Hey – Happy April Fool’s Day to you and yours. Many are still finishing up their Spring Break. Sadly for the kids, school is back in session on Monday.
Whimper Not a Bang
The first went out with a quiet whimper after starting with a big bang. You all recall the massive number of horrible headlines which greeted us for the first 6 weeks of the year. We had “the worst” of everything. The first week was ugly, the first month was uglier and the stage was set. We were repeatedly assured that the future was not only dark – but down right desperate.
And It Worked
BAML tells us that we have witnessed a very rare event: 11 straight weeks of net equity selling in the crowd. Cap that off with massive flows into income/bond funds (see below) and you get the pure mix of fear the media tends to muster up when being foolish.
April Fool’s Day
April 1, the start of Q2 – and also known as “April Fools’ Day.”
It’s a day for playing practical jokes and hoaxes. The jokes and their targets are called “April fools.”
We agree with our friend Dr. Ed, it is not yet a public holiday but it should be given the “proliferation of fools and foolishness around the world”, particularly in political, monetary policy and investing circles these days.
Consider the following:
Fed-head’s have seemed particularly foolish in recent weeks, swaying from too dovish over to too hawkish and then back again – for this week anyway.
Employment and manufacturing data is set to kick off the month – we suspect neither will be too foolish. Better than expected is more likely.
The April Fool’s joke is on all the experts shouting from the rooftops that we are saddled with impending doom given the “imminent-recession” hoax time and time again. We suspect reports will continue to show data espousing an economy chugging through adjustments in the energy world – far from the weakness so many fear.
Besides, the month’s real foolishness is likely to be postponed until the FOMC’s next meeting on April 26-27. Oh boy–we should really get lost of whispers on this tantalizing event for weeks – even as Janet Yellen has pretty much already laid down the law – I mean vote – on rates in the near-term.
More foolishness? James Bullard, who a few weeks ago warned that the next rate hike should be postponed for a while, has recently been saying that a rate hike might be appropriate at the next meeting after all.
The quarterly parade is upon us again as we prep for an industry-wide event which has plagued us all for many years now. In the new world of “transparency”, industry analysts continue to foolishly lower their earnings expectations for the next quarter’s earnings season during and right after the management calls from the then current quarterly earnings season.
Those are referred to as the “on-going earnings recession” and priced as such – only to be “surprising” when later reported and stocks recover. This is real foolishness at its best.
The reality for these fools? Our earnings “recession” will end in another couple quarters as we round-trip the worst of the oil sector adjustments. The rest of the market arena is doing far better than understood with growth in earnings still quite stable.
Ah yes, the growth rate of China seems to be the new Greece. Hard to get more foolish. China is likely adding the equivalent of a new Greece GDP each year – not too shabby. Sure, it is not 10% annual growth in GDP but in retrospect, do people really think growth rates go in a straight line for ever still? It is mathematically impossible – and foolish.
Foolishness of Fear
Right on time, the latest bout of panic reached it crest when masses were selling equities at a record pace not seen since 2009. Bond funds continue to soak up fear-driven money and the demand for “safe” bonds remains insatiable.
We will thank our lucky stars one day for all this fear – but the holders of all those 1.8% bonds for the next 10 years will feel pretty foolish then given the equity yield spread we have today at over 400 basis points.
Right on cue, the market began to make that fear look foolish as the quarterly rebound witnessed since then is the best in 80+ years. But don’t wait for anyone to hail that headline mania anytime soon. After all, we are forbidden to read any good news about our futures.
Had one fallen asleep on New Year’s Eve and awoken on April Fool’s Day – the change in markets would have appeared meaningless.
My foolish hope? More panic please….with an extra helping of panic.
The gyrations are somewhat frightening at times – and the TUMS supply is often depleted – but the values are excellent….and the benefits for long-term investing real.
The Big Picture Foolish Summary
At a few times in history we have gotten too lost in the details. This is one of those times. In a world being shaped by massive demographic shifts, we are well served to step way back for a moment and ponder that larger event.
For a moment, ignore the “economic” aspect of the news.
Think demographics instead friends.
The latter drives the former – it is not the other way around.
The future in the US is far brighter than most perceive at this time. Massive fear remains just below the surface. We are mired in a million reasons we cannot survive. Experts are falling all over themselves to conjure up the next monster to devour us.
I could go on but this is not the way secular markets end.
Happy April Fool’s Day.
We are hard at work on a quarterly review which will be out in a research report for you next week.
In the meantime, pray for more corrections this quarter.