January 29, 7:00 pm EST

For the first time in a decade, the mood at the World Economic Forum in Davos was of optimism and opportunity.  And Trump economic policies have had a lot to do with it.

That optimism has continued to drive markets higher this year: global stocks, global interest rates, global commodities – practically everything.

The S&P 500 is up nearly 7% on the year now — just a little less than a month into the New Year.  And we’ve yet to see the real impact of tax incentives hit earnings and investment.

But, with the rising price of oil (now above $65), and improving consumption (on the better outlook), we will likely start seeing the inflation numbers tick up.

Now, what will be the catalyst to cap this very sharp run higher in stocks to start the year?  It will probably be the first “hotter than expected” inflation number.

That would start the speculation that the Fed might need to move rates faster, and it might speed-up the exit talks from QE in Europe and Japan.

If the inflation outlook triggers a correction (which would be healthy), that would set the table for hotter earnings and hotter economic growth (coming down the pike) to ultimately drive the remainder of stock returns for the year.

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September 19, 2017, 6:00 pm EST              Invest Alongside Billionaires For $297/Qtr

With a Fed decision queued up for tomorrow, let’s take a look at how the rates picture has evolved this year.

The Fed has continued to act like speculators, placing bets on the prospects of fiscal stimulus and hotter growth. And they’ve proven not to be very good.

​Remember, they finally kicked off their rate “normalization” plan in December of 2015.  With things relatively stable globally, the slow U.S. recovery still on path, and with U.S. stocks near the record highs, they pulled the trigger on a 25 basis point hike in late 2015.  And they projected at that time to hike another four times over the coming year (2016).

​Stocks proceeded to slide by 13% over the next month.  Market interest rates (the 10 year yield) went down, not up, following the hike — and not by a little, but by a lot.  The 10 year yield fell from 2.33% to 1.53% over the next two months.  And by April, the Fed walked back on their big promises for a tightening campaign.  And the messaging began turning dark.  The Fed went from talking about four hikes in a year, to talking about the prospects of going to negative interest rates.

​That was until the U.S. elections.  Suddenly, the outlook for the global economy changed, with the idea that big fiscal stimulus could be coming.  So without any data justification for changing gears (for an institution that constantly beats the drum of “data dependence”), the Fed went right back to its hawkish mantra/ tightening game plan.

​With that, they hit the reset button in December, and went back to the old game plan.  They hiked in December.  They told us more were coming this year.  And, so far, they’ve hiked in March and June.

​Below is how the interest rate market has responded.  Rates have gone lower after each hike.  Just in the past couple of days have, however, we returned to levels (and slightly above) where we stood going into the June hike.

But if you believe in the growing prospects of policy execution, which we’ve been discussing, you have to think this behavior in market rates (going lower) are coming to an end (i.e. higher rates).

As I said, the Hurricanes represented a crisis that May Be The Turning Point For Trump.  This was an opportunity for the President to show leadership in a time people were looking for leadership.  And it was a chance for the public perception to begin to shift.  And it did. The bottom was marked in Trump pessimism.  And much needed policy execution has been kickstarted by the need for Congress to come together to get the debt ceiling raised and hurricane aid approved.  And I suspect that Trump’s address to the U.N. today will add further support to this building momentum of sentiment turnaround for the administration. With this, I would expect to hear a hawkish Fed tomorrow.

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September 15, 2017, 4:00 pm EST              Invest Alongside Billionaires For $297/Qtr

We’ve past yet another hurdle of concern for markets this past week.  Last Friday this time, we had a potential catastrophic category 5 hurricane projected to decimate Florida. 

​Though there was plenty of destruction in Irma’s path, the weakening of the storm through the weekend ended in a positive surprise relative what could have been.

​So we end with stocks on highs.  And remember, we’ve talked over past month about the quiet move in copper (and other base metals) as a signal that the global economy (and especially China) might be stronger than people think.  Reuters has a piece today where they overlay a chart of economist Ed Yardeni’s “boom-bust barometer” over the S&P 500.  It looks like the same chart.

What does that mean? The boom-bust barometer measures the strength of industrial commodities relative to jobless claims.  Higher commodities prices and lower unemployment claims equals a rising index as you might suspect (i.e. suggesting economic boom conditions, not bust).  And that represents the solid fundamental back drop that is supporting stocks.

