It's becoming clear now. We are starting to repeal the entire stock market gain made from the incredible and unexpected tax reform package that passed last December
Yep, it's as if the whole darned thing never happened and we have to analyze whether that's a correct judgment or is it just fanciful and a real bad call.
You know the litany we are starting to hear. Initially companies gave workers bonuses with the extra cash. Then they cast about for things to buy and in most cases they are trying to figure out what's the best use of their cash.
In some cases typically in the small to medium sized businesses, there's a real groundswell of interest to build, to open a second store, to add more employees. How do I know this? I listen to the conference calls of the big utilities that have a boots on the ground knowledge of actual electricity use. If all things are equal weather wise, no spike in air conditioning, you get a very strong mosaic of what's occurring.
We spoke to Nick Akins, the CEO of American Electric Power (AEP) , the largest power company in the country, and he was unmitigated in his belief that the new tax code, coupled with deregulation is producing some very strong growth throughout his delivery zone which spans everywhere from Texas to Ohio. The growth is so strong that it has even caused expansion to include retail. Yes, retail. You know that when bricks and mortar retail is expanding, you've got a real strong economy.
Then we have data from First Data (FDC) and Visa (V) which show a much more aggressive spending pattern on the part of the consumer than before the tax code change. You can't manufacture those numbers and they are definitive and it's not just the increase in the price of gasoline which had inflated sales.
On top of those numbers I have examined the statistics that the regional banks have put up to scrutinize loan growth. It may not be accelerating at a pace that pleases the bulls out there but it's sure impressive or, more important, it's a lot better than before the tax reform occurred.
Not enough? Let's consider the numbers we are getting from the real estate investment trusts. I scrutinize the REITs in distribution of goods, REITs that build properties to sell and take very little risk in doing so, including malls, shopping centers and hotels. They are all well ahead of last year at this time. That's not mincing, things are truly much stronger. I am hearing, again, a story of demand, and a story of deregulation.
How about housing? Go listen to the conference calls from PulteGroup (PHM) , KB Home (KBH) , Lennar (LEN) and D.R. Horton (DHI) . I know the stocks aren't that strong, but when you consider that rates have gone up you have to be impressed that every one of these companies is reporting remarkably strong numbers. It's just irrefutably positive in home building land
Finally, today we got a report from Ford Motor (F) about April sales. It showed very strong numbers for the F-Series, the predominant vehicle for small businesses, something they buy more of when they want to grow.
So, what are we supposed to think? The idea that the tax changes have done nothing is, indeed, fanciful. It's producing better growth than we have had all over the country.
To me that means the repeal of all of the gains we are seeing makes no real sense. I recognize that tariffs, trade and indecision have rendered many money managers so confused that they don't want to take action, or worse, they just want to sell. I just want to point out that the inputs I have are too positive to dismiss. Sell this market for trade, for shortfalls in big cap stocks, for insecurity stemming from President Trump's caginess or erratic behavior, depending upon your orientation. But to say that all stocks should go back to where they were before tax reform passed? As against the grain as this view may be, it's the only one that the data bears out.