Insana, of the radio show “Market Score Board Report with Ron Insana,” began the PLANADVISER National Conference on Monday afternoon with his keynote speech: “Politics, Policy and the Economy.”
A recent USA Today headline asked, “2008 Financial Crisis: Could it Happen Again?” Insana noted it is possible but not probable, and the United States economy is better than many think it currently is.
“We have done remarkably well in the aftermath of this crisis,” Insana said, citing Gross Domestic Product (GDP) and car sales, both of which have passed their 2007 peak. The stock market has also done incredibly well post-crisis—a development not seen within five years of the 1929 crash. “The stock market has been the most obvious beneficiary of [federal] policy in the sense that, if you looked at the 1929 experience, we went from a high in September of 1929 on the DOW of 381, to a low of 41 in July of 1932. … We were down 90%, whereas we went down this time 50% but have since gone up 150% to new all-time highs pretty much across the board.”
While the U.S. has seen these increases, most other markets, such as Japan and the BRIC countries (Brazil, Russia, India and China), are still struggling. Japan peaked in 1989, yet has been in economic recession almost 50% of the time over the past 20 years. Insana also stated that Russia “is a kelptocracy, it’s not even worth talking about when it comes to global economics.” China is weaker than expected; India faces economic and political troubles as the Rupee crashes against the dollar; and Brazil has not turned out to be the investment people thought it would be. “When you square the U.S. markets against the BRIC markets, there’s close to 200 percentage points of out-performance by the U.S., relative to a lot of these other markets,” Insana said.
“But here at home, we’ve benefited from the extremely enlightened policy of the fed,” Insana said. “I would argue that Ben Bernanke, at this point in our lifetime, is the only functioning adult in Washington.” Insana noted that his focus from 2009 through 2012 had primarily been on the aggressive action taken in the wake of the crisis, and at that point he felt that the United States could become—and now feels it has become—the best place to invest.
He explained that his idea of “fortress America,”—wherein we see a strong economy as opposed to the popular image of an economic apocalypse—is a possibility due to good fed policy and rising domestic consumption. At 70% domestic consumption, some feel we could have an unbalanced economy, “yet if you look at the stock market’s reflection of that particular reality, consumer discretionary stocks since the bottom of 2009 have been the best performing industry group within the stock market,” said Insana. He added much of that was due to “the enlightened policy of the Fed,” without which he feels we could have seen a major systemic collapse of the economy.
Other aspects that will help promote Insana’s concept of “fortress America” are what Insana called “happy accidents,” such as fracking, a return to U.S.-based manufacturing and an upswing in real estate. Fracking has created jobs and could potentially create energy independence within the next three to five years. A shift from coal to natural gas production has resulted in 600,000 jobs in the energy patch over the last four years, and in 2020 we will be the largest manufacturer of crude oil in the world, surpassing Russia and Saudi Arabia. We are currently the largest producer of natural gas in the world, having surpassed Russia. “Our merchandise trade deficit is less than 3% of GDP. About 5 or 6 years ago it was 7%, and everybody said it was going to keep going toward 10%. It reversed completely, and once we start exporting crude oil and natural gas ... those balances could go from deficit to surplus, which has an enormous impact on how we finance our existing budget deficit,” said Insana.
The use of U.S.-produced natural gas has made energy more affordable, bringing manufacturing back state-side to the point where textile manufacturing—one of the first areas to be sent overseas—has begun to come back to the U.S. In addition to this, the real estate market has revived. Though a rise in interest rates has altered affordability slightly, many regions are seeing a boost in the market, such as Florida and California. The only thing Insana feels is standing in the way of a possible “fortress America” is significant policy errors made by the Federal Reserve or the federal government.
“When you hear people preaching this negativity and this apocalyptic view, I think it’s strong-headed.” One of the main issues is the concern some feel with jumping back into markets that saw two major crises within one decade. Insana said, “The U.S. economy is in fabulous shape,” and without major policy mistakes, “we are going to look far better 3 to 5 years from now than anyone thinks or even can imagine at this point in time.”