At BillionairesPortfolio.com, we’ve studied the track records of hundreds of billionaire investors and billion-dollar hedge funds. And one man stands above the rest, as the best investor of all-time.
I’m sure most would consider Warren Buffett to be the best investor ever. But the numbers tell a different story. In fact, the greatest investor of all-time is billionaire activist investor Carl Icahn.
Incredibly, both Icahn and Buffett have been building their respective investment empires for close to five decades. And more incredibly, they remain at the top of their profession.
Icahn has, unequivocally, shown superior skill as an investor.
Consider this: Icahn has returned 31% annualized since 1968. That would turn every $1,000 invested with Icahn into $325 million today – an incredible number. Buffett, on the other hand, returned 19.5% annualized during virtually the same time period. Buffett’s growth rate over that length of time is indeed amazing too. But due to the power of compounding, the wealth creation of Buffett, from pure investment returns, pales in comparison to that of Icahn. Icahn’s investment skill has created $65 to every $1 created by Buffett.
So how has Icahn been able to outperform Warren Buffett (and the broad stock market) by so much and for so long?
Of course, Icahn is a dogged shareholder activist and often an agitator of corporate management. Key to his playbook is using power and influence to control his own destiny on stocks he invests in.
When we look strictly across the stocks in his portfolio, without necessarily the story-lines, we can see some portfolio traits that have made Carl Icahn the world’s greatest investor.
Trait #1: The media, mutual funds, CNBC, finance books — they all say having a high win rate is paramount to good investing. They tell you that the most important thing is being right. Like many widely accepted adages, it happens to be dead wrong. Billionaire iconic hedge fund investor, George Soros, says “it’s not whether you’re right or wrong, but how much money you make when you’re right and how much money you lose when you’re wrong.”
Over the past 20 years, the stocks in Icahn’s portfolio have a win rate only a tad bit better than a coin toss. But he puts himself in position, so that when he wins, he has the chance to win big! This is the concept of asymmetrical risk to return, a concept often found in the wealth creation of billionaires. They like to invest in opportunities with limited risk and huge potential return.
Among Icahn’s stocks, his winners were almost twice that of his losers.
Trait #2: Icahn became rich by taking concentrated bets throughout his career. As Buffett has famously said, “you only need one or two great ideas a year to get rich.” This is exemplified in Icahn’s portfolio. His big win on Netflix garnered a 463% return in just 12 months, between 2012 and 2013.
Trait #3: Patience is king. You don’t have to go to Harvard or have a Goldman Sachs investing pedigree to have patience. And many times, that can be the difference between making money and losing money in investing. Icahn has an average holding period of over two years.
Trait #4: Risk! When you hunt for big returns, you must be willing to accept drawdowns and losers. Icahn has multiple stocks over the past 20 years that have been full losers (i.e. they went to zero). But when you have a portfolio full of stocks with big potential, in the end the big winners can more than pay for the losers.
With these key themes in his portfolio, Icahn has achieved the greatest track record of any investor alive, and a net worth in excess of $25 billion along the way. And he has done it with a portfolio of stocks that most investors would likely run away from.
Want to invest like the greatest investor of all-time? According to his most recent 13F filings, Icahn’s five biggest stock positions (aside from his holding company) are Apple (AAPL), CVR Energy (CVI), eBAY (EBAY), Federal Modul Holdings (FDML) and Hologic (HOLX).
Billionairesportfolio.com, run by two veterans of the hedge fund industry, helps self-directed investors invest alongside the world’s best billionaire investors. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 31% gain since 2012.
Billionaire investor Carl Icahn made news again this week, with an open letter to Apple’s CEO, Tim Cook. As most know, the “Icahn Effect” has been a powerful one for Apple shareholders. Since he first announced a stake in Apple in August of 2013, the stock has more than doubled. In fact, each time Icahn publicly talks about Apple, the stock tends to go up.
