Image Source: Depositphotos
 

The Roaring Twenties

Click on the link and join those ladies dancing The Charleston for joy in the 1920s decade of economic growth and widespread prosperity, driven by recovery from wartime devastation and deferred spending, a boom in construction, the rapid growth of consumer goods such as automobiles and electricity production in the US and Europe and a few other developed countries.

Dance fast forward to the 2020s and we see similar happenings except that China and some other developing countries have joined the US leaving much of Europe behind. Doomsters - so-called experts - predicted a severe recession in 2023 and a year-end forecast of 3,400 for the S&P500 - it closed at 4,769 and the US continued to grow! 

There has been a recovery from the world war against the COVID-19 virus, supply chain chaos, 8% growth in 2023 world auto sales, and a pending boom in construction including repair and expansion of overloaded electrical supply systems to meet new age demand in many countries including the US.  

The latter - fixing electrical supply systems - offers perhaps the biggest opportunity for investors but, as a one-time electrical engineer, maybe I would say that I do like to connect things and I hope readers will share their ideas with comments at the end of this article. That way readers provide the necessary feedback to make a closed-loop circuit and thus better outcomes as does feedback in an electrical circuit.  

Republicans and Democrats in the US Congress agree on a few things, but they agree on one issue: the poor state of America’s infrastructure, from roads and bridges to electricity grids, public transit, and broadband. 

Normally I write fairly extensively about companies that will benefit from the macro events I mention in the article but so many will benefit from today's overall picture - especially in the US - that I shall briefly mention a couple of my picks later and expand mostly on the...
 

Best Macro Environment In 30 Years 

Those were the words from John Butler, head of macro at Wellington Management in London, as reported recently in the Financial Times.   

I shall list some of the "micro" components of that in bullet point form because there are too many to expand on individually.

They are not very micro!  In no particular order of importance, these are...

- More than $5.6 trillion is held in money market funds due to high interest rates, fears of a hard landing, and geopolitical uncertainties, mainly those involving China and the US. In my view, there will be no hard landing, high interest rates will slowly come down plus China and the US want to avoid conflict. 

- Only seven stocks make up nearly 30% of the S&P 500 by market capitalisation leaving many companies in the S&P493 forgotten and undervalued. Tesla is one of the seven and money will pour out of that when investors finally realize it is just a car maker - PE 75 compared with Ford's PE of 8! - and not a tech stock like Nvidia.  Nvidia and the others like Amazon might not grow into their valuations either. That seven collectively returned over 70% in 2023 while the other 493 returned only 8%.  I have no doubt that the S&P500 valuations will broaden out in 2024. Also, the Artificial Intelligence frenzy that drove up the price of Nvidia and others will drive a less frenzied but very important improvement in productivity growth in many companies, especially in the US because it has a world lead in AI.  

- Talk of recession since 2022 has meant many companies have deferred investments. That money will be released when they realize that no recession is on the near horizon. Already the tech giants have been pouring billions into cloud capacity bringing the total to $42 billion in Q3 2023 alone.  

- Bankrate.com says there is around $10.6 trillion in tappable homeowners equity that might be released as interest rates and job uncertainty decline. The job situation in the US is very sound and likely to improve in this macro environment. Only around $250 billion of home equity has been drawn down in the past 18 months which is less than in pre-Covid times.  Homeowners are sitting on a gold mine given the shortage of new homes under construction! 

- Consumer spending is an important part of the US economy and December retail sales came in at +0.6% M/M to $709.9B versus the +0.4% expected and +0.3% prior levels. Furthermore, core retail were +0.4% compared to the predicted +0.2% figure.

- US home building will increase as interest rates fall. Reuters reported that Mortgage have been at 23-year highs. The housing need has been deferred and we should see a construction boom once mortgages fall to affordable levels again. Home builder, Taylor Morrison, has reported that foot traffic was up 25% YOY in the first two weeks of this January - that in lousy weather! 

- Reuters also reported that Brookfield has raised $28 billion and Bloomberg that Global Infrastructure Partners raised $25 billion for their infrastructure funds. GIP is being acquired by Brookfield. 

- I listed many huge investments being made in the US by specific companies in my article titled The US Dollar Is The Main Safe Haven Currency 

- To those can be Amtrak investing over $50 billion in modern trains, enhanced stations and facilities, new tunnels and bridges, and other critical infrastructure upgrades.

- US re-shoring will pick up pace. There is more money coming once bureaucratic barriers are overcome! The US Inflation Reduction Act helped spur billions worth of cleantech manufacturing announcements since it was signed into law in 2022. But 2024 is the first year we have known how companies can qualify for the law’s lucrative tax credits. As one example of those barriers, of the $740 billion total the IRA allocated $9 billion for residential energy efficiency and electrification. These funds help homeowners buy and install appliances as well as windows, doors, and insulation materials. In a sign of how bureaucratic the implementation of the IRA has become, not one dollar from the $9 bn has been paid out yet!  Large amounts are yet to be used from other government packages.  Re-shoring also means shorter supply chains - which increases efficiency and productivity as well as drastically reducing transport energy use and thus pollution.    The need is amplified by new supply chain chaos caused by the closure of the Red Sea; container ship traffic was down 90% in the first week of January compared with a year ago. There have also been big cuts in the capacity of the Panama Canal due to low water levels; that is a key route between Asia and the US East Coast.   

