The Long Term Investor

I dont see us as going into a BEAR MARKET. Although the BIG BLACK SWAN that could swoop in and change the medium term direction of the markets......is......you guessed it.....government. I dont discount the power of government to SCREW THINGS UP. Baring this sort of disaster.....I dont see a BEAR MARKET.......just a CORRECTION.

Now as to a correction.........we are in one right now. It has been going for about a month at the moment. I would guess it will last at least 2-4 more weeks. Hopefully it will run out of steam by early to mid November and give us some room for a year end RALLY. If we get good earnings that should help us to move forward. If we get POOR earnings.....well we could see an extended correction to the end of the year. I would think from everything that I have seen that earnings will be good and the majority of companies WILL beat expectations. We will know the REALITY soon enough.

 

The current DRAMA....is the DEBT CEILING. Unfortunately we get to revisit the GOVERNMENT FUNDING in early December.

The Real Cost of U.S. Debt Is Nearer the Floor Than the Ceiling

https://finance.yahoo.com/news/real-cost-u-debt-nearer-090000349.html

(BOLD is my opinion OR what I consider important content)





(Bloomberg) -- "U.S. politicians are locked in a huge fight over something that more and more people in the financial world view as irrelevant.

Brinkmanship in Washington over whether to raise the debt ceiling or risk a default has become a 21st-century staple. But since the last major standoffs a decade or so ago, there’s been a sea change in the way investors, economists and officials think about public borrowing. They’ve become less interested in the debt’s size, and more focused on what it costs. Nowadays, that isn’t much -- and the Federal Reserve is helping make sure it stays that way, effectively keeping the $22 trillion Treasury market on a short leash.

The U.S. government’s interest payments over the next three years will be as low as any time since the 1960s, measured against the size of the economy, according to the Congressional Budget Office. That’s because the long decline in borrowing costs more than outweighs the extra debt taken on by the government to prop up the economy in the 2008 financial crisis and the pandemic.

‘Back to Earth’

It would take Treasury yields averaging about 2.5% across all maturities to turn that trend around, according to Bloomberg Intelligence. The average was below 1.6% in August, the lowest in more than two decades. Even after the past month’s surge, 10-year Treasuries are trading at yields of around 1.5% that are rock-bottom by historical standards. What’s more, many investors say the Fed -– which on paper only controls short-term interest rates -- is the main driver of rates on longer-run government debt too, taking one sort of risk off the table.

“People assume now that if there’s any big troublesome jump in Treasury yields, then the Fed would have to go and do something to bring those rates back to earth,” says Felipe Villarroel, a portfolio manager at TwentyFour Asset Management.

The Fed has a mandate for stable prices and maximum employment, with no mention of debt. Still, there’s more than one reason why analysts think the Fed is now in the business of helping to manage the government’s debt costs. First, the surge in borrowing during the pandemic may weigh on central bankers as they prepare to reduce bond purchases and ultimately raise interest rates. Move too fast and they could suffocate the economy by making debt burdens more expensive. It’s something Fed Chairman Jerome Powell “will need to balance,” says Sean Simko, global head of fixed-income portfolio management at SEI Investments Co. “Tapering, and trying to keep yields in check to contain the debt-servicing costs.”

‘Quite Explicitly’

Then there’s the fact that the Fed itself has been buying Treasuries and owns some $5.4 trillion of them. Even when it stops adding new ones, likely in mid-2022, that portfolio will loom large in the market. “The amount of Fed holdings -- just the stock effect, even when they begin to reduce the new purchases -- will help keep yields relatively lower for long,” says Subadra Rajappa, head of U.S. rates strategy at Societe Generale. Central banks like the Fed pay interest on the reserves they issue when purchasing sovereign debt. That ends up tying government borrowing costs even more closely to policy rates, according to Scott Fullwiler, an economics professor at the University of Missouri-Kansas City. Put simply, the Fed gets paid interest by the Treasury on the bonds it holds, makes its own payments on reserves, and sends the balance of profit back to the Treasury -– one arm of government to another. The upshot is that the chunk of public debt held at the central bank “has effectively become debt that’s serviced at the Fed’s target rate, quite explicitly,” says Fullwiler.

Across the developed world, rates on government debt are increasingly steered by policy makers rather than set by the market.

In Japan, sovereign bond yields have been an explicit target for years. Europe’s central bankers have been managing the spread of borrowing costs between stronger and weaker economies, to ensure there’s no repeat of last decade’s euro crisis.

