Latest | Billionaire's Portfolio

April 13, 2020

Earnings season kicks into gear this week.

We'll hear from the big four banks on earnings over the next three days. Just a quarter ago, these were big reports, measuring the financial health of the banks, the appetite for credit and the health of the consumer (it was all very good). This time, things are very different.

Aside from a few companies (the near-term winners from the "stay at home" economy), these Q1 earnings will have little value. With the uncertain outlook, what has happened in the rear view mirror doesn't mean much. Even "guidance" for management will offer little, if any, credibility.

With that said, this is the time, when broad sentiment is on its back, that corporate America will put everything on the table (all the bad news they can conjure up), in attempt to dial down the expectations bar as low as possible.

That will set the table for positive surprises (expectation beats) in the future.

With the above in mind, if we expect a very ugly narrative to come from earnings calls, we should expect that to put even more pressure on Washington to get the economy re-opened.

On the health crisis front: As we discussed last week, if we look at New York as the potential turning point in this health crisis, rather than the canary-in-the-coal-mine, we may indeed be getting to closer the "other side" of this crisis.

In my view, the most important indicator on the health crisis is the daily change in intubations at New York hospitals. As we discussed last week, it has been on the decline. The most recent number has gone negative (i.e. fewer intubations than the prior day). Here's a look at the latest chart …

If we look at the intubations relative to hospitalizations, this ratio is falling dramatically. Here’s a look at the daily new hospitalizations …

Again, while there is a lack of reporting on the effectiveness of treatments, we do see, in the data, that less people are getting to the severe stage. That means something is working.

With the conversation turning toward “getting back to work,” the fiscal piece of the multi-trillion dollar aid programs will begin hitting the hands of citizens this week. With that, the economy has to be re-opened sooner, rather than later, so that the money can have somewhere to go (rather than under the mattress).

That gold market is betting that the cash will indeed be circulated (i.e. inflation is coming).

Gold broke out to new seven and half year highs today.

Pro Perspectives 4/9/20

April 9, 2020

As we’ve discussed, the one ‘known’ in this unprecedented crisis, is that the policymakers will do whatever it takes. If whatever they’ve done doesn’t work, they will do more.

The Fed did more this morning. For those that were worried about the high yield bond market. That’s no longer a worry. The Fed is now in.

If there was any confusion on what the objective is here for the Fed, for the Treasury and for the White House, with the flood of liquidity, cash handouts, forgivable loans, backstops and guarantees — as Powell said today, it’s “for the common good”, “we need to make them whole.”

As we’ve discussed, this devalues cash. And that, ultimately, will reset the value of everything (consumer products, consumer staples, stocks, real estate, commodities, everything). That will come at some point, hopefully when the economy is recovering and beginning to thrive, once again.

So the big question is: How will the Fed respond?

When we get to the other side on this virus, will the Fed panic when they see a spike in inflation, and chase it down with rate hikes until they tame it/kill the recovery?

Powell says, no. He said this morning they will be “in no hurry until the economy is well into recovery … and really on solid footing before (even) starting to pull back.”

I suspect we will find this position of the Fed to be a necessity. The Fed fears deflation far more than it fears inflation. To best ensure a return to normalcy and an escape from deflation and depression, they will let the economy run and let inflation run hot. That has gold on the move again today (up over 3%).

Pro Perspectives 4/8/20

April 8, 2020

Yesterday, we looked at two very important charts from New York hospitals. One showed a steep decline in daily ICU admissions. The other showed a steep decline in daily intubations.

Again, in my view, this was big news. It was the first indicator we’ve had (aside from anecdotal) that New York hospitals may have found an effective treatment option. If patients are being treated successfully, they don’t require ICU – they don’t require a ventilator. If that’s true, the bottom is in for this health crisis.

So, who has this data? Apparently, only the New York Governor’s office. And yet it is no where to be found on their website. Yesterday, I included these two important charts (daily ICU admissions and daily Intubations) in my daily note, only because I captured a screenshot during the Governor’s daily press conference.

So today, we should all want to see what this latest update on these two important charts look like.

Ready? The Governor made no mention of them. Zero. In fact, they were the only two data points he omitted from yesterday.

