“An economic system in which investment in and ownership of the means of production, distribution, and exchange of wealth is made and maintained chiefly by private individuals or corporations, especially as contrasted to cooperatively or state-owned means of wealth.”

Baby Stats Update:  In case you felt demographics moved too slowly to be important:check this article here.

We have said if for years:  Italy is struggling.  Demogronomics tell us the US, far and away, is the best situated developed economy in the world as it relates to growth in the future – driven by strong replacement level birthrates.

This keeps it pretty simple:  As we have noted before, the productivity of the most efficient widgets plant in the world is zero if there is no demand for widgets.  There’s lots of demand for most of our widgets.  US manufactured goods real output is back at the previous cyclical high – hampered mainly by the setbacks in energy.  This – and Gen Y is just getting started.

Just keep in mind, the baton is passing.

The churn we are feeling is the unfolding of a far larger event than most understand – or are paying attention too.  This is good news for those planning with a longer-range picture in mind.  Indeed, it does demand patience. After all, the last time we saw this type of massive demographic and economic shift come together, it took nearly 20 years for the entire secular move to unfold.  Patience was demanded every day then as well.


Alright, all the kids are back to school by now.  Summer break is over.  In another 48 hours, be assured we will all be checking our calendars to see when the next break is – so will the kids.

Speaking of school, a little test of our own.  It’s got just four questions – a pop quiz of sorts:

  • Do you believe that people will want to continue inventing things in the future?
  • Do you believe that people will need to purchase “stuff” or “use services” in the future?
  • Do you believe that people will continue desiring ownership of property or investments in the future?
  • Do you believe most businesses will likely continue to feel the same about the three issues noted above as well?

If you answered yes to these questions, you have passed the test.  You now understand capitalism.  What does that mean?  Simple – and hundreds of years of history are on your side:

Stocks do the best job of protecting future purchasing power over long periods of time.

If, however, you did not answer those questions with yes, do not at all be alarmed. You are (by far) not alone.  But do this:  don’t invest in the stock market.  It will be too volatile and will likely not mesh with your emotions – leading to costly errors over time which tend to harm.

Time and Money

You see, to be an investor we must work with broad bands of time.  We must work to cease being controlled by our emotions.  We must recognize investing will be – at times – a very, very ugly game.  We must stop the need to compare – comparisons won’t always work.

Stocks, markets, equities are all like life itself – there will always be someone prettier, slimmer, with better abs, more money, a nicer car or a bigger house – and with a better return in the last 85.7 hours on their stocks.  Always.

Another line from the Sunscreen Song:

“Sometimes you are ahead, sometimes you are behind.

The race is long…and in the end, it is only with yourself.”

Another dirty secret about investing for the long haul in this thing we call capitalism?  One can be absolutely assured that at some point in your process, maybe even twice or three times in your life:  50% of your account will vanish (temporarily), as long as you don’t react to that event poorly.  This is also proven in historical fact:  it will tend to find its way back if you do not let your emotions control your reactions.

Ask yourself this:  

How come you don’t go to theme parks and see a bunch of dead bodies under all the biggest roller coasters?


Because people don’t jump off during the scariest parts of the ride.  

“Capitalism works better than it sounds, while socialism sounds better than it works.“
—Richard M. Nixon, Beyond Peace (1994)


Long-time readers know I have often stated this before, so please forgive me for being repetitive – but it is important:

The next 40 years are very likely to look a lot like that last 40 years.  Now, oddly enough, I have recently found a quote which supports same.  Odd how we seem to feel better if there is a quote from somewhere else in the past about the future right?   Here goes:

“The events of future history…will be of the same nature-or nearly so-as the history of the past, so long as men are men.”  – Thucydides-Athenian Historian and General

So that means?  

Lots of terrible things.  Lots of scary things.  Many events which will elicit those 5 most expensive words in investing:

“It’s Never Been This Bad….”

Plenty of turmoil awaits…but so too do more record amounts of wealth created, many more thousands of points in the markets and plenty of reasons you will be told it cannot possibly go on.

All of this, by the way, has been present since I began in 1982.  You see, risk has always been present – we simply got through it.  Your mind does not perceive risk once success is obtained.

As stated very often:  There are no guarantees in the investing world.  There will always be risk.  We must always recognize though that daily events are noise – and primarily dominated by volatile human emotion, both a toxic mix always at work in the short-term.  In the longer term, historical precedents tend to be a closer call.

What can be gleaned from a study of history?  