None of this means that the evolving new regime has permanently solved the problems of public finance -- or that it doesn’t carry risks of its own. Politics can trigger a developed-country debt crisis even when there’s no economic reason for one, as the current standoff in Washington shows. Europe could suffer its own version when the pandemic waiver for caps on government borrowing runs out.

‘Specifically, Inflation’

Governments could also take low borrowing costs as an invitation to spend on a scale that causes persistently higher inflation. That risk appears remote in Europe and Japan, which have been stuck in deflationary traps for more than a decade. It may be more acute in the U.S., where pandemic stimulus was bigger and Congress is debating another $3.5 trillion spending program. Inflation, and not the size of the debt or even the cost of servicing it, is the issue that U.S. fiscal-policy makers should be thinking about in the near term, according to Mark Zandi, chief economist at Moody’s Analytics. “It will probably be 10 or 15 years down the road until interest expense as a share of GDP is ringing off alarm bells,” he says. But meanwhile, “if you run large deficits in a full-employment economy, you run the risk of overheating -– specifically, inflation.” In the country where ultra-low rates and becalmed bond markets arrived first, the opposite scenario has prevailed.

Japan’s government owes more than twice as much as America’s (relative to GDP), and pays even less to service it. The challenge for policy makers hasn’t been to put a ceiling on the debt -- but to put a floor under economic growth, in the face of long-term drags from demographics to private-debt overhangs.

Ultimately, that’s a more likely outcome -- in the U.S. and elsewhere -- than a bond-vigilante revival, according to Steven Major, head of fixed-income at HSBC. “Developed bond markets have not all arrived at full Japanification yet,” he wrote in a report. “But they are on the way.”"

MY COMMENT

YES....many of the developed countries are on the way to becoming Japan.......and......the EU.......stuck in a deflationary trap for more than a decade. In the case of Japan for at least 25 years.

On the other hand if we end up with rapidly escalating yields on Treasuries.......the debt and servicing of the debt will eat the GDP alive.

As this little article notes.....and contrary to all the short term DRAMA......Treasury yields in general are the LOWEST in more than 20 years......in my mind more than 35 years. AND.....the Ten Year Treasury is ROCK-BOTTOM by historical standards........if you look at a 100 year chart of yields and according to this little article. It is a TOTAL JOKE that the markets are reacting the way they are to 100 year LOW Ten Year rates. BUt....short term market action.......RANDOM and IRRATIONAL. that is why I prefer to put my money on the LONG TERM rather than the short term.

 

The thing that is very strange is the FACT that most investors today have NEVER seen a......REAL..... BEAR MARKET. Here is the history of BEAR markets and corrections from 1950 to the pandemic in March 1920. The CORRECTIONS are in BLUE and the BEAR MARKETS are in RED.

I am NOT considering the pandemic event a REAL BEAR MARKET since it ONLY lasted for about 33 days. Those of you that are NEW investors since......the last REAL BEAR MARKET in 2007......will see that the AVERAGE BEAR MARKET lasts.....HUNDREDS.....of days. Most are in the range of 400 to 900 days.

NOW.......imagine having to be an investor through a 400 to 900 day BEAR MARKET. NOT a pretty sight or event to go through. In fact it WILL drive the majority of investors out of the markets.....many for life.

That market time between 1987 and 2000 with NO bear market is the REGAN TAX CUT BOOM. That BEAR MARKET that you see in 1987 that lasted for about 101 days is the FLASH CRASH. That BEAR MARKET you see from 2000 to 2002....is the DOT-COM collapse that happened a year after I retired. That BEAR MARKET that you see from 2007 to 2009 is the NEAR ECONOMIC COLLAPSE that occurred when the government allowed the MORTGAGE DERIVATIVES MESS to nearly tank the entire world banking system and economy.

 

I wanted to post that chart by itself above....here is the article that goes with that little chart. This article is from FEBRUARY of 2021....but the data is STILL accurate.

A Short History of U.S. Stock Market Corrections & Bear Markets

https://awealthofcommonsense.com/20...of-u-s-stock-market-corrections-bear-markets/

(BOLD is my opinion OR what I consider important content)

"Since 1950, the S&P 500 has experienced 36 double-digit drawdowns. That works out to one every other year or so on average.

So maybe we’re closing in on being due for a breather but these things don’t occur on a set schedule.

The stock market has been highly volatile since the turn of the century, experiencing crashes of 50%, 57% and 34%. It’s possible this level of heightened volatility is going to remain for the foreseeable future with an assist from the internet.

But markets can go through extremely long runs in-between sell-offs.

The longest the stock market has gone without a double-digit correction since 1950 is 7 years from 1990-1997.

Then from 2002-2007 there was a four-and-half-year drought with no corrections.

