November 30, 2017, 4:00 pm EST

The Dow is now up 23% on the year. The index that measures the broader market, the S&P 500, is up 18%. This is more than double the performance of the long run compounded average growth rate for the stock market.

People continue to be surprised that policy execution is improving, and that tax cuts are actually coming. And they speculate on whether or not the stock market already has it all priced in. I think the steady rise in stocks is telling them it’s not.

As I’ve said, we remain in an ultra-low interest rate world, where incentives continue to push money into stocks (as the best alternative). And in ultra-low rate environments, historically, the multiple on stocks (the P/E) runs north of 20. It’s 18 right now, on the consensus estimate on next year’s earnings. So on a valuation basis, there’s room. This doesn’t take into account a corporate tax cut that will take the rate from 35% to 20%. That goes right to the bottom line for companies (earnings go UP). When earnings go up, the multiple stocks trade for goes down (stocks get cheaper).

Citibank thinks each 1% cut in corporate taxes will add roughly $2 in S&P 500 earnings. And Citibank says the effective tax rate across the S&P 500 is more like 27%. So a cut to 20% would mean a seven percentage point reduction. This would put next year’s S&P 500 earnings in the mid-$150s, which would put the multiple at 16 to 17 times next year’s earnings.

And don’t forget, we’re getting fiscal stimulus for a reason: to pop economic growth, which has been in a rut (post-crisis), running well south of the 3% long run average growth rate for the economy. The prospects for better growth, means prospects for better earnings. The outlook for better earnings, on a better economy, should also put downward pressure on valuations, making stocks more attractively valued.

In my January 2 note, I said: “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 think it’s safe to say that is playing out—albeit maybe slower and messier than expected.

I also said: “The element that economists and analysts can’t predict, and can’t quantify, is 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 mistrust 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.”

October 9, 2017, 4:00 pm EST

As we know, one of the pillars of the Trump administration’s growth policies has been deregulation.  With that, today the head of the EPA signaled the withdrawal from the Clean Power Plan – an Obama regulation to fight climate change.

​What does this mean for coal stocks?

Let’s take a look at the two largest American coal producers, both of which filed bankruptcy last year: Peabody Energy and Arch coal.

​These are now two post-bankruptcy stocks!  ​Peabody emerged from bankruptcy earlier this year after shedding about $5 billion in debt. Similar story for Arch coal.  They filed early last year and emerged from bankruptcy late last year, eliminating $5 billion in debt in the process. So shareholders were wiped out and debt holders became stock holders in new low debt, cash flow positive companies with deregulation coming down the pike.  With that, you would think the stocks would be screaming higher.  That hasn’t been the case.

​Here’s a look at the charts…

So we now have Peabody Energy, the leading coal producer in America with a $3 billion market cap.  And Arch Coal, number two, has just a $1.7 billion market cap.

Are these cheap stocks?

​Let’s take a look at who owns them…

The biggest shareholder in Peabody is billionaire Paul Singer’s hedge fund, Elliott Management.  They own half a billion dollar’s worth of the stock and it’s a top ten position.  As for ARCH – the top shareholder is the $5 billion hedge fund Monarch Alternative Capital. ARCH makes up 20% of their highly concentrated long equity portfolio (their biggest single stock position).  If you’re going to dip your toe in the water on a post-bankruptcy stock, there are few better places to look for guidance than Paul Singer – a former attorney, turned one of the most influential and successful investors in the world.

September 18, 2017, 4:30 pm EST              Invest Alongside Billionaires For $297/Qtr

As I said on Friday, 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.

We constantly hear about how the fundamentals don’t support the move in stocks.  Yet, we’ve looked at plenty of fundamental reasons to believe that view (the gloom view) just doesn’t match the facts.

Remember, the two primary sources that carry the megahorn to feed the public’s appetite for market information both live in economic depression, relative to the pre-crisis days.  That’s 1) traditional media, and 2) Wall Street.

As we know, the traditional media business, has been made more and more obsolete. And both the media, and Wall Street, continue to suffer from what I call “bubble bias.”  Not the bubble of excess, but the bubble surrounding them that prevents them from understanding the real world and the real economy.

As I’ve said before, the Wall Street bubble for a very long time was a fat and happy one. But the for the past ten years, they came to the realization that Wall Street cash cow wasn’t going to return to the glory days.  And their buddies weren’t getting their jobs back.  And they’ve had market and economic crash goggles on ever since. Every data point they look at, every news item they see, every chart they study, seems to be viewed through the lens of “crash goggles.” Their bubble has been and continues to be dark.

