Will the US growth continue?



The American economy has finally found some solid footing for growth after 6 years of questionable economic stimulus.  The combination of perpetually low interest rates and a wide open money spigot from the Federal Reserve has finally produced positive economic growth.  While the economic growth of the rest of the world is temporarily stagnating, the US equity markets have flourished.  Much of this has previously been due to the abundance of investible funds looking for a place to go.  The US remains the safe money alternative for most of these funds.  Yet 2015 brings a new set of opportunities and challenges.  Oil has plummeted in price.  This positive event could bolster the outlook for the US as cheap gas leads to additional consumer spending.  One side effect is the instability this causes for several international countries whose economy and potential existence depends on oil, notably Iran, Venezuela and Russia.  This offers the potential for conflict in several areas of the world and could be a destabilizing factor in any resurgence of world economic growth.  Another situation will be the ability of the newly elected, Republican dominated Congress to work with the President to maintain and expand the current economic growth.

As noted previously, the US equity markets had another banner year. They were again led by large cap US stocks.  This is a continuation of the trend from 2013 where investors bought large US stocks to get some dividend yield with the potential for growth instead of CD’s with limited return.  This was aided by companies buying back their stocks instead of investing in plant and equipment, due mainly to anti-business government regulation and economic uncertainty.  The large cap US markets outperformed the mid and small cap stocks by almost 10% this year.  Again, evidence of the movement of money into what is presently perceived as the safest available worldwide.

The international markets were docile for the most part. Growth in China slowed so prognosticators and investors took this to mean the rest of the world was slowing. We still believe the long term prospects overseas are excellent as the demand for goods and services to the newly minted middle class people will only increase.  Cheaper energy prices will aid in the process.  While we cannot predict the exact timing, the prospects of US equities already high price/earnings ratios extending further are dwindling.

Interest rates have been at historic lows for 6 years. They have failed to promote the type of economic stimulus one might expect for a number of reasons. The Federal Reserve has ended the “quantitative easing” folly and begun talking of the need to raise rates in 2015.  A return to more normal rates should be good for many investors.  Those needing better fixed income returns would be aided.  It might also bring a better equilibrium to the equity markets, already trading at higher than normal earnings multiples.

We can only hope that the results of the elections will bring legislation that will help the economy.  Trade agreements overseas, tax reform and restraining business disincentives from past government regulatory rules will be on the agenda of the new Congress.  Those who believe government can regulate a country into a better economy have obviously not availed themselves of any statistics of what does and does not work to improve economic conditions.  We do know what works, we just need leaders to use that knowledge and forget politics – our brand of wishful thinking.

We appreciate all of our clients and hope to meet with each of you early in 2015 to look at results and plan for this year.  If you have any questions, please call us.  Thank you for a great 2014.


Larry Miller

Larry Miller

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