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A Few Bits of Interest

Good Morning,

 

While I certainly understand the Holiday Haze is thick in the air, we thought it helpful to send along a few things which mark more positives as we head into the mysteries 2018 will bring. 

 

It's always nice to start a New Year off with supportive data even though there is always that pesky fly in the ointment. 

 

Let's Start with Trucks...

 

Boring right.  I mean who in the heck thinks about trucks and whether or not how much they move is important when it sounds a whole lot better to scare you with something about Bitcoin crashing? 

 

Be that as it may - just in case you have not noticed it while driving - trucks are a lot busier than they have ever been.  Record setting volume is being moved.  Thank record jobs, record employment, record collective wages and robust demand for goods.  Check it out below:

 

This closeup chart from Bloomberg is just for the last 6 years.  Note the yellow and green arrows I have added.  One can see the economy appears to have gotten a significant boost starting in the second quarter of this year.

 

As we know now, this is also when GDP growth jumped from 1.2% in the first quarter to 3.1% in the second quarter - and continued to expand with a 3.2% read in the third quarter.

 

While there are still a few days left, given the very strong Holiday Shopping Season (another record high spend) - we should easily see another 3%+ GDP quarter.  Shocking as it may seem, it has been 12 long years since we have seen three consecutive quarters of 3% (or better) GDP growth! 

 

Add the latest regulatory reductions, tax changes and headwind rollbacks - and we should see a continuation of steady improvement going into 2018.  The latest efforts from a befuddled Congress will lead to more bonuses, more US-based expansion, more capital investment, new services, more jobs - and ultimately a collective rising income. 

 

Bonds Awaken?

 

Nonetheless, the gasps from the crowd will be heard as the bond market awakens and rates rise.  We have often noted here that rates are low not because of the Fed or some radical, secret government control.  They are low for something far more simple and clear:

 

f.e.a.r.

 

Once fear begins to burn away, rates around the globe will rise.  Once that fear begins to thaw, capital will move from doing nothing in the bank to doing something - anything - in more productive investments.  These are the positive self-fulfilling effects - the very opposite of what we saw in the soul-crushing economic cycle of 2008-2009.  Then, we saw the negative, economic killing machine of emotions.  

 

Now, the stage is set for the opposite - something long forgotten - the positively-fueled, growth drivers can fall together, leading to more steady improvements ahead.  

 

Back to rates - they will rise again like a phoenix from the ashes.  But two thoughts are worth keeping in mind:

 

First, our economic structure is now being driven by a highly deflationary force - Generation Y.  They are set to unleash incredible opportunities across many sectors for all of mankind - and will do so with equally incredible cost-cutting force.

 

Second, global fears are set in stone - and this too will aid in the ceiling which should stay leveled on interest rates for years to come.  Rise they will - but a range of 2.50% to say 4.50% would be our hunch for the next decade - or two. 

 

When the bears howl at the moon telling you the world will end soon because of it, as they have for the last 15,000 DOW points, ignore them...and then pray for a correction.

 

Picture a Small Avalanche

 

It has been so long since a steady stream of good news has flowed into the US economy, the talking heads and the interviewed bears almost do not know what to do with themselves.  Yes, there will be a correction...and yes, it could even unfold right this moment.  It could last for thousands of points and start 2018 off with an ugly whimper.  

 

For me - that would be perfect.  Give us another 2016 starter and be confident you will be thanking your lucky stars by the end of '18.

 

Back to that avalanche - that's how much good news is flowing in - on corporate data alone:

 

Admittedly, it may already be old news but the tax cuts will have a long-lasting impact - just as we saw each time in the past when tax laws changed.  The Holidays have masked some of the result so far but once the analyst community returns from their beach breaks and ski vacations, many will be set to revise 2018 earnings estimates - and they will likely go higher.

 

This could set the stage where January sees a series of positive analyst revisions.  As we get closer to early February, we will start seeing this from the actual companies - along with productive Q4 results and new inflows from pension funding.

 

The important point? 

 

Given these positive "dominos" sitting out there over the next 60 days or so, you can begin to get a real feeling of comfort as to why I always suggest we strongly stay focused on praying for a correction.

 

And of course, this takes no weight of the effect we will eventually see when the fear finally burns away and the nearly $11 trillion sitting idle in bank accounts begins to find its way back into the markets.  

 

Don't Forget Real Estate Markets

 

They have fully recovered.  It's been a decade now.  The real estate market was falling apart after a bubble of historical proportions built and burst.  This of course led to the 2008 financial crisis.

 

Don't look now - but the U.S. real estate market is back on track and is set to spend the next decade or so trying to catch up with a seismic shift in demand coming our way.

 

In the latest release, the Commerce Department stated new home starts rose 3.3% in November to a 1.297 million annual rate.  This was a pretty big surprise given economists expected a 3.1% decline!  Single-family housing starts are strong and expected to keep rising due to rising optimism and tight inventories.

 

How tight? 

 

The annual pace of sales is also now the highest level in 11 years and the inventory of homes for sale now stands at a paltry 3.4-month supply.  To cap that good news off - median home prices rose 5.8% from a year ago - the 69th consecutive month of home price increases.  You won't find that in a lot of headlines on financial websites.

 

Know this - when the experts are still missing by this much - they don't understand the big picture.  It's a massive wave.

 

Last But Not Least - Consumer's Are Strong!

 

In other news released right before the break for the Christmas weekend, consumer spending surged 0.6% in November after rising 0.2% in October. (These are month-over-month figures, not annualized.)   

 

Durable goods orders also rose a solid 1.3% in November.  Get this:  In the past 12 months, durable goods orders have risen 5.1%, due largely to strong business investment.  The Corporate Tax Reform should boost business investment, so don't be at all surprised to see this lead to an even bigger move in this data toward a more steady upward trek in the months ahead.

 

And the shopping? 

 

Well the consumer kept on ticking:

 

That data from this morning is not the sign of a market, an economy or a consumer in trouble. 

 

So relax...

 

...and pray dearly for that correction to start the year off with a, uh, well, bang.

In Closing

 

HAPPY NEW YEAR TO YOU AND YOURS!

 

We are truly grateful for the opportunity you have given us to be of service and to share a role in your life.  We thank you and look forward to helping you more in 2018 and beyond!

 

Make no mistake folks:  The rare US Barbell Economy is upon us and is set to unfold for the next 30+ years.  Of course, there will be lots of stops along the way up this mountain where it will feel like the world is ending.

 

Remember.....

 

Patience and discipline.  In this game, pray for corrections... 

 

Long-term thinking always wins out over short-term trading.  Worrying about the next setback sells lots of ads but makes almost no money for you.  History proves it.  

 

Forget economics - think demographics.

 

It's the big picture.  It's the current under the emotionally-driven waves.

 

Demogronomics keeps us on the leading edge of that long-term direction - but it also demands a much larger, far more patient view of the economic elements at work.

 

Our Wishes for the Very Best of the Holiday Season!

 

Until we see you again - may your journey be grand and your legacy significant.

InvestingMike Williams