This may surprise some people, but the third-longest streak of no market corrections over the past 70 years or so was the four years from late 2011 through late-2015.

While double-digit corrections occur quite frequently, bear markets are more infrequent.

There have been 10 bear markets since 1950, meaning they have hit once every seven years, on average.

The longest time from bear market to bear market in modern market history was the 12 years and 4 months between the 1987 crash and the onset of the dot-com crash in 2000.1

Then there were the 11 years from the bottom in 2009 through the start of the Corona Crash last February.2

So you could be right about a coming market crash but have to wait a loooooong time for it to come.

And if you plan on waiting for a correction it’s not only time you could be missing out on but massive returns. These are the biggest gains on the S&P 500 that occurred between double-digit corrections:


1990-1997: +302%


1984-1987: +147%


2003-2007: +112%


2011-2015: +109%

This is why market timing can be such a destructive exercise. There can be a massive opportunity cost if you’re wrong.

Maybe markets are moving faster than they did in the past. Maybe we’ll have more corrections and bear markets because technology is speeding things up.

But don’t underestimate the market’s ability to continue rising. This is what makes predicting the stock market so difficult.

You always have to be prepared for a downturn but there are also times where markets scream higher without much resistance.

MY COMMENT

I do not EVER invest according to trying to anticipate the market up's and down's. It is simply IMPOSSIBLE. I just invest and hang on through thick and thin and over the long term the gains outweigh the losses.....at least so far over my 45+ investing years.

 

Ok....it might be....time will tell. I like your thesis Zukodany.......you will have to wait about 3-5 years to see if it is accurate.

As an alternative argument that things are not different now......same old normal...... I would say:

Actually this year and over the past few years we are NOT seeing more corrections. After all in the above chart we see that we have not had a correction since 2018. AND....we have not seen a BEAR MARKET in a long time. So they are NOT happening more often. People may be......incorrectly...... calling events corrections....but they do not meet the definition of a 10% or more drop. That is why they dont show up in the chart above.

As to the impact of TECH......I remember very well the TOTALLY TECH driven market of the 1990's and into the 2000's leading to the DOT-COM crash. I think that market was just as TECH driven as now...... if not more. We also had the same INSANE SPECULATION back than as we saw this year.....perhaps even worse. Back than everyone in the country was DAY-TRADING.

There are probably more investors now than back than....mainly because of all the 401K and retirement investors we have now compared to back than. BUT I think this money tends to STEADY the markets.

I am ALSO not seeing any drop off or reduction of returns in the SP500. Last year 2020....above average for the SP500......2019....way above average for the SP500.....2018....a loss of 4.52%.......2017....way above average for the SP500........2016.....an average year.......12.34% for the SP500.

From my standpoint....it does not matter.....but this year does not seem ABNORMAL to me.....except for the pandemic. The ONE big difference that I see now....the refusal of companies to do stock splits.

By focusing on the long term.......I am SLOWING things way down and making the short term IRRELEVANT.

 

No I dont RG. It is amazing how many great artists are out there. He was more of a REALIST....most of my art is either Western art of American Impressionistic art.

A typical open today........since we have been LURCHING UP and DOWN lately. Today we are LURCHING up. If we can hold on for the day I might gain back what I lost yesterday. The DRAMA of the short term.

 

I like this little article that is relevant for those facing retirement.

THE DECK IS STACKED AGAINST RETIREES

https://americanconsequences.com/dr-david-eifrig-the-deck-is-stacked-against-retirees/

(BOLD is my opinion OR what I consider important content)

"If you plan to retire in the next few years, unfortunately, the deck is stacked against you.

I hate taking such a pessimistic tone… But I’m not going to sugarcoat things.

The truth is, if you’re looking for a decent return on your nest egg, there aren’t many ways to do it right now… at least not without loading up on risk.

Given how expensive retirement can be – and how much those costs will likely grow in the near future – few folks can afford to have their hard-earned cash lying around, earning close to nothing.

Unfortunately, close-to-nothing returns are what you should expect out of most fixed-income investments today… And the closer you get to retirement, the more importance you place on the preservation of your capital.

Conventional wisdom says to own stocks when you’re young and bonds as you get older. Over time, stocks will earn you about 7% or so a year. But in any given year, the market might crash.

Stocks are risky. And you accept that risk when you’re young because your holding period can run for decades – giving time for problems to correct themselves.

But when you’re about to retire, you can’t afford even a single bad year in the market. You’ll have bills to pay with no paychecks coming in. The “professionals” tell you to exchange potential gains in the stock market for more safety.


