Sunday, November 7, 2010

May you live long and prosper!

As Don Campbell pointed out a while ago, some people need all five traffic lights on green before they invest. The problem with that is that following all five traffic lights on green, the only possibility that remains is that they will turn orange and red again. Right now, in my opinion, of the five lights the third is about to turn green. The stock market is a leading indicator, but that doesn't mean that it is wrong when you can't see why it signals a better economy ahead in six months; it simply is.

Regarding perennial bears such as David Rosenberg, Garth Turner and Harry Dent, their premise on demographics is often too one sided. As Thomas Beyer pointed out the amount of overall savings is likely on the increase (e.g. babyboomers with the kids out of the house). But savings also are higher than many predict(ed) because babyboomers keep on working rather than retiring. That his how they will finance the summer cottage and other recreational endeavours in the future. Thus, predictions of less investment funds and less spending by babyboomers are likely wrong.

Also, North Americans, in particular, people in the U.S. may become less wealthy, or better, less inclined to spend, but many in the emerging markets are becoming increasingly prosperous and aspire a similar lifestyle as ours. So now people in emerging economies will lead in consumption as well as in demands for insurance and a social net to protect them from adversary.

Demographers such as Harry Dent, and their apostles fail to see that the old spending habits from previous generations have changed; they failed to see beyond the North American economic patterns. They think that economies can only do well during population growth. Well, world population is anticipated to stabilize by 2050 and if we haven't figured out how to live prosperous by that time without an ever growing consumer base then it will be tough slogging for mankind.

Luckily, there is innovation, improved productivity, the benefits of people pursuing a sustainable economy! There will be an energy revolution where the world will no longer be dependent on fossil fuels; there will be a food revolution where people will be learning new ways to create food beyond plain inefficient agriculture. There will be a new education model that will wipe out the current obsolete school system. In our daily life things may seem to move at a snail's pace. The aforementioned visions may seem like a far off dream; but in twenty years, we all life in a completely revolutionized world, because when compared with historical rates of change, we're living in a whirlwind.

That is why the Harry Dents, the Garth Turners and even the Jeff Rubins are wrong. You cannot extrapolate from one or very few premises. When you do that, you end up in the black and pessimistic outlooks that many end-of-worlders would like us to believe. I have no clue how the future will look like, but I believe, like Warren Buffett, in this never ending societal drive for a new and ever improving future. Nobody knows the future, but we can get glimpses where we are going and from my stand point, the economic cycle is in tact; the world in a pendulous pattern will keep on getting better. Investors who are bold - not reckless - are the ones who will win they day!

You may have read my posts that always seem to be about analyzing numbers. That is to recognize near term trends. That is to manage cash flow; but I invest for the long term using my vision(s) or scenarios of the world. There I focus not just on cash flow but even more on ROI. May you live long and prosper!

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