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Best Investment Opportunity Since Our January Oil Call

Updated: Jun 8

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In January I wrote about how oil would be the best investment opportunity in the first half of 2021. Today, April 7th 2021, that appears to ring absolutely true. For our clients this has generated a 50% return while not accepting an inordinate amount of risk.


So what's next? In my opinion the next market beating return will be rewarded to those that invest in infrastructure. This may seem obvious to those that are following the $2T infrastructure bill being kicked around in congress. But just because something is obvious doesn't mean its a bad investment. The shocking news is that the "infrastructure bill premium" hasn't been priced into the market yet. There is still ample buying opportunity out in the market. Opportunity that I believe will certainly generate market beating returns. This is a huge opportunity especially since market beating returns are much harder to come by today than they were six months ago.


Why am I so bullish on the infrastructure sector in the US? It's quite simple really-- The answer is Japan. The United States of America has been pulling pages from the Japanese economics playbook since 2008. The Japanese just began their economic stimulus trickery in the 1970's. They enjoyed an incredible run throughout the 1980's that included a massive real estate bubble. All of that came to a standstill in the 1990 for Japan.


What did the Japanese answer with: An infrastructure stimulus bill to pull them out of a massive recession. To understand the US today one must understand Japan in 1990. The infrastructure spending was popular among the Japanese in 1990. The consensus was their roads, schools, airports, and bridges had all become decrepit. The recession had hit Japan hard and jobs were in plentiful demand.


The Japanese decided to take a patient approach with their infrastructure stimulus in 1990. They had just experienced a massive boom in the 80's from stimulus and were still reeling the from the bust in 1990. They decided to take this patient approach and embarked on an infrastructure rebuild that lasted from 1990-2005.


The end result has been criticized by many American economist. Most importantly, Janet Yellen, who is currently the US treasury secretary. The 15 year infrastructure stimulus has been labeled as the "lost decade" by most US economists. Japan endured sub 1% growth throughout the 1990's. A majority of the infrastructure projects were deemed misplaced and unneeded.


HOW THE US WILL COPY THE JAPANESE PLAYBOOK WITH A MAJOR TWIST.


The patient Japanese strategy was viewed as flawed by US economists not because of using stimulus--but rather not using enough in one massive dose to jump start the economy. Whether or not this is a good idea is irrelevant. The fact of the matter is US infrastructure companies are going to see a windfall of government spending fill their balance sheets. To make it clear, the US economy is approximately $20T in size. We are looking at 10% of our total economic size invading US infrastructure companies with one massive dose.


WHY ISN'T THIS PRICED INTO THE MARKET YET?


First, investors don't understand that we are just a more aggressive version of Japan in 1990. Secondly, investors are concerned that the full scope of the bill won't pass the senate. When in fact I believe it absolutely will or something very close to it. The Biden economic team's largest fear is becoming another lost economic decade similar to Japan. When in fact Japan may have saved their fate from something far worse (for another article).


An infrastructure bill is just as enticing to Republican districts as it is to democratic ones. This is a type of bill that would have passed even in a Trump administration. The Biden administration has already stated they will budge on leaving a lower corporate tax rate. The strategy behind this is the US has no actual intention of paying for this infrastructure bill will tax dollars. The printing press of the Federal Reserve teaming up with bond sales of the US treasury will fund the entire initiative.



John Lawrence is the owner and founder of J.A. Lawrence Wealth Management.


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