US economy long term - whereto from here
January 08, 2008
By: 
Arohan
Category: Economy
As the political process grinds on, it is important for all long term investors to take some time to visualize the US economy in the future and the most important issues facing the country. This may be a good time to reposition your assets, or you may choose to wait and see who gets to the White House later this year
Let me lay out some of the challenges facing the US economy over the long term, most of these are addressable and any new government will need to take concrete steps to address these to ensure US continues its long tradition of economic leadership:
- Ageing population, other parts of the world, notably India, Brazil, China, etc are blessed with young demographics rapidly reaching their most productive years. The current anti-immigration populist stance taken by some in Washington will do nothing but to stop the country from allowing younger, qualified population to come and take place of the ageing and retiring population here. The immigration system in US is decidedly unfriendly. US does not need to look farther than Canada and Australia to find a progressive immigration system. Heck, even European countries are realizing that this is an issue and relaxing their immigration policies
- US foreign policy is driving away investors. True that Citigroup, Merril Lynch, etc have found white knights in the foreign sovereign funds but the administration has found ways of stopping companies from “unwanted” countries to buy stakes in domestic companies in the recent history. Globalization is inevitable and the US needs to learn to play nice with others
- The world need not revolve around oil. Invest in alternatives rather than trying to secure all the oil in the world for us by any method necessary
- Foreign governments need to have confidence in US if they are to keep financing US growth - try not to make it easier for others to diversify their holdings away from the US dollar denominated instruments
- Global warming exists. Don’t let the solution to the problem (and resulting wealth creation opportunities) to come from others. Take a lead
- Terrorism is a fact of life in many parts of the world. People do not stop living and working to improve themselves. Neither should the government. New administration should not be a one agenda administration. There are many other important issues to deal with (Frankly, I have not decided on who I like best for the President, but I have decided this: it is not Rudy, precisely for this reason)
This is my list. I am sure the readers will have many things to add to this. Please comment
Related posts:
- Global markets decline - is there a value in international diversification?
- Will US fall into recession this year - or is it already in one
- Value investing, risk and macro issues
- The other side of the recession debate
- On Banks and writedowns
January 9th, 2008 at 1:43 am
bring back stricter regulation on banks. I don’t think it is a coincidence that the Glass-Steagall legislation was lifted in 1999. It sought to prevent what had happened in the time before the Great depression and the Crash of 1907.
Banks getting their hands in stupid investments.
Going forward the US is going to be a service economy, looks like more and more so. What do we export? No more tobacco, cotton,steel,cars etc. Microsoft, Starbucks, What are we known for?
January 9th, 2008 at 3:13 am
Thanks Mark! I gather the concept of self-regulation does not really work in practice at the banks
I really have a tough time understanding the concept of a service economy. I am not old fashioned by any means but as an investor one of the ways I judge value is by looking at tangible assets. Your tangible assets do not move easily, but your researchers and scientists and consultants can be very easily hired away to foreign institutions. Besides, it is not as if other countries are not climbing the skills ladder
January 12th, 2008 at 3:59 pm
This is quite an interesting post, made me think about the US economy - what you said about ‘learning to play nice’ really is true and I also agree that a ‘one-agenda government’ will not work, for some of the reasons you’ve mentioned.
Keep more of these posts coming!
Viraj.
January 12th, 2008 at 4:10 pm
Thanks Viraj! I really hope the incoming administration is upto the task of addressing these problems head on
January 18th, 2008 at 8:38 pm
An Interesting article, I do believe this last amazing bull run in financial markets and the Dow was not built on sound US economics. The impending crash will drop the Dow Averages to below the lows of the previous crash and will be worse than the dot com bust of the late 90’s
This could all bode well for the Dollar as the US regains a bit of financial sanity. I am not stock specialist or analyst but to me the writing is on the wall and the bubble is about to burst.
Sub Prime questions were raised during Allan Greenspan’s tenure and ignored, so maybe now is the time to pay the price.