Today I want to take a look back at my March 7th Pro Perspectives piece. And then I want to talk about why a power shift in the economy may be underway (again).
Big Picture .. Market Perspectives March 7, 2017
“A big component to the rise of Internet 2.0 was the election of Barack Obama. With a change in administration as a catalyst, the question is: Is this chapter of the boom in Silicon Valley over? And is Snap the first sign?
Without question, the Obama administration was very friendly to the new emerging technology industry. One of the cofounders of Facebook became the manager of Obama’s online campaign in early 2007, before Obama announced his run for president, and just as Facebook was taking off after moving to and raising money in Silicon Valley (with ten million users). Facebook was an app for college students and had just been opened up to high school students in the months prior to Obama’s run and the hiring of the former Facebook cofounder. There was already a more successful version of Facebook at the time called MySpace. But clearly the election catapulted Facebook over MySpace with a very influential Facebook insider at work. And Facebook continued to get heavy endorsements throughout the administration’s eight years.
In 2008, the DNC convention in Denver gave birth to Airbnb. There was nothing new about advertising rentals online. But four years later, after the 2008 Obama win, Airbnb was a company with a $1 billion private market valuation, through funding from Silicon Valley venture capitalists. CNN called it the billion dollar startup born out of the DNC.
Where did the money come from that flowed so heavily into Silicon Valley? By 2009, the nearly $800 billion stimulus package included $100 billion worth of funding and grants for the “the discovery, development and implementation of various technologies.” In June 2009, the government loaned Tesla $465 million to build the model S.
When institutional investors see that kind of money flowing somewhere, they chase it. And valuations start exploding from there as there becomes insatiable demand for these new ‘could be’ unicorns (i.e. billion dollar startups).
Who would throw money at a startup business that was intended to take down the deeply entrenched, highly regulated and defended taxi business? You only invest when you know you have an administration behind it. That’s the only way you put cars on the street in NYC to compete with the cab mafia and expect to win when the fight breaks out. And they did. In 2014, Uber hired David Plouffe, a senior advisor to President Obama and his former campaign manager to fight regulation. Uber is valued at $60 billion. That’s more thanthree times the size of Avis, Hertz and Enterprise combined.
Will money keep chasing these companies without the wind any longer at their backs?”
Now, this was back in March. And that was the question — will it keep going under Trump? Can they continue to thrive/ if not survive without policy favors. Most importantly for the billion dollar startup world, will the private equity capital dry up. This is what it’s really all about. Will the money that chased the subsidies from D.C. to Silicon Valley for eight years (i.e. the trillion dollar pension funds) stop flowing? And will it begin chasing the new favored industries and policies under the Trump administration?
It seems to be the latter. And it seems to be happening in the form of a return to the public markets — specifically, the stock market.
And it may be amplified because of the huge disparity in what is being favored. In Silicon Valley, innovation is favored. Profitability? Remember, the 90s tech bubble. The measure of success for those companies was “eyeballs.” How much traffic were they getting to their websites? Today, when you hear a startup founder talk about the success benchmarks, it rarely has anything to do with with revenue or profit. It’s all about headcount (how many people they’ve hired) and money raised (which enables them to hire people). They are validated by convincing investors to fund them (mostly with our pension money).
Now, the other side of this coin: Trumponomics. Remember, among the Trump policies (corporate tax cuts, repatriation, deregulation, infrastructure spend), the most common sense play in the stock market has been flooding money into companies that make a lot of money. Those that make a lot of money have the most to gain from a slash in the corporate tax rate — it falls right to the bottom line. Leading the way on that front, is Apple. They make a lot of money. And they will make a lot more when a tax cut comes, making the stock even cheaper. That’s why it’s up 25% year-to-date. That’s 2.5 times the performance of the broader market.
Meanwhile, let’s take a look back at the Snapchat. Snapchat doesn’t make money. And even after a 1/3 haircut on the valuation, trades about 35 times revenue. And now, as a public company, probably doesn’t get the protection from the venture capital/private equity community that may have significant investments in its competitors. So the competitors (like Facebook) are circling like sharks to copy their business.
