Each scenario portrays a different outlook for the nation’s wealth and productivity.

The first scenario is a continuation of the last 15 years. That means more paper gains and economic stagnation.

This is possible, although not ideal. It means we are kicking the risk of serious investment recession into the future, as asset prices surging without the economy backing it is unsustainable.

The second one is a high inflation scenario like the U.S. in the 1970s. It foresees a strengthening economy while asset prices suffer.

Again, this is possible. But inflation has already started to come down. This time, it is much like in the late 1940s and not the 1970s, which makes this outcome less likely.

The third one is the worst outcome possible: The Japanification of the U.S. economy. Investments and the economy would completely stagnate, and companies would shrink.

For reasons we talked about back in May, we believe the U.S. has the strength and position to avoid this.

The last one is the “golden” scenario. It is the scenario where we have a real productivity boom, and actual economic productivity drives the market higher.

McKinsey compares this scenario to something long-time readers have read from us before: the post-WWII economic boom.

The supply-chain supercycle will be a huge factor in making this scenario a reality.

As we talked about last week, construction spending is booming, and we think it can keep driving higher for years.

With companies investing in infrastructure and supply chains, and the government supporting them, the path of GDP growth is visible.

McKinsey highlights that while this will lead to a lot more GDP growth, it will lead to less wealth creation. Inflation will be slightly higher, so multiples will not expand as much. But for setting the U.S. for long-term wealth creation, it is obvious this scenario is ideal.

These are long-term outlooks, and a lot can change.

The scenarios presented by McKinsey all depict long-term changes.

That said, in the near term, it shows how important it is for us to focus on and invest in our real manufacturing capacity.

As the government and companies ramp up investments in facilities, roads, bridges, and other kinds of infrastructure, the country will become more efficient in production and supply chains.

That is why we continue to be so bullish on the supply-chain supercycle. The country’s long-term wealth and economic health depend on it.

Best regards,

Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research
at Valens Research

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