Yesterday we talked about the Draghi remarks (head of the European Central Bank) that were intended to set expectations that the ECB might be moving toward the exit doors on QE and zero interest rate policy. That bottomed out global rates — which popped U.S. rates further today. The Bank of England piled on today, talking about rate normalization soon.
We’ve gone from 2.12% in the U.S. ten year yield to 2.25% in about 24 hours. These are big swings in the interest rate market – a big bounce and, as I’ve said, the bottom appears to be in for rates.
As importantly, this prepared speech by Draghi could very well cement the top in the dollar. It begins to tighten a very wide interest rate spread between the U.S. and global rates. We entered the year with the Fed going one way (tightening) while the rest of the world was going the other way (easing). That’s a recipe for capital to storm into U.S. assets — into the dollar. And now that may be over.
I’ve been researching long-term cycles in the dollar for a very long time and throughout the global financial crisis period, it these cycles in the world’s reserve currency have been my guidepost for drawing a lot of conclusions on markets and the outlook for capital flows over the past several years.
Despite the choppiness in the dollar for much of the crisis, if we look back at the cycles following the failure of the Bretton Woods system, we were able, very early on, to determine the dollar was in a bull cycle.
This view came in the face of all of the negative global sentiment toward the dollar in 2010. Foreign leaders were taking shots at the Fed, accusing the Fed of trying to destroy the dollar. People were calling for the end of the dollar as the world’s reserve currency. All the while, the dollar held firm and ultimately made an aggressive climb.
Take a look below at my chart on the long term dollar cycles…
I’ve watched this chart for quite some time, defining the five complete dollar cycles over the past nearly 40 years, and the most recent bull cycle.
If we mark the top of the most recent cycle in early January, this bull cycle has matched the longest cycle in duration (at 8.8 years) and comes in just shy of the long-term average performance of the five complete cycles. The most recent bull cycle added 47%. The average change over a long term cycle has been 56%. This all argues that the dollar bull cycle is over. And a weaker dollar is ahead. That should go over very well with the Trump administration.
Join the Billionaire’s Portfolioto hear more of my big picture analysis and get my hand-selected, diverse stock portfolio following the lead of the best activist investors in the world.
Healthcare was the story of the day today. With the Senate having had its go at the house healthcare bill, it goes back to the house, then back through Senate before it gets to the President’s desk.
Still, policy progression is very positive in this environment. Healthcare stocks were up big today — the IHF healthcare ETF was up over 2%. This is the ETF that tracks insurers, diagnotic and specialized treatment companies.
And despite all of the debate around healthcare, it has been the hottest sector to invest in since the election.Since election day, the IHF is up 35% since the lows of November 9th, the day after the election. Here’s a look at S&P sector performance over the past sixmonths.
Most interesting, the healthcare sector has been beaten up badly since the cracks in Obamacare became clear back in 2014. But as of the past week, the healthcare sector trackers have finally broken back above those 2014 Obamacare–optimism–driven highs. With that, the divergence in this next chart of one of the biggest hospital companies in the country becomes quite an intriguing trade.
Join the Billionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse stock portfolio following the lead of the best activist investors in the world.
Today I want to take a look back at my March 7th Pro Perspectives piece. And then I want to talk about why a power shift in the economy may be underway (again).
Big Picture .. Market Perspectives March 7, 2017
“A big component to the rise of Internet 2.0 was the election of Barack Obama. With a change in administration as a catalyst, the question is: Is this chapter of the boom in Silicon Valley over? And is Snap the first sign?
Without question, the Obama administration was very friendly to the new emerging technology industry. One of the cofounders of Facebook became the manager of Obama’s online campaign in early 2007, before Obama announced his run for president, and just as Facebook was taking off after moving to and raising money in Silicon Valley (with ten million users). Facebook was an app for college students and had just been opened up to high school students in the months prior to Obama’s run and the hiring of the former Facebook cofounder. There was already a more successful version of Facebook at the time called MySpace. But clearly the election catapulted Facebook over MySpace with a very influential Facebook insider at work. And Facebook continued to get heavy endorsements throughout the administration’s eight years.
