Carty Capital Management
Carty Capital Management



Lots of Cooks

Good Morning,


"Well alas we've seen it all before
Knights in armor, days for yore
The same old fears and the same old crimes
We haven't changed since ancient times"

Dire Straits

Iron Hand


Same old fears and same old crimes...hmm.  I always think of that line when I see extremes in sentiment.  Yes indeed, the bears howled at the moon on every corner for years and years.  Monsters lurked, ghosts were there - reasons to be certain the goblins would take us in our sleep.  Confidence was lacking - no good news was, well, good news at all. 


Even as yesterday's DOW 25,000 bell rang - along with several other market breakouts around the globe - still this headline was awaiting readers at CNBC this morning - bright and early:


Just for the record, we should also be terrified of the following:


~ a large meteor striking Earth and extinguishing all life forms

~ a large explosion on the sun, providing a few weeks warning before our atmosphere is totally fried and us along with it

~ a dirty nuclear bomb going off in downtown NYC, completely erasing one of the global money center points

~ being struck by lightning

~ being eaten by a shark

~ anything related to a 60 Minutes reporter showing up at your office unannounced name a few.


The point?  Those risks, along with all market risks, have existed for all time - they will exist for all time going forward.  Nothing you will read in these notes, read in any other notes, hear on TV and buy in a newsletter of ETF service will ever change that fact - nor provide you a logical way out.


So face it - if one chooses to only focus on the potential bad news - there is a ton of it - always - and you are doomed. 


Back to the same old crimes...


Note the latest AAII sentiment.  It has changed - by miles - in the last few weeks.  It was as if the 3-year record of staying below a majority was enough.  The bulls had finally had it and ended the year with a bang. 


Too bad they waited 17,000+ points to get excited: 


Pretty spooky huh?  Not really..."same old fears and same old crimes...."  The public invests on emotions. 


Now, I loved it when the AAII bullish numbers stayed in the 20's and 30's for months on end.  Seeing them a few clicks away from their highs makes me - well, twitch a little and grab a few extra fruit-flavored TUMS.  The good news? 


There is nearly $11 Trillion of money that now needs to follow those "bullish feelings" into the markets.  We are nowhere close to that...


However, I say again - and have been miserably hopeful for months:


...pray for a correction. 


This is right about when you would want it to come.  Fresh bulls out from hibernation, taking in a breath of fresh air.  Yes, perfect indeed.  Give me a few weeks of chop and red ink and I can nearly assure you those 59.8% bulls will drop like flies.  And they would take thousands more points to come out again. 


My hunch?  I would not be at all surprised to see this upcoming earnings season be filled with lots of VERY misunderstood numbers.  Hundreds of billions of collective dollars will be repatriated - resulting in billions in extra tax charges.  Fear-mongering will focus on the bad - instead of the good.  My hope?  We at least get some chop and trade range type activity. 


Why?  Well, after watching the numbers for 36 years now, history suggests that when you get a reading this high - even a flat to choppy market environment will burn them back off quickly.  That said, let us not forget that we spent many years in the 40's and 50's during the last great bull market of the 80's and 90's as the Boomers drove the world. 


Now - it's the Boomers and Gen Y...and the game is just getting started. 


The Pros?  Uh, Not so Bullish


I love this chart - I have included it twice - once with comments added by me for perspective on just how mind-altering this data is.  First a reminder:  The BAML Sell-Side data is the pros on Wall Street.  It is all the big houses and their collective sell-side guys (the ones who tell their clients to buy equities) - and their sentiment.  


Notice they have only recently risen above where they stood in March of 2009, in the teeth of the Great Recession when all was going dark - some 17,000 DOW points ago:



The underlying chart is the same - the numbers and lines added on the second version are for perspective.  Note first Number 6's reading (now) is still lower than all other 1-5 marked time points.  Here is where the DOW stood at those 5 previous points (you are free to do a plus or minus a few hundred points on any of them if you like):


Number 1       2,457

Number 2       3,978

Number 3     11,350

Number 4     13,627

Number 5     12,810

Number 6     24,719 I said, pray for a choppy earnings season - or a correction!


The Bigger Picture?


I admit to being somewhat dismayed to see the bulls back.  I prefer it when we are kind of alone in that camp.  Be that as it may, it would be good to shake a few things out.  The jobs numbers are just out during the writing of the notes this morning and they were a little light.  I suspect, as noted, the earnings season will be very confusing for many - and in the near-term, that could be just what the doctor ordered. 


Should setbacks arrive, let's stay focused on their long-term purpose.  Every correction since the beginning of time has one goal:


It moves stocks from short-term traders to long-term investors.  Every. Single. Time.


Seeing it in this manner will take away the fear and help one better understand why we assume they are part of the financial and wealth building landscape we all face ahead.  It's all good.


And finally, against all the chatter about rates and the Fed and the yield curve, the stats are stable:


Those bond yields compete against an S&P earnings yield last week, before all the coming benefits of tax and repatriation relief in 2018 of more than twice that level! 


Note the stats below (they will be updated this weekend - but will likely change dynamically as we work through the first earnings season post the Tax Bill): 


In Closing


Make no mistake folks:  We must remain focused on the long-term horizon and the powerful undercurrents driving the US forward - and they are strong and steady.


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, rests and short-term setbacks along the way - all the way up this mountain - where it will feel like the world is ending.




Patience and discipline.  


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.  Hope for it is healthy.


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.


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

InvestingMike Williams