"If you spend more than 13 minutes analyzing economic and market forecasts, you've wasted 10 minutes." --Peter Lynch
I found this well written and intriguing Seeking Alpha article entitled 20 Signs The U.S. Economy Is Heading For Big Trouble In The Months Ahead to contain content that I found to be quite compelling and even a bit frightening. It paints a very dark future for America's economy in 2013. The skeptic in me was inspired to research each bullet point more closely to see if perhaps the list was cherry picked or created while under a fog of confirmation bias, something I've been guilty of myself at times.
My article, in response, is an exercise in balance to illustrate how complicated it is to predict the future of the economy especially in the short term ("months") and even more difficult to predict when only using simple bullet points. There is often a credible contrary argument that can made for any one bullet point. In each of the author's 20 numbered signs of big trouble, I have presented a contrary argument I found more convincing. My goal here is more to enhance his article by directly countering it, so readers can get two perspectives and make up their own minds. I further added 2 additional signs (numbered 21 and 22) not mentioned in his article as positive economic indicators that I felt should be covered. Overall, I am personally bullish on the economy, but I find it important to read and understand opposing views or otherwise face the risk of becoming too polarized on one's thinking. When it comes to investing, being too polarized can be dangerous.
The following are 22 positive signs about the U.S. Economy. Each one directly contradicts on a point by point basis the argument that "the U.S. economy is heading for big trouble in the months ahead" -- I urge each reader to compare this article side by side with Michael T. Snyder's article to get a more balanced view for which one can make up his own mind.
1. 70% of domestic freight transportation is in the form of trucking. The American Trucking Associations' Truck Tonnage Index reported January 2013, up 6.5% YOY and was also the highest index on record. Although there was a pause in freight expenditures in January 2013, it was only after a four month streak in gains. The Association of American Railroads expects the seven major railroad companies will invest $24.5 billion in 2013 with $13 billion of that in capital expenditures, around the same as last year.
2. The average price of a gallon of gasoline continues to be well below its 1, 2, 3, 4, and 5 year peak price, currently at around October 2012 levels. This makes it tough to argue that gas prices will make things worse for the economy when they're at or below recent historical prices. Stable gas prices help pave the way for a stable economy.
3. Facebook (FB), now the most popular social media website in the world, should more than counter whatever sign a "Reader's Digest" bankruptcy is supposed to foretell. In 2010, Reader's Digest had just $2.1 billion in sales. The average analyst estimate for 2013 for FB is $6.66 billion in sales along with an average growth estimate of over 30.9%. Reader's Digest saw its peak circulation in the 1970s of monthly subscribers at 17 million while FB has around 1 billion monthly subscribers. The Reader's Digest bankruptcy appears to be less of a sign of troubling times ahead and more likely a sign of a cultural shift in media. And there's certainly ample evidence that Americans are spending more time and money on media -- not less.
U.S. economy for our business is getting better, Las Vegas is certainly getting better.
MGM owns some several of the largest casinos in Las Vegas. He went on to say:
I think we can close the chapter on recovering from the recession and move on into the fact that we are firmly onto the way with growth again. Our competitors are seeing it, we are seeing it, we are having a good first quarter so far, we have a tremendous calendar for the 2nd quarter, I predict that profits will be up in Las Vegas for everybody.
Despite Atlantic City's Revel bankruptcy, MGM's CEO specifically stated they are interested in getting back into New Jersey and are going through the licensing process to do so. Therefore I believe the state and outlook of the casino industry is a net bullish indicator for the economy despite Revel's misfortune.
5. California saw a surprise jump in tax revenues in January, the highest in any January for the past decade. California is expected to end its fiscal year (this June) with a multi-billion dollar budget surplus, which is also forecasted by the governor to continue over the next 4 years. This is a sharp improvement over the $26.6 billion deficit California faced in 2011. I believe California with its multi-trillion dollar economy that employs over 18 million people is a much better barometer of the US economy than say Detroit, a city that has seen declining population and financial hardship for quite a long time. A financially healthy California helps create a healthy U.S. economy.
