US GDP Poised For Breakout

See the following graph for the US GDP % growth for the last 10 years:

screen-shot-2017-01-03-at-10-50-52-pm

I’d say we have a good baseline of what an economy can do under intense government regulation and it’s nothing to write home about – around 1% GDP growth per quarter.

Now bookmark this site and let’s check back in about 6 months.

Economics are driven by many factors but expectations are a big part. If a company is expecting a future of diminished growth then they’ll tighten their belts and react accordingly but if a company is expecting opportunities then they’ll expand and invest in capital.

Companies have been hording cash and investment capital has been sitting on the sidelines for 8 years now as we have struggled through the Obama/Pelosi/Reid years and I expect that potential energy will turn kinetic very quickly.

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6 Responses to US GDP Poised For Breakout

  1. blaine says:

    The biggest danger for Trump is a financial contagion from Europe or Asia in his first term.

    Barring that, if he is able to pass deregulation, tax cuts, pursue energy independence and real infrastructure projects, we will have 3% to 4% growth by 2018.

    Fixing Humpty Dumpty Obamacare may be the one insoluble problem. Even there, some deregulation may help spur competition.

    Every cabinet appointment needs a government ethics certification and it is going to be hard and may take longer with this many super rich cabinet nominees. The governors, and generals (even Mattis) should be approved quickly.

    Tillerson has a major problem with his $200 million in unvested Exxon shares unless he sells what he can and gives the rest to charity.

    Trump is a major developer who understands better then anyone who has ever been president, the unnecessary burdens government imposes on business.

    Trump didn’t appoint a single high profile retread politician to a high profile cabinet position. Christie, Giuliani and Newt are all out.

    The only exception is Perry who will be in charge of an agency he promised to close when he ran for President in 2012.

    Trump’s hired almost exclusively governors, business titans and retired generals. Elain Chao at transportation, is the only nominee that has ever run a federal department and she’s married to Mitchell McConnell. It’s a genius appointment. She ran labor for eight years and can advise Pudzer on where the alligators are. Nobody better to work on infrastructure stimulus that will pass the Senate.

    Trump’s nominees might get taken down by the press for conflicts or past scandals but they won’t be influenced by lobbyists and the allure a future career in politics or business.

    On the whole, even though I didn’t vote for him, Trump’s nominees have far exceeded my expectations. I hope they all get through.

    • cosmoscon says:

      As someone who spent the first 29 years of my life in Kentucky I’m very familiar with Mitch and his wife. Although I’m not the biggest McConnell fan, you are right with his wife being a great appointment.

      Trump couldn’t have listed these nominees during the campaign because that would’ve created a media and left storm but I wish I would’ve known he’d do this or I would’ve voted for him! Like you, I’m happy with what I see so far and he isn’t even in day 1 yet. Let’s hope he continues to pleasantly surprise us.

  2. livinrightinpgh says:

    While it would be great to see our tax dollars actually going to infrastructure needs instead of shoring up union pensions and basically turning the phrase “shovel ready” into a punchline, the hope for a sustained increase in GDP is going to be the repatriation of manufacturing and creation of jobs in the U.S. We could talk ad nauseum about how to make that happen, but the Trump administration has the challenge of making the U.S. a welcome place for investment capital.

    The other major issue they face is the fact that the U.S. debt stated as a percentage of GDP is now over 104%. And, that doesn’t even include the issue of “unfunded mandates”, which, at this time, dwarf the actual debt. In our Financial Planning practice, I have the opportunity each day to work along side of some of the best Estate Planning/Tax attorneys and CPAs in the business, as well as others who would be recognized as “experts” in the world of finance and economics. While they actually foresee a federal income tax cut (and a reduction in corporate taxation) being pursued to stimulate the economy, eventually, the piper is going to want to be paid. This is a driving force behind our client planning to create tax exempt income streams in retirement.

    But, it should be clear that we didn’t get to this place as a Country overnight, and there aren’t going to be any solutions that don’t have serious degrees of discomfort.

    • cosmoscon says:

      I work in manufacturing and I’ve seen first hand jobs move oversees due to the high corporate tax rate. It is my theory (and I think that of Trump) that lowering corporate tax rates will actually bring in MORE tax revenue. More jobs that are kept here means more folks paying taxes and fewer folks draining money from the government from welfare, unemployment, etc. I’ve been waiting for about 16 years to see this theory proven out and I hope we get this chance over the next 4 years.

      • blaine says:

        I heard Ryan talk about creating a window to repatriate corporate money. Estimates are about $2 trillion.

        The rate he talked was 5.25% which seems lower then it needs to be. They won’t repatriate it all but half would only be $50 billion.

        A really large portion would go to buying back stock which will inflate stock prices.

        We will be lucky if we can keep pace with creating jobs as fast as automation eliminates them.

        Energy independence, housing and infrastructure will all benefit from deregulation if they don’t go crazy and kill mortgage interest deductions.

        Pleased they are going to make the effort.

  3. livinrightinpgh says:

    Just a quick update…I was reading this morning that since January 2nd, the corporate bond market has really taken off. In fact, in less than 10 days, over $65 billion in high-grade debt has been issued. It’s more than half of all of the new corporate bonds that were issued in all of January 2016, and that month set a record.

    It will be interesting to see if this volume continues throughout the year, indicating the desire of U.S. corporations to repatriate capital and investments. We’ve already seen a number of companies doing this, although, other than Carrier, the news had gone largely unreported in the #FakeNewsMedia.

    Ironically, this boom in corporate bond issues is coming at a time when Congress is discussing certain tax reforms for corporations which would actually reduce/possibly eliminate their deduction for interest paid on debt. But, frankly, I see this issue as minor compared to what they are seeing as a more friendly environment for capital investment in the U.S. Lowering or eliminating the corporate income tax combined with scaling back many of the business-killing regulations that have been implemented over the last 8 years could spark a major expansion of corporate (and even small business) activity in the U.S. which would be VERY welcome.

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