This Market Decline Is A Gift To Get Involved

November 1, 5:00 pm EST

We talked about the potential bottom in stocks on Monday, based on this big trendline we had been watching.  That, of course, also coincided with a similar line in the Dow, which represented a 10% correction on the nose.

That indeed does look like the bottom.

You can see in the chart of the S&P 500 above, this big line dating back to the oil price crash lows of 2016 held beautifully, and we are now up more than 5% from just Monday of this week.

And today we have this …

We’re getting a break of this sharp downtrend of the past month (circled).

And we have a very similar pattern in Japanese stocks (the Nikkei).

Most importantly, the biggest mover of the day in global stock indices (and nearly all markets) was emerging market stocks.  The MSCI Emerging Markets Index was up 3.3% today.  And the strength in emerging markets was well underway before the news today that the U.S. (Trump) and China (Xi) has some constructive talks on trade.

What gets hit first and hardest when global risk elevates?  Emerging markets.  EM was down 21% on the year earlier this week.  But this is also where the biggest gains can come as the dust settles, and people realize that a hotter U.S. economy, will translate into hotter growth in emerging markets.  As I’ve said, this market decline has been a gift to get involved.
Re-Pricing Of The Tech Giants, Continued …

October 26, 5:00 pm EST 

With this morning’s third quarter GDP number, the economy is officially growing at the fastest pace since 2006.

And yet stocks are now flat on the year.

Let’s look at some key charts as we head into the weekend.

We’ve looked at this big trendline in the S&P 500 futures.  We got very close today.

We have a similar line coming in here for the Dow.  A touch of that line would be a 10% correction on the nose. 

Remember, the core of this correction is about a re-pricing of the tech stocks.  We looked at this chart on Amazon earlier this month. 

And now we have this…

Amazon topped the day it crossed the trillion-dollar valuation threshold and is now down 20%.  But also remember, at the peak, the stock had more than doubled in a year.  Even after this decline, and after blow out earnings, the stock still trades at 161 times earnings.

As we know, Trump is leveling the playing field internationally,and domestically.  And the tech giants, which have been priced like monopolies, are coming back down to Earth.

This correction gives us a chance to buy the broader stock market into a 10% correction, at 15 times earnings (cheaper than the long term average) in a 3% economy, with 20% year-over-year corporate earnings and corporate sales growth running double the rates of the past twenty years.  Don’t run out of the store when stocks are on sale.

Finally, among the many interesting charts this week is gold. In the chart below, you can see gold has held the big trendline from that dates back to the inception of QE.  With inflation finally showing some life, and with signficant wealth in Saudi Arabia looking for a safe hiding place, gold should be the natural winner. 

If you need help with your shopping list of stocks to buy on this dip, join me in my Billionaire’s Portfolio. We follow the world’s bests billionaire investors into their favorite stocks.  Click here to learn more.
Chart Everyone Should See On Stocks

October 24, 5:00 pm EST

As we’ve discussed the past two days, the catalyst for a stock market correction is rarely, if ever, one of the concerns that are “top of mind” in the market.

In this case, a China slowdown has been the target of a market fallout for eight years.  Stocks have gone up.  An implosion of the European Monetary Union has been predicted since 2011.  Stocks have gone up.  Currency and trade wars have been underway throughout the post-Great Recession environment.  Stocks have gone up.  A “hard Brexit” has been going to crush markets and the global economy since 2016.  Stocks have gone up.  A huge spike in inflation and interest rates has been guaranteed to be the punishment, for the decade of “irresponsible” money printing.  Stocks have gone up.

And with these things to obsess about, people have been steadily convincing themselves that a recession was coming (the opposite of what the data tells us) and that earnings were deteriorating or “peaking” (peaking earnings growth at 20% y-o-y is very different than peak earnings).   The recession and exhausting economic momentum stories are non-sense.

