April 5, 2021

We had a hot March jobs report on Friday, to kick off the new quarter. 

Looking back on Q1, we had an economy that is estimated by the Atlanta Fed to have grown at a 6% annual rate.

With that, the banks will kick off earnings season next week, and we will begin to see what 6% economic growth looks like in corporate earnings.  And those earnings will be compared to against against a very low base of Q1 2020 — the quarter that included the onset of the pandemic and economic shutdown.

Spoiler:  The earnings growth is going to be huge. 

On a related note, even though the estimates on earnings have been ratcheted up by both Wall Street and corporate America, history tells us that earnings estimates are set to be beaten.  We should expect to see big positive surprises from the first quarter.  That will all be more fuel for stocks.

And this comes in the month of April, which historically is a very good month for stocks (up 15 out of the past 15 years).         

Keep in mind, this first quarter includes just a small fraction disbursed of the latest $1.9 trillion.  With more of this money hitting in the coming quarter, Q2 growth (in GDP and corporate earnings) is going to be mind-blowingly big.  The corporate earnings will be measured against the deep trough of the economic recession.   

Add to this, we will probably see a Biden "infrastructure"/clean energy bill work its way through Congress in the second quarter (another $2+ trillion lined-up for the economy).  Stocks are up 7% year-to-date, and will continue to float higher on this sea of liquidity. 

I'm away for the remainder of the week, spending Spring Break with the family. You won't see a Pro Perspectives note from me until next Monday. 

In the meantime, to best position for a continuing stock market boom, sign up here and take a look through my actively-managed portfolio of undervalued stocks — all of which are vetted and owned by the best billionaire investors in the world. Listen to my recorded "Live Monthly Portfolio Reviews."  Read all of my past notes to my subscribers.  Take it all in.  If you find that it doesn't suit you, just email me within 30 days and I will refund your money in full immediately.

Have a great week!


April 2, 2021

Most markets are closed today for the Easter weekend.  With the S&P trading above 4,000 for the first time yesterday, real estate prices soaring and commodities prices just in the early stages of a secular bull market, we are getting the reset in asset prices we talked about through much of last year. 

And it all has to do with this chart …

As we've discussed, the historical reference periods suggest that we should expect a huge spike in inflation (maybe double digits).  

These are the moments when wealth can be destroyed, by holding cash.  And wealth can be created in key asset classes. I want to make sure you are acting, not watching from the sidelines.

With that, as you’re enjoying your family over the weekend, take a moment to sign up for my premium advisory service.

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Happy Easter!

April 1, 2021

The quarter ended yesterday.  If we look across markets, practically everything was up big on the quarter. 

Lumber was up 41% on the quarter.  Lean hogs, up 50%.  Crude oil, up 25%.  Copper up 14%.  European stocks up 10%.  Japanese stocks, up 8%.   U.S. stocks (S&P 500), up 7%. 

The expectation for the quarter was for a new administration to come in a pour even more gasoline on a fire of global liquidity.  And that's precisely what has happened. 

With that, we've laid out the inflation tale.  That reflection in asset prices has been very clear. It hasn't been as clear, and widespread, yet, in every day consumer prices.  And it (inflation) has yet to bubble up in the Fed's favored inflation gauges. 

With that, tomorrows jobs report will be big deal, not just for the employment numbers, but more so in the wage data. This is what will drive the Fed's inflation barometers.  

Here's a look at the chart from last month …

As you can see, the wage numbers have been hot, and this piece of the inflation puzzle will remain hot. Why?  This reflects demand for labor that's competing with a government paycheck. You have to pay them more to them back to work.  And it reflects raises and bonuses that were given to essential employees at the depths of the health crisis.  Not surprisingly, those pay increases are proving to be "sticky." 

We've talked about this dynamic since the Fed went all-in back in March of last year.  We were looking at a reset of asset prices.  We were looking at a reset of wages. We’re getting both.  This is where the Fed will be put in a tough spot in the not too distant future.  Rising wages will be accompanied by rising prices, and the Fed will be forced to act. 

March 31, 2021

The President made his case today for a big infrastructure spend. 

There's a lot of chatter about getting bipartisan buy-in, but make no mistake, this next massive tranche of government spending will pass (whatever the amount, and whatever the wish list).  This was a done deal on January 5th, when Georgia flipped the Senate.

And while it's packaged as "infrastructure," this is all about the Green New Deal/clean energy economic transformation. 

