Investing

Never Forget

Good Morning,

 

All of us here wish you and yours the very best of the Memorial Day weekend break. While it is seen as the official start to the summer season, it is also a time to remember what created the foundation of our Freedom.  The words “freedom is not free” often tend to slip off the tongue with ease.

 

That is until you gaze upon an image like the one above or a video like the one below.

 

We get so busy with life sometimes that we may overlook how so many gave up theirs to protect ours.  Let’s agree we won’t forget.

We wish you the best of the summer kickoff…and for all those who have served, we thank you.

 

We close out the week and the summer season begins with a rather steady process underway in the economy.

Data is generally positive and jobs are solid.  Indeed, jobless claims are severely depressed – and the flip side of that coin is even better.  Job openings are at record highs.

Hence, all those kids you keep hearing about leaving college with a lot of debt should have plenty of offers to go to work – and begin shedding that debt quickly.

 

It’s called planting seeds for the future….or Armageddon XXVIII if you prefer the scary lane:

On a non-seasonally adjusted basis, jobless claims actually rose slightly from 207K up to 209.8K. We can overlook that tiny increase because this week’s level was still more than 100K below the average for the current week of the year dating all the way back to 1973!

 

Note corporate profits are up nicely in the latest data updates above.  Durable goods look negative at first glance – but they are not.  Check the revision to last […]

Pray for a Correction

Good Morning,

 

Yes, I know – it’s nutty.  But we must begin to recognize that there is a change afoot. While many may not recall them, I do – the 80’s and 90’s were a replication of what is set to unfold in our economy for the next 20 years.  A massive tectonic shift – bringing along with it waves of change, the likes of which many are not prepared for.

 

Call it pie in the sky if you will–but as those who defined it as such in the 80’s and 90’s found out…change is not always a bad thing.   Sure, it is scary at times.  Change always is – and it may even be painful at times.  But for the sake of what is unfolding in our economy, these tend to be positives over time.

 

The problem?  There is that word again – time.

 

The most painful element investors must learn to withstand over a life of building wealth – time.

 

Time to let things unfold.

 

Time to permit the compounding effect to benefit you.

 

Time to let all the elements that seem terrible at first – and drive so many poor reactions – to pass into the dust of history.

 

It’s why the markets are fooling the masses again.  How do we know they are being fooled?  Checks the sentiment stats.  I know I reported them late last week – and they are set to change again in 48 hours – but sometimes an image is the most vital way of driving a point home.

 

As they say – a picture is worth…..well, you get the point:

I bring your attention to the two charts above – the first for bullish sentiment readings, the second for Neutral sentiment readings.  History shows the […]

Ugly Days…Just Perfect

Good Morning,

 

Finally….they cracked.

 

Yes, one had to know the cookie would crumble eventually right?  After a media attack and wave after wave of implied, yet rarely factual headline events, Trump and politics are the subject of the blame game for the latest market events.

 

Nowhere in recent history have we seen the types of political mayhem – right out of the box – we have witnessed in the first 110 days of this administration.

 

So, as one would expect – and on the fringe of watching our latest earnings season ebb into history – we must find new events to have investors sadly careen off course over.

 

The good news?   It’s working.

 

Note the AAII data from late last evening (and this was before the effect of yesterday’s “worst selling since the election” could be voted upon):

Now, call me a bit nutty but I have strong hunch that were we to have had the AAII survey open through today this week – the retreat into the bearish camp would have been even more severe.

 

As it is, only with the hindsight of nearly 35 years in this industry, I find it completely stunning that we have a bullish reading of just 23%.  This in a marketplace which just last week hit a minor, new, all-time high.

 

Remember, at the lows of March 2009 – some 14,000 Dow points ago – this reading reached its low – just 19.7% bullish.  Or, just one in five participants.

 

We are a mere few points away from that now.

 

It is sad and at the same time, oddly, spectacularly positive for the long-term, patient investor today.

 

The Larger Picture?

 

Notice how quickly one cannot even find a hint of North Korea in the headlines at all today?

 

Trump is the latest hot button.

 

Last week, […]

Almost Done

Good Morning,

 

Ok, so earnings season is about done with just a few more days of any importance.  The bulk is complete and again – it was pretty solid – even when allowing for how ugly Q1 2016 looked with energy write-downs clouding the picture.

 

In the future, when you see a particular sector being trashed – just remember the Armageddon cries during the crude oil crunch.  Then, take advantage of it.

 

To that point….can anyone say retail?

 

As experts would have it….retail is dead, useless – ready for the trash heap.

 

I was at Mall of America this weekend – it looked pretty darn busy to me.

 

I digress.

 

Let’s Review…

 

In his most recent Woodstock in Omaha, Warren stated that he missed Jeff Bezos and Amazon completely.  He had a one-word answer as to why “stupidity.”

