“Just because the tide is out, doesn’t mean there is

less water in the ocean.” – Seth Godin

 

Good Morning,

It is said, “the enemy comes like a roaring lion”, mocking our fears, stirring our emotions and causing stress.  As the markets launched through the Santa rally just days ago, all of that has been replaced and reversed due to something that markets have known for weeks.

Another Panic Attack…

I cannot type all of these out – or make the image tracking the events larger – sorry.  The impact should be the number of various panic attacks since the lows of 2009 – just as the world look like it was over.  The Great Financial Crisis of late 2008-2009 made an indelible impact on investor psyche.  It seems to have permanently changed the manner in which cash will accumulate.  Now over $21 Trillion, I keep thinking it may ebb.  I keep thinking that at least the pace of increase will rollover and the masses will understand what they are missing by having a mountain of cash

 

Today, we are witnessing yet another panic attack (our 72nd by this list above) since 2009 lows, this time over the idea that we MAY see interest rates at the Fed level rise from 0.0% to 1.00% over the next 15 months, at the rate of a 0.25% increase at each of the next 4 rate meetings. 

Because it is scary, because the audience has been falsely convinced that rate hike cycles kill market benefits, the projected 15 months of rate hikes has been bought by the mass audience as correct and assured, hook, line and sinker.  

Ponder this for a moment?  Seriously.  Why do you think that if I say something very scary to you, one is more likely to believe it, fear it and act on it, versus saying something that is good – like, say, odds are higher we are looking at another double-digit increase in stock gains by the time we are done with the same calendar?

Why do we doubt (so severely and easily) one and are immediately and easily convinced of the other?

If rate hikes are not enough, know that variants will be rolled out one after another until the audience completely ignores it all.  This just inserted into the news flow late yesterday as fears swirled

 

I am going to go out on a limb here and make a statement: 

If the investor audience is looking for a day where the news flow will be good, positive, free-flowing, supporting, happy and pleased with the future – they are greatly misunderstanding the business model.

There will be no days like that ahead – period.  Indeed, in case you have not noticed, when there is even a remote pause in the “intensity” of the flow of bad and scary news, the next onset of “bad” is even more intense and feels heavier than it was before the pause.

Case in point:  we have gone – emotionally – from living in a world of rates that years ago could have only been dreamed of in some fairy-tale world, to being petrified of 2.00% Fed rates, projected over two years from now – IF the FED makes every meeting an increase between now and then.  Hilarious.

Fears have immediately shifted, on a knife’s edge.  The media training has kicked in and the reactions readable.  This too will wear itself out as yet another false reality.

A RECAP is Helpful

Sometimes, a refresher on the concepts unfolding around us is helpful.  We have a nice video that does that – and you are welcome to watch it here:  www.trubeginnings.com

The point:  Major change is upon us.  It will come fast and furious.  It will ebb and flow.  It will ruffle up our edges at times and then take us to heights we cannot imagine at this time.  Then hated Tech stocks of today (for two weeks anyway) are life changers.  The services, medical miracles, processes and channels through which we will all live and expand are morphing entire new worlds ahead.

China won’t lead anything – other than their consumers’ massive demand for our goods, products, services and brands.

As warned for months and months, they are just beginning to feel more and more of the pressure of their opposite demographic footing versus ours.  There is a main theme unfolding – never bite the hand that Fed you.  I won’t belabor the point but China’s economy exists because we fed it trillions in manufacturing for decades.  That is changing – quickly.  Add this to the idea that they have more 80-year-olds than 10-year olds and you can understand why “suddenly” they have a real estate problem – the opposite problem we have by the way.

Here is their pattern – and it will not change as demand falls for many years to come

 

One by one – their condo and real estate developers are running out of demand and have too much supply.  The CCP will be owning millions of condos for years.

I – and you – should be very happy with our “real estate problem” as we need to produce millions of homes a year for the next 15 years plus to meet demand.

It will just require patience – and time.

The point is this:  starting out a New Year in a sloppy, scary manner for markets is almost par for the course after a good year up.  In the larger picture it means almost nothing and has unfolded this way for decades.

I know that does not help in the short-term – and I also know that news can still be an over-powering mental weapon.

Take a breathe and stand tall – focusing ahead on the proper horizon as nothing is going to stop the Demogronomics® generational forces headed our way. 

We don’t have to agree – but disagreeing will not change the fact that they are coming through the system for the next 30 years – period.

Here is What is More Likely In This Mess

In short order, the media montage has created this wall of “well, or course, we know exactly what is going to happen to rates for the next 15 months – set in stone, take it to the bank – and it is highly likely to be even worse than what we are telling you know.”  The air of assuredness of the future is almost laughable if it was not so sad and damaging to the audience.

