Pro Perspectives 4/24/20

April 24, 2020

As states look at reopening businesses, I suspect we’re going to see how obvious the political undercurrent is in this fight against the virus.   

All of the numbers out of New York today continue to be on the decline.  Less hospitalizations. Less getting to the severe stage. Less deaths.

As we discussed yesterday, the antibodies test done in New York show far more people likely have had the virus, which makes the death rate much lower (more like 0.5% of infected).  And we have trials that have been underway on treatment options, the results of which, should be public very soon.  And despite the continuous noise surrounding treatments, the anecdotals appear to be aligning with the results (less intubations).  

This all favors reopening American businesses. 

With that, there is now a political race against time.  The sooner economies start opening up again, the weaker the case is for the Democrat’s push for mail-in voting.  This (mail-in voting) will likely be the determining force in the November election (mail-in or walk-up voting).   With that, the Democrats will be in a war for “election reform” in the next aid package.  The bargaining chip for the Republicans will be aid for state and local governments.   My guess is there will be no “next package” anytime soon. We will see. 

Much of the aid has yet to make it’s way into the economy anyway.  By the time the unemployed finally start receiving money, many of them might be back in a job.  On that note, consider this:  The median family income in the United States is about $62k.  For a family with two unemployed (formerly low income workers with two children), the family stands to receive an annualized income of about $80k, for staying at home.   I suspect they might fight for more money when they do go back to work. Wage inflation is coming.  

Pro Perspectives 4/23/20

April 23, 2020

Over the past couple of weeks, we've talked about the key data coming from New York on the virus, which has suggested that something (a treatment) is working.

Let's take a look at the latest …

In Cuomo's daily presser, he's been showing charts of hospitalizations, which peaked about two weeks ago. 

And he's been showing this, most important, chart on daily intubations.

 

We've now had 11 consecutive days of declines in intubations. Less people have been getting to the severe stage, and therefore less people are being intubated.  And that has translated into less deaths.  The daily deaths have nearly halved over the past two weeks. 

Meanwhile it has been almost a month since New York hospitals were cleared to use a few treatment options (among them the generic hydroxychloroquine and Gilead’s Remdesivir).  And some notable trials on those treatments are due to be reported any day (should have been much sooner).  There was a report last night, that results on a hydroxychloroquine trial have been submitted and sit with the New York board of health.

Additionally, Cuomo said today that an antibody test on 3,000 New Yorkers showed a 14% infection rate (of those that didn't know they had it, assumably).  In New York City, the number was 21%.  That's big news. That would extrapolate out to about 1.7 million people that have the antibodies (have been infected and recovered) in New York City.  

If positive results come in from these trials, and we now know the death rate is likely far lower (around 0.5% of infected), and the infected and recovered rate is far higher, then the timeline on the health crisis could be far shorter than what has been anticipated (from a global health, global economic and markets perspective). 

On that note, much of this has been a sideshow in the bigger narrative, as the focus has been on a vaccine (which is a long timeline – a devastating timeline for the economy).  The reality:  We may never have a vaccine for this, just as we haven't for other deadly viruses.  But the data is building in the direction of a more manageable virus and more favorable outcome than what was projected. 

 

Pro Perspectives 4/22/20

April 22, 2020

We've talked quite a bit about the explicit intent of policymakers (here and globally) to combat the global economic shutdown by flooding the world with money, which will ultimately inflate economies and deflate debt.

After all, sovereign debt is only measured as an absolute number by the media, because it's a big number, and eye-catching.  But GDP is a big number too.  And in terms of our ability to service debt at sustainable interest rates, what matters is the size of debt relative to the size of the economy.  In that respect, that ratio is ballooning, and will continue to get bigger, in the near term, as policymakers pump more money into the economy, to best insure against the worst-case scenario.  

But in the post-virus environment, as I said yesterday, our government debt will be inflated away — meaning we will also have inflated growth.  The value of our economic output will be measured with dollars that are easier to come by and less valuable (inflating the value of GDP). That will ultimately normalize the Debt-to-GDP levels.  Again, this doesn't work so well in a normal world where global economies perform unevenly (good and bad/ winners and losers).  But in a world where everyone is in the same boat, these policies become a global reset of prices (and ultimately wages). 

