Back on the 20th of May, a staggering eight (8) trade sessions ago, the DOW hit an all-time new high.
The SP500 and the NAS have both been fluttering around new highs over the last few weeks–even as all the major average converge in the same trade range we have been stuck within for the last 7+ months.
A whole lot of churning is unfolding under the surface. Nerves are being expensed, fear is rising.
Faith and Fear
Oddly, faith and fear have something in common.
They both ask us to believe in something we cannot yet see.
Fear asks us to believe that our darkest concerns are not only possible but likely indeed. Fear is easy to fall victim to in our collective mind when all around us appears dark, when the news is all bad and when the headlines seem to never let up.
I am indeed fascinated these days when both the local and national news channels now spend the first 28 minutes of their half hour reviews for the day on terribly negative events…and they both close, almost to the word with this, “…and finally, for some good news….”.
It is presented as though in this great land, there is only one thing that could be deemed good news. Had I not grown such a dark view of how some in the media deliver same, I’d laugh my ass off.
The question we must all pose to ourselves is this:
Do we want to participate in the constant drone of the end of the world chatter?
It is elective. Our choice.
We can choose fear…or faith.
Faith? You’re Kidding Right Mike?
The faith I speak of is this: When fear grabs at your thoughts, when those dark concerns lead you to buy into the idea that the future is bad, consider this:
- In 1982, when I began in the business, the US GDP output was $6.49 Trillion.
- Today, even after every single terrible thing which has befallen us all – it is tapping on the door to $18 Trillion. That’s a lot of output no matter how you slice it.
- In 1982, the annual earnings figure for the SP 500 was $13.82.
- This year, it will be about $125.00 – with $130+ on tap for next year – even as the oil sector chokes on lower prices while they adjust – and they will adjust.
- In 1982, t he annual dividends figure for the SP 500 was $6.93.
- This year, it will be about $41.50 (give or take a few cents) – with $45+ on tap for next year – even as the oil sector chokes on lower prices while they adjust – and they will adjust.
So back to faith and fear….fear is easier to sell you.
It is easier for our mind to shrink under the pressure of that fear–whatever it may mean to each of us.
But as we enter the summer of 2015, we stand atop many records. Record output, record earnings, record cash flows, record liquidity, record wealth, household net worth – even as housing still recovers.
We also stand in front of a tailwind that will carry the US to heights not yet understood given the power of Generation Y/Z coming into the system over the next 25 years.
Why do I suggest we consider all of this?
Think of it this way as I do when I get concerned about things:
- Consider this time, these events, this day, this window of history, this convergence of elements to fret over as we see them spread across the land.
- Then assume that somehow, today, they will overpower all of the strength, ingenuity, discipline, honor, problem-solving effort, technological advances, medical miracles, insights gained, experiences acted upon and the strength of all citizens in the land?
- Assume that the same collective history we have used to power through all that has been put before us until right this moment – will somehow fail now?
Or does it seem more logical to presume that we overcome, we succeed, we learn lessons, we solve problems and we then move on to new highs?
One is faith. One is fear. Both require a belief in something not yet visible.
A Good Example: The Chatter over GDP
Here is a chart from our good friend Dr. Ed.
It depicts growth rates in the GDP output for the US…take a moment to review it:
Now, here is where data and pictures, mixed in with the wrong hype from some media outlets can confuse the investor crowd.
Focus on the blue line in the chart above.
Let your eye scan back in time at roughly the same level of output on the chart. You will note that we had relatively the same levels of output growth back in much of the early half of the 90’s. Indeed, nearly the same levels in the ’87-’89 period as well.
So you may say to yourself, “Geez, we are growing at the same pace as we were in 1988?” On the surface, it may appear as such…but here is the unseen:
In 1988, the GDP was $8.29 Trillion. Adding a 3.50 percent real business output growth rate (which we experienced in the “terrible Q1”) meant real dollar expansion was moving at an annual pace of roughly $290 to $295 Billion of new growth.
Today, with a GDP of over $17 Trillion (almost 18), that same 3.50 percent converts to almost $595 Billion of new annualized growth.
Further, if we look at the peak growth rate of this chart, we note it was i n the tech bubble period where we later found much of that was just air. Nonetheless, let’s use the same math to be fair. The peak was about a 6 percent growth from the 1997 to 1998 period, which at the time represented about $580 Billion in new dollar output.
- So is it really that terrible a time?
- Or, is it maybe, just maybe the best of times, clouded over by fear?
Said Another way…
How did you feel in say 1998? Pretty good? The economy we benefit from today is over $5 TRILLION larger than it was in 1998!
How about 2000 (before the tech bubble burst)? Pretty good again? The economy we benefit from today is over $4 TRILLION larger than it was in 2000 – even compared to a bubble year!
This too may be a shocker but note:
- Since 1982, there have only been two years where the US GDP output figures were lower than the year before.
- If you guessed 2008 and 2009, you are correct. In 2007, we temporarily peaked and in 2008 and 2009, we saw drops in both years before expanding again in 2010.
- The grand total of the pullback in those two years from the peak?
- About $900 Billion collectively…or a little over two years of gross revenue produced by Apple.
In the grand scheme of things…paltry indeed.
As Dr. Ed puts it:
“The US economy may not be booming, but it certainly isn’t doing as badly as suggested by the 0.7% (saar) drop in real GDP during Q1. By now, everyone is aware of the “resi dual seasonality” problem that has been weighing on Q1 growth rates. That includes the Bureau of Economic Analysis, which announced in a 5/22 blog post that it should fix the problem by the end of July.
Recently, I’ve noted that the problem can be overcome by simply calculating that real GDP rose 2.7% during Q1 on a y/y basis. This automatically eliminates the seasonal adjustment problem and shows that the economy continues to grow at a slow but steady pace. Real non-farm business output, which excludes government spending, rose 3.5% y/y during Q1.
Furthermore, national income rose faster than GDP during Q1. In theory, these two should be identical. In practice, there is a statistical discrepancy, which rose to a record high of $328 billion (saar) during Q1. In other words, the economy looks better when the BEA adds up all the incomes than when it adds up all the demand data that are used to calculate national output.”
The Bottom Line?
You tell me…faith or fear?
We, along with the massive efforts of all who have come before us, carry a torch into the future. It is not clear and it never has been.
It can be scary, it will have pitfalls but it is also exciting, life-giving, opportunity-filled and ready to be lived in faith.
Faith in the knowledge that we have collectively overcome all that has befallen us. We have overcome terrible, unthinkable events. All were surprises. All were bad. All required a price to be paid – heavy prices indeed in recent years.
But here we are – at a new mountaintop. Resting as we may be – it is only temporary as history proves. A pause is healthy.
The future is bright – far brighter than we can currently perceive.
Pray for a correction, think summer swoon…take advantage of soft periods.