Is it politically motivated? Is it a matter of managing the public’s perception on the status of the crisis, as to convince everyone to continue adherence to the lockdown? Probably a bit of both.

But probably no coincidence that the discussions of opening up the economy again have started over the past couple of days.

I suspect other investors are putting the pieces of this puzzle together in a similar way, and that’s why we’re seeing markets react with a “risk-on” tone over the past two days.

Pro Perspectives 4/7/20

April 7, 2020

There is a perception that New York is the canary in the coal mine, as it relates to the virus.

But as we’ve discussed in my notes, it has a better chance of being the turning point for the health crisis.

Why? Because it has been a real-world test for what a severe, resource constraining outbreak looks like. And they have been throwing everything at it. That includes lockdowns. And that includes experimental treatment options.

So in a world where scientists have had a lack of evidence to evaluate treatment options for a novel virus. We’re getting evidence, in real-time.

If they didn’t like the merits of the various studies in China and Europe (on hydroxychloroquine), or the anecdotal attestations of recovered patients, they now have an 1,100 patient clinical trial running in New York – for more than a week. Moreover, they have a much larger “anecdotal” pool to evaluate, after the treatment was made an option available for doctors to prescribe around the country.

With this in mind, we’ve been waiting to hear results on what has become highly politicized drug. There has been a deafening silence on that reporting.

But the raw data coming out of New York may be giving us the news directly.

Here are two of the most important charts I’ve seen on this virus to date.

New York daily ICU admissions are down three straight days — into just double digits! And daily intubations are down two straight days, from over 300 to 69.

Do these charts mean there is success in treating patients? If patients are being treated successfully, they don’t require ICU – they don’t require a ventilator.

As we’ve discussed, positive developments on the treatment front would be a major turning point, and provide light at the end of the tunnel for the health crisis and for the economy.

These will be the key data to watch in the coming days. As for markets, remember just a week ago, a treatment solution wasn’t even on the radar of most market participants. That has been the potential “positive surprise” we’ve been discussing. We will see.

Pro Perspectives 4/6/20

April 6, 2020

Over the past week or so, we've talked about the potential to see a positive surprise (i.e. good news), in a world that has been full of bad news.

As I said, with global central bank and governments all-in, pumping stimulus to keep the economy alive, the outlook boils down to whether expectations will be beat, meet or miss (disappoint) on the health crisis front.

The expectations bar has been set low. And we've had a potential positive catalyst looming: a treatment option.

With that, we've been waiting to hear what the results look like from the (more the a week) period that New York hospitals have been deploying hydroxychloroquine.

This drug was made available by the FDA for 'off label' use almost two weeks ago. But the Governor banned it's use in the state of New York, outside of hospitals. He reversed that today, and also admitted that the drug has been "effective" in the hospitals.

Align that with the improving daily statistics coming out of New York today, and the outlook on the health crisis could be changing.

As we've discussed, positive developments on the treatment front "would be a major turning point, and provide light at the end of the tunnel for the health crisis and for the economy."

On that note, as we also discussed last week, "even with a positive development like that, there would be plenty of economic damage to overcome, and loads of government money and Fed liquidity to mop up. But it would be a launchpad for gold, and asset prices in general (i.e. inflation)."

Indeed, we're seeing asset prices levitate. Today stocks were up 7%. Gold was up nearly 4%.

And the move in gold looks like it will be accelerating (good bullish technical breaks). We could be testing the March highs in the days ahead. And then the next stop would be the 2011 (GFC induced) highs of over $1900.

Pro Perspectives 4/3/20

April 3, 2020

The $2.2 trillion government relief began today with the launch of the Payroll Protection Program (PPP).

This is the small business program, for companies under 500 employees, that distributes forgivable loans to cover payroll (to keep jobs intact) and expenses associated with keeping the lights on (mortgages/rent and utilities).

The goal is here to keep businesses intact, so that they can hit the ground running (to the greatest extent possible) when the economy reopens, instead of leaving behind mass business casualties and an economic depression in the wake of the virus.

If you qualify for this aid or any of the aid in the pipeline, regardless of your financial position or business status, you should participate! The PPP is a simple two page document (here), with instructions (here).

The design of this program is to make you whole, to make businesses whole, to make the economy whole (to the greatest extent possible) in the near term — while inflating away the value of everything in the medium-to-long term.

