Busy Week Ahead

Good Morning,

 

The first week of earnings for Q3 was pretty much as expected.  Add that to executive orders roiling the healthcare sector near-term and you get the chop and churn we had noted the week before as likely.  I would not be surprised to see that be the norm for the earnings season as we have seen the market rally into the releases for the most part.

 

Unless it is a huge beat, please don’t be surprised or frustrated if we just fall flat for a bit.

 

Q3 Earnings Scorecard (as of Friday close)

 

Of course, it is very early but the first week showed us Q3 results from 32 S&P 500 members which, when combined, account for 10.3% of the index’s total market capitalization.  Total earnings for these companies are up a solid 12.8% from the same period last year on +6.3% higher revenues, with 81.3% beating EPS estimates and 78.1% beating revenue estimates.

 

The chart above gives you a sense (once again) of the typical ramping down of analyst expectations and then the slow process of beating earnings.

 

Let’s Stay Focused and Patient

 

We need to remain aware that the next few weeks will be far busier – with 178 companies reporting results over the next 5 days alone – including 53 S&P 500 members.

 

Overall, the beats so far are solid – but that will assuredly adjust as time unfolds.  Here is the thing – even with the hurricanes and global interruptions, we are seeing far fewer negative revisions than normally assumed.

 

Slow and steady – the Barbell works but demands we patiently wade through the type of chop which has become the norm for earnings season and the all-too-bright media coverage of same.

 

A Quick Break

 

While I know we cover a lot of […]

Rose Colored Glasses

Good Morning,

 

Since 1982, no matter the economic picture through the windshield or in the rearview mirror, I have consistently been told I wear rose-colored glasses.

 

That would overlook the times we have felt concerned about events.  However, the overpowering signal from history is quite simple indeed.  Argue as some will, but many decades of history suggest it is far more valuable to wear those rose-colored glasses – even during the bad periods.

 

They don’t come to stay.  They come to pass.

 

And we get stronger…even if painful at times in the process.

 

Quiet Confessions of an Optimist

 

Recently Mr. Buffett hinted at the idea that the DOW likely reaches 1,000,000 in another 100 years.  My hunch?

 

Ready?

 

He is likely way too conservative.

 

As we all await the latest earnings parade, let’s sit back and see what it all really means.  To the numbers please:

 

That 1,000,000 DOW sounds like pie-in-the-sky right?  Well, Mario Gabelli has put pencil to spreadsheet burning the midnight oil and found that a one-million Dow in 2117 would amount to right at a 3.9% compound annual growth rate (CAGR).

 

Now bear with me (pun intended) and slip those rose-colored glasses back up a bit.  Note the actual CAGR since 1917:

 

It is closer to 6%!

 

“You are Nuts Williams”

 

I might be – but a century ago, America entered World War I against Germany. The Dow industrials declined to 65.95 before closing out the year 1917 at just 74.38.

 

That was a big rally off those lows but the Dow sank even lower (under 42) in 1932 and remained under 100 in early 1942.  Imagine telling someone back then that less than 80 years later the Dow would be over 22,000!

 

Not on your life would you have been seen as sane.

 

The point?  Indeed, there was no smooth […]

Extreme Edginess

Good Morning,

 

I clicked through a bunch of the normal webpages this morning.  Home pages of all the major financial websites.  As one might expect, there was no good news.  Not even a story about firemen saving a cat from a tree.  Nothing.  Zilch.

 

The world is ending – again and again and again – for any number of reasons.  Take a number.

 

Finding something positive is like searching for a needle in a stack of needles.

 

The result?  I reached quickly for my mix of bourbon and bourbon in an extra large glass – with a side of TUMS (fruit-flavored) and Valium just to take the edge off.

 

OK, OK, I am kidding.  But you get the point.

 

Hey and if you really want to see how far out there some guys are – check our friend Mr. Schiff.  He has been baying at the moon for years and years.

 

By the way – he sells gold to his clients.  Not ETF’s or stocks.  He sells the gold metal.  So while you are taking a gander at his latest post, ask yourself this, “Why would some genius like this guy be selling gold if the world is coming to an end….?”  Just a thought – but I will get back to that.

 

Here is his link – make sure you put all sharp objects away.  I nearly choked on my coffee from laughing so you may want to put the coffee down too.

 

Shift the Perspective

 

Perspective:

 

~the state of one’s ideas, the facts known to one, in having a meaningful interrelationship:

 

~the faculty of seeing all the relevant data in a meaningful relationship:

 

~a mental view or prospect:

 

Since about 1984, I have suggested to all clients that our very worst enemy, the being that can do the most damage to us in the long-term journey of meeting our collective financial goals – is ourselves.  Garbage in is garbage out.

 

It has not changed – ever.  Sure it ebbs and flows at […]

Beyond Half Full

Good Morning,

 

Fact:  The vast majority, well above 95% of the “news” we currently ingest each day is bad.  Something to worry about, some reason that things may turn out poorly.  We are fed data to drive worries about almost everything:  monetary, economic, political, terrorism, racial concerns, global events, nuclear bombs, energy wars, the Middle East, geo-political events and overall infighting across far too many fronts – IF one pays attention to the headlines.

