Mindset Shifts Take Time

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The goldilocks economy continues in the United States with gains in employment, hourly wages and consumer spending underpinning growth at around 2%. Mindset shifts are evident globally with easing fiscal policy to go along with accommodative monetary policy clearly on the horizon.

However, change won't happen overnight, so it is important to monitor each data point to see if this new paradigm is supported, or not, by events and adjust portfolios accordingly.

Remember that stock valuations are a discounted cash flow of future earnings and cash flow. Looking in the rear-view mirror for answers about what will happen tomorrow to influence capital allocation and investment selection is not resourceful. Our role is to anticipate change and model our portfolios accordingly.

Concerns crept into the markets last week around monetary authorities throttling back on overly accommodative policies causing yield curves to steepen anticipating less buying of debt by the ECB and BOJ. Those fears are premature. We won't see this throttling back until the monetary authorities see more fiscal and regulatory relief to stimulate growth. It is obvious that everyone wants the baton to be handed off to governments to act rather than monetary policy as the sole source underpinning global economies. It is happening. The key is to be patient and let it play out. Look at the policy changes in Europe, China, Japan, India and, of course, the United States. I see them happening. Do you?

Donald Trump's campaign is in disarray, and it is hard for me to see a path for him to gain the Presidency. My biggest concern is whether his problems will affect the whole Republican ticket that could lead a Democratic-controlled Congress along with the Presidency.

Clinton's policies may stimulate near-term growth, but she does not have the answers for long-term prosperity for this nation and our people. We need tax reform, less burdensome regulations, social reforms, free but fair trade, major changes in entitlements, a reconstituted healthcare plan, improvements in education teaching what is needed to succeed today and more. Clinton's economic vision for this country is not mine.

We continue to believe that we are at the beginning of a major mindset shift to fiscal stimulation from fiscal austerity that will lead to acceleration in global growth beginning next year. The seeds for change have been sown, so prepare to act accordingly. You can thank the rise in populism and Brexit for accelerating this mindset shift. The politicians are not stupid. They sense the need to shift gears or be voted out of office.

We are in that transition period where many opportunities will present themselves as investors get hung up in the last quarter results rather than looking forward to a better environment and accelerated earnings growth next year and beyond.

Honeywell (NYSE:HON) is a perfect example. It has been a core holding for years, as management led by Dave Cote is one of the very best. The company lowered its forecast for the year to $6.60-$6.64 from $6.60-$6.70 for 2016 while maintaining double digit growth for the fourth quarter and next year. The stock fell 8% on Friday and lost $7 billion in value. It remains one of my favorites and will be a prime beneficiary of accelerating global growth. The whole sector went down in sympathy with HON, and I picked up additional shares of many of them on Friday. By the way, these companies are huge generators of free cash flow and have yields all over 2.7%.

Here is an example of investors looking in the rear-view mirror. It underlines why maintaining excess liquidity at all times is so important. You want to be able to take advantage of these short term market swings.

2017 will be a better year for global growth and earnings. We suggest: buying tomorrow's winners, which were yesterday's losers and vice versa; financials should be a major sector in your portfolio, as the yield curve will keep steepening; not owning bonds of any duration and the dollar will remain the currency of choice.

Review all the facts; pause, reflect and consider mindset shifts; decide on the proper asset allocation; do in-depth research on each investable idea and...

Invest Accordingly!