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April 22, 2021

Biden kicked off his two-day Climate Summit this morning. The participants included world leaders, major bank heads, the largest pension fund in America, and even the Pope.

As we discussed yesterday, we should expect this summit to kickstart the promotion of "climate action" in the media. What are the top four stories this afternoon on the New York Times website? Climate.

With that pretty easily telegraphed, in my note yesterday we looked at opportunities to buy a dip in three clean energy stocks (FSLR, TPIC, CREE) — as the climate-action-theme gets moved to the front-burner for markets. All three stocks were up big by mid-day.

Oddly enough, another winner that could be catalyzed by today's event is oil. As part of Biden's speech, as a means of promoting a jobs narrative, he said he can "see workers capping hundreds and thousands of oil and gas wells" around the country.

As we've discussed, this vow to kills fossil fuels only builds a moat around the existing producers. And it ensures much, much higher oil prices. Demand for oil isn't going away anytime soon.

Let’s take a look at the chart …

Similar to the clean energy stocks we looked at yesterday, you can see oil has taken a breather in the past month or so. You can also see in the chart, the run that oil prices made after the election.

With that, similar to the clean energy stocks, oil is a dip to buy on this escalation of the climate action narrative (oil and gas stocks, too).

Pro Perspectives 4/21/21

April 21, 2021

The White House has been relatively quiet about the multi-trillion dollar energy transformation plan the past few weeks. This will change tomorrow.

Biden will host his "Climate Summit." This will be a virtual meeting, and is scheduled to run through Friday. There will be over thirty global leaders.

This will be as much about building the case for global energy transformation, through the media, as it will anything else. So we should expect the media to carry the water for the global politicians, by firing up the doomsday climate change narrative, beginning tomorrow. As for the politicians, in this summit, they will be making big and bold promises about how quickly they will get to "carbon neutral."

The Biden Plan calls for a "100% clean energy economy" and "net-zero emissions no later than 2050." This is a huge bet to make with the economy (and people’s lives). But he has an aligned Congress to fund it and execute on it.

So, this will of course come with higher regulations and massive government spending, which will drive even hotter and more persistent inflationary pressures.

There has already been gobs of money thrown at clean energy companies. And a lot more is coming. With that said, with somewhat of a lull in this theme in recent weeks, let's take a look at a few "clean energy" stocks that head into this summit with a dip to buy …

This is First Solar, an American manufaturer of solar panels. This is 23% off of the highs of January.

The chart above is TPI Composites, manufacturer of wind blades. The stock is 33% off of the February highs.

Cree makes materials and devices for electric vehicles. The stock is 15% off of the February highs.

Pro Perspectives 4/20/21

April 20, 2021

There were broad losses in global stock markets today. That said, we continue to step through a strong earnings quarter, and the dip is a buying opportunity.

The biggest loser on the day, across markets, was lumber.

We've talked about this chart in lumber. It's been on a tear coming out of the initial lockdown period for the economy.

Lumber prices are up six-fold from the lows of April of last year.

Why? Has demand for housing run wild? Yes. Is the supply-chain broken and still in the process of mending? Yes. This tends to be a formula for higher prices.

But, six-fold? The supply of standing trees (called stumpage) is abundant. The timber growers are getting no more today for a ton of stumpage than they were decades ago. What gives?

Reading about this from various viewpoints in the supply chain, it appears that there is some legitimate capacity constraints at the mills, turning timber into final product. But there also seems to be some healthy price manipulation (speculated by industry participants as third party buyers that are hoarding supply).

Bottom line: This parabolic price rise in lumber will be short-lived.

The lumber futures price put in a technical reversal signal today (an outside day). It may be a good time for profit taking, if you've been lucky enough to benefit from soaring lumber prices.

Pro Perspectives 4/19/21

April 19, 2021

On Friday we took another look at the lost decade(+) for stocks. Despite the more than six-fold move in the S&P 500 from the bottom in 2009, the benchmark stock index has, still, yet to return to the path projected by its long-term growth rate.