​With that in mind, consider this:  In the recent earnings quarter, earnings and revenue growth came in as good as we’ve seen in a long time for S&P 500 companies. We have 4.4% unemployment. The rise in equities and real estate have driven household net worth to $94 trillion – new record highs and well passed the pre-crisis peaks (chart below).

Now, people love to worry about debt levels.  It’s always an eye-catching headline.

But what happens to be the key long-term driver of economic growth over time?  Credit creation (debt).  The good news: The appetite for borrowing is back.  And you can see how closely GDP (the purple line, economic output) tracks credit growth.

But as I’ve said, it has proven to have its limits.  We need fiscal stimulus to get us over the hump – on track for a sustainable recovery.  And we now have, over the past two weeks, improving prospects that we will see fiscal stimulus materialize — i.e. policy execution in Washington.

​To sum up:  People continue to look for what could bust the economy from here, and are missing out on what looks like the early stages of a boom.

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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May 26, 2017, 2:30pm EST                                                                                         Invest Alongside Billionaires For $297/Qtr

The past few days we’ve looked at the run up in bitcoin.  Remember, I said: “If you own it, be careful. The last time the price of bitcoin ran wild, was 2013.  It took about 11 days to triple, and about 18 days to give it all back.  This time around, it’s taken two months to triple (as of today). ”

It looks to be fueled by speculation, and likely Chinese money finding its way out of China (beating capital controls).  And yesterday we talked about the potential disruption to global markets that could come with a crash in bitcoin prices.

I suspect that’s why gold is finally beginning to move today, up almost 1%, and among the biggest movers of the day as we head into the long holiday weekend (an indication of some money moving to gold to hedge some shock risk).

Remember yesterday we looked at the chart on Chinese stocks back in 2015 and compared it to bitcoin.  The speculative stock market frenzy back thin was pricked when the PBOC devalued the yuan later in the summer.

Probably no coincidence that bitcoin’s recent acceleration happened as Moody’s downgraded China’s credit rating this week for the first time since 1989 (an event to take note of). Yesterday, the PBOC was thought to be in buying Chinese stocks (another event to take note of).  And this morning, the PBOC stepped in with another currency move! Historically, major turning points in markets tend to come with some form of intervention.  Will a currency move be the catalyst to end the bitcoin run, as it did the runup in Chinese stocks two years ago?

Let’s take a look at what the currency move overnight means …

Keep in mind, the currency is China’s go-to tool for fixing problems.  And they have problems.  The economy is crawling around recession like territory.  The debt was just downgraded. And they’ve had a tough time managing capital flight. As an easy indicator:  Global stocks are soaring. Chinese stocks are dead (flat on the year).

Remember, their rapid economic ascent in the world came through exports (via a weak currency).  The move overnight is a move back toward tying its currency more closely to the dollar.  Which, if this next chart plays out, will also weaken the yuan compared to other big exporting competitors in the world.

That should help the Chinese economic outlook, which may help stem the capital flight (which has likely been a significant contributor to bitcoin’s rise).

May 25, 2017, 4:00pm EST                                                                                        Invest Alongside Billionaires For $297/Qtr

We talked yesterday about run up in bitcoin. The price of bitcoin jumped another 14% today before falling back.

As I said yesterday, it looks like Chinese money is finding it’s way out of China (despite the capital controls) and finding a home in bitcoin (among other global assets). If you own it, be careful. The last time the price of bitcoin ran wild, was 2013. It took about 11 days to triple, and about 18 days to give it all back. This time around, it’s taken two months to triple (as of today).

If you’re looking for a warning signal on why it might not be sustainable (this bitcoin move), just look at the behavior across global markets. It’s not exactly an environment that would inspire confidence.

Gold is flat. Interest rates are soft. Stocks are constantly climbing. Commodities are quiet, except for oil — which fell back below $50 today on news that OPEC did indeed agree to extend its production cuts out to March of next year (bullish, though oil went south).

When the story is confusing, conviction levels go down, and cash levels go up (i.e. people de-risk). And maybe for good reason.

