Economy is booming and Fed’s going to tighten, so be bullish

CodyWillard

Stepping back and looking at the broader economic trends, the anecdotal data from my NYC whirlwind trip and the replies I got — my analysis continues to point to this economy being stronger than the consensus expects it is and most signs currently point to the economy continuing to expand, with some acceleration in the employment numbers too. Given that economic analysis and forecast for more growth, I no longer expect the Fed to cut rates or issue any formal announcements of new forms of QE. This recently burgeoning tightening cycle from our US Central Bank appears more likely to continue than not. Remember that we want to be long when the Fed is in the early stages of a tightening phase, because for the last three decades the markets have boomed in the early- to mid- parts of the tightening phases (see 1996-1999, 2003-2007 for example). Conventional wisdom of “Don’t Fight the Fed” has been dead wrong during most of the cycles for the last thirty years. Recall that I’ve been more inclined to be bearish if I still thought the Fed was going to cut rates again. Being more bullish because the Fed’s likely entering a tightening cycle is counterintuitive, perhaps, but it’s a fact that free thinking is the only way one can ever outperform the (oft-wrong) consensus long-term. Meanwhile, there’s a lot of bearishness and general uneasiness about the markets’ ability to rally because of the Fed’s tightening cycle and the conventional wisdom being so widespread of “Don’t Fight the Fed.” Fund manager’s cash levels are nearing historic levels. Investor sentiment polls, not something I put much faith in but worth mentioning, are widely being reported as being at historic lows despite the markets relative strength of late. Net/net, there are quite a few bullish underpinnings for this stock market. But as it often does, the markets ability to truly rally to new all-time highs in the months ahead will likely come down to individual companies ability to grow their corporate earnings. Really, this looks like an ideal time to be investing in Revolutionary Companies that are set to benefit from both the cyclical economic/market set up as well as the secular growth they are creating on their own in new technologies and markets. I’m comfortable with our mix of some high growth mega-cap winners like Google, Amazon, Facebook with a few down-and-out smaller companies with compelling valuations like Twitte, with a variety of other Revolution Investment names like Nvidia and Sony and our other longs plus a few small shorts.