There are few comments in the lexicon of investment advice that are more likely to cause investment professionals to roll their eyes and cringe. However, just because most investment strategies have stood the test of time and the proponents of “this time it’s different” are usually proven to be wrong, does not mean that every move in the markets is exactly the same.
Much has been written regarding the extent of the recovery from the 2008-9 market lows, suggesting that the rebound is getting a little long in the tooth. Perhaps, and without suggesting that “this time it’s different”, the economic recovery has been less robust than most previous rebounds, characterized by slow job growth, moderate inflation and low interest rates. Moreover, much of the job growth has been at the low end of the compensation spectrum.
Going forward, the current modest recovery may just fizzle out. A possible alternative outcome could be based on the realization of the country’s new found significant increase in energy resources. The potential benefits of this material change in domestic energy may not be fully appreciated due to the long lead times involved.
A recent article in the Wall Street Journal discussed the significant increase in new petrochemical plants being built in the U.S. instead of overseas. New plants take time. First there has to be degree of confidence that low cost natural gas will continue to be available. Then actual construction takes more time. Further complicating the development of new facilities is the lack of an adequate transportation infrastructure, essential to the economic movement of oil and gas from the production location to the customer. We have a lot of natural gas, but not where we need it. Developing an effective transportation infrastructure will take time.
A longer, but slower economic recovery may provide some interesting opportunities for long-term investors.
All comments and suggestions are welcome.
Walter J. Kirchberger, CFA