Most of what is said about the U.S. economy these days could be true or false, depending on your angle. That's because America is too big and too diverse to be described usefully by blanket statements. Inside a landmass that is 3.7 million square miles and has 50 state jurisdictions and thousands of cities are 307 million people, who produce $14 trillion in annual GDP and privately hold $54 trillion in net assets (stocks, bonds, real estate, etc.).
Let's begin with a question that ought to be simple but is not: Is the U.S. economy in recovery? The facts say yes, but there are a lot of angry doubters out there.
You can't argue the facts: By traditional yardsticks the American economy began its recovery in the spring/summer of 2009. The third quarter of 2009 was up 2.2%, and the fourth quarter boomed at 6%. This pattern is likely to repeat. The first quarter of 2010 will clock 3.5%, and the second quarter, clear of winter weather, could bounce up nearly 6%.
Still, many doubt the numbers, and not all are angry posters. John Tamny, the editor of RealClearMarkets.com, a Forbes.com columnist and a monetarist in the fashion of Milton Friedman, thinks GDP is a flawed number. It's expressed in an unreliable measure--the U.S. dollar. Expressed in gold, GDP has been contracting for eight years. Richard Koo, chief economist for Nomura Research Institute, says the U.S. is in a balance sheet recession, marked by deflation and deleveraging that will crimp investing and spending for a decade or more. Look at Japan to see what could await the U.S., says Koo. Longtime Forbes columnist A. Gary Shilling holds a similar view, as does Nouriel Roubini, an economics professor at New York University.
These are coolheaded analysts, not angry blog critics.
But wait, it gets worse. Harvard financial historian and author Niall Ferguson says debt-laden America is past its glory but will try to mask its decline by inflating away its debt problems. Marc Faber, a former Forbes columnist and international money manager, who, like Ferguson, studies the decline and fall of civilizations, agrees. Paul Farrell, the gloom-and-doomster at Marketwatch.com, is the biggest bear of them all. He says the U.S., as we know it, will "collapse." Chaos will reign, perhaps followed by civil war. Farrell openly calls for a Second American Revolution against the redcoats who rule Wall Street.
The other day I tried an exercise in which I defined a seven-band spectrum of bears to bulls. The categories are:
--Apocalyptically bearish. Believes in the crash-chaos-anarchy scenario described by Paul Farrell. Book author Harry Dent and bloggers too numerous to mention fit here.
--Strongly bearish. Believes that a long, Japan-like stagnation is inevitable for the U.S. This category includes Shilling, Roubini, Ferguson and Koo, as well as Charles Munger, famous investing partner of Warren Buffett.
--Moderately bearish. Believes that the bull rally since March 2009 is on thin ice but that the U.S., despite its problems, still has a good future. Here you might place Grantham, Mayo, Van Otterloo's Jeremy Grantham, Fusion IQ's Barry Ritholtz, Seabreeze Partners' Douglas Kass and Millennium Wave Advisors' John Mauldin.
--Neutral. Thinks the market is fairly valued and awaits further data. Two well-known market timers, InvesTech's James Stack and Hulbert Financial Digest's Mark Hulbert, would fit here.
--Moderately bullish. Believes the market is fairly valued and will rise another 10% to 20% on momentum before it gets stuck in a several-year trading range, barring pro-growth changes in taxes and regulation. I would put myself here.
--Strongly bullish. Believes the November elections will create enough balance--or gridlock--to get America's narrative away from Washington politicos and back to entrepreneurs and investors, where it belongs. This is where you'll find Fisher Investments' Ken Fisher, First Trust Advisors' Brian Wesbury and CNBC's Larry Kudlow.
--Extremely bullish. Believes that we have only begun to touch the technological miracles that will enrich our minds, bodies and pocketbooks. Nobody I know fits this category.
Two things jumped out as I did this exercise.
First, in the late 1990s several pundits and forecasters would have fit into the last category--extremely bullish. At the same time hardly any forecasters were apocalyptically bearish. But in 2010 the opposite is true--far more gloom-and-doomsters than optimists. It's a sign of the times, certainly. However, maybe what this is telling us is that the biggest economic and market surprises of this decade could be on the upside. I saw a black swan in Australia last month, and it looked confident.
Second, beware of any blanket forecast about the U.S. economy and markets. It's bound to be right and wrong--and, therefore, useless. The $14 trillion American economy is, in fact, a galaxy of smaller economies. Michigan has nearly twice the unemployment of Texas, which has almost twice the unemployment of Nebraska. California has strength in Silicon Valley and Hollywood and weakness most everywhere else. Now is a great time to invest in the American economy. Just be sure you pick the right American economy.