The Next Economic Boom
Is America About to Head into a Historic Economic Boom?
The financial headlines have all been bad lately...
Gold is at a three-year low and down 36% from its highs. Silver is down a staggering 62% from its highs.
China's growth has stalled. And the Chinese government just told its citizens they're on their own if the banking systems gets hit with a liquidity crisis.
There's an exodus out of U.S. bonds, the most since October 2008. Bond yields have spiked, an ominous sign that raising interest rates are on the horizon.
Bernanke told U.S. investors QE will be coming to an end. The Dow just experienced a 7% sell-off.
In light of the NSA scandal, Russia, China, and even tiny Ecuador have flipped Uncle Sam the bird.
There seem to be riots everywhere.
And where's Obama? Talking about climate change as his centerpiece legislation for his second term...
I'm here to tell you to forget about all that crap.
Because the United States of America is on the upswing. A big one.
I just spent the last three days by the pool reading Comeback: America's New Economic Boom, by Charles Morris.
Much of what Morris says in his book is exactly what we've been writing about here at Wealth Daily — that the U.S. stands at the threshold of an energy renaissance that will propel it far ahead of its economic competitors.
With natural gas so cheap, the United States is the lowest energy cost provider in the world.
And that means manufacturers will relocate to the States to take advantage of cheap energy. Manufacturers currently here will double-down on their capital investments to lock-in cheap natural gas prices.
According to Morris:
It's the best-kept secret in the economics media: The United States is on the brink of a period of solid, long-term growth rivaling that of the 1950s and 1960s. It is not a finance-driven, self-destructive boom, like the 2000s' housing bubble. No, the new economy will be durably grounded in energy and heavy manufacturing, even though it will take several years to come to full fruition.
Evidence? Dow Chemical has commenced a $4 billion development in new plastics manufacturing in Texas, for example, that will start coming on stream in 2015 and be fully operational only in 2017, but it will be productive for a very long time. This will be a growth cycle with staying power.
Why haven't you heard about the boom? Official economic forecasters, like the International Monetary Fund and the Congressional Budget Office, simply have not factored America's emerging new economy into their forecasts. Instead, they still see us limping along at an average of 2 to 2.5 percent real (after inflation) growth to the farthest horizon — a hobbled, aging power, borne down by debts and deficits, shorn of its old bounce-back vigor, tottering along just fast enough to stave off out-and-out stagnation.
There is no question that the financial crash has left deep economic scars. But the fundamentals will turn in America's favor and when they do, annual GDP growth should kick back up to at least the 3.3 percent average real growth rate that has prevailed since 1950. That's far from a startling forecast for a recovery, but even at that level, the budget problems that have so paralyzed official Washington will shrink rapidly in the rear-view mirror as tax receipts grow, making debts and deficits shrink. The seemingly crushing post WWII debt — 120 percent of GDP — quickly dropped from the radar screens with growth in the 3-4 percent range in the 1950s.
The most salient is the sudden emergence of the United States as a major energy producer. A recent U.S. Geologic Service study concluded that the Bakken Shale in North Dakota and Montana, already crowned as the U.S.'s largest-ever gas and oil reservoir, has far greater recoverable reserves than previously thought. At about the same time, a team from the University of Texas completed a well-by-well analysis of the Texas Barnett Shale — the most intensively developed shale field in the world — and confirmed that the fields can support decades of further development. The current official estimate — that by 2020 or so the U.S. will surpass Saudi Arabia in oil output, and Russia in gas — remains on track, and the country will be a major global energy producer far beyond that, which will do wonders for the U.S. trade deficit.
Each shale well requires up to 100 tons of high-quality steel pipe; fleets of specially adapted trucks and trailers; a small hangar of earthmoving, drilling and other equipment; specialty chemicals, sands and ceramics; and some very high-end seismic and other underground imaging gear. Many of these products are now U.S. specialties. According to the annual Oil & Gas Journal survey, American oil and gas industry investments will total $348 billion in 2013, equivalent to about 2 percent of GDP, with much of the investment flowing in from overseas.
But it goes far beyond chemicals. Nucor is the world's most profitable steel company, and arguably the smartest. It has locked up long-term supplies of natural gas so it can shift to a highly efficient, but extremely energy-intensive, way of making iron that would not have been possible at the prices charged for conventional energy. Within a few years, all of its American plants will run on natural gas. U.S. Steel is experimenting with similar technologies.
I couldn't agree more with Morris.
And the thing is America has only just scratched the surface of its shale potential!
Every year, American drillers find more and more formations...
Some are stacked on top of one another, like the Cline in the Permian Basin in Texas.
Some have been known about for decades, but the technology and economics didn't exist to make it profitable, like the Monterey Shale in California.
This is the perfect storm for the U.S. economy.
American innovation and entrepreneurship have unleashed a tsunami of oil and natural gas — and will continue to do so for decades to come.
This will have a virtuous ripple effect throughout the U.S. economy as every business takes advantage of lower energy costs.
So remember the old maxim: Whoever controls the oil (and now, natural gas), controls the world.
And to borrow the words of Mark Twain, "The rumor of America's death has been greatly exaggerated."
Brian is a founding member and President of Angel Publishing and investment director for the income and dividend newsletter The Wealth Advisory. He writes about general investment strategies for Wealth Daily and Energy & Capital. Known as the "original bull on America," Brian is also the author of the 2008 book, Profit from the Peak: The End of Oil and the Greatest Investment Event of the Century. In addition to writing about the economy, investments and politics, Brian is also a frequent guest on CNBC, Bloomberg, Fox and countless radio shows. For more on Brian, take a look at his editor's page.
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