November 30, 2017
It’s hard to believe that it is almost December 1! We hope your Thanksgiving was wonderful! So much has happened in all of our lives, in our economy and in our wonderful country throughout 2017. This letter is intended to share what we expect to see happening in the next two months. Some key points are outlined below.
US ECONOMIC ACTIVITY CONTINUES TO INCREASE
Yesterday the commerce department released a revision to third quarter economic growth. This revision showed our Gross Domestic Product rising to a 3.3% annual pace from the initial 3.2% calculation. This means our nation’s economy continues to grow at an above average rate which, we believe, will approximate 4% within the next year. During the last Presidential administration, we were told that our economy was range bound, long-term, in a “new normal” growth of 1% – 1.5% per year. At the time we said this was untrue and that economic growth was being restrained by Government policies that actually discouraged economic activity, job growth, and real wage growth. Now you’re seeing the effects, which we anticipated in letters to you over the past year, of rational Government policies that are very likely to continue putting our country back on a “normal” economic recovery path. Each additional 1% increase in our country’s Gross Domestic Product means millions of new jobs and millions of workers receiving pay increases.
This is something I am personally excited about. We all want to do well for ourselves and our families, but the exciting thing here is hard working Americans can have a higher standard of living and realize the benefits of our country’s growth to the same extent as we have over past decades. This growth provides more opportunities for folks who left high school or college around 2008 and have struggled to pay down student loan debt, buy a house, start a family, or receive meaningful raises and benefits from their work. Our economy has now experienced consecutive growth of 3% or more for two straight quarters. This has not occurred since 2014!
WE BELIEVE THAT IN DECEMBER 2017 WE WILL SEE SUBSTANTIAL TAX CUTS
This will include passage of a broad package of tax cuts, including corporate tax rates, and the return to the U.S. of over $3 trillion dollars, currently held overseas by American corporations, because of the past confiscatory tax system that encouraged our domestic companies to leave profits outside of our boarders. The return of this over $3 trillion and the tax cuts themselves, on both an individual and corporate basis, will very likely lift our economy again into a growth pattern that we believe will equal, or exceed, 4% for an extended number of years and cause your investments to appreciate substantially above normal 9%-10% equity market returns – long term! We also believe that in the first quarter of 2018 we are likely to see an infrastructure funding package passed that will infuse a minimum of $1 trillion into rebuilding our nation’s roads, bridges, and airports and provide millions of jobs to those in the construction and trade sectors. This will improve our transportation and electrical grid resulting in significant productivity enhancement – once again raising our Gross Domestic Product growth.
It is difficult to overestimate the synergistic effects of these substantial policy changes. Folks, I must make this very clear. We believe we are getting ready to experience the highest period of economic growth since the 80’s and equivalent to the 1982-1991 period when our economy doubled, the number of jobs held doubled, and investment portfolios went up many times. This does not mean there won’t be down quarters or even a down year, but it is our firm belief that we’re going to see 6 to 9 years of relatively uninterrupted economic growth and outsized returns on your investment portfolio with our firm.
OUR FIRM ANTICIPATES ECONOMIC EVENTS AND MANAGES CONCENTRATED PORTFOLIOS
This gets your money in front of those anticipated changes and, for this reason, as the attached charts show, our portfolios are tending to outperform the market by a wide margin. The first chart shows our client’s net returns following our accurate predictions.
THIS IS A TIME TO BE BOLD!
Do not believe the naysayers who always look for investment disaster in every silver lining. This is a time to fully employ your capital, not to have it sitting on the sidelines. This is also a time to recognize that the Federal Reserve’s interest rate increase path will not abate for many years as the economy grows strongly. This is a time to recognize that large, business-oriented changes in tax policy and regulations are bound to produce great growth and great gains!
THE FEDERAL RESERVE WILL RAISE RATES AGAIN IN DECEMBER 2017
This is likely to lead to a minimum of 3 to 4 more federal funds interest rate increases in 2018 – all of which should directly impact your investment account with our firm in a positive manner- because of what we have invested in. It will also lead to losses for those who are in so called “safe investments” – meaning bond holdings. The majority of bonds will see significant price declines in the years ahead. Many of you have friends or family using bond portfolios. Please feel free to offer them our assistance for a no obligation second opinion. We would be happy to analyze their current holdings and give them a written report which quantifies the sensitivity their portfolio has to interest rate increases. This interest rate increase path that we’ve been on since last year will likely continue for approximately 20-30 years. The investments we grew up thinking were “safe” will cost investors a tremendous amount of capital over that very long period of time.
Our current portfolio holdings are not overly aggressive (which your returns could lead you to believe). They are outperforming the market while being invested in what we believe are the safest sectors with the concurrent ability to appreciate rapidly if economic events progress as we anticipate. I hope this helps explain why your accounts have appreciated so much in recent years. One of the things I’ve learned in 30 years of professional practice is that the ability to anticipate changes and pre-position assets makes generating outstanding returns, with relative safety, possible.
FEDERAL RESERVE CHAIR JANET YELLEN CONGRESSIONAL TESTIMONY
Yesterday Yellen called on congress to adopt policies that will get US economic growth out of its “disappointing slow” post-recession pattern. “In this regard, the Congress might consider policies that encourage business investment and capital formation, improve the nation’s infrastructure, raise the quality of our educational system, and support innovation and the adoption of new technologies,” she added. Now that fed chair Janet Yellen is finally able to speak her mind, the truth comes out and is quite different from what was said during the previous presidential administration. Janet Yellen was an advocate, during President Obama’s terms in office, of the “new normal” philosophy that our country would not return to a normal growth path. Her comments to congress yesterday are the nail in the coffin for the horrible policies that were pursued by the Obama administration. These policies were confiscatory in taxation and abusive in over-regulation of business. They shut down our ability to extract mineral wealth, raised our energy costs to catastrophic levels, wasted trillions of dollars on pet projects that went bankrupt (like Solyndra) and gave huge infusions of cash to federal Government employee unions. Now Chairman Yellen is unfettered and able to speak her mind.
OUR SOCIETY IS CHANGING – FOR THE BETTER!
On a personal note I can’t tell you how happy I am to see the outing of abusive, disgusting behavior by the political and entertainment industries. As a man, I realized decades ago that every woman is someone’s daughter. I have a beautiful daughter and would like to think that every man would treat her with the same respect and care that I would treat their children. I am thrilled that we are seeing politicians, on both sides of the aisle, fall due to the Sodom and Gomorrah environment that has prevailed in both our state legislatures and in the congress of the United States. These folks deserve nothing but the opportunity to leave their high office immediately. We as a nation need to seek people of character, morals, and ethics in all that we do, but especially in our elected leaders. Our country’s entertainment industry has always been disgusting in its abuse and overuse of drugs and in their personal behavior. They’ve set a standard so low that it has negatively impacted our youth and even our own attitudes. I borrowed a car the other day and was reviled by the filth I heard from a “rapper”. Our Creator deserves our best efforts. Our Creator should be able to expect that we will treat each other with dignity and not abuse the positions that he gave us. I am mentioning this because it has been heavy on my heart lately. I hope as men we always set the standard for our kids and our friends on how we treat somebody’s else’s daughter. No matter their age, they will always be someone’s daughter.
God Bless all of you as we approach this sacred Christmas and Hanukkah season and thank you for the faith, kind words, and thoughts you’ve shared with us. Our entire firm appreciates the trust you’ve shown us, and we will work diligently and faithfully to earn that trust every single day.
Kelly Buckley, MBA, CFP®
Managing Director for Asset Management