Good Morning,

 

Chatter is increasing as expected over Fed action – or inaction.  I read 5 different articles this morning stating that “we have entered no man’s land for the markets” – with a 70% likelihood prices will fall into the end of the month.

 

Oh great.

 

There is some merit to that if one just studies stats – just as we have hinted in recent morning notes.  However, the deeply-seeded fears remain strong indeed.  That nagging feeling that something must go wrong with stocks tip-toeing around all-time highs is filtering into the entire audience.

 

Even advisors are joining the game now as the latest Investor’s Intelligence data show below.

 

So we know the audience remains fearful.  How?  Check the chart below from Calafia:

Ask yourself this:  How can the prices of two pretty unique assets – gold and the 5-year TIPS (chart above) – track each other so closely for the last decade?

 

Answer:  f.e.a.r.

 

Both are taught to the masses to be safe havens in a storm. As you are aware, TIPS protect you from inflation and default.  Likewise, we are told gold protects you from inflation and systemic collapse.

 

At present, the data tell us that although conditions are better than they were 5 years ago, investors are even now, thousands of points later, still paying a heavy premium for “safety.” Both of these assets have remained in the premium price category, clearly hinting that “risk aversion” is alive and well in the stock market today.

 

More?

 

Sure…let’s check the bond yields.  Even as chatter is high that Fed actions will pressure bonds, the global race for “safety” remains clear.  We still have the highest yield of major economies – by a wide margin.  That is a good thing:

I know – Got any more Mike?

 

Ok, how about some more hints at sentiment.  While insiders have spent the last few weeks of August heavily building their positions on insider purchases, guess who is wilting under the pressure of “that nagging feeling”?

 

Advisors – let’s check the latest from advisors first and then investors on the sentiment channel.  Note this time, I am showing this in a little different terms.  For both, let’s look at the historical norm on reading of the Bull-to-Bear ratios for both:

Great stats from Dr. Ed.  Start with the first chart.  I have highlighted (red dots) the reading back in early 2016 – the worst start to the markets in 85 years, right?

 

The next little dip after that were the fears surrounding the Election late last year – and then in blue – present day.  Here we are at the highs – not after a correction – and the Advisor audience feels about the way they did between late 1996 and 1998.  Ouch.

 

Remember, these are ratios – showing even more deep-seeded concerns versus just the outright weekly readings.  I bring your attention to the second chart – the AAII Bull/Bear ratio.  The purple dot gives you a sense of how low current readings are versus historical norms.  Indeed, I counted – the current ratio is lower than 95.5% of all previous readings.

 

Double ouch.

 

I remind you – these are reading we typically see after corrections are already underway.  So?  Pray for a correction.

 

Speaking of September…

 

It does have a history – along with every other month on the calendar.  The more that history is covered for you – the less likely it is to unfold as feared.

 

Sort of like how a Black Swan loses it’s color when discussed.

 

Last for Now

 

After a lull during summer, housing beat by a little – but note the permits for building ahead.  That beat by a good clip.  Expect the same overall for years to come as Gen Y finally begins the process of growing up:

Like we were taught long ago:  Garbage in = garbage out.

 

In Summary

 

The global economy is changing faster than most can perceive at this stage.  Don’t look for that pace to slow anytime soon.  Even during a corrective – which is sure to come – that pace of change is set to continue.  I suggest we all become more accustom to letting go of “what things were like before.”

 

Demography rules.  The US is set for surprisingly steady growth ahead – with stunning opportunities to unfold for the patient, long-term investor.

 

For now, it is just the calendar.

 

Soon, the “dreaded” October crash remakes will be upon us, filling the airwaves anytime we have a down close of more than 100 points or so.

 

Don’t fret – this is the time of year for it – and if it arrives, strong economic data and steady earnings growth is what the long-term investor should instead focus upon.

 

A vast pipeline stands dead ahead:

 

Technologies we cannot yet wrap our minds around are in the lab.

 

Medical breakthroughs are on the maps ahead.

 

Synchronized growth – even when slow and steady – is a good thing.

 

It is true that many storms are around us, but they always are this time of year.

 

Stay focused on the long-term current, not the short-term, emotional waves.

 

Patience.  Q3 should set more records on the earnings front – even after the expected hurricane impact warnings.  And for the markets – remember, 2017 is already history…

 

Oh, and one more thing:  Pray for a correction.

 

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