I keep CNBC on in the office during the day. I don’t find any particularly intriguing insights but it is fun to listen to and I feel guilty if I just have MLB TV on all day while I am working. I do not pay much attention to the short term stuff in my practice but I just love hearing all these highly educated and I assume highly compensated people advancing their ridiculous theories on why the markets are acting in one way or another. At least once or twice I get a great laugh from some out of touch analyst who is clearly relying way too much on his models and data and not enough on what is going on outside the window.

One fellow today in a very nice suit confessed that he was very confused about the economy. The data all said that the data like jobs reports and services numbers all indicated that everything was wonderful but it was not being reflected in consumer actions or actual economic growth. Sometimes, particularly if you live between the rivers or inside the beltway you need to close the 97 factor models and 1200 page spreadsheets, turnoff the machine, go outside and leave town.

Go talk to some people who do not live in stately Chevy Chase Villages homes or Upper East Side multimillion dollar studio apartments. Hit a couple happy hours and talk to some blue collar folks and mid-level office workers. They will tell you that it is better than it was in 2009 but many of them are still working part time and some are working an extra part time job to make ends meet. All of them live in fear of layoffs as corporations find stock buybacks and layoffs to be the very best way to hit profit targets. The younger ones are weighed down by student loans and car payments. Many of them are living back at home post college.

The economy is better that it was but that’s like saying that being off life support is better than in ICU on a ventilator. I am a little tired of hearing that the US is the best economy in the world and therefor e a great investment. Being less awful does not make you wonderful. Turn off the machine, Go outside. Talk to people. We still have a long way to go. As the North Jersey Business Times reported this week “Retail sales in 2016 are expected to mirror 2015, and continue the current pattern of slow, steady but not very exciting growth, according to economists and industry experts who spoke at the National Retail Federation convention Tuesday.” Better. Not good.

I was asked yesterday if I was buying the sell off this week. I was a small buyer yesterday when in mid morning of some of my favorite holding that have fallen sharply in the past few months. My recent buys have been undervalued REITs, water related companies, some activist situations and of course a couple of small banks. I was not a big buyer It is not yet a widespread buying opportunity. Expecting a few weeks of lower prices to create bargains in a market that has been going up for 6 years is just silly. We are getting closer but this is not yet a cheap market. Keep in mind stocks are still priced around 20 times earnings even after the recent weakness. Some wag or another will tell us that we are at just 15 or 16 times the 2016 estimates but after doing this for 30 years I have very little faith in estimates and will not be surprised to see them ratchet the number lower as the year progresses.

I can’t be a buyer of stock just because they are down. They also have to be cheap and past my safety checks. We are getting close but I need to see more selling to be a big buyer As I noted in my Real Money article today “It will start to get exciting if markets keep dropping. There are 52 perfect stocks trading between 0.9x and 1.5x book value. If the market keeps falling, we could get fully invested in these historically high return stocks. There are 51 Schloss stocks that trade in that range. There are 97 almost cheap stocks that have adequate F and Z-scores. We are getting very close to major inventory creation event, but we are not quite there yet.”

The worlds alleged elite- for the record I think the true elite are Mike Trout, Joh Irving, Keith Richards, Bryce Harper, Randy Wayne White, Clayton Kershaw , Manny Machado, John Prine and the ghost of Miles Davis and Dave Brubeck- are gathering in Davos Switzerland and there is a general feeling of danger in the air. William Browder of Hermitage capital said this morning that “If markets are left to their own devices, you're going to more downside across the board, and there are a lot of asset classes that haven't started to see the pain.” He think the governments need to step in telling CNBC “There's a lot of governments and regulators that still have money to spend.” Shane Oliver, head of investment strategy at AMP Capita was a little more upbeat saying “"2016 should end much better than it has started off for investors, ultimately providing okay investment returns, but expect a continued volatile ride.” Aberdeen Asset Management's CEO Martin Gilbert may have had the best advice that investors can take form Davos telling investors “Don’t panic and don’t cut at the point of maximum pain. Just have a cup of coffee and relax.” Depending on the time of day I might swap the coffee from a glass of wine but the advice is correct, This is not a lot of fun yet and those stocks we do own (outside community banks) are having a tough time but we are edging closer to a widespread inventory creation even that allows us to get out cash to work in a Mungeresque extraordinary opportunity.

That’s about all for me this week. I am watching and waiting ot see if we can get the type of selling that will represent a real opportunity.

Have a great week everyone

Tim

The market has been a bit of a https://www.youtube.com/watch?v=4qHX493bB3U but patience has always paid in the past I expect it will again.