“The journey to the light starts with a candle.

Once it’s lit, darkness has gone forever.”

―Adriano Bulla

Good Morning,

While it may not be apparent in the press, things are improving. A Tectonic Shift is underway. Those awaiting “normal” may have missed the point. “Normal” is a signpost on the pathway we sped past long, long ago.

“Normal” today is more likely defined at how willing you are to remain flexible and envision the benefits of the future racing toward us at light speed. This, even as we trek through a dismal yet life-changing window in our history.

If we get stuck in the dismal part, we risk getting stuck there for an awfully long time.

Late Stage

The last weeks of the doldrums are ahead. Long-time readers know that we typically see a “return” to regular levels of volume and participation by the end of the week following the Labor Day break. We expect this week and next to be the highest volumes of the year – but, alas, this could be wrong. After all, I have been 110% incorrect in looking for a “normal” summer swoon.

But I have a feeling in my gut, it’s still out there.

I will, though, suggest again, if we do not get a mild rest, choppy pause or even a small corrective wave to spook a few before the train leaves this station, the message will be clear. The market will be suggesting that the massive fear and depth of concern has completely missed how strong companies are adapting and how “the new normal” will be vastly better than what many may think they are awaiting.

Indeed, the paradigm shift of all paradigm shifts may be that we have entered yet another multi-year market definition of the future. Recall, it took from the lows of 2009 to the first-of-year highs of 2018, for the crowd to “feel good again about stocks.” Sentiment was your tracker the entire time. And – it still is.

The latest AAII sits almost idle even as new highs are crested – disbelief and fear is strong, aligning nicely with the Yale “Crash Confidence” stats from last week. Even now, 70% of the audience is, well, not so confident about stocks, with a bullish reading of just 30%:

This meshes with the Lipper Fund flows data showing that $10B came out of equity and went into bond related funds in the latest read. This when 10-years are priced at over 140+ P/E’s, an absolute sure way to lose capital over the holding period.

The scariest part of equity investing is that history proves that the highest future values for stocks are often defined when the public is racing for bonds – at any price…even 140+ times earnings.

The chart above from Bespoke is a view of Yale’s Crash Confidence reading for individual investors – going back to 1999. Please note, it is a bit backwards in how it’s presented: low readings mean that a low number of investors arenotworried about a stock market crash.

The lower the reading, the higher the worries are about an upcoming market crash. Higher readings suggest an increased level of investor complacency.

..and then, here is that indication of what was next – after those previous times we felt this bad:

Notice that markets may have indeed chopped around for a bit in those circled areas – BUT, they did not go significantly lowerAFTERthose fear levels were reached.

Remember – and this will be critical in the next few months: stay focused on “next” – not “now.”

And, pray for a corrective wave. If we are fortunate enough to get one, it is likely to be the last. Here is a short video about corrections just in case you are nervous.

What About After?

Consider this in your mind. Out of the darkness comes light. What if – in the process of finding a current vaccine for COVID, we “stumble” upon a vaccine line-up for all SARS family illnesses. Do you really think we are learning zero with all the energy, brain-power and capital being thrown at this problem?

What if all companies master the online experience? What if drones really do deliver your “stuff” to your doorstep? What is space really is the next frontier. What if flying taxi stations are coming to a city near you?

I flew on a plane this weekend. One could tell the airports were buzzing a bit more. Still a ways to go – but it was a bit busier. The planes were a little more filled. I did notice a complete refit of the air vent. A fancy new, futuristic looking airflow station had been installed to completely replace the previous little knob and light switch overhead. It now includes HEPA filtration above every single seat.

Remember friends…adapting beats fear. Flexibility beats freezing in the headlights.

There is no country on Earth, filled with people running companies who are better at overcoming adversity, rebuilding better solutions and climbing the next mountain successfully. None. The USA has them beat – hands down on all those fronts.

Stage Is Set

Here is one thing we can be confident of – based on past history. Those following Wall Street analysts “guidance” don’t yet have a good feel for how the machine works. If all goes like it usually does, the “expert” crowd will be much like the non-expert crowd: behind.

This has become more evident since the ’08-’09 debacle. Orders came down from higher ups for analysts to “never get out over your skis again” as they looked awfully foolish walking into the Wall Street collapse in late 2008 – very bullish. Given the latest, expect that process for decades to come.

How far off were they in this first “after shutdown” earnings season?

In a word: very.

This is good friends. Not bad. Read ’em and reap:

Let your eyes work backwards to the left from the 76% bar and check when it was higher. Oh, wait – it wasn’t higher.

There is more…it’s good too:

Consider what the chart above is suggesting. In the midst of a government shutdown – elements never before seen in our lifetimes from an investment and wealth management perspective – and companies raising guidance are vastly outrunning those lowering it.

Two words: Technology and Technology : )

The tectonic shift is underway. The New Economy is forming right before us. Sure, things will be different – some of those things vastly different. But suggesting we won’t win that battle and successfully rise to new heights has been a bad bet since our ancestors arrived here.

The best news of all? Wait until you get a load of the monster coming after this one. Good Lord. It will make this last 6 months look like a summer camp. And if it doesn’t, you won’t pay attention, the media addiction will fail, their revenues will fall – and the world will become a better place.

In the New Economy ahead, the long-term investor who can remain more focused on opportunity than peril, even as they live through that peril – will win. It’s a tough game – but that is why they never called it “fun.”

“Of all the liars in the world, sometimes the worst are our own fears.”

—Rudyard Kipling

In Summary

Overlook the Waves– pay attention to the underlying current.

Adapting, overcoming and making things better are all foundations of American History. Doubting it for anything more than short stints during the shocks themselves – has been a bad bet, forever.

Demogronomics©does not fade.

It may be lost in the haze of current fears – but it will remain the underlying current.

Ignore it at your peril as a long-term investor.

While tech sectors could sure use a corrective wave to spook even the small percentage of bullish investors away, I suspect setbacks will be short-lived with $18+ Trillion sitting in bank accounts (see Scott’s Fed Data below) and 10-year bonds selling at 145 times earnings.

Yes friends – the world, and our entire economy is changing -forever.

Every single thing will become new again.

The 80’s and 90’s were the Boomer’s Decades.

The 2020’s and 2030’s are the Generation Y Decades – and the rocket-ship driving that expansion will be “everything tech” – including stuff we have not even dreamed of yet. Grab your popcorn and tighten that seat belt. It’ll be the best Disney ride you’ve been on yet.

The tougher you punch America, the higher she rebounds. It’s how we are all built – together.

Imagine that – me – being repetitive? Nonsense : )