“The man who is a bear on the future of the United States will always go broke.”

– J.P. Morgan

Good Morning,

We expect the Holiday Haze to slowly wear off this week.

No worries – the media will soon focus you on the myriad of existential, apocalyptic problems dead ahead, at a thousand miles an hour.

Your First 2020’s Decision

What is your default setting? Good or bad? Patient or tense?

Pessimistic or Optimistic.

Deciding now to have optimism as your own personal “default setting” now – will pay handsome returns over the next decade or two.

Why? Well, this note – and your time – is too short to cover all the reasons you should choose that path over the constant pessimism oozing from every corner of the messaging machine…but trust me, it works.

How do I know?

In the summer of 1982, when I first started, the DOW was roughly 930. Yes, three digits long. Today, it is 5 digits long (28,000)…sooner than many think, it will be 6.

During the entire time – and with every point covered from 930 to 28,000++ (and climbing) there have been a myriad of problems, disasters, setbacks, recessions, bears, bulls, many Presidents, lots of power shifts, wars, attacks, global unrest, Brexit, Chexit, Tariffs – you name it – we’ve had it.

Here is the key though: it all happened WHILE, the number was moving from DOW 930 to DOW 28,000++

Step back and think about this. I bring an excerpt from a great story from a greatJ.P. Morgan story, courtesy of Mark Skousen:

In the early days of the Twentieth Century, when J.P. Morgan ruled Wall Street, a visitor came to the City. He was a long-time friend of Morgan, a commodity trader from Chicago. He was what might be called a “perma bear” following the Panic of 1907. No matter how high or low the stock market went, his outlook was pessimistic.Anothercrash, panic and depression were always just around the corner.

This was his first visit to the world’s greatest city. He arrived at 23 Wall Street, and was ushered into J.P.’s spacious office overlooking the Exchange on one side and George Washington’s statue on the other.

They immediately began talking about the markets, Morgan beingbullishas ever, and his commodity friend being as bearish as ever. “J.P.,” he said, “the news overseas doesn’t look too good.”

“A buying opportunity!” responded Morgan.

After an hour of friendly disputing about the markets, Morgan invited his guest to join him for lunch. They walked outside and started moving up toward Broadway. As they did so, his friend couldn’t help but admire the skyscrapers that dotted the Manhattan horizon.

Morgan gave him a tour of thegiantbuildings,pointingout the Singer Building, the Woolworth Building across from City Hall, the famous three-sided FlatironBuilding, and the recently completed Met Life Tower, rising 50 stories high, the tallest skyscraper in the world at the time.

His friend was duly impressed. He said he had never seen anything like it, not even in Chicago.

Finally, J.P. Morgan stopped his friend and said, “Funny thing about these skyscrapers – not a single one was built by a bear!”…

Know This…it is a fundamental – like breathing:

I know – it is stressful out there – we all live it each day. But this tends to be a resounding theme – no matter how tough things are sometimes.

Ever wonder how many perma-bears reside on the Forbes 400 list? Or the number of pessimists who run companies in the Fortune 500?

I have your answer: Zero.

There is more to the story above:

Six years before the above chat took place, J.P. Morgan had purchased Andrew Carnegie’s entire steel operation for $480 million. Make no mistake – that is hundreds of billions in today’s dollars.

You don’t do that deal and amass that kind of wealth with a persistently negative outlook.

Winners and men and women of foresight and ambition do monumental things.

Pessimists watch them from the sidelines – always ready with a list of all the reasons things won’t work out.

The losers do get to win sometimes, too. But their victories tend to be Pyrrhic, as every calamity ultimately leads to opportunity when the dust clears.

As we have covered before here – it is an easy sell. Pessimism is intellectually seductive and the arguments always sound smarter, especially when they dovetail with our own fears and concerns.

You think this period (or whatever period one references at the current time) is more terrifying and risky than the sixteen month recession between July 1981 andNovember 1982 only because you weren’t there and many haven’t studied history.

Your frame of reference is here and now, not then – when the unemployment rate really was 14% – inflation really was 15% – and mortgage rates really were 17% with a prime rate of 20.5%!