Short of a major economic blow-up, things are as good as they’ve been in more than a decade and getting better.  And for people that think another Lehman like moment could be coming (Europe, China, Brexit…), remember, part of the Lehman moment/global credit freeze, was driven by uncertainty about how governments and central banks would respond.  But we now know, very clearly, how they will respond to shocks.  There is no uncertainty.  They will do whatever it takes to maintain stability (re-write rules, whatever it takes), as they have over the past decade (post-Lehman) to avert further systemic shocks.

Still, all of the “what could go wrong” scenarios are what exacerbates the fear, after a decline in stocks gets started.  And in this case, as we’ve discussed, it looks very clear that both this decline, and the correction earlier this year, were triggered by Saudi liquidations (for fear of asset seizures).  And now we have panic-driven selling by uninformed investors.

Remember, most average investors are NOT leveraged.  And with that, they should have no concern about U.S. stock market declines, other than to ask themselves, “do I have cash I can put to work at cheaper prices?”

So with that, let’s take a look at the chart and see where this shake out might stop?  I think we’re close.

 

The above is the chart of the S&P 500 futures.  And you can see the big trendline that comes in from the 2016 lows.  Remember, in early 2016, the crash in oil prices were threatening the global economy (causing bankruptcies, and threatening sovereign defaults and financial system trouble).  Global central banks responded in coordination with a number of measures (with likely outright buying of oil).  Oil prices turned on a dime the day the Bank of Japan intervened in the yen.  The crisis was averted.

This is a big trendline, and it comes in just 1.4% lower from today’s low.  That would be an 11% correction in the S&P futures.

If you need help with your shopping list of stocks to buy on this dip, join me in my Billionaire’s Portfolio. We follow the world’s bests billionaire investors into their favorite stocks.  Click here to learn more.
China’s Rapid Ascent To Economic Power Is Being Knocked Off Path

October 18, 5:00 pm EST

Last week, we talked about the signals coming from China, that the economy is running dangerously slow, and their backs are against the wall.

They cut their bank reserve requirement ratio last week for the fourth time this year.  And they have been continually walking down the value of their currency (the yuan).

The PBOC pegged the yuan to another 21-month low today. Most importantly, it’s getting closer and closer to the 7 yuan per dollar level – a level we haven’t seen since the pre-financial crisis days.

As we’ve discussed, they have two options. They can play ball on trade concessions with the U.S.  If so, the economy slows.  They can continue to holdout/pushback on trade, and the trade sanctions may take the economy off the cliff.  Both scenarios mean China’s rapid ascent to economic power gets knocked off path.

If holdout is their long term strategy, I suspect we will find that global trading partners will join Trump’s fight against China’s rigging of global trade via its weak currency advantage.  That’s not a good outcome for China.

More likely, China is trying to holdout to see the outcome of the November U.S. elections.  And as we discussed earlier this month, they are likely trying to wield some influence:  “they can sell Treasurys, in an attempt to ignite a sharper climb in rates. And a fast move in rates (at these levels) has a way of shaking confidence in equity markets–which has a way of shaking confidence in the economy.”

It appears that it may be playing out, but worse for Chinese stocks, which are now down 25% for the year.

 

If you need help with your shopping list of stocks to buy on this dip, join me in my Billionaire’s Portfolio. We follow the world’s bests billionaire investors into their favorite stocks.  Click here to learn more.
Bonds Are High Risk-Low Reward

Since stocks dipped last week, I’ve heard the chatter (again) about how a 3% 10-year note has suddenly created a high appetite for Treasurys over stocks (i.e. people are selling stocks in favor of capturing that whopping 3% yield).

But in this post-crisis environment, a rise toward 3% promotes the exact opposite behavior. If you are willing to lend for 10-years locked in at a paltry rate, you are forgoing what is almost certainly going to be a higher rate decade than the past decade. If you need to exit, you’re going to find the price of your bonds (very likely) dramatically lower down the road.

Coming out of a zero-interest rate world, bond prices are going lower/not higher. Here’s the chart of the 10-year Treasury note (price). You can see we’ve now broken the three and a half decade bull market in bonds (yields go up, as bond prices go down) …

stocks

Bottom line: The bond market is the high risk-low reward investment in this environment. And there continues to be plenty of fuel for stock prices as money exits bonds.

