July 26, 5:00 pm EST

Tomorrow we get the second quarter GDP number. We’ve gone from a consensus view that didn’t believe in the economic momentum, or in the value of fiscal stimulus, to a consensus view that is now looking for more than 4% annualized growth for the second quarter. The switch has flipped in just the past few months.

As a goal for the economy, we hear the 3% growth number thrown around quite a bit. That’s right around long-term trend growth (trend growth is a little higher). But the GDP report that gets the most attention is a quarterly annualized number, which is more of a reflection of what the economy would look like if we moved forward over the next few quarters with similar economic activity. That can be a very volatile number. And we can see big numbers, in good economies and in bad economies. This is where the politicians like to find ambiguity to argue over. The pro-Trumpers will say we’re growing at 3%, something Obama never achieved. And the Obama defenders will point to several 3%+ annualized quarters in the Obama era.

What’s more informative is the average annualized growth over the past four quarters. That’s where you can see smoother trends and considerable improvements in the Trumponomics world.

On that note, we may finally hit that 3% number tomorrow. If the GDP number comes in tomorrow at the Atlanta Fed’s expectations (4.5%), we will have the hottest growth since June 2006.

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June 16, 2017, 4:30 pm EST                                                                                   Invest Alongside Billionaires For $297/Qtr

Today I want to take a look back at my March 7th Pro Perspectives piece.  And then I want to talk about why a power shift in the economy may be underway (again).

Big Picture .. Market Perspectives   March 7, 2017
“A big component to the rise of Internet 2.0 was the election of Barack Obama. With a change in administration as a catalyst, the question is: Is this chapter of the boom in Silicon Valley over? And is Snap the first sign?

Without question, the Obama administration was very friendly to the new emerging technology industry. One of the cofounders of Facebook became the manager of Obama’s online campaign in early 2007, before Obama announced his run for president, and just as Facebook was taking off after moving to and raising money in Silicon Valley (with ten million users). Facebook was an app for college students and had just been opened up to high school students in the months prior to Obama’s run and the hiring of the former Facebook cofounder. There was already a more successful version of Facebook at the time called MySpace. But clearly the election catapulted Facebook over MySpace with a very influential Facebook insider at work. And Facebook continued to get heavy endorsements throughout the administration’s eight years. 

In 2008, the DNC convention in Denver gave birth to Airbnb. There was nothing new about advertising rentals online. But four years later, after the 2008 Obama win, Airbnb was a company with a $1 billion private market valuation, through funding from Silicon Valley venture capitalists. CNN called it the billion dollar startup born out of the DNC. 

Where did the money come from that flowed so heavily into Silicon Valley? By 2009, the nearly $800 billion stimulus package included $100 billion worth of funding and grants for the “the discovery, development and implementation of various technologies.” In June 2009, the government loaned Tesla $465 million to build the model S. 

When institutional investors see that kind of money flowing somewhere, they chase it. And valuations start exploding from there as there becomes insatiable demand for these new ‘could be’ unicorns (i.e. billion dollar startups). 

Who would throw money at a startup business that was intended to take down the deeply entrenched, highly regulated and defended taxi business? You only invest when you know you have an administration behind it. That’s the only way you put cars on the street in NYC to compete with the cab mafia and expect to win when the fight breaks out. And they did. In 2014, Uber hired David Plouffe, a senior advisor to President Obama and his former campaign manager to fight regulation. Uber is valued at $60 billion. That’s more thanthree times the size of Avis, Hertz and Enterprise combined.

Will money keep chasing these companies without the wind any longer at their backs?”

Now, this was back in March. And that was the question — will it keep going under Trump? Can they continue to thrive/ if not survive without policy favors.  Most importantly for the billion dollar startup world, will the private equity capital dry up.  This is what it’s really all about.  Will the money that chased the subsidies from D.C. to Silicon Valley for eight years (i.e. the trillion dollar pension funds) stop flowing?  And will it begin chasing the new favored industries and policies under the Trump administration?

It seems to be the latter. And it seems to be happening in the form of a return to the public markets — specifically, the stock market.

And it may be amplified because of the huge disparity in what is being favored.  In Silicon Valley, innovation is favored.  Profitability?  Remember, the 90s tech bubble. The measure of success for those companies was “eyeballs.” How much traffic were they getting to their websites?  Today, when you hear a startup founder talk about the success benchmarks, it rarely has anything to do with with revenue or profit.  It’s all about headcount (how many people they’ve hired) and money raised (which enables them to hire people). They are validated by convincing investors to fund them (mostly with our pension money).

