May 26, 2017, 2:30pm EST                                                                                         Invest Alongside Billionaires For $297/Qtr

The past few days we’ve looked at the run up in bitcoin.  Remember, I said: “If you own it, be careful. The last time the price of bitcoin ran wild, was 2013.  It took about 11 days to triple, and about 18 days to give it all back.  This time around, it’s taken two months to triple (as of today). ”

It looks to be fueled by speculation, and likely Chinese money finding its way out of China (beating capital controls).  And yesterday we talked about the potential disruption to global markets that could come with a crash in bitcoin prices.

I suspect that’s why gold is finally beginning to move today, up almost 1%, and among the biggest movers of the day as we head into the long holiday weekend (an indication of some money moving to gold to hedge some shock risk).

Remember yesterday we looked at the chart on Chinese stocks back in 2015 and compared it to bitcoin.  The speculative stock market frenzy back thin was pricked when the PBOC devalued the yuan later in the summer.

Probably no coincidence that bitcoin’s recent acceleration happened as Moody’s downgraded China’s credit rating this week for the first time since 1989 (an event to take note of). Yesterday, the PBOC was thought to be in buying Chinese stocks (another event to take note of).  And this morning, the PBOC stepped in with another currency move! Historically, major turning points in markets tend to come with some form of intervention.  Will a currency move be the catalyst to end the bitcoin run, as it did the runup in Chinese stocks two years ago?

Let’s take a look at what the currency move overnight means …

Keep in mind, the currency is China’s go-to tool for fixing problems.  And they have problems.  The economy is crawling around recession like territory.  The debt was just downgraded. And they’ve had a tough time managing capital flight. As an easy indicator:  Global stocks are soaring. Chinese stocks are dead (flat on the year).

Remember, their rapid economic ascent in the world came through exports (via a weak currency).  The move overnight is a move back toward tying its currency more closely to the dollar.  Which, if this next chart plays out, will also weaken the yuan compared to other big exporting competitors in the world.

That should help the Chinese economic outlook, which may help stem the capital flight (which has likely been a significant contributor to bitcoin’s rise).

May 25, 2017, 4:00pm EST                                                                                        Invest Alongside Billionaires For $297/Qtr

We talked yesterday about run up in bitcoin. The price of bitcoin jumped another 14% today before falling back.

As I said yesterday, it looks like Chinese money is finding it’s way out of China (despite the capital controls) and finding a home in bitcoin (among other global assets). If you own it, be careful. The last time the price of bitcoin ran wild, was 2013. It took about 11 days to triple, and about 18 days to give it all back. This time around, it’s taken two months to triple (as of today).

If you’re looking for a warning signal on why it might not be sustainable (this bitcoin move), just look at the behavior across global markets. It’s not exactly an environment that would inspire confidence.

Gold is flat. Interest rates are soft. Stocks are constantly climbing. Commodities are quiet, except for oil — which fell back below $50 today on news that OPEC did indeed agree to extend its production cuts out to March of next year (bullish, though oil went south).

When the story is confusing, conviction levels go down, and cash levels go up (i.e. people de-risk). And maybe for good reason.

In looking at the bitcoin chart today, I thought back to the run up in Chinese stocks in early 2015. Here’s a look at the two charts side by side, possibly influenced by a lot of the same money.

The crash in Chinese stocks took global markets with it. It’s often hard to predict that catalyst that might prick a bubble and even harder to see the links that might lead to broader market instability. In this case, though, there are plenty of signs across markets that things are a little weird.

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Following the Fed yesterday, we heard from the Bank of Japan overnight, and the Bank of England this morning.  As for Europe, we heard from the ECB last week.

Coming into this week we’ve had this ongoing dynamic, for quite some time, of the Fed going one way on rates (up) and everyone else going the other way (cutting rates, QE, etc.).

That’s been good for the dollar, as global capital tends to flow toward areas with rising interest rates and better growth prospects. That combination tends to mean a rising currency and rising investment values.  What really determines those flows though, is the perception of how that policy spread, between countries, may change.  Most recently, that perceived change in the spread has been in favor of it growing, i.e. Fed policy tighter or at least stable, while other spots of the world considering even easier on monetary policy.

That divergence in policy has been bad for currencies like the euro, the pound and the yen. But that hit to the currency is part of the recipe. It promotes higher asset prices, better exports and growth.  And as Bernanke says, QE tends to make stocks go up, which helps.

Still, those stocks have lagged the strength in U.S. stocks.  With that, over the past six months or so, I’ve talked about the opportunities in European and Japanese stocks for a catch up trade.

While U.S. stocks have continued to set new record highs, stocks in Europe and Japan have yet to regain the highs of 2015 — when the global economy was knocked off course, first by slowing China and a surprise currency devaluation, and later by a crash in oil prices.

With that, if you think Trumponomics marked the end of the decade long deleveraging period (post-financial crisis), and that the Fed is signaling that by ending emergency level monetary policy, then the rest of the world should follow.  That means the next move in Europe, Japan, the UK will be toward normalization, not toward more emergency policies.

