Hi, I'm Joan Solotar, Senior Managing Director of External Relations and Strategy at Blackstone. Thanks for joining us today for the Blackstone webcast, Decoupling, Deflation, and Demand, featuring Byron Wien, Vice Chairman, Blackstone Advisory Partners. Following Byron's formal comments, there'll be an opportunity for you to ask questions. If you look at the lower left-hand corner of your screen, you'll see a Q&A box. Feel free to click on that at any point to submit your questions anytime during the webcast. At the bottom of the console, you'll see a series of widgets. This interactive feature allows you to access additional functions by scrolling over them, such as Twitter, Wikipedia, download slides, and refer a friend. We plan to keep the webcast to 60 minutes, including Q&A, and at the end of the PowerPoint, you'll see a full list of disclosures.
Thanks for joining us. With that, I'll turn it over to Byron Wien.
Thanks, Joan. This is going to be a balanced presentation, I hope. I have strong conviction about some of the points. I'm a little ambivalent about others. I'll try to reveal that. There's a good chance that the webinar that'll be in July, I'll have to say that some of the things I said in this webinar didn't work out the way I thought. I'm going to present both sides of a number of issues. Decoupling. The first subject. At the beginning of the year, most people thought the United States would do well. Europe and Japan would not. I think that at this point in time, the world has coupled. Actually, Europe and Japan have picked up. The United States is more questionable at this point. In terms of deflation, we were all worried about that at the beginning of the year.
With the European Central Bank easing, you don't hear much talk about deflation at this point. The bigger problem is demand. You have to ask yourself, is there enough demand in the world to sop up all the manufactured and service products that are being provided? I think demand is the key issue. I think there's no question that there is a lot of demand out there across the world, particularly with the growing middle class in the developing world. The question is, there's so many people producing high-quality goods at attractive prices, is there enough demand to absorb all those products and services? We'll be exploring some of those issues and others along the way. The first few pages are the 10 Surprises, which I went through in great detail in the January webinar. I'm not going to spend time on them this time.
I just am flipping through them to show you they're there, if you would download the slides, you can look at them. I would say that I'm having the usual tough time at the beginning of the year. My experience with the Ten Surprises is they usually don't look too good in March and April, but they tend to gain some traction as we get into the last part of the year. Here are the also-rans. There are four also-rans. Probably the most interesting one is the 14th one, which is Hillary Clinton decides not to run. I, of course, had no idea that she wasn't on the State Department email server when I wrote this. I don't think it'll be a factor that it will limit her nomination to run as the Democratic candidate, but it certainly is going to be a hot topic in the campaign.
The key points I want to cover here in this webinar are, one, can the U.S. equity market move higher in view of the stretched valuation? I think the market, in the Ten Surprises, I had the market up 15%. I think it can go up 10% for sure. It's gone through the first quarter with virtually no appreciation whatsoever. That one isn't looking too good, but I think it'll look better as we move through the year. The second is that the major economies of the world will do better. Europe, 1.5%-2%, Japan, 1.5%, that is happening. Actually, there was more optimism about the U.S. at the beginning of the year, more pessimism about the rest of the world, and those positions have reversed. The third one is the U.S. economy is going through a tough time.
In the first quarter, there was the port strike on the West Coast, cold weather, and the strong dollar, and all of those things hurt the U.S. economy. I still think the U.S. is going to grow pretty close to 3% in 2015. The key drivers of growth are going to be housing and capital spending, and the data on that is mixed so far. The strong dollar will have very little effect on the U.S. economy. Exports are 13% of the economy, but it will have an effect on earnings because as much as 40% of U.S. business is being done abroad, but of course, that includes Mexico and Canada. The price of oil will recover faster than people think. A very controversial point, the price of oil has gone from $44 to $50.
