Hey America: Cheer Up!

Is anyone else out there tired of the “recovery?”

Unless you’ve been hiding in a cave for the last six years waiting for Mayweather to fight Pacquiao, you’ve probably heard “recovery” more than “Twerking,” “Taper Tantrum” or “The Uber of Whatever.”

The Case for Optimism

That is, with interest rates remaining at essentially zero for the fifth year running, we couldn’t possibly have recovered from the awful Great Recession.

As far as I’m concerned, that is pure bunk. Consider the following:

Interest Rates are at all time lows. Worldwide. Got a good idea for a new product?  A company?  A whole darn country? Cash is available. Come and get it.

Inflation Scare

The charts favored by the efficient market nuts, you know, the ones in which the future is fully predicted and discounted?

Did those charts predict in 2011 that a billion Africans would start entering the consumer class? That they’ll all want smart phones? And cars? And electricity?

No, I didn’t think so. But the Africans do want those things. Along with the Mongolians, Cambodians and Bolivians.

That time-worn narrative about how when Bernanke flooded the world with QE billions, he’d unleash a tsunami of inflation? Well that was wrong. It turned out that a few hundred million people needed a loan.

Energy Bust

Oil prices are near historic lows, when adjusted for inflation. The same is true for natural gas. And coal isn’t even worth putting in a Christmas stocking anymore.

Energy, which is an expense for the 99% and which provides a living wage or a stock-option fueled bonanza for relatively few, is cheaper than ever.

But that isn’t even the good news.

The good news is that in wide swaths of the world, solar power is now cost-competitive with utility-scale electricity generated by coal or natural gas.

And yes, that generally includes the impact of subsidies.

Political Stability

That effectively caps energy inflation and limits the ability of certain countries and regimes from even implying a level of control over the destinies of rational actors.

This higher level of political stability is itself a support to asset values.

Consumer confidence in the United States remains near of all-time high levels. That’s to be expected, considering how closely correlated confidence is with low gasoline prices.

What’s unexpected is that consumer confidence in Europe is at eight-year highs. You remember Europe, right? Where everyone is totally bummed out about the Grexit?

And being held hostage by Russian natural gas exports? Hmmm…maybe not so much.

Jobs Outlook

As of March 31st, the unemployment rate in the U.S. is half what it was in 2009 and steadily declining. Wages are rising both at the low-end of the job market (e.g. McDonalds and Wal-Mart) and higher-up the food chain.

Best of all is that from a stock market perspective, valuations are high but not extended. Modern ‘dot-coms’ like Facebook (FB) and Google (GOOG) are actually profitable and cash flow positive.

Etsy (ETSY), the eBay of hand-made goods just went public at $16/share and doubled in price on their first day of trading. Crazy? Perhaps not in the context of that company’s prodigious free cash flow.

And the stock market overall remains structurally shrunken, with thousands fewer public companies now than ten or 15 years ago.

There are only 3698 companies in the Wilshire 5000. With ‘supply’ low, even modest amounts of marginal demand for financial assets will drive prices higher.

Cable TV Alarmists

The “recovery” narrative is just a half-baked meme perpetuated by the traditional media whose ratings and pageviews spike in times of crisis, real or perceived.

There’s a saying about this: in good times, investors look at their statements; in bad times they look at the TV. Clubbing people over the head with “recovery” talk is just a cynical ploy. Don’t buy into it.

Instead, consider starting (or adding to) positions in solar energy. In the Internet of Things. In emerging market wireless connectivity. In consumer goods for the emerging consumer class.

I’m 53 and I’ve lived through bear markets and stock market plunges. You probably have too. All this “recovery talk?”  It’s sooooo 2011.


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