BULLS & BEARS: Despite myriad challenges, there's cause for optimism

February 19, 2007

A week or so ago, I spent a few lovely days at a conference in sunny San Diego while the mercury dropped below zero in the Midwest. For once, my timing was excellent.

Weather aside, the days were filled with several thought-provoking speakers. Below is a smattering of takeaways that were interesting enough to share. Paul McCulley, an economist muckitymuck who sits at the right hand of bond investment guru Bill Gross at Pimco, made the observation that the world is in a state of "stable disequilibrium."

In his opinion, the most overused word by economic pundits for the last several years has been "unsustainable." Americans have an unsustainably low savings rate, unsustainably high consumer spending, and especially an unsustainable trade deficit with China.

This year, we gluttonous consumers will get $800 billion of stuff from foreigners and give them back paper. For some 35 years now, the foreigners have been quite happy with this unequal trade relationship. But doomsayers constantly preach it soon will have a cataclysmic ending for us.

McCulley's point was, this inequality has existed since the 1970s, and the U.S. economy has flourished nicely since then. Besides that, it could remain stable for a LOT longer.

If we didn't run a trade deficit, he believes, the global economy would be in depression. Why? Because we need stuff and Asia needs a customer. He warned not to bet against the U.S. economy, since only doom-and-gloom authors have prospered doing that.

By far the most entertaining speaker at the meeting was the free-market capitalist conservative Ben Stein.

His concern about the United States is our dependence on foreign oil. We send $1 billion every day overseas to buy oil, which clearly is a potential problem. It has been a national concern ever since Richard Nixon was president, and every president has had a "plan" for energy independence.

Stein was Nixon's speech writer and wrote his 1974 "Project Independence" speech when he declared, "At the end of this decade, in the year 1980, the United States will not be dependent on any other country for energy."

President Bush touted his own plan in the State of the Union address last month. Stein is skeptical.

Even though Stein is a pro-business guy, he did come down on corporate leaders for their pay packages, stock option shenanigans and greed-fueled misconduct. He cited an amazing statistic that the top 130,000 wage earners in this country collectively earn more than the bottom 130 million earners.

That disparity might not be at the unprecedented robber-baron levels, but it has taken the Gordon Gecko, "Greed is good," speech in the movie "Wall Street" to new highs.

Ben is optimistic, however, and ended his talk with another Nixon quote: "America's best days are ahead." I agree.

Gilreath is co-owner of Indianapolis-based Sheaff Brock Investment Advisors, money management firm. Views expressed are his own. He can be reached at 705-5700 or daveg@sheaffbrock.com.
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