February 18, 5:00 pm EST

We had a big earnings report from Walmart today.

Last summer we talked about the huge divergence in the performance of Amazon (the world’s biggest company by market cap) and Walmart (the world’s biggest company by revenue).

Let’s take another look …

As we discussed, the market was pricing Amazon like a runaway monopoly — killer of all industries, especially retail.  And the perception has been that Walmart was destined to become another rise and fall story of a dominant American retailer.

But there was a clear and new catalyst that entered. Trump had made it very clear that he was, not only looking to balance the playing fieldglobally, but also domestically.  And that meant, the tech giants were due for some regulatory headwinds.  Amazon has been in the crosshairs, and still is.

As such, as I said last summer, this chart below was becoming the proxy for the domestic “rebalancing” — where the foot is being lifted from the jugular of the old economy survivors.



With today’s big Q4 earnings report from Walmart, we now have this chart.  

As you can see, the jaws have closed, albeit mostly driven by the resurgence of Walmart.  This spread trade was good for about 25% since June.  Amazon was 4.3 times the size of Walmart.  Now its about 2.5 times as big.

And this convergence should continue to have legs, not just because of the pressure from Washington on Amazon, but also because of the competitive moves made by Walmart, that may be finally garnering some respect on Wall Street.

Walmart has been aggressively investing in online. They bought Jet.com in 2016, an American online retailer.  That same year they took a large stake in the number two online retailer in China, JD.com.  Walmart now owns 12% of JD.

JD.com already has a big share of ecommerce in China.  They are number two to Alibaba, but gaining ground due to some clear competitive advantages.  JD owns and controls its logistics infrastructure, and does quality control from the supplier to delivery.  And unlike Alibaba, JD sources product to its warehouses to fight the counterfeit goods risk – a big problem in China. JD has 500+ warehouses around the country, and they now source product and service customers from one of the 433 Walmart stores in China.

So Walmart is positioned well to take advantage of the growth in the middle class in China.  Amazon has yet to find its way in China.  It has about 1% market share.   Add to this, Google came in last year with a $550 million investment to help position JD to challenge Alibaba and Amazon on a global scale.

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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.

November 19, 5:00 pm EST

The tech giants continued to get hammered today.  We’ve talked about the prospects for an unraveling of the tech giants for much of the past year.

Despite the clear warning shots that were fired by regulators/lawmakers (and the President) along the way, these stocks kept going up — until they didn’t.

As I said back on September 4th, when Amazon crossed the trillion-dollar valuation threshold, “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 compeition 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.

A day later, Facebook and Twitter executives visited Capitol Hill for a Congressional grilling.  Here’s an excerpt from my note that day:  “If you listened to Zuckerberg‘s Congressional testimony in April, and today’s grilling of Jack Dorsey (Twitter) and Sheryl Sandberg (Facebook), it’s clear that they have created monsters that they can’t manage. These tech giants have gotten too big, too powerful and too dangerous to the economy (and society).

Here we are, a little more than two months later, and the sentiment on tech has dramatically changed.  Amazon topped the day it reached the trillion-dollar valuation and has lost a quarter of a trillion dollars in value since (down 26%).  Facebook is down 39% since the record highs in July.

So it appears that we are finally seeing the “monopoly scenario” priced out of the tech giants.  And with that, we should see money moving back into those stocks that have been left for dead in industries like media, retail, shipping (to name a few).  This is the Dow/Nasdaq convergence we’ve been looking for for much of this year — and we’re getting it.  At one point this summer the Nasdaq was up close to 15% on the year, while the Dow was flat.  Now both are up just over 1% year-to-date.  I suspect that Dow outperformance will continue.

We have G20 tomorrow, where the world will be watching for some movement on the U.S./China trade negotiations.  Any hint at a deal should get this Dow trade moving aggressively higher.

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November 2, 5:00 pm EST

If you are a regular reader of my daily notes, you’ll know I’ve suspected we are seeing an end to the “wild west” days in Silicon Valley.

I think we’ve finally seen it play out in the stock market in the past month.

The media has spent the past month pontificating about big macro economic stories and how these risks have driven this correction stocks. But the intermarket correlations don’t support it.  Despite the sharp slide in stocks, money hasn’t fled to the safety of bonds.  The currency market has shown little to no stress.  And gold has been relatively quiet.  This is all antithetical to what you would find in a world shaken from elevated global risks.

