Market Watch

Build Baby Build!

3rd Quarter 2018 Hotline

Market Watch
by Joe A. Hollingsworth, Jr.

Well, officially, we are in the second longest economic expansion ever! And, as I said before, there is an awful lot of naysayers, and they cannot help but talk about it constantly. However, they are wrong!

The tax cut that Congress passed has motivated businesses of all sizes to reassess the opportunity of using the tax savings for capital expenditures that will dramatically increase productivity. This is happening from sandwich shops to major defense firms. CFOs are actively using the tax savings to dramatically increase productivity and profits. This is playing out in company valuations, share prices, capital expenditures, etc., thus benefitting everyone all the way down to the factory floor. Daily, we talk to management of any of the 124 companies that we lease to, and it seems like that is their opening line. They are excited about what they can achieve.

Onto the statistics…Last month, the Bureau of Economic Analysis revised its assessment for the 1st Quarter of 2018; the BEA now says that the GDP grew 2% annualized, down from the previous figure of 2.2%. A more accurate measure averages factors in statistics on incomes which shows growth at 2.80%. The difference between this is the BEA does a separate analysis by adding up all the different sources of wages, profits, and various forms of income. BEA calls this Gross Domestic Income. Using those numbers, it is closer to 3.7% annualized. Generally, forward-thinking economists average these two together, thus the 2.80%. This shows the GDP is accelerating for 1st quarter, and 2nd quarter 2018 should be north of 4.5% using the same average.

Okay, maybe you are still a naysayer……A few things that could happen on the upside such as the NATO Alliance fully funding their part of the military, North Korea continuing to calm down, and the WTO making China play by the rules – all of which will indirectly affect the stability of the global economy, that will result in better support for the US growth. But, here are a couple of big surprises that we predict are coming October of this year. These will totally turn the midterms toward conservatives and also assure the re-election of conservatives for the presidential cycle: 1) The NAFTA surprise! – a greatly improved NAFTA agreement that gives blue collar and union voters a direct impact and reason to support conservatives; and, 2) President Trump through an Executive Order will invoke a 2002 Supreme Court ruling that sets the stage for indexing capital gains for inflation like most IRS rates are. This in effect would lower taxation on capital gains which always provides significant economic growth.

Based on all the above, this will be by far the longest expansion in American history. Internally, our company is preparing for the ride! Therefore, industrial builders, build baby build!

 

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