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For the titans of finance, the US economy rules
The financial titans attending this year’s Milken Institute conference in Beverly Hills don’t appear to be the type to respond consumer confidence surveys or financial well-being surveys: They are very optimistic about the US economy.
A recurring theme at this year’s annual gathering of financiers, CEOs and economic influencers is America’s resilience in the aftermath of the COVID pandemic. “There are reasons to be happy with the US performance,” Kristalina Georgieva, managing director of the International Monetary Fund (IMF), told a packed ballroom at the May 6 conference. “The US has an extraordinarily strong job market. It has a wide supply of labor. It has the enormous advantage of being an energy exporter. It has the privilege of the dollar.”
Financial gurus with investments around the world report that the United States continues to attract far more smart money than anywhere else. Georgieva noted that before COVID, about 18% of global financial flows went to the United States. Now it is almost double, 33%.
Some foreign investors may be exaggerating. But they don’t seem to care. Harvey Schwartz, CEO of Carlyle, said: “The vast majority of investors, when I ask about the U.S., say, ‘I’m over-allocated to the U.S. But I’m going to allocate more to the U.S.’ It’s not an exotic response to the U.S. phenomenon. There is incredibly strong profit growth, interest rates are high and the economic activity that underpins all of this is quite deep.”
A big part of America’s appeal is its rapid recovery from the two-month COVID recession. “The United States has recovered very, very quickly relative to most other countries,” Ron O’Hanley, CEO of State Street Bank, said at the conference. “Part of what we’re seeing is a continued bet on the resilience of the U.S. economy.”
Some of America’s advantages are long-standing. “We have to remember that this represents more than 50% of the world’s financial strength and firepower,” Citi CEO Jane Fraser told Milken’s audience. “The United States is here with a depth and breadth of capital markets that is unique.”
But some things are new. The Milken conference is like an annual indicator of what’s right and wrong in the global economy – and the United States is sometimes the bogeyman. In 2009, for example, the biggest story in the global economy was a financial crisis in the United States driven by fraud, greed and ruinous political choices that spread across much of the world. The fallout from the Great Recession lasted for years.
For several years, booming China was the darling of global investors and the hottest topic at Milken, while investment in the US seemed dull and monotonous. Every Western company or financial management company wanted to profit from China’s epic growth rates not found in any other major economy.
The story continues
Now, the miracle of Chinese growth has disappeared amid a massive housing crisis and a militaristic shift by hardline President Xi Jinping. India could be the next China, but many reforms remain necessary. Europe has limped out of the COVID crisis far behind the United States, with many eurozone countries flirting with recession. In the United States, by contrast, Congress approved record amounts of fiscal and monetary stimulus that triggered a robust recovery that still has legs.
US President Joe Biden removes his protective mask to deliver remarks about his American Jobs Plan near the Calcasieu River Bridge in Lake Charles, Louisiana, US, May 6, 2021. REUTERS/Jonathan Ernst (REUTERS/Reuters )
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Ordinary Americans might wonder what kind of cosmic drug these Milken dilettantes must be smoking. Americans are notably pessimistic about their nation. Just 23% of Americans are satisfied with the direction of the country. Consumer confidence is close to recessive levels. President Biden the approval rate is only 40%surprisingly low given a growing economy with an extremely low employment rate.
Even at Milken’s conference, there is a dose of skepticism about America’s high-flying trajectory. Harvard economist Raj Chetty gave a presentation on May 6 showing that the share of Americans who end up better off than their parents is near historic lows. And there’s a lot of talk about America’s Titanic Debt Load and a battle against inflation that is improving but not yet won.
Can both perspectives be valid? Can the United States be the world’s leading economy and at the same time disappoint millions of its own citizens? Of course you can.
One of the United States’ strongest assets is a remarkably efficient and (generally) stable financial system, anchored by the world’s most powerful financial institution, the Federal Reserve. This gives an intrinsic advantage to investments in North American assets. As Mike Gitlin, CEO of Capital Group, pointed out in Milken, a simple investment in the S&P 500 basket of stocks has returned 15% per year over the past 15 years, about twice the return of global stocks.
Other parts of the US economy don’t work as well. O “Shock in China” that began a quarter-century ago, displaced millions of well-paying manufacturing jobs overseas and emptied entire U.S. cities, particularly in the Midwest. High earners have gained an increasing share of wealth during recent decades, with less wealth accruing to lower earners. The recent surge in inflation has caused daily difficulties for some workers who struggle to pay their rent and food bills.
The favorable outlook at the top of the US income chain, however, means that US companies are hiring more and workers are earning more than if the economy were stagnant. Biden signed legislation aimed at boosting employment in manufacturing and other downtrodden parts of the economy. Americans will vote this year to decide whether they think Biden is effectively solving the right problems or whether they want someone else to try.
Milken’s 1% does not represent all of America. But they recognize the advantages that America has and embody what we could gain if more people benefited from them.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman.
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