 

However, if one dares to look around beyond all the perceived ugliness, things are not that bad at all.

 

Technology is changing everything – most for the better even if a few things require we adapt to change.

 

Healthcare is the best in the world.

 

The consumer base is fully employed – with many millions more jobs available for the taking once educational and training catch up.

 

We have a limited supply of inventory almost anywhere in the pipeline – making it very, very tough to even get a recession entrenched (more on that later)

 

We live in a country that people still risk dying to get too….

 

It’s been a very long time since the number have things that are going well has matched the current number of things that are going well.

 

Still – too many fret.

 

Make no mistake:  history proves that fear is the investor’s most significant cost in all of their investing and wealth-building goals.

 

The Choice We Make

 

Everyone knows that we have heard many times before:  One can see the glass as half- empty or half-full.  I would argue we have a third choice as well….

 

The glass is almost full.

 

I suspect, in the years ahead, we will see it running over – repeatedly – given the nature of the pipeline of demand ahead.

 

All Eyes on Deck

 

Yep, it is that time […]

And the Problem is What?

Good Morning,

 

Yesterday we covered the very strong ISM Manufacturing report from September (hurricanes and all).  And if that did not make your day, well yesterday’s ISM report on the Non-Manufacturing (Service) sector was yet another very big beat,

 

Economists and analysts thought we would come in at a reading of 55.5 (the August read was 55.3).  Well, that too was just a bit outside.  The actual reading came in at a stout 59.8.

 

Here is the important thing though:  This is the highest level for the index since August 2005!  It also clocked in as the fourth-largest one-month increase in the history of the survey going back to 1997!

 

Bottom line:  when you combine the two ISM readings, the September ISM came in at 59.8, which was the highest reading since August 2005.

No-flation

 

The Fed officials continue to struggle with the lack of inflation.  After all, QE was supposed to cause the mother of all inflation firestorms.  The gold-bugs “knew” it – so how could they have been wrong?

 

Finally, I saw something in the headlines that led me to believe there is a tiny – and I do mean like microscopic tiny – chance they are beginning to understand this is a structural change driven by the slow-moving but long-lasting demographic powers afoot:

My hunch?  I suspect the Ms. Yellen may use a low read tomorrow on jobs to suggest that we can “wait” for the next rate hike just a tad bit longer.  But, heck, it’s just a hunch.

 

Holidays Are Almost Here

 

Before you know it, we will be mixing headlines about Q3 earnings beats into expectations on the all-too-analyzed Holiday Shopping Season.  The first numbers are out and the growth is expected to be solid.  They are likely pushed higher by growing wages and […]

Overlooked

Good Morning,

In all the hype and drama of day-to-day financial media events, most of the audience tends to be driven to overlook many of important items.  One of those elements in the latest data is the Manufacturing Index.  The long held belief is that somehow the US does that poorly these days.  The chatter has been beaten into the minds of the audience for so long that we just assume we really did ship it all overseas.

 

Uh – no – we didn’t.

 

Let’s take a look:

The ISM Manufacturing chart above shows that reports for the month of September came in significantly ahead of expectations, topping 60 for the first time in over 13 years!

 

Economists/analysts were forecasting the headline index to come in at a level of 58.1 – a bit short wouldn’t you say?  Relative to expectations, September’s report was the strongest since October 2014, and on an absolute level, this month’s print was the highest since May 2014.

 

But there is more:  it is important to check what the internal data tell us.  Respondents make remarks when they file reports.  There are also running tallies of certain aspects of the index so one can get a sense of “trend”.

 

Let’s first look at the comments snapshot.  The obvious disruptions from the hurricanes are clear and understandable – but what other word do you see being used repeatedly?

On this next snapshot below, I like to track internal data to see if there are any values to be picked up from same.  I bring your attention to the inventory segments in the data below:

Long-time readers will recall our multiple mentions of the “Fedex Economy.”  In a nutshell, thanks to all those planes and overnight delivery, Fred Smith changed the way our […]

The Final Stretch

Good Morning,

 

Funny how the calendar forms one’s focus when covering markets.

 

We are in that odd spot of the year.  Those few weeks between the haze wearing off from summer, the fears over September, the fears of October crashes, the fears over Q3 earnings and then, awaiting the whistle that kicks off the Q4 run to the finish line.

 

Then we celebrate for about 24 hours for the New Year and get right back to over-analysis.  We then get lost in YOY (year over year) and MOM (month over month) comparisons, CAGR (compound annual growth rate) assumptions and the same tapes playing again each month, almost robotic in nature.

 

Wasted Energy

 

There was heightened chatter about rate fears this weekend as even a meeting with some prospect for the Fed Chair role is now over-analyzed and used to frighten the crowd.

 

Sorry.  Rates are fine.  The Fed is fine.

 

The economy is strolling along at a very steady pace – with more than enough jobs available for those who want to work.  Inflation is tamed, oil is broken, tech is now slowly turning its attack on medical costs and education and the deflationary effect of Gen Y continues to seep into the system.

