Carty Capital Management
Carty Capital Management



A Stinger

Good Morning,


Stinger - wikipedia:


"In medicine, a stinger, also called a burner or nerve pinch injury, is a neurological injury suffered by athletes, mostly in high-contact sports such as ice hockey, rugby, American football, and wrestling."


Neurological is right.  In my football days, I had a few.  I get the sense from comments and emails this week, we need to add a bit to the above definition right after "wrestling". 


I am thinking, " - or for recent investors who waited years to get back into equity risk via the US stock market given the latest bouts of volatility." 


Maybe a little too wordy?  No - can't be.  Never in my life have I ever been accused of saying too much.  Ok, Ok.   I am kidding.


By the way, I got the license number - - of the double-trailer truck which drove over the market this week.  Sadly, it matches the one that got us a few weeks ago.  


"FEAR2018"...and wouldn't you know, it's a DC tag.  Ouch.


OK, so seriously, I know you are going to hate reading this but the market is taking our emotions on a ride again.  The winners in this short-term mess are set to be the same as always - those who can move the least and ignore the most.  And, by the way, that includes all of the newest FaceBook haters.  


Think about it for a sec.  Take yourself back to say - uh - two weeks ago.  Ask this, "What could possibly go wrong to cause the market to get the jitters again?"  I got two things that I am absolutely certain would not have been on your list:


a) A trade war with China

b) The end of Facebook


Come on seriously - you know it's true.  There is no way those two things were on your radar.  What's the point?


This too shall pass.  And when it does, there will be more to worry about and fret over.  Make a list - and be sure of this one thing - the "next thing" you fear won't be on it.  Black Swans turn gray as soon as you start talking about them.  And by the 12th glaring headline on the topic, they turn as white as snow.


The Effect?


Let's review.  Remember what Warren has stated many times before:


"In the short-term, the stock market is a voting machine - in the long-term, it is a weighing machine."


Right now, we are watching the voting process stage.  Dumb decisions being made in the heat of battle, with fear the only weapon on hand.  Rash responses to events which, in time, will be viewed through a different lens, a clearer lens if you will....and seen as they should be:  long-term mistakes.


Sure, it feels better to see only green ink and numbers ratcheting upward all the time.  I hate watching gains go away for a bit - more than anyone.  I get it for sure.  But look at it this way:  If you fell asleep on New Year's Eve and woke up 5 minutes ago, this is the date you would be faced with:


The S&P 500 (equal-weighted) for 2018:                     -1.83

The NYSE Composite for 2018:                                   -3.37

The Value-Line Index for 2018:                                    -2.61

The NASDAQ for 2018:                                                 3.81


Yes, there are some red numbers in there - and yes, they could very likely get larger. 


But after two years of combined upside closing in on 30%, is a 5% or 10% temporary giveback something to go haywire over?  Really?


In a word, no.


In fact, as stated often, what we are witnessing it perfectly normal.  A trade-range is perfectly normal.  Setbacks from highs after a big run is perfectly normal.  And the fear it is instilling is perfectly normal.  


The difference from previous times?  The numbers are larger and they sound scarier - all because of the heights reached by the market.  The bad news?  They will only get larger and scarier in the future.  So get a grip.


Remember, the weighing machine part is what you want to focus on.


"I'll Be Back"


No, not Arnold....fear.  Alive and well.  Note all the red. 


Staggering - and good for the long-term, patient investor - even when it hurts:


Look at all those red dials in the data above.  Think of them as long-term dollar signs if you can take the heat.  I remind of these two things:


a) there is a reason they call this "investing" - and not "fun"

b) two weeks ago I wrote, " would be productive if we could get this chop to go on for a few more weeks so all the dials in the data would turn deep red."


So, it's working.  Fear that is...


The data below show what it looks like long-term as we gauge today's reading against all the readings of the last several years:


Bad JuJu


Listen, like it or not - short-term pain almost always (historically) leads to long-term gain.  The data above show we have now returned to fear levels not seen in years - and almost 10,000 DOW points!!! 


Get this - the crowd is not more afraid than it was in February of 2016 - the worst start to the market in 85 years!  By the way, that was only 2 years ago - and 8,500 points.


Now?  We need to stay focused on what's next.


Right now, we are clearly in a trade-range which is driving a wide swath of mental damage and price erosion for those who are thinking far too short-term.  Here is the chart blaring loudly on CNBC in the last 10 minutes:


Scary right?  Here is the one they don't show you:


The toughest question of all? 


Which one are you going to pay attention too? 


My hunch?  Sure China will launch some retaliation.  And then when they realize we are right and they should recognize you cannot keep stealing stuff, level heads will prevail, new agreements will be made and the world will keep on ticking. 


They know what everyone else knows: 


No healthy US, no healthy China. 


Period.  End of story.


My Other Hunch


Somewhere in all this mess, Mr. Buffett is going to arrive on the scene to buy something - big. 


You can bet he is chomping at the bit to spend some of that $130++ Billion in his money market account.  Don't be surprised to see a big buy here soon.  If you did not get a chance to read his latest letter, you can find it here.  It's worth the read - especially on days like today.


Last But Not Least...


You recall what everyone was scared about two weeks ago right?  Yep, interest rates.  Right on time, they have dropped like a rock - nearly 20 basis points on the 10-year.  Old news right? 


Sure, when there are all sorts of new monsters to terrify you with...


Here's the tough part of this game:  like all the monsters before now, these latest ones will become dust in the wind as well.


If it was not so sad to watch sometimes, it would be funny.  Yes, it hurts sometimes.  But that is how investing has gone for decades.  As tough as it is to stomach sometimes, we must always focus on the weighing machine - not the voting machine antics. 


The net result long-term? 


Even as markets get flooded with red ink this week, it remains valuable to mentally note that by about July/August of this year, experts will be "pricing" markets on 2019 earnings multiples. 


Today, that P/E stands at 15.1 times 2019 earnings from this past weekend.


With today's red ink - the P/E for 2018 now stands at just a 16.7


...while those ugly old bonds are still over 35 times earnings.




It is the spirit of innovation and demographic powers in place are driving the Barbell Economy in the directions we speak of often. 


A patient and disciplined view of the larger forces defining the future will help clearly define for you a more productive matter who resigns from or resides in the White House.


Over wide spans of time, people make markets. 


The Barbell Economy is real. 


You can ignore it, you can disagree - but the two largest generations of our time are set to drive U.S. economic growth for the next 40 years. 


In time, innovative and well-run companies standing in that Barbell structure will be set to generate long-term profits, and the shareholders (owners) who patiently invest for the long-term will hopefully participate in the value creation that takes place as a result.


As such - panics like the one the markets are currently (still) finding their way through tend to be good for the long-run.  They reset values and perspectives and provide the long-term investor new opportunity to be patient and disciplined.  


No one ever stated it would be easy.


Be assured of this: if it were easy, the returns available would be insignificant.


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


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