The Very Big Picture

The chart below is critical in understanding where the global investment cycle and trend pattern stands at this time.  It was prepared by Merrill Lynch as part of their review of the state of the markets in mid 2012. 

The dark blue line is the USA Dow Jones over 100 years on a scaled chart and shows that it has been in a holding pattern for the period 2000 – 2013, as has happened in previous periods, before resuming the long term growth reflected in the GDP of the USA and globally.

Notably the red line (US 10 Yr Bonds) is now as low as it was in the early 1950′s.

Following the extreme lows the rising bond yields in the immediate years that followed, reflected an improving economy and a rising stock market reflecting improved activity and company profits, over the longer term.

Contrary to some deep concerns that the global economy could slide back into a shock such as the GFC in 2008/09, Merrill Lynch and a number of US analysts now see the USA in the dawn of a Renaissance period of growth.

The holding pattern since 2000, which in reality felt more like a roller coaster, was partially due to both excessive costs in the US manufacturing industry and the process of outsourcing production to China and other ermerging markets.  China grew at the USA’s expense, as reflected by the 13 year stagnation period.

In the longer term China will now grow more slowly and the current costs of producing in China are as high, if not higher with shipping costs, than producing in the USA. Manufacturing is being re-established in the USA and it is expected that growth will resume, from a low material, low labour cost and low bank interest cost base. 

The next 10 – 15 years will probably be a very valuable period to invest in the global economy via the USA.  – Right now it simply looks as though the market has got ahead of itself.