That means the expectations on the policy gap narrows.  With that, we may have seen the bottom in the euro.  If negative interest rates and an election cycle that has parties that are outright promising to destroy the euro can’t push it to parity, what can? If it can’t go lower, it will go higher.

And if the euro has bottomed and the next move for the central bank in Europe is tapering, the first step toward ending emergency policies, then this stock market in Europe looks the most intriguing for a big catch up trade – still about 20% off of the 2015 highs and well below the pre-crisis all time highs.

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January 9, 2017, 4:30pm EST

Over the past year we’ve had a wild ride in global yields. Today I want to take a look at the dramatic swing in yields and talk about what it means for the inflation picture, and the Fed’s stance on rates.

When oil prices made the final leg lower early last year, the Japanese central bank responded to the growing deflationary forces with a surprise cut of their benchmark interest rate into negative territory.

That began the global yield slide.  By mid-year, more than $12 trillion dollars with of government bond yields across the world had a negative interest rate.  Even Janet Yellen didn’t close the door to the possibility of adopting NIRP (negative interest rate policies).

So investors were paying the government for the privilege of loaning it their money.  You only do that when 1) you think interest rates will go even further negative, and/or 2) you think paying to park your money is the safest option available.

And when you’re a central banker, you go negative to force people out of savings.  But when people think the world is dangerous and prices will keep falling, they tend to hold tight to their money, from the fear a destabilized world.

But this whole dynamic was very quickly flipped on its head with the election of a new U.S. President, entering with what many deem to be inflationary policies. But as you can see in the chart below, the U.S. inflation rate had already been recovering, and since November is now nudging closer to the Fed’s target of 2%.

Still, the expectations of much hotter U.S. inflation are probably over done. Why?  Given the divergent monetary policies between the U.S. and the rest of the world, capital has continued to flow into the dollar (if not accelerated). That suppresses inflation.  And that should keep the Fed in the sweet spot, with slow rate hikes.

Meanwhile, there’s more than enough room for inflation to run in other developed economies.  You can see in Europe, inflation is now back above 1% for the first time in three years. That, too, is in large part because of its currency. In this case, a stronger dollar has meant a weaker euro.  This (along with the UK and Japan) is where the real REflation trade is taking place.  And it’s where it’s needed most, because it also means growth is coming with it, finally.

You can see, following Brexit, the chart looks similar in the UK – prices are coming back, again fueled by a sharp decline in the pound, which pumps up exports for the economy.

And, here’s Japan.

Japan’s deflation fight is the most noteworthy, following the administrations 2013 all-out assault to beat 2 decades of deflation.  It hasn’t worked, but now, post-Trump, the stars may be aligning for a sharp recovery.

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January 6, 2017, 7:00pm EST

With the Dow within a fraction of 20,000 today, and with the first week of 2017 in the books, I want to revisit my analysis from last month on why stocks are still cheap.

Despite what the media may tell you, the number 20,000 means very little. In fact, it’s amusing to watch interviewers constantly probe the experts on TV to get an anwer on why 20,000 for the Dow is meaningful. They demand an answer and they tend to get them when the lights and a camera are locked in on the interviewee.

Remember, if we step back and detach from the emotions of market chatter, speculation and perception, there are simple and objective reasons to believe the broader stock market can go much higher from current levels.

I want to walk through these reasons again for the new year.

Reason #1: To return to the long-term trajectory of 8% annualized returns for the S&P 500, the broad stock market would still need to recovery another 49% by the middle of next year. We’re still making up for the lost growth of the past decade.

Reason #2: In low-rate environments, the valuation on the broad market tends to run north of 20 times earnings. Adjusting for that multiple, we can see a reasonable path to a 16% return for the year.

Reason #3: We now have a clear, indisputable earnings catalyst to add to that story. The proposed corporate tax rate cut from 35% to 15% is estimated to drive S&P 500 earnings UP from an estimated $132 per share for next year, to as high as $157. Apply $157 to a 20x P/E and you get 3,140 in the S&P 500. That’s 38% higher.

Reason #4: What else is not factored into all of this simple analysis, nor the models of economists and Wall Street strategists? The prospects of a return of ‘animal spirits.’ This economic turbocharger has been dead for the past decade. The world has been deleveraging.

Reason #5: As billionaire Ray Dalio suggested, there is a clear shift in the environment, post President-elect Trump. The billionaire investor has determined the election to be a seminal moment. With that in mind, the most thorough study on historical debt crises (by Reinhardt and Rogoff) shows that the deleveraging of a credit bubble takes about as long as it took to build. They reckon the global credit bubble took about ten years to build. The top in housing was 2006. That means we’ve cleared ten years of deleveraging. That would argue that Trumponomics could be coming at the perfect time to amplify growth in a world that was already structurally turning. A pop in growth, means a pop in corporate earnings–and positive earnings surprises is a recipe for higher stock prices.

For these five simple reasons, even at Dow 20,000, stocks look extraordinarily cheap.

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks.  Our portfolio more than doubled the return of the S&P 500 in 2017. You can join me here and get positioned for a big 2017.

January 5, 2017, 4:00pm EST

We talked yesterday about the bad start for global markets in 2016.  It was led by China.  Today, it was a move in the Chinese currency that slowed the momentum in markets.  Yields have fallen back.  The dollar slid. And stocks took a breather.

