Ka-ching, it’s time for Christmas. What to buy? How about a small furry animal that appears out of a spotted egg, and grows up before your very eyes? Except you and I are too old to care. And good luck finding one, anyway.
They’re called ‘Hatchimals’. They’re for kids. They’re also sold out. You won’t believe me when I say they’re a clue for your investment strategy. But they are, because they’re the hottest toy in the United States right now.
‘The New York Times: ‘Desperate parents intent on buying a Hatchimal are waiting in long lines at retailers, putting their names on waiting lists, and even buying lottery tickets for the toy. Sellers on Amazon and eBay were asking more than three times the retail price on Friday.’
What’s also hot is the price. At $59.99 a Hatchimal doesn’t come cheap. But it does come with a note on the change in crowd psychology happening in the United States.
Boom times are back
It was only a few years ago that everyone said the US was lost somewhere in the middle of a long, grinding period of low growth and stagnant income.
This — alongside a nationwide manhunt for Snapchat Spectacles, and before that the Pokemon Go fad — suggests the US consumer is going back to more carefree and profligate ways. Why? Because the future is beginning to look a lot brighter.
You can probably pin it down to the wealth effect. US house prices have eclipsed their previous peak in 2006, in nominal terms. And the Dow Jones and S&P 500 are at record highs. Official unemployment is at a nine year low. Growth is back!
Suddenly those massive US federal debts don’t seem quite as large and unpayable as they did a few years ago. Maybe that’s why Donald Trump’s incoming administration is considering issuing ultra-long US debt. We’re talking bonds with maturities of 50 to 100 years.
Our Publisher, Kris Sayce, recently shared a useful graph of current US debt. It shows how it is ‘front loaded’. Or as Kris put it, it shows that around half of the debt is due to be paid off in five years. We’re talking trillions here, too. See for yourself…
Click to enlarge
Of course, the debt won’t be paid off. It will be rolled over. But at what interest rate?
If rates are rising, the US has a much bigger interest bill to foot. Not only that, Trump has gone on record with his vaunted plan to rebuild America’s infrastructure.
Trump’s new Goldman Sachs plated Treasury Secretary, Steven Mnuchin, has to figure out how to pay for it. He’s already gone on record to say the US government plans to drive US growth through spending. He wants to crank the US growth rate to 3–4%.
But who’s to say the US Treasury won’t issue mega-long bonds and lock in today’s low rates for as long as possible? They can use part of the money raised to refinance the outstanding shorter term bonds. The result can rebuild America’s crumbling airports, roads and rail networks.
The real question is who would want to buy such long-term bonds? They’re bound to be a financial loser long term. But bonds of that length have sold in Europe. Technically there’s no reason why the US can’t do the same. In fact, the US is kind of crazy NOT to do it. Interest rates are at a record low.
More government spending equals more government borrowing. And Trump’s going to lower taxes as well! No wonder the finance guys love it and are getting crazy bullish.
Here’s how Steve Schwarzman, Chairman and CEO of private equity behemoth Blackstone, views Trump’s ascendancy:
‘I’ve been in finance for, I don’t know, 45 years? This will be the biggest. When you have changes like this that are so profound, it’s going to drive higher GDP.
‘It’s going to make the U.S. a more friendly place for foreign capital. And it’s going to have significantly accelerated growth, not just for financial institutions but for the country as a whole.
‘So, this is very important. It’s very important. And it’s not just about some stocks for financial companies, although that would be a nice thing. It’s much bigger and more impactful over a much longer period of time.’
The stock market in the US agrees with him. Remember, it’s in all-time highs!
Now, don’t get me wrong. I’m no fan of politicians, including Trump. But it’s pretty simple to say that, when the government starts cranking up the economy, all we need to do is take notice and go along with it. All we have to do is stick out hand out to get a piece of the action. The US is just going to keep building and building from here.
If Trump can reign in the White House while the US economy expands, the markets won’t worry about the large federal debts. The growth is real. It’s when a big downturn like 2008 comes along that the panic will go around again.
Trump’s timing could be perfect. He might preside eight years in office with a strong economy, rather like Calvin Coolidge did from 1923–1929. It’s the next in line, like Herbert Hoover, that will inherit the poisoned chalice of staggering debts and a collapsing economy.
That’s a long way ahead yet. Suffice to say, markets are screaming at us that the US is lifting off a runway from the airport of 2008, and heading higher.
If you want to get on board the profitable and surging moves higher for the next decade, go here.
Associate Editor, Cycles, Trends and Forecasts