Fear or Faith?
The summer market jousting has begun in earnest, folks.
And the good news is there’s only about 100 days left.
Don't stress out. Don't fear the news. Don't get lost in opinions and fake garbage being sold as news.
Keep in mind there’s no such thing as "my sources tell me..."
And most important of all, enjoy your summer.
Investor confidence today is still lower than March of 2009.
And while you’re sipping your cold drink of choice in the sun on the beach, make sure this sinks in:
- If you are a long-term investor, it would be very difficult to find a market better situated for surprises to the upside. It’s a coiled spring for the patient investor.
- If you’re a short-term trader, focused on the latest headlines and giving them any weight past comedic value, well then I’m sorry because this is not the article for you.
That's the 10-year bond (above).
It’s what we like to call "the new fear trade" - outside the $14 Trillion in cash the US consumer has "protected" from this ugly stock market nearing all-time highs.
So, bonds at 48 times earnings or stocks at 15-16 times?
That's an easy one.
- Low rates = cheap debt refi's (corporate and consumer)
- Cheap debt refi's = higher cash flows, better margins, and more jobs
- Higher cash flows, better margins, and more jobs = better retail sales, and
- Better retail sales = good things!
Folks, when you start seeing these dominoes fall as the summer haze thickens, expect to be told that they too will (somehow) be bad for us.
And remember that risk is the source of long-term investment returns.
Being able to bear the volatility (that so many others can’t) allows you to gain the rewards that risk-averse investors have taken themselves out of the running for; because they swing to cash, flee into Treasury bonds or hedge away all of their potential upside.
The Reality of Investing
Just like now, and the last few months, investing can be tough on the nerves.
As long-term investors, we all learn to grin and bear it at times.
And this is one of those times.
But here are two things to consider:
- How many other times - all at lower prices - have we been collectively terrified over the latest monster? In the end to no avail. Have you noticed that as each current ghost is vanquished the next one is always bigger and scarier?
- The future provides you two choices, each to their own accord: Fear or Faith. Each demand of us to believe in something we cannot see.
The audience is terrified.
For long-term investors searching for long-term value, this is a wonderful thing.
But terrified audiences can sometimes do really dumb things.
Every summer is riddled with reasons for a summer swoon, so let's just deal with it, accept it, and take it all in as part of the required landscape for the lengthy trek up the mountains ahead.