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Stocks continue to make new highs – five consecutive days of higher highs in the Dow.  The Trump administration continues to make new news. And the Fed continues to become less important.  Those have been the  themes of the week.

Today was the deadline for all big money managers to give a public snapshot of their portfolios to the SEC (as they stood at the end of Q4). So let’s review why (if at all) the news you read about today, regarding the moves of big investors, matters.

Remember, all investors that are managing over $100 million are required to publicly disclose their holdings every quarter. They have 45 days from the end of the quarter to file that disclosure with the SEC. It’s called a form 13F.

First, it’s important to understand that some of the moves deduced from 13F filings can be as old as 135 days. Filings must be made 45 days after the previous quarter ends.

Now, there are literally thousands of investment managers that are required to report on a 13F.  That means there are thousands of filings.  And the difference in manager talent, strategies, portfolio sizes, motivations and investment mandates runs the gamut.

Although the media loves to run splashy headlines about who bought what, and who sold what, to make you feel overconfident about what you own, scared about what they sold, anxious, envious or all a combination of it all.   The truth is, most of the meaningful portfolio activity is already well known. Many times, if they are big stakes, they’ve already been reported in another filing with the SEC, called the 13D.

With this all in mind, there are nuggets to be found in 13Fs. Let’s revisit how to find them, and the take aways from the recent filings.

I only look at a tiny percentage of filings—just the investors that have long and proven track records, distinct approaches, and who have concentrated portfolios.  That narrows the universe dramatically.

Here’s what to look for:

1. Clustering in stocks and sectors by good hedge funds is bullish. Situations where good funds are doubling down on stocks is bullish. This all can provide good insight into the mindset of the biggest and best investors in the world, and can be a predictor of trends that have yet to materialize in the market’s eye.
2. For specialist investors (such as a technology focused hedge fund) we take note when they buy a new technology stock or double down on a technology stock. This is much more predictive than when a generalist investor, as an example, buys a technology stock or takes a macro bet.
3. The bigger the position relative to the size of their portfolio, the better. Concentrated positions show conviction. Conviction tends to result in a higher probability of success. Again, in most cases, we will see these first in the 13D filings.
4. New positions that are of large, but under 5%, are worthy of putting on the watch list. These positions can be an indicator that the investor is building a position that will soon be a “controlling stake.”
5. Trimming of positions is generally not predictive unless a hedge fund or billionaire cuts by a substantial amount, or cuts below 5% (which we will see first in 13D filings). Funds also tend to trim losers into the fourth quarter for tax loss benefits, and then they buy them back early the following year.

As for the takeaways from Q4 filings, the best names had built stakes in financials.  That’s not surprising given that the Trump win had all but promised a “de-Dodd Franking” of the banking system, especially with the line-up of former Goldman alum that had been announced by late December.

The other big notable in the filings:  Warren Buffett’s stake in Apple.

Remember, as we headed into the Brexit vote last year, the broad market mood was shaky.  Markets were recovering after the oil price crash, and the unknowns from Brexit had some running for cover. Meanwhile, some of the best investors were building as others were trimming.  They were buying energy near the bottom.  They were buying health care.  And while many were selling the most dominant company in the world, Warren Buffett was buying from them.  The guy who has made his fortunes buying when others are selling, did it again with Apple.  He was buying near the bottom last summer, and in the fourth quarter he ramped up big time, more than tripling his stake to a $6.6 billion position.

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November 28, 2016, 4:45pm EST

With Thanksgiving behind us, we a few key events ahead for markets before we can put a bow on things and call it a year.

As things stand, the S&P 500 is up around 8%, right in line with the long term average return (less dividends).  Yields are around 2.3%.  That’s right about where we left off at the end of 2015 (following the Fed’s first move higher on rates since the crisis).

We may find a round trip for oil as well before the year it over.  On Wednesday, we’ll finally hear from OPEC on a production cut. Remember, it was late September when we were told that the Saudis were finally on board for a production cut, to get oil prices higher and to stop the bleeding in the oil revenue dependent OPEC economies.

