The economy will grow modestly in 2015, markets should show solid gains, inflation will stay low and domestic oil production will increase, Baird chief investment strategist Bruce Bittles predicted Wednesday.
However, the downside is that wages will remain flat as they have in recent years, he told a luncheon gathering of investors at the Madison Club. So while the wealthy should see big gains in their portfolios, the middle class will continue to fall behind, he added.
“Over the past five or six years, while Fed policy has pushed stock prices higher, it hasn’t done a whole lot for the overall economy,” he said. “So if you didn’t own stocks or bonds in a meaningful way, you didn’t participate in any of this, and that is why the middle class has suffered terribly. Their wages are flat, their job potentials are poor and yet the cost of food, education and health care has gone up.”
Former Federal Reserve Chairman Ben Bernanke said “he would be buying bonds for the purpose of getting the stock market to rise,” Bittles explained. “He said he thought that wealth effect would eventually raise all boats. Well, it has raised some boats, but not very many.”
The bright spot, he said, is in the energy. The United States is now the largest producer of oil and natural gas in the world, making this country significantly less dependent on volatile Middle East countries than in the past.
“This is the most important thing that’s happening to the economy, the most bullish thing we’ve had in decades,” he said. “Oil prices are $80 a barrel today. Just think what they would be if this hadn’t happened, considering what is going on in the Middle East today.
“Where do you think our young men and women would be going? We’d have to be protecting those energy sources if we didn’t have any ourselves. We’d have hundreds of thousands of troops over there, but we don’t need their oil anymore. Or we need a whole lot less of it.”
He said this is why the U.S. economy has held up as well as it has compared to many countries in Europe that don’t have fracking and oil resources, making them dependent on Russia. Unemployment among young people in Spain and Greece — for example — is now 50 percent and 30 percent respectively, he said.
“We used to be on our hands and knees to Saudi Arabia,” he said. “Europe can’t get out of the recession, they can’t get out of their own way. China needs huge amount of oil and gas, so their economy is stalling as well. And Japan, of course, is problematic as well because they have to import all their oil.”
Bittles said the energy situation is remarkable because just seven years ago, top geologists from Mobil, Shell and forecasters from major universities were predicting the United States would run out of energy resources by 2025.
“How wrong can you possibly be and keep your job?” he quipped. “Oil production is up 67 percent. Natural gas production is up 38 percent, liquid natural gas is up 82 percent and we’re importing 44 percent less oil from OPEC today than we did just seven years ago and that is on its way to 100 percent.
“There has been a huge energy transformation from the eastern hemisphere to the western hemisphere and now Mexico, the U.S. and Canada control (a majority of) the energy and that is why our economy is the only one on the face of the earth that is showing any growth.”
— By Brian E. Clark
For WisBusiness.com