- If there is a change of president in November - as seems likely at this time -  that would normally mean tearing up what the predecessor has done but former president Donald Trump is also a big supporter of re-shoring (indeed an early architect of it with his hardline America First policy) so, although there may be changes, the overall picture of many, large investments will remain intact. This also has the support of the people of both parties - a recent YouGov poll showed this: Making things matters - by 83 percent to 8 percent, Americans agree that “we need a stronger manufacturing sector”. ,

The needs and thus investment opportunities are enormous. 

Around the world there are signs of growth - except in Europe - and I shall expand on those happenings in later chapters of this article on another day.  
 

Potential stop-roaring items  

- US factory activity has been low for several months. That conflicts with the picture I paint. Things ticked up a bit in December so maybe that marks a turning point. 

- Central banks are a big danger.  They are accountable to no one and their policies create the opposite of real-life needs by suppressing both demand and investments in new supply. They should be part of the same coin as fiscal policymakers and be accountable to the electorate. Until then they will be a danger to most forms of investment.

- The bursting of the “Magnificent Seven” bubble could spill over to markets generally. The optimist in me thinks the money will instead spill over into my picks! 

- Commercial real estate poses a significant threat to markets in 2024, with over $6 trillion in debt outstanding. Many banks are involved in that. 

- The United States rang in the Western New Year with a lot of red ink as the national debt surpassed $34T for the first time. It would be helpful to see this separated into good debt - debt for investments that will pay back over and over for decades to come - and the mountain of bad debt funding vast, useless government departments (officialdom) that would give Cicero nightmares! His advice is below. 

Despite those dangers my conclusion overall is there will be no hard or soft landing for the US company - it will stay aloft for a long time yet. Even if there is a US recession it will be mild and some sectors will continue to fly. 

That leaves a question to be answered. Where to invest in the...
 

New Age Industrial Revolution 

The first Industrial Revolution was driven by steam being used to power machines and generate electricity. Electricity sparked the Roaring Twenties: During the 1920s, the American economy continued to accelerate. One reason was the growing electrification of the country. The portion of U.S. households with electricity rose from 12 percent in 1916 to 63 percent in 1927, and its widening use in factories led to increased productivity. Also contributing to the economic boom was the advent of mass-production methods such as the assembly line, which spurred the growth of the automobile industry. Those links from Britannica. 

Today's and tomorrow’s world relies on electricity for almost every activity irrespective of the generating technology used. One thing has hardly changed - the way to get that power from source to user and to control its uses.  It is ancient! 

Ageing I maybe but I was not around in those first Industrial Revolution days in the 1700s but - as I mentioned above - I was once an electrical engineer. That required a lot of brain work so I got out and into management but I remained deeply involved in advanced technologies and manufacturing on four continents. Today that mostly means investing and one of my picks that will help keep my portfolio aloft is...
 

MYR Group  

MYR Group Inc (MYRG) is a holding company, which engages in the provision of electrical construction services. It operates through the Transmission and Distribution - T&D - and Commercial and Industrial - C&I - segments. The T&D segment offers a range of services on electric transmission and distribution networks and substation facilities. The C&I segment includes the design, installation, maintenance, and repair of commercial and industrial wiring, installation of traffic networks, and the installation of bridge, roadway, and tunnel lighting. 

The original founding company has been bringing power to the people since before the first Roaring Twenties and that technology has not changed much since!

MYRG’s financial figures in $millions show very healthy growth and 2023 figures, when published, should show similar based on quarterly figures to the end of Q3. The company has little debt so high interest rates are not a problem.

Figures from the Financial Times

MYR is active in all those areas of huge investment that I mentioned above plus its T&D segment will get plenty of work repairing woefully weak power lines currently knocked out by the weather in Texas and several other US states.

Fixing those will mean yet more work for MYR's specialist fleet of vehicles ...

 Photo: MYRG website

The MYRG website tells much more. 

The stock market tells us more too...

Chart Source: Financial Times

There are competitors and I also own one of those; Quanta Services (PWR)  

PWR's Electric Power Infrastructure Solutions segment is engaged in the design, procurement, new construction, upgrade repair, and maintenance services for electric power transmission and distribution infrastructure. The Renewable Energy Infrastructure Solutions segment provides infrastructure solutions, including engineering, procurement, and repair and maintenance for renewable generation facilities, such as wind, solar, and hydropower generation facilities and battery storage facilities.  

Its share price has been up 35% in the last 12 months. MYRG’s up 47%. 

Another in my electrical circuit is Schneider Electric, up 20% in those 12 months. I recently wrote about Schneider in Paris - Europe’s New Capital And A City Of Light For Investors  It controls the electricity at the user end of MYRG’s And PWR’s supply lines. 

All three remain good, sound buys until the...
 

Roaring Twenty Twenties End.

One key reason for the end of the roaring 1920s in 1929 was banks overloaded with debt following which they pulled the plug on many home owners leading to the Great Depression of the 1930s. We saw a repeat of that in 2007/8 but politicians and central bankers tried to deny it was a repeat of those awful days by calling it the milder name of the Great Recession.

Government debt continues to worsen almost daily and, as I mentioned above,  the US national debt has surpassed $34T for the first time. That means a ratio of debt to GDP of around 100% up from less than 50% just two decades ago. 

Today’s leaders should heed the warnings of Cicero in 55BC: "The budget should be balanced, the treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt."

They will not so investors should plan on the end occurring by 2029! 

I shall say more about other parts of the world in Chapters 2 and 3 in the coming days. 

Until then let’s enjoy the ride on those safe bets and join today’s lady dancing the Charleston.