In the middle of June we have perhaps the two biggest events of the year. On June 15 the Fed will decide on rates. And hours later, that Wednesday night, the Bank of Japan will follow with its decision on policy.
This is really the perfect scenario for the Fed. The biggest impediment in its hiking cycle/”rate normalization process” is instability in global financial markets. Market reactions can lead to damage to consumer sentiment, capital flight and tightening in credit—all the things that can spawn the threat of a global economic shock, which can derail global recovery. Clearly, they are very sensitive to that. On that note, the Brexit risk, while a hot topic in the news, is priced by experts as a low probability.
So, the Fed has been setting expectations that a second hike in its tightening cycle could be coming this month. But the market isn’t listening. The market is pricing in just a 23% chance of a hike in June. But as we’ve said, markets can get it wrong, sometimes very wrong. We think they have it wrong this time. We think there is a much better chance. Why? Because they know the BOJ is right behind them. If they do hike, any knee jerk hit to financial markets can be quelled by more easing from the BOJ.
Remember, as we’ve discussed quite a bit in our daily notes, central banks remain in control. The recovery was paid for by a highly concerted effort by the world’s top economic powers and central banks. And despite the perceived hostility over currency manipulation, the powers of the world understand that the U.S. is leading the way out of recovery, and that Europe and Japan are critical pieces in the global recovery. The ECB and BOJ have been passed the QE torch from the Fed to both fuel recovery and promote global economic stability. And playing a major role in that effort is a weaker euro and a weaker yen.
The Bank of Japan is operating with one target in mind, create inflation. Now three years into their massive program, they haven’t posted a positive monthly inflation number since December. Inflation is still dead, just as it has been for the past two decades. So, not only do they have the appetite and global support to do more, but the data more than justifies more action.
Don’t Miss Out On This Stock
In our Billionaire’s Portfolio we followed the number one performing hedge fund on the planet into a stock that has the potential to triple by the end of next month.
This fund returned an incredible 52% last year, while the S&P 500 was flat. And since 1999, they’ve done 40% a year. And they’ve done it without one losing year. For perspective, that takes every $100,000 to $30 million.
We want you on board. To find out the name of this hedge fund, the stock we followed them into, and the catalyst that could cause the stock to triple by the end of the month, click here and join us in our Billionaire’s Portfolio.
We make investing easy. We follow the guys with the power and the influence to control their own destiny – and a record of unmatchable success. And you come along for the ride.
We charted very closely the risks of the oil price bust. We thought central banks would step in and remove the risk. They did. From there, we thought stocks would track the path of oil. As long as oil continued higher, stocks would follow and slowly global sentiment would mend. It’s happened.
When oil sustained above $40, we turned focus to the extremely negative sentiment that was weighing on markets and economies. But given the extreme views on the world, we thought things were set up for positive surprises. We said this surprise element creates opportunities for asymmetric outcomes (bad is priced-in, good … not at all). That sets up for the potential of “good times” ahead for both markets and broader sentiment.
Fast forward: Earnings expectations were ratcheted down and broadly surprised on the positive side. Global economic data has been ratcheted down and is positively surprising. It’s happening in Germany, which is a very important indicator for a bottoming of the euro zone economy. If the threat of further spiral in Europe has lifted, that’s a huge catalyst for global sentiment. When global sentiment has officially moved out of the doom and gloom camp and back to optimism the horse will have already had plenty of steps out of the barn. And we think we are seeing it reflected in stocks, especially small caps.
With this backdrop, we think everyone could benefit by having a healthy dose of “fear of missing out.” Stock returns tend to be lumpy over the long run. When we you wait to buy strength, you miss out on A LOT of the punch that contributes to the long run return for stocks.
Consider what we said on February 11th (stocks bottomed that day and are up 16% since): “We often hear interviews of money managers during periods like this, and the question is asked “are you getting defensive?”
That’s the exact opposite of what they should be asking. When stocks areup 15–20%, and acknowledging that the long–run average return for stocksis 8%, that’s the time to play Defense. When stocks are down 15–20%, that’s the time to play Offense.
The reality is most investors should see declines in the U.S. stock market as an exciting opportunity. The best investors in the world do. The same can be said for average investors.
Here’s why: Most average investors in stocks are NOT leveraged. And with that, they should have no concern about stock market declines, other than saying to themselves, “what a gift,” and asking themselves these questions: “Do I have cash I can put to work at these cheaper prices?” And, “where should I put that cash to work?”
