I'm going out on a limb here and call New Year's day 2013 the official end of the Great Recession. I wouldn't expect to wake up to unanimous agreement; these things take a while to "sink in."
The spark plug that ignites the new boom economy is that Congress finally decided to do their jobs with regard to tax and spending legislation, which, of course, is their domain under the constitution. Maybe the Washington gang will finally figure out who does what. The Congress writes laws (including those for taxes and spending), the Supreme Court decides whether those laws are constitutional, and the President, as the chief executive, executes those laws. There, enough civics for this article.
While everyone has been preoccupied with government debt, deficit and dysfunction, the private economy has been moving steadily toward some remarkable improving trends.
See what you think:
Housing has made a surprisingly strong recovery. New housing permits were up nearly 27% last month to the highest level since July of 2008. Housing starts, with a speed bump caused by hurricane Sandy, are following those new permits. Apparently, Americans have decided that they don't want to throw the shift lever in reverse and go back to living in caves. From what I have been able to determine, these new homes are smaller, but more elegantly outfitted, more energy efficient, and more technology ready. All of those changes make for new business opportunities.
We are rapidly moving toward energy independence in America. Despite the empty promises of politicians for 40 years, the true solution is the result of relatively few individuals who developed horizontal drilling and hydraulic fracturing to extract oil and gas from massive shale deposits. George P. Mitchell comes to mind as one of the pioneers of this technology.
Every day the amount of money sent offshore for energy is lower than the day before. What a turnaround from a handful of years ago.
The last recorded monthly (October 2012) crude oil production for the U.S. from the Energy Information Agency was up 16% year over year (scroll down for the monthly data) to a level of oil production not seen in this country since 1993. It's not just that the rate of production is increasing, the rate of increase is itself increasing. This is happening while U.S. consumption is falling.
Obviously, petroleum will be exhausted at some point in the future, so efforts on alternative energy sources need to continue. An all-electric economy based on nuclear energy is my personal favorite, safe thorium reactors in particular.
The stocks of domestic energy producers have and will continue to benefit from this trend. My personal favorite in this sector, due to an enormous resource base and a rapid conversion to oil over natural gas production, is Chesapeake Energy (CHK).
Yesterday I read an article in The Atlantic magazine about "Insourcing". The article is about a project by General Electric (GE) to bring the manufacture of appliances back to its huge appliance campus in Louisville, Kentucky. This campus grew from nothing in the 1950s to over 20,000 employees in the 60s and was outsourced down to about 1,800 employees at the low point. By the end of this year, hourly employment will be 3,600. That doesn't include the engineering and production professionals that will find new jobs or the jobs in the businesses that will supply and support the appliance center.
The trend is not just GE and appliances. Steel companies, chemical companies and fertilizers companies are locating or expanding due to the low cost of natural gas. These companies come complete with high paying jobs.
The bottom line is that outsourcing is "out" and insourcing is "in".
The investment plays here might be the suppliers to the major manufacturing companies.
The Federal Reserve:
The Federal Reserve is doing some things never done before. The U.S. central bank is buying residential mortgage backed securities. That sounds simple enough, but the ramifications of that affect everyone in America, and in a good way.
Basically, the action puts downward pressure on mortgage interest rates, thus allowing homeowners, who qualify, to re-finance their mortgages. This amounts to hundreds of dollars' worth of savings per month to millions of "average Joes" who can really use the relief. Obviously, these low mortgage rates are stimulating the mini boom in housing construction.
What is less well understood is that the interest that is generated by the Fed on these mortgages is ultimately paid to the U.S. Treasury where it helps to lower deficit spending. The common wisdom is that the Fed is buying these securities as a stimulative measure; I think it is past that now and the program continues as a non-tax revenue source for the government.
I have been aware of, using, and talking about the Khan Academy for years.
This is the most amazing and promising thing that I have seen, perhaps, in my lifetime. Sal Khan is promising and delivering a world class education for anyone in the world for free. Imagine the impact of this on those young people who would be looking into the gigantic debt incurred to get a decent college education. This is huge for individuals and the country and well, I guess, the world. And it was all started by one person kind of by accident. Please watch the link to learn what impact this will have on education at all levels.
The education of our people has been an expense that has spun out of control in the past 10-15 years. The Khan Academy trend doesn't just reduce the cost of education to American families; it has to potential to make most education free!
Technology, in the form of PCs, tablets, mobile devices, and "The Cloud" make this possible and affordable. The stock plays here might be the suppliers to the device manufacturers. Two of my favorites in that category are Intel (INTC) and Micron Technology (MU).
The above are five major macro trends that are making a coordinated move in the right direction to the distinct benefit of the economy and the country. Each of these trends has been discussed in different venues, but when considered in combination, the positive effect on the economy could be truly remarkable.
The obvious conclusion to the above is that the U.S. economy is heading in a sustainable and up-to-the-right direction. U.S. equity prices of all types could see a multi-year expansion.