Good Morning,

 

Happy Father’s Day to All Dads!

 

Enjoy a great weekend with family and loved ones!

As we head into our second official Friday of summer, expect things to be slow.  Oddly, today we are going to talk about the lack of excitement….at record highs.

 

Just yesterday, the data on fund flows showed the highest level of fund flows into bond funds since October of 2009!  This on just two to three days of a tech setback?  And we now listen to talking heads all week calling it the “tech wreck?”

 

Jeez.  Bring it on man.  Pray for the chop – and adapt to the change.

 

While it may be terrible for short-term traders, in general the setting is likely far better than expected for patient, long-term investors.  Heck, JP Morgan told the world earlier in the week that only 10% of trades are now done by “active managers” – the rest apparently by high speed traders, HFT shops or algo funds.

Could This Be The Reason for the Sedate Mood?

 

The masses have simply seemed to check out in the normal sentiment rise which typically tags along with record highs in markets.  You may recall the sentiment stats I shows you at the end of last week to compare the record bullish readings back in 2000 – along with the tech bubble top vs. the current readings.

 

Here is the deal – Wall Street is struggling – feeling the pain of all of this – and it may be why we cannot seem to see the crowd getting excited about anything.  Hey, if the main cheerleaders are in a funk – the crowd will be too.

 

Check it out….

 

Greenwich, the winter home of the hedge fund elite has some interesting turmoil in its high-end mansion market.  Greenwich has a population of roughly 60,000. There are more than 1,200 homes are on the market.  A quick reference to the Sotheby’s data shows that over 250 of those are priced above $5 million and more than 50 are above $10 million.

 

Internal Turmoil on Wall Street

Deflation is King?

 

Don’t overlook the benefits of that idea….

 

This just in – Amazon is buying Whole Foods!   Deflation continues to seep into the system.  Slowly but surely, the tide is rising.  Expect some real extremes in related sectors today as fear shoots through another industry.  It won’t help that we have very, very light volumes.

 

The deflationary pressures of tech and Generation Y continue to be felt one little step at a time.  The collapse of the energy world came as tech and energy came together.  The collapse and reshaping of some retail came as technology met shoppers.  Today marks the beginning of food cost pressures now benefitting consumers.

 

The better news?  Tech is just beginning to reshape the medical world.  It’s a big world with much to do – but the process we currently fear where healthcare costs consume our budgets are simply way overblown.

 

Sort of like all the other Armageddon like monsters we have overcome in the last 50 years or so.

 

It will take time, but the pressure is on – every hurdle we seem to fear is a target of tech and the grand reshaping of our world as we once knew it.

 

Geez, tech is even a target of tech.  Robot and AI are the new fears.  Google’s Chairman today stated, “You won’t be replaced by a robot…you will be working alongside a robot to get more done….”

 

The Best News of All?

 

Fear remains deeply seeded…..two snapshots for you – with thoughts to follow:

Why isn’t anyone celebrating?  Why is the public refusing to get excited about improving economic markets?  The same reason the masses were terrified of record highs in the early 80’s – 20,000 points ago.

 

Get this – charts stats above show us that even now – almost 15,000 Dow points away from the Great Recession bottom – more than 2/3’s of market participants remain either bearish or neutral.  We have covered it for years.  Here is the scary part:  it is nearly impossible to create the all-too-feared “bubble” if no one wants to get really excited.

 

If everyone is already hedged for “the big one”, if we are all already “optioned out” and if the cash mountain in the bank held by consumers is at a record $9.3 Trillion dollars “safely” protected from that terrible rising market, where in the world does the great selloff so feared come from?

 

Oddly enough, the lack of euphoria is even causing it’s own new concerns – LOL!  In essence, it is being perceived as something else wrong.  Nutty huh?

 

Meanwhile…

 

The small business world is pumped up about business.

 

The PMI’s are great.

 

Costs pressures are falling

 

Real estate data released yesterday shows the country is down to 2.7 months of inventory supply – the norm is 6 months.  (staggering)

 

Exports are setting records – along with industrial output

 

What’s not to like?

 

The Fed and Bonds

 

As all of this unfolds, records in demand for bonds are still being set – even this week. Fear the Fed if you like – but the Fed does not control rates….they follow the bond market.

The US 10-year is at 2.16%

 

The German Bund is at .28%

 

Our GDP is growing at a “paltry” 2% right?  (by the way, that is nearly $400 Billion in new business/production each year)

 

The bottom line:  Inflation and the crushing demand for “safety” in bonds will remain in a heavyweight battle with the powers of tech and deflationary forces as it rolls through every industry of our economy.

 

This is good news by the way.

 

Our economy will continue to be able to expand, build productivity, accelerate output and expand opportunity without the typical inflationary pressures which we have been taught must unfold.

 

Gen Y remains the game-changer – the new driving force – the surprise element.

 

Don’t underestimate the long-term impact of these footprints in the sand.

 

How does that relate to bonds?

 

The contrary issue facing bonds is that while the whole world awaits “the great normalization” in interest rate structure, what if we are really witnessing a “new normalization” based on tech impacting our entire perception of inflationary pressures in the future?

 

Our thought?

 

Rates could stay very low for far longer than currently anticipated.

 

All this “new” perspective is likely driving the fears which clearly remain very deeply embedded in the minds and emotions of investors.

 

The Bottom Line

 

The “volatility” we have seen to kick off summer – is perfect!  Just what the doctor ordered really.  It will happen again – and that is good as well.

 

We get more early next week and we can bet the AAII sentiment falls even further.

 

Just remember – summer is boring.  It always is.  It tends to uncover short-term reactions we can then take advantage of as investors…just like this week.

 

Our job is to stand between clients and their emotions.  It helps in making fewer mistakes along the way.

 

As a send-off for the weekend just expect the summer haze tends to “feel heavier” by the day so don’t fret or over-think it.

 

It’s the calendar – not the market.

 

The theme for the next 10-11 weeks will remain a focus on patience and discipline:

 

Ignore Politics – Focus on People.

 

Pray for a summer swoon.

 

Why?

 

Well, we can have the courage to take a look at every other summer swoon in history.

 

They were all at lower prices than where we stand now.

 

Again – Happy Father’s Day!

 

Enjoy the beach plans ahead and time with loved ones and friends – be well and please travel safe!

 

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

 

Disclaimers

 

Nothing in these notes, comments, charts or otherwise is ever intended nor should it ever be construed as an offer to buy or sell a security.  These comments are the author’s thoughts on the date of writing and can change at any moment.  Past Performance is not a guarantee of future results. Any investment can and often does carry substantial risk. Please consult your advisor before making any investment decisions as nothing in these presentations is intended to be, shall be deemed as or perceived as an offer to buy or sell a security in any jurisdiction.  References to any specific securities do not constitute an offer to buy or sell securities.  Past performance is no warranty of any future performance.  All investing carries risk.