GW&K Investment Review 4Q 2024

GW&K Investment Review 4Q 2024

 

ECONOMIC COMMENTARY

 

For those unfamiliar with local Boston, MA politics, the recent debate around the rebuilding of a stadium in Boston exemplifies why Democrats lost the presidential election. Local leadership proposed refurbishing the stadium for a cost of $50 million dollars.

During the legislative review, however, the estimated cost ballooned to nearly $200 million. Despite the increase, local leadership persisted. Separately, but similarly, they have also asked for a huge tax on commercial real estate while proposing a much smaller tax increase on residential real estate.

Let me connect the dots. The city needs more revenue and is trying to extract it from real estate at a time when vacancy rates are near all-time highs. Local leadership also suggested implementing rent control. Tellingly, they have yet to propose budget cuts as an alternative.

We are all too young to remember the Great Depression, but some may recall that Commonwealth Avenue and Beacon Street in downtown Boston were dominated by nonprofit institutions for almost 50 years. Why? Homeowners lost their homes in the 1920s, not due to mortgage costs, but because of taxes. People simply walked away. It took almost 50 years to come full circle.

While proposing the rebuilding of the stadium, local leaders have also opposed a privately funded plan to build another $500 million project just outside the city. Their reason? The potential traffic impact on Boston.

This kind of irresponsible governance cannot continue. Republicans will soon take office, including the White House, House, and Senate, and are promising to shift the prevailing spend-and-tax mindset. While it’s uncertain what policies will be passed by the legislature or by executive order, significant changes are assured. I think back to leaders like Margaret Thatcher and Ronald Reagan, who significantly reshaped government policy, though little was expected from either. Excessive rules and regulations have stifled this country. Government has a role, but it should be to encourage entrepreneurial spirit and innovation.

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Immigrants came to the US seeking opportunity. Many achieved great success. Forty percent of America’s billion-dollar startups were founded by highly skilled immigrants. Europe has created only 14 companies worth more than $10 billion in the past 50 years, with a total market value of $400 billion. By contrast, the US has created 250 such companies, valued at $30 trillion during that period. So, despite our regulations, the US remains the most successful country in the world. Imagine what could be achieved without so much bureaucratic interference.

Change is coming in a meaningful way. In my letter two quarters ago, I discussed how artificial intelligence (AI) will drive growth and improve business profit margins. Concerns that inflation will increase due to tariffs and the deportation of undocumented immigrants may prove unfounded.

Trump has pledged to end the war in Ukraine. He’s promised to secure the release of the hostages from Hamas. I believe he’ll do both. Why? The same reason that Reagan was able to get the hostages out of Iran. Teddy Roosevelt said, “Speak softly and carry a big stick.” Donald Trump says, talk loudly and follow through.

Like it or not, the world needs a strong America, unafraid to use its might. Our withdrawal from Afghanistan unfortunately diminished our global stature. Since then, Israel and Ukraine have endured heavy military casualties defending values we hold dear. The US was a critical arms provider, but also the back seat driver. War is brutal, but if another nation starts it, the US and her allies must finish it. We live in a tough world with bad actors. Strength at home and abroad is essential. We must be a reliable partner and foster an environment where positive energy can thrive.

There is no doubt we are at an inflection point both domestically and internationally. While many are understandably worried about the future, I believe that in four years, the world and our economy will be in a better place.

Wishing you a healthy and happy new year.

 

Harold G. Kotler, CFA

Founder-Chairman, Chief Investment Officer

Disclosures

This represents the views opinions of GW&K Investment Management.  It does not constitute investment advice or an offer or solicitation to purchase or sell any security and is subject to change at any time due to changes in market or economic conditions.  The comments should not be construed as a recommendation of individual holdings or market sectors, but as an illustration of broader themes. Data is from what we believe to be reliable sources, but it cannot be guaranteed.  GW&K assumes no responsibility for the accuracy of the data provided by outside sources.

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