Judy Loy: What’s the Good News?
The world is full of bad news. The European debt crisis remains a concern, the U.S. Debt Ceiling needs to be raised and America’s unemployment rate still stands at 7.9 percent.
So often in my business I need to keep an eye on the pitfalls, roadblocks and headwinds that can lead a client’s portfolio off course. On the flip side, I need to keep an eye on the opportunities that can lead to large profits and a better market environment. For this article, let’s focus on the positive. What are the current trends that can lead to corporate profits and long-term positive economic times for us and around the world?
The first opportunity is a side effect of the capability to extract gas from shale formations. Willliamsport and other Pennsylvania town residents are benefiting financially from drilling and land leasing. The United States led the way in obtaining gas from the shale and that has led to lower energy costs for our country. By 2025, the International Energy Agency estimates that the United States will be a net energy exporter. This is a boon for industries that use huge amounts of energy. It will help steelmakers and chemical companies boost margins. It has also led to a reversal in the offshoring of some manufacturing. Our stable legal environment, weak U.S. dollar and stagnant income levels also are making companies like Ford (F) and Apple (AAPL) produce more of their goods on our soil. For a very comprehensive article on this trend and its beneficiaries, please see the Jan. 28 edition of Barron’s. Other very beneficial side effects of cheaper energy include: reducing the U.S. trade deficit, reducing our dependence on Middle East oil and making our factories more competitive.
Homebuilding is making a recovery after a 48-month depression. Housing is typically the first thing to take us out of a recession. The main culprit of the last bubble, it had been noticeably absent in this recovery. The good news is that it is finally showing signs of life. This industry was the hardest hit with residential construction losing 42 percent of jobs from its peak in 2006. In January, mortgage applications rose by 1.8 percent from December 2012. U.S. housing prices are finally rising and housing starts rose 25 percent in 2012. All this positive news for homeowners and the housing industry as a whole can help strengthen our economic recovery.
Another major long-term trend that can drive investments and company earnings is the growth of the middle class in emerging markets. A huge segment of the global population (an estimated 40 percent of the world’s population) is anticipated to develop into middle-class consumer powerhouses over the next thirty years. For businesses that can meet the demands of this new middle class, this can be a huge boost to their bottom lines. As our society ages and our Baby Boomers retire, the baton of consumption will be passed onto China, Latin America and other emerging economies. As wealth builds for the emerging market populations, they will demand better food, better healthcare and automobiles. This means good things for companies making fertilizer, pharmaceuticals and in-demand technologies.
Our aging population will have increasingly higher demands for eldercare-oriented goods and services. Baby Boomers are the children of the postwar baby boom in the United States and are typically defined as being born between 1946 and 1964. This cohort has driven quite a bit of economic activity throughout their life spans because of the sheer size of their population. Their golden years will be no different. As people age, they require more healthcare, dental work, hospital stays and long-term care. There are many companies in these industries, which will benefit from the increased activity.
Finally, the end of the world can only come once. While we are waiting for the Mayans to be right and our politicians to get their act together, let’s concentrate on what’s working and make some money for our futures.