As Warren Buffett says, bad news is an investor’s best friend. And as his billionaire counterpart says, and head of the biggest hedge fund in the world, ‘stocks go up over time.’ With these two basic, plain-spoken, tenets you should buy dips and look for value.
Broader stocks have just gone positive for the year. Small caps are still down small. Remember, when the macro fog cleared in 2010, small caps went on a tear, from down 6% through the first seven months of the year, to finish UP 27%. Don’t miss out!
Don’t Miss Out On This Stock
In our Billionaire’s Portfolio we followed the number one performing hedge fund on the planet into a stock that has the potential to triple by the end of the month.
This fund returned an incredible 52% last year, while the S&P 500 was flat. And since 1999, they’ve done 40% a year. And they’ve done it without one losing year. For perspective, that takes every $100,000 to $30 million.
We want you on board. To find out the name of this hedge fund, the stock we followed them into, and the catalyst that could cause the stock to triple by the end of the month, click here and join us in our Billionaire’s Portfolio.
We make investing easy. We follow the guys with the power and the influence to control their own destiny – and a record of unmatchable success. And you come along for the ride.
As we head into Memorial Day weekend and stocks (S&P 500) have crossed back over into positive territory again for the year, we want to step back and acknowledge the relative calm in global markets and economies, compared to where we stood just three months ago, and talk about how different the second half is setting up to be.
Remember, just three months ago the S&P 500 was down 11.4%. Small cap stocks were down 17%. When stocks go lower, people predict crashes. They did. Oil was trading $26 and some bold people were predicting much lower – and lower for a very long time.
Sure, the world was a scary place when oil was $26. But we had a binary outcome on our hands. If oil continued to go lower, and for much longer, the energy industry was done, and the dominoes were lining up. We faced another wave of global economic and financial crisis that would have made the “great recession” look modest.
But if you stepped back and weighed the probability of the outcomes, the evidence was clearly supporting a recovery, not another date with global disaster.
Just days prior to February 11, when oil and global stocks bottomed, we said “a rigged oil market has the ingredients to undo all that the central banks have done for the past nine years to get us to this point. With that, we expect that, as intervention has stemmed the threat of everything that could have derailed recovery up to this point, intervention will be what stems the threat of the falling oil and commodity prices threat.”
The central banks manufactured a recovery from the edge of disaster in 2009. They went “all-in.” It would be illogical to think they would sit back and watch it all undone by an oil price bust, one that was orchestrated by OPEC in an effort to crush the competitive shale industry.
We already knew how far the world’s biggest central banks would go to preserve stability (perhaps civilization). They would do pretty much anything — “whatever it takes” in their own words.
So what marked the bottom for oil? Not surprisingly, it was intervention.
If we fast forward to today, with the trend of positive surprises in European data leading the way, it’s fair to say the state of global markets is getting closer to good.
What does that mean for stocks?
If we look back at 2010 we can see a lot of similarities. Stocks were hammered in the first half of 2010 by the potential default of Greece – and for energy stocks, the oil spill in the Gulf. The macro clouds were removed, and in the second half of 2010, the S&P 500 rallied from down 7% to up 15% by year end.
The Russell 2000 was down 6% for the year through July of 2010. Over the next five months it rallied 34 percentage points to finish UP 27% on the year.
What about energy? After being down 12% in the first half of 2010, the XLE (the energy ETF tied to a basket of energy stocks) returned 34% off the bottom and 22% for the year.
Also remember, in Fed tightening cycles, stocks tend to go UP not down. We’re officially five months into a Fed tightening cycle stocks are basically flat.
Don’t Miss Out On This Stock
In our Billionaire’s Portfolio we followed the number one performing hedge fund on the planet into a stock that has the potential to triple by the end of the month.
This fund returned an incredible 52% last year, while the S&P 500 was flat. And since 1999, they’ve done 40% a year. And they’ve done it without one losing year. For perspective, that takes every $100,000 to $30 million.
We want you on board. To find out the name of this hedge fund, the stock we followed them into, and the catalyst that could cause the stock to triple by the end of the month, click here and join us in our Billionaire’s Portfolio.
We make investing easy. We follow the guys with the power and the influence to control their own destiny – and a record of unmatchable success. And you come along for the ride.
