Things are starting to look up in the good old US of A. Signs of a growing economy are starting to emerge reminiscent of Ronald Reagan's Morning in America political advertisement back in the 1984 campaign. And much of successful trading and investing is born out of observing "general conditions" as noted by Edwin Lefevre in his classic "Reminiscences of a Stock Operator".
So here are my top 5 reasons why the economic conditions are improving. You won't find this material anywhere else, so here goes.
5) Automobile Traffic on the rise
This one is purely anecdotal, but I have noticed that there are more cars on the road. A Facebook friend commented the other day that it took her 2 hours and 20 minutes to drive from Manhattan to her home in suburban NY - a mere 17 miles. Driving to work one morning, I noticed that there were a lot of cars on the road - and it was only 6:30 AM!
The industry leading in traffic data collection in the US is Inrix. I scoured the Inrix web site to see if I could find any hard data of increase in transit times, but came up empty. I'm sure they have the data, but they are not giving it away for free. Perhaps the underlying reason is number 4 ..
4) Gasoline Prices at 3 year lows
An excellent source of price data for gasoline is http://www.gasbuddy.com. This site collects observations from local residents and tells you where to find the cheapest gasoline in your area. Its crowd sourcing meets the Internet meets cost savings, what an excellent combinationAnyway this chart shows that gas prices are the lowest they have been in 12 months and a longer terms chart shows that they are lower than they have been since the middle of 2010. This has a huge impact on consumer behavior since it allows for more free cash flow and generally puts downward price pressure on all consumer goods.
Add to this the fact that cars are becoming more efficient, people have less need to drive due to telecommuting and US Energy production is at an all-time high. Also use of electric cars is on the rise and I saw one study that running your car on electricity is the cost equivalent of paying $1 a gallon for gasoline. These factors should keep downward pressure on energy prices, at least for the short term.
Finally, note that gasoline moves in an annual cycle and typically bottoms in January or February and peaks in the summer months so don't expect prices to stay low indefinitely.
3) Budget Deficit is Shrinking
Remember the sequester? These were the automatic across-the-board spending cuts which started in early 2013 as a result of lawmakers inability to make a budget deal. They have now become the new normal. This article in Bloomberg news explains it well Budget Deficit in US Narrows in October. Also, a 12-day government shutdown in the first half of October slashed government expenditures while revenues are on the increase.
2) The Affordable Care Act
Healthcare has been a mess in this country for many years. Ever year costs and deductibles go up, and benefits go down. The ACA is an attempt to correct this mess and I could do an entire blog post on this topic alone.
In some ways the ACA will be a drag on the economy and individuals. It will hit the lower income proportionally harder since they will now have less money for discretionary spending. Sales of lottery tickets and cell-phone data plans will likely suffer But as a result, more people will have coverage, and they will use that coverage. They will go to the doctor, get tests, get prescription drugs and take better care of themselves. And this will lower the pressure on hospital emergency rooms which by law are required to treat people regardless of their ability to pay.
Health care is estimated to be about 16% of the entire economy and I expect it will grow to about 20% as a result of the ACA. That means more jobs for people in the Healthcare industry. Not only that, people will live longer, be healthier, and the uninsured will be less of a drag on society. Lesson from the state of Massachusetts (where a similar plan was enacted in 2006) shows that the ACA will not reduce costs. In fact it will increase costs for all involved, but people will receive better care, live longer and be more productive as a result.
1) Stock prices are at new all-time highs.
You know I am a big stock investor so this one comes as no surprise. This past week we had new all-time highs in the SP-500 and the Dow 30 on 3 of the 5 days. This has a tremendous 'wealth effect' where people feel wealthier, and therefore they spend more money since they feel more secure about their financial future. And much of this we owe to an incredibly accommodating federal reserve.Time and time-again, the Federal Reserve has come to the rescue of the american economy and exercised its ability to create billions of dollars out of thin air. You would think this would lead to weakening and eventual collapse of the currency, but it hasn't happened - not yet anyway.
One last word - this economy is hardly the 1950's or even the 1980's. Unemployment remains stubbornly high and many young people can't get good enough jobs to move out on their own. Incomes are down and I continue to make less each year from my regular job and I still don't make as much now as I did during the tech bubble back in the late 1990's. But on the positive side, my personal wealth is at new all-time highs due to saving and investing.
Have a great week ahead all.
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