If we compounded an 8% return from the 2007 pre-Great Recession peak, we would be 10% higher than current levels. And by mid-year 2022, the S&P 500 would close in on 5,000. That's 20% higher than current levels.

The good news, the gap between the post-financial crisis trajectory, and the long-run growth trajectory is closing. And it's closing because, unlike the post-financial crisis decade, we are finally going to get some huge economic growth to compensate for a deep recession. That's how recoveries historically work: economic contraction, followed by big (above-trend) growth. In this case, we are throwing trillions and trillions of dollars of fiscal stimulus at it. So we will get the big growth.

Here is a look at what the six years were like following the Great Depression …

At this point, the projections for 2021 growth are running around 7%. Given the scale of the government spending, my bet is that it will be bigger (maybe much bigger).

We will get clues on just how underestimated growth is, as we continue to step through Q1 earnings. At this point, with just about a tenth of companies reported, earnings growth is at 30%, and 84% of companies are beating estimates. Expect more of it. And when we get to Q2, the earnings numbers will be far, far bigger, as we compare to an ultra-low base of Q2 of last year (when the economy was mostly shutdown).

So we have the recipe for a big bounce back in growth. That is being reflected in stocks, and that will continue. But after we clear the next year or so, it will be a matter of how much of the growth is being eaten by inflation. We will see.

Pro Perspectives 4/16/21

April 16, 2021

For long time readers of my daily notes, you'll know we've looked at this following chart over the past five + years.

This is my analysis on the long term trajectory of stocks, and what it would take to put us back on path of 8% annualized, from the pre-global financial crisis peak of 2007.

In the chart, the blue line represents what the S&P 500 would have looked like had it continued its long-run annualized growth rate of 8% from the 2007 pre-Great Financial Crisis peak. The orange line is the actual path of stocks.

Through the years of looking at this chart, there has been plenty of chatter about the performance and status of the stock market — plenty of bubble and overvaluation talk. But the reality is, we were knocked off of the path of the long-term trajectory of stocks (the orange line). And that path of a long-term 8% annualized appreciation has never been regained (the blue line).

What can we attribute this gap to? Post-recession recoveries are typically driven by an aggressive bounce-back in growth, to return the path of the economy to "trend growth." We didn't get it. Instead, the post-Great Recession growth environment was dangerously shallow and slow. Trump stepped in and focused on the economy. Growth was beginning to return to near trend growth — still not enough. And then, Covid.

So now, as we know, both the Fed and Congress have had the clear appetite to fire the bazooka of monetary and fiscal policy to pop growth. As such, we are finally beginning to see this gap (between the orange line and the blue line) close.

Still, we have another 10% to put us back on the path. And the long-term growth path for stocks would project a move to 4,999 by mid-next year.

Bottom line: The outlook for stocks remains very compelling.

Pro Perspectives 4/15/21

April 15, 2021

We heard from JP Morgan, Goldman Sachs and Wells Fargo yesterday. They all crushed estimates and put up huge earnings growth, compared to the same time last year. Today, we heard from Citibank and Bank of America. Same story.

As we discussed, the banks have a war chest of loan loss reserves that they will continue to move to the bottom line at their discretion. That means they have a large inventory of positive earnings surprises they will present to us for several quarters to come. Stocks like positive earnings surprises. That said, the initial moves in a few of these stocks have been down, as bank CEOs are doing their best in the earnings calls to avoid an overexuberance in the outlook. It just creates a little cheaper levels to buy from.

Remember, we've talked what the confluence of huge government spending, ultra-easy Fed policy, and vaccinations will do to both earnings and economic data this year, as we compare it to the lockdown data of last year. As I said, the numbers are going to be "mind-blowingly big."

With that, we had the retail sales report this morning from the month of March. The April to March growth was 10%. The March 2021 to March 2020 growth was 28%. Wait until we get to the year-over-year economic data for the quarter.