As we’ve discussed over the past few months, markets can be wrong—sometimes very wrong.
On that note, consider that the yield on the U.S. ten–year Treasury was trading closer to 2.30% after the Fed’s first rate hike last December—the first hike in nearly ten years and the symbolic move away from the emergency zero interest rate policy. The ten–year yield has, incredulously, traded as low as 1.53% since. One end of that spectrum is wrong, very wrong.
Remember, as we headed into the last Fed meeting, the ten–year yield was trading just shy of 2% (after a wild ride down from the December hike date). And the communication to that point from the Fed was to expect FOUR rate hikes in 2016.
Of course, in the face of another global economic crisis threat, which was driven by the oil price bust, the Fed did their part and backed off of that forecast—taking two of those hikes off of the table. Still, yields under 2% with even two hikes projected seemed mispriced.
So following a dramatic 85% bounce in oil prices and the threat of cheap oil now behind us (seemingly), as of yesterday afternoon yields still stood around just 1.79%. That’s more than a 1/2 percentage point lower than the levels immediately following the December hike. And that’s AFTER two voting Fed members just said on Tuesday that they should go two or threetimes this year. So with global risks abating, the Fed is beginning to walk back up expectations for Fed hikes.
Confirming that, as of yesterday afternoon, the minutes from the most recent Fed meeting have been disclosed, which now indicate that a June hike is likely assuming things continue along the current path (i.e. no global shock risks emerge).
Still, the yield on the ten–year Treasury is just 1.84%, 5 basis points higher than it was yesterday morning, prior to the Fed minutes.
Why?
The bet is that the Fed is making a mistake raising rates (at all). But at these levels for the ten–year yield, it’s a very asymmetric bet. The downside for yields here is very limited (short of a global apocalypse), the upside is very big. That makes betting on lower yields a very dangerous one, if not a dumb one. When people are positioned the wrong way in asymmetric trades, the adverse moves tend to be violent. I wouldn’t be surprised to see 2.50% on the U.S. ten–year Treasury by the year end.
Don’t Miss Out On This Stock
In our Billionaire’s Portfolio we followed the number one performing hedge fund on the planet into a stock that has the potential to triple by the end of the month.
This fund returned an incredible 52% last year, while the S&P 500 was flat. And since 1999, they’ve done 40% a year. And they’ve done it without one losing year. For perspective, that takes every $100,000 to $30 million.
We want you on board. To find out the name of this hedge fund, the stock we followed them into, and the catalyst that could cause the stock to triple by the end of the month, click here and join us in our Billionaires Portfolio.
We make investing easy. We follow the guys with the power and the influence to control their own destiny – and a record of unmatchable success. And you come along for the ride.
Today we want to talk about the quarterly SEC filings that came in over the past several days week.
All big investors that are managing over $100 million are required to publicly disclose their holdings every quarter. They have 45 days from the end of the quarter to file that disclosure with the SEC. It’s called a form13F.
While these filings have become very popular fodder for the media, what we care more about is 13D filings. And of course we have our formula for narrowing down the universe to what we deem to be the best ideas.
For a refresher: The 13D forms are disclosures these big investors have to make within 10 days of taking a controlling stake in a company. When you own 5% or more of a company’s stock, it’s considered a controlling stake. In a publicly traded company, with that sized position, you typically become the largest shareholder and, as we know, with that comes influence. Another key attribute of this 13D filing, for us, is that these investors also have to file amendments to the 13D within 10 days of making any change to their position.
By comparison, the 13F filings only offer value to the extent that there is some skilled analysis applied. Thousands of managers file 13Fs every quarter. And the difference in manager talent, strategies and portfolio sizes run the gamut.
With that caveat, there are nuggets to be found in 13Fs. Let’s talk about how to find them, and the take aways from the recent filings.
First, it’s important to understand that some of the positions in 13F filings can be as old as 135 days. Filings must be made 45 days after the previous quarter ends, which is 90 days. We only look at a tiny percentage of filings—just the investors that we know have long and proven track records, distinct approaches, and who have concentrated portfolios.
Through our research and nearly 40 years of combined experience, here’s what we’ve found to be most predictive:
Clustering in stocks and sectors by good hedge funds is bullish. Situations where good funds are doubling down on stocks are bullish. This all can provide good insight into the mindset of the biggest and best investors in the world, and can be a predictor of trends that have yet to materialize in the market’s eye.
