Yesterday we talked about the ECB’s projection on how the Brexit will impact on euro area GDP. And we looked at charts of Spanish and Italian sovereign debt. Both suggested that the market reaction, to the downside risk from Brexit, might be over-exaggerated.
Some markets have already fully recovered the Brexit-induced declines. But some key safe-haven assets continue to show healthy capital flows.
Let’s look at some charts.
Source: Reuters, Billionaire’s Portfolio
The chart above is a look at UK stocks. These are blue chip companies listed on the London Stock Exchange. You can see the 9% has been completely erased in just three trading days.
What about commodities? This is Goldman’s commodity index. It’s completed recovered declines, in large part to the reversal in oil and the continued surge in natural gas. Remember we talked about natural gas earlier in the month as it looks like it’s on a path to $4. It nearly hit $3 today.
Source: Reuters, Billionaire’s Portfolio
So we have some traditional “risk-on” assets sharply recovering losses.
But, the “risk-off” trade continues to hold in the traditional safe-haven assets. Bonds are being bought aggressively. You can see the U.S. 10-year yield is nearing levels of the peak of the European Debt Crisis, when Spain and Italy were on the precipice of blow-up.
Source: Reuters, Billionaire’s Portfolio
Interestingly, the 30-year yield is sliding too. This flattens the yield curve, which suggests bets on recession. But this extreme level is historically has been a bottom throughout the crisis period (2008-present).
Source: Reuters, Billionaire’s Portfolio
The dollar continues to hold post-Brexit gains — another sign of safe-haven flows.
Source: Reuters, Billionaire’s Portfolio
And next, the safe-haven flows continue to hold up in gold. But it’s not the runaway market gold bugs would hope for in a time of global stress.
Source: Reuters, Billionaire’s Portfolio
One could argue that the safe haven flows could be coming from core Europe, as Germany is most at risk in the Brexit for the ultimate bad outcome scenario (as we discussed yesterday, where the Brexit could create a spill over into European Monetary Union countries looking for the exit door). But as we reviewed yesterday, the sovereign debt markets in the vulnerable spots in Europe (Italy and Spain) aren’t giving that “bad outcome” signal.
Source: Reuters, Billionaire’s Portfolio
What about Japan? Japanese stocks have bounced sharply, but were among the worst hit given the sharp rise in the yen (a traditional safe-haven).
Source: Reuters, Billionaire’s Portfolio
And finally, U.S. stocks have come back aggressively, but haven’t fully recovered the decline.
Source: Reuters, Billionaire’s Portfolio
What do we make of it? If we consider that the biggest risk associated with Brexit is a destruction of global confidence, rising/recovering stocks go a long way toward defending against that risk. Since the central banks are in the business of defending stability and confidence in this environment, and they are clearly on patrol, they may have a little something to do with stock market recoveries (if not directly, than indirectly).
To follow our big picture views and our hand selected portfolio of the best stocks owned by the best billionaire investors in the world, join us in our Billionaire’s Portfolio.
The world was stirring today over the UK decision to leave the European Union. Here are a few things to keep in mind. As we discussed earlier in the week, the repercussions of the Brexit are very different than those that were feared over the potential “Grexit.” Greece was threatening to leave the euro. It would have had major and immediate financial complications, which could have quickly paralyzed the financial system.
The Brexit is more political than economic (not financial). And any retrenchment in the banking system because of uncertainty can be immediately quelled by central bank intervention. Not only were the central banks out in front of the potential exit outcome, promising to provide liquidity to the banking system, but they were also in last night stabilizing currencies, and likely bond yields as well.
As we said, there are also huge differences between now and 2008. When Lehman failed and global credit froze, we had no idea how policy makers might respond and how far they might go. Now we know, they will “do whatever it takes.”
The market volatility surrounding the Brexit may actually be a positive for the global economy. Seven years into the global economic recovery, global central banks have thrown the kitchen sink at the crisis, and they’ve proven to be able to stabilize the financial system and the global economy, and restore confidence. And that has all indirectly created an economic recovery, albeit a slow and sluggish one. But they haven’t been able to directly stimulate meaningful economic growth (the kind you typically see coming out of recession) because of the nature of the crisis.
Fiscal stimulus has been the missing piece of the puzzle.
Governments have been reluctant to spend, given the scars of the debt crisis. This may give policy makers an excuse to green light fiscal stimulus. After all, growth (or the lack thereof) is the primary driver of the public discontent – not just in the UK, but globally. Growth has a way of solving a lot of problems.
