We wish You and Yours the very best of New Year’s Eve!!
We send our prayers along for a Healthy, Safe, Blessed and Very Prosperous New Year.
2021 Can’t Get Here Fast Enough…LOL
One last reminder: Make sure you take time to watch the recording of our Year-End call done just before Christmas. If you were not able to attend, be sure to watch the recording here!
Volumes of history books will be written about 2020 – on every topic imaginable. The journey has been unique and we could not be more grateful for having taken it with you and yours. We can be confident that the roadway ahead is paved with lots of surprises, many short term monsters and vastly beneficial long-term opportunity.
We will do our very beat to continue to shine a positive light on that pathway!
It is that time of year – where the last 10 days are full of lists. The best of lists, the ones to hold lists, the top 10, 20 and 30 (of everything) lists. All the big houses love to have their “strategy team” in print somewhere “calling” the future.
We will be blunt. That is impossible other than in the form of guesses.
We have long espoused that People Make Markets®. Fortunately for America – we have lots of people in the proper places of the generational timeline. Sure – 2021 will hold tough windows, like every year does. The underlying current, however, is what we want to continue to stress we all focus upon.
Any number of parties are now chiming in that January is a likely point of rest. In fact, the calls for tops are getting louder. The problem? Tops don’t get called loudly out from rooftops by many experts. They get whispered in the back room, under all the other noise of everyday life, when almost no one is listening.
We will send along this final morning note of 2020 with some of the same hallmarks of previous annual final notes:
There will be painful spots next year (like always), there will be a correction next year – somewhere within the confines of the 12-month calendar (like always)…and in the end, the naysayers will have their moment, but long-term investors will retain the benefits of the long-term future.
Who would have thought we could get a positive stock market out of a pandemic year? If that does not tell you headlines don’t matter in the long run, I am not sure I want to investigate what might LOL.
Standing at the edge of 2021 and peering over that feeling of standing on a cliff would be a normal fear. For many, it will be a relief to “lock in profits” and “call themselves lucky” as soon as the New Year gets underway. I suspect the internal churn we have witnessed over the last week or so is part of that setup.
The fears are normal to arise as “all-time highs” are checked off. Oddly enough, when ending at an all-time high, any forward movement for 2021 will require another all-time high indeed. Just as in earnings, new records are set to be held for very short windows of time.
I won’t bore you to death again with the earnings data – other than to remind you it is positive…and at records: along with manufacturing comebacks, housing growth (even as we might feel some short-term pressure if we literally run out of homes in some places), income levels, household debt, cash in the bank and household net worth.
Embed In Your Mind
When the short-term painful windows of 2021 do visit our doorsteps, it will be important to embed the image of the underlying current in your mind. It is unlikely the media machine will get any friendlier in the New Year for investors. After all, we know that “Everything is going to work out fine” is not a profitable, ad selling, click driving headline:
About those All-Time Highs
This is a tough topic as it causes many to strain over the perception of risk. After the last 20 years, with two 50% drops, one Great Financial Crisis and a Pandemic shutdown with a 35%, 3-week waterfall panic – there is no wonder that scarred emotions run deep.
It is completely understandable that many – in their minds’ eye – see a steep cliff coming after 2-3 days of strong red ink.
I get it – and can readily admit to having the same nightmares. Lots of those nightmares have come – and gone – over the last 39 years. The overriding lesson? Try not to move when the fight or flight syndrome is tugging at your mind.
Back in late 1982 when I was having some of my first client (then prospect) meetings and building / reviewing financial plans, I often heard the very same thematic comments and concerns:
“Mike, you might not remember the OPEC Crisis back in ’75, but note that it has taken a long 7 years to get back to where we were then. I cannot imagine buying at DOW 1,000 given what happened the last time we got there.”
It kept going….
“Mike, seriously, invest in DOW 1,100? It’s never been there before!”
“Mike, sorry, I cannot tolerate the risk of another OPEC action and a 35% drop – you probably cannot understand what the risk was like when the DOW fell to 600.”
Our minds are not very good at comprehending upside when we are accustom to creating boundaries in our understanding of the larger picture. In essence, it is as difficult to embrace a DOW 40,000 now (when it has never been there), as it was for someone in 1982 to embrace a DOW 1,400 since it had never been there either at the time.
This will continue onward for every generation. Numbers will adjust, levels will adjust, perceptions will adjust – all while definitions of “correct value” and “overvalue” will also adjust over time.
