Carty Capital Management
CFP | Fiduciary




Good Morning,


It's almost here - the weekend.  And it could not be soon enough for the bulls. 


Oh wait, the bulls are gone already.  They left, vanished, vaporized almost overnight.  Took them three years to get here and three weeks to go back into hiding. 


Read 'em and reap:


Now - before you brush off this latest data (about 24 hours old), take a closer look:


The week of March 2009 showed a reading of 19.7 


That was 17,000 DOW points ago


We are 7 ticks away from that reading


The market has been "correcting" for roughly a month - maybe 5 weeks tops


Note the purple/pink line - then forget everything else but this:  notice how few (and lower) readings there are below it.  And this goes back to 2009 - the end of the world as we knew it according to experts.


Seriously - do NOT underestimate how good this is for the long-term.  It really didn't take much for the individual investor to sour on equities. After nearly three years where bulls failed to gain a majority in the weekly sentiment survey from AAII, in late December of last year, bullish sentiment finally topped 50% and reached as high 59.75% in early January. Then, the kick-in-the-gut, wake up call correction came.


After equities struggled in late January/early February, sentiment remained surprisingly resilient at just under 50% into mid-February.  But - just as we suggested, "Give me a few weeks of solid red ink and I will show you a crowd as afraid as they were in 2009."


Right on schedule, this week's sentiment survey from AAII shows bullish sentiment plummeted nearly 11 percentage points falling from 37.28% down to 26.4%. That's the lowest weekly reading since the end of August and the largest two-week decline since June 2013 - almost five years, and many thousands of points ago.


Now - what do you think we should be thinking?  Hint:  this is a good thing for long-term investors - even if we have to stomach the chop.


Just as a Reminder


This sentiment - and the shellacking of the bulls - was taking place the the failure of yet another Wall Street allure was unfolding:  "passive" investing.  Passive my a##.  Note the record outflows as the red ink stacked up:


That red dot designates a level of outflow (outflow is a french for 'stark, raving-mad panic') just two short weeks ago which made the "end of the world panic" in late 2008-2009 look like a walk in the park.


All This Unfolds While....


The country is getting rich, setting records - with debt levels back to those seen in the 80's!  Hold on, buckle up and strap yourself in...the ride has just begun. 


I will send you off for the weekend with a few good reports to think about as we lose an hour of sleep this weekend - remember, "spring forward" and set your clocks ahead on Saturday night:


The data above is from Scott's tracking of the latest data from the Fed on Household wealth at the end of 2017.  As of the end of last year, it was almost $99 trillion, having risen $7.1 trillion over the past year (+7.8%).


As in recent years, gains have come mostly from financial assets (up $27.6 trillion since late 2007) plus real estate (up $2.8 trillion since the pre-Recession peak of 2006).  Now here is the key - this was offset by only a $1 trillion increase in debt as total liabilities rose from a Recession peak of $14.6 trillion in 2008 to $15.6 trillion at the end of 2017...see below - back to levels we lived just fine with in the 80's, when the Dow was below 3,000.


These last two charts will show how strong Manufacturing is picking up - here and across the globe - hinting that exports are solid and the synchronized "good time" across the globe is being hidden behind all the terrible news.


Ignore the larger picture at your peril...



As can be noted above, export orders are coming in just fine thanks, which suggests that overseas economies are doing very well.


Note also that there has been a fairly decent correlation between the ISM manufacturing index and the health of the overall economy. February's latest numbers strongly suggest that Q1/18 growth could even exceed current forecasts of 3-3.5% (according to the NY and Atlanta Fed's models, respectively).


It's The Weekend...Enjoy!


As noted, this chop and churn could easily last for another couple weeks - and don't forget we have the summer doldrums which will be here before you know it. 


That's alright, a little pain now suggests gain later.  Frustration today (read: value creation) is paid for tomorrow - but only for those who can try to stop trading and start focusing on the long-range benefits ahead.




As much as things change - they often (sadly) remain the same.  Human nature falls solidly into that camp.


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 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 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