Keep Tensions High and Money Moving

Here we are, at one of those spots in each calendar year when everything starts to slow down. 

Volumes start to ebb towards lows that occur around mid to late August (the worst of the summer doldrums), attention spans lag, price spreads increase, and with lower volumes we can expect the high-speed traders will be able to temporarily push stocks around more by ganging up on a sector.

We’ve seen it all before, and we’ll see it again this summer. 

The Lesson? 

Try hard to ignore it.

That’s because bigger events are unfolding, and the backdrop is shifting ever so slightly with every month that passes. 

And all the while new things will pop up to scare you into not recognizing that positive shift. 

This is the age-old model of Wall Street; keep tensions high and money moving. 

More movement = more fees.  More things to worry about = more movement and the creation of more "solutions" to help you…which steadily takes us right back to more movement. 

If only we all invested like Warren Buffett, then there would only be a need for one or two large banks or Wall Street houses. 

Learning to stand still on investments is not for the faint-hearted. It’s easier to believe that every step in your life, investment and wealth management pathway is designed to try and "beat the market." 

Not true - the goal and effort should be focused on meeting your goals, calmly, logically and with patience over time.

The Bigger Picture?

Too many will fret over the fear-inducing headlines.

And as summer arrives, and the slowdown ensues, there’s less activity to write about and more opportunities to create new fears instead.

That’s when the lines blur.

Meanwhile....

Step back and consider this:

• We believe the US - and some parts of the global economy - are setting up for a new golden age of synchronized growth.  The most recent data is often reported in such a manner as to hide this from most investors.  It takes time to dig through it and find the tidbits required to see past the overwhelming negative bent in the news.

Global Economy: Less Stagnation

Good news tends to follow bad.  We have spent years fretting over one global catastrophe after another.  It’s been a consistent loop – as one fear was shot down, three more would take its place.  French and Italian elections (one still a year away) are just the latest.  

But it’s a big world out there with lots of aspirational workers and materialistic consumers.

In some areas demographic forces will continue to weigh on economic growth, because fertility rates are down while longevity is up.

The US has its Barbell Economy and that will be with us for many, many years to come.  

However, around the world, including emerging market economies, there are still plenty of people who want a better standard of living.

Dr Ed Yardeni shared the idea with us a long time ago that one very effective way to track global economic activity is with the yearly percent change in the sum of US exports and imports, both adjusted for inflation. 

That figure is highly correlated with the yearly percent change in the volume of world exports. 

The former was up 5.0% through March, holding near its best growth rate since December 2014. 

The latter was up 6.1% over the same period, its best rate since April 2011.

The Message? 

After lots of mess, global economic activity is clearly improving. 

With the dollar pricing in slow and steady growth - a sweet spot, and some surprising results could be in the offing for many US household names.

No Rose-Coloured Glasses

The financial world we live in today marks anyone with a positive outlook as someone who "clearly does not get it..."

This has happened before.  In fact, the thought that we’re embarking on a new age of surprising growth is no different from the early 1980s, and not some pie in the sky prediction.

It merely assumes a continuation of existing trends in demographics, technology, politics, and economics. 

Further, it requires an understanding that the demographic part of this equation is already alive. And short of a large asteroid striking the Earth, little can be done to stop the waves of people coming our way.

As Ken notes, those individuals who will change our lives and define our economy for the next 50 years - are already born. 

Like it or not, the implications for the patient investor's portfolio will be huge.

In fact, one of the main reasons that we endured a "lost decade" of economic growth is that nearly 80 million baby boomers as the engine of our economy were followed by a much smaller batch of "Gen Xers" - who are now being followed by a new largest generation of all time: Generation Y.

Looking back, we can see the net result of that first "baton shift" was slower economic growth, higher budget deficits, a weak currency, and registered investment advisors who distilled their practices down to only municipal bond sales…based on an audience of terrified investors.

Fast forward in your mind for a second and we will quickly see that the economy and the markets are shifting again.  

The years between 2009 and 2015 were nearly identical to the years between 1975 and 1982 - both periods marked by a massive demographic footprint shift in the US. 

But they were recovery periods from past events – and not yet new bull markets - which is why so many folks missed out on identifying them.

And America is the only developed economy on earth with this benefit unfolding.