Don't Count Out America

Published in Investing on 22 February 2012

Hopeful signs about the American economy.

A version of this article originally appeared on our US site,

One of my favourite financial commentators is Jim O'Neill, who heads up the asset management division of Goldman Sachs. He's the guy who famously coined the acronym BRIC to refer to Brazil, Russia, India and China, and he's just written a new book titled The Growth Map, which explores economic opportunity around the globe.

In addition to his enthusiasm for booming economies like the BRICs and emerging economic powerhouses like South Korea and Mexico, O'Neill is surprisingly bullish on the United States. Just recently, he told Charlie Rose that the world shouldn't count America out.

O'Neill feels that real progress is being made in the housing and energy sectors of the American economy, which will help lead the recovery. And he even believes unemployment will drop more than many of his fellow pundits are forecasting. A look at some recent studies seems to support O'Neill's overall outlook.

Energising America

Last week brought some very encouraging news on the energy front. A Bloomberg report noted that America's domestic oil output is the highest in eight years, and projected that the United States could become the world's top energy producer by 2020. This is great news, which could result in higher incomes, employment and government revenue in the near future.

This is potentially great news for investors in particular. My colleague Dave Meier feels Denbury Resources (NYSE: DNR.US) is an excellent way to play this growth in America's energy output. The company uses CO2 to extract leftover oil from older wells, and is likely to be a growing domestic player over the next 20 years. I also believe that ExxonMobil (NYSE: XOM.US) is well positioned to benefit from current energy trends, as it has the size and breadth to continue investing in key areas like natural gas for future growth opportunities.

There's also evidence that the housing market is improving. The well-respected blog Calculated Risk argues that the US may have finally reached a bottom in housing prices. The blog feels that we've already seen the bottom for housing starts and new home sales, and that the bottom for housing prices should be reached around March 2012.

Hear America's engines roar

Clint Eastwood declared in the now notorious Super Bowl ad that "the world's gonna hear the roar of our engines". Actually, there seems to be a lot of evidence that it already is hearing that roar. America is obviously not out of the woods yet by any means. The one big thing that worries O'Neill about the United States is the completely dysfunctional political system, which seems more than capable of snatching defeat from the jaws of victory.

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