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posted on 20 July 2016

The American Public Has Been Fooled - Life Is Good In The US

by Elliott Morss, Morss Global Finance

Introduction

For different reasons, the media and politicians paint a pretty grim picture of the US. The media makes more money when covering distressing events. And politician running for office put a negative spin on today's conditions, saying things will improve if they are elected. But what is the reality? Relative to most other countries in the world, things are great in the US. I attempt to document this below.

life.b.good

Economics

I quote from John Reese of Validea, one of my favorite economics and investment gurus:

"The manufacturing sector expanded for the fourth consecutive month in June, according to the Institute for Supply Management. The group's June manufacturing index registered 53.2%, an increase of 1.9% from the May reading and the highest reading since Feb. 2015.

The New Orders Index also increased, up 1.3% to 57%, while the Employment Index increased 1.2% from the May reading to 50.4%. The Prices Index indicated higher raw materials prices for the fourth consecutive month. The June PMI of 53.2% indicates growth of the overall economy for the 85th consecutive month and the reading corresponds to a 3.2% increase in real annualized gross domestic product.

Economic activity in the non-manufacturing sector grew in June for the 77th consecutive month, also according to the Institute for Supply Management. June's non-manufacturing (service sector) index registered 56.5%, an increase of 3.6% over the May reading. This reading is well above the level that indicates expansion of the overall economy and represents the 83rd consecutive month of such expansion. The New Orders Index rose 5.7% over that in May....The June NMI reading of 56.5% corresponds to a 3% increase in annualized gross domestic product.

...the June jobs report showed a robust increase of 287,000 jobs, which was above economists' expectations. The "U-6" rate, which unlike the headline number takes into account those working part-time who want full-time work, and discouraged workers who have given up looking for a job, showed a decline, falling 0.1% to 9.6%. The June unemployment report also showed modestly positive news regarding wages, as average hourly earnings rose two cents to $25.61, following a 6-cent increase in May. Over the year, average hourly earnings have risen by 2.6%."

In short, the economy continues to grow steadily. Sure, there are not as many cushy "middle class" jobs as there used to be, largely because of labor saving innovations, but the US is close to "full employment".

On top of this, there is no country in the world that has the infra-structure in place to commercialize good ideas as the US. The US stock market? Over the last year, it is up 4.5%.

International Comparisons

Table 1 indicates how the US doing relative to other nations. Leaving aside China and India, there is no major country in the world growing as rapidly as the US. And unemployment? Relative to other G7 countries, the US is in excellent shape.

Table 1. - GNP Growth and Unemployment Rates, Selected Countries and Regions

pl1Source: FocusEconomics Consensus Forecast

Income Inequality

Indeed, there is a small US segment earning outrageous amounts of money - $1 billion+. But it is a very small segment. And US citizens have always been reluctant to curb what individuals can make.

Guns, Mass Shootings, and Radical Groups/Individuals

The media has really taken off on this topic: be the first on the scene, interviews with law enforcement, extended searches into the killers' backgrounds, and talks with the bereaved. These events really sell, and the politicians have had a great time....

But what are the realities? Table 2 gives US data on shootings for this year and the prior two years. The US is one of the few countries in the world where citizens are allowed to own guns. International data show that gun deaths are highly correlated with the availability of guns. Accordingly, there are far more gun deaths in the US than in other nations.

It is certainly true that social media and cable news have provided emotional support for troubled individuals to go out and kill people. However, even with the news of increasing violence resulting from radical groups and racial problems, total gun deaths have increased, but only slightly. And when you look at how radical groups are causing problems elsewhere, the US should be far from the panic mode. However, the media and out-of-office politicians love it: good for ratings and politicians get to blame the in-power politicos.

Table 2. - US Non-Suicide Shootings

pl2

Source: Gun Violence Archive

* Nearly twice as many people use guns to commit suicide than to kill others.

Spoiled Americans

Politicians running for office base their campaigns on claims citizens' lives will improve when they are elected. The politicians rarely provide details on how this is going to happen. And what they do offer makes little sense, e.g. a 45% tariff on Chinese imports.

The effect of these claims is to make citizens think that without lifting a hand, their lives will be better if they elect whomever. But what is the reality? Trade barriers will not work. The world is a competitive place. Efficient countries with hard-working citizens will prosper.

Global Uncertainties

The greatest threats to continued US prosperity are foreign uncertainties:

  • The completely chaotic Middle East and its breeding of radicals to kill in other countries;

  • How Brexit will be accomplished;

  • The possible breakup of the European Union over immigration policy differences,

  • US dealings with China and Russia and

  • The future of India.

There are ways that each of these problems could be resolved in a reasonably satisfactory manner. But it is highly unlikely they all will. And the media will continue to exaggerate disasters whenever they happen.

Investment Implications

As mentioned above, the US stock market is doing well. But foreign uncertainties will continue to cause considerable volatility. In light of this, I look for investments with healthy dividends (4-5% range) and low payout ratios. Do your own research. Among my current favorites: Valero (VLO), Xinyuan Real Estate (XIN), and Brookfield Property Partners (BPY).

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