The reality?  You may want to consider this:  (warning: contrary thought forthcoming)

The fact is that the squeeze we are watching is losing its force.  Just 48-hours ago the ISM manufacturing index showed input costs had their largest month to month DROP in 15 years.  Re-read that last sentence.

Shipping squeeze rates have plummeted in shipping lines.  Manufacturers are steadying their pace of output at record levels to catch up with demand.

There will be a time – by say summer – where the “horrible inflationary pressure” comps will NOT be what we are seeing for the last 8 months.

This is what happens in the S&P looking forward AFTER the previous record prices drops in input costs

 

The gray bars show you the results even as price pressures remain elevatedbut beginning their moderation.  In essence, coming down the other side of the mountain (squeeze) of the bell curve we have noted often over the ensuing months.

Again, the scare started in March – with the first spike in rates – imaged below for you.  Here we are – now in our 8th month of “hot inflation”, with rates basically back to the same spot, covering about a 50-basis point range for most of the year

 

Does that look like a Bond market that is worried about 8 months of “hot inflation” readings?   “Yes, but Mike – that’s just a year snapshot.”  Ok, good point – let’s see what 5 years looks like

 

The confusion may be that we are simply gyrating back to the region we were in for years – before the pandemic.  Friends – this is not bad.  Let me point out one other element:

Never, in the history of the United States economy, have we entered a recession when Fed rates are under 4%.  

Further – does the Gold market look like the inflation monster is going to eat us alive over the same period?  We have been told for how many decades that Gold is your only way to deal with hell on Earth inflation?  You tell me – how does it look to you

 

Yes Mike – But The Recession

Sorry – I had to put my coffee down before I typed that last title section.

First – yes it absolutely stinks watching these “rotations” between sectors, rolling from loved to unloved and back again, over and over again over the years.  I promise you I hate it more than you do.  Alas – history teaches a better lesson.  Succumbing to the mass “expertise” is a one way street to not meeting goals.

You end up in the masses – meaning the long-term history of obtaining just about 33% of what the market actually delivers, all from one simple thing:  reacting to fear.

About “the recession” everyone wants to attach to rate hikes as an outcome

The same experts who are now shouting at the moon over assured rate hikes for months in advance will soon fall to the wayside.  There will be lots of excuses as to why that projection failed – but while it is failing, you will hear much about the recession caused by rate hikes.

Another reality not based in fact – anywhere.

First – our problem is that demand is so high and supplies so tight that squeezes are unfolding.  If I tell you that in the middle of record demand, record wealth, record pipelines or orders, record cash flows, record margins and record earnings, somehow we have a recession risk, then honestly why would you believe anything else I say?

With little to no inventory, huge wait times, demand off the charts, cars moving, houses moving, piles of cash in the bank and all the records already referenced, there is NO WAY you get a recession from that set of facts.

The conditions we are facing in the real world (not the media coverage) are the EXACT opposite conditions one sees before a recession.  Get a grip and look beyond this mess as it is the only way through these storms.  The bad news?  We can all count on this:  there are more storms ahead.

I want to remind us all that the next 40 years will tend to look a lot like the last 40 years.  This time around, things will be moving MUCH faster.  Good and bad things.  Gyrations will feel worse, chop will feel deeper, angst will feel more worrisome.

Why?  The law of large numbers.  The bigger the averages get, the larger the drops will feel, even though they are the same percentages.

We must work hard to embrace this and not be thrown off course mentally/emotionally because of it.

The Next 1,000 Point Move Trigger?

Somewhere between now and say mid-to late summer, we are likely to see that the “inflation monster” will have perished.  Things will have caught up, demand will be getting, pipelines will still be full but manufacturing efficiencies and supply chain adjustments will be seeing somewhat of a dust-settling effect play out over the landscape.

Recall also the math effect of round-tripping spikes from when the scare started – the month over month and year over year comp figures will begin to first fall in velocity and then recede completely.

Hence the odds are VERY high that the contrary view is gaining steam under the surface as all around you may feel a little nutty and unsettled.

Remember, we must always pay attention to the underlying current – not the waves in the storm.

Look out a few meetings and perceive that by summer we see these moderations begin to unfold.

Do you really think that the Fed will raise rates if indeed they turn out to be correct that inflation was transitory – but for just a little longer than hoped for by a couple quarters?  Do you really think all those experts baying at the moon will be correct that the Fed would do something like that – unsupported by data?

We don’t.

The demographic and technological forces, on all fronts, battling the temporary inflation squeeze are vastly larger than the forces driving the inflation squeeze in manufacturing.

Time and patience will see this through – just like all the other storms before us.

As always – call if you need anything.

 

Until we see you again, may your journey be grand

and your legacy significant.