For Real, But Really? Yes, Really!

Part I
It’s going to be a big headline! That is when the S&P 500 rises to 8,000-9,000. You think I’m crazy? I might be, I’m certainly not shy about making controversial calls, and I’ve been called worse than “crazy” in the past. Hear me out though because if I’m right and the S&P 500 actually reaches this milestone way before anyone else believed it could be possible just remember you heard it here first. It’s never been done before, one would have to take an average PE ratio of say 25 times earnings and multiply that by $320.00 per share for S&P 500 Index to arrive at such a lofty goal. Or, how about this? Take 35 times earnings and now you only have to get to $228.57 in earnings per share for that same basket of S&P 500 companies. First, the backdrop will require corporate earnings to be exceptionally healthy and then add in a multiple of 35 times earnings and just like that, we’re there. Man we haven’t seen the S&P 500 trade at that high a multiple since when? The years were 1999-2000, when the index peaked at 40 times earnings. Note also when that occurred we were already mired under a “services” based economy, a similar economic backdrop to what we have today or very close to it. The fact is that American manufacturing et.al. has been mostly absent in this country for decades now, around 45-50 years!

Part II
I remember the year 2000, it was the year a speculative bubble popped on Wall St. and a lot of people lost a lot of money! Remember how the pundits came out afterward to say that earnings multiples of 40 were way too high and everyone should have known this? When bubbles like that pop you’ll see ordinary folks jump off of buildings [without parachutes]. However, I’m going to borrow a phrase, “It’s different this time”, always the infamous argument but I’m using it to predict that yes, the S&P 500 will climb as high as 8,000 under Trump’s new “Golden Age of America” agenda. So what’s different this time? I’m not calling for a stock market bubble to occur for this to take place. Instead, I’m calling for a sustainable climb to 8,000+. You may be asking why? My short answer is “why not?”, but read below for my “long answer”? 🙂

A New Paradigm Begins!
As we speak, breathe, listen, and still sometimes fail to hear, a new paradigm shift is taking place in the U.S. economy, all orchestrated by the Trump Administration. Broad sweeping changes are going into effect that will eventually remake the U.S. economy – from domestic manufacturing start-ups to foreign investment to re-investment in existing plant & equipment, all orchestrated under widespread reductions in regulations for many sectors of the economy. Even nuclear power for clean energy gets a nod by the new administration. Plus, do not forget sweeping changes to the U.S. tax code from no tax on tips, no tax on overtime, and maybe even Social Security(?), and all for the very first time! All of these changes in aggregate will restart the economy organically, from the ground up in ways you and I never imagined. In addition, it will totally change the landscape by resetting rules for conducting business inside the United States as well as outside our country for any foreign competitors seeking access to our markets. Wait, watch and see!

From Behind the Velvet Curtain
Allow me to share this vision – what if, what if we began making stuff again here in the good ol’ USA? What if we not only kept our services sector but we also added a manufacturing sector would that change things? Then add to that, invoking reciprocal tariffs onto countries that tariff our exports, pretty simple stuff right? This is what I believe these Wall St. pundits are missing in their forecasts, so let’s talk about it. If manufacturing sees a revival in the United States all kinds of things begin to happen we haven’t seen occur since I was a little kid, and maybe even before that. What I’m pointing out here is that we are on the cusp of a “paradigm shift”, something no one else is talking about outside of a team in the White House led by President Donald Trump. Trump possesses vision, and cares about the country more than most in Washington and for that we can all be grateful. However, Trump is not a Wall St. market forecaster, that’s something I like to do. And in so doing I’m hearing a bunch of inaccurate forecast information coming from Wall St. pundits lately regarding this new push to tariff foreign imports and revive onshore manufacturing. If you have watched the latest trading activity, investors have not yet bought in to the new paradigm because the pundits [largely] have not bought in. People generally lack vision I have found over the years since I’ve occupied this planet. Market pundits aren’t helping matters either by sucking up to small-brained clients with money they want to keep on their books? How many times must I state that possessing money and possessing brains are completely uncorrelated? [It’s all part of God’s “intelligent design”. God could care less what your bank account balance is, he doesn’t look at your assets before he decides what your fate will be. And whatever he decides is what will happen, guaranteed!] The bottom line is, there’s a ton of skittishness happening to daily trading activity. Not to worry as the “Golden Age” of America does come with some caveats we’re not used to seeing as some sectors in the economy that have excelled during periods of lackluster U.S. growth will not do as well once the yield curve normalizes and expanding U.S. GDP growth is the order of the day. See below and you may have to read between the lines to find out which sectors I may be referring to.
[Hint: holding long-dated assets do not work well in times when the bond market has a real bid.]

