A recent article on the US entitled ‘Signs of an empire in decline’ prompted these thoughts:
‘Indeed Americans have collectively and wisely moved away from production of goods at wafer thin low returns. This is what happens when wealth has been accumulated. You outsource low margin activity, freeing up time and resources for higher margin activity.You ignore the position of the US in the new economy of the 21st century.
Why are all the leading companies that are at the cutting edge of how we live and work all around the globe largely US (or Canadian…)? Google, Cisco, Microsoft, RIM, GE, Apple, Amgen, not to mention Wal-Mart, the model for all these supply chains and supermarkets frantically re-inventing themselves.
The thread in all this IT, plain and simple. Now, who runs IT, the real IP end of IT, not the cloning and manufacturing end? It’s not even a contest. These are just the household names, known to us. There are thousands upon thousands of future innovators and societal-changing companies crawling all over the States. They will – one day - arrive, grow, get funded efficiently, thrive, become massive, will be run by extreme entrepreneurs, in the mould of Gates, Schmidt, Groves, Jobs, Schultz. Nothing on remote a scale will probably ever occur in the UK. Our heroes are Sugar, King, Green. A very different world indeed. And now run by a Presbyterian who has never managed a commercial penny in his life of course.
The ‘can-do’ Americans are very alive and very well, exist in their tens of millions, and their great centres of enterprise and learning act as honey pots for the world’s intellectual capital. The Chinese and Indians are moving at 1000 mph to emulate the US economic model. Contrary to the common perception, especially in the UK, the US is not standing still. They will share the top table in 20-30 years with the new economies. Nothing wrong with sharing a piece of a massively bigger pie.
America is the world’s country. It came out of the great population drifts of the prior centuries. It belongs to all humanity and its relentless upward progress and material advancement. Sure, there are lawyers, and obesity, and guns. And stuff we smart euros don’t think is very cool. But the stuff above is very very cool, and changes lives and how the world and business works in the most profound way.’
This week, the S&P 500 forward 12 month expected earnings just crossed the $100 mark, the chief underpinning for the continued robust action in the main indices. This puts the market on a prospective PE of 15 based on the current level of the S&P 500. Remarkably back in November 2001 the equivalent number was $52. Imagine what the market might have done had interest rates not been providing a major headwind these last few years. Markets are discounting mechanisms, and it will be interesting to see market reaction to the first hints of an end to the current tightening cycle.