Quite a few items – but the list below is all factual to date, can be proven by decades of those facts and by themselves are so starkly simple, they can help quickly eliminate many of the most fearful elements – if one can agree with them.  Remember, they are facts:

  • We have had one Great Depression.  Most recessions do not turn into a Depression over time.
  • Uncertainty is always present – no matter how sure you are that it isn’t.
  • It’s ever-present existence then is not an effective choice to use as an excuse not to invest in the future growth of solid businesses.
  • “When things become more clear” tends to arise at higher prices from the current point.
  • There is a massively large (emotional) behavior gap “cost” suffered between total mutual fund returns and what investors actually received. (review the comment about roller-coasters and dead bodies above)
  • If stock volatility scares you a lot, adding leverage to “get better returns” almost always ends poorly for the borrower.
  • Bull markets last much, much longer than bear markets.
  • Stocks can and will stay significantly undervalued and overvalued for very lengthy periods of time – even as the definitions of overvalued and undervalued changes over time.
  • Buying the latest new Wall Street product to hedge away risk is often a poor idea.
  • Finally for now, stocks are in a bull market 85% of the time for the history to date.

Forward Revs and Earnings Updates

The August data has been slow and all sorts of new fears are brewing in the peanut gallery.  The simple answer may have been forgotten:  that August is, well slow.  It’s slow everywhere.  Most are on vacation.

While everyone immediately leaps to the idea that major slowdowns are ahead (that’s a lazy but easy reaction to have – out of fear), it is tougher to have faith in the idea that we have a normal soft spot during a normal soft period of a year.

The odds are high it bounces back – sooner rather than later.

I say again:  our economy is changing so quickly, we must begin to grasp the idea that the data we are “seeing” is not a productive or effective view of what is actually unfolding.

In the meantime, Dr. Ed reminds us that forward earnings rose for all three indexes last week – again.  In fact, for Large Cap’s, it was up for now the 17th straight week in a row.  It was Mid Cap’s 7th week in a row and Small Cap’s was up for the 14th time in the last 15 weeks.

Could we pause on the improvement for a bit?  Sure – in fact that would be normal to expect in slow spots.  But, all three have risen since mid-March, making it the best multi-week run since August 2014.

Large Cap’s forward earnings is now just a tick or two (0.5%) below its record high of October 2014.  Mid Cap’s is at a record high, as it has been in 12 of the past 14 weeks. Small Cap’s is less than 0.1% from its mid-August record high, which was its first since October 2015.

The point?  While we will surely replace it with another worry – the net effect is we have completely erased the “earnings recession” brought on by the dismantling of the energy sector.

More on Sentiment

We already know 72% of investors do not like stocks now.  So, let’s mesh that with the latest from BAML and their sell-side sentiment model.  What does it say?  It shows the strategists remain more bearish on markets than they were just after the 2008-2009 Great Recession.

Sorry guys–you are costing your clients a fortune:

 A couple things are pretty fascinating about this data.  It shows, for example, that the experts are now as fearful as they were AFTER the 1987 Crash (16,000 DOW points ago), AFTER the early 90’s recession (14,800 DOW points ago) and AFTER the ’08/’09 collapse (11,800 DOW Points ago).

In case you were wondering, when did they feel good?  That peak in the chart was March of 2000 – the Tech bubble top.  Outcome?

Last on this – the green line signifies “extreme bearishness” in the data.  Note how long we have been below this line – in years.  All the while, US markets have risen.  Do we really want to assume it’s all still because of QE?


We said it all summer:  The next couple months have the added pressure of what are likely to be some pretty ugly antics in the race for the White House.  Of course, I suppose the use of the term “race” implies question in outcome – but race it is…for now.

A corrective wave should not be surprising and could indeed be helpful for long-term investors.  Call me a nut, I always like the idea of getting something a little cheaper.  I know – foolish right?  The point is that a small flush would cause even more fear to mount as the economy continues to move forward slowly but surely.

Bonds would rally, rates would stay lower for longer and values would improve.  It does not mean current values are bad – it simply means, they would improve.

The Bottom Line

If you need anymore data on the explosive energy building under the surface to soon benefit the US economy, look no further than tech markets:

 This effort to break out may take a bit more work – but it too is likely to be overlooked. Technology will drive the forces behind the baton shift we have been covering.

Gen Y is tech savvy – they live, eat and breathe it.  Have since they were born.

Their knowledge base will slowly infiltrate the corporate world and efficiencies will be set in motion.

Most important of all – be confident.  Thanks to our wonderful US demographics – it is all just beginning.

Think in terms of decades, not months or quarters.

And retailers are not dead yet.  Let’s stop this data digest where each little link in the chain is immediately grounds to shift entire multi-year perspectives.  It’s foolish:

  And one final tip of the hat to patience.

Check it here…and everyone thought he was done.

 Take a deep breath.  Count to 1000 if you need to.  Slow down the heartbeat a bit and realize that our economy is going through major demographic change.  That is not a bad thing.  The people who will impact our world for the next 50 years are already alive.

Pray for a correction guys.

Years from now, from much higher prices in markets, there will be a time we are going to chuckle when recalling how afraid everyone was – way back in 2015 and 2016.

Until we see you again, may your journey be grand and your legacy significant.