Broker Check

The Kevlar Economy

| August 23, 2018
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When I think of Kevlar, my first thought is “bulletproof” which, upon a very unscientific poll of our office, this seems to be the consensus opinion as well.

One of SRQ Wealth’s key tenants is to stay “cutting edge.”  This requires constant honing of our craft and seeking constructive criticism to make us better professionals. We hone our craft through many hours of continuing education at both the local and national level, and we “formally” sought constructive criticism recently through a meeting of our Advisory Council earlier this summer.  Thanks to their input, we are working on better ways to deliver our services, communicate our message and structure our business going forward. 

Another way we stay cutting edge is to read…a lot. Topics can range from economic forecasts, technical financial planning articles, industry developments and much more.  We are always trying to learn lessons from those who came before us.

Brian Wesbury, Chief Economist of First Trust, is a rare voice among economists these days who combines academic proficiency with a (sometimes missing) dose of good common sense. His recent article, The Kevlar Economy (below), not only takes note of the topics the media wants us all to hear (and fear), but also (and more importantly), calls out the indicators he feels we should really be watching - and feel cautiously optimistic instead.

While our economy is not all roses, it would seem it’s not quite time to order funeral lilies just yet.'

"Since March of 2009, the predictions of economic, and stock market collapse have been non-stop. Doom-and-gloomers have been unrelenting. And it's doubly frustrating since you can't disprove a negative until it doesn't happen. 

We have written hundreds of pieces since the recovery - and bull market – began, arguing that the pessimism was unjustified. We've argued that Brexit, Grexit, resetting ARMs, student loans, government debt, Obamacare, no QE4, tapering,...etc., would not stop growth. The doomsayers have been wrong. Constantly. For our troubles we get labeled "perma-bulls", despite our arguments proving true. Meanwhile, the "perma-bears" have never had to answer for their fallacious forecasts.

Now they're talking Turkey, tariffs, a strengthening dollar, China selling US debt, Fed rate hikes. They never give up. But, we still aren't worried.

The United States, for the time being, is a Kevlar economy. It's practically bulletproof. By allowing other counties to maintain higher tariffs, America, the world's biggest consumer, has helped those countries grow. By holding corporate tax rates higher than most other countries, the US has subsidized non-US growth. 

Fortunately the self-sabotage is being eliminated. Cutting corporate tax rates and reducing regulation have made the US more competitive. No, we are not ignoring the negative impact of tariffs on some US producers and consumers, but tariffs hurt foreign countries more than they hurt America.

Countries without the Constitutional rule of law, property rights and true free markets need foreign help to grow. The US is removing some of that help in making itself more competitive. As a result, the US will continue to grow, while other countries suffer a loss of investment and sales. Once again doomsayers will be proven wrong. 

Yes, it's true that a slowdown in the growth of other countries can impact corporate earnings, or even have some impact on US growth, but the damage will not be nearly as great as the pouting pundits proclaim. We still forecast 3%+ real GDP growth over the next few years, along with continued jobs growth and the lowest unemployment rate in decades. 

Doomsayers, take note. There are five real threats to prosperity: 1) Excessively tight Fed policy. 2) Excessive government spending. 3) Excessive regulation. 4) Tax Hikes and 5) Trade protectionism. 

Right now, the Fed is not tight, far from it. Government spending is too high, that's why growth isn't even higher. The Regulatory environment is improving. Tax rates have been cut and are not likely to be hiked anytime soon. Finally, tariffs are going up, but by a much smaller amount than taxes were cut. We also do not expect a protracted trade war because that would harm other countries much more than the US. Ultimately, we expect deals to bring tariffs down.

In other words, of the five threats, two are negatives (with trade likely to turn) and three are positives – and don't forget new and unbelievably positive technologies! Someday, a recession will happen again, but for now the Kevlar economy will only get stronger.”

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy. 

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