I dislike the government as much as you likely do.
It’s inefficient, it tends to overreact, and it messes up free markets.
Well, I have good news for you.
The U.S. government is doing a great job making sure that the last stage of the current cycle will be one for the record books. Remember that every cycle is bigger than the last.
Here’s what I mean…
Let’s Talk about Economic Growth Again
The most recent GDP report for the U.S. took the mainstream financial media by storm.
As a reminder, the world’s largest economy expanded at an annualized rate of 4.9% in the second quarter.
This is mind-blowing.
Obviously, there is no recession, and even if we see lower growth numbers in the future, I do not think there will be one this year or next.
But there are a couple of things you need to understand about the last GDP report.
First, this growth relied on two things. Consumer spending and government investment into research and development (R&D).
Second, R&D investment and spending have been adding to the total economic output for several quarters in a row. It’s a persistent pattern at this point.
Consumer spending is good, and I think it will continue contributing to the U.S. GDP.
But it’s not as interesting to me.
Government spending, however, is.
Let the Government Do the Market’s Work
If the government does something that helps my investment theses, I’m happy.
I’ll complain about the shortcomings of the U.S. political system all day, but when you understand the 18.6-year real estate cycle, it’s almost as if the government is on my side.
Right now, government spending and investment in R&D are driving the energy transition and infrastructure investment at rates never seen.
Funds from the Inflation Reduction Act and the CHIPS Act are slowly making their way into the real economy…
This drives land prices higher and attracts massive investment from private companies.
Toyota has just announced that it would increase its investment in electric vehicle battery production in the U.S. by $8 billion. The total now stands at about $14 billion.
In other words, the government has created a snowball effect where both public and private funds are going into some of the most important infrastructure and manufacturing projects in the country.
This means more jobs, lower unemployment, higher economic output, higher land prices, more spending, and more growth, you get it.
The final stage of the real estate cycle is setting up exactly as I expect it to.
Do you remember this clock?
Right now, the government is doing exactly what I expect it to in this part of the cycle – spending lavishly.
Take 2003… the U.S. government poured billions into Iraq after 9/11. This 2007 article from The Guardian lays out the facts.
In 1963, the U.S. government spent so much money on the Vietnam war, the U.S. had to be pulled off the gold standard.
1943, the U.S. government spent lavishly on war debts…
It doesn’t matter who is in the White House… what party is in charge…
The cycle always turns just as I expect it to.
Editor, Cycles Trading with Phil Anderson
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