Just like the weather in Florida tends to be sunny most days, so the markets have gone up most days recently. Can you remember a day where you woke up to falling stock futures? Let me tell you that there have not been many such days in the past six months.
How can this be with all the global problems including slowing growth, the Coronavirus, conflict in the Middle East, impeach proceedings here in the U.S. and more?
The simple answer is liquidity.
Central banks keep printing and that money needs to go somewhere and right now that place is into assets, including stocks and bonds.
We all know this little global experiment in Keynesian Economics is going to end badly, but somehow the Central Banks continue to win the tug-a-war matches with the global economic cycles.
This is hard for more experienced managers to fathom as bubbles are everywhere and risk levels continue to rise, but here we are fully invested as if these signs of systematic risk do not exist.
I told a client just the other day “I think you have two choices as an investor. One, take advantage of what the market is giving you and then trade out or hedge when it finally does move into a bear phase; or Two, start taking positions off now and raising cash if you are not confident that someone is watching the store and will reduce exposure for you at the appropriate time.”
I also told that same client that “if he does the latter, he may miss out on one heck of a move over the balance of 2020 and into 2021.”
How can I make that latter statement?
First, the charts are showing that long-term strength in the markets is still possible based on an important historical chart pattern (i.e., real historical precedent).
If you look at the chart (below), you will see that the top window, RSI indicator is now above 70 on this monthly chart of the S&P 500 index.
The RSI indicator, according to Wikipedia, is a technical indicator used in the analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. In other words, it is a momentum indicator.
However, you don't really need to know anything about this indicator to see that when it moves above 70 (as highlighted in yellow), it usually stays there for an average of 15 months, based on 1997 - 2020 historical data.
Notice that we crossed the 70 level in February. We would have crossed last month if not for the end of month Coronavirus swoon.
What happens when the RSI indicator is above 70?
Usually the largest and most steep part of the stock market move occurs or as we call it the "melt up." This is the point that the most money is made in the market's move.
If we look at the past 6 times the market has risen above this level and stayed above 70 for more than 3 months, we find the following moves are possible:
When this occurs, historically the market has added 24.0% on average in return for the 15 months (on average) it stayed above 70 on the RSI.
Based on this alone, I think the stock markets could be headed higher, possibly much higher. History would say we could look for a price target in the range of 4090 for the S&P 500 come 2021.
Additionally, we believe the markets have further to go based simply for physiological reasons.
No bull market ends without excess enthusiasm for stocks!
In my experience, this is still one of the most hated bull markets that I have participated in to date.
In fact, I have almost daily discussions with long-time market participants who are raising cash, getting out or concerned about the markets. Does that sound like euphoria?
Now obviously, no one knows for sure what might happen, but I think there is a pretty good chance we could see an average move of 15 months and 24%. If it "melts up" all the better for our clients and investors.
That melt up may be the "Minsky Melt Up" we have been predicting. Hyman Minsky warned that capitalist economies created debts. Crises are born out of debt financed speculation on asset prices (private equity, levered loans, etc.) He theorized that eventually asset prices pop and then prices collapse. Conflicted governments then devalue, re-lever and set things up for the next fall. Sounds like the environment we are in today doesn’t it?
Could it be that this next move for the markets is a melt up to end all melt ups? Could it be that this move is the final move in this cycle?
Again, no one knows for sure, but this bubble must pop sometime!
When you pop a balloon what does it do? It shoots higher and then just as quickly runs out of gas and drops.
Sound scary? Well yes it could be. However, also it could be the greatest opportunity to profit with eyes wide open, constantly looking for the right opportunity to exit stage left, that we may see in our lifetimes!
Past performance is not an indication of future performance and there can be no assurance that the above indexes will achieve results in line with historical results. This blog post is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
The S&P 500 Index is a capitalization weighted index of the 500 leading companies from leading industries of the U.S. economy. It represents a broad cross-section of the U.S. equity market, including stocks traded on the NYSE, Amex and NASDAQ.
The Dow Jones Industrial Average (DJIA) is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange (NYSE) and the NASDAQ. The DJIA was invented by Charles Dow back in 1896.
Nikkei is short for Japan's Nikkei 225 Stock Average, the leading and most-respected index of Japanese stocks. It is a price-weighted index comprised of Japan's top 225 blue-chip companies traded on the Tokyo Stock Exchange. The Nikkei is equivalent to the Dow Jones Industrial Average Index in the United States.
It’s the New Year, time to turn the page on another set of resolutions. It seems to me that every New Year should not be about the resolutions, but how long we stayed at the resolutions. I would guess as a society that the time we stay with those resolutions gets shorter with each passing year.
This top New Year’s resolutions for 2020, according to Statista, look almost the same as last years. Or are they last years?
What is interesting is the frequency of searches on Google for many of these resolutions. Can you see a pattern?
These searches definitely do not persist. I think we can all agree on that!
It appears the majority of U.S. Adults according to this research want to manage their finances better, but you also noticed it was not one of the top Google search results!
Why is it this one resolution seems to be at or near the top year after year? I would suggest it is because we Americans fail to power through and get things done (on average).
Here is a great example. My twenty-year-old daughter is home from college for winter break. She leaves to study abroad in Italy in one week. She is nervous she is not prepared, and she has good reason to be nervous.
Instead of powering through and getting better prepared, she keeps putting off the things she knows she must do for that trip, while instead spending time watching YouTube videos and shopping for things, she does not really need nor want.
Now there is nothing wrong with the latter, but when the trip of a lifetime is fast approaching, and you have yet to figure out how your budget or even if you have enough money for the trip, there is a problem. She has no checklist of those items that you still need to be done and a date that each item needs to be accomplished. She is an organizational mess!
