So here we are – one quarter of 2016 down and three more to go. We are also nearing the eve of the first quarterly earnings charade – sorry, parade – of the year.
It is set to be a dozy.
The good news? I am hoping it gives us another little pause to take advantage of – maybe even a pause as nice as the one we were so rudely introduced to during the first 6 weeks of the year.
You remember that one right?
It was Armageddon CCCXCVII Part 3, Paragraph 7(iii)(b).
Yes, all the way back to 6 or 7 weeks ago (that is about 6 months in dog years, 138 years in short-term trader mentality and well into the infinite realm for the HFT players in the crowd.) You get my point.
What a quarter. It housed the worst start of the year in 80+ years and the best quarterly recovery since 1933 – all in a short 12 weeks. No wonder it feels like Christmas should be here already.
Speaking of Christmas….
Jobs are continuing to improve, PMI data is steadying, oil is not going to $10 anymore, the energy bond panic crowd has a Valium drip going, Janet has waved her magic wand and the consumer is feeling OK.
What in the world will we do if we actually make it through all this mess?
Don’t fret, there are many more monsters ready to be inflated at a moment’s notice. Just give it some time.
The Next Puzzle Piece
I would suggest we prepare for the option we have covered for a few weeks now. This earnings season and the one which often accompanies the required (and often valuable) mid-summer swoon, will be the last before we round-trip the worst of the oil sector correction problems.
Mind you, those problems will turn out to be benefits in many areas – but let’s not spoil the surprise.
The point is this: too many are getting lost in this “earnings recession” as though it is some break from the norm. We had this very same process unfold in 94/95 where the market spent a whole lot of time doing nothing…along with an earnings growth pause.
This current pause is the “lunch stop” we have referenced in many notes. It is a time to accumulate and be patient. A time to sit back and turn off the emotionally bent view of the world we read in all the attention-getting headlines.
It is a time to step back far enough to see the larger picture at work:
Think demographics instead of economics. The latter is driven by the major thrust waves of the former.
Think of a long line of people – standing from 0 to 100 years old.
We have two giant bubbles of people on either end of our economy – the “Barbell Economy.”
On one end – which gets all the attention – the Baby Boomers.
They are set to sail into the later stages of life, sure to change everything about retirement just as they have left the footprints of changed economies along every stage of their lives.
On the other end – Generation Y – the new largest generation of all time.
Bigger, better, nicer, smarter and all tech. Talk about change!
Ha – they will change everything we thought we understood about the word itself. DNA mapping, new drugs and medical tools, productivity processes, cloud tools, self-driving, drones in sea and air, nano, robotics, software, apps, smart-everything and much more than can be hypothesized at the moment.
Hold on, as they said in the 70’s, “you ain’t seen nothin’ yet.”
Pray for corrective waves in the market and startling fears. Use those corrections for your long-term benefit and ponder this thought process while we patiently build:
I recall as the baby boom was just hitting their economic drivers of turning to adulthood (late’s 70’s very early 80’s), the world was awash in messes of all shapes and sizes here and abroad.
Assumptions then, like now, were all bad.
Terrible outcomes awaited us indeed.
Economic hurdles were plentiful and opportunity seemed lacking everywhere we looked.
And then, well, this happened:
Please forgive my drawing but the blue line shows you what unfolded the last time we had to pass the baton in demographic terms.
Imagine you and I grabbed a coffee back in the early 80’s to ponder the future together. After we covered all the then present “what’s now”, further imagine how quickly you would assume I had lost my mind if I said,
“Yes Bob, but in the next 35 years, all sorts of terrible things are going to befall us…things we cannot even fathom. Barbaric events which will rock us to our collective core will rain down on us – and the DOW? Well it is going to rise from 800 now to 18,000 in the next 35 years.”
Before you call the guys who take people to rooms with padded walls – get this:
The next 35 years will very likely look a lot like the last 35 years. Things will unfold that make previous hurdles we have faced look like a walk in the park.
We will visit many more periods which will elicit that most expensive phrase ever uttered by investors that we have often shared,
“it’s never been this bad….”
All the while, keep this as a backdrop in your mind: if the next 35 years unfolds in pretty much the same manner as the last, the same rate of return in the markets will take the DOW to well over 200,000.
If you feel the need to sound the alarm, just realize that is same as saying a DOW of 800 in the early 80’s would rise to 18,000 in 2015.
This is not a new piece of data.
The law of large numbers just keeps people confused.
Just keep in mind, fearing the process of implementing the new advances of today and tomorrow (passing the baton) would be like staying with a horse and buggy when cars were introduced.
The Big Picture 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.
As noted above, pause for a moment to 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…..it’s how they enter the next stage of growth.
We are hard at work on the Q1 quarterly review which will be out in a research report (and video review) for you later in the week.
In the meantime, pray for more corrections this quarter.