Remember the rampant concern about the impending doom over Brexit? Well, uh, never mind. The terrible headlines the morning after are two weeks old, or 488 media years – whichever way you care to process it.
The Republican Convention is closed now with Trump on the ticket. Whether or not Melania Trump lifted parts of a speech from you know who has taken the Brexit fears by storm. Geez. The DNC is up next – and if you thought we would survive into our future, just wait until Hillary is done telling us about the end of the world awaiting us. I would simply add that you may want to hide all sharp instruments and stay away from ledges until next weekend.
Yawn. Meanwhile markets have chopped around a bit here and there at highs as earnings season has turned up the gas.
The internal volatility is normal as the short-term traders viewpoints ebb and flow over whether or not multi-billion dollar operations missed by a penny or not over the last 90-days. As frustrating as it may be at times, long-time members/readers know this is not the basis of a solid long-term investment plan.
Not for investors – even as the market tap dance across new all-time highs. Heck even the transports are starting to move again – just as was noted in last week’s review. Speaking of review, don’t forget that at the end of the week, we provide links to the last 5 notes for you. They are at the top of this issue.
Back to sentiment….show me the bulls?
Take a look:
Fear is locked in deep – this is good for long-term investors. I just hope we can still get a summer swoon in August as the summer doldrums wash over us.
Individual investors still can’t get over the hump and push bullish sentiment back up above 40%. Why mention the 40%? It is the average over the history of the AAII data. Count with me now: this is the 38th straight week where bullish sentiment has been below the long-term average and the 72nd time in the last 73 weeks that we have seen sub-average levels of bullish sentiment.
Think they are too bullish? Give me a week of red ink and the bottom will fall out (in sentiment I mean : ) ).
How About that Round Trip?
We have long stated that the deepest damage of the energy correction will be round-tripped after Q3 earnings season. We have been consistent to suggest that the fears about loss in manufacturing momentum for the last 18 months were likely associated with the loss of energy-related orders.
The latest ISM data continues to confirm. We suspect long-term improvement is approaching along with that round-trip:
Let’s Not Forget
Leading indicators and the housing market continue to also mimic a better economy than many assume exists. The news cycle is just too loud – I suppose we can blame that on summer too:
Still No Party
Call me shell-shocked. We remain in the shadow of all-time highs and yet – no party. No heralding in of good times to come. No chatter about making a killing in stocks. None of it. I am pretty certain I do not recall ever having an all-time high captured in this manner.
Fear indicators remain crisp and clear:
~ More than $269 Billion have been removed from mutual funds – in 2016 alone!
~ Managers at highest cash levels on record: BAML chart last week.
~ Latest bull reading above.
~ Wall Street sell-side sentiment data below 2009 and 2003 levels!
~ Lest we forget: $8.35 trillion in the bank savings accounts of consumers:
Note in the Fed data – the savings account mountain of cash is on top of another $4-5 trillion in other cash deposits…records all.
This leaves out the long line of people still willing to BID for a chance to own a 10-year bond earning about 1.5% – or less.
I remember the last time the masses loved something at 70 times earnings. It was about 16 years ago and it rhymed with “tech stocks.”
Need more data for sentiment? Check this cash demand chart from Calafia –
It’s, well, off the charts:
What does this chart tell us?
It shows us the monumental increase in the world’s demand for money. When people are afraid, they want their money close. We have never seen numbers this high – ever. This tells us that cash held on hand is almost 70% of our GDP. Want to know why we feel stuck in neutral?
A dollar spent moves around the economy between 5 and 6 times.
Multiply that out on your nearest napkin and you get the sense of how much energy has been dispersed by fears.
This remains indicative of a market that is very risk averse, going hand in hand with not only the significant deleveraging that has occurred in the private sector, but also the other sentiment data provided and updated over the last few issues.
This, remember, is happening at all-time highs.
In The Clouds
One of the areas driving massive change as technology advances along with the beginning of the Gen Y flood – is the cloud shift.
We previously highlighted the amazing growth in the Cloud computing industry as companies look to reduce their technology expenditures. Amazon’s Cloud business has grown dramatically, and this week we learned that Microsoft continues to successfully build out its Cloud offerings as well.
Revenue from their corporate Cloud platform doubled YoY in the latest June quarter. CEO Satya Nadella stated, “Annualized revenue from commercial cloud products was more than $12.1 billion in the recent quarter, a number that Microsoft has pledged will reach $20 billion by fiscal 2018.”
That’s just the beginning folks. Think inning 1, first out, pitch 2….long game. Be patient and focused. The Barbell Economy is at work.
In Closing for The Weekend
Folks, think demographics – not economics. Let the noise pass. Stop reacting to every headline like a moth to a flame. (We all know that turns out pretty bad for the moth.)
Count people….our economy is passing a baton…the churn is normal. Energy is building.
Focus on the current – not the surface of the water.
Have a great weekend. Enjoy the summer, pray for a swoon.
Until we see you again, may your journey be grand and your legacy significant.