Good Morning,

 

I am slightly numb to recognize that we are at the end of Q1 of 2017 already.  What a road we have traveled – and my oh my, note how much has changed in the last 5 quarters.

 

Or has it?

 

Think back for a moment:  5 quarters ago, the year of 2016 was getting under way.  Back then, even early assumptions were that the election would bring 4 more years of the then current processes underway.

 

Wall Street – and business – was not too happy about that. Throw in fretting over China, cheap crude il sure to collapse the world as we knew it – and backlashes from the all too feared Brexit concerns, and one can see the reasons behind the panic which started the year.

 

There it was – we were at the start of the worst beginning for a year in the markets for over 8 decades.  That’s 560 dog years.

 

The DOW folded in on itself all the way down to just below 16,000 – a shocking start indeed.  More shocking?  That was over 4,000 Dow points ago.

 

Yet, just 4 quarters ago at this very same time, we were being told what?  It was the best recovery (intra-quarter) seen in 83 years.  In essence, everything that terrified the crowd 6 weeks earlier was gone.

 

And then it started – the race to the election.  That nutty Trump fooled everyone.  The issue overlooked was not Trump – it was people.  If you spend 8 years taking from some and giving to others, you only get more people with less.  Sounds too simple and maybe it was – but a whole batch of voters in the country proved otherwise.

 

And all the while, the fighting and gnashing of teeth, the baying at the moon for the end of the world every other Tuesday – it’s all been for naught – again.

 

So really – nothing has dramatically changed.

 

The Race to Robots

 

The process of “passive investing” got another vote yesterday when Blackrock announced it was cutting a bunch of people who manage and instead turning to algo trade processes.

Ah yes, I recall the last time they thought it would be best to use computers.  It was the early 90’s and the term was a “neural network.”   The thesis seemed good:  Train a computer to trade and it will never feel bad about losses so it will always keep trading.

 

Yep – well, they forgot one thing:  people trained the computers.

 

What was missed then is likely what will be missed now:  movement of money is what makes money for Wall Street.  Were all investors as patient as they should be and sat on their hands over time as much as they ought too have done, then Wall Street would have made a lot less.

 

Quants, stats, tens of thousands of inputs and a myriad of trading processes, all hidden under the guise of “passive robotic trading”, has somehow convinced a massive number of investors it is “smarter.”

 

What is it really?  More movement of money – (read: revenues).

 

My gut tells me it will unfold as many other themes have unfolded over long periods of time – like a fad.

 

Indeed, I have a hunch that just as the world becomes convinced picking themes and stocks is useless and one should just join the robots, 5 years from now we are likely to look back and find the opposite has been true.  You know – sort of like “$148 crude oil is the end of the world as we know it” and “$26 crude oil is the end of the world as we know it”, the latter being just 14 months ago.

 

The Most Contrary?

 

Oddly enough, the most contrary thing an investor can do today is to take the approach which lengthy history has already proven to have been the best all along:

 

Be a long-term, patient and disciplined investor in good companies with growing needs and strong consumer demand ahead.

 

It is surely not easy – and likely why so few reach that pinnacle – but with proper guidance it can unfold.

 

Accept the obvious and inescapable:

 

There will always be risk – there will always be setbacks to live through.

 

Focus on steady, growing income over time and not the constantly moving capital values.

 

The latter will always exist and always drive you nutty – to the point you will not enjoy the former.

 

Speaking of Risk

 

Seems it’s all the crowd still sees.  The latest stats from AAII did as suspected – they fell again – for the bulls.

 

Take a look:

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Note again the majority of this data since 2009 falls on the lower end of the bullish readings.

 

For two weeks we did see a bit of investor sentiment improvement.  Alas, the latest from the AAII survey shows individual investors have returned to their bearish ways.  This is good news by the way.

 

This week nearly all of the last two weeks of improved sentiment was erased as bullish sentiment barely held on to 30%, falling just over five percentage points to 30.22%.

 

If you are keeping score – that is 117 weeks since more than half of individual investors were in the bullish camp.

 

And by the way – we are about 2.5% off all-time highs.  A good day can make that up.

 

But then, altitude sickness will fill the air again.  Like I said earlier – not much has changed in the last 5 quarters after all.

 

Crude Oil and Golf Balls

 

Last year when crude dipped below $30 and the world went tilt on “deflation fears”, we suggested two things:

 

1) Step back instead and begin to look for healthy inflation

 

2) Crude oil would be lucky to hit $80 – ever again.  Our suggested target:  The new $110 was now $50-$70 tops.

 

The reasoning?  Think of a golf ball.

 

You and I are at the top of a building – say 30 stories tall.  We drop a golf ball from the roof.  And then…..

 

It bounces to oh, I don’t know – maybe the 22nd floor.  Then it falls again.

 

And it bounces to say the 16th floor.  Then it falls again.

 

And it bounces to the 10th floor….and then.

 

Well, you get the drift.  Eventually the golf ball lands in the grass.

 

You see, all the while, technology (Thanks to Gen Y engineers) to find oil is getting cheaper.  Procedures are getting better.  While all have been focused on shale – the deep-driller guys in the gulf have found a whole new batch of oil – some 30,000 feet down.  The point?

 

We can expect that each time that price bounces from a new low, the moment it becomes productive, massive amounts of oil will be sold forward in the future markets, locking in yields on costs and flooding the market with new production.

 

Combine that with more and more competing power resources – also getting cheaper to implement by the week – and you begin to see clearly why the gold ball eventually stops bouncing off the sidewalk and eventually rolls into the grass.

 

By the time the youngest Gen Y kid (now 11) turns 25, they will be asking us, you did what with this crude oil stuff?

 

Get Ready for Q2

 

While it already seems like Trump has been President for 158 years given his press coverage, it may shock you it has still been less than 75 days.  Wow.  Exhausting.

 

Look for chatter to soon start about the calendar – the sell in May garbage and the summer haze dangers with an economy growing so slowly.  Add in lots of noise about rate hikes and you can be assured there will be no rest for the weary.

 

I close with a reminder of the comment made about contrary thinking:

 

The Most Contrary?

 

Oddly enough, the most contrary thing an investor can do today is to take the approach which lengthy history has already proven to have been the best all along:

 

Be a long-term, patient and disciplined investor in good companies with growing needs and strong consumer demand ahead.

 

Accept the obvious and inescapable:

 

There will always be risk – there will always be setbacks to live through.

 

Focus on steady, growing income over time and not the constantly moving capital values.

 

The latter will always exist and always drive you nutty – to the point you will not enjoy the former.

 

Q2 is set to be just as fun as Q1 has been!

 

We will stay focused on the Barbell Economy.

 

Think demographics – not economics.

 

We end Q1 of 2017 in great shape – with exciting things unfolding ahead.

 

Enjoy your weekend.  End of quarters stats will be out on Monday morning.

 

Until we see you again, may your journey be grand and your legacy significant.