Mindsbanner

In the latter stages of 2018, folks blamed the US Federal Reserve for scaring investors into a chain reaction of selling stocks, spurred by fears of interest rate hikes into infinity.

Or something like that…

We suggested to you then that this was an overreaction, and that our patience would likely result in the new Fed Chairman learning to communicate a bit better over time. 

Unfortunately, the Fed Chair’s second time at bat was only slightly better and so stocks tanked again.

A swing and a miss…

Now with two strikes and runners on every plate we’re hoping his third time is the charm.

Now, according to Mr Powell the Fed is "listening carefully to the markets." Uh, sir you could have said that earlier.

And with that ‘apology’ the shock and overblown fears of an overly-tight Fed have now all but vanished.

Prior to that ‘intention retraction’ by Mr Powell the US Labor Department released a surprisingly strong December jobs number, which was way above expectations (+312K vs. +184K).

Hopefully this will put to rest the idea that the US economy is slowing down, or at least for the foreseeable future.

The War?

U.S. and China officials are meeting this week, and that means headlines will be touting what gets said as journalists create their usual fiction section about what horrendous fate will now befall us because of same.

If Trump can manoeuver this effectively by turning down the "tariff war" heat, the financial world will likely breathe a huge sigh of relief. 

And if that comes to pass then the wildly undervalued price levels we see today should be relatively short-lived.

Keep in mind that what Trump hopes to achieve is lower or zero tariffs, lower or reduced export subsidies on the part of China, and a reduced likelihood that China will continue to expropriate US intellectual property.

Any move in this direction will be a direct benefit to global trade, and that in turn will benefit all concerned across the globe.

The Ugly Part

What Trump is putting at risk (in the near-term) is US prosperity by raising tariffs as a negotiating tactic. 

It’s an interesting tactic, and perhaps the only hammer available to force China to do something that in the end will be of great benefit to both China and the US.

Now, you can blame Trump for breaking the glass and reaching for the fire alarm or the endless idiots before him who started this fire and just let it burn. 

That really doesn’t matter now. The game is already in play.

Sure it’s risky. All big potential payoffs are in the end. 

That noted history suggests China must be resolutely and economically threatened before they will do the right thing.

China won't feel that kind of pressure unless you and I (and the market) also get to the point that we are terrified of the consequences of a tariff/trade war.

Maybe we’ve now been to the razor’s edge of this deal-making process, but I wouldn’t discount the possibility of another twist or two of the knife.

Meanwhile...

The news may be ugly and the price action scary but the products keep moving through the very-well employed consumer pipeline of America:

Minds Chart1

Now, odds are that some of that spike in the latest data was shipping in for a busy Holiday Season. 

But, given the records set on the retail sales side of the season we can be pretty darn confident the trend in trucking goods is set to remain on a positive slope.

Besides, those 312,000 new jobs equal added consumers; a positive domino effect we should consider when all around us is presented as dire.

A Little Bit About Panicked Minds

There is some crazy part of our brain that simultaneously shows us that every previous panic was a buying opportunity even as we should be afraid of the next one.

The adrenaline fuse in our amygdala Lizard Brains gets lit and everyone knows it will explode into a series of knee-jerk reactions.

Logic eventually returns, of course, but only once the ‘happy juice’ has burned off. But it’s the patient investors who can swim in adrenaline and keep their wits above that waterline who win out in the end.

The Latest from The Insiders

Minds Chart2

The bottom line: "Don't kick a gift horse in the mouth..."

Good deals in stocks for the long haul investor never feel good while they are unfolding.

It's why so few over the decades in the past have taken advantage of them.

We are at or near record highs in most of the vital financial metrics defining economic success. Corporate entities have never collectively been more profitable - even as the pace of that growth will assuredly slow back to normal levels (lapping the tax benefit year).

And as odd as it may sound given the overwhelming negativity of the headlines, the consumer has never been healthier; with a $14 trillion rainy day fund sitting on deposit in US banks.

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