To follow our big picture views and our hand selected portfolio of the best stocks owned by the best billionaire investors in the world, join us in our Billionaire’s Portfolio.
The Fed held rates steady today. As we’ve talked about, this was a decision they laid the ground work for over the past two weeks. We want to talk about a few takeaways from the Fed event, and then continue our discussion from yesterday on the Bank of Japan decision tonight (where the big news may come).
First, the Fed did indeed consider the global stability risk that comes with the decision in the UK on whether or not to leave the European Union. The polls in recent weeks have continued to show that it could go either way. Meanwhile, the bookmakers have had this vote clearly in favor of “staying” in the European Union all along — as much as 70/30 ‘stay’ much of the way. But those odds have been narrowing in the past week.
Still, as we discussed yesterday, holding pat on rates today was a “no risk” decision, especially because they had an event (the weak jobs data) and the platform (through a prepared speech by Yellen just days after the weak jobs data) to manage away expectations for a hike.
With that, stocks remained steady on the decision. And markets in general remained tame.
So now the Fed is in position to see the outcome in the UK. There was some two way talk about the jobs and inflation data, but it looks like the Fed is most concerned with what’s going on in the global economy. That’s clear in their reaction to the oil price bust, when they responded back in March by taking two rate hike projections off the table. And it’s clear in their reaction now to the Brexit risk.
But their new projections on the future path of interest rates have been ratcheted down in the coming years, and in the long run. For perspective, a year ago the Fed thought the benchmark rate would be 2.75%. Now they think it will be 1.5. Why? What’s been acknowledged more and more in recent meetings is the impact of the weakness and threats in global economies on the U.S. economic outlook. The U.S. economy has been relied upon to drive global economic recovery, but it’s being dragged down now by the weight of global economic weakness.
This all puts pressure on Europe and Japan to follow through on their promise to do “whatever it takes” to restore their economies.
As we’ve said, the most important spots in the world, right now, are Japan and Europe. The Fed only began its campaign of removing its emergency level policies because Europe and Japan took the QE baton handoff from the Fed – picking up where the Fed left off. And unlike the U.S., which is constrained by “flight to safety” global capital flows and a world reserve currency, they have the ingredients (primarily Japan) to make QE work, to promote demand, to promote growth. Japan has the largest government debt problem in the world. They have an undervalued currency. They have a stagnating economy with big demographic challenges. They have are in a deflationary vortex.
They have the perfect attributes for a mass scale currency printing campaign. Not only can it work for their domestic economies, but it serves as the liquidity engine and stability preserver for the global economy.
In normal times, the rest of the world wouldn’t stand for a country outright devaluing their way to prosperity. But in a world where every country is in economic malaise, everyone can benefit – everyone needs it to work. It can be the solution for returning the global economy to sustainable growth.
With that, and given the position of the yen and Japanese stocks (see our chart yesterday), along with the underperforming economy in Japan, even after three years of QE, now is the time to throw the kitchen sink at it (i.e. they should act tonight, and in a ‘shock and awe’ fashion).
To follow our big picture views and our hand selected portfolio of the best stocks owned by the best billionaire investors in the world, join us in our Billionaire’s Portfolio.
Today the rebound in oil led a significant turnaround for stocks. With that, the broader sentiment of uncertainty across markets tends to abate. Broader commodities swung from negative to positive. And yields on the U.S. 10-year Treasury, which were in deep decline this morning, swung to positive territory by the afternoon.
If you own stocks, a house, have a job or need to eat, you should cheer for higher oil prices.
As we’ve talked about quite a bit in recent weeks, cheap oil, at this point in the global economic recovery, is a catalyst to destabilize the global economy. While consumers gain a few bucks from cheaper gas, the oil industry leans closer to the edge of bankruptcies and weak oil exporting countries toward default. That would be very bad news (global financial crisis, round 2). So the longer we’re down here, and the more persistent these low levels appear, the riskier the world looks. And when the world looks risky, people sell stocks, and other relatively risky assets and they hold cash or buy U.S. Treasuries (which pushes yields lower).
For proof, here’s a look at the 10-year yield on the U.S. Treasury note.
Keep in mind, the Fed raised rates in December! They did so when the 10 year was trading at a yield of 2.20%. The yield is now 45 basis points lower. And even though a voting Fed member said yesterday that in her view, a second hike was still on the table for next month, the market has still virtually priced out the possibility of any further hikes for the rest of the year.
