US Markets | Billionaire's Portfolio

Fed On Hold Drives Green Across The Screen For January

January 31, 5:00 pm EST

With the Fed officially on hold, asset prices continue to lift-off. But with U.S./China talks concluding today, there was the potential for a spoiler.

Trump quickly stepped in front of that risk this morning, saying that no final deal would be made until he and President Xi meet “in the very near future.”

So the expectations of a final “yea or nay” on a China deal today were managed down. And with that, the recovery in global markets finished the month of January on a strong note.

What a difference a month makes. In December, people were beginning to worry that collapsing global financial markets would kill the global economic recovery — and maybe fuel another financial crisis. A month later, and the S&P 500 sits just 2% lower than the close of November (before the December rout). And in January, almost every market is in the green (from stocks to bonds to commodities to currencies).

Remember, if we compare this to last year, cash was the best performing major asset class (returning just less than 2% in dollar terms).

On Friday, we talked about the set up for a big run in commodities this year. Commodities continue to lead the way. Crude is up close to 20%on the month. Copper is up 6% for January (the commodity known to be a early indicator of turning points in the economy), and gold is up 3.5% just in the past week.

We also end the month with another very solid opening to earnings season. Despite all of the pessimism of the past quarter. The Q4 earnings continue to beat expectations. Importantly, the widely held tech giants have posted good reports: Facebook, Apple and Amazon.

Importantly, with the expectations bar set low coming into 2019 (for earnings, the economy and a China deal), I’d say we finish the first month of the year in position to exceed expectations on those fronts – thanks, in no small part, to the pivot by the Fed.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Big Trendline Break In Stocks

January 30, 5:00 pm EST

Remember, over the past three weeks, the major central banks in the world (the Fed, the ECB and the BOJ) reminded us of the script they have followed, and continue to follow, since the global financial crisis. They will do ‘whatever it takes‘ to keep the economic recovery going.

It took an ugly decline in stocks in December to resurrect the defensive stance from the architects of the decade-long global economic recovery. Confidence matters, as it relates to the economic outlook. And stocks heavily influence confidence.

With that, the Fed raised the white flag on January 4th when they marched out Bernanke, Yellen and Powell at an economic conference to reset the market expectations on monetary policy (moving from a four rate hike forecast for 2019 to a ‘wait and see’ approach). They solidified that stance today.

Removing this risk, of the Fed offsetting the benefits of fiscal stimulus, is continuing to prime global markets. And we get a break of this trendline today in stocks — from the correction that originated from the record highs of October.

With the Fed behind us, the attention turns to the U.S./China meetings, which are underway. Let’s revisit the one indicator from China that they are working to pacify the Trump administration. It’s the Chinese currency.

Remember, we looked at this chart back on January 11 of the U.S. dollar/Chinese yuan exchange rate …

In this chart, the falling orange line represents the Chinesestrengthening their currency. And, as we can see, they have been showing a willingness to make concessions, walking it higher since the December “trade truce.” Make no mistake, the trade war is all about China’s currency. Ultimately, a free floating currency in China would be the solution to the trade imbalances and dangerous wealth transfer of the past few decades. To this point, it has been reported that they are presenting a plan to balance trade with the U.S. in six years. Maybe currency is part of it. We shall see.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Big Events This Week Will Set The Tone For 2019

January 28, 5:00 pm EST

This is a huge week. We’re following a down 9% month for stocks with a big bounceback. But it will all hinge on the events of the week.

We get Q4 earnings from about quarter of the companies in the S&P 500 – and a third of the Dow. We have the Fed on Wednesday. And the U.S. hosts trade talk meetings with China on Wednesday and Thursday. And then on Friday, we’ll get the jobs report.

We kicked off earnings season with reports from the big banks two weeks ago. And the reports broadly painted the picture of a healthy consumer and healthy economy.

