Are "we" -- investors -- sitting in the sweet spot right now? Think about it:
- earnings
- as good as ever
- and it seems the earnings are due largely to revenues
- revenues (top line) minimally affected by tax policy
- earnings (bottom line) are affected by tax policy; I haven't heard many pundits suggest earnings are due to better tax policy (21% vs 35%) -- huge -- and it will get "huger" (as Bush II) would say -- by the end of the year
- some say the Trump tax plan extended the recovery / bull run another two or three years; without the reduction in taxes, some suggested the economy could turn "bad" as early as next year
- unlike the "bubble" back in 2000 (or whenever it was), I've heard very few pundits suggesting the market is overpriced
- it's hard to find blue chip companies paying better than 2.5% on dividends
- it seems folks are getting used to "the curve" flattening -- higher interest rates short term, lower interest rates long term .... hmmm.....
- investors have "baked in" the Fed; nothing seems to suggest this will change
- crude oil
- pundits suggest crude oil could go as high as $400/bbl in the "out years" -- next decade -- because there is not enough successful exploration by the oil industry
- other pundits suggest there is too much crude oil being produced and could go as low as $45 next year
- US energy independence is here; seriously -- it depends "how" one defines independence
- geo-political events that would normally spook the market (Israelis in a "hot war" with Syria; Iran "clearly admits" to attacking two Saudi Arabian VLCCs in the Red Sea) result in crude oil jumping .... 16 cents/bbl
- for oil investors, $55-oil is the "Goldilocks" price -- enough that oil companies survive, but not push the economy into a depression; and, in fact, instead of $55-oil, we have $70-oil and the economy seems to handle it very nicely
- GDP
- 2Q18 GDP numbers -- first iteration -- will be released tomorrow; everyone is expecting a nice number; some say "we've" been here before -- that in 2014 we had similar growth -- the point is being missed -- in 2014 -- we were coming off one of the greatest recessions in the history of the US
- worse -- it was the longest recovery ever after any recession; it was taking "forever" to turn the corner
- now, for several quarters (several years) the economy has been doing great; "everyone" has been suggesting a correction should have already occurred or a recession is around every corner ... and yet, long into a long, long, slow, extended recovery, we could see a GDP number that is quite exceptional
- right now, the CNBC crawler says 2Q18 GDP is tracking 4.1% (one has to assume CNBC will build up expectations such that folks will be let down when the number is finally reported, but that's another story for another day -- probably tomorrow)
- trade war
- not much needs to be said
- "everybody" agrees to free trade; but "everyone" that says also sees no problem with Canada's 275% tariff on US dairy; or the 25% tariff American car manufacturers face trying to sell cars overseas when the US has a 2.5% tariff on foreign automobiles
- "everyone" opines the trade war will be the end of the world as we know it, and that it will escalate
- golden age? yesterday the EU agrees to work with the US to get to "zero" tariffs; the market swung 210 points on that news, from negative to positive
- the market extended that gain today
- farmers
- "everyone" freaks out about the plight of the farmer due to trade wars; immediately they are promised a $12-billion bailout; it would be the brave congresswoman or US senator to voice opposition to helping the farmers; that promise of a bailout probably kept the "farm" sector of stock market from tanking yesterday/today
- where's Willie Nelson and Farm Aid?
- no sooner does President Trump announce the $12-billion bailout and the EU promises to buy more US soybean, and the price of soybean pops
- the southern US border?
- haven't heard a thing in weeks
- North Korea
- dismantling rocket launching sites
- no nuclear tests since the summit
- no rocket launches since the summit
- Germany and NATO and Russia and Nord Stream 2
- US LNG sector wins
- Putin-Trump summer redux?
- second summit will be delayed until after the mid-term elections
- global warming: not even on the minds of Americans
Some time ago, I presented "sixteen reasons" why the market was surging then. I then followed it up with "eight more reasons" why the market would continue to surge. I then added "another reason."In fact, the first 2Q18 estimate will be reported tomorrow. Anything less than 9.8% GDP growth will be considered a reason for CNBC to talk the market down.
I am now going to add "five more reasons" why the market will continue to surge.
- In the short run, maybe just a day or two or week or two, the tea leaves suggest a reason for buyers to buy: the volatility index is back to "zero" or some such ridiculously low number.
- The real reason for the market surge today (actually there were two and they were both related): the annual Berkshire Hathaway letter and the treacly Becky Quick-Warren Buffett interview.
- Warren Buffett gave the signal that everything was okay in the market and it was safe to buy.
- Warren Buffett said (to paraphrase) that anyone investing in bonds was an idiot; that will move a lot of money from bonds to equity.
- AAPL shares gave a clear signal that tech was back (it came close to reaching its all-time high). Note: many analysts no longer consider Apple, Inc, a tech company. [Note: today, July 26, 2018, AAPL is flirting with new all-time highs, trading at $194 and change; back on February 26, 2018, AAPL was trading at $179]
- The bond market (again, actually there were four reasons with regard to the bond market)
- first, Warren Buffett called ... well, see 2b above
- second, when the 10-year Treasuries did hit 3% on yield, and the world did not come to an end, that calmed the market
- third, as the market panicked with 3% yield on ten-year Treasuries (and the Dow corrected by 10%) more and more folks came out of the woodwork to tell us that "this time was different." Don't worry about the ten-year Treasury yield; we will all do just fine.
- today, and maybe this is the other reason (the first reason being Warren Buffett's letter and treacly interview) the market surged today: the ten-year Treasury dropped back to a 2.8% yield. [Today, July 26, 2018, the 10-year bond is at 2.973%.]
- the 10% correction was really, really overdone; folks are still trying to sort that out; so now the pendulum is swinging the other way; but it's an open-book test: after every correction, there's a surge.
So, now we have these reasons for a surging bull market:
- percent of S&P 500 companies beating sales estimates highest in over a decade.
The next "GDP Now" estimate comes out tomorrow. Let's see if we have yet another reason for the market to surge.
- sixteen reasons
- eight more reasons
- one more reason
- six more reasons
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Notes For The Granddaughters
The other day I mentioned RAF Mildenahall.
When I was stationed at RAF Mildenhall many decades ago, I bought Maerklin HO model railroad locos, stock, and track from an individual who worked out of his home. He lived in a new home; he built his home literally two feet from the fence line at the end of the runway, RAF Mildenhall, simply to watch the USAF flight operations.
Often, when I went out to visit him, he told me more about timing of "secret" operations than even I had been briefed in on. He was no foreign spy; he simply was very, very, very observant.
RAF Mildenhall: near Cambridge, England, northeast of London.
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