Participate in the programs/ take the money. On the other side, when inflation runs, you will understand/appreciate why.

This is "debt monetization" – not just domestically, but globally. It's the only option, in the face of the abrupt economic stoppage (domestic and global). It's the devaluation of cash against asset prices. This makes holding cash the worst place to be.

Add to that, with the Fed involved in virtually all risk assets now (not broad stocks, nor high yield corporate bonds … yet). They have become the bid in risk assets in the near term, while inflation will become the bid in risk assets in the medium-to-long term. With this, not only will gold be a preservation of buying power, but stocks, real estate and broad commodities.

Special Invitation:

Last week, money moved out of mutual funds and into cash in the highest amounts on record (the worst place to be). Meanwhile, billionaire Bill Ackman was putting over $2 billion to work. Legendary value investor, Bill Miller, was buying. He called it one of the top five buying opportunities of his lifetime. The best investor of all-time, billionaire Carl Icahn, was adding to two stocks we own in my Billionaire's Portfolio. And one of the big investors we followed into a beaten down airline, has added more to his stake. In addition, he was setting up a new $3 billion fund, just to load up on the hardest hit stocks in this crisis.

With this last anecdote in mind, most people that are willing to buy stocks in this environment, tend to feel more comfortable buying big cap brands/ industry leaders at a discount (Amex, Coca Cola, Goldman Sachs, Walmart).

But the best investors are on the hunt for companies they are confident can survive, but are the most beaten down. That's the formula for huge returns. In our Billionaire's Portfolio, we have a perfect list that meets that criteria — transformed companies that have been thrown out with the bathwater.

With this portfolio, we should expect to do multiples of what broader stocks do on the rebound, just as we did in 2016 (bouncing more than 40 percentage points from the lows that year, and finishing almost three times better than the S&P 500 on the year).

Click here to join us.

Pro Perspectives 4/2/20

April 2, 2020

We talked about the significance of oil prices this week.

As we discussed, the Fed has addressed broken financial markets, and ensured stability of the financial system. Congress and the White House have backstopped the American consumer and American businesses. And there is a discernible game plan launched to fight the healthcare crisis.

But the broken oil industry has not been addressed.

And with crude oil prices hanging around $20 a barrell, the U.S. shale industry is lined up for bankruptcy.

Indeed, Whiting Petroleum, with more than a quarter of a billion dollars in debt maturing this year, filed bankruptcy yesterday.

That got the wheels turning. In Trump's press conference late yesterday, he said, after talking to Putin and the MBS, that he expected Russia and Saudi Arabia to "work it out (the dispute on oil production) over the next couple of days."

This morning, Trump did this …

And oil did this …

Now, assuming this agreement between Russia and OPEC were to take place, we have to be concerned about where oil prices will settle, regardless of production cuts, in a world where global demand has been destroyed by outright stoppages in global economies.

Looking back, the 60% haircut on oil prices driven by Russian/Saudi gamesmanship, was probably accurate given what has happened to the global economy in the aftermath of that initial spat. That doesn't bode well for the shale industry. What's next? Nationalization?

That said, the future of the entire economy (not just shale) hinges on the timeline to return to normalcy. What could flip the switch on it? A viable treatment for COVID-19, that can bridge us to a vaccine, while enabling for the reopening of the economy.

On that note, the evidence continues to build for favorable outcomes from the use of hydroxychloroquine. There was another study (randomized clinical trial) out China showing efficacy: "Among patients with COVID-19, the use of HCQ could significantly shorten TTCR and promote the absorption of pneumonia" (link to that study here).

We've yet to hear anything concrete from NY trials (that started last week), and from broader "off label" use by New York hospitals, but the latter could come at anytime. Again, that would be a major turning point, and provide light at the end of the tunnel for the health crisis and for the economy.

But even with a positive development like that, there would be plenty of economic damage to overcome, and loads of government money and Fed liquidity to mop up. But it would be a launchpad for gold, and asset prices in general (i.e. inflation).

This Chinese billionaire lost $10 billion this morning on alleged fraud at Luckin Coffee (NASDAQ:LK)

4/2/20

Two months ago a short selling research firm alleged that there was misreporting of financials at the Chinese coffee giant, Luckin Coffee. The company denied the report as unsubstantiated speculation with malicious intent.