This week, we hear from a broad swath of blue chips, including big multinational businesses. Among them: We heard from Caterpillar today. We’ll hear from Apple and Boeing tomorrow. McDonalds and 3M report on Wednesday. Amazon is on Thursday.

Expect a lot of discussions about “concerns” on the outlook (as we heard from Caterpillar today), but with a picture about Q4 that looked good (continuing with the theme of 2018).

Remember, much of the talk about slowdown has been about what might happen, in the year (or two) ahead – which primarily assumes a long-term stalemate on the Trump trade war. With that, never underestimate Wall Street and corporate America’s willingness to set the bar low (when given the opportunity), so that they can jump over a very low bar (i.e. set up for earnings beats in future quarters).

Far more important than those “concerns” voiced by CEO’s, is what the Fed has already done, and what will come out of the U.S./China talks this week.

Remember on January 4th, the Fed responded to the calamity in financial markets by backing down from their rate hiking plans. This week, the Fed Chair will likely use his post-meeting press conference to further massage markets. The Fed, the ECB and the BOJ have already positioned themselves (in recent weeks) to be the shock absorbers if the trade war continues to drag out.

As for trade talks, the calendar continues to approach the March 1 deadline on the tariff truce. And China has been gasping for air. I suspect we will get progress — maybe an official agreement on trade, leaving the intellectual property and technology transfer negotiations still on the table. That would be good progress.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

A China Deal Would Unleash A Huge Commodity Bull Cycle

January 25, 5:00 pm EST

We end the week with a weaker dollar, stronger commodities and recovering stocks. I suspect this is a building theme for the year – and that it will be a very lucrative one.

With that, let’s take a look at some key charts.

For perspective, here’s a longer term picture of the S&P 500. As you can see, even after the deep decline of the last quarter, the trend from the crisis lows of 2009 remains intact … and we’ve seen plenty of V-shaped recoveries along the path of this trend …

To this point, stocks have followed a December loss of 9% with a bouncein January of 6%.

We remain about 10% off of the October highs (all-time highs).

The opportunity to take advantage of this bounce in stocks is very attractive, but there are even more attractive opportunities in stocks outside of the U.S.

First, and importantly, the dollar is in a long-term bear cycle….and it’s early.

Here’s a look at the long-term dollar cycles dating back to the failure of the Bretton-Woods system …

The dollar is down 8% in this new bear cycle, and about two-years into a cycle that should run another five to six years. These are the early innings.

A lower dollar should fuel capital flows into foreign stock markets.

Among the most interesting: Japanese stocks and emerging markets.

Here’s a look at the Nikkei…

Back in late 2012, Shinzo Abe, then candidate for Japanese Prime Minister, promised a big and bold QE plan to beat two decades of deflation, and he had his hand selected candidate to run the BOJ, in waiting, to execute it. As you can see in the chart on stocks, that beganthe sharp rise in Japanese equities. And that trend too, still holds after the recent sell-off.

Seven years later, the Bank of Japan is now the lone global economic shock absorber (i.e. they are the last major central bank still easing and will be in QE mode for the foreseeable future). As part of their QE program, they continue to outright buy Japanese stocks. While U.S. stocks are 10% from the highs of last year, Japanese stocks would still need another 20% to regain the 2018 highs.

As for EM: If we consider where emerging market stocks were a year ago, and now introduce the possibility that China may be coming to the table later this month with a deal (at least on trade) that will include balancing trade with the U.S. over six years. How might EM economies look if the world’s leading exporter (China) no longer unfairly floods the world with its cheap products?

Here’s a look at the chart on emerging markets. You can see we’re getting a big trend-break this month of the ugly downtrend of the past year.

Finally, a falling dollar and a deal with China is jet fuel for commodities. And you can see in the chart below, this huge downtrend of the past decade is nearing a break.

With all of the above in mind, I suspect we’ve seen peak pessimism over the past quarter. And markets are showing signs that we might see a spillover of prosperity from the U.S. economy to the rest of the world, rather than another retrenchment in the global economy.