Again, this inflation brew is a recipe for much higher gold prices. 

Last week, billionaire Paul Singer, one of the best investors of the past 40+ years said he thinks gold can trade multiples higher than current levels.  Yesterday, Bank of America projected a move to $3,000 in gold.  Spot gold currently trades around $1,710.  

With that, remember we looked a leveraged way to play gold last week, in a gold miners ETF, GDX. 

Here's another look at this chart, which is just breaking out …  

As we discussed last week, a return to the 2011 highs in this ETF (the record highs in gold prices), would mean more than a double (relative to a 12% gain in the underlying). 
 

Pro Perspectives 4/21/20

April 21, 2020

Let’s talk about debt.

Congress approved another $500 billion in aid/relief/stimulus today. 

That adds to the initial $2.2 trillion that’s just now working its way into the economy. And then we have the Fed, which has already expanded it’s balance sheet by $2.2 trillion to keep credit markets functioning/ as the lender of last resort.  Here’s what that looks like on a chart …

So, the Fed’s balance sheet is now about 27% of the size of the economy. That’s a record.  And that number go higher (probably much higher). 

In addition to all of the above, let’s add another $2 trillion that seems certain to come, which will represent another 1930’s-like “New Deal” — a massive government spending program, to rebuild America (likely focused on infrastructure, healthcare and manufacturing).

This all balloons debt levels, which were already running at record highs.  At the end of 2019, our government debt was already 107% of GDP.  

Does this mean people around the world will dump our bonds (our debt) and flee from the dollar?  In a normal world, in an average country, probably.  But we happen to have the world’s reserve currency.  And the ballooning of debt levels isn’t just a U.S. centric problem, it’s global. 

Global debt-to-GDP was at record highs already (thanks to the aftermath of the global financial crisis), and is accelerating rapidly in this global health crisis.  Why?  Global central banks and governments are all printing money, financing government debt, and spending to keep economies alive — to bridge the way back to a normal operating economy again.  It’s the only option. 

This is debt monetization in the name of salvaging economies.  And by design, with the printing of paper currencies, that debt will be paid back with easier to come by and less valuable money. 

So you don’t want to be a creditor in this environment. Debt is being devalued. 

 
And currencies are being devalued. But not against each other — paper currencies are being devalued against asset prices (like stocks, commodities, real estate). 

Now, clearly, for the moment, this all looks like deflation.  Stocks and commodities prices have crashed.  And economic data is crashing.  But don’t be fooled.  This is a global gameplan to reflate economies and inflate away debt. It’s coming.     

Pro Perspectives 4/20/20

April 20, 2020

When low probability events occur, things blow up.  

In this case, no one in the world considered a scenario where half of the world’s population went into lockdown.  

With that, we continue to see the fractures that emerge from this environment.  First, it was the Treasury futures market. 

Remember last month, in a time when the Fed is trying to force borrowing rates down, slashing rates to zero and cranking up the printing press, the yield on 10-year Treasury futures went UP.   Why?  1) A few hedge funds blew up, and were forced to liquidate long treasury positions (a position that had been working very well for them, until the moment it didn’t).  And 2) global central banks have been desperately selling Treasuries to meet the demand for U.S. dollars from their financial institutions.  To resolve this dangerous market dislocation, the Fed had to step in as the unlimited buyer of Treasuries, to get the market under control.  

Now we have oil.  Not surprisingly, it appears that (at least) the largest oil ETF didn’t factor in the scenario where the global economy shuts-down (demand destroyed), and then two of the most powerful oil producers collude to flood the world with oil supply.  That creates a situation where there is little-to-no storage around the world for oil.  The problem:  When the May oil futures contract expires, the holders of this contract are obligated to take delivery of physical oil.  There’s no place to put it. So, no one wants it. 

So when a multi-billion dollar oil ETF, like USO (designed to track the price of oil), has to sell their May oil contracts, to move into June contracts, they find no buyers. 

