We have had a crazy winter here in the northeast. Some days it's hot some days it is bitter cold. I cannot remember a February where we had more than 10 days of 65-degree weather. It was nice while it lasted. Now we are back to a more normal 19-degree temperature. I guess it is only fitting that the weather is as volatile as our politics and economic outlook.

I won't delve into politics here since I'm sure everyone has had enough of it on Facebook, TV, and Twitter. However, there are some things that need to be discussed. and are interesting to me.

First, We have officially come out our the earnings growth recession we have been in. We had 5 quarters in a row of negative earnings growth year-over-year. I would call this a recession. Apparently, the NBER and the markets disagree. There is one absolute in the markets, price is always right.

Now, we have had 2 quarters in a row of year-over-year positive earnings growth. It looks like things are picking up economically. Earnings are growing at a 4.6% rate, the highest in 3 years. This is a positive sign economically for the stock market, but not the whole stock market. Certain areas are not doing as well as others.

President Trump has made some grandiose campaign promises. Initially, I wanted to hold off to see if they were just campaign promises that he would not fulfill (like most other presidents), or if he would actually do what he said. I think it is clear he intends to do what he said he would do. Whether he can get it through congress is another story. Let's just say I'm cautiously optimistic.

Whether you like trump or not, I think this is the first time I have seen plans in place to boost the economy in a positive way and at the same time fix some of the nation's ills. The ills I'm talking about are the US infrastructure. President Obama had a chance to fix our nation's infrastructure in his presidency when he tripled the US debt outstanding, but if you look at our nation's infrastructure problems, you will see that he failed at this great opportunity.

Our national debt has increased exponentially in the past 8 years, yet in 2013, the American Society of Civil Engineers gave our nation's infrastructure a D+. They issue a report card every 4 years so we should expect to receive the next one this year. Here is the report card if you are interested. Our national debt has increased exponentially in the past 8 years, yet in 2013, the American Society of Civil Engineers gave our nation's infrastructure a D+. They issue a report card every 4 years so we should expect to receive the next one this year​

It is too early to tell if Trump will be able to make the changes needed to this neglected areas of our nation's infrastructure, or if he will. Maybe all the money will be spent on the "wall". However, he has a great opportunity to upgrade our nation's infrastructure and create a lot of middle-class jobs. I'm still a skeptic, but the opportunity is there.

Second, I find it extremely interesting that inflation has picked up right after the US election concluded. Why you ask? It is a good question that I still cannot find the answer to. Apparently, the inflation fairy appeared out of nowhere once the elections results were announced. Am I the only one to think this sudden change is odd?

​Stock markets move in expectation of future events, but inflation does not. Inflation works on a positive feedback loop that happens over months or years. If you think there will be inflation, this in effect causes inflation. Deflation works in the same way. This is why the Federal Reserve fears deflation so much. I will show you in the charts below how odd it is that inflation picks up when Trump is elected. I don't know if this is because half the nation is spending money because they are happy or something else, but when I see the same effects happening in other countries, it makes me wonder. All I can say is that if you don't trust the inflation figures, this gives should give you a bit of a chuckle.

One thing is clear as I look at the inflation data, The Fed is behind the curve in fighting inflation. Most of my data shows that inflation is quickly picking up, yet we still have extremely low interest rates. The probability is close to 100% change of the Fed raising interest rates in March, but 0.25% may not be enough. The Fed may have to quickly get interest rates back to more normal rates sooner than later. While, I don't think that we will have runaway inflation, I do think that if they don't curtail inflation, we could see some volatile fluctuations in asset prices.

Third, while Trump has made some bold campaign promises that it looks like he intends to keep, Congress still has to send him the bill. If there is going to be an overhaul of the tax code, there will be winners and losers. You cannot have a revenue neutral change without changing who the winners and losers will be. This will make some people happy and others unhappy, but this has been going on for many years, so I'm sure we are all used to change by now.

US corporate taxes are high. Lowering them would be good for business and profits. However, we live in a world that is a zero sum game. One winner will be a loser somewhere else. If US companies are net winners, then international companies will be net losers. This could start a trade war. Hopefully, it will not. For the past few years, companies have been doing inversions to locate their company internationally in a tax friendly nation to get better tax benefits. This is the nature of what happens when your country's tax structure is less favorable than other countries. If you want to create jobs here in the US, then you need to make it business friendly. One thing is for certain, until we see some meat of what those changes will look like, there isn't much to be said.​

Lastly, I think this point needs to be made clear. Too many people are missing it. Globalization is naturally deflationary because it allows us to export inflation to other countries (i.e. China)​. We have benefited from this globalization trend for decades. Now the trend is starting to stall. Trump's "Build American, Buy American" theme is certainly putting the nail in the coffin of the globalization trend, but it had stalled before he was elected.

If globalization is deflationary, then de-globalization is inflationary. You should expect inflation in the upcoming years. Your goods and services will cost more. If this trend reverses, as I expect it may, then you should pay attention to inflation. If it starts to take off, you should be prepared.

The "Build American, Buy American" is a nice sound bite, but the reality is much more harsh.​ If businesses start to onshore more jobs are a higher wage, employers will find ways to replace those jobs with robots or AI technologies. This has started to happen in certain industries. Computer algorithms have been said to control over 70% of the US stock markets. Manufacturers and companies like Amazon are using robots to build, manage and ship goods.

The recent rise in the minimum wage laws in many states has caused certain service companies (i.e. McDonalds, Wendy's, Burger King) to consider replacing their "cheap labor" with robots.​ This is economics 101. companies will inevitably find the cheapest way to produce goods and services. If that means they have to replace an order taker with a computer, they will do it.

This trend has sparked a lot of conversation about a "basic income" for displaced workers.​ While this sounds nice on paper, this is not how economics works. You cannot give everyone a base income and everyone will be fine. Where will that income come from? The rich? How are they able to support the entire country? The numbers simply don't work for this type of concept.

In reality, what will happen if such a ridiculous ​idea ever comes to pass, the price of goods and services will rise sharply to accommodate the increase of money in circulation. Then we will see the US Dollar in the history books right next to the German Marks and the Zimbabwe Dollar as examples of why hyper inflation is bad.

That being said, there is a real problem on the horizon with robots and AI eliminating jobs.​ If you are 55 years old, you are probably fine, but if you are 30 then you might want to pay attention to this trend.

But I digress...

De-globalization is a real concern for economists.​ They say no one wins a trade war. I would say that economics is a trade war. People want goods as cheaply as they can get them. That is how economics works. Politicians can certainly make it worse, but it is hard to imagine the same outcome in the great depression as we would have now with globalized information. 

However, I personally have no say in the outcome, other than ​trying to best prepare for the inevitable trends that I see.