Foreword by Theresa Wolner,
In a world full of negativity and worry, it is easy to miss the positives. I find it helpful to remember that when one door closes another (generally better one!) opens. Below are some reasons for investors to be optimistic about the future, although personally I think #4 is a double edged sword.
Reprinted from Investment News 4/24/23:
10 Reasons Clients Should Be Optimistic About The Future
APRIL 24, 2023
TV news is designed to grab and hold your attention. They do this by upsetting you. There’s a joke going around that says: “Here are two ways to start a better day: Do not step on the scale and do not turn on the morning news on TV.” People might be grim about the economy or the stock market. Here are 10 reasons they could be optimistic.
1. The United States is a net oil exporter. We worry about higher oil prices and what OPEC will do. According to the U.S. Energy Information Administration, the U.S. is a net petroleum exporter of 1.26 million barrels/day in 2022. The breakeven price for oil produced by fracking is about $50/barrel.
2. Enjoy those higher short term interest rates. People were complaining about low interest rates for a long time. At last, depositors can get yields around 5% on one-year CDs as reported by Bankrate as of mid-April. When was the last time you saw 5%?
3. Inflation is moderating. You have seen and heard the recent inflation numbers. Inflation was about 5% in March. There are lots of different ways of reporting it by including or excluding components, but the overall trend seems to be headed in the right direction.
4. Companies are great at passing along costs. If inflation has pushed up prices at the grocery store, that is proof companies are great at passing along higher costs to the consumer. Well run companies have lots of levers to pull to try and keep earnings up.
5. Now is the time to seek out lower cost providers. Its good to remember there are more than one grocery store in your area. Start doing online research to determine which up and coming chains are trying to gain market share by offering lower prices. Aldi and Lidl are examples of two Germany discount chains expanding in the U.S.
6. The Federal Reserve is not run by dummies. The TV news talks about Jerome Powell, the Fed chairman, as if he is the one guy deciding to raise or lower interest rates. The Federal Reserve has seven governors. The Fed has 400 economists with PHDs. The Fed employs about 3,000 people in Washington. This is a serious, independent organization that puts a lot of thought into its decisions.
7. Companies know how to cut expenses to boost profits. You hear about layoffs in different industries. This is a major way companies reduce expenses to boost profits. Many successful companies have been around for decades if not close to a century.
8. The stock market has been the best way to make money consistently for decades. Revisit the Ibbotson mountain chart. Although past performance is no guarantee of future results, history has shown buying and holding quality stocks has turned out pretty well.
9. The U.S. dollar is the world’s reserve currency. There is unrest in the world. Different countries’ economies move in different cycle lengths. The U.S. economy is still considered a world leader. Oil might come from the Middle East, but it is priced in dollars. Investments in the U.S. are considered a “safe haven” when the world is unsettled.
10. “Riding High.” The Economist magazine’s April 15th cover story is “Riding High: The Lessons of America’s Astonishing Economy.” Consider this line from the lead article on page 9: “Average incomes have grown much faster than in Western Europe or Japan. Also, adjusted for purchasing power, they exceed $50,000 in Mississippi, America’s poorest state—higher than in France.”
The TV news gives us plenty of reasons to be pessimistic. Investors are generally optimistic about the future.
Bryce Sanders is president of Perceptive Business Solutions Inc.
Disclaimer: The information provided above is general in nature and is shared for information purposes only; nothing herein should be interpreted as investment or tax advice. It should not be assumed that future performance of any specific investment or investment strategy will be profitable. Different types of investments involve varying degrees of risk, but all investments carry the risk of loss, including the permanent loss of principal. Past performance is not a guarantee of future results Any and all tax laws and/or specific tax rates referenced are subject to change.