Why? Because other parts of the world are moving (or are moving deeper) into negative rate territory, because economic conditions continue to soften, mostly driven by sentiment and weakening inflation prospects. A big driver of that mix is the oil price crash.
In the next chart, you can see how yields, despite the December rate hike, have tracked oil lower.
Again, when people think the world looks risky, they pile into the safest parking place for capital on the planet, U.S. Treasuries –and that drives yields on Treasuries lower. While that flow of capital has certainly occurred, the pressure on yields from speculators is also a big component.
If you recall, we discussed a couple of weeks ago how markets can have it wrong – sometimes very wrong. If indeed, the market is wrong on this one, there is a tremendous opportunity to ride yields back to the 2.25% area. And it may be a violent move.
But oil will be the driver.
As we said, oil turned the tide for stocks today. Here’s a look at the relationship of oil and stocks over the past three months.
In this longer term chart above, you can get perspective on where oil prices stand relative to history. You can see in this chart the sharp rise, the sharp fall and the rebound from the depths of the global financial crisis.
That rebound was all China. China stepped in and used their three trillion dollars in foreign currency reserves AND their massive fiscal stimulus package to gobble up cheap commodities.
And you can see this most recent price crash was triggered by move by the Saudis to block an OPEC production cut in November 2014. It was the night of the Thanksgiving holiday in the U.S. and oil was trading about $73. We haven’t seen that price since.
The low at the depths of the financial crisis was 32.40. That’s about where oil closed today. We’ve made the case in recent weeks that, if OPEC refuses to cut production (likely), the central banks could/should step in and buy oil (the ECB, BOJ and/or China).
Bryan Rich is a macro trader and co-founder of Billionaire’s Portfolio,a subscription-based service that empowers average investors to invest alongside the world’s best billionaire investors.
Today, shareholders of Keurig Green Mountain, (GMCR) woke up to a nice 75% pop in the value of their shares. A private equity firm is taking the company private for $13.9 billion or $92 a share. That’s made GMCR one of the biggest one day movers for an S&P 500 stock this year.
Most interesting, you could have participated in this huge winner.
Just last month, at “The Invest for Kids Chicago” hedge fund conference, Ricky Sandler of the $6.5 billion hedge fund, Eminence Capital, made a detailed presentation on why he thought Keurig Green Mountain was worth $85 to $100 a share. The stock was selling for around $50 at the time and Eminence owned $195,000,000 worth — the largest hedge fund owner of the stock.
Apparently the private equity firm JAB Capital agreed with Sandler. They paid a price at the mid-point of his valuation.
Now, if you were paying attention to this conference and bought the stock, clearly you could have made a lot of money. We attend or read the transcripts from every major hedge fund conference on the planet. These ideas are not often covered in the mainstream press or online media, and therefore are ripe for finding hidden investment gems like GMCR.
Today’s news is just one of many examples of stock takeovers that can be predicted by the presence of an influential investor. For example, just last month, at BillionairesPortfolio.com we predicted the takeover of MedAssets, thanks to the work and presence of activist investor Starboard Value (you can see those details here).
Of course, today’s star performer was Ricky Sandler and Eminence Capital. With that, here are the top 5 best ideas from Eminence Capital.
1) Zynga (ZNGA) – Another top idea Sadler presented at “The Invest for Kids Chicago” conference was Zynga. Sadler say Zynga is undervalued because it has $500 million in real estate (its San Francisco Headquarters) and a $1.15 in cash per share, meaning the market is valuing its underlying business for almost nothing. Sandler said if the stock were valued similar to its peer, King Digital, Zynga should be worth $5 a share or a double from its share price today.
2) AIG (AIG) – Another top idea of Eminence Capital is AIG. Eminence owns more than $350 million of AIG stock through a mix of shares and options, more than 5% of its portfolio. Billionaires Carl Icahn and John Paulson also own huge stakes in AIG and Icahn has said AIG could be worth as much as $100 a share or a 50% return from its share price today.
3) GNC (GNC) – GNC is the third largest position in Eminence Capital’s portfolio. It owns 6% of GNC. The stock is extremely undervalued as it has a forward P/E of 9, price to free cash flow of 11, and almost a 3% dividend. These valuation metrics put GNC in that “buyout candidate” territory, just like Keurig Green Mountain.
