Too Close to the Flame

Well, it looks like celebration of Dow Jones breaking the 20,000 mark lasted about 38 seconds.

And you might think I’m crazy but that is absolutely fantastic news for long-term investors.

So, while too many will pay attention to all the minute-by-minute clips of the latest thing Trump has done incorrectly, long-term investors can focus instead on what's next.

Why?

Since 1982, I have learned there are only a few things that really drive the markets. And one of those things is: It’s never about what's now, it’s about "what's next?"

As so as we welcome in the end of the week, and befitting of the celebration adorned on the Dow 20,000 spectacle, I took a screen shot of the headlines hitting some of the major financial websites where the investor audience consumes their "news" (and then sadly, acts on it).

Here we go:

And then, just moments later, these headlines began to roll.

You may have seen a slightly different version of them on many other sites - I simply do not have enough room here to collect them all:

I was particularly intrigued with the one up top and the quotes highlighting 'may be imminent'.

I mean, did anyone else laugh their ass off when reading that one?

It’s kind of like saying, "Our planet could careen out of orbit in the next 48 hours and a complete meltdown of Earth itself 'may be imminent.'"

Here’s the best news of all (oddly enough) highlighted in zero headlines that I could find: Given the complete dismissal of Dow 20,000, the on-going reality of the surprise remaining to the upside stands strong in the storm.

Now, back to the hilarious fight over the wall at the border.....

Back at the Ranch

Surely getting lost in the headline-to-headline chatter is the evidence that our economy - set to be closing in on $20 TRILLION in size during 2017 - continues to chug forward; even allowing for slow spots here and there.

Case in point:

Capital Strike Ending

Long-time readers will remember my many mentions of what we labelled as a "capital strike".

Under 147-b (paragraph 2), you’ll recognize that capital tends to only go where it’s well treated.

Companies across the country made their views known about regulations and steps being made in Washington over the last eight years by going on strike; a capital strike.

The previous administration did not recognize that capital investment is always a risk and therefore, demands a reward - an incentive if you will - to flow.

The good news is that I have a hunch we have only just begun to see what a character shift like this can bring.

Further, it’s been so long since we had a real sense of opportunity ahead that I’m pretty confident most will be very late to join the party.

This could explain why even today - "the day after" - there is little chatter of Dow 20,000.

Remember, after all, that it's never been this bad, right?

Hey Mike How About Earnings?

I’m glad you asked.

This week held a flood day; a day with the highest number of S&P 500 companies reporting.

High tide is a good way to look at it.

Typically these days and those surrounding them can be choppy as inner turmoil hits the market.

One cent misses to the upside or downside can have a significant short-term impact, and all that adds up to, well, mud.

Don't fret it as these windows of time tend to set the stage for the next layer of opportunities.

So how does the earnings picture look so far? Well, better than partly cloudy, that's for sure:

Keep in mind over 2000 companies will report earnings over the next several weeks still to come.

While early doors yet, the beat rates for earnings per share and revenues can be seen in the charts above.

You can see that 67% of reporting companies have posted better-than-expected earnings per share numbers.

A quick view shows this reading is high relative to the low-60s that we’ve seen over the last six years (if this pace holds up).

The second chart shows the revenue beat rate stands at just 57%; a full ten percentage points lower than the earnings rate.

While that’s a bit paltry I’ve a hunch it’s directly related to some placement of capital simply waiting out the election process last quarter, for a better read of the pathway ahead.

Over the next quarter or two, I suspect we see that catch right back up again (just an opinion).

Back to the Point

"Too Close to the Flame" comes from a reference to watching bugs gather around a flame or bright light at night.

We’ve all seen it.

And what you might notice is if they don’t fly away, they tend to perish.

The Analogy?

Paying too much attention to the noise, the second-by-second "imperative headlines", laced with "imminent", "unclear", "risk" and the like, your view of the opportunity ahead will perish as well.

There’s a reason the average investor has received roughly 35% of what the market has delivered over the last 30 years.

The other 65% shows you the most important cost you will need to be completely aware of in building toward your financial goals – the cost of FEAR. Plain and simple.

Instead of focusing too much on the flame, we’ve found patience and simplicity works better over time.