Good Afternoon,

No Pain – No Gain.

How many times have we heard that? Probably so many times that many prefer to ignore it. It is human nature to mentally turn off to the things we often know we need to hear the most. Somewhere in the fog of history – or maybe from too many expert opinions – the public has come to feel that if markets go down, something is wrong.

The domino effect is simple. The bad lesson goes something like this: if it hurts, it is not working. If it is not “working”, then something is wrong. If something is wrong, I better sell. It works in reverse too. New highs thaw fears – slowly.

Higher highs still – often after much time has passed from the previous domino effect (selling when it hurt) – cause the “skies to clear” mentally.

The interpretation is “Hey honey, the market has been rising for years now – looks like things are better now.” Indeed, many convince themselves that stock rebounds, long rallies and still higher highs are the things that prove “the future is more clear…”

It’s fantasy. But for long-term investors, it is magic. And it is happening again.

Sentiment…AII Latest

Read em and reap:


As expected, sentiment tanked again. Note the data being portrayed in these stats:

More than 75% are not bullish

More than 2 bears for every bull

Stocks are hated at 23x earnings

Bonds are loved at 140x earnings

A reminder from yesterday in case you missed it:

It is not just US bonds demanded hand over fist. The German and France bonds cost you to own – you pay them to get less than your money back in a decade! Japan’s 10-year is a paltry 2000 times earnings and get this – dropping to just .04 instead of .05 takes the P/E to 2500! The UK has a P/E of 500+ – all working to make the US bond look down-right cheap.

Incredible. Stunning. Speechless.

Friends, rampant fear + technology + debt + digital transformation does not equal inflation. It is a recipe for deflation – just as it has been since 2008-2009.

Meanwhile…

Let’s dig into the small business data released earlier this week. It has some pretty compelling benefits hidden under the noise–syarting with a focus on jobs:

Note the blue box I have highlighted with a dotted line across current levels. Take a moment to realize that under all the gnashing of teeth and the scare-mongering going on, repair is underway…at a fast pace. Note also current job openings level (dotted line). Recognize that the ONLY periods in history where it was higher were late 2018 and 2019.

Better yet…

The image above from Scott at Calafia shows the hiring plans data under the “always-looking-to-scare-you” chatter. Note once again to train your eye to compare current levels to past. VERY few time periods have exceeded current levels. Very few.

Fear is Control

If I tell you that things have historically worked out well for the US – even when we got punched in the gut – your eyes tend to glaze over. Your first instinct might be something like “Mike does not understand how bad it is out there…” I get it totally.

But, if I tell you that you or your wealth is in imminent danger, well, I most assuredly have your undivided attention. It has worked that way since the beginning of time.

Negative chatter sells. Fear-driving chatter sells more. Period.

Yes – more than enough people will espouse that we should “be very worried that stocks are in a Fed-blown bubble.”

There is an alternative viewpoint – which has been in play since I started in 1982 at DOW 970.

Today’s higher 1-yr forward-looking P/E ratios suggest instead that stocks are focused on “what’s next” – setting the stage (discounting) for a sizable pickup in earnings over the next year – as margins expand, massive R&D pays off and huge tech spending cuts costs.

If the economy continues to improve as it has these past few months, that perspective is not unreasonable at all. Especially considering that the alternatives to stocks—notes and bonds—are sporting massively higher P/E ratios as noted above for you already.

Imagine for a moment if I told you that we only buy stocks with 100+ P/E’s???

Your response? Exactly.

An Interesting Thought

Given the window we are currently all living through together (the most important word being “together”), we risk ignoring fundamental truths of economics as shutdowns are worked through and abate.

The good news? This is America.

I don’t need to remind you that in America, we are in the business of getting over things, we are in the business of building better solutions, learning from setbacks, overcoming obstacles and surmounting hurdles….and business is good my friends.

Do NOT make the mistake of underestimating the powerful forces at play underneath all the negative political chatter.

The Decades of Disruption have just begun…

For September…you have seen it many times…Pray for a choppy correction.

Sure they don’t feel all that good — indeed they are stressful. But when prices get crunched in the near-term, recognize that history proves the event “spring-loads” the market, preparing the returns going forward.

What did the Tech bubble of 2000-2003 create? The returns of the next 10 years.

What did the GFC of 2008-2009 create? The returns of the next 11 years.

What did the waterfall selling of the GVC (Great Virus Crisis) in March 2020 cause? The returns for the next XX years.

Summary…No Matter How Nasty The Chatter

The image below does not change, no matter how sloppy it gets in Sept. / early Oct., as we reset and refuel the foundation for the next leg up. Do NOT buy into the incessant chatter about crashes and such. The same crowd was telling you about S&P 3,700 just a week ago.

Read ’em and reap:

As disconcerting as it is at times, be confident you do not want to a see a market simply go straight up. Consider this comment below from Morgan Housel when you see ugly days and weeks like this in the markets:

“Stocks decline on news that if there were no declines there would be no risk and if there’s no risk there’s no opportunity and we all want opportunity so stocks declined.”