April 25, 5:00 pm EST

Today, Microsoft was the third company to hit the trillion-dollar market cap threshold.

Apple was the first, back in August.  Amazon followed in September.

Let’s talk about how Microsoft has transformed itself from a path of obsolescence to quadrupling in value in six years.

Back in April of 2013, an activist investor named Jeff Ubben took a $2 billion stake in MSFT.  That same month Business Insider wrote a story titled:  “Microsoft Could Be Obsolete By 2017.”  The stock had gone nowhere for more than a decade. 

Ubben won a board seat and he pushed for stock buybacks and a strategy reset.  He pushed out the CEO, Steve Balmer.  He replaced him with Satya Nadella, who was running the Miscrosoft cloud business.  His job was to turn Miscrosoft into a cloud computing company.  He has done it.

Microsoft is now the number two cloud computing platform globally, behind Amazon. For perspective, cloud computing is a $200 billion market growing at close to 20% a year.  And Microsoft’s cloud business, Azure,grew revenue by 73% last quarter.

Bottom line:  Amazon and Microsoft have a duopoly in the high growth digital storage business (i.e. cloud computing). 

Amazon’s retail business gets all of the attention, but it’s cloud business has been subsidizing it’s retail business for a long time.  The hyper-growth in cloud and the market dominance held by Amazon and Microsoft are why their market value has gone to a trillion-dollars, and why their charts look so similar …


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January 14, 5:00 pm EST

Meaningful fourth quarter earnings kick off this week with the big banks.

We heard from Citigroup this morning. They beat on earnings but on lower than expected revenues.  The stock finished UP over 4%.

We get JPMorgan and Wells Fargo Q4 earnings tomorrow before the open.  Bank of America and Goldman Sachs will report on Wednesday.

Remember, the turning point for stocks in December started with a call-out to the major banks by the U.S. Treasury Secretary.  Not surprisingly, the turn in stocks was led by the banks.

You can see the big reversal in this chart of the KBW bank index.  The index is now up 16% since December 26th.

With the above in mind, one of the best value investors of the past twenty years, Jeffrey Ubben, has thought the timing is finally right for major banks.  He has said the U.S. banking system has the lowest risk profile “than any time in our investing lifetime.”  In our Billionaire’s Portfolio, we followed him into Citigroup, the highest conviction position in his $16 billion portfolio.  It’s the cheapest of the four biggest U.S.-based global money center banks.

As for earnings, overall:  Remember, we’re coming off of three consecutive quarters of corporate earnings that blew away very lofty Wall Street estimates — 20%+ yoy earnings growth for the first three quarters of 2018.  But sliding stocks in the fourth quarter eroded sentiment, and down came earnings estimates for Q4.  The market is looking for just 10% earnings growth for the fourth quarter. For 2019, they’re looking for just 7%.  This all sets up for positive surprises. Positive surprises are fuel for stocks.
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.

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.

October 10, 5:00 pm EST

Yesterday we talked about the risks surrounding markets (Italy, Interest Rates, China), and said these risks are likely serving as a catalyst to start the correction in tech stocks
And we looked at this chart on Amazon as the key one to watch.

Here’s what the chart looks like today …


This big trendline broke today, a line that represents the more than doubling of Amazon in a little more than one year’s time.  This is a company that went from a valuation of $500 billion to $1 trillion in a year.

So we get this big technical break, and Amazon is now down 14% from the highs.

Again, as we’ve discussed here in my daily note many times, at a trillion dollar valuation, the market was pricing Amazon like a monopoly that would go unchecked, and allowed to destroy any and all industries in its path.

But Trump has made it clear that he’s not going to let it happen.  Amazon, Facebook and Google have all been subject to Trump threats to rein them in through regulation — to level the playing field for their competition.  And if there’s one thing we know about Trump, as the President: he will follow through on threats, and he likes a good fight.

With that, the FANG (Facebook, Amazon, Netflix, Google) trade, after being UP as much as 50% this year (as an equal weighted group), isfinally breaking down.  And that is creating some shock waves in broader markets.

So, is this the beginning of a bigger global meltdown or will it ultimately be a repricing of the tech giants.  I think the latter.

