Investing

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

Misunderstood

Good Morning,

 

Hey, watch out – October is almost here.  And, believe it or not, Christmas is 90 days away.  Ouch.  Stunning how fast 2017 has flown by – even as the airwaves are full of things we are supposed to worry about.

 

With Q3 around the corner as well, let’s check in with data for a quick summary of the latest stats.  By the way, they are good.  FactSet tells us this:

 

Earnings Growth: For Q3 2017, the estimated earnings growth rate for the S&P 500 is 4.2%. Eight sectors are expected to report earnings growth for the quarter, led by the Energy sector.

 

Earnings Revisions: On June 30, the estimated earnings growth rate for Q3 2017 was 7.5%. Ten sectors have lower growth rates today (compared to June 30) due to downward revisions to earnings estimates, led by the Energy sector. (normal M.O. as covered before)

 

Earnings Guidance: For Q3 2017, 75 S&P 500 companies have issued negative EPS guidance and 43 S&P 500 companies have issued positive EPS guidance.

 

Valuation: The forward 12-month P/E ratio for the S&P 500 is 17.7.

 

Earnings Scorecard: For Q3 2017 (with 6 companies in the S&P 500 reporting actual results for the quarter), 4 companies have reported positive EPS surprises and 4 companies have reported positive sales surprises.

 

As to surprises and guidance, here is the most interest part of the latest data from FactSet:

 

“A record Number of S&P 500 Companies Have issued Positive Revenue Guidance for Q3”, but it is still early.

 

Recall, we should expect negative EPS guidance as well given the storms so when a big deal is made of same, try hard to look beyond the near-term.

 

Note that so far, by sector, companies in the Information Technology, Health Care, and Consumer […]

By |September 25th, 2017|Investing|0 Comments

That Nagging Feeling

Good Morning,

 

Chatter is increasing as expected over Fed action – or inaction.  I read 5 different articles this morning stating that “we have entered no man’s land for the markets” – with a 70% likelihood prices will fall into the end of the month.

 

Oh great.

 

There is some merit to that if one just studies stats – just as we have hinted in recent morning notes.  However, the deeply-seeded fears remain strong indeed.  That nagging feeling that something must go wrong with stocks tip-toeing around all-time highs is filtering into the entire audience.

 

Even advisors are joining the game now as the latest Investor’s Intelligence data show below.

 

So we know the audience remains fearful.  How?  Check the chart below from Calafia:

Ask yourself this:  How can the prices of two pretty unique assets – gold and the 5-year TIPS (chart above) – track each other so closely for the last decade?

 

Answer:  f.e.a.r.

 

Both are taught to the masses to be safe havens in a storm. As you are aware, TIPS protect you from inflation and default.  Likewise, we are told gold protects you from inflation and systemic collapse.

 

At present, the data tell us that although conditions are better than they were 5 years ago, investors are even now, thousands of points later, still paying a heavy premium for “safety.” Both of these assets have remained in the premium price category, clearly hinting that “risk aversion” is alive and well in the stock market today.

 

More?

 

Sure…let’s check the bond yields.  Even as chatter is high that Fed actions will pressure bonds, the global race for “safety” remains clear.  We still have the highest yield of major economies – by a wide margin.  That is a good thing:

I know – Got any more Mike?

 

Ok, […]

By |September 19th, 2017|Investing|0 Comments

It Doesn’t Matter

Good Morning,

 

As we get closer to the next Fed meeting, expect lots of chatter about how the Fed will or won’t shrink it’s balance sheet or whether or not it will raise rates by 25 basis points.

 

If we happen to be in the middle of any red ink in the market averages at the time, one can fully expect these issues to be in the top 5 reasons for “blame” as the media creates explanations.

 

Let’s put this to rest once and for all:

 

~  The great QE processes from 2009 did not cause the market to go up

 

~ The “taper tantrum” everyone feared when QE “ended” never caused the problems experts said it would

 

~  Tapering of the Fed Balance sheet is not set to be significant enough to cause harsh reactions (based on real-time stats below)

 

Let’s provide a little background to build confidence for the long-term effect of the bullet points above.  Explanations will follow:

This chart above show just how big the daily game of treasury security trade is – expected to only get larger as the wealth of the world expands – which it does routinely.  Now, let’s break that down a little bit.

 

Note the real facts on the Fed’s balance sheet which will be spoken of heavily as we approach the feared “October Crash” market montage:

In other words – if the Fed started reducing their balance sheet right this second – it would be a tiny ripple each day in the overall treasury market’s volume.

