The one thing that makes some of us still cautious, despite the stock market’s compelling climb, that lures investors to come on in and join the party, is our institutional failure to acknowledge some of the significant problems to come. The only way to ever stay clear-headed during these periods of unusual market performance is to deal with the facts and let them determine where we are on this risk spectrum. We do know stock prices can generally be pushed higher by higher earnings, and that today there is a widespread belief by investors that this ability to produce higher earnings will always continue. Yet, what is the correct multiple (price/earnings) ratio or price a prudent investor should be willing to pay for a given stock (company) or segment of the market? A clue to that answer is always found by continuously examining a host of internal and external factors that can impact a company’s success. The same logic can also be applied to segments of the markets and separate distinct markets (countries).
Problem number one in the U.S.: With our current unemployment at 4.1% and projections to drop to the high 3+% in early 2018, this indicates we don’t have enough qualified labor to fill the jobs period. In fact, the extremely tight labor market could be the catalyst for some wage inflation to start appearing. The Federal Reserve policy of cheap money that provided a safety net to counter the 2008-2009 economic contraction has perhaps done its job getting people back to work and has overshot the objectives (a common risk).
Today, it is time to acknowledge that corporate America finds a different set of challenges to growth. In the short term, we need to alter our immigration policy immediately and recruit the workers to fill the jobs or watch our corporations lose markets to foreign competitors. The growing and training of our own workers will be a huge task that must be borne jointly by Corporate America and the best of our schools. Betsy Devos needs a budget, a staff, and a mandate if we want to continue to be a leading global player.