But this time, instead of following Icahn into Apple, there is a another Icahn-owned stock that offers more upside. Plus, it comes with an added bonus: You can buy it at a cheaper price than what Icahn paid for his shares.
Icahn initiated a position in Manitowoc (symbol MTW) in late 2014 at $20.03 a share. He then added to his position in early 2015 at $20.69 a share. The stock now sells for $19.75. So the world’s best investor just did all the work for you. By his actions, he’s telling us that he thinks Manitowoc is cheap at $20.40. And that’s almost a $1 more than where the stock trades today.
Icahn owns almost 8% of Manitowoc now. And in February the company agreed to Icahn’s demand to separate its two businesses into two different companies, one for its crane business and the other for its food service business. According to analysts, this separation will create value for shareholders and could reprice the stock to $30 a share — or 50% return from its share price today. In addition to the potential revaluation of MTW shares from the split of its business lines, MTW is cheap on its current valuation. The stock trades at just 14 times forward earnings.
So today, you can get an edge on the world’s best investor by buying Manitowoc at a cheaper price than he did. And he is working for you, as a vocal shareholder, to unlock potentially 50% more value in the stock. Not a bad deal.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 31% gain since 2012, beating even Carl Icahn’s record for the same period.
Stocks have been on a great run and with the European Central Bank and Bank of Japan pumping money into the global economy–picking up where the Fed left off–expect it to continue.
Given the low global inflationary environment and the ultra-easy global central bank activity, bond yields in the U.S. have remained subdued, despite the expectation that the Fed will be raising rates for the first time in nine years later this year. The 10-year note is yielding less than 1.9% this morning.
Meanwhile, we’re seeing a rare occurrence in stocks, and an extremely bullish one. For one of the few times in history, stock dividends are paying a yield greater than U.S. Treasurys. The yield on Dow stocks is 2.25% and the yield on S&P 500 stocks is 1.99%.
This positive yield differential for stocks has only happened five other times in history; each time stocks went up big one-month and three-months later.
If that’s not enough, April happens to be the single best month for Dow stocks over the past 50-years.
With this all in mind, here are a few ways to play it:
You could buy the Dow Jones Industrials Average ETF (DIA) or the three times leveraged Dow ETF (UDOW). Or, our favored way at BillionairesPortfolio.com is to invest alongside an influential investor that has huge skin in the game. This gives you an extra layer of protection, a fellow shareholder that has the power and influence to control his own destiny. With that, you could buy these four Dow component stocks, each controlled by one of the top billionaire investors in the world:
1) Apple: Billionaire activist legend Carl Icahnowns Apple. He says it’s worth $200, and he’s recently been adding to his position. Apple has multiple catalysts in April. The company is launching its watch. Apple reports earnings this month, where we could potentially see another stock buyback announcement and/or an increase its dividend.
2) Dupont: Billionaire activist investor Nelson Peltz has nearly 20% of his hedge fund’s assets in Dupont. He owns nearly 1.8% of the company and has asked Dupont to grant him and his team Board seats, as he wants DuPont broken up to unlock value.
3) Dow Chemical: Billionaire activist hedge fund manager Dan Loeb is also agitating for change at Dow. Loeb owns more than $1 billion of Dow shares and the company has just agreed to split off its chlorine business, a byproduct of Dan Loeb’s activist efforts.
4) Coke: Everyone knows Warren Buffett owns Coke. The interesting part is that Buffett has recently orchestrated a huge merger between two of the largest big-brand food companies, Heinz and Kraft. Kraft shareholders made a 35% premium on their shares overnight. Applying the same takeover multiple to Coke, Coke could be worth as much 40% on a private equity buyout.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 31% gain since 2012, beating even the great Carl Icahn’s record for the same period.
In his quarterly investment letter recently, billionaire activist investor Bill Ackman gave us clues on selecting stocks that can become big winners.