And with that, today, we get this chart …

Pro Perspectives 4/17/20

April 17, 2020

As we end the week, let’s take a look at some key charts.

We’ll start with what I continue to think is the most important data in this health and economic crisis — the daily intubations in New York hospitals. 

As you can see to the far right of the chart above, the daily intubations have declined five consecutive days. 
 
Meanwhile, in this next chart, there continues to be about 2,000 new hospitalizations a day.  Bottom line, the number of people getting to the severe stage (to the stage of intubation) have declined dramatically.  As we’ve discussed, something (a treatment) seems to be working.  And no surprise, since the data has revealed itself, the plans to reopen the economy are now underway. 
With the above in mind, we’ve talked about hydroxychloroquine, which has become a political football.  The FDA approved this drug to be used “off label” for Covid patients weeks ago (including in NY hospitals), yet we’ve heard little, if any, reports on how its working.  The Governor in New York has hosted daily press conferences for weeks now, and decided it’s not important to mention the drug trials and experimental treatments that could give us a bridge to a vaccine (and put a bottom in for the health crisis).  Yesterday, he finally did.  He actually said “maybe hyroxychloroquine works.”  I saw zero reports of that statement in the news. 

But, we did get a hopeful review on the success of Gilead’s experimental treatment (Remdesivir) late yesterday.  What do you know?  The media was all over it.  

Bottom line, as the data show, something is working!

As for Gilead’s stock, it is only up about 12% from the date they announced they were initiated phase 3 studies on this drug to treat Covid, back in late February. That’s strange behavior for a company that has been well in the hunt for a viable treatment. 

Let’s take a look at stocks …
Remember, at the depths of the bloodletting in stocks, we talked about the way historical major turning points in markets are made — they are typically associated with some sort of intervention (in this case, we’ve had the mother load).  And markets can turn well before there is clarity on the outcome (the coronavirus, in this case).  So far, that has gone according to script. 

The S&P 500 has now bounced an astounding 32% since the lows just four weeks ago.  We’re closing in on this key technical level, the 61.8% retracement of the decline.  Between that, and the 200-day moving average, which comes in just above 3,000, I suspect we’ll find the top of a range in stocks in that area. 

From there, stocks will probably trade in a range until we have a better gauge on how the fiscal/monetary stimulus will match up against the timeline to return to normal operating capacity.  Remember, the Fed, Treasury and Congress have essentially plugged a quarter’s worth of GDP.  And there is more coming, which will likely include a massive infrastructure spend.

 

There’s a substantial amount of runway here, which I would argue, makes for a high probability that it will prove to be an overly aggressive backstop.  That would promote very hot growth in the recovery, and hot inflation.   
 

This Is One Of The Top 5 Buying Opportunities

 

Bill Miller, one of the best value investors of our era, says he thinks now is one of the top five buying opportunities in his lifetime.” 

The first was in 1974 …
The second was in 1982 …
The third was in 1987 …
The fourth was in 2008 and 2009 …
And in his words, “this is the fifth one” …

What do all of these moments have in common?

They were all associated with some form of crisis. And each market environment was defined by fear and capitulation.

What else did each of these market environments have in common? The best investors we know today, were buying, not selling.

This is one of those moments. Right now.

The market has given the best billionaire investors in the world, again, an amazing opportunity to buy stocks on the cheap.

And they are indeed buying. And my subscribers and I are following them in my premium newsletter, Billionaire’s Portfolio.

Will you be one of those selling to them (and us), in panic? Or will you flip the switch and start investing like the smartest wealth builders of our time?

Bottom line: These are the moments when real wealth can be created in stocks. And I want to make sure you are acting, not watching from the sidelines.

Here’s how: Stop hoping. Stop guessing. Stop taking tips. Stop listening to bad advice. Stop investing without a plan. Stop letting brokers skim a percentage of your net worth every year in fees. Stop watching the Dow.

Start aligning yourself with the best. Start investing with an edge (an advantage over everyone else). Start owning the stocks that are the best performers of the year. Start compounding your money at high rates every year. Start taking the gambling and the guesswork out of investing.

