New Year’s Day, as I write this, is always a day of optimism and hope. Think of it this way: Who goes into a new year thinking the next 12 months will be bad? Probably some people, but not most people. I am very optimistic for 2018. It probably helps that I live in the sunshine and relative warmth of Southern California. If I still lived where I grew up and went to college, in Upstate New York, it is probably more difficult this year to be optimistic because it is so bloody cold – highs barely above zero. Tough to be optimistic when your tuchus is freezing. Today is when people watch the Rose Parade and decide to move to Southern California.
Here are some reasons why I am (financially) optimistic for 2018:
- The new 21% tax rate for businesses will be very stimulative. Businesses who currently hold money overseas will face a one-time repatriation tax it, but thereafter will be free to put the remaining money to work in their businesses. Goldman Sachs just announced a $5 billion tax hit – other companies will follow suit. But Goldman Sachs and the others will be winners in the long run as their tax rates will be much lower. I believe either that companies will use the tax savings to expand and hire new workers (to the extent possible given our already low unemployment rates) or to enhance their per share profitability by increasing dividends or buying back shares or by increasing research and development for future growth. All of these are bullish for shareholders.
- We have not tried stimulative fiscal policy 9 years into a market upturn, and I am very curious to see what happens. After the Financial Crisis of 2008, the market bottomed in March 2009 and we have basically been in an upturn since then, with a couple of bumps along the way. Classical economics teaches that governments should use fiscal stimulus at the bottom of a cycle, not at the top, as we are now. Classical economics further would teach that any further fiscal stimulus at the top of a cycle will be inflationary. However, inflation seems to be well under control, probably due to the globalization of the world economy. When you think of an entire world market, the “too few goods” part of the equation doesn’t come into play. Yes, the Federal Reserve is tapping the brakes with some quarter-point interest rate hikes, but I don’t think they see a rapid rise in inflation in the offing.
- US stock markets had a good 2017, but they weren’t alone. The Emerging Markets Index was actually the best 2017 performer, up about 32% vs. 25% for the Dow Jones Industrial Average. Even the Japan Nikkei Index showed signs of life by posting a gain of about 20%. European markets were also up, although not as strongly as US and Emerging markets. Could it be that emerging markets are finally getting their act together? Could some prosperity be coming to some previous economic basket cases in Africa, South America and Asia? That would not only be good economic news; it would be great humanitarian news.
- India in particular was a hot market in 2017, with its index rising 27%. Remember that India has been an independent country for about 70 years, during which time they flirted with socialism and alliances with the Soviet Union. Now perhaps this nation of over a Billion people is moving forward toward greater economic prosperity for all. I’m no India expert, but India’s continued domestic growth could be outstanding news for companies throughout the world and could also affect world inflation in both positive and negative ways. I will continue to watch how India performs and emerges this year – they are truly an emerging market.
- As I have stated in previous blog posts, while I recognize geopolitical threats such as North Korea and Iran, I do not believe they will result in armed conflicts. I believe there is a whole lot of bluster by all parties. ISIS has proven to be overrated as a governing force. Terrorism will remain with us but will be played out through lone wolf strikes that tend not to roil markets for lengthy stretches.
- Despite the Fed’s increases, interest rates remain low. Even though there are lower limits on how much mortgage interest you can write off, housing will remain strong particularly in areas that are growing because there is insufficient supply to meet demand. We don’t build nearly enough housing for lower and middle-income Americans.
These are just my opinions and they are worth to you what you are paying for them. If you are new to my blogging, Welcome! Please go back and read some of my earlier posts. I have been blogging for the better part of 2017, 2 posts per week, and plan to continue. If you want me to blog about something you are interested in, please send me a reply.
The purpose of my blog is to show you how I think and to get you to think that you might want me to help you with your finances and/or your financial planning. My financial planning business is fee only, and I can customize my services and my fees to address your particular concerns or issues. My firm is Hutchison Road Partners, LLC, and you can check out its website at hutchisonroad.com. Thank you for reading and I hope you will continue to do so.
Once again, Happy New Year and all the best to you in 2018!