“When you look at the dark side, careful you must be. For the dark side looks back.”

– Yoda

Good Morning,

All the signs are arriving quickly.  Much more quickly on each new market peak - no matter the size of the rally beforehand. 

Before we get into a few ideas you may want to consider as the weekend haze creeps in, soon to deepen from the summer doldrums we are sure to feel, you may want to ponder this too:

Before once again getting too filled with angst and concern over the latest chapter in the ridiculous China Tariff War saga, ask yourself this:

"What in the hell happened to the earnings recession and slowdown of Q1?  Or, better yet, when I go back and read all the headlines of NOV and DEC, I see recession everywhere - which of course, led to the selling fears then - ending thousands of points lower from here.  Where was that recession in Q1 when GDP came out at 3.0+ - even if we shave a little from the inventory burn...?"

My reasoning for suggesting this?  Simple:

Most of the crap you read in headlines or hear from some talking head expert on TV - wait for it - NEVER happens.

There - I said it - the secret is now out.  The danger? 

Well, it's kinda like Yoda said above:  you give the dark side too much heed and guess what?  The dark side has teeth.  When those hooks are dug in deep, you would be shocked at what that fear will cost you over time.  

A Cool $20 Billion...

In a week!   That's right, the fear is already at work - by the truckload.  Heck, it might even be trainload.  Equity funds here saw a mass exodus in just a few short days of selling - with $20 Billion leaving equities in the last week.  

The good news?  That takes us to OVER $115 Billion leaving equity funds this year already - even as the rally unfolded.  I got a shiny new mirror for you if you can guess where the money went?

If you guessed - cash and bonds - you are the winner!!! 

Indeed, as the note below shows from TrimTabs - bond inflows are now position for 18 consecutive weeks!

...and the beat goes on:

This from BAML -

"U.S. equity funds saw outflows of $20 billion, the largest since Jan. 30."  They were citing data from flow tracking specialist EPFR. BAML tells clients the moves reflected 'trade deal trauma.'

In total, equity fund outflows have now reached $116 billion in 2019, on course for the worst year since 2016, the research said.

Bonds, which are perceived as a safe haven in times of market distress, saw an 18th consecutive week of inflows with $7.3 billion piling in over the past week. BAML analysts identified mortgage-backed securities, emerging-market debt and high-yield bonds as drawing the most inflows, reflecting what it terms an ongoing "lust for yield" amid an unanticipated drop in bond yields."

Shocking, no?

Which one feels scarier?  With or without the gentleman and the seemingly breathless stare into his own abyss? 

Hey - and if that is not enough for you, take a gander at these fancy headlines - and let me know what value you feel they deliver to the long-term investor?

I have an answer for you - and it starts with "zero" 

Meanwhile, back on MainStreet - we have something a bit more productive:

That chart tells us that mortgage apps are up - to levels not seen in nearly a decade.  Care to guess why?  It's what we have been telling you for a bit of time now:

Prepare for the new ballgame my friends. 

Grab your seats, pull up a footrest, get some popcorn and a hotdog - and buckle up tight.

This game is young, fast, smart - and it's going into extra innings.

Generation Y is going to change the entire landscape. 

You have two choices:

Believe it and act - positioning yourself for a long-term ride on this wave that will change all we know....or

Deny it based on fear and trepidation over today and yesterday - leaving yourself to be engulfed by the wave, passed by and then mistakenly assuming it is just the markets screwing you.

It's very tough to not be consumed by the dark side of  this long-term game we all play.  It's even tougher if you consume information designed to pray on all of our weakest emotions.  An example:

What can we take from this?  

It is the heartbeat of human emotion - all wrapped up into a lesson on markets.  The CBOE Volatility Index (the VIX), is a measure of the 30-day implied volatility of the S&P 500.  Somehow over the years - the masses have been taught this is Wall Street's "fear gauge."  This further implies that "volatility" is something you should fear. 

In reality? 

Volatility is a required part of the entire history - and the entire future - of markets.  Without it, returns would not be what they have been - nor what they will be ahead.  The audience has simply been taught the wrong message - and it made Wall Street rich.

