683. Economy Indicator Guesses

Matt Egan guesses at the driving indicators for 2015's economy in this article. However, I question whether he is indicating symptoms or causes or industries. My take is that the economy is looking for the next big discovery/invention and I mean big as in founding of Internet, Implementation of Electricity, first auto. So I can't disagree with Biotech driving the next BUST. With genetic research, immunotherapy drugs research/development, stem cell research, etc., a new BUST is in the making (sometime, maybe not 2015). I do like GILD and BIIB a lot as leaders. Will they drive the economy in 2015? Don't think so, but they will drive the portfolio. What drives an economy significantly is some new innovation. What will it be?

Thus, we are stuck in 2015 with the everyday economy indicators. We could focus on the Overall Economy (worldwide) and simply look at copper prices which have been declining since 2012 (if my memory is correct). The copper price is used because the copper supply is pretty stable; thus just demand affects it. Notice China and other Emerging Market countries hanging their heads for quite a while; thus, lower demand for copper (pipes, electrical things, manufacturing, etc.). Coupled with the Euro mess (Greece, Spain, Italy, etc.) re austerity programs and new liberal leaders gathering strength to stop austerity programs, little from Asia and Europe promises to turn that part of the economy around. Add Brazil, Venezuela, and other Latin countries having fiscal problems, plus those oil exporting countries trying to stay afloat with the low oil prices and you can only hope you can identify the 1-2 drivers that will turn everything around. QE? Not much left in the easement basket? I don;t have a clue what could turn Asia and Europe around other than an innovation that is massive.

China continues to work on energy projects, such as wind, solar, nuclear, and clean-burning coal. This will aid them and some specific industries and companies, but I don't see how it will affect the area's economy.

SPENDING. Now there's a promise. But how do you get people to spend when they are getting their lunches eaten by their own weaker currencies? If you examine the GDP formula, GDP= G + I +C + NX (Goverment spending, Business Investment Spending, Consumer Spending, Net Exports), you wonder what can start the move upward.  How do you export (NX) when your currency is low? How do you get your consumers to spend (C) when the sentiment is so low and they are stuffing emergency funds under the mattress? And, without the consumer demand, how can Businesses invest (I) in future growth? This is when Governments (G) choose to pick up spending to stimulate growth (the only element in the equation that seems to matter when desperate), China has been at this for years without progress -- for years they have been buying raw materials as they plummet and stockpiling in hopes the economy turns around and they can then benefit big-time. They also started building like crazy -- unfortunately, large areas, even cities have tons of new buildings and construction, but NO PEOPLE in them!

Let me get away from the dreary other side of the world. If you are following closely the last 3-5 years you would have noticed Europe and Asia following the same miseries as we faced, but lagging by 2-3 years. Why are out markets growing? And will their's pick up for same reasons as ours did? Was it the bail-outs and QEs? Or was it that American companies attack a problem with hard measures? Resiliency could be the difference. Our companies do NOT have to be told that they must suck it up and find a way to turn around! They just do it! Unlike Europe where the Euro encompasses many diverse countries, we are one country. Big difference in managing our currency. Thus, the dollar became strong, our consumers benefit from cheaper imported products and the sentiment increases, which drives demand, which helps the manufacturing industry, etc. So, SPENDING is a driver! No, DIS and CMG (Chapotle) won't drive the market as Matt indicates -- it's spending that drives them. So, KEEP SPENDING. But, please watch that credit card tab! We don't need to return to a credit crisis.

In summary, since I am a long-investor, I will continue to play the Tech and BioTech industries. Financials will (not to disagree with Matt) lead when the interest rates rise (think Fed and when they will move -- not until wages pick up and world economy at least stabilizes). They are NOT leading now, but could be long-term reasonable investment (think dividends this year). HealthCare? With all the old folks, and growth accelerating, you must think long-term all will benefit.

I'll return with more insights (Sam's crystal ball and senses have a lot these days), but lunch is on the table!