Despite massive debt and an extremely slow economic recovery, the United States could potentially emerge from its worst economic downturn since the Great Depression stronger than ever.
Despite China’s extraordinary economic growth, the U.S. is still the largest and most productive in the world. America’s economy is three times the size of China’s and the per capita income of China is only about 10% of that of the U.S. Additionally, the U.S. generates more output in one year than Japan, China and Germany (the next three largest economies) combined, while only constituting a little under 5% of the world’s population.
A second reason that the U.S. remains a strong contender is because it is the top exporter in the world. Granted, there is still a massive import / export imbalance in the US, but the nation still exports nearly 10% of global exports.
Thirdly, the U.S. continues to remain a favorite for foreign direct investment. When compared to China, the U.S. has witnessed nearly three times as much foreign direct investment than China over the past nine years. To put it into perspective, America’s global share of foreign direct investment was 16% over the last nine years as compared to 6% for China.
Another reason that the U.S. remains attractive is its safe haven appeal. According to the International Monetary Fund, 62% of allocated global reserves of central banks in the last quarter of 2009 were held in dollars. As the debt crisis unfolded in Europe and tensions between North Korea and South Korea continue to loom, investors are getting wary of a sustainable global economic recovery and are turning to the dollar as a safety net. The dollar is gaining ground on nearly all currencies and is especially witnessing strength over currencies of countries that are big commodity exporters, nations that are highly sensitive to economic growth.
Lastly, the U.S. remains one of the world’s leaders in innovation, which will likely be a driver of economic success in the near future. After all, the U.S. is home to Apple (AAPL), one of the world’s most innovative companies. Additionally, U.S. companies continue to place a significant emphasis on research and development and remain a global leader in frontier technologies such as bio and nanotechnology.
In a nutshell, the underlying foundation of the U.S. economy remains stout and if its debt issues can be curtailed, for the aforementioned reasons the nation will likely emerge from the Great Recession stronger than ever.
Some plays on the United States include:
- PowerShares DB U.S. Dollar Index Bullish (UUP), which will gain ground as the dollar strengthens against its counterpart currencies. UUP closed at $25.65 on Wednesday.
- SPDR S&P 500 (SPY), which seeks to replicate the performance of the S&P 500, which includes the nation’s 500 largest companies. SPY closed at $106.05 on Wednesday.
- SPDR Dow Jones Industrial Average (DIA), which holds the nation’s 30 largest companies. DIA closed at $99.15 on Wednesday.
When investing in these equities it is equally important to consider the inherent risks that are involved. To help mitigate these risks, the use of an exit strategy which identifies specific price points at which an uptrend in these equities could come to an end is important.
According to www.SmartStops.net, these price points are: UUP at $25.02; SPY at $102.85; DIA at $96.52. These price points are reflective of market conditions and volatility and change on a daily basis. Updated data can be found at www.SmartStops.net.
Disclosure: No Positions