March 27, 2017, 4:00pm EST                                                               Invest Alongside Billionaires For $297/Qtr

This will be an interesting week.  We had almost three months of optimism priced into global markets following the November 8th elections.  And then the tide turned when Trump gave his speech to the join sessions of Congress.

This is the buy-the-rumor sell-the-fact phenomenon we’ve discussed.  People bought on anticipation of a big policy shift.  And now they’re taking profit (raising cash) waiting to see it all executed — the prove-it-to-me phase.

I think we’re beginning to see the same phenomenon unfold in the Brexit saga.  Brexit came before Trump, but the cycle has been slower and longer.  Much like the Trump trend, the Brexit news started with an initial “sell everything” on the fear of the unknown, but soon thereafter, the “buy on anticipation of something better” prevailed. But it’s looking very vulnerable now to a turn in the tide.

On Friday, we looked at this next chart. This trend higher in UK stocks looks much like the Trump trend in U.S. stocks – a nice 45 degree climb from June of last year.

But as we discussed on Friday, the “prove-it-to-me” phase looks set to arrive this week in the Brexit story.  With that, here’s what the chart looks like today …

This nine-month trend line in UK stocks gave way today – in part because of the softening in expectations about Trump policies, but largely because the UK Prime Minister is expected to officially notify the European Union on Wednesday, of the UK’s exit from the EU.  Again, this would start the clock on the two year wind-down of the UK constituency in the EU. And the official negotiations will begin, on what the UK/EU relationship will look like – namely, on trade.

Expect the negotiations to be ugly in the early stages.  Why?  Because there is a lot to lose if it looks too easy.  The future of the European Union and the common currency (the euro) hang in the balance on these negotiations.  The most important job of EU officials, at this stage, is keeping other EU members from hitting the eject button, following the lead of the UK.  A domino effect of exits would kill the EU and it would be the end of the euro.  And that would have huge, destabilizing global ramifications.

With all of this in mind, it’s very likely that after long period of ultra-low volatility in markets, things will be a little more dicey in the months ahead.  That should keep pressure on yields and should keep the correction in U.S. stocks intact.

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March 14, 2017, 4:15pm EST                                                                                            Invest Alongside Billionaires For $297/Qtr

As we head into the Fed tomorrow, stocks have fallen back a bit today.

Yesterday we looked at the nice 45 degree climb in stocks since Election Day.  And the big trendline that looked vulnerable to any disruption in the optimism that has led to that climb.  That line gave way today, as you can see.

The run up, of course, was on the optimism about a pro-growth government, coming in after a decade of underwhelming growth. The dead top in stocks took place the day after President Trump’s first speech before the joint sessions of Congress.  There is a phenomenon in markets where things can run up as people “buy the rumor/news” and then sell-off as people “sell the fact.”

It’s a reflection of investors pricing new information in anticipation of an event, and then selling into the event on the notion that the market has already valued the new information. It looks like that phenomenon may be transpiring in stocks here, especially given that the timeline of tax reform and infrastructure spending looks, now, to be a longer timeline than was anticipated early on.

And as we discussed yesterday, it happens to come at a time where some disruptive events are lining up this week: from a Fed rate hike, to Dutch elections, to Brexit, to G20 protectionist rhetoric.

Stocks are up 6% year-to-date, still in the first quarter.  That’s an aggressive run for the broad stock market, and we’re now probably seeing the early days of the first dip, on the first spell of profit taking.

What about oil?  Oil and stocks traded tick for tick for the better part of last year, first when oil crashed to the mid-$20s, and then when oil proceeded to double from the mid-$20s.  Over the past few days, oil has fallen out of it’s roughly $50-$55 range of the Trump era.  Is it a drag on stocks and another potential disrupter?  I don’t think so.  Oil became a risk to stocks and the global economy last year because it was beginning to trigger bankruptcies in the American shale industry, and was on pace to spread to banks, oil producing countries and the global financial system.  We now have an OPEC production cut under the belt and a highly influential oil man, Tillerson, running the State Department.  With that, oil has been very stable in recent months, relative to the past three years.  It should stay that way – until demand effects of fiscal policy start to show up, which should be very bullish for oil.

