Often over the last 30+ years of doing this, I have found some of my errors came from not standing tall enough to see over all the weeds. Sentiment is an easy thing to get clobbered by. It is tough to stand tall when the whole world looks a bit shaky. Don’t fret – anyone as old as I am knows it has been that way, well, forever.
If we get high enough in our seats, we can peer over the edge of the Apocalypse and see beyond these short-sighted fears. The hurdles are always there for a reason – they separate the wheat from the chaff.
The Consumer – Speaks Softly But Carries a Big Wallet
Hey let’s blame the weather. I can speak for that assumption here in Chicago – we have yet to get over 70. One afternoon this weekend, we got close and the streets exploded with people. Stores were packed, tables were full, sidewalks were jungles.
The latest releases show retail sales excluding gasoline increased 1.3% m/m last month, rising 4.1% over the past 12 months. As noted yesterday for you, the chaps at the Atlanta Fed liked the latest data too:
“The GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the second quarter of 2016 is 2.8 percent on May 13, up from 2.2 percent on May 10. After this morning’s retail sales report from the U.S. Census Bureau, the forecast for second-quarter real consumer spending growth increased from 3.0 percent to 3.7 percent.”
Does this jive with all the bad sentiment?
I told you it was the weather: late last week Bloomberg joined in and posted a piece titled “Consumers Turn Out to Be U.S. Growth Lifeline After All.” The article noted:
“American consumers last month shook off the winter blahs in impressive fashion. Retail sales climbed in April by the most in 13 months, abruptly ending an early-year letdown in spending that caused a first-quarter downshift in the economy, Commerce Department data showed Friday. The gain was broad-based, with purchases picking up at auto dealers, apparel stores, furniture outlets and online merchants.”
It does not stop there. More housing starts here – sentiment shifts from builders perspectives and cars being bought in Europe. These are likely added elements the bears were not counting on as we approach the dreaded summer doldrums.
Quick Stats and Data Snapshots
Northeast Price Adjustment?
Starts are picking up a bit but they have a long way to go as covered.
If we break down the sentiment issues amongst builders, the demography shifts show here as well. The south/sunbelt has a tailwind for years and years ahead as retirement spots are picked out for one end of the barbell.
Even so, my friends in NYC tell me that all those tall buildings are bringing an overhang to the condo market. Time for a nice correction there?
Speaking of Bearishness, It’s Everywhere
Fund managers are underweight, ETF’s are seeing red, hedge fund guys are doing poorly, sentiment surveys stink, The Citi model is in panic mode, the BAML sell-side indicator hates equity exposure like it’s March 2009 and equity mutual funds continue to bleed money. A virtual panacea for those who can look beyond the tip of their noses.
Let’s face it – the idea that a grand portion of the audience is rampantly bullish on stocks has no basis in fact. That might not mean much right now but it will help us during the summer slowdown.
The calendar is not in favor of much activity over the next 90 days or so – which historically has proven to be opportunistic for those who patiently wait their turn.
Let’s hope so. Get prepared. Focus on the Barbell Economy.
As we all know, the smattering of issues noted above will likely lead to a bit more of the same price action we have witnessed since October of 2014. The go-nowhere mode is likely still ahead of us for another quarter or two. In the grand scheme of things, this is all good – especially when we accept the underlying strength building in the US economy.
We all like some of the things Warren has had to say over the years. Funny how time proves that out. Not so funny that you have to live through the time before it is obvious : )
These periods where markets get stuck in neutral – meandering back and forth over the same price range for lengthy periods reminds me of something Mr. Buffett wrote back in 1991:
He penned, “the stock market serves as a relocation center at which money is moved from the active to the patient.”
Let the rest of the world grow ever more myopic. Let the HFT freaks continue to fool the regulators into thinking they “add liquidity” and let the media pound the table on one “end-of-the-world event” after another. The fact still stands:
In the long run, he who trades the least will end up with the most.
While profitable, the fact that does not necessarily make it fun. Be that as it may, ones confidence can expand and get beyond the myriad of fears blazing across the screens by staying focused on people.
People moving through various stages in life – doing basically predictable things as groups. The US is uniquely positioned with two massive generations growing in the pipeline to drive future strength.
Overlook this at your peril – those waves of people ahead are all beneficial to the US economy. This will be as surprising to the experts today as it was in the late 70’s and early 80’s during the last major “transition” for our economy in general.
An Oil Update
In late January, the day crude broke below $30 – and quickly went to $28 – the experts poured onto the scene calling for $10 oil. At the time, I noted the beginning of the end. We likened it to the chants of $200 a barrel oil in the summer of 1998 as crude crested $145. My take was simple: the “obvious” had arrived.
Prices have bounced a bit since and the rampant fears about global collapse over cheap oil (still laughable) have receded. Be that as it may, there are now new calls for a quick rise back to previous levels as inventories get used up. Hogwash.
The Saudi’s have read the tea leaves…or should I say footprints in the sand?
The future of oil is far different from its past. It’s rule of the global economy is past. New technologies are birthing fast and gaining strength. Let it bounce a little higher and watch the floodgates open again.
Our view remains the same. The new crude range likely stays in the $30-$80 range. Before the sand has settled we are likely to find the remaining oil companies will see higher profits on $70 oil than they did at $120.
Net result – the consumers of oil have entered a new arena – one that beneficial, demographic forces should help keep in place for many years ahead.
News Improves as Sentiment Wilts
Even as the market churn we have been trudging through for 19 months continues, it is accomplishing what it needs too. Standing by today’s title, we need to get high enough to see over the near-term garbage.
Last week’s fears will be new ones next week. Why?
They are already getting better. Retail sales continue to thaw and beat – and so does industrial production:
We just need another quarter or two for the “earnings recession” round-trip. A summer pause is useful – and likely beneficial for long-term investors.
Stay close to your Barbell Portfolios in your Member’s Area.
Think demographics – not economics.