Good Morning!


First and foremost, we wish you and yours a wonderful, safe

and blessed Holiday Weekend.


So here we are – the perfect answer to the boredom we have all suffered through since February 14 – a long weekend break!


If you felt like you were standing still – well, you were.  Technically – the market has gone nowhere in the last 7 weeks.  Lots of chatter, plenty of reasons to go down – and yet, here we stand – at the same spot.


By the way – that’s really good news.


If 59 Tomahawk missiles into Syria and 382 setbacks in Congress can’t knock this bull off course in any significant manner – even for a pause – it is telling us all something.


The contrary view is positive.  Sentiment stinks again as we note below for you – and after a second week in the 20’s for bullish readings in the AAII, I cannot tell you how good it feels.


Enjoy The Break


I cannot recall a time when the media cycle was so thick with things designed to make you worry.


Trump this – Trump that.  It’s pretty clear – less than 100 days in – there will be nothing the media thinks will be good coming out of DC from Trump.


Now that we know that – hunker down and ignore the garbage – we still have about 2800 more days to go : )


Back to the good news.  Have you noticed on how contrary good news has become in recent years?  It is downright scandalous to suggest the horizon may indeed be bright.  I had a broker-dealer owner tell me the other day, and I quote, “Mike, I know your Barbell Economy portfolios are exceeding the results in the market, but our auditors tell us you don’t trade enough.”




Let that sink in for just a moment.


Back to the contrary – but positive news – once you get outside the dome of doom from the media highlights:


Earnings are kicking off nicely this week.  We have a long way to go so no real big stats for comps yet.  Look for that on Tuesday in your notes.


Before we update some of the more interesting recent developments in a few industries, let’s not forget how nicely the US labor market has recovered. There certainly has been a lot of destruction of jobs in recent years on a secular basis.  But that is all behind us now even as industries are constantly shifting and adapting.


Instead of that good news, we are being told to fear the new thing:  robots.  Yep – they will kill us all off.  Sure.  Keep fearing.  It will be as unproductive as it has been for most of the last, well, 200 years.


That noted, while there was much unemployment on a cyclical basis, the US economy is now creating plenty of jobs.


And wouldn’t you know – we now have a new problem:


Finding people to fill them.  Ha…..


Let’s review internals often overlooked:


The number of quits totaled 3.1 million during February, according to the latest JOLTS report released by the Bureau of Labor Statistics.   Dr. Ed reminds us this reading remains at a cyclical high.


He also tells is that hires have been fairly steady just north of 5.0 million per month since September 2014.  The good news?  Job openings have been higher, exceeding the hiring pace 24 of the past 26 months.


According to the National Federation of Independent Business (NFIB), 31% of small business owners had positions they were not able to fill during March (based on a three-month average of the data).


That’s the highest reading since February 2001.


How ‘Bout Business?


Pretty solid indeed if you can think straight between the Apocalyptic nature of the press. Let’s check out a few items of importance – again, of the contrary theme….


Is Carbon the new Silicon?


Look honey, I shrunk the chips.


An important recent development to watch is the push to use carbon instead of silicon on chips. IBM researchers claim to have found a way to use carbon on chips to make them six to 10 times faster than modern silicon chips within a decade.  They’d also use “far less” electricity, according to a recent article in Wired.


This development is important.  Why?  There has been widespread “fear” Moore’s Law, which says the number of transistors that can fit on a silicon chip will double every two years, is coming to an end because transistors are getting too small to manufacture efficiently.


It’s the same as being afraid we were really running out of oil in the summer of 2008 at $148 a barrel.


Check the digits my friend:


The Semiconductor industry is expected to see a nice pop in revenue and earnings this year, but projected growth slows sharply in 2018. Analysts expect the industry to produce revenue growth of 10.8% this year and 5.0% in 2018. Likewise, earnings are expected to jump 23.9% this year and only 8.6% in 2018. The market isn’t pricing in much that much for sure, with a forward P/E of just 14.6.


Note this past remark from pioneering computer scientist Alan Kay: “People who are really serious about software should make their own hardware.” Looks like people are starting to listen.


Retail Broken?


