6 Reasons To Be Bullish On America’s Economic Prospects
INDEXDJX:.DJI, INDEXSP:.INX, NYSEARCA:SPY, NYSEARCA:DIA, DJI:DJI, CBOE:SPX, NQ:COMP, NY:XAX Related posts: Dow Jones Industrial Average: 6 Reasons To Be Bullish On The Stock Market America’s Economic Recovery At Risk As Consumers Start Pulling Back Many Reasons To Be Bullish On The ASEAN ETF 3 Reasons To Be Bullish On Natural Gas Prices Facebook Inc (FB): More Reasons To Be Bullish

american dreamBill Hall:  With the mainstream media bombarding us with fairy-tales about the imminent collapse of the U.S. financial system because of the budget impasse in Washington, I am asking you to step back, take a deep breath and consider all the good things about our country.

In my Sept. 18 Money and Markets column, I provided six reasons to be bullish on America’s economic prospects despite the massive debt overhang, broken politics and Federal Reserve interference.

Today I am going to drill down into one of the primary reasons why I believe better days are ahead for the U.S.: A strong dollar.

Taking a long-term view, the dollar has a lot going for it.
Taking a long-term view, the dollar has a lot going for it.

I’m bullish on the dollar’s future because — despite the squabbling among our politicians — foreign investors love investing in the U.S. According to the IMF, 62 percent of the world’s currency reserves are in dollars, and the euro’s share has fallen to 24 percent from 29 percent four years ago. In fact, at the end of 2012, foreign investment in America exceeded U.S. investment abroad by $4.4 trillion, up from $4 trillion a year earlier.

A review of history — since ancient times — reveals six attributes required for a currency to have global dominance. Taking a long-term view, the dollar has a lot going for it in each of these areas.

1. Growth in the domestic economy and GDP-per-capita resulting from productivity increases. Growth is the magic elixir that heals all economic problems. That’s why it’s the most important factor for a dominant international-trade and reserve currency. It was paramount to the British sterling’s success in the 19th century and the dollar’s superior position since then.

Over the past 10 years, the U.S. has led the developed world’s economies in productivity gains. An emphasis on entrepreneurial activity and superiority in developing new technologies provides promise that the U.S. will continue to be a world leader.

2. A large economy. Size has been a dominant factor going all the way back to the Roman Empire. With rapid productivity growth and relatively open immigration, the U.S. will probably continue to lead the world. Population is falling in Japan and will soon decline in other developed countries. And because of its one-child-per-family policy, China will struggle to continue its rapid economic progress.

3. Deep and broad financial markets. Money moves anywhere on the globe it can find the best risk-adjusted returns. Thus, to maintain an edge as a preferred place to invest requires not only a powerful and large economy, but also highly developed markets.

The U.S. Treasury market trumps all others in size (see chart, below) and is regarded as the world’s safest. About half of U.S. Treasuries are held by foreigners. In contrast, only 9.1 percent of Japan’s net government debt is owned by non-Japanese.


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More importantly, the American stock market’s capitalization is four times that of China, Japan or the U.K., and is over three times the euro zone’s (see chart, below).


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4. A free and open economy and financial markets. Foreign investors are willing to hold a country’s currency if they’re convinced they can invest it in financial or tangible assets with few restrictions. The U.S. is essentially open, which is a requirement for the Chinese and Japanese to continue to recycle their trade surpluses into Treasuries and other dollar-dominated investments.

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