by David Fessler, Advisory Panelist
Friday, March 13, 2009: Issue #955
I started out writing today’s piece on anything BUT energy and infrastructure. After all, the street has trashed most of the stocks in both these sectors and left them for dead.
The prevailing Wall Street wisdom – and I use that term loosely – thinks there’s a better chance that some other “boom” is going to get under way. And over $8 trillion is parked on the sidelines waiting for it.
I guess the thought is that this economic resurrection will come seemingly out of nowhere. And that will lead us out of the deepening morass we’re mired in. Right…
But we’re not the closed-minded type around here. We don’t judge, and we don’t turn down a chance for above average profits.
So in the interest of fairness, let’s look at the probability of “booms” in other sectors, in the hopes they could fuel a global economic recovery.
4 “Boom” Possibilities
- A Housing/Building Boom?
Sure, maybe in my kid’s lifetime, but not in yours or mine. Let’s face it – we’re still in the process of busting. Just look at this sobering statistic:
In “normal” real estate markets, the inventory of bank-owned foreclosed properties is usually around 160,000 or so. Last November, completed foreclosures hit 900,000. Another 72,694 were added in January. February tacked on another 121,756.
But it gets even worse. According to RealtyTrac, nearly 75% of the property in foreclosures have yet to be listed for sale. That means another 300,000 or so homes already in the foreclosure process will be added to the total.
And there’s more coming behind them… lots more. Foreclosure filings for February alone hit 207,703, up 24% from January. Sales of foreclosed homes rose 4.4% in 2008, but availability of homes for sale doubled.
All this has the effect of keeping home supply much greater than demand. Bottom-line: You can forget a housing/building boom anytime soon.
- A Consumer Spending Boom?
Spending with what? Most consumers who used their home’s equity as an ATM are finding it out of cash. And now they’re strapped with big payments they can’t afford.
With home values cut in half in some parts of the country, most couldn’t squeeze more out even if they wanted to. Some will lose their jobs and will have to give up their homes (adding to the foreclosure situation).
Another nail on the consumer spending boom coffin is that Americans are saving more than they have in over 14 years. After years of dismal savings, consumers have started to get the message of “saving for a rainy day.” Unfortunately, only because it’s raining.
- An Export Boom?
The last time this country had a trade surplus was in 1991. As Warren Buffett likes to quip, “Right now, the world owns $3 trillion more of us than we own of them.”
And that’s not going to get better anytime soon.
While imports are certainly down (see consumer spending boom), many of the industries that contribute to exports are being decimated, too. Take the recyclables industry for example: It exported $22 billion worth of recyclables in 2007, mostly to China. 2008′s numbers, while not finalized, are expected to be down 50% to 75%.
And that’s just one example. We aren’t even touching on the fact that the world’s economies are in worse shape than ours is. So you can forget about an export boom.
- A Manufacturing Boom?
Every day, we read about another company laying off workers, in response to a drop in its business. It’s not too surprising, given the slowdown in consumer spending, the virtual shutdown of automobile sales, and the lack of consumers and businesses buying “stuff.”
We can expect that to continue.
It’s very likely that unemployment percentages will reach double digits later this year nationally. In some regions it’s there already. And it’s not hard to see why. (See the last three boom reasons above.)
So where does that leave us? Well, we could talk about a health care boom, or a biotech boom or some other mini boom that might have an uplifting effect on some small area of the country or the population.
But none of them will have the desired effect. They can’t cast a wide net over the entire economy to pull the country up from the depths of the deep recession we’re stuck in. None of them are the economic panacea, if you will, that we need.
Energy and Infrastructure – 2 More Boom Possibilities
History has repeatedly shown that cheap energy and modern, efficient infrastructure are the key building blocks of sustainable economic growth. The World Bank estimates that for every 1% increase in a country’s infrastructure equates to a 1% increase in its GDP.
And I can think of no other initiative that can match the wide-ranging boost that energy and infrastructure projects will give to an ailing economy:
- Employment: Hundreds of thousands, perhaps millions, of jobs would be created both in the United States and around the world. When people have jobs, they have income, and they’ll spend it on things like houses, cars and trucks, consumables and “toys.”
- Construction: nothing jumpstarts an economy better than huge, labor-intensive energy and infrastructure projects. Jobs, heavy and light equipment purchases, and material purchases will boost companies in those sectors, many of whom are hurting right now.
- Manufacturing: Many things will have to be made and entirely new industries will spring up to support solar, wind, geothermal and infrastructure initiatives.
I believe that this administration – similar to that of FDR’s – likes the idea. Bank balance sheets are well on their way to being stabilized enough to lend and extend credit to both individuals and businesses. Government-induced catalysts in the form of monetary stimulus and tax incentives are slowly being put into place.
They need to happen quickly though – and be large enough – to kickoff the energy and infrastructure build-out… the “EIBO Boom” as I like to call it.
It’s an acronym I’ve coined to describe what I believe will be the single best place to focus your investment dollars for the next 20 years.
I’ll be writing about those opportunities here, and speaking about them at the Investment U Conference in St. Petersburg, Florida in just a few weeks. I hope to see you there.
Today’s Investment U Crib Sheet
Over the past few weeks our experts have been discussing the pros and cons of “green” investing and the potential fallout if the alternative energy revolution fails or falls short.
Louis Basenese cautioned against blindly investing in green companies solely based on a green product in Green Energy: The Largest Speculative Bubble We’ve Ever Seen. And his reasoning was that, like any bubble, speculators rush in to capitalize on a glorious profit that may never arrive, and green investing is no different.
David Fessler responded in kind, with Alternative Energy: Why You Can’t Ignore “Green” Investing. A solid rebuttal and reminder of Louis’ point: Investors should focus on “proven” not “probable” green companies. It’s why David has been researching and reporting on the multitude of options in this sector for a while.