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The Most Important Things: A View of the Long Ride

“Keep first things first.” – Stephen Covey, author of The Seven Habits of Highly Successful People

Driving from Eastern Iowa to Denver is a very long, flat excursion that starts out at about 700 feet above sea level and ends up at 5,000 feet. The rise is so gradual as to be unnoticeable.

If the U.S. economy conforms to my outlook, its rise should be pretty much like that long, flat drive that somehow ends up substantially higher than where it started. 

Here’s why. There are no serious cracks in the economy that I can find. Some could certainly develop, and after a few years we could possibly fall into recession, but that doesn’t seem as likely as a long, slow ramp higher..

In the last two years, a lot of stimulus money was used to pay down consumer debt. Many consumers’ homes have seen an increase in value, with a resulting increase in home equity. Numerous workers have seen their incomes rise, and as a consequence, debt servicing has declined as a portion of household budgets.

The economy has moved into expansion. We are only in the second year since the last recession lows. It’s more likely the expansion will continue for at least a few more years, and I can find no significant contractionary forces right now.

In a few months, the Federal Reserve may raise interest rates, and that may slow the economy, but it’s been a very long time since Fed rate increases induced recession. The institutional knowledge on how to handle this situation has evolved quite a bit, so I do not foresee any recession induced by rising interest rates.

Right now all I see is a long, slow, gradual increase that puts us a mile high.

“We have met the enemy and he is us.” —Walt Kelly in his cartoon strip Pogo, 1970


A Divided Nation

Since the British invasion of 1812, no power on earth has successfully invaded the United States, and since Pearl Harbor, no major military assaults have been dared against the U.S. To this day, the worst war in U.S. history is the Civil War, which resulted in over 600,000 deaths. Though Lincoln stated in an 1858 speech that “a house divided against itself can- not stand,” he managed to prove that wrong, just barely.

History is rife with powerful empires that have collapsed from within. The Spanish conquered Mexico with the help of the Aztecs’ rivals. Fighting adversaries in the country was more important than keeping the Spanish out.

Today, we have a deeply divided nation in which many view members of the opposing party as enemies. We’ve all seen how this has become an increasingly divided nation. We need to stop this before we tear ourselves apart. Without doubt, we are our own worst enemy.

I am hoping that the midterm elections this fall are not a continuation of the kind of ugliness we saw in 2020, but I fear it could be worse. Courtesy and respect are becoming lost sentiments in modern America.


China

Maybe nothing particularly bad will happen this year between the United States and China, but this rivalry looks to become progressively more tense in the coming years. War is not good for an economy. Yes, I know that WWII pulled the U.S. out of the Great Depression, as we were the suppliers of nations fighting Germany in the late 1930s, but while the U.S. may have benefited from that war, it was terribly destructive for everyone else. Defense spending is one of the least efficient kinds of economic activity. The machines made by weapons manufacturers are not like those used to make automobiles, computers, or any other goods.

Weapons manufacturers make goods whose highest and best use is to do nothing. The best use of a bomb is to never get used. If it’s used, the result is destruction.

But I am talking about a hot war with military deployments and battles. I deeply hope that never happens between the U.S. and China, but there’s still a lot of damage that can be done without one. In some ways, we are already in a cyberwar with China, and that can get worse.

But let me stop right here before I delve into unthinkable and extremely undesirable outcomes. Growing up in the 1950s and ’60s, we constantly imagined that we might wind up at war with Russia. That didn’t happen. I don’t think anyone would describe us as friends with Russia, but we managed to avoid a hot war with them.

A hot war with China is not inevitable. But tensions with China seem likely to become an increasing concern and anxiety for the foreseeable future.


The Pandemic

You might note that I put this last on the list. I would have left it off altogether, but I know many of you are thinking about it, so I mention it only to note that it is no longer that important. We will get past this pandemic. It is my amateur but informed opinion that from a health perspective, it’s no longer the concern that it was, and it will be less of a concern going forward. And, more importantly, we’ve learned how to live with it, do business in it, and grow our economy in it.

Investors may be hypersensitive to pandemic news for some time. Every emergence of a new virus is going to get our attention. And there’s good reason, because some new, dangerous, and very contagious disease can come at any time. But from a business standpoint, we now have a playbook. We know what to do and how to minimize disruptions. I see that pandemic news is upsetting, but not necessarily economically disruptive. For that reason, pandemic-induced market selloffs should be buying opportunities.

The risks, as they appear today, are the labor shortage, the political polarization of the country, and China.

Hal Masover is a Chartered Retirement Planning Counselor and a registered representative. His firm, Investment Insights LLC is located at 508 N 2nd Street, Suite 203, Fairfield, IA 52556. Securities offered through, Cambridge Investment Research, Inc, a Broker/ Dealer, Member FINRA/SIPC. Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Investment Insights LLC & Cambridge are not affiliated. Comments and questions can be sent to hal.masover@emailsri .com. These are the opinions of Hal Masover and not necessarily those of Cambridge, are for informational purposes only, and should not be construed or acted upon as individualized investment advice. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal. Past performance is no guarantee of future results. Indices mentioned are unmanaged and cannot be invested in directly.

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