On Thursday October 26, 2017 the United States House of Representatives unexpectedly approved a $4 trillion budget plan for our nation that paves the way for badly needed tax reform to likely occur this year. The senate had passed the measure last week, and the US House passed it without any changes in order to expedite the process. This is a tremendous development as it makes tax reform, in our view, likely in December. The tax reform package being considered will significantly lower rates for the middle class and significantly simplify tax returns for all of us. We believe it will help further business confidence, increase economic freedom, and create a stronger, more vibrant economy – something we haven’t seen in over 9 years. On Friday, October 27, 2017, our nation’s Gross Domestic Product (GDP) growth for the 3rd quarter was announced at 3.0% – higher than the 2.5% expected even in the face of three hurricanes and the economic damage they created. Higher GDP growth means more good jobs, more tax revenue, and more opportunity for everyone!
Ten months ago, that would have sounded like a dream- now it’s a reality! I cannot over emphasize what tremendous positive effects the tax reform package being considered will have, not just on your asset values, but more importantly on the long-term economic growth of our nation. By utilizing the same policy tools that President Ronald Regan and President John F Kennedy used to produce significant and long-lived economic booms we are now embarking on a return to a market-based economy and not a government bureaucracy-based and driven economy. Let me be clear – We believe this will unleash what I believe over the next 10 years will be the largest and longest period of economic growth in US history. Do not make the mistake of avoiding this economic jumpstart by leaving funds in cash or in bonds.
The previous longest period occurred under President Regan and lasted 9 ½ years from 1982 to 1991. We more than doubled the size of our economy in those years and doubled the number of jobs held. This tax plan will bring back into our workforce discouraged workers whose unemployment rate, measured by an employment statistic called U-6, (tracked by the Bureau of Labor) is current at 8.0% (amazingly this broader measure of unemployment was at 10.1% at President Trump’s inauguration). This will also help reduce the widening wage and wealth gap in our country which, under the previous presidential administration, rose at an ever-faster rate leaving tens of millions of hard working American families by the wayside.
When paired with anticipated health care reform, which will eventually occur, and the infrastructure plan that we believe will be passed in the first quarter of 2018, we should have a synergy that will be unlike anything that we’ve seen in our nation’s economic history. I want to state this unequivocally because its critical for your well-being. Don’t be intimidated by prognosticators, economists, financial analysts, and stock brokers who caution you that the recovery (which we correctly called in writing in letters to you in 2009) is over simply because of the passage of time. Nothing would be further from the likely outcome!
The equity markets, as I forecast in a letter to you dated March of 2009, have been driven simply by Federal Reserve stimulus. The monetary stimulus that the Federal Reserve utilized on multiple occasions increased the asset values in your portfolios by a large amount. But the equity market appreciation did not mean there was economic growth in our nation’s economy. Economic growth increases job opportunities for Americans.
Back in 2009, in letters to our clients, we stated unequivocally that there would be little or no economic growth from the previous administration’s stimulus package. The economic “benefits” of that package clearly went to labor unions, government workers unions, and to fund various pet projects like Solar City that went bankrupt (taking many billions of our tax dollars that were infused to keep them afloat). Where equity investors like us made a lot of money the economy itself showed, at best, anemic growth and never grew at a normal rate. In fact, over President Obama’s two terms in office, it grew at less than half the normal rate. We were told by the previous presidential administration that this reduction in economic growth was the “new normal”. I rejected that then and I reject even louder now! There was no “new normal”. Our current presidential administration is deemphasizing and downsizing government while it reemphasizes liberty, individual freedom, and the world’s greatest growth machine – capitalism! This, inevitably, will produce what we believe are above average growth in the economy, significant job growth and long-term market gains.
President Trump’s policies, borrowed from Presidents Reagan and Kennedy, are likely in our view to produce the most vibrant economy and job growth in our lifetime. I am also confident that President Trump’s policies, and the incredible men and women of his cabinet, will steer our ship of state into a much safer world by finally stopping Iranian and North Korean marches towards deliverable nuclear weapons. This, too, will provide benefits to our investment holdings as mere safety and certainty reduce investment discounting.
Now some may say this is a too rosy scenario. But they are the same folks who thought that everything was going down to zero when we called the market’s low in a letter to you February 11, 2009. They’re the same folks that said Britain would never vote to exit the E.U. which we said in a letter to you June 24, 2016 and they did! They’re the same folks that said if Britain did vote to exit the European Union that would be disastrous for their economy. The British stock market is up 5.6% since that vote occurred and the British economy is growing strongly. We predicted that in the same letter. They’re the same folks that said Trump had no chance for election and that Hillary Clinton would be our President. We predicted in a letter to you September 16, 2016 that Trump would be elected by a wide margin because we were analyzing the electoral college – not the popular vote. By allocating your money ahead of these anticipated developments we have outperformed the market by an extremely wide margin. Please note the charts below that verify this. All information presented is from Morningstar, Inc. who independently assess our firm’s client returns.
In summary, it is my belief that you can expect to continue to see outsized returns for a bare minimum of 3-5 years. This will also include some negative return quarters – expect them, don’t dwell on them, and you will prosper! I do think this pattern of growth could exceed the previous 9 ½ year record launched under the policies of President Ronald Reagan. If you have additional monies that are sitting on the sidelines, in fear of an unlikely 2008 like event, please remember that I previously mentioned, that in our economic history, that is a one in every 70-year economic catastrophe. The previous catastrophe that looked like 2008 – 2009 was the great depression in the 1920’s and early 1930’s. Don’t let so called market pundits, and those who have little understanding of our markets, or portfolio management skew your thinking. Some of Spectrum’s competitors make their living fear-mongering and selling high commission, expense – laden products like annuities. Some unproven or unknowledgeable advisors emphasize adding bond holdings even though bonds will suffer greatly as interest rates head skyward for the next 20-30 years. When this occurs most bond holdings and bond portfolios will suffer massive losses.
Put your confidence always in our constitution, in the American people and their power to make decisions on their own, in the power of individual liberty and freedom to build prosperity, and in the greatest wealth building machine ever seen on the face of earth – capitalism! If you do these things you will be wealthier, healthier, and happier.
Kelly Buckley, MBA, CFP®
Managing Director for Asset Management