This article was published by The McAlvany Intelligence Advisor on Monday, November 27, 2017:
The numbers the economy is generating are breathtaking. All that the Thanksgiving/Black Friday numbers are doing is confirming everything else: it’s full speed ahead. Total sales from Wednesday evening through Monday night are likely to come in at a record $33 billion, with half coming from online orders. Total purchases for the entire holiday season are headed for $700 billion, up at least four percent from last year. Cyber Monday is likely to touch $7 billion all by itself, more than twice what it was just two years ago.
Black Friday is the third-busiest shopping day of the year, right behind the Saturday before Christmas and Cyber Monday. For Amazon, it really doesn’t matter. The company said that orders placed through its app so far have increased by more than 50% year over year, with Keurig coffee machines and Echo speaker devices being the most popular this year.
The Conference Board just issued an “all clear” by releasing its Leading, Coincident, and Lagging Indexes showing the economy in full throat. The Leading Economic Index – its LEI – showed all ten of its components showing green as well, measuring an economy that is firing on all cylinders.
This comes on top of reports that the GDP just put in place its best six-month performance in the last three years, spending on mining, oil, and gas exploration and new well development rebounding strongly after the hurricanes in late summer, investor and consumer sentiment hitting new highs, business inventory growth reflecting expectations for a huge holiday season, the Dow and other market averages hitting new highs on almost a daily basis, 631,000 more people working than were working on January 1st, the Small Business Optimism Index touching its highest level since 2006 and – last but not least – Citigroup’s Economic Surprise Index (a measure of how the economy is faring compared to expectations, with any number above zero a positive) coming in at 40.
What’s wrong with this picture? With precious few exceptions, no one is asking. Perma-bears like Michael Snyder and David Stockman continue to ring the bell to take cover from the coming storm, but, other than that, the one theme being pressed by big banks is this: no matter what comes, we’ll live through it and come out the other side in good shape.
With a hat-tip to Morgan Stanley’s Senior Portfolio Management Director Christine Armstrong, a little history is giving her clients some comfort. A “correction” is defined by Investopedia as a decline in the S&P 500 Index (SPX) of at least 10 percent. Since 1946 (the beginning of the longest bull market run in American history), there have been 57 such corrections, or approximately one every 15 months.
A “recession” is when the GDP goes negative for at least two calendar quarters. Since 1946 there have been 11 recessions, or one about every six and a half years. The last one, the Great Recession, began, according to the National Bureau of Economic Research (NBER), in December, 2007, almost exactly 10 years ago next week.
A “bear market” is defined as a decline in the stock market (again, using the SPX) of at least 20 percent. Since 1946, this has happened 14 times, or about once every five years. The last one began in October 2007, lasted 17 months, with the SPX dropping – ready? – by 57 percent.
But wait! The bull market that followed – starting in March 2009 – has run more than 100 months, and the SPX has bounced from 750 then to 2,602, as of last Friday.
What is the lesson? Only one. As economist Herbert Stein famously said, “If something cannot go on forever, it will stop.” Until then, it’s pedal to the metal.
The Wall Street Journal: Black Friday Kicks Off, With Upbeat Shoppers and Fewer Discounts
BusinessInsider.com: Bear Markets and Subsequent Bull Runs