What about Uber? The Uber armor may be beginning to crack as well, with the leadership shakeup in recent weeks. Maybe a good signal for how Uber may be doing? Hertz! Hertz has bounced about 20% from the bottom this week.
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Last week we looked at the some of the clear evidence that the economy is as primed as it can possibly get for a catalyst to come in and pop growth.That catalyst, despite all of the scrutiny, will be Trumponomics.
At the very least, a corporate tax cut will directly hit the bottom line of corporate America. And one of the huge drags on demand, structurally, is the lack of wage growth. And as we discussed, the big winner in a corporate tax cut will be workers/wage growth — a non-partisan tax think tank thinks it can pop wage growth, by as much as doublethe current growth rate. That would be huge, especially for one of the key pillars of the recovery — housing.Remember, the two biggest drivers of recovery have been: 1) stocks, and 2) housing. Those two assets have done the lion’s share of work when it comes to restoring confidence. And a lot of other key pieces fall into place when confidence comes back.
On the housing front, over the past year, both mortgage rates and house prices have gone UP – a new dynamic in the post crisis recovery (adding higher rates into the mix). So owning a house has become more expensive over the past year. But how much?
Let’s take a look at how that has affected the monthly outlay for new homeowners over the course of the past year.
From March 2016 to March 2017, the average 30 year fixed mortgage went from 3.70% to 4.20%.
The Case-Shiller housing price index of the top 20 markets in the U.S. is up 6% over that twelve month period (the most recent data). That’s increased the monthly outlay (principal and interest) for new homeowners by 11% over the past year.
Now, with that said, we look at the recent behavior of the 10 year note (the benchmark government bond yield that heavily influences mortgage rates). It’s been in world of its own — sliding back to seven month lows, while stocks are hitting record highs. Manipulation? Likely. As I’ve said before, don’t underestimate the value of QE that is still in full force around the world — namely in Japan and Europe. That’s freshly printed money that can continue to buy our Treasuries, keeping a cap on interest rates, which keeps a cap on mortgage rates, which keeps the housing recovery and the recovery in consumer credit demand intact.
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Stocks continue to bounce back today. But the technical breakdown of the Trump Trend on Wednesday
still looks intact. As I said on Wednesday, this looks like a technical correction in stocks (even considering today’s bounce), not a fundamental crisis-driven sell-off.
With that in mind, let’s take a look at the charts on key markets as we head into the weekend.
Here’s a look at the S&P 500 chart….
For technicians, this is a classic “break-comeback” … where the previous trendline support becomes resistance. That means today’s highs were a great spot to sell against, as it bumped up against this trendline.
Very much like the chart above, the dollar had a big trend break on Wednesday, and then aggressively reversed Thursday, only to follow through on the trend break to end the week, closing on the lows.
On that note, the biggest contributor to the weakness in the dollar index, is the strength in the euro (next chart).
The euro had everything including the kitchen sink thrown at it and it still could muster a run toward parity. If it can’t go lower with an onslaught of events that kept threatening the existence of the euro, then any sign of that clearing, it will go higher. With the French elections past, and optimism that U.S. growth initiatives will spur global growth (namely recovery in Europe), then the European Central Bank’s next move will likely be toward exit of QE and extraordinary monetary policies, not going deeper. With that, the euro looks like it can go much higher. That means a lower dollar. And it means, European stocks look like, maybe, the best buy in global stocks.
A lower dollar should be good for gold. As I’ve said, if Trump policies come to fruition, inflation could get a pop. And that’s bullish for gold. If Trump policies don’t come to fruition, the U.S. and global growth looks grim, as does the post-financial crisis recovery in general. That’s bullish for gold.
This big trendline in gold continues to look like a break is coming and higher gold prices are coming.
