April 15, 5:00 pm EST

As we discussed last week, the table has been set (again) for positive earnings surprises.  And we’ll see more this week, as Q1 earnings kick into gear.

The tone has already been set, with the big surprises reported on Friday from two of the four biggest banks.  The market was looking for earnings contraction from JP Morgan and Wells Fargo. Instead, we had 7% yoy growth from JPM, and 12% yoy growth from Wells.

Today we heard from Citi, the third largest bank in the country.  Citi beat expectations with 11% earnings growth in the first quarter, compared to the same period a year ago.  And tomorrow we’ll hear from Bank of America, the second largest bank in the country.

So far, Jeff Ubben has been spot on about the banks.  Ubben is the founder of ValueAct Partners, one of the best activist investors in the business over the past twenty years.  Remember, back in January, as we were stepping through positive surprises in bank earnings from the fourth quarter, we talked about Ubben’s thoughts on banks.  He has said that 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.  Citi is the cheapest of the four biggest U.S.-based global money center banks — still trading at a 30% discount to peak pre-crisis market value, despite being far better capitalized, better regulated and a more efficient business than it was in the pre-financial crisis days. With that, not coincidentally, as the banks have beaten expectations, Citi has been the best performing big bank year-to-date (up 29%).

If you haven’t signed up for my Billionaire’s Portfolio, don’t delay … we’ve just had another big exit in our portfolio, and we’ve replaced it with the favorite stock of the most revered investor in corporate America — it’s a stock with double potential.

Join now and get your risk free access by signing up here.

April 11, 5:00 pm EST

As we came into the week, the economic, political and corporate calendar was relative light.  With that, I suspected markets would be relatively quiet.

Of course we have had an ECB meeting and minutes from the Fed.  Often, these would be market moving events.  Not this week.  As we discussed yesterday, we clearly know where they stand.

So, what’s next?  Earnings.

First quarter earnings season kicks off next week.  We’ll hear from the major banks.  Earnings will be the catalyst for where stocks go from here – and banks will set the tone.   The building theme has been “earnings recession.”

After 20%+ earnings growth in 2018, following a historic corporate tax cut, anyone would expect earnings growth to be less hot than last year.  Some were even predicting that the hot numbers of last year would be a peak in earnings growth.  After all, under ordinary circumstances (in a stable economic environment) we’re very unlikely to see the U.S. stock market grow earnings by excess of 20%.  That’s not much of a story .

But the media loved the shock value of the phrase “peak earnings” last year, and ran it in headlines, conveniently excluding the word “growth.”  Peak earnings is very different than peak earnings growth.

Still, the broad market sentiment on future corporate earnings eroded through the end of 2018, and has continued to erode through 2019.

And both Wall Street and corporate America are more than happy to ride the coattails of lower sentiment by lowering the expectations bar on earnings.  When sentiment is leaning that way already, there is little-to-no penalty for lowering the bar.  That just sets the table for positive surprises.  They did it for Q4 2018 earnings.  And they beat expectations.  And they have set the table for positive surprises for Q1 2019 earnings.

Just how low has the bar been set for Q1?

Before stocks unraveled in December, Wall Street was looking for 8.3% earnings growth for 2019.  Now they are looking for less than half that.  Moreover, they have projected earnings to contract in Q1 compared to the same period a year ago (i.e. at least a short-term peak in earnings).
Will they be right?
Well, the Atlanta Fed’s real-time model for estimating GDP has Q1 GDP coming in at 2.3%.  The economy added on average 173,000 jobs a month over the first quarter.  Both manufacturing and services PMIs expanded in the quarter, and stocks fully recovered the losses from December. That’s a formula for earnings growth, no contraction.

If you haven’t signed up for my Billionaire’s Portfolio, don’t delay … we’ve just had another big exit in our portfolio, and we’ve replaced it with the favorite stock of the most revered investor in corporate America — it’s a stock with double potential.

Join now and get your risk free access by signing up here.

April 4, 5:00 pm EST

The slowdown in China spooked global markets late last year, and have since spooked global central banks. 

Given the current recession-like growth in China (6%ish), and the prospects that it could keep sliding, especially if a U.S./China trade deal doesn’t materialize, the major central banks in the world have positioned for the worst case scenario.

In the process, we may have discovered the real drag on the Chinese economy.

Here’s the latest look at the Shanghai Composite, up 33% since January 4th (which not so coincidentally is the day the Fed walked back on its rate hiking path).

Maybe the easiest message to glean from this chart, and that turning point, is that the biggest culprit in the China slowdown has been the Fed, not tariffs.

