The Big Picture

“Doubt is not a pleasant condition, but certainty is an absurd one.” -Voltaire

This isn’t my first time quoting Voltaire. This guy was well ahead of his time. According to some historians Voltaire was very influential over modern America.

This is a business where certainty is just not achievable. I have been asked from time to time how one handles the unknown? The first step is to accept it. In investing, we must work within the realm of probability. Or math. Even then, our assessment of probability has an error. The primary reason for this is simple, we are attempting to determine the future!

“People live under uncertainty whether they like it or not.” – Amos Tversky

I find it amusing when I hear certainties proclaimed about what is to happen next in the economy and the markets. It has been widely discussed that projections much beyond the very short term, and I mean very short, are a fruitless endeavor. So why does this continue? Human nature. People love stories and have a very real need for assurance. You just feel better when some authority or perceived wisdom proclaims that everything is going to be o.k. No matter how inaccurate the projection may become once time has passed.

Have a Plan and a Process!

From the Trenches

“A witty saying proves nothing!” -Voltaire

I really do like this guy. Words are just a story. Numbers and data are what matters in financial planning and investing. On stories, I hear some good ones from time to time. Or at the very least entertaining. However, in investing and economics I prefer the data and the numbers. If the story doesn’t have numbers, it is simply not as valid. And possibly may not be on the level!

Data & Numbers Update

Verified Numbers don’t lie:
• With 86% of companies reported: S&P 500 earnings growth 7.2% year over year. S&P 500 sales growth 5.5% year over year.
• With 80% of companies reported: NASDAQ earnings growth 22.1% year over year. NASDAQ sales growth 11.7% year over year.
• GDP growth has accelerated from a low of 1.2% in June of 2016 to 3% on the last print.
• ISM manufacturing and new orders hit 161 month highs in September.
• After a productivity low of -0.41% in June of 2016, we have accelerated for four quarters to 1.35%.
• Capital Expenditures (Capex) has hit cycle highs and is holding this year.
• Real private investment has ballooned as well to cycle highs at 9.3% year over year from 9 quarters of deceleration.
Seven bullets enough? How about just one more…
• Real household income growth is accelerating at levels not seen in decades!
-Data Bloomberg, BBG, ISM, Federal Reserve

Oh by the way; the Dow Jones Industrial Average, the S&P 500, the NASDAQ, the Russell 2000, you get the idea, are all hitting or very near all time highs. Is the market reflecting the underlying data? We think so.

Bottom line: The data is the data. While stories of doom and gloom are still very present. It has not paid to be a bear in 2017.

The Weeds

“I disapprove of what you say, but will defend to the death your right to say it.” – Voltaire

Does this sound like an amendment that you are familiar with? I think it may be the first one… Again, clearly this gentleman made quite an impact on future generations.

A Catalyst

While I have given you some very bullish data and it has been a good year for stocks. There are underlying concerns that do have some merit. You have likely heard one or two mentioned. The question always becomes what to do with that information? I was at a conference last week and asked a question to one of the hosts on one of my concerns and he said flat out: “I know it’s a problem, but until there is a catalyst what do you do with that information?! Touche!

What will the catalyst be than breaks the markets back? There is no way to know. May be one of a number of things. And that is the point. We can all go hide under our beds waiting for everything to be rosy in the investment world. You will wait a very long time, or likely forever! Or, we play the game in front of us, not the game we would like. We would all like certainty in future events, that is simply absurd.

Bottom Line: Until there is a catalyst that changes the current investment environment, the best action is to stay the course. When we see a catalyst, rest assured we will not keep it a secret!