Carty Capital Management
CFP | Fiduciary



The Straw

You know everyone has a straw.  We have all heard it before.  "The straw that breaks the camel's....."  Often, it is perceived as some sort of negative, unleashing some hysterically bad outcome.  It can also be something good.  


In this case, the straw seemed to be the final acceptance of the bull market.  It took all of three full years - but the straw has finally fallen as of yesterday.  AAII bullish sentiment "leapt" through a 50% majority...and it only took, um, 17,000 DOW points to trigger it. 


That's an awfully big straw friends:


I can already hear the crowd cowering in despair.  "Oh gosh, now that everyone is bullish, the market will crash..." 


Uhh, likely not.  First, everyone is not bullish.  About half of everyone is. according to the latest data.  And that data still leaves us with the question I always say we need to mix into the recipe:  What are they doing with their money?


You see, it is one thing to answer a survey saying you feel bullish.  It is another thing all together to take your collective $10 Trillion++ out of the bank savings accounts and put it into the market while you are saying you are bullish. 


When that starts happening in earnest - for years - then we fret.


However...I stand by this idea:  it took three years to get to 50% bullishness.  It's a frail sentiment.  Give me a few weeks of rocky prices and choppy action and while I cannot promise you, I'd give you odds that we would see that 50% fall rapidly back into the 20's or 30's. 


Speaking of Which...


I know I am a broken record...but this game has just begun for the long-term investor.  That said, we have had a good year and no one likes to take gains near the end of a year - especially a year with a new tax bill, any kind of new tax bill. 


As such, please put this on your calendar - not as some type of "get out on the ledge and be ready to leap" type of calendar note, but something more along the "at least you won't be terribly surprised" kind of note. 


Picture this: 


A big run -- even bigger when considered in the eyes of a massive audience who has pretty much doubted most of that run-up.  A vast portion of investors who have a pit in their stomach, most assuredly driven by the sheer terror they are going to wake up any morning and the bottom is going to drop out because Trump did something - anything.  Or some other horrible (you fill in the blank) thing unfolded. 


The point?  They are certain it is all fake, it's all driven the the Fed, easy money, fake earnings, rich people taking us to slaughter.


The concern is January 1 is like a potential release of that pressure.  Sort of like, "Dear Lord, Please let it all last until January 2 when the markets open up and I can take my gains and not have to pay taxes on them until April 2019."  


The other point? 


I have a hunch there are a bunch of those people out there waiting to take gains.  If so, please do not be surprised if we start the New Year with some selling.  Now, I know as sure as I type this, many may start feeling their heart race a little higher and their blood pressure rise.  That is not the intention.  I merely suggest that if there is a pothole ahead, it would be that emotional fear/concern/sensation in the near-term. 


If it does unfold, I would suggest to us all that it is yet another benefit on this long trek up the mountain.


A Couple More Interesting Items


ISM's are all up, LEI's are solid - the 15th month in a row of rising LEI's and beating estimates.  Earnings we have already covered and they look solid - only to get a bit better as tax benefits seep into the picture as you get into Q1/Q2 of next year. 


So, hey, a nice little swoon to wake everybody up in the first month or two of 2018 would be, well, super fantastic in my humble opinion.


How About Housing? 


Can anyone spell "just beginning to shoot the lights out?"


One can tell by the size of the "beat" that analysts really don't have a sense of the surging demand that is slowly but surely building into the pipeline.  This is not to suggest a gigantic bubble and then it is over. 


This is more of a steady, rising tide which lasts for a very, very long time.  Like all other aspects of the generational elements we share, they demand patience and the ability to stay on a disciplined path, permitting the storms to blow through as they most assuredly will at times. 


Matching the increasing sales of course, is the next chart below - builders sentiment.  If you think they are happy now - just wait. 


Economists were expecting sentiment to increase only slightly from 69 to 70.  Well they were a bit off here too - the actual increase was much higher to 74.


To put this into some perspective, while the headlines blare out fears and trepidation, going all the way back to the report’s inception in 1985, there have only been six other months where the index was higher, and they were all back in 1998 and 1999.


In other words, homebuilders are currently more optimistic than they were at any point during the housing bubble that peaked in 2005.


I would point out one other thing for you in the data below.  Note the gray areas marking recessions. 


They all appear AFTER extended periods of falling sentiment. 


We are nowhere close to that - anywhere on the horizon. 


So relax...and pray dearly for that correction to start the year off with a, uh, well, bang.


In Closing


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.




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