By: Russ Colbert
Fall 2018 (Vol. 36, No. 3)
Since around the first quarter of 2009, the predictions of a stock market and economic collapse have been never ending. We have written many articles from the beginning arguing against the pessimism and why we thought it was unjustified. We argued Brexit, student loans, government debt, Japan Tsunami nuke meltdown, tapering of quantitative easing, triple dip recessions and on and on. The pessimists have been wrong constantly. Now they are talking tariffs, strengthening dollar Fed rate hikes, and China selling U.S. debt. They never give up. We still are not worried at this time.
So far the United States continues to have a strong economy. We have always allowed other countries to maintain higher tariffs. America, the world’s largest consumer has helped those countries grow. By holding our corporate tax rates higher than most other countries we have subsidized non-U.S. growth. Now, under new leadership, the restrictions that held back U.S. growth are being eliminated. Reducing government regulations and cutting taxes have made the U.S. more competitive. Tariffs do negatively impact some U.S. consumers and producers, but hurt foreign countries more than they hurt America.
The countries without property rights, free markets and constitutional law need foreign help to grow. The United States is removing some of that help from those countries as it makes itself more competitive. This will help the U.S. continue to grow. It is true that a slowdown in growth of other countries could have impact on corporate earnings and our growth, but we feel it won’t be that bad and we should continue to have 3% plus GDP growth, along with continued job growth and low unemployment over the next several years.
The real threats to prosperity are excessively tight Fed policy, excessive government spending, excessive regulation, tax hikes, and trade protectionism. Right now the fed is not anywhere close to being tight. Government spending has been high and has kept growth from being higher. The regulatory environment has been very positive for the economy and should continue to improve. Taxes have been lowered and should remain low for some time. Tariffs have gone up, but at a much smaller amount than the tax cuts. As far as trade wars go, we do not expect any because it would harm other countries much more than the U.S. So for now we are in good shape.
We have the mid-term elections coming up soon. Currently the polls seem to give the edge to the republicans on holding on to the house and senate. Of course you know how polls go. They will fluctuate and things can change quickly. It is a very tight race in many states. If the polls favoring the republicans are right, that means the deregulatory process would stay on track, which would be very positive for the stock market and economy over the next few years. The tax cuts would not be repealed helping the investing environment to remain positive. So we will see, but things continue to look positive for the economy to me at this time.
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Senior Portfolio Manager
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