I think it can go higher by year-end, there are a lot of people who think it's going to be an L-shaped recovery. The price is going to stay around $50 for a long time. In the essay that just was circulated to all of you yesterday, I discussed four myths. One, American exceptionalism, and America does have a number of social and political problems, but in terms of the American economy, the American economy is definitely performing in an exceptional way compared to everywhere else in the world, except perhaps for China. I think American exceptionalism is something to address in terms of our economy, not so in terms of some of our social programs and in terms of the effectiveness of our government. The second myth is that oil will stay low for a long time.
I think that's going to turn out to be wrong. Europe and Japan, being in deflationary recessions, Abenomics not working. I think during the course of the year, we'll see Europe continue to do well and Japan to pull out of its deflationary recession. This is my asset allocation. No changes from last time. 10% in global large-cap multinationals, 10% in other U.S. stocks, 5% in Europe, 5% in emerging markets, 5% in Japan. 35% long only, 15% in hedge funds, 10% in real estate, 10% in private equity, 35% in alternatives, 5% in gold, 5% direct investments in natural resources and agricultural commodities. That gets you up to 80%, and then 20% in the riskiest end of the high-yield spectrum. These are mortgages, leveraged loans, mezzanine financing, some emerging market debt. That's the 100%. Nothing in cash because you're not earning anything there.
If you need some money for paying pensions or other things, you can liquidate portions of the long-only portfolio. A heavy use of alternatives where I think you can get double-digit returns. 35% in long only, where the return should be somewhat less. Overall, I'm shooting for an 8% return. This is obviously designed for an institutional portfolio. If you're an individual, I would own some municipals, which I like, in the fixed income category. When I first came out with this, I said there's no portfolio in the world that looks like this, and I still believe that. I've moved a number of, particularly sovereign wealth funds, in this direction. This is the one chart that probably worries me most. In spite of the fact that the U.S. market has made very little progress so far this year, investors are still complacent or optimistic.
We haven't gotten them down to concern, serious concern, or pessimism. Usually, the market does best when investors are most skeptical, and they're not particularly skeptical now, in spite of the poor performance of the U.S. market. We may need a few more days like today where the market is doing poorly, rather than days like yesterday where the market did spectacularly well. Mondays this year have been very good for the market, but the rest of the week has been very erratic. We'll see how that works out. I think we really have to get sentiment more cautious before the market is in a position to make its move for the year. There's reason for investors to be skeptical. The average bull market has lasted 57 months and gone up 165%. This market is six years old, and is up over 200%.
People are saying, "Look, there's never been seven good years in a row. There have been six good years in a row, but we're due for a tough year this year." That may be one reason why the market hasn't made more progress. I think you have to look at valuation. Interest rates are low. We're at least a year and a half or more from the next recession. Markets usually anticipate a recession by six to nine months. If we're not going to have a recession until late 2016 or 2017, I think the market, in competing with bonds, can make forward progress from here. That's what I'm counting on. We also have money supply as a potential problem. The Federal Reserve has been expanding money supply until last October, $85 billion a month.
The dollar was weak, now we're in a position where the European Central Bank is going to be expansive and the Federal Reserve is going to be neutral. You can see the change in European Central Bank policy here, where the European Central Bank is starting to ease. The dollar has strengthened enormously in reaction to that, the dollar has come down to around 110. There are a lot of people who think the dollar will go to par or even lower. I'm not in that camp. I think the dollar is going to stay around present levels. That's another thing that I may be reporting on being wrong in the July webinar.
Nevertheless, I think we're in a position where European accommodation is going to be good for Europe, I think that when the Fed does tighten, I don't think it's going to be a major problem for the market. That's a key point I want to make. What is the Fed going to do? Interest rates are near zero. If they go to a quarter of a point or a half a point, it's still way below the historical average for federal funds rates. They're going to go there slowly. Everybody is nervous about the Fed tightening, I think the Fed will do very little, they'll do it gradually, I don't think it'll have a major impact on the market. It usually takes several iterations of Fed tightening before the market responds negatively.
