Four Keys to Surviving the Summer Market
Consider the following four points as we head into the thickest part of the summer market haze:
- As volume falls while most go to the beach, expect the media noise to increase greatly and the monsters to become larger and scarier than ever before.
- June and July are just the beginning of the haze. It gets worse. Watching paint dry will technically become more enjoyable.
- It will be very easy to get tripped up by your emotions as the headlines come at you faster and louder.
- August will likely stink, and if there is going to be a summer swoon it usually happens in August.
Welcome to the party.
And as rates plummet and the crowd flocks to the "safety" of bonds, oddly enough the stimulus being created for what's next is as explosive as it is underestimated.
Yin and Yang
In all of life there is a push and a pull.
We all search for balance and to make sense of things.
And as the majority of folks over-focus on the "China/US Tariff War" too many are missing something rather basic:
The rate on the 10-year continues its free-fall.
Now sitting at a cosy 62.89 times earnings (P/E), the 10-year government bond assures you will make nothing for a decade. And it will likely get worse. And refi's will now roll over the system in waves, corporate and personal:
While everyone focuses on the horrible tariff chatter (a vast portion of which has not even been implemented yet) the amount of savings getting locked in for a decade or more is staggering:
Point 1 - Hundreds of billions of dollars in interest costs which would have been born by consumers and corporations collectively over the next 10, 20 and 30 years will be vaporized as the rolling waves of refinance activity wash over the landscape.
Point 2 - In response to the Armageddon type chatter, oil costs are falling as well, adding more cash flow dollars (by the billions) to consumer coffers (70+% of our GDP). And all of this is being helped along further by the long-covered wave of technology, as we seem to find oil in every hole drilled.
Expect this to continue until the "normal" price of oil is roughly $30 - $45. No wonder the Saudi's want to take Aramco public.
And keep in mind that all the tariffs bantered about as threats will likely all never see the light of day. But if they do, and they last for an entire year, it’s estimated the "cost" to the average household would be roughly $1,339 / year.
But while this is not actually unfolding fear is driving the masses to act like it already is. And those savings locked in for years and years ahead will be roughly 3 times that amount when considering the deflationary effects noted, and the benefits of far lower interest costs.
So, why don’t we triple the tariff threats!
The 2020s and 2030s are set to be a replay of the 1980s and 1990s, but the latter will be on steroids.
It’ll be a faster, more disruptive, and bumpier ride but what a wave of opportunity it offers if you can just keep your patience and discipline in order.
If Trump's tariffs are going to have their intended effect, namely forcing China to lower its trade barriers and respect intellectual property rights, then the Chinese are going to be very concerned that bad things will happen to their economy if they don't make a deal with Trump.
Sadly, and more worrisome for the short-term trading mentality, it's also correct that for the Chinese to take Trump seriously, just about everyone needs to be worried that Trump is out of control and the global economy is headed for a fall.
To wit, if we aren’t scared, then they won’t be either.
Long-term investors focused on the value of what is unfolding ahead will embrace this latest summer swoon in the same manner all other summers swoons have unfolded - as long-term values to patiently take advantage of.
Notice how much the headline chatter back then (see charts above) sounds a lot like now?
It’s times like these when long-term investors begin to learn and understand what they get paid for as patience levels will be tested, and emotions will be powerful.