With the impending arrival of June the investor and manager crowds are already beginning to thin out and fade into the summer haze.

And just as in the past 36 summer doldrum seasons that I’ve worked in this business, I expect there to be wave after wave of breathless reporting on anything that moves in order to catch attention (and advertising revenue).  

It’s a cyclical editorial approach focused on “much ado about click-bait,” and don’t let the facts spoil any good apocalyptic market predictions.

Yep, I expect the media machine to now start amping up as summer progresses, with anorexically thin conclusions supported by single variable correlations aplenty.

Ain’t life grand…

Because without it - without those reader clicks and associated ad sales - there is no "news."

Only when you come to accept this as fact will the loss-making, knee-jerk responses to this nonsense become clear.

The Earnings Season Rundown

Q1 2018 is in the books.

Note: It was a record-setter on every front you can measure. As a country, the US has never been wealthier, had a healthier corporate sector, and this much cash flow, after-tax dollars and or margin totals.

  • Output – record

  • GDP – record

  • Manufacturing – record

  • LEI's – record

  • Tax Revenues to Pay The Bills - record

I could go on for a bit but it would get boring, fast.  

Here’s some stats instead:

Screen Shot 2018-05-28 At 17.30.15

(Source of above: Forward estimate from Thomson Reuters "This Week in Earnings")

By the way, friends, it's never been that good.  

This, of course, brings in the chorus of growth-haters who must now convince you that this is the best it will get, and therefore, we’ll all slowly perish from here onward.

What a crock.  

The forward estimates have been rising with an almost giddy consistency, as year-on-year growth of that forward estimate now at +21.75%.  

Sure, that pace will slow down, but from a much larger new base a year from now.

But remember that we can still have choppy markets, just like past trading ranges and periods of fretting.

In 1994, the S&P 500 earning’s growth was 20% year-on-year, and the index returned just 1% that year as fears over interest rates at the time coming from a Greenspan-led US Federal Reserve.

And too many folks out there will have incorrect fears driven by rates this year.  

Expect it. Don't be afraid of it. With the Fed target being 3% to 3.5%, this angst in others could go on a while.

Again, let's take this in stride with good planning.

Step Back Away From the Noise

So what to make of this great data evoking only a choppy, churning response with the crowd barely able to get its head above the red line this year?

First, let's remember how the last couple years have not been too shabby for returns in the markets - unless you’ve been hiding under a rock.

That itself - no matter what earnings do - would easily define the need for a pause and rest in the trudge up the mountain.  It's perfectly normal.

The culprit comes from all those “little voices” churned on by headlines.

Ok, so why the chop and churn?  

Mostly wasted energy - but hey, the good news is that soon the summer will bring up the second and third-stringers off the investment benches from London City to Wall Street.

And they are unlikely to be as good as the first stringers.

By example:

Screen Shot 2018-05-28 At 17.30.29

And do you remember those two ugly 1,000 point cliff dives back in February, right?  That was months ago when all the ETF/SPY guys panicked and created this record outflow of funds:

Screen Shot 2018-05-28 At 17.30.44 (1)

As it turned out - just like back in the day of mortgage collapses leading into the Great Recession - your friendly neighbourhood Goldman Sachs was on post and cleaning up on the other side of the fear/panic trade.

There is no money heaven where money goes to die, it just changes places on the board.  

The Other Thing…

Emotions are the most expensive thing you will ever encounter on your pathway to building wealth.

Nothing else even comes close.


Mike Williams
Founder and Managing Partner of Genesis Asset Management, New York