March 8, 2017,3:45pm EST Invest Alongside Billionaires For $297/Qtr
One of the best investors on the planet, David Tepper, was on CNBC this morning. Let’s talk about how he sees the world and how he is positioned.
What I appreciate about Tepper: He’s a common sense guy.
And his common sense view of the world happens to be in alignment with the view and themes we discuss here every day. So he agrees with me – another thing I appreciate about him.
As you know, Wall Street and the media are always good at overcomplicating the investment environment with their day-to-day hyper analysis. Because of that, they tend to forge a path that moves further and further away from the simple realities of the big picture. That’s actually good. Because it creates opportunity for those that can avoid those distractions.
Right now, as we’ve discussed, the big picture is straight forward. We have a President that wants deregulation, tax cuts and a big infrastructure spend. And we have a Congress in place that can approve it. And this all comes at a time when the world has been in a decade long economic slog following the global financial crisis – in desperate need of growth. With that, we have a Fed that still has rates at very, very low levels. And the ECB and BOJ are still priming the pump with QE.
This is precisely Tepper’s view. He says the bowl is still full, i.e. the stimulus from the monetary policy side is still full, and now we get stimulus coming in from the fiscal side. What more could you ask for (my words) to pump up growth and asset prices, which will likely spill over into a pop in global growth. Still, people are underestimating it. And as he says, the Fed is underestimating it.
Are there risks? Yes. But the probability of growth, with the above in mind, well outweighs the probable downside scenarios. What about execution risk? Even if tax reform and infrastructure are slow to come, Tepper says deregulation is a done deal. It drives earnings and “animal spirits.”
He likes stocks. He likes European stocks. And I think he really likes Japanese stocks, but he stopped short of talking about it (my deduction).
Among the risks: Inflation picking up too fast, which would require the Fed to move faster, which could choke off growth (undo or neutralize fiscal stimulus).
This is why, among other reasons, Tepper’s favorite trade is short bonds. – i.e. higher interest rates. If he’s right and economic growth has a big pop, he wins. If the risk of hotter inflation materializes and rates move faster, he wins.
For context, this is the guy that literally changed global investing sentiment in late 2010 when he sat in front of a camera on CNBC, in a rare high profile TV interview (maybe first), when investing sentiment was all but destroyed by the global financial crisis and the various landmines that kept popping up. Tepper said in a very confident voice that the Fed, by telegraphing a second round of QE, had just given us all a free put on stocks (i.e. the Fed is protected the downside, it’s a greenlight to buy stocks). For all of the market jockeys that were constantly focusing on the many problems in the world, that commentary from Tepper, for some reason, woke them up.
For perspective on Tepper: Here’s a guy that is probably the best investor in the modern era. He’s returned between 35%-40% annualized (before fees) for more than 20 years. He made $7.5 billion in 2009 betting on financial stocks that most people thought were going bankrupt. And he was telling everyone that what the Fed is doing will make ‘everything’ go up. It sparked, in 2010, what is known as the “Tepper rally” in stocks.
When Tepper speaks it’s often smart to listen. And he likes the Trump effect!
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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.
January 13, 2017, 3:00pm EST
We’re getting into the heart of earnings season now, with Q4 earnings rolling in. Remember, earnings guidance is set by management to be beat. And estimates are set by Wall Street to be beat. That’s the way Wall Street works. And it’s a built-in bullish force for the stock market.
With that, for the better part of the second half of last year, I said “we were set up for a big run for stocks into the year end given that expectations had been ratcheted down on earnings and the economic data. That creates opportunities for positive surprises, which is fuel for higher stocks.”
The dynamic continues.
Last quarter, 71% of earnings beat estimates for the quarter. And despite the analyst expectations that there would be an overall decline in S&P 500 earnings, the overall earnings reported by companies grew by 3%. Sounds positive, right?
Still, management, on whole, was downbeat on their guidance for what the fourth quarter would bring. They set the bar low. And with that, the early Wall Street expectations for earnings growth on the quarter has been dialed back, setting up for positive surprises.
As I’ve said, historically, about 68% of S&P 500 companies earnings beat estimates. Let’s assume the positive surprises will be even higher for Q4 numbers, especially given the rise of optimism following the November election. That’s more fuel for stocks.
We’ve heard from some of the biggest banks in the country today. JP Morgan stole the show, beating on earnings by 20%. PNC beat by 6%. Bank of America beat by 5%. Wells Fargo earnings came in lower, but deposits and loans grew despite its PR nightmare.
This is all positive for the trajectory of banks. Especially when you consider that we are in the very early innings of one of the tailwinds (rising interest rates) and the first inning is coming for the second tailwind (de-DoddFranking the banking business).
Fed raising rates is a money printing recipe for banks. Bank of America has said that a point higher on Fed Funds will add more than $5 billion of core earnings for the bank.
But the story here for the bank stocks is even more exciting when you consider that many of the regulations, that have turned banks into utility companies since the financial crisis, will be reversed by the Trump administration. To what extent will banks return to the business of risk-taking? Probably not to pre-crisis levels. But will it be dramatically different than the business of the post-crisis era? Highly likely, given the contingent of Wall Street bankers entering government in the Trump administration. With this, banks still look cheap.