Remember, the tech heavy Nasdaq, for much of the year, performed with near impunity from any geopolitical turmoil.  As trade rhetoric heightened, the Dow would suffer, while the Nasdaq continued to climb.  At one point this summer, the Nasdaq was up double-digits on the year, while the Dow was down.

So this is more likely a rebalancing (the rotation from tech giants to value stocks).

As we go into third quarter earnings, we continue to run at 20% earnings growth on the year.  The P/E for stocks remains low, in a low/accommodative interest rate environment (yes, 3.2% 10-year yield remains low relative to history).  And the economy is hot, with low and stable inflation.

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September 13, 5:00 pm EST

Those that look for reasons to pick apart the bull case for the economy and markets were disappointed by the ECB this morning.

As we discussed earlier in the week, the improvements in the U.S. economy and the trajectory of U.S. rates has cleared the path for Europe to finally exit QE.  And the ECB confirmed this morning that they remain on that path — to end QE into the year end.

The idea that Europe can exit QE is a huge positive for both the European economy and the global economy – a confidence signal.

With that, German stocks are a big buy here.  As you can see in the chart below, while the S&P 500 is on record highs, the DAX has been well underwater on the year (down more than 6%).

The index also trades well under the 200 day moving average (the purple line).  To close the performance gap in this chart, German stocks could be in the early stages of a 13%-15% run.

And stocks in Europe should be supported by a strengthening euro.

Remember, as the global economy improves, the dollar should get weaker. The growth and rate gap (between the U.S. and the rest of the world) will be narrowing from here, which will promote foreign capital to flow into currencies like the euro. But most importantly, the exit of QE means Europe has escaped the dangerous crisis era, which means money will flow “back home“ out of/from the world’s safe-haven asset (dollar-denominated U.S. Treasury market).

I suspect the euro will trade closer to 1.30 by this time next year, as the ECB will begin raising rates in 2019, and likely follow the U.S. lead on fiscal stimulus to drive growth. 

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September 4, 5:00 pm EST

Today, Amazon became the second company (following Apple) to cross the one trillion-dollar valuation threshold.

This stock is up 72% year-to-date.  It has doubled in the past year and has nearly tripled since Trump’s election. That’s what happens when you have a pour gasoline (economic growth) on a fire (a monopoly).  No one should love Trump more than Jeff Bezos.

But at 161 times earnings, the market seems to be betting on the Amazon monopoly being left to corner all of the world’s industries.  That’s a bad bet.

Much like China undercut the competition on price and cornered the world’s export market, Amazon has undercut the retail industry on price, and cornered the world’s retail business.  That tipping point (on retail) has well passed.  And as sales growth accelerates for Amazon, so does the speed at which competition is being destroyed.  But Amazon is now moving aggressively into almost every industry.  This company has to be/will be broken up.

The question is, how will the market value an ecommerce business that would no longer be subsidized by the high margin Amazon cloud business (AWS)?  A separation of the businesses would put Amazon’s ecommerce margins under the Wall Street microscope (as every other retailer is subjected to) and materially impact a key sales growth driver for Amazon, which is investment in innovation (R&D).

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Nasdaq:AMZN, Nasdaq:AAPL, Nasdaq:FB, Nasdaq:GOOG

August 24, 5:00 pm EST

The best investing advice over much of the past decade has been “don’t fight the Fed.”  The Fed needed stocks higher (to restore confidence and wealth — at least paper wealth).  And the Fed forced stocks higher. 

They did it through ultra-low interest rates and through a committment to backstop against any shock risks.  With that, despite the many threats along the path of the the global economic recovery, stocks went up.What’s the best investing advice of the post-election environment?

Don’t fight Trump.

Remember, we’ve talked about the “great handoff” on election night.  Trump finally represented an end to an era, where the global economy was surviving on central bank life support.  It was the handoff from a monetary policy-driven recovery, to a fiscal stimulus and structural reform-driven recovery.  And that handoff gave us a chance to get to a sustainable recovery — to escape post-recession stall-speed growth.

So no wonder, the influence of Trump on markets and global stability, is much like the influence of the central banks of the past decade.

Trump wants a booming economy. 

We need a booming economy to escape the stall-speed growth of the post-global recession world. So we have major economic and geopolitical undertakings in play to achieve a booming economy.  And just as the central banks wouldn’t let shocks undo the trillions of dollar they had committed to the recovery, Trump won’t either.  The central banks intervened often, either verbally, or through policy.  And Trump has intervened often.  Also, a lot of verbal, and plenty of policy responses.

