Italy May Force The Hand Of The EU Toward Fiscal Stimulus

September 28, 5:00 pm EST

 Back in May, the populist movement that gave us Grexit, Brexit and then the Trump election, gave us a new government in Italy with an “Italy first” agenda.

Italy first, means EU second.  And that puts the future of the European Union and the European Monetary Union in jeopardy.  Today, the new government made that clear by rejecting EU fiscal constraints, in favor of running a bigger deficit spending.

This puts the game of poker the European Union has been playing since the financial crisis erupted, front and center (again).

As we discussed back in May, this story is looking a lot like Greece, which used the threat of leaving the euro as leverage to negotiate some relief from austerity and reforms. It was messy, but it gave them a stick, in a world where the creditors (the ECB, Eurogroup and IMF) had been burying the weak economies in Europe in harsh austerity since the financial crisis.

As the third largest euro zone constituent, Italy brings a lot more leverage in negotiating, in this case, the EU rulebook. We may see this all result, finally, in a relaxing of the fiscal constraints that have suppressed the economic recovery in the euro zone in the post-Great Recession era. And Italy’s pushback may lead the way for a euro-wide fiscal stimulus campaign — following the lead of Trumponomics.

A better economy has a way of solving a lot of problems.  And Europe has a lot of problems.

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.

German Stocks In The Early Stages Of A Big Run

September 13, 5:00 pm EST

Those that look for reasons to pick apart the bull case for the economy and markets were disappointed by the ECB this morning.

As we discussed earlier in the week, the improvements in the U.S. economy and the trajectory of U.S. rates has cleared the path for Europe to finally exit QE.  And the ECB confirmed this morning that they remain on that path — to end QE into the year end.

The idea that Europe can exit QE is a huge positive for both the European economy and the global economy – a confidence signal.

With that, German stocks are a big buy here.  As you can see in the chart below, while the S&P 500 is on record highs, the DAX has been well underwater on the year (down more than 6%).

The index also trades well under the 200 day moving average (the purple line).  To close the performance gap in this chart, German stocks could be in the early stages of a 13%-15% run.

And stocks in Europe should be supported by a strengthening euro.

Remember, as the global economy improves, the dollar should get weaker. The growth and rate gap (between the U.S. and the rest of the world) will be narrowing from here, which will promote foreign capital to flow into currencies like the euro. But most importantly, the exit of QE means Europe has escaped the dangerous crisis era, which means money will flow “back home“ out of/from the world’s safe-haven asset (dollar-denominated U.S. Treasury market).

I suspect the euro will trade closer to 1.30 by this time next year, as the ECB will begin raising rates in 2019, and likely follow the U.S. lead on fiscal stimulus to drive growth. 

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.
Looks like ‘all-clear’ signal given for stocks

May 11, 3:00 pm EST

Over the past two Friday’s we’ve stepped events and conditions that have built the case that that “all-clear” signal has been given for stocks.

We are 91% through S&P 500 earnings for Q1 and the positive surprises have continued to roll in, on both earnings growth and revenue growth. Q1 GDP growth had a positive surprise, to reflect an economy that is running very close to 3% over the past three quarters.  The important FAANG stocks all beat on earnings and beat on revenues for Q1.  And the big jobs report last Friday did NOT come with a hot wage growth number, which keeps the inflation outlook tame.

Now we have very compelling technical confirmation that a resumption of the big secular bull trend for stocks is resuming. This correction has given everyone a long time to get on board.  But it looks like the train is leaving the station.

Here’s a look at the S&P 500 ….

This bull trend in stocks from the oil-price crash induced lows of 2016 remains intact.  The trendline tested and held three times in this recent correction, as did the 200-day moving average.  And yesterday we had a big break of this trendline that represents this correction of the past three months. This has been textbook technical confirmation of a price correction within a strong bull trend.

Here’s the Dow chart we looked at on Wednesday …

And here’s the latest as we end the week, as the momentum from that trend break continues …

U.S. stocks are being valued right at the long-term P/E, at about 16 times forward earnings.  Stocks in the UK, Germany and Japan are all trading closer to 13 times forward earnings.  That’s cheap relative to long-term averages, and especially cheap (including U.S. stocks), in ultra-low interest rate environments.  For perspective, Japanese stocks are recovering back toward the highest levels in more than 25 years, yet the forward P/E on Japanese stocks is closer to the lowest levels over the period.  Stocks are cheap, and this correction has been a gift to get all of the onlookers on board.

If you are hunting for the right stocks to buy on this dip, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers.