US poised to become world's only superpower

 

Published: Wednesday, 12 Mar 2014 | 1:26 PM ET

By: Ron Insana

The U.S. is poised to become the sole economic superpower in the world.
I call it "Fortress America."

I've been traveling around the U.S. for the past 18 months and have noticed enormous changes. They're not driven by the Federal Reserve's easy money policies, although many of the positive changes taking place in energy, manufacturing, technology and retail sales could not have happened if the Fed, namely Ben Bernanke, had not saved the economy from another Great Depression.

Getty Images

A gas flare is seen at an oil well site on July 26, 2013 outside Williston, North Dakota.

I was happy to find, on Sunday, as I moderated a panel of top performing hedge-fund managers that, they too, see good things for the U.S. in the years ahead.

I base my outlook on four legs of an economic stool:

* The energy revolution
* A manufacturing renaissance here at home
* Rapid technological innovation
* A major recovery in residential real estate

Many of these factors are beginning to get the appropriate recognition for their contribution to a more durable, sturdy and long-lasting economic expansion, which, I believe, will also be supported by a secular bull market in U.S. stocks.

I believe the current period to be analogous to 1949 to 1968, when the U.S. was winding down government spending in the post-World War II environment … one in which the government got smaller, but the private sector, ripe, and rife, with new innovations, pent-up consumer demand and manufacturing excellence drove the economy into a pre-eminent position in the world economy.
In both relative, and absolute terms, the U.S. economy is gaining supremacy in its competitive, and comparative, economic advantages.

The energy revolution is making the U.S. economy energy self-sufficient and bringing down the cost of manufacturing so much that U.S. companies are bringing jobs back home and enticing foreign firms, particularly, auto, chemical and petrochemical companies to come here to benefit from cheaper energy costs and a more competitive, flexible and educated American work force.
The U.S. is now the largest producer of natural gas in the world, thanks to fracking and horizontal drilling technologies.

In 2020, the U.S. is projected to overtake Saudi Arabia and Russia as the world's largest producer of crude oil and will likely be a net exporter of both crude and refined energy products, turning our current trade and balance of payments deficits into surpluses. (The situation in Ukraine will likely hasten approval of new licenses to export liquified natural gas (LNG) and even crude oil itself.)
Over 600,000 jobs have been created in the sector, with many more to come.
For the first time in over six decades, the U.S. is a net exporter of refined energy products already.

That energy revolution, the nation's second in about 150 years, is leading to radical changes in the manufacturing platform that globalization gutted in the last 40 years.
With 3.8 million open jobs in the U.S., many in advanced manufacturing, the U.S. middle class may be re-built, as high-paying, high value-added jobs are there for the taking, especially for those worker who have the requisite software and robotics training necessary on today's factory floor.

3-D printing is revolutionizing manufacturing and health care, changes that will lead to be a better economic quality of life and longer and better lives for the average American who, some experts say, will also benefit from lower healthcare costs, thanks to the benefit of technological advances.
The recovery in real estate, though it slowed recently, will re-accelerate as millennials form households and start their own families. True, we may never see a real-estate boom like the one we witnessed in the last decade. But, like the baby-boom period, we may also see a steady and prolonged bull market in real estate as the 100-million strong cohort takes its place as a drive of economic growth in the decades ahead.

I was quite heartened to hear that four top hedge fund managers, that I spoke with over the weekend (event and manager names withheld since it was a private event), largely agreed that the U.S. remains the best place in the world in which to invest, even if you would like overseas exposure.
U.S. multinationals are best poised to profit from overseas growth. Brazil, Russia, India and China will continue to disappoint investors, they say, while emerging markets, from Turkey to Thailand and from Australia to Argentina, have too many troubles to be good investments, for now.

True, U.S. stocks could suffer a meaningful 10 to 20 percent correction this year, amid geopolitical turmoil, shifting monetary policy in the U.S., UK and elsewhere, and simply take a break after a 170-percent advance after a five year bull-run, the pullback, they say will offer a significant buying opportunity to benefit from the next leg in a secular bull market.

Glad to know I am not alone in my thinking. For those asking, "what do I do now," if I missed the big rally so far? Get your pencils out, pick the stocks you like and buy 'em when their down, but in this scenario, they are certainly not out!

— By Ron Insana
Ron Insana is a CNBC and MSNBC contributor and the author of four books on Wall Street. He also delivers a daily podcast, "Insana Insights," and a long-form weekly version, both available on iTunes and at roninsana.com. Follow him on Twitter @rinsana.

The millennials' rut: Why it costs all of us

Published: Saturday, 22 Feb 2014 | 9:00 AM ET

By: Nia Hamm, special to CNBC.com

Steve Debenport | E+ | Getty Images

 

They're called the "invincibles" and the "lost generation." Today's young American adults have had to endure one of the worst recessions in 70 years and then watch as their futures seemingly evaporate before them.


Many are educated, stuck in dead-end jobs or unemployed, living with their parents and seeking government assistance.

