By Bryan Rich

November 16, 2017, 7:00 pm EST   

BR caricatureAfter some broad selling across markets yesterday, stocks bounced back today.  With that, you might expect interest rates to push up and commodities to be rising too.  That was not the case, which continues the trend of the past week (or so) of odd market behavior.

​About a tenth of the strength in the S&P 500 can be attributed to Wal-Mart.  Wal-Mart had a big earnings beat today with the best sales growth since before the financial crisis.

With that, let’s take a look at how Amazon’s war on traditional retail has affected Wal-Mart.

​It wasn’t long ago that Wal-Mart was the biggest company in the world.  It topped the Fortune 500 list from 2002 through 2005, and then again in 2007 (with a more than $300 billion market cap).  At that time, Amazon was a $25 billion company.  And then the financial crisis hit.  Wal Mart was almost put out of business because of the global credit freeze.  And then we had massive intervention to get credit moving again and to save the economy.  With that intervention came a massive fiscal stimulus package.  A huge chunk of it flooded into Silicon Valley (pension money followed it).

​And, since then, although Amazon was a decade old company at the time, Amazon has had a trajectory similar to the other big tech giants of today.  It’s more than 20 times as big today.

​For perspective, in 2006, Wal-Mart was a $315 billion company.  Today, the U.S. economy is 34% bigger than it was in 2006 (about $5 trillion bigger).  And Wal-Mart is 15% smaller than it was in 2006 (at a market cap of $268 billion).

But Wal-Mart has finally started fighting for its life.

They bought a controlling stake in in the middle of last year to access the growing middle class in China. is the number two e-commerce site in China, but is rapidly closing the gap between itself and Alibaba (number 1).  And JD has competitive advantages over Alibaba, in that, like Amazon, it owns its distribution centers and has control over quality (unlike an ebay and Alibaba).  They’ve since upped the stake to 20% and may ultimately buy all of it.  And Wal-Mart bought the startup in the U.S. in August of last year.  If they continue to win share in China through, this gap between Amazon and Wal-Mart may begin to start closing.

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By Bryan Rich

November 15, 2017, 4:00pm EST

BR caricatureStocks were broadly lower today. Bond yields were lower. Commodities were mostly lower. And the VIX, the index that measures investor demand for protection from a decline in stocks (also known as the “fear index”), was the biggest mover of the day. But it’s rising from a low base.

As you can see in the chart above, the VIX was under 10 (very near record lows) at the close on Friday, November 3. That weekend, we got the news that the future Saudi king had directed the arrests of corrupt Saudi royals, ministers and investors (including billionaire Alwaleed bin Talal).

So you can see the rising VIX as we’ve seen the growing signs that there may be some forced selling across markets related to those arrests, and the Kingdom’s pursuit of hundreds of billions of related assets.

Still, for perspective, you can see how low the VIX remains, relative to history.

This shows you how the market has been lulled to sleep–underpricing the prospects of volatility. If you look back over time, you can see how quickly that can change.

Still, a market event doesn’t mean an economic event is occurring. The economy is good. And with stimulative fiscal policy coming down the pike, it should be better over the next 12 months (and coming years). So there is a difference between volatility and recession risk.

On that note, in the next chart from the NY Fed, the Treasury market is telling us recession risk is very low–9% chance in the next 12 months).

And the difference between high grade corporate bonds and the U.S. Treasury yield tells the same story–very low recession risk/probability of economic hiccup.

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By Bryan Rich

November 14, 2017, 4:00pm EST

BR caricatureAs we’ve discussed, in the post-election world (of last year) we’ve had a passing of the baton from a global economy driven by monetary policy, to a global economy driven by structural reform and fiscal stimulus.

With the anticipation of fiscal stimulus, the election represented the end of the QE-era. With that, the top central bankers in the world (Fed, ECB, BOJ, BOE) met today and had a coordinated message to that effect. Just as they coordinated their QE programs to stabilize the world and manufacture recovery, they vowed to coordinate on the exit of QE.

Still, Europe has more work to do before following the Fed’s lead on “normalizing” rates. And Japan will be far behind Europe in ending QE. But that message of coordination should keep global (market) interest rates moving higher.

We’ve talked in recent days about the pockets of selling in global markets. Last week it was junk bonds, then Japanese stocks, then Treasurys and then gold. Today it was commodities, led by oil. Oil was down 2.4% on the day. And the dollar was lower (not higher, as some might expect with commodities moving lower).

Meanwhile, the big U.S. market indices couldn’t be shaken and the Treasury market was very quiet. These intermarket relationships haven’t been normal. And that should raise some eyebrows about elevating risk.