Chinese Stocks Maybe The Best Buy In Global Stock Markets

September 21, 5:00 pm EST

Last Friday we talked about the technical breakout in rates.  And we looked at this chart as the benchmark 10-year U.S. government bond yield hit 3%. 
This week yields traded as high as 3.09%.  These 3%+ levels have proven to spook stock markets on all other occasions this year.   But it hasn’t this time.  In fact, the Dow closed the week on new record highs.  The prospects that Fed normalization might be slowing, and that 10-year rates may be carving out a new/higher range, reduces the prospects of seeing the yield curve “invert.” That’s positive for stocks.
As we close the week, let’s take a look at Chinese stocks, which put in a double bottom earlier this week, and closed today threatening a technical break of the big downtrend of the year.  Believe it or not, Chinese stocks could be the best buy in the world right now.
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Japanese Stocks May Be Big Winner On China Trade Reform

September 18, 5:00 pm EST

Yesterday Trump made good on his promise by announcing another $200 billion in tariffs on China.

To the surprise of many, stocks went up. Why?

Perhaps it’s because reforming the way the world deals with China is a good thing.  Remember, China’s currency manipulation over the past two decades led to the credit bubble, which ultimately led to the financial crisis. And as long as the rest of the world continues to allow China to maintain a trade advantage (dictated by their currency manipulation): 1) they will manufacture hot economic growth through exports, 2) the global cycle of booms and bust will continue, and 3) the wealth transfer from the rest of the world to China will continue.

With this in mind, as I’ve said, the trade dispute is all about China – everything else Trump has taken on (Canada, Mexico, Europe) has been to gain leverage on getting movement in China.

With Trump now making it very clear that he won’t back down until major structural change takes place in China, it’s no surprise that one of the biggest winners of the day (following the further economic sanctions on China) was Japan!

The Nikkei was up big today.  And it was Japanese stocks that set the tone for global markets on the day.  As a signal that China’s days of cornering the world’s export markets may be coming to an end, Japan is in position to be a big winner.

Remember, while much of the world has returned to new record highs following the global financial crisis, Japan remains 40% away from the record highs set nearly 30 years ago.

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.

Momentum Building For A Big Run In Markets And The Economy Into The Year End

August 27, 5:00 pm EST

The momentum is building for a big run for markets and the economy into the year end.  And there are a ton of opportunities.

We have the Dow, which has massively lagged performance of the Nasdaq throughout this post-correction recovery.  And even as the S&P 500 has regained new record highs, the Dow remained about 900 points from the January highs.  That gap is quickly closing.  This makes blue-chip stocks a buy.

Commodities are in the early stages of a bull market, but have been stalled by trade uncertainty and a stronger dollar.  Both have now cleared.  Trump is winning on trade.  And he now appears to have successfully influenced a turning point in the dollar.  Both are fuel for commodities prices that have every fundamental reason to be soaring (including a hot economy and a big infrastructure spend coming).  This makes commodities stocks a buy.

On the interest rate front, as we discussed Friday, the Fed Chair’s recent comments indicate that the current level of rates could be appropriate, given they don’t see risk of inflation accelerating over their target nor do they see an elevated risk that the economy may overheat. That has turned the tide in the dollar (lower).  And it may actually be the catalyst to steepen the yield curve, as the interest rate market starts pricing OUT the risk of overtightening on the economy.  Remember, the skittish crowd has been pointing to the flattening yield curve as an indicator that recession is brewing for the economy. A steepening yield curve would take that debate off the table, and would be very good for financial stocks.

And the calming on trade and rates make emerging market stocks very interesting.  Remember, when the news hit that China would make concessions on trade, we looked at this chart in Chinese stocks and said the bottom is probably in.  Chinese stocks are up 5% already, and have a lot of room to run.