The data will continue to be a fire under stocks. And despite the Fed's best efforts recently to quell inflation fears, the inflation hedges look to be on the move again, after a pause. Here's another look at the line in gold we've been watching. Gold is bouncing …

Meanwhile the dollar has been steadily making lower lows since the new quarter/month started.

This market observation, combined with the big economic and earnings data growth ahead of us, is a formula for another leg higher in the "global reset of asset prices."

Pro Perspectives 4/14/21

April 14, 2021

First quarter earnings have kicked off today with the big banks. We heard from JP Morgan, Goldman Sachs and Wells Fargo this morning.

Not surprisingly they are putting up huge numbers. Remember, last July, as we were prepping to hear from the banks on Q2 earnings 2020 as the damage from the pandemic economy was just unfolding, we talked about the likelihood that the banks would take the opportunity to put all of the bad news they could muster on the table.

Indeed, the banks threw in the kitchen sink on loan loss provisions (i.e. guesses on what losses would materialize in the future). This, as the Fed had already put up a fortress around the banks, defending them from big losses, AND given them a position of strength to print profits in the bazooka-stimulus world. And they did, as early as Q2 of last year. Still, they managed down those earnings, setting aside a huge loan loss reserves.

What does it all mean? It means the banks laid the groundwork last year to come out of the pandemic economy with a war chest of capital (labeled as loan loss reserves), that they can move to the bottom line (earnings) at their discretion. We're in the early stages of seeing it.

The banks are a buy.

Pro Perspectives 4/13/21

April 13, 2021

With Jay Powell's appearance on 60 Minutes Sunday night, we talked about the historical effect these rare Fed appearances on prime time, mainstream media have had on stocks.

That effect has been, stocks up.

And that "60 Minutes effect" seems to be in process again. As we discussed yesterday, it looked like this was Jay Powell's attempt to jump in front of hot inflation data and hot earnings numbers due this week, to ensure the public that the Fed will not be budging on rates (ultra-easy policy) anytime soon.

We did indeed get hot inflation data this morning. And we will indeed get hot earnings numbers later this week.

But maybe there was something else behind this Sunday night prime time appearance. As I said yesterday, these appearances have historically come when confidence has been shaken or is vulnerable. In this case, perhaps Powell knew about the negative vaccine news that hit this morning.

At this point, Powell's proactive approach appears to be working. He's told us that the Fed will be supporting the economy until the recovery is "complete" and inflation rate sustains above the Fed's target. That means the fuel for stocks will continue to flow. And as we know, rising stock prices play a key role in the Fed's pursuit of their goals. Stocks promote confidence and a wealth effect, both of which are important to fuel the economic recovery. With that, markets are broadly higher today (global stocks and commodities). And the interest rate market is not only tame, but key interest rates slid today.

Does the institutional investor community believe in the recipe for stocks? It seems so. The VIX has quietly fallen back to pre-Pandemic levels …

Pro Perspectives 4/12/21

April 12, 2021

I'm back from a week off, and we are heading into a busy week.

The Fed Chair (Jay Powell) appeared last night in a sit down interview on 60 Minutes.

This type of mainstream media interview/Q&A session is rare. Q&A's are typically done in Congressional hearings, following Fed meetings, or at select economic conferences. The common theme: He speaks economics and policy to economic and policy practitioners.

The interview last night with 60 Minutes was clearly a desire to speak to the broader public. Now, while historically rare for a Fed Chair to this type of media, this is Powell's third 60 Minutes sit down. And his predecessor, Ben Bernanke, had also used the 60 Minutes platform to speak to the American people a couple of times.

What was the common theme in each of these sit downs? A crisis of confidence, or (at best) the vulnerability of confidence.

For Bernanke, back in 2009 and 2010, he was directing the Fed through the storm of the financial crisis, and he and the Fed were being destroyed in the media. And that media tone was opening the door for global leaders to take shots at the Fed.

The Fed was trying to restore confidence, and it wasn't going well. So, Bernanke took to 60 minutes to speak directly to the people – to set the record straight. He shot down the media criticism and said he was seeing signs of "green shoots" in the economy. This first Bernanke interview (in March 2009) set the bottom in the stock market — and it turned the tide in global sentiment.