In a world where many think stock prices are efficient, he argues quite the opposite. And in a world where many think good investing has to be sophisticated and only the domain of big, powerful hedge funds, he all but said, it wasn’t.
Here’s what he said: “Minority stakes in high quality businesses can be purchased in the public markets at a discount. These discounts principally arise because of two factors: shareholder disaffection with management,and the short term nature of large amounts of retail and institutional investor capital which can overreact to negative short-term corporate or macro factors.”
He’s telling all investors that there are stocks that are undervalued for all of the wrong reasons. And the average investor can buy them, just like he does.
At Billionairesportfolio.com, one of our favorite screens identifies stocks that are controlled by the world’s top activist hedge funds and have temporarily sold off for non-fundamental reasons.
This is how you find deeply undervalued stocks, with a catalyst at work to unlock value. And that can be a recipe for big winners. The catalyst in this case is a huge, influential, bulldog shareholder that is fighting everyday to ensure his investment is a profitable one.
With that, below is a list of four activist-owned stocks that have pulled back for non- fundamental reasons. And each has at least a 50% upside to the activist hedge fund’s target price. As a bonus, the fifth stock is also activist owned, but it sits near an all-time high. Still, the activist involved in this one thinks another 65% is ahead.
1) Hertz (HTZ) – Billionaires Carl Icahn and Barry Rosenstein own a combined 18% of Hertz. Hertz is down more than 17% over the last 6 months due to accounting issues. Yet billionaire Barry Rosenstein, head of the activist hedge fund Jana Partners, said that Hertz should triple, as they have plenty of cash flow to buy back as much as 25% of their outstanding stock. That’s a 300% return from Hertz’s current share price!
2) Twenty-First Century Fox (FOXA) – Billionaire activist hedge fund manager, Jeff Ubben of ValueAct Capital owns more than $1 billion of Fox. Ubben recently said in an interview that his firm purchased Fox when it sold off after its failed merger attempt, and that he thought the stock was worth $50, or a 50% return from its share price today.
3) NCR Corp. (NCR) – Marcato Capital, a $3 billion activist hedge fund run by Billionaire Bill Ackman’s protégé, Mick McGuire, owns more than 6% of NCR. NCR is down 22% over the past year, yet McGuire recently stated that NCR is worth more than $50 a share, or a 100% return from its share price today.
4) EMC Corp. (EMC) and Juniper Networks (JNPR) – Billionaire Paul Singer, head of the activist hedge fund Elliot Management, owns billion dollar plus stakes in EMC and Juniper. Singer and Elliot have a great track record of forcing companies to sell out at a huge premium. In their last eight activist campaigns in the technology sector, six of the companies were acquired for a significant premium. Elliot has publicly stated that EMC could be worth as much as $45 a share, or a 50% return from its share price today. And Juniper could be worth $35 a share, almost a 50% return from its share price today.
5) Finally, Apple Inc. (AAPL) — Billionaire Carl Icahn has been a very vocal shareholder in Apple. Since tweeting his stake a little more than a year ago, AAPL, the most widely held stock in the world, has more than doubled. Still, Icahn thinks it’s worth $200 a share. That’s 66% higher than its current price.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors, our exited stock investment recommendations have averaged a 31% gain since 2012 , beating even the great Carl Icahn’s record for the same period.
One of the most profitable ways to piggyback the world’s best billionaire investors and hedge funds is by following their newest positions.
Over the past two weeks there has been significant buying from billionaire investors and hedge funds, which is usually a bullish sign for stocks. Let’s take a look at some of the most recent transactions:
1) Chesapeake Energy (CHK) – Legendary billionaire activist Carl Icahn recently added to his already large position in Chesapeake last week, buying 6.6 million shares at average price of $14.15. That gives Icahn an 11% stake. Chesapeake looks cheap at 9 times earnings, with a dividend yield of 2.5%, and selling at just two thirds of its book value of $21 a share.
