Learning from the Past, and the Next Big Trend

"History is just one damned thing after another." -- Arnold Toynbee

No one has any idea what the economy is going to do in the future, but you can be reasonably assured of two things: Things can change very fast, and what you think sounds preposterous today can happen tomorrow.

Take this quote, from President Clinton's 2000 State of the Union address:

We are fortunate to be alive at this moment in history. Never before has our nation enjoyed, at once, so much prosperity and social progress with so little internal crisis and so few external threats. Never before have we had such a blessed opportunity -- and, therefore, such a profound obligation -- to build the more perfect union of our founders' dreams.

We begin the new century with over 20 million new jobs; the fastest economic growth in more than 30 years; the lowest unemployment rates in 30 years; the lowest poverty rates in 20 years; the lowest African-American and Hispanic unemployment rates on record; the first back-to-back budget surpluses in 42 years. And next month, America will achieve the longest period of economic growth in our entire history.

We have built a new economy. And our economic revolution has been matched by a revival of the American spirit: crime down by 20%, to its lowest level in 25 years; teen births down seven years in a row; adoptions up by 30%; welfare rolls cut in half to their lowest levels in 30 years.

My fellow Americans, the state of our union is the strongest it has ever been.

This wasn't hyperbole. But do you know what happened soon after this speech? The stock market crashed, the unemployment rate nearly doubled, poverty surged, terrorists attacked, we entered two wars, record surpluses became record deficits, and the median American household suffered its worst decade of income growth on record.

Now take this quote, from President Obama's 2010 State of the Union:

One year ago, I took office amid two wars, an economy rocked by a severe recession, a financial system on the verge of collapse, and a government deeply in debt. Experts from across the political spectrum warned that if we did not act, we might face a second depression. ... One in 10 Americans still cannot find work. Many businesses have shuttered. Home values have declined. Small towns and rural communities have been hit especially hard. And for those who'd already known poverty, life has become that much harder. This recession has also compounded the burdens that America's families have been dealing with for decades -- the burden of working harder and longer for less; of being unable to save enough to retire or help kids with college.

This, too, wasn't hyperbole. But since this speech the stock market has rallied 57%, the unemployment rate dropped from 9.8% to 7.6%, home prices are up, one of those wars ended, the federal deficit was cut in half, and households now have the lowest debt payments relative to incomes in at least 30 years.

Things change. Fast.

Former Treasury Secretary Larry Summers has a saying: "A good rule of thumb for many things in life holds that things take longer to happen than you think they will, and then happen faster than you thought they could." And not only do most of us never see the change coming, but what actually happens in hindsight would often seem downright absurd if you told it to someone in the past.

How do we apply this to the future? History makes it clear that when sentiment and statistics wander far off from their normal path, things are due for a change. It's simply reversion to the mean, or as investor Dean Williams once put it, "Something usually happens to keep both good news and bad news from going on forever."

Keep that in mind, and take these recent headlines:

  • "Why Americans are Miserable and Broke"
  • "The Death of the American Consumer"
  • "Median wealth of U.S. households lowest since 1969"
  • "Strike Three! The American Consumer Is Out"
  • "More Americans Think Economy Will Never Recover"
  • "Broke Consumers Hit Credit Cards for a Few Last Pennies"

Most of these headlines are accurate. American households are in terrible shape. Incomes are down, confidence is down, wealth is down, and unless you have a good degree from a good school, the jobs market is a joke.

However, not despite that gloom, but because of it, I'm optimistic about the U.S. consumer.

There's more to it than hope. Household debt has plunged. Combined with low interest rates, households will pay a staggering half a trillion dollars less in debt payments this year than they did in 2007. That offers flexibility and opportunity in household budgets for the first time in years. After declining by nearly four million, the population of Americans aged 30 to 44 -- a heavy-spending bunch -- is about to start rising again for the first time in a decade. Wages have been cut so low that now it's backfiring on businesses. Take this recent story from The New York Times about Wal-Mart (NYSE: WMT  ) :

Walmart, the nation's largest retailer and grocer, has cut so many employees that it no longer has enough workers to stock its shelves properly, according to some employees and industry analysts. Internal notes from a March meeting of top Walmart managers show the company grappling with low customer confidence in its produce and poor quality. "Lose Trust," reads one note, "Don't have items they are looking for -- can't find it."