In late 2010, the Bernanke interview followed a bad jobs report that left confidence vulnerable, and left stocks vulnerable to undoing the progress of the past year. Bernanke's attempt to assuage fears led to a 10% break higher in stocks, to new post-Lehman highs.

For Powell, his first sit down with 60 Minutes was in March of 2019. We had just ended the week with a 4.4% plunge in Chinese stocks. Powell appeared on 60 Minutes that Sunday night. It was a response to the growing risks of a confidence shock (given the December 2018 stock market decline, Brexit drama and China/U.S. trade uncertainty). It was an opportunity to tell the public that the economy is doing well, despite the media's doom and gloom stories. Stocks bounced and rallied 9% over the next month and half and went on to new record highs.

Last year, Powell made another 60 Minutes appearance. It came on the back of a very soft CPI number, which created chatter about negative interest rates and a deflationary spiral (this, despite the massive lockdown policy response). Stocks went south. Powell emerged. By Monday morning, stocks were popping, continuing the sharp recovery (17% higher in just three weeks).

So, here we are again. What's he worried about now? Stocks finished last week strong, and are at record highs (unlike prior 60 Minute appearances). But a confidence risk lies ahead. The inflation threat is now becoming widely respected, if not feared. And tomorrow we get March CPI data. Given this Powell appearance, it's safe to assume the numbers will be hot. And days later, we'll hear from the big banks on Q1 earnings, and safe to say those earnings will be hot.

Those numbers will have the propensity of produce a move in this chart (higher)…

That move would reflect an opinion that the Fed might be moving rates far sooner than they have led us to believe. And that would be a negative signal for stocks. Thus, a Jay Powell appearance. He reiterated last night, that they will continue to support the economy for as long as needed, and until a "complete recovery" – saying it’s "highly unlikely" that they will raise rates this year.

These interviews, where the Fed chair is explicitly reassuring the American people, has become a buy signal for stocks. In this recent case, we shall see.

Pro Perspectives 4/5/21

April 5, 2021

We had a hot March jobs report on Friday, to kick off the new quarter.

Looking back on Q1, we had an economy that is estimated by the Atlanta Fed to have grown at a 6% annual rate.

With that, the banks will kick off earnings season next week, and we will begin to see what 6% economic growth looks like in corporate earnings. And those earnings will be compared to against against a very low base of Q1 2020 — the quarter that included the onset of the pandemic and economic shutdown.

Spoiler: The earnings growth is going to be huge.

On a related note, even though the estimates on earnings have been ratcheted up by both Wall Street and corporate America, history tells us that earnings estimates are set to be beaten. We should expect to see big positive surprises from the first quarter. That will all be more fuel for stocks.

And this comes in the month of April, which historically is a very good month for stocks (up 15 out of the past 15 years).

Keep in mind, this first quarter includes just a small fraction disbursed of the latest $1.9 trillion. With more of this money hitting in the coming quarter, Q2 growth (in GDP and corporate earnings) is going to be mind-blowingly big. The corporate earnings will be measured against the deep trough of the economic recession.

Add to this, we will probably see a Biden "infrastructure"/clean energy bill work its way through Congress in the second quarter (another $2+ trillion lined-up for the economy). Stocks are up 7% year-to-date, and will continue to float higher on this sea of liquidity.

I'm away for the remainder of the week, spending Spring Break with the family. You won't see a Pro Perspectives note from me until next Monday.

In the meantime, to best position for a continuing stock market boom, sign up here and take a look through my actively-managed portfolio of undervalued stocks — all of which are vetted and owned by the best billionaire investors in the world. Listen to my recorded "Live Monthly Portfolio Reviews." Read all of my past notes to my subscribers. Take it all in. If you find that it doesn't suit you, just email me within 30 days and I will refund your money in full immediately.

Have a great week!

Best,

Bryan