Good Morning,


Yes, I know – it’s nutty.  But we must begin to recognize that there is a change afoot. While many may not recall them, I do – the 80’s and 90’s were a replication of what is set to unfold in our economy for the next 20 years.  A massive tectonic shift – bringing along with it waves of change, the likes of which many are not prepared for.


Call it pie in the sky if you will–but as those who defined it as such in the 80’s and 90’s found out…change is not always a bad thing.   Sure, it is scary at times.  Change always is – and it may even be painful at times.  But for the sake of what is unfolding in our economy, these tend to be positives over time.


The problem?  There is that word again – time.


The most painful element investors must learn to withstand over a life of building wealth – time.


Time to let things unfold.


Time to permit the compounding effect to benefit you.


Time to let all the elements that seem terrible at first – and drive so many poor reactions – to pass into the dust of history.


It’s why the markets are fooling the masses again.  How do we know they are being fooled?  Checks the sentiment stats.  I know I reported them late last week – and they are set to change again in 48 hours – but sometimes an image is the most vital way of driving a point home.


As they say – a picture is worth…..well, you get the point:

I bring your attention to the two charts above – the first for bullish sentiment readings, the second for Neutral sentiment readings.  History shows the latter only falls after prices rise. Keep that in mind while we review here.


The top chart – bullish sentiment.


That is the largest one-week decline since July 2015 back in the “terrible” summer swoon – a dandy opportunity to add.  The red line moving up across the chart is the S&P 500 overlay while the blue lines are all the connected readings each week over time.  I have added the purple arrow to allow your mind to focus on where we are now versus all those other readings over the last 8+ years since the beginning of 2009.


The all important takeaway?  Note how few blue connected dots there are below the purple arrow.  It suggests to you that at very few times – including the March 2009 lows of the Great Recession – has the investor audience been this afraid.


The second takeaway?  Find me a time on that chart where a low bullish reading was bad for the stock market.


The second chart – Neutral sentiment.


At 41.9%, it’s the highest weekly reading since the election.  Investors were happy to sit on their hands in the months leading up the election. Now it seems they are stepping to the sidelines to wait out what becomes of the Russia investigations – another attempt in the media to sidetrack what the economy clearly prefers we focus on.


Last but not least – bearish sentiment this week was 34.25%.  In other words, not only is more than a third of the investor audience feeling bearish, but as a percentage of the whole, bears there are 1.5 bears for every bull – with the neutral camp finishing off the rest.


In a nutshell – a very positive, contrary bullish sentiment backdrop.  History in these two charts confirms that for you.


But Why?


If one focuses too much on the headlines, your blinders are on.  They keep you from seeing the full view on the horizon:


The whole world is growing and most global stock markets reflect that renewed growth.


With the dollar now pulling back from the run it had (squeezing our global competitive earnings), we can expect our global footprint will see more fall to the bottom line in coming quarters.  Hence, the beats we often speak of here are set to continue.


As the world leaves the fog of the last decade behind, it will be in fits and starts – but doubting its existence is an error in judgement over time.  Recall that faith and fear ask of us the same thing:  the ability to believe something we do not yet see.


Why Part II


The market’s major downdraft on Wednesday – where the S&P 500 fell by 1.8% and churned up a few sectors even worse.  The point here has been for years, setbacks are a) required and b) beneficial.  We have further stated that the very frustrating part of a young, secular bull market is that what you expect as a “setback” often becomes more and more shallow over time.


In the 80’s and 90’s we called it this way:  buy a two-to-three day down close or pay more as the rally will continue.  Sounded dumb but it worked.  Two to three days – that was it. Beginning to notice anything familiar?


Sure enough, the S&P 500 gained over 1% in the last two days of last week.


We feel strongly more gains yet to come but still – note the title today – pray for a correction.  Heck, maybe even a good summer swoon.


We call it driven by the massive demographic shift underway.  How early are we in the game?  The pitcher just finished warming up – the first batter has just snapped the weight off his bat in the on-deck cirle.  The players are getting ready for the first pitch.  It’s a long game.


As many fear rates will rise too quickly, we stand by the idea that we will stay lower for longer….with only a steady push.  The crowd does not yet understand how deflationary Generation Y really is – and why that is a good thing for this recovery and growth process underway.




Like it or not, the stock market is a supply-and-demand machine.


The corporate world is set to continue borrowing to feed the overwhelming demand for “safe” investments via the crowd sentiment.  They hate stocks at 17 times earnings but they will stand in a long line of demand waiting for bonds at 40-50 times earnings.


You can explain the logic of that to me later.


Here is the thing though:  as that fear is being met by bond demand, companies continue to just buy back their outstanding shares.  The amount of stock outstanding, able to be owned, continues to shrink steadily.


For your summer reading….


Those buy-backs tend to pick up in June when fewer are watching as the summer haze dawns and after the first-quarter earnings season is over.


LEI’s Up Again…


Sure we still have a few weeks until the next rate hike.  The market knows that already. Being afraid of it now is a little late.  Reacting to it even later.


The latest Industrial production rose 1% in April, well above the economists’ consensus estimate of a 0.5% rise.   It is now running at the fastest pace since February 2014.


The Conference Board’s latest shows its leading economic index (LEI) rose 0.3% in April. Of the 10 LEI components, only building permits and stock prices were a drag on the index.


Get this…during all the fretting about the first 100 days and endless media attacks, the Leading Economic Indicators have risen every month this year.


Like it or not….that’s good news.


Pray for a correction.


Steady as she goes friends.


Just off the bow is the USS Summer Haze.


Those doldrums are ahead and will cause too many to fear the wrong outcome.


All we can do is be ready to take advantage of it.

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