That’s where fixed-income investments come in…

For the most part, you’ll know what returns to expect: about 4% to 5% in bonds. They’re far less volatile than stocks. And for a long time, investing in fixed income was more than enough to safely grow your nest egg in retirement.

Previous generations had it much easier… All they had to do was lend their money to the government or to a bank, and they would regularly earn a return that beats inflation. Before 2000, the yield on the 10-year Treasury was routinely above 6%.

But things have changed. Fixed-income investments won’t keep you afloat like they used to.

After months of extraordinary gains, the U.S. stock market is now looking off. Investors worldwide now ask, “Is this the beginning of the end of the most epic stock rally in history?” All eyes are on September 28 for the answers. Here’s the entire story.

Financial Bondage
Consider that 10-year Treasury yield, for example. Rather than 6%-plus, it’s now a measly 1.5%…


Since inflation or interest rate hikes are a near certainty, the bond market has a rough road ahead. Plus, their yields don’t look as attractive compared with the yield you can get from stocks.

So if you’re getting ready to retire, what are you supposed to do? Simply settle for the little-to-nothing yield you can find in bonds?

If you do that, your purchasing power will decline over time. Earning 1.5% in 10-year bonds won’t cut it when inflation is 4% a year… That trade would lock in a loss of 2.5% per year.

That’s why you need to find a return that will be greater than inflation.

And the best game in town to do that with remain stocks.

But of course, stocks have risks right now. Valuations are beyond stretched. Plus, many corporations have loaded up on debt, making some folks call for a debt bubble.

But since the outlook for bonds is bleak, you need to own some stocks. There are not many other choices.

The hard part is deciding how much of your nest egg you want invested in stocks. A lot of that will depend on your age and what stage in life you’re in… But everyone should have some money in stocks."

MY COMMENT

SORRY....no MAGIC answers here. It is going to be a very difficult environment for retirees trying to balance risk versus safety. I spent a lot of my lifetime planing to use that average 6% return on Treasuries in retirement. When the time came it was obvious that it was NOT going to happen....so.....on to plan #2.....my income annuities.

The key is to at least make some sort of plan ahead of time......at least 10 years ahead of time. Start thinking of how you are going to manage your money and income when you are about age 50. Research all the options and risk involved. It takes time to figure it all out. You dont want to retire and just WING IT.

 

HERE is a bit of a preview of third quarter earnings.....not that you can generalize this sort of stuff.

The Big Picture

https://www.briefing.com/the-big-picture

(BOLD is my opinion OR what I consider important content)

"Third quarter 2021 earnings preview.

There is talk of playoff baseball; pumpkins are out on doorsteps; and there is chatter about the great stock market crashes of 1929 and 1987. This can mean only one thing: the month of October has arrived.

No one can be certain if it will be a good month, or a bad month, for stocks. We can be certain, however, that it will be a month filled with lots of earnings news.

The third quarter earnings reporting period goes into full swing in the latter half of the month and that period will help determine if October is going to be a good month, or a bad month, for stocks.

Strong Growth Expected

Analysts are projecting strong earnings growth and strong revenue growth for the third quarter. According to FactSet, S&P 500 companies are expected to report earnings growth of 27.6% and revenue growth of 14.9%.

Those projections are in vaunted territory. There have been only two other instances since the third quarter of 2010 (i.e., the previous two quarters) when earnings growth has been stronger and only one other instance since 2008 (i.e., last quarter) when revenue growth has been stronger.

These estimates have been increasing, too. On June 30 they stood at 24.2% and 12.6%, respectively; moreover, they are well above the five-year average growth rates of 7.1% and 3.9% per FactSet.

The strong growth outlook is a byproduct of easier comparisons, but to be fair, it is also a byproduct of strong demand.

Ten of the 11 economic sectors are expected to report year-over-year earnings growth. The one exception is the utilities sector.

The energy, materials, and industrials sectors are anticipated to report the strongest growth of all sectors, though, which speaks to the strength of the cyclical recovery.

Concern about Earnings Prospects

It's a good picture of things to come -- or it seems to be anyway. So, then, why is the stock market in a funk right now?

At its record high on September 2, the S&P 500 was up 5.8% since June 30. At its low this Friday, the S&P 500 was down 0.2% since June 30. In other words, the stock market's mood has shifted.

Various factors have accounted for the shift:

• An expectation that monetary policy is destined to become increasingly less dovish
• A rapid uptick in longer-dated Treasury yields, which has been driven by tapering expectations and inflation angst
• Misgivings about the infrastructure bills getting passed
• Relative weakness in the mega-cap stocks
• China's regulatory crackdown and economic problems there altering the global growth outlook

One item conspicuously absent in the list above is concern about earnings prospects. It seems hard to believe knowing we are on the cusp of perhaps seeing some of the strongest earnings growth since 2010. That, however, is the issue.

