The Olympics have opened, the August haze is thickening, the heat is on and the bears are wondering aloud why the end of the world refuses to arrive. All is well right?

The age old issue of finding something wrong with anything continues. It was not too long after the blowout jobs numbers that we saw the negatives streaming across the page. There was mention of inflation pressures, the Fed being backward, late to the party, printing too much, politically-inclined or downright ignorant (you pick) were all mentioned.

The snapshot above shows us again – fretting or no – the Barbell Economy focus provides value…and it is growing.

Clearing the Air….

Raise your hand if you think the Fed “controls” interest rates. Ok, since now one can see, quietly put your hand down – because that is an error. One thing defines an interest rate and one thing only. At the end of all the noise – a buyer of debt and a seller of debt agree on a price. That defines the interest rate.

I have stated it before – it bears repeating: We will thank our lucky stars one day, years into the future, when we look back on the unprecedented level of fear deeply fixed in the psychology of today’s investor audience.

By choice – bonds are winning. Lines are being formed for BIDDING for the lowest interest rate payable. Negative rates, no rates, low rates. Take your pick. They are all derived from one basic foundational element: stark, raving-mad fear.

Why not raise?

If the Fed raised arbitrarily on the short-end, while the mass market is showing clearly its desire to continue to flood into bonds on the long end, can you ponder for a moment the very first thing the bears would state next? Think about it.

Yes, an inverted yield curve – or one approaching said condition.

That’s right – the very millisecond after the bears get their chosen course – a rate hike – the very next series of generated fears will center around the yield curve.

This merely supports the fact that rates are not controlled by the Fed – they are controlled by buyers and sellers. Hence, I can suggest we all know exactly when rates will rise. They will rise when the avalanche of bond buyers – even those willing to guarantee themselves a loss – state this:

“I am no longer afraid of the future.”

When that happens, a fog will lift and the bond buyer masses will state: No, I think I will need a higher rate of return to give you my money for 10 years. Then, if that feeling gathers momentum as it likely does – years into the future – the Fed will be in a position to stop talking around all the meandering points that no longer make much sense. They will instead be able to do what they normally do – follow rates higher with a rate hike.

Now, I recognize at the start that this is massive simplification of the stages and shifts in the years that will unfold ahead – but simple is OK sometimes. One thing is keeping rates low: F.E.A.R. End it – and sanity will return to the bond market.

As for stocks?

There is only one thing which makes fear subside as it relates to the mass perception of the significant “risk in equities.”

That thing is higher prices. Say what you will but it has been proven since markets began: fear of perceived risk in equities does not fall when prices fall. It only ebbs into the shadows of our minds as prices rise.

The more fear present – the higher the price rise required to snuff it out and then….shift it to greed.

Lastly, if you are wondering how much fear there is out there as it relates to stocks…just wait for the next week or two of red ink.

You can also check the last couple weeks of your notes – and view the various charts depicting everything from sentiment to record high levels of demand for cash holdings – and lest we forget – the $8.4 Trillion sitting in the bank doing nothing to build our economy.

The Biggest Risk?

In the midst of all the siren songs from the Black Swan hunters (BS for short), markets eked into all-time new highs on the close Friday after a choppy week – and the aforementioned blowout jobs number (more in your members area). Once again, we have yet to see the markets shift to reverse and back into the breakout zone as it normally the case in a major breakout.

I have always stated that a bull market is much tougher to invest in than a bear market.

Why? Altitude sickness.

The higher prices climb up the mountain in our minds, the more all we can think about is falling off the same mountain. It’s normal….it’s human…but it is also:


Let’s take a look:

Warren Buffett said it best:

“Always view investing through a long-term lens.”

Yes, I know that sometimes ones portfolio looks like it stinks. Sometimes you are ahead – sometimes behind….but I have heard it stated before: the race is long.

To illustrate the power of this lesson, I have pasted in a historical chart of the S&P 500 (since 1900, using data from Yale professor Robert Shiller). Those colored dots above and below the orange price line are added by me – and will be explained shortly:

As you look at this display of wealth creation over time, ask yourself this: At what point anywhere along the way would you need to have feared a new market high – assuming you had the long-term outlook we speak of here often?

Take a closer look at the numbers since 1946 — the post-WWII period. Why? Well it is a somewhat fair view of the modern investing era. If you spend time crunching the numbers, you find this:

You had a 92% chance of making money over any 10-year period – no matter which month you decided to buy.

If you reinvested dividends, your chances of positive returns expanded to 97%.

And if you shifted your timeline to 15 years?

Well, there were exactly ZERO money-losing 15-year periods, dividends reinvested or not – and again, no matter the month chosen.

And Those Colored Dots?

From left to right – underneath the orange line of price rises:

Red is the Great Depression, Blue is the oil embargo and bear market of the mid-70’s, purple is the crash of October 19, 1987 and green is the March ’09 lows of the Great Recession – still fresh in the fear category – a ghost from almost 12,000 DOW points ago.

Those two black dots above price?

They depict the two breakouts after “lost decades” of time and price. They both depict the new highs (new bull markets) after years of recovery from the previous disaster. They both define massive shifts for the US economy driven by demographic powers which move so slowly they are sadly ignored.

The stage it set again at the second black dot as the baton of power shifts and we feel like we are walking in quicksand again.

The two snapshots above cover what we continue to focus upon. The top chart is the Barbell Economy of our demographic make-up here in the US – and the driver of a vast majority of the activity for the next 30 years or so.

As important for a very long-term foundational view: a rare event is backing up this pipeline of demand as depicted in the second chart.

The Baby Boom was followed by a smaller generation – note the peak to valley size shift into Generation X. A study of this overlay helps to explain the lack of demand driven by fewer people in Gen X, which correlates with some of the worst economic events we have witnessed over the last 15 years.

However, note the relationship between Gen Y and Gen Z – the latter still having another 10 years of births to fully form itself. Note the lack of a falloff in size. Net-net, we have two, back-to-back, massive generations of demand moving through the system here.

No other developed nation on Earth can point to this event.

Make no mistake: This will become far more significant as time unfolds – in a very positive way.

As we like to say here: It’s math folks – our future is far brighter than we can currently imagine.

The Bottom Line

Pray for a summer swoon – (or) even a late summer swoon.

Enjoy your last month of summer. That feeling of watching paint dry is real: it always is in August.

Soon we will be told to fret and worry about an entirely new set of monsters so enjoy the boredom.

We remain in the same boring camp:

Stay focused – major (surprising) waves of demand are building over the long-term structure of our consumer economy.

Be patient – look for the swoon and don’t fear it. Now or later is just fine.

The Barbell Economy remains the focus – and it is working just fine – and getting better.

More later – working on an end of summer video review for you now.

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