September 18, 2017, 4:30 pm EST              Invest Alongside Billionaires For $297/Qtr

As I said on Friday, people continue to look for what could bust the economy from here, and are missing out on what looks like the early stages of a boom.

We constantly hear about how the fundamentals don’t support the move in stocks.  Yet, we’ve looked at plenty of fundamental reasons to believe that view (the gloom view) just doesn’t match the facts.

Remember, the two primary sources that carry the megahorn to feed the public’s appetite for market information both live in economic depression, relative to the pre-crisis days.  That’s 1) traditional media, and 2) Wall Street.

As we know, the traditional media business, has been made more and more obsolete. And both the media, and Wall Street, continue to suffer from what I call “bubble bias.”  Not the bubble of excess, but the bubble surrounding them that prevents them from understanding the real world and the real economy.

As I’ve said before, the Wall Street bubble for a very long time was a fat and happy one. But the for the past ten years, they came to the realization that Wall Street cash cow wasn’t going to return to the glory days.  And their buddies weren’t getting their jobs back.  And they’ve had market and economic crash goggles on ever since. Every data point they look at, every news item they see, every chart they study, seems to be viewed through the lens of “crash goggles.” Their bubble has been and continues to be dark.

Also, when we hear all of the messaging, we have to remember that many of the “veterans” on the trading and the news desks have no career or real-world experience prior to the great recession.  Those in the low to mid 30s only know the horrors of the financial crisis and the global central bank sponsored economic world that we continue to live in today. What is viewed as a black swan event for the average person, is viewed as a high probability event for them. And why shouldn’t it?  They’ve seen the near collapse of the global economy and all of the calamity that has followed. Everything else looks quite possible!   

Still, as I’ve said, if you awoke today from a decade-long slumber, and I told you that unemployment was under 5%, inflation was ultra-low, gas was $2.60, mortgage rates were under 4%, you could finance a new car for 2% and the stock market was at record highs, you would probably say, 1) that makes sense (for stocks), and 2) things must be going really well!  Add to that, what we discussed on Friday:  household net worth is at record highs, credit growth is at record highs and credit worthiness is at record highs.

We had nearly all of the same conditions a year ago.  And I wrote precisely the same thing in one of my August Pro Perspective pieces.  Stocks are up 17% since.

And now we can add to this mix:  We have fiscal stimulus, which I think (for the reasons we’ve discussed over past weeks) is coming closer to fruition.

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January 13, 2017, 3:00pm EST

We’re getting into the heart of earnings season now, with Q4 earnings rolling in.  Remember, earnings guidance is set by management to be beat.  And estimates are set by Wall Street to be beat.  That’s the way Wall Street works.  And it’s a built-in bullish force for the stock market.

With that, for the better part of the second half of last year, I said “we were set up for a big run for stocks into the year end given that expectations had been ratcheted down on earnings and the economic data. That creates opportunities for positive surprises, which is fuel for higher stocks.”

The dynamic continues.

Last quarter, 71% of earnings beat estimates for the quarter.  And despite the analyst expectations that there would be an overall decline in S&P 500 earnings, the overall earnings reported by companies grew by 3%. Sounds positive, right?

Still, management, on whole, was downbeat on their guidance for what the fourth quarter would bring.  They set the bar low.  And with that, the early Wall Street expectations for earnings growth on the quarter has been dialed back, setting up for positive surprises.

As I’ve said, historically, about 68% of S&P 500 companies earnings beat estimates. Let’s assume the positive surprises will be even higher for Q4 numbers, especially given the rise of optimism following the November election.  That’s more fuel for stocks.

We’ve heard from some of the biggest banks in the country today.  JP Morgan stole the show, beating on earnings by 20%. PNC beat by 6%. Bank of America beat by 5%. Wells Fargo earnings came in lower, but deposits and loans grew despite its PR nightmare.

This is all positive for the trajectory of banks. Especially when you consider that we are in the very early innings of one of the tailwinds (rising interest rates) and the first inning is coming for the second tailwind (de-DoddFranking the banking business).

Fed raising rates is a money printing recipe for banks.  Bank of America has said that a point higher on Fed Funds will add more than $5 billion of core earnings for the bank.

But the story here for the bank stocks is even more exciting when you consider that many of the regulations, that have turned banks into utility companies since the financial crisis, will be reversed by the Trump administration. To what extent will banks return to the business of risk-taking?  Probably not to pre-crisis levels.  But will it be dramatically different than the business of the post-crisis era?  Highly likely, given the contingent of Wall Street bankers entering government in the Trump administration.  With this, banks still look cheap.

Even last year, the health of the banks was looking as good as it has been in a long time.  Loan balances were growing at the fastest 12-month rate since 2008, the share of unprofitable banks had fallen to an 18-year low, and the number of ‘problem banks’ continued to decline.

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