 

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Best Investing Advice: ‘Don’t Fight Trump’

August 24, 5:00 pm EST

The best investing advice over much of the past decade has been “don’t fight the Fed.”  The Fed needed stocks higher (to restore confidence and wealth — at least paper wealth).  And the Fed forced stocks higher. 

They did it through ultra-low interest rates and through a committment to backstop against any shock risks.  With that, despite the many threats along the path of the the global economic recovery, stocks went up.What’s the best investing advice of the post-election environment?

Don’t fight Trump.

Remember, we’ve talked about the “great handoff” on election night.  Trump finally represented an end to an era, where the global economy was surviving on central bank life support.  It was the handoff from a monetary policy-driven recovery, to a fiscal stimulus and structural reform-driven recovery.  And that handoff gave us a chance to get to a sustainable recovery — to escape post-recession stall-speed growth.

So no wonder, the influence of Trump on markets and global stability, is much like the influence of the central banks of the past decade.

Trump wants a booming economy. 

We need a booming economy to escape the stall-speed growth of the post-global recession world. So we have major economic and geopolitical undertakings in play to achieve a booming economy.  And just as the central banks wouldn’t let shocks undo the trillions of dollar they had committed to the recovery, Trump won’t either.  The central banks intervened often, either verbally, or through policy.  And Trump has intervened often.  Also, a lot of verbal, and plenty of policy responses.

The dollar and the Fed are the latest examples.  And today, we saw the influence and the outcome.  Trump has hand-selected the Fed Chair that is continuing the program of gradual rate hikes.  But Trump he sees higher rates, uncessarily threatening to curtail the growth picture, he’s “intervening.”

Below is some of his jawboning against higher rates …

 

And today, we heard from the Fed Chair at Jackson Hole.  People were looking for any indication that the Fed Chair might be influenced by Trump’s comments.

And here are the money headlines from his speech…

The Fed explicitly said under Yellen one time, that they opted against a rate hike because they were no signs that the economy was overheating.  That makes the second comment above very interest, regarding the expectations on the Fed’s movees for the remainder of the year.  And if they don’t see inflation accelerating above 2% (the first comment) then why raise rates again.

The market seemed to agree with that interpretation today.  The prospects of steady rates is a recipe for higher stocks, higher commodities and a lower dollar. And that’s what we had today.  I expect it will continue.  And this may have finally been the catalyst to get commodities moving again.

Have a great weekend!

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.
Musk Has Emboldened The Shorts In Tesla – Look Out Below!

August 23, 5:00 pm EST

It was two weeks ago when Elon Musk sent this tweet about taking Tesla private…

For a guy that has taken personal offense to the short sellers in the stock, this tweet only emboldened them — and may have been the catalyst that will ultimately prove the shorts right.

Why?  If you liked shorting a company that’s lost $6 billion over the past five years, while making the CEO/ founder a billionaire more than 18 times over, you’ll love it when you have an absolute ceiling of $420 to sell against.

And that’s precisely what the shorts have done.  They’ve leaned more heavily against the company, as Musk has created an asymmetric outcome for them. As you can see in the chart, it’s working.

As I’ve said in the past, Tesla is among the tech giants that benefited from the Obama administration’s distribution of the massive fiscal stimulus package that followed the global financial crisis.  Not only did they get regulatory favor from the government, but they received outright funding — a $465 million loan, at a time the company was broke.  And in that economic environment, the big pension funds were happy to follow government money in search of relative security (plowing money into government “sponsored” investments).

Fast forward 10 years and the company is still bleeding money, but Musk is a billionaire!  But sentiment has finally begun turning against the company, which is it’s biggest risk.  When the investors stop believing in the hype and start demanding real performance, the air can come out of the balloon very quickly.

So, to step out of the scrutiny of public markets, Musk has threatened to take the company private, with the help of Saudi funding.  But there’s a new problem.  If the Saudis are indeed willing to fund Tesla, Trump may block it.  The administration is stepping up protections against allowing U.S. intellectual property to fall into the hands of foreigners.  The government may giveth and the government may taketh away, in the case of Tesla.

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