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What do you think is the scariest financial conclusion we can come to during periods like the last quarter of 2018?

Maybe it’s that theme that Michael Stipe of REM sang into a catchphrase: “It’s the end of the world as we know it…”

As for me, I feel fine.

Folks, while you’re being told otherwise, all stocks are not like Enron and WorldCom. It’s that type of thinking that explains the rapid and even increasing pace of the investor crowd leaving the markets on a negative headline and a whim. 

All it really takes is about a week of red ink; all those disastrous sounding headlines created to scare the sh*t out of anyone listening.

But I stand by the point I made about the financial media years ago: “They should have to be licensed. The fear many of them collectively create, often out of sheer ignorance, is the most costly element anyone will encounter on the pathway to their wealth-building goals.”

Just a Little Patience

Now there’s an ugly word: Patience.

It's so much easier just to give into the crowd fears. Because after all this whole thing really does have to end badly, right?

Wrong.

Despite knowing patience has helped us make it through all the other "disasters" we feared over the years, when you want so badly to just sell up and get it over with, we still gravitate towards that haunting mirage up ahead that taunts us with the impossible dream of a time when "the future is more clear.”

Now, Think About This...

Want to hear something that’s even scarier? The odds are that markets will double again over the next 5 to 7 years.

Yep, double.

Now, along the way there will be many corrective waves, and they’ll probably be far uglier than what we just witnessed in Q4; because the numbers will be much bigger.

Your mind will feel worse when the Dow Jones is down 2,921 points in one day years from now, despite that drop being the equivalent height in percentage terms as some we‘ve experienced during the current 10-year bull market run – five years old if you’re counting from 2013.

And you won’t think for a second that, "Yeah, but 2,900 points on a 100,000 point Dow Jones is really no big deal, right?"

(Down another fistful of fruit-flavored TUMS with me…)

Then, out there in the haze ahead, the "correction" distances from top to bottom will be 20,000 to 25,000 points; more than what the Dow hit for the first time in its entire history less than 24 months ago.

Which Means?

The higher we go from here the more painful corrections will feel, and the scarier they will look. 

As for the headline hype that will accompany them, good Lord hang on to your hats folks. We just watched a warm-up media match of this in Q4.

Like Maverick said to Kazanski in Top Gun said, it will make Q4 look like "just a walk in the park."

Stuff is Moving

I can recall years ago where markets were certain they were seeing a slowdown ahead. 

The funny part about doing this for over three decades is you get the opportunity to see a lot - and be fooled a lot - and then you learn who the real culprits are after all.

In case you haven’t noticed it yet, earnings season (though still very young) is not turning into an unmitigated disaster as the media and celebrity analysts expected, even as records were set just three weeks ago in money flows OUT of the stock market.

Note: $143 BILLION left equity funds last month! 

Guess where they went?  Bonds and the bank (I added the green box below). 

Gulp...

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But back to stuff moving in and around this moribund economy of ours and we can see truckers have never been busier. 

Hmmmmm?

I sense someone is being fooled. 

Let's take a look:

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Now, forgive me for making the obvious more obvious, but the two charts above are both positive.

And I don't want to shatter anyone's cocoon of that security blanket of being afraid of something, but note in the top chart the tiny purple arrow is there to show you that we have never seen this much stuff moving around in our economy. 

It’s not just one or two types of stuff either. It’s all sorts of stuff; especially as manufacturing comes back to the US (which we’ve covered for you under the blanket of mainstream media noise for years). 

The more China denies they killed their growth with a one-child policy the more factories will come back here. 

The "cost benefit" of the 1980s and 1990s is all but gone.  In another couple years when the US adds to its tally of benefits - the fact that it’s now a major natural gas and oil exporter - that cost benefit will be all but buried.

Dust in the Wind...

Now, that other tiny purple arrow on the second chart is even more interesting. 

The blue is the truck tonnage movement.  The red is the S&P 500 overlay. 

(Scott Grannis of the Calafia Beach Pundit does a great job on these charts!)

And if you let your eye work backwards, paying special attention to the other times in the past when the blue line spiked above the red line to new highs, you can see what the red line does as the future rolls forward: Truck tonnage tends to be a leading indicator of growth ahead in the pipeline.

Just One More Thing: Money

The chatter about the financial health of the US consumer is loud.

The end of the world is now, they say, and we’re about to see a retail apocalypse.

And the same nervous chatter floods the airwaves on every tick of employment claims.

But what gets lost in the shuffle is this:

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The death of the consumer is one of the media’s favourite horror stories. 

But folks, it just ain't happening. 

A quick rundown of the blue and red lines in that chart above will tell you that we have not seen this low an overall debt burden since the 1970s.

Now does anyone reading this think our economy today is even remotely associated with any part of the economy we lived through during the 70s?

On top of that, we as a population have never had more people working, never had higher personal incomes, and consumers have never had $14 Trillion collectively sitting in the bank on deposit. 

Like, ever.

So let’s pray that the consumer stays in this bad of a shape for a long time to come.

If this is the end of the world, then I feel fine.

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