Good Afternoon,

Hoping all the blessings of the Holidays are setting in for you and yours.

It will get pretty lazy over the next few days as the Holiday Haze washes over the landscape ahead.

Just a few things to keep in the back of your mind as markets chop through the Omicron, boosters, game shutdowns, school closings, mask on, mask off – and ugly politics – phase we are trekking through:

Jobs are robust – millions more open than people to fill

Records earnings are staged and about to be beaten again as Q4 data flows

On-shoring is driving massive capex to the benefit of the US economy

We are still running out of houses and need tens of millions more built

Margins continue to expand – upside surprises are set

What’s excellent is that just today we got a little glimpse into the surprises to come:

Micron beat and rallied back the entire amount lost over the last two weeks of chop.  Even better?  Check the quote from the CEO

 

“Early” is good – and it meshes with what we have been stating for months.  Ions away from “late in the game”, most of the audience simply does not understand that the pitchers are still warming up.  The capacity this economy has shown for overcoming the pandemic is just a glimpse of what is still ahead.

Yes – there will be tough periods that we trek through but you will soon find that these periods are set to unfold more quickly.  They will feel worse because of their speed – but then their recoveries will be quicker too.  Recent weeks are just a beginning example.

Sentiment Tanks

We have shown you the AAII and Fear and Greed, measuring the crowd.  We have shown you the NAAIM measuring money managers.  Now, let’s check the “Bullish Advisors”

 

Net – net?  Notice how close the current levels of “fear” are to the previous two lows of the last 5 years.  Those last two lows?  The pandemic onset and the launch of the China Tariff War.   Now seriously – do we really think we are in those kinds of struggles?  Not even remotely close.

Chop Likely?

I suspect we could have a little more work to do on the trade range.  However, that is far too short-term to fret over.  What one wants to recognize is this:  the longer the trade range historically, the more significant the trend of the next breakout.  So for the broad market – nine months is a good thing.

The crowd is all in – on the side of fear.

We are watching a replay of animal spirits – the psychology that works against so many people who think of all of this in much shorter timeframes than are ever helpful.  The repetitive process is setting the stage to work in the favor – again – of the long-term investor

 

Notice the last time the position for the crowd was as it is today?  Yes, just as Covid shutdowns were starting to burn off late last summer 2020.  Interestingly as you will see in the next data snapshot, the current positioning of the crowd (from all exchanges) in puts, places them at the 3rd highest level of the last 20 years.

In english?  That means that only two other times in the last 20 years have witnessed a crowd more scare about downside.  This all unfolding in a world where the financial metrics have never been better – collectively

 

The Chop Helps

As long-time clients know, this is the window each year where we set the stage internally for the portfolio adjustments we make for 2022.  The choppiness has opened opportunity up nicely for the patient investor.

Meanwhile, back at the ranch as they say on Yellowstone – all the various monsters which are now being burned into the psyche of the masses, are what set the tune of the next upside surprises.

In Other Words…

Now that the experts “assure us” that the Fed is set for three rate hikes next year, I’d argue the surprise is less.

Now that we all “know” inflation is here to stay, it is almost a guarantee that we are nearing peak pressures.

Now that the experts tell us “oil is going to $100 and higher” we can expect the fight to invest and offset that will become fierce

A Lesson?

When “the news” is such that is births fear and concern in your mind as new monsters are always being defined and brought on stage, ask yourself this question:

“How many other monsters were we told to fear – and then we watched them perish like dust in the wind?”

One More Thing

Think of a beachball being pushed down underwater as you stand in chest-high surf.  What happens when you let it go?

This is the same spring-loading effect which takes place as the crowd panics out the door – just in time for the beachball to be let loose.

Yesterday afternoon reached a point late in the day which I thought was so nutty, so detached from what is  actually unfolding in the robust world around us, that I felt it should be shared.

So here we go

 

This is a resend of a chart shared last week – showing all stocks still above their 50-day moving average.  Think of it as a way to “gauge/measure” how far down underwater that beach ball sits – when compared to all other times it has been pushed underwater.

The red line is what you want to focus on.  The black line up and down across the time span covers 20 YEARS of emotional energy feedback.  Notice the purple arrow shows you that yesterday afternoon was indeed, very rarified air.  In fact – the data is now deeper than is was AFTER a two-year bear market from the Tech bubble in 2003.

Further, it is just a smidge away from the conditions in March 2009, just before a 10-year trend upward began – from DOW 6,700.  Study this – let it help ease your mind as the mountain ahead is large.  Now you can understand more and more why we repeat:

…pray for a correction.

They are your friend – not your enemy.

 

Have a Very Merry Christmas and a Wonderful time with Family and Friends

Our best years are ahead of us – we just need to let it unfold.

Until we see you again, may your journey be grand

and your legacy significant.