By the way – I always love it when lots of arm-chair experts tell you something significant is broken.


There was plenty of ugly retail news in the headlines this week.  Rue21, a teen retailer with about 1,000 stores, is reportedly preparing to file for bankruptcy as soon as this month, according to Bloomberg.  In addition, Gymboree, a children’s clothing retailer controlled by Bain Capital, is preparing a bankruptcy filing, again from Bloomberg. It operates roughly 1,300 stores.


Don’t fear change – it’s a shift.


A total of nine retailers filed for bankruptcy protection in Q1, equal to the entire number of filings in all of 2016, according to CNBC.  The uptick in filings may mean there will be more filings this year than in 2008, when 20 retailers filed, or in 2009, when there were 18 filings.


That fear is leading to another fear – falling real estate values in Malls.  While strong malls have been able to replace closed stores and will be just fine, weak malls that are unable to find replacements may begin to decline, with their property values dropping sharply.


One example recently cited referenced the Hudson Valley Mall in Kingston, N.Y.  In 2015 and 2016, respectively, and the value of the mall plummeted 90%. The mall was valued at $87 million in 2010. Last December, Kroll Bond Rating Agency said it was worth $8.1 million after two of its anchors vanished.


What to expect?  Gen Y can shop online while they are riding (or flying) their Ubers.  They will look to Malls for entertainment next.  Not shopping so much.


No More Homes?


You got it – half a decade ago, we were told to fear an endless supply of homes – sure to wreak havoc on our economy for decades to come.  Uh, not.


Sure, it was a cold and rainy start to spring, but the spring home-selling season is underway.


The data is clear – thanks to Generation Y just beginning to move out, we suspect sellers will remain in control.  New and existing home inventories remain extremely lean.


There are years of this ahead – by nature.  Gen Y – 86 million kids are going to grow up.


Check this cool video about that which we did for you here.


Some Stats?


There were 1.75 million existing homes available for sale in February, about the same as January’s level, which was the lowest in just over 17 years!


The ratio of existing single-family homes for sale to existing single-family homes sold edged up from January’s record low for the series going back to 1999.


In addition, financing remains inexpensive, with the 30-year mortgage yield at 4.08%.


There has got to be some bad news in there right?


Here’s a good problem to have:


For new-home builders, another area that might constrain their ability to break new ground is the tight labor market.  JOLTS shows that 169,000 construction industry jobs are unfilled, five times the amount at the end of 2010.


In a recent article, the CEO of Vantage Homes out in Colorado Springs, said they could have built 20 more homes last year if it had more labor available. The company builds on average 120-150 homes a year.

The trend ahead is long my friends….stop being afraid of everything that moves.


Also stop the insanity of trying to figure out the next correction.  It cannot be done with any more consistency than a coin flip – hence, it is useless over the long haul.


Therein lies the trouble with most and what drives the chart below.


First the chart – then the comment about trying hard to remain contrary to “group-think”:

The problem with contrary, long-term thinking is two things:


It’s benefits come from being strong enough to be contrary and patient enough for the long-term benefits to accrue.


That was a joke…. : )


It is stated better here by a professor:

One More Thing….


I cannot leave without sharing the latest in sentiment.


The churn of the last 7 weeks has done a fabulous job pushing the sentiment back out of the market.  In time, you will see this as a positive.


Let’s look:

In the 20’s two weeks in a row!


Just remember, right after the Holiday break, the maze of chatter will begin again.  Trump troubles, the sell in May process, the earnings parade underway and the summer haze will be here before you know it.


Sounds nutty – but hold your nose and pray for a correction.  Be prepared and use it to your advantage.


There is a glaring misunderstanding of just how positive the events are which are currently unfolding under the surface.


As always, anything with a long-term positive slant demands patience, discipline and the ability to stay on your path while others will fret over every headline.


Let them got lost in group-think – you won’t.


Just a hunch – but if we can’t see a correction over the next few months with all this noise, terrible Trump ratings and reel-to-reel media head-fakes, take heed – this market is far stronger than many recognize.


Think demographics – not economics.


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


Happy Holiday Weekend to You and Yours!