In 2008, the DNC convention in Denver gave birth to Airbnb. There was nothing new about advertising rentals online. But four years later, after the 2008 Obama win, Airbnb was a company with a $1 billion private market valuation, through funding from Silicon Valley venture capitalists. CNN called it the billion dollar startup born out of the DNC.
Where did the money come from that flowed so heavily into Silicon Valley? By 2009, the nearly $800 billion stimulus package included $100 billion worth of funding and grants for the “the discovery, development and implementation of various technologies.” In June 2009, the government loaned Tesla $465 million to build the model S.
When institutional investors see that kind of money flowing somewhere, they chase it. And valuations start exploding from there as there becomes insatiable demand for these new ‘could be’ unicorns (i.e. billion dollar startups).
Who would throw money at a startup business that was intended to take down the deeply entrenched, highly regulated and defended taxi business? You only invest when you know you have an administration behind it. That’s the only way you put cars on the street in NYC to compete with the cab mafia and expect to win when the fight breaks out. And they did. In 2014, Uber hired David Plouffe, a senior advisor to President Obama and his former campaign manager to fight regulation. Uber is valued at $60 billion. That’s more thanthree times the size of Avis, Hertz and Enterprise combined.
Will money keep chasing these companies without the wind any longer at their backs?”
Now, this was back in March. And that was the question — will it keep going under Trump? Can they continue to thrive/ if not survive without policy favors. Most importantly for the billion dollar startup world, will the private equity capital dry up. This is what it’s really all about. Will the money that chased the subsidies from D.C. to Silicon Valley for eight years (i.e. the trillion dollar pension funds) stop flowing? And will it begin chasing the new favored industries and policies under the Trump administration?
It seems to be the latter. And it seems to be happening in the form of a return to the public markets — specifically, the stock market.
And it may be amplified because of the huge disparity in what is being favored. In Silicon Valley, innovation is favored. Profitability? Remember, the 90s tech bubble. The measure of success for those companies was “eyeballs.” How much traffic were they getting to their websites? Today, when you hear a startup founder talk about the success benchmarks, it rarely has anything to do with with revenue or profit. It’s all about headcount (how many people they’ve hired) and money raised (which enables them to hire people). They are validated by convincing investors to fund them (mostly with our pension money).
Now, the other side of this coin: Trumponomics. Remember, among the Trump policies (corporate tax cuts, repatriation, deregulation, infrastructure spend), the most common sense play in the stock market has been flooding money into companies that make a lot of money. Those that make a lot of money have the most to gain from a slash in the corporate tax rate — it falls right to the bottom line. Leading the way on that front, is Apple. They make a lot of money. And they will make a lot more when a tax cut comes, making the stock even cheaper. That’s why it’s up 25% year-to-date. That’s 2.5 times the performance of the broader market.
Meanwhile, let’s take a look back at the Snapchat. Snapchat doesn’t make money. And even after a 1/3 haircut on the valuation, trades about 35 times revenue. And now, as a public company, probably doesn’t get the protection from the venture capital/private equity community that may have significant investments in its competitors. So the competitors (like Facebook) are circling like sharks to copy their business.
What about Uber? The Uber armor may be beginning to crack as well, with the leadership shakeup in recent weeks. Maybe a good signal for how Uber may be doing? Hertz! Hertz has bounced about 20% from the bottom this week.
What stocks should be on your shopping list, to buy on a big market dip? Join my Billionaire’s Portfolio to find out. It’s risk-free. If for any reason you find it doesn’t suit you, just email me within 30-days.
The Nasdaq trade unwound some today. From the peak this morning in the futures of 5898 the tumble started around 11am, falling to as low as 5660. That’s 238 Nasdaq futures points or 4% – quite a sharp move.
Remember, it seems like an overdone trade (driven by the big tech stocks). But as we discussed last week, the tech heavy Nasdaq has simply been a catch up trade — something that has lagged the strength in the broader market.
Here’s the chart we looked at last week.
This chart goes back to the lows driven by the oil price crash that bottomed out earlier last year.
Still, with the Nasdaq at +18% ytd and S&P 500 +9% ytd, as of this morning, as we’ve seen many times in this post-crisis era, the air pockets of illiquidity in stocks can give back gains very, very quickly. As they say, stocks go up on an escalator and down in an elevator.