In terms of the dollar strengthening, on the right-hand side, you see U.S. exports account for 13% of GDP, some of those are high-technology products which aren't available everywhere else. The U.S. is 62% domestic, 38% international, probably earnings, that's revenues, earnings are probably more than that. I think 40% of earnings can come from abroad, that's Mexico and Canada, not just Europe and Asia. My view is the dollar strengthening is going to have an impact on earnings. I think you'll see that particularly in the first quarter, I still think earnings are going to be up for the year. You're going to have to depend on some multiple expansion in order to get the market up 10%. We'll go into that in more detail later. This is the impact of the dollar on various asset classes.
A weak dollar is generally good for commodities. It's generally good for emerging markets. If you go down to the bottom, whether the dollar is strong or weak, the S&P 500 can do pretty well. I don't think the dollar is going to be a major factor determining the course of the U.S. equity market. The strong dollar has obviously affected commodities and emerging markets quite seriously. I realize I'm going through these slides very quickly, you can study them in more detail at your leisure. I just want to hit on the key points on each slide so you can focus on the ones that are particularly relevant to your investment strategy as we move forward.
Worldwide GDP is coming down, but it's still better than 2%, fueled by the U.S. and by China, and now helped along a little bit by Europe and Japan as well. We're not booming at 4% as we were, but we're still growing at a satisfactory rate of two-plus, and I think that's the most we should hope for. You can see here that the various indicators for Germany and Japan are favorable. I have a high degree of conviction that Europe will be in plus territory and so will Japan this year, and that'll be a positive for worldwide growth. Looking at the U.S. economy, this is something to worry about. This is the Economic Cycle Research Institute. It correctly forecast the slowdowns in the summer of 2010, 2011, and 2012. It did not forecast a slowdown in 2013 or 2014, and we didn't have one.
It's now saying we're going to have a slowdown in 2015, and we may be having one as we speak. In all those cases, the market recovered and the economy recovered in the second half. You can see here that companies are providing negative guidance to analysts. Companies feel analysts are too high, and those companies that are giving analysts guidance are guiding them lower. I think you're going to see some earnings estimates cut, but I think they're already pretty gloomy for the first quarter. I think the first quarter will show weak earnings. There'll be improvement in the second quarter, and the third and fourth will be better. Things may not be as bad as I'm saying. This shows a model where your employment growth is going to contribute 2.4% of GDP this year. You'll have a longer work week.
You'll have some increase in average hourly earnings at around the 2% level. That could mean that the GDP could be up five. Take two-tenths of a percent off for inflation, real growth could be above five. I'm not forecasting it, but I don't think it's crazy to think that growth could be as much as three. Now, if you work for the Atlanta Fed, that's not what you think. They're forecasting two-tenths of a growth for the first quarter. The blue band or Marine band up there shows the top 10 forecasts and the bottom 10 forecasts, the range for the Blue Chip Indicators, and the median is just a little below 3%. I do think the U.S. economy is doing probably better than most forecasters feel.
I don't think it's doing as badly as the Atlanta Fed thinks, but I wanted to show that to you, because there are plenty of cautious people out there. I do think growth will be around 2% in the first quarter and better in the remaining quarters. Whether the average worker is benefiting from this is more conjectural. This shows that the median real family income has not recovered to anything like the 2007 level. That if you're an average worker in a retail establishment or even a factory worker drawing a paycheck every two years, your situation has improved, but on a real basis, you're not back to where you were in 2007. The average person out there doesn't feel that he or she has benefited from the recovery that began in March of 2009, and that's the biggest social and political problem we have.
This is the heart of the inequality problem. Half of the country feels they're better off, but a good half of the country feels they haven't benefited from the recovery. You can see here average hourly earnings were picking up, but then they took a turn down. I don't think that wages are increasing to the point where you have to worry about that. That usually occurs when average hourly earnings are increasing 4%, and we're nowhere near that now. I do think we'll see 2% average hourly earnings growth this year. We still have not put the people who were laid off in the recession back to work. We still have the number of people working who could be working at around 70%, where we were five points higher before the recession.