"If these persons are not quickly reconnected with the economy and the workforce, we are truly looking at a lost generation in terms of upward mobility and productivity," said Joe Minarik, director of research for the Committee for Economic Development, a nonprofit, public policy research group.

A recent report by the Federal Reserve Bank of New York sheds some light on just how severe the jobs crisis is for young adults.


Using Census data, the researchers found that the percentage of unemployed young adults—currently about twice the national average—and those who are underemployed or working in jobs that don't require the degrees they hold, has risen steadily since the 2001 recession.
Research indicates that through 2012, about 44 percent of young, working college graduates were underemployed and the quality of jobs held by those underemployed has declined, with today's recent graduates increasingly accepting low wage jobs or part-time work, sometimes pushing other low-skilled workers out of the labor market.


What it costs
 
The youth jobs crisis is costing the U.S. economy and may continue to do so for years, further hindering this generation's ability to contribute to economic growth.

One report from a youth advocacy group called the Young Invincibles, measuring only lowered tax revenue and safety net costs, found that high unemployment among millennials, ages 18-34, costs the U.S. more than $25 billion annually. And jobless rates for millennials have been in double digits for nearly six years with the youngest among them, ages 16-24, experiencing the highest rate at 15 percent.

Other studies put the cost of youth unemployment at several hundred million dollars a year. Experts say this trend could undo many gains of the economic recovery.

"At a time of tight budgets when we're already trying to recover from the recession and invest in things like education, … having so many people out of work, we're really shooting ourselves in the foot here," said Rory O'Sullivan, Young Invincibles' policy director and chief author of the report.

To be fair, higher unemployment and underemployment for young workers isn't unusual as they generally have a tougher time in the labor market because they're the least connected to the workforce. But some economists believe this is more than a cyclical labor trend.

Recent figures suggest there has been a reversal in demand for cognitive skills. A report published by the National Bureau of Economic Research found that since 2000, businesses have needed fewer people to perform high-tech jobs that initially drove the information economy.

Hiring of college graduates sank after the information technology revolution of the 1990s reached maturity, according to the report. Demand for cognitive skills subsequently fell during the first decade of the 2000s, forcing college graduates farther down the occupational ladder.

"The demand for this group is slowly going down, but we're also educating still more people, and so that makes the situation very difficult when you don't have a lot of demand," said Paul Beaudry, co-author of the report.

Ph.D.s and food stamps
 
Nobody knows that situation better than 30-year-old Rachel Bolden-Kramer, who graduated from Harvard in 2006 with a major in social studies. After graduating, she started a nonprofit but lost funding within a year. She attempted to enter the labor market, but like many of her peers she did not have much luck.

Bolden-Kramer eventually became a yoga and a so-called mindfulness instructor, moved to New York City and has been self-employed ever since.

"That's kind of what kept me out of searching for jobs and continuing with the entrepreneur track. I didn't feel very encouraged by what other people, my peers, were finding with jobs. It didn't seem like they were getting much more of an advantage financially even if they found a job."

To make ends meet, Bolden-Kramer used food stamps. This experience inspired her to write what she calls a "food stamp cook book" that explains how to have a nutritious diet on a limited income. She is trying to get it published.


"I have friends who are Ph.D. candidates that are food stamps eligible," she said, "or in medical school, or whatever it is, or just like brilliant 28-year-olds who are living in New York (where) rent is so high."


Don't blame it all on the recession


Contrary to popular belief, the data show that the jobs crisis cannot simply be ascribed to the Great Recession.

(Read more: A record 21.6 million millennials live with Mom and Dad)

This presents a bleak outlook for this group of young workers who, according to economists, are already more likely to see permanent negative effects on their wages because they began their careers in a weak labor market.


"Once the larger economy is fully recovered from the after-effects of the Great Recession, this cohort will still be feeling the effects because the effects of entering the labor market during a downturn are severe and last a long time," said Heidi Shierholz, an economist for the Economic Policy Institute.
And it may be too late to reverse some of the policy and fiscal impacts of the jobs crisis for America's youth.


Recession-impacted millennials tend to believe that success in life was more a matter of luck than hard work, according to a study from UCLA Anderson School of Management economist Paola Giuliano and International Monetary Fund advisor Antonio Spilimbergo.
"This can make them less entrepreneurial," Giuliano said. "Perhaps as a result of believing that luck is important, they also want more government intervention in the economy."

(Read more: Millennials' ball and chain: Student loan debt)

College still does matter
 
This doesn't mean college students should just drop out of school and graduates should burn their degrees.

New York Fed researchers also found that while the labor market is much worse for young people who do not have a college degree, college graduates as a whole fare the best, experiencing unemployment rates at about half the rate of all workers, though unemployment was consistently higher for recent graduates, ages 22-27.

Certain majors, especially those in fields providing technical training such as engineering or math and computers or those geared toward growing parts of the economy such as education and health, have also done relatively well.


That, however, does not account for the huge remainder of young adults in other fields with bleak prospects and mounds of debt, which economists believe could be a huge drag on the economy for years to come.

—By Nia Hamm, special to CNBC.com.