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The Developing New Prosperity for America

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December 25, 2011 – Comments (9)

Merry Christmas Fools!!!

While headlines like the one above are generally met with retorts about America's demise, this letter hopefully makes people understand that the United States is in the beginning stages of a new boom, not a final collapse.  As I discussed on MarketWatch.com in the article that won me a columnist slot with them, America is in the very early stages of a technolution in energy that will not only provide jobs for the millenial generation but also pay for the baby boomer's retirement.  On top of energy, food production and export is becoming an increasingly strong strategic industry.

Energy Is The Key to Every Economy

Since the industrial revolution, cheap energy has been at the heart of America's economic development.  And since the 1950s, having energy has been the core factor in the United States dominance of the world economy.  Going forward, energy, will continue to be at the heart of the American economy and its continued place as the most important economy on earth for decades.

Nations that are energy rich have stronger currencies, and generally higher standards of living.  This relationship is easy enough to understand by experience.  If your money is worth more, you can buy more, hence you live better.  If you have a relatively low cost of energy, the core ingredient in virtually everything in moden life from production of goods to transportation to the temperature of your home, everything else tends to fall into place.  A strong currency is one of the three main things that keeps inflation low (resources and high productivity being the other two).

A recent Goldman Sachs report projected that the United States would be a net energy exporter by 2017.  While precision isn't important to us here, the accuracy of the trend is.  What we have seen via Energy Information Agency (EIA) numbers is that oil imports from the middle east have plunged the past four years, oil production in the United States has surged (even with the slow down in the Gulf which is now picking up again), natural gas production is ramping up, coal production and export is robust, solar netted billions in exports the past few years and is about to make another technological jump, wind is reaching physical peaks and broad energy efficiency is helping the U.S. maintain demand levels. 

On net, supply of energy in the U.S. is rising faster than the demand.  Globally that is not true.  The U.S. is very early in developing an energy export economy.  Think about the opulance that has been built in the middle east selling the United States energy.  Now imagine the wealth that can be generated for the United States selling our energy to Europe, Japan, China and developing nations.  It is massive.  

Food Is Pretty Important Too

While not America's largest export, as it trails both chemical and transportation exports (folks, we are still a top 3 exporter in the world), agriculture is a major and growing component of American exports.  At $122 billion in 2010, food and agriculture exports are growing at a low double digit percentage as the world keeps creating more mouths to feed.  The United States combination of arable land, water, agricultural technology and low population make for a potent mix for the development of further exports and generation of domestic wealth.

Balance

Americans as a group have been fairly pessimistic of late.  That is understandable.  The period from 2001 to 2008 was terrible for America, and the past few years the hoped for rebound has been slow to materialize. 

The facts are however that things are slowly getting better.  Jobless claims have been falling recently.  This may be attributable to the fact that exports are rising.  Regardless, the broader economic trough, in my opinion, has been made.  We may skip along in a near sideways way for a few more years, but folks ought to be working towards participating in the coming boom, because it is coming.

As trends play out over the coming decades, so long as we protect the environment and make certain that the wealth generated by energy and food exports are not hoarded by only a few, America is on track to do very well going forward.  All we have to do is work hard (which will require learning appropriate skills) and control cheating through appropriate regulation, and America will have a postive social evolution, not the collapse that fear sellers drone on and on about.

Investors

Investors need to resist the urge to be pessimistic.  They must also be patient and resist the urge to bury their portfolios in low growth, low return investments because they are afraid of volatility.  Volatility works in both directions.  Portfolios that have been built for the coming positive future, like ours have been, need to stay the course.  Those who do not have portfolios leveraged to a stablizing dollar brought about by energy and agriculture strength in America need to do so.

Your Positive on the Future of America Advisor,

Kirk Spano

P.S. No pictures or charts this month but give me a click anyway on the supersexy key words here: Investment Advisor.

 

This letter contains forward looking statements that may not come true.  Past performance does not guarantee future results.  This letter is intended for informational purposes only, and reflects only my thoughts and opinions in general, and do not constitute individual advice.  Opinions expressed may change without prior notice.

 

9 Comments – Post Your Own

#1) On December 26, 2011 at 10:44 AM, devoish (97.60) wrote:

kirkydu,

According to the vast majority of climate scientists, exporting vast amounts of fossil fuel energy such as coal and nat gas, is exactly the path that most specifically does not protect the environment most specifically does not make certain that the wealth generated by energy and food exports are not hoarded by only a few. If protecting the environment and a wider distribution of wealth is required to put America is on track to do very well going forward then fossil fuels are not the answer. Maybe fifteen years ago switching to nat gas could have slowed global warming enough to mitigate its impacts or buy us time, but that is not true today. Every gallon of fossil fuels that is burned equals one less plastic product to make a farmer more productive, a retirement more enjoyable, or vinyl siding less expensive.

