Big or Little Picture?
May 6 2012 - Mike Williams - Weekly Focus
Good Morning.
After weeks of chop, the market's short-term viewers reacted badly to a jobs report which, in the months ahead, will be perceived far less negatively than we now see. Yes, the current jobs number was lower than "experts" expected.
What some may have missed is that another 30,000 were added to last month's revised figures. It would be safe to assume we will see added numbers on revisions next month as well. Alas, that is "long-term" thinking....and we should all know by now it ceased to exist on Wall Street long ago.
Flatlining.....In Fear Plays
It would help investors if we begin to understand we have two very strong fear gauges which no one ever talks about: Bonds and Gold
The fact that we continue to see waves of capital moving into bonds as they exit equities tells you fear is rampant--and escalates easily on any red ink like Friday. Fund investors seem to have ignored that we stand at 50-year+ lows in yields, choosing 50+ P/E's again over 12 P/E's. The masses did that very thing back in 2000. Many seem to have forgotten how badly that turned out.
The fact that we have witnessed the end of the financial world as we know it repeatedly over the last few years tells you the only reason gold is where it is today. When that fear is gone, gold will fall--period. The only thing that stops that IS the end of the world, so why are we worrying about that?
Flatlining...In Confidence Too
The flipside of such rampant fear indicators staring us in the face is that while difficult to admit, we have lost our confidence, our swagger, our belief in the future. We got here because of those three things. Our ancestors battled for centuries and encountered far more difficult events. We would have nothing to be fretting over at all had they succumbed to those fearful times.
Indeed, where would we be today if they flatlined as we seem to have done in recent years? What if they were afraid of their own shadows? The key to understand is that they likely were just as afraid--but they kept moving forward. They believed...and they conquered.
We shall too...far more than we currently perceive. It just takes time.
The Bigger Issues We MUST Focus On
While the world focuses on whether we missed 30,000 jobs in a particular month in a sea of tens of millions of people at work, there are much larger issues leading to significant macro events which will drive benefits for the United States for years to come.
Before we get to that, remember this:
As "ugly" as the jobs report was, the private jobs number was higher--and we do have 92 out of 100 people who want a job working. Were that number currently 95 out of 100, we can be assured the headlines would scream, in large typeface, "Tightness in Job Market Drives New Fears of Inflation Surge".
In essence, pick a topic and pick your poison. We will NOT see good news until new records are being set in market averages--and then only grudgingly.
Back to the bigger picture:
- By the end of this calendar year, the shale areas in the middle of this country, North Dakota of all places, will be pushing out over 600,000 barrels of oil a day. By 2014, it is expected to be over 1,800,000 barrels a day.
- Oil supplies have been rising for months, even as we fear Iran being bombed. In two years, we will replace Iran's world daily supplies in the oil market within our own country. Remember these words: the entire balance of power will shift under the surface as the US becomes self-supportive in energy channels.
- China's ability to mask weak data is slowly but surely crumbling. They will reach a point soon where forced debt rollovers for local city debts and the real estate monster creeping around the globe will land solidly on their doorstep. It won't be the end of the world there--but will drive a very long pause in the perceived domination of the planet.
- China weakness will at first be perceived as terrible. Good for us because it is a massive mistake. China's pullbacks will drive down the pressing demand on some commodity channels (ex food) making profits margins around the world expand even further. As China's struggle become more obvious, manufacturing rebirth here in the United States will get only new bursts of growth, driving more jobs and fewer import demands. The news will all be good.
- Gen Y is getting older. In roughly three years, the new surge of kids moving into the entrepreneurial changes of life will rival and even surpass the early 80's as baby boomers hit a then very difficult job market. Each of those new little businesses will change something on the landscape, drive a few new jobs here and there and light the fuse for a surge of new housing demands.
- Yes, that is correct: Over the next 36 months we will see new demands on the housing market which will easily surpass the supply on the market. Quietly, we have already halved the perceived "overhang" and banks are slowly coming to grips with the idea that taking their losses now is a good thing. Add this to the reality that builders are simply not putting a ton of new supply out there and it adds up to good things on the horizon.
- Can you imagine what our GDP will look like when we finally burn off the drag which housing has driven since 2006 in this country? Further, has anyone imagined the surge we might see when we actually have the housing/construction channel ADDING to our GDP again?
Rest assured, it will no longer be capped by the 12 P/E seen in our current stock market OR a sub 2% yield seen in our fear, excuse me, bond market indices.
Don't Get Flustered...
Days like Friday easily convince too many around the world that the USA has seen its better days. How sad. Yet how good? As investors, Warren Buffet tells all that seeing a stock go down is a good thing most of the time.
Let's face it, after being in this game since 1982, we have been fortunate to be witness to some of the best of times and many of the worst of times. We have felt, along with clients, the highs and the lows. We have sweated every emotional turn and have done our darndest to keep our eye on the ball for the client.
The Bottom Line
Our passion today is driven by a mutual disgust for seeing what has happened on Wall Street since the mid-90's or so. The lying and deceit has painted all with a brush of distrust.
The future is far brighter than most can imagine but the Wall Street media marketing machine often wants to cloud that picture such that the masses' emotions drive decisions that put them on the short end of the stick.
Along with massive macro economic changes afoot, we believe this industry is changing. The future names the masses will search out and trust are being built in the shadows of fear today.
Our Goal
Our purpose for a client is to help coach them through the emotional roller-coaster rides ahead. Our goal is to help them stay on track towards their goals. Our "job", though we don't call it that, is to steadily educate our client in a partnering/coaching effort which slowly diminishes the monsters that too often falsely lead investors astray.
Admittedly, the pain of the last several years has marked the psyche of all investors, large and small alike. Those marks are deep and will last for decades. The fears which were induced will return and feel minutes old each time we get a setback in markets.
This is, oddly enough, a good thing.
If we can help clients mesh this thought process around their investing plan, taking advantage of others errors and emotional missteps, turning short-term fears into long-term benefits along the way, then two things will have unfolded:
- We will have accomplished our goals and,
- More importantly, each client will have reached theirs.
By the way, Warren and Berkshire knocked the lights out in their earnings reports Friday night. Take advantage of market weakness ahead. Any selling this summer is a gift horse....handle it appropriately.
More inside from Warren and gang. Have a good rest of your weekend.