As we’ve discussed, it was Saudi Arabia that blocked a cut on
Thanksgiving day evening two years ago.  And that sent oil into a spiral from $70 to as low as $26.  Importantly, cheap oil has not only represented a threat to global economic stability but it’s been deflationary.  The threat to stability and the deflationary pressure is what has kept the Fed on the sidelines, reversing course on their rate hike projections for this year, and then, conversely, becoming progressively more and more dovish since March.

You can see in this graphic from the Fed last December (2015) after they decided to hike for the first time coming out of the crisis period.

Source: Fed

The majority view from Fed members was an expectation that the Fed funds rate would be about 1.375% at this point in th year (2016).  As we know, it hasn’t happened.  As of two months ago, the Fed was expecting rates to be at just 1.00% by the end next year.

This makes this week’s OPEC decision even more important, given the market’s and Fed’s expectations on the path of monetary policy at this point.

If OPEC does as they’ve indicated they will do this week, by announcing the first production cut in oil in eight years, it could send the price of oil back to levels of two years ago — when the oil price bust was started that Thanksgiving day.  That’s $70.

And $70 oil would play a huge role in where rates go next year, in the U.S., and in Europe and Japan.  The inflationary pressures of $70 oil could put the Fed back on a path to hike three to four times in the coming year (as they intended coming into 2016).  And it could create the beginning of taper talk in Europe and Japan.

If we consider that possibility, it makes for a remarkably dramatic change in the global economic outlook in just five weeks (since the Nov 8 election).  As Paul Tudor Jones, one of the great macro traders of all-time, has said: “the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.”  An OPEC move should cement the top in bonds.

We may be entering an incredible era for investing. An opportunity for average investors to make up ground on the meager wealth creation and retirement savings opportunities of the past decade, or more. For help, follow me in my Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks. Our portfolio is up 24% year to date. That’s more than three times the performance of the broader stock market. Join me here.

Heading into today’s inflation data, the prospects of German 10-year government interest rates going negative had added to the heightened risk aversion in global markets.  And we’ve been talking this week about how markets are set up for a positive surprise on the inflation front, which could further support the mending of global confidence.

On cue, the euro zone inflation data this morning (the most important data point on inflation in the world right now) came in better than expected.  We know Europe, like Japan, is throwing the kitchen sink of extraordinary monetary policies at the economy in an effort to reverse economic stagnation and another steep fall into deflation.  And we know that the path forward in Europe, at this stage, will directly affect that path forward in the U.S. and global economy.  So, as we said in one of our notes last week, the world needs to see “green shoots” in Europe.

With the better euro zone inflation data today, we may be seeing the early signs of a bottom in this cycle of global pessimism and uncertainty. German yields are now trading double the levels of Monday.  And with that, U.S. yields have broken the downtrend of the month, as you can see in the chart below.

Source: Billionaire’s Portfolio, Reuters

With that in mind, today we want to talk about how we can increase certainty in an uncertain world.  Aside from the all-important macro influences, even when you get the macro right, when your investing in stocks, you also have to get a lot of other things right, to avoid the landmines and extract something more than what the broad tide of the stock market gives you (which is about 8% annualized over the long term, and it comes with big drawdowns and a very bumpy road).

In our Billionaire’s Portfolio, we like to put the odds on our side as much as possible. We do so by following big, influential investors into stocks where they’ve already taken a huge stake in a company, and are wielding their influence and power to maximize the probability that they will exit with a nice profit.

This is the perfect time to join us in our Billionaire’s Portfolio.  We’ve discussed our simple analysis on why broader stocks can and should go much higher from here. You can revisit some of that analysis here.  In our current portfolio, we have stocks that are up. We have stocks that are down.  We have stocks that are relatively flat.  But they all have the potential to do multiples of what the broad market does.  And for depressed billionaire-owned stocks, a broad market rally and shift in economic sentiment should make these stocks perform like leveraged call options – importantly, without the time decay.   Join us here to get your portfolio in line with ours.

