investing | Billionaire's Portfolio

January 10, 5:00 pm EST

The coordinated response to market turmoil continues to reverse the tide of what was becoming an increasingly ugly global financial market meltdown.

Remember, we had a response from the U.S. Treasury Secretary on the days leading up to Christmas, which included call outs to the major banks and a meeting of the “President’s Working Group” on financial markets. Coincidentally, by the next Wednesday, a new item hit the agenda for the American Economic Association Annual Meeting. It was the January 4 live interview with the three most powerful central bankers in the world over the past ten years: Bernanke, Yellen and Powell. These three sat on stage together and massaged market sentiment on the path of interest rates, fortifying the market recovery that was started by the efforts of the Treasury.

Just in case we didn’t get the message, we’ve since had six Fed officials publicly dialing down expectations on the rate outlook, in response to financial markets. And we’ve had minutes from the Fed’s last meeting that clearly gave the message that the Fed could pause, sit and watch. And then today Powell was on stage again for another public interview, reiterating the Fed’s new position: on hold.

Join me here to get all of my in-depth analysis on the big picture, and to get access to my carefully curated list of “stocks to buy” now.

Maybe The Real Economic Expansion Is Just Beginning

January 8, 5:00 pm EST

The expectations have been dialed down dramatically over the past few months for markets and the economy.

If indeed it’s all detached from reality, as the fundamentals would suggest, how might markets look if we have another 3%+ year growth in the U.S. in 2019, and if the weight of the China trade dispute lifts, and emerging market growth rebounds?

My guess: stocks and commodities will be much, much higher by year end.

For stocks, Q4 earnings season kicks off next week with the banks. Given the deterioration in sentiment last quarter, the estimates on earnings have been dialed down. We’ve gone from a full year of earnings growth north of 20% (in 2018) to earnings growth expectations in 2019 at just 7%. That sets up for positive earnings surprises this year. And at 14 times next year’s earnings, the market is already dirt cheap — better earnings would make stocks even cheaper.

As for commodities, the economic expansion has been called “late cycle” by many, but commodities haven’t participated, as you can see in the chart below.

What if this chart tells us that the decade that followed the financial crisis was indeed a depression, and central banks were only able to manufacture enough economic economic activity to buffer the pain (not a real economic expansion)? And now, instead of at the tail end of one of the longest economic expansions on record, we’re in the early stages of a real expansion, driven by fiscal policies and structural reform that has started in the U.S. and will be implemented abroad (Europe, Japan, China).

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Newsflash: Apple Is Dirt Cheap

January 3, 5:00 pm EST

As we’ve discussed, the dysfunctional stock market has put pressure on Trump to stand down and make a deal with China.

And Apple’s CEO, Tim Cook, turned up that pressure yesterday. In a letter to investors, he warned that Apple, the biggest and most powerful company in the world, would have lower revenue in the quarter that just ended. The blame was placed on economic deceleration in China —due to the trade dispute.

Now, it’s clear that Cook wanted to draw attention to the impact of the trade dispute. And the media was happy to run with that story today.

But the slowdown at Apple last quarter also had a lot to do with “fewer iPhone upgrades than anticipated.” This was tossed into the context of slower economic activity in China, which makes it look like a macro issue. But Apple also has a micro issue. They seem to have exhausted the compelling innovation that has historically gotten iPhone users excited about buying the latest and greatest phone. The older models are still pretty great. No reason to upgrade.

So, Apple has used a violent market and slowdown in China, perhaps, in an attempt to divert attention away from the slowing device business.

The good news: Even if they don’t develop the next world-changing device, they have a services business (Apple pay, Apple Music, iCloud Drive, AppleCare and the iTunes App store) that is producing almost as much revenue as Facebook.

And the stock is incredibly cheap. On trailing twelve months, the stock trades at 12 times earnings. But if we back out the nearly $240 billion of cash Apple is sitting on, the business at Apple is being valued at $437 billion. That’s about 7 times trailing twelve month earnings.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Why This Looks Like 1994

December 20, 5:00 pm EST

In recent days we’ve discussed the parallels between this year and 1994. In ’94 the Fed was hiking rates into a low inflation, recovering economy.

The Fed has done the same this year, methodically raising rates into a low inflation, recovering economy. And like in 1994, the persistent tightening of credit has sent signals that the Fed is threatening economic growth. Asset prices have swooned, and we have a world where cash is the best performing asset class (just as we experienced in 1994).

But remember, the Fed was forced to stop and reverse by early 1995. Stock prices exploded 36% higher that year.

With this in mind, over the past couple of weeks, several of the best investors in the world have publicly commented on the state of markets.

Among them, was billionaire Paul Tudor Jones. Jones is one of the great global macro traders of all-time. He’s known for calling the 1987 crash, where he returned over 125% (after fees). And he’s done close to 20% a year (again, after fees) spanning four decades.

Let’s take a look at what Jones said in an interview on December 10th …

He said the Fed has gone too far (tightened too aggressively). But he thinks the Fed is near the end of its tightening cycle.

