Why This Opportunity Trumps Your Biggest Risk

Alexander Green
by Alexander Green, Chief Investment Strategist

Editor's Note: Today's essay is the third installment of Alexander Green's four-part series outlining the biggest risk and the greatest reward investors face today. Stay tuned for the finale on Monday, as Alex reveals the best way to safely meet all your most important financial goals. Click here for Part 1 and Part 2.


Over the last two columns, I've outlined the biggest risk facing U.S. investors today: the federal budget deficit and unfunded entitlement liabilities that - combined - amount to $1.2 million per taxpayer. Next year it will be more.

Most other Western democracies are in a similar bind and many - from Greece to Japan - are far worse.

Despite abysmal approval ratings for Congress - and thanks, in part, to pork-barrel spending, gerrymandering and voter ignorance or apathy - 91% of Congressional incumbents up for re-election in November won.

In short, both parties realize it is political suicide to seriously cut federal benefits or ask beneficiaries (or most taxpayers) to pay for them. That means the political will doesn't exist to do anything more than continue kicking the can down the road toward an eventual great day of reckoning.

However, this reality shouldn't blind you to the incredible investment opportunities that exist in today's markets. The free-enterprise system is based on the most durable of foundations: rational self-interest. It isn't necessary to coax, encourage or force people to develop or improve products and services. The profit-motive itself provides all the inducement needed.

So - having taken a sober look at our highly dysfunctional public sector - let's also turn our attention to the benefits of our greatly underappreciated private sector:

  • The U.S. is still the world's strongest economy - and will be for years thanks to our considerable economic, institutional, natural resource, human capital and geopolitical advantages. Our GDP of $16 trillion is nearly twice the second largest country's (China) and 2.5 times the third largest's (Japan). U.S. per capita GDP is approximately $50,000. That puts us eleventh on the world list, but most of the countries ahead of us are small. (Think Luxembourg.) Our large and vibrant economy also makes it a magnet for foreign investment.
  • Our natural resources are prodigious too. The world is hungry for food and resources but we have plenty of both. Our arable land is five times China's and nearly twice the size of Brazil's. The International Energy Agency predicts the U.S. will become the world's largest oil producer in seven years. And the fracking revolution has opened up vast natural gas reserves. Utilities, factories and truck manufacturers are rapidly switching from coal and oil to cheaper natural gas.
  • American workers are younger and more energetic than those of most of our rivals. By 2050, the median age of workers in China and Japan will be 10 years older. Plus, we are still attracting skilled and/or motivated immigrants. A Gallup survey of 151 countries found the U.S. was the No. 1 choice for those wanting to move.
  • We also remain the world's leading innovator. It's no coincidence that companies like Apple, Amazon, Google, Facebook, Twitter, Genentech, Life Technologies and hundreds of other world-changers are based here in the United States.
  • Information-based technologies are on exponential growth curves: They're doubling in power for the same price every 12 to 24 months. We are also looking at enormous advances in robotics, nanotechnology, artificial intelligence, genetic engineering, networks, sensors, cloud computing, 3D printing and dozens more industries.

Public and private companies are transforming our lives. And unlike government, business is about freedom and individual choice, not coercion. If you don't like a particular company or its policies, you don't have to work for them, sell to them or buy from them.

The capitalist system is a wonder. Two hundred years ago, 85% of the world's population lived on the equivalent of less than a dollar a day. Yet nothing raises people up like the free-enterprise system. Most Americans living under the poverty line today have a telephone, toilet, television, running water, air conditioning and a car. Just 150 years ago, the richest robber barons couldn't have dreamed of such wealth.

In sum, private sector innovation is steadily improving our standard of living while out-of-control public spending threatens it. In my next column, I'll explain why the winner in this tug-o-war will be the free-enterprise system. I'll also show you how you can safely take advantage of it to meet all your most important financial goals.

Good Investing,


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