April 1, 5:00 pm EST

Last week we talked about the buildup to the Lyft IPO.

Lyft, “lifted” to a valuation of close to $25 billion when shares started trading on Friday.  Today, it’s down as much as 20% from the Friday highs.

The last private investment valued the company at $15.1 billion.  That gave them a paper gain of over 60% on Friday, for just a 9-month holding period. Good for them.

For everyone else, remember, you’re looking at a company that did a little over $2 billion in revenue, while losing almost a billion dollars. Most importantly, over the three years of data that Lyft shared in its S-1 filing, revenue growth has been slowing and losses have been widening.

So, you’re buying a company that hopes to be profitable in seven years, to justify the valuation today.  This is a company that has only existed seven years.  And to think that we can predict what the next seven will look like, in the ever changing technology and political/regulatory environment (much less economic environment), is a stretch.

For some perspective on these valuations, below is what it looks like if we compare the three largest/dominant car rental car companies (Enterprise, Hertz and Avis) to the two largest/dominant ride sharing companies.


With Uber now expected to be valued at around $120 billion when it goes public (possibly this month), the ride sharing industry is valued at about 14 times the car rental industry.

The rental car industry has been priced as if ride-sharing industry has destroyed it.  Ironically, if the ride sharing movement is to succeed in the long-run, and is to fully reach the potential that is being priced into the valuations, then they will need these car rental companies to supply and manage the fleet of vehicles required for Uber and Lyft to scale.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, through the end of the year.

October 30, 5:00 pm EST

This violent repricing of the tech giants came with clear warnings (i.e. the tightening of regulatory screws).

Now that we have it.  And it is very healthy, and needed.

As we discussed yesterday, I would argue we are seeing regulation priced-in on the tech giants, which can create a more level playing field for businesses, more broad-based economic activity, and a more broad-based bull market for stocks.  This is a theme we’ve been discussing in my daily note here for quite sometime.

And I suspect now, we can see the areas of the stock market that have been beaten down, from the loss of market share to the tech giants, make aggressive comebacks.

On that note, here’s another look at the big trendline we’ve been watching in the Dow …

Again, this line holds right at the 10% correction mark.  And we’ve now bounced more than 700 dow points.

As I’ve said, it’s easy to get sucked into the daily narratives in the financial media, and it’s especially easy and dangerous (to your net worth) when stocks are declining.  They tend to influence people to sell, when they should be buying.

And as someone that has been involved in markets more than 20 years, I can tell you that it’s also very dangerous to let political views influence your perspective on markets and investing.  And I suspect we are seeing that mistake made in this environment (by pros and amateurs alike).

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October 11, 5:00 pm EST

Yesterday we talked about the repricing of the tech giants as the catalyst for the slide in global stocks.  That slide continued today. 

But the brunt of the punishment is back on the Dow, which was down another 2%.  At the lows today, that takes us back to flat on the year for the DJIA … up 1% for the S&P 500.  And the Nasdaq, at the lows today, was up just 4.8% on the year.

As they say, stocks go up in an escalator and down in an elevator.

Interestingly, in this slippery slide for stocks, money has NOT been piling into bonds.  This is the flight to safety trade we’ve seen throughout the post-financial crisis era.  It doesn’t seem to be happening this time.  The 10-year yield remains in sniffing distance of 3.25% (closing today at 3.14%).

So, where is the money going?  Gold.

Gold is on the move — the top performer in global markets today.  And it looks like it’s just getting started.  As I said last week, “the set up for a bounce in gold here looks ripe. The level to watch will be 1,214.”

You can see in the chart, the 1214 level gave way today, and we had a break of the downtrend of the past six months.

Now, when we discussed gold last week, we were talking about the potential for China to perhaps try a few shenanigans over the next month, in order to influence the outcome of the November elections.

Here’s an excerpt from that October 3rd note:  “China remains the holdout on making a deal with Trump on trade. And it looks likely that they are holding out to see what the November elections look like.

Will Trump retain a Republican led Congress? I suspect we may see China do what it can to influence that outcome. As we know, the Republicans will be promoting the economy as we get closer to voting day.

What can China do to rock that boat?

They can sell Treasuries, in an attempt to ignite a sharper climb in rates. And a fast move in rates (at these levels) has a way of shaking confidence in equity markets–which has a way of shaking confidence in the economy.

I suspect we may be seeing precisely this above scenario play out.

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September 28, 5:00 pm EST

 Back in May, the populist movement that gave us Grexit, Brexit and then the Trump election, gave us a new government in Italy with an “Italy first” agenda.

Italy first, means EU second.  And that puts the future of the European Union and the European Monetary Union in jeopardy.  Today, the new government made that clear by rejecting EU fiscal constraints, in favor of running a bigger deficit spending.