Now, some of that is explainable by the retirement of the baby boomers, but I think we have a secular unemployment problem here. It's taken us much longer to get down to unemployment in the 5% range than it has in earlier cycles. We're only doing that now six years into the recovery. We used to be able to do it in four years. I do think job creation is a key challenge for policymakers at this point. There are plenty of jobs out there. 5 million jobs are open in the U.S., but you need certain quantitative skills to hold those jobs, and if you don't graduate high school, you don't have much of a chance of getting one of those jobs. Only three-quarters of the kids in America graduate high school, and they don't have the skills to hold these jobs.
We've got to encourage job training programs, encourage more kids to stay in high school and graduate so we can put some of those unemployed non-high school graduates to work in these jobs that are available. The jobs are out there. The people don't have the skills to fill them, and the idea of enrolling more people in community colleges is a good one, and we just have to make it happen. Manufacturing is not our problem. Most of the people are employed in services. We have 140 million people employed, only 12 million in manufacturing. Only 9% of the workforce works in manufacturing. It isn't factory jobs that are the problem. They've been pretty flat here at around 9%, and so we have to have more service jobs, and a lot of those service jobs are low-paying jobs, so we have to upgrade the skill.
There are plenty of jobs that require computer skills out there, but a lot of the people applying for those jobs just don't have the quantitative skills to hold those positions. We have to worry that the unemployment problem may get worse. I emphasize the fact this is a balanced presentation. This shows that the number of people employed in retail has headed steadily up, but there's been recent softness in retail sales, so you have to worry that some of those people might be laid off, and the same thing is true in construction, but I think that's primarily because of the bad weather. This shows that housing is improving, but we're still not at a million starts, and we have to get at a million starts for housing to fulfill one of my objectives, and that is to be one of the drivers of growth in 2015.
I think we're going to get there now that the weather is getting better, but we're not there yet. One of the reasons I'm optimistic is that payroll employment in the 25 to 34 age group is really quite strong, and that's where family formations occur. If a couple has been holding off getting married because one of the partners doesn't have a job, that's improving, and I think you're going to see more marriages, more household formations, and more housing starts as a result. In terms of capital spending, I think that's in a favorable uptrend, but it's been capital spending to buy robotic equipment to get some goods and services out the door with fewer workers, not for building new plants. I think we are at a point where we will begin to build some new plants.
When you go over 80% operating rates, that's where that occurs. This shows small business optimism. We do know that most of the new jobs are going to be created by small businesses. They're optimistic on capital expenditures. They're optimistic about increasing hiring. That should be good for both employment and for capital spending. This shows something that probably few of you have seen. It's the age of the capital stock in private hands, and our plant equipment is really old. We talk about the lack of rebuilding our infrastructure, but the same is true in terms of our private capital stock. The average plant is 22 years old, and we have to reinvest in our capital equipment, and we certainly have to do that in terms of our public capital stock. There should be a surge in capital spending.
I don't think we're going to see a surge, but I definitely think it's going to be one of the favorable areas in the U.S. economy this year. This shows, again, the other side of capital spending. Energy has been an important area of capital spending, and this shows that when the price of oil comes down, energy capital spending comes down along with it with a lag. You can see that before energy picks up in terms of its capital spending, there's usually a six-month or longer lag. If you're counting on energy capital spending, energy was an important component of capital spending plans, that's probably not likely to pick up until later in the year. It could occur earlier if I'm right and the price of oil goes back to $70. I was hoping for more energy capital spending in my original forecast.
Now with the drop in the price of oil, that's likely to be held back. Nevertheless, I still think capital spending in areas beyond energy will be strong, and I'm still looking for capital spending, along with housing, to be two of the main drivers of the economy this year. I just want to show you the other side of the energy capital spending picture. Now, in terms of oil, trying to give you some arguments on my side, the U.S. is now the largest producer of oil, but we're still importing it. The emerging markets are going to be the key drivers of demand. We're using 22 barrels of oil per person per year. I've shown you that before, and Brazil, China, and India are the three places where you can expect a significant increase in automobile usage and energy consumption.
