Long Night’s Journey Into Day
"For now we see through a glass darkly.”
Most of us are taught that the darkness, while scary, always arrives before the light.
By extension, the darkness tells us all that light is on the way.
And that lever of thought works as well for pandemics and geo-political dramas as it does for financial markets.
In fact, I’d take it further to say that the darker the night, the brighter the subsequent sunrise, and every beam of light and ounce of benefit in the years ahead demands our patience and strength during the storms of the present.
This year will not only be one for the record books but will serve as an example of how we all had to look through a glass darkly to see the light to come.
Folks, with our without your belief or confidence the economic stage is now set. It’s your choice as to whether you get lost in the fear, panic and vitriol or rise above it.
The media machine has long been off its leash in so many ways, spewing hate, and discontent where, in our hearts, none exists in normal life. This is not the end. Once this bat out of hell is dead and buried, the next monster will make it all look like a walk in the park. The result will be the same.
And investors who don’t let all the darkness they see and hear about push them from their course will be rewarded even more for their perseverance.
That’s investing folks. The weak hands give over to the strong, and the impatient enrich the patient.
In simplest terms, you can tell from the above that the markets are ignoring the election and the pandemic vitriol.
And while all around you seems nutty, dark, and beaten the capital markets are working smoothly, are liquid, and are driving prices higher.
Pay attention. It is not about what's now - it is about what's next.
After trekking up this mountain over the last 38 plus years, I can tell you that the Dow Jones has risen from 950 to just over 30,000 in that time.
And, in reference again to the two charts above for the Dow Transports and Industrials, all breakouts tend to get tested so don't fret when we get hit with a bout of weakness or fears in the weeks ahead.
Here’s the latest US GDP data released quietly just before the Holiday:
Capital goods orders have increased meaningfully in recent months as shown in the data above. And for almost all of us, this counts as more than a V-shaped recovery since it is a particularly important - and leading - predictor of future economic strength.
The chart tells us that Cap Goods orders are flowing along just fine, as the kids are just starting to move out and move on.
Maybe a few years late, but yes, moving up just the same.
Expect that lull in family formations to quickly equalize into 2022-23 and beyond as more Gen Y kids buy their first homes.
Bad News Gone Viral
The Virus and lockdown coverage could easily lead you to believe it was Armageddon time, now and in future.
It isn’t and won’t be:
While it will most assuredly feel shocking to many, Wednesday's release of updated US GDP data for Q3 brought with it some very welcome news about corporate profits surging – it has completely recovered to previous highs and remains extraordinarily strong.
This provides good fundamental support for the current level of equity prices.
Now have a look at this:
Take serious note of the data in the image above.
It makes two assumptions - for every day - going back to the end of 1992:
1) In the green line, it shows what happens if a trader bought the close of the S&P 500 every single day - and then sold on the very next opening tick.
2) In the red line, the same trader's darker half bought the opening price - every single day - and then sold on the closing tick of the same day.
The green line results - well - shatter those of the red line actions.
So, What is the Difference?
The news! And worse, our reaction to it.
In the night hours, when you’re sleeping, it’s exceedingly difficult to react to or do battle with your worst enemy (your emotions) when you are not paying attention to the garbage we call news.
It is highly unlikely that green line trader sat up all night and reacted to every piece of news that came down the ticker. Indeed, it is vastly more likely that they ignored the news and slept instead.
On the other hand, those in the heat of the battle "during trading hours" were defeated in their assumptions, reactions, timing, and opinion-searching over and over and over again.
Over the long haul the red-line record is miserable.
So, how do we capture the benefit of the green over time?
Don't do what the red line data tracks by responding to the news, and you will then, by default, end up in the green line.