“If you point to paradise, all the shortsighted will see is your finger.”

―Matshona Dhliwayo

Good Morning,

The toughest part of long-term wealth management perspective – is the waiting.

Very tough indeed, especially when you throw in such emotional events as we are dealing with now…on multiple fronts.

First – thank you to everyone who took the time to join our call yesterday. We truly appreciate it.

As promised,your link to “listen in” is right here.

If there is anything else you need – or want to cover – we have included a “Request a ZOOM Call” button on the recording page above.

On to the Good Stuff

Earnings season is almost through it’s peak – and the numbers have been vastly better than most expected. Here are a couple of snapshots to show you visually how big the beats are compared to other times in history:

The current beat rate – and the margin by which beats are being registered – have not been seen in decades. While overlooked by most, it is the footprint in the sand which helps you understand the internals of business are adapting and recovering in far more productive ways than assumed. Fear will, unfortunately, continue to blind many to this process.

Housing…Running Out

For then 12th week in a row, housing data blew the lights out. Take in this concept: in a world which was already under-building for the coming generational wave of “moving out and moving up”, you cannot have YOY increases of 20% ++ for very much of a span – before you run out of houses to sell.

This is the warm-up guys – the pitchers are stretching, the fans are still rolling into the parking lot, tail-gating is cleaning up and popcorn machines are heating up. The game is early…take your seats and enjoy the extra-inning slugfest ahead.

I deliberately provided you the bullet points from the latest housing data first. And then, I will snapshot in the headline…see if you can find the mis-direction to keep the reader afraid:

If you focused on “but rates are suddenly rising now…”, you win the prize. And by suddenly rising, they meant by 4 basis points…back to Wednesday’s average rate. That’s sort of like saying “…in the last 6 minutes, the market has suffered it’s worst price action…since 45 minutes ago”

Good News Comes in Waves

But sadly, you have to dig it out from all the mess, dust it off and let the light shine down on it. Case in point: Main Street. If you listen to the droning on of the headlines, small business is dead. Yes, some of it is…but most is not. They are adapting, they are fighting. Support them, buy small – and you support the common thread of America. Look beyond the riots – that is a very small fraction of a vast audience…and the small fraction was already unhappy. There will always be a small fraction that is unhappy – we all get our turn in that barrel.

But like I suggested, good news is brewing…small and large. Small first:

Once again, the key points of the data are provided first above – with the “surprise” obvious in the headline instruction…”oh, ye of little faith…”

“Stunning” may be overkill…but we all know the media rarely exaggerates so we will let them pass on this one.

It is not just small business. Beneath all the negative chatter, ISM Manufacturing data is already back in solid expansion mode. As we covered in our review call above, we should expand a steady stream of a return of manufacturing to our shores – for years ahead. A very positive step for the US for sure – and don’t let anyone scare you into believing something else:

It’s Not All Shiny and Clean

Nope – not by a long shot. To be fair, we all must recall that opportunity doesn’t come gift wrapped in the world of long-term wealth management. The path is often interrupted by left-field events…and it takes work, patience, discipline and flexibility to withstand the storms each and every time.

The summer churn is evident internally over the last few days. The front-runners of the Barbell Economy™ are taking a breather…a good thing as hinted at for a few weeks. You don’t want things to go straight up…and we should all know by now, the guys in the front get the arrows first. It is a good summer pause – and a chance for a second wind and refueling. Here is the internal sector chop of the last week or so:

The Latest Jobs Data…

Great news: “better than expected” riddled the coverage 20 minutes ago on the data release. Give it another 30 minutes and it will be turned back to negative. Here you go:

For the first time in the last 21 weeks, jobless claims dropped below a million (963K), which was solidly below consensus forecasts for 1.1 million.

Continuing claims also came in lower than expected but by a narrower margin.

Let’s not sugar-coat it at all: 963K is still high byall historical comparisons outside of the last several months, but it indicates a continuation of a move in the right direction. Remember…better or worse and “next”, not “now.”

On the political front, this data likely only causes more vitriol to flow. If “more stimulus” talk was going to demand a sense of urgency to getDemocrats and Republicans to come to an agreement, the stock market closing back in on record highs – and now jobless claims easing back below a million – aren’t providing supportive ammunition. The fight is sure to rage on…please work hard to ignore it.

Let’s Close with Sentiment

A “mild” improvement overnight in the latest as we saw bullish readings move to 30%…suggesting 70% remain “not so bullish” – or terrified. A couple of things are compelling lessons when you see this data from several perspectives. Take a look when you get a moment:

As often stated, the weekly readings need to be fed into a moving average to take out some of the noise you see on charts. Plus, when you see it in a moving average, you can understand better the type of trend which is required to “turn it around” if you will. Take this as good news:

Why is this good news? Well, as you can see above, the 6-month rolling average of the spread shows you how lop-sided this has become – and why a short summer swoon would be a great little gift during the storm of fear. Note we have only seen these types of deeply embedded feelings during two major time periods before: The obvious of 2009, right before 11 years of “up” and then the early 90’s…again right before about a decade of “up.”

The last item to show on sentiment is the 8-week moving average of the Bullish readings has also fallen into rarely-seen territory. All those other times? Lows…not highs.

Have faith friends…it works far better than fear over the long-run.

Please note this is not meant to be a timer – it is meant to give you a sense of the long-term “what’s next” perspective – a far healthier way to perceive the stresses we are all living through together.

A little deeper thought on that last chart: A total of 37 prior weeks since July 1987 have had readings below -12 (currently -13.5) on the rolling 6 month average of bulls less bears reported inAAII.

Historically, these sorts of readings have been associated with impressive forward returns, including a median 22.6% move over the following year:

Ok, Enough Mike

So there you go — on to the next batch of negatives working to flood your senses if you let them. For now, a summer pause would be a spectacular gift.

Bonds would move back down, rates would fall, debts would be refinanced, interest by the billions will be saved, improvements will continue under the naysayer’s chatter, 2021 will continue to get better.

America will fight back stronger than ever before…and the patient investor will be set to succeed.

Enjoy the remaining summer.