The dollar and the Fed are the latest examples.  And today, we saw the influence and the outcome.  Trump has hand-selected the Fed Chair that is continuing the program of gradual rate hikes.  But Trump he sees higher rates, uncessarily threatening to curtail the growth picture, he’s “intervening.”

Below is some of his jawboning against higher rates …


And today, we heard from the Fed Chair at Jackson Hole.  People were looking for any indication that the Fed Chair might be influenced by Trump’s comments.

And here are the money headlines from his speech…

The Fed explicitly said under Yellen one time, that they opted against a rate hike because they were no signs that the economy was overheating.  That makes the second comment above very interest, regarding the expectations on the Fed’s movees for the remainder of the year.  And if they don’t see inflation accelerating above 2% (the first comment) then why raise rates again.

The market seemed to agree with that interpretation today.  The prospects of steady rates is a recipe for higher stocks, higher commodities and a lower dollar. And that’s what we had today.  I expect it will continue.  And this may have finally been the catalyst to get commodities moving again.

Have a great weekend!

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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.

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July 3, 5:00 pm EST

Yesterday we talked about the set up for the Dow. In the past couple of trading sessions, it traded perfectly into the trendline (support) that represents the run in stocks following the 2016 election.

It’s especially compelling when we consider that the Dow has been the laggard coming out of the broad stock market correction. As I said yesterday, this sets up for a second half where money should aggressively move back toward the blue chips.

With this in mind, I want to revisit some analysis I talked about last July. It’s from billionaire investor Larry Robbins (of the hedge fund Glenview Capital).

Robbins looked back at the important influence of low interest rate environments on stocks. He said “every time ONE of these following conditions has existed, the market has produced positive returns.

Here they are again:

  • 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%.

His study showed that there has NEVER been a down year in stocks, when any ONE of the above conditions is met.

Now, we looked at this last year this time, and the S&P 500 finished up close to 20% on the year. It also worked in 2015. And it worked in 2016.

Does it apply this year? All apply, with the exception of oil. Oil is UP, big. And assuming the Fed hikes one more time this year. Still, as Robbins said, we need just ONE of these conditions to be met. The point is, low interest rates tend to make stocks go UP. That’s because global capital tends to reach for more risk to get return in a world where risk-free bonds aren’t compensating them enough.

Bottom line: Ignore all of the geopolitical noise. Low rates continue to tell us stocks will go up. And to make it easy for us, the DJIA is starting today at essentially the zero line — flat on the year!

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February 1, 7:00 pm EST

Rates continue to run higher.  As we’ve discussed, the move higher in rates is likely to stifle the runup in stocks, until we start seeing the fiscal stimulus benefits reflected in the data.  That will be a couple of months away.

Globally, there are already some technical signals indicating a lower path for stocks (NYSE:SPY).

Here’s a look at China …

Chinese stocks (NYSE:FXI) ran up over 8% and have already given back 4% in just four days (marked by an outside day at the top).

Japanese stocks (NYSE:DJX) have soared 25% just in the past four months.  And this big trend broke down just a few days ago.

German stocks are 4.5% off of record highs just over the past nine days.

And stocks in the UK were the first to top out in the middle of January, now off almost 4% from the record highs.  Canadian stocks are down 3.3% in the past week, from record highs.  Both the Bank of England and the Bank of Canada are already on the move on normalizing interest rates.

This all continues to look like a world that is pricing in the end of QE, as we’ve discussed.  And it’s happening because fiscal stimulus in the U.S. is expected to lift all boats, leading ultimately to major central banks and governments following the path of the U.S. — exiting emergency monetary policy, and stoking the recovery by adding fiscal stimulus.

Ultimately, that gives the global economy the best chance to sustainably recover from the economic slog of the past decade.   But again, expect the “prove it to me period” to be coming (if not underway) for stocks, waiting to see the better growth justify the “end of QE” theme.

With this in mind, we had some spotty earnings from the stock market giants after the bell: Amazon (NASDAQ:AMZN), Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG).  The FAANG trade is up 15% this year alone, and up huge since the election (about 75%).  But remember, the administration’s regulatory outlook isn’t so favorable to the tech giants.  We may some cracks in the armor starting to show.     

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