With that, he expected to see more swings in stocks. He said he thinks we could be down 10% or up 10% from the levels of December 10th. But historically when the Fed ends a tightening cycle, after going too far, he says it has been a great time to be in the stock market.

The sentiment that the Fed has gone “too far” increased dramatically across the market this week — in the days up to yesterday’s Fed meeting. As such, because the Fed followed through with another hike yesterday, and telegraphed more next year, stocks continued to slide today. In fact, stocks have now/already declined 9.4% from the levels where Paul Tudor Jones made his comments about down 10%/up 10%. Again, he made those comments just 10 days ago.

With the above in mind, here’s what he said he would do if he saw itdown 10%: “I’m going to buy the hell out of ten percent lower, for sure. To me, that’s an absolute lay-up.”

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Oil Should Give The Fed ‘Pause’

December 18, 5:00 pm EST

Stocks hover around the February lows, as we head into tomorrow’s big Fed decision.

Although the calls for the Fed to pause on its rate hiking path have been building (including many requests via Twitter from the President), the market remains prepared for a hike. The interest rate market is pricing in about a 72% chance.

We’ve talked about the influence of oil prices on the Fed. Oil continued the aggressive slide today. After breaking $50 yesterday, it was down another 7% today.

This gives the Fed more reason to pause — increases the chances of a surprise tomorrow. Remember, they have a history of taking action in response to big adjustments in oil prices.

We had a similar scenario in late 2015, early 2016. They made their first post-crisis hike in December of 2015. But by January, they realized that the collapse in oil prices were threatening another global financial crisis. The Fed had forecasted four hikes that year. They took three off of the table (effectively easing) in response to the vulnerabilities that were bubbling up in the global economy from the dive in oil prices. At the time, with oil prices under the level of profitable production for the shale industry, over 100 companies were already in bankruptcy. And the default clock was starting on countries that are highly depending on oil revenues.

On that note, Saudi Arabia released its 2019 budget today and needs crude oil 60% higher to meet its 2019 spending needs ($84 in brent or equivalent of $74 in wti crude). Oil in the $40s today looks like it may be as dangerous as oil in the $20s and $30s two years ago.

Here’s a look at the crude chart today…

You can see crude has retraced about two-thirds of the move off of the bottom in 2016. This hits a big technical support level (a 0.618 Fibonacci level).

Remember, back in 2016, it took a coordinated response by central banks to stop the collapse in oil and turn the tide (China, the Fed, the BOJ and the ECB).

The BOJ intervened in the dollar the same day oil bottomed. Interestingly, tomorrow the Bank of Japan will follow the Fed with a decision on monetary policy. We’ll hear from the Fed tomorrow afternoon, and from the Bank of Japan tomorrow night.

We’ll see if they respond to an increasingly concerning fall in financial markets.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Will The Fed Respond To Stocks?

December 17, 5:00 pm EST

As I said on Friday, stocks clearly have a significant influence on confidence. And confidence ultimately feeds into economic activity.

So, stocks matter.

On that note, the slide in stocks has started to inflict some damage. The consensus view surrounding stocks and the economy seems to have rapidly deteriorated over just the past week.

As you can see in the chart below of stocks, we touched the February correction lows late in the day today.

This is all setting up for a very big Fed decision on Wednesday. The Fed has hiked three times this year. They are said to be data dependent, yet they have systematically hiked seven times since the 2016 election, despite tame inflation.

With that, this is the first time since 1994 that stocks, bonds, real estate and gold have all been losers on the year (i.e. negative returns). And it’s the first time since 1994 that cash has been the highest returning asset class.

It so happens that the Fed back in 1994 was also systematically raising interest rates into a low inflation, recovering economy — in anticipation that inflation would quicken. It didn’t happen. They ended up choking off growth. The scenario this time looks very similar. The Fed paused back early 1995, and then ended up cutting rates. Stocks boomed, returning 36% on the year.

Also, noteworthy, oil prices closed below $50 today. As I’ve said on the way down, the Fed doesn’t like to admit that they factor in oil prices in their inflation view, but their actions (historically) tell a different story. They have a history of moving when oil moves, because material adjustments in oil prices matter (up and down for inflation). And we’ve just had a big one (down).

The last time oil had a dramatic fall (2016), re-igniting deflationary forces through the global economy, global central banks responded. The Bank of Japan intervened in the currency markets (which likely resulted in buying dollars/selling yen, and buying oil with those dollars). China followed with stimulative policies. And the Fed responded by withdrawing guidance of three rate hikes that year (effectively easing).

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

China Running At Worse Than 2009 Levels

December 14, 5:00 pm EST

We’ve talked about the struggling Chinese economy this week.

As I’ve said, much of the key economic data in China is running at or worse than 2009 levels (the depths of the global economic crisis).

And the data overnight confirmed the trajectory: lower.

As we’ve discussed, this lack of bounce in the Chinese economy (relative to a U.S. economy that is growing at better than 3%) has everything to do with Trump squeezing China.

He acknowledged it today in a tweet ….

