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Home > Investments > Multi-Manager Funds

By Tana Focke | Published Apr 30, 2012

Take a step back and look at the long term

The market continues its short-term gyrations dependant on what the latest news from the crisis-hit eurozone bond markets hold.

It is at times like these it often pays to take a step back and look out to the long term and think about what the future holds and what could drive the US’s continued prosperity.

Most pertinent to today’s economy is the abundance of natural gas that has been discovered right across the US. As well as the discoveries, the technology developed there means the cost to extract it is very low, which in turn has caused prices to fall.

As recently as 2008 natural gas traded at $10 a MBTU (million British thermal units), it is down below $2 today. Is that the right price for the long term? Probably not, but even if it doubled to $4 it would mean that Americans have an incredibly cheap source of fuel with decades and decades worth of supply.

This has many wide reaching ramifications and the one to focus on is the implications for manufacturing. The low gas price has helped to fuel a manufacturing renaissance in the US, with businesses from baseball manufacturers to appliance makers bringing production back to the US from overseas locations such as China and Mexico. This is a trend we expect to continue and will continue to boost the economy. Manufacturing has added jobs in the past two consecutive years – very impressive when you consider that before 2010 the sector had not created new jobs since 1997. The multiplier effect on the economy from this is very significant indeed.

The other driver of this renaissance is technology, and the US is the global leader in this sector. Between 1997 and 2010 patents issued to US companies exceeded those issued in all other countries combined. Silicon Valley is the hub of US tech development whether it is from the social network leader Facebook or IBM’s global software development, which controls everything from wind turbines to telephone exchanges.

Demographics

The US’s demographics are also extremely favourable when compared to the rest of the world. In Asia and Europe over a third of the population is expected to be over the age 65 by 2050, whereas in the US that will be just a fifth and could be even lower if the US government relaxes its immigration policy. No country in the world has such a pent up demand for immigration. This younger population will spend more, generate more in taxes and create more economic growth than those countries with an ageing population.

Lastly, and perhaps most importantly, is the American spirit. The entrepreneurial nature of its population cannot be overlooked and is the lifeblood of American business, especially when you consider that 70 per cent of new jobs created in the economy come from small business formations. It may be harder for these individuals to find funding, but their desire has certainly not faded.

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