It has been thirty years since America as a whole benefited from her industry. It has only been a very few, for very a long time now. As you say, even those who have saved a quarter million for retirement, do not really have much to retire on, and it probably won't last them. And very few actually have that much.

Until government can raise taxes and fully fund SSI and actually increase it, I don't see any customers in America for the products of oil and gas and food.

Until government can raise taxes and overpay and overhire workers to make their hours shorter and their discretionary time longer and to make private enterprise compete for those workers through higher pay better hours I don't see 300 million Americans that will benefit from the rising food cost of exporting our food, just a few investors, and of them, fewer still with enough to invest that it will pay off.

Investors are not being rewarded for their money or investments today. Two very small groups of Americans, one called Executives, are being rewarded with that investment money. The other small group is the financial managers who are extracting from investors, without adding value commensurate with what they take. Your correct observation, that 401ks extract excessive fees from investors is evidence of that.

Best wishes,

Steven 

 

 

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#2) On December 26, 2011 at 11:57 AM, rofgile (99.31) wrote:

While, I too wish oil was not so important of a factor, I agree with kirkdyu's analysis.

 The rise of the North Sea oil (1960's-1990's) was a big boost for the UK, a similar developed country compared with the US.  Both countries have had large trade deficits, been net oil importers, and also had large diversified economies.  I would expect similar positive economic benefits would be seen in the US as to what happened with the UK (though the net tax revenue increases were only about 400 billion over all those decades).  The positive effects were on the trade balance, and increased employment.

 In the next 50 years, I think northern countries will be the best and healthiest economies.  You should read this book: The World in 2050: Four Forces Shaping Civilization's Northern Future

 Now, there are plenty of things which could also greatly change the world on the horizon.  A vaccine for malaria could greatly change much of the world.  Similarly, mobile phones in africa and latin america could be amazing drivers of new economies.  

 Basically, caveat emptor with future prediction! :)  

 -Rof 

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#3) On December 26, 2011 at 12:11 PM, rofgile (99.31) wrote:

I would add, also, that the value of US oil would rise with time.

 Also, the economic might of countries like Saudi Arabia, Iran, etc will fall with decreasing exports from those countries combined with decreasing import requirements from the US.  This has been a long-term goal of US foreign policy since the 1970's..

 -Rof 

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#4) On December 26, 2011 at 1:06 PM, kirkydu (95.44) wrote:

Devo, when you whip it, you whip it good.

While I am an avowed tree hugger, certain things just are what they are.  The fact is that American dependence on imported energy is falling due to increasing local supply- oil, gas, coal, solar, wind, hydro, etc...-  at the same time that demand is stabilizing in America. 

Around the world, there is a demand for more energy.  We will supply some of that.  Mainly natural gas to Japan and Europe, but also some coal to Asia in the short run.  

I am a big believer that solar is coming in a big way.  Why?  Because the next leap in technology is large and imminent.  That will allow the gradual increase in power demand to be offset with low carbon energy.

Over the next couple decades however, we will not completely ween off of fossil fuels.  I think we can only hope to flatten the curve away from the upward slope it is still on.  It won't be until the new nuclear techs which are extremely safe, small and nearly waste free, are available that we can retire most fossil fuel energy generation and relegate them to back-up and small scale fuels.

rof is right that prices on fossil fuels will rise over time.  Being an exporter during this end game for fossil fuels is lucrative.  It will be the kind of money that is spread around (unless we are stupid and elect people who believe in no regulation and tax breaks for the rich) in a way that will drive all parts of the American economy. 

Unfortunately, the next thirty years we'll be paying off a lot of debts so the standard of living won't increase much on aggregate, but it will get back to where it was in the late 1990s.

Something to really know is that the United States has planned for this sequence of events regarding energy since Eisenhower.  It is no coincidence that new energy techs and the U.S. moving to be an energy exporter are happening right at peak oil.

Food is the kicker.  America is the very best breadbasket on earth.

We'll hopefully use our leverage in energy and food to maintain peace, rather than our military going forward.  That will be a huge reduction in the cost of maintaining the nation.

Devo, to your point about the environment, yes, we have changed it.  There is no doubt unless somebody is a manic illiterate of some ideological persuasion (unfortunately too many Americans still). 

In Wisconsin, for example, I am able to grow pitted fruits in a part of the state now (I own www.WisconsinPeaches.com in fact), even though, it has never been possible before.  I was just in South Dakota, and discussed snowmobiling in the Black Hills with locals, you know what they said, "don't bother" we haven't had snow in a decade. I'm not sure how Rush has been able to brain wash people, but he (and others) has.  It's too bad people don't read anymore. 