Have a great weekend!

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

How China Became The Most Dangerous Country In The World

January 22, 5:00 pm EST

China reported the slowest growth since 1990 on Monday (+6.4%).

This an interesting period to reference because, at that point, China was in the latter stages of executing on an economic plan. At the core of that plan was currency manipulation — i.e. devaluing it’s currency (i.e. trashing it) so that they would have a distinct advantage on price when competing for world exports (i.e. they would always be the cheapest).

It worked. The Chinese economy grew at an average of 12% the following five years (1991-1995). From 1991 to 2009, leading up the global financial crisis, China grew at 10.5% annual rate. That’s 18-years of double-digit annualized growth, on average.

That’s why the Chinese economy has ascended from a $350 billion economy to a $12 trillion economy since 1990.

Here’s what that looks like in a chart ….

Thanks to decades of uncontested currency manipulation, China is now the second largest economy in the world and on pace to be the biggest soon (though it still has just an eighth of the per capita GDP as the U.S.).

Why does it matter?

When they maintain a cheap currency, to undercut the world on price, they become the world’s sellers to everyone. That means they accumulate a mountain of foreign currency as a result (which they have). China is the holder of the largestsforeign currency reserves in the world, at more than $3 trillion dollars (mostly U.S. dollars). What do they do with those dollars? They buy our Treasuries, which keeps our rates low, so that U.S. consumers can borrow cheap and buy more of their goods — adding to China’s mountain of currency reserves, adding to their wealth and depleting the U.S. of wealth. And so the cycle goes.

This has proven to be a recipe for booms and busts (big busts), and a destructive global wealth transfer.

So coming out of a decade long global economic slog, U.S. growth (driven by fiscal stimulus) has put us in a position of strength to negotiate reform in China.

An economy running at 6% in China is recession territory and makes them vulnerable to an uprising against the regime. And trade tariffs put more and more downward pressure on the growth number. That’s why they’ve been willing to talk. Here’s what President Xi said yesterday about the ruling party’s outlook for retaining power in China: “The party is facing long-term and complex tests in terms of maintaining long-term rule, reform and opening-up, a market-driven economy, and within the external environment … The party is facing sharp and serious dangers of a slackness in spirit, lack of ability, distance from the people, and being passive and corrupt. This is an overall judgment based on the actual situation.”

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Newsflash: Apple Is Dirt Cheap

January 3, 5:00 pm EST

As we’ve discussed, the dysfunctional stock market has put pressure on Trump to stand down and make a deal with China.

And Apple’s CEO, Tim Cook, turned up that pressure yesterday. In a letter to investors, he warned that Apple, the biggest and most powerful company in the world, would have lower revenue in the quarter that just ended. The blame was placed on economic deceleration in China —due to the trade dispute.

Now, it’s clear that Cook wanted to draw attention to the impact of the trade dispute. And the media was happy to run with that story today.

But the slowdown at Apple last quarter also had a lot to do with “fewer iPhone upgrades than anticipated.” This was tossed into the context of slower economic activity in China, which makes it look like a macro issue. But Apple also has a micro issue. They seem to have exhausted the compelling innovation that has historically gotten iPhone users excited about buying the latest and greatest phone. The older models are still pretty great. No reason to upgrade.

So, Apple has used a violent market and slowdown in China, perhaps, in an attempt to divert attention away from the slowing device business.

The good news: Even if they don’t develop the next world-changing device, they have a services business (Apple pay, Apple Music, iCloud Drive, AppleCare and the iTunes App store) that is producing almost as much revenue as Facebook.

And the stock is incredibly cheap. On trailing twelve months, the stock trades at 12 times earnings. But if we back out the nearly $240 billion of cash Apple is sitting on, the business at Apple is being valued at $437 billion. That’s about 7 times trailing twelve month earnings.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

China Running At Worse Than 2009 Levels

December 14, 5:00 pm EST

We’ve talked about the struggling Chinese economy this week.

