Here we are…

On the brink…  

The starting bell to the worst earnings season in recent decades.  

And all the noted falls of late, albeit from higher levels, will be of the type seen in the collapse in earnings back during the GFC (Great Financial Crisis) of 2008-2009.

Add that to the growing cases of Covid positives in sunny states and you start to get that queasy feeling in the pit of your stomach. You know the one. It makes you twitch at every newsreel and drives your mind to see every ounce of bad possible.

Sometimes it even drives your brain to see bad news when it really isn’t. 

Ladled together you’d expect markets to be down as we get set to start the week.

But you’d be wrong.

Futures are up...

At least for now… 

New Thinking Required

This period we’re living through demands we think far outside of the "box."

You might even say we need to think about a higher level of box.

An average 12-year-old should know this earnings season will be just about all bad. 

But markets don't move on what everyone already knows.  

Shift Your Perspective

The 10-year government bond, which will not grow its earnings in any way, shape or form for the next decade, currently sells for (get this): A cool 154.32 times earnings (100 / .648).

So, if the 10-year bond, going nowhere for a decade ahead, (that's until 2030) sells for a 154 P/E, then what is a company growing at say a paltry 5% a year worth on the P/E scale?

The dirty little secret is that it’s way more than the current 18.5x to 19x over time.

This reality is slowly dawning on vast waves of investors - the ones with $18 Trillion in their "collective rainy-day decade fund," but who likely won’t accept this for a great many more points on the P/E scale.  

Now, this is going to sound a bit absurd, but if rates stay at this level for the next decade - or even remotely close to it - P/E's will rise.  

Sure, it will seem risky, disquieting, and even dangerous, but what’s more risky is trying to place the world we will be living in for the next 50 years into the same valuation box of the 1960's, 70's or 80's.

That’s because almost nothing is the same today as it was then, and very little of today will be what we are living in a decade (or less) from now.

Perspectives will slowly shift, almost unnoticed, and it will take an awful lot of patience and discipline to become accustomed to the tectonic shift going on under our feet. 

Consider This...

We have covered The Barbell Economy© for years now, and the disruption expected for the 2020's and 2030's driven by Demogronomics© to the point of deafening repetition. 

Now we’re watching it unfold in front of us.  

And there are many years left to go.

Beyond the bugs-on-on-the-windshield of news reporting - that are flicked away every day for the next wave to try and block our view ahead – your kids from age 15 or so and onward will be running many parts of nearly every company on the planet in the next 15 years.

And every company, from P&G to Intel, will be completely made over.  

As the never-receding tide of Generation Y rises up into the system, technology know-how is all they will bring to the table. 

They will make old systems new, old processes will vanish, and old layers will condense. And all this will happen while corners, lengthy processes, and layers of work are eliminated. 

High-Speed "or else", AI, the cloud, virtual, edge, and nanotechnologies will rain down on everything - fully restructuring our way of life and businesses completely.

More Green Shoots

The service sector is a huge engine for the economy, and the ISM Service data had a huge bounce in its latest read last week. 

Meanwhile, even as we get more case counts (with the vast majority being minor conditions), the traffic through TSA turnstiles continues to improve.  

Yep, there’s a long way to go, but it’s still up 7 times the lows seen in April:

And rates continue to fall, with mortgage readings now showing us two things: 

• The lowest rates in 60 years, and
• The highest purchase index since 2009. And those 88 million Generation Y-ers are JUST beginning to work toward - and buy - their first homes. Their children are up next.

Where to Now?

The bottom line is that long-term surprises remain substantially to the upside. 

And huge pools of capital are:

1. a) not in the market, 
2. b) remain terrified of the market, and 
3. c) will only come into the market when "it feels better and the future looks clearer" - which only takes place at higher levels. 

The more frozen in fear and confusion the crowd remains, the longer it takes, and the higher the price required, to make things "feel clearer."

My suspicion is we will get another week to ten days of upward movement as markets work into their next layers of resistance, and then maybe a summer lull - the always feared summer swoon.

Historically, these lulls have unfolded between later July and into the middle to latter stages of August. 

Hence, it would not be shocking to see the same evolution for this summer as well.