With all of the above, the most important chart of the week is probably this one …
The 10 year yield has come all the way back to 2.20%. The best reason to wish for a technical correction in stocks, is not to buy the dip (which is a good one), but so that the pressure comes out of the interest rate market (and off of the Fed). The run in the stock market has clearly had an effect on Fed policy. And the Fed has been walking rates up to a point that could choke off the existing economic recovery momentum and, worse, neutralize the impact of any fiscal stimulus to come. Stable, low rates are key to get the full punch out of pro-growth policies, given the 10 year economic malaise we’re coming out of.Invitation to my daily readers: Join my premium service members at Billionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse portfolio of the most high potential stocks.
Yesterday, following the slide in stocks, we looked at some charts on stocks, gold and the dollar. We talked about the media and Wall Street’s need to fit price action to a story. And we asked if the story did indeed warrant fitting it to the price action. Was a crisis beginning or just a correction for stocks?The answer: It still looks like a market that values fiscal stimulus and structural change over political mudslinging and scandal. For stocks, the news may have been the catalyst to start a healthy technical correction.
Today, the market behavior appears to support that view.
Now, with the idea that a technical correction is (I think) underway for stocks, and maybe for months, until we get a better handle on policy action, remember this: a correction in stocks is a buying opportunity.
Major asset classes, over time, will rise (stocks, bonds, real estate). The value of these core assets will grow faster than the value of cash.
That comes with one simple assumption. The world, over time, will improve, will grow and will be a better and more efficient place to live than it was before. If that assumption turned out to be wrong, we have a lot more to worry about than the value of our stock portfolio.
With that said, as an average investor that is not leveraged, dips in stocks, particularly U.S. stocks—the largest economy in the world, with the deepest financial markets—should be bought, because in the simplest terms, over time, the broad stock market has an upward sloping trajectory. Instead, dips in stocks tend to create fear, and fear creates selling, at precisely the time we should be buying.
With this in mind, we’ve had a brief dip of about 4% in stocks within the “Trump trend” (the post–election rise in stocks). A typical correction is around 10%. But strong bull markets tend to have shallow retracements. A 6%–10% correction in stocks would take us back to the 200–day moving average (minimum), and maybe as low as 2,200 in the S&P 500.
Invitation to my daily readers: Join my premium service members at Billionaire’s Portfolio to hear more of my big picture analysis and get my hand-selected, diverse portfolio of the most high potential stocks.
Last week we discussed the building support for a next leg higher in commodities prices. China is clearly a very important determinant in where commodities go. And with the news last week about cooperation between the Trump team and China, on trade, we may have the catalyst to get commodities moving higher again.It just so happens that oil (the most traded commodity in the world) is rebounding too, on the catalyst of prospects of an OPEC extension to the production cuts they announced last November.In fact, overnight, Saudi Arabia and Russia said they would do “whatever it takes” to cut supply (i.e. whatever it takes to get oil prices higher). Oil was up big today on that news.When you hear these words spoken from policy-makers (those that can dictate outcomes), it should get everyone’s attention. Those are the exact words uttered by ECB head Mario Draghi, that ended the bond market assault in Spain and Italy that were threatening the existence of the euro and euro zone. The Spanish 10-year yield collapsed from 7.8% (unsustainable borrowing rate for the Spanish government, and threatening imminent default) to 1% over the next three years — and the ECB, while threatening to buy an unlimited amount of bonds to push those yields lower, didn’t have to buy a single bond. It was the mere threat of ‘whatever it takes’ that did the trick.
As for oil: From the depths of the oil price crash last year, remember, we discussed the prospects for a huge bounce. Oil prices at $26 were threatening to undo the trillions of dollars of work central banks and governments had done to stabilize the global economy. Central banks couldn’t let it happen. After a series of coordinated responses (from the BOJ, China, ECB and the Fed), oil bottomed and quickly doubled.
Also at that time, two of the best oil traders in the world were calling the bottom and calling for $70-$80 oil by this year (Pierre Andurand and Andy Hall). Another commodities king that called the bottom: Leigh Goehring.
Goehring, one of the best commodities investors on the planet, has also laid out the case for $100 oil by next year. He says he’s “wildly bullish” oil in his recent quarterly investor letter at his new fund, Goehring & Rozencwajg.