Also, when we hear all of the messaging, we have to remember that many of the “veterans” on the trading and the news desks have no career or real-world experience prior to the great recession.  Those in the low to mid 30s only know the horrors of the financial crisis and the global central bank sponsored economic world that we continue to live in today. What is viewed as a black swan event for the average person, is viewed as a high probability event for them. And why shouldn’t it?  They’ve seen the near collapse of the global economy and all of the calamity that has followed. Everything else looks quite possible!   

Still, as I’ve said, if you awoke today from a decade-long slumber, and I told you that unemployment was under 5%, inflation was ultra-low, gas was $2.60, mortgage rates were under 4%, you could finance a new car for 2% and the stock market was at record highs, you would probably say, 1) that makes sense (for stocks), and 2) things must be going really well!  Add to that, what we discussed on Friday:  household net worth is at record highs, credit growth is at record highs and credit worthiness is at record highs.

We had nearly all of the same conditions a year ago.  And I wrote precisely the same thing in one of my August Pro Perspective pieces.  Stocks are up 17% since.

And now we can add to this mix:  We have fiscal stimulus, which I think (for the reasons we’ve discussed over past weeks) is coming closer to fruition.

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August 21, 2017, 6:00 pm EST                                                               Invest Alongside Billionaires For $297/Qtr

After a week away, I return to markets that look very similar to where we left off 10 days ago.  Stocks lower.  Yields lower.  The dollar lower. But commodities higher!

Now, this takes into account, another week of political volatility in Washington.  It takes into account another week of uncertainty surrounding North Korea.

What’s important here, is distinguishing between a price correction and a real thematic change.  If we’re not making new record highs in stocks every day, and stocks actually retrace 5% or so, does that represent the derailing of the slow but steady economic recovery and, as important, the dismissal of potential policy fuel that could finally lift us out of the post-crisis stall speed growth regime?

The narrative in the media would have you believe the answer is yes.

But the reality is, the economic recovery is stable and continuing.  The policy stimulus has been a tough road, but continues to offer positive influence on the economy.  And there are strong technical reasons to believe we’re seeing the early stages of a price driven correction in stocks.

Remember, we looked at the big technical reversal signal (the “outside day”) back on August 8th.  That was the technical signal, and it was about as good a signal as it gets.  The Dow had been plowing to new highs for eleven consecutive days — culminating in another new record high before.  And the last good ‘outside day’ in the S&P 500 was into the rally that stalled December 2, 2015 and it resulted in a 14% correction.

Here’s another look at that chart, plus the first significant trend line that we discussed in my last note, August 11th.

I thought this line would give way, which it has today, and that we would see a real retracement, which should be a gift to buy stocks.  If you’re not a highly leveraged hedge fund, a 5%-10% retracement in broader stocks is a gift to buy.  Remember, the slope of the S&P 500 index over time is UP.

Prior to the reversal signal in stocks, we had already addressed the influence of the FAANG stocks.  And I suggested the miss in Amazon earnings was a good enough excuse to cue the profit taking in what had been a very lucrative trade in the institutional investment community.  Amazon is now down 12% from the highs of just 18 days ago.

What should give you confidence that the economic outlook isn’t souring? Commodities!

The base metals, as we’ve discussed in recent weeks, continue to move higher and continue to look like early stages of a bull market cycle — which would support the idea that the global economic recovery is not only on track, but maybe better than the consensus market view (which seems to be still unconvinced that better times are ahead).

The leader of the commodities run is copper.  We looked at this chart in my last note (Aug 11).  I said, “this big six-year trend line in copper (below) will be one to watch closely.  If it breaks, it should lead the commodities trend higher.”

Here’s an updated chart of Copper.  This trend line was broken today.

​
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Stocks are sliding more aggressively today.  Wall Street and the media always have a need to assign a reason when stocks move lower.  There have been plenty of negatives and uncertainties over the past seven months — none of which put a dent in a very strong opening half for stocks.

​But markets don’t go straight up.  Trends have retracements.  Bull markets have corrections.  And despite what many people think, you don’t need a specific event to turn markets.  Price can many times be the catalyst.

If we look across markets, it’s safe to say it doesn’t look like a market that is pricing in nuclear war.  Gold is higher, but still under the highs of a month ago.  The 10 year yield is 2.21%.  Two weeks ago, it was 2.22%.  That doesn’t look like global capital is fleeing all parts of the world to find the safest parking place.

​Now, on the topic of North Korea, the media has found a new topic to obsess about– and to obsessively denounce the administration’s approach.  With that, let’s take a look at the Trump geopolitical strategy of calling a spade a spade.

