It's always nice to start off a New Year with good data despite any flies in the ointment.

Let’s start with trucks…

Hey, where are you going? I know it sounds boring (who thinks about trucks and if they’re moving or not, eh?) but stick with this for a minute, because it could be worse; I could be trying to scare you with something about Bitcoin!

In simplest terms, trucks are a lot busier than they’ve ever been before.  There are record setting volumes occurring, for which we can thank record levels of jobs and employment, collective wages and robust demand for goods.  

Here’s the big picture:

The Market Mysteries of 2018 img2


This chart above from Bloomberg is for the last six years.  

Note the yellow and green arrows that I’ve added. They let you see how the economy appears to have gotten a significant boost starting in the second quarter of 2017.

And, as we now know that’s also about the time when US 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 (which represents another record high spend) we should easily see another 3%+ GDP quarter.

Shocking as this may seem, it’s been 12 long years since we have seen three consecutive quarters of 3% (or better) US GDP growth.

That’s a nice mystery to watch unfold!

Add in the latest US 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 collectively rising income.  

Bonds Awaken?

Equally, the bond market is awakening and interest rates are rising.  

I’ve noted many times that rates are low not because of the US Federal Reserve or some radical, secret government control.  They are still low because of fear.

But one that fear begins to burn away interest rates around the globe will rise, capital will move from doing nothing in the bank to doing something, anything, elsewhere in more productive investments.  

The stage is set for positively-fuelled growth drivers to come together.  

And here are two thoughts on interest rates for you:

  • America’s economic structure is now being driven by a highly deflationary force called Generation Y.  That age cohort, which is even bigger than the Baby Boomers, is set to unleash incredible opportunities, and will do so with an equally incredible cost-cutting force.

  • Global fears are still set in stone, and this will aid in keeping the ceiling which should stay level on interest rates for years to come.  Rise they will, but in a range of about 2.50% to say 4.50% (is our hunch) for the next decade, or even two.

So, 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 Jones points, just ignore them and then pray for a correction.

Picture a Small Avalanche

It’s been a long time since a steady stream of good news has flowed into the US economy.

The talking heads have repeatedly predicted a correction for the last eight years.

And, yes, that correction could unfold this very moment. In fact it could last for thousands of points and start 2018 off with an ugly whimper.  

Personally, for me that would be perfect.  

Give us another start like we had in 2016 and let’s be confident that you’ll again be thanking your lucky stars you stayed invested.

Now, back to that avalanche of good news…

Admittedly, it may already be old news but the US tax cuts will have a long-lasting impact here; 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, alongside productive Q4 results and new inflows from pension funding.

The Important Point?

Given these positive dominos lined up 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 off 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

The real estate markets have fully recovered.  It's been a decade and they are back on track in the US trying to keep pace with the 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.

In fact, the annual pace of sales is also now at their highest level in 11 years, and the inventory of homes for sale now stands at a paltry 3 to 4 month supply.  

To cap that good news off, median home prices have risen 5.8% from a year ago, which is 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, Consumers 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.  

And get this: In the past 12 months durable goods orders have risen 5.1%, due largely to strong business investment.  

The US Corporate Tax Reform should also 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 keeps on ticking:

The Market Mysteries of 2018 img1

There’s nothing mysterious about this data, and nor does it suggest a market, an economy or a consumer in trouble.  

It looks like a nice lead in to 2018.

So, fingers crossed, and pray for a correction.


Mike Williams
Founder and Managing Partner