The question: Has China retaliated with more than just tit-for-tats on trade? Have they been the hammer on U.S. stocks? It’s one of the few, if not only, ways to squeeze Trump. As we discussed last week, when the futures markets re-opened (at 6pm) on the day of mourning for the former 41st President, there was a clear seller that came in, in a very illiquid period, with an obvious motive to whack the market. It worked. Stocks were down 2% in 2 minutes. The CME (Chicago Mercantile Exhange) had to halt trading in the S&P futures to avert a market crash at six o’clock at night.

Now, cleary stocks have a significant influence on confidence. You can see confidence wane, by the day, as stocks move lower. And, importantly, confidence fuels the decisions to spend, hire and invest. So stock market performance feeds the economy, just as the economy feeds stock market performance. The biggest threat to a fundamentally strong economy, is a persistently unstable stock market. In addition, sustaining 3% growth in the U.S. will be difficult if the rest of the world isn’t participating in prosperity.

With that in mind, in my December 1 note, I said “it may be time for Trump to get a deal done (with China) and solidify the economic momentum needed to get him to a second term, where he may then readdress the more difficult structural issues with China/U.S. relations.” That seems even more reasonable now.

We end the week with this chart of the S&P.

We have two 12% declines in stocks this year. And you can see the fear beginning to set in. With that, the best investors in the world have made their careers by “being greedy when others are fearful” (Warren Buffett) or “buying when most people are selling and selling when most people are buying” (Howard Marks). There is clear value in stocks right now.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Trump Is Squeezing China

December 12, 5:00 pm EST

We talked about the China trade story yesterday.

In a nutshell, Trump has capitalized on an aligned Congress (in the first half of the mid-term) to stoke the U.S. economy. And that has strengthened the leadership position of the U.S. coming out of the decade long post-global economic crisis period.

With that, Trump has used the leverage of global economic leadership (in a vulnerable global economic period) to force change in China. And as we observed yesterday (in the charts of Chinese GDP, industrial production, domestic investment and retail sales), he’s getting movement because the Chinese economy was sputtering before the trade crackdown, and is now running out of gas. Much of the key economic data in China is running at or worse than 2009 levels (the depths of the global economic crisis). We get new data on industrial production, domestic investment and retails sales out of China tonight. This should provide more information on how the Chinese economy is being squeezed.

As for stocks, we have eleven trading days remaining for the year. The S&P 500 finishes today down about 1% for the year, and down 3.4% month-to-date. On the quarter, stocks are down 9% — the worst fourth quarter since 2008. If we look back at monthly returns, dating back to 1950, stocks have finished UP in December 75% of the time, for an average gain of 1.5%. Only two times have stocks has worse December performance over the near 70 year period (2002 and 1957).

And remember, as we discussed earlier this week, it’s not just stocks. It’s a zero (or near zero) return year for all major asset classes this year. Stocks, bonds, gold, real estate … nothing is working. The winner on the year has been cash.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Everyone Should See This Chart

December 11, 5:00 pm EST

We’ve talked about the market volatility the past few days.

Let’s take a look at a chart of the many swings in stocks for the year.

You can see we’ve had seven significant declines this year. A clear observation in this chart is that the declines are fast. As they say, the market goes up on an escalator and down in an elevator.

We’ve had a 12% decline over six days. A 5% decline in three days. A 9% decline in thirteen days. An 8% decline in six days (to open October). A 7.8% decline in eight days. A 6.8% decline in ten days. And, this recent, 8.2% decline in five days (assuming yesterday was the bottom).

So, the seven declines of the year have averaged 8%, over a period of seven days. This argues that we probably have, indeed, seen the low on this recent sharp slide.

And that leaves us, at today’s close, with a stock market trading at 15 times earnings — among the cheapest valuation we’ve seen only two times in the past 26 years.

What stocks do you buy? Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

A Year Of Zero Returns — Anywhere

December 10, 5:00 pm EST

We had another big swing in stocks today, from down about 2%, to finish UP on the day.

On Friday we talked about the rise in market volatility, and what’s driving it.

It’s regime change. For the better part of a decade we had an economy driven by monetary stimulus (and loads of central bank intervention to absorb any potential shocks to markets). And since the election, we now have an economy driven by fiscal stimulus and structural reform.

With the idea that we now have a test to see if the economy will stand on its own two feet, without the benefit of central bank intervention, market volatility is up — an indicator of the uncertainty outcomes.

But as I said Friday, with dramatic change, the pendulum can often swing a little too far in the opposite direction at first (from little-to-no volatility to a lot, in this case).

As it stands, stocks are now down about 1% on the year. In normal times you would see other alternative asset classes (to stocks) performing well. Bonds would be the obvious winner — but if you owned 10-year notes you would be down about 3% on the year (about flat after the yield). When stocks are down, and uncertainty is rising, gold tends to do well. Not this year. Gold is down 4.5% on the year. What about real estate. The Dow Jones Real Estate index is up, but small (+1.8%). Among the best investments of the year is cash. If you owned 1-month T-bills all year, you would be up close to 2%. I suspect this dynamic of little-to-no return asset class alternatives will change very soon.

What stocks do you buy? Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.