 

It is a very slow process but one that we cannot escape.

 

And by the way – that is a good thing.

 

On top of that, earnings continue to remain impressive, in record territory and the fears about storm impact may indeed have been overblown as we witness a very light warnings season.  Q3 reports will begin in earnest in another 10-12 days so let’s just stay focused on the steady drivers of the Barbell Economy.

 

Speaking of Storms

 

Harvey and Irma were set to demolish the great run we had on jobless claims as […]

What Isn’t Happening

Good Morning,

 

I just cannot believe that today marks the end of the third quarter for 2017.  It seems like just nine months ago we were celebrating the New Year!

 

Uh – ok.  Crickets.

 

So, listen – we spend far too much time focused on that is happening.  As anyone can recite, the problems seem to be endless.  Indeed, speaking in terms of pipeline and demand – if we did not have a bunch of garbage to worry about in the headlines, I am perfectly convinced we would create something.

 

But here is the better question:

 

“What isn’t happening?”

 

Think about it for a moment.  With all the focus on any number of risks – the Fed, rates, the market, a crash, N Korea, Brexit, hurricane destruction, DC problems, acrimony across the board on many fronts – the list continues to grow.

 

In the midst of all of that – this is the key:  the market is not selling off.

 

Choppy, internal churn, lots of noise and the usual (very expensive) knee-jerk reactions over earnings seasons – yes.

 

But no real sell-off.

 

No correction – even mild.

 

If one is watching the breadcrumbs – the trail is crystal clear.

 

The market is staying steady – choppy at worst.

 

The economy continues to expand.

 

The storms did not decimate the GDP – or even a region yet.

 

We are not being inundated with warnings of earnings misses due to storms

 

…and even the Chicago PMI just came out with huge numbers, well beyond estimates.

As we covered in recent notes, inflation continues to not raise its ugly head either – even as it flusters many, for all the wrong reasons:

Vanished Again

 

We noted the loss of bullish sentiment again even as the backdrop remains positive.  This chart helps some better than just a number.  Saying that only […]

By |September 29th, 2017|Investing|0 Comments

Ghost Rider

Good Morning,

 

We are over a month away from Halloween still but we have plenty of ghosts out already.  A wide swathe of the investor audience these days is a ghost rider.  We hop on the next ghost only after the former ghost never actually harmed us.  And yet, the market does not care.

 

Fear has become a security blanket.

 

So much so – we changed what we call it.

 

I must tell you, this is usually the time of year when we just get sloppy, downward sloping activity in the market.  I fully expected a bit more red ink – but – nada.

 

Sure, internal chop and some sector pushback but nothing serious given the seemingly endless reasons we could have seen worse.  Darn.  Anyway, pretty soon, the calendar headwind we covered before in your notes will turn into a calendar tailwind.  It is pleasing to see that while terrible as they unfolded, the Harvey and Irma impact in the warnings window still appears very light.

 

That could change but very few rumblings so far.

 

Interestingly, in the last week, we have seen data released showing trains, ports and truckers all doing a bang-up business.  GDP moved higher on the latest read this morning – beating expectations.  Along with that, profits for Q2 were also revised higher.  Cap that off with a new all-time high in the Transports and even the Dow Theory has erased the 483rd fear about the two averages not confirming each other.

 

Let’s review:

Note that last entry.  Intriguing to see multiple regional readings (post hurricanes) each add a note that they have not seen pressures from the storms.  By the way – this is all good.

 

As such, one would expect those AAII bullish sentiments to finally – after nearly 16,000 points of rally since […]

By |September 28th, 2017|Investing|0 Comments

Black Swan 6

Good Morning,

 

For years, the world has wondered aloud about inflation.  After all, in the old world, economic cycles were “known” by all the experts.

 

Recession would be cured by easy money (read: low rates), confidence slowly returns, money begins to flow, fears fall in stages, business gets back on track, investment begins anew, expansion takes hold, confidence rises at an ever-increasing rate, old fears are lost, old lessons forgotten, over-investment begins, too much stuff is being built, everyone who was afraid before is now pedal to the metal – and bang – inflation  arises, then it rises some more as too much activity floods the system, the Fed begins to get nervous, bubble talk seeps into the commentary, then it abounds, rates rise, rates rise further, rates finally choke off growth and….the cycle begins again.

 

I am simplifying of course so forgive me.

 

That was the old world.

 

For years – we have been covering the new world.

 

The world where corners are cut – for the good.  The world where layers disappear.  The world where tech changes everything.  The anywhere, anytime, any place world.

 

The Barbell Economy world.  The Generation Y tectonic shift.

 

While too many worry about the perils of October crashes, the Fed still cannot figure out why inflation is not evident.  Yes, that was the old world.

 

The new world is changing all we “know” about how economies will work in the future.  Expect many “rules” to be broken.  Expect many experts to be confused.  No one has ever experienced the pace of change which is just beginning.  Nowhere in our past have we a “conceptual diagram” of where Gen Y and technology will take us.

 

The waves are set to be huge.

 

We can fear them – or, we can ride them.

 

In a […]

By |September 26th, 2017|Investing|0 Comments
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