Investing

They Missed Again

Good Morning,

 

The GDP report, long since rumored to assuredly have been affected by the hurricanes and Mother Nature’s Q3 anger – came in far better than expected!

 

Keep in mind, this is a first run – with two more adjustments due.  History suggests the number likely goes higher still.  All in all, a far cry from the howling at the moon over a slow and paltry economy.

 

You move a $20 Trillion economy at a 3% annual growth clip and things usually turn out quite nicely indeed.

 

The Overlooked Benefit?

 

The significant deflationary forces of Generation Y, permitting more and more energy to build into the foundation of our economy – without the growth killing domino effect of inflation.

Note also, as we have been covering, the data from early indications in Q4 suggest not only did the storms have little downside pressure in the economy, they likely actually boosted activity on almost all fronts:

Kansas data joins the Empire region and Chicago area activity to suggest the country is moving forward quite nicely indeed.

 

Of course, as one might expect – even as tech’s big names literally knocked their numbers out of the park, sentiment remains tepid at best given record highs in prices and earnings.  Here is your latest.

 

Another three weeks of this and we will have witnessed 3 straight years of AAII bullish sentiment remaining below 50%.

 

Pray for another three years – please:

The most notable part of the data above is watching how the numbers shift.  Recall, we had expressed before that the high “neutral” reading often rolls bearish when “bullishness” is merely skin deep – quickly erased on red ink.

 

Indeed as one can see – almost 4 times as many left the neutral rank to turn bearish in the […]

Looking for the Wrong Pitch

Good Morning,

 

The insanity must stop – or many, many millions of investors will continue to misunderstand how powerful the changes are which currently roll through the US economy.

 

Now, I usually try to control my comments but the bull eventually gets to deep and you gotta throw out the penalty flag.

 

Case in point:

 

Yesterday, the DOW and S&P 500 fell.  They dropped by 48 basis points.  For the non-math people, that’s less than one-half percent.  Frightening right?

 

Uh – no.

 

Here was the headline and photo moments after the close on CNBC:

Now – forget the hyped photo momentarily.  Also, for a second, forget that a 23 year-old producer likely typed the headline about what’s really scaring the market (back to that in a moment).

 

Go instead to the comment below the photo:  “…worst day since September 5th.”

 

Next – check below in the short-term chart I have provided which goes back to September 4th.  The blue dot shows you that point in time:

How About Another Perspective?

 

The point?  Yes indeed, September 5 was a down day as can be seen in the dip right after the blue dot.  But this is more important:  That was over 1,300 Dow Points Ago (DPA).

 

So you tell me which pitch we should be focused upon?

 

The 1300 points up – or

 

The 48 basis points down?

 

Make certain you and your clients know the right pitch.

 

For a glimpse – check the short video message here.

 

Your password on the video is GenYupside35

 

Now you may feel this is trivial but let me tell you it happens in every timeframe and it has gone on for years.  To this day, the masses continue to show mortal fear of any red ink – likely burned into the psyche from 2008-2009.

 

So deeply, I might add, that it […]

Swimming Upstream

Good Morning,

 

Hey – good news.  Daylight Savings Time ends in two weeks and we can pretend we get an extra hour of sleep!

 

Take a few minutes and make sure you click on this link to watch one of our newest videos.  It is a clear reminder of the surprising strength building in the US economy – which many will not see coming.

 

Your password for the next 48 hours is:  GenYupside35

 

It was a busy week last week in earnings – good for some short-term – and bad for others on wasted knee-jerk reactions.  In essence, this earnings season so far is looking a good deal like the norm emotionally speaking – but with a couple of data exceptions – mostly positive.

 

The Beat Goes On….

 

Keep in mind, there was great chatter about how the hurricanes would drag down company results.  Indeed, several have had short-term impact – including some of the Barbell Economy companies.  Long-term investors have learned not to fret as history shows these – a grand majority of the time – tend to be temporary events and easily made up overt the next quarter or two.

 

Even with those near-term impacts mixed in – the season has so far accelerated, oddly enough.  Recall, it is the norm to see analysts crank things downward for the coming quarters as each new quarter unfolds.  This time, as noted below – it is, well, proceeding on a much more positive slope.

 

Last week was busy – but the tide really starts rolling in this week.

 

Over the next 5 days, over 700 companies will report results, including 180 S&P 500 members representing a large chunk of market capitalization.  Combine that with the numbers from the 87 SP 500 out as of Friday’s close and you get […]

Foggy is Good

Good Morning,

 

Just about all aspects of the still young earnings season are coming in pretty nicely.

 

Expectations were dragged down again as analysts tried to calibrate for the hurricane impact but so far, it appears that have again overdone to the negative side.  Time will tell as we still have several busy weeks to go but let’s take a look:

 

S&P 500 consensus forward revenues and earnings have risen to new record highs again this week.  The forward profit margin forecast was steady at a record high of 11.1%, which is its first since September 2015.  This is up from a 24-month low of 10.4% that was expected back in March 2016 as many tried to get beyond “the worst start for markets in 80+ years.”

 

Here is the larger picture though –

 

2017 results are becoming more and more irrelevant as forward earnings per share is rapidly converging to the consensus earnings estimate for next year, which currently stands at $145.55 for the S&P 500.  Note also that 2018 consensus will become increasingly irrelevant next year as forward earnings converge with the estimate for 2019, which is now at $159.09.

 

Just as a side note, based on earnings one year out, you average those two numbers together and we see the S&P’s overall P/E is somewhere around 16.8 at current levels.

 

Overpriced?  You tell me.

 

The 10-year bond is selling at 42.7 times earnings – guaranteed to never improve once purchased.

 

But like Mr. Berra said:

 

“It’s tough to make predictions, especially about the future.”

 

Go figure.

 

More Insights for Q3…

 

Accelerating growth trend once you account for the big boost in Q2 as the lapping of previous ugly quarters last year from the energy pit.

 

52 Members of the S&P 500 have reported – earnings are up 13+% YOY […]

Uncertainty is Normal

Good Morning,

 

As earnings pour in, a solid majority continue to be, well, solid beats.  This is normal as the best are usually in the first few weeks of the earnings season.  Once we get past the companies that make up say 80-85% of market capitalization, the focus moves forward as the “misses” tend to come last.

 

What is “Normal”?

 

It is normal to not know the future.  I have yet to meet anyone who does.  Which is why I always chuckle when I read headlines about uncertainty and the future.  It is said we are witnessing some of the lowest percentage levels of available capital exposed to the US stock market in decades.  And yes, that is at record highs.

 

Just an opinion here but I think with markets are record highs, a close higher the next day by say 6 points, on 22,800 should not be all that heralded as a new record.  It is I suppose but not in the true spirit of an exciting record, right?

 

I suspect also that this is why people yawn – with each record – and only think of how far things can fall.

 

Why that?  Because we don’t know the future – only the past.  We only know where we came from – not where we are going.  We only know we have witnessed markets be cut in half from previous records.  We don’t “know” that 22,800 will indeed go to 28,200 and beyond in the future.  We hope but we don’t know.

 

The human mind tends to stress when it cannot have a reason for something.  Hence, the wonderful sounding headlines to explain things away, only after they have unfolded.

 

It is normal to have ugly periods in markets.

It is normal that we have corrections.

It is […]

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 […]

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