We’ve talked in recent days about the influence that we may be seeing in markets from Saudi Arabia’s move to investigate (potentially seize) up to $800 billion of wealth from high profile officials accused of fleecing the country.

The proxy for global market stability, throughout the past decade (the crisis and post-crisis era), has been U.S. stocks. So as long as U.S. stocks are holding up, people continue to ignore some of these “risk” signs. But give it a 2% down day and suddenly the observables may become observed.

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By Bryan Rich

November 13, 2017, 4:00pm EST

BR caricatureInto the latter part of last week, we had some indiscriminate selling in some key markets. First it was Japanese stocks that followed a new 25-year high with a 1,100 point drop. Then we had some significant selling in junk bonds and U.S. Treasuries. And then four million ounces of gold was sold in about a 10 minute period on Friday.

Markets were tame today, but as I said on Friday, the potential ripples from the political shakeup and related asset freeze in Saudi Arabia is a risk that still doesn’t seem to be given enough attention. I often talk about the many fundamental reasons to believe stocks can go much higher. But experience has shown me that markets don’t go in a straight line. There are corrections along the way, and we haven’t had one in a while.

With that said, since 1946, the S&P 500 has had a 10% decline about once a year (according to American Funds research).


The largest decline this year has been only 3.4%.

I could see a scenario play out, with forced selling related to the Saudi events, that looks a lot like this correction in 2014.


This chart was fear driven – when the Ebola fears were ramping up. You can see how quickly the slide accelerated. The decline hit 10% on the nose, and quickly reversed. Fear and forced selling are great opportunities to buy-into. This decline was completely recovered in 30 trading days.

We constantly hear predictions of impending corrections, pointing to all of the clear evidence that should drive it, but corrections are often caused by events that are less pervasive in the market psyche. The Saudi story would qualify. And we’re in a market that is underpricing volatility at the moment – with the VIX sitting only a couple of points off of record lows (i.e. little to no fear). Forced liquidations can create some fear.

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By Bryan Rich

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

BR caricatureWe talked yesterday about the significant range (1,000+ points on the Nikkei futures) and big reversal in Japanese stocks. And how that might be signaling a big event for global stocks, as past 1,000+ point ranges have been driven by major global events.

Another big mover yesterday, that has gotten attention in the media is the junk bond market – which has been selling off (pricing in higher yields, higher risk).

So today we get Japanese stocks lower again. Same for European stocks.

The media likes a tidy story, so blaming it on political posturing surrounding the timing of tax cuts has been suitable for them. I suspect it has to do with liquidations surrounding the asset freeze in Saudi Arabia.

Yesterday, when things were looking a little dicey for stocks, following the events in foreign markets overnight, U.S. Treasury yields remained firm, and even finished higher on the day. This is notable because in recent years, with just a sniff of lower stocks and some global market turbulence, people would storm into Treasuries (i.e. yields lower). Yields were among the biggest mover of the past two days (UP not down).

So there seems to be some indiscriminate selling going on in specific markets. Gold was the victim today. A huge order came in at 11am and knocked gold down 10 bucks in 10 minutes.

When you have $100 billion worth of assets under scrutiny in Saudi Arabia (a third of which is already been frozen), there is a lot of exposure in the global financial system to these assets. If banks and counterparties begin curtailing margins on accounts, and begin stepping back from notable banks that deal with these accounts, you can quickly get destabilization across global markets. Long Term Capital Management comes to mind.

With that said, the corrections we’ve had in markets in the post-crisis era have tended to be fast. Risk enters quickly, and the slide becomes very slippery. But it has paid to buy into the fear. The recoveries have been very quick and lucrative.

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By Bryan Rich

November 9, 2017, 4:00pm EST

Japanese stocks have been a huge mover over the past quarter, as we discussed earlier this week. That move extended to a new 25-year high overnight. And then we got this …


As you can see on the far right of this daily chart, the Nikkei had a very slippery reversal to post an 1,110 point range for the day (closing near the lows).

This was the biggest range in the Nikkei since exactly one year ago today. That was the night of the U.S. elections (the day, in Japan).

Now, despite the huge range of the day, today’s losses in Japanese stocks were only 1.7% (open to close). Let’s take a look back over the past two years, though, to other times we’ve had a 1,000+ point range and on a down day.

