The financial heavyweights attending this year's Milken Institute conference in Beverly Hills don't seem like the type to answer consumer confidence or financial health surveys. They are too bullish on the US economy.
A recurring theme at this year's annual gathering of investors, CEOs and economic influencers is America's resilience after the coronavirus pandemic. International Monetary Fund (IMF) Managing Director Kristalina Georgieva told a packed banquet hall at a conference on May 6 that she had “reason to be happy about America's performance.” She said, “The U.S. labor market is extremely strong. We have an abundant supply of labor. We have the big advantage of being an energy exporter. It has the privilege of the dollar.”
Money experts who invest around the world report that the United States continues to attract far more smart money than anywhere else. Georgieva noted that before COVID-19, about 18% of global financial flows went to the United States. Now he's nearly doubled to 33%.
Some foreign investors may be going too far. But they don't seem to care. “The vast majority of investors, when you ask them about the U.S., say, 'We're over-allocated to the U.S., but we're going to allocate more to the U.S.,'” said Harvey Schwartz, CEO of Carlyle. he said. This is not a bizarre answer to an American phenomenon. We have incredibly strong earnings growth, interest rates are high, and the economic activity that underpins all of this is very deep. ”
A big part of America's appeal is its rapid recovery from the coronavirus recession, which lasted two months. “The United States has recovered very quickly compared to most other countries,” Ron O'Hanley, CEO of State Street Bank, said at the conference. “Part of what you're seeing is a continued bet on the durability of the U.S. economy.”
Some of America's advantages are long-standing. “We have to remember that this is more than 50% of the world's financial power and firepower,” Citi CEO Jane Fraser told Milken's audience. “The United States is here with the depth and breadth of its capital markets like no other.”
But some things are new. The Milken Conference is an annual barometer of what's going right and wrong in the global economy, and the United States can sometimes be the bogeyman. For example, the dominant global economic story in 2009 was the financial crisis in the United States, caused by fraud, greed, and disastrous policy choices, which spread to many parts of the world. The aftermath of the Great Recession lasted for years.
For years, fast-growing China has been the darling of global investors and the hottest topic at Milken, while U.S. investing has seemed dull and dull. Every company and asset manager in the West wanted to cash in on China's incredible growth rates, unseen in other large economies.
Now, amid a massive real estate crisis and a militaristic shift under hardline President Xi Jinping, China's growth miracle is deflating. India has the potential to become a second China, but many reforms are still needed. While many eurozone countries are suffering from recession, Europe has emerged from the coronavirus doldrums far behind the United States. In the United States, by contrast, Congress enacted record amounts of fiscal and monetary stimulus, sparking a still-strong economic recovery.
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Ordinary Americans might wonder what kind of cosmic dope Milken's dilettantes are smoking. Americans are particularly pessimistic about their country. Only 23% of Americans are satisfied with the direction of the country. Consumer confidence is nearing recession levels. President Biden's approval rating is just 40%, surprisingly low considering economic growth and extremely low employment rates.
Even at the Milken Conference, there was some skepticism about America's high-handed trajectory. Raj Chetty, an economist at Harvard University, gave a presentation on May 6 showing that the percentage of Americans who end up better off than their parents is near historic lows. And there's a lot of talk about America's massive debt and the fight against inflation, which is improving but not yet won.
Are both perspectives valid? Can the United States become the world's leading economy while disappointing millions of its own citizens? Certainly it is possible.
One of the United States' most powerful assets is its incredibly efficient and (usually) stable financial system, backed by the world's most powerful financial institution, the Federal Reserve. This provides built-in benefits to investing in U.S. assets. As Mike Gitlin, CEO of Capital Group, pointed out in Milken, a simple investment in a basket of S&P 500 stocks has returned 15% annually over the past 15 years, more than any other investment in the world. This is approximately twice the return on stocks.
Other parts of the US economy are similarly dysfunctional. The China Shock, which began a quarter of a century ago, sent millions of high-wage manufacturing jobs overseas and hollowed out entire American cities, primarily in the Midwest. In recent decades, the share of wealth held by top earners has increased, while the wealth acquired by low-income earners has declined. The recent rise in inflation has forced some workers into daily hardship as they struggle to pay rent and food.
But the positive outlook for the top of the U.S. income chain means that U.S. companies are hiring more and workers are earning more than they would if the economy were stagnant. Biden signed legislation aimed at boosting manufacturing jobs and other stressed parts of the economy. Americans will vote this year on whether they think Biden is effectively addressing the right issues or whether they want someone else to take on the challenge.
Milken's 1 percenters do not represent all of America. But they recognize the advantages that America has, and they embody what we can gain if more people embrace America's benefits.
Rick Newman is a senior columnist in the United States. Yahoo Finance. Follow him on Twitter @rickjnewman.
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