Blind Spot: “an area where a person’s view is obstructed.”
Fearing the collapse of our economic system has been a running theme for many years now – it is not unique or new. It is also very, very crowded.
First – welcome to the end of another week. We are down to 4 left until the official end of summer – Labor Day weekend. Many would not be blamed for missing that volume has already slowed to a trickle. Reactions – good or bad – to the tail-end of the current earnings season (always choppy – unless in raging bull markets), are being driven by the 4th-string team on various trade desks around the country. Vacation is the name of the game in August – lack of attention is a normal companion.
Blind Spots are everywhere. They are expensive – but effective.
The main cause of blind spots in the minds of investors? Simple: F.E.A.R.
Let me give you some stats – with the help of a few nice charts from Dr. Ed and others:
First – as noted in the last couple of jobs report reviews and graphically shown in the chart below from Dr. Ed – we have never had this many people working:
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It is easy to digest and hard to make look ugly. Be certain though – this will be ignored by the media – because, after all, how in the world can you scare someone by saying its never been this good?
GDP is at record highs.
Forward earnings are at record highs as the round-trip approaches in energy.
I listed many more records here earlier in the week.
Blind spots abound. How do we know? Fear. How do we know there is fear? Watch money and sentiment. Let’s take a look in four charts below:
The first chart at the top shows the “P/E’s” being exchanged for capital risk. Can anyone explain why we hear massive discussion about “risk” in stocks when the multiple being paid for Bonds is 65 times earnings?
Blind spot anyone?
The second chart is often used here – it meshes well with the $9++Trillion not sitting in banks and money market accounts. It also meshes well with a report put out by UBS last month showing that even its wealthiest clients now expect 25% of their assets ot be in cash. What cash? The dollar. Bottom line – the demand for cash has no other explanation. It is driven by one element in a world flush with low borrowing costs: fear. Fear of the future, fear of perceived risks.
More blind spots.
The third chart is another stunner. We use it often – the AAII data on bullish investors. It gyrates back and forth across the chart over the years – except for the last few. This data was released on the same afternoon which saw all three averages eek out a new all-time high for the first time since 1999.
Imagine that – the 41st straight week of bullish sentiment below its long-term average and yet – record highs.
The comfortable numbness of blind spots.
That last chart feeds off the chart above but takes out some of the noise. An 8-week moving average of the bullish sentiment data shows a more compelling contrary view. Note the current reading – at the aforementioned all-time highs – is within 3% of all of the lowest readings in this data going back for a decade!
It is a single-digit percentage point toss from the raving-mad fears in March of 2009 – now some 12,000 DOW points ago.
Yes – blind spot.
One More Thing on GDP
We often hear the chatter about “stall speed” and how things only go bad from here. The economy is not an airplane. It’s a catchy phrase and surely a surreal view pops up in ones mind when speaking of stall speed (right? try it), but alas, it is useless in this sense – and leads the masses into more blind spots.
That red circle is added by me. You see, we are told we are at stall speed. We are led to believe that there is something wrong with the economy. Worse – for the last 8 years we have been told that only government can fix that – and fix it they have.
The facts? Trillions of dollars of collective GDP growth have been created by hard-working American workers and businesses. Incredible break-throughs have been bestowed upon us – so many, it would be hard to count.
Yet, that red circle of this “stalled” effort in output has been created by one thing:
That “Change has come to America…” still reverberates across every accomplishment, black, white, red, orange or purple. Trillions and trillions of dollars — which would have gone to further expansion and an otherwise explosive economy (not stalled) – have been raked off the top of those growth lines – effecitively sliced from growth – and re-distributed.
We haven’t seen government actions drive growth. We have seen suffocation in return for misguided social programs – which have sadly only created more poor people. More on that later.
But here is the real deal – and a more productive view:
Our economy is strong, vibrant and diversified – because of all Americans.
Our demographics are hugely significant, slow-moving and set to be very powerful for years to come.
As such, we have grown the GDP and expansion in spite of those trillions and trillions in costs of regulatory burdens (stealth taxes), huge tax increases, massive errors and choking costs in Obamacare and social experiments being shaved off the top.
Release those back into the hands of all very capable citizens and let them flow into the economy. That experiment would see less government and an explosion in growth and opportunity, the likes of which would break all records – benefiting everyone – no matter their color or beliefs.
Some Closing Thoughts….
The terms “invest” and “risk” (and all their various derivatives) have been thrown around so long that most – if not all – reading this may think the two words mean different things.
They do not.
Make no mistake.
Invest and risk are different for only one reason: their spelling.
Other than that – know this at all times: whenever you invest – you risk. Period. End of story. Risk is part of it all.
But here is the secret which can help you be comfortable with that: risk has meant the same as invest since the beginning of time.
We only think someone took a risk when they lose. Not true – every single outcome in the investment world – good, bad or ugly – carried with it, during every moment of its existence, risk.
They are one in the same. Always have been – and always will be.
Accepting that helps you accept the required ups and downs of building assets over time and it keeps you out of your own blind spots.
The Bottom Line
As stated yesterday:
I wrote at the start of summer – “the August doldrums are the worst. Volume will dry up, internal chop will be clear and earnings season’s end will bring plenty of emotional reaction – almost all of it wrong when seen months later.”
Don’t worry – as soon as we get through August we are set to get the annual “You do know that September and October are the worst months of the year for investing” charade.
So take heart – and enjoy your last weeks of summer.
Remember – large or small – all of this takes patience and discipline. As such, records show most get far less by acting too much, making too many different choices, moving too many thing, listening to too much garbage.
Red ink is normal in August….so let’s still pray for that swoon.
Stay focused on the long-term – demands are building within the long-term structure of our consumer economy.
The Barbell Economy remains the focus – it is working just fine – and in several spots, even getting better. But know it is also normal to ebb and flow there too.
Think demographics – not economics. We are in fine shape folks.
Until we see you again, may your journey be grand and your legacy significant.