China’s currency is a big deal to everyone.  It’s the centerpiece of the tariff threats that have been levied from the U.S. President-elect.  I’ve talked quite a bit about that posturing (you can see it again here:  Why Trump’s Tough Talk On China May Work).

As we know, China, itself, sets the value of its currency every day.  It’s called a managed float.  They determine the value.  And for the past two years, they’ve been walking it lower — weakening the yuan against the dollar.  That’s an about face to the trend of the prior nine years.  In 2005, in agreement with their major trading partners (primarily the U.S.), they began slowly appreciating their currency, in an effort to allay trade tensions, and threats of trade sanctions (tariffs).

So what happened today?  The Chinese revalued its currency — pegged ithigher by a little more than a percent against the dollar.  That doesn’t sound like a lot, but as you can see in the chart, it’s a big move, relative to the average daily volatility. That became big news and stoked a little bit of concern in markets, mostly because China was the sore spot at the open of last year, and the PBOC made a similar move around this time, when global marketswere spiraling.

Why did they do it?  This time around, the Chinese have complained about the threat of capital flowing out of the country – it’s a huge threat to their economy in its current form.  That’s where they’ve laid the blame, on the two year slide in the value of the yuan. With that, they’ve allegedly been fighting to keep the yuan stable and have been stepping up restrictions on money leaving the country.  Today’s move, which included a spike in the overnight yuan borrowing rate, was a way to crush speculators that have been betting against the currency, putting further downward pressure on the currency. But it also likely Trump related – the beginning of a crawl higher in the currency as we head toward the inauguration of the new President Trump.  It’s very typical for those under the gun for currency manipulation to make concessions before they meet with trade partners.

So, should we be concerned about the move today in China?  No.  It’s not another January 2016 moment. But the move did drive profit taking in twobig trends of the past two months:  the dollar and U.S. Treasuries.  With that, the first jobs report of the year comes tomorrow. It should provide more evidence that the Fed will hike a few times this year.  And that should restore the climb in the dollar and in rates.

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January 4, 2017, 4:00pm EST

Remember this time last year?  The markets opened with a nosedive in Chinese stocks.  By the time New York came in for trading, China was already down 7% and trading had been halted.  That started, what turned out to be, the worst opening stretch of a New Year in the history of the U.S. stock market.

The sirens were sounding and people were gripping for what they thought was going to be a disastrous year.  And then, later that month, oil slid from the mid $30s to the mid $20s and finally people began to realize it wasn’t China they should be worried about, it was oil.  The oil price crash was a ticking time bomb, about to unleash mass bankruptcies on the energy industry and threaten a “round two” of global financial crisis.

What happened?  Central banks stepped in.  On February 11th, the Bank of Japan intervened in the currency markets, buying dollars/selling yen.  What did they do with those dollars?  They must have bought oil, in one form or another.  Oil bottomed that day. China soon followed with a move to boost bank lending, relieving some fears of a global liquidity crunch.  The ECB upped its QE program and cut rates.  And then the Fed followed up by taking two of their projected four rate hikes off of the table (of which they ended up moving just once on the year).

What a difference a year makes.

There’s a clear shift in the environment, away from a world on liquidity-driven life support/ and toward structural, growth-oriented change.

With that, there’s a growing sense of optimism in the air that we haven’t seenin ten years.  Even many of the pros that have constantly been waiting for the next “shoe to drop” (for years) have gone quiet.

Global markets have started the year behaving very well. And despite the near tripling from the 2009 bottom in the stock market, money is just in the early stages of moving out of bonds and cash, and back into stocks. Following the election in November, we are coming into the year with TWO consecutive record monthly inflows into the U.S. stock market based on ETF flows from November and December.

The tone has been set by U.S. markets, and we should see the rest of the world start to play catch up (including emerging markets).  But this development was already underway before the election.

Remember, I talked about European stocks quite a bit back in October.  While U.S. stocks have soared to new record highs, German stocks have lagged dramatically and have offered one of the more compelling opportunities.

Here’s the chart we looked at back in October, where I said “after being down more than 20% earlier this year, German stocks are within 1.5% of turning green on the year, and technically breaking to the upside“…

And here’s the latest chart…

You can see, as you look to the far right of the chart, it’s been on a tear. Adding fuel to that fire, the eurozone economic data is beginning to show signs that a big bounce may be coming. A pop in U.S. growth would only bolster that.

And a big bounce back in euro zone growth this year would be a very valuabledefense against another populist backlash against the establishment (first Grexit, then Brexit, then Trump).  Nationalist movements in Germany and France are huge threats to the EU and euro (the common currency).  Another round of potential break-up of the euro would be destabilizing for the global economy.

With that, as we enter the year with the ammunition to end the decade long economy rut, there are still hurdles to overcome.  Along with Trump/China frictions, the French and German elections are the other clear and present dangers ahead that could dull the efficacy of Trumponomics.

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks.  Our portfolio more than doubled the return of the S&P 500 in 2017. You can join me here and get positioned for a big 2017.