In the cards: a 'solid' U.S. economy in the future

Using the game of blackjack as a metaphor, Dr. Andrew Turner – managing director of investment policy and research for the Russell Investment Group – said the U.S. economy was a good bet in the long run.

Turner addressed the Lakewood Chamber of Commerce’s general membership luncheon Thursday at Mickey O’Reilly’s Restaurant at the Tacoma Best Western Inn.

“The U.S. has a solid outlook,” he told the audience, noting that might not be so apparent in Washington state, which has one of the highest – if not the highest – unemployment rates in the nation.

“So, that makes local conditions a little more grim,” he said.

Turner likened making predictions about the U.S. economy to blackjack, a card game where the object is to be dealt cards having a higher count than those of the dealer up to but not exceeding 21.

In both cases it helps to know the conditions in advance (read: in blackjack that means “card counting”), he said, and play the odds, although that’s not a guarantee of success.

“You can get a bad outcome with a good strategy,” he said. “And the reverse is true.”

Nevertheless, Turner is basing his optimistic outlook on the odds of everything – from big stocks to little stocks to bonds and more – continuing to “tank” as being low.

There is usually a lot of counterbalancing between economic indicators, Turner said, but not in the last several years when most indicators went down.

“This period of time is rare for global capital market history,” he said. “So, we have a weird environment we’re in.”

As for the future, Turner offered several predictions, including:
– Interest rates, which are at a four-decade low, will go up in the long run.

– Wide by historical standards, credit spreads will close further.

– The stock market will be made safer by new regulations requiring more public disclosure. Lower rates of return can be expected, although it remains an excellent long-term investment.

– The success or failure of President Bush’s proposed tax cut will be based on how people spend the money they get back from such a plan.

“What matters is what people do with the money,” Turner said.

Short-term spending on frivolous items will do little to stimulate the economy, he explained. On the other hand, if the money is used for long-term investing, it could help keep interest rates low and make financing easier, thus spurring the economy on.

– The nation has moved from an industrial economy to an information economy.

“Companies that informationalize their products are going to do well,” he said.

As an example, he referenced a product in Japan, the so-called “smart toilet,” which analyzes deposited waste and sends test results to your doctor, who in turn will alert the patient if a problem has been detected.

“How convenient is that?” Turner asked the amused audience. “The doctor calls you!”

– Just as the current information economy has replaced the industrial economy, the bio economy will perhaps one day replace the information economy, Turner theorized. The bio economy refers to the quality of life, where wealth will be measured in terms of health and long life.

– Without getting into the politics of any such decision, Turner said a war with Iraq would almost certainly damage the economy in the long run.

Getting back to his blackjack comparison, Turner advised, “Don’t pull your money off the table. That’s (investing in the economy) the only way in the long run you’ll make money.”

Dr. Andrew Turner’s pioneering work in creating a model for managing risk in pension assets for Yasuda Fire and Marine Insurance Company was honored with the 1993 Franz Edelman award for commercial applications of management science.

Since 1989, Turner has managed global corporate research activities for Russell, which includes overseeing an integrated, worldwide network of manager research analysts and research and development staff.

He serves as a member of the Frank Russell Company’s corporate operating committee and is a member of the Board of Russell/Mollon Analytical Services.