For specialist investors (such as a technology focused hedge fund) we take note when they buy a new technology stock or double down on a technology stock. This is much more predictive than when a generalist investor, as an example, buys a technology stock.
The bigger the position relative to the size of their portfolio, the better. Concentrated positions show conviction. Conviction tends to result in a higher probability of success. Again, in most cases, we will see these first in the 13D filings.
New positions that are of large, but under 5%, are worthy of putting on the watch list. These positions can be an indicator that the investor is building a position that will soon be a “controlling stake.”
Trimming of positions is generally not predictive unless a hedge fund or billionaire cuts a position by 75% or more, or cuts below 5% (which we will see first in 13D filings). Funds also tend to trim losers into the fourth quarter for tax loss benefits, and then they buy them back early the following year.
With that in mind, we want to talk about a few things we did glean from these recent filings.
Apple (AAPL)
This biggest news out of the filings this week was that Warren Buffett initiated a new $1 billion plus stake in Apple. Buffett loves to invest in out-of-favor companies that are depressed in price, with strong brand names, low P/Es and high return on capital. Apple checks the boxes on all of the above.
We think Buffett’s stamp of approval will change the sentiment on Apple, which has had a short-term ebb. Apple shares were up 4% on the news Buffett has entered, the biggest one day move in over two months.
Additionally, billionaire David Einhorn added to his Apple position last quarter. He now has more than 15% of his $5.9 billion hedge fund in Apple.
ENERGY
We’ve talked a lot about oil over the past several months. The oil price bust created a binary trade — either it destroyed the global economic recovery (and likely the global economy) or it bounced back aggressively. Thankfully, it’s done the latter. Billionaire oil trader, Boone Pickens said this week that he thinks oil could trade as high as $60 over the next two months.
In the filings from Q1, top billionaires just like in Q4 were initiating and adding new stakes in energy stocks – building some large, high conviction positions.
As we’ve said, we think oil-energy stocks are the macro trade of the year.
Internet
One of most popular growth stocks purchased by top billionaire investors last quarter was Facebook. Another notable tech stock in the cross hairs of influential investors: Yahoo. A couple of top activist investors, a hot macro investor are involved in Yahoo. And news this week that Warren Buffet and billionaire Dan Gilbert could be teaming up to buy parts of Yahoo.
Billionaires Bottom Fishing in Healthcare
Noted contrarian and billionaire John Paulson has doubled down on two beaten down healthcare stocks last quarter, Endo International and Akorn Inc. We think this is an interesting move because Paulson like many of the best billionaire investors have literally made billions from buying when everyone else is selling.
Many other top hedge funds remain heavily invested in healthcare stocks as well, even after their most recent selloff.
Now, a couple of bigger picture views from the filings…
Some of the biggest and best are bullish on stocks. Billionaire David Tepper has 12% of his fund invested in call options on the S&P 500 and Nasdaq 100. Billionaire global macro trading legend, Louis Bacon, now has more than 7% of his fund in Nasdaq call options. And two other macro investing studs, Paul Tudor Jones and John Burbank have both built big call options on emerging market stocks.
This activity gels nicely with what we’ve been discussing here in our dailynotes. We have a global economic environment that is fueled by central bank support. The risk of the oil price bust has now been removed. And a lot of the economic data is setting up nicely for big positive surprises over the coming months. We think we are in the early stages of seeing a global sentiment shift, away from gloom, and toward optimism. And positive data surprises and changes in sentiment are two very powerful factors in driving markets.
Join us here to get all of our in-depth analysis on the bigger picture, and our carefully curated stock portfolio of the best stocks that are owned by the world’s best investors.
In our Billionaire’s Portfolio we followed the number one performing hedge fund on the planet into a stock that has the potential to triple by the end of the month.
This fund returned an incredible 52% last year, while the S&P 500 was flat. And since 1999, they’ve done 40% a year. And they’ve done it without one losing year. For perspective, that takes every $100,000 to $30 million.
We want you on board. To find out the name of this hedge fund, the stock we followed them into, and the catalyst that could cause the stock to triple by the end of the month, click here and join us in our Billionaires Portfolio.
We make investing easy. We follow the guys with the power and the influence to control their own destiny – and a record of unmatchable success. And you come along for the ride.
