OPINION

The Maestro's Warning

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It was the warning shot heard around the world (twenty years ago); the then - Federal Reserve Chairman Alan Greenspan ushered in the term: “Irrational exuberance.”  His comments brought to mind Charles MacKay’s classic tome Extraordinary Popular Delusions and the Madness of Crowds,first published in 1841.

Mackay’s book covered three areas of madness:

  • National Delusions
  • Peculiar Follies
  • Philosophical Delusions

For investors, stories of investment bubbles and unremitting greed were to serve as timeless warnings. The book saw a surge in new readers, and Greenspan sent the market lower for ten days before the rally resumed.

In fact, the Dow closed at 6,437 on December 5, 1996; it then shifted into higher gear, peaking at 11,722 on January 14, 2000, more than three years later. The absolute bottom fell out of the Dow a year later, after the Dow rallied to 11,337 on May 21, 2001.  In retrospect, was Greenspan early or simply wrong, considering that the market almost doubled from the day of that siren call?

I think he was wrong on timing, but he hit on the notion that exuberance is a powerful emotion; in the investing world, it’s probably only second to panic/fear.  Trying to time each one without visible signs via market actions, is a peculiar folly that has caused many to sell bottoms and buy at tops. With this being said, I think the nation has emerged from a dormant period of internal pessimism to the kind of exuberance that can fuel a long-term rally.

In this case, Main Street will drive Wall Street, not the other way around, which is a game that no one believes anymore.

Rev Up That Diesel

I talk about animal spirits all the time. Well, here’s the latest that no one has pointed out - the surge in Class 8 commercial truck orders.  According to data from Transportation Intelligence/Freight Analysis (FTR), for the first time this year, orders surged above the year-ago period as medium and smaller fleets are being  ordered in the anticipation of a strong first half of 2017 demand.

The news sent truck-maker stocks higher:

  • Daimler (AG), which owns Freightliner, 40% of market share (+2.6%)
  • Paccar (PCAR), which owns Kenworth and Peterbilt, 27.2% of market share (+3.7%)

Monday saw the Dow Jones Industrial Average pop to a fresh all-time high, in part to a rebound in Trump stocks, including banks and oil names while technology picked up traction from Friday’s reversal.   Of course, few areas represent the potential of the Trump economy such as metals, which saw strong sessions from U.S. Steel (X) and Freeport- McMoRan (FCX).

  • U.S. Steel +4.7%
  • FCX +2.9%

Tuesday morning, earnings from AutoZone (AZO) and Michael (MIK) Stores set the tone for consumers, along with housing, Toll Brothers (TOL) acts as if all the pieces are in place for a big move higher.