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Happy Holidays

Good Morning,

 

So here we are - shockingly - closing in on the end of 2017. 

 

I swear I cannot believe how fast it went by.  I sure hope that time going by more quickly is not a sign of me losing my mind.  If any doctor friends out there write back and tell me so, well - gosh, I suppose we better start taking these notes with a giant grain of salt. 

 

Speaking of salt in the wounds of all those bears still telling us how bad the world is - God don't you know they are - uh - angry.  Here is the latest on earnings from the latest data at Thomson Reuters.

 

(from This Week in Earnings, dated 12/15/17)

 

  • Fwd 4-qtr est: $142.57
  • PE ratio: 18.8x
  • PEG ratio: 1.72x
  • S&P 500 earnings yield: +5.32%
  • Year-over-year growth of fwd est: +10.9% vs. last week's +10.9%

 

Here is why you can be pretty confident about this data - short of a meteor striking Earth next week - which I suppose could happen:  With just two weeks left in 2017, the forward estimate growth rate is almost exactly in line with the bottom-up S&P 500 EPS estimated growth rate for 2018 of 11%.

 

Now the more important thing here is this:  this estimate has not changed a bit in the last 18 months - hint:  they have not jacked up the earnings chatter because of this over-hyped tax reform.  Yes, the tax reform will do some good - but not nearly as much as it could have done.

 

As usual the idiots in DC, across all parties, have screwed it up again and watered it down so badly that it will only bring some benefit.  It's sort of like when you look at a rainbow - you see lots of pretty colors.  Mix them all together and your get a grayish brown color. 

 

Note also that year-over-year growth rate reference of the forward estimate (last bullet point) has been above 10% since mid-October 20, 2017.

 

The bottom line on earnings? 

 

They will increase even more because of tax benefits - but not nearly as much as they could have when all the promise of real tax reform was upon us. 

 

Get this though - even if we get to say another $10 - going to $152.00, the current P/E ratio of the S&P falls to 17.6....not too shabby in this world of fear-driven interest rates:

It's Just Beginning.....

 

I know I am a broken record...but this game has just begun.  Forget all the chatter about 9th inning garbage.  Sure there is a correction out there somewhere. 

 

Sooner rather than later I hope.  But I have been wrong on that too.  When it comes - use it - aggressively.  Pray for it.  While others are terrified of it - you make sure you know it is a required part of the pathway up this huge mountain we are climbing.

 

And yet - we are not even at Base Camp 1. 

 

This Just In...

 

The homebuilders don't know what to do with themselves.  In '08 and '09 they were bankrupt due to no buyers in Gen X. 

 

Now, they have years and years where millions of Gen Y kids will be leaving their homes. 

 

As Ken always tells us - "Unless they are going to sleep in tents, we are millions of houses short...."

 

It's math friends....just math.  We have to be patient and let emotions rattle everyone else.  In the meantime...expect more of this - for years to come.....just takes patience:

Meanwhile....

 

We noted last week that it is small business that makes the world tick.  Regulatory burdens from the Obama years were choking the Golden Goose.  Those pressures are easing.  Many say that's bad.  That's sort of like saying cheap gasoline is bad for you too.

 

Anyway, check this great chart from Scott on the latest hiring plans from small business.  If you think things are changing quickly now, fasten your seat belt.  The ride hasn't left the gate:

Yes, that is a huge improvement among small business owners above.

 

The index of future hiring plans in November posted its strongest reading in the 44-year history of the survey.  This hints that Trump's efforts to reduce regulatory burdens, coupled with a strong expectation of reduced future tax burdens, have already produced positive results.

 

Still work to do - but going in the right direction.

 

In Closing

 

'Tis The Season

 

Enjoy Time with Family and Friends!

 

Make no mistake folks:  The rare US Barbell Economy is upon us and is set to unfold for the next 30+ years.  Of course, there will be lots of stops along the way up this mountain where it will feel like the world is ending.

 

And change? 

 

Well, let me suggest we see it this way - it's like Bachman-Turner Overdrive told us when I was a kid:

 

"You ain't seen nothin' yet..."  

 

Remember.....

 

Patience and discipline.  In this game, pray for corrections... 

 

The dirty little secret is this: 

 

He/She who moves less wins.

 

Long-term thinking always wins out over short-term trading.  Worrying about the next setback sells lots of ads but makes almost no money for you.  History proves it.  

 

Forget economics - think demographics.

 

It's the big picture.  It's the current under the emotionally-driven waves.

 

Demogronomics keeps us on the leading edge of that long-term direction - but it also demands a much larger, far more patient view of the economic elements at work.

 

Our Wishes for the Very Best of the Holiday Season!

 

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

InvestingMike Williams