There was the Brexit surprise in June 2016 (-9%). And then when the Bank of Japan shocked world markets in a scheduled meeting by NOT upping its QE program in April 2016 (-7%). Prior to that, was the middle of January of 2016 when oil prices were crashing (-4% and -4% two out of three trading days). Then there was December 18, 2015, the day after the Fed made its first post-crisis Fed hike (-2%). And then we had a day in August 2015 (-6%) and into the first day of September (-5%). These were driven by a surprise devaluation of the Chinese yuan, which set off a global stock market slide on fears of a weaker China, than most thought.

Now, we’ve just looked at all of the days for Japanese stocks where the range has been greater than 1,000 points and stocks have finished down. As you might deduce, these days all share a common thread. There was a big event related to these moves. So what was the event that caused this last night?

Nothing, of note. That’s concerning. Is there something bigger going on, that has yet to present itself. Is it perhaps the news out of Saudi Arabia that is about to lead to a global event?

Keeping the focus on what happened in Japan: First, for market technicians, this is a perfect “outside day” reversal signal. This is when a new high is set in an uptrend, a buying climax, and the buying exhausts and weak speculative longs are quickly shaken out of positions forcing prices to lower lows than the prior day (closing near the lows). The wider the range, and the more significant the volume, the higher the likelihood that a trend reversal is underway.

With that in mind, to the far right, you can see the spike in volume for the day.


As far as the range is concerned, we discussed the significance of a 1,000 point range historically.

So technically, there’s a fair reason to bet on a reversal here for Japanese stocks here. That leaked over into European stocks today. German stocks were down 1.4%. And it looked like U.S. stocks might have the same fate today, but the “buy the dip” appetite was clearly strong. If history is any indication, we might have better levels to buy the dip. And the dips in recent history have been lucrative: sharp but quickly recovered.

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By Bryan Rich

November 8, 2017, 4:00pm EST

BR caricature

This trajectory for stocks was not an outcome that Wall Street was looking for.

I looked back at an article on market forecasts published by Fortune in December of last year. Here’s how they saw it…


So the group with access to the best information didn’t do a good job of interpreting that information. And you can see in the forecasts, they were pretty much in agreement. They were looking for just better than 2,300 for the year. They saw a +3.7% year for the S&P 500. They undershot by 12.2 percentage points thus far.

They should have listened to billionaire Larry Robbins. Remember, he did a study on the influence of low interest rates, Fed policy and oil on markets. He says every time ONE of these (following) conditions has existed, the market has produced positive returns.

  • When the 30-year bond yield begins the year below 4%, stocks go up 22.1%.
  • When investment grade bonds yield below 4%, stocks go up 16%.
  • When high-yield bonds yield below 8%, stocks go up 11.6%.
  • When cash as a percent of asset for non-financials is above 10%, stocks go up 17.6%.
  • When the Fed tightens 0-75 basis points in the year, stocks go up 22%.
  • When oil falls more than 20%, stocks go up 27.5%.

All of these conditions have been met this year. And stocks are up 16% with about seven weeks remaining in the year.

Add to this, the idea that a regime shift was underway, moving from a QE-driven economy, to an economy to be driven by structural reform and fiscal stimulus (under the incoming Trump administration this year), should have bumped up even the most conservative of forecasts on stocks for the year. With the economy still performing under potential, yet with the momentum of low interest rates, cheap gas, low unemployment and solid balance sheets, the pieces have been in place for a pop in growth. The idea of feeding fiscal stimulus into that mix should have had Wall Street forecasting the rise of all asset prices. They didn’t see it coming.

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By Bryan Rich

November 7, 2017, 4:00pm EST

BR caricatureAll eyes continue to be on U.S. stocks. But the bigger opportunities are elsewhere.

Japanese stocks were up another 1.3% today. The Nikkei is up 20% since September 8th. Oil is up 26% over just about the same period.

We’ve talked about the case for oil to continue its run. And with oil at 2 1/2 year highs and closing in on $60 a barrel, I’ve said we should expect the inflation chatter to start picking up. For those that have been looking for a catalyst to get bonds finally moving (and continuing) lower, this could be it. The Fed will find it very hard to ignore the impact of higher oil prices.

Here’s a look at that oil/ rates relationship we looked at a few weeks ago. At 2.30% on the 10 year yield, we sit 100 basis points off of the all-time lows (of last year). And coincidentally, we have 100 basis points of post-QE tightening in the market. With the strength in oil of the past two weeks, the divergence should be narrowing. But it has widened.


But we have another 25 basis points of tightening coming next month. This, along with this chart above, would argue we should be on the way up to 2.65ish in the 10-year yield (i.e. rates higher, bond prices lower).

With the oil story in mind, here’s another interesting chart: natural gas.


Natural gas is closing on this big four-year trendline. This momentum needs to continue, to close the sector performance gap in stocks (in the graphic below).

