|
|
October 12, 5:00 pm EST
The S&P 500 has declined more than 5% (from peak to trough) on four different occasions this year. That’s despite an economy that is heating up, finally escaping the slow growth rut of the past decade.
So, should you be fearful when these declines occur, or should you be greedy?
During market declines – with the constant barrage of market analysis and opinion on financial television, in newspapers, or through the Internet – it’s easy to get sucked into drama played out in the media.
And that tends to make many investors fearful.
But while the fearful start running out of the store when stocks go on sale, the best billionaire investors in the world, start running IN.
The fact is, the best investors in the world see declines in the U.S. stock market as an exciting opportunity. And so should you.
Most average investors in stocks are NOT leveraged. And with that, they should have no concern about U.S. 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?”
Billionaire Ray Dalio, the founder of the biggest hedge fund in the world, has said what we think is the most simple yet important fact ever said about investing.
“There are few sure things in investing … that betas rise over time relative to cash is one of them.”
In plain English, he’s saying that 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.
This is the very simple philosophy Dalio follows, and is the core of how he makes money and how he has become one of the best, and richest, investors alive.
Billionaires Bill Ackman and Carl Icahn, two of the great activist investors, lick their chops when broad markets sell off on fear and uncertainty.
Ackman says he gets to buy stakes in high quality businesses at a discount when broad markets decline for non-fundamental reasons. Icahn says he hopes a stock he owns goes lower so he can buy more.
What about the great Warren Buffett? What does he think about market declines? He has famously attributed his long-term investing success to “being greedy when others are fearful.”
Bottom line: Declines in the broad market are times to take out your shopping list.
If you need help with your shopping list, join me in my Billionaire’s Portfolio. We follow the world’s bests billionaire investors into their favorite stocks. Click here to learn more.
|
October 8, 5:00 pm EST China was on holiday last week (Golden Week). So today, with China back to work, we saw the response in Chinese markets, for the first time, to the spike in global bond yields (and the slide in global stocks). Chinese stocks fell by 3.7%. The yuan slid back to the 21-month lows. And the PBOC stepped in with the fourth cut of the year to its reserve ratio. Now, China has been running sub-7% growth since late 2015. And in China, that’s recession like economic activity. The Chinese government’s sensitivity to this level of growth is clear through the behavior of the central bank’s use of RRR cuts and the currency (the yuan). Cutting the required reserves for banks is a way to stimulate the economy – to promote lending. Weakening the currency is a way to stimulate exports. You can see in the chart below, that has been the path for both (the currency and the RRR) since late 2015. |
 |
| You can also see in the chart, a period where the yuan strengthened sharply. What gives?
That was China’s response to the Trump election. The Chinese ran the currency back UP, in hopes of pacifying Trump and staying above the trade dispute fray. It didn’t work. As we know, they have found themselves at the center of Trump’s trade offensive. As such, they have dug in, and returned to weakening the yuan — the best way they know, to defend/drive growth in their economy (i.e. undercut the world on price). The USD/CNY rate here will probably become the most important market to watch in the coming days and weeks. A return to 7 yuan per dollar would be the weakest level of the Chinese currency since 2008, pre-Lehman. That will cause some geopolitical fireworks. Attention loyal readers: The Billionaire’s Portfolio is my premium advisory service. And I’d like to invite you to join today, as we are beginning what I think will be a tremendous run for value stocks into the end of the year. It’s a great deal for the money. Just click here to subscribe, and get immediate access to my full portfolio of billionaire-owned stocks. When you join, you’ll get immediate access to every recommendation–past, present and future–in the portfolio. And I’ll deliver my in-depth notes on our portfolio and the bigger picture every week, directly to your inbox.
|
October 1, 5:00 pm EST
Given the global nature of business within the Dow constituents, the DJIA has been the place for pain, as uncertainty over trade has ebbed and flowed over the past year. So, with a new trade agreement with Mexico and Canada, we get a big rally in the Dow today. That puts the Dow up 7.8% on the year.
Still, we came into the year expecting something much bigger for stocks.
The big tax cuts that came near the end of last year, have indeed translated into big corporate earnings surprises, and a hotter than expected economy. This is something you would expect to be fuel for a much bigger than average year for broader stock markets. And you would expect it to be fuel for a big run in commodities markets. But the stock market performance is sitting right around long-term average gains. And broad commodities performance (if we look at the CRB index) is up just 2% on the year.
This has all been supressed by the uncertainties surrounding trade, and the resulting rising geopolitical tensions.
But with concessions from Europe on trade earlier in the summer, and now a new agreement on North American trade, Trump is clearly winning on trade.
What’s next? Infrastructure. This has been the next pillar of Trumponomics. Gary Cohn, the former White House economic advisor, said he thinks the White House will get it done ($1 trillion+) regardless of who controls the House after November.
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.
|
September 20, 5:00 pm EST Global markets continue to melt-UP. Ironically, Trump’s promise to slap an additional $200 billion on Chinese goods proved to be the marker for “risk-on.” As we’ve discussed, the reaction from global markets tells us that reforming China is a good thing. Among the confirmation signals we’re getting on that theory: 1) Japanese stocks are surging (as a beneficiary of fair trade), 2) Chinese stocks are bottoming (perhaps a more sustainable and balanced economy in its future), and 3) the Dow is finally playing catch up (the U.S. stock index that has been punished by trade uncertainty). Let’s take a look at the charts … As you can see below, Japanese stocks are finally making a run back toward the highs of last year. |
 |
|
Chinese stocks have put in a key reversal signal (an outside day) into a double bottom. This is following a 50% decline from the 2015 highs.
|
 |
|
And after eight long months, the Dow finally surpassed the January highs today. |
 |
|
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.
|
September 19, 5:00 pm EST
Just two weeks ago, the Nasdaq was up 19% on the year, while the “blue-chip” heavy DJIA was up just 4%.