As I’ve said, much of the key economic data in China is running at or worse than 2009 levels (the depths of the global economic crisis).

And the data overnight confirmed the trajectory: lower.

As we’ve discussed, this lack of bounce in the Chinese economy (relative to a U.S. economy that is growing at better than 3%) has everything to do with Trump squeezing China.

He acknowledged it today in a tweet ….

The question: Has China retaliated with more than just tit-for-tats on trade? Have they been the hammer on U.S. stocks? It’s one of the few, if not only, ways to squeeze Trump. As we discussed last week, when the futures markets re-opened (at 6pm) on the day of mourning for the former 41st President, there was a clear seller that came in, in a very illiquid period, with an obvious motive to whack the market. It worked. Stocks were down 2% in 2 minutes. The CME (Chicago Mercantile Exhange) had to halt trading in the S&P futures to avert a market crash at six o’clock at night.

Now, cleary stocks have a significant influence on confidence. You can see confidence wane, by the day, as stocks move lower. And, importantly, confidence fuels the decisions to spend, hire and invest. So stock market performance feeds the economy, just as the economy feeds stock market performance. The biggest threat to a fundamentally strong economy, is a persistently unstable stock market. In addition, sustaining 3% growth in the U.S. will be difficult if the rest of the world isn’t participating in prosperity.

With that in mind, in my December 1 note, I said “it may be time for Trump to get a deal done (with China) and solidify the economic momentum needed to get him to a second term, where he may then readdress the more difficult structural issues with China/U.S. relations.” That seems even more reasonable now.

We end the week with this chart of the S&P.

We have two 12% declines in stocks this year. And you can see the fear beginning to set in. With that, the best investors in the world have made their careers by “being greedy when others are fearful” (Warren Buffett) or “buying when most people are selling and selling when most people are buying” (Howard Marks). There is clear value in stocks right now.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Key Charts To Watch

November 30, 5:00 pm EST

As we close the week and month, let’s take a look at some key charts.

Stocks have now bounced 5% since last Friday.

And that bounce was technically supported by this big long-term trendline we’ve been watching …

And, as of this week, stocks now have the additional fuel of a more stable outlook for interest rates.

The surge above 3% on the ten-year yield sustained that level, even in the face of a stock market decline. That signal created fears that the Fed might be on course to choke-off economic momentum. But that has now been quelled by the Fed’s clear signal this week that they are near the end of their rate normalization program. The 10-year ends the week well off the highs of the past two months, and at the important 3% level.

The dramatic adjustment lower in oil prices should also be additional fuel for stocks …

An overhang of risk to global markets has been the potential for sanctions on the Saudi government. But the issue seems to be now settled, with the sanctioning of Saudi individuals which do NOT include the Saudi Crown Prince and/or government. And as we’ve discussed, Trump has used the leverage over the Saudi Crown Prince to influence oil prices lower (for the moment).

With that above in mind, stocks finish the week well bid. If we can get at least a standstill agreement on the U.S./China trade war from this weekends meetings between Presidents Trump and Xi, that may be enough to fuel a melt-UP to new highs on stocks by the end of December. It may be time for Trump to get a deal done, and solidify economic momentum to get him to a second term, where he may then re-address the more difficult structural issues with China/U.S. relations.

What stocks do you buy? Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Catalysts Ahead For Stocks This Week

November 26, 5:00 pm EST

After a down 7% October, the S&P 500 was down another 3% for November as we started the week.

But stocks had a nice day, continuing to bounce from this big trendline we’ve been watching over the past week.

And the better news: We have potential positive catalysts on the docket for this week that could put a final stamp on this correction.

Powell (Fed Chair) gives a prepared speech on Wednesday at the Economic Club of New York. Remember, we were looking for some signal a couple of weeks ago that the Fed might take a pause normalizing rates. We got it, but from the Atlanta Fed President. This week, any indication from the Fed Chair that rate hikes are nearing an end would be a greenlight for stocks.