Why did oil go down in the first place? It's worldwide demand. The economies around the world, including China, the U.S., Europe, and Japan slowed down, and that reduced the demand for energy, and that's why the price of oil went down. It wasn't conservation. It was reduced demand as a result of slowing growth. Oil is more sensitive to growth characteristics of the world economy than anything else. I am saying that oil is going to make a bottom. It has made a pretty sharp bottom over a few months in the last six cycles, and I think it's making a bottom now. One of the things that gives me pause is that you could have a quick resumption of shale production, and you could have Iran, if a deal is signed, Iran could come on the market with additional supply.
Iran was producing 2.5 million barrels a day in 2012. It's now only producing 1 million barrels a day. If we do sign a deal, and I would say the prospects for that, it's supposed to be signed tomorrow, and the details worked out over the next three months. I don't think the sanctions are going to be lifted quickly, I don't think increased demand from Iran is immediate. I do think it could change my view that we're having a double bottom. Here it shows that the double bottoms over the last six cycles have been made over a several month period. Most people think the price is going to stay around $50 for a long time. I'm saying it could be $70 before year-end.
On the other hand, one of the arguments against my position, in addition to the Iranian shipment point, is that there's a lot of oil that's been stored in tankers and ground storage facilities. Once the price starts to go up, some of that oil will be brought to market, keeping the price from rising. There are two arguments against it, against the price going up, but I still think the price came back to $50 faster than people thought, and I think it can make its way higher. In terms of shale production coming back on stream, this is an analysis of 30 wells, and 26 of them, in 26 shale oil wells, have a lifting cost above $50. I don't think the advantage of shale production is it can be turned off very quickly.
I think it will be turned off here, or is being turned off, and very few new shale wells are being drilled. My view is we're going to have less shale production until the price recovers. As it goes above $50, you'll see more shale coming on stream. This shows the rig count. Rig count has dropped sharply. I think it's going to go below 1,000. When it gets to around 900, that usually occurs coincident with a bottom in the oil price. Don't think that we're self-sufficient in spite of the fact that we're producing a lot of oil. The U.S. is still importing 6.6 million barrels a day, more than China at 6.2 million barrels. China and the U.S. are the big importers of oil. Turning to an opportunity in the market.
You can see here from the blue line on the right that energy is almost 20% of the high-yield market. One of my Ten Surprises is that there's money to be made in the high-yield market, and I think there are some energy sector bonds that are going to provide very good returns. You can also see that technology is an important part of the high-yield market, and there are opportunities there as well. The spread with treasuries continues to be wide. I think energy is one of the favorable areas for shopping in this difficult market environment. This is the biggest problem the U.S. economy has. Profit margins are at an all-time high. I think they're likely to stay there. Unit labor costs have not recovered. Unit labor costs have stayed low. Why?
Because companies have used capital equipment to replace labor, and there are plenty of unemployed people out there. The rehiring has been very slow. Companies have taken advantage of this recovery to use equipment to get the goods and services out the door, as I mentioned, and that's kept margins high and kept unit labor costs low. That's why you haven't seen much of a recovery in average hourly earnings. On the other hand, consumer sentiment, this shows the University of Michigan survey, and it has recovered significantly since the bottom in 2009. Consumer net worth has recovered as well. The Conference Board survey of sentiment has recovered. There is a generally favorable attitude out there, but we haven't seen it in terms of spending. Consumer net worth is at an all-time high. Who has benefited from that?
The people who have benefited are the people in the top two quintiles, particularly the top quintile of income earners. The people in the bottom 40% have not benefited much at all. The people in the top 20% have benefited significantly, and I think this is one of the problems, because the people in the top quintile spend less of their income than people in the bottom three quintiles. Consumer net worth is at an all-time high, but the top 10% have benefited significantly, and the bottom 40% have not benefited significantly at all. On the other hand, the signs that are optimistic on the economy are there. Bank loans are up. Railcar loadings are up. There's reason for optimism in terms of the second half. Taking a look at the earnings outlook. Just want to make sure I'm doing all right on time.