The energy sector has made up about three percentage points of ground since we looked at this chart last month.


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By Bryan Rich 

November 6, 2017, 5:00pm EST

BR caricatureOil is up over 3% today, trading up to the highest levels since June of 2015.

We were already at new highs for the year as of Friday’s close, and then we get news over the weekend of the political shakeup and arrests in Saudi Arabia.

We’ve talked about the fundamental case for much higher oil prices throughout the recovery last year, and again this summer. You never know what catalyst may come in to accelerate the move in price. We may have had it with this Saudi news.

Among the reasons to expect a potential violent move in oil prices: OPEC has been cutting production into a (ex OPEC, ex U.S.) world that’s not producing (i.e. there’s negative production growth). Given the scars of last year’s oil price bust, oil producers haven’t been spending on new production.

Meanwhile, there’s U.S. supply that is supposed to fill that void, but U.S. supply has been in consistent draw down, 26 of the past 31 weeks, to the tune of 8% lower supply.

Add to this, we have a global economy that’s improving, and with that, demand is increasing. And we have U.S. fiscal stimulus entering to stoke those flames.

We looked at this chart last month.


Source: Billionaire’s Portfolio

We had this this inverse head and shoulders (in the chart above) that projected a move back to the low $80s. And as part of that technical picture, we were setting up for a break of a big two-year trendline that would open the doors to a move back into the $70+ oil area.

That line broke at around $51.50, confirming that head and shoulders pattern, and the move has been aggressive since. We now have this chart …


Source: Billionaire’s Portfolio

This is beginning to play out according to script for the star commodity investors we talked about this summer, Leigh Goehring and Adam Rozencwajg. They’ve been wildly bullish oil calling for $75 to $110 oil. Earlier in the summer, they said “when inventory gets this low we run the risk of triple digit oil prices.” And they suspected a supply disruption could give us a sharp move higher.

Do the events in Saudi Arabia present a potential supply disruption? Earlier this year, Stratus Advisors, an energy research and consulting shop, projected potential oil-supply disruption scenarios. Among the scenarios, was “internal instability in Saudi Arabia.”

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By Bryan Rich 

November 2, 2017, 4:00pm EST

BR caricatureOver the past two weeks we’ve talked about the two big central bank events. The first was the ECB’s decision last week. As expected, they signaled they will be exiting QE. The second was the anticipated announcement of a new Fed chair. This is a high consequence decision.

I thought early on that the President would show Yellen the door, given that the rate hiking campaign she has been leading at the Fed poses a threat to choke off the impact of the big fiscal stimulus efforts that have been the hallmark of the Trump Presidency.

She stayed longer than I expected. But today we get her replacement: the current voting Fed governor Jerome Powell. Powell has voted with Yellen, along the way. So, it doesn’t appear to be a philosophical change and it doesn’t appear to be a person Trump can influence – but he offers the President party alignment.

I thought Neel Kashkari had postured perfectly to get the job. He has experience at the Treasury overseeing the TARP program through the ugliest period of the financial crisis. And he’s a newbie Fed governor, but one that has dissented on rate hikes and argued to wait for inflation to take hold before moving on rates (to ensure sustainability of the recovery). That view aligns much friendlier with the Trump administrations economic plan.

The Fed chair role was, arguably (unquestionably, to me), the most important role in the world under the Bernanke reign. Bernanke was the right guy, in the right place, at the right time. As a student of the Great Depression he led the Fed through decisions that pulled the world back from the edge of total collapse. At stages through the crisis, the Fed and Bernanke took a lot of heat – and a lot of it came from world leaders, and even global central banks. But had the Fed not swiftly acted to help foreign banks early on (that were frozen from the lack of access of U.S. dollars), the global financial system would have imploded.

Other central banks then underestimated the scale of the crisis and started hiking rates too early, in 2010 and 2011, which ultimately put them back in to recession (most notably, Europe). The Fed stayed put.

Over time, Bernanke’s Fed (and his aggressive QE) proved to be right, and ultimately provided the playbook for major central banks to follow.

Under the Yellen regime, the track record has been spotty, nearly killing the recovery last year, by continually telegraphing a much tighter credit environment ahead. But the policy course was bailed out by the election of a new President and administration that is hell-bent on pumping up the economy.

Now Powell takes over at a more critical juncture. The execution on fiscal stimulus is beginning to materialize, and we’ll get to see how he navigates it. Hopefully, he’ll let the economy run a little hot (chase inflation from behind), and not allow rates (or the perception of tighter credit) to kill the animal spirits that can accompany big tax cuts and government spending programs.

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