Net net – as I read recently – here is the largest hurdle ahead – mentally for investors:
“I can’t invest now. The stock market is too high.”
As you may note – it’s a rendition of what I heard in 1982, 1983, 1985, 1989, 1992, 1995 and 1998. You get the picture.
The problem? History proves that “all-time highs” (ATHs) are not something we should be terrified over, though they do cause what we often refer to as “altitude sickness.”
As hard as this is to wrap our emotions around, facts show different results: returns are stronger over time AFTER all-time highs. Why?
Momentum and shifting perspectives. It’s why we always tell clients – waiting for a rainy does does not confirm one will act on the rainy day.
In the end, ATHs drive prices higher over time because those same rising prices attract more buyers which leads to higher prices. This tends to continue until something comes along and knocks this cycle off of its course.
Remember, markets do not crash unless there is something fundamentally going wrong. That will happen – and then we will all fix it – and then we will all move on. This is the fundamental history of markets since time began.
And this is what happens after all-time highs:
Since we are entering a new calendar year, it is also helpful to recall that we humans created the framework of a year. The market does not know it is January tomorrow. It will just continue to move as a numerical result indicator of then present emotional charges, perceptions and reactions flowing through the collective investor audience on that particular day – forever.
There is a shockingly large shock absorber under the markets for any and all corrections ahead. That too would be easy to forget.
With $18 Trillion frozen in banks out of fear, you can bet there is a whole lot of support out there for that window in time during 2021, when Armageddon LXXVII arrives. Even so, that does NOT erase the reality that corrections will come – as required – always…
“Opportunities are like trains. There is always another one coming.”
The Underlying Themes which will continue onward:
…even as we must also understand these themes can have resting points as well.
The rising tide of Gen Y is not stopping. On a daily basis you won’t “see” it. It is there, it is rising and it is relentless. All businesses will be redefined, changed or overrun.
Margins are increasing. Earnings are increasing. (Over the next week or so, the quarter will rollover and we will see a bump-up for the 2021 year from Refintiv.)
For now – this jobless claims data just in makes the point for us…things are generally much better than the MSM headlines would suggest – and they always have been:
I did chuckle when I read bullet 3 – it was sort of a way to make sure you did not catch that they missed it in bullet 2 – and also, to end with that “darkening horizon” theme which sells so well under the surface.
One Last Chart for 2020
I thought this might be somewhat telling. Yes, the odds are increased for a setback in here somewhere. Oddly, that could come in any number of shapes and sizes. More oddly, it rarely comes when everyone is already talking about its assured existence.
I see the data in the following chart as a good thing. Recall back in the summer we sent this along from the Yale Economics team. They track data on fears of corrections.
The data below show a different view. It asks for investor confidence that there will not be a stock market crash in the next six months. Hence, a low reading means that concerns about a market crash are high – and vice versa.
As every reader knows, we view investor sentiment from a contrarian perspective. Based on Yale’s Crash Confidence reading, there is certainly not excessive complacency right now. After falling to its lowest levels since 2001 after the March COVID Crash, it remains near record lows even now.!
And while individual investors have been more worried about a crash (relative to history) for many months now, institutional investors have also gotten more concerned recently…so the stage seems to be set for still more surprises:
All sorts of news will arrive with the New Year. A fresh slate of monsters is lurking. Each one is likely to be a bit more scary and devastating than the last.
Our theme: tech is taking over all businesses, margins will surprise, new services will arrive, efficiencies will come from every shadow, debts will be refinanced and bottom lines will rise.
By mid-summer, all that analysts will be focused upon is 2022 earnings, which are already targeted in the $200/share range and are likely still timid on the number. Possibly very timid – meaning closer to $205-$210 by the time we get a year out from here and are peering into the fog of 2022.
It will arrive quicker than you think…and the journey, like this year – will have surely been interesting.
Closing Out With Two Thoughts
…one good – one bad.
The bad first: Sadly, when this monster is taken care of – and it will be, there will be a bigger monster. The media process will not end – and may indeed get more intrusive and divisive in nature.
We must learn to overlook that and keep thinking forward.
It is never about what’s now – it is always about what’s next.
Think roaring 20’s after the last pandemic if you must.
….there is plenty of that out there hidden in the mess, if you look – and, our best years are ahead.
Until we see you again, may your journey be grand – and your legacy significant.