“It’s like déjà vu all over again…”
Periodically, when trying to make sense of things, I seek out sage words from the famous philosopher that was Yogi Berra. The hall of fame New York Yankee catcher had an unrivaled grasp of the English language. The brilliance was its authenticity. A Yogi quote would always be a stumper while providing a welcome chuckle. The “déjà vu” quote above is one of his most famous. Its relevance today is spot on, once again.
The US Government faces another shutdown tonight. This is not the first time. Congress kicked the can down the road in December. The same can was kicked earlier in September. There is a pattern. There are a lot of dents in this can. No surprise, both political parties are blaming each other for the situation. A big game of chicken is being played on Capitol Hill as I type. Is this nothing more than political jockeying and waiting for someone to blink or is a government shutdown actually going to happen again? It’s anyone’s guess. If you recall, the United States Federal Government was forced to close for 16 days in October of 2013 before a deal was finally made. It’s no wonder Congress has an approval rating of just 15%. It fell to an all-time low of 8% in 2013. It’s basically been below 20% since 2011. Americans are fed up with Washington. That’s not new. It’s like déjà vu all over again…
The Market has not been rattled by the prospects of a government shutdown whatsoever. Of course, CNBC ran a Government Shutdown countdown clock on the screen. The media is certainly skilled at adding fuel to fire. Despite the reported 50/50 chance of no deal getting done by midnight eastern time, the Market doesn’t really seem to care. It either doesn’t believe it happens, or believes a shutdown will have minimal impact on corporate earnings and the US Economy, which is most important to Mr. Market. If a shutdown does occur, stocks will ultimately feel some pressure.
As flawed as things seem in Washington, they’re pretty darn good with Corporate America. Earnings Season has begun, and both numbers and outlooks are very solid indeed. The tax-cuts are starting to trickle through and have led to offshore cash coming home, an increase in capital expenditures (i.e. investment in company growth), and the beginning of increased wages. The US Economy has been responding too, and Consumer spending has accelerated. This is a powerful combination in place and investors benefit.
Things are far from perfect, clearly. But they never are. Or as Yogi said it: “If the world were perfect, it wouldn’t be.” But the Stock Market is in a powerful stage of this Bull cycle. It has raced higher in the face of pretty much everything thrown in its way. It certainly won’t last forever. But the underlying health is quite strong, so it should last a bit longer. We are always ready for sell-offs and corrections. It never happened last year. We do think that this year will bring a correction and mean reversion. It has now been 400 trading days without a 5% contraction. The last one was the Brexit vote in June of 2016. That was 18 months ago. That is not normal. We outlined our action plan for 2018 a couple weeks ago in our Winter Newsletter. Proper investing requires a clear, thought out action plan with discipline. There is a lot of chasing in this Market right now which has turned the strong momentum into a stampede in 2018. We are studying things very closely and always reassess our original investment thesis with new developments and events. It hasn’t paid to fight the tape. We’re in good shape.
I will leave you with the final and perhaps my favorite Yogi quote of all-time:
“You’ve got to be very careful if you don’t know where you are going, because you might not get there.”
We are pretty clear on where we’re headed. Have a nice weekend. We’ll be back, dark and early on Monday.
Mike