Yesterday, SandRidge Energy was yet another energy company to file for bankruptcy this year. Many hear bankruptcy news and think of failed companies. But in plenty of cases, it’s more about opportunism than it is about desperate last acts.
Before we talk about the SandRidge story, we want to give some bigger picture context.
As we discussed a few months ago, the oil price bust, while many thought would be a positive for the economy, because it puts a few bucks in the pockets of consumers, has actually been a huge net negative, because it has brought the energy industry to its knees.
If oil stayed at $26, the shale industry in the America would be done. All of the associated businesses (transportation, logistics, refining, housing, marketing, etc.) – done. Hundreds of thousands of jobs were lost already, and probably millions would have followed. Guess who lends money to the energy sector? Banks. The financial system would once again have been in widespread crisis.
Oil producing countries like Venezuela and Russia would have defaulted. When a biggie like Russia goes, it has systemic ramifications. That event would have likely pulled the leg out from under the teetering European debt crisis chair. From there, Greece would have gone, and Italy and Spain would have probably defaulted. The European Monetary Union would have then finally succumbed to the unmanageable weight of the crisis.
To sum up, cheap oil would have been far worse than the sub-prime crisis. And this time, central banks and governments would have had no ammunition to fight it.
But, central banks stepped in to remove the “cheap oil” risk. The Bank of Japan intervened in the currency markets, and oil bottomed that day. China followed by ramping up bank lending. And Chinese institutions have been big buyers of commodities since. Then the ECB rolled out bigger and bolder QE. And the Fed removed two projected rate hikes from the table. All of this coordinated to directly or indirectly put a floor under oil. Today, oil is up 85% from levels of just three months ago.
So this begs the question: Why is an energy company like SandRidge, a company that has been surviving through the decline in oil prices, cutting production/cutting jobs, now filing bankruptcy? This is AFTER oil has bounced 85% and oil supply has just swung from a surplus to a deficit. And some of the best oil traders in the world are projecting oil prices back around $80 by the end of the year. Why would they throw in the towel now and not in February?
Back in February, SandRidge management missed a debt payment, opting to exercise a 30-day grace period. It was at that stage that the ultimate negotiation should have come with debt holders. Option 1): Restructure debt and perhaps dilute current shareholders by offering debt holders common shares. That gives the company time to ride out the storm of the oil price bust. And it gives all stakeholders a chance to see much better days. Option 2): Close the doors and liquidate assets, and creditors get cents on the dollar.
Instead, SandRidge management and directors negotiated more runway so that they could get to Option 3): the homerun lottery ticket.
In this option, oil prices recover and the company can begin producing profitably again, and brighter days are ahead. But if they rush to file Chapter 11 bankruptcy, while the business fundamentals remain depressed, they can win big. By swapping new stock for debt, the company gets freed of the noose of debt, and the debt holders exchange a piece of paper that was once worth pennies on the dollar, for common stock in a super-charged debt-free company.
That sounds like a win-win. The company continues to operate as normal. Management and the board keep their jobs (and likely their golden parachutes). And former debt holders can make a lot of money.
Who pays the price? Shareholders (the owners). Old shareholders of SandRidge stock have no say in the collusion between SandRidge leadership and creditors. So the owners of the company have their interests effectively stolen by a backroom deal and given to debt holders. And within the bankruptcy laws of Chapter 11, shareholders have no leverage. But who are some of the biggest and most effected shareholders? Employees.
SandRidge has over 1,000 employees. Let’s assume that, like many publicly traded companies, employees of SandRidge have been incentivized to buy company stock as part of their 401k plan (common practice). They have already seen their stock go from $80 to pennies. But now, as an insult to injury, they will continue working to enrich new shareholders while their board of directors have chosen to wipe out their interests.
And sadly, the common stock of companies like SandRidge (which was one of the most shorted stocks on the NYSE) are often shorted heavily by those that own the debt, in efforts to drive the company into Chapter 11, so that they can orchestrate precisely what’s happening today. The stock price gets cheap, then delisted from a major exchange, then credit ratings get downgraded, then banks cut credit lines, and voila, the company find itself in a liquidity crunch and turns to restructurings.
A huge factor in this “homerun option” for the board and creditors is for the company to continue operating as normal. If employees in this Chapter 11 situation would strike, maybe shareholders could have a seat at the negotiating table when these “pre-arranged” reorganization deals are cut. Still, that’s the leverage they hold to derail such a deal.