Even last year, the health of the banks was looking as good as it has been in a long time. Loan balances were growing at the fastest 12-month rate since 2008, the share of unprofitable banks had fallen to an 18-year low, and the number of ‘problem banks’ continued to decline.
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 2016. You can join me here and get positioned for a big 2017.
1/29/16
The Bank of Japan stepped in overnight and put a floor under stocks. Only 6 of 42 economists at Bloomberg thought they might do something.
We made the case over the past couple of days that they needed to. The opportunity was ripe, and we thought they would take advantage. They did.
Of course, that’s all the media is talking about today. The word “surprise” is in the headline of just about every major financial news publication on the planet with respect to this BOJ move (WSJ, Reuters, BBC, NYTimes … you name it).
Remember, we said earlier this week, the Fed was just a sideshow and the main event was in Japan. If you understand the big picture: 1) that central banks are still in control, 2) that the baton has been passed from the Fed to the BOJ and the ECB, and 3) that they (central banks) need stocks higher, then this move comes as no surprise.
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Today we want talk a bit about what these central banks have done, what they are doing and why it works. We often hear the media, analysts, politicians, Fed-haters saying that QE hasn’t worked.
Okay, so QE hasn’t directly produced inflation and solved the world’s problems as the Fed might have expected when they launched it in late 2008. But it has produced a very important direct benefit and indirect benefit. The direct benefit: The Fed has been successful at driving mortgage rates lower, which has ultimately translated to rising house prices (along with a slew of other government subsidized programs). That has been good for the economy.
The indirect benefit: As Bernanke (the former Fed Chair) said explicitly, “QE tends to make stocks go up.” Stocks have gone up – a lot. That has been good for the economy.
But we need a lot more – they need a lot more. Here’s a little background on why…
The Fed has told us all along they want employment dramatically better, and inflation higher. They’ve gotten better employment. They haven’t gotten much inflation. Why? In normal economic downturns, making money easier to borrow tends to increase spending, which tends to increase demand and inflation. In a world that was nearly destroyed by overindebtedness, people (businesses, governments) are focused on reducing debt, not taking on more debt (regardless of how “easy” and cheap you make the money to access).
With that, their best hope to achieve those two targets (employment and inflation) has been through higher stocks and higher housing prices. Strength in these key assets has a way of improving confidence and improving paper wealth. Increasing wealth makes people more comfortable to spend. Better spending leads to hiring. A better job market can lead to inflationary pressures. That’s been the game plan for the Fed. And that’s the gameplan for Europe and Japan.
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So how do they promote higher stock prices? They do it by promising investors that they will not let another shock event destabilize the world and global financial markets. They’ve promised that they will “stand ready to act” (the exact words uttered by the Fed, the ECB and the BOJ). So, they spent the better part of the past eight years promising to do “whatever it takes” (again exact words of the ECB and BOJ).
The biggest fear investors have is another “Lehman-like event” that can crash stocks, the job market and the economy. The thought of it makes people want to hold on tight to their money. But when the central banks promise to do anything and everything to prevent another shock, it creates stability and confidence to invest, to hire, to take some risk again. That’s good for stock prices.
Now, despite what we’ve just said, and despite the aggressive actions central banks have taken in past years (including the BOJ’s actions last night to push interest rates below zero) and their success in manufacturing confidence and recovery, when stocks fall, people are still quick to talk about recession and gloom and doom. On every dip in stocks since the culmination of the global financial crisis in 2007-2008, the comparisons have been made to that period.
First, they’re ignoring what the central banks have been telling us. “We’re here, ready to act.” Second, and again, things are very, very different than they were in 2007-2008. In that period, global credit was completely frozen. Banks were failing, and the entire financial system was on the precipice of failing. And at that point, it was unclear what could be done and what actions would be taken to try to avert disaster. That uncertainty, the thought of losing 100 years of economic and social progress across the globe, can easily send people scurrying for cash, pulling money from everywhere and protecting what they have. And that uncertainty can, understandably, result in stock prices getting cut in half – a stock market crash.
Now, what’s happening today? The financial system is healthy. Credit is flowing. Unemployment is very close to long-term historical norms. The U.S. economy is growing. The global economy is growing. The best predictor of recession historically is the yield curve. It shows virtually no chance of recession on the horizon. So the economic environment is very different. Still, the biggest difference between that period and today is this: We didn’t have any idea what could be done to avert the disaster OR how far central governments and central banks would go (and could go) to fight it. Now we know. It’s all-in, all or nothing. There is no ambiguity. With that, the central banks will not fail and cannot fail. And remember, they are working in coordination. No one wins if the world falls apart.
With all of this in mind, any decline in stocks, driven by fear and misinformation, offers a great buying opportunity, not an opportunity to run.
We’ll talk Monday about the very strong, and rational fundamental case for stocks to go much higher. On that note, today we’re wrapping up one of the worst January’s on record for stocks, which has given us a great opportunity to buy at a nice discount.
Bryan Rich is co-founder of Billionaire’s Portfolio, a subscription-based service that empowers average investors to invest alongside the world’s best billionaire investors. To follow the stock picks of the world’s best billionaire investors, subscribe at Billionaire’s Portfolio.