In our Billionaire’s Portfolio, we’re positioned in a portfolio of deep value stocks that all have the potential to do multiples of what broader stocks do — all stocks owned and influenced by the world’s smartest and most powerful billionaire investors.  Join us today and we’ll send you our recently recorded portfolio review that steps through every stock in our portfolio, and the opportunities in each.  ​

March 13, 2017, 4:15pm EST                                                                                           Invest Alongside Billionaires For $297/Qtr

This week will be a huge week for markets. Stocks continue to hover around record highs. Rates (the 10 year yield) sit at the highest level in three years.

This snapshot alone suggests a world that continues to believe that pro-growth policies “trump” all of the risks ahead.  At the very least, it’s pricing in a world without disruptions.  But disruptions look likely.

Here’s a look at stocks as we enter the week. Still in a 45 degree uptrend since the election.

But if we take a longer term look, this trendline looks pretty vulnerable to any surprise.

Let’s take a look at the disruptions risks:

There was a chance that the official execution of Brexit may have come as soon as tomorrow — the UK leaving the European Union by triggering Article 50 of the Treaty of Lisbon. That looks unlikely now, but could come in the coming weeks.  To this point the Bank of England has done a good job of responding and promoting stability which has led to financial markets pricing in an optimistic outcome.

We have the Fed on Wednesday. They will hike for the third time in the post-financial crisis era. We don’t know at what point higher interest rates, in this environment, might choke off growth that is coming from the fiscal side.

This next chart looks like rates might run to 3% on the 10-year.  That would do a number on housing, IF tax reform and an infrastructure spend out of the White House come later than originally anticipated (which is the way it looks).

We also have the Bank of Japan and Bank of England meeting on rates this week. Let’s hope they have a very boring, staying the path, message. That would mean extremely stimulative policies for the foreseeable future 1) in the case of Japan, to continue to promote global liquidity and anchor global yields, and 2) in the case of the UK, to continue to promote stability in the face of uncertainty surrounding Brexit.

Keep this in mind:  The Bank of Japan’s big QE launch in 2013 is a huge reason the Fed was able to end QE in the first place, and start its path of normalization.  The BOJ launched in April of 2013.  Bernanke telegraphed “tapering” a month later.  The Fed officially ended tapering on October 29, 2014.  Stocks fell 10% into that official ending of Fed QE.  On October 31, 2014 (two days later), the BOJ surprised the world with bigger, bolder QE (a QE2). Stocks rallied.

Finally, to end the week, we have a G-20 finance ministers meeting.  This is where all of the trade and dollar rhetoric from the new administration will be front and center. So the news/event outlook looks like some waves should be ahead.  But any dip in stocks would be a great buying opportunity.

In our Billionaire’s Portfolio, we’re positioned in a portfolio of deep value stocks that all have the potential to do multiples of what broader stocks do — all stocks owned and influenced by the world’s smartest and most powerful billionaire investors.  Join us today and we’ll send you our recently recorded portfolio review that steps through every stock in our portfolio, and the opportunities in each.

November 8, 2016, 4:00pm EST

As we head into the election, everyone involved in markets is trying to predict how stocks will perform on the results.  When the Clinton email scandal bubbled up again, the stock market lost ground for nine straight days, the longest losing streak since 1980.  Since the probe has allegedly ended, stocks have been up.

Does it mean Clinton is good for stocks and Trump is bad for stocks?  Not likely.

Big institutional money managers think they have a better understanding of what the world will look like under Clinton than Trump, and therefore feel more compelled to go on with business as usual heading into the event (i.e. allocating capital across the stock market) with the expectation of a Clinton win, and conversely, they’re not as compelled to do so with the expectation that Trump might win (i.e. they sit tight and watch).

When they sit on their hands, liquidity in markets shrinks, and speculators can push the stock market around.

With that, is there any predictive value in the either moves in stocks of the past two weeks?  Not likely. No matter what the outcome, your 401k money will continue to flow to Wall Street, and stocks will be bought with that money.  Moreover, central banks have been in control and remain in control. They’ve been responsible for the global economic recovery of the past nine years, and for creating and maintaining relative economic stability. And stable to higher stocks play a big role in the coordinated strategies of the world’s biggest central banks.  Neither the economic recovery, nor the stock market recovery can be credited much to politicians.

If anything, politicians (both parties) have been a drag on recovery, which has lead to the threatening “stagnation forever” malaise that is saddling economies across the globe.  From mis-spending early fiscal stimulus, to ignoring central banks cries for much needed targeted spending programs, they’ve proven to be an impediment in the economic recovery.

