The Consumer and Savings

Before 2008-2009 so rudely interrupted the market’s pathway last decade, I recall how the media hated the idea that we simply did not save enough. They trotted out experts with wonderful graphs and gave them their 5 minutes in the sun – to tell us the end was nigh – for the lack of consumer savings.

Well, we sure fixed that:

I don’t hear the experts telling us that anymore. After all, with $8 Trillion in the bank and an average turn rate of about 5 times in our economy, that’s nearly $40 Trillion in economic activity locked up in a nice, safe place – earning zilch.

And of course, now the experts tell us our problem is that consumers are not spending their new wealth and gas cost savings. They are saving it – and that is bad too. If it was not so misguided it would be hilarious.

The Dollar

For much of the last decade, there was a never-ending droning on and on about the weak dollar. The experts take? The weak dollar was a sign of the deterioration of the US in the global view. There was chatter of all sorts of new currencies. There was more chatter about China taking control. We were told that gold would skyrocket. Mr. Schiff loved those days when he could sell gold to all that listened to the dark rants of the future.

The experts told us – the end was nigh – for the weak dollar.

Well, that was fixed too – and then some. The news now? A strong dollar is killing us and making the US non-competitive. Instead, the experts tell us today that we must weaken the dollar so we can compete again.

“Crude Going to $300 a Barrel”

Anyone old enough to remember way back to the summer of 2008 can recall how scary it was watching crude oil rise by several dollars a day. Commodity Hedgies were the rage of the day – especially if you happened to be lucky enough to have picked the crude oil contract.

In early 2008, I recall watching that luck be deemed as “genius” and the pension fund consultants made the rounds to all their clients. The message?

“You need more exposure to commodities – after all – they are rising!” And expose they did.

Gas hit $5.00 a gallon and oil hedge funds were making a killing.

In June of that year, I wrote a piece called “Crude Crisis or Financial Terrorism?”

I sent the report to all members of the Senate and Congress.

I got one call – from the Department of Homeland Security.

They wanted to know where I got the crude oil charts.

I told them down the hall from their offices at the CFTC – they were released every Tuesday.

The report was correct.

The experts told us crude was going to $200 a barrel – then $300 and OPEC ruled the future. The media followed with a summer full of video coverage showing that future.

The end was upon us – for the price of crude would choke the world economy – all would fall.

Alas, we fixed that too. In the end, $148 oil was terrible – and so was $26 12 weeks ago.

Today OPEC is a mess right?

Don’t worry – when it gets back to the mid range – that will be bad for the consumer as well.

The DOW and New Highs

I started in the business in 1982. I was still fresh and it was 1984 – way back when you had to explain things like mutual funds. I think there were 600 at the time. Telling someone then you were a financial advisor got the same response: “Oh, you sell insurance.” I didn’t but you get the point.

I cannot tell you how many times I read from the experts that “It’s risky to invest in the rally in the DOW since it has never been this high before.”

It was 1,200 or so at the time. Mind you, these were experts in the day.

We fixed that too – but the same headlines still adorn our pages.

Be certain of this: 30 years from now, we will look back on this with the same amazement as one now sees a DOW at 1,200 in the early 80’s. At DOW 114,000, current levels will look cheap – and we won’t recall being afraid to invest at record highs given how bad the future looked.

Be Better Prepared

I surely don’t know the next Black Swan – or the event which will trigger the types of assurances we witnessed in the times above. However I am confident of this:

A significantly overlooked event is unfolding at a pace which bores too many. Be bored at your own peril. Instead – stay focused and be prepared. This “quicksand” phase of the last 19 months has been masking improvement in multiple areas.

Make no mistake – a giant bulge of people is starting to move through the US economy.

Yes, it’s a yawner for those unprepared.

It’s how 1,200 on the DOW became 15,000 some 18 years later.

It’s a sleeper for those unaware.

There is a Barbell Economy at work – and that is where investors should focus (see opening above).

The US, the third-most-populous country on the planet (321.4 million people) and still the largest economy (GDP of $18.1 trillion), is set for positive population, and most important, working-age population growth over the next 20++ years.

Just as important: We will age more slowly than other OECD countries. We also have a very positive replacement-level fertility rate, augmented by continued immigration.

China continues to get all the press about size. They have a population explosion too — of old people. The number of its citizens age 65 or older is growing 4% a year, making China the most rapidly graying population in world history, rivaled today only by Japan. We know what happened when Japan was going to rule the world in the late 80’s right?

Canada, US and Mexico Good?

You bet. Often ignored, when combined, the demographics of the NAFTA zone—US, Canada, and Mexico—compare very favorably to those of, say, the EU. Sure, Mexico gets bad press for its drug wars and political scandals, but were you aware that its 20-somethings have a higher level of education than their counterparts in Germany.

Expect the immigration issue in the political campaign to wash away as soon as someone wins. It has always been a hot button – but one that proves better for us than worse overall.

Alas, it is the season for fretting.

Don’t Get Lost in The Expert Noise

Instead, look for the summer swoon in the doldrums ahead. You can bet there will be plenty of political headlines to rock the crowd. The quiet of the summer will make the media antsy – and headlines more dangerous – to get your attention. It works.

Our senses will buzz with more impending doom.

It will cause us to feel certain that this time – the end is nigh. There are so many reasons for it that one would not be help accountable if you lost track.

As long-term investors, we need to recognize our hurdles are what made the life we see around us today. Every piece of technology, process or tool was created to solve a problem – to make us better – to produce more – to increase margins.

The system works – even if painful, frustrating and boring at times. Even when it stands still for 19 months – it is working.

What does not work long-term – is betting against it.

In Closing – A Constant Reminder:

Think demographics – not economics
Count people and economic growth follows.

Patience and discipline – be ready for the summer swoon.