“Now here you see it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that.” . . . Lewis Carrol, Through the Looking Glass
As many of you know I have been traveling around Michigan this week doing presentations for our financial advisors (FAs) and seeing accounts. On Wednesday night I spoke before a packed audience at a sit-down dinner in Saginaw, Michigan. After the presentation Ellen Martz, a financial advisor, came to the podium with a quote from the book Through the Looking Glass in a reference to me. The quote was, “Now here you see it takes all the running you can do to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that.” Ellen then paid me a great compliment by saying, “Jeff helps us run twice as fast!” It was a humbling comment and one I will remember for a very long time.
It also reminded me of another quote from the brilliant Lewis Carrol in the book Alice in Wonderland. To wit:
Alice: “Would you tell me, please, which way I ought to go from here?” The Cheshire Cat: “That depends a good deal on where you want to get to.” Alice: “I don’t much care where.” The Cheshire Cat, “Then it doesn’t matter which way you go.”
Similarly, investors having been asking over the past three months, “Which way I ought to go from here?” To Andrew and I the answer is pretty simple for as Old Turkey would say, as chronicled in the seminal book Reminiscences of a Stock Operator (1923), “You know, it’s a bull market.” Indeed, we liken the past few months to the May 2015 to February 2016 “upside consolidation” when so many pundits were predicting a stock market crash, a recession, no earnings growth, GDP collapse, etc. Reminiscent of that period, one of the large bulge-bracket investment banks recently declared, “The era of easy money is over.” They went on to say, “We think that this bull market has limited runway; and, this is the second longest bull market in history.” While those comments may be true if your definition of a bull market is a 20%+ rally, it is not true for a secular bull. Here’s the rift: they cut the 1949 – 1966 secular bull market off in 1962 because of the President Kennedy “steel crisis.” Recall, the steel companies raised prices and the president said, “No,” you have to put prices back down, and the equity markets did not like that and the S&P 500 lost 22.5% in a pretty short period of time. However, it did not end the secular bull market that would continue to run into its 1966 peak.
Again, these same pundits end the 1982 – 2000 secular bull market in 1987 because of the crash, but hereto it did not end the bull market. In fact, most of the indices we monitor actually were “up” in 1987, but not by much (Chart 1). The problem is there are just not that many of us left that have seen a real secular bull, so they have no concept of the power of such a bull market. And as a sidebar, the upside breakout to new all-time highs this week by the Russell 2000 (RUT/1625.29) is pretty much a proof statement that the secular bull market is alive and well.
Moving on to the here and now, on a short-term trading basis it looks like a “stock market stall” to us into next week. But, the downside should be limited to the 2670 – 2685 level on the SPX because the intermediate “energy mix” is still near a full charge. What is actually amazing to us is that participants are still listening to the false market pundits that NEVER saw the downside coming and now state that we will be in a trading range forever when we believe the exact opposite. Moreover they never called the Dow Theory (DT) “sell signal” on September 23, 1999, the DT “buy signal” in June of 2003, or the DT “sell signal” on November 21, 2007. Our long-term proprietary model flipped positive in October 2008 and has never turned negative since then; and we have been bullish ever since. Have we rebalanced portfolios, and reallocated assets, since then? Of course we have, but it has ALWAYS been within the construct of a secular bull market that has years left to “run!” Obviously, our intermediate and short-term models flip more often than that, which as stated, skewed negatively in January 2018. At the time we suggested raising some cash and advised putting some of that cash back to work at the early February lows that we continue to think were THE lows.
The RUT and the D-J Transports continue to point the way higher, while our recommended energy stock investments have rallied on Brent Crude’s price rise to $80/bbl. RJA’s energy team has been spot-on for this price rise; and, we thank them for that call! In yesterday’s s late session slide the stock market softened as DJT said he “doubts trade talks with China will be successful.” Our D.C. sources say this is merely a bargaining ploy, which we will see if it is correct in the weeks ahead! We continue to think the path of least resistance is on the upside and advise tilting portfolios accordingly.
This morning the preopening S&P 500 futures are better by about 4 points as we write at 5:03 a.m. given that China denies it offered a package to slash U.S. trade gap by $200 billion and DJT seeks to placate North Korea’s Kim over an uncertain summit. Alas, it must be option expiration day . . .