6. Town Sports International (CLUB) competitor Life Time Fitness (LTM) just reported a record year and 4th quarter of sales and profits and provided an outlook for sizeable and impressive increases in both sales and earnings in 2013. LTM by market cap is around 8 times the size of CLUB. The bullish outlook by LTM suggests consumers have more discretionary spending than in recent past, and LTM expects that to increase. This further suggests consumers are starting to spend more in general and increase their discretionary budgets for the future. More discretionary spending in 2013 will have a positive influence on every aspect of our economy.
7. According to the Thomson Reuters/University of Michigan preliminary index, consumer confidence in the U.S. has hit its highest level in more than 3 months.
8. While iPhone sales may have been slower than some projections, growth continues to be robust along with many competitors. For example, sales of Windows smartphones jumped 124% in Q4 2012.
9. While it's true one firm reported a decline in worldwide mobile phone sales, competing research firm IDC reported a 1.2% increase last year. Who is one to believe? It probably doesn't matter. Q4 2012 is more recent and therefore more relevant, and it showed a 4% annual growth in shipments in the United States. This suggests any 2012 weakness came earlier in the year. Upward momentum once again returned going into 2013 which is yet another sign of positive economic growth in the form of consumer spending and confidence.
10. For every closing Sears (SHLD), how many Home Depots (HD) or Lowe's (LOW) or Wal-Marts (WMT) or Targets (TGT) will open? For every Best Buy (BBY) or RadioShack (RSH) that closes, how much business is Amazon (AMZN), eBay (EBAY), and other online electronics websites gaining? As an example, WMT is expecting to add 219 locations this year. I believe there will be a net expansion in retail stores, not a contraction, which will help the unemployment rate among other things.
11. There has been a delay in income tax refund checks going out to consumers. While that certainly isn't good news in hindsight, going forward it means more spending power in the hands of consumers than there would normally be at this time. A leaked memo from Wal-Mart had expressed concern over sales in February. This caused some alarm in the media over fear that the information in the leaked memo had more broad implications for the economy as a whole. However, WMT was quick to refute this:
"February sales started slower than planned, due in large part, to the delay in income tax refunds. We began seeing increased tax refund check activity late last week in our stores, resulting in a more normalized weekly sales pattern for this time of the year. Due to the slower sales rate in the first few weeks of this year's first quarter, we are forecasting comp sales for the 13-week period from Jan. 26 to Apr. 26, 2013 to be around flat."
Sounds like the short-lived panic was much ado about nothing. Income tax refund checks going forward should help add fuel to the economic fire.
12. We're growing numb to the scary government-media headlines. I do confess though: the original movie "The Fiscal Cliff" was quite scary, sometimes keeping me awake at night, almost shivering in a cold sweat. Its sequel, "The Debt Ceiling," wasn't nearly as scary but still got my blood boiling. But like any other cheesy horror movie series, by the time you get to #3 it just isn't going to draw the frightened crowds like the first two did and what was once actually scary just becomes an ineffective bad comedy. "Sequestration" looms March 1. I believe I'm thinking what most other Americans are sarcastically thinking. "Oooo, sounds so scary, but give me a break already." Everybody knows Congress will once again solve or at least delay the problem at the final hour. Somebody grab the remote and fast-forward to the "we saved you Americans" end. It's boring.
13. Barack Obama stated in his most recent State Of The Union speech: "our housing market is healing...together we have cleared away the rubble of confidence and we can say with renewed confidence that the state of our union is stronger." It's hard to make a convincing argument that Obama is bearish on the state of the economy.
14. Economists are expecting nearly 2 million new jobs to be created in 2013 which is a more upbeat forecast from just 3 months ago in November when they were only expecting around 1.7 million new jobs. This should dwarf any job loss fears, no matter how unrealistic those fears were in the first place.
15. Although they are still more negative than positive about the economy overall, according to a more recent Gallup survey, Americans continue to remain as upbeat about the economy as they have been at any point in the last five years. It's hard to argue that 5 year highs spell trouble in the months ahead. 5 year consumer high upbeat suggests better economic times ahead.
16. U.S. GDP is actually expected to show a rise of 1.9% in the first quarter of 2013, a sharp rise over the 0.1% decline reported for the older and less relevant fourth quarter of 2012.
