The Dismal Long-Term Prospects for the U.S. Economy

Over the past few weeks I've asked many people, "Is America toast?" More than a few have replied, "What kind of toast?" In a more serious vein, this column is my attempt to make an apolitical assessment of the U.S.'s fiscal and economic situation and to suggest how you should invest in these uncertain times.

I hasten to add that the people who assume we are headed for calamity tend to be Republicans, and those who think we will somehow muddle through are mostly Democrats.

Despite his concerns about the future of the dollar, count Warren Buffett among the optimists (relatively speaking). He told CNBC in May that since 1776, it has "always been a mistake to bet against America." On the other side, John Williams, author of Shadow Government Statistics, an economics newsletter, says we are already in a depression and are headed for a "hyperinflationary Great Depression."

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Centrist View

Somewhere in the middle resides Howard Marks, the great investor from Oaktree Capital Management and author of the new book The Most Important Thing: Uncommon Sense for the Thoughtful Investor. In an e-mail sent to me, Marks said, "The 20th century was 'the American century,' and the 21st century is unlikely to be another. In particular, it's clear that the developing nations pose competitive challenges to developed nations such as the U.S., and that this will have implications for things such as our relative standard of living."

Also somewhere in the vaguely depressing middle is Weiss Ratings, which gives U.S. government debt a middling grade of C -- the same rating assigned to Estonia and Colombia and below that of Bulgaria. Weiss makes clear, however, that this rating could rise or fall depending on actions taken by U.S. politicians. On that front, it is obvious to me that our political leaders will eventually hammer out some compromise involving increased taxes and reduced spending. But will this compromise really change the U.S.'s long-term prospects?

America, in my view, is not toast, but I think its middle class will spend some hard time in the toaster oven. The typical union job -- think auto worker -- will never again be what it once was. A large swath of the middle class will see a decline in quality of life, as high-paying jobs disappear or move overseas.

But as painful as that prospect is, it is not a death knell for the U.S. economy. One investor I know has thrown up his hands and said he will own only foreign stocks, gold and silver from now on. To me, that seems an extreme reaction. The dollar will probably continue to deteriorate, but you have to be careful about investing in such a way that your portfolio will be crushed if the much-anticipated decline fails to materialize. Given my dim view of the prospects for the American middle class, I would shun retailers who serve that market. Instead, I would focus on firms, domestic and foreign, that serve the growing economies and thriving middle classes outside the U.S.

Caterpillar is a model citizen in this regard. As it happens, one of my key new buys is Titan International (symbol TWI, $29), a supplier of wheels and tires to Caterpillar as well as to many of the world's leading makers of agriculture and mining equipment. What attracted me to Titan was its purchase last year of Goodyear's farm-tire business in Latin America and Europe. As a result, Titan has become a way to cash in on the growth of Brazil and other Latin American economies.

Titan is headquartered in Quincy, Ill., but its address is immaterial. It is a great play on the global agriculture and mining business, and it exemplifies how I think investors need to view the future. You want long-term exposure to global growth regardless of where a company is domiciled -- it could be in Brazil, Korea, Spain or even the U.S. Just because America is likely to lose more of its economic luster doesn't mean that U.S. investors are toast.

Columnist Andrew Feinberg writes about the choices and challenges facing individual investors.