4) Men’s Wearhouse (MW) – Eminence Capital owns more than 8% of Men’s Wearhouse and has held onto the stock even as it’s been crushed. Men’s Wearhouse has dropped from $65 to $20 this year, making the stock very cheap. It has a price to sales of just .28. It sells below its book value. And it has a forward P/E of just 8 (about that of the S&P 500).
5) Autodesk (ADSK) – Eminence Capital’s top position is Autodesk. They own almost $300 million worth, making it nearly 5% of their portfolio. Autodesk is up 44% over the last 2 months, as it has been rumored to be another takeover candidate. A top $4 billion activist hedge fund, Sachem Head, owns 5.7% of the stock and launched an activist campaign on the company last month.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors.
It’s a busy week for following the moves of the world’s richest and most influential investors. We have the Robin Hood Investors Conference in New York, which normally produces some investing nuggets from billionaire investors. And the deadline for their quarterly public disclosures to the SEC on their stock holdings is today (13f filings).
Remember, in the second quarter, the world was in the cross hairs of the calamity in Europe, surrounding the threat of a Greek default and exit from the euro. As Greece brought the world to the edge of disaster, the world’s biggest investors showed some fear, as they began shuffling their portfolios. While the turnover was much more subdued in the third quarter, there are a number of interesting buys and sells from the world’s top investors.
1) Billionaire hedge fund manager, David Tepper, who probably has the best 20 year track record of any investor alive, made quite a few interesting moves last quarter. Tepper slashed his holdings in large cap tech: Apple (AAPL) Google, (GOOG) and sold all of his Alibaba (BABA) stake. Tepper initiated new positions in Nike (NKE), Allstate (ALL) and Southwest Airlines (LUV).
2) Billionaire value investor Seth Klarman initiated a new 52 million share position in Alcoa, making him the second largest shareholder in this beaten down S&P 500 stock. Alcoa sells for just $8 a share but has a book value of almost $10. Alcoa is down almost 50% YTD, so Klarman is trying to pick a bottom in this aluminum stock.
3) Warren Buffett initiated a new positon in AT&T (T) and Kraft Heinz (KFC). Buffett now owns an incredible $22 billion of Kraft Heinz making his second largest position or 18% of his portfolio. Buffett also purchased more IBM (IBM) and trimmed his stakes in Goldman Sachs (GS) and Wal-Mart (WMT).
4) Billionaire hedge fund manager Dan Loeb of Third Point also took a new position in Kraft Heinz as well, almost $600 million. Loeb also took new stakes in Time Warner Cable (TWC) and Avago Technologies (AVGO). Loeb sold all of his SunEdison (SUNE) and Perrigo (PRGO) positions.
5) At the Robin Hood investment conference this morning, billionaire hedge fund manager, David Einhorn of Greenlight Capital said his “Best Idea” was Consol Energy (CNX), a coal and natural gas stock. The fund owns almost 23 million shares of Consol making it one its largest holdings. Einhorn first purchased the stock at $37.58 in late 2014, today it sells for $7.76. If Consol goes back to Einhorn’s purchase price it would mean a 350% return.
6) In an interview at the Robin Hood Investors Conference, Jamie Dimon, the CEO of JP Morgan, gave a rare glimpse into his billion dollar portfolio. Dimon said that he owns 3 stocks: Yum Brands (YUM), Boeing (BA) and Union Pacific (UNP).
7) Billionaire Leon Cooperman initiated a new almost $100 million stake in Valeant Pharmaceuticals (VRX) at prices between $155 and $260. Cooperman also initiated new stakes in Pfizer and Amazon. That reiterates our view that billionaire investors hedge funds continue to buy more healthcare and biotech stocks, even as the rest of the world is running from the sector.
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors.
Last week the Wall Street Journal published a report on 70 activist campaigns, looking back over the past six years. No surprise, in evaluating these campaigns, they found that activism works.
With the ability to buy controlling stakes in public companies, we know that activist investors can influence outcomes in the stocks they buy. They have the unique privilege of controlling their own destiny. With that edge, these investors have proven to produce a significant return over what the broader market gives you over time, on average.
When we follow these activist investors into stocks, piggybacking their moves, not only do we get to participate in their performance, for free, but we get an investor on our side that has a lot of money on the line (both their investor’s money and often a lot of their personal money). With that, we get to follow the lead of someone with power and influence, and with every incentive to see the campaign succeed.