There is concern that the third quarter is as good as it is going to get for some time and that there will be a progressive deceleration in earnings growth in coming quarters, not just because of tougher comparisons but also because of profit margin pressures driven by supply chain constraints, higher prices for raw materials, higher labor costs, and higher transportation expenses.

Ask Sherwin-Williams

Companies have been increasingly pointing a finger at these factors as a basis for sounding more cautious about their sales and earnings outlook. The market is understandably concerned that more such warnings will be heard during the third quarter reporting period.

The market has been put on notice by the likes of Nike (NKE), FedEx (FDX), 3M (MMM), Sherwin-Williams (SHW), DR Horton (DHI), Costco (COST), and Micron (MU), which have called attention to these earnings headwinds.

Importantly, though, they haven't necessarily sounded an alarm about weakening demand; and many have talked about implementing price increases to help offset the impact of higher costs.

The fact that demand remains strong, generally speaking, has kept the stock market from freaking out -- so to speak -- about corporate earnings prospects as they currently stand.

There is an allowance for the idea that earnings growth will slow because of tough comparisons in coming quarters, but so long as companies are able to convey a continuation of strong demand for their products and/or services, the fallout from warnings about higher costs should be less pronounced.

Sherwin-Williams and Bed Bath & Beyond are good illustrations of this point.

Sherwin-Williams cut its third quarter and full-year outlook after the close on September 28. It did so citing worsening raw material availability and pricing inflation, but Sherwin-Williams also said that demand across its pro architectural and industrial end markets remains robust. Shares of SHW are up 3.2% since that warning.

Bed Bath & Beyond reported weaker than expected fiscal Q2 earnings before the open on September 30 and issued warnings for its fiscal Q3 and full year. Supply chain challenges were a factor, but the real knock came when the company also said it experienced slower than expected traffic trends in August across stores and digital. Shares of BBBY are down 24% since that warning.

What It All Means

Demand is key right now. If companies can point to a continuation of strong demand and an ability to offset higher costs with accepted price increases, then the market should be more forgiving of warnings tied to cost pressures. That's not to say it is going to forgive and forget altogether, but it should have more patience for companies that continue to experience robust demand for their products and services.

In terms of the market's conviction in earnings prospects, the tipping point -- and true valuation constraint -- is when price increases aren't tolerated by customers. That's when the impact to profit margins -- without any corresponding cost relief -- will hit home and multiple compression will (or should) follow.

We expect to hear plenty of good earnings news for the third quarter, but we also expect to hear plenty of talk about supply constraints and cost pressures. Hopefully, that will be mitigated with continued talk of robust demand.

Without it, peak earnings concerns just might lead the stock market to a lower place by the end of October.

MY COMMENT

Talk is good......and I tend to agree with this article....but we will see the REAL results in a few weeks and that is what matters. Of course....as usual....the markets will tend to IGNORE great earnings as has been the norm for some years now.

There is also potential.....as usual.....for outside events and actions....to ECLIPSE earnings over the short term. I am hoping that many companies with their warnings and forward looking statements are playing......rope-a-dope......and they are setting themselves up for easy earnings BEATS. As I said....we will know soon.

 

NOT going to post articles because there are MANY and I really dont care about CHINA. BUT I am seeing articles every day that....more and more Chinese property companies and developers are in TROUBLE. We may be at the start of a very LARGE economic situation in China. I will NEVER invest in Chinese companies.......they are totally opaque and under total communist control. Any investment in China is INHERENTLY suspect and totally speculative. Add in the danger of being at the mercy of the worlds most brutal communist dictatorship and you get what you deserve if you choose to invest in those companies.

INVESTOR BEWARE

 

Same old same old with the short term stuff. Here is the take on today.......same issues as yesterday....but today no one cares.

Stock market news live updates: Stocks rise as tech shares recover some losses

https://finance.yahoo.com/news/stoc...dates-october-5-2021-113322666-221655591.html

(BOLD is my opinion OR what I consider important content)

"Stocks advanced on Tuesday as technology stocks recouped some losses from Monday, when a rotation away from growth names picked up steam as concerns over inflation lingered.

The Nasdaq gained more than 1% after the index dropped more than 2% Monday afternoon. Both the S&P 500 and Dow each also gained over 1% intraday. Shares of technology heavyweight Facebook (FB) recovered after shedding nearly 5% at the start of the week, as an hours-long platform outage added to a string of negative coverage raising further scrutiny of the social media giant.

