The 18.6-year cycle continues just as I expected.

Inflation is in decline… the Fed is expected to pause its interest rate hikes… the labor market is as strong as it has been in decades… the U.S. economy is growing at over 2% annualized.

The next two or three years will be boom times.

Liquidity is abundant, interest rates could start declining, pushing asset values up.

But there’s another driver that very few investors understand.

And it’s corporate cash.

“U.S., Inc.” Invests in Itself

Businesses have amassed trillions of dollars in cash.

And they’re ready to put it to work.

This is a clear sign that corporate America sees no recession in sight.

From Bloomberg:

Of all the signs out there that the U.S. will manage to dodge a recession once deemed inevitable, perhaps none is more convincing than this: CEOs across the country are opting to reinvest more of their profits in expansion projects rather than handing the money back to shareholders. […]

‘Corporate America is reinvesting,’ BofA strategists including Ohsung Kwon and Savita Subramanian wrote in a note Monday. ‘The reinvestment cycle will ultimately lead to increased productivity, which will be the main driver of earnings growth going forward, vs. the last decade’s financially-engineered growth.’

Capital expenditures (capex) are rising while share buybacks are falling.

This is a great sign.

It means that businesses estimate the value of the projects they engage in will be worth more than their capital cost.

And these are conservative investors. Expansion projects are costly and require years to pay off.

This is why when corporate America starts investing more of its cash, you can read it as a bullish sign.

Goldman estimates that the S&P 500 companies will earmark more than $900 billion for capital spending in 2023 and 2024.

This massive amount of investment will complement government programs such as the CHIPS Act and the Inflation Reduction Act.

And unlike those long-term government programs, corporations are rushing to invest as soon as possible.

This is the “hidden” source of liquidity that will continue driving the real economy as well as asset prices… real estate among them.

New production facilities will need land… infrastructure… electricity… and keep in mind that we are talking about hundreds of billions of dollars here, waiting to be invested as soon as possible.

This is the latest example of the cycle unfolding just as I expected.

There are years of growth ahead, and the latest capex trends from “U.S., Inc.” have just confirmed it.

The real economy and real assets are going to do well.

Take note and join this trend before it’s too late.



Phil Anderson

Editor, Cycles Trading with Phil Anderson

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