Once again, it was a nail-biter with the action on Wall Street on Friday; it took a backseat to the drama in Washington D.C., where the GOP health care replacement bill was caught between a rock and a hard place in the form of moderate versus conservative opposition. 

Finding the equilibrium was tough as a concession for one group further alienated the other group.

I am a fan of the House Freedom Caucus, but I respect the Tuesday Group; I think it’s time to get past the finger-pointing and to figure out how to avoid further embarrassment with the rest of the agenda.  Make no mistake; the stakes are a million times more important than to have egg on one’s face, in fact, it’s a billion times more important.

The market is higher in part to the confidence that Trump’s economic agenda will sail through Congress, and our economy will respond by sailing along as well. Sadly, there might be hiccups on tax cuts and reform. There are many in the Grand Old Party that want to make every course of action “revenue- neutral,” which is admirable, but it means relying on assumptions that have always underestimated the impact of supply-side economics.   

Velocity of Money

The velocity of money is the rate at which money is exchanged from one transaction to another and how much a unit of currency is used in a given period of time. Velocity of money is usually measured as a ratio of GNP to a country's total supply of money.

Velocity is important for measuring the rate at which money in circulation is used for purchasing goods and services, as this helps investors gauge how robust the economy is, and is a key input in the determination of an economy's inflation calculation.

-Investopedia

Also known as the movement of money, the velocity of money has plunged as Main Street (not unlike corporate America) sat on their cash, afraid to spend cash even as their disposable income improved.   Lower taxes should mean MORE money into government coffers as folks spend more money, and it circulates more frequently through society with governments taking a piece of the action each time.

More importantly, for the Federal government coffers, this renewed economic actively should result in more jobs and more taxpayers along with fewer people on governmental assistance.  As for the business side, we are already seeing major movements.
Big Business, Big Moves

Lost in all the drama last week was a mountain of economic and earnings data that underscored the fact that the U.S. economy began to percolate in the late summer months of 2016; the election has built into ripples that could become an economic tsunami.

I understand that a lot of this is predicated on the eventual passages of the Trump agenda, but don’t underestimate how much of the gears of commerce have moved partly because of Hillary Clinton’s  political defeat and the death of the War on Business.

Businesses are sitting on $1.7 trillion, and they want to put it to work beyond stock buybacks and dividend hikes. 

Businesses want to grow their business, expand their footprint, and gear up for more demand. This has been proven by some major deal announcements. The U.S. economy isn’t coming to a grinding halt if the Trump tax cuts don’t happen tomorrow.

The fact is that they’re coming; if Republicans don’t panic, they will not be offset by onerous schemes like the so-called Border-Adjustment Tax.  (Why lower individual tax rates, but make basic items more expensive for the poor and middle class?  That’s a velocity of a money killer.)

The World’s Starting to Rock

Europe’s economy is gaining momentum.  Friday morning, PMI manufacturing data saw Eurozone’s output at its highest level since April 2011.  France and Germany, which have major elections that could dismantle the European Union, actually drove the surge.

I suspect European economies will continue to rock and roll.

 

Today’s Session

The dollar is freefalling amid angst over ability to get tax reform.  The cheaper dollar helps multinational companies, but complicates border tax, and pushes back currency debate with trading partners.

Since the beginning of the year, there are a lot of Trump stocks we took profits on. I’m beginning to salivate, as they are coming back to great re-entry points.  I’ll update the list this morning (ask your rep or reach out to research@wstreet.com).

Key Support Points

These are key support points mentioned last week, while they don’t have to be tested, these levels are here when I become more anxious.  But I must underscore, it’s not time to panic, rather time to be ready take advantage of opportunities.

Comments

Great piece Charles! You are the ONLY commentator/expert I see commenting on the velocity of money. Fantastic. It is the most important thing to watch and should turn dramatically if Washington can get their act together. Hopefully they hear your advice about giving less credence to being revenue neutral since the healthcare bill which would have given them substantial cushion went down in flames to morons like Rand Paul that do not get the big picture.Small ball players like this caucus need to be crushed and put down! Hope Trump and company get 'er done! Ray Weldon on 3/27/2017 10:03:48 AM

Baby Boomers spending their own savings vs. their former employer's money is a velocity killer that won't change for another decade. Craig on 3/27/2017 10:13:29 AM

Your grasp on graphs is super and the financial World is biting nails Ramon Espinosa on 3/27/2017 11:14:06 AM

Your grasp on graphs is super and the financial World is biting nails Ramon Espinosa on 3/27/2017 11:21:39 AM

The aging population does have ramifications for spending and certain sectors. Then it will start rolling over as inheritance and velocity will pick up. For now what's the best sectors for next 5 years? And what are the best bets within those sectors? Garro on 3/27/2017 4:15:28 PM

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