February 28, 2017, 4:30pm EST                                                                                Invest Alongside Billionaires For $297/Qtr

Markets are quiet as we head into President Trump’s address to Congress tonight.  As we’ve discussed over the past week or so, the markets seem to have run the course on the outlook of fiscal stimulus and regulatory reform within an environment of a gradual rise in interest rates.

That “expectation” backdrop seems to be pretty well priced in.  Now, it’s a matter of detail and timing, and that puts the new President squarely in focus for tonight.

We’ve already heard from his Treasury Secretary last week that tax reform wouldn’t be coming until August-ish.  And he said we shouldn’t expect that big growth bump from Trumponomics until 2018.  That’s been the first real downward management of the expectations that have been set over the past three months.

What hasn’t been discussed much is the big infrastructure spend, which is really at the core of the pro-growth policies of the Trump administration.  For years, the Fed has been begging Congress for help in stabilizing the economy and stimulating growth in it — from the FISCAL side.

Given the wounds of the debt crisis, it was politically unpalatable for Congress.  They ignored the calls.  And as a result, just six months ago we (and the rest of the world) were dangerously close to slipping back into crisis. Only this time, the central banks would not have had the ammunition to fight it.

So now we have Congress with the will and position to act.  It’s a matter of detailing a plan and getting it moving.  Of the many positive things that could come from tonight’s speech by President Trump, details and timeline on fiscal stimulus would be the biggest and most meaningful.

The bickering about deficits and debt will continue, but a big stimulus package will happen — it has to happen. A government spending led growth pop is, at this stage, the only chance we have of returning to a sustainable path of growth and ultimately reducing the debt load down the line, which now is about 100% of GDP.  A move back to 80% of GDP would make the U.S. debt load, relative to the rest of the world, a non-issue.

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January 30, 2017, 4:00pm EST                                                Invest Alongside Billionaires For $297/Qtr

The Trump agenda continues to dominate the market focus as we entered the second week of Trumponomics.

To this point the market focus has been on the pro-growth agenda.  With that, stocks have been higher, yields have been higher, the dollar has been higher, and global commodities have been broadly rising. Meanwhile, gold (the fear trade) has been falling and the VIX has been falling, toward ultra-low levels.  The VIX, like gold, is a good market indicator of uncertainty and/or fear.

Let’s talk about the VIX…

The VIX measures the implied volatility of options on the S&P 500. This is a key component in the price investors pay for downside protection on their portfolios.

So what is implied volatility?  Implied volatility measures both actual volatility and the options market maker community’s expectations (or perception of certainty) about future volatility.  When market makers feel confident about the stability in markets, implied vol is lower, which makes the price of options cheaper.  When they aren’t confident in stability, implied vol goes up, which makes the price of an option go up.  To compensate those that are taking the other side of your trade, for the lack of predictability, you pay a premium.

With that in mind, on Friday, the VIX traded to the lowest levels since the days before the failure of Lehman Brothers. That indicates that the market had (or has) become a believer that pro-growth policies, combined with ultra-easy central bank policies have created a buffer against the downside in stocks.  But that perception of downside risk is changing today, with the more vocal uprising against Trump social policies.  You can see the spike (in the far right of the chart) today…

So as big money managers were closing the week last Friday, looking at Dow 20,000+ and a VIX sliding toward levels not too far from pre-crisis levels, buying downside protection was dirt cheap. This morning, they’re paying quite a bit more for that protection.

With that said, this pop in the VIX and the Dow trading off by more than 100 points today gets a lot of attention.  But is there justification to think that market turbulence will begin to reflect the turbulence and division in public opinion toward Trump policies?  Just gauging the extent of the market reaction from the VIX today, it’s unlikely.  The chart below is the longer term view of the VIX.

My observations: The VIX has had a small bounce from very, very low levels.  On an absolute basis, vol is still very cheap.  When there is real fear in the air, real uncertainty about the future, you can see from the spikes in the longer term chart above, the premium for the unknown gets priced in quickly and aggressively.  Given that there has been virtually no risk premium priced into the market for any falter in the Trump Presidency, or the execution of Trump policies, the moves today have been very modest. And gold (as I write) is barely changed on the day.

We are likely entering an incredible era for investing, which will be an opportunity for average investors to make up ground on the meager wealth creation and retirement savings opportunities of the past decade.  For help building a high potential portfolio for 2017, 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 2016.  You can join me here and get positioned for a big 2017.