 

Background Re-Think

 

First, let’s make sure we recall that many market experts and media participants have spent years attributing the increase in market values to the massive liquidity generated by the QE programs.  As such, one can expect those same experts to suggest that […]

By |September 18th, 2017|Investing|0 Comments

It’s All Good

Good Morning,

 

Funny how things work sometimes.  This weekend as Irma mowed over Florida and thankfully, jogged right around our region – leaving mostly just lost power – I was reminded of a verse from the Sunscreen song:

 

Don’t worry about the future or worry but know that worrying
Is as affective as trying to solve an algebra equation
By chewing bubble gum
The real troubles in your life are apt to be things
That never crossed your worried mind
The kind that blindsides you at 4 p.m. on some idle Tuesday
Be assured, as Max was getting checked in for his new school, the very last thing we were thinking about was a Cat 5 hurricane.

 

I will say this though, and I mean nothing negative here – the Weather Channel guys have almost overtaken the financial channel talking-head guys for the ability to “get attention” as they say. Heck, I’d argue that a few of those guys “on scene” deserve an Academy Award nomination.

 

All jest aside, we wish the very best for all who were in the way of that ugly storm – even as many can be very thankful that it weakened quickly once it hit the state.

 

And Now for The Better Stuff…

 

Hey, not much changed in the last 72 hours.  The investor audience remains very nervous as your sentiment data vividly shows – even as we tip-toe around new records. Just remember, when you are already at a record, one more point is another “record” but not really right?  You get the drift.

 

Also recall, the best selling headline on Wall Street is always going to be about the “thing” that will end the bull market.  It will always be the most hyped, it will always be the toughest to work against […]

By |September 12th, 2017|Investing|0 Comments

Hangover Haze

Good Morning,

 

When is the next break?

 

Ouch, talk about a cold shower.  The symptoms are obvious – it’s back to work.  No rest for the weary and all that stuff.

 

So let us start the thankfully shortened holiday week with a snapshot of all that happened for the last 12 weeks during summer.

 

The world was almost going to end and then,

It was going to possibly be ok – and then,

It was really in a lot of trouble – and then

The trouble subsided.

But then it got worse

And then it got a lot worse

And then it reached levels we had never seen before

And then it set records on many terrible fronts

And then earnings went up to another record high

And the market rose about 1.2%.

 

I summarized of course.

 

In the meantime, the chart below reminds us that a whole lot of bears showed up to snuff out the bulls:

N. Korea ended our summer with a bang and now the entire world is sitting on pins and needles again.  Can one plan for a global catastrophe?  I am not 100% sure one can ever do that.  So we move forward, just like always.

 

The more immediate issue for some will be Hurricane Irma and where it lands.  One hopes Irma weakens as she hits the islands but if not, then the tip of FL is the current target.

 

I would not be surprised to see this week in the markets remain as choppy as the weather appears.

 

Besides, it only took about an hour this morning before I saw the first headline about “how bad the month of September is for stocks…”

 

Just Remember The Good Stuff…

 

The growth rate in real GDP was revised higher last week, from 2.6% to 3.0% for Q2.

 

On a y/y basis, real GDP was up […]

By |September 5th, 2017|Investing|0 Comments

Relax – Plenty of Bears

Happy Labor Day Weekend to You and Yours!

 

Watch out–there are bears everywhere.

 

After 35 years, I swear I have never seen anything like it.  Pretty stunning – but then again, most investors are too worried about the next shoe to drop to see the good stuff.

 

Stats Please?

Note the red dot – it is the current week’s reading of the percentage of Bulls in the crowd.

 

Just 25%

 

Meaning 75% are not bullish, are feeling “neutral” (which is French for “terrified but afraid to admit it”) or outright bearish!

 

I want you to also note that over 95% of all other readings in this data were above current levels.

 

From a contrary perspective – this is very bullish data.  The time you want to be concerned is after months of everyone being too bullish.  We are miles and miles and miles away from that today.

 

Want this week’s bearish stats?

Once again – the red dot.  Showing just a tad bit under 40%.  Meaning?

 

Four out of ten are outright bearish

Seventy-five out of 100 are not bullish

 

Study these charts – carefully.  At no time in this data has this level of bearishness and the nearly extinct level of bullishness preceded a major top.

 

This is what usually comes AFTER a sell-off, not before it.

 

Some Context

 

March 9, 2009.  DOW below 7,000.  Ugly bear market of 2008-2009 reaches its low. Great Recession is clouding the horizon.  There were so many government rescue program acronyms being created, one was mesmerized by all the names.   The end of the word had arrived.  Life as we knew was over.  The financial system kaput.

 

The level of bulls that week at the low?

