Some Things Never Change
When I was a young boy I’d wake up on the weekends, go downstairs, pour a bowl of Cinnamon Toast Crunch (easily the best cereal of all time), watch cartoons (Transformers), and occasionally hear my parents talk about some troubling situation in the Middle East (the one I remember the most is the US shooting down an Iranian airliner). Nowadays on the weekends I walk downstairs, pour a bowl of prunes, glance at my kids on their phones doing Tik Tok dances, and talk to my wife about a troubling situation brewing in the Middle East. This year has started off rather quiet (absent the news we saw last week) so there hasn’t been much to talk to you about. Look, let’s be brutally honest, of all the reasons to worry about the stock market “tensions in the Middle East” has to be pretty far down the list. While some things change in life (what you eat for breakfast, what kids do in the morning) others don’t (Geopolitical risks). If you were to use “potential conflict in a historically volatile part of the World” as a reason to sell stocks you’d almost never be in them.
Here's the current situation as I see it: The market is probably over loved and over believed yet it doesn’t appear to matter. Sentiment is at an extreme, stocks are overbought, we’re still getting weak manufacturing data (Dec ISM), there’s a spark surrounding Iran, and yet we sit just shy of the all-time high. Why? Well, my best guess is that all that fresh money that needs to be invested when we start a year is counteracting the negatives. IRAs, 401k, pensions, etc, everyone was reset to zero on Jan 1 and that money is trickling back into retirement plans. The problem with early year fund flows is they can run out or get scared out of the market by something that TRULY matters.
You know what’s a bigger threat to stocks than this Iranian kerfuffle? Any kind of consumer data missing. Jobs, spending, homes, etc, if the market smells weakness from what’s been holding up the economy (you, me, your neighbor) it will run home to momma. Of anything out there you need to be concerned about I think this is candidate #1. The US Consumer has been holding the World on its shoulders and that’s where I want you to focus.
Now look, I might be wrong, maybe early year flows aren’t the reason the market is shrugging off all those things I mentioned earlier. Maybe it’s a muddle thru 2% economy, plus an easy Fed, plus a tailwind from last year, plus TINA, who knows, the point of this is to remind you that the World is and always will be a crazy place. Don’t get caught obsessing over the disaster du jour, they tend to fade into history faster than the team that lost the Superbowl (my pick this year: Ravens v Niners. Ravens win). The market will have a correction this year, I promise you, and the reason will only be known in a rear-view mirror.
- This is awesome and I love Charlie. Today’s must-read link is 20 Rules for Markets and Investing. #11 is my favorite: Investment returns get all attention but for most people, how much they save is much more important.
- Does rebalancing frequency matter? Apparently yes: “As you can see, the more frequently one rebalances, the higher the annualized total return will be (on average) for a random set of S&P 500 stocks”.
- What venue do clients want us to use for market related communications? Apparently still email. “It all boils down to the basics: communication. YCharts, the cloud-based investment research platform, found out what clients really want from their advisors outside of advice and planning: more engaging and frequent communication”.
- Its football playoff time so you know I have a snack for you to make: Try this one here!!
- Some of the best movie/TV shots of the past decade. How many of them can you name?
- “Mean reversion might be the closest thing that financial markets have to gravity, but people will see these two charts and come to six different conclusions. Even data is in the eye of the beholder” This is a powerful lesson from my pal Michael Batnick. Yes, returns have been high looking at the past 10 years but what if we looked back 20 years…
- It’s ski season and these people are INSANE!
We’ll end tonight with an amazing trick. I have no idea how he doesn’t spill this (or why he doesn’t chug it at the end)
Have a good night