This morning the company reported that it has suspended its COO and several other employees for misconduct related to fabricating transactions. These are precisely the claims that were made two months ago.

The stock was down more than 80% this morning.

Who was the biggest loser?

It’s the top shareholder and angel investor in Luckin, the Chinese billionaire Lu Zhengyao.

Zhengyao is a serial entrepreneur. He founded the rental car company Car Inc. in 2007 and took it public in 2014 on the Hong Kong Stock Exchange. His former COO is credited with founding the Starbucks competitor, Luckin Coffee in 2017. In 2019, the company IPO’d on the Nasdaq.

Zhengyao was the angel investor behind the company and holds 484 million shares. At yesterday’s close, that stake was valued at over $12 billion. At the lows this morning, it was valued at $2.2 billion. Learn more about the stakes of billionaire investors here.

Pro Perspectives 4/1/20

April 1, 2020

As we enter the month of April, we'll begin seeing data to reflect the abrupt stoppage of the economy.

It's going to be ugly.

The big one to kick it off will be the employment report on Friday morning. That's why stocks started the month lower.

To be sure, the media will make a big deal about big, record-setting numbers. Stocks will swing around in the early stages of these data reports. But remember, the losses reflected in the 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.

On that note, there's a big difference between the current situation and the Global Financial Crisis. During the GFC, we watched the dominoes fall for well more than a year, before we knew how policymakers would respond. For some time, we didn't know if they would act. We didn't know what tools they could use. We didn't know how far they could go. But when they (and other global policymakers) went all-in, with 'whatever it takes' that has forever changed the landscape.

With this crisis, there has been (and remains) a big 'unknown' on the human welfare front. But there has, all along, been an important 'known.' We knew policymakers would do whatever it takes. And they responded quickly, and erred on the side of overreacting. That's very positive. That's important perspective, as the ugly economic data rolls in, reflecting an unprecedented stoppage in the economy.

The most important data and news will continue to be on the health crisis front (not on the backward looking economic data). And the mitigation efforts continue to look encouraging, as testing has increased, and the daily new cases declined in today's report, for the first time since the testing ramp (24,742 to 22,613).

Pro Perspectives 3/31/20

March 31, 2020

Over the past couple of weeks, the Fed has addressed broken financial markets, and ensured stability of the financial system. Congress and the White House have backstopped the American consumer and American businesses. And there is a discernible game plan launched to fight the healthcare crisis.

What hasn't been addressed? The oil industry.

While the haymakers were flying at Washington early this month, Russia took the opportunity to land a sucker punch, by refusing work with OPEC to stabilize global oil prices. OPEC retaliated by opening the spigot on oil production. Oil prices plunged, as deep and at a faster rate than we saw in the Global Financial Crisis.

This is a familiar strategy. OPEC tried this back in 2014, in an attempt to kill off the emerging threat of U.S. energy independence (i.e. to bankrupt the U.S. shale industry by forcing prices well below where they could produce profitably). To an extent it worked. More than 100 small oil-related companies in the U.S. filed for bankruptcy from 2014-2016.

This time around, Russia is the main culprit. They know, even with nearly $6 trillion of stimulus ready to deploy, mass bankruptcies would damage the economy and financial system – and at the worst time. And equally as important, in a time when global relations aren't so good, it creates U.S. weakness/competitive disadvantage in a wartime scenario. That said, Trump needs to keep these companies up and running. And bailouts aren't palatable.

With that, it is reported that Putin has agreed to talks on stabilizing the energy markets.

This is a game of chicken. Russia and the Saudis, both highly dependent on oil revenues, have a big price to pay, if it plays out too long. Back in 2016, the oil producing countries nearly killed their own economies in the process of trying to kill the U.S. shale industry.

So, in effort to drive oil prices higher, to salvage oil revenues, they had to flip the switch in late 2016, cutting production for the first time since 2008. And they did so, in a market that was already undersupplied. And in a world where demand has been underestimated, and growing. With that, oil bounced aggressively — from $26 in early 2016, to as high as $77 by late 2018.

This time around, it may be in the global oil market, where we discover where the international players truly stand on this pandemic: together or opportunistically apart.