And then we get new information on U.S./China trade relations by the week’s end as Trump and Xi are scheduled for a sit down at the G20 meetings. Among all of the concerns that might be curbing risk appetite (both in markets and the economy) this one is among the biggest. Progress on that front should also trigger relief in stocks.

The combination of a more dovish Fed and some clarity on trade would set up for what could be a very aggressive bounce for stocks into the year end.

What stocks do you buy? Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Trump Is Settled On Saudi Sanctions — Good For Stocks

November 21, 5:00 pm EST

We looked at the below chart yesterday. We’re continuing to get a bounce off of this big trend line that incorporates the lows of the oil price crash of 2016, and the election later that year.

Importantly, as I said yesterday, the stock declines of this year appear to have everything to do with Saudi capital flows — and less to do with all of the hand-wringing issues you hear and read in the financial media.

As we discussed last month, the top for stocks in January and the top in October, both align perfectly with the timing of events in Saudi Arabia.

Let’s revisit that timeline from my October note: “Remember, last November the Saudi Crown Prince Salam, successor to the King, ordered the arrest of many of the most powerful Saudi Princes, country ministers and business people in Saudi Arabia on corruption charges. More than $100 billion in assets were claimed to be under investigation (a third frozen) in what was called the “Saudi purge.”

These subjects were detained for nearly three months. The timing of their release and the market correction of early this year is where it all begins to align.

They were released on Saturday, January 27. S&P futures open for trading on Sunday night. Stocks topped that night and proceeded to drop 12% in six days. And rallies in stocks were sold aggressively for the better part of the next seven months.

Fast forward to this month and we have the murder of the journalist who was a public critic of the Crown Prince Salam. As the details of story pointed back to Salam, on October 3, U.S. bond markets got hit (to the hour of news hitting the wires) and stocks topped that day, and have proceeded to drop by more than 8%.

Clearly, the destabilization in Saudi Arabia has put considerable assets in jeopardy. With that, those in control of those assets have likely been scrambling to protect them, as U.S. Congress pushes for sanctions, which could include freezing Saudi assets.”

Now, over the past few weeks, we’ve seen some back and forth onwhether or not the Saudi Crown Prince would be implicated in the Khashoggi murder and/or, most importantly, sanctioned. And the moves in stocks have been reflecting that whipsaw. Remember, the Saudi sovereign wealth fund is worth more than half a trillion dollars. They’ve been heavily invested in the tech giants. And those (the tech giants) have led the way down. Any uptick in the probability that we see more U.S.-based Saudi assets frozen or threatened, has created selling in stocks.

But as we said yesterday, Trump seems to be settled on the sanctions that have already been levied (excluding the Crown Prince and broader government). That’s a positive for stocks.

And he’s leveraging the Saudi crisis to get oil prices lower. Remember, we talked about the oil bargaining chip earlier this month. Here’s an excerpt from my November 9 note: “It’s probably no coincidence that the slide in oil prices started the day that the Saudi Crown Prince was implicated in journalist Jamal Khashoggi’s disappearance. Remember, the bond market got hit, to the hour, of this headline hitting …

Stocks topped a few hours later, and that was the top for oil prices too.

When Trump spoke with the Saudi Crown Prince on the phone on October 16, oil was trading above $71. We haven’t seen that level since.

Trump‘s position on high oil prices is no secret. He doesn’t like it. And Saudi Arabia is well aware. Is it possible that Trump has leverage and is using it? Likely. Is it possible that the Crown Prince is willing play ball with U.S. demands (on oil production) in order to avoid sanctions (or worse).“

Interestingly, Trump is now confirming the above with his statements over the past couple of days.

Bottom line: When stocks decline for non-fundamental reasons, it’s a huge buying opportunity. This is one of those moments.

What stocks do you buy? Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, coming out of this market correction environment.

Have a great Thanksgiving!