Economy is booming and Fed’s going to tighten, so be bullish

This looks like an ideal time to be investing in Revolutionary Companies that are set to benefit from both the cyclical economic/market set up as well as the secular growth they are creating on their own in new technologies and markets. Let me explain.

Last Monday, I landed in NYC at 5:30am and was at my first meeting by 10am. I met with at least five different sources, partners, former co-workers and/or friends each day for four days, catching a flight back to Albuquerque at 7:45pm and after driving three hours back to my house and family, got to bed at just before 3am.

Here are some random notes from my trip:

* A former prime time television executive producer talked about the San Francisco-based millennial-targeted website media company his son works at, which has raised some money and hiring other people.

* Business trends at a major news site appear to be steadily strong and they are investing in technology and rich media.

* A friend who used to be publisher of several of the largest magazines in the country is deciding what his next move is and there’s no lack of options for him.

* A fan of my old TV show has gone from college student to TV News reporter to a more high profile reporting gig and the world is her oyster, so to speak.

* A newsletter writer, trader, entrepreneur and TV personality. He’s been in the Middle East, South America and Tennessee in the last couple months for meetings with investors and business partners

* At my friend’s small biotech start up that’s burning millions of dollars per month, they are about to raise more money — and the raising, while somewhat more expensive than they might hope, is going quite well. Money willing to speculate in early-stage biotech R&D is out there.

* The crowd at thethe Benzinga Fintech Awards/convention as strong. Would appear that funding of fintech startups isn’t weak but not terribly bubbled or frenzied either.

* He’s a sales executive at Nokia/Alcatel/Lucent/Nortel and she was a former co-worker at mine from the tech incubator I worked at 1999-2000. She later ran a wildly successful boutique in SoHo which she told me she had closed a couple years ago as her rent had gone from $4000/month in 2004 to $11,000/month in 2014. Business at Nokia sounds like it’s pretty good and steady though the company is still digesting and has some more work ahead of it from the roll up of Alcatel-Lucent.

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Cody back in real-time here. You can see that most of my notes were rather bullish on the economy. While on the road last week, I wrote on Scutify and other platforms that:

“I’ve been rather surprised how strong the corporate economy, the start up economy and the general consumer economy out there in NYC are. Is your economy booming? Let me know what you think about how things are where you live/work/specialize.”

Here are some representative responses of the dozens that I received. I put the outright “economy is bad” responses in bold:

“Austin is booming. 2.9% unemployment rate. Don’t tell anyone!  It’s already growing too quickly.”

“I am in the Charleston, SC area and the economy here is doing very well.  Tourism is a major industry but the region has begun a tech startup hotbed.  Also, the aerospace (Boeing) and automotive (Volvo, Bosch, BMW, Michelin) have been ramping up as well.”

“I’m a VP of sales in new technology and yes business is very strong right now. I sell into architectural and entertainment event markets and everyone who has any talent at all is busy. It’s a target rich environment and while it’s competitive and there is price pressure the amount of buyers and budgets seems to still be growing .  Just a little report for my part of the world.”

“People are struggling in middle class. Execs and NYC may give you a false state of the union. The credit markets are the big warning to me…. Junk issuance down 40-45% from this time last year….. That is not bullish.”

“Thank you for your real world insights. I live in San Diego and I would say we are seeing the same thing in our city. It is a biotech hotbed right now with more big companies and smaller startups making their home here. Many of the large companies like JnJ have RnD labs located in the La Jolla area. I am trying to start my own company (as you said the best investment is in ourselves) and have noticed that there is a strong start up community with new incubator companies popping up through out San Diego. I would not be surprised at all to see SD as an extension to Silicon Valley as the prices are much lower out here compared to Bay Area home prices and the weather and beaches are much nicer than Northern California with less traffic than SF and LA. Not to mention many of the uber wealthy CEOs of the giant tech companies already own houses in San Diego (La Jolla or Rancho Santa Fe). The housing market is strong, and the talk in the news is that there isn’t enough housing in our market right now, but many buyer so it’s causing prices to steadily rise throughout SD. I know San Diego, SF, LA and Manhattan are different from most of the cities in the US, but from what we are seeing here is growth and a strong economy. They are even talking about keeping the Chargers in town by building a stadium/convention center downtown, which was dead in the water deal a year ago.”

