The good news is that almost everything is bad news once again.

Interest rates, Trump, corporate earnings, Trump, trade wars, Trump, North Korea, snow drifts, Academy Awards, Trump…

We just can’t seem to function for very long without a potential crisis to focus on.  

And the anger of "waiting so long to feel good again about the markets, only to see them once again spank the newcomers who, eight years on from the last recession, were slowly emerging from their bomb shelters" re-embeds itself as we go.

It's as if the wailing warning of The Who’s Roger Daltrey is on repeat in the eardrums of investors everywhere saying “We won’t get fooled again.”  

The reality is even starker. Relatively small percentages of households actually have a significant stake invested in the markets.

So even as the bears would like you to believe that market action will have some dire and permanent impact on us as a nation, that’s yet another aberration.

And no one’s listening when Warren Buffett says: "In America, investors have the wind at their backs."

Why would they. He’s only the most successful investor on the planet. But what Warren doesn’t say is that the wind will always blow your way.  

Sentiment Burned at the Stake

Which brings us on to the so-called media “red ink” (negative headlines) that has continued the overall trend of pressure on the sentiment side of the spread sheet, which is a very good thing for long term investors:

Fooled Chart1

Fooled Chart2


If I were to summarise the meanings of the two charts above I would say, “The audience is frightened again, and to extremes not often witnessed.”

In a perfect world, this chop and churn would last for another couple of weeks so that the top three reading dials on the first chart above turn red with fear.

Meanwhile, with Corporate Earnings…

Spectacular would be a good word to describe it. But I can also work with “stunning,” “surprisingly strong,” “surging,” and even “significant readings.”

Since November 17, 2017 through this past weekend of March 2, 2018, the forward 4-quarter estimate has increased every week from $142.30 to this week's $152.81.

This is very rare run for positive S&P 500 forward estimate revisions.

In fact, it was as far back as the very early stage of the 1980s when looking for the last time it happened.

And we should not be concerned over the long term if markets now work through an extended “buy the rumour, sell the news” window of internal churn.

Now, let's see the Thomson Reuters data:

• Forward 4-quarter estimate: $158.21

• P/E ratio: 17.0x

• PEG ratio: 0.83x

• S$P 500 earnings yield: +5.88%

• Year-over-year growth of forward estimate: +20.57% vs. last week's +20.27%

Mr Bond?

The giant fly in the ointment, of course, is the bond world. 

When the current corrective window began on January 26th, the 10-year Treasury yield closed the week at 2.66%. 

Now, the 10-year Treasury yield has seen a rise to Friday's close of 2.86%. That’s a 20 bps clip since the market duress began.

Clearly, one end of the Barbell Economy (Millennials) continues to get most of the attention as Technology shines above all other sectors. 

As much as this likely means we should become accustomed to more chop as we rise up this long-term mountain, technology will indeed change much of what we know today as Gen Y really takes control of the future.

But this game is still in its warming-up stages.

As bonds have now been clocked, the market is clearly feeling the brunt of that false “bonds are competitive” narrative. 

I suspect that will wear off in the next quarter or two.

For now, let’s bask in the sun of all this falling sentiment; a solid support tool for the investor looking for long-term deals, and the impressive improvements in earnings. 

And keep in mind that there is still a great deal that companies have not yet found in terms of future benefits to yet fall to the bottom line. 

Lifting Barbells

The two largest generations of our time – the Baby Boomers and the Millennials - are set to drive U.S. growth for the next 40 years.

In time, innovative and well-run companies standing in that Barbell structure will be set to generate long-term profits, and the shareholders (owners) who patiently invest for the long-term will hopefully participate in the value creation that takes place as a result.

As such, these panics that the markets are currently finding their way through tend to be good for the long-run. 

They reset values and perspectives and provide the long-term investor new opportunity to be patient and disciplined. 

The wall of worry has been rebuilt nicely.

Mike Williams
Founder and Managing Partner

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