Chris’ note: As globalization breaks down, hundreds of thousands of manufacturing jobs are coming back to America. Combined with its growing power as an energy producer, this will kick of an economic renaissance.
We’re calling this megatrend America Reborn. And I’m making it the focus of this week’s dispatches here at the Cut. So you can be prepared and profit as it unfolds.
Today, you’ll hear from analyst Andrew Packer on a “one-click” way to play it. Andrew writes our Palm Beach Letter advisory with Teeka Tiwari. As he reveals in today’s insight, it’s one of the best ways to profit from the trillions of dollars of spending that this trend will unleash.
It was summer of 1919…
The U.S. military tasked a 28-year-old Army Motor Transport Corps colonel to send the first “truck train” across the United States.
Light and heavy motor trucks, touring cars, observation cars, motorcycles, ambulances, and tractor trailers made up the convoy.
And it took 62 days to cover 3,251 miles from Washington, D.C., to San Francisco, California.
That works out to about 52 miles a day.
It’s no wonder. Practically all the roads from Illinois through Nevada were little more than dirt tracks. Wooden bridges broke. Dust was a constant problem.
1919 Transcontinental Convoy
But the colonel completed his assignment. And over the years, he’d conquer many more – including the liberation of Europe in the mid-1940s.
The leader of that 1919 convoy? Dwight D. Eisenhower.
Thirty-seven years later, President Eisenhower signed into law the 1956 Federal Highway Act.
It resulted in the construction of multilane highway system crisscrossing the country. Government engineers designed the interstate system to avoid the issues Eisenhower faced during his 1919 convoy.
Washington covered 90% of the costs – that’s about $273 billion in today’s dollars. Local cities and counties were responsible for the remaining 10%.
The work took 36 years to finish. The government didn’t declare the U.S. highway system complete until 1992.
And it helped kick off an economic boom…
Bullish Trend
Without the highway system, U.S. GDP today would drop by $619 billion – or about 2.6%.
That’s going by figures from the National Bureau of Economic Research.
That may not sound like a lot… But a 2.6% drop in GDP would throw the country into a recession.
So, it’s no surprise the money flowing into the economy via the Federal Highway Act kicked off a boom.
Investors largely avoided stocks going into the 1950s. But after the signing of the Federal Highway Act, the Dow entered a 10-year bull market.
Between 1956 and 1966, it topped 1,000 points for the first time.
I’m not saying the Federal Highway Act was the only driver for the 1950s bull market. But the hundreds of billions of dollars it pumped into the U.S. economy helped fuel the boom.
Take the figures from the American Road & Transportation Builders Association. They show how the interstate highway system played a major role in the nation’s 533% GDP growth over the past six decades.
In 2020, it carried nearly 75% of U.S. truck freight. Also, millions of vacationers and tourists travel along our interstate highways every year.
And despite the COVID-19 pandemic, tourism accounted for $1.1 trillion of U.S. GDP in 2020. So about 5.2%.
And just as the Federal Highway Act did in 1950, today’s spending spree will lead to an economic renaissance.
Made in America Again
The trend I’m talking about is the reshoring of U.S. manufacturing.
It’s the process of returning production and manufacturing back home. As the reshoring trend unfolds, we’ll see hundreds of thousands of jobs come back to America.
My colleague Teeka Tiwari calls this trend “Made in America Again.” That’s because it will unleash an estimated $1.6 trillion into the economy.
That’s based on four federal laws over the past two years…
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The Investments and Infrastructure Act – It sets aside $1.2 trillion to build U.S. infrastructure for a new generation of industrial facilities
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CHIPS and Science Act – This $52.7 billion bill focuses on ensuring the U.S. reclaims its lead in semiconductor design
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Inflation Reduction Act – This provides $250 billion for clean energy technologies and new state-of-the-art factories for building them
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COMPETES/United States Innovation and Competition Act – This sets aside $51.5 billion for increasing U.S. production and reducing supply chain vulnerabilities
Now, I know billions of dollars of government spending isn’t what everybody wants right now. And I know some folks think all government spending is bad all the time.
But this spending depends on private-sector companies completing specific projects through government contracts.
Regardless of your politics, that could lead to massive returns for companies on the receiving end of this spending.
The Reshoring Initiative estimates that companies reshored nearly 300,000 jobs in 2022. And companies have reshored more than 1.2 million jobs since hitting a low in 2010… with most of those gains coming in the last three years.
For instance, chipmaker Micron Technology has already broken ground on a $15 billion facility in Boise, Idaho.
And thousands of manufacturers have said they’ll bring billions of dollars of production home. These include Intel, Absolics, and Taiwan Semiconductor Manufacturing Company.
All told, nearly 4,000 manufacturing companies are looking to bring their workforce stateside.
Given the rising mentions of reshoring on corporate earnings calls, it’s clear that this trend remains in its early stages.
Infrastructure spending has a multiplier effect of about 1.5. So, every $1 of infrastructure spending will lead to a direct $1.50 in economic benefits.
That means $1.6 trillion in spending could lead to a $2.4 trillion in immediate benefit for the private sector in the first few years.
The multiplier effect measures the impact investment or spending will have on the total economic output of something. Think of it as a snowball effect. Investing in one part of the economy can have widespread benefits in other parts of the economy.
So, this trend is one of the best ways to preserve and grow your wealth in today’s economy.
How to Profit
One way to take advantage of this trend is the Global X U.S. Infrastructure Development ETF (PAVE).
It has a 70% allocation to industrial stocks and a 21% allocation to basic materials. The remaining 9% is between technology and utilities.
And the top 10 holdings include railroad company Union Pacific (UNP), steel producer Nucor (NUE), and heavy equipment maker John Deere (DE).
A gush of dollars is about to flow into helping reshore America’s infrastructure. Investing in the companies set to help make it happen is a great way profit.
Regards,
Andrew Packer
Analyst, Palm Beach Letter