You do so by letting the world’s best billionaire investors carve the path for you. Let them tell you what stocks to buy. Let them fight like hell for you, every day, to maximize the value of your investment.

This is what you get when you subscribe to my Billionaire’s Portfolio. You get a virtual seat at the table, alongside the world’s richest and most influential shareholders. You get the inside scoop on what they are buying and why they are buying it. What they’re selling. Why they are selling. And when they win, you win. They become your partners. Your allies.

What is Billionaire’s Portfolio?

It’s your chance to manage your own portfolio (do-it-yourself), but with an expert on your side, helping you along the way, and helping you align your portfolio with the biggest and most influential investors in the world (their edge becomes your edge).

It’s easy … and it works!

If you have a brokerage account and can read a weekly e-mail from me, you can build a simple, but powerful portfolio of the best billionaire–owned stocks—and position yourself to reap the same returns as the world’s top billionaire investors.

I tell you what to buy … when to buy … what to hold … and what to sell—and when.

Here’s how it works:

I plow through legal filings, tap my connections and research my extensive proprietary database to find–and–follow the smartest, richest and best performing billionaire investors in the world. All the investors on my radar have this in common: They are rich, powerful and have a record of making a LOT of money on nearly every deal they participate in.

I look ONLY for the best, highest conviction stocks, from the best investors in the world–the ones that have the power to influence the outcome.

And I have carefully designed a 20–stock portfolio of only the top billionaire–owned stocks. These are stocks that all have the potential to do multiples (in some cases, many multiples), from here, as the economy recovers.

I tell you the story on each stock. The game plan each billionaire investor is executing to unlock value in the stock. I tell you when to buy, when to sell. I give you weekly updates… a live quarterly portfolio review… and full access to the Billionaire’s Portfolio member’s area (sneak peek below).

As a member, when the richest, most influential investors in the world win, you win! They’re working for you, their fellow shareholder.

This is all the billionaire intelligence only our expert has the connections and experience to curate, and the valuable picks in the portfolio, all of which have the potential to produce multiples of what the billionaire investors they followed have paid for them.

If you want returns, this is for you. If you want expert guidance, this is for you.

If you want “easy,” this is for you. If you want an edge in investing—this is for you.

If you’ve ever subscribed to an investment newsletter and been disappointed, this is for you—and this is very different!

If you’ve never subscribed to a newsletter, this is for you.

I’ve been studying the best investors of in the world for 23 years.  And for the past eight years, I’ve been a contributor to Forbes, the iconic global media company that has, for over 100 years, dedicated itself to profiling the great wealth creators of our time.  What’s clear, in my research and experience, is that the world’s richest have amassed their wealth by thinking differently and acting differently than the typical investor. Most importantly, they have an edge.

And when you’re a subscriber of Billionaire’s Portfolio, their edge is your edge.

Performance? Since Billionaire’s Portfolio launched in August of 2012, our exited campaigns (52 of them) have gained 20% on average, with a holding period of just over a year.

This truncated table above is a direct result of following influential investors into stocks where they can control the outcome. It works!

The best part … You can join us RIGHT NOW with NO RISK!

Indeed, you can get a risk–FREE 30–day trial subscription to the Billionaire’s Portfolio newsletter—which I invite you to grab now.

Just click here to sign up. When you do, I’ll also send you a quick–start package: your personal log in details to view all the stocks in the portfolio, and every past note and recommendation, along with my “Getting Started” tear sheet to get you up to speed quickly!

If you are not totally satisfied with Billionaire’s Portfolio, just let us know within 30 days for a full and prompt refund of your entire subscription fee … no questions asked.

Whatever you decide, the newsletter and any other materials received are yours to keep for free. That way, you risk nothing.

We look forward to welcoming you to our premium service, Billionaire’s Portfolio.

Best Regards,

Bryan Rich
Founder and Chief Portfolio Strategist, Billionaire’s Portfolio

Forbes Contributor

 

Pro Perspectives 4/16/20

April 16, 2020

Billionaire Paul Singer, one of the best investors in the world over the past 43 years, says this is the perfect environment for gold, and thinks it can trade as high as many multiples of its current price. 