This puts the game of poker the European Union has been playing since the financial crisis erupted, front and center (again).

As we discussed back in May, this story is looking a lot like Greece, which used the threat of leaving the euro as leverage to negotiate some relief from austerity and reforms. It was messy, but it gave them a stick, in a world where the creditors (the ECB, Eurogroup and IMF) had been burying the weak economies in Europe in harsh austerity since the financial crisis.

As the third largest euro zone constituent, Italy brings a lot more leverage in negotiating, in this case, the EU rulebook. We may see this all result, finally, in a relaxing of the fiscal constraints that have suppressed the economic recovery in the euro zone in the post-Great Recession era. And Italy’s pushback may lead the way for a euro-wide fiscal stimulus campaign — following the lead of Trumponomics.

A better economy has a way of solving a lot of problems.  And Europe has a lot of problems.

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September 26, 5:00 pm EST

The Fed moved again today on rates, as the market expected. This is the eighth quarter point hike in this post-QE normalization on rates. And this now puts the Fed Funds rate at the range of 2%-2.25%.

Now, the markets will pick apart the statement and endlessly parse the Fed Chair’s words in the press conference. But let’s step back and take a look at the impact of these Fed hikes thus far.

We know the economy is running at the best pace since before the financial crisis. We know that the jobless rate is near record lows. We know that consumer credit worthiness is at record levels. This has all happened, despite the Fed’s rate hikes.

What about debt service coverage? As rates are moving higher, are consumers showing signs of getting squeezed?

If we look back at the height of the credit bubble in 2008 (just prior to its burst), 13.22% of household income was going to service debt–within that number, 7.2% of household income was going to service mortgage debt. What about now? Debt service is now 10.2% of household income. And the mortgage piece is down to just 4.4%. This is the result of six years of zero interest rates, a massive QE program (which included the Fed’s purchase of mortgage bonds), and a government program that subsidized banks to refi high interest rate mortgages.

So the big question is, how has the Fed’s exit of QE effected the consumers ability to service debt? Are higher rates hurting?

Well, they started hiking rates in the fourth quarter of 2015. Total debt service at that time was 10.1%. That’s virtually unchanged from today. And the mortgage piece was 4.5%. That’s actually a touch higher than today.

Bottom line: The Fed’s normalization on rates has not damaged the consumer, nor has it killed the housing market.

But that’s only because the yield curve has been flattening. That is, longer term market interest rates have been steady. That means the benchmark rate from which consumer and mortgage rates have been set, has been steady. And those longer term rates have been steady, in large part, because Europe and Japan have remained in QE mode (buying global assets, which includes our Treasurys).

With that, while most have been watching the Fed closely for how it’s delicately handling the exit of QE, the more important spot to watch will be how Europe and Japan manage their exits. Hopefully, the U.S. economy is hot enough, at that point, to withstand the move in longer term U.S. rates that will come with the end of global QE.

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.

September 21, 5:00 pm EST

Last Friday we talked about the technical breakout in rates.  And we looked at this chart as the benchmark 10-year U.S. government bond yield hit 3%. 

This week yields traded as high as 3.09%.  These 3%+ levels have proven to spook stock markets on all other occasions this year.   But it hasn’t this time.  In fact, the Dow closed the week on new record highs.  The prospects that Fed normalization might be slowing, and that 10-year rates may be carving out a new/higher range, reduces the prospects of seeing the yield curve “invert.” That’s positive for stocks.
As we close the week, let’s take a look at Chinese stocks, which put in a double bottom earlier this week, and closed today threatening a technical break of the big downtrend of the year.  Believe it or not, Chinese stocks could be the best buy in the world right now.
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September 19, 5:00 pm EST

Just two weeks ago, the Nasdaq was up 19% on the year, while the “blue-chip” heavy DJIA was up just 4%.

This is in a world where rates are low, corporate profits are growing at 20% and the economy is on pace to have above trend growth.

Great traders love when prices are detached from fundamentals, especially when it’s driven by fear or euphoria.  This was a clear disconnect.  And you could argue that there has been a bit of both fear and euphoria driving it (fear priced into the Dow about trade wars, and euphoria priced into the tech giants on the idea that the burgeoning monopolies would go unchecked forever until all competition is left for dead).

Both the fear and the euphoria were misguided for all of the reasons we discuss almost daily in my Pro Perspectives note.

And now we’re seeing a convergence.  In just two weeks, that performance gap between the Dow and Nasdaq has now closed from fifteen percentage points to nine percentage points.  And the Dow still has a lot of room to run.  It remains just under the highs from January.

Now, yesterday we talked about the opportunity for Japan to benefit from forced trade reform in China.  Other big beneficiaries?  Emerging market economies.

