“Wherever something good is trying to happen, something bad is trying to stop it.
The good news is we get to choose which voice we listen to in the process…”
First, we hope this Holiday Season has been – and will continue to be – a blessed, safe, healthy and joyous one for you and yours. I have purposely tried not to pepper you with morning notes for the last week or so in order to not interrupt the fun. LOL
Know this: our best years are ahead!
…and we wish you the best Blessings of the New Year just ahead.
As always, we will be here to serve you and guide along the pathway ahead with grateful hearts for the opportunity to be of value to you.
The Nutty Stuff First
Sometimes I listen to news so that I can gain a sense of just how dynamically nutty (and comical) it becomes.
Case in point: This morning, a nice lady was being interviewed by “Becky” on a morning CNBC piece about “the supply chain collapse” – and how it affected the Holidays. This nice lady from Thomson Research Group thought this was a good response:
“One of the largest benefits we can hope to see is a slowdown in consumer demand in order to fix the supply chain.”
A sentence or two later, she added, “Becky, think of it this way, it is being suggested that we need 80,000 more drivers alone to move the trucks out of ports at current demand levels.” – and she closed out this wonderfully brilliant and illustrative line of thinking with this tidbit:
“With the current labor shortages everywhere, it is difficult to see how we are going to ever resolve that problem.”
And if all of that was not enough to make you nervous as a viewer, this is how Becky summed up the closing of the snippet:
“Ok, well thanks for joining us and providing these insights, it sounds to me like the best bet for fixing the current supply chain issue is a recession for next year so we can slow down demand.”
Now, take a moment – if you will – and read that conversation again. Then, promise yourself – and I really do mean promise yourself – this: Make sure you never permit yourself to be swayed by bullshit, completely backward, garbage type thinking like this for the rest of your life.
Why Would We Call It “BS”?
Simple – it leaves out almost all of the good stuff that happened “while” the supply chain was showing its age and the fact that it is marching forward to leave China. Call me a nut – but I prefer to pay attention to the records being set while we solve problems – versus focusing on the problems.
Why again? Simple again:
There will ALWAYS be problems.
They are never, ever going away.
The good news about that you might be wondering? Pray that it remains that way for many, many years to come.
Here is what the nice lady from Thomson – and Becky – may have missed. Retail sales for this Holiday Season (not yet completely over), surpassed even the highest projections of growth made early by the National Retail Association. We stated at the time that this was our bet as well. Sales exceeded 2019 (pre-pandemic levels) seasonal numbers by nearly 10%.
Massive inventory rebuilding is going on – as anyone trying to shop for big-ticket items can see vividly. All of this is leading to rather large GDP gains being baked in for Q4 – and soon more records to be set. This will lead to more record earnings, more record wealth and – you guessed it – more scared money in the bank!
LOL – you cannot make this up – even in Hollywood.
Check the latest from our good friend Dr. Ed Yardeni – it backs up what we have been covering for years as we trek up this mountain:
Dr. Ed’s thoughts: “Since February 2020 through November 2021, M2 is up $5.9 trillion to $21.4 trillion. Leading the way higher has been its demand deposit component, which is up $3.2 trillion over this same period to $4.6 trillion. M2 is now equivalent to almost a year’s worth of nominal GDP. That’s a record.”
Dr. Ed’s chart of just the cash bank deposits over the last few decades. Note the vertical move upward after the “end of the world” Great Recession in early 2009
All this fear rages onward – while records are being set to the upside in nearly any important and valuable category you may want to track. There is that word again – “while.” Expect nominal GDP to shatter more records in the months ahead.
One more thing about recessions.
“Real-time” inventory, made possible by Fedex and UPS – and the very supply chains the world is so focused upon now, made it nearly impossible to have a recession. After all, if one had 28-days of “supply” (pre-pandemic average) and a bell went off signaling a 50% drop in consumer spending (that has never happened in the history of the world), you would still have empty shelves in 56 days.
You cannot have a recession set in over 56-days.
How did we see this proven out? Simple – we had a pandemic and global shutdown. Even then, the soothsayers on when recessions begin and end were even shocked when they had to note months later, that “the recession” caused by the pandemic shutdown was “somewhere around 3-4 weeks long.” Really?
If investors do not let those last few notes sink in as very positive foundational elements moving forward – they will be missing the boat, train and anything else leaving the station to head up this massive mountain in the years ahead of us.
Need More To Let You Know?
The proof is unfolding all around us in ordinary life. It suggests strongly that the strengths of Demogronomics® and The Barbell Economy® continue to shine the more productive light on the pathway ahead – and that goes unabated:
Housing shortage – by millions a year
Massive increases in wedding plans, wedding rings and new family formations
The latest? One note in retail sales that I thought was fascinating: Over the last 3 months, “a huge surge has been seen in the sales of pregnancy tests.”
As last year ended, one of the notes we made was this: “Too many are fretting about birth rates. Generation Y took longer to get out of school, longer to leave homes, longer to get better jobs, longer to get married. It should be no surprise, they are also taking longer to have children. The surprise a year or so from now will be the beginning signs of the ‘next baby boom” driven by Generation Y – and, of course, helped along by the shutdown LOL.”
