Boy things change quickly on Wall street, A week ago Barrons ran a piece that said “The comforting story that U.S. investors have been telling themselves—that weakness only exists overseas—is beginning to look like a mirage.” This morning’s opening piece said “U.S. stocks look poised to climb for a fourth consecutive day. Future prices for all three major equity indices climbed as oil prices continued to rally and jobless claims hit a three-month low. Wall Street posted its biggest three-day rise since August on Wednesday when stronger-than-expected industrial production data helped allay fears that fed a market rout earlier in the year. “CNBC anchors have gone form near suicidal despair to pure joy as the happily proclaimed FIRST THREE DAY RALLY IN STOCKS SINCE THE DAWN OF TIME all day yesterday. The bull case of so bad it is good has reemerged and there is endless conversation about the handcuffed Fed and a climate of low rates forever.

Investors who get caught up in the rapidly shrinking doom and gloom cycle do so at their own peril. Had you shorted stocks last Thursday amidst the doom and gloom you have had your face ripped off the last three trading sessions. I suspect that those that bought into the euphoria yesterday afternoon will have some cause for regret in the near term. I have long harbored a suspicion that cable TV and the internet are the chief contributors to the poor performance of individual investors. There is too much information, too many opinions, too many tips coming at investors every day everywhere they look. Ben Graham said in the Intelligent Investor that investing is most successful when it is most business like. There is nothing business like about this madness and short term thinking.

Let me sort it all out for you. The market has been up for 6 years in a row and we have more than tripled off the 2009 lows. A significant percentage of reported earnings gains over that time have come from buybacks, cost control and financial shenanigans. The economy is better than it was at the depths of the crisis but it is not particularly good. The jobs report is a joke as the unemployment and under employment problem still exists and not talking about the U6 and participation ratio doesn’t make it go away. It is not a particularly wonderful environment for wide spread stock market investing.

The Credit Suisse Investment Returns Yearbook 2016 was released recently and among the points made was the fact that traders are correct to fear rising interest rates and celebrate rate cute. The report noted that “Looking first at the USA, there are large differences between the returns following rate rises and those after rate falls, especially for stocks and bonds. Equities gave an annualized real return of 6.2% over the entire period, but just 2.3% during rate-rise periods, compared with 9.3% during rate falls. US bonds gave an annualized real return of 2.2% over the full period, but just 0.3% in the rate-rise regime, compared with 3.6% while rates fell.” The report was no particularly upbeat about the intermediate term future as they noted that “Finally, any concerns about lower prospective US and UK returns should be extended globally. We continue to live in a low-return world. Longterm bond yields remain extremely low throughout the developed world, so that future bond returns are likely to be much lower than over the last few decades. Future real equity returns will depend on the expected real risk-free interest rate plus the expected equity premium. Real interest rates remain low everywhere, and there is no reason to believe that the equity risk premium is unusually elevated. Prospectively, therefore, the real returns on bills, bonds, equities, and indeed all risky assets, seem likely to be relatively low.

Having said that the consolidation wave in community banks continues unabated and there are lots of financially strong small banks that trade below book value and have activist shareholders working to get prices higher. There are some REITs that I think you can buy and hold pretty much forever, using weakness to add and strength to trim position size and unless there is some breath taking technology break through carbon based fuels will be a part of energy for decades to come and stout hearted investors can reap significant profits with courage and patience. Private equity firms are caught up in a despair cycle and are so cheap some of them are buying back their own stock instead of investing in their own deals. An investor focusing on these three sectors and holding large cash balances doesn’t really care about the headline on the tape today. It is a source of amusement as they think more about 2021 than 2016. Higher returns are available, you just have to think differently and think long term.

For most of us the stock market exists just to let us buy good businesses and assets at discounted prices and eventually sell them for inflated value. Years should ensue between the points not minutes, hours, days, weeks or months most of the time. Unless you are part of that fortunate fraction of 1% of the population that has the rare ability to profit as short term trader of markets there is no need to sit in form of the screens or watch financial TV all day. Odds are it is costing you money. If you are in the work/accumulation phase of your life your time is better spent developing cash flows through a job or business that can be funneled into stocks when they are cheap. Use your time to study and learn about selecting business to buy when markets turn down and own for years. Spend those charting hours with your family and friends. Read a book, watch a ball game whatever floats your boat. Just get out form in front of the flashing prices. It is costing you money. If you are retired build a portfolio of solid income investments and check them from time to time not every minute. Learn what you need to know to be a solid investor and the go enjoy your life. Golf, fish, read, volunteer, be a mentor, take up cross country skiing- whatever works for you. Just stop trading your nest egg away on every tick and rumor in the market all day. Invest in a business like fashion and earn business like long term returns.

Community banks continue to be the single best place to be in today’s markets. Rating agency Fitch was recently out with a report that suggested consolidation will continue. “Consolidation in the U.S. midtier regional banking sector is likely to continue as midtier banks (with total assets ranging from $10 billion-$50 billion) seek to expand their branch footprints and asset bases, according to Fitch Ratings. 'Midtier banks have been active acquirers over the last year and this trend is expected to persist in 2016 and beyond as midtier banks continue to buy-up community banks struggling with growing regulatory burdens in a low rate environment.” said Bain Rumohr, Director, Fitch.” If you are not investing significant funds in community bank stocks you are making a huge mistake in my not always so humble personal opinion.

Enjoy the week. I am off to Dayton this weekend for the Great American Race with an old friend as well as my Son. I am not as big a NASCAR fans as I was years ago but the spectacle of Daytona is an adventure. Neither of them have ever been so I am looking forward to help them enjoy an experience I think every sports fan should see at least once.

Tim

Buy Low, sell high. Now, turn off that screen and get out there and write

https://www.youtube.com/watch?v=CpY-aPrhhMQ