My Dad always told me “no rest for the weary….”
Hilarious – it’s only January 3 and the latest”existential” monsteris roughly 24 hours old already!
Forget China – and Tariffs and mind-numbingly bad projections for a recession just around the corner. No, my friends – all of that is old news – and by old I mean “it was completely bogus.”
You see, now, the real risk is present. The real harm has arrived. It’s not coming from Ukraine or Russia or China or North Korea or DC or Crimea.
Nope – it’s Iran.
There you have it.
The cat is out of the bag. While everyone was looking the other way, a few of them stormed our Embassy – really dumb idea. And then – instead of suggesting – through mild rhetoric that we condemn these actions, blah, blah, blah – they met the new Sheriff in town.
After the Marines swooped in and “quelled” the attack, we used a few of our brand new laser-guided missiles from a shiny new drone and ended the life of their top “military” leader.
Now that is the way you make sure everyone knows you mean what you say.
And indeed – the normal reactions did not take long to follow-through. Bonds became a great buy again (read: fear trade):
Gosh, I guess I sorta wish I had not suggested in the last few notes that we should expect something lurking in the shadows to cause some selling at the dawn of the new year.
You can surely bet that if the “Iran” thing lasts for a few days, the next thing you will hear is chatter about “How the first 5 days goes, so goes January…and then right after that it will be the same “experts” chattering about “How goes January so goes the year….”
It does not end friends. In fact, I suspect there is a new surge of things to worry about – I mean if you are in the media world, the slate is clean – it’s a brand new, fresh canvas to fill with all sorts of attention-grabbing “stuff.”
And as for all that “old” stuff from 2019 that was completely wrong and cost you dearly if you were swayed by it? Ahh, it’s nothing – it’s old news – no harm no foul.
The entire reel is going to play again guys – it’s one of the reasons I dislike the idea that the money world starts all over on January 1 as noted last week in these morning thoughts.
√ But – it’s all good – for future rate of returns.
√ Risk today creates the basis for reward in the future
The problem with climbing a larger mountain every year is the fear of big numbers. Add in the computer trading, the bots, the speed and the black art of high-speed connections – and you get the potential for bigger swings, more fearful moments and darker nightmares.
Again, the key word there is “moments.”
If the years ahead teach us anything at all, it will be the importance of p.a.t.i.e.n.c.e.
We must paste discipline and patience on any plan we build. Why? Because I can assure you that if you thought “news” was more plentiful before – and problems were mounting, you can damn well count on the fact that it will only escalate from here.
We must remember the siren call of the markets is the constant search to make it easy. To escape the temporary windows of pain, to embark and that hidden pathway that misses all of the problems, is always in the right place and insures / hedges you from all the risk.
Uhh – no – that does not exist. Never has. Never will. Those who search for it – lose, are for more stressed and never believe in anything good about the future.
Reality Check for 2020
Even during and after “good years” we must remember this isn’t a one or two quarter thing. It is not a one or two year thing. It is a decades thing.
Reality hurts. Markets can easily hurt and often need to cause pain in the short-run in order to build gains in the long run. The “fight or flight” syndrome is a strong one for sure. It has tested many and will test more in the future. Tens of thousands of years ago, it kept you from being eaten by a lion outside of your cave.
Today – in markets – it only costs you future-wealth-compounding effects.
Let’s face it – the last 8-10 weeks were great. The breakout from the 20.5 month trade range covered here for you for all of those months came – and went. The upside was always the surprise after all.
Don’t think for a second that tests of those breakouts are abnormal – or are something to run from. They are not either of those. They are to be expected though it does not mean they must happen. They are to be embraced instead of feared. Why?
Leave the fearing to all those who will sell – who are selling now “to lock in gains.” They will tell themselves – and you if you listen – that they “will buy back when the selling is over.” No, that is a white lie.
When the selling is over they will espouse as to how much worse it will get – and they will skewer their own interests when they slowly leak into this thought process: “we will only know it is safe again at higher prices…and on recovery”…
Yes, the age old killers of wealth: fear, impatience and the human need to have a reason for everything.
√ They are all alive and well – and sure to show their faces as the 2020 mind game begins.
√ The first actor of the year? Iran – and all that monster bring with it.