Goehring argues that the IEA inventory numbers are flawed. He thinks oil the market is already over-supplied and is in a draw, as of May of last year. With that, he thinks the OPEC cuts will ultimately exacerbate the deficit and send prices aggressively higher. He says “we remain ‘wildly’ bullish and believe that there is a very high probability of oil prices reaching triple digits in the first half of 2018.”
Follow This Billionaire To A 172% WinnerIn our Billionaire’s Portfolio, we have a stock in our portfolio that is controlled by one of the top billion dollar activist hedge funds on the planet. The hedge fund manager has a board seat and has publicly stated that this stock is worth 172% higher than where it trades today. And this is an S&P 500 stock!Even better, the company has been constantly rumored to be a takeover candidate. We think an acquisition could happen soon as the billionaire investor who runs this activist hedge fund has purchased almost $157 million worth of this stock over the past year at levels just above where the stock is trading now.So we have a billionaire hedge fund manager, who is on the board of a company that has been rumored to be a takeover candidate, who has adding aggressively over the past year, on a dip.
As we’ve discussed, we’re in a world where the baton has been passed from a central bank driven economy (post-financial crisis) to a fiscal and public policy driven economy (Trumponomics).One of the pillars of the Trump plan is deregulation. On that note, there’s been plenty of carnage across industries since the financial crisis, but no area has been crushed more and been crushed more by regulation more than Wall Street. And under the Trump administration, those regulations look like they are going to be slashed.Dodd-Frank and the fiduciary rule are bubbling up toward the top of the administrations confrontation list. With a former Goldman president heading the economic team for the President and a former Goldman guy running Treasury, I suspect they will give proprietary risk taking back to banks. The bank’s trading businesses will be back on-line and it will be restoring a huge profit engine.
Those that oppose it warn that it will lead to another financial crisis. On that note, I want to revisit my take from earlier this year on the cause of the crisis that almost destroyed the global economy.
“With all of the complexities of the housing bubble and the subsequent global financial crisis, it can seem like a web of deceit. But it all boils down to one simple actor. It wasn’t Wall Street. It wasn’t hedge funds. It wasn’t mortgage brokers. These entities were operating, in large part, from the natural force of economics: incentives.
It wasn’t even the government’s initiative to promote home ownership that led to the proliferation of mortgages being given to those that couldn’t afford them.
So who was the culprit?
It was the ratingsagencies.
Housing prices were driven sky high by the availability of mortgages. Mortgages were made easily available because the demand to invest in mortgages, to fund those mortgages, was sky high.
But what drove that demand to such high levels?
When the mortgages were combined together in a package (securitized as a mix of good mortgages, and a lot of bad/higher yielding mortgages), they were bought, hand over fist, by the massive multi-trillion dollar pension industry, banks and insurance companies. Yes, the guys that are managing your pension funds, deposit accounts and insurance policies were gobbling up these mortgage securities as fast as they could, but ONLY because the ratings agencies were stamping them all with a top AAA rating. Who would encourage such a thing? Congress. In 1984 they passed a law making it okay for banks, pension funds and insurance companies to buy/treat high rated secondary mortgages like they would U.S. Treasuries.
So as investment managers, in the business of building the best performing risk-adjusted portfolio possible, and in direct competition with their peers, they couldn’t afford NOT to buy these securities. They came with the safest ratings, and with juicy returns. If you don’t buy these, you’re fired.
To put it all very simply, if these securities were not AAA rated, the pension funds would not have touched them (certainly not to the extent). With that, if the there’s no appetite to fund the mortgages (no money chasing it), then the ultra-easy lending practices never happen, and housing prices never skyrocket on unwarranted and unsustainable demand. The housing bubble doesn’t build, doesn’t bust, and the financial crisis doesn’t happen.
That begs the question: Why did the ratings agencies give a top rating to a security that should have received a lower rating, if not much lower?
First, it’s important to understand that the ratings agencies get paid on the products they rate BY the institutions that create them. That’s right. That’s their revenue model. And only a group of these agencies are endorsed by the government, so that, in many cases, regulatory compliance on a financial product requires a rating from one of these endorsed agencies.”
