Victus Spiritus

As we waited within aroma range of the barbecue at Michelle's parents' house yesterday, I broached the subject of finance. I kicked off the conversation with a comment/question about my pop's surprisingly good retirement fund performance. Although my dad wasn't there, one retiree and two gents closing in on retirement were more than ready to contribute their understanding. This post relays a few of the ideas stirred up by grill side in our collective attempt to predict what will drive the US economy of the future.

Counter Intuitive Fund Returns

My dad was fortunate (and smart) in his investments this past year with solid growth (8-10%) despite the overwhelming national unemployment (9.5%) and underemployment levels (18%). This didn't add up to me, as I continue to see large industries shrinking, even my normally rock solid day job (R&D engineering). How could investments be rising in direct conflict to so many shrinking industries?

What we're observing is businesses becoming leaner, and this contraction is long term due to a lack of predicted future demand. Independent of other economic signals, our national economy is still in the midst of compression (realignment?), with some notable exceptions. Apple has had stellar performance and other tech giants Google and Microsoft are highly profitable, although their publicly traded stocks reflect slower growth (check the NASDAQ).

We're living through large scale reallocation of labor. Private (pre-public) companies like Facebook, Twitter and Zynga are growing exceptionally fast. They're becoming increasingly efficient at extracting value from information exchange and aggregate social interaction. Besides theses popular late stage startups which are transitioning to larger corporations, there are a myriad of smaller successes that are ultra efficient. The most successful tiny company I can think of is Craigslist, likely because it's GarageDollar's chief competitor.

The New Economy Requires New Skills

I'm not alone in my frantic race to ramp up skills to a professional level in new areas (web apps). Nor am I the only guy with entrepreneurial instincts that have been ignited by increased opportunity in a shifting economy. The majority of underemployed Americans are finding new jobs at small businesses or building new opportunities for themselves.

Following investment dollars, we are witnessing a rise of (super) angel investors. These investors plan to profit with smaller companies and exits ($20-50 million) than what is normally required for historic venture capital deals (100 million+). How many Facebook's or Google's arise each year? The answer, not many. And the numbers won't drastically increase as thriving businesses are modular and hyper focused. It's no surprise to me that startups arise out of obscurity with a single focused product offering. Only when businesses hedge their bets by moving into multiple markets does growth flatten off (market saturation the cause).

Beyond bombs and bullets, Profitable US exports

Let's jump past my frustrated political thoughts on the heavy social and financial costs of war^ to profitable exports. Now that we've covered a cursory overview of internal shifts in the US economy, it leads us naturally to national exports. Just what exactly are we selling to the rest of the world? There is little doubt that the future network economy will be global.

US major exports today(source):

Today chief exports can be broken down into a handful of broad categories.

• Capital Goods - precision assembled goods, Hi-Tech, and automobiles

  I lumped capital and consumer goods together based on the type of businesses that support these markets. This number one export includes airplanes, autos, telecommunications equipment, computers and other integrated products. Software and reduced processor sizes has created substantially lighter physical exports reducing costs.

  Besides Microsoft Windows and Office a growing number of SaaS and Internet companies are doing business globally. Google exports and customizes their search portals to many nations throughout the globe. Facebook, Zynga, and Twitter have presences in dozens of countries. Now our Internet companies can profit from the world's leisure.

  Let's not leave off US universities which effectively export education</li>

• Industrial Supplies

  We'll continue to supply organic chemicals as an export based on our agriculture and pharmaceutical companies. I don't have a strong opinion or knowledge of this market.</li>

• Agriculture

  Grains, fruits and vegetables are all staple surpluses of the US, composing a large percent of our total exports. With population increases we can expect the agribusiness to continue to grow. You can see how what global demand for various agriculture at World Agricultural Supply and Demand Estimates. Also you can see world grain export is heavily from the US at the USDA world markets and trade report.

  Smaller organic farms have had success, and this is a trend that could flow back to mega farms.</li> </ul>

  Notes:

  ^= War and Economics: It's hard for me to separate social and fiscal costs from economic review. To put the cost of war into perspective: thousands of lives, many more casualties, and 1 trillion dollars for the past decade. The brave men and women consumed by war are precisely the risky and determine individuals we need to rekindle our economy.