Frank Holmes Robert Friedland

On the campaign trail, then-presidential candidate Donald Trump pledged to invest as much as $1 trillion in U.S. infrastructure if he were elected. This week during his first State of the Union address, now-President Trump added half a trillion dollars more to that figure.

The hefty price tag likely raised some eyebrows among Congress members, but Trump is right in aiming high to fix the country’s “crumbling infrastructure,” as he calls it. According to the American Society of Civil Engineers (ASCE), the U.S. faces an infrastructure funding gap of more than $2 trillion between now and 2025, resulting in potential losses of nearly $4 trillion in gross domestic product (GDP), or $34,000 per household.

Public Infrastructure in the U.S. Has Been Neglected
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Take a look at public spending on U.S. streets and highways as a percent of GDP. Since the financial crisis a decade ago, investment has tanked, and anyone who regularly drives can see firsthand the consequences of this negligence. Americans spend 42 hours on average sitting in congestion every year, costing each driver roughly $1,400, and this week the American Roads & Transportation Builders Association (ARTBA) reports that more than 54,000 of the country’s 612,677 bridges are rated “structurally deficient.”

Public Spending on U.S. Streets and Highways Has Plummeted Since Financial Crisis
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Anticipating a shift in priority toward infrastructure, contractors and construction firms are gearing up to take on new projects, with a whopping 75 percent of them planning to expand their headcount this year. This comes after an estimated 192,000 new construction jobs opened up every month in 2017, a figure that’s significantly up from the 88,000 new positions that came online every month only five years ago.

But contractors shouldn’t be the only ones getting ready for a new American construction boom. As I shared with you last month, the recipe calls for a broad commodities rally this year, and I would hate for investors to miss out. With global synchronized growth underway and demand outstripping supply in a number of cases, not to mention the U.S. dollar in decline and inflation on the rise, commodities are poised to be among the best performing asset classes in 2018.

Commodities as Cheap as (or Cheaper Than) They’ve Ever Been

Pay close attention to where commodities are relative to equities right now. Compared to the S&P 500 Index, materials are extremely undervalued, the most since at least 1970. This makes now a very attractive entry point—or as natural resource investors Goehring & Rozencwajg Associates writes in its quarterly report, there could be “a proverbial fortune to be made” if investors take advantage of this once-in-a-generation opportunity.

Commodities are as cheap as they've ever been relative to equities
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“When commodities are this cheap relative to stocks, the returns accruing to commodity investors have been spectacular,” the firm continues:

For example, had an investor bought the Goldman Sachs Commodity Index (or something equivalent) in 1970, by 1974 he would have compounded his money at 50 percent per year. From 1970 to 1980, commodities compounded annually in price by 20 percent. If that same investor had bought commodities in 2000, he would have also compounded his money at 20 percent for the next 10 years.

Past performance doesn’t guarantee future results, of course, but the implications here are very compelling if mean reversion takes place. There have been few times that I can remember when an asset class looked as favorable as commodities do now. If you agree, it might be time to consider adding exposure to materials, energy and mining to your portfolio.