In looking at the bitcoin chart today, I thought back to the run up in Chinese stocks in early 2015. Here’s a look at the two charts side by side, possibly influenced by a lot of the same money.

The crash in Chinese stocks took global markets with it. It’s often hard to predict that catalyst that might prick a bubble and even harder to see the links that might lead to broader market instability. In this case, though, there are plenty of signs across markets that things are a little weird.

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January 23, 2017, 4:30pm EST

The new President Trump has wasted no time on carrying out his plan on trade.  He met with 12 major U.S. company leaders today and told them that they would pay to build outside of the U.S., but (importantly) they would save to build here.  And he wrote an executive order to withdraw from the Trans-Pacific Partnership, and one to renegotiate NAFTA.

There are plenty of people that have focused on the risks and the dangers with the Trump trade policies. Meanwhile, those most directly affected aren’t quite as draconian on the outlook — quite the opposite.  The executives that have walked out of Trump Tower, and now the White House have largely been optimistic. The same is said for trade partners.  Whether they mean it or not, they understand the value of doing business with the U.S. consumer.

As I’ve said, there are clear opportunities for win-wins – especially in a world that must rebalance trade to avoid more cycles of the booms and busts, like the boom-bust we experienced over the past two decades.  The administration has the leverage of power (with a Republican Congress), but they also have the leverage of rewards.  Despite what the media tells us, behind closed doors the new administration seems to negotiate by carrot rather than stick.  Trump comes to meetings bearing gifts, and that creates buy-in.

When you bring American CEOs in and tell them that you’re going to give them a 20 percentage point tax cut, you’re going to slash the regulation burden (by “75%” as he said today), you’re going to give them a 30+ percentage point tax cut on repatriating offshore money,  and your going to launch a trillion dollar infrastructure spend, all in an effort to juice the economy to a 4%+ growth rate, they’re going to be very excited — even if you tell them they can no longer access the cheapest production in the world.

In the end, they’d rather have a hot economy to sell into, than a stagnant economy, even if it comes with a higher cost of production.  And we may find that, in the end, the after-tax profit margins of these big U.S. corporates may be better given all of these incentives, even if they make things here. Better revenues, and maybe better margins to go with it.

Remember, the optimism of U.S. small business owners made the biggest jump since 1980 on the prospects of growth-friendly Trump policies.   GDP equals Consumption + Investment + Government Spending + Net Exports. Ultra easy monetary policies have made borrowing cheap, saving expensive and created the economic stability necessary to get hiring over the past several years.  That has all kept consumption going.

The “build it here” policies are a recipe for capital investment to finally ramp up.  Add to that, a big government infrastructure spend, and we’re getting the pieces of the puzzle in place to see much better economic growth. A hotter U.S. economy will mean a hotter global economy. With that, I suspect net exports will ultimately pick up as well, with a healthier, more sustainable global economy.

On that note, if we look at the USD/Mexican Peso exchange rate as a gauge of trade partner health, we’ve seen the peso hit hard through the campaigning period under the protectionist fears of a Trump administration.  Interestingly, since the inauguration, the peso has been strengthening, even as President Trump signed an executive order today to renegotiate NAFTA. The message behind that usually means: the U.S. does better, Mexico does better.

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Today we want to talk about the quarterly SEC filings that came in over the past several days week.

All big investors that are managing over $100 million are required to publicly disclose their holdings every quarter. They have 45 days from the end of the quarter to file that disclosure with the SEC. It’s called a form13F.

While these filings have become very popular fodder for the media, what we care more about is 13D filings.  And of course we have our formula for narrowing down the universe to what we deem to be the best ideas.

For a refresher:  The 13D forms are disclosures these big investors have to make within 10 days of taking a controlling stake in a company. When you own 5% or more of a company’s stock, it’s considered a controlling stake. In a publicly traded company, with that sized position, you typically become the largest shareholder and, as we know, with that comes influence. Another key attribute of this 13D filing, for us, is that these investors also have to file amendments to the 13D within 10 days of making any change to their position.

By comparison, the 13F filings only offer value to the extent that there is some skilled analysis applied. Thousands of managers file 13Fs every quarter. And the difference in manager talent, strategies and portfolio sizes run the gamut.