2) Valeant Pharmaceuticals (VRX) – Billionaire hedge fund manager Bill Ackman, of Pershing Square, recently upped his stake in Valeant from 4.9% to 5.7% — at an average price of $196.72. Valeant has been a high flyer. It’s up 38% in 2015 and 54% over the past year. It’s hard to argue with Ackman’s timing. Almost every stock he has purchased over the past 2 years has gone straight up.
3) Manitowoc Company Inc. (MTW) – Billionaire hedge fund manager Larry Robbins, of Glenview Capital Management, initiated a new 6.3% position in Manitowoc — at an average price of $20.41. Manitowoc also happens to be owned by billionaire Carl Icahn. Icahn recently forced the company to split into separate companies, which could potentially unlock $10 of hidden value in this stock according to many wall street analysts.
4) EXA Corporation (EXA) – Billionaire George Soros recently purchased 1.26 million shares of EXA, or 9% of the company, at an average price of $10.10. EXA is small cap software and services company to the automotive industry that has been rumored to be an acquisition target at $16 to $20 share. That would be a 30% to 60% premium from its share price today.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 31% gain since 2012, beating even the great Carl Icahn’s record for the same period.
The magic formula for investing is “risking a little, to make a lot.” When you do this, and spread your risk, you only have to be right a handful of times to make outsized returns.
With this in mind, let’s take a look at two stocks that are among the most widely traded in the world, Facebook and Apple.
The average consensus analyst target price target on Facebook is $90. That’s only 12% higher than current levels. By purchasing Facebook today you are risking a lot to make a 12% potential return. Facebook is trading at 75 times trailing earnings and 37 times forward earnings. High P/E stocks tend to underperform in rising interest rate environments. And that’s precisely where we are headed in the coming months.
What about Apple?
The average consensus analyst price target on Apple is $140, just 10% higher than Apple’s current share price. At best, buying Apple today you will get a potential 10% return. Apple trades at 18 times trailing earnings, and 15 times next year’s earnings estimate. While it’s a stock that is far more fairly valued than Facebook, a 10% upside doesn’t compensate for the downside risk.
So, while Apple and Facebook are the darlings of the stock market, neither offer a potential reward great enough to compensate for the risk to your capital.
On the other hand, here is an example of a stock that does: Chicago Bridge & Iron, symbol CBI.
Chicago Bridge & Iron Company is a Warren Buffett-owned stock. It has an average consensus analyst target price of $72. That’s more than 52% higher than its current share price. The stock trades for just 9 times trailing earnings, and 7 times forward earnings. A low P/E ratio is what Buffett calls a “margin of safety” — it gives him limited downside with potential for big upside. Buffett owns more than 8% of Chicago Bridge and Iron.
Billionairesportfolio.com gives self-directed investors the opportunity to piggy-back an actively managed portfolio of low risk-high reward stocks — all owned by the world’s best billionaire investors.
Despite the powerful recovery in stocks, the rally has had few believers. All along the way, skeptics have pointed to threats in Europe, domestic debt issues, political stalemates, perceived asset bubbles — you name it. As it relates to stocks, they’ve all been dead wrong.
The S&P 500 is now more than 200% higher than it was at its crisis-induced 2009 lows, and 34% higher than its all-time highs. Meanwhile, the Nasdaq 100 is still shy of its March 2000 high of 4816. That creates a scenario for an explosive rise still to come for the Nasdaq.
For those that have been cautious about the level of stocks, many have argued that the economy is fragile. The bond market disagrees. The yield curve may be THE best predictor of recessions historically. Yield curve inversions (where short rates move above longer-term rates) have preceded each of the last seven recessions. Based on this yield curve analysis, the Cleveland Fed puts the current recession risk at just 5.97% — a level more consistent with economic boom times.
With this economic backdrop in mind, our research at BillionairesPortoflio.com shows that stocks will continue to march higher, likely a lot higher.
