Hope this note finds you all well and prepared for a relaxing summer weekend. Sadly, we must start yet another note a send of prayers to all those affected by the demented actions last evening in Nice. There are few words these days to make any sense of these events.

So please be safe and travel carefully…….

We all know the stories of the running of the bulls.

In a market sense, just when you would think running by the bulls would be obvious, we can barely get a slow jog in place it seems. I have seen few headlines heralding in the good news of new all-time highs hit this week. I have seen even fewer pieces on the idea that we have hit record levels of wealth, near record low jobless claims, record job openings or that small item of $8.35 Trillion in cash, sitting in bank accounts – idled by deep-seeded fear….

Let’s get to the chart:

That latest bullish percentage reading should be impressive right? Recall the back-drop first – RECORD highs in the markets. Now, yes, since May ended, we have seen an impressive improvement in the data – up 19 percentage points. Given these large increases, one would logically assume it was getting out of hand right?

Wrong. The reality is that current bullish sentiment is still below its bull market average of 39.95%, and has been so for 37 straight weeks – a near record itself!

Sure, sentiment is turning more positive – but give me a week or two of summer doldrums red ink and one will see the bottom drop out – again.

Even so, no running of the bulls just yet – it’s at best a slow jog.

Put another way – sentiment is still, well, unsentimental.


The three snapshots above tell a pretty good story. Beige Book was pretty solid. June retail sales were steady and up. I love how they reference the revision lower for May. It was .2% down there and exceeded June expectations by .4% – hence a beat and net gain even after revisions.

Lastly, the all too fearful industrial production stats – up again – and better than expected.

I think we will look back on this in a year or so and see the production concerns for what they really were. Not the end of the world – but a pause while we round-tripped the worst of the energy sector fiasco….all the while getting even more efficient.

Speaking of energy…

Gen Y and tech engineers are working hard to make sure frackers bottom lines get better even at lower prices – just as notes here suggested months and months ago. Check it out:

Trucks Moving Stuff Too

The trucking industry has suffered a bit from overcapacity and the expense of rising wages, but it has benefited from lower fuel costs and increasing volumes hauled. Meanwhile, ATA’s latest data show the Truck Tonnage Index is just a trailer or two away from the all-time high hit in February.

The railroad industry was hit both by the depression in the coal industry and the recession in fracking. After hitting a peak in December 2014, rail volume suffered from declines in shipments of coal, metals, chemicals, and petroleum products.

The pause may be thawing. Railroad company shares, which had a miserable 2015, have had a better 2016. Union Pacific shares climbed 17.7% ytd through Tuesday’s close, Kansas City Southern is up 22.3%, with lesser gains coming from CSX, 4.1%, and Norfolk Southern, 4.5%.

We suspect markets are again sniffing out the round-tripping of the worst comp data on traffic flows as we ride past the deepest parts of the energy adjustments. Indeed, this past month showed railcar loadings, excluding coal, had positive increases in volume.

So What’s Next?

Our argument remains the same – boring right? Surprising, steady strength percolates under the surface as the baton passes from one generation powerhouse to another even larger powerhouse of change. It is being masked by too many fears of old problems.

Capital flows are clear – even at record highs….fear is deep-seeded.

The masses are missing the point but that is ok – as it provides better outcomes for long-term investors. In a perfect world, I would like to see the market trade back off a bit and chop around for the summer doldrums, providing more opportunity for value surprises.

Maybe we get that as earnings season moves through the system over the next few weeks. Look for emotion – driven dislocations as we get deeper into the August doldrums and hope for that summer swoon still.

In Closing

The Barbell Economy continues to chug along.

Never in a perfectly straight line mind you, but consistently (over the last 5 years) – better than the “non Barbell Economy” sectors (stats above).

I thought I’d end the week with a chuckle or two. Even as we witnessed the most depressing record high celebration I can recall in 35 years, these posts were front page on your favorite financial websites:

I am pretty sure I have never witnessed a moment when the markets were where they were supposed to be.

And lastly…just for kicks, I thought this headline was pretty neat.

I am sure they are not following the Barbell Economy: