Long Term Optimism

For quite some time it has been my belief from observation and the study of history that the basic requirement for a vibrant and growing economy is a cheap source of energy. If indeed the world has discovered a way to obtain cheap and plentiful natural gas and oil from shale, and if indeed the U.S. is poised to become the largest producer of oil and nat gas in a couple of years as reported recently, then the U.S. and the world has the basic fundamental driver of growth.

Against the above premise is the backdrop of a private debt overhang that is being slowly liquidated. A long decline in the real earnings of working people in the middle classes. And a demographic challenge of an aging population and the entitlement problem.

Given the advancements in productivity of the last several decades and the ability of manufacturing to produce goods with low labor requirements it seems logical that we don't need a large workforce to manufacture to export. In fact if this country has the cheapest energy around we should have enough of an advantage to support our elderly AND provide employment to our younger and smaller workforce. As our older workers move into retirement they will begin to spend what they have been saving. (They are saving frantically now) And the jobs they vacate will go to the next generation. That smaller workforce will gain political influence as the demand for their labors goes up due to labor supply constraints. I see the workers in a country with an export advantage gaining a bigger piece of the productivity pie as they support themselves and their parents.

The medical system will evolve, due to the coming properity and the fact of a much larger geriatric population, into a single payer system. Would you stand by and watch your parents get substandard care? The hopes of todays Tea Party to turn the young against the elderly will fail. As it must.

So the stock market may be vulnerable to short term shocks from the prospect of higher interest rates, but rates will lag the economy for quite some time. Energy sufficiency typically produces a strong currency that will be able to stand a relatively low interest rate with low domestic inflation. If we can export cheaper does that not mean that WE will be exporting deflation? For a change......

Lots of "If's" there. Just sayin'.

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