Equity markets have faced a slew of concerns about the economy and policy landscapes heading into the final quarter of the year. Wall Street's anxiety over the debt-limit debates in Washington increased further, with Democratic and Republican lawmakers still struggling to reach an agreement to raise the federal government borrowing limit and avert what some policymakers have warned would be economy-wide disaster as soon as mid-month.

Investors are also awaiting signals from individual companies over how they have navigated supply chain challenges, rising labor costs and other pandemic-related pressures over the past several months, with third-quarter earnings season due to begin in earnest next week.

“The growth scare probably happened, and we’ve seen a better alignment of expectations for higher inflation and lower growth. But where earnings come into play … is that we’re still going to have pockets of really high price pressure that are going to make business hard for select areas,” Francis Donald, Manulife Global chief economist, told Yahoo Finance.

“We need to be watching the earnings season not necessarily because of its broad impact – of course that matters to the market — but because we really need to be in a stock-picker’s market where those who really understand these companies are seeing who’s going to get whacked by the supply chain issues, and who’s going to benefit from the underlying fundamentals that are improving going into 2022," she added.

Despite the plethora of headline risks to the market, a number of strategists have warned against becoming too pessimistic just yet.

“I don’t see this as the big one, the big pullback, where we’re going to go down 20% and get into bearish territory,” D.R. Barton, Jr., principal at Woodshaw Financial Group, told Yahoo Finance Live about Monday's equity decline. “We’re still awash in so much money – that overcomes so much other bad news, and I think that’s the one umbrella that’s still going to keep this market propped up for a while.”

Others offered a similar take.

"We think most of the dips here are buyable. I concur with the idea that the legs that the bull case stands on, which are accommodative policy, fiscal and monetary, plus just really strong corporate operators and a really strong consumer, are enough to outweigh the headline risks of a debt ceiling standoff or policy machinations," Ross Mayfield, Baird Investment strategy analyst, told Yahoo Finance Live.

10:06 a.m. ET: U.S. service sector expands more than expected in September: ISM
Activity in the U.S. services sector expanded at a faster rate than expected in September, aided by a boost in new orders during the month and still-solid labor market conditions.

The Institute for Supply Management's September Services Index came in at 61.9, rising from 61.7 in August. This came in above consensus estimates for a reading of 59.9, according to Bloomberg consensus data. Readings above the neutral level of 50.0 indicate expansion in a sector.

One of the biggest contributors to the estimates-topping print in September came from new orders and order backlogs, which both accelerated during the month. Price paid by firms for materials and services also increased, tracking a rise in inflation seen across the economy over the past several months. And while an index tracking employment trends held in expansionary territory, it moderated slightly compared to August.

"The slight uptick in the rate of expansion in the month of September continued the current period of strong growth for the services sector," Anthony Nieves, chair of the institute for Supply Management Services Business Survey Committee, said in a statement. "However, ongoing challenges with labor resources, logistics, and materials are affecting the continuity of supply.”"

MY COMMENT

The erratic re-opening continues as you would expect. Economic data is all over the board......as are the markets day to day.

I assume that TRADERS LOVE this environment. But I dont know since I dont follow any traders.

 

AND.....a little article on investor psychology......the driving force of returns for most investors.

Weekly Market Pulse: Zooming Out

https://alhambrapartners.com/2021/10/03/weekly-market-pulse-zooming-out/

(BOLD is my opinion OR what I consider important content)

"How often do you check your brokerage account? There is a famous economics paper from 1997, written by some of the giants in behavioral finance (Thaler, Kahnemann, Tversky & Schwartz), that tested what is known as myopic loss aversion. What they found was that investors who check their performance less frequently are more willing to take risk and experience higher returns. Investors who check their results frequently take less risk and perform worse. And that makes a lot of sense if you think about it. If you check the stock market every day, the odds of seeing a negative result are fairly high. There are more up days than down but the difference isn’t that great, say 53% up and 47% down. If you back out to monthly, you see positive returns 63% of the time, quarterly 69%, and yearly 74%. The more frequently you check the more often you see a negative result and that matters because a loss has a greater emotional impact than a gain. The emotional reaction to the pain of loss is to stop the pain – sell. And when the pain passes it is difficult, nearly impossible, to reverse the decision because you are now emotionally invested in that position. It is hard to admit when you are wrong and so you sit and wait for the market to validate your previous action. If it doesn’t, you find yourself months or years down the road wondering how you got here.

