Hope this note finds you and yours safe, healthy and enjoying the summer as we close in on the end of July.

As your morning notes covered last week, markets chopped at new highs and closed at slightly higher – and even newer – all-time highs on Friday.

This is particularly impressive given the nature of the normal earnings season, this time with the added burden of both political conventions.

Sure, we are seeing internal chop on some missing by a penny but this is normal – no one can miss them all, in any portfolio.

More important? I have hunch that markets are beginning to sniff out the earnings shift as we get closer to the energy round-trip.

Indeed, we may also find markets are beginning to discount either winner in the election. Why? The economy is improving.


Surely the rule of politics is at work and influencing some in the crowd. Every election results in the same general model: Gather a group of people around and tell them about how good it used to be. Tell them who is to blame for their plight in life and then express wll the reasons you are the answer to their problems. It never changes.

The polls taken during the political run will mention any number of issues which Americans find themselves fretting over. Oddly, we find today that the latest Gallop shows the economy not being at the top of the list. What happened?

Step Back

In his acceptance speech, Trump pointed the finger at his Democratic opponent: “This is the legacy of Hillary Clinton: death, destruction, and weakness.”

So why is the stock market at a record high? Surely, investors don’t like death, destruction, and weakness. Yet Wall Street’s biggest donors are mostly supporting Hillary Clinton. They don’t think that Donald Trump will be better for the market than Hillary Clinton? Well, sadly, this may fall under the interpretation that she might be more bullish for stocks since she represents the status quo, which has been very bullish for stocks.

On the other hand….

Fans of the Donald can suggest the market is anticipating that he will win. He has made it clear he will cut taxes, slash regulations, negotiate better trade deals, and restore Americans’ confidence (can anyone say President Reagan?). However, there is much more to the process of actually implementing same.

If he wins, Trump certainly won’t preserve the status quo. Ideally for conservatives, he will succeed in cutting taxes and regulations. That’s assuming he will be able to work with Congress.

Stay focused and patient.

In the crazy period of politics, we need to step back and see a larger view rather than getting caught up in the emotional events.

The reality is that the economy is in better shape than suggested by either candidate. In the long run, we are likely to find that investors are beginning to admire how well the US has done despite Washington’s meddlers. Odds are increasing that it is likely to continue to do so no matter who is in the White House.

This sets aside of course the constant flow of events to throw the short-term trader understandably off track: the awful stream terrorist attacks at home and overseas, the significant geopolitical disturbances, including civil war in Syria, Brexit, massive migrant flows to Europe from the Middle East and Africa, Russia’s attempts to rebuild its empire, and tensions in the South China Seas.

Could it Be?

The market is at a record high because investors are accentuating the positives. Of course, ultra-easy monetary policies provided by the Fed and other central banks have greatly benefited stocks, pushing up valuation multiples. But, it is also fair to say that the US economy is doing well – with the outlook for earnings improving.

Some stats might help:

US consumers are spending. We have kept you updated on the Atlanta Fed’s GDPNow model. When last updated on July 19, it showed that real personal consumption expenditures expanded in Q2 by an annualized 4.5%. Don’t look now but that’s a pace of growth not seen since the first quarter of 2006!

Existing home sales increased 1.1% during June to 5.57 million (saar), the highest since February 2007. The share of first-time buyers hit 33% in June, its highest level since July 2012 – Gen Y is coming to market…..

While investors are feeling punk, the strength in consumer spending reflects the underlying uptrend in the current conditions component of the Consumer Confidence Index (CCI). In recent months through June it has been at its highest readings since September 2007.

By the way, the CCI is up sharply for people in the under-35 age group (Gen Y is 31 and under). That’s a good sign for the economy since young adults tend to be the ones forming new households and building families of their own.

Incomes are Not Down

The Census Bureau provides Donald and Hillary their ammunition for suggesting incomes are down but it is deeply flawed. Indeed, real household incomes are at record highs – along with household net worth.

Dr. Ed provides helpful insight to show that “on an annualized and a per-household basis, real personal income, real disposable income, and real personal consumption are up since the start of 2000 through March by $23,600 (24%), $22,100 (26%), and $18,500 (24%), all to record highs!”

Yes, these data are all means rather than medians, but we doubt that using medians (which are not available for these series) would change the results significantly. Let’s face it, there simply aren’t enough rich people, to skew these numbers dramatically to the upside. How can you tell?

Well, if there were, then why was the Census Bureau’s own flawed measure of real mean household income down $2,100 since 2000 though 2014, falling along with the median version of this series?

The Doldrums of August

As more earnings flood in for the next few weeks, Hillary is up next for the week. More data on how bad the world is and who is to blame for it is on tap.

And yes, the haziest portion of the summer is still ahead.

While I still hope for a rip-roaring summer swoon to dismantle every impulse of even an early stage of bullish feelings, I am no longer as confident we will get one.

1980’s Throwback….

Each day gone by over the last several quarters feels more and more like what unfolded way, way back in the very early 80’s. Crazy I know.

It was monumentally nutty back then to think positively of the future.

It is perceived as even nuttier this time around given the deep-seeded doubts in the minds of the mass investor audience – large and small.

Oddly enough, that is nearly a perfect mix for long-term investors.

Here is an interesting key though:

Even as we tip-toed into all-time new highs and the news was hysterically “bad”, my inbox was filled last week (and over the weekend) with messages from many long-time sages and experts on Wall Street, regularly consumed by the media monster.

EVERY single one of them warned me of some flavor of impending doom…

It ranged from the mild, “you have no idea how bad it is out there” to the guns and canned foods offerings on sale now for your bunker needs…and of course, the all-too-often-required, “the grim reaper is here for your head” avalanche of garbage.

You know the one thing I did not get a single message about?

That the breakouts today in markets are being driven by the same overlooked, grandly misunderstood or worse, completely ignored reasons seen back in the late 70’s early 80’s.

More important?

Not a single message I got relished in the celebration of new highs – even as by now, almost all investors should have learned markets focus on “what’s next” and leave most in the “what’s now” haze of confusion.

Call me a nut….but I suggest we are far better off staying over here on the outer edge of the expectations bell curve.

That cold, lonely place of contrarian view that never feels completely comfortable (yes, I am addicted to TUMS).

It is that spot where very few exist….and surprises are (oddly) still to the upside.

It is that place where you look across the valley and note the very large crowd of investors huddled together fearing all that is to come.

Can we possibly think at this stage that the market would be surprised by the end of the world?

Perfect I say…bring on the summer swoon – the uglier, the better.

Anyway…no more rambling for today. It’s summer…only 6 weeks left.

Enjoy –

In Closing for Today….

The Barbell Economy continues its silent march forward under all the noise and chatter about doom (see snapshot above).

A suggestion: take a deep breath, have faith – think demographics – not economics.

Let the noise pass – from both sides of the election game.

Stop reacting to every headline like a moth to a flame. (We all know that usually turns out pretty bad for the moth.)

Count people….our economy is passing a baton…the churn is normal. Energy is building and the stage is set for surprising benefits for the US in the decades ahead.

Remember to focus on the current underneath – and not the waves on the surface of the water.

Enjoy what’s left of summer 2016 – and pray for a swoon.

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