Global economic activity is accelerating across the board.

In fact, just last week, the IMF once again raised their growth forecast for both 2018 and 2019.

And we should expect that the fuse lit by the bold steps taken in the U.S. on the tax and regulatory reform will be followed by other countries in due course.

Given the massive deflationary forces of Generation Y, inflationary pressures have remained low and continue to confuse experts using old economic performance measurement tools.

Held in check by globalization, rapid technological change drivers and the Gen Y disruption I'd argue that the Philips Curve and other historic measures of productivity may no longer be very effective indicators.

The Bottom Line? 

To think that somehow our economy is even remotely like 10, 20, 30 or 50 years ago is simply foolish.

As inflationary measures are misread, interest rates remain comparably low given growth, record GDP and record earnings.

And “real rates” remain negative in the Eurozone and Japan, despite accelerating growth.

Both the BOJ and ECB recently worked to reaffirm their quantitative easing, putting a lid on U.S. rate pressures and fears.

Meanwhile, S&P 500 forward earnings have already passed $150 per share for 2018. Look for something closer to $162 - $170 per share in 2019.

Surprisingly, what analysts are not likely ready for is that we suspect free cash flow growth is set to be even stronger than earnings growth - allowing for debt pay-down, share buybacks and increases in dividends.

Also, US tax law changes are not just about more earnings at the bottom line.

That move will ultimately drive capital spending as plans unfold over the next few quarters.

I suspect by mid-summer or so we will see that this channel will also grow more than currently expected, and well into 2019 as we get even more signs of an improving global economic cycle.

Look for the U.S. to put together a significant infrastructure investment program.  This should be a solid boost for 2019, adding again to steady growth and likely more M&A activity.

The Barbell Economy effect – where the economic reins are being passed from the Baby Boomers to Generation Y – continues apace.

Mike Williams
Founder and Managing Partner

Have a question?

To learn more about how we can help with your investment plan, please feel free to contact us
Contact Us