​As we know, Mexico was the target heading into the election.  Trump’s tough talk against illegal immigration and drug trafficking drew plenty of scrutiny.  People feared the protectionist threats, especially the potential of alienating the U.S. from its third biggest trading partner.  We’re still trading with Mexico.  And the U.S. is doing better.  So is Mexico.  Mexican stocks are up 11% this year.  The Mexican currency is up 13% this year.

​China has been a target for Trump.  He’s been tough on China’s currency manipulation and, hence, the lopsided trade that contributed heavily to the credit crisis. Despite all of the predictions, a trade war hasn’t erupted.  In fact, China has appreciated its currency by 5% this year.  That’s a huge signal of compliance.  That’s among the fastest pace of currency appreciation since they abandoned the peg against the dollar more than 12 years ago (which was China’s concession to threats of a 30% trade tariff that was threatened by two senators, Schumer and Graham, back in 2005). And even in the face of a stronger currency (which drags on exports, a key driver of the economy), stocks are up 5% in China through the first seven months of the year.

​Bottom line:  It’s fair to say, the tough talk has been working.  There has been compromise and compliance.  So now Trump has stepped up the pressure on North Korea, and he has been pressuring China, to take the side of the rest of the world, and help with the North Korea situation – and through China is how the North Korea threat will likely get resolved.

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May 17, 2017, 4:00pm EST               Invest Alongside Billionaires For $297/Qtr

Yesterday we talked about the disconnect between the daily drama from the media in Washington (doom and gloom), and what the markets have been communicating (an economic expansion is underway).  Today, you might think that connection is happening — the doom and gloom scenario is finally being realized in markets.  Probably not.

For perspective:  As of the close yesterday, the Nasdaq was up 18% year to date (just five months in).  Gold was in the middle of a three year range.  Market interest rates (the U.S. 10-year government bond yield) was just above the middle of the range of the past four years.  The dollar was not far off its strongest levels in 15 years.

Today the media has explicitly printed the headline of impeachment for Trump (actually, they’ve run those headlines a various times over the past several months). Nonetheless, stocks (the S&P 500) today are off by 1.6%.

This gets the bears very excited.  I saw the story about consumer debt, surpassing 2008 levels, floating all over the internet today. People tried to make the bubble connection — implying another debt crisis was coming.

The real story:  Total household indebtedness finally surpassed the previous peak from 2008. That’s precisely what the Fed was attempting to do with zero interest rates.  Make existing debt cheaper to manage, and at some point, break the psychology of the debt burden and get people borrowing (at ultra-cheap rates), investing and spending again.  Otherwise, our economy and the world economy would have gone into a deflationary spiral.

That said, as I’ve found in my 20 years in this business, people tend to find a story to fit the price.  The story hadn’t been fitting the price for much of the past six months.  Today, it seems pretty easy. See the chart below of stocks ….

With that in mind, here’s gold.  Gold sits on the brink of a big trend break (higher).  When looking at gold and the dollar, it’s important to remember this:  back in the heat of the crisis, gold and the dollar moved together, higher!  That’s opposite of the traditional correlation.  They moved higher together because people bought gold and they bought dollars (and dollar denominated assets, like Treasuries) as they viewed it the safest alternative in the world to park money – with the chance of getting it back.

Follow This Billionaire To A 172% Winner

In our Billionaire’s Portfolio, we have a stock in our portfolio that is controlled by one of the top billion dollar activist hedge funds on the planet. The hedge fund manager has a board seat and has publicly stated that this stock is worth 172% higher than where it trades today. And this is an S&P 500 stock!

Even better, the company has been constantly rumored to be a takeover candidate. We think an acquisition could happen soon as the billionaire investor who runs this activist hedge fund has purchased almost $157 million worth of this stock over the past year at levels just above where the stock is trading now.

So we have a billionaire hedge fund manager, who is on the board of a company that has been rumored to be a takeover candidate, who has adding aggressively over the past year, on a dip.

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May 16, 2017, 4:00pm EST               Invest Alongside Billionaires For $297/Qtr