 

Why…well let’s look into AMZN and how we might see its latest impact in the most recent GDP data.

 

But first – Amazon has been described as a “piranha-like corporation that eats up retailers, particularly the anchor stores, and doesn’t even leave the bones.”  I recall about 20 years ago, Wal-Mart was called the same – sort of.

 

Here is a quote from Dr. Ed in an IBD article last week:

 

“‘Amazon is killing lots of businesses. In the process, it may also be killing inflation,’ Ed Yardeni, noted economist and president of Yardeni Research, said in a recent report.

 

I would add that inflation is being killed by the entire Gen Y process of growth.  They are all about multi-tasking, cutting layers of fluff and going straight to the end point.  I remain confident we will be shocked at margin growth over the coming years as Gen Y moves deeper into the corporate management structure.  Granted, they are […]

Another Brick in the Wall

Good Morning,

 

In the seemingly terrible future we face – what with new record highs in earnings, cash flows, cash on hand, forward earnings and some indices, one cannot be surprised to see bullish sentiment drop again.

 

This from the latest AAII readings yesterday:

Individual investors once again pulled in their horns this week, even as the S&P 500 hit new all-time highs. Note that the latest from AAII showsbullish sentiment dropped from 38.07% down to 32.73% for the largest weekly decline since March 9th. This week’s reading also extends the streak of sub-50% readings to a record 123 straight weeks.

 

Make no mistake:  this continued fear of markets is unprecedented – but very, very positive for long-term investors.

 

As you can see, most of the shift fell into the neutral camp.  No worries – give us a few days of red ink over some wasted turmoil – and they will quickly converge into the bearish camp.

 

Maybe it was this week’s abrupt firing of FBI Director James Comey?  My hunch is more the underlying fears in what we termed “Altitude Sickness” – the higher we go, the more dizzy one gets.

 

One could argue it is the final stages of churn which almost always cloaks the final weeks of each earnings season.

 

Plus we do have summer approaching and there is always that summer swoon chatter in the back of one’s mind.

 

The churn will pass – as earnings season ends soon and the knee-jerk reactions subside.

 

No matter, it is clear – individual investors remain heavily entrenched on the “cautious” side of the street.

 

HINT:  They will not get less cautious at lower prices.

 

The Larger Picture?

 

Remain patient and focused on the long-term.  Let others get lost in the fear-driven Armageddon process festering in the […]

The Calendar

Good Morning,

 

As the earnings season enters its final weeks and the noise in politics continues to cloud the horizon, we mist continue to keep clients focused on the important elements at hand.

 

The French election apparently will not (as feared) throw the planet off its axis and toss us all into space.  I suppose that is a positive for forward earnings.  I am told our real problem however, was not the French election.  Instead it was really the Italian election lurking in the shadows.

 

The good news?  We have almost an entire year to hear about how afraid of it we should be.

 

The Calendar…Hazy

 

Meanwhile back at the ranch, ask any teenager and you will know the more important element at this stage of the year is the calendar.  Summer is almost here and many will need to practice their patience at watching paint dry.  I am surprised a bit that we have not heard as much chatter as we usually do about selling in May and going away.  Possibly many have learned it was a bad chant anyway?  Not sure but I must admit – I miss it a bit already.

 

Be that as it may, the summer is approaching.  With it the normal haze will be setting in soon.  I speak of it every year – sort of hoping that I will relax a bit and indeed do what I always promise I will do – turn it all off on Memorial Day and come back the day after Labor Day.

 

Expect what we see almost every summer:  slow trade, far fewer participants paying attention as they flock to the beach.  This can lead to a bit more internal volatility.  News headlines can have an easier push […]

Ho-Hum…Nah

Good Afternoon,

 

Let’s take the earnings pulse first:

 

With 67.5% of the S&P 500 companies finished reporting Q1-2017 results, their revenue and earnings surprise metrics – and YOY growth rates are stronger than at the comparable point of the Q4 season. (Keep in mind it is an easy comp to an ugly Q1 2016 so don’t fret next quarter.)

 

Of the 329 companies in the S&P 500 that have reported, a full 77% have exceeded industry analysts’ earnings estimates by a solid average of 6.7%.  They have averaged a YOY earnings gain of 10.8%.

 

As a comparable on trend, at the same point in Q4-2016, a lower percentage of companies (70%) in the S&P 500 had beaten consensus earnings estimates by a smaller 4.1% and earnings were up a lower 7.9% YOY.

 

On revenues:  63% have beaten sales estimates so far, coming in 0.7% above forecast and 8.0% higher than a year earlier.

 

During Q4, a lower 49% were above forecast, which exceeded estimates by a smaller 0.3% and rose a lower 4.3% YOY.

 

Net net for those who love stats:  Q1 earnings results are higher for 65% of companies versus a higher 71% at the same point in Q4, but revenues are higher for 78% versus 72%.