Keep this in mind as the fear mongering over the talk of repeal of rework of Dodd Frank heats up.
Follow This Billionaire To A 172% Winner
In our Billionaire’s Portfolio, we have a stock in our portfolio that is controlled by one of the top billion dollar activist hedge funds on the planet. The hedge fund manager has a board seat and has publicly stated that this stock is worth 172% higher than where it trades today. And this is an S&P 500 stock!
Even better, the company has been constantly rumored to be a takeover candidate. We think an acquisition could happen soon as the billionaire investor who runs this activist hedge fund has purchased almost $157 million worth of this stock over the past year at levels just above where the stock is trading now.
So we have a billionaire hedge fund manager, who is on the board of a company that has been rumored to be a takeover candidate, who has adding aggressively over the past year, on a dip.
Over the past few days, some of the most influential investors in the world have publicly shared views on some of their best ideas.First, over the weekend, it was Buffett at his annual shareholders meeting. The take away, as I said yesterday, “stocks are dirt cheap” if you think rates will stay low for longer (i.e. below long term averages). His assumption in that statement is that the Fed’s benchmark rate goes to 3ish% and done – well below the long run average neutral rate of 5%.
In addition, he was quite vocal on Apple, a stake he picked up as others were selling in fear in the first half of last year (i.e. being greedy when others are fearful). And he doubled his stake earlier this year, now holding north of $20 billion worth of the stock. The analyst community thinks Apple is a juggling act, with balls that will drop if they don’t come up with another revolutionary product every quarter. Buffett thinks Apple is cheap even if they don’t have another single new invention in the future. Why? Because they’ve developed a services business around their hardware that has quickly become one of the biggest and fastest growing businesses in the world.
Remember, back on February 1, I made the case for why Apple could double. You can see that here. It’s gone from a $560 billion company to an $800 billion company since we added it in our Billionaire’s Portfolio early last year. Even at $154 a share (today’s levels) if we strip out the quarter of a trillion dollars in cash, we get the existing business for 12 times earnings.
Now, let’s talk about one of the big ideas presented yesterday at the annual Sohn Conference in New York, where many of top billionaire investors and hedge fund managers give their outlook on the stock market, the economy and talk about their favorite long and/or short picks.
Billionaire investor Jeff Gundlach, who oversees the world’s largest bond fund likes selling the S&P 500 against emerging market stocks. He thinks value is distorted relative to global GDP. But it’s more a view on undervaluation of EM, rather than overvaluation of U.S. stocks. He took to Twitter to defend that view…
Assuming a stable to improving world economy, emerging market stocks have lagged and offer a great opportunity to catch up with the strength in the U.S. stock market. It also requires that emerging market currencies are a good bet against the dollar, if policy makers around the world are able to follow the lead of the Fed, where rising interest rate cycles follow. This is a very similar view to the one we discussed yesterday, where Spanish stocks (supported by a stronger euro) present a big catch up trade opportunity (to the tune of about 40% to revisit the 2007 highs), with the destabilization risk of the French elections in the rear-view mirror.
Follow This Billionaire To A 172% Winner
In our Billionaire’s Portfolio, we have a stock in our portfolio that is controlled by one of the top billion dollar activist hedge funds on the planet. The hedge fund manager has a board seat and has publicly stated that this stock is worth 172% higher than where it trades today. And this is an S&P 500 stock!
Even better, the company has been constantly rumored to be a takeover candidate. We think an acquisition could happen soon as the billionaire investor who runs this activist hedge fund has purchased almost $157 million worth of this stock over the past year at levels just above where the stock is trading now.
So we have a billionaire hedge fund manager, who is on the board of a company that has been rumored to be a takeover candidate, who has adding aggressively over the past year, on a dip.
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.
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.
Over the past week, I’ve talked about the potential for disruption in what has been very smooth sailing for financial markets (led by stocks). While the picture has grown increasingly murkier, markets had been pricing in the exact opposite – which makes things even more vulnerable to a shakeout of the weak hands.
With that, it looked like we are indeed working on a correction in stocks. But it’s not just because stocks are down. It’s because we have some very important technical developments across key markets. The Trump trend has been broken.
