Dr. Robert Goodman is the managing director and senior economic advisor for Putnam Investments. He knows what he's talking about, which is why he frequently appears on television and is the author of the book,
I recently saw Bob in Boston at an advanced investment management conference. He says that this country's present economic problems are different from the ones we faced some 25 years ago. "Back then, supply constraints were the cause of economic instability, sluggish growth, inflation, and high and rising interest rates." Policy, he adds, at that time, called for a supply-side solution which meant tax cuts for corporations, investors, savers, and high-income individuals.
Today's problem, he notes, really centers around reduced demand. For example, how do we keep consumers spending? How do we get business people to spend? How much government spending should be pumped into the system? He believes that the most likely outcome will be accelerated tax cuts for lower- and middle-income individuals this year because these individuals are more likely to spend the funds afforded them.
He does expect any such tax cuts to work "because they will be appropriate for the problems the economy now faces." He points out that notwithstanding a rather sluggish first half of this year, economic growth can be expected to accelerate in the year's second half as uncertainties abate and fiscal stimulus works its magic.
"Concerns over deflation will diminish, yet inflationary trends will be benign. Long-term interest rates should rise, reflecting economic growth, and given strong productivity trends, corporate profitability could be expected to improve more quickly than currently anticipated by many observers."
So, to Goodman, he thinks there is a growing likelihood of a robust economy in 2004.
One other aspect should be mentioned. Investors must pay closer attention to dividend-paying companies of quality. Why? Because it appears that not only these companies may be the beneficiaries of preferential tax treatment of dividends but in addition, corporate managements are beginning to realize that one way to win back shareholders is by enhancing existing dividend programs or beginning such programs.
Keep in mind that Microsoft, after once asserting that it would never pay dividends, recently paid one. The media actually missed the significance of this act by focusing on the yield of only 0.3%. And a week later, Qualcomm also declared its first dividend.
What does this mean? Dividends are once again emerging as an important component of total returns. The growth of dividends over time may become a major objective of most investors. As is usually the case with emerging trends, this is still being overlooked by many. That's a shame.