By the way - the VIX hit its highest level since Jan. 4 on Thursday. 

In other words - it's working.

Stand Back From The Abyss

Now, I know this seems like a bad way of seeing "all the risk out there" - but we impress upon our clients that risk is always present - even when you "feel" it is not.  We further impress on our clients that "risk" and the perception thereof - is centered on two important pillars:

Time - and a plan.

Time tends to resolve the perception of risk.  I provide you a chart of PG as a recent example:

Here is the test we all undergo as short-term traders vs. long-term investors.

Stare at the two views of PG above.  The bars at the top are the increasing dividends you get for owning the stock each year - they have risen for 70 years straight.  The bottom portion is the price action of the stock paying those dividends.

You get to pick which one you are going to pay attention to.  

A year and a month ago, PG was selling for $70.  Today it is 50% higher.  A year ago it was a broken company - long past its prime - and not prepared for the future.  Right.

And guess what?  Those red dots are all the points in time when the experts were suggesting PG was "done" and it was time to move on.  

I was instructed long ago by a very wise friend: 

"Mike - don't confuse activity for accomplishment."

The good news?  It's 3M's turn in the woodshed:

Right now - their stock sucks.  It is doing a terrible job of being a "good investment."  The key words?  "Right now."

Here is the question though:  going forward, which part of their picture above do you feel will be more productive to pay attention too?  

The Facts Ma'am...Just the Facts

Yes, it is not good right this second to consider all the garbage we have to trek through on the Trade War train.  Childish, unwise on several fronts - sort of like a movie or play where you know the ending but somehow you just get sucked in - needing to see everything you really already know in your gut.

It reminds of of the Cold War and the desks we hid under during Nuclear Bomb drills.  It makes me chuckle.

But nonetheless - my brand spanking new, extra-large bottle of fruit-flavored TUMS is right next to my computer, ready to roll - along with the new quart of Woodford Reserve. Ok, Ok, I am joking - (sort of) 

As we Peer into the Summer Haze Ahead...

The road unfolds.  For short-term traders, it is a scary place, with ghosts and goblins at every turn - potholes wherever you gaze. 

In stark contrast though, the long-term investor is forced to understand this:  The road ahead is much like the road we have already traveled.  Tough, lots of rocky spots with plenty of problems to solve and get through - but on a long-term, upward sloping incline - even when it hurts.

This Trade War chatter is all good news friends, even though it hurts for a little while.

Yes, prices look ugly - but that is not new.

Yes, it feels a little shaky - but money which is truly needed now for lifestyle support should not even be "in" the markets - so redo your plan if it is.

Yes, the chatter and fear may indeed rise to a crescendo - with more red ink.

And then? 

The train will leave this station - like it always does - with far fewer people on board.

As unfeeling and crass as this will sound - this too shall pass friends.

Enjoy your weekend with family and friends.

Remember this always:

Investing is not about finance.

It is about how people act with money.

Keeping it simple will be the most difficult thing you will ever accomplish with your long-term investment and wealth-building / management plans.

Until we see you again, may your journey be grand and your legacy significant.    

The information contained in these notes has been provided as general market commentary and for information purposes only.  It does not constitute any form of advice nor recommendation to buy or sell any securities or adopt any investment strategy mentioned therein. It is intended only to provide observations and views of the author(s) at the time of writing, both of which are subject to change at any time without prior notice. The information contained in the commentaries is derived from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed.  The material does not give regard to specific investment objectives, financial situation and/or the particular needs of any specific person who may read it.  It is directed only at professional investors as defined by the rules of the relevant regulatory authority.  Any views regarding future prospects may or may not be realized. Past Performance or any reference herein is never a guarantee of future results. Any investment can and often does carry substantial risk. Please consult your advisor before making any investment decisions as nothing in these presentations is intended to be, shall be deemed as or perceived as personal investment advice in any jurisdiction.  Investment Advisory Services Offered through Truvestments Capital LLC, an SEC-Registered Investment Advisor.

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