The U.S. has supplanted China and Brazil as the most attractive market for investors as confidence in the global economic recovery wanes in the wake of the Greek debt crisis. Investors are putting their money on President Barack Obama's stewardship of the U.S. economy even as his job-approval rating has declined, according to a global quarterly poll of investors and analysts. Almost four of 10 respondents picked the U.S. as the market presenting the best opportunities in the year ahead. That's more than double the portion who said so last October, when the U.S. was rated the market posing the greatest downside risk by a plurality of respondents. Lawrence Summers (left), director of the White House National Economic Council, aid this attests to Obama's efforts at "restoring the United States to strong economic fundamentals." He added that "while there remains much to do, the U.S. economy is growing." We've seen the bottom; we're firm, and the United States is slowly moving forward," said Wayne Smith, 51, managing director of fixed-income trading at Uniondale, New York-based Northeast Securities, which manages $3.5 billion. Following the U.S.'s 39 percent rating as the most promising market were Brazil, chosen by 29 percent; China, 28 percent; and India, 27 percent. Those are three of the four so-called BRICs, large emerging markets that also include Russia. Just 6 percent chose Russia. – Bloomberg
Dominant Social Theme: The good 'ole USA snaps back.
Free-Market Analysis: We had to look at this article twice, because the first time we didn't quite believe it. From our perspective, the US economy is not in great shape. Also from our perspective (and we've been writing about this for nearly a decade now) gold and silver investments are still attractive (despite their price appreciation), and may be until this great hard-money bull market runs out of steam. That may not be for another half decade.
What is the dominant social theme suggested by an article like this? That stimulation has worked and that the US is returning to its powerhouse economic form. But is that really so? According to Lawrence Summers, the Obama administration has "restored the United States to strong economic fundamentals." Here's more from the article:
The U.S. is one of the few relative bright spots in a global market rattled by the Greek debt crisis. Bill Gross, co- chief investment officer of Pacific Investment Management Co. and manager of the world's largest bond fund, called the U.S. the least dirty shirt," in a Bloomberg Radio interview.
Forty-two percent of investors now believe the world economy is deteriorating, double the 21 percent who thought so in January. U.S. investors were the most Pessimistic about the global economy, with 58 percent saying it is getting worse versus 31 percent of Europeans and 35 percent of Asians. Europeans were the most pessimistic about their own region, with 40 percent viewing it as deteriorating; 21 percent of U.S. investors viewed their home region negatively, while 9 percent in Asia felt that way.
International views of the European Union have declined sharply. More than half of respondents believe the EU offers the worst investment opportunities, up from a third who said so in January, when Europe also ranked at the bottom.
So the US is seen in a better light from an investment standpoint than many other countries. The poll startles us. We just commented on Arthur Laffer's recent Wall Street Journal article warning about US tax breaks that are set to expire at the beginning of 2011: "On or about Jan. 1, 2011," he wrote, "federal, state and local tax rates are scheduled to rise quite sharply. President George W. Bush's tax cuts expire on that date, meaning that the highest federal personal income tax rate will go to 39.6% from 35%, the highest federal dividend tax rate pops up to 39.6% from 15%, the capital gains tax rate to 20% from 15%, and the estate tax rate to 55% from zero."
But that's just fiscal policy that looks to become more ruinous than ever. As we indicated in our article, we think monetary policy is an even more important issue and that the Federal Reserve has injected so much paper and electronic money into the system in so many varied ways that price inflation is virtually a certainty. While inflation may prove a boon in certain ways, by reducing people's debt levels, as soon as price inflation shows up, the pressure will be on for the Fed to raise interest rates and cut the money supply. If the Fed cuts too soon, any economic resurgence will be nipped in the bud. Too late and inflationary expectations will be built into the system.
We actually expect what we referred to yesterday in an article on inflation – stagflation. We believe the US unemployment rate is up well over 20 percent all told and we do not believe the recovery that Summer is confident of will actually do much to help with unemployment. We believe the recovery is one, mostly, of monetary stimulation. By overprinting money, the Fed, as usual, has managed to stimulate the stock market, which in turn, eventually funds large US multinationals, which will define the "recovery." But this sort of recovery is anything but genuine.
It does not touch the broad spectrum of middle class entrepreneurs and working people who constitute a vibrant web of small businesses and provide a free-market backbone to a non-totalitarian country. But increasingly, the US is ceasing to be a nation that provides its citizens a free market. The government under the Obama administration has taken to seizing troubled businesses (rather than allowing them to shut down) and in doing so is both subsidizing and running more and more swathes of the economy. The Obama administration has basically nationalized health care and through upcoming regulatory mandates, will try to do the same to the securities industry and perhaps the communications industry.
While the previous administration did not interfere quite so aggressively in the market, the wars that were started under Bush, linger still. The Iraq war continues as a low level contest between Iraqi elements and US forces as well. The Afghanistan war increasingly looks problematic, but this has not stopped the war from spreading to Pakistan and threatening to infect India as well. The administration is continually and actively threatening Iran, which has had more and more sanctions piled onto it. A war between the US and Iran (with the participation of NATO) might have seemed fairly inconceivable even several years ago. It does not now.
Whether one looks at fiscal or monetary policy, regulation or militarism, the US government continues to be strongly active in interfering with the marketplace. There is even plenty of evidence that the Federal Reserve, in concert with other central banks, manipulates commodity markets (especially gold and silver) and illegally supports US stock markets.
Of course there are plenty of countervailing trends. The US Tea Party movement is trying to roll back big government in America, and there are other grass roots movements to reduce or eliminate the progressive income tax and even to pare back the power of the Federal Reserve via audit requirements, etc. There is generally a growing awareness of the broad authoritarianism of the US and the way its military industrial complex has quietly extended what is basically an Anglo-American empire around the world. The Internet itself as we regularly discuss has provided a tool for counteracting the increasingly totalitarian tendences of the US and its power elite leadership.
The trends we have just mentioned are encouraging ones from a free-market standpoint. But curiously, we do not believe those answering the Bloomberg poll would necessarily be inclined to consider social unrest and governmental disapproval as a positive investment signal. High US taxes, unsustainable spending, a budget deficit that is dependent on communist China for funding, all of these are indicative of an out-of-control and ungovernable public sector. It is clear that this tragic trend is being opposed and challenged, but it is certainly not clear what the outcome will be.
Investing, especially abroad, is all about weighing the business climate of individual countries to determine whether there is fertile soil available for entrepreneurial growth and commercial enterprises. If investors believe that the US offers the best opportunity for private sector growth, we wonder what this says about the rest of the world. More than that, we wonder exactly what it is that such investors see in the US (versus, say, gold and silver) that we don't. Perhaps they have been seduced by a dominant social theme, the charms of which are, in our opinion, increasingly unseductive.