Godzilla Arrives
Alright, it is that time again to assess what the hell is going on in the economy, and in politics. We still have a few more weeks of quarters to watch.
In summary, I think there is now an above average chance the GDP will be above consensus over the next few years. My lean will be toward ideas that have a greater degree of economic sensitivity.
Anyone that tells you they can understand what is going on in politics is lying to you. One independent voice that I trust is investigative reporter and writer Matt Taibbi. He wrote this week that Godzilla has invaded Washington, and nobody knows what will happen next. I like his metaphor. Right now Taibbi says it is to early to draw a conclusion about whether the changes are good or bad.
There are significant legal issues to many of Trump’s actions. Trying to handicap the outcome of Federal courts is a tricky business. I would point out that Kavanaugh, Coney Barrett, and Gorsuch were specifically chosen by the Federalist Society for there writing on administrative law. Given a chance, my bet would be the Impoundment Control Act of 1974 would lose a constitutional challenge either 6-3 or 5-4. Will that happen in two months, or two years, I have no idea. There is at least a chance, that for the first time in my lifetime, it is possible that Federal spending could be brought under some type of control.
My real reason for a bullish stance on the economy are the calm words of new Treasury Secretary Scott Bessent. As a long time Supply-Sider, there is at least a chance it is “Morning again in America”. I will write more on that this week.
There are still significant risks:
God only knows what to make of Chinese banking issues, especially with some type of tariffs added to the mix
I refuse to believe our banking system does not have commercial real estate problems. The auditors that allow this crap to be reported should be drawn and quartered. To avoid being accused of making terroristic threats, let’s be clear I mean that figuratively, not literally.
Credit spreads are at all-time lows, a dangerous time to get more aggressive.
There are nagging negative signals in the labor market, and other economic indicators, that there is still a smell of recession in the air. Consumers are over-leveraged and hiring is weak.
It is possible that government grifting is 3 to 5% of the economy, and when we turn on the lights, the roaches might scurry away and stop spending
Maybe I should just stick my head in the sand and stop making macro forecasts. In general my forecasts have been wrong for two years. I expected there to be a few negative GDP quarters when “pent up demand” came to an end. Instead a huge increase in government spending kept economy bouncing along the bottom. Brunswick and Thor saw big ticket sales down over 30%, but GDP has been grinding along.
Right now I think the risk is being too negative. I even spent an hour listening to the PulteGroup -PHM - $106 conference call. Even with higher mortgage rates these guys are making money “hand over fist”, buying back a ton of stock, and the balance sheet is pristine. I am still a long way from buying a homebuilder, but I am at least thinking about it. It is time to look at the steel stocks with Nucor - NUE - $130 near a low.
I am happy that I own Brunswick, Thor, RXO, Middleby, Teck Resources and Restaurant Brands (remember they sell franchises, not hamburgers). Nexstar, Rayonier, Matador, and Halliburton are slightly economically sensitive.
If the economic train is leaving the station, I do not want to miss it.
There are a dozen cheap healthcare stocks, the cosmetic stocks keeps getting cheaper, there are cheap REIT’s, you can always buy ConAgra (frozen diners), but right now I need more economic sensitivity.