As we’ve discussed, with global central banks and governments explicitly devaluing cash, there will be a global reset of cash relative to asset prices (inflation).  It’s already starting in gold.  Spot gold prices are up close to 20% over the past month.

This is what we’ve been looking for.  Here’s an excerpt from my March 18th note, just as that move was starting: “Let’s keep in mind that the Fed has the printing press, and won’t lose the battle in the bond market.  In the very near future, the Fed will probably have the 10-year yield where they want it (maybe at 30-40 basis points), and be in complete control of the yield curve.   It may take that observation to turn around the price of gold.  When it does, we could see gold much, much higher (maybe $2,500ish).”  

As we know, the Fed has indeed won the battle in the bond market.  And they’ve done it by becoming the last resort buyer in the Treasury market, the municipal bond market and the corporate bond market.  The printing press has been working overtime. 

A month later, that leaves gold at $1720.  But that’s still $200 off of the 2011 Global Financial Crisis induced highs — another 12% higher from here.  But again, with global central banks and governments all-in, it’s just the beginning for gold.  

Let’s take a look at a gold miners ETF, as a leveraged way to participate in the gold bull market. 

As you can see in the chart, a return to the 2011 highs in this ETF (the record highs in gold prices), would mean more than a double (relative to a 12% gain in the underlying). 

Pro Perspectives 4/15/20

April 15, 2020

As we discussed at the beginning of the month, as we start seeing the March data roll in, reflecting the abrupt stoppage of the economy, it's going to be ugly.  We're getting it.  

Here's what it looks like …

And, as suspected, the media has pounced …
The month-over-month change in retail sales plunged at a record rate.  Industrial production plunged at the sharpest rate since 1946.  The housing survey that measures builder opinion on current and futures home sales collapsed.  

But remember, the losses reflected in these data (and coming data) have already been offset by intervention from the Fed, the Treasury and Congress — intervention that replaces more than a quarter of U.S. economic output.

So, it's a matter of, is it enough to plug the gap?  That will be determined by how long this plays out — the timeline on getting back to normal.  Fair to say, it won't be a quick return to normalcy.  But it's also fair to say — if you believe that New York represents the "turning point" in the health crisis, rather than the canary in the coal mine — that the bottom is in for the health crisis.  New York has now had three consecutive days of declining intubations.  Again, something (treatment) seems to be working. 

So we have one month of economic "shutdown" (so far).  And three months worth of fiscal and monetary stimulus to plug the gap.  The "time" variable is looking favorable.  Moreover, the phrase "economic shutdown" assumes a complete stoppage in the economy.  That's not the case.  Many areas of the economy are still operating.  Even the capacity utilization for the industrial sector is still running at 73% capacity through March – only seven percentage points below the long-run average, and still far healthier than the depths of the financial crisis period. 
 

Pro Perspectives 4/14/20

April 14, 2020

With trillions of dollars of relief/aid/stimulus money beginning to work it's way into the economy, the early stages of the global “asset price reset” is under way.

When global policymakers print money and drop it on your doorstep, the purchasing power of the cash in your pocket goes down. Inflation. 

This inflation scenario is what many were expecting to play out from the Global Financial Crisis response.  But it didn't.  Why?  

Because of this chart …

This is the velocity of money. This is the rate at which money circulates through the economy.  And you can see to the far right of the chart, it hasn’t been fast over the past decade (therefore, no inflation). 

We get inflation, only if the recipients of the money, spend it (if it circulates).  That didn't happen coming out of the global financial crisis.  Banks used cheap/free money from the Fed to recapitalize, not to lend. 

Moreover, borrows had no appetite to borrow, because they were scarred by unemployment and overindebtedness.  

In the current case, by design, money is being dropped directly into the hands of consumers.  And if they can keep people confident about their financial future, job security and earning potential they should spend it. That will promote economic activity.  That will also promote (maybe massive) inflation — a global reset of asset prices.  This assumes an economic recovery comes sooner rather than later.  Billionaire Ray Dalio said earlier this year “cash is trash.”  He was early.  Now he’s right.  Be long hard assets … stocks … Treasury inflation protected securities (TIPS), at the very least.