If it were really about infrastructure, it would have been done to pull us out of the Great Recession.  When Obama walked into office, within weeks he had $787 billion to dole out in fresh fiscal stimulus.  His case to the American people:  "we need to rebuild our roads, our bridges, our ports …"

Twelve years later, Biden has walked into office, and his case for a massive spending package has been read from the same script:  "It's time to finally start building an infrastructure … rebuilding our roads, our bridges, our ports …"

Something tells me this $2 trillion won't go toward rebuilding our roads, our bridges, our ports.  We will see.

If this money is allocated well, and significantly boosts productivity (the amount of economic output we produce per hour of work), then great.  We get a reset higher in economic output (GDP).  And that would ultimately assuage some debt concerns and hyper-inflation concerns. 

But as you can see in this chart from the BLS, productivity growth has been sluggish for the past 13 years, despite roughly $5 trillion of fiscal stimulus over that period. 

If this money is allocated poorly, and does NOT increase productivity.  We will be left with the inflation scenario, and a massive debt burden that will ultimately be penalized, as foreign investors will vote with their feet, departing our financial markets and our currency.


For now, the markets have priced in the optimistic scenario.  The anticipation of a massive infrastructure bill has already resulted in a tripling in the stock of one of the historic American steel makers (a triple since election day). 

March 30, 2021

On the theme of higher prices, we know money has been plowing into "inflation assets."  As we discussed last week, these assets consist of commodities, real estate, Treasury Inflation Protected Securities, EAFA (developed market international stocks), U.S. Banks and value stocks. 

What has led the way, and what is lagging?

With risk backstopped by the Fed, deposits at record levels, credit at record levels, trading revenues booming AND the prospects for rising interest rates, the bank stocks have been crushing this year (up 24% on the KBW Bank Index).  

Value stocks have clearly been working.   The Vanguard S&P 500 Value ETF (VOOV) is up over 11% in the first quarter. 

Real estate has been on fire.  Demand is high and supply is low, and prices are soaring.  This index that tracks prices in 10 U.S. cities is up 10% year-to-date!

For housing, not only do we have this dynamic of a pandemic-induced migration to certain areas of the country (sucking up supply — many times sight unseen), we have first time buyers coming into the market, incentivized by ultra easy credit and record high savings (bolstered by government checks), AND we have the inflation outlook, which is driving cash out of bank accounts and into houses.  For the rich, they don't necessarily want or need a $50 million house on Palm Beach, it's simply a parking place for cash.  With all of the above, a supply/demand mismatch is running real estate prices higher and higher. 

What about commodities?  Commodities are up 10% year-to-date, but as you can see in this chart, a long-term trend change is underway.  A new bull market in commodities has a long way to go (higher) — still a very good buying opportunity. 

What about international stocks?  On a relative basis, this has been a laggard thus far.  The EAFA ETF (symbol EFA) is up only 4% year-to-date.  This is an opportunity to buy the laggard. 

March 29, 2021

When they pump the world with liquidity, as the central banks and governments have, we will see excesses.

Financial markets are ground zero for risk taking, so it's not surprising that we see early excesses bubbling up there. 

The news of the day has been another hedge fund blowup.  We had a short seller called Melvin Capital blow up last month, on the wrong side of GameStop.  They were bailed out.  And in recent days, we've had the unwinding of a long and overleveraged hedge fund called Archegos.  The big losers here (in addition to the fund) appear to be Nomura (a Japanese bank) and Credit Suisse (Swiss bank).


It has historically been dangerous to call events like these contained.  But this one seems contained.  Still, if it were a systemic risk, we know (with certainty, in this era) how central banks would respond.  They would bail-out and backstop – quickly.

Now, in these cases of forced liquidation, investors tend to sell what they can, not what they want to.  With that, there was selling today in what has been working and/or favored inflation trades …

Small caps have been leading the way in stocks this year.  Today, down 2.8%. 

And gold, a favored inflation trade, was down over 1% on the day.  

If we are indeed seeing some forced liquidations in these spots, it presents a gift to buy at cheaper prices.  Small caps are now off more than 8% from the highs.  Gold is trading into this big line of support.  Coincidentally, the sharp move lower on this chart in gold, back in March of last year, was on forced hedge fund liquidations.  It reversed quickly. 

March 26, 2021

We talked yesterday about the new added risk to the inflation picture — the supply disruption in the Suez Canal.

A reader asked:  What's your solution for this inflation drama you keep going on about (my paraphrase)?     

Answer: You want to be long "inflation assets."

On that note, let's take a look at an interesting chart from Bank of America, and the way they define these asset groupings for these two different price regimes (inflation and deflation) … 

In their grouping of inflation assets, they include commodities, real estate, Treasury Inflation Protected securities, EAFA (developed market international stocks), US Banks, Value stocks and cash.  

