The Golden Age -- Scott Adams -- July 26, 2018

Idle rambling; not ready for prime time. In a long note like this there will be typographical and factual errors. I've given the fact-checkers and the spell-checkers the day off so they can enjoy the hot weather and go swimming.

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

From a post that isn't that very old, February 26, 2018:

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."

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.

• percent of S&P 500 companies beating sales estimates highest in over a decade. 

So, now we have these reasons for a surging bull market:

• sixteen reasons
• eight more reasons
• one more reason
• six more reasons

The next "GDP Now" estimate comes out tomorrow. Let's see if we have yet another reason for the market to surge.

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.

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Notes For The Granddaughters

The other day I mentioned RAF Mildenahall.

RAF Mildentall, F-15, Unrestricted Take-off
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.