The Anna Maria Island Sun Newspaper

Vol. 15 No. 42 - August 19, 2015

BUSINESS

Anna Maria Island Sun News Story

U.S. economy looking good for further expansion

Investment Corner

I think it was famous baseball player and manager Yogi Berra who said “It’s like déjà vu all over again”. That’s how I feel about the current economic expansion compared to the decade of the 1990s. Of course, exact parallels are rare, but there are certainly some similarities at work.

The 90s were heralded as one of the longest economic expansions in history, starting after a brief recession in 1990 and lasting until the next recession which began in 2001. The current expansion is now six years old, measuring from the summer of 2009 as the recovery from the 2008 financial crisis began.

Much of the comparison is anecdotal, but similarities are abundant:

• Oil prices fell significantly through the decade of the 1990s, like they have from the peak oil price of about $145 a barrel in 2008. Falling oil prices may be bad for energy related companies, but they are good for the remaining 90 percent of companies and all consumers. The effect can be similar to a reduction in the income tax rate in the average household budget.

• Naysayers were everywhere back then, and today. The media and individuals complained about the moderate pace of economic and workforce growth, implying the recovery wasn’t real and that we would soon fall back into recession. We hear the same today. What these folks didn’t (and don’t) realize is that the slow, steady nature of this recovery with low inflation, like the 1990s, will likely allow the Federal Reserve to be patient, and not have to raise interest rates aggressively for a while. The result by the end of the 90s was the lowest unemployment rate in decades and a balanced budget for a few years. Time will tell if this can happen again.

• Gold Prices fell significantly in the 1990s, and they are falling today. I don’t think movement in the price of gold ever causes anything, but rather is a result of investor expectations. Lower precious metals prices may be a result of a sense of calm by large investors whose actions influence the price. They no longer fear the Armageddon scenario under which we might actually use gold to buy food and necessities. After all, the price of gold over the long run has largely just kept up with inflation, and its performance has been lackluster compared to equities, real estate, and many types of bonds.

Of course, the important question is not what’s happened in the last six years, but what happens in the next four or so. My opinion isn’t any better or more likely to be right than anyone else’s. There are too many variables in a state of flux to predict the path of financial markets over the next few years with any real certainty.

One big picture indicator I like to fall back on though is the Conference Board’s Index of Leading Economic Indicators, which has been accurate in identifying risk of economic recession since the 1950s. At the present time, the Index has been accelerating in its growth rate which bodes well for continued economic expansion over the next year, and likely longer than that.

Tom Breiter is president of Breiter Capital Management, Inc., an Anna Maria based investment advisor. He can be reached at 778-1900. Some of the investment concepts highlighted in this column may carry the risk of loss of principal, and investors should determine appropriateness for their personal situation before investing. Visit www.breitercapital.com.

 


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