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 24, 2017, 4:30pm EST
The S&P 500 traded up to new record highs today. This morning the new President had three more big American business leaders (the car makers) in the White House for a face-to-face.
The three big American car makers all had big stock performance on the day, and their leaders walked away with very positive remarks (not dismay). It turns out that logical business operators like the prospects of doing business with the tailwinds of pro-growth economic policies.
Now, with Obamacare on the chopping block for the new administration, today let’s take a look what healthcare stocks might do.
Healthcare stocks in general have been beaten up since July of 2015, when a Republican Congress brought a vote to repeal Obamacare. The S&P 500 is up 7% from that date. The XLF (the ETF that tracks healthcare stocks) is down 9% in the same period.
Before that, Obamacare had been a money printing machine for much of the healthcare industry.
In this chart below, of the health insurance provider, Aetna, you can see the impact of Obamacare on the stock.
And here’s a look at the hospital company, HCA, also a big winner under Obamacare.
So what happens under Trump care? Trump has said he wants to keep people insured. It sounds like a rework to a more competitive system, rather than a tear down and rebuild. The first sign of visibility on a new plan is probably the greenlight to buy the healthcare ETF, and maybe the under performers in the Obamacare era.
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 2016. You can join me here and get positioned for a big 2017.
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.
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 2016. You can join me here and get positioned for a big 2017.
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January 20, 2017, 4:15pm EST
President Trump officially took office today. From the close of business on November 8th, as people across the country were still voting, the S&P 500 has climbed 6% – from election night through today. The dollar index has risen 2.8. The broad commodities index is up 6%. The 10 year Treasury note is down 4% — which means the yield is UP from 1.80% to about 2.50%.
His policy agenda has clearly been a game changer.
But if you recall, the broad sentiment going into the election was that a Trump Presidency would cause a stock market crash. These were people that weren’t calibrating the meaningful shift in sentiment that came from projecting pro-growth policies in a world that has been starved for growth. That event (the election) alone did more to cure the global deflation risk than the trillions of dollars that central banks have been pouring into the global economy.
But many still aren’t buying it. I don’t often read financial news. I’d rather look at the primary sources (the data or hear from the actors themselves/ the horse’s mouth) and interpret for myself. But today, I had a look across the web. Four of the five top headlines on a major financial news site, on inauguration day, ranged from negative to doom-and-gloom — all laying blame on the dangers of Trump.
Because Trump has talked tough on trade, the common threat most refer to is a potential trade war. But remember, Trump has also talked tough on U.S. companies moving jobs overseas. Thus far, he hasn’t created enemies, he’s gotten concessions and has created allies. He’s used leverage, and he’s negotiated win-wins. Expect him to do the same with trade partners. With pro-growth policies coming down the pike and a meaningful pop in U.S. economic growth coming, no country, especially in the current state of the global economy, will want to be locked out of trade with the United States.
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 2016. You can join me here and get positioned for a big 2017.
November 16, 2016, 4:00pm EST
Yesterday we talked about the missing piece in the pro-growth rally in markets. It’s oil. A pick-up in demand and growth, tends to also accelerate demand for oil.
But the market is holding out for the November 30 OPEC decision. They’ve told us they plan to cut. The inventories have jumped in recent weeks, suggesting producers are ramping up production into a cut (taking advantage while they can). And Russia’s energy minister said today he thinks OPEC members will agree to terms on a production cut by the November 30 meeting.
With that, oil spiked this morning, but fell back from the highs — still hanging around the $45 area.
Today I want to talk about the performance of small caps over the past week compared to the broader market. If we consider a Trump economy where regulation will be peeled back, a few areas come to mind as being among winners:
Banks: Banks have been crushed by Dodd Frank, made into utility companies. This is the legislation that responded to the global financial crisis — where banks had become hedge funds, taking massive-leveraged-speculative bets against their deposit base. When the black swan event occurred, they became exposed and were bailed out to keep the financial system alive. Those days should never return, but the pendulum swung too far in the other direction on Dodd Frank. In a Trump economy, risk taking will almost certaintly return to the banking system again. The XLF, bank ETF, is up 10% in the past week.
Energy: The energy industry has been crushed under the weight of clean energy policies. Billionaire Carl Icahn, one of Trump’s biggest advocates and once thought to be a candidate for Treasury Secretary, penned a letter to the EPA a few months ago saying their policies on renewable energy credits are bankrupting the oil refinery business and destroying small and midsized oil refiners. Icahn happens to own a controlling stake in one, CVR Energy (CVI). The stock is up 30% in the past week.
Small caps: The common theme in the above two industries is that all companies have been hurt, but the burden of increased regulation has been far a greater economic and financial cost to small companies. That’s why the Russell 2000 (small cap index) is racing higher in the President elect Trump era. The small cap index is outperforming the S&P 500 by 5 to 1 since Tuesday of last week.
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 is up 20% this year. That’s almost 3 times the performance of the broader stock market. Join me here.