“Things are ridiculously booming here in Los Angeles.  Especially on the west side.  Retail is on fire, job creation is everywhere, and there is a ton of optimism.  The advent of Silicon Beach has had a big impact, but LA has a ton of other booming industries from autoclave to the ports to automotive, entertainment, etc.”

“You said the economy is stronger than the Bears are giving it credit for.  Where exactly are you seeing economic strength?  What are your main leading economic indicators that you follow?  How important was the AMAT report to the tech rally in your mind?  I see continued moderation but no acceleration in the economy.  With no acceleration and 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?”

“I’m a Kansas wheat, milk, cattle farmer/rancher.  Things are getting tough on the farm low prices on grain and cattle people have had their butt handed to them for two years. Also the coops are still full of grain from last year with not much room for this years crops. Also the equipment dealers are crying the blues after hanging in our butt for the last ten years. Ok ‘nuf said. Good luck on the markets and pray Clinton gets jail time.”

“To me the economy looks OK. Maybe not booming, but hardly heading down the drain either. Employment may slow, but that might be more because good candidates are not available than that demand is not there. I know people who would like to hire, but can’t find anyone worth hiring, which should translate into wage growth. Business, at least near me, seems solid. It’s interesting to me to hear first hand data about NYC, since I am a long way from there. Thanks.”

“There is a lot of economic progress without a lot of economic growth. And that’s probably set to continue because most of the change keeps happening in the ‘doing more with less’ category. So, the economy is fine as long as you are not a ‘wiremaker’…”

“Mind the Millennials. The Economy rests in their will after the Baby Boomers finally lose their grip of control.”

“I live in NC and have run the same  retail business now for 15 years. Prior to the great recession our business was flourishing  but has been just marginally above water for the last 6 years.  In 2016 now we are in out 5th straight month of negative cash flow.  Two reasons: 1) people are shopping online 2) the people in NC don’t have any money.  The economy here sucks.  Please note that it is a mistake to base any kind of economic prognostication on how things are doing in DC or NYC.  These places may as well be other countries.”

“Recent data point – friend of mine going through a divorce in London – annual rate rise for law firm (a big one) came in at 10%.  Does not sound soft to me. (Personal add-on, fwiw: I doubt Brexit will happen and I expect rebound in current softness in UK housing – market has not given up prices significantly, but transactions have stopped – that will change if UK votes to stay in.)”

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Okay, Cody back in real-time here again. The breakdown was about 80% “the economy is booming/ok” vs 20% “the economy sucks” from all those replies. Stepping back and looking at the broader economic trends, the anecdotal data from my NYC whirlwind trip and the replies I got — 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.

Given that economic analysis and forecast for more growth, I no longer expect the Fed to cut rates or issue any formal announcements of new forms of QE. This recently burgeoning tightening cycle from our US Central Bank appears more likely to continue than not. Remember that 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. Recall that I’ve been more inclined to be bearish if I still thought the Fed was going to cut rates again.

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.

Net/net, there are quite a few bullish underpinnings for this stock market. But as it often does, the markets ability to truly rally to new all-time highs in the months ahead will likely come down to individual companies ability to grow their corporate earnings.

Really, this looks like an ideal time to be investing in Revolutionary Companies that are set to benefit from both the cyclical economic/market set up as well as the secular growth they are creating on their own in new technologies and markets. I’m comfortable with our mix of some high growth mega-cap winners like Google, Amazon, Facebook with a few down-and-out smaller companies with compelling valuations like Twitter, Fireeye, and LGF, with a variety of other Revolution Investment names like Nvidia and Sony and our other longs plus a few small shorts like GWPH, Pandora and Hubspot and our others — our playbook has done its job, which means that I don’t have to scramble to change anything despite the fact I’m a bit more bullish.

I’ll be finishing up a Latest Positions Round Up tonight to send out to you all tomorrow. Think free, accept reality, be vigilant, make the hardest trade, stay disciplined…rock on.