Over the last few weeks, we have started to think that things might work out better here in the US than most people currently expect. This brighter future would emerge from the confluence of two unrelated, but equally important, developments:

1. The recently identified – and astonishingly large – accessible deposits of gas and oil in the US, and

2. The potential benefits of a massive, across-the-board forgiveness of principal on underwater mortgages.

Here is how events could unfold.

Oil and Gas Could Fuel Expansion

Tapping into the previously inaccessible oil and gas liquids concentrated in the country’s geographic center should accelerate growth for several reasons, not the least of which would be the increasing demand for – and thus increasing development in – investment in exploration, drilling and development, as well as the manufacture of all the tools, parts and pieces needed to explore, drill and develop.

As economic activity and job growth pick up in these and related areas, we can expect a ripple effect to make itself felt through the entire middle of the country, one of the areas hardest hit by successive recessions.

Cheap oil and gas would lead to cheap energy for businesses as well as gas – a plus for energy-intensive industries like aluminum smelting. Petrochemicals are the feedstock for the plastics and carbon fibers that, in turn, are the raw material of manufacturing. Conversion of coal-powered facilities to gas would provide further employment growth. Cheap real estate in the downtrodden middle of the country could undergo rapid re-pricing, raising collateral potential and facilitating leveraged construction.

From Underground Assets to Underwater Mortgages

A mortgage principal forgiveness program could stop the downward spiral of housing prices by sharply reducing the foreclosures that continue to be dumped on the market. It would also allow formerly underwater homeowners to refinance at historic low rates, increasing both their available cash and their confidence in their future. In addition, once they could afford to sell their houses, they would become mobile again, and able to go further afield to seek employment.

Ending foreclosure dumping would allow residential construction to resume (except in overbuilt locations such as Arizona and Nevada) as it would no longer be possible to buy a house for two thirds the price of a new build.

The Net Effect

Once the full implications of these developments sank in, we would expect a jump in US equity markets and an increase in domestic interest rates (more credit demand for a growing economy, as unemployment shrinks) as well as rapidly improving state and local budget situations.

Even the federal deficit would likely stabilize, as higher funding costs would be offset by improved tax revenue. Because we expect nothing good to come out of Europe and think that emerging markets will still be working out their inflation and credit bubble problems, the probable results would be strong capital inflow to the US and an appreciating dollar. These developments would give US investors the opportunity to buy into emerging market growth potential on the cheap.

Whoever is lucky enough to be president in 2014 would then reap a true and truly undeserved windfall.

This article was prepared by Contango Capital Advisor’s Investment Strategy Group. Contango Capital Advisors is an affiliate of Zions Direct.

IMPORTANT NOTE: Wealth management services are offered through Contango Capital Advisors, Inc. (Contango), a registered investment adviser and a nonbank subsidiary of Zions Bancorporation. Investments are not insured by the FDIC or any federal or state governmental agency, are not deposits or other obligations of, or guaranteed by, Zions Bancorporation or its affiliates, and may be subject to investment risks, including the possible loss of principal value of the amount invested. Some representatives of Contango are also registered representatives of Zions Direct, which is a member of FINRA/SIPC and a nonbank subsidiary of Zions Bank. Employees of Contango are shared employees of Western National Trust Company (WNTC), a subsidiary of Zions Bank and an affiliate of Contango. CCA1011-0177