Today is Monday, the Monday before the US election. Does the market care about who is elected? Many pundits have certainly made that case, but, as I always say, ultimately, the market really cares about one thing – businesses making money. Businesses making money depends on a healthy and growing economy, so the question becomes: will the economy get healthier and grow more if one or the other candidate is elected in the US election?
Maybe, that is the wrong question to ask. Perhaps, the question to ask is: will business turn its vast horde of money back into the marketplace once the presidential election is over? My answer is “probably not” because the cloud of uncertainty still looms large over the American economic landscape and the world with the coming fiscal cliff. However, once we get past that tension, and I believe we will do so constructively, then it is off the races. Here’s why.
- No matter who wins the election tomorrow, the economy is on course to enjoy faster growth in the next four years as the headwinds that have held it back turn into tailwinds. Consumers are spending more and saving less after reducing household debt to the lowest since 2003. Home prices are rebounding after falling more than 30 percent from their 2006 highs. And banks are increasing lending after boosting equity capital by more than $300 billion since 2009.
The key to growth is as it always has been – consumer spending. The key to that, though, is the fact that consumers are borrowing and banks are lending. Both, though, are doing their part in a healthier, more careful way, which is one reason a return to a normal economy has taken so long. Consumers chose to deleverage and be more careful about their money after the 2008 economic collapse and banks have been forced to act more like banks because of financial reregulation. In both cases, though, it spells opportunity for healthier US economic growth in the next few years, which brings us to a question from a reader about that very topic.
- What do the next 4 or 5 years looks like for the energy sector stocks? I read and hear reports that the economy will crater the energy sector and other reports that they are going to take off to new highs. It is hard to read with some accuracy what to do.
No doubt, you are confused from the polarization of future economic analysis. I have pointed out many times that this “industry” is, at best, an art, not a science, and when you have art, you have subjectivity, and when you have subjectivity, you have people framing the world in the light they want to see, much like what I just did in my “analysis” above. The truth is, a host of good or bad things can happen in the next four or five years, so any future economic analysis comes with the caveat – all things being equal.
The energy sector is on a clear path, a path of transformation. Of one thing you can be sure, though, (all things being equal), the world will be burning less oil and coal. Another reality is that solar, wind, more fuel-efficient cars, and other developing technologies will make that possible. Market and consumer demand will drive this, as will geo-politics. The fact is the preponderance of science clearly shows that both ocean and air temperatures are rising and that the carbon in our atmosphere is higher. Like it or not, the rest of the world will drag the US (by far the largest consumer of fossil fuels) kicking and screaming into this reality, and with that will come legislation that mandates less oil and coal and more of whatever. So, that is my vision of the next four or five years for energy. As to the stocks in the sector, well, understanding that is up to you …
Trade in the day; Invest in your life …
