Happy Thanksgiving – Major Indices at All-Time-Highs This Week – Reason to Sell ?

This Is Not Bearish

The above link is from a guy by the name of Michael Batnick, the research director at Rithotz Wealth Management, a firm whose work I follow and consider to be very “thoughtful” over the years.

Michael makes the point that the new all-time-highs this week in the SP 500, the Dow 30, the Nasdaq and the Russell 2000, (and per CNBC, the first time these quadruple, coincident all-time-highs have happened in 17 years), is actually quite bullish, and not a reason to sell.

On this Thanksgiving morning, I wanted to take the opportunity to thank clients for your trust and confidence over the years. It is hard to give your savings over to someone to invest and not worry about it constantly, particularly when the mainstream media and financial media goes out of their way to create anxiety for the viewer. (After suffering a bad bike accident this summer, which needed 15 stitches across my face and which knocked me unconscious, my wonderful Northwestern internist wanted me to get a brain scan / MRI, (after getting to know me the last few 10 years, I think he wanted to make sure I still had one, a brain that is), and while sitting in the waiting room waiting for the MRI machine to open up, watching the fat box, a local TV producer of a prominent Chicago TV station (waiting for his own medical tests) told me that the news station’s employ psychologists to screen breaking stories for evening news broadcasting to see which stories will create the highest levels of stress and anxiety for viewers, and those are the stories they run with).

I am not making that up… The financial media seems to work the same way.

In terms of being thankful, last night, doing the usual evening reading on social media, I came across an old John Stossel segment on Facebook, who talked immigrants coming to America and he ended the segment by interviewing both naturalized US citizens and native New Yorkers with the saying that the great thing about America is that in terms of your own life, you can write your own script.

Trinity clients have allowed me to do that over the years, in terms of work I truly enjoy, although unlike the great Warren Buffet-ism, “ you get to skip to work” – the stress of managing both the market and client expectations creates its own acute levels of anxiety and stress for any investment advisor.

The real point of this email though is that – even if you completely disagree with the Presidential election results from November 8th – the Congress and the President-elect are preparing what will likely be the most “pro-economic-growth”, “pro-stock-market”, “pro-free-market” legislative agenda since the Reagan Administration and the late 90’s Clinton years.

The proposed, expected, tax cuts alone are very bullish US GDP growth and the stock market, and with some regulatory reform, the combination of the above (with some hoped-for tempering of the President-elect’s wildly irresponsible trade comments) could be explosive for the US economy and the US stock market in the next 12 – 18 months.

Seriously, I haven’t been this excited for the prospects of “expected” future stock returns in years, again, over the next 12 months, or through the end of 2017, and clients and readers need to understand that once the US economy gains momentum, the “economic multiplier” effect could continue for a while.

What should we be worried about ?

1.) The stimulus with a current 4.9% unemployment rate will be way too much for the Treasury and US bond markets and interest rates rise dramatically. We’ve already seen a 100 bp tightening in the 10-year Treasury yield in just the last 4 months: it took a whole year for the 10-year Treasury to rise from 2% to 3% in 2013. It isn’t the absolute rise in interest rates, Treasury yields that worries me – rates will move up eventually – it is the unexpected and rapid rate of change (increase) in the 10 and 30-year yields that could cause problems.

2.) Like interest rates, the US dollar has already started to rise and also like interest rates, it isn’t a slow gradual rise that worries me, it is dollar strength like we saw from October ’14 through March ’15 – the fastest increase ever for the US dollar in a 6-month time period – that wreaked havoc with large-cap companies in the SP 500 in terms of revenue growth.

The Fed / FOMC is likely to raise the fed funds rate again in mid-December ’16 to 50 bp’s. Yellen has been politely jawboning with Congress the last three years for some fiscal stimulus– for those in the press critical of ultra-low fed funds rate of 25 bp’s – so now she is going to get a truckload full of “fiscal stimulus” all arriving on the US economy and bond markets in the next 6 – 9 months, and likely arriving all at once. The Fed Chair is a very bright and accomplished woman – she has to know what it is coming in the next Congress in terms of pro-growth stimulus – and she’ll react accordingly.

Thank you for reading.


Leave a Reply