We’re getting a gift to buy the DJIA at a discount

July 9, 5:00 pm EST

We’ve talked about the glaring lag in the performance of blue chip stocks coming out of this recent stock market correction.  This is creating a huge opportunity to buy the Dow, now.

With all of the complexities you can make of investing, this one is simple.  The blue-chip Dow Jones Industrials Index is down on the year (as of this morning).  The Nasdaq is up 13% on the year.  Small caps (the Russell 2000) is up 11%.

And we’re in an economy that’s running at better than 3% growth, with low inflation, ultra-low rates, and corporate earnings growing at 20% year-over-year. With this formula, and yet a tame P/E multiple on stocks, we’ll probably see stocks up double digits before the year is over.  Meanwhile, we are already in July, and the DJIA — the most important benchmark stock index for global markets – is starting from near zero.

You may be thinking the boring “industrials” average is out-dated, and flat for a reason. But as far as the makeup of the indices is concerned:  The index curators will shuffle the constituents to ensure that the biggest, best performing companies are in it.  Bad stocks get kicked out.  Good stocks get added.  And, to be sure, your retirement money will be methodically plowed into it (the benchmark indices) every month by Wall Street investment professionals.

Bottom line:  The DJIA is presenting a gift here to invest, at a discount, in an economy that’s heating up.  And you get this chart, which we’ve been watching in recent weeks.  This big trend line has held, and so has the 200-day moving average.
How do you buy it?  Your financial advisor will put you into mutual funds with big sales loads and fees in attempt to track the Dow.  But you can buy an ETF that tracks the Dow for as little as 17 basis points (example: symbol DIA, the SPDR DJIA ETF).  This Dow looks like low hanging fruit.
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Rising Tide Of Rates Is A Booster Rocket For Japanese Stocks

 

July 13, 2017, 4:00 pm EST               Invest Alongside Billionaires For $297/Qtr

 

BR caricatureWith some global stock barometers hitting new highs this morning, there is one spot that might benefit the most from this recently coordinated central bank promotion of a higher interest environment to come.  It’s Japanese stocks.

First, a little background:  Remember, in early 2016, the BOJ shocked markets when it cut its benchmark rate below zero. Counter to their desires, it shook global markets, including Japanese stocks (which they desperately wanted and needed higher). And it sent capital flowing into the yen (somewhat as a flight to safety), driving the value of the yen higher and undoing a lot of the work the BOJ had done through the first three years of its QE program. And that move to negative territory by Japan sent global yields on a mass slide.

By June, $12 trillion worth of global government bond yields were negative. That put borrowers in position to earn money by borrowing (mainly you are paying governments to park money in the “safety” of government bonds).

The move to negative yields, sponsored by Japan (the world’s third largest economy), began souring global sentiment and building in a mindset that a deflationary spiral was coming and may not be leaving, ever—for example, the world was Japan.

And then the second piece of the move by Japan came in September. It was a very important move, but widely under-valued by the media and Wall Street. It was a move that countered the negative rate mistake.

By pegging its ten-year yield at zero, Japan put a floor under global yields and opened itself to the opportunity to doing unlimited QE.  They had the license to buy JGBs in unlimited amounts to maintain its zero target, in a scenario where Japan’s ten-year bond yield rises above zero.  And that has been the case since the election.

The upward pressure on global interest rates since the election has put Japan in the unlimited QE zone — gobbling up JGBs to push yields back down toward zero — constantly leaning against the tide of upward pressure. That became exacerbated late last month when Draghi tipped that QE had done the job there and implied that a Fed-like normalization was in the future.

So, with the Bank of Japan fighting a tide of upward pressure on yields with unlimited QE, it should serve as a booster rocket for Japanese stocks, which still sit below the 2015 highs, and are about half of all-time record highs — even as its major economic counterparts are trading at or near all-time record highs.

Is Apple (NASDAQ:AAPL) A Double From Here?

 

 

February 1, 2017, 4:00pm EST               Invest Alongside Billionaires For $297/Qtr

I talked yesterday about the Fed.  As I said, I think we’ll find that the Fed will shift gears again to stay behind the curve on inflation, to let the economy run a little hot.  They met today and it was a non-event. They said nothing to build momentum on their rate hike from December.

The news of the day has been Apple (NASDAQ:AAPL) earnings.  People over the past couple of years have been calling for the decline in Apple.  They’ve said it’s topped.  They can’t innovate in the post-Steve Jobs era.  The iPhone was magic. But reproducing magic isn’t easy.  Once you put a computer in everyone’s pocket, there’s not much more they can do to it with it. These are all of the quips about Apple’s peak.  They may be right.  But Apple’s peak, at least as a stock, is greatly exaggerated.

They reported a huge positive surprise on earnings yesterday after the close.  The stock was up 6% on the day.  But even before that, I suspect it has become a much loved stock in the past two months in the “smart money” investor community.

We should see in the coming weeks, as big investors disclose their positioning for the end of Q4, Apple will have returned to a lot of portfolios again.  Warren Buffett, an investor that has made his fortune buying when others are selling, built a big stake at the lows of the year last year.  And it’s a perfect Buffett stock.

It’s incredibly cheap compared to the market.

The stock still trades at 15x earnings.  Much cheaper than the market.  Apple trades at 13x next year’s projected earnings.  The S&P 500 trades at 16.5x.  What about Apple’s monster cash position?  Apple has even more cash now — a record $246 billion. If we excluded the cash from the valuation, Apple market cap goes down from $675 billion to $429 billion.  That would equate to Apple trading at closer to 9x earnings. Though not an “apples to apples” that valuation would group Apple with the likes of these S&P 500 components that trade around 9 times earnings, like:  Dow Chemical, Prudential Financial, Bed Bath & Beyond, a Norwegian chemical company (LBY), and Hewlett Packard Enterprise. It’s safe to say no one is debating whether or not Hewlett Packard is at the pinnacle of its business. Yet, if we strip out the cash in Apple, AAPL shares are trading closer to an HPE valuation.

Add to that, Apple now has a fresh catalyst coming in, Trump policies. The new President Trump is incentivizing Apple (and others) to bring offshore cash hoards back home with a flat 10% tax.  And Apple makes money – a lot of it.  A cut in the corporate tax rate will be a boon for earnings.  Two years ago, Carl Icahn argued that Apple should use (a lot more of) their cash to buyback shares – and, with that, valued the stock at double its current levels.

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