May 8, 2018

On Friday, I received e-mail messages titled, “May the 4th be with you,” with follow-up inquiries about “Where were you when the first Star Wars movie came out?” or “What’s your favorite Star Wars movie?” (Sorry, none of them.) Then came Saturday’s Cinco de Mayo, celebrating the Mexican victory on May 5, 1862, with toasts using a favorite brand of Mexican beer or tequila. More avocados are sold around May 5 than any other time of year, and more beer is sold on May 5 than either St. Patrick’s Day or Super Bowl Sunday, and most of that beer is made in Mexico. (Forget the trade war talk. Mexican beer is flowing!)

My children and their generation were transfixed by Star Wars movies and personalities, like I was by… the real thing: World War II. Our GI’s didn’t have magic laser swords, but I wonder why we don’t party on May 8, when the Evilest of Empires was brought down after a long and costly struggle. Why do we celebrate a Mexican battle in 1862, or a fictional Star War instead of our own “Greatest Generation”?

Why such unmitigated joy on these faces (except the kid)? Consider the mood five years earlier, as depicted in a recent movie, “Darkest Hour,” with an Academy Award winning performance by Gary Oldman as British Prime Minister Winston Churchill. Over 400,000 troops of the British Expeditionary Force (BEF) were trapped in Dunkirk, France, with no apparent escape route, surrounded by German troops. That’s the source of another great movie, but Dunkirk was just one corner of a very troubled world. Consider this profile of the rest of the world in mid-1940, as chronicled in a recent book:

“Picture Summer 1940. Nazi Darkness covers Europe, imperial Japanese darkness has fallen over Asia. The vast Soviet Union, comprising fifteen modern nations, is under the heel of a police-state that starves its own citizens and summarily executes any dissident. China is torn by a three-way war that will end badly, with the government-imposed misery that is the trademark of communism. Central and South America and Spain are in the hands of tinpot military oppressors whose trademark is the temper tantrum followed by disappearance of opponents and academics. Poland, Ukraine, and the Baltic states are repressed by Nazis and Communists simultaneously. India, Indonesia, Southeast Asia, and most of Africa are exploited by colonialism. Backed by industrial-scale weaponry and the newly-developed mass propaganda – before radio, political decrees could be heard only in person – fascism and communism seem impossible to overcome: since they allow no rights and torture anyone who criticizes their Big Brother figures, how can revolution happen? The light of democracy still shines in only a few places – Australia, Canada, the United States, and the British Isles, though the latter light flickers, considering Britons brutally subjugate India for the personal profit of the English aristocracy. Matters get so bleak Franklin Roosevelt suggests to Winston Churchill that the Royal Navy abandon a doomed homeland and sail west to assist in making North America the final redoubt of human liberty.”

– Gregg Easterbrook, “It’s Better Than It Looks: Reasons for Optimism in an Age of Fear,” page 164

In 1940, America may have been a geographical haven, but we provided no economic hope for the world. We were in the 10th year of a Great Depression. Unemployment rates were 14% or higher every year from 1931 to 1940. Farmers suffered a multi-year Dust Bowl, and GDP in 1940 (at $103 billion) was less than what it was in 1929 ($105 billion). We had virtually no army or air force and our navy would be severely crippled by a surprise attack on Pearl Harbor. The outlook for global freedom never looked bleaker.

As Hitler’s Blitzkrieg drove through the low countries into France, the Dow Jones index fell 23% in eight days, falling from 148 down to 114. French citizens wept as the Swastika hung from French homes. “The Last Time I Saw Paris” won the Academy Award for the Best Song in 1940. Six versions of it were on the December 1940 Hit Parade, with Kate Smith having exclusive radio rights for six straight weeks.

“The last time I saw Paris, her heart was warm and gay.
No matter how they changed her, I’ll remember her that way.”

– An Academy-Award winning song by Jerome Kern (music) and Oscar Hammerstein II (words)

But then a miracle happened. America came alive – industrially and spiritually. Defense spending grew from $1.5 billion in 1940 to $81.5 billion in 1945 – almost equal to the entire U.S. GDP in 1940. By 1943, America replaced all of the shipping lost by all of the Allied powers. In 1944 alone, the U.S. built more planes than the Japanese did from 1939 to 1945. The U.S. out-produced all Axis nations combined, and we built faster and better ships, planes, Jeeps, tanks, rifles, and armaments – and the only nuclear bombs.

The U.S. led the charge in two massive wars on two continents at once. We won both, in under four years. It’s no wonder that the world threw parades in our honor on May 8, 1945, so… May the 8th be with you!

Today’s Big Worries are for Wimps

Now, let’s examine what we’re so worried about today. Hint: It doesn’t hold a candle to Dunkirk.

The latest worry is “Earnings Peak Season.” Earnings are up over 24 % so far, year over year, and they certainly won’t match that lofty level in coming quarters, so the world is coming to an end, right? Not so fast. Earnings will still be going up, just not as fast, due to higher previous-year comparisons. For the full year, earnings are expected to be up 18%, but stocks so far are flat, so maybe this is a time to buy.

We’re also worried about a Trade War that isn’t happening. Negotiations are constantly under way between the U.S. and our NAFTA trading partners, Canada and Mexico, and also our European trading partners, and, most importantly, China. Somebody (Trump and his team) is finally confronting China on product piracy and sky-high tariffs. Those negotiations will continue. This isn’t trade war. This is the art of the deal. On April 24, Mr. Trump said, “China’s very serious and we’re very serious. We’ve got a very good chance at making a deal.” (The same confrontation is happening in North Korea. It’s about time.)

The press is also overly concerned about who paid what and when to a porn star. That’s outrageous or salacious, depending on your view, but it’s not exactly related to global economics or corporate earnings. Lying about sexual relations plagued President Clinton, but he avoided punishment and the stock market soared during his year-long struggle (1998-99) with a special prosecutor and impeachment procedures.

GDP growth fell below 3% in the first quarter, but real GDP excluding total government spending (on goods and services, not entitlements) grew over 3% in the first quarter for the first time since Q2 of 2015.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary

The Fed’s interest rate increases are also a major concern, but their four 2018 interest rate increases will still keep our rate structure well below historical norms. The amazing fact is not that rates are rising now, but that they stayed abnormally low (near zero) for eight years under President Obama. Rising Inflation is a related concern, but that is mostly tied to rising oil prices. Most technology prices are decreasing.

I scoured the headlines last week and can’t come up with any bigger worries than these. If you want to worry about 2% inflation, 2% interest rates, non-trade wars, rising earnings, and a porn star, have at it, but as for me and my house, we are sticking with this 73-year-old post-VE-Day miracle growth machine.

About The Author

Gary Alexander
SENIOR EDITOR

Gary Alexander has been Senior Writer at Navellier since 2009.  He edits Navellier’s weekly Marketmail and writes a weekly Growth Mail column, in which he uses market history to support the case for growth stocks.  For the previous 20 years before joining Navellier, he was Senior Executive Editor at InvestorPlace Media (formerly Phillips Publishing), where he worked with several leading investment analysts, including Louis Navellier (since 1997), helping launch Louis Navellier’s Blue Chip Growth and Global Growth newsletters.

Prior to that, Gary edited Wealth Magazine and Gold Newsletter and wrote various investment research reports for Jefferson Financial in New Orleans in the 1980s.  He began his financial newsletter career with KCI Communications in 1980, where he served as consulting editor for Personal Finance newsletter while serving as general manager of KCI’s Alexandria House book division.  Before that, he covered the economics beat for news magazines. *All content of “Growth Mail” represents the opinion of Gary Alexander*

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