Cautiously Optimistic


Since the beginning of 2015 I’ve been tracking and compiling a list of economic, financial market and governmental statistics/trends. With these statistics in mind, I remain cautiously optimistic that our economy will avoid falling back into recession and the U.S. stock market strength will continue (albeit slowly).



We could be entering into an economic renaissance that could last twenty years!


Here’s why.

  • The U.S. Dollar hit an 11 year high and is up 30% since 2011. Every prosperous period in American history has been accompanied by a rising dollar. A rising dollar drives down commodity prices including oil. A high dollar leads to cheaper input costs for business making businesses more profitable and more competitive and leads to lower prices for consumers helping keep inflation down. The rising dollar helped created 50 million new jobs in the 1980’s and 1990’s. A strong dollar attracts investment capital from all over the world. Import prices are down almost 10% and producer prices for business are down 3.5%. Everything we import is cheaper. From 1982 – 2000 the U.S. Dollar was up 178% and the S&P 500 was up 1,100%!
  • Cheap Oil. Oil is down 55%! Virtually everything in American is impacted by the cost of oil. This is very bullish for us and very negative for our enemies such as Russia, Venezuela, Iran, Saudi Arabia etc.
  • Cheap Natural Gas.  Natural gas is $3. It was $13 six years ago! The story is cheap energy drives economic growth.
  • Consumer confidence is way up. Best in a decade. Depressed people do not build nations.
  • GDP is up and growing albeit at a sluggish 2.6% in the 4th quarter of 2014 and was 2.5% for all of 2014.
  • Job creation is up. Non-farm payroll jobs are up 3.3 million in the past 12 months which is a lot better than the 2.2 million in the 12 months prior.
  • Incomes are up.  Hours worked are up 3.3% added to wage increases of 2% means take home pay is up 5% with virtually no inflation. This could lead to a consumer spending boom.
  • In March, Wisconsin became the third state in three years to adopt “Right to Work”.Momentum is on the side of worker freedom.
  • In 2014 the S&P 500 was up 11% plus dividends of 2.5% equals 13.5%. 2013 was up 32%
  • Thank God Quantitative Easing didn’t work. The money never made it into the economy and thus the money supply never surged and inflation never appeared. The Fed screwed up and they and we are happy they did!
  • The Federal Government is shrinking as a percentage of GDP, from nearly 25% to less than 21%. This is similar to a tax cut. It’s because the economy is growing faster than government and not because government has shrunk any.
  • The Institute for Supply Management (ISM) – a measure of manufacturing strength is strong, up 7 1/2% in the past three months. Up 5% over past 12 months.
  • Commodity prices are down 15% since last spring. Thus, the raw cost of materials for production is down.
  • Food commodities are down 21%, metals down 14%, raw industrial’s down 11%.
  • Retail sales up 5.3% over past 12 months.
  • Inflation is 1% over last 12 months and is expected to stay down.
  • Bank lending is up 8% in the last 12 months, stocks and corporate earnings are at record highs*.
  • S&P 500 is about 16 time earnings. Not low but not high either.
  • We have a Positive Yield Curveand looks like it will stay this way for years. Every recession since WWII has been accompanied by an inverted yield curve.
  • Business investment is up.
  • Deep water oil wells coming on line this year and next lead many to believe oil prices will remain low while $17 – $35 a barrel oil is still feasible for the frackers to make money. Fracking efficiency is up 300% in the past few years.
  • A billion more cars coming on line within 20 years.
  • Corporate profits are at record highs. Up 6 ½% in the 4th Quarter of 2014.
  • In the last 12 months as of April 2nd of this year the S&P 500 is up 15%, the Dow Jones Euro is up 12%, the Japanese Nikki is up 23%, the Shanghai Chinese stock market is up 53% and the India stock market is up 50%.
  • Wal-Mart hiked wages. This is a very good sign of economic strength of the economy and of competition for labor.
  • 74% of companies beat earnings estimates in the 4th Quarter which beat the 10 year average.
  • We’ve added more jobs in the three months of November, December and January than we have in a 3 month span since 1998. We could be heading towards a spending boom!
  • Corporate balance sheets are very strong.



Some negatives are still with us.

  • *Corporate earnings peaked October 2, 2014 and are now down 5-6% below that level but have recently turned up again. When earnings rollover, it forecasts a recession. Every recession since WWII has started with corporate earnings dropping. However, this time the major cause is the collapse of oil prices and it’s IMMEDIATE effect on energy producers who represent 10% of the economy and some downstream industries such as Rolls Royce dealers in Midland, TX whose sales suffer immediately. Corporate earnings realized an immediate shock while the positive benefits to the other 90% of the economy will take longer to accrue.  We need to keep an eye on corporate earnings going forward but for now I’m discounting their drop.
  • Continued interest rate manipulation by central banks around the world. Leads to more volatility and distorts the price system.
  • Capital formation for small businesses is dead which is totally crazy given our low interest rate environment. Over regulation including Dodd-Frank is a major reason but Dodd-Frank will most likely receive a make-over or do-over from the Republican majority. Unfortunately this may have to wait until Obama is gone.
  • The birth/death rate for small businesses is negative for the first time since the 1970’s. Obviously it’s very hard to grow jobs when the number of businesses is shrinking. This should change as the economy continues to improve.
  • Labor force participation rate is the lowest since 1978 (this is the worst year since keeping records).  30 million people are still not working or are underemployed. The U6 unemployment rate is 11.6%. That doesn’t count the unknown number of people not “officially” looking for work.
  • Since 2000 the economy has barely grown 2% per year. Over the last 100 years the economy has averaged 3.4%. This is the slowest recovery since WWII. Ronald Reagan’s policies by contrast resulted in a growth rate as high as 7.9%!
  • The S&P 500 has finally exceeded it’s August 2000 inflation adjusted high! Nominally the S&P 500 is up 37% above it’s 2000 high.
  • Over the past 65 years the S&P 500 has risen at an annual rate of 7.7%. Adjusted for inflation it is 3.9%.
  • Money Supply is contracting, probably due to Dodd-Frank. (not good, could lead to a recession if it continues)


For sure we have a mixed bag but we always have. The key is that the mix is tilted towards growth and away from recession. In this environment I expect the stock market to continue it’s climb albeit more slowly going forward than we have experience the last few years.




Baron Benham


Tip: Have a 401k that you need to rollover? Give me a call! 

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