As you know, earnings rarely come in as high as the analysts expect. Analysts are almost always too high. The black line shows where analysts thought earnings would be a year ago. The blue line shows where they came in. You're right to be skeptical about analyst earnings. We're going to have a problem this year because energy is suffering. This shows revenues, and revenues are only expected to be up around 2% this year. If you took energy out of it, they'd be up about 5%. Energy is an important part of the economy, so it's not right to take it out, but you can expect a poor performance until the oil price recovers. You can expect poor revenue performance and poor earnings performance until oil recovers.
Here's the earnings are expected only to be up around 2%, pretty flat with last year if you take oil out. If you put oil back in, earnings could be up close to 9%. If you take oil out of the S&P, ex oil could be up nine. With oil, it's only likely to be up two. What will earnings be for the S&P? They were about 118 last year. I think they'll be 120 to 122 this year. Is the market overvalued? The market on a trailing 12-month basis is about 17 times earnings. It would be overvalued if the multiple were over 20. The multiple isn't over 20. I think the multiple could be 20 at these interest rates, even if the Fed tightens. The market is not in bubble territory. There's no question about that.
I think you could have some modest multiple expansion. If earnings with energy are only up 2%, if they're up 9%, if you take the energy out, then it's easier to justify a stronger market. If earnings are pretty flat with last year, you're going to need a multiple improvement in order to get the market up 10%. I think you can have that because I think the S&P can earn 120 and sell at 20 times that, and that would give you the market appreciation I'm looking for. On the other side of that argument is the Robert Shiller cyclically adjusted price earnings ratio, which says that the market is currently selling at 25 times earnings, even though interest rates are down. I don't subscribe to it, that would put the market in bear market category.
If you look at the market on a price to sales basis, there's reason to be concerned as well. I still think my way of looking at it in terms of trailing 12 months is the right way to look at it. If you look at it the way Warren Buffett does in terms of market cap as a percentage of GDP, it's selling at 137%. It was as high as 183 in the year 2000. I really think that U.S. companies are global, as I said, with probably over 40% of their earnings coming from abroad. Just comparing the market to U.S. GDP, I think is too narrow a view. This shows productivity, which I think is going to be an important part of market evaluation going forward. We're going to count on productivity to improve earnings, and productivity has been trapped here around 2%.
It has to be at least at that level. Right now it's around 1%. We're going to have to count on improvements in productivity in order to get the market where we want. This shows, if you look at the right-hand side, that productivity is lower than it was earlier in the cycle. We really need productivity at 2% or more to begin to show the kind of earnings improvement we need to have in order to have the market continue to appreciate. Net income is not going to be up much, but companies' earnings per share will be, because companies will continue to engage in financial engineering, mergers and acquisitions, and share buybacks. What you see here is that share buybacks are running at about 3% of market capitalization.
If net income is up 2%, share buybacks are up, add 3% to that, earnings per share could be up five, and with some multiple appreciation, that's how you get the market up 10 or more. Usually, the market anticipates a recession, and that's why it goes down. This shows the number of parameters that usually appear prior to a recession. Almost none of them are in place. I think this economic recovery could extend well into 2016, maybe beyond that. Our fiscal dilemma, there's going to be a lot of talk about increasing taxes, but no matter what the tax rate is, taxes are rarely more than 15%-20% of GDP, and that's been in varied tax rates. By using the sequester for healthcare and defense, we've reduced the budget deficit from 10% of GDP down to 3%.
We have some money for capital expenditures at the government level, and for government programs to upgrade job skills by retraining. The right-hand side is somewhat disturbing because we're enjoying a very favorable period in terms of interest rates. The federal debt is $17 trillion now, and we're only paying a little over 2% on a blended interest rate to service that. When the federal debt was $6 trillion, we were paying the same amount, about $360 billion, to service the debt as we're paying now for $17 trillion. What you have to hope for is that interest rates don't go up much, because if they went back to the 6%, if they tripled from the present level, that would be a big hit to the budget deficit. We have to hope that interest rates stay low.
