Over the last ten years, we have seen some very unusual economic
trends; however, current trends are ALL moving in a positive direction
and have been for the last two years. Clearly, the economy has made a
correction, driven for the most part, by the resurgence to the basic
industries which strengthened this county from the beginning of the
industrial revolution: the Housing industry, the oil and gas sector, and
a new love affair with American engineered and built automobiles.
That's right; the American economy has righted itself and on the
backbone of what made America a great economic powerhouse in the first
place.
Ready or not, here is some food for thought!
When you
think back in history, what are some of the names that from the
beginning of the industrial revolution that come to mind. The pioneers,
the inventors, the business leaders and the industries of lore are
making a resounding comeback in America. Many people think crude was
discovered in Texas, it was actually discovered in western Pennsylvania
in 1859 and set off an oil rush similar the 1849 Gold Rush.
John
D. Rockefeller was the driver of the time as he bought up refineries,
railroads, pipelines, and oilfields helping build America into a super
power in the oil industry. Henry Ford revolutionized the automobile
business by inventing the process of using interchangeable parts on an
assembly line. Today, Ford enjoys the worldwide recognition as being the
world leader in innovation and quality products. Of the top 14 selling
models domestic auto models, Ford Motor Company, has 4 of the best
selling models, GMC has three. Compared to the imported brands, Toyota
has two models in the top fourteen, Honda has three, Chrysler has one,
and Nissan has one.
Oil and Gas Industry - The economy will
continue to grow in 2014 driven by the domestic strength of the oil and
gas industry. Saudi Arabia is quickly running out of crude oil, it is
estimated that their exports will decline dramatically in the next few
years, and could be out of oil in 10 years. Fortunately, there are
substantial North American reserves, and domestic oil production will
continue grow by double digits.
WTI (West Texas Intermediate)
crude oil prices have been strong for the last three years and will
remain strong into the future. WTI, the benchmark for crude oil is well
within the anticipated price range and will continue to hover around the
$85 to $105 per barrel. With oil prices at this level, it will promote
record levels of domestic oil production. The Permian Basin in West
Texas will quickly become the largest producing field in North America,
not far behind is the Bakken Shale along with vast reserves in Alaska,
given this 3 punch blow, America has vast un-tapped fossil fuels,
including natural gas. Expect companies to continue to prosper in the
oil and gas business as domestic drilling continues along with drilling
innovation.
Think about this, John D. Rockefeller at one time
controlled 90% of the oil in this country leading to the passage of the
Sherman Antitrust Act. In this case, of the Standard Oil Company v.
United States suit, the Supreme Court ordered Standard Oil to be split
up into competing companies that would become Exxon, Mobil, and Chevron.
That's the power of oil and the way it will shape our future economy.
The
Housing industry - We all know that when the housing industry is strong
as goes our country. The Housing market is still a long way of where it
was before the crash, but guess what? We will never see the levels from
2005 where we built almost 2 million single family and multi-family
units that year. Those were unhealthy and fabricated levels. Remember,
the total housing starts submitted by the government each month is the
total number of combined single-family and multi-family units combined. A
healthy economy in America is associated with housing starts somewhere
between 1 million and 1.3 million annual units. Mortgage rates will
continue to hover around the 4.0 to 4.8 percent and building costs will
continue to be affordable. The housing industry (1) drives almost 20% of
the [1]GDP in America, one in five jobs are associated with housing,
when it is strong, the economy is strong.
You might be asking what
"unhealthy and fabricated levels" mean as mentioned above? Remember,
the housing boom from 1995 to 2007 was the result of too many sub-prime
loans being granted to individuals who could not afford them which
artificially inflated the numbers thus driving up foreclosures.
Foreclosed upon homes have flushed through the economy and builder
inventories are at manageable levels. It is predicted that 1.1 million
to 1.3 million starts is a nice equilibrium to supply and demand curves.
The builders, the bankers, and the finance companies have all learned
that when you glut or boost up a market the way we did from 2001 to
2005, you are going to pay in the long-term. Remember, it was Clinton
who signed the Community Reinvestment Act into law in 1993 which the
driving force behind the sub-prime lending debacle.
Also, while we
are on the subject of presidential and economic policies, Obama will
have nothing to do with this economic recovery referenced in this
article, quite the contrary, he continues to undermine this economic
engine which has chosen to ignore his ridiculous economic policy.
Retail
Sales and Auto Domestic Auto Sales - You can look for retail sales to
accelerate steadily to 5% annual growth and auto sales to 7.5% annual
growth. A stronger economy will always have a positive effect on these
two important, consumer sentiment driven, super powers. It's a simple
formula, when consumers are making more money, they spend more money in
stores and on cars.
Here is the intangible side of Auto Sales that
we don't always recognize. As we mentioned earlier, America is
re-emerging as a super power in auto making. Who would have thought that
Ford Motor Company would have emerged as the world leader in
manufacture, in quality, innovation, engineering and design? Ford always
had good quality, however, fifteen years ago, their product line was
stale and on the verge of extinction. Today, their line is innovative,
it is well designed, it is leading edge, and for thirty plus years, they
have had the #1 selling vehicle in the F-Series. GM needs to look
across the horizon and take note what Ford has done, they are starting
to get it by redesigning their line, and Cadillac has done a fine job of
finding a niche. Overall, GM has a way to go, but they are starting to
get it. Bottom line, America is now viewed, once again, as the world
leader in the automobile industry through innovation and engineering.
Unemployment
Rate - The Federal Reserve has predicted that the unemployment rate
will drop to as low as 6.3%, more realistically is a 6.4%. First or all,
we have a new Fed Chairman taking the reins on February 1, second, this
new chairman is hugely qualified to replace Bernacke, and third, this
new chairman is not going to undermine the policies that have driven the
economy for the instituted by Greenspan who was the Master.
You
might be wondering or asking yourself: 1) if all these economic planets
are going to align, 2) we are going to see a strong housing market, 3)
we are going to see a strong oil and gas sector, 4) retail sales are
going be slightly ahead of last year and at relatively healthy levels,
then why is unemployment only going to modestly improve? First of all,
we still have Obama in the White House; he is the master of economic
prevention.
Obama and his policies are anti-capitalistic, he has
proven this time and again. Our recovery has resulted on the heels and
the resiliency of the entrepreneur, small business, American ingenuity,
he nor the members of his staff will ever take responsibility for
economic growth during his presidency. On the flip side will continue to
suffer from the hangover and side-effects of Obamacare. We all know
that Obamacare will never produce the number of enrollees as was
planned, plain and simple. Obamacare will fall far short, with respect
to the number of taxpayers needed to make the plan economically
feasible. At the end of the day, it will cost more money to fund this
plan than is coming in, thus driving up the associated costs. This is
typical liberal political policy, lets develop a really good policy,
lets pass that policy, then later realize, we did not budget for it
properly. This will have a lingering effect and will stifle the
unemployment numbers.
Conclusion - The economy will expand in 2014
on the backbone of the housing industry, the oil and gas industry, auto
innovation and technology. We have all the reason to believe that this
trend will continue well into the future. US gross domestic product
(GDP) will most likely be anemic at 1.9%, primarily because we have such
poor leaders in Washington. The fiscal drag is over and we are going to
see key industries strengthening.