The Trump trend, in the chart above, was nearly tested today — the same day a new all-time high was marked!
If we get another few days of sharp downside, it will be a tremendous buying opportunity – get your shopping list ready. And if that downside slide does indeed come, it could come at a very interesting time. It would add another (but very signficant) reason the Fed may balk on a rate hike next week. The other reasons? We discussed them yesterday (here).
Have a great weekend.
What stocks should be on your shopping list, to buy on a big market dip? Join my Billionaire’s Portfolio to find out. It’s risk-free. If for any reason you find it doesn’t suit you, just email me within 30-days.
Last week we looked at the some of the clear evidence that the economy is as primed as it can possibly get for a catalyst to come in and pop growth.That catalyst, despite all of the scrutiny, will be Trumponomics.
At the very least, a corporate tax cut will directly hit the bottom line of corporate America. And one of the huge drags on demand, structurally, is the lack of wage growth. And as we discussed, the big winner in a corporate tax cut will be workers/wage growth — a non-partisan tax think tank thinks it can pop wage growth, by as much as doublethe current growth rate. That would be huge, especially for one of the key pillars of the recovery — housing.Remember, the two biggest drivers of recovery have been: 1) stocks, and 2) housing. Those two assets have done the lion’s share of work when it comes to restoring confidence. And a lot of other key pieces fall into place when confidence comes back.
On the housing front, over the past year, both mortgage rates and house prices have gone UP – a new dynamic in the post crisis recovery (adding higher rates into the mix). So owning a house has become more expensive over the past year. But how much?
Let’s take a look at how that has affected the monthly outlay for new homeowners over the course of the past year.
From March 2016 to March 2017, the average 30 year fixed mortgage went from 3.70% to 4.20%.
The Case-Shiller housing price index of the top 20 markets in the U.S. is up 6% over that twelve month period (the most recent data). That’s increased the monthly outlay (principal and interest) for new homeowners by 11% over the past year.
Now, with that said, we look at the recent behavior of the 10 year note (the benchmark government bond yield that heavily influences mortgage rates). It’s been in world of its own — sliding back to seven month lows, while stocks are hitting record highs. Manipulation? Likely. As I’ve said before, don’t underestimate the value of QE that is still in full force around the world — namely in Japan and Europe. That’s freshly printed money that can continue to buy our Treasuries, keeping a cap on interest rates, which keeps a cap on mortgage rates, which keeps the housing recovery and the recovery in consumer credit demand intact.
What stocks are cheap?Join me today to find out what stocks I’m buying in my Billionaire’s Portfolio. It’s risk-free. If for any reason you find it doesn’t suit you, just email me within 30-days.
Join the Billionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse stock portfolio following the lead of the best activist investors in the world.As we end the week, we have some remarkable market and economic conditions. U.S. stocks printing new record highs by the day. Yields today broke down. The 10 year yield now trades 2.15%. Oil is under $50.We’re set up to massively stimulative fiscal policies launch into an economic environment that is about as primed as it can possibly get.The stock market is at record highs. The unemployment rate is 4.3%. Inflation is low. Gas is cheap ($2.38), and stable. Mortgage rates are under 4%, and stable. You can borrow money at 2% (or less) to buy a car.
This has all put consumers in as healthy a position as they’ve been in a long time.
As I’ve said, the two key tools the Fed used to engineer a recovery was housing and stocks. That restores wealth, which restores confidence, which gets people spending, hiring and investing again. So stocks are at record highs. And housing (as you can see in the chart below) continues to climb back toward pre-crisis levels.
As a result, we have well recovered and surpassed pre-crisis levels in household net worth, and sit at record highs …
What is the key long-term driver of economic growth over time? Credit creation. In the next chart, you can see the sharp recovery in consumer credit (in orange) since the depths of the economic crisis. This excludes mortgages. And you can see how closely GDP (the purple line, economic output) tracks credit growth.
So credit is back on track. Meanwhile, consumers have never been so credit worthy. FICO scores in the U.S. have reached all-time highs.
