Carty Capital Management
CFP | Fiduciary



A Breadcrumb

Good Morning,


So often in life, our minds are taken away by the "shiny-object syndrome".  The biggest or scariest thing takes up our view and we tend to miss all the breadcrumbs along the way. 


That is happening right now.  Recent market action has seen the return of volatility.  Too often, investors think volatility is risk. In reality, volatility is perfectly normal.  It has unfolded - at times - since the beginning of trading. 


Just as we would today call it foolish today for someone to have been so terrified when watching the DOW fall from 101 to 44 (the Great Depression) as to never invest again because it was "too risky", so too will we be seen as foolish 50 years from now when someone speaks of the selling records in the SPY less than 10 days ago - around DOW 24,000 to 25,000. 


Funny how time causes the reflection on actions to change.


And time indeed is our friend when properly planning.  Time is our risk.  Volatility is our value-builder.  Rising markets MUST have adaption periods.  The wall of worry must always be rebuilt at times.  New perspectives must be created in the minds of those who think too short-term.  It is those perspectives which provide the breadcrumbs the long-term investor builds wealth from....history proves that over and over again.


And mind you - we all make those mistakes.  It is the party who makes the fewer number of mistakes along the time continuum who ends up with their wealth goals met.  


Make no mistake, nervousness, fears and concerns are alive and well - and that is a good thing.  Be assured of this:  when we reach the day that everyone has all their chips on the table, when everyone feels very confident about the future, when everyone tells you that of course, our economy is healthy and has nothing but upside ahead - well, that is the time you will begin to stand very close to the exits.  


We are nowhere close to that zip code - hell, we may not even be on the same planet yet - possibly not even in the same galaxy.


OK, some of you probably got the hint early.


More Missed Breadcrumbs?


I have a hunch that 5 or 10 years from now, one of the industries we will find is in dire need of smart kids to fill the positions is the vast number of growth channels which will fly out of the space programs just beginning to spread their wings.


Just this morning, Wilbur Ross chimed in with these thoughts.  Recall Wilbur is a major investor in many things new.  I am certain he has his hands in space-related entities.  Five years from now, space related product lines will be large shares of several industrial companies.  It will shock the senses.  


The latest from SpaceX is here, when you have a few extra free moments.  In 10 minutes, the kids running SpaceX launched three satellites - over 400 miles above Earth and at 25,000 miles an hour.  During the day, each part of the spacecraft will return from where it started - via software, GPS sensors and computers driven from a desk in CA.  


It would be an error to overlook the profound impact these flights in recent months will have on our future.  Do mot mistake them as merely surface related rocket launches.  Instead, expand your mind and see them for what they are - a breadcrumb in a very large trail - a repeating piece of software that will completely change everything we have ever known about space and Earth boundaries. 


Businesses which will birth and expand from these last few weeks of events - way overlooked by the mainstream media in favor of Mueller investigations (what small minds run our broadcast industries these days, huh?) - will boggle the mind. 


And it's all kids...and it's all just beginning...let that sink in.


More Breadcrumbs - But This Time on Earth


Here is the latest review of the walls of worry over the last many years.  The same emotions unfold - just different excuses.  By the way - there is no tool to change this part of the human psyche.  We have it embedded into our brains.  It is sub-conscious. 


Those who can trust in their planning team and let time work for them, will tend to see they get through these events nicely over time.


Does that mean everything works perfectly?  Of course not.


Does it mean they have no losing positions at times?  Not even close.


Does it mean they always out-perform instead?  Not on your life.


It does mean...time is your focus - not volatility.  Act like Warren more and less like the chattering, talking heads on TV and things tend to get better.


Don't get me wrong - there is plenty of good news - but that does NOT always mean everything goes straight up.  Think of markets like heartbeats of emotional surges - up and down - of the mass audience.  At times, those heartbeats race and have fits - and panic ensues as you can see time and time again above in those red spikes of worry.


Each and every one is not the end of the world.  But, only time proves that out.  The ability to stand on the shore and have confidence that the waves will indeed continue to roll in and lap at your feet is what often separates the good from the not so good. 


How About Earnings


Yes, it seems everyone pretty much either forgot about them or got board with all the beats.  A record-setting quarter indeed - and a vastly higher platform base from which to build going forward with the new Tax Act. 


But again, seeing that come to fruition requires something many unfortunately cannot muster:  the ability to stand strong against the normal winds and storms along the way, patiently awaiting the better outcomes ahead on the horizon.  It is the battle all investors have fought from day 1.


Let's review several charts to see the latest earnings stats - charts are from Zacks:





Let's start from the top and work down for a quick summary:


Chart 1 shows you how fast collective growth estimates for 2018 have evolved in the last 6 weeks or so.  Note that we can expect the CEO's are remaining conservative in their nature - explaining the increasing level of beats along the way.  On that front - Q4 2017 has unfolded to be the highest level of earnings and revenue beats combined in 50 years.  Not too shabby - and that's before tax cuts start getting better used for owners (yes, as a shareholder in equities - we are the owner(s).)


Chart 2 tells you that Q1 of 2018 expectations have grown to an increase now of over 15%.  Huge.


Chart 3 shows us that it is not just Q1 - check all the quarters ahead mapped out by this new base of tax benefits.  Expect those dollars to be used for expansion, efficiencies, more dividends and buybacks - all of which trickle down to be a positive - somewhere.


I included chart 4 because it shows you what the "mid-caps" are seeing on their growth trajectories from tax benefits and such.  These are staggering growth percentages.  


Time for One More Breadcrumb?


As noted earlier - the Empire Manufacturing report came in a little short relative to consensus forecasts.  But, the chart above shows the February Philly Fed report beat expectations, coming in at a level of 25.8, compared to January's reading of 22.8.


Trend is more important though:  At 21 months and counting, the Philly Fed is currently in its longest streak of positive readings since August 2015.  More impressive?  The past 15 months have seen readings in excess of 20. The only other period in the history of the report (since 1980) that saw as many, or more, monthly readings above 20 was in the 17-month stretch ending in June 1984!


Remember - this is just the beginning of the Barbell Economy - and the surge of the new Generation Y growth curve ahead.  You can count on the idea that there will be lots of bumps along the way - just like the last two weeks.  But history says they are just that - bumps along the way - up the mountain.


In Closing  


Many will still feel more comfortable always aligning with the negatives.  That we will not likely change. 


In reality - the prayed for correction has begun and is working through the system.  As is always the case, opportunity is hidden and it takes time to unfold. 


For long-term investors, hunting season is open...time to start looking.


This will sound completely nutty - but be grateful for the latest bouts of panic.  


The wall of worry has been rebuilt nicely...though chop and churn as aftershocks are always likely - and normal.  


Demogronomics keeps you on the leading edge of change but there is a cost:  it requires a much larger, more patient and disciplined view of the elements at work.


It's the long-term currents we need to invest upon - not the short-term waves which will assuredly always roll ashore to block the horizon - just as they are now, causing doubt in the minds of millions once again. 


Those waves are the noise too many will likely continue to be lost in...and the reason the long-term game is so hard to win based on fearful activities.  


In the end, like it or not, long-term investors have learned this: 


Demographics Rule The Long-Term Game


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

InvestingMike Williams