Now, the other side of this coin:  Trumponomics.  Remember, among the Trump policies (corporate tax cuts, repatriation, deregulation, infrastructure spend), the most common sense play in the stock market has been flooding money into companies that make a lot of money.  Those that make a lot of money have the most to gain from a slash in the corporate tax rate — it falls right to the bottom line. Leading the way on that front, is Apple.  They make a lot of money.  And they will make a lot more when a tax cut comes, making the stock even cheaper.  That’s why it’s up 25% year-to-date.  That’s 2.5 times the performance of the broader market.

Meanwhile, let’s take a look back at the Snapchat.   Snapchat doesn’t make money. And even after a 1/3 haircut on the valuation, trades about 35 times revenue. And now, as a public company, probably doesn’t get the protection from the venture capital/private equity community that may have significant investments in its competitors.  So the competitors (like Facebook) are circling like sharks to copy their business.

What about Uber?  The Uber armor may be beginning to crack as well, with the leadership shakeup in recent weeks.  Maybe a good signal for how Uber may be doing?  Hertz!  Hertz has bounced about 20% from the bottom this week.

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March 7, 2017, 6:00pm EST                                                                                             Invest Alongside Billionaires For $297/Qtr

Since going public last week, Snap has had a valuation north of $30 billion. It’s been getting hammered from the highs over the past couple of days. A big component to the rise of Internet 2.0 was the election of Barack Obama. With a change in administration as a catalyst, the question is: Is this chapter of the boom in Silicon Valley over? And is Snap the first sign?

Without question, the Obama administration was very friendly to the new emerging technology industry. One of the cofounders of Facebook became the manager of Obama’s online campaign in early 2007, before Obama announced his run for president, and just as Facebook was taking off after moving to and raising money in Silicon Valley (with ten million users). Facebook was an app for college students and had just been opened up to high school students in the months prior to Obama’s run and the hiring of the former Facebook cofounder. There was already a more successful version of Facebook at the time called MySpace. But clearly the election catapulted Facebook over MySpace with a very influential Facebook insider at work. And Facebook continued to get heavy endorsements throughout the administration’s eight years.

In 2008, the DNC convention in Denver gave birth to Airbnb. There was nothing new about advertising rentals online. But four years later, after the 2008 Obama win, Airbnb was a company with a $1 billion private market valuation, through funding from Silicon Valley venture capitalists. CNN called it the billion dollar startup born out of the DNC.

Where did the money come from that flowed so heavily into Silicon Valley? By 2009, the nearly $800 billion stimulus package included $100 billion worth of funding and grants for the “the discovery, development and implementation of various technologies.” In June 2009, the government loaned Tesla $465 million to build the model S.

When institutional investors see that kind of money flowing somewhere, they chase it. And valuations start exploding from there as there becomes insatiable demand for these new “could be” unicorns (i.e. billion dollar startups).

Who would throw money at a startup business that was intended to take down the deeply entrenched, highly regulated and defended taxi business? You only invest when you know you have an administration behind it. That’s the only way you put cars on the street in NYC to compete with the cab mafia and expect to win when the fight breaks out. And they did. In 2014, Uber hired David Plouffe, a senior advisor to President Obama and his former campaign manager to fight regulation. Uber is valued at $60 billion. That’s more than three times the size of Avis, Hertz and Enterprise combined.

Will money keep chasing these companies without the wind any longer at their backs?  The favor in the new administration looks more likely to go toward industrials and energy. That would leave the pumped up valuations in some of these internet businesses, that operate with no real plan on how to make money, with a long way to fall.

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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 11, 2017, 4:00pm EST

For two full months the Trump rally has consisted of higher stocks, higher yields, a higher dollar and higher commodity prices — all on the prospects of hotter growth and a sustainable period of prosperity ahead.

Since the night of November 8th, it’s been “buy it now, prove it to me later” market.  But people are expecting there will be a period of time where the markets begin trading in “prove it to me” mode.

Often we see a “buy the rumor, sell the fact” phenomenon in markets — it’s a reflection of investors pricing new information in anticipation of an event, and then selling into the event on the notion that the market has already valued the new information.  With that, the period surrounding the January 20th inauguration could be the “sell the rumor” moment (in fact, we may be working on it now).

Many are hoping it could be the second chance given to those that have been left behind in the great Trump reflation rally.  The question is, how deep or shallow that correction might be, and how long or short-lived it might me.

I would argue, it’s going to short-lived and shallow (maybe very shallow), for all of the reasons I’ve discussed in this daily note, not the least of which, is a world starving for a return to meaningful and sustainable growth, and the perception that this is the best chance we’ve had and might have, to get the global economy back on track.  Trump’s tone today, in his press conference, indeed, indicated that he would waste no time executing on his plan.  That favors a short-and-shallow correction scenario for the Trump rally. And shallow corrections are typical of strong trending markets.

