Party on, investors!

Tuesday, 12th November 2019

Party on, investors!

It would demoralize the mountaineer….

Enough, we imagine, to make him tear off his backpack in frustration and hurl it into the ravine….

But, if the stock market is your game, it is the gift that keeps on giving….

Just when you think you’ve reached the ultimate peak an even higher summit rises up out of the mists….

  • The winning formula….

Over in the US last week, the Dow Jones Industrial Average jumped more than 100 points to a new record high….

The other two major US indexes are also at – or as close-to as makes no difference – record  highs….

Across 2019, the Dow Jones Industrial Average has added about 17% in value….

The Nasdaq composite is up close to 26% over the same period. The S&P 500 has gained about 23%….

Even a fool could make money in this climate. Many have. The stock market can do no wrong. It has done no wrong for a decade and more….

The winning formula could be taught to children in primary school….

Trust to corporate America, throw your money into the stock markets and then sit back and watch that money grow….

  • The real hero….

Last week, some folk thought that it was the news that Boeing expects its grounded 737 fleet to take to the skies again early next year that goosed the market up to its new elevation….

But that was just incidental detail, ladies and gentlemen. The truth is that when it comes to stock market values, it hardly matters what individual businesses do or don’t do anymore. The game has changed….

Before we move onto that subject, we should take a moment to remind ourselves who the real hero is  in all of this – that’s right, the man busy fighting impeachment proceedings over encouraging a foreign power to investigate a political rival in exchange for  security aid….

It is President Donald J Trump who is the architect of the  American boom. This is President Trump’s stock market. It is his triumph. It is his record high….

He promised to Make America Great Again. Now the stock markets are telling us that he wasn’t kidding around. That he has succeeded….

And he was swift to let the world know. These last week from the Presidential Twitter box….

‘Stock Market hits RECORD HIGH. Spend your money well!’

‘All-Time High for Stock Market and all the Fake News wants to talk about is the Impeachment Hoax!’

And if Trump ever tires of blowing smoke up his own backside, others will do the blowing for him. For example, JP Morgan CEO Jamie Dimon on 60 Minutes….

‘…. This is the most prosperous economy the world has ever seen, and it’s going to be a very prosperous economy.’

  • Cause and effect….

Of course, the economy Mr. Dimon talks about is Donald J Trump’s economy….

And President Trump’s economy must be going great guns, right now, as Mr. Dimon suggests….

It stands to reason. After all, corporate America is doing so well – as reflected in ever-increasing stock values. They’ve been growing like a bunch of magic beanstalk for 10+ years….

And you’d expect the sustained corporate success (measured in steadily rising revenues and profit) that fuels those ever-increasing stock values (up 17%+ this year alone across the board) to have translated into some really impressive GDP figures during President Trump’s term in office….

GDP is a measure of the size and health of a country’s economy over a period of time. It measures output – the total value of all goods and services provided by the country in a year….

And with corporate America currently dancing the hornpipe like a man who has recently discovered a third leg, it is reasonable to expect that success (measured in dollars)  to have noticeably swollen the GDP waters….

But that’s not been the case. Trump refers to his economy as the ‘best in history’, but we wonder what figures he bases that self-congratulation on. It certainly isn’t GDP figures….

Barack Obama averaged 2.5% growth in GDP during his last 11 quarters in office. In his first eleven quarters in office, Trump has averaged 2.5% growth in GDP….

In other words, the market has performed miracles under Trump’s stewardship. But the corporate growth you’d expect to fuel rising stock prices either hasn’t yet found expression in the GDP figures….

Or it was never really there to begin with….

  • Is the market crazy?

As you know, I am no expert on these matters. I am not an economist or an accountant or a financial analyst.

I am no more than an enthusiastic amateur who takes an interest in the world of money….

But I will say my truth. And I go on record with my own assertion that the corporate growth you might expect to be the driving force behind a stock market that has not stopped growing in value for 10-years was never really there in the first place….

In other words, corporate America continues to grow in terms of what it is worth whilst what it produces is on a plateau….

Of course, that’s great if you play the stock markets. After all, who cares how you win as long as you do? But what is fueling the growth in market values if not genuine  improved corporate performance?

Is the market crazy?

Are foolish investors behind all this? Will they come to their senses?

Should stock prices be falling? Should they really be this high?

  • The experts think so….

Most ‘experts’ believe stocks will go higher still….

I’ve read plenty of those kinds of opinions or allusions over the last few days….

‘Can markets repeat the 2016 – 2018 boom?’

The Financial Times poses the question and seems to think it possible….

MoneyWeek appears to see a buying opportunity. At least it does if a piece published last week entitled ‘How to steel yourself to buy at new all-time stock market highs’ is any kind of clue….

Like most stock investors, Yahoo wants to believe too. And it looks for reasons to believe. It published a piece last week called ‘3 reasons we may not see a stock market crash in 2020.’

But how can stock prices continue to go up? How can they even stop where they are?

Why would they?

If corporate America isn’t really doing more and better business, how can corporate America keep growing in value? It doesn’t seem to make any sense….

And that brings me back to what I was saying a little earlier. About how the stock market game has changed….

Stock values are increasingly disconnected from the fundamentals of the businesses that sit behind them. Something else is at work these days….

Trump can tweet until the cows come home about last week’s new high and about how he’s the guy making it happen.

But all that is just noise and smoke and mirrors. Something else happened recently – something that has much more to do with the latest high on the Dow Jones Industrial Average index….

America just turned the printing presses back on….

It’s a bit like turning up the music and topping up the bar. The party might not be over for a while yet. It’s still earlier than you think….

More next time….

That’s the truth of it as we see it….

All the best,

Dave Gibson

Money Truths