January 25, 2017, 1:30pm EST                                                                                        Invest Alongside Billionaires For $297/Qtr

The Dow broke 20,000 today.  I want to talk about why it’s a big deal.

As we discussed when we entered the new year, “Trump’s Plan Is A Recipe For Restoring Animal Spirits.”  Watch out, it’s coming.

Remember, this (animal spirits) is the element that economists and analysts can’t predict, and can’t quantify. It’s not in the forecasts. This is what has been destroyed over the past decade, driven primarily by the fear of indebtedness (which is typical of a debt crisis) and mistrust of the system. All along the way, throughout the recovery  period, and throughout a tripling of the stock market off of the bottom, people have continually been waiting for another shoe to drop. The breaking of this emotional mindset has been underway since the night of the election. And that gives way to a return of animal spirits.

Higher stock prices tend to beget higher stock prices. Trust me, individual investors that haven’t been believers will be calling their financial advisors and logging in to their online brokerage accounts over the coming days.  Institutional investors that haven’t been believers, that have been underweight stocks, will be beefing up exposure if they want to compete with their peers (and keep their jobs).

And not only do higher stock prices lead to higher stock prices, but higher stock prices tend to make people feel more confident about the economy, which begets a better economy.

Add to this, the psychological value of Dow 20,000 could finally be a turning point in the divergence of sentiment toward the Trump Presidency.  It may serve as a validation marker for those that have been on the fence.  And for those in opposition, as I’ve said before, growth solves a lot of problems!  When the college grad that’s been relegated to a 10-year career as a barista begins to see signs of opportunity for a better career and a better future, in a stronger economy, the sands of Trump sentiment can shift quickly.

Cleary, Trump entered with a game plan that can pop economic growth.  And he’s going 100 miles an hour at executing on that plan. For markets, what he’s doing is creating a sense of certainty for investors. They know what he’s promised, and now they know that he appears to intend on delivering on those promises.  And the coordination of growth policies, along with ultra-easy monetary policy (even with tightening in view) serves as risk mitigators for markets. It should limit downside risk, which is what investors care most about.  How?

Remember, even at Dow 20,000, stocks are still extremely cheap.

Here’s a review on why …

Reason #1: To return to the long-term trajectory of 8% annualized returns for the S&P 500, the broad stock market would still need to recovery another 48% by the middle of this year. We’re still making up for the lost growth of the past decade. And there’s a lot of ground to make up.

Reason #2: In low-rate environments, the valuation on the broad market tends to run north of 20 times earnings. Adjusting for that multiple, we can see a reasonable path to a 16% return for the year.  That’s an S&P 500 earnings estimate of $133.64 times a P/E of 20 equals 2,672 on the S&P 500.

Reason #3: The proposed corporate tax rate cut from 35% to 15% is estimated to drive S&P 500 earnings UP from an estimated $132 per share for next year, to as high as $157. Apply $157 to a 20x P/E and you get 3,140 in the S&P 500. That’s 37% higher.

With this in mind, 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.

Dow 20,000 get’s a lot of people excited.  But as we discussed on Friday, there are rational reasons to expect stocks will continue to climb to much higher levels.

Yesterday we looked back on China’s currency manipulation which has escalated to a big geopolitical risk with the incoming Trump administration.  Remember, at the beginning of the year I talked about the six big global market themes for 2016.  China’s currency was one.

Given that we’re reaching the 20k level in the Dow, let’s revisit the first theme I talked about back in January.  Theme #1: The central banks are in control — Be Long Stocks

We know that the global financial and economic crisis was driven by a credit bubble and, therefore, overindebtedness. We know more than 60 countries around the world were simultaneously in recession.

If you grasp this reality (Theme #1), and are firmly rooted in the context within which the global economy is operating, respecting the role that central banks played in rescuing the world from an apocalyptic collapse, then there hasn’t been much more to talk about or to debate for quite some time, when it comes to the outlook for markets, risks, scenarios, etc. Central Banks have proven to be able to influence confidence and asset prices. Both of which are critical tools in creating recovery and continuing recovery.”

Now, remember, it wasn’t very long ago (as recent as last month!) that the outlook for the world was gloomy, and the bond markets were pricing in deflation forever. But up to that point, central banks had continued to supply liquidity to the world and fought off crises that threatened to derail the recovery.  The central banks gave us a green light to buy stocks, especially when you consider that the Fed, the ECB and the BOJ (the three most powerful central banks in the world) wanted and needed stocks higher.

Of course, we now have a hand off.  We’ve had a diver chained under water, and monetary authorities keeping the diver alive, scrambling to replenish the oxygen in the tank.  And now we have broad sweeping fiscal and structural policy change coming, which cuts the diver’s chain and oxygen is just above the surface.  It’s a recovery that can be driven by fundamental change, which has the chance to become a sustainable recovery.  That means you can no longer evaluate the market and economic outlook with the same lens you used just a little more than a month ago.

When you get fundamental change in a stock, you can see huge revaluations.  That’s precisely why activist investors have some of the best investment records in history, and have achieved some of the biggest returns overtime (like billionaire Carl Icahn, who has compounded money at nearly 30% for 50 years). They take a controlling stake in a stock. They fire bad CEOs, shake up irresponsible boards, cut costs, sell off underperforming assets — they step into deeply distressed companies and create change through their influence. And that change is the recipe for unlocking value in a stock. The  outlook completely changes, so does the valuation.

The Trump administration is approaching policy like a distressed activist investor — targeting a suppressed economy and deeply depressed industries and unlocking value through change, to drive economic growth.  When the fundamentals change, when the rules change, the outlook becomes completely different.  Just the idea that these changes are coming makes the world a very different place than what we’ve seen for the past ten years (at the inception of the global economic crisis).

For help building a high potential portfolio following the influence of activist investors, 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 24% this year. You can join me here and get positioned for a big 2017.