#426. What Excites Us About the Future for Agracel – Conclusion (Macro Trends for the Future)

WHAT EXCITES US ABOUT THE FUTURE FOR AGRACEL – Conclusion
Macro Trends for the Future

This week we will conclude our series on a number of very positive trends that will greatly impact Agracel for years if not decades into the future. These trends can be broken down into six broad ones:

1. Oil & gas independence (378, 379, 391, 392, 397, 398)
2. Reshoring USA manufacturing (415, 375)
3. USA auto industry growth (368, 380)
4. Right to Work & American productivity (424)
5. USA demographics (425)
6. The return of inflation

We have talked extensively about the first three trends listed above. (Click on the link behind the trend above for past Agurban on that topic.) The past two weeks, we shared our view on Right to Work and American Productivity, and USA Demographics. We will finish the series this week with The Return of Inflation.

Inflation

After having been in a deflationary environment for the past four years, it is difficult to get anyone to pay much attention to possible inflation down the road. However, we see this risk/opportunity as an increasingly strong possibility in the next several years. And, while the high inflation that we foresee would be devastating for many, with the way that we’ve structured the Agracel Model, it could be very advantageous to us.

In real estate the mantra is Location…Location…Location. With concerns about inflation it is Government…Government…Government.

The government is printing WAY too much money, running WAY too large of deficits and building up an unsustainable debt. Here is a very brief synapsis of the current situation.

All $ in trillions, 2000, 2012
USA GDP, $9.9, $15.8
Debt, 5.7, 16.3
Government Revenue, 2.0, 2.5
Government Spending, 1.8, 3.8
Surplus/Deficit, 0.2, -1.3
Average Interest Rate, 6.6%, 2.5%

A review of these numbers shows that while government revenue has increased modestly by 25% or 1.9%/year, government expenditures have more than doubled, up 6.4%/year. And, while the growth in the government debt level from $5.7 to $16.3 is alarming, even more dire is the $87 trillion of off-balance sheet obligations for Social Security, Medicare and other programs. The latest trustee reports for these programs show Medicare insolvent by 2024 and Social Security by 2033.

With Congress only able to show budget surpluses in 2 of the last 50 years, this situation is likely to get worse and it will be necessary for the government to continually raise the debt ceiling. Or as Yogi Berra would say, “It’s déjà vu all over again.”

We hope that we are wrong in our assessment of the situation of the US Government, but have a plan in place if we aren’t. And, while we are very bullish on American industry we are becoming increasingly bearish on the U. S. Government and its willingness to stop the train wreck of a Greece-like debt situation from occurring on American shores.

Summary

With the possible exception of government interference in the shale energy play and in upsetting the RTW movement, we are VERY optimistic about the long term economic trends that are working in our favor at Agracel. While we will surely have twists and turns in our journey, it appears that our track is a long straight one.