With that said, since the election, here’s a view of key markets (taking the last price before the election night whipsaw):

The yield on the 10-year has gone from 1.85% to over 2.64% on the Trump effect. But despite a surprisingly hawkish Fed on December 14th, and even more hawkish fundamental data since, the high in yields, thus far, was marked the day after the Fed meeting last month. And today yields traded just below 2.33%, the lowest since November 30th!  For technicians, the 38.2% (Fibonacci) retracement of the entire move is 2.34%.  That would be considered a shallow retracement.

The dollar (index) has gone from 97.68 to 103.82, and today trades at 101.28 which is the lowest level since December 14.  Commodities (the broad commodity index) have gone from 183 to 193, and today trades at 191.  Both have room for another 1% or so lower.  The dollar looks very strong.

What about stocks?  The S&P 500 has gone from 2,138 to 2,278, and now trades at 2,262.  A shallow retracement for stocks of the Trump rally would be about 2,225 (which is about 2% lower from here). Given the policy outlook, those wishing for something deeper may not get the chance – a couple of percentage points from here may be the gift.

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 2017. You can join me here and get positioned for a big 2017.

January 2, 2017, 4:00pm EST

Happy New Year!  We’re off to what will be a very exciting year for markets and the economy.  And make no mistake, there will be profound differences in the world this year, with the inauguration of a new, pro-growth U.S. President, at a time where the world desperately needs growth.

I’ve talked a lot about the “Trump effect.”  Clearly, when you come in slashing the corporate tax rate, creating incentives for trillions of dollars of capital to come home, and eliminating overhead and hurdles associated with regulation, you’ll get hiring, you’ll get spending, you’ll get investment and you’ll get growth.

But there’s more to it.  Ray Dalio, one of the richest, best and brightest investors in the world has said, there is a clear shift in the environment, “from one that makes profit makers villains with limited power, to one that makes them heroes with significant power.”

The latter has been diminished over the past 10 years.

Clearly, we entered the past decade in an economic and structural mess. But while monetary policy makers were doing everything in their power (and then some) to avert the apocalypse and, later, fuel a recovery, it was being undone by law makers and a lack of fiscal support, swinging the pendulum too far in the direction of punishment and scapegoating.

With that, despite the continued wealth creation of the 1% over the past decade, and the widening of the inequality gap, the power of the wealth creators has been diminished in the crisis period – certainly, the public’s favor toward the rich has diminished.  And most importantly, the incentives for creating value and creating wealth have been diminished.

With all of the nuances of change that are coming, and the many opinions on what it all means, that statement by billionaire Ray Dalio might be the most simple and clear point made.

Another good point that has been made by Dalio, as he’s reflected on the “Trump effect.”  It’s the element that economists and analysts can’t predict, and can’t quantify.  The prospects of the return of “animal spirits.”  This is what has been destroyed over the past decade, driven primarily by the fear of indebtedness (which is typical of a debt crisis) and mis-trust of the system.
All along the way, throughout the recovery period, and throughout a tripling of the stock market off of the bottom, people have continually been waiting for another shoe to drop.  The breaking of this emotional mindset appears to finally be underway.  And that gives way to a return of animal spirits, which haven’t been calibrated in all of the forecasts for 2017 and beyond.

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 2017. You can join me here and get positioned for a big 2017.

November 4, 2016, 4:00pm EST

It was a rough week for global markets.  Across the markets, there was clear evidence of big investors reducing exposure.  The theme was persistently risk-off (which means some money moving out of stocks and into bonds, out of broader commodities and into gold).

Unusually, it had nothing to do with economic data or central banks.

It had everything to with politics.

With the perception that the gap has closed on the presidential race this week, the uncertainty surrounding the outcome has elevated.  And that’s being reflected in some skittishness across markets.  And all we hear from Wall Streeters is that they don’t like uncertainty, and can’t calibrate properly on the potential outcomes on the presidential race might bring — as if they’ve been operating with such certainty and precision for the past eight years.

The reality:  As we’ve seen over and over, throughout the crisis period, the global political environment has been anything but predictable. The economic environment has been anything but predictable.

If we think about all of the events along the way, over the past eight years: we’ve had the near global economic apocalypse, there was Cypress, Greece, the near defaults of Italy and Spain, the debt ceiling sagas, government shutdowns, Russia/Ukraine, threats from North Korea, the Ebola scare, an oil price crash, Brexit, and more.

Each has brought a potential shock to a global environment that was already on very shaky and uncertain footing, within which some semblance of stability and recovery was only present because it was being manufactured and managed carefully by the world’s biggest central banks.

With that, little, if any, credit can be given to the current President for the economic recovery. And it’s unlikely that the next Presidency will move the needle much either, unless it can come with a supportive Congress, to approve big and bold fiscal stimulus.

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