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That Feeling

Good Morning,

 

It's back.  Admit it - on the fringe of your mind, under all the noise - these last few weeks have reminded you that it's a long way down to where we used to be not so long ago in market averages. 

 

When this VIX garbage finally works its' way through the market, we will find that many positive elements remain overlooked.  Even as we speak, no matter that earnings growth is currently over 20% YOY (it will change and drift back downward as we lap this year in Q1 2019), companies are still busily working through the benefits of newfound cash flows and capital allocations given the tax act wave of activity and the repatriation flood. 

 

Suffice it to say that we will likely see continued benefits being announced even as Q1 / Q2 2018 earnings periods unfold ahead.  Right now, however, for the short-term mindset of the media-hype filled markets, who cares about that right?

 

Instead - let them worry again.

 

While those focused on the short-term will do that - why don't we move back about 85 large steps and regain a sense of the bigger events driving the force of our expanding economy.  

 

By the way - if you have not taken the time to read it - check Warren's Annual Letter out here.  There are always some good tidbits - and someday, maybe - these morning notes will read as smoothly as his letter does : )

 

I especially like this comment:

 

"Charlie and I view the marketable common stocks that Berkshire owns as interests in businesses, not as ticker symbols to be bought or sold based on their “chart” patterns, the “target” prices of analysts or the opinions of media pundits. Instead, we simply believe that if the businesses of the investees are successful (as we believe most will be) our investments will be successful as well. Sometimes the payoffs to us will be modest; occasionally the cash register will ring loudly. And sometimes I will make expensive mistakes. Overall – and over time – we should get decent results. In America, equity investors have the wind at their back."

 

What a logical way to view things right?  Different indeed.

 

A New Wave?

 

Spring is almost in the air.  The month of February sure made everyone forget how nicely the year started off.  That's a good thing by the way.  A better thing?

 

February is done - going out with a thud.  In the near-term, a new month brings a new look.  

 

March and April tend to be seasonally strong - and for the same basic reasons that November and December are strong - namely, taxes and good feelings. 

 

They also lead up to the dreaded "summer doldrums", so keep your wits about you when all others - well - won't.

 

The pre-Thanksgiving-to-New Year's holiday season (along with the Santa Claus rally) brings us time with friends and family, lots of eating, football, family gatherings, and tax-related trading.

 

Likewise, many are flush with good feelings in March and April - if nothing more than to get away from February LOL).  The days get longer (clocks spring forward on March 11), the snow starts melting, as do your heating bills.  Flowers begin to bloom, the gray falls away - and then - offices and teams around the country become transfixed with rivalries in March Madness basketball pools. Right afterward - April 15 - and the deadline for funding various pension plans.

 

Lest we forget, we will also soon mark what many perceive as the ninth anniversary of the start of this bull market - Monday, March 9, 2009.  All too many of those pundits also bay to the moon that the bull market is getting "long in the tooth" or senile - or worse, on its last leg - in the ninth inning. 

 

Just note this:  it's a good thing to still be hearing it all.  The bears have been warning us all - for years.  It would be hard to calculate the missing fortunes that all-too-worried investors have lost out on listening to the chorus of bearish voices.  As stated repeatedly - and as Warren even echoes in his letter - bear markets will come - as required.  

 

In case you may have wondered whether there are any metrics to back up this "good feeling seasonal", check the data below:

 

Fear and Bears Are Rolling In

 

Like waves on the sand, red ink brings with it two good things for long-term focused investors:  bears and fear.  Neither disappointed as February drew to a close. 

 

The latest from both CNN Money and AAII.  Note we are back in the 30's on bulls - with roughly 2/3's of the crowd not liking the market anymore...all good:

 

 

 

These three charts above tell you most of what you need to know.  The audience is frightened again - and to extremes not often witnessed.  Read 'em and reap. 

 

But know this ahead of time:  that gnawing feeling in your gut that "this time we are in trouble for sure..." is a tough thing to fight.

 

It's why they call it "building wealth over the long-term", instead of "fun."

 

Consumers Are Feeling Good Though

 

In fact, they haven’t been this optimistic since 2000!

 

Consumer confidence has been rising in the early months of 2018, climbing from 123.1 in December to 130.8 this month—the highest level since November 2000.

 

According to the Conference Board’s Lynn Franco, “Overall, consumers remain quite confident that the economy will continue expanding at a strong pace in the months ahead.”

 

Better news?  The confidence is balanced - as they are enthusiastic about both the present and future. The present situation component of the data jumped to 162.4 this month—the highest since March 2001, while the expectations component has rebounded from 100.8 to 109.7 the past two months, heading back toward last March’s cyclical high of 112.3.

 

The current job outlook is the best since 2001: The "Jobs plentiful" reading jumped to 39.4% this month, the highest percentage since April 2001, while jobs hard to get sank to 14.7%, the lowest since July 2001. The six-month jobs’ outlook showed the percentage expecting more jobs (21.6%) continued to surpass those expecting fewer jobs (11.9), with the spread widening from 3.0ppts in December to 9.7ppts this month, approaching March 2017’s cyclical peak of 11.1% according to Dr. Ed.

 

Closing

 

As much as things change - they often remain the same. 

 

It is this 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 philosophy...

 

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. 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