If the world is as gloomy as people keep saying, somebody ought to tell the 300 million US consumers. They keep spending their money on frivolous things like cruises, casinos, video games, books and burgers.
That’s what the US stock market is telling us anyway. The Stansberry Digest reports that a lot of ‘spending’ stocks are trading at or near their 52 week high.
A taste of these ‘spending’ stocks includes companies like Carnival (cruise lines), Signet Jewelers (jewelry), Electronic Arts (games) and Visa and Mastercard (credit cards).
There’s plenty more. The Consumer Discretionary Select Fund, for example, holds stocks including Amazon, Disney, Nike and Starbucks. It’s now up 400% since the market low in 2009.
That’s a six and half year run into all time new highs. The only notable dip for a long time is the 12% drop in August that took the whole market down. It didn’t take long for the uptrend to reassert itself.
In fact, things are looking so bullish for the world that NASA announced yesterday that it’s hiring. It needs astronauts to send to the International Space Station and deep space missions to Mars.
But is the US Fed just fuelling all this with cheap money? Or is there real, tangible wealth being created?
My bet is the latter.
Here’s just one example…
The 21st century railroad being laid across America
Google Fiber announced in late October that three Florida cities are next on the hit list for the rollout of its fibre optic cable network. According to Google, only 10% of the US has access to this type of network and speed.
Google Fiber is laying something like 21st century railroad tracks across the continental US, like the railroad barons of the 19th century.
Instead of carrying cargo, these tracks carry data and information. But they will drive innovation and productivity higher in the same way.
Google Fiber isn’t alone either. AT&T is building cables to 11 million US homes. Cable that can support speeds fast enough to download a 2 hour movie in one second. That’s 1-gigabit per second speeds.
According to analyst and former hedge fund manager James Altucher, a cable company called Comcast is bringing 2-gigabit per second speeds to 18 million homes.
You could do worse than investigate the companies that will cash in from this spending. Like the saying of yesteryear, don’t buy the gold miners, buy the company that sells shovels…
Not only will these bring incredible speeds to US users. The infrastructure will also have a positive effect on US house prices wherever they install the network.
Back in June the Wall Street Journal reported on a study two universities did. They showed fibre optic connections added US$5,437 to the price of a US$175,000 home. They put that at the equivalent value of a fireplace, or half a new bathroom.
It’s happening in Australia too…
The rollout everyone has forgotten
It’s called the NBN.
In mid October, the Australian Financial Review reported that the national broadband network wants to start or complete internet upgrades for 9.5 million homes and businesses by the end of 2018.
According to the paper, NSW will get 2.8 million premises activated or under construction by late 2018, followed by Victoria with 2.5 million and Queensland with 1.9 million.
Not all of these will be fibre optic, of course. But it’s bullish for the economy as it’s all built out. It will also take Australian home prices higher when it’s installed, in the same way as the US.
Property investors take note. They even tell you which suburbs the network is going to be installed in and when.
A stock to put on your watchlist
The question of course is whether Australia’s broader residential construction boom can keep running.
CSR managing director Rob Sindel seems to think so. The Australian Financial Review reported yesterday:
‘On Wednesday the building products group reported a 32 per cent jump in underlying interim profit to $92.4 million, its 7th consecutive year of earnings growth, and its best margins in a decade.
‘Mr Sindel blew apart calls that the housing cycle has hit a peak, saying demand for CSR products such as Gyprock plasterboard, Hebel concrete and AFS walling solutions looks robust into 2017.’
You can see the market likes the news…
Keep an eye on CSR. There’s a good chance it could continue to run. At the very least the stock will tell you the market’s verdict on how sustainable the Australian construction sector is.
Like the American economy, I suspect it’s a lot more durable than most people presuppose.
You can learn further why that is here.
Associate Editor, Cycles, Trends and Forecasts