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Beige, Red, and Blue

Good Morning,

Hope this note finds you well.  I am sorry for the late note – am flying back from overseas after a 4-day conference – jet lag and all.  Back to normal schedule each day to start the week.

So the last couple days were filled with new Apple colors and Beige Books.  Today – it’s all about this noon-stop enchantment with the Fed and rates.

The beige book told us things were pretty steady – not much different than a normally slow August.  A couple regions were slower, a couple faster and the consumer was steady. Bank of America’s Moynihan told everyone this morning that the consumer is healthy with retail sales up 4.7% YOY in the latest data.

Here’s an idea:  Stop paying attention to the world in 30-day soundbites.  You have much better things to do.

Meanwhile, the media is telling us what they always tell us:  dreadful things await. My hunch is they speak of nightmares packaged in 25-basis point rate hikes.  Geez.

As I have suggested for months – pray for a correction.  Could this be it?  Maybe.  If so, fantastic – in a word.  We get another great sentiment washout (watch how quickly fear spikes), finish up these ridiculous election campaigns, gag on which ever one of these morons wins – and then…boom:

We all get on with life and the very surprising growth demand ahead.

Don’t worry, the howling at the moon will continue all the way up the mountain.  The need to sell fear and the readiness for the crowd to buy it is like throwing a bag of crack into a drug house.

A Big – Rapidly Changin’ World

As I peer over the harbor of Hong Kong and watch a storm roll in, the city lights go dark behind the clouds and rain.  I am listening to a rehash of the other news of import in the last few hours:  the long awaited Apple announcements.

I’ve picked up a couple interesting tidbits and some really, really idiotic comments from experts covering the release.  I mean this is numbskull kinda stuff.  Check it out:

As they were covering the new Apple Watch, Version1 was called – and I am quoting, “Nothing to write home about yet.” That reference came from a reporter on CNBC.  He then went on to say, “Well, Apple has only sold a little over $5 Billion in watches in the first 15 months…”

Just to be clear:  My brain went numb after that.

Two thoughts:  We have “reporters” giving us news who feel a brand new product revenue launch of $5 billion is not good enough?  and – Investors actually listen to this crap still? While I am no Apple hype guy, let’s be real:  name one other company in the history of companies which has created multiple multi-billion products from scratch – this quickly.

The best news about Apple is not their product – it is more important to contemplate what their product does, how it empowers, what it unleashes and the wave of productivity it pushes – non-stop.   But that’s for another note…right?

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Another interesting piece:  Apple now does $28 Billion a year in service revenues alone. All by itself, their services unit would be a Fortune 100 company.  Put a 15 cap on that net and add in their $260B in cash (I think the reporter above overlooked that little asterisk). You get $540B of their $560B market cap.  Someone missed something somewhere.

The Pentium Chip from Intel which powered Microsoft Office back in the mid-90’s had 3.2 Million transistors on it – a mind-bending number back then.  The new iPhone 7’s chip carries 3.2 BILLION transistors.

And we are bitching that they took away the earphone plug?   I cannot decide whether to laugh my ass off or leap from the nearest first story ledge.

I find it stunning we have reporters asking from their perch just outside real work whether or not Apple “under-delivered”.  Are we forgetting the $260 Billion in cash again.

My point?  We have gotten way, way too lost in data and noise and impatience and media “expert” stupidity.

Brexit Who?

For those on vacation this summer it would have been easy to miss market selloff surrounding the UK’s vote to exit the European Union near the end of June.

Recent economic data seem to support the idea that the UK is quickly rebounding from any economic slowdown in the immediate wake of the June 24 vote. A service sector index rose to 52.9 in August, up from 47.4 in July.

The 9/5 WSJ reported, “Monday’s results follow a strong reading of the manufacturing sector PMI index, which last week posted the joint-largest month-to-month jump in 25 years, placing it above June’s pre-referendum level. Official data last month on retail sales showed Britons shrugged off the referendum result in July and kept spending, while a long-running household survey carried out by market research firm GfK Ltd. found consumer confidence recovered in August after collapsing in July.”

For those needing something to fret over, not to worry:  the EU economy’s expansion slowed slightly in August. IHS Markit’s Purchasing Managers Index for the Eurozone fell to 52.9 from 53.2 in July.

Best idea to come from this menagerie of unwarranted fear?

Next summer, let’s remember that going to the beach can be a good business decision – for you and your portfolio.

Tight Quarters

For those feeling a bit hemmed in the last few weeks, it appears we have set yet anther record in the technical followers camp.

Check the chart below:  For the last 40 trading days – a window spanning back to mid-July – the difference between the S&P 500’s highest and lowest daily closing price has been a razor thin distance of just 1.75% (today is the exception – but should run stops pretty quickly – perfect).

Shocker?  It should be – it’s a level of thin sideways trade the US stock market has never experienced before.  The chart shows the 40-trading day high/low closing price spread for the S&P 500 since the index began in 1928.  Never has a 40-trading day period seen a lower spread.

Think about it:  as the all-too-feared Brexit vote unfolded and we edged into the tail-end of this terrible Presidential run, the stock market embarked on its flattest trek ever.

The chatter is having its way.  The noise is once again clouding judgment.  How many times have we seen these fits?  This is good for the market.  Give us a week or two – or three of red ink.  Maybe even a mini-panic.  Then, study history – your best results come right after the worst nightmares.  They feel bad for a little while – and then pass.

Like it or not – every single market return number you have ever reviewed – was riddled with these same types of “setbacks” hidden in the trail up the mountain.

Take a deep breath – red ink is a friend to the long-term investor.

Think demographics – not economic.  We are in great shape folks.  Just takes patience, planning, discipline….and a steady 8-week supply of the new fruit-flavored TUMS.

Did I mention patience and focus.

Have a great weekend…the fog will lift sooner than we fear.

Until we see you again – may your journey be grand and your legacy significant.

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