Consider this: In the depths of the real estate bust, billionaire activist investor Bill Ackman stepped in and bought beaten down shares of General Growth Properties, a company in bankruptcy because it couldn’t access credit. The company had strong assets and strong cash flow (as does SandRidge), but was dependent on a functioning credit market, which was broken at the time. As the largest shareholder, he battled in the board room for the shareholder. He helped management access liquidity and he convinced all stake holders that keeping equity holders intact would result in the biggest outcome for everyone. He was right, and when the credit markets recovered, GGP shares went from 20 cents to over $20 a share.
Join us here to get all of our in-depth analysis on the bigger picture, and our carefully curated stock portfolio of the best stocks that are owned by the world’s best investors.
We’ve talked a lot about oil, the rebound of which has probably led to the trade of the year. If you recall back on February 8th, we said policymakers finally got the wake up call on the systemic threat of the oil price bust when Chesapeake Energy, the second largest oil and gas producer, was rumored to be pursuing bankruptcy.
This is what we said:
“The early signal for the 2007-2008 financial crisis was the bankruptcy of New Century Financial, the second largest subprime mortgage originator. Just a few months prior the company was valued at around $2 billion.
On an eerily similar note, a news report hit this morning that Chesapeake Energy, the second largest producer of natural gas and the 12th largest producer of oil and natural gas liquids in the U.S., had hired counsel to advise the company on restructuring its debt (i.e. bankruptcy). The company denied that they had any plans to pursue bankruptcy and said they continue to aggressively seek to maximize the value for all shareholders. However, the market is now pricing bankruptcy risk over the next five years at 50% (the CDS market).
Still, while the systemic threat looks similar, the environment is very different than it was in 2008. Central banks are already all-in. We know, and they know, where they stand (all-in and willing to do whatever it takes). With QE well underway in Japan and Europe, they have the tools in place to put a floor under oil prices.
In recent weeks, both the heads of the BOJ and the ECB have said, unprompted, that there is “no limit” to what they can buy as part of their asset purchase program. Let’s hope they find buying up dirt-cheap oil and commodities, to neutralize OPEC, an easier solution than trying to respond to a “part two” of the global financial crisis.”
Chesapeake bounced aggressively, nearly 50% in 10 business days.
And on February 22nd, we said, “persistently cheap oil (at these prices) has become the new “too big to fail.” It’s hard to imagine central banks will sit back and watch an OPEC rigged price war put the global economy back into an ugly downward spiral. And time is the worst enemy to those vulnerable first dominos (the energy industry and weak oil producing countries).”
As we’ve discussed, central banks did indeed respond. The BOJ intervened in the currency markets on February 11, and that (not so) coincidently put the bottom in oil and global stocks. China followed on February 29, with a cut on bank reserve requirements, then ECB cut rates and ramped up their QE and the Fed joined the effort by taking two projected rate cuts off of the table (we would argue maybe the most aggressive response in the concerted central bank effort).
From the bottom on February 8th, Chesapeake shares have gone up five-fold, from $1.50 to over $7. Oil bottomed February 11 and is up 77%. This is the trade of the year that everyone should have loved. If you’re wrong, the world gets very ugly and you and everyone have much bigger things to worry about that a bet on oil and/or Chesapeake. If you’re right, and central banks step in to divert another big disaster (a disaster that could kill the patient) you make many multiples of your risk.
We think it was the trade of the year. The trade of the decade, we think is buying Japanese stocks.
Overnight the BOJ made no changes to policy. And the dollar-denominated Nikkei fell over 1,200 points (more than 7%).
As we said yesterday, two explicit tools in the Bank of Japan’s tool box are: 1) a weaker yen, and 2) higher stocks. I say “explicit” because they routinely have said in their minutes that they expect both to contribute heavily to their efforts. So now Japanese stocks and the yen have returned near the levels we saw before the Bank of Japan surprised the world with a second dose of QE back in October of 2014. So their efforts have been undone. And they’ve barely moved the needle on their objective of 2% inflation during the period. In fact, the head of the BOJ, Kuroda, has recently said they are still only “halfway there” on reaching their goals.
So they have a lot of work left. And if we take them at their word, a weak yen and higher stocks will play a big role in that work. That makes today’s knee-jerk retreat in yen-hedged Japanese stocks a gift to buy.
