“In investing, what is comfortable is rarely profitable.” 

~ Robert Arnott

 

Good Morning.

I’d like to encourage you to consider the idea that much of what the public audience has been “taught” about investing and the building of wealth management plans – is almost entirely wrong.

Risk is a required part of the equation.  Volatility is a required part of the equation.  Corrections are a required part of the equation.  Just as are trade ranges, choppy windows, sector rotations, periods of being ahead and periods of being behind.  Market movement or volatility do not define your risk – though one would never know that listening to the garbage produced as financial media today.  Time – yes – time, defines your risk.  Always has – always will.

I have seen it said another way where Daniel Crosby wrote in The Behavioral Investor:

Trusting in common myths is what makes you human. But learning not to is what will make you a successful investor.

Maybe it just took doing it for many years, but I almost always think nearly the opposite of what the media “reports” in its never-ending battle to keep…your…attention.  I can, with some confidence, suggest to you that taking almost all of what you read and hear in financial media with many, many grains of salt…and a chuckle – or six – along the way.

Encouragement

I’d ask for the opportunity to pass along an encouraging theme to keep in mind:  One must accept that everything across the landscape is changing.  Imperceptibly slow at times and blindingly fast in others.  Everything in business, from processes to creation to research to delivery of services and products – will change, some radically.

My encouragement?   Embrace this as a life-enriching opportunity.   We are all very fortunate to be alive when we are – in the times we are living today.  The next 10-25 years will birth more change and opportunity than have been witnessed in the previous hundred years.  Technology and its speed will cause the pace of change to be head-spinning at times.

And all the while, as investors, it will demand the highest levels of patience and discipline we can muster.  The ability to stand still in the storms and the churn, with one’s focus directly on the vast horizon ahead – will become a very critical trait.  And this will be even more so when things appear to be “going wrong” or don’t make sense.

In essence, the successful investors of tomorrow and the years ahead will be those who can, in the midst of discomfort, find a way to be comfortable (and somewhat excited)…becoming even more so when everyone around them is full of angst and fear.

The reality is proven over time, so make sure you watch this video:   www.truvinsights.com

The higher prices rise, the more vicious, steep and quick will be the corrections along the way.  Cycles of fear will be dramatically quicker.  For example, when the DOW hits 50,000, you can be assured it will feel like a lot further down to the ground than it does at say, 35,000.

One more thing:  You know what a new all-time high tells you?

It tells you that every single thing before it which you were told was bad news, perilous to our future and definitely something to be fearful of or worried about, requiring some kind of immediate change or adjustment on your path – was dead w.r.o.n.g.

And by the way – markets hit new highs last week even as lots of churn is unfolding internally as short-term traders try to read tea leaves.

Wake up,  The new world is rocketing forward all around us.

Don’t ever let the negative droning on in the press blind you to that reality.

Earnings – Rapid Acceleration

A week cannot seem to go by without a new gear being reached in the pace of surprise being delivered by accelerating corporate margins.  The better news?  The fundamentals being reported from the economy suggest far more good surprises ahead.  First, the latest in earnings.

The rate of beats is off the charts – shattering analysts expectations over 80% of the time so far.  You can’t get much worse.  Further note the levels of total earnings

 

That highlighted column is almost $10 Billion higher than last week’s update – and almost $100 Billion more than when this Q2 season began. One hundred billion dollars more.  Very few understand just how good it is going to get for the US economy.  Notice also that this is not just a dynamic lift again Q2 of 2020 – decimated by the COVID lockdowns.  It is a massive improvement on Q2 of 2019 as well – like about $110 Billion of improvement.

Overall, excuses are a dime a dozen for all those who are misunderstanding how dynamic these changes are – and why they won’t be going away anytime soon.  In the end, however, it is not the Fed or the government or printed money that did this – it is business, the ability of Americans to overcome and the technological forces being unleashed.  Just last week, we had broken into the 80%+ YOY growth rate – a week after breaking into the 70%+ annual growth rate.  Now, read ’em and reap – 90%

 

Combining the results that have come out with estimates for those still-to-come, Q2 earnings for the S&P 500 index are currently expected to be up +91.8% from the same period last year on +24.2% higher revenues.  This would follow the +49.9% earnings growth on +10.3% higher revenues in 2021 Q1.

We expect the same steady improvement for Q3 – and then Q4 as well as the onion is peeled – Q4 being what should be on the back of a record setting Holiday Shopping Season, like it or not.  Speaking of records – the current rate of earnings for Q2 has already surpassed the all-time highs for any quarter, which was set last quarter.

As much as many may choose to find the bad – we may want to consider and respect how much is good too.

Speaking of Q2

 

Just 6 months ago the same experts chattering about all the bad news today told you that Q3 would be up just 13% YOY.  Three-quarters of the way through Q2 and we silently find that they were only about 100% off.  The number is now 100% higher – and ticking higher.

More Economic Stats

The data points coming in from various parts of the economy itself suggest those elements driving these record earnings levels are set to continue as the pipeline of orders hits records:

First – the latest JOLTs data is a shocker – over 10 million job openings – the highest ever registered

 

As we have stated often – don’t be surprised at all when you see more and more robots getting work done.

There is more to support your confidence-building process and the pipeline is filling quickly:

July PMI data from IHS Markit signaled the most substantial improvement in operating conditions across the U.S. manufacturing sector on record. Overall growth was supported by stronger expansions in output and new orders, with the latter increasing at the second-fastest pace since data collection began in May 2007. Unprecedented supplier shortages and delays continued to exert upward pressure on input costs and stymie firms’ ability to process incoming new work. As a result, cost burdens also rose at a record-breaking rate even as the accumulation of backlogs accelerated and reached new records.

The seasonally adjusted IHS Markit U.S. Manufacturing Purchasing Managers’ Index posted 63.4 in July, up from 62.1 in June and slightly higher than the earlier released “flash” estimate of 63.1. The improvement in the health of the manufacturing sector was the strongest in the 14-year series history.

The ISM Services’ rise to a 64.1 all-time high in July from 60.1 translates to a rise in the ISM-adjusted ISM-NMI rose to a robust 61.1 from 58.0, and both of these measures previously showed the highest readings ever over the three months ending in May.

Factory orders surged 1.5% in June, much better than expected, following the 2.3% pop in May. The 0.8% rise in June Advance durable goods orders was bumped up to 0.9%. Transportation orders were up another 2.1%. Excluding transportation, factory orders jumped 1.4% versus May’s 1.0% increase.

The Bottom Line

Yes, there are many cross-currents, lots of political issues and a flood of scary media stories churning across the landscape.

Remember, this is not a surprise – it was defined before the Memorial Day weekend kickoff to summer 2021.  The noise will increase as volume drops off to even lower levels in the final weeks of summer.

I would not expect “normal” to be back until the second week in September.  And then what?  Of course – the reports on how scary and dangerous the Holiday Shopping Season is “set to be” – every 90 seconds or so until Christmas Eve.

Enjoy the beach.

 

Until we see you again, may your journey be grand

and your legacy significant.