I don’t think there is much reason for the average investor to look at their account more than once a quarter. Obviously, I have to because it is my job, but I’ve learned over nearly 40 years in the market to not pay too much attention to what happens on a day-to-day basis. And that applies not just to market returns but also to economic data and all the other things investors fret about so regularly. I have said this many times in the past but it bears repeating; most of the market “data” everyone obsesses about is just noise, especially when it comes to economic data, which in its initial release is barely more than a guess. And a lot of what passes for data is nothing of the sort. The ISM survey, for example, is, as its name suggests, a survey, an amalgamation of purchasing managers’ beliefs about how their businesses are doing. In other words, it is anecdotal and subject to all kinds of human biases. It isn’t worthless but it sure isn’t hard data.

I bring this up because we just finished another quarter during which a lot of things were supposedly newsworthy – CNBC and Bloomberg sure found plenty to talk about – but somehow produced almost nothing in the way of major market movements. The S&P 500 was up less than 1%. The MSCI World stock index was down 0.01%. The EAFE index was down less than 1%. REITs were up less than 1%. Gold was down less than 1%. The 10-year Treasury note yield rose by 6 basis points. 10-year TIPS yields rose by 2 basis points. The 10/2 yield curve steepened by 4 basis points. 3 months of a whole lotta nothing.

There were some markets that had bigger moves but they weren’t things that a lot of investors could or would own. Natural gas, for instance, was up 62% in the quarter. But if you tried to capture that by owning an energy sector ETF, you lost money. There aren’t a lot of pure plays on natural gas in the stock market (although there are a couple of decent ETFs for nat gas). Commodities were generally higher in the quarter, the CRB index up 7.3% but that didn’t help EM stocks, which finished the quarter down 8.6%. Latin American stocks were down 15.8% and China lost 18.1%. Japan was an exception among developed markets, up 2.3% on the Nikkei. So, yes there were some individual markets that moved significantly but the major asset classes that most investors own were essentially unchanged. You could have safely ignored your portfolio and all the economic data for the last three months and not missed a thing.

The same could be said about the state of the global economy. It did slow slightly but you have to squint to see it and it may be over already. The supposed culprit was the delta variant of COVID and I suppose that is as good an explanation as any. But it really doesn’t matter much since the change was almost imperceptible. We don’t have a lot of the September data yet but looking at the last three months through August shows little change. The latest weekly jobless claims were 6,000 less than 3 months ago. The unemployment rate fell from 5.8% to 5.2%. Non-farm payrolls are up 1.5% (which actually isn’t bad if it doesn’t get revised away). Housing starts were up 1.3%, permits up 2.7%, and new home sales up 1%. Manufacturing and durable goods new orders were both up about 4% while core capital goods orders were 1.7% higher. Personal consumption was up 1.9%, retail sales up 2.5%, and wholesale sales up 5.1%. Inventory to sales ratios were unchanged. Personal income was up 1.5%. There is nothing there that should alarm us or make us break out the bubbly. The economy in the 3rd quarter continued to grow slightly above trend with the 3-month average of the Chicago Fed National Activity index down from 0.78 to 0.43 but still well above the zero line that represents trend growth.

During this most recent quarter, we saw all kinds of scary headlines about the budget process, the debt ceiling, potential tax increases, China Evergrande, big movements up and down in cryptocurrencies, ridiculous prices paid for NFTs, the spread of the delta variant, warnings about the mu variant, the withdrawal from Afghanistan, the natural gas price spike in Europe, the chip shortage (auto sales did drop nearly 20% so maybe that one is legit), supply chain problems, ships of goods that can’t offload, and the China crackdown on their tech companies. I’m sure there were more but I don’t feel like looking them up. Maybe some of these things are important but most of them aren’t and will be forgotten. But if you spend every day reading the headlines or even worse, scrolling through Twitter, there is every possibility that you will check your brokerage balance and do something you didn’t need to do that ends up being harmful to your long-term financial health. The answer to the question of what should I do to my portfolio today is almost always nothing.

The current economic environment remains the same – falling growth and rising dollar – although the falling growth part of that may need updating soon. I take rate movements at face value. When they were falling from March to July, it was an indication of falling of growth expectations. Rising rates over the last two months are an indication of rising growth expectations. Frankly, neither of the moves was all that large but the trend since last year is pretty obviously up. For now, I’m maintaining the falling growth stance but if rates keep rising that will have to change. Why might growth expectations rise? I don’t know. Maybe delta fades and services spending continues to pick up. Maybe tax hikes are avoided. You rarely know the whys in advance and there is little to be gained from guessing.



The 10-year Treasury yields (nominal and TIPS) provide us with information about the market’s growth and inflation expectations. It isn’t perfect, especially with the Fed so involved in these markets, but it is better than any Wall Street strategist or Twitter genius. What it tells us right now is that growth expectations have fallen somewhat over the last 6 months but may be starting to rise again. The 10-year Treasury yield is down from 1.75% in late March to today’s 1.46%, but that is still more than double the rate of a year ago.