Given their record of success, when an activist investor takes a position in a stock and publicly gives a price target for the stock, we take note.
In each of the five stocks listed below, a billionaire investor or hedge fund is calling for a double:
1) Macy’s (NYSE:M) – Starboard Value, a top $4 billion activist hedge fund, said at the Ira Sohn Hedge Fund Conference that Macy’s could be worth $125 a share if the company would sell or spin off its real estate. The stock today sells for $50.36. If Starboard is right, the stock has a 172% potential return.
2) NCR (NYSE:NCR) – Marcato Capital, a $3 billion activist hedge fund run by Bill Ackman’s protégé, Mick McGuire, said that NCR could be worth as much as $51 to $59 a share. The stock is $25 today. If McGuire is right, NCR has a double in it (or more).
3) Bob Evans (NASDAQ:BOBE) – Sandell Asset Management, a top billion dollar plus activist hedge fund, said that Bob Evans could be worth as much as $90 a share if it sold or spun off its real estate. Bob Evans sells for $44 a share. A move to $90 would be a 105% return.
4) Yum Brands (NYSE:YUM) – Carl Icahn protégé, Keith Meister, who runs the $8 billion activist hedge fund Corvex Management, said at Ira Sohn this year that YUM could be worth as much as $130 a share, if the company spun off its Chinese operations. With the stock selling at $70 that is an 86% potential return.
5) Brookdale Senior Living (NYSE:BKD) – Billionaire Larry Robbins of the $15 billion hedge fund Glenview Capital Management has said that Brookdale could double, as the company’s real estate was worth as much as its share price. That is when the stock was trading at $30. Today Brookdale sells for $22.87 which would imply a 161% potential return.
Sign up for our Free ebook, The Little Black Book of Billionaire Secrets, and learn how to follow the “best ideas” of the world’s top billionaire investors. You don’t have to be rich to take part. You don’t have to pay the hefty 2% management fee and 20% profit share to a hedge fund. You can follow the lead of powerful billionaire investors by simply buying the same stocks they do, in your own brokerage account.
Bill Ackman, in his most recent quarterly letter to his investors, just divulged a secret we have been telling our subscribers for almost three years now: If you want to get rich, piggybacking the trades of the world’s best billionaire investors and hedge funds could help you attain this goal.
Ackman stated the following in his most recent quarterly letter to his investors: “In 26 out of 30 of our activist commitments, the day-after price was still a bargain versus the ultimate price achieved from our involvement with the company.”
This means if you bought every stock Bill Ackman bought the day after it was announced, you would have made money on 26 out of 30 stocks (87%). More important, you would have made 21 times your money. That turns $100,000 into $2.1 million, or $50,000 into more than $1 million.
Over the past week, I received hundreds of emails concerning Carl Icahn’s announcement that he took an 8% position in Hertz (HTZ). We know Icahn has already publicly stated he wants to actively engage with Hertz management and its CEO, but there has been no word about Icahn pushing Hertz to merge or sell itself.
Here is why: First, regulators would never approve a Hertz-Avis merger. The two entities represent too large a share of the industry. It would essentially be a monopoly. So a merger with Avis isn’t happening — at least in my opinion.
Though, given the quick 25% run up in Family Dollar (FDO) last month after Icahn forced a merger with Dollar Tree (DLTR), it’s easy to see why investors are hoping for a similar result. Clearly, people don’t want to miss out on the next FDO. On that note, you can read some great analysis of the Family Dollar deal, where my partner and I predicted the merger and picked the bottom in Family Dollar stock (read that here).
But again, this is not going to happen with Hertz. Icahn and numerous other investors are long Hertz. Hertz is actually one of the most popular stocks owned by top billionaire hedge fund managers, because it’s a pure play on the improving economy, and rental car companies have lagged airlines in terms of raising their prices.
So many hedge funds are betting on Hertz increasing its prices, like the airlines did last year, and they are betting that demand will continue to improve with the recovery in the economy. It’s that simple.
Also, this is not a classic Icahn play. He typically comes into a deeply depressed stock selling near its 52-week low or multi-year lows. Icahn purchased Hertz near the stock’s all-time high.
But what Icahn is doing is playing his “change” card. He has recently laid out his evidence, based on his history as an activist investor, of how replacing a CEO is a powerful catalyst for producing shareholder wealth creation. And one of his fellow shareholders in Hertz is already at work on that strategy: Fir Tree Partners is pressuring the board to oust the CEO.