With that caveat, there are nuggets to be found in 13Fs. Let’s talk about how to find them, and the take aways from the recent filings.

First, it’s important to understand that some of the positions in 13F filings can be as old as 135 days. Filings must be made 45 days after the previous quarter ends, which is 90 days. We only look at a tiny percentage of filings—just the investors that we know have long and proven track records, distinct approaches, and who have concentrated portfolios.

Through our research and nearly 40 years of combined experience, here’s what we’ve found to be most predictive:

• Clustering in stocks and sectors by good hedge funds is bullish. Situations where good funds are doubling down on stocks are bullish. This all can provide good insight into the mindset of the biggest and best investors in the world, and can be a predictor of trends that have yet to materialize in the market’s eye.
• For specialist investors (such as a technology focused hedge fund) we take note when they buy a new technology stock or double down on a technology stock. This is much more predictive than when a generalist investor, as an example, buys a technology stock.
• The bigger the position relative to the size of their portfolio, the better. Concentrated positions show conviction. Conviction tends to result in a higher probability of success. Again, in most cases, we will see these first in the 13D filings.
• New positions that are of large, but under 5%, are worthy of putting on the watch list. These positions can be an indicator that the investor is building a position that will soon be a “controlling stake.”
• Trimming of positions is generally not predictive unless a hedge fund or billionaire cuts a position by 75% or more, or cuts below 5% (which we will see first in 13D filings). Funds also tend to trim losers into the fourth quarter for tax loss benefits, and then they buy them back early the following year.

With that in mind, we want to talk about a few things we did glean from these recent filings.

Apple (AAPL)

This biggest news out of the filings this week was that Warren Buffett initiated a new $1 billion plus stake in Apple.  Buffett loves to invest in out-of-favor companies that are depressed in price, with strong brand names, low P/Es and high return on capital.  Apple checks the boxes on all of the above.

We think Buffett’s stamp of approval will change the sentiment on Apple, which has had a short-term ebb.  Apple shares were up 4% on the news Buffett has entered, the biggest one day move in over two months.

Additionally, billionaire David Einhorn added to his Apple position last quarter. He now has more than 15% of his $5.9 billion hedge fund in Apple.

ENERGY

We’ve talked a lot about oil over the past several months. The oil price bust created a binary trade — either it destroyed the global economic recovery (and likely the global economy) or it bounced back aggressively.  Thankfully, it’s done the latter.  Billionaire oil trader, Boone Pickens said this week that he thinks oil could trade as high as $60 over the next two months.

In the filings from Q1, top billionaires just like in Q4 were initiating and adding new stakes in energy stocks – building some large, high conviction positions.

As we’ve said, we think oil-energy stocks are the macro trade of the year.

Internet

One of most popular growth stocks purchased by top billionaire investors last quarter was Facebook. Another notable tech stock in the cross hairs of influential investors:  Yahoo.  A couple of top activist investors, a hot macro investor are involved in Yahoo. And news this week that Warren Buffet and billionaire Dan Gilbert could be teaming up to buy parts of Yahoo.

Billionaires Bottom Fishing in Healthcare

Noted contrarian and billionaire John Paulson has doubled down on two beaten down healthcare stocks last quarter, Endo International and Akorn Inc. We think this is an interesting move because Paulson like many of the best billionaire investors have literally made billions from buying when everyone else is selling.

Many other top hedge funds remain heavily invested in healthcare stocks as well, even after their most recent selloff.

Now, a couple of bigger picture views from the filings…

Some of the biggest and best are bullish on stocks.  Billionaire David Tepper has 12% of his fund invested in call options on the S&P 500 and Nasdaq 100.  Billionaire global macro trading legend, Louis Bacon, now has more than 7% of his fund in Nasdaq call options.  And two other macro investing studs, Paul Tudor Jones and John Burbank have both built big call options on emerging market stocks.

This activity gels nicely with what we’ve been discussing here in our daily notes.  We have a global economic environment that is fueled by central bank support. The risk of the oil price bust has now been removed.  And a lot of the economic data is setting up nicely for big positive surprises over the coming months.  We think we are in the early stages of seeing a global sentiment shift, away from gloom, and toward optimism.  And positive data surprises and changes in sentiment are two very powerful factors in driving markets.

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