Why There’s Never Any ‘Good’ News
Ah, the first week of August…and the start of the very haziest month of the financial market’s summer.
Yesterday the Fed jumped into to the cold water and quickly realized what we had been suggesting for weeks: There is no winning step anymore. There is no "oh that's good" about anything in our economy. And so it cut and ran off 25 basis points.
Now, we had previously suggested a better step would have been zero, but for the sole reason of maybe bringing currencies back in line a bit.
Laughingly, after hearing about the weak dollar for over a decade, and how it was to be our doom, the latest complaint is the strong dollar.
It's just another example of "there is no winning piece of news" in a vast, nightmarish media-driven backdrop.
Thankfully, the consumer (70% of our economy) is seeing through this.
But we cannot ignore the lunacy of listening to TV reporters and script readers (not all - but most) trying to pull off the "experts" role during questioning:
Scenario 1 (which unfolded):
Fed Chair: "We have cut rates by 25 basis points today."
Reporter Expert #1: "My sources tell me that there was much confusion during the meeting - why did you not go the full 50 basis points the market was expecting and is this just one step in several?"
Fed Chair: "We have cut rates by 25 basis points today. I won't comment on what the experts might be suggesting - we will be data dependent going forward."
Reporter Expert #1: "So you are saying that this was more like a one and done and no further cuts?"
Fed Chair: "Next question."
Scenario 2 (which didn’t happen but would have been 50 basis points):
Fed Chair: "We have cut rates by 50 basis points today."
Reporter Expert #1: "My sources tell me that there was much confusion during the meeting - why did you go the full 50 basis points today and not the 2-step 25 basis point move the market was expecting? Did the Committee see more concerns in the economic data than maybe the investor audience is recognizing? Are there things we don't know about yet which your data is showing you?"
Fed Chair: "We have cut rates by 50 basis points today. I won't comment on what the experts might be suggesting - we will be data dependent going forward."
Reporter Expert #1: "So you are saying that there is significantly more weakness than most understand and that this is just the first step in a series of cuts?"
Fed Chair: "Next question."
Chuckle Me This…
Recognize this type of nonsense is being fed to you every day of the week and sold as information – and valuable information at that.
It isn't, of course, but this is: The consumer makes up 70% of our economy - that's a good thing since they are almost all at work, making more collectively than they have ever made and are busy building a life. That's Demogronomics™
Pretty basic, right?
My point is when 70% of your economy is hitting on almost all cylinders and looks to be running out of people for all the new jobs available, why on Earth would you spend all your time fretting over the 10% and 12% parts which may be in pause mode, reinvestment mode, change mode - or the like?
It is not productive - and it misses the point.
Just like the news.
Consumer Confidence is…Eh…Elevated:
No matter how you slice it (great charts from Scott Grannis, Calafia Beach Pundit, by the way) - when 70% of your economy seems to be pretty happy, in general, one can expect that momentum to continue onward.
The Good News?
Nothing is over-heated.
There is no "strong, robust recovery" underway. In essence; no boom, no bust.
The fact is that 2008-2009 taught us a whole bunch of lessons, and almost all of them were hidden under a giant umbrella of fear.
This advance and recovery has unfolded in a slow, steady, constrained, controlled, and thought out in advance type of way.
And so, instead of complaining and finding problems with it at every turn, the wise investor should focus on the long-term horizon ahead and pray all this slow and choppy stuff continues.
One More Thing
The day we all wake up and there are no problems to solve and/or solutions to build and/or questions to be answered and/or hurdles to be leapt and/or mountains to be moved...is the day you passed on.
Embrace all the "crap". Recognize it is all part of the chaos required to move up this mountain.
It’s been that way since the beginning of time so "all of this" is not new – so don’t get lost in it.
And the punchline to all the Fed Chatter Joke?
Rates are still falling. In general (not every day or week) they should continue to do so.
We still expect near zero cost debt out there in the next 3-5 years - heck, maybe even sooner.
Disruption, Change and Speed
Get used to, and comfortable with those three words.
When 10-year bonds are selling for 80 times earnings...what's a proper P/E for stocks?
In 1982 when I started, one could buy 10 to 30-year government debt for 6-7 P/E's. Those that were apparently dump, could buy stocks for roughly the same P/E after the lost decade of the 70's.
Today that’s skewed and the scale has busted, but not in the direction you may think from the press.
Nope, today those P/E's are higher. The 10-year debt is now a 50, and those ugly old, risky, choppy, volatile stocks are, well, 17 to 18 depending on your 12-month outlook.
Look for an entirely new wave of refi's and "bottom line" surprises and benefits the naysayers seem to always miss.