I would disagree with cash, but you can see the huge divergence in the performance of these two groupings over the past 35+ years. And as you can see this divergence is at a record extreme

Are we seeing the turning point, driven by the unimaginable catalyst of profligate monetary and fiscal action, combined with a global supply crunch and pent-up demand from a global pandemic? 

If it is, it would have good company, historically, in terms of major events.  If we look back at the periods where inflation assets outperformed deflation assets by 15 percentage points or more, we find three: 

1941 – End of the Depression and big government spending through The New Deal.  Inflation ramped up to double digits in 1942. 

1973 – Oil crisis.  Inflation ramped to double digits in 1974. 

2000 – Bursting of the dot com bubble.  The Fed prevented a spike in inflation, through rate hikes, but crushed the stock market and created recession. 

Again, these are historic periods where inflation assets outperformed.  It looks like we are in the early stages of another one:  buy inflation assets. 

Within the stock market, in this inflation price regime, value stocks are outperformers.  With that dynamic at work, our Billionaire’s Portfolio has been in the sweet spot, giving us multiples of what broader stocks are doing.  You can join us, and get my full portfolio of billionaire-owned value stocks.  We're doing about 5X the S&P 500 year-to-date.  You can sign up here

March 25, 2021

Adding to the risk of a hot run in inflation, we now have a massive container blocking the Suez Canal.

This comes just as the Fed has spent two weeks telling us inflation will be under control. 

This Suez Canal disruption adds a potential third element to what's already a double-whammy recipe for inflation.  As billionaire Ray Dalio said in a recent interview, we have two types of inflation:  1) supply/demand driven, and 2) monetary inflation.  And we're getting both

We have monetary inflation, to the tune of 28% growth in money supply from the same period a year ago.

And on the supply/demand side, not only are we getting a supply crunch from the global economic disruption of the past year, the scarcity of supply is being met with pent-up demand, as global vaccinations begin to people back to some semblance of a normal life.  

Now, adding to the supply issues, we have one of the most important seaborne trade arteries blocked.  The Suez Canal handles 9% of global oil products, and 12% of global trade.

The speculation on when it may be resolved spans from days to weeks. 

The longer the delay, the more pressure on prices.  Remember, contrary to what the Fed is telling us, the price pressures are clear in the business world.  In the February ISM Manufacturing report, the "prices paid" component came in at one of the hottest readings in 20 years.  It was the ninth consecutive month of price growth, and it came from hotter demand AND "scarcity of supply chain goods." 

March 24, 2021

With the global politicians organizing this week to discuss the coordinated climate action game plan, it's beginning to look like we might be in the "buy the rumor, sell the fact" period for the clean energy trade.

The one clear proxy-stock for the likelihood of a multi-trillion dollar clean energy movement, has been Tesla.

This is what happened to Tesla shares when the global pandemic flipped the probability of a Trump second-term.  

Tesla went up 8X into the election, and extended higher following the election. Why?  Because Trump was an obstruction to the globally coordinated climate action plan (Paris Agreement and Climate Action 100+).  Global money poured into Tesla as a liquid way to play the transformation of global energy. 

Now, in the "realization phase" of this climate action movement, money has been moving out of this proxy stock, Tesla.  

Whether or not the climate action spend will happen is not in debate. The new administration is already talking about $3 trillion.  And with an aligned Congress, it will pass. 

The question is:  Will the clean energy economy be a "winner takes all" proposition? 

At an $800+ billion market cap, just two months ago, Telsa shares were reflecting that outcome.  For perspective, the total amount invested in energy transition in 2020, globally, was smaller than the value of Tesla, at $500 billion (and it was a record value of global investment). 

Tesla has been priced as a clean energy monopoly, but the company has no moat — the competition has been investing and building, and the competitive landscape looks like it will be a crowded one for Tesla.  

March 23, 2021

The broad risk environment is "off" today.  It was led by a 6% decline in oil prices.  Stocks followed oil lower after Jay Powell and Janet Yellen both said asset prices are “high” or "elevated." 

Are they talking down asset prices?  It sounds like it, for the moment. 

Both the interest rate market and the oil market have been putting pressure on Fed policies, implying if not feeding into inflation and inflation expectations.

Today's moves in markets have given the Fed some room to breath.   The 10-year yield is off 13 basis points from the highs of last week.  And oil prices have broken the uptrend from the election-eve lows (as you can see in the chart below). 

Lower oil prices will soften the inflation picture.  But it will be short-lived.  As the global talks on climate action heat up this week, the planned destruction of the fossil fuels industry only builds a moat around the existing producers.  They will get more and more business (as the global economy will still demand a lot of oil), and sell production at higher and higher prices (as supply is constrained).  That makes the oil and gas stocks a buy on the dip.