Good Morning,


Ah yes, the smell of the summer haze – and even – already, the impending doom of a summer swoon projection is causing that itch.  You know, that little thing in your gut that just makes you sure something is about to happen.  It’s what has kept $9.3 Trillion in the bank for consumers as the last 14,000+ points have ticked higher.


JP Morgan was the first to suggest “a summer top with a correction into fall…”  in a report out Friday morning.  Well, a brief review of history makes that a pretty normal bet – about 50/50 when you look at the regular seasonal pattern which tends to occur – if there is a summer swoon.


Of course, the results of trying to “time” the market are clear – and heavily outweighed to the losing side…but heck, who keeps track of that stuff when a good scary headline will work well on a Friday afternoon as the lazy days of summer are just getting underway.


Don’t say we didn’t warn you.


This is typical of a summer haze session.


The Citron article about Nvidia then hit the tape a couple hours later – and, well, with the weekend at hand, you can guess what unfolded next.


This is precisely the type of shenanigan’s we suggested repeatedly one should expect for weeks leading into summer.  Lower volumes, less attention, fewer players, wider spreads and its like putting a match to pine straw in the dry mountains of California in summer.


It does not take long to light a fire.


Those taking the hit were the big winners of the year so far – the FANGs and the tech index got bloodied a bit.  Logically, we can chalk this up to yet another algo/HFT strike when the iron was hot, the crowd was thin, the weekend bell was in site and it was easy to push on that shadowy edge of light volumes with no one there to fight back.


The summer is set in haze as they say.  High speed trade machines will get what they can as trade thins.  I have a hunch we can safely assumer this will not be the last nuke to hit parts of the market during the summer break.


As we stated often leading into June – let’s expect it.


It is not abnormal for the season and likely not Armageddon – but you would not know that if you wasted any time listening to the talking heads shouting from the rooftops into the closing bell.


“The NASDAQ’s worst close since Brexit….” was being screamed from every talking head desktop – and we can expect more of it all weekend long, in many “flash weekend trader updates” and into early next week.


Yawn…it’s summer.  Stay steady at the wheel…even when/if it gets ugly.


Indeed, as stated often, pray for ugly…it’s perfect to drive down sentiment further and keep the masses on their heels, safely tucked away in bonds at 50 times earnings and trillions in cash sitting idle – earning nothing.


Speaking of Trillions…


The US Household net worth has set yet another record.  I thought you might like to see some charts that Calafia puts out.  Scott does a great job of prepping the latest data from the Fed:

What is interesting to note here in the two charts above – and very overlooked by the mainstream media’s effort to frighten you about anything that moves – is that we are setting records in net worth on a per capita basis even as percentages of leverage falls..


Indeed, the chart below shows we are back to leverage levels on assets not seen since the mid-80’s!

Friends, this is a very long way away from the tragic financial terror that struck everyone during the financial crisis of 2008-2009.  We can slice it anyway we like – and we can remain afraid for as long as we need to – but improvement is clear.


Let’s Get Specific


These are the latest data points from the Fed:  As of March 31, 2017, the net worth of U.S. households (including that of Non-Profit Organizations, which exist for the benefit of all) reached a new record:  $94.84 trillion.


In the last year alone, that is up $7.3 trillion – with an even larger increase of $27.2 trillion since the pre-2008 collapse peak.


As noted above, it is important to note that during that same period of time, household liabilities have increased just $510 billion.


Scott highlights this in more detail as well (bold is my add):  “The value of real estate holdings is up about $1.9 trillion (+7.6%) from that of the “bubble” high of 2006, and financial asset holdings have soared by almost $24 trillion (+45%) since pre-crash levels, thanks to significant gains in savings deposits, bonds, and equities. The gains in wealth are not just due to a raging stock market, since the market cap of all traded U.S. equities has risen by only $8.4 trillion since its pre-2008 high, according to Bloomberg.”


Current Fears Heightened Even More


Of course, today and maybe for the next few days, we are going to hear all sorts of chatter about how the stocks loved just 24 hours ago (FAANG, tech, etc) are now the death of the markets.  There will be dips – there will be corrective action we all must endure in the process of building toward goals ahead.


This summer is set to be no different.  So let’s take a quick look at the times between “corrective waves”, which again, are perfectly normal – indeed, requirements of all secular bulls:

In the table snapshot above is a list of the ten longest rallies without a correction.  In the right side of the chart, you can see how much the S&P 500 declined in the ensuing correction – which is currently all the rage.


First note this:  For the current rally to crack the top ten in length before a correction unfolds, there is much more work to do.  In this case, at just 477 days old, the S&P 500 would need to go another 173 days before reaching a short-term peak.


That would take the current run past Thanksgiving for anyone keeping notes!  Now, let’s be clear – I have no clue if that unfolds – or if we get a summer swoon first.  My wishes have been made clear – repeatedly.


Keep this in mind too:  The ten prior rallies not only lasted much longer – they were also considerably stronger as the data suggest.


Again, for the engineers in the group, the data show the average and median gain during the ten prior rallies that went longer without a correction was more than 90%.

Now, I know what everyone is afraid of – the feared ugly correction.  The media hype suggests the the higher/longer they run, the more perilous they fall, right?


Fear not folks – the actual data shows a very different scenario.


Let’s finally note this:


The data show in the bottom right hand section of the table that the average historical decline in the correction that followed the ten prior rallies was 15.7% over 142 days.  But, when compared to all corrections since 1928 where the average decline was 19.5%, these corrections may have lasted longer but their intensity was not as strong.


So, all wonder will aloud, how close is the next big one?  The records show that since 1928, there have been 95 corrections of 10+ or more for the S&P 500. While corrections tend to come at irregular intervals, that works out to about one every eleven months.  That noted numerically, there are many layers to these issues.


As important as time is this:  when the entire world is awaiting “the big one”, with trillions in the bank and even more hidden away in “safe bonds”, history does not show the corrections unfold when everyone is already afraid of them.  They instead tend to unfold when everyone is sure they are immune.


The Bottom Line


The tech volatility is perfect.  Just what the doctor ordered really.  I suspect AAII sentiment falls back again later this week.


As such, the week’s theme as the summer haze deepens for the next 10 weeks will remain a focus on patience and discipline:


Ignore Politics – Focus on People.


Pray for the summer swoon.


Slowdowns and hiccups in the “monthly data” should also be expected because everyone will be at the beach and/or spending time with kids….something I promise to do this year.


And about that feared and soon-to-be-much-reported-on “summer swoon”, try hard not to fear it.




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 are now.


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.