Ultimately, this correction has been about repricing the tech giants. And one of the power players in Silicon Valley said about as much this week.

Peter Theil, founder of PayPal and the first investor in Facebook said he doesn’t expect to see another innovative breakthrough consumer internet company. I agree (for a number of reasons).

With that, I want to revisit my note from March of 2017, as Trump was just getting his feet wet as President:

A big component to the rise of Internet 2.0 was the election of Barack Obama.

With a change in administration as a catalyst, the question is: Is this chapter of the boom in Silicon Valley over? 

Without question, the Obama administration was very friendly to the new emerging technology industry. One of the cofounders of Facebook became the manager of Obama’s online campaign in early 2007, before Obama announced his run for president, and just as Facebook was taking off after moving to and raising money in Silicon Valley (with ten million users). Facebook was an app for college students and had just been opened up to high school students in the months prior to Obama’s run and the hiring of the former Facebook cofounder. There was already a more successful version of Facebook at the time called MySpace. But clearly the election catapulted Facebook over MySpace with a very influential Facebook insider at work. And Facebook continued to get heavy endorsements throughout the administration’s eight years. 

In 2008, the DNC convention in Denver gave birth to Airbnb. There was nothing new about advertising rentals online. But four years later, after the 2008 Obama win, Airbnb was a company with a $1 billion private market valuation, through funding from Silicon Valley venture capitalists. CNN called it the billion dollar startup born out of the DNC. 

Where did the money come from that flowed so heavily into Silicon Valley? By 2009, the nearly $800 billion stimulus package included $100 billion worth of funding and grants for the ‘the discovery, development and implementation of various technologies.’ In June 2009, the government loaned Tesla $465 million to build the model S. 

When institutional investors see that kind of money flowing somewhere, they chase it. And valuations start exploding from there as there becomes insatiable demand for these new ‘could be’ unicorns (i.e. billion dollar startups). 

Who would throw money at a startup business that was intended to take down the deeply entrenched, highly regulated and defended taxi business? You only invest when you know you have an administration behind it. That’s the only way you put cars on the street in NYC to compete with the cab mafia and expect to win when the fight breaks out. And they did. In 2014, Uber hired David Plouffe, a senior advisor to President Obama and his former campaign manager to fight regulation. Uber is valued at $60 billion. That’s more than three times the size of Avis, Hertz and Enterprise combined.

Will money keep chasing these companies without the wind any longer at their backs?

Again, this note above was from about 18 months ago.  And administration change has indeed become a problem for these emerging monopolies.

Trump’s scrutiny has come, and so has the regulatory scrutiny.  But admittedly is has taken longer than I expected.

Still, it has become clear now to lawmakers (in the U.S. and abroad) that the lack of regulatory oversight of these companies (if not regulatory favor) has created a “winner takes all” environment.  And the power transfer into so few hands has quickly become a big threat.

Now these companies look forward to the next decade of regulatory purgatory.  But given the maturity of these tech giants, higher regulation only strengthens their moat.  That means there will never be a competition to Facebook emerging from a dorm room or garage.  The compliance costs will be too high.

But regulation on the tech giants also creates the prospects for those “old-economy” competitors that have survived, to bounce back.
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November 1, 5:00 pm EST

We talked about the potential bottom in stocks on Monday, based on this big trendline we had been watching.  That, of course, also coincided with a similar line in the Dow, which represented a 10% correction on the nose.

That indeed does look like the bottom.

You can see in the chart of the S&P 500 above, this big line dating back to the oil price crash lows of 2016 held beautifully, and we are now up more than 5% from just Monday of this week.

And today we have this …

We’re getting a break of this sharp downtrend of the past month (circled).

And we have a very similar pattern in Japanese stocks (the Nikkei).

Most importantly, the biggest mover of the day in global stock indices (and nearly all markets) was emerging market stocks.  The MSCI Emerging Markets Index was up 3.3% today.  And the strength in emerging markets was well underway before the news today that the U.S. (Trump) and China (Xi) has some constructive talks on trade.