This is in a world where rates are low, corporate profits are growing at 20% and the economy is on pace to have above trend growth.
Great traders love when prices are detached from fundamentals, especially when it’s driven by fear or euphoria. This was a clear disconnect. And you could argue that there has been a bit of both fear and euphoria driving it (fear priced into the Dow about trade wars, and euphoria priced into the tech giants on the idea that the burgeoning monopolies would go unchecked forever until all competition is left for dead).
Both the fear and the euphoria were misguided for all of the reasons we discuss almost daily in my Pro Perspectives note.
And now we’re seeing a convergence. In just two weeks, that performance gap between the Dow and Nasdaq has now closed from fifteen percentage points to nine percentage points. And the Dow still has a lot of room to run. It remains just under the highs from January.
Now, yesterday we talked about the opportunity for Japan to benefit from forced trade reform in China. Other big beneficiaries? Emerging market economies.
In short, all of the countries that have been short-changed on their global trade competitiveness because of China’s weak currency policies, should benefit in a world where China is held to a standard of fair trade.
That’s why Japanese stocks had a huge run yesterday (and expect it to continue). And that’s why EM stock markets were big movers today. The Frontier Markets ETF (FM) is still down 14% on the year. With the idea that these countries may get a better crack at global demand, I suspect these stock markets could be in for a big bounce.
|
September 17, 5:00 pm EST The market is typically pretty good at pricing in what is known. And it has been pretty clear that Trump has seen trade imbalances as a key piece of his structural reform plan. And the strategy on correcting those imbalances has been to fight trade barriers with trade barriers. While it has created plenty of fodder for political and economic debates, the markets seem to like it. As we’ve discussed, any movement on trade, from a U.S. perspective, is success. He has said as much with this statement on China: |
 |
|
Given the position of U.S. stocks (at or near record highs) relative to global trading partner stock markets (largely, negative on the year), the market seems to be fairly comfortably betting that movement will occur, given the position of strength from which Trump is negotiating (i.e. the biggest and most powerful economy behind him). Now, this is the effort to level the playing field internationally. We’ve also talked about the ‘domestic’ leveling of the playing field on the Trump agenda. And that has everything to do with the tech giants. And it has most to do with Amazon. With that, we’ve talked about the case for breaking up Amazon. As I’ve said “At 161 times earnings, the market seems to be betting on the Amazon monopoly being left to corner all of the world’s industries. That’s a bad bet. Much like China undercut the competition on price and cornered the world’s export market, Amazon has undercut the retail industry on price, and cornered the world’s retail business. That tipping point (on retail) has well passed. And as sales growth accelerates for Amazon, so does the speed at which competition is being destroyed. But Amazon is now moving aggressively into almost every industry. This company has to be/will be broken up.” Amazon was a big loser on the day today. Why? Break-up speculation. A Citibank internet analyst today called for the split of Amazon’s ecommerce and cloud computing business (AWS). But the analyst recommended the company split itself to avoid regulators doing it for them. That sounds like a recommendation for a pre-emptive strike in an effort to maintain the euphoric investor sentiment in the stock. When we look back, the trillion-dollar valuation threshold in Amazon may have been curse. On September 4th, it hit a trillion dollars. And that has been the dead top. |
 |
|
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. |
September 5, 5:00 pm EST
Yesterday we talked about the case for breaking up Amazon, on the day it crossed the trillion-dollar valuation threshold. Today the stock was down 2%.
Also today, Facebook and Twitter executives visited Capitol Hill for a Congressional grilling.
If you listened to Zuckerberg’s Congressional testimony in April, and today’s grilling of Jack Dorsey (Twitter) and Sheryl Sandberg (Facebook), it’s clear that they have created monsters that they can’t manage. These tech giants have gotten too big, too powerful, and too dangerous to the economy (and society).
All have emerged and dominated, thanks in large part to regulatory advantage – operating under the guise of an “internet business.” And it all went unchecked for too long. These are monopolies in the making. But, as we know, Trump is on it.
As we discussed yesterday, Amazon has to, and will be, broken up. As for Facebook, Google, Twitter, Uber: the regulatory screws are tightening. Those businesses won’t look the same when it’s over. But it’s complicated. The higher the cost of compliance, the smaller the chances that there will ever be another Facebook or challenger. That goes for many of the tech giants.
With that in mind, regulation actually strengthens the moat for these companies.
That would argue that they may ultimately go the way of public utilities (in the case of Facebook, Google and Twitter).
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.
June 18, 5:00 pm EST
For much of last summer, we talked about the building bull market in commodities.
The price of crude oil has nearly doubled since that time. But broader commodities have yet to take off.
Remember, we’ve looked at this chart of commodities versus stocks quite a bit.
As we’ve discussed, the only two times commodities have been this cheap relative to stocks were at the depths of the Great Depression in the early 30s and at the end of the Bretton Woods currency system in the early 70s.
And from deeply depressed valuations, commodities went on a tear, both times.
Now, since last summer, the trajectory of commodities has been up. But so have stocks. Still, this gap has narrowed a bit. Stocks are up 13% in the past year. The CRB index is up 17%.
The big difference between this year and last year, is the level on the 10-year yield. Last year this time, yields were 2.20%. Today, yields are closer to 3%. That’s because the economy is hotter, and inflation is finally reaching the Fed’s target of 2%.
What asset class should perform the best in a rising inflation environment? Commodities. As we’ve discussed in recent weeks, the data on the economy is lining up for some big positive surprises. That will be fuel for commodities prices.
If you are hunting for the right stocks to buy, in my Forbes 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.