In this environment, in the long run, the value of the new President for stocks will prove out only if there’s structural change.  And structural change can only come when the economy is strong enough to withstand the pain.  And getting the economy to that point will likely only come from some big and successfully executed fiscal stimulus.

Now, as we head into tonight’s results, as we’ve been told, a Clinton win remains the clear favorite (a known quantity).  And Trump has always represented the vote that the unknown is better than the known.

This vote for some time has looked very much like the Brexit vote (the UK’s vote to leave the European Union), and the Grexit vote (Greece’s vote against austerity). As with the Trump vote, the buildup to both Grexit and Brexit were accompanied by threats from trusted officials of draconian outcomes for the people.  But as we know, the Greek and British shocked the world by voting for the unknown, over the known.

Let’s take a look at how things looked going into those votes and how it compares to today’s election…

As we headed into the Greek vote in July of last year. It was thought to be a done deal that the Greek people would vote in favor of another bailout package from the European Union (and accept more austerity for fear of an apocalyptic outcome from voting no). The bookmakers put the “yes” vote at 71% chance of occurring. A UK bookmaker paid out those voting “yes” four days before the vote.  The “no” vote won, shocking the world with 61% of the vote.

And then there was Brexit …

The UK vote was about trade, immigration, ability to work and live in other EU countries — perhaps mostly about control and politics.

The bookmakers had the chances of a “leave” vote as slim (at about 70/30 favoring the ‘stay’ camp).  When voting day arrived, the chances of a “leave” vote had dropped to just 25%.  But the British people shocked the world, voting to leave by 52% to 48%.

Going into today’s vote, the chances they’re giving Trump are spot on with the Brexit odds going into the day of the referendum.  Of course, it’s not a popular vote.  The electoral vote creates a bigger hurdle for voting the candidate of the “unkown” in this case.

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August 22, 2016, 4:30pm EST

As we head into the end of August, people continue to parse every word and move the Fed makes.  Yellen gives a speech later this week at Jackson Hole (at an economic conference hosted by the Kansas City Fed), where her predecessor Bernanke once lit a fire under asset prices by telegraphing another round of QE.

Still, a quarter point hike (or not) from a level that remains near zero, shouldn’t be top on everyone’s mind.  Keep in mind a huge chunk of the developed world’s sovereign bond market is in negative yield territory.  And just two weeks ago Bernanke himself, intimated, not only should the Fed not raise rates soon, but could do everyone a favor — including the economy — by dialing down market expectations of such.

But the point we’ve been focused on is U.S. market and economic performance.  Is the landscape favorable or unfavorable?

The narrative in the media (and for much of Wall Street) would have you think unfavorable.   And given that largely pessimistic view of what lies ahead, expectations are low.  When expectations are low (or skewed either direction) you get the opportunity to surprise.  And positive surprises, with respect to the economy, can be a self-reinforcing events.

The reality is, we have a fundamental backdrop that provides fertile ground for good economic activity.

For perspective, let’s take a look at a few charts.

We have unemployment under 5%.  Relative to history, it’s clearly in territory to fuel solid growth, but still far from a tight labor market.

What about the “real” unemployment rate all of the bears often refer to.  When you add in “marginally attached” or discouraged job seekers and those working part-time for economic reasons (working part time but would like full time jobs) the rate is higher. But as you can see in the chart below that rate (the blue line) is returning to pre-crisis levels.

In the next chart, as we know, mortgage rates are at record lows – a 30 year fixed mortgage for about 3.5%.

Car loans are near record lows.  This Fed chart shows near record lows.  Take a look at your local credit union or car dealer and you’ll find used car loans going for 2%-3% and new car loans going for 0%-1%.

What about gas?  In the chart below, you can see that gas is cheap relative to the past fifteen years, and after adjusted for inflation it’s near the cheapest levels ever.

Add to that, household balance sheets are in the best shape in a very long time.  This chart goes back more than three decades and shows household debt service payments as a percent of disposable personal income.

As we’ve discussed before, the central banks have have pinned down interest rates that have warded off a deflationary spiral — and they’ve created the framework of incentives to hire, spend and invest.  You can see a lot of that work reflected in the charts above.

In our Billionaire’s Portfolio, we’re positioned in deep value stocks that have the potential to do multiples of the broader market—all stocks that are owned and influenced by the world’s smartest and most powerful billionaire investors. Join us today and get yourself in line with our portfolio. You can join here.  

June 2, 2016, 3:25pm EST

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.