 

Best news:  The S&P 500’s earnings beat is the highest in eight quarters and the revenue surprise is the best in nine quarters.

 

Be forewarned:  the media will rain on future parades as the “pace of growth” will slow on tougher comps.  This is normal – but it will sound like Armageddon – just in time for a nice little summer swoon maybe?

 

Pray for it.

 

How About ISM Manufacturing Data?

 

Well the headline was weaker than expected – which should have been expected after several solid months. […]

Bad Data

Good Morning,

 

Trump and the media seem to be getting very good at jumping from one problem to the next – no matter how the previous one was solved.  As with all things – good or bad in politics – many overlook that current day events we witness are the result of many past actions rolled into a cumulative crescendo.  Over time, the blame – or credit – gets moved around the chess board often.

 

If we look beyond the noise, earnings season continues to move along nicely.  Let’s be careful not to get ahead of ourselves – but the data so far is pretty solid.  The better news? The rest of the world is improving too – slowly but surely.  Given the global reach of companies here in the US, even a mild recovery the world over shows a solid bottom-line impact for many entities.

 

Your latest Barbell Economy Portfolio snapshot data is at the end of this morning’s note.

 

Tax Bill Due?

 

The latest Trump noise comes from the tax rework suggested by a one-page outline last week.  Dr. Ed provides a little help below in focusing in on the important elements.

 

Before that, I have included a chart we did earlier in the year showing what would happen to the S&P 500 based on various blends of forward multiples and the bottom-line impact of lower corporate tax rates.  The numbers are surprising for many:

Many market participants and media “experts” were expecting more details on the new tax plan as was quickly realized upon its summary release.

 

There was clear disappointment on the seeming lack of substance in the one-page outline. However, the shortened format may suggest that the administration is open for discussion on these matters.  The format itself also speaks to […]

Group – Think Loses

Good Morning,

 

It would be very easy to get caught up in the day-to-day chatter about politics, Trump, DC, Congress, The Wall, tax plans, healthcare issues, etc., etc.

 

You name it, be assured there will always be plenty going on to fog up the windshield. Better yet, if there is not enough going on – it will be created for attention.

 

As such, let’s not automatically assume that the “Trump effect” is real just yet – or the specific reason for the market’s recent movements.  The market is moving because earnings are improving.  Confidence is up which means corporate planning for growth is back on page 1 in the boardroom.

 

We forget we just spent 8 years where corporate growth plans were simple and went something like this:  keep the ship going straight ahead, hold back investments, accrue cash offshore, if we can, to cut tax costs and wait out the storm.

 

The “earnings crisis” which was all we spoke of prior to Election Day last November has passed – on almost the exact schedule we defined well over a year in advance.  Cheap oil is no longer the end of the world crisis we were all told it would be.

 

Indeed, the process and the price crunch made us all better off.  No debt problem unfolded as small oil companies went bust.  As stated well in advance for every dollar of possible “trouble” there were $10 waiting to take advantage of cheap prices and troubled companies.

 

Markets were basically flat from January of 2015 through the day before the Election in 2016.

 

Here’s the Surprise:  We Already Had a Bear Market

 

A vast portion of the current investor population is using up the world’s supply of TUMS waiting on the next correction.  You […]

Another Brick in the Wall

Good Morning,

 

The earnings season has begun stronger than expected.  Let’s be fair – this season was an easy comp to one year ago.  Few may recall but the world was ending way back then – because crude oil was cheap and gasoline was inexpensive.

 

Some stats:  This from FactSet –

 

“To date, 6% of the companies in the S&P 500 have reported actual results for Q1 2017. In terms of earnings, more companies (76%) are reporting actual EPS above estimates compared to the 5-year average.  In aggregate, companies are reporting earnings that are 6.7% above the estimates, which is also above the 5-year average. In terms of sales, more companies (59%) are reporting actual sales above estimates compared to the 5-year average. In aggregate, companies are reporting sales that are 0.2% above estimates, which is also above the 5-year average.”

 

One of the two busiest weeks of this earnings season is upon us.  Over 800 companies are reporting – with 191 from the S&P 500.  As of Friday, we had 95 of the S&P 500 constituents (representing almost 25% of total market cap).

 

They have reported earnings which are 14% higher than Q1 2016.  Over 72% have beaten earnings expectations – with more than  62% beating revenue estimates.  In essence, the parade continues – but it is picking up pace.

 

By the way – as the data above shows – the Barbell Economy is moving along just fine.

 

Looking Forward

 

Forward earnings rose last week to more record highs for LargeCap and MidCap. SmallCap’s rose too, but remains a tiny 0.1% below their early February record.

 

The yearly change in forward earnings is up in all three: LargeCap’s forward earnings edged to 9.1% y/y; MidCap’s rose to 11.3%; and SmallCap’s sat at […]