With all of this said, the consumer looks strong, but the big missing link and structural drag on the economy in this story has been wage growth. What’s the solution? A corporate tax cut. The biggest winners in a corporate tax cut are workers. The Tax Foundation thinks a cut in the corporate tax rate would double the current annual change in wages.
So think about this backdrop. If I told you at any point in history that these were the conditions, you would probably tell me that the economy was already in, or will be in, an economic boom period. I think it’s coming. And it will drive earnings significantly, which will make the valuation on stocks cheap.
What stocks are cheap?Join me today to find out what stocks I’m buying in my Billionaire’s Portfolio. It’s risk-free. If for any reason you find it doesn’t suit you, just email me within 30-days.
The past few days we’ve looked at the run up in bitcoin. Remember, I said: “If you own it, be careful. The last time the price of bitcoin ran wild, was 2013. It took about 11 days to triple, and about 18 days to give it all back. This time around, it’s taken two months to triple (as of today). ”
It looks to be fueled by speculation, and likely Chinese money finding its way out of China (beating capital controls). And yesterday we talked about the potential disruption to global markets that could come with a crash in bitcoin prices.
I suspect that’s why gold is finally beginning to move today, up almost 1%, and among the biggest movers of the day as we head into the long holiday weekend (an indication of some money moving to gold to hedge some shock risk).
Remember yesterday we looked at the chart on Chinese stocks back in 2015 and compared it to bitcoin. The speculative stock market frenzy back thin was pricked when the PBOC devalued the yuan later in the summer.
Probably no coincidence that bitcoin’s recent acceleration happened as Moody’s downgraded China’s credit rating this week for the first time since 1989 (an event to take note of). Yesterday, the PBOC was thought to be in buying Chinese stocks (another event to take note of). And this morning, the PBOC stepped in with another currency move! Historically, major turning points in markets tend to come with some form of intervention. Will a currency move be the catalyst to end the bitcoin run, as it did the runup in Chinese stocks two years ago?
Let’s take a look at what the currency move overnight means …
Keep in mind, the currency is China’s go-to tool for fixing problems. And they have problems. The economy is crawling around recession like territory. The debt was just downgraded. And they’ve had a tough time managing capital flight. As an easy indicator: Global stocks are soaring. Chinese stocks are dead (flat on the year).
Remember, their rapid economic ascent in the world came through exports (via a weak currency). The move overnight is a move back toward tying its currency more closely to the dollar. Which, if this next chart plays out, will also weaken the yuan compared to other big exporting competitors in the world.
That should help the Chinese economic outlook, which may help stem the capital flight (which has likely been a significant contributor to bitcoin’s rise).
We talked yesterday about run up in bitcoin. The price of bitcoin jumped another 14% today before falling back.
As I said yesterday, it looks like Chinese money is finding it’s way out of China (despite the capital controls) and finding a home in bitcoin (among other global assets). If you own it, be careful. The last time the price of bitcoin ran wild, was 2013. It took about 11 days to triple, and about 18 days to give it all back. This time around, it’s taken two months to triple (as of today).
If you’re looking for a warning signal on why it might not be sustainable (this bitcoin move), just look at the behavior across global markets. It’s not exactly an environment that would inspire confidence.
Gold is flat. Interest rates are soft. Stocks are constantly climbing. Commodities are quiet, except for oil — which fell back below $50 today on news that OPEC did indeed agree to extend its production cuts out to March of next year (bullish, though oil went south).
When the story is confusing, conviction levels go down, and cash levels go up (i.e. people de-risk). And maybe for good reason.
In looking at the bitcoin chart today, I thought back to the run up in Chinese stocks in early 2015. Here’s a look at the two charts side by side, possibly influenced by a lot of the same money.
The crash in Chinese stocks took global markets with it. It’s often hard to predict that catalyst that might prick a bubble and even harder to see the links that might lead to broader market instability. In this case, though, there are plenty of signs across markets that things are a little weird.
Invitation to my daily readers: Join my premium service members atBillionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse stock portfolio where I follow the lead of the best activist investors in the world. Our goal is to do multiples of what broader stocks do. Our portfolio was up 27% in 2016. Join me today, risk-free. If for any reason you find it doesn’t suit you, just email me within 30-days.
