TGIF! October 21, 2016

Confidence is a critical thing.  Confidence makes you feel good.  Confidence allows you to engage more.  You do more.  You spend more.  You’re more active.  The University of Michigan compiles a monthly study of US consumer sentiment.  They’ve been studying consumer confidence for decades.  The most recent study shows Americans are the least confident in over a year.  Investor sentiment is measured monthly too.  Investors are cautious.  Right now, the number of Bullish investors are the lowest they’ve been in months.  Only 23.7% of the survey were bullish in October.  The historical average is 38.5%.  Money has been flowing out of stocks and into bonds for the first time in 4 years.  The American consumer and American investor are not feeling very confident about things right now.  This Presidential election certainly captures the sentiment.

Importantly, sentiment can be a great tool for contrarian indications.  The thinking is; confidence is low at Market lows and is oversold.  The flip side is true as well, Markets hit highs and are overbought when confidence is high.  The bubble in 2000 is an example of extreme overconfidence.  There’s very little of that today.  Right now there is plenty to be concerned with.  There are serious issues that need solving, both here and abroad.  The risks are pretty high.  But the thing is, the Market knows about many of them, and prices them in.  We are actually really impressed with how well both the US Stock and Bond Markets have held up.  It has us asking ourselves internally at our Investment Committee meetings, what if…

What if:

The election results in a clear winner and divided government actually starts working together with compromise.

Congress agrees on a more simplified and competitive tax code, which brings billions of offshore Dollars back to the US for investment.

The US economy accelerates beyond the sluggish 2% growth rate, no longer dependent on Fed stimulus.

Corporate America returns to long-term big picture thinking, investing in its business, its people and its future.

A British exit does not result in financial chaos and European recession.

Mutual respect returns to society, where quick to judge and blame slows, while listening, thinking, appreciating and understanding grow.

These are seemingly simple issues on the surface, that unfortunately have proven nearly impossible to accomplish up to now.  The Market doesn’t seem to be pricing any of this in from where we stand.  With all of the negativity and issues plaguing the Market and Global Economy, it’s actually surprising that DOW 18K has held so firmly.  Getting through this Presidential election will be a major milestone.  Everyone needs to know who will be occupying the White House in 2017.  The world is watching.  As soon as we realize that things might not be as bad as we thought, we can begin the process of recognizing the good.  Confidence will grow.  It will build off itself and get the system moving again.  That’s human nature.

We are seeing some interesting scenarios ahead.  They’re actually pretty bullish.  But it sure doesn’t feel like it.  The negatives are real and the problems are not short-term in nature.  The masses are cautious if not outright negative.  But the Market knows that and has had every reason to selloff further.  But so far it hasn’t.  History has shown, that’s usually a good thing.

Have a nice weekend.  We’ll be back, dark and early on Monday.  We’re all over it.


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