All the signs are that they will stay low. If they rise, they could be a factor in creating a problem for the budget deficit. This shows that the government is now starting to contribute to GDP growth, whereas before it was detracting by cutting spending. There's going to be a lot of talk about whether the rich are paying their fair share. In 1986, the top 1% paid 26% of all federal income taxes. Today, they're paying 38%. The top 50% of all income earners are paying virtually half of all income taxes. The bottom 50% are paying only about 3% of all taxes. The bottom 50% are getting all the benefits of the government, but they're not paying much for it. They don't have a lot of skin in the game.
The top 50% are paying all the taxes, and the top 1% are paying a disproportionate share. I think it's going to be very hard to raise taxes on the top bracket, particularly in a Republican Congress. The question you have to ask in your own mind is, for the top 1%, to pay 38% of their income, is that fair share? My view is, it is. You also have to take a look at what the drop in the price of oil has meant for the average person. The drop in the price of oil has put more money in people's pockets than all of the tax cuts that have occurred in earlier cycles. The question is: are they spending it?
So far, they're paying down debt, saving some of it, and you haven't seen it spent, but I think that'll change as they become more comfortable. This one shows that corporate taxes in the U.S. are a lot higher than they are everywhere else, which is why you have inversions. This shows that Congress is further apart than it has ever been in terms of policy, which is why you have so few people crossing the aisle to make agreement. Now, I'll talk about the overseas markets briefly. Here is Europe, in a recovery mode. Projection models for Europe show it growing close to 2%. European retail sales, quite strong, so that's a reason to be optimistic about Europe. That has been reflected in the appreciation of European securities. In the emerging markets, the multiple has moved up there because earnings have been disappointing.
European emerging markets are attractive. My view is there are three emerging markets worth taking a hard look at. They are Mexico, India, and South Korea. This shows India in a recovery mode in dollars. This is Mexico in pesos. I don't think those markets have run away yet. This shows China. The big objective here is to rebalance the economy. They have made some steps in that direction, but it's been primarily in service workers who have relatively low compensation. So the economy is still unbalanced in terms of investment spending. The People's Bank of China is going to become more stimulative. My view is China is going to grow at 5% or 6%. They'll probably report 7%, and if they deliver 7%, it's going to be because of monetary easing and other government stimulus programs.
Looking at Japan, it's been in a recession, but it's pulling out of it. I think you'll see growth pretty consistently in the 1% to 2% level for Japan. The problem with Japan longer term is its aging population, and that's going to be true in China, and it's going to be true of Europe as well. The one advantage that the United States has is that its population, while it'll increase, it'll still stay relatively low. By 2020, the U.S. population, the average age will go from 34 to 37. But in Europe, it'll go from 37 to 52. The Japanese market has done better, but people are not bullish on Japan yet. The amount of money flowing into Japanese mutual funds has been relatively low. The earnings per share are very strong in Japan, and the multiple, I'll go back there. The multiple has been relatively low.
You can see here the multiple for Japan is lower than it is for Europe and the United States. I think the market has further to go. The government is still providing stimulus, and I think the yen can weaken further the Japanese market flirting with 20,000. I definitely think it'll go above 20,000. So here we are at the disclaimers. Let me just make a couple of summary points. I don't think earnings are going to appreciate much in the U.S. this year. I think the U.S. will earn, S&P 500 will earn 120 to 122. That's including energy. The earnings would be higher if you left energy out of it. I think you need some multiple appreciation for the U.S. market to move higher. I think you'll get it because I think the U.S. market can sell at 20 times earnings.
I think Europe and Japan can do better. They already have. I think the U.S. is the laggard market right now. I think earnings in the first quarter are going to be troublesome. I think both the economy and earnings will do better as we move through the year. Now let me turn it back to Joan, and she'll field some of the questions that you've logged in.
Great. Thanks, Byron. Just as a reminder, at the bottom of the console, there's a Q&A box if you want to submit questions. We have time for a couple, so I'm going to consolidate them into topics. The first one being energy. We have several questions on energy. To start, if we don't hit your $70 target or projection, how does that play into your economic forecast? Then second, if we're producing so much oil, why are we still the number 1 importer, and will we ever be at parity?
