Trainwreck

This latest investor panic and exodus from anything even remotely perceived as risky seems to have run its course…for now.

So, was it worth it for those who bought into all the selling out?

Dash of Insight’s Jeff Miller in his excellent regular summary ‘Weighing the Week Ahead’ helps us focus on the important stuff that sits above all the media noise.

Here’s an example:

"The FOMC rate decision basically underscored recent statements from Fed members, but the reassurance led to a market celebration. The Fed will be patient in waiting for actual signs of inflation and flexible in the pace of balance sheet reaction. The Fed and the markets disagree over the strength of the economy and the significance of the continuing size of the balance sheet, but for now the Fed is in “calming” mode.

Construction spending for November increased 0.8%, beating expectations of 0.3% and the prior month’s (upwardly revised) 0.1%.

University of Michigan Sentiment was 91.2, slightly beating expectations and the prior read of 90.7.

The ISM manufacturing index registered 56.6, beating expectations of 53.6 and a prior read of 54.3. The ISM’s own research shows that this reading, if annualized, is consistent with real GDP growth of 4%.

New home sales for November were 657K (SAAR) beating expectations of 555K and the (upwardly revised) prior of 562K.

Employment gains for January were excellent, consistent with solid economic growth. The net gain in non-farm payroll jobs of 304K should be viewed in the context of downward revisions of 70K in the prior two months. The result is still solidly higher than expectations of a 160K gain."

Note the general tone in all of the above could be summarised as: “Better than expected...."

Also on that front, earnings are not nearly as bad as what was being poured into our brains as 2018 ended and we ramped toward the announcement season.

There’s simply no train wreck here, folks. It’s time to move on and recognize this mischief for what it is: Returning to normalized rates of growth after that shot of financial steroids delivered in the tax cut. 

Earnings are indeed set to grow more slowly until the next round of "cost-cutting and productivity benefits" drops to the bottom line.

And we must remember that 2008-2009 didn’t just permanently affect investors of all shapes and sizes; it drove deep change in the fears of management as well.

As we said back in early 2009: "Expect a resurgence from this experience, the cost of which will be terminating or throwing out anything that is not absolutely required to produce forward movement ahead. The expression 'Lean' will take on a whole new meaning."

In many of the conference calls this quarter already, management can be heard speaking of 1-3 year programs which will transform all parts of companies.

Tip your hats to the inflow of young kids - Generation Y thinking - where all companies will eventually become tech companies. Tech tools and processes will define how companies operate in the future.  Out with the old and in with the new will literally unfold across the corporate arena.

Patient investors will be set to benefit from these massive changes. 

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