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Gold has been a core trade for a lot of people throughout the crisis period. When Lehman failed in 2008, it shook the world, global credit froze, banks were on the verge of collapse, the global economy was on the brink of implosion – people ran into gold. Gold was a fear-of-the-unknown-outcome trade.

Then the global central banks responded with massive backstops, guarantees, and unprecedented QE programs. The world stabilized, but people ran faster into gold. Gold became a hyperinflation-fear trade.

Source: Billionaire’s Portfolio

In the chart above, you can see gold went on a tear from sub-$700 bucks to over $1,900 following the onset of global QE (led by the Fed).

Gold ran up as high as 180%. That was pricing in 41% annualized inflation at one point (as a dollar for dollar hedge). Of course, inflation didn’t comply. Still eight years after the Fed’s first round of QE (and massive global responses), we have just 13% cumulative inflation over the period.

So the gold bugs overshot in a big way.

Why? The next chart tells the story…

This chart above is the velocity of money. This is the rate at which money circulates through the economy. And you can see to the far right of the chart, it hasn’t been fast. In fact, it’s at historic lows. Banks used cheap/free money from the Fed to recapitalize, not to lend. Borrows had no appetite to borrow, because they were scarred by unemployment and overindebtedness. Bottom line: we get inflation when people are confident about their financial future, jobs, earning potential … and competing for things, buying today, thinking prices might be higher, or the widget might be gone tomorrow. It’s been the opposite for the past eight years.

So, no inflation – what does that mean for gold?

Source: Billionaire’s Portfolio

After three rounds of Fed QE, and now mass scale QE from the BOJ and the ECB, the world is still battling DE-flationary pressures. If gold surged from sub-$700 to $1,900 on Fed/QE-driven hyperinflation fears, and QE has produced little to no inflation, it’s fair to think we can return to pre-QE levels. That’s sub-$700.

We head into the weekend with stocks down 3% for the month. This follows a bad January. In fact, the stock market is working on a fifth consecutive negative month. The likelihood, however, of it finishing down for February is very low. It’s only happened 18 times since 1928. So the S&P 500 has five consecutive losing months just 1.7% of the time, historically.

To follow the stock picks of the world’s best billionaire investors, subscribe at Billionaire’s Portfolio.

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8//27/2014

Over the past week, I received hundreds of emails concerning Carl Icahn’s announcement that he took an 8% position in Hertz (HTZ). We know Icahn has already publicly stated he wants to actively engage with Hertz management and its CEO, but there has been no word about Icahn pushing Hertz to merge or sell itself.

Here is why: First, regulators would never approve a Hertz-Avis merger. The two entities represent too large a share of the industry. It would essentially be a monopoly. So a merger with Avis isn’t happening — at least in my opinion.

Though, given the quick 25% run up in Family Dollar (FDO) last month after Icahn forced a merger with Dollar Tree (DLTR), it’s easy to see why investors are hoping for a similar result. Clearly, people don’t want to miss out on the next FDO. On that note, you can read some great analysis of the Family Dollar deal, where my partner and I predicted the merger and picked the bottom in Family Dollar stock (read that here).

But again, this is not going to happen with Hertz. Icahn and numerous other investors are long Hertz. Hertz is actually one of the most popular stocks owned by top billionaire hedge fund managers, because it’s a pure play on the improving economy, and rental car companies have lagged airlines in terms of raising their prices.

So many hedge funds are betting on Hertz increasing its prices, like the airlines did last year, and they are betting that demand will continue to improve with the recovery in the economy. It’s that simple.

Also, this is not a classic Icahn play. He typically comes into a deeply depressed stock selling near its 52-week low or multi-year lows. Icahn purchased Hertz near the stock’s all-time high.

But what Icahn is doing is playing his “change” card. He has recently laid out his evidence, based on his history as an activist investor, of how replacing a CEO is a powerful catalyst for producing shareholder wealth creation. And one of his fellow shareholders in Hertz is already at work on that strategy: Fir Tree Partners is pressuring the board to oust the CEO.

Will Meade
President of The Billionaires Portfolio