When asked the question “which industry will drive U.S. growth over the next decade?”, roughly 40% of e21 readers responded by saying “Energy,” 26% said “Healthcare,” 25% “Information Technology” and a combined 10% said either “Finance” or “Manufacturing.” While e21 agrees with its readers that “energy production will be the main driver of economic growth in the coming years, “ and that the “United States is in the midst of an energy renaissance,” I would argue that such divisive analysis of US economic growth fails to acknowledge the strong interconnectedness of such industries functioning as a whole economy. Speaking of US manufacturing: the IMF has released a new report suggesting that even though “U.S. manufacturing as a share of world manufacturing was falling from 2000 to 2007, in the last five years the U.S. share of world manufacturing (and China’s share of world manufacturing) seems to have stabilized at about 20%.” Furthermore, value-added manufacturing has seen a rapid rebound compared to other post-recession periods. They offer three explanations for these trends: 1) “a lower real exchange rate of the U.S. dollar, which boosts exports,” 2) restraint in the growth of labor costs for U.S. manufacturing firms” and 3) “cheaper energy costs and expanding oil and gas drilling activity which matters considerably for many manufacturing operations.” That last point illustrates the problem with sector analysis as mutually exclusive parts: manufacturing hinges on energy, labor costs, and trade (finance); meanwhile it supports “service-sector jobs in finance, design, marketing, sales and other areas.” Finally, Barry Ritholtz offers some perspective on how to profit from global warming.
Net Neutrality: European Telecoms Prepare Legal Fights, Netflix Buys Their Neutrality
“A group of Europe’s biggest telecoms, including Deutsche Telekom AG and France’s Orange SA, is fighting provisions in a proposed European law aimed at enforcing net neutrality, a principle that Internet providers shouldn’t discriminate against traffic from particular sources…In the U.S., telecoms are likely to push the Federal Communications Commission to allow them to charge some websites to deliver content at higher quality.” Microsoft’s policy director for Europe, Middle East and Africa says clear rules are needed “to ensure that these bad practices stop and the Internet does not become a dirt road.” Meanwhile, “faced with complaints about quality and speed, Netflix [has] agreed to pay Comcast millions of dollars annually to deliver its content more efficiently.” With the looming Comcast/Time Warner merger, some are speculating that Netflix could have waited out for a better deal, or perhaps “Comcast was willing to settle with Netflix for a relatively low price to make the Netflix problem go away ahead of the regulatory review”? Meanwhile, “Verizon Communications CEO Lowell McAdam told CNBC on Monday that he expects to reach an agreement with Netflix on bandwidth loads from the online streaming video service.” Also, did House of Cards just bring down the card house of net neutrality?
Excessive Risk Taking And Lack Of Diversification: Investors’ Achilles Heel
Bob Seawright has a great piece on portfolio diversification and market forecasting: “The key to ‘beating the market’ in 2013 was thus simple if incredibly dangerous: no bonds, no shorts, no hedges, no diversification and no tactics. But because of my commitment to diversification, I would never advocate that sort of approach. Thus it’s a given that any portfolio I constructed would underperform U.S. stocks in 2013.” Furthermore, a look at the forecasts for 2013 by major Wall Street firms compared to its real performance suggests something you probably already knew: forecasting should be taken with a grain of salt. But are economic forecasts really the achilles heel of economics? Perhaps the best forecasts don’t really focus on forecasting numbers as much as they do explain: “sometimes understanding why a forecast went wrong is the most useful thing a forecaster can do.” Finally, these might be the two most important questions for investors: Do I have specific plans in place to handle extreme investment cases (Case A: “stocks rise an additional 91% over the next three years as they did during the final leg of the dot-com bubble,” Case B: “stocks drop over 50% as they did in the 2000-2002 and 2007-2009 bear markets.”)?
Aging population got you down? Try casinos: “while betting on horse, boat and bicycle races is allowed in the world’s third-largest economy, casinos are currently banned…Tokyo’s selection to host the 2020 Olympic Games has boosted confidence that a law legalizing casinos will be passed. Union Gaming Group estimates Japan’s casino market will generate $10 billion in annual revenue, making it Asia’s second biggest, trailing the southern Chinese city of Macau.”