In short, all of the countries that have been short-changed on their global trade competitiveness because of China’s weak currency policies, should benefit in a world where China is held to a standard of fair trade.

That’s why Japanese stocks had a huge run yesterday (and expect it to continue).  And that’s why EM stock markets were big movers today.  The Frontier Markets ETF (FM) is still down 14% on the year.  With the idea that these countries may get a better crack at global demand, I suspect these stock markets could be in for a big bounce.

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.

September 18, 5:00 pm EST

Yesterday Trump made good on his promise by announcing another $200 billion in tariffs on China.

To the surprise of many, stocks went up. Why?

Perhaps it’s because reforming the way the world deals with China is a good thing.  Remember, China’s currency manipulation over the past two decades led to the credit bubble, which ultimately led to the financial crisis. And as long as the rest of the world continues to allow China to maintain a trade advantage (dictated by their currency manipulation): 1) they will manufacture hot economic growth through exports, 2) the global cycle of booms and bust will continue, and 3) the wealth transfer from the rest of the world to China will continue.

With this in mind, as I’ve said, the trade dispute is all about China – everything else Trump has taken on (Canada, Mexico, Europe) has been to gain leverage on getting movement in China.

With Trump now making it very clear that he won’t back down until major structural change takes place in China, it’s no surprise that one of the biggest winners of the day (following the further economic sanctions on China) was Japan!

The Nikkei was up big today.  And it was Japanese stocks that set the tone for global markets on the day.  As a signal that China’s days of cornering the world’s export markets may be coming to an end, Japan is in position to be a big winner.

Remember, while much of the world has returned to new record highs following the global financial crisis, Japan remains 40% away from the record highs set nearly 30 years ago.

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.

August 23, 5:00 pm EST

It was two weeks ago when Elon Musk sent this tweet about taking Tesla private…

For a guy that has taken personal offense to the short sellers in the stock, this tweet only emboldened them — and may have been the catalyst that will ultimately prove the shorts right.

Why?  If you liked shorting a company that’s lost $6 billion over the past five years, while making the CEO/ founder a billionaire more than 18 times over, you’ll love it when you have an absolute ceiling of $420 to sell against.

And that’s precisely what the shorts have done.  They’ve leaned more heavily against the company, as Musk has created an asymmetric outcome for them. As you can see in the chart, it’s working.

As I’ve said in the past, Tesla is among the tech giants that benefited from the Obama administration’s distribution of the massive fiscal stimulus package that followed the global financial crisis.  Not only did they get regulatory favor from the government, but they received outright funding — a $465 million loan, at a time the company was broke.  And in that economic environment, the big pension funds were happy to follow government money in search of relative security (plowing money into government “sponsored” investments).

Fast forward 10 years and the company is still bleeding money, but Musk is a billionaire!  But sentiment has finally begun turning against the company, which is it’s biggest risk.  When the investors stop believing in the hype and start demanding real performance, the air can come out of the balloon very quickly.

So, to step out of the scrutiny of public markets, Musk has threatened to take the company private, with the help of Saudi funding.  But there’s a new problem.  If the Saudis are indeed willing to fund Tesla, Trump may block it.  The administration is stepping up protections against allowing U.S. intellectual property to fall into the hands of foreigners.  The government may giveth and the government may taketh away, in the case of Tesla.

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.

August 21, 5:00 pm EST

With the S&P 500 finally returning to new record highs today, fully recovering the price correction this year, let’s take a look back at the correction, and where stocks can go from here.

As I said in my January 30 note “experience tells us that markets don’t go in a straight line. And with that, we should expect to have dips along the way for this bull market. Since 1946, the S&P 500 has had a 10% decline about once a year on average. A correction here would be healthy and 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.

Fast forward eight months, and we’ve now had a 12% correction.  And we’ve since had back-to-back quarters of 20%+ earnings growth, with an economy that is finally growing at better than 3% four-quarter average annualized growth.

Meanwhile, stocks remain cheap.  The 10-year yield is still under 3%.  And historically, when rates are low (sub 3% is still VERY low), stocks tend to trade north of 20 times earnings.  The forward P/E on stocks at the moment is just 17.  If we apply a 20x multiple to $170 in forward S&O 500 earnings, we get 3,400 in the S&P.  That’s 19% higher.

With that in mind, let’s also revisit my chart on the long term growth rate of the S&P 500.


In the orange line, you can see what the S&P 500 looks like growing at 8% annualized (the long-run average growth rate) from the pre-crisis peak in 2007. This is where stocks should have gone, absent the near global economic apocalypse. And you can see the actual path for stocks in the blue line.

Bottom line: Despite the nice run we’ve had in stocks, off the bottom in 2009, we still have a big gap to make up (the difference between the blue line and the orange line). This is the lost decade for stocks.

This argues for another 28% higher in stocks to fill that gap.

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.