Financial Projections for 2018-2019
The financial picture for the next year is already set. The tax reform law and other regulations rollback by the Trump administration are already in place. Here is my expectations for the next 12 month. I will revisit this article next year same time to see how I did.
- Apr. 2018
The tax reform will have positive impact fo both personal and businesses. Most people will see a reduction of their personal taxes in the amount of 1-2 thousand dollars. Many businesses will see a significant tax saving and have made plans to expand or profit share with their employees. These are all positive for macro economics. It means people will have more discretional spending which may lead to better business climate overall.
Consumer confidence is up which will also have a positive effect.
On the down side, gasoline prices are rising slowly. This is actually a good sign. It means businesses are cranking up and leading to more fuel consumption. The higher the demand the higher the prices. Supply and demand drives prices.
Corporate earning are on the rise mainly due to reduced tax rate and more business propects and improved business climate. The reduced government regulations also help.
On the down side, our national debt keeps climbing. It seems our government cannot control their spending habits. It has surpassed 21 trillion dollars already. This is very bad news especially as interest rate started to rise as well. Every point rise in interest rate will cost the government billions of dollar in interest payment which they don’t have. The current federal fund rate is 2%. It should rise slowly and reach a traditional rate of 4-5%. How fast it rises is dependent on our economic well-being and on the Chairman of the Federal Reserve.
Inflation is also slowly on the rise. This is a natural cycle as more people with cash chasing the same amount of goods.
Housing prices are varied and depends on location. In some area of the country, the price of housing has risen much higher than warranted. Part of this is due to foreign investments. Some areas such as NYC and Seattle and San Francisco, the foreigners with cash are driving housing prices to very high levels.
I believe housing prices will stabilize once the interest rate return to traditional levels. The historic low rates have helped the housing buyers.
Big box store chains will continue to suffer with the advent of Amazon and online shopping. This has been partly influenced by “free shipping” policies. This is an anomaly. There is no such thing as free shipping. Someone is paying for this service.
Market volitility will continue. I believe the fundamentals are sound but unfortunately, the stock market is a casino. The policies of allowing high frequency trading and computer trading has made the gaming of the system easier for the big players and fund managers. They are able to manipulate the market both up and down in a very short period and make a profit. This need to be dialed back or regulated. The SEC must look into this practice. There is no good reason why the market is allowed to swing up and down by 700 points on the DOW in a single day. I also believe shorting of stocks contributes to volitility. It means some investors are able to bet on a company stock going down. It is contrary to basic investing principles. We usually buy stock in a company because we think it will grow and make a profit.
My prediction is for the market to rise 7-10% for the whole year. This is achievable with the expected GDP rise of 3-4%.
Housing prices will stay even or reduce a bit.
Federal fund rate will be at 3% by the end of the year.
Inflation will be above 2%.
Unemployment U3 will remain about 4%. The U6 number is still going to be above 10%.
The debt will grow to 22 trillion.
DOW - 28,000.
I am optimistic about trade deals. If we are able to renegotiate some of the trade deals, we may be able to reduce some of our trade deficits especially with China. It may also bring some manufacturing jobs back to our country and generate better paying jobs. Our country are on the mend and you may not be getting the whole picture watching main street media.
© 2018 Jack Lee