What gets hit first and hardest when global risk elevates?  Emerging markets.  EM was down 21% on the year earlier this week.  But this is also where the biggest gains can come as the dust settles, and people realize that a hotter U.S. economy, will translate into hotter growth in emerging markets.  As I’ve said, this market decline has been a gift to get involved.

October 29, 5:00 pm EST

Stocks continue to swing around today.  But I think we may have a bottom coming in. 

Remember, we looked at some key charts on Friday.  Among them, we had this chart of the Dow, where a touch of this big trendline from the 2016 lows would give us a 10% correction on the nose.


As you can see in the updated chart, we hit that level today, traded below it, but bounced back aggressively into the close.

So we now have an official correction in the Dow (down 10%) and we have an official bear market in the FANG stocks (down more than 20%).  These labels have significance because it the plays into market psychology and price behavior.

With this in mind, if you are a regular reader of my daily notes, you’ll know we’ve talked about the big disconnect between the performance of the tech giants, relative to the Dow for much of the year. The FANG stocks were UP as much as 50% at one point this year (equal weighted).  Meanwhile, the Dow has dramatically lagged all along the path of the post-correction recovery of earlier this year.

This was a market pricing the tech giants like monopolies that would destroy all industries, despite the clear threats that were coming from Trump and from Europe (i.e. promising to ramp up regulation on those that have gained advantages from the lack of regulation).

The great proxy for this trade, as we’ve been discussing for the better part of the past six months, has been Amazon versus Walmart.

Remember, we looked at this chart several times earlier this year …

This chart clearly represents the regulatory favor that has been given to the tech giants.  The regulatory favor has not only disrupted industries, it has nearly destroyed them, and created monopolies in the process.

But with regulation coming, I’ve expected the “jaws to close” on this chart, and for money to start moving back into value stocks and back into the industries that have been nearly destroyed by the tech giants.

We now have this … the jaws have closed. 

This violent repricing of the tech giants, and now bear market, is finally signaling the outlook for a more level playing field for businesses, more broad-based economic activity, and a more broad-based bull market for stocks.

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October 26, 5:00 pm EST 

With this morning’s third quarter GDP number, the economy is officially growing at the fastest pace since 2006.

And yet stocks are now flat on the year.

Let’s look at some key charts as we head into the weekend.

We’ve looked at this big trendline in the S&P 500 futures.  We got very close today.

We have a similar line coming in here for the Dow.  A touch of that line would be a 10% correction on the nose. 

Remember, the core of this correction is about a re-pricing of the tech stocks.  We looked at this chart on Amazon earlier this month. 

And now we have this…

Amazon topped the day it crossed the trillion-dollar valuation threshold and is now down 20%.  But also remember, at the peak, the stock had more than doubled in a year.  Even after this decline, and after blow out earnings, the stock still trades at 161 times earnings.

As we know, Trump is leveling the playing field internationally,and domestically.  And the tech giants, which have been priced like monopolies, are coming back down to Earth.

This correction gives us a chance to buy the broader stock market into a 10% correction, at 15 times earnings (cheaper than the long term average) in a 3% economy, with 20% year-over-year corporate earnings and corporate sales growth running double the rates of the past twenty years.  Don’t run out of the store when stocks are on sale.

Finally, among the many interesting charts this week is gold. In the chart below, you can see gold has held the big trendline from that dates back to the inception of QE.  With inflation finally showing some life, and with signficant wealth in Saudi Arabia looking for a safe hiding place, gold should be the natural winner. 

If you need help with your shopping list of stocks to buy on this dip, join me in my Billionaire’s Portfolio. We follow the world’s bests billionaire investors into their favorite stocks.  Click here to learn more.

October 15, 5:00 pm EST

On Friday we talked about the opportunity presented by this recent dip in the broad stock market.

We’re beginning to see more clearly today the rotation out of tech and into value.  That is translating into a continued slide in the Nasdaq, while the Dow is rising.

Now, even though this looks like a re-pricing of the high-flying tech stocks, as we often see the “baby gets thrown out with the bathwater.”  In this case, because the big tech giants have been so widely held, when they crack, everything has cracked.  That’s an opportunity to buy broader stocks on sale. And stocks are indeed cheap.