Inflation expectations over the last year are up from about 1.6% to today’s 2.4%. They are also consistent with inflation expectations in 2010, 2011, 2012, 2013, and 2014 so today’s reading isn’t out of the ordinary. Inflation expectations are not all that matters for actual inflation but I can guarantee you that if investors perceive that inflation is out of control, it will show up in markets. And that is all that really matters from an investor’s perspective.







The dollar has been trending higher recently but viewed in perspective, it isn’t all that significant. It has moved up recently but it’s still in the bottom half of the range of the last six+ years. And it should be pointed out that a rising dollar, by itself, is not a bad thing. It is a rapidly rising dollar in the face of slowing growth (particularly when near recession) that causes big problems for investors. We don’t have those conditions right now. The uptrend has been gentle and the growth slowdown is barely detectible and nowhere near recession. I would also point out that dollar strength is what should give everyone confidence that the inflation we see today is likely, um, transitory. Most of what is going on with prices is a result of a demand-side policy response to what was primarily a supply shock.







The economic data released last week was generally positive but as always there are some caveats. The two regional surveys, Dallas and Richmond, were not that good with the latter turning negative. But with oil prices rising, I would expect the Dallas survey to improve and Richmond is not exactly manufacturing central. And the Chicago PMI (which includes services by the way) at 64.7 is pretty damn good.

Durable goods orders were a bit weak ex-transportation but still positive. And within that report, core capital goods orders were up again, an important sign for future investment.

Personal income was up 0.2% with the biggest gains seen in wages and salaries. But real incomes are up just 1.7% over the last year reflecting the impact of inflation. Personal consumption was also higher with spending on services offsetting a drop in auto sales.

Overall, the economic data is about what you’d expect with so little movement in the markets.







This week we get an update on the labor market and I for one have no idea what to expect.







The S&P 500 was down 5% in September and 2.2% just last week. Ironically, more weakness may come if growth expectations and interest rates continue to rise. Large-cap US stocks are expensive and low rates are a big part of that. If rates continue to rise, I’d expect US large-cap stocks – and particularly growth stocks – to continue to correct. As you can see below, they were the big losers last week with value holding up much better and small-cap value actually ending the week higher. Small caps, by the way, have been treading water longer than just the last quarter – the Russell 2000 has made no progress since February. However, current futures market positioning makes me think the trading range will likely be resolved to the upside. Large specs (mostly hedge funds) have a sizable short position.

The most interesting line on the chart below is the one for commodities which continue to rise even in the face of a higher dollar.







The only sector in the green last week was energy while financials also outperformed but with a small loss. Tech and health care were the worst performing sectors of the week.







I don’t know what will happen in the next quarter but I doubt it will be as boring as the last. The emerging narrative of the market is the end of the delta variant – and potentially COVID itself – but we don’t know for sure how that will impact the economy. It sure seems logical that things would pick up but there are a lot of factors other than COVID to consider. How will the slowdown in China affect the rest of the world? How will the rise in natural gas prices affect spending as the weather gets colder? Will inflation moderate or will recent rent increases feed a continued rise that spooks consumers and investors? Will the end of extended and enhanced unemployment benefits allow companies to hire the workers they need? Or will they have to keep hiking wages? Even if we could know the impact on the economy, how it will affect markets is hard to predict. Will higher rates mean growth stocks continue to correct? Will higher rates be negative for REITs? Will real rates continue to rise along with nominal rates and if they do what will happen to the dollar? There are always more questions than answers but the market will let you know when something is important.

Uncertainty is the constant companion of investors. We can never know what the future holds. All we can really do is observe the present as clearly as possible and try to ignore the cacophony of the financial press. And for goodness sakes, stop checking your balances."

MY COMMENT

Here is the key statement in the article above:

"Uncertainty is the constant companion of investors. We can never know what the future holds. All we can really do is observe the present as clearly as possible and try to ignore the cacophony of the financial press. And for goodness sakes, stop checking your balances."

Of course......I check my balances at least TWO TIMES each day. HEY....the rules dont apply to me. I am SPECIAL. I agree that as a long term investor I would probably be smart to only look at my account perhaps once per month....but I just can not help it....I am a HUMAN.

 

I think you got a good price on NIKE, Zukodany. I dont see it going much lower....if at all. the earnings dip is OVER. If we get a big general DROP.....perhaps. BUT....you did good.....and it will compound nicely over the long term.