 

19.7%  (less than 6% away from where we are now)

 

At the time, we also set a record for the amount of cash sitting in the bank held […]

By |September 2nd, 2017|Investing|0 Comments

In Plain Sight

Good Morning,

 

We surely send our best to all those being affected by the events in Houston.

 

Another summer ebbing toward its’ close – and our buddy is back.  North Korea.  In a millisecond, he vanquished all of the previous headlines we were being fed just yesterday. Everything is now North Korea – again.  Classic stuff.

And as one might expect, new 2017 lows in the bond world as the fear trade rapidly overtakes all common logic once again.  Note the yields here:

It is easy to assume that the Fed controls interest rate markets.  It does not.  For better or worse, our emotions control this market.  Generally, when we are terrified, we stand in line to pay whatever the price – for the feeling of “safety.”  When we are confident, well, we don’t fret so much over safety.  I use the term “we” for all investors.

 

More important, in a sea of low rates, the US remains the highest.  Japan is on the border of negative yields and the other majors are all back at 1.00% or lower.  Much confidence building must still be employed before a real understanding of risk can return to the mass audience of investors.

 

For now, it remains a good thing that fear is so easily ignited that paying 50 times earnings for bonds and shunning 17.8 times earnings for stocks is deemed “defensive.”

 

Surprise?

 

There is still time for a summer swoon and maybe the North Korean is the guy to trigger it.

We just need to see what China really wants to shut down their toy soldier.  Where do you think he gets all that stuff?  The funds to pay for it all?  The parts? Technology?   There cannot be a whole lot of room in that budget.  Here is what […]

Snuffed Out

Good Morning,

 

The Fed doesn’t get it.  The experts have missed it too.  Most of the financial talking heads are almost always behind the 8-ball.

 

What did they miss?

 

Inflation being snuffed out.

 

You see, history has taught that a growing, fully-employed economy must end with out-sized inflation.  I say “end” because what usually happens next is the Fed is forced to raise rates (the bond market always does it for them first) and “kill” the growth curve. Then, a recession sets in and creates the base for a makeover and a fix.

 

Kind of like a 1,000,000 mile check up on your truck.

 

But here is the thing:

 

First, history never met Generation Y.

 

Second, 2008-2009 created so much pain, success was nearly assured.

 

To get a sense of this normal human process, take a minute and watch this fantastic Gatorade commercial.  It’s message is a breath of fresh air for all who care to listen.  A real game-changer for some.  For others, maybe the best 1:07 spent today as the summer haze endures for another two weeks:

The Lesson?

 

Markets and economies are funny beasts.  They will twist you and turn you until your brain is fried – causing you to chase ghosts down dark alleyways in your mind.  Only to find that by the time you think you have found the reason – the problem no longer exists – or, it turns out never to have been a problem at all.

 

Case in point?  The inflation ghost.

 

The Fed is sure it is coming.  The experts have chanted of its risk for years into this “weak, stagnating recovery.”  Here is the deal:  they have misunderstood inflation and are unwilling to respect the idea than things change.

 

The tools being used today are (finally) beginning to just scratch the surface of the promises […]

Lies & Deception

Good Morning,

 

In the usual sleight-of-hand world of August in the markets, the continued churn is causing precisely what it is designed to cause.  Fear, angst, trepidation and the almost mesmerizing need to be even more focused on headlines – only worsening your condition.

 

Somewhat tongue-in-cheek, the media at times acts like a crack addict – always looking for the next hit.  N. Korea is bad. Well, maybe not that bad.  Charlottesville was terrible. Oh, no – it’s even worse than we thought.  No wait, Boston is worse.  No again.  This time, the eclipse.  It’s going to cause hundreds of billions of dollars in lost productivity.  Oh, wait – did we mention N. Korea is the real Armageddon?  If we didn’t – we are now.  He’s back.

You get the drift – it is a never-ending stream.  Like watching some poor soul have a mental breakdown, live, on-air.

 

And why?  To keep ourselves busy.  It’s like being unable to go 10 or 15 minutes without checking your phone for a text or message.  Did I miss something?  Did something (anything of import will do) happen that I need to know about, right this very second – anywhere on the planet?

 

It is mind-bending indeed – and one of the worst ways to be a long-term investor.  In fact, it has been my personal experience that the more we get caught up in this garbage, the less likely we are to be successful in the long-run investing/wealth-building goals ahead.

 

Just be sure that you recognize this:  most of what we now consume as “news” is nothing more than a person’s opinion.  You know the trick lines when you hear them.  They are clear indicators that you have left the “I am providing you helpful data” world […]

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