Consider this: If we applied the long-run annualized return for stocks (8%) to the pre-crisis highs of 1,576 on the S&P 500, we get 2,917 by the end of this year, when the Fed is expected to start a slow process toward normalizing rates. That’s 38% higher than current levels. Below you can see the table of the S&P 500, projecting this “normal” growth rate to stocks.
In addition to the above, consider this: The P/E on next year’s S&P 500 earnings estimate is just 17.1, in line with the long-term average (16). But we are not just in a low-interest-rate environment, we are in the mother of all low-interest-rate environments (ZERO). With that, when the 10-year yield runs on the low side, historically, the P/E on the S&P 500 runs closer to 20, if not north of it. A P/E at 20 on next year’s earnings consensus estimate from Wall Street would put the S&P 500 at 2,454, or 16% higher than current levels for stocks.
What about the impending end to zero interest rates in the United States? Well, guess what? Asset prices are driven by capital flows. Barron’s reports a $1.63 trillion spread between bond-fund inflows and equity-fund outflows from January 2007 to January 2013, said to be the widest spread ever. Over that period, $1.23 trillion flowed into bond funds and $409 billion exited equity funds. This means, an official end to zero interest rates should mean a flood of capital leaving bond markets and entering equity markets.
Now, how might all of this bode for the Nasdaq? In March 2000 when the Nasdaq traded at its all-time highs, the index traded at well over 100 times earnings. And the ten year yield was 6.66%. As an investor, you could exit a market with record high valuations and get a risk free, nearly 7% return on your money in Treasuries. Today, the Nasdaq has a price/earnings multiple of just 21. And the ten year yield is a paltry 2%. This dynamic continues to underpin demand and capital flows favoring stocks.
With that said, here are the top four constituents in the Nasdaq 100, their current valuation and the equivalent investment option in the year 2000, when the Nasdaq last peaked.
1) Apple (AAPL) – Apple trades at just 15 times next year’s earnings estimates. Back in 2000, Microsoft (MSFT), the biggest constituent company of the Nasdaq traded 57 times forward earnings.
2) Google (GOOG) – Google trades at 19 times next year’s earnings estimates. Back in 2000, Cisco (CSCO), the second biggest constituent company of the Nasdaq traded 127 times forward earnings.
3) Microsoft (MSFT) – Microsoft trades at just 16 times next year’s earnings estimates. Back in 2000, Intel (INTC), the third biggest constituent company of the Nasdaq traded 43 times forward earnings.
4) Facebook (FB) – Facebook trades at 39 times next year’s earnings estimates. Back in 2000, Oracle (ORCL), the fourth biggest constituent company of the Nasdaq traded 103 times forward earnings.
BillionairesPortfolio.com helps average investors invest alongside Wall Street billionaires. By selecting the best ideas from the best billionaire investors and hedge funds, our exited stock investment recommendations have averaged a 31% gain since 2012, beating even the great Carl Icahn’s record for the same period.
At Billionairesportfolio.com we actively manage a portfolio of the “best ideas” from the world’s best hedge funds, and our members get to follow along.
Following the highest conviction trades of the world’s best hedge funds works especially well in the biotech sector. It gives you direct access to the smartest investment minds with a niche concentration in science and medicine. They work for you, for free. This is critical, because there is no more complicated sector than biotech. You virtually need an MD or PhD from Harvard or Johns Hopkins to understand these companies.
With that said, the following four stocks are all owned by some of the best biotech hedge funds in the world. Moreover, they all have an average analyst price target that is at least 200% higher than its current share price.
1) AcelRX Pharmaceuticals (ACRX) has a current share price of $7. The consensus analyst price target is $15. That gives us a “street projected return” of 114%. Perceptive Advisors owns more than 15% of ACRX. Perspective is one of the top performing biotech hedge funds in the world, managing more than a billion dollars and returning an incredible 42% annualized since 1999. If you would have invested $10,000 in Perceptive in 1999, you would now have $1.3 million.
