value trap

The Melting Pot Matures


A few weeks ago the Nobel Prize Committee announced the latest round of Nobel laureates for 2016. Seven Americans were named to this high honor—and six of the seven were immigrants, born outside of this country.

Immigration is frequently a hot topic during an election year, this one perhaps more than most. On the one side, we are told that immigration is costing us jobs, lowering our wages, and causing more crime. On the other side we are given a moral argument, that we are a nation of immigrants who should welcome others into our melting-pot culture as we have welcomed those who came before.

We set aside the moral side of this debate; while we occasionally dip into moral philosophy, this blog concerns itself chiefly with practical matters of economics. And as a practical matter, there are very good reasons why we should appreciate the value that immigrants bring to our country, above and beyond whatever Nobel prizes they may win.

As a country we are facing a demographic crisis. Since the 1970s, we have been having noticeably fewer children per family than we did previously. As our generation reaches retirement age, record numbers of Americans are leaving the workforce. I still plan on working until I’m 92—but many of my contemporaries have other plans. As we leave, there are more openings left behind than we have children and grandchildren to fill.

This demographic wall creates a major drag on the economy: we want to grow our economy faster, but we simply don’t have enough workers to do it. For the past year we’ve seen the unemployment rate hovering at 5% and below. Even as the economy recovers and we start to add jobs, there’s going to be a very real question as to who will be filling them. The workers simply aren’t there. To some extent this is a regional issue—some of our employment woes could be fixed by having job-seekers move from economically depressed areas to thriving areas where jobs are being created too quickly to fill. But not everyone can uproot their lives for work, and where people cannot or will not relocate, the only alternative is to import workers from elsewhere.

Ours is not the only country facing this demographic crisis. We need only look at Japan, Europe, and other parts of the developed world to see what happens when an aging population is not replaced. Many first world countries have a lower birth rate and lower immigration rate—and, not coincidentally, lower GDP growth. We would do well to learn from their example what not to do.

This is not to say that we endorse open borders or encourage illegal immigration. We are a nation of law. We should have sensible laws that are enforced in a fair and even-handed manner. But to suggest that we should slam the door shut on immigrants is to ignore the economic reality we face. One of the best and surest ways to expand our economy is to add new people to it—and we will need to, if we wish to continue growing at a reasonable rate.

The opinions voiced in this material are for general information only.

2015: Year In Review

© Can Stock Photo Inc. / welcomia

As we think about the year now ending, we would love to say “It was the best of times, it was the worst of times.” That would not be accurate. However, it truly was “the spring of hope, the winter of despair.”

Nobody has ever conveyed the concept of a mixed bag as well as Charles Dickens did in the opening lines of ‘A Tale of Two Cities.’ And nothing is more fitting when we think about 2015 in the investment markets.

The parts of the market that appeared to be cheapest at the start of the year mostly got cheaper, and cheaper, all year long. Meanwhile, interest rates remained at seemingly impossibly low levels—expensive bonds remained expensive all year. Natural resources that had been sliding for years continued to slide.

Back in the real economy, new jobs were created each month. Retail sales and most measures of economic activity moved higher through the year. Inflation remained quiet, and consumers paid astonishingly little for gasoline. The low prices for natural resources and energy fed into low input costs for businesses, which helped business profits remain near record levels.

The kinds of excesses that cause the end of the growth cycle were simply not present in 2015. The ‘irrational exuberance’ of investors that usually accompanies major peaks in the market is also scarce.

Our principles remain unchanged, but we are always seeking to improve our strategies and tactics. Avoiding stampedes, owning the orchard for the fruit crop, and seeking the biggest bargains are always going to make sense. Putting these principles into practice is the hard part. The new year will see a continuation of the increased attention to diversification, the search for new sources of portfolio income, and new ways to think about effective portfolio construction.

We are ready to say goodbye to 2015, a year when the S&P 500 crossed the breakeven line more than twenty times. But we do so with the spirit of “the spring of hope,” given what we know about how things work. Please call us with your questions or comments.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. </p>

Investing involves risk including loss of principal. No strategy assures success or protects against loss.