Why the USA?

Dr Fred Meltzer senior VP of Dwight Asset Management, and ex economist of the City of New York, makes a case for the USA at the recent Old Mutual SA retail press conference.

Looking back at the country over the last four years and there appears to be a transformation underway there. Real GDP is 3.2%, and according to Melter its in the sweet spot, hitting a low of -10.4% and peaking at 17.4%, compared to SA (3%) and Europe at 2.1%.

The big story says Meltzer is productivity and its double the record of the previous 10 years. The real issue rests here he says.

The concerns facing that economy are the usual suspects. There is the current account deficit, which is a long term seemingly intractable concern R200bn per quarter and consistent with the fall of the dollar. On the other hand the net investment income is still positive.

Then there is the federal budget deficit, which has been a roller coaster and the swing to a deficit has been due to the fight on terrorism and the foreign engagements half of which can be attributed to this fight.

The demographics issue has reared its head again as the population appears to be aging. There are some positives and the fertility rates are in a holding pattern, while the Euro-land and Japan arent, and are dropping.

Meltzer says that the transition came when the consumer was emboldened by the response to 9/11 as if they needed a further incentive. Consumption has sky-rocketed and he asks how this can be maintained and fed simple credit extension.

Looking ahead he says that on the other hand salaries are flat. This has meant that core inflation however is remaining stubbornly high, and real gdp growth will drop toward 2%.

The consumption growth will stumble, and there has been a 0% savings level, which must change. The dollar, bonds and stock prices will come down over the next 12 months.

Health warning: this article doesnt provide advice, or suggesting that the USA is an investment option.