You can't run an economy like this indefinitely. It eventually balances itself out. As Williams might say, something happens to keep bad news from going on forever.

I'm an optimist. As I've explained, that doesn't mean I think bad things won't happen. It means that over long periods of time, the odds are in the favor of those who think things will generally get better. When something like "the death of the American consumer" becomes mainstream, the odds of things getting better go up. Things change fast. And we're due for a change.

If you're interested in this trend, I've put together an in-depth report on the revival of the American consumer, including two recommendations of companies that stand to benefit. Click here to grab a copy. 


Read/Post Comments (11) | Recommend This Article (30)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 28, 2013, at 5:26 PM, georgetag wrote:

    Let me guess. Your a liberal progressive.

  • Report this Comment On June 28, 2013, at 7:50 PM, jlclayton wrote:

    After investing for many years now and seeing my share of ups and downs in the economy and stock market, I agree wholeheartedly with the premise of this article. When every headline and pundit talks about how great the market is doing and that it will keep going up, it's a good bet that some type of correction is coming. When everybody is talking about how bad the economy is and every headline you see is negative, that usually signals that the bottom is near. Of course, this is usually apparent in hindsight.

    I did consider this when evaluating Apple last year. The stock could do no wrong and every article and headline proclaimed that the stock would hit $1000. Then I started hearing stories of people doing things like using the equity in their home to buy shares because they were convinced the stock would make them rich. I opted not to buy, believing that a pullback was likely--although I didn't foresee the stock dropping as low as it has.

    This goes right along with Warren Buffett's "Be fearful when others are greedy and be greedy when others are fearful".

  • Report this Comment On June 29, 2013, at 1:29 AM, downtoearth15 wrote:

    Most American companies are making profits thanks to Asian and other emerging markets, and NOT because of the US. Dumbest article I have read in the longest while.

  • Report this Comment On June 29, 2013, at 4:15 AM, greenknight32 wrote:

    The premise is, indeed, correct - but no matter if you explain this to people, most of them will still succumb to the herd mentality. That's what creates opportunities for the Warren Buffets of the world.

  • Report this Comment On June 29, 2013, at 7:32 AM, cmfhousel wrote:

    <<Most American companies are making profits thanks to Asian and other emerging markets, and NOT because of the US. Dumbest article I have read in the longest while.>>

    More than half of S&P 500 profits are domestic. And the report addresses international profits.


  • Report this Comment On June 29, 2013, at 8:45 AM, anmack wrote:

    We as investors can cry foul all day long, but if our elected officials refuse to prosecute the corruption in their own midst... we have little hope of an honest market.

  • Report this Comment On July 01, 2013, at 9:25 AM, QTXUSA wrote:'re exactly right. The market does still have opportunity but, more and more it's being manipulated.

  • Report this Comment On July 01, 2013, at 10:18 AM, NoOracleHere wrote:

    @downtoearth15, didn't your mother used to say, "Eat your peas. Think of those starving children in China!" Now look at the things we say about China. I think this speaks to Morgan's point.

  • Report this Comment On July 01, 2013, at 5:28 PM, miguelvera25 wrote:

    Com´on. It´s a fact. And has been told in "the intelligent investor": the market doesn´t know about history. Any situation happened in the past, doesn´t mean it has to be repeated in the future, even in the same circumstances. But thanks anyway for the advice!!

  • Report this Comment On July 05, 2013, at 3:01 PM, meoldmyold wrote:

    Why is it I paid Motley Fool's subscriber fee yet everytime I want to find out how to invest in a new stock or stocks representing a possible new trend I have to pay another fee? I thought my subscriber fee would be all I need. Sounds like the typical "loss leader" advertisement from a used car dealership.

  • Report this Comment On July 10, 2013, at 9:13 PM, rjior wrote:

    I agree don't waste my time telling me how you're going to make me money by reading this article, then when it comes to the punch line there's another fee to pay. it's getting old!

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