I've been all around America now and everywhere I ask, they recognize changes in the broad weather patterns, particularly lower precipitation, but more violent storms, not a good thing. Heck, I'm in Wisconsin and I didn't get my white Christmas.  I took a walk yesterday and it was 48 degrees.  While I personally like it, really, it's not good news in a broad sense.  

I understand what James Hanson has said, and I believe it, but I can't change society anymore than with my limited keyboard skills will allow.  So, I have resolved to adapting and preparing.  

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#5) On December 26, 2011 at 4:30 PM, ikkyu2 (99.32) wrote:

This post should be required reading for anyone who makes a macro forecast.

Global warming is a bit of a red herring here.  Fossil fuels will continue to be used and their use will continue to grow.  It really doesn't matter what anyone says about it or wants to do about it, because what it comes down to is this: people will always trade money in exchange for a better life for their kids, and that transaction ends up causing the burning of fossil fuels.  

Until we start a global movement of rich and poor people: all standing up in favor of more sickness, starvation and poverty for their kids; in the name of preventing global warming; fossil fuels will keep burning.  That's probably as it should be.

Kirk's right that the USA is well positioned to enter this new era.  Our open society usually meets the challenge - no matter what it is.  We'll meet this one too. 

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#6) On December 27, 2011 at 12:45 PM, JakilaTheHun (99.94) wrote:

Great blog!  I largely agree with you, kirkydu. 

Over the past few weeks, I've been watching old episodes of Saturday Night Live, back in the late '80s / early '90s "golden years."  It's absolutely astounding how similar peoples' outlooks in 1990 were compared to 2011.  All the issues were exactly the same!  It's almost mind-boggling! 

The more things change, the more they stay the same.   And if you look at what is happening in the US economy right now, the trends are very good for the long-term.  

I still worry a bit about our entitlement spending nightmare with Social Security and Medicare; now coupled with a terrible healthcare plan; but as big of problems as those programs are, people misunderstand why they are problems.  And these problems can be managed. 

But I think the macro outlook for the US is quite good over the next decade.   

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#7) On December 27, 2011 at 1:22 PM, arizonamike303 (83.74) wrote:

Forgive me for injecting a dose of reality into your little world full of unicorns and rainbows, but I hardly see how we're going to become a major supplier of oil when it takes a revolt in congress just to get a pipeline built.

As far as food - if we're so good at producing it could you please explain to me why food prices are higher every time I go to the supermarket?

Unemployment - the real reason it's dropping is because people are exhausting their benefits and/or simply stop looking for work. They are no longer counted hence the 'unemployment rate' goes down.  Have you seen any 'Help Wanted' signs lately? I haven't.

And oh, by the way, the Euro is still going to implode. You can only kick the can so much before the can disintegrates.

Oh yeah, we're also 15 trillion dollars in debt.

You're probably right about America having a bright future, but I believe it will take a lot longer than a decade. As I recall it took a good 25 years or so from the crash of 1929 for the 'Happy Days' of the 50's to finally arrive.

Happy new year.

 

 

 

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#8) On December 27, 2011 at 3:38 PM, kirkydu (95.44) wrote:

Oh Arizona Mike

Come on, drink some Kool Aide!!!  

A few things.  I did NOT say the U.S. would be an exporter of oil.  I said energy.  

As far as food, prices have gone up because we export a lot of it, the dollar is still weak and local growing hasn't caught up with demand yet.

Yeah, unemployement is a problem, but its starting to turn, there are plenty of charts which show so.  Here's one: http://www.businessinsider.com/chart-of-the-day-percent-job-losses-in-post-wwii-recessions-2011-12

Euro won't implode, it's like Doritos, eventually, they'll make more.  We're just waiting for the dickering to finish up.

$15 trillion dollars, puh shaw, talk to me when it's a real number.  

Yeah, things won't get better quick, but will get better quicker than most people today think. 

Where's my Unicorn, hope not way over the other side of the rainbow.

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#9) On December 29, 2011 at 1:08 PM, EnigmaDude (87.65) wrote:

Fantastic blog!  We are indeed in the midst of an energy revolution (technolution - did you coin that one?) that must not be ignored, however, as you so adroitly remind us it will take some time to evolve.  Meanwhile, fossil fuels will continue to supply the majority of the world's needs and thus investments for the next 10, 20 or even 30 years should take that macro trend into consideration.

And to Jakila's point, I was a hardcore tree-hugger in the early 80's when I got my first real job with Chevron.  It was a difficult decision for me at the time, convincing myself that if more environmentalists worked for energy companies the world would be better off in the end since the demand for energy will never go away.  Now those big energy firms are looking seriously at expanding and diversifying into solar, wind, even geothermal energy sources.  But until they become economically feasible we will continue to use oil, gas, and coal to supply the majority of our domestic energy needs.

I share your hope and vision of a prosperous future for the USA and I encourage my kid to keep an optimistic outlook on her future too.  The world is not about to end but it will change.

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