Take a look at historic valuations (P/E on the S&P 500) …


From a valuation perspective, Wall Street is estimating stocks on next year’s estimated earnings to be as cheap as we’ve seen only two times in the past 26 years.

You can see where stocks were valued on the S&P going into 2012.  Stocks finished up 16% that year.  The other year was 1995 (a P/E of 14.89). Stocks finished that year up 37.6%.

Still, many have continued to harp on valuation, always pointing to the long run average P/E on stocks, which is around 16.  That’s a long history.  If we look back at the past twenty years, the average valuation is MUCH, MUCH higher. It’s 23 times earnings!

If we take Wall Street’s estimate on S&P 500 earnings of $176 and multiply it by 23, we get and S&P at 4,048.  That’s 47% higher than Friday’s close.

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October 12, 5:00 pm EST

The S&P 500 has declined more than 5% (from peak to trough) on four different occasions this year.  That’s despite an economy that is heating up, finally escaping the slow growth rut of the past decade.

So, should you be fearful when these declines occur, or should you be greedy?

During market declines – with the constant barrage of market analysis and opinion on financial television, in newspapers, or through the Internet – it’s easy to get sucked into drama played out in the media.

And that tends to make many investors fearful.

But while the fearful start running out of the store when stocks go on sale, the best billionaire investors in the world, start running IN.

The fact is, the best investors in the world see declines in the U.S. stock market as an exciting opportunity.  And so should you.

Most average investors in stocks are NOT leveraged. And with that, they should have no concern about U.S. stock market declines, other than saying to themselves, “what a gift,” and asking themselves these questions: “Do I have cash I can put to work at these cheaper prices? And, where should I put that cash to work?”

Billionaire Ray Dalio, the founder of the biggest hedge fund in the world, has said what we think is the most simple yet important fact ever said about investing.

“There are few sure things in investing … that betas rise over time relative to cash is one of them.”  

In plain English, he’s saying that major asset classes, over time, will rise (stocks, bonds, real estate). The value of these core assets will grow faster than the value of cash.

That comes with one simple assumption. The world, over time, will improve, will grow and will be a better and more efficient place to live than it was before. If that assumption turned out to be wrong, we have a lot more to worry about than the value of our stock portfolio.

With that said, as an average investor that is not leveraged, dips in stocks (particularly U.S. stocks – the largest economy in the world, with the deepest financial markets) should be bought, because in the simplest terms, over time, the broad stock market has an upward sloping trajectory.

This is the very simple philosophy Dalio follows, and is the core of how he makes money and how he has become one of the best, and richest, investors alive.

Billionaires Bill Ackman and Carl Icahn, two of the great activist investors, lick their chops when broad markets sell off on fear and uncertainty.

Ackman says he gets to buy stakes in high quality businesses at a discount when broad markets decline for non-fundamental reasons.  Icahn says he hopes a stock he owns goes lower so he can buy more.

What about the great Warren Buffett?  What does he think about market declines?  He has famously attributed his long-term investing success to “being greedy when others are fearful.”

Bottom line:  Declines in the broad market are times to take out your shopping list.

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October 9, 5:00 pm EST

There are always plenty of risks surrounding markets.  Still, stocks tend to be pretty good at “climbing the wall of worry.”

But we’ve now had some swings since the beginning of the month.  Have stocks hit the wall at the recent record highs?  Have the growing geopolitical risks begun to finally outweigh the fundamental strength in the economy and the stock market?

Not likely.  More likely, these risks have served as a catalyst for a correction.  In this case, a correction in tech stocks.

And it has been driven by one of the highest flyers:  Amazon.

At the highs of last month, Amazon had jumped 112% in a little less than 12 months.  That’s over $500 billion in market cap gains for Amazon since September of last year.  Just that increase in valuation alone is bigger than all but four stocks in the world.

So, as we’ve been discussing in this daily note for quite some time, the regulatory screws have been tightening on big tech.  And Amazon is in the crosshairs.  Meanwhile, it has been priced as if the developing monopoly would go unchecked.  As I’ve said, “not a good bet.”

Now that “monopoly premium” seems to finally be deflating.

After crossing the trillion-dollar valuation threshold (which was the dead top in the stock), Amazon has now had an official 10% correction.  

This big trendline in Amazon will be key to watch.

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