Welcome to the second half.

Clearly markets have provided a nice bounce-back from the panic activity related to Brexit. It is nice to see as the crowd takes an emotional breather after such a rude interruption to their summer haze.

We have 9 weeks left of summer – let’s keep looking for the swoon and when/if it comes, be prepared to take advantage of same. Partners will find the second quarter portfolio summary updates in their portal updates. Your snapshot summary is above. Again, while the bounce is nice, I suspect we have more summer chop ahead.

If this was an earthquake, we can expect an aftershock…or 4.

Stay Focused – Steady Hands on the Wheel

As I was always taught during times like this: “It’s never as good as it looks or as bad as it feels.” Remember too, as we all sip a few cold drinks over the weekend with family and friends, the important item is the current – not the surface of the water.

Given the current here – and strength building under the surface of the US economy, it is only a matter of time before we see markets trading into new highs. Then, I suspect the stage will be set, just as it was in the late 70’s/early 80’s.

The platform we have built into the markets over the last two years – a frustratingly flat period of time – is the result of the energy fallout hiding other sector growth. Another quarter or two and we will be comping against the worst of the energy sector shellacking. Be focused and prepared.

The Fantastic Aspect of Fear

CFO’s are busy around the world working hard to restructure debts on balance sheets for as long as they can – as cheaply as they can. The foundation of cheap capital for shrinking shares, increasing productivity, increasing cash flows and building up future capital investment accounts will serve us all well in later years.

The masses are missing that fact now as they focus more on the fear – more on the surface.

Be assured of this: we will be very thankful for these massive waves of fear in the years to come. Those waves are the driver of low rates. Those waves are the seeds to future opportunity. The cost of growth investment is being significantly reduced as a direct result of that fear.

Burning off The Energy Plunge Impact

We have stated for many months that the fears about manufacturing and industrial production, coupled with the “earnings recession” have been way overblown, cloaked by the energy shuffle.

As we approach the period when we will have round-tripped some of the worst comps (end of Q3), we can see the slow burn-off of some of the pressures holding back manufacturing here in the US:

Call me a nut – but this is pretty solid data – even though we can likely count on a summer hiccup or two from the Brexit pause.

This adds to the good news yesterday as it confirmed consumers continue to to shop – and have plenty of firepower in the bank.

Any Second Thoughts?

Not even a smudge.

The fear and anxiety over each update in the next month or two over Brexit will surely grab investors attention like a moth to a flame. Be careful though, as we all know what usually happens to the moth. It is highly likely there will be another event, maybe sooner than later, which will replace the attention span. This has been the case since the lows in 2009, over 10,000 DOW points ago.

It’s a tough battle – the one we have with ourselves all the time. I suppose that is what makes investing what it is….a tough game, the foolish participant of which is often the player.

On the other hand – all these frenetic emotional swings serve one compelling purpose. They keep the masses eye off the ball. They keep the attention off of what is really happening underneath.

Most of all, they keep too many over-thinking the simplistic structure of the Barbell Economy Portfolios. Simple yes – easy no. Dramatic underpinnings of significant growth ahead – you bet.

Brexit Breather

While there is surely always plenty of ammunition out there to trick yourself into second-guesses as we all have done over the years, I remain unconvinced that recent developments in the EU must automatically lead to a recession in the US – or even in the UK for that matter.

Sure, it is a great knee-jerk reaction, there are plenty in the crowd thinking it and heck, it sounds smart! Alas, given the plunge in the pound – long-term forces suggest it is not a given.

It is vital we keep this in mind as well: the UK accounts for only 3.9% of US exports and 2.5% of US imports, based on the latest 12-month average of the data.

Buybacks a Stormy Sea?

Not even remotely.

Often during the current bull market, we have shown data pointing to corporate buybacks and dividend payouts being one of the major drivers of the bull market. We have noted here that corporations would have an incentive to buy back their shares as long as the forward earnings yield of the S&P 500 exceeded the after-tax cost of raising money in the corporate bond market.

The actions this week, provide the foundation for that to continue as fear drives rates even lower. Remember, in low-rate environments your CFO is paid to find cheap money to buyback stock – for as long a term as he/she can find. In high-rate scenarios, your CFO is paid to grow investments to expand earnings and you pay for it with equity sales via your then (re)elevated stock prices.

There are a vast number of experts baying at the moon, shouting over the doom awaiting us from corporate borrowings to buy back their shares. That same group will tell us in the next shift that the same doom awaits because CFO’s are offering up a ton of new equity – at higher prices – to pay off debt and expand investment.

Ladies and gents – that makes markets.

The ebb and flow – the good and bad. The bear and bull.

In the end – there is one master foundational issue which cuts through all the junk, which cannot be manipulated and which drives value thoughts and future growth planning:

Count people first – growth follows.

Think demographics – not economics.

We are in great shape.

Have a wonderful weekend with loved ones and friends.

Until we see you again, may your journey be grand and your legacy significant.