In the end, “consumer demand” that Becky and the lady from Thomson were complaining about as the driver of supply chain issues COMPLETELY MISSES THE POINT.
That point? Demogronomics®.
Massive consumer growth is set to unfold for years and years ahead, as millions and millions of new households form with the Generation Y “move-out and pair up” wave of change comes in like waves on the beach.
And yes – change will be all we can count on – so pack an extra supply of patience indeed. It is set to be well worth it.
Will it be an easy, straight-line, nothing but roses journey up the mountain ahead? Of course not – that’s how it builds wealth over time. It demands you just keep climbing forward – inclusive of all the mess that will litter the pathway ahead.
Once again – pray for those setbacks along the way.
Earnings Ahead…and a Glimpse into 2022
Good Lord – here we are — the clock strikes midnight on Friday evening and all the stats start fresh. That fresh “start” will lead many astray and falsely color too many important items – as it does each and every year. Don’t fret, it has been that way since I started in 1982.
Before I get to reminding you of these stats though, I want to reiterate that word “while” and its’ vital importance in your wealth-building life ahead.
You see, the odds are pretty darn high that the next 40 years will look a lot like the last 40 years. Simple right? But many will forget just how simple as each new storm cloud forms – and then passes – along the way. Natural disasters aplenty, political unrest at a suffocating level, more than a few variants in the wings, lots of government control threats, dozens of financial disasters, lots of earnings “swoons”, more than a few new tax laws, massive supply chain remakes to come, several corrections and yes indeed, a couple bear markets.
Don’t worry – all of that and more has happened to us over the last 40 years – and yet – the DOW has moved from 900 to 36,000. The only real lesson we learned? The danger was our own emotional control, our own focus, our own patience, our own faith and our own ability to remain patient and stand tall against the storm – no matter how nutty it seemed nor how painful it was at the time.
A very tough, often bad-tasting – but valuable lesson indeed.
So Dead Ahead
We are going to hear a lot about slowing “growth.” Yea – right. The pace of increase will slow and that is completely natural. Experts, talking heads and the media push will be to have you fear the idea that instead of 45% profit growth from last, “all we will get” this coming quarter is 19-20%!
Let’s take a look and then dissect for sanity’s benefit
Over the past 10 weeks we have seen a return of the more normal, “let’s back off projections for growth because the last thing we want to do is say XYZ will earn $1.05 and then they earn $1.02.” LOL. It’s funny even having to admit this is how Wall Street analysts work now – but nonetheless, it is. This is the “earnings hook” we often referred to in years past whereby you water down expectations, see prices soften out of “fear of slowdowns” and then they miss by 70% and records get set. Not perfect all the time – but close.
So, we expect the current 19.3% to be exceeded.
This chart above merely makes all the quarterly columns into annual summaries, going back to pre-pandemic days in 2018 and into 2023 ahead with current “very watered down expectations.” I mean, after all, there is no way we can keep growing this well with 88 million + kids just beginning to crowd into real economic power and demand – pushing real money, right? LOL – I jest.
Here is the point of the chart above: most focus on the 13% drop in earnings during the pandemic year. Yes, that was bad.
But, here is what gets missed when you do that…
Let’s go back to 2018 and move forward on a compounded basis – through the pandemic – beginning at a level of $100.
$100.00 at start of 2018, ended at $123,20
$123.20 at start of 2019 basically ended flat – we will give them the .40% increase
$123.20 at start of 2020 FELL to roughly $107.18 during the 13% earnings drop in 2020
$107.18 rises to $155.84 during the 2021 recovery surge in productivity
$155.85 rises to $169.50 during the “slower growth in 2022”
$169.50 rises to $185.83 out in 2023 – driven again by the “slower growth rate”
More Likely Outcome?
The “slower” growth expected by the mass of analysts – will be wrong given the 70+% of being wrong in the past. The $185 number will be low and the markets will know that in advance. Please keep in mind that in this set of examples, I am not trying to make the point of anything related to the $185 – it in itself is an arbitrary figure using a $100 figure at start of 2018.
My point is to show that a vast part of the audience gets lost in the pandemic, the shutdown, the politics and the “earnings slowdown” garbage rhetoric and misses the fact that the base number rises over 85% during the 5-year period.
This is all bolstered by the fact that even now – we still have 65% of the audience NOT bullish in the latest AAII sentiment. Stack that on top of the $21 Trillion in cash noted above and, well, what do you think happens
What you want to be asking yourself is this: what happened AFTER the very few times we have seen this reading lower?
The stage is set for significant growth – like it or not. And be 100% assured that this will come packaged along with more than enough to worry about and fret over – and plenty of problems to solve. The press will have a heyday with setbacks along the way and you will be sure bear markets are right around the corner. One can always have in their back pocket that in secular trends like this, a 10% correction from any of the new all-time highs can always unfold – and helps build future returns.
The only question we face as investors is the same one we have faced for 40 years: Faith or Fear?
Have a fantastic, wonderful, blessed, safe, enjoyable and very Happy New Year!
The best is yet to come.
Until we see you again, may your journey be grand
and your legacy significant.