I will age myself with a reference to Peter Lynch – but he often reminds us about that era with this comment, “Sensible professionals wondered if theyshould take up hunting and fishing, because soon we’d all be living in the woods, gathering acorns.Then the moment of greatest pessimism, when 8 out of 10swore we were heading into the 1930s the stock market rebounded witha vengeance and suddenly all was right with the world.”

Sound familiar? That’s what usually happens.

Rest assured, this is not a message of being blind to risk – but understand it is part of the deal – period. Always has been – and always will be.

That willnever, everchange.

Another Falsehood…

Chatter about how our National Debt will engulf us in flamingfires from hell has filled so many pages with ink over the last 37 years. I wish I had a nickel….

Let’s be clear: Federal debt is not a threat to the economy.

Anyway, here is some of the latest data from fresh Federal Reserve releases…compliments of our friends at Calafia:

Many people are saying that our national debt—which now exceeds $17 trillion and is growing by more than $1 trillion per year—is a disaster just waiting to happen. Right? Well, not exactly.

Even though federal debt has soared relative to GDP in the past decade, the burden of the debt is about as low as it’s ever been. Still, the growth in debt does reflect some structural problems that are working to keep the economy from achieving its full potential.

Let’s work together to keep things in proper perspective:



The chart above shows the swelling size of our national debt, which is correctly measured as the amount of Treasury debt that is held by the public, and that now stands at $17.16 trillion.

Too often we all take in the idea that people saying the national debt is over $23 trillion are correct. Focus: they are not correct.

The $23T figure is inflated since it includes some $6 trillion which the government owes to itself (i.e., excess revenues that the social security administration has “lent” to the Treasury).

Know this too: This chart uses a semi-log scale for the y-axis, so that means that a constant slope is equal to a constant rate of growth in nominal terms. That is required as numbers get larger. The most important element is this: Note that the slope of the line for the past 7-8 years has been flat (i.e., the growth rate has been constant). Note also that the slope was steeper in the mid-80s and in the 2008-2012 period.

Lesson? Federal debt is growing, but not nearly as fast as it was growing in other times…like way, way back when we did not fear the end of the world was around every corner.

The chart below drives home another lesson: the size of federal debt relative to the economy is far less important than the prevailing level of interest rates. One can see the true burden of the national debt is not the amount we owe but the ratio of interest payments on the debt relative to our national income (GDP).

Because interest rates are at historically low levels,the current burden of our national debt is about as low as it has ever been, even though the debt has soared to 78% of GDP. As investments picks up, so will revenues – and taxes – and oddly enough — all will continue forward in a far less scary manner than many are sold on:



Note the chart above goes back to the 60’s – when our GDP was 5% of it’s current size.

As we can see below in the next chart, US consumer households’ debt burdens are also about as low as they have ever been. Everyone benefits from lower rates, but in addition, households have eschewed debt while embracing the safety of Treasuries as 2008-2009 fears have run deep.

Total household liabilities have only increased by 11% since their peak in 2008, according to the Fed. Treasury yields are low because the demand for Treasuries is strong: households now hold over $2 trillion of federal debt, up hugely from $300 billion in 2008. They also have over $14 trillion sitting in banks and money markets – all liquid.

Most of our collective remaining Treasury debt is (oddly enough) held by corporate and institutional investors (as investors), sovereigns, and foreign investors in general.

A massive share of that also resides in the US – from our own companies and insurance industries.

In other words – we owe it essentially – to ourselves.



Closing it Out…

The Barbell Economy™ahead is driven by the two record setting generations of our time. We are all blessed to be living in these unique times.

Just yesterday, SpaceX launched a Falcon 9 rocket – it delivered 60 more satellites in an internet constellationaround Earth – check it out(if the tape does not start at T-30 seconds for you, just scroll to 17:50 timestamp on the video link):

The Falcon arrived back on the mothership minutes later – after pushing the satellites into orbit 271 miles above Earth.

You think that’s cool? Get a load of this from Samsung – following on Azure Hologram from your earlier notes:









And this game is just beginning. The 2020’s and 2030’s are set to make the 1980’s and 1990’s (home of the Boomers Growth Phase) look like the JV team.

So, there is only one question left to think about…two actually:

√ Pessimistic or Optimistic?

√ Stand on the sidelines or get in the game?