Stocks continue to bounce back today. But the technical breakdown of the Trump Trend on Wednesday
still looks intact. As I said on Wednesday, this looks like a technical correction in stocks (even considering today’s bounce), not a fundamental crisis-driven sell-off.
With that in mind, let’s take a look at the charts on key markets as we head into the weekend.
Here’s a look at the S&P 500 chart….
For technicians, this is a classic “break-comeback” … where the previous trendline support becomes resistance. That means today’s highs were a great spot to sell against, as it bumped up against this trendline.
Very much like the chart above, the dollar had a big trend break on Wednesday, and then aggressively reversed Thursday, only to follow through on the trend break to end the week, closing on the lows.
On that note, the biggest contributor to the weakness in the dollar index, is the strength in the euro (next chart).
The euro had everything including the kitchen sink thrown at it and it still could muster a run toward parity. If it can’t go lower with an onslaught of events that kept threatening the existence of the euro, then any sign of that clearing, it will go higher. With the French elections past, and optimism that U.S. growth initiatives will spur global growth (namely recovery in Europe), then the European Central Bank’s next move will likely be toward exit of QE and extraordinary monetary policies, not going deeper. With that, the euro looks like it can go much higher. That means a lower dollar. And it means, European stocks look like, maybe, the best buy in global stocks.
A lower dollar should be good for gold. As I’ve said, if Trump policies come to fruition, inflation could get a pop. And that’s bullish for gold. If Trump policies don’t come to fruition, the U.S. and global growth looks grim, as does the post-financial crisis recovery in general. That’s bullish for gold.
This big trendline in gold continues to look like a break is coming and higher gold prices are coming.
With all of the above, the most important chart of the week is probably this one …
The 10 year yield has come all the way back to 2.20%. The best reason to wish for a technical correction in stocks, is not to buy the dip (which is a good one), but so that the pressure comes out of the interest rate market (and off of the Fed). The run in the stock market has clearly had an effect on Fed policy. And the Fed has been walking rates up to a point that could choke off the existing economic recovery momentum and, worse, neutralize the impact of any fiscal stimulus to come. Stable, low rates are key to get the full punch out of pro-growth policies, given the 10 year economic malaise we’re coming out of.Invitation to my daily readers: Join my premium service members at Billionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse portfolio of the most high potential stocks.
Yesterday, following the slide in stocks, we looked at some charts on stocks, gold and the dollar. We talked about the media and Wall Street’s need to fit price action to a story. And we asked if the story did indeed warrant fitting it to the price action. Was a crisis beginning or just a correction for stocks?The answer: It still looks like a market that values fiscal stimulus and structural change over political mudslinging and scandal. For stocks, the news may have been the catalyst to start a healthy technical correction.
Today, the market behavior appears to support that view.
Now, with the idea that a technical correction is (I think) underway for stocks, and maybe for months, until we get a better handle on policy action, remember this: a correction in stocks is a buying opportunity.
Major asset classes, over time, will rise (stocks, bonds, real estate). The value of these core assets will grow faster than the value of cash.
That comes with one simple assumption. The world, over time, will improve, will grow and will be a better and more efficient place to live than it was before. If that assumption turned out to be wrong, we have a lot more to worry about than the value of our stock portfolio.
With that said, as an average investor that is not leveraged, dips in stocks, particularly U.S. stocks—the largest economy in the world, with the deepest financial markets—should be bought, because in the simplest terms, over time, the broad stock market has an upward sloping trajectory. Instead, dips in stocks tend to create fear, and fear creates selling, at precisely the time we should be buying.
With this in mind, we’ve had a brief dip of about 4% in stocks within the “Trump trend” (the post–election rise in stocks). A typical correction is around 10%. But strong bull markets tend to have shallow retracements. A 6%–10% correction in stocks would take us back to the 200–day moving average (minimum), and maybe as low as 2,200 in the S&P 500.
Invitation to my daily readers: Join my premium service members at Billionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse portfolio of the most high potential stocks.
Yesterday we talked about the Draghi remarks (head of the European Central Bank) that were intended to set expectations that the ECB might be moving toward the exit doors on QE and zero interest rate policy. That bottomed out global rates — which popped U.S. rates further today. The Bank of England piled on today, talking about rate normalization soon.
Join the 