The noise surrounding the Trump administration continues by the day, as the media tries desperately to prosecute the elected President at daily briefings.The chaos and dysfunction message is loud, but markets aren’t hearing it.  The real story is very different. Stocks continue to surge. Stock market volatility continues to sit 10-year (pre-crisis) lows. The interest rate market is much higher than it was before the election, but now quiet and stable.  Gold, the fear-of-the-unknown trade, is relatively quiet.  This all looks very much like a world that believes a real economic expansion is underway, and that a long-term sustainable global economic recovery has supplanted the shaky post-crisis (central bank-driven) recovery that was teetering back toward recession. Why is the messaging so different?  Remember, the financial media and Wall Street are easily distractible. Not only do they have short attention spans, but they’ve been trained throughout their careers to find new stories to obsess about. They need to interpret, pontificate, strategize to feel valued. Approaching their jobs with the idea that a slow moving dominant theme is at work is just too boring. This is the disconnect between markets and the narrative.  We have major central banks around the world that continue to print money.  These central banks buy assets with that freshly printed money.  That means, stocks, bonds, commodities go higher.  And now we have everyone’s fate (the global economy) tied to the outcome of new policies from the leading economy in the world – efforts to restore sustainable growth through structural reform and fiscal stimulus. That hopeful outlook does nothing but underpin the rise in asset prices (stocks, bonds, commodities, real estate). ​Yesterday we got a look under the hood of the portfolios of the biggest money managers in the world, via their 13F filings (required quarterly portfolio disclosures to the SEC).  It’s been clear that the biggest and best, embrace this big theme, and have been aggressively positioning to take advantage of the very bullish proposed policy tailwinds for stocks, which are: 1) a corporate tax rate cut, which will go right to the bottom line for profitable companies.  Not surprisingly, which stocks have been leading the way in the climb in the indicies?  The one’s that make a lot of money (Apple, Microsoft, Google).  2) a repatriation tax holiday that will bring back trillions of dollars onshore, to be paid back to shareholders and put to work in the economy through investment and projects.  3) a trillion dollar infrastructure spend that, regardless of how difficult it may be to legislate, should happen in one form or another. ​Among the reports on portfolio holdings yesterday, we heard from the Swiss National Bank.  As I said above, don’t forget there are still central banks deeply entrenched in QE and, beyond local government bonds, are buying foreign assets (in large amounts).  Switzerland’s central bank has more freshly printed money to put to work every quarter, and has been increasing their allocation to equities dramatically – $80 billion of which is now (as of the end of Q1) in U.S. stocks!  That’s a 29% bigger stake than they had at the end of 2016.  The SNB is the world’s eighth biggest public investor. So keep this big theme in mind:  Central banks remain involved, but the baton has been passed, from a central bank-driven recovery to a fiscal stimulus-driven recovery.  And everyone needs it to work.   Follow This Billionaire To A 172% Winner In our Billionaire’s Portfolio, we have a stock in our portfolio that is controlled by one of the top billion dollar activist hedge funds on the planet. The hedge fund manager has a board seat and has publicly stated that this stock is worth 172% higher than where it trades today. And this is an S&P 500 stock! Even better, the company has been constantly rumored to be a takeover candidate. We think an acquisition could happen soon as the billionaire investor who runs this activist hedge fund has purchased almost $157 million worth of this stock over the past year at levels just above where the stock is trading now. So we have a billionaire hedge fund manager, who is on the board of a company that has been rumored to be a takeover candidate, who has adding aggressively over the past year, on a dip. Join us today and get our full recommendation on this stock, and get your portfolio in line with our BILLIONAIRE’S PORTFOLIO.

May 8, 2017, 4:00pm EST                                                                                          Invest Alongside Billionaires For $297/Qtr

For the skeptics on the bull market in stocks and the broader economy, the reasons to worry continue to get scratched off of the list.

Brexit. Russia. Trump’s protectionist threats. Trump’s inability to get policies legislated.  The French election.

The bears, those looking for a recession around the corner and big slide in stocks, are losing ammunition for the story.

With the threat of instability from the French election now passed, these are two of the more intriguing catch-up trades.

In the chart above, the green line is Spanish stocks (the IBEX).  U.S., German and UK stocks have not only recovered the 2007 pre-crisis highs but blown past them — sitting on or near (in the case of UK stocks) record highs.  Not only does the French vote punctuate the break of this nine year downtrend, but it has about 45% left in it to revisit the 2007 highs.  And the euro, in purple, could have a dramatic recovery with the cloud of French elections lifted, which was an imminent threat to the future of the single currency.​Next … Japanese stocks.  While the attention over the past five months has been diverted toward U.S. politics and policies, the Bank of Japan has continued with unlimited QE.  As U.S. rates crawl higher, it pulls Japanese government bond yields with it, moving the Japanese market interest rate above and away from the zero line.  Remember, that’s where the BOJ has pegged the target for it’s 10 year yield – zero.  That means they buy unlimited bonds to push the yield back down.  That means they print more and more yen, which buys more and more Japanese stocks.

Buffett essentially said at zero interest rates into perpetuity, the upside on the stock market (and any alternative asset class with return) is essentially infinite, as people are forced to find return by taking risk. Why you would buy a treasury bond that has no growth, and little-to-no yield and the same or worse balance sheet than high quality dividend stock.

