“The investor’s chief problem, and even his worst enemy, is likely to be himself”

~Benjamin Graham


Good Morning!

Before we start into the boring stuff, we want to send our heartfelt wishes to you and yours for the most blessed and enjoyable Holiday Season.  Kicking off this week with Thanksgiving, we want to give thanks to you – as always – for the opportunity to be of service to you.  We are always extremely grateful and enjoy this time of year because we get to tell you that again LOL.

Have a fantastic week with Family and Friends!

And now…to the boring stuff

I know it’s boring because we keep having to tell how records are being set.  Yes, there will be a pause in here somewhere.  Yes, there will be a short window in the pathway ahead where you will swear market investments stink.  It will all be a required part of the pathway that is laid out in front of us all.  Like it or not, our economy is going to running at full tilt for an awfully long time.

Margins are expanding

Earnings are at records

Q3 beat Q2 on a QOQ basis

Cash flows at records

Massive Capex wave unfolding ahead

But Don’t Fret

The Wall of Worry remains solidly in place – shockingly so as we set records.  The best bricks in that wall for us right now:  some of the worst political dysfunction we have seen, constant media hype on the “HOT” inflation we are facing – and will face for another 2-3 quarters, supply chain issues from inventory lows, shipping squeezes (being alleviated) and transport bottlenecks just to name a few.

Yet, even as those elements unfold, the Barbell Economy® rolls onward with homebuilder sentiment, industrial production, new orders, back orders, orders filled and even retail sales at multi-month or all-time highs.

Speaking of Worry

I continue to shake my head at the sentiment data.  Consumer sentiment is in a funk as high prices pressure pocket books.  Even though we see that pressure coming off boil as we get through the production squeeze, consumer sentiment is down.  Oddly, if one looks at history in that data stream, as Dr. Ed always told us:  when consumers are down, they go shopping.

The good news?  As consumer sentiment reaches lows and then turns to improve, markets tend to rise.  So, once again, let’s recall it is not about what’s now, it is about what’s next.

Note the lack of bullishness as markets set more records:

Note the levels of “bullishness” are now lower than where we started the month.  This week is set to be quiet from a volume perspective all around – but don’t let a quiet market fool you.  Sure, we can get (and I hope we do) air pockets of downward pressure here and there from the machines but the massive base of capital sitting idle is finding only very small windows to get to work.

The AAII data above shows you that the crowd can only muster “average” levels of bullishness at current market levels.  The “altitude” sickness we have previously described is clearly embedded and at work.  Imagine how nervous the crowd will be at DOW 50,000?

Q3 In The Books

Notice the stats as 499 of the S&P 500 have recorded results.  The stage is set nicely for Q4 as almost all the major movers tweaked future earnings to “allow for inflationary pressures.”  We should have learned by now that management likes to set bars they can jump over – so we suspect that while growth expectations for Q4’s season (set to begin on January 21, 2022) have been lowered by about 1% or so, we think we can all confidently expect those “lowered expectations” to be beaten.

The game continues to build:

Note too that the Q3 fully released earnings totals did exactly what we expected – surged past where they started the season.  Remember, the Q3 colored column began closer to $429B:

…maybe even more important:  notice that all of the next 4 bars are now well above the best (record-setting) levels seen even before the pandemic.  The margin expansion is coming from Tech capex and corporate digitization.  Expect waves of same ahead.

Future is Bright

The latest LEI data shows even more records.  The Leading index rose 0.9% to 118.3 in October, a little better than projected, after the 0.1% gain in September to 117.3.  The important part:  This is yet another record high for the index and the first time over 118. 

We must all remain focused on the ideas of the Barbell.  The records being set even as Walls of Worry expand are hard to make sense of without Demogronomics® themes.  The generational strength of US demographics is set to empower our economy for many, many years to come.  As stated before, we do not have to agree on these elements – but disagreeing will not change the fact that they are unfolding all around us.

The tide is rising – period.

One More for Now

The pipeline continues to fill even as we run 3-shifts a day to rebuild very lean inventories:

Industrial production increased again by 5.1% YOY in October.  This follows a 4.6% rise in September.  Importantly for overall economic health, the index is now back above its pre-pandemic reading, after tying the February 2020 level in both July and August.

Meanwhile, the Philly Fed index spiked to a 7-month high of 39 from 23.8, while the ISM-adjusted Philly Fed rose to a 48-year high of 65.8 from 64.1.  Many won’t even know that this is the second-highest reading ever, next to the 67.1 peaks in March of 1973.  New orders surged again to a 48-year high of 47.4!  That too was the second-highest reading ever, while prices received rose to a 47-year high of 62.9 that was also the second-highest reading ever.

What do we want to take away from this data?  The very healthy Philly Fed and Empire State reports leave manufacturing sentiment at robust levels for November – and this is all despite the continuing wall-to-wall coverage of supply chain disruptions, with little net pull-back for the various measures from March-May peaks.

Remember last of all that this pipeline of strong (and growing) demand in the face of lean inventories should continue support even more expansion.  With nearly 10.5MM unfilled jobs in the JOLTS data, we better get those robots to work soon.


Have a wonderful, safe and blessed Holiday Week.

Until we see you again, may your journey be grand and your legacy significant.