Morning Market Thoughts

by DAN Good morning. Looks like today is the day that the S&P tests all time high of 2,134.71. Think about this for a minute. There is so much bad news all around us — Brexit, slowing corporate profits, plunging interest rates, and very significant civil unrest among the black community in several areas throughout the country. When police are ambushed by thugs and there is NOT universal condemnation, you know there is a problem. Frankly, I’ve never seen anything like it, and I hate what I see.

But rising above all of this are the bulls. I think a lot of the buying activity is simply due to a lack of options. Bonds remain in what could only be seen as a bubble. When the price of the 10 year Treasury Note is so high that it only yields 1.37%, that sure seems like a bubble. Invest $10,000 and get a whopping $136.60/year for your loan to the government. And then, of course, that massive profit is taxed, and you’ll be lucky if you have $70 bucks to spend. How much higher can bonds go?

The consensus about corporate earnings is that they aren’t likely to be that great. But you can’t say that this earnings pessimism is carrying over to the stock market. And there is the hope/expectation (is there much difference between the two?) that earnings will improve next quarter. So traders will be intently focused on forward guidance, as well as whether the Q2 results were better than consensus estimates. I am more concerned about Q3 earnings because that will be the first quarter that will be factoring in the effects of Brexit, though all but the “No Borders, One World” (NBOW) folks realize that it will take several years for this to play out. The

The NBOW crowd will continue to warn that the sky is falling right now. Jamie Dimon recently expressed the hope that Brexit could be undone “if you can only get the right people in the room together.” I’d say he is the King of the NBOW’ers. Angela Merkel countered this pipe dream by saying that there was no going back — the UK is leaving.

But this type of rhetoric fosters uncertainty. And uncertainty is the stuff that makes foot holds and hand holds for the bulls to climb the Wall of Worry. You really shouldn’t try to make sense of it; you should just recognize it and seek to capitalize on it sooner rather than later. I think that this will ultimately end pretty badly. Central banks have mucked things up so severely that there is really no painless way out of this. It has become clear to all but the central bankers that the free money policy hasn’t been working. But when all you have is a hammer, everything looks like a nail. So I don’t see them changing their tune, and that ultimately leads to a bubble in equities. But we are not there yet! Hence, my suggestion that you seek to capitalize on this new move in the market now. The folks who get hurt when the bubble pops are the last ones to the party. They are the ones who refused to get in. They were scared, suspicious and distrustful. They remained on the sidelines waiting for the inevitable huge correction. But ultimately, they capitulated and put their money to work.

Pop!

When the most stalwart bears finally put their money into stocks, there is no one left to buy. There are only sellers. Let one of those sellers be you. And that requires taking steps to put money to work right now. The market will go up and down, and you’ll go through periods of hope and disappointment if you follow too closely. That’s the way of the market. But if you can just zoom out and stay with the prevailing trend, you’ll be fine.

This is going to be a busy week, with Alcoa (AA) reporting earnings after the bell, and several of the banking stocks also reporting. We’ll also hear the latest from Elon Musk about his “top secret Tesla masterplan.” If it’s secret, why is he revealing it? Honestly, I don’t trust the guy. Tesla’s $2.86 billion merger with SolarCity is the ultimate in self-dealing. And the company has failed to meet production estimates consistently. So I’m looking forward to learning more about the Master Plan. Maybe Tesla is going to buy SpaceX next and be the first interstellar car company in the univers (that we know of).

Anyway, strap on your seat belts and turn off the autopilot. We’ll navigate through this market together.

See you in the forum.

–Dan

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