Thankfully, her dear old dad sat down with her and help her with her budget. I also had to help her develop that to do list with definitive due dates. Now on a daily basis, her mother and I must remind her to keep at it or she inevitably drift back into her bad habits.
This is not uncommon behavior in my experience. In fact, this is something we see everyday at InTrust Advisors with our family office clients. I am not sure everyone is wired to power through. Many cannot get out of their own way, as is the case with my youngest daughter.
In the case of our clients, we facilitate, so they can get financial things done. It is what we do and strangely one of the reasons we get paid.
So, being it’s a new year and this is essentially what we do, I thought it the perfect time to give you my seven ways to power through and get things done.
1. Make a list and prioritize
This is a common recommendation that really does work. It’s essentially a “to do” list sorted by priorities, with a target completion date and an assignee.
You can use a yellow pad or an online tool like Asana but getting organized is the first step to financial freedom. Brainstorm everything you need to do (example, hire an advisor) and then arrange them in the logical order they need to be completed. Add accountability by assigning the work to a specific spouse or person with a very specific target due date.
A key to getting more done is delegating. Our clients essentially delegate these tasks to us because (1) they can afford too, (2) they would rather spend their time elsewhere, and (3) it is not their gifting, but it is ours.
I myself then delegate to our virtual staff to get more done. As a recovering one-man band and “getter done machine,” this is not an easily learned behavior, but with the right team you can accomplish more in a shorter period!
3. Set Aside Time
Of course, a brilliantly constructed to do list and no time to accomplish those items is a big problem. Only bite off what you reasonably believe you can accomplish. If you need help, see number 2 above or shrink your list.
4. No pain, no gain
Anything worth doing is worth doing right and sometimes it involves pain. I spent a good part of the holidays fixing the work of a former assistant and a larger financial services provider who both failed to do the work properly.
Yes, it was unpleasant. However, when these financials are cleaner come summer and my team and I are wrestling with tax reconciliations and looming tax deadlines for supplying this information to our cadre of CPAs, it will be time well spent!
5. Focus on the positive outcome
Attitude is everything. If you focus on the benefits of the positive outcome, it makes the work and the pain of pushing through worth the work.
In the example above of fixing company financials for a client, the benefits I focused on were accurate financials for the client, better decision making, a smoother summer and the ability to take some time off this summer to go visit our oldest daughter in Boston, who is a first-year law student at BU. I don’t want to be frantically trying to fix these financials (which were a mess) with a looming deadline and an inability to take some time off come summer, so I sacrificed some time now for the positive outcome or reward later.
6. Celebrate the completion
Here is one they teach you in sales school, celebrate the victories. You finish having your attorney revise your revocable trusts and sign the revised paperwork, now it is time to celebrate!
Whether that means it’s Miller Time or just that it earned you some “me time,” you must celebrate the wins!
7. Rinse and Repeat
The final step is exactly what you read on the back of your favorite shampoo bottle:” rinse and repeat.” In other words, regain your strength and tackle the next item on the list.
Accomplishing great things is about taking a series of small steps over time and with regularity! That is why so many New Year’s resolutions fail, the steps are too large, and the regularity becomes too difficult to maintain. Don’t fall into this trap!
I hope this list of seven ways to power through and get things done has been helpful.
If you have other suggestions or ideas, let us know in the comment section below or on our blog.
If you have read my posts or received our emails, you know that I am not always the most bullish person on the markets. I know, you are probably saying “Nah, never noticed” with extreme sarcasm.
When I look at the markets, I see a magnificent way to achieve long-term goals, but I also see a lot of issues that we need to work through not the least of which involve bulging Federal Deficits, declining GDP growth, an aging population and more. I could go on and on.
However, they say, “the market climbs a wall of worry” and I think I can safely say that to be true. For whatever issues I see in the markets, they have generally continued higher and have confounded the most skeptical of us.
So, in an attempt to present an unbiased look at the markets, I would like to present the bull case for the next decade or so.
This all starts with a very long-term view of the markets.
What we have above is a 100-year chart of the S&P 500 index.
What you will notice is there are periods where the markets essentially move sideways (in red). We call these secular bear markets. These periods are usually volatile, and the market makes little or no headway over a 5 to 25-year time frame.
We also have periods where the markets advance for years on end. We call these secular bull markets. The last full secular bull phase was 1980 to 2000 or twenty years.
Within each secular bull and/or bear market cycle are a number of cyclical bull and bear markets or cycles within cycles.
The cyclical bear markets tend to be much more volatile and the corrections deeper within the secular bear phases than they do in the secular bull phases. The bull cycles in secular bear markets typically are advances back to the top of a range. In the secular bull cycle, they are advances to new highs.
Notice how the markets move up and pull back in these secular bull markets but the trend clearly remains up. In fact, the cyclical bear markets look insignificant when you look at a 100-year chart. If you looked at the 1980 – 2000 secular bull phase, you would hardly know that that period included the Crash of October 1987, the mini crash in October 1989, the 1990 recession and 1998 Russian Financial Crisis just to name a few.
Now look at the last red box on this chart. Notice how we appeared to exit the latest secular bear market in 2013. That is very constructive for stocks!
That is not to say that a recession will not occur in 2020 but if we are indeed in a secular bull phase, that market correction could be much less severe and/or much shorter in duration.
Now the caution, this all looks very bullish, but what happens if we back out the effect of ten years of Central Bank intervention through money printing and asset purchases. It is impossible to quantify this effect, but it is possible this bullish 100-year chart has been distorted by the aforementioned intervention.
However, it is also possible this is just another example of the markets climbing that wall of worry and an excellent chance for investors to capture higher returns for many years to come.
Let us know what you think?