Let’s take a look at the charts …
The above chart is the S&P 500. We looked at a break in the futures market last week. Today we get a big break in the cash market. This trendline represents the nice 45 degree climb in stocks since election night on November 8th. We have a clean break today.
Stocks ran up on the prospects that Trumponomics can end the decade long malaise in, not just the U.S. economy, but the global economy too. With that, the money that has been parked in U.S. Treasuries begins to leave. Moreover, any speculators that were betting the U.S. would follow the world into negative rate territory run for the exit doors. That sends Treasury bond prices lower and yields higher (as you can see in the chart above). So today, we also get a break of this “Trump trend” in rates as well (the yellow line). Remember, this is after the Fed’s rate hike last week — rates are moving lower, not higher.
Next up, gold …
I talked about gold yesterday — as being the clearest trade (higher) in an increasingly murkier picture for global financial markets. You can see in the chart above, gold is now knocking on the door of a break in this post-election Trump trend.
Remember, we’ve talked about the buy-the-rumor sell-the-fact phenomenon in markets. The beginning of the Trump trend in stocks started on election night (buying “the rumor” in anticipation of pro-growth policies). The top in stocks came the day following the President’s speech to the joint sessions of Congress (selling “the fact”, entering the “show me” phase).
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 recent addition to the portfolio – a stock that one of the best activist investors in the world thinks will double.
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.
Yesterday, following the slide in stocks, we looked at some charts on stocks, gold and the dollar. We talked about the media and Wall Street’s need to fit price action to a story. And we asked if the story did indeed warrant fitting it to the price action. Was a crisis beginning or just a correction for stocks?The answer: It still looks like a market that values fiscal stimulus and structural change over political mudslinging and scandal. For stocks, the news may have been the catalyst to start a healthy technical correction.
Last week we discussed the building support for a next leg higher in commodities prices. China is clearly a very important determinant in where commodities go. And with the news last week about cooperation between the Trump team and China, on trade, we may have the catalyst to get commodities moving higher again.It just so happens that oil (the most traded commodity in the world) is rebounding too, on the catalyst of prospects of an OPEC extension to the production cuts they announced last November.In fact, overnight, Saudi Arabia and Russia said they would do “whatever it takes” to cut supply (i.e. whatever it takes to get oil prices higher). Oil was up big today on that news.When you hear these words spoken from policy-makers (those that can dictate outcomes), it should get everyone’s attention. Those are the exact words uttered by ECB head Mario Draghi, that ended the bond market assault in Spain and Italy that were threatening the existence of the euro and euro zone. The Spanish 10-year yield collapsed from 7.8% (unsustainable borrowing rate for the Spanish government, and threatening imminent default) to 1% over the next three years — and the ECB, while threatening to buy an unlimited amount of bonds to push those yields lower, didn’t have to buy a single bond. It was the mere threat of ‘whatever it takes’ that did the trick.
As we’ve discussed, we’re in a world where the baton has been passed from a central bank driven economy (post-financial crisis) to a fiscal and public policy driven economy (Trumponomics).One of the pillars of the Trump plan is deregulation. On that note, there’s been plenty of carnage across industries since the financial crisis, but no area has been crushed more and been crushed more by regulation more than Wall Street. And under the Trump administration, those regulations look like they are going to be slashed.Dodd-Frank and the fiduciary rule are bubbling up toward the top of the administrations confrontation list. With a former Goldman president heading the economic team for the President and a former Goldman guy running Treasury, I suspect they will give proprietary risk taking back to banks. The bank’s trading businesses will be back on-line and it will be restoring a huge profit engine.
Over the past few days, some of the most influential investors in the world have publicly shared views on some of their best ideas.First, over the weekend, it was Buffett at his annual shareholders meeting. The take away, as I said yesterday, “stocks are dirt cheap” if you think rates will stay low for longer (i.e. below long term averages). His assumption in that statement is that the Fed’s benchmark rate goes to 3ish% and done – well below the long run average neutral rate of 5%.
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.
