Confidence is soaring…everywhere.
In last weekend’s newsletter, we showed multiple charts of surging investor confidence all at, or near, record levels. But while investors are indeed confident about the markets over the coming year, business and manufacturing surveys (sentiment) have also surged to near record levels. The National Federation Of Independent Businesses (NFIB) just released their December survey which showed a near record level of confidence for business owners.
One thing to notice is that spikes in optimism have generally occurred near peaks in the market.
Why should that be the case?
The reason is simple, exuberance tends to be disappointed by reality. When you dig down into the NFIB survey what small business owners are “saying,” and “doing,” are two different things.
For example, while business owners “SAY” they are optimistic about the economy currently, when it comes to committing their capital they are not nearly as brash. In fact, their level of planned capital expenditures continues to run at levels more normally associated with weak, or recessionary, environments.
What about consumers? They are optimistic as well.
Well, maybe not as much as you think. The survey shows that while business owners “SAY” sales should be improving, their biggest concern, which is spiking higher, is “poor sales.”
Furthermore, notice that while there has been an immense amount of “chatter” about how the recent tax reform has lowered the burden on business which will lead to a surge in economic growth, etc., the level of concern over the amount of taxes being paid has budged from post-recessionary levels. While taxes were recently lowered, the “cost” of labor is rising which will absorb, for small business owners, much of the impact of any tax cut received.
There is also a big difference between what the “hope” sales will be and what “actually” occurs. With such high levels of expectations currently, the risk of disappointment in future sales volumes is elevated.
While there is much “hope” that economic growth will boom this coming year due to regulatory and tax changes, history suggests the current levels of “economic optimism” are also likely to be disappointed.
Ultimately, for the markets and for investors, it is what you DO that matters the most.
Investors are currently set up for disappointment on many fronts over the next 12-24 months. While “exuberance” currently reigns, and investors are piling into risk equity with reckless abandon, the markets will continue to push higher.
Just be aware that “reality” will eventually set in.
Here is your weekend reading list.
Economy & Fed
- The Fed Needs A Better Target by Caroline Baum via MarketWatch
- Moody’s Warns Washington Of Tax Cuts by Tyler Durden via ZeroHedge
- Fed Pays Banks $30 Billion On Excess Reserves by Wolf Richter via Wolf Street
- Sequester Relief Is Too Costly by Committee For A Responsible Federal Budget
- Households May Rue The Binge Of 2017 by Danielle DiMartino-Booth via SeekingAlpha
- For Trump Much Rides On 2018 by Robert Samuelson via RCM
- Humor & Facts Would Improve Discourse by Richard Rahn via Washington Times
- Demographics Point To Lower U.S. Growth by Edward Harrison via Credit Writedowns
- Ready Or Not For The Next Recession by Barry Eichengreen via Project Syndicate
- GS: This Has Only Happened Twice In History by Tyler Durden via ZeroHedge
- How To Survive A Market Bubble by James Mackintosh via Streetwise
- The Dow’s Fastest Milestone Leap In History by Mark DeCambre via MarketWatch
- This Composite Index Bombed In 2016 by Simon Maierhofer via MarketWatch
- The Bond Market Singularity by Sven Henrich via Northman Trader
- When Small Companies Are Worth It by Simon Constable via US News
- Wall Street Is Underestimating Tax Cuts by Shawn Langlois via MarketWatch
- Invested, Emotionally In Stocks by Gil Weinrich via Seeking Alpha
- Start Prepping For A Correction by Michael Kahn via Barron’s
- CB’s Ready To Pop The “Everything Bubble” by Brandon Smith via Alt-Market
- Risk Blind & The Great Bear Market Coming by Danielle Park CFA via SeekingAlpha
- MYTH: Stocks Don’t Peak ‘Til Yield Curve Inverts by Daniel Moore via SeekingAlpha
- Survival Tactics For A Hypervalued Market by John Hussman via Hussman Funds
- The Only Benchmark Of Wealth by Michael Lebowitz via RIA
- It’s Always 20/20 In The Rear View Mirror by Doug Kass via RIA
- How Bitcoin Could Change Your Life by Hayley Tsukayama via WaPo
- How Bitcoin Is Like/Unlike A Gold Standard by Larry White via Alt-M
- Why Merrill Lynch Said No To Crypto by Jonathon Trugman via NY Post
- Bitcoin’s Economic Lessons by Matt O’Brien via Washington Post
- Crypto Is Strangling Innovation by Jon Evans via Tech Crunch
- SEC Warns Bitcoin Investors At Risk by Reuters
- Everything You Need To Know About Crypto by Blockgeeks
- Cryptocurrency Market Capitalizations by CoinMarketCap
Research / Interesting Reads
- The QE Party Is Over, Even For Japan by Wolf Richter via Wolf Street
- Fed Economist Demonstrates Ignorance by Aaron Layman via AaronLayman.com
- Bonds, Men Are Both In A Bear Market by Bill Gross via Janus Funds
- Everyone Is Suddenly Bearish On Bonds by Kevin Muir via The Macro Tourist
- Gross Exaggeration On Bond Doom by Buttonwood via The Economist
- Gundlach: 2018 Could Be The Magic Moment by Value Walk via Seeking Alpha
- Buffett: Full Interview On Market, Bitcoin & More by Market Folly
- Veritas: Twitter Shadow Banning Opposing Views by Tyler Durden via ZeroHedge
- Thaler: Investors Should Be Cautious by Christoph Gisiger via Finanz Und Wirtschaft
- 18-Predictions To Watch Over Next 5-Years by Vikram Mansharamani via Linked-In
- Why CAPE Naysayers Are Wrong by Rob Arnott via Research Affiliates
- Do Stocks Fast Start Bode Well For The Year? by Dana Lyons via The Lyons Share
- If Everyone Knows Pensions Are Screwed… by Jesse Felder via The Felder Report
“Risk comes from not knowing what you are doing.” – Warren Buffett