2) Ocera Therapeutics (OCRX) has a current share of $6.97. The consensus analyst price target is $17. That gives us a “street projected return of 143%. Ocera is owned by RA Capital Management, another top biotech focused hedge fund. RA Capital has returned 40% annualized since 2002, without one losing year, and is run by Peter Kolchinsky, a Harvard PhD in Virology.
3) Ariad Pharmaceuticals (ARIA) has a current share price of $6.50. The consensus analyst price target is $14. That gives us a “street projected return of 115%. Ariad is owned by one of the best emerging biotech hedge funds, Sarissa Capital Management. Sarissa is run by Alex Denner, a Yale PhD and the former head of healthcare investments for Carl Icahn. Sarissa owns almost 7% of Ariad.
4) Infinity Pharmaceuticals (INFI) has a current share price of $15. The consensus analyst price target is $39. That gives us a “street projected return of 160%. INFY is owned by one of the best and longest running biotech focused hedge funds, Orbimed Advisors. Orbimed runs over $10 billion dollars. The fund is run by the Princeton educated Samuel Isaly, and has returned 27% annualized since 1993. Orbimed owns almost 10% of Infinity Pharmaceuticals.
BillionairesPortfolio.com empowers self directed investors with an actively managed portfolio of the best ideas from the best hedge funds in the world. You can look over the shoulders of the smartest, most influential investors in the world. Click here to join.
This past Friday on CNBC, billionaire energy mogul T. Boone Pickens predicted that oil prices would be near $80 by the fourth quarter of this year. His oil prediction is based on the thesis that U.S. energy companies will drastically cut back on production. That would decrease the supply of oil produced, eventually driving prices higher again.
Pickens said the number of rigs drilling for oil in the U.S. declined at the second biggest weekly rate in more than 24 years.
If he’s right, and oil bounces back to levels last seen just two months ago, many small and mid-cap energy stocks are in position to double or triple, by returning to levels traded when oil was last $80. Of course, first oil needs to bottom. For those looking for reasons to believe a bottom is here for oil, at the close today, crude traded into rising 16-year trendline support.
This trend started in December of 1998 and touched in late 2001, and again in late 2008 — each time bouncing aggressively. From those dates, within twelve months oil was 160% higher, 100% higher and 146% higher, respectively.
Through our analysis at BillionairesPortfolio.com, we’ve identified the following five stocks that could double or triple if oil prices go back to $80.
1) Oasis Petroleum (OAS)- Billionaire hedge fund manager John Paulson owns nearly 10% of this stock. The activist hedge fund SPO Advisory owns 8% and has been buying the stock on almost every dip. When oil was last $80, OAS was trading $30.74 or 130% higher than current levels.
2) SandRidge Energy (SD)- Billionaire hedge fund managers, Leon Cooperman and Prem Watsa own almost 20% of SandRidge. This stock traded above $4 last November, when oil was $80. That’s 185% higher than its current share price today.
3) Gran Tierra Energy (GTE)- This might be the cheapest energy stock on the planet. The company has zero debt, and $1.30 in cash per share, more than half of its current share price of $2.26. With this much cash, you are getting the company’s oil and natural gas assets for a song. When oil was last $80, GTE was trading at $4.64 or 110% higher than current levels.
4) Energy XXI LTD. (EXXI) – If oil goes back to $80 a barrel, EXXI should be worth almost $8 a share. That’s nearly a triple from its current price of $2.80. Energy XXI sold for as much as $24 a share just 7 months ago.
5) Breitburn Energy Partners (BBEP) – Breitburn should be a near triple if oil goes back to $80. The stock already popped today by 22%. BBEP currently sold for $17.56 last November, when oil prices were at $80 a barrel. Breitburn pays an incredible $1 per share dividend, giving the stock a current dividend yield of 15%.