U.S. stocks have well surpassed pre-crisis, record highs. German stocks have well surpassed pre-crisis, record highs. Japanese stocks have a long way to go. In fact, they are less than “halfway there.”
Join us here to get all of our in-depth analysis on the bigger picture, and our carefully curated stock portfolio of the best stocks that are owned by the world’s best investors.
Heading into today’s inflation data, the prospects of German 10-year government interest rates going negative had added to the heightened risk aversion in global markets. And we’ve been talking this week about how markets are set up for a positive surprise on the inflation front, which could further support the mending of global confidence.
On cue, the euro zone inflation data this morning (the most important data point on inflation in the world right now) came in better than expected. We know Europe, like Japan, is throwing the kitchen sink of extraordinary monetary policies at the economy in an effort to reverse economic stagnation and another steep fall into deflation. And we know that the path forward in Europe, at this stage, will directly affect that path forward in the U.S. and global economy. So, as we said in one of our notes last week, the world needs to see “green shoots” in Europe.
With the better euro zone inflation data today, we may be seeing the early signs of a bottom in this cycle of global pessimism and uncertainty. German yields are now trading double the levels of Monday. And with that, U.S. yields have broken the downtrend of the month, as you can see in the chart below.
Source: Billionaire’s Portfolio, Reuters
With that in mind, today we want to talk about how we can increase certainty in an uncertain world. Aside from the all-important macro influences, even when you get the macro right, when your investing in stocks, you also have to get a lot of other things right, to avoid the landmines and extract something more than what the broad tide of the stock market gives you (which is about 8% annualized over the long term, and it comes with big drawdowns and a very bumpy road).
In our Billionaire’s Portfolio, we like to put the odds on our side as much as possible. We do so by following big, influential investors into stocks where they’ve already taken a huge stake in a company, and are wielding their influence and power to maximize the probability that they will exit with a nice profit.
This is the perfect time to join us in our Billionaire’s Portfolio. We’ve discussed our simple analysis on why broader stocks can and should go much higher from here. You can revisit some of that analysis here. In our current portfolio, we have stocks that are up. We have stocks that are down. We have stocks that are relatively flat. But they all have the potential to do multiples of what the broad market does. And for depressed billionaire-owned stocks, a broad market rally and shift in economic sentiment should make these stocks perform like leveraged call options – importantly, without the time decay. Join us hereto get your portfolio in line with ours.
Gold has been a core trade for a lot of people throughout the crisis period. When Lehman failed in 2008, it shook the world, global credit froze, banks were on the verge of collapse, the global economy was on the brink of implosion – people ran into gold. Gold was a fear-of-the-unknown-outcome trade.
Then the global central banks responded with massive backstops, guarantees, and unprecedented QE programs. The world stabilized, but people ran faster into gold. Gold became a hyperinflation-fear trade.
In the chart above, you can see gold went on a tear from sub-$700 bucks to over $1,900 following the onset of global QE (led by the Fed).
Gold ran up as high as 180%. That was pricing in 41% annualized inflation at one point (as a dollar for dollar hedge). Of course, inflation didn’t comply. Still eight years after the Fed’s first round of QE (and massive global responses), we have just 13% cumulative inflation over the period.
So the gold bugs overshot in a big way.
Why? The next chart tells the story…
This chart above is the velocity of money. This is the rate at which money circulates through the economy. And you can see to the far right of the chart, it hasn’t been fast. In fact, it’s at historic lows. Banks used cheap/free money from the Fed to recapitalize, not to lend. Borrows had no appetite to borrow, because they were scarred by unemployment and overindebtedness. Bottom line: we get inflation when people are confident about their financial future, jobs, earning potential … and competing for things, buying today, thinking prices might be higher, or the widget might be gone tomorrow. It’s been the opposite for the past eight years.
After three rounds of Fed QE, and now mass scale QE from the BOJ and the ECB, the world is still battling DE-flationary pressures. If gold surged from sub-$700 to $1,900 on Fed/QE-driven hyperinflation fears, and QE has produced little to no inflation, it’s fair to think we can return to pre-QE levels. That’s sub-$700.
We head into the weekend with stocks down 3% for the month. This follows a bad January. In fact, the stock market is working on a fifth consecutive negative month. The likelihood, however, of it finishing down for February is very low. It’s only happened 18 times since 1928. So the S&P 500 has five consecutive losing months just 1.7% of the time, historically.