This “forcing of the hand” (pushing investors into return producing assets) is an explicit objective by the interest rate policies of the Fed and the other major central banks of the world. They need us to buy stocks. They need us to spend money. They need economic growth.

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February 13, 2017, 4:00pm EST

Today we heard from Janet Yellen in the first part of her semi-annual testimony to Congress.  She gave prepared remarks to the Senate today and took questions.  Tomorrow it will be the House.  The prepared statement will be the same, with maybe a few different questions.

Remember, just four months ago, the most important actor in the global economy was the Fed.  Central banks were in control (as they have been for the better part of 10 years), with the Fed leading the way.

The Fed was the ultimate puppet master.  By keeping rates ultra-low and standing ready to act against anything that might destabilize the global economy and threaten to kill the dangerously slow recovery, they (along with the help other major central banks) restored confidence, and created the stability and incentives to drive hiring, investing and spending — which created economic recovery.

When Greece bubbled up again, when oil threatened to shake the financial system, when China’s slowdown created uncertainty, central banks were quick to step in with more easing, bigger QE, promises of low rates for a very long time, etc..  And in some cases, they outright intervened, like when the ECB averted disaster in Italy and Spain by promising to buy unlimited amounts of Italian and Spanish government bonds to stop speculators from inciting a bond market collapse and a collapse of the euro and European Union.

This dynamic of central bank activism has changed.  The Fed, and central bank intervention in general, is no longer the only game in town. We have fiscal stimulus coming and structural change underway that has the chance to finally mend the decade long slump of the global economy.  That’s why today’s speech by the Fed Chair was no longer the biggest event of the week — not even the day.

The scripts has flipped. Where the Fed had been driver of recovery, they now have become the threat to recovery. So the interest in Fedwatching today is only to the extent that they may screw things up.

Moving too fast on interest rate hikes has the potential weaken or even undo the gains that stand to come from the pro-growth policies efforts from the new administration.

Remember, the Fed told us in December that they projected THREE hikes this year.  But keep in mind, they projected FOUR in December of 2015, for 2016, and we only got one. And that was only AFTER the election, and the swing in sentiment regarding the prospects of pro-growth policies.

Remember, Bernanke himself has criticized the Fed for stalling momentum in the recovery by showing too much tightening (i.e. over optimism) in their forecasts.  And he argued that the Fed should give the economy some room to run and sustain momentum, fighting inflation from behind.

On that note, the Fed has now witnessed the bumpy path that the new administration is dealing with, and will be traveling, in implementing policy.  I would think they would be less aggressive now in their view on rate hikes UNTIL they see evidence of policy execution, and a lot more evidence in the data.  Let’s hope that’s the case.

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.

February 10, 2017, 4:00pm EST                                                                                Invest Alongside Billionaires For $297/Qtr

Stocks finished the week on record highs.  We talked earlier in the week about Trump’s meeting with Japan’s Prime Minister and his economic and finance advisors.

I suspect that Trump will come away, after a weekend in Palm Beach with Abe, learning that Abenomics is good for the U.S., and good global growth and stability (in the current global economic environment).

And one of the keys to success in Abenomics is a weaker yen, which translates to a stronger dollar.  As I’ve said, the weak yen has been pulled into the fray with Trump’s tough talk on trade imbalances, but his beef on currency advantage is really directed toward China – not Japan, not Mexico, not even Europe.

With that, and with the assumption that the yen may be pardoned for a while, the dollar bouncing against the yen as we head into the weekend. And it looks like we may see a technical breakout and an even higher dollar, lower yen in our future.

And Japanese stocks look set to break out too, to catch up to the strength of U.S. stocks. The Nikkei is 8% off of the 2015 highs, while U.S. stocks are on record highs, and 8% ABOVE its 2015 highs.

Another catch up trade: German stocks.  Despite the growing attention given to the French nationalist candidate, Le Pen, who has been anti-euro and anti-European Union, right or wrong the bond market isn’t showing any new interest in disaster insurance in Europe, nor is the euro.

With that, German stocks look very good, still about 8% from the 2015 highs, and the technical correction clearly ended last summer.

Lastly, let’s take a look at another big sleeper stock market, China…

You can see how Copper is on a big run (up 10% ytd).  That typically correlates well with expectations of global growth.  Global growth is typically good for China.  Of course, China is in the crosshairs of Trump’s fair trade movement, but if you think there’s a chance that more fair trade terms can be a win for the U.S. and a win for China, then Chinese stocks are a bargain here.

Have a great weekend!

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.