17. For the entire year of 2013, economists expect a 2.4% rise in GDP while most economists surveys feel there's a better chance of a positive surprise with that number than a negative surprise, indicating that their forecasts are on the conservative side. "We're definitely in a better place now than at this time last year," said Arun Raha of Eaton Corp who was the most accurate individual forecaster for 2012, achieving a near-perfect score under the Journal's methodology, which was developed by economists at the Federal Reserve Bank of Atlanta.
18. Earlier this past month, two top Federal Officials forecasted global economic growth for 2013 that will also help the U.S. economy. "Things aren't perfect. But things are definitely improving, and that will actually be helpful for the U.S. outlook," Dudley told the New York Bankers Association in a speech that was mostly focused on revamping the wholesale funding market.
19. With the S&P 500 near record highs, it shouldn't be surprising nor alarming that some insiders are taking some profit. "These middle-aged executives, a lot of them, have waited some 13 years for their assets to see the light of day," Damon Vickers, chief investment officer of the Seattle-based broker, said in a Feb. 14 phone interview. "They've had to endure a tremendous amount of volatility. And if you're 61 years old and the majority of your net worth is tied up in your company's stock, you may be inclined to liquefy some of that, just from a standpoint that you're nearing retirement."
20. When it comes to big names on Wall Street, there are no bigger names than Warren Buffett and Jack Welch, former CEO of General Electric, who as of two weeks ago both believe the economy is improving and will continue to improve, in stark contrast to Seth Klarman's words two months ago who stated, "Investing today may well be harder than it has been at any time in our three decades of existence."
I find Buffett's words more comforting: "America really is doing better than the rest of the world," he says. "Everybody thinks we're lagging. But from what I see the U.S. is the strongest part of the world, but it is not galloping back at all."
And despite what some analysts say, the United States remains the best country in which to invest, Buffett maintains. Berkshire spent a record $9 billion on plant and equipment last year, and 95 percent of that was right here at home."
21. The housing market has been a blazing inferno in many areas. People on average by a 3 to 1 margin see continued strength in the housing market over the next 12 months. As an example of how strong housing has become in some areas, realtors in Sacramento have described the housing market as "insane" with the average home on the market just 15 days. With the total value of the U.S. real estate market in the trillions, even the smallest gains can have a dramatic positive perception on the wealth and confidence of millions of Americans. The bear side of the coin though could be that with this much broad optimism, is that a sign of a short-term top for housing?
22. The stock market has also been on fire. With 50% of households owning stocks in one form or another, the effect can create a sort of self-fulfilling prophecy on the wealth perception of millions, similar to the housing market. Stocks and mutual funds saw their greatest cash inflows in January than has been seen in a decade and at the fastest pace seen in 17 years. The S&P 500 (SPY) is up an astonishing 6.7% already for 2013, and (QQQ) is up 3.1%. Again on the bear side, could this mean that SPY and QQQ have risen too far, too fast, and will result in a harsh profit-taking correction, sending all this new money into a panic, and at least temporarily halting the recovery?
There is one point however that I adamantly disagree with the author Michael T. Snyder. He states, "in many ways, what we are going through right now feels very similar to 2008 before the crash happened." That seems bombastic and very far-fetched at best to anybody who lived through 2008 as an adult. In hindsight, things were so bad in 2008 it almost seems like another lifetime ago. It felt like we were living during surreal times most of us had only read about in books that study the Great Depression. In contrast, 2013 has no Bear Stearns or Lehman Brothers style collapses. There are no multi-trillion dollar Fannie Mae or Freddie Mac equivalents needing immediate bailout or facing a giant sub-prime mortgage catastrophic mess. We're no longer watching daily headlines wondering if this will be the day that the entire financial system, that's dangling over us like the sword of Damocles, is about to finally collapse. People aren't lining up around block doing bank runs again. The Feds aren't forcing closures on banks every week wholesale. The malls are full; not empty. The restaurants are full; not empty. While I'm not quite ready to party like it's 1999, I'm having a hard time finding any signs of 2008 nostalgia.
Compare line by line with this article, and please let me know what you think in the comments below.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.