As April comes to an end, the flood of earnings data continue to roll in, swamping anyone who prefers to think long-term. They last about 40 days in earnest with this week being the peak week – and a lot more to come next week.
In recent years, as fears from 2008-2009 are still deeply felt, these quarterly events have become so internally volatile that we suggest one stand back, let the carnage unfold and then look to take advantage of same as the dust settles over the ensuing few weeks – after the flood.
Witnessing market value reductions of 10% and 15% for companies that miss by a penny or two is simply ludicrous. Judging your long-term investment plan on 90-day results I suspect is why the sale of antacids has exploded. Speaking of which, where is my extra-large bottle of fruit-flavored TUMS?
Speaking of soothing your stress levels, check this video out here from our great friend Alan Steel. He did a excellent talk for a massive gathering in London last weekend. Good lessons as always!
As he likes to suggest, think of Dobie Gray while watching “Day after day I am more confused….”
Pause that Terrifies?
Starting last week we suggested we might want to entertain the idea that the earnings flood will create a bit of a barrior and a pause. The problem is this:
There is no such thing as a pause that refreshes anymore.
If the market had a heartbeat, it would race to heart attack levels on a one-day drop of 200 points. Three days and we are in the Emergency Room. Two weeks and we are in the ICU on a Vicodin drip. On bad days, the headlines echo late into the evening and advisors and managers are checking overnight markets to “know what to do tommorrow.”
The thought process suggesting it is perfectly normal for markets to go down – and up – has completely left the building….with Elvis in tow.
Pauses that refresh quickly turn into pauses that terrify, driving sellers of equities to bonds in a matter of days as the “outlook is cloudy.”
I have news: The outlook is always cloudy. It’s why they call it the future.
How About that Crappy GDP Number?
Not much to say other than it was indeed paltry. You terrify enough people for long enough and they will rein in activity. We can be assured several shopping trips were put on hold during the media coverage of “the worst start of the year in 80 years” for the entire first half of Q1.
I wonder if many realize we are getting sort of a repetitive negative feedback loop going.
Tell everyone for years that it is the weakest recovery ever and guess what? They act weak.
A few charts first and then thoughts below:
The chart is from Calafia – and most will assume it is bad news – and assures impending doom. However, let’s think of this in a different way. For the last 8 years, the main driver of our economy has been on the backs of the smallest generation of our time. A massive new wave of people is just beginning to show up.
We call it the 1982 Playbook. Few will believe it until it becomes overwhelmingly obvious – but its coming. Generation Y – 86 Million+ strong will grow up.
They will leave home, they will get a job, they will build companies, they will buy stuff, marry and build their own households.
And for extended long-term planning, Gen Z is building right behind – birthing at nearly the same rate as Gen Y.
In essence, the data suggest we have two massive and powerful generations in the pipeline – even as we fret over tepid recoveries.
People make markets – FEAR Dampens Recoveries.
Fear and trepidation about our future is now a National pastime. We dredge it up all day long. Doom is everywhere. I laugh today when I see the daily required headline about some new Black Swan event.
Heck, we don’t even remember what the term “Black Swan” meant. In a nutshell – it is a total surprise, an outlier event – something no one sees coming.
How then can we talk about all these Black Swans? Again, just think about.
More Charts – and Culprits
These charts above show Capital Goods and Fixed Investment. The shellacking of the energy sector has hurt both admittedly. That headwind churn is about complete – say right after the required summer swoon this year.
The Bigger Issue?
It is not likely a mistake or coincidence that this “weakest recovery ever” has been dynamically affected by extraordinary intrusion at the government level. You know the joke – I am from the government and I am here to help. Guess what – the government is a terrible investment plan.
Soak away growth capital via massive taxes at all levels (personal and corporate), new fees everywhere you look to pay for some new government service, Obamacare nightmares and simply ridiculous layers of regulatory guidelines and the fix is in.
We did this to our own economy. Now it is time to fix it.
There is no outside monster lurking in the shadows to get us – we are the monster. The processes capping the ability for the economy to spread its wings are the monster.
Let’s face the real deal:
The top chart above shows we are under trend growth. It shows another period of time we were “behind trend” – back in the early 80’s. That too is not a coincidence.
In this recovery period we’ve seen a huge accumulation of public debt, a huge increase in regulatory burdens (e.g., Obamacare, Dodd-Frank), generally high and rising marginal tax rates, and such a high corporate tax rate that we are now the most expensive place on Earth to do business.
We forgot what we learned in the 80’s when the last huge generation entered the economic puzzle.
Investment and taking risk demands a reward – or the investment won’t be made.
The rewards to risk-taking, and the burdens of running a business and complying with increased regulatory mandates have depressed the economy’s animal spirits.
This is not meant as a political statement but one could easily argue that the government is slowly smothering the private sector.
Massive risk aversion has held back entrepreneurship and risk-taking in general. For years these notes have explained that this has been a risk-averse recovery. The next generational shift will change that – just as we saw in the late 70’s/early 80’s. It is already unfolding.
The Good News?
Numbers are already looking up for Q2 GDP – repeating the cycle we have seen for several years running now. A paltry Q1 followed by a relatively stronger rest of the year.
I will not be at all surprised if we wake up one morning a few years from now and are told that there was an error found in previous GDP output due to seasonal adjustment meanderings….making all this fretting a waste.
More being prepped for you over the weekend.