept his Oxford Club subscribers fully invested at a time when numerous Cassandras have been predicting a stock market crash and collapse of the dollar.
But let's not ignore the negatives.
America is No. 1 in many categories, but like Britain after World War II, it is facing huge challenges that could topple its No. 1 status in this century. Donald Trump is right that America is in decline and facing crises in many areas. Let me list a few that Alex failed to mention:
- The welfare mess. According to the Congressional Budget Office and the Tax Foundation, low-income households in America now receive more in transfers from the federal government than they pay in total taxes. The number of Americans on welfare (food stamps, Medicare, Section 8 housing, etc.) exceeds 109 million. That's over 35% of the U.S. population, a near record, and this is five years after the Great Recession supposedly ended.
- Crumbling infrastructure. According to a recent issue of The Economist, the U.S. is facing a monstrous infrastructure crisis, and will need to spend more than $2 trillion to rebuild its roads, highways, railways, bridges and dams. Potholes and badly damaged highways are endemic in many parts of the U.S.
Jim Rogers says, "America is a third-rate country when it comes to its airports in LA and New York, and can't compare to the first-class airports in Asia." According to the American Society of Civil Engineers, around 14,000 of the country's dams are "high hazard" and 151,238 of its bridges are "deficient."
"This crumbling infrastructure is both dangerous and expensive," declares The Economist. "Traffic jams on urban highways cost America over $100 billion in wasted time and fuel each year; congestion at airports costs $22 billion and another $150 billion is lost to power outages."
Right now the U.S. is spending only 2.5% of GDP on its infrastructure when it needs to spend 3.5%. With the national debt at an all-time high, exceeding GDP, where is the government going to find the money to finance this much-needed investment?
You've probably sensed it...
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- Education. We may have a first-rate education at the college and university level, but secondary education is a disaster. According to the College Board, the average SAT score for the high school class of 2015 was 1490, down seven points from the previous class' mark. It was the lowest composite score of the past decade.
- Social Security and Medicare deficits. The federal unfunded liabilities are catastrophic for future taxpayers and economic growth. At usdebtclock.org, federal unfunded liabilities are estimated at nearly $127 trillion, which is roughly $1.1 million per taxpayer and nearly double 2012's total world output.
Medicare is expected to run out of money from its trust fund in 2030, and Social Security is expected to in 2033. Many state employee pension plans also face major deficits. - Anti-business environment. For the first time in 35 years, business closers outnumbered business startups in the U.S. According to The Business Journal, the U.S. now ranks 12th among developed nations in terms of business startups, behind Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy.
Alex mentions that major U.S. banks are healthy. He fails to mention that Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM) and Bank of America (NYSE: BAC), among others, would have gone bankrupt in 2009 if they had not been bailed out by the federal government. Meanwhile, none of the major commercial banks in Canada, Australia and many other major developed countries were in jeopardy during the financial crisis.
Due to Dodd-Frank and other bank regulations, there have been no new community banks created since 2011 - none (before the financial crisis, 100 to 150 new local banks were approved annually). - Finally, loss of economic freedom. According to The Heritage Foundation, the United States has been gradually declining in the Economic Freedom Index and is now at No. 12. Other countries are doing better, including Hong Kong (No. 1), New Zealand (No. 3), Canada (No. 6) and Chile (No. 7).
I hope Alex is right, that America can maintain its No. 1 status in the world. But considering the six points above, the United States faces serious problems, and there's a good chance our best days may be behind us - which would explain why stocks are falling now.
But Alex may be right about one thing: I doubt if Donald Trump is the right man to make America great again. It's easier said than done.
Good investing,
Mark Skousen
P.S. I'm offering half off my 4th edition of The Maxims of Wall Street! The new edition mentions more than a dozen new quotations and authors, including Donald Trump and J. Paul Getty. For 30 years, I've been painstakingly collecting all the wise old adages, proverbs, humor and legends on Wall Street, based on in-depth interviews with old-timers, rare financial books and my own experiences of more than 40 years in the financial markets. They include famous lines from Warren Buffett ("If you wait to see the Robin sing, spring may be over")... J.P. Morgan ("Troubled waters make for good fishing")... Richard Russell ("In a bear market, the winner is he who loses the least")... and Steve Forbes ("Everybody is a long-term investor until the market goes down").
The book has been endorsed by The Oxford Club's own Alexander Green, as well as Warren Buffett, Jack Bogle, Dennis Gartman, Richard Band and Bert Dohmen. Over 20,000 sold! The retail price on Amazon is $24.95, but Investment U subscribers will pay only $20 for the first copy - with additional copies only $10 each. All are personally autographed and mailed to you for free (I pay the postage). For all foreign orders outside the United States, add $10 per book. I'm offering this "half off" deal because I know Maxims makes a great gift for friends, relatives, business colleagues, investors... even your favorite stockbroker or money manager. Many people order a whole box (32 copies). The price of a box of books is only $300 postpaid. As Hetty Green, the first female millionaire, said, "When I see something cheap, I buy a lot of it!"
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Alex responds to readers who called his comments on Donald Trump "pie in the sky" and "based on false premises." Read On... | |
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Donald Trump is wrong about a lot of things. But as a businessman, it's particularly galling that he doesn't understand the U.S. economy. Read On... | |
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