To find out more stocks positioned to double and triple, join our premium service. Just click here.
This morning the Swiss National Bank (SNB) surprised the world by abandoning its managed Swiss franc floor against the euro. The SNB said as recently as Monday that they remained committed to the 1.20 minimum EUR/CHF rate, a floor they have maintained for three years. They also announced a further reduction to an already negative deposit rate. Swiss bank account holders will now be paying 0.75% for the privilege of having funds on deposit in the Swiss banking system.
The move by the SNB created a violent 28% collapse in EUR/CHF.
And, as you can see in the chart below, there was an equally violent collapse in USD/CHF.
After the initial massive gap in CHF pairs, the CHF is now trading well off of its strongest levels of the day. SNB chief Jordan said in his postpartum press conference that the Swiss franc dramatically overshot and that he expected it to ultimately reflect the fundamentals of a soft Swiss economy with negative deposit rates. This statement acknowledges the huge dislocation in USD/CHF that has resulted from the SNB’s actions.
The Fed and the SNB remain on divergent monetary policy paths. The Fed is exiting emergency policies, while the SNB is going further down the path of aggressive, extraordinary easing policies. This fundamentally drives capital out of Switzerland and into U.S. assets. The Swiss can now buy 10% more U.S. treasuries and U.S. stocks than they could yesterday at this time.
Why did the SNB do it?
Why did they reverse course on a policy they’ve held steadfastly for three years, and to which they have promised to remain committed? It’s likely because they are expecting big and bold actions from the ECB next week. The ECB has been explicitly devaluing the euro through their policies and policy guidance. Meanwhile, the Swiss National Bank has been persistently gobbling up euros in defense of their EUR/CHF exchange rate floor. That euro stockpile has been persistently losing value, and all evidence points to much larger losses ahead. With that, it appears most likely that the SNB decided to step out of the way of the downhill freight train, the euro.
For global markets, attention continues to be squarely on Europe. And today’s events highlight that point. Stocks, interest rates and currencies have been swinging around, driven primarily by fears that the deflationary problems in Europe are a deeper signal of weak global demand. But weak global demand isn’t a new problem. It has been a clear problem from the outset of the 7+ year global financial and economic crisis. That dynamic has been improving, not worsening. Europe, however, is facing deflationary pressures and no growth due to other factors, most importantly, while they should have been rolling out policies to promote growth in 2010, they further strangled growth by tightening the fiscal belt.
We will hear from the ECB on January 22. European officials have been on a media assault in recent days in an attempt to manage expectations on the ECB decision. With today’s SNB actions, an announcement of outright purchases of sovereign debt by the ECB are expected, and likely more to go along with it (like a further cut in the deposit rate).
On January 25th we get results on the Greek elections, which will determine whether or not a new administration takes the reins. The anti-euro, anti-bailout, Syriza party is favored to take control. This poses a risk to the Eurozone and the euro. This party is expected to, at best, demand softer conditions on their bailout and reform program. At worst, they are a threat to take Greece out of the European Monetary Union altogether.
But if we look at yields in the weak countries in the EMU (including Greece), those markets tell us that Greece isn’t a threat to euro zone stability.
Instead of yields in the troubled euro zone countries trading at unsustainable/default levels, yields in Italy and Spain are now trading below that of U.S. 10 year yields (well below 2%). Greek 10 year yields were trading over 40% at the peak of the European sovereign debt crisis. Now, Greek yields are well below 10%. So again, for those looking for smoke before fire, the European sovereign debt markets are giving you no signals.
For now, it’s about how big and how bold Draghi and company will be. Big action should be very good for the global economy and very good for global markets.
The theme of the year has been divergent policies, with the Fed positioned to exit emergency policies this year, while the ECB and BOJ are positioned to do more aggressive QE. When you step back from the day to day noise, that theme continues to play out, and it is good for global stocks, good for the dollar and good for global growth.