Okay. Well, I think our goal is to be energy self-sufficient, and conceivably, we could be there by 2020. The reason we're not self-sufficient now is because we consume 21 barrels per person per year. Western Europe, South Korea, and Japan consume 13 to 50. We just use a lot more oil than anybody else does, and that's why we have to import it. My view right now is if the price of oil would bottom at $50, that would be good news rather than bad news. I think the drop in the price of oil from $107, where it was in last June, to $50 is good news, not only for the United States but for the world.
I think for it to go a whole lot lower than that, and there are estimates out there of $20, I think that would probably be more bad news than good news. I'd like to see oil stabilize here at around $50 and gradually move up. That would be good for energy companies. It would be good for capital spending. I still think it would put enough money in the consumers' pockets so that they could do some spending at the mall.
Great. Second, around interest rates, there seems to be a lot of angst, as you mentioned, about what the Fed's going to do, even though Yellen's been pretty clear about her path. Why do you think that is? Is the market just anticipating a different economic outlook than the Fed is today, number 1? Second, if interest rates start to move, do you still think we can see multiple expansion?
Well, interest rates are so much lower than they've ever been. I think in answer to the last part, if I used a traditional dividend discount model, the S&P 500 wouldn't be 2,000; it'd be 2,500.
Right.
It'd be up 25% if you look at how the S&P performed in relation to 10-year Treasury yields in the past. Nobody follows that anymore, I actually had a model that used it, which I've abandoned. I think There's a mantra out there that's practiced by asset allocators that says, "Don't fight the Fed." When the Fed is easing, it's a favorable environment for equities, and when the Fed isn't tightening, it's not. My belief is you have to look at the starting point. If your starting point on Fed funds is zero, the Fed has plenty of room to do a little tightening to get back to something like a normal policy point without hurting the stock market. A lot of investors follow the mantra. If the Fed is tightening, even if they're starting from a very low base, they don't want to fight it.
They don't want to fight the Fed if it's being restrictive. I think that you have to look at what level you're starting at, what level you're going to, and in that context, I think multiples can move up a little bit.
We actually have 2 minutes left, so we'll throw one more in, which relates more to global markets. You talked about a recoupling of U.S., Europe, Japan. First part is, if that doesn't happen, what went wrong versus your projection? Second, do you think the Euro or the European Union will hang together?
I do think the European Union will hang together. I think every effort is being made. I know if you look back at 2010, if Greece were to have defected or dropped out of the Union or defaulted and stayed in the Union, it would have been a disaster for Europe because a lot of the Greek debt was on the books of European private banks. A lot of that debt has been transferred to international institutions, so it wouldn't be the financial catastrophe it would have been in 2010. Greece could drop out of the Union. On the other hand, I don't know what Greece would gain. I think that eventually Tsipras will agree to some of the terms that Angela Merkel and others have placed before them. That's not going to be popular at home.
My view right now is the European Union will hang together. There's more to gain than to lose. In terms of the decoupling, I think Europe is in a good place. Japan is in a good place. I think the country you probably have to worry more about is the U.S., quite the opposite of where we were at the beginning of the year. My belief is that if you look at all the parameters, you look at the potential for capital spending, housing, and consumer spending, I think the U.S. should strengthen as we go through the year. We're in a soft patch now, but I think we're going to pull out of it later on in the year. What I tried to do in this presentation, Joan, is show both sides of the issue.
Strategists often get up and they argue their point of view, there's a strong argument against one. I have very clear conclusions, there are some good arguments against my point of view. There's a chance that I'll get up here in July and have to do a mea culpa and say some of the things that I had a high degree of conviction about at the end of March didn't work out, I wanted to introduce some of those points in making the presentation today. I still believe what I said. I still believe it's going to work out my way, I wanted to present the other side so you can draw your own conclusions.
Thanks for tuning in or listening. I look forward to talking with you about the results of the second quarter and the outlook for the remainder of the year in July.
Great. Thank you, Byron. Thanks for joining us.