√ Forgive me – but I find myself wishing for a Tariff War with China again.
This cartoon from our good friend Alan Steel pretty much sums it up -no?
Reality Check – Part 2?
One more thing on this topic: Let’s admit that the portfolios and the markets had a great 12 months – after an ugly Q4-2018. The bounceback was solid and burning through the lengthy trade range was perfect for the long haul.
But (don’t you know there is always a but) – good things all need a rest. Don’t get all bent out of shape if dividend stocks, which went up a lot last year, take a pause in the first 6 weeks of this year. Perfectly normal – and much better for the long-term.
In the grand scheme of things – all is working fine – storms will come and go. Waves will wash over us and drench our dreams at times. It’s been that way since investing began. The winners tied themselves to the boat and steered through the storms. Be confident of this – the 2020’s and 2030’s are set to be huge change agent decades.
Along with all the mind-blowing opportunity set to accrue to the patient, long-term investor – there will most assuredly will be equally gut-wrenching events which will make us all wish for a good old-fashioned Great Recession fo 2008-2009.
The AAII data our yesterday is a solid start given the series of new highs we saw in DEC…read’em and reap:
I started with the neutral only because it often gets no attention but can provide interesting insights. Check where we are now. The purple line highlights how little time we spend above this line – and what those previous times meant (read: good for long-term investors).
Granted it often leads to a pause – but the upside is solid in the long-run as can be seen below in the “after effect” chart from Bespoke:
What’s the lesson in the time chart?
√ Monsters come and go
√ The next one is far scarier than the one we just defeated
√ Time works
√ Time is your friend
√ Time defines risk
√ Time is your patience being properly valued
One more thing…Hey, it all can’t be good news.
There is always a fly in the ointment which is why Ireloaded my supply of fruit-flavored TUMS over the Holidays.
Here is the ugly spot…
The CNN Fear and Greed data is for really, really short-term minded traders – and it needs to burn off some of this year-end excitement. Hence, a little selling concern is just what the doctor ordered:
You bet – just like we closed out the year in your last couple notes of 2019:
“We noted above that it is surely an edgier feeling to be entering a new year on a high. Almost by instinct, we can surely expect some setbacks by mid-January as nervous-nellies and short-sighted traders grab their gains from 2019. The first few days of the year always see massive deposit inflow for pensions, etc….and then the work begins.
Expect the media tensions to only increase as 2020 unfolds. Like any other addictive force, after the first hits, the real damage comes as your brain needs more of the same thing to feel the same effect.
Media angst and vitriol is no different. The stories have to get uglier:
a) for you to pay attention
b) for them to sell ad time
The game will continue and it will get uglier as NOV approaches.
Particular areas of the year where we suspect could see some trouble on the pathway up the mountain?
FEB when the first primaries roll in – media chatter will increase – along with angst driven by said chatter
Summer doldrums (prep stage 1) – late May (ish), mid-June window to set the summer haze in motion
Summer swoon? I am reminded of the worries as 2016’s election approached.
I am reminded of the 17 days in a row with down closes just prior to election day and…
I am reminded of the 1000-point swing overnight as Election Day night results were posted.
This is not designed to be a projection or fear-inducing element. Think of it merely as a map of some trouble spots on the continued trek of our lifetimes – up the mountain ahead.
Use all of them to your advantage.”
Closing it Out…
The Barbell Economy™is driven by the two record setting generations of our time. We are all blessed to be living in these unique times.
As technology takes over, the economic references to the past no longer bear much weight. To suggest that some part – any part – of our economy today relates to any event in the 60’s, 70’s, 80’s or 90’s etc etc is simply a foolish misunderstanding of reality.
There is nothing left of the economy we lived in during those times. Hence, comparing today – and/or the tomorrow’s to come – to those periods in the past is a great scare tactic, a wonderful emotional triggering event -but useless to your personal interests and future wealth goals.
Relax friends…our very best days are ahead.
And always remember this as the dark clouds of 2020 and beyond will surely gather around us at times in the months and years ahead:
√ We fight the good fight, we don’t stop.
√ We conquer, we overcome, we build around, through or over –
√ We solve problems – we expand – we succeed…even while all the problems will continue to unfold.
Pray for more of them.