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 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.

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October 16, 5:00 pm EST

Stocks are racing back, just as everyone is turning gloomy. 

This squeezes the shorts that have been looking for reasons to believe a big trend change is coming for stocks, depite the fundamentals that suggest the opposite.

We now have this chart on the S&P 500 ….


Which is beginning to look like this (below) V-shaped move in stocks back in late 2014. And it was right around the same time of year.

This 2014 correction was 17 days, and -9.8%.  It was all recovered in 13 days.  Now we have a 7.8% decline over 14 days, and bouncing aggressively.

The more important chart for the benchmark S&P 500 index, is the longer term one below – which shows the big “Trump-trend” continues to hold.  The yellow trendline represents the ascent of stocks following the Trump election, which has been driven by pro-growth economic policies.

And with this above chart in mind, remember as we discussed yesterday, 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.

Again, if we take the 2019 estimate earnings on the S&P 500 of $176 and multiply it by 23, we get 4,048.  That’s 47% higher than Friday’s close.  Today we closed at just 2,810.

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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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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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September 5, 5:00 pm EST

Yesterday we talked about the case for breaking up Amazon, on the day it crossed the trillion-dollar valuation threshold.  Today the stock was down 2%.

Also today, Facebook and Twitter executives visited Capitol Hill for a Congressional grilling.

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).

All have emerged and dominated, thanks in large part to regulatory advantage – operating under the guise of an “internet business.”   And it all went unchecked for too long.  These are monopolies in the making.  But, as we know, Trump is on it.

As we discussed yesterday, Amazon has to, and will be, broken up.  As for Facebook, Google, Twitter, Uber:  the regulatory screws are tightening.  Those businesses won’t look the same when it’s over. But it’s complicated. The higher the cost of compliance, the smaller the chances that there will ever be another Facebook or challenger.  That goes for many of the tech giants.

With that in mind, regulation actually strengthens the moat for these companies.

That would argue that they may ultimately go the way of public utilities (in the case of Facebook, Google and Twitter).

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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

July 9, 5:00 pm EST

We’ve talked about the glaring lag in the performance of blue chip stocks coming out of this recent stock market correction.  This is creating a huge opportunity to buy the Dow, now.

With all of the complexities you can make of investing, this one is simple.  The blue-chip Dow Jones Industrials Index is down on the year (as of this morning).  The Nasdaq is up 13% on the year.  Small caps (the Russell 2000) is up 11%.

And we’re in an economy that’s running at better than 3% growth, with low inflation, ultra-low rates, and corporate earnings growing at 20% year-over-year. With this formula, and yet a tame P/E multiple on stocks, we’ll probably see stocks up double digits before the year is over.  Meanwhile, we are already in July, and the DJIA — the most important benchmark stock index for global markets – is starting from near zero.

You may be thinking the boring “industrials” average is out-dated, and flat for a reason. But as far as the makeup of the indices is concerned:  The index curators will shuffle the constituents to ensure that the biggest, best performing companies are in it.  Bad stocks get kicked out.  Good stocks get added.  And, to be sure, your retirement money will be methodically plowed into it (the benchmark indices) every month by Wall Street investment professionals.

Bottom line:  The DJIA is presenting a gift here to invest, at a discount, in an economy that’s heating up.  And you get this chart, which we’ve been watching in recent weeks.  This big trend line has held, and so has the 200-day moving average.

How do you buy it?  Your financial advisor will put you into mutual funds with big sales loads and fees in attempt to track the Dow.  But you can buy an ETF that tracks the Dow for as little as 17 basis points (example: symbol DIA, the SPDR DJIA ETF).  This Dow looks like low hanging fruit.
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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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June 26, 5:00 pm EST

While the media continues to be stuck on the global jawboning about trade. We’ve been talking about the continued domestic “leveling of the playing field.”

We’ve seen the verbal and Twitter shots taken by Trump at the tech giants since he’s been in office.  And the threats have slowly been materializing as policy.

Late last year, we talked about the repeal of the Net Neutrality rule.  And now we have the Supreme Court ruling that subjects internet sales to state tax.

Before you know it, the tech giants (Facebook, Amazon, Netflix, Google …) may actually be held to a similar standard that their “old economy” competitors are held to.  They may have to pay for real estate (i.e. bandwidth). They may be liable for content on their site, regardless of who created it. And they may be scrutinized more heavily for anti-competitive practices.

That means, the costs may go UP for these companies.  And the cost may go UP for consumers.  But a more balanced and stable economy and society may come with it. 

So, the balance of power is shifting, just as people were becoming convinced that Amazon was taking over the world.  As we’ve discussed, if the market starts pricing OUT the prospects of Amazon becoming a monopoly, then the jaws may be closing on this chart …

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