The Trump Put
Trump’s push to expand the reaches of the largest economy in the world by re-introducing a real manufacturing base would in turn invalidate many an economic model that forecasters have been operating under for decades now; some valuation metrics will become useless, invalid. Never say never to growing the U.S. economy at a 5-6% clip every year and for years. Just because it’s an extremely rare-to-almost-never event doesn’t mean a damn thing! What it means [on observation] is we’ve been trying to play ball with one arm tied behind our backs for about a century now? One would have to go back to the 1950’s, 60’s and early 70’s to get a glimpse of the United States when we actually made a significant amount of things domestically. Between Japan, Communist China and maybe even South Korea these countries have supplied the United States with a ton of things we used to make ourselves. Open your mind for a minute – what if we made [even] most of that here domestically again? Would the U.S. economy look different given that scenario? Answer: It would look totally different than what it looks like today, that’s for certain! Prognosis? Economic models that supported equity prices based on QE programs and other Fed stimulus packages will become obsolete.

The Treasury Yield Curve Must Be Allowed to Mend
The U.S. Treasury yield curve has been messed up since the days of two Obama terms. To exacerbate the problem the Devilcrats continuously push programs that increase taxes and regulations and the negative impacts of those on U.S. GDP is well documented yielding the same results. Government overreach should be “Public Enemy Number One” in this country, as it always stifles economic growth and chokes off innovation. Thus the economy is unable to obtain a normal growth trajectory. Whenever this happens the Fed has to step in and work all kinds of magic to resuscitate the patient. Otherwise we’re looking at runs on the major banks in the country, massive layoffs, bankruptcies, civil unrest and all kinds of bad things to happen. To avoid that during the COVID downturn, Fed Chair Jerome Powell juiced the money supply to the tune of $9 Trillion with a “T”. Actions like this did keep the stock market liquid [afloat] and generally moving forward depending on what all an investor owned while, at the same time, doing nothing to spur real organic growth. What happened next? Cryptocurrency valuations and offerings exploded upward. At one time there were more than 1,800 different crypto offerings across the world. More recently, juicing the supply of money directly attributed to runaway inflation we haven’t witnessed in the United States since the early 1970’s. 9 to 10% U.S. annual inflation reads turned into a big problem for awhile there.

Under Trump’s “Golden Age of America” new paradigm I’m predicting that the treasury yield curve will finally mend. What does that mean? If you go back just 3 or 4 years ago, the U.S. treasury yield curve had inverted, instead of a positive sloping yield curve across the tranches of duration, short-term rates were yielding higher than long term rates. Inverted yield curves like this are a good indicator of impending recession. This particular inversion went on for 2+ years. In fact, the yield curve just “un-inverted” prior to the November 2024 election. Meaning short-term rates are now at least lower than yields on the 5, 7, 10-year and 30-year bond, as it should be. However, here are two issues I’d like to point out at this writing –
1) Treasury yields are still too flat all along the curve meaning 2 year yields are only slightly lower than the 5 year which is only slightly lower than the 7 year etc. pretty flat all across the curve. This signals that U.S. economic growth is not yet robust as bond investors are still teetering between a belief in “recession” or “no recession”.
2) The bond market is also signaling that the Federal Reserve is keeping short term rates too high. Once they decide to lower the Fed Funds rate and the Discount rate we should see a more positive sloping yield curve where short-term rates are significantly lower than long term rates.

[Note: If you don’t take away anything else from this writing remember this – investors should understand something, the bond market is a way better indicator about the direction of the U.S. economy than the stock market has ever been. Always, always, always look at the health of the bond market for any signals as to the underlying health of the U.S. economy.]

On U.S. Inflation and Interest Rates
What can we expect to happen with interest rates once the “Golden Age” of America gets baked into the cake? The short answer is expect interest rates to generally rise the further out one goes on the yield curve. The 10-year now sits @ 4.55%, still very low historically. This 10 year yield paper spent decades between 5.5% to 7.5%, which is reflective of a normal expanding economy. An economy where the Fed is not having to create all kinds of magic to stimulate economic growth, we don’t want that, you don’t want that. Personally for me if the 30-year treasury, or even the 20-year was yielding 8-9%/year I would be very interested in buying that paper, but not @ 5.0% where it is today while inflation hangs around 2.5%-3% per year? No thank you, not a good trade, plus I won’t even be around in 30 years anyway! 🙂 What people are still not wrapping their heads around is that if this economy takes off it does not mean high prints on inflation, it simply means big prints on Gross Domestic Product [GDP], and with prints like that on GDP one can never expect interest rates to stay benign. Now, don’t confuse healthy interest rates as a bad thing when the economy is growing at clips of +4% annually, all that comes with the territory. I’m not worried about rates along the yield curve finding their proper home under a robust economic growth cycle because I know short-term rates will be lower than intermediate term rates which will be lower than any long duration paper. This is how the bond market prices in risk across the curve, that’s a normal scenario as things are supposed to work this way.

A “Golden Age” Trumps the “Gilded Age” in America –
The “Gilded Age” was the term used to describe outsized economic growth across America between the years 1870 and 1890. It was a period marked by great technological advancements. One write-up I found on this period in history mentions, “the U.S. transitioned from an agrarian economy to one dominated by manufacturing and industry.” An industrialization of America had begun to take place during the “Gilded Age” and hence great fortunes were made during the era by people like Carnegie and Rockefeller. We now sit on the doorstep of the “Golden Age” so get off your asses and stop worrying over spilled milk America because “there’s a train a coming, don’t need no ticket – just get on board!”