January 27, 2017, 4:00pm EST                                                                                         Invest Alongside Billionaires For $297/Qtr

We’re finishing the first full week under Trumponomics. And it’s been an active one.

It’s clear now that President Trump intends to follow through on his campaign promises. While that’s making waves with the media and with Washington types, it’s creating more certainty about the outlook for growth for the real economy and, therefore, for financial markets.

We close the week with the Dow above 20,000, on new record highs. And as we discussed yesterday, stock markets around the world are rallying too on the prospects of a stronger U.S. economy translating into a stronger global economy. We looked at the charts of Mexican and Canadian stocks yesterday–both of which are sitting on record highs. U.K. stocks are near record highs and German stocks are quickly closing in.

We already know that small business optimism in the U.S. has hit 12-year highs, jumping by the most in since 1980–on Trump’s pro-growth agenda. Today the consumer sentiment report showed sentiment is on the rise too–at 13-year highs.

Let’s talk about the data that we’re leaving behind. Fourth quarter GDP was reported today at just 1.9%. This, more than seven years removed from the failure of Lehman Brothers, an $800 billion stimulus package, seven years of zero interest rates and three rounds of quantitative easing, and the economy is running at about 60% of its normal pace. And even after taking the Fed’s balance sheet from $800 billion to $4.5 trillion, we have inflation running at less than 50% of its normal pace. This malaise is consistent throughout the world. And this is precisely why big, bold fiscal stimulus and structural change is desperately needed, and is being embraced by those that understand the dangers of the stall-speed global economy that has been kept alive by global central bank intervention. As I’ve said, at Dow 20,000, it’s just getting started.

Have a great weekend!

We are likely entering an incredible era for investing, which will be an opportunity for average investors to make up ground on the meager wealth creation and retirement savings opportunities of the past decade.  For help building a high potential portfolio for 2017, 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 2016.  You can join me here and get positioned for a big 2017.

November 14, 2016, 4:45pm EST

We talked last week about the Trump effect on stocks.  With a new President promising aggressive growth polices and a supportive Congress in place to make it happen, the Trump plan is now being coined as Trumponomics.

As we discussed last week, the markets are reflecting this hand-off, from a Fed driven economy to a pro-growth government driven economy, positively — pricing in a period of hot growth.  And it couldn’t come at a better time — in fact, it may come at the perfect time.

The Fed has been able to manufacture stability but not demand and inflation.  Fiscal stimulus is designed to fill that void — to boost aggregate demand and inflation.  That’s why the bond market has shifted gears so dramatically, now reflecting a world with a trillion dollar infrastructure spend on the table, tax cuts, deregulation and incentives to get $2.5 trillion of U.S. corporate capital repatriated. Prior to last week, despite all of the best efforts from global central banks, and a Fed that was telegraphing a removal of emergency policies, the bond market was reflecting a world that was in depression, with the 10-year yield well below 2% in the U.S. and negative rates throughout much of the world. Today the U.S. 10 year traded above 2.25%, returning to levels we saw last December, when the Fed made its first post-crisis rate hike.

As we’ve discussed, growth has a way of solving a lot of problems, including our debt problem.  Politicians and economists love to scare people by emphasizing the enormity of our debt (close to $20 trillion). But our debt size is all relative — relative to the size of our economy, and relative to what’s going on in the rest of the world.

Take a look at this table…

Source: Billionaire’s Portfolio, TradingEconomics.com

You can see, in a major economic downturn, debt tends to rise. And it has for everyone. The downturn has been global.  And the rise in debt has been global.

The fears that a big debt load will lead to a dumping of the dollar, hyper-inflation and runaway interest rates don’t fit in this picture of a broadly weak recovery from a paralyzing global debt bust. Coming out of the worst global recession since World War II, inflation hasn’t been the problem. It’s been deflation. Inflation will be a concern when the structural issues are on the mend, employment is robust, confidence is high and the real economy is working. That hasn’t happened.  But an aggressive and targeted government spending plan can finally start changing that dynamic.

And the markets are telling us, an inflationary environment is welcomed – it comes with signs of life.

Gold is the widely-loved inflation hedge.  And gold isn’t rising out of concerns of overindebtedness.  It’s falling hard in the past week, in favor of growth.

With this in mind, we may very well be entering an incredible era for investing – after a long slog. And 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 our 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 16% this year.  That’s 2.5 times the performance of the broader stock market. Join me here.