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While on a business trip to NYC last week, I’d been rather surprised how strong the corporate economy, the start up economy and the general consumer economy out there in NYC are.
Sometimes you have to step back and look around you, listen to the people you’re meeting and accept what you see. And I have to say that I see a rather strong economy out there. My analysis continues to point to this economy being stronger than the consensus expects it is and most signs currently point to the economy continuing to expand, with some acceleration in the employment numbers too. To be clear, I no longer expect the Fed to cut rates or issue any formal announcements of new forms of QE.
So, the question people ask next of course is, “With a Fed hike on the horizon, and the implications that should come with that (stronger dollar, flatter yield curve, etc) how are we going to continue to rally?”
As I’ve pointed out in articles from years past with titles like “Why you must fight the Fed and get ready for a new stock market bubble,” we want to be long when the Fed is in the early stages of a tightening phase, because for the last three decades the markets have boomed in the early- to mid- parts of the tightening phases (see 1996-1999, 2003-2007 for example).
Conventional wisdom of “Don’t Fight the Fed” has been dead wrong during most of the cycles for the last thirty years.
As I noted in the most recent Revolution Investing Newsletter, being more bullish because the Fed’s likely entering a tightening cycle is counterintuitive, perhaps, but it’s a fact that free thinking is the only way one can ever outperform the (oft-wrong) consensus long-term.
Meanwhile, there’s a lot of bearishness and general uneasiness about the markets’ ability to rally because of the Fed’s tightening cycle and the conventional wisdom being so widespread of “Don’t Fight the Fed.” Fund manager’s cash levels are nearing historic levels. Investor sentiment polls, not something I put much faith in but worth mentioning, are widely being reported as being at historic lows despite the markets relative strength of late.
Then again, it’s been a while since the US stock markets got hit hard over a European crisis du jour. Which brings us to “Brexit” and the idea that Great Britain might exit the European Union. Here’s a good run through of the latest headlines and some background about ‘BREXIT’: GAUGING THE IMPACT.
I’m not in the business of trying to game the next 5-10% move in the stock market, but I wouldn’t be surprised if we did see the DJIA sell off towards 17,000 into the Brexit vote and the next Fed rate hike, both of which will most likely be non-events after all.
And then perhaps, if earnings in the next two or three quarters are as strong as I expect they might be for the companies I invest in, we might see some higher prices from there.
I plan on sticking with my playbook, which means investing in companies with strong balance sheets that are Revolutionizing the world and doing so early and/or when their stocks are at compelling valuations. Being disciplined with an eye toward maximizing my returns and minimizing my losses over the next, oh 10,000 days.
I also did an entire Cody Underground podcast in which I riff on this topic, why I think the economy is booming, the Fed is likely to raise rates and why all that is bullish.
And I’m curious how things are in your world right now. Is your economy booming? Let me know what you think about how things are where you live/work/specialize.