Jonathan Laing of Barron's did an
interview (subscription required) with
GaveKal, a global adviser to financial services firms. GaveKal gave some great stats:
- Research & development now dwarfs capital spending -- Danaher Corp.'s research spending has jumped from 150% of capital outlays to 300% during this decade. And Analog Devices has also seen a big jump in its R&D-to-capex ratio, increasing from 1.5-to-1 to 6-to-1 this year. Big increases in R&D and the shift of manufacturing to Asia will continue to translate into a more productive U.S. corporation.
- Concerns about consumer debt levels -- mortgage, credit card and auto debt has plunged from 6% of totals outstanding at the beginning of the 1990s to 1.5% to 2.5% the past few years.
- Corporate profits remain very strong -- after-tax profits and cash flow as a percentage of GDP exceed 8.5% and 15%, respectively -- very high by historical standards.
- Trade Deficit at 7% of GDP -- not a concern when measured against U.S. total household net worth which grows about $2.5 trillion per year. A traded deficit of $800 billion is more than offset by growth in U.S. net household wealth.
- Net foreign debt as a percentage of national net worth is only 4.6%.
- The earning-yield and dividends for stocks earn investors 9% versus 6% for private equity to borrow money. That is what is fueling the private equity boom. Stocks should do well as long as this disparity exists.
Laing titled his piece Sizzle Inc, referring to GaveKal's optimistic outlook. The premise behind the positive outlook is that the global economy is "on a cusp of a decades-long" deflationary boom. It is a very compelling argument to invest in U.S. stocks.
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