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Good Things in Slow Packages?

Good Morning,

Churn and Burn.

Markets have been sloppier this week than most of the averages would indicate.  The odds are that many investors are beginning to smell the scent of growth.  Yes, that sounds odd but the sector influences are pretty clear.

Dividend focal points are feeling the brunt as fears about rate increases are front and center – just as expected.  Long-term dividend growth income seekers see this often over history.  Bouts of profit-taking are normal as the cloud of interest risk is being overdone as usual.

As soon as the media ties of scaring their viewers to death about the election fallout, we can be assured that void will be quickly filled by “the Countdown the the December Fed Meeting Rate Hike” syndrome – complete with lots of video and experts helping you clearly see the end of the world as we know it.

Good Things Come in “Slow Packages”?

Today, as the economic power baton is being passed from one record-size generation to the next, it is easy to feel like we are walking in quicksand.  It is even easier to fear the “long way down” the market can travel if the world comes to a stop again.  The higher prices rise, the worse that feeling in your gut may get – if one focuses on the wrong data.

The reality is that it’s neither a boom nor a bust in the US.

What’s interesting about this is the constant complaint of “slow growth” blinds one entirely to the idea that this may be a good thing!  You can be absolutely assured that if we were instead having a robust boom, you would not be hearing about the boom.  No – surely not.

Instead you would be hearing about inflation concerns, over-heating concerns, global imbalance concerns, social fairness concerns and rate increase concerns.

You see – there is no good news.  Get used to it.  But don’t overlook this:  a slower, steadier growth process can last much longer than most are prepared for – and surely longer than the boom and bust cycle we have experienced in the past.

In an economy that is being reshaped at the speed we are witnessing in our lives, it could be a grave mistake to assume old economy readings and reports are providing a true and fair picture of what is really unfolding.


Not really….even though it understandably feels that way.

While the descriptive term “secular stagnation” fits the global economy, I don’t think it’s valid for the US, where the unemployment rate is now down to 4.9%  Lets take a quick review of other data series suggesting the world may indeed be turning in many places.

~ Metals prices are stabilizing and in some cases rising

~ Crude inventories are falling as production is halted until prices balance out better (see previous notes)

~ Yes, car sales are stalled but are still near record highs and on a 17.5 million pace for the year

~ Job openings are at a record high

~ Private-sector employment gains have exceeded 150,000 per month for 40 of the last 41 months

~ ATA’s Truck Tonnage Index rebounded smartly during August almost back to February’s record high

~ Medium-weight and heavy truck sales rebounded in September following several months of decline.  This likely another signal related to the energy sector’s recession slowly nearing an end as referenced in many previous notes.

~ Even though the Eurozone is suffering through its own pain related to Brexit fears, retail sales are strong – up 1.7% YOY during August, based on the three-month average, to a new record high

~ The rebound is widespread in the region.  August passenger auto registrations, on a 12-month basis, rose to the highest pace since fall 2010

~ Another small surprises – even China has some good data – with railway freight traffic rising 1.0% YOY during August in China.  That is the first positive comparison in 32 months!

~ Sure, China’s PPI was down again in August – 0.8% YOY.  However, that was the best reading since April 2012.

~ Global PMI’s are also trying to turn up and close to making new two-year highs. Note in the chart below that this downturn wave and bottoming process also mirrors the energy sector bust and restructure.

And just this morning, unemployment claims fell even further coming within a sliver of the all-time lows.  Dr. Ed has provided some great charts which show a somewhat consistent effort of growth turning for the better.

Cap this all off with the largest month-over-month increase on record for the ISM Non-Manufacturing Data released and you begin to get a feel for the stabilization effort being pretty widespread.  Take a quick view below:

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 Chop and Angst

Look, one can surely understand why the market is chopping a bit.  Take note that we are not moving very much since the breakout bounce after “Branic.”

See the SPY chart here:

I will do another video for posting when we have completed the Q3 review but let’s just highlight a couple of items to give you a sense of the churning process.

Item noted at 1:  The SPY has risen just 2.41% since April 20 of this year

Item noted at 2:  The SPY has risen just 1.58% since June 8 of this year

The purple box at the top-end of the chart covering all activity since we broke out, shows we have traveled a very small distance indeed from that breakout – and are effectively flat for the period. Yes – walking in quicksand.

This entire rate of change since the dates noted above are a normal trade range in a single day in current times!

The element we must focus upon is the long-term.  Churn is the name of the game for large periods in a perceived slow-growth cycle.

The more important takeaway?  You are not missing anything – the market is on pause until we get the election out of the way and past the Q3 earninigs parade.  And by the way – that is ok.  Don’t swing at the pitches in the dirt.

The Power Continues to Brew

The data above provide continuing support of the theme we are helping you to focus upon:  a time of great waves of change is upon.

The generational baton shift is unfolding as noted.

Instead of the daily news reel of fear, angst and trepidation, focus upon this:

In the late 70’s / early 80’s it was the Baby Boom…now it is Generation Y – with Generation Z right behind.

Think first inning, first pitch – long game.

Yes, there will be many ugly twists and turns ahead – but there always have been in the past as well.

Decades of demand are already built into our nation’s demographic fabric.

The economy we are seeing unfold is set to change everything we “know” today.  The dynamic world of tomorrow is set to be as surprising to us all as it would have been to your buddy in 1982 when trying to explain an iPhone….to anyone who would listen.

Simple is the Toughest You Will Ever Do

Patience, discipline and focus make up the primary pathways upon which long-term investors are rewarded for taking risk.

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

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