Here’s how the Dallas Fed put it in a report from October 3rd (which happens to be the high in stocks, the day stocks turned):

Emerging economies have suffered a general decline in forecast GDP growth, and inflation rose in a handful of countries. The tightening of monetary policy in advanced economies, both through rate hikes and other policy actions such as forward guidance, results in capital outflows from emerging economies with low reserves relative to their foreign debt.”  

Higher U.S. rates has meant a stronger dollar.  With the economy moving north, the dollar moving north and rates moving north, global capital flows to the U.S. — and away from riskier emerging markets.  It’s not that the U.S. economy can’t handle a 3.25% ten-year yield or a 5% mortgage rate in the domestic economic environment.  It’s the EM world that can’t handle it (at the moment).

China has responded to the growth slowdown with an assault of monetary and fiscal stimulus.  But the most powerful stimulus appears to have been the move by the Fed to stand-down.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, through the end of the year.

March 28, 5:00 pm EST

Earlier this month, we talked about the big IPO agenda this year.

We have some big Silicon Valley “disrupters” set to go public this year, including Lyft, Uber, WeWork and Airbnb.

Lyft will IPO tomorrow.  The expectations is for a $20+ billion valuation.

The company has raised $4.9 billion in the private market since launching in 2012.   A little more than a year ago, it raised money at an $11 billion valuation.  If you were the investor at that stage, you’re looking at a double when it goes public (just 15-months later).

Now, if you are joe-average investor, as a buyer of Lyft shares, you’re about to pay these early private market investors at a $22 billion valuation.  This is a company that did about $2 billion in revenue last year, and lost about a billion dollars.

Remember, while the founders of these companies will become celebrated billionaires, the investors that buy these shares in the public market don’t tend to get rewarded very well.  Of course, there are exceptions, but remember, the IPOs this year are coming into a far less friendly regulatory environment than their “disrupter” predecessors of the past decade.

The reality:  The hyper-growth valuations are unlikely to get hyper-growth, as the regulatory advantages Silicon Valley has enjoyed over the past decade are now being scrutinized by Washington.

Here’s how the big “disrupters” of the past two years have fared, after much anticipated IPOs.

Dropbox:  Dropbox was priced at $21 per share.  It started trading at over $28.  Today it trades at $22.

Spotify:  Priced at $165.90 per share.  It started trading at $164.  It currently trades at $137.

Snap: Priced at $17 per share.  It started trading at $22.  Today it trades at $10.80.

After Lyft, Uber is on deck.  Uber last raised venture capital at a $68 billion valuation.  They are expected to go public at a $120 billion valuation.

Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, through the end of the year.

March 25, 5:00 pm EST

There was a big technical break in the interest rate market on Friday.   And the yield curve inverted.

What does it mean, and should we be concerned?

First, when people talk about the yield curve, they are typically talking about the yield on the 3-month Treasury bill versus the yield on the 10-year government bond.  The latter should pay more, with the idea that money will cost more in the future (compensating for inflation and an “uncertainty about the future” premium).

When the 10-year is paying you less than you could earn holding a short term T-bill, the yield curve is said to be inverted.  And this dynamic has predicted the past seven recessions.  Why?  Because it typically will be driven by a tighter credit environment, namely banks become less enthused about borrowing in the form of short term loans, to lend that money out in longer term loans.  Money dries up. Unemployment goes up. Demand dries up. Economy dips.

With this in mind, today the 3-month treasury bill pays 2.44%. And the 10-year government bond pays 2.41%.  The spread is negative which makes for an inverted yield curve.

Now, while an inverted yield curve has preceded recessions with a good record, we’ve also had inverted yield curves and no recession has followed.

What isn’t talked about much, is why the yield curve is inverting this time.  It sort of spoils the drama to talk about the “why”.  Unlike any other time in history, we have an interest market that has been explicitly manipulated by global central banks for the past decade (via global QE).  And we have one major central bank (the Bank of Japan) remaining as a buyer of unlimited global assets (that includes U.S. 10 years, which pushes the 10-year yield lower).

Remember, the Bank of Japan’s policy of targeting their 10-year government bond yield at zero, means they will be a buyer of unlimited bonds to push JGB yields back toward zero (price goes up, yields go down).  And when the tide of global rates is rising, pulling UP their yields, they will be a buyer of whatever they need to, to push things back down (and they’ve done just that).

What does that mean?  It means, as the Fed has been walking its short-term benchmark rate higher, the “long-end” of the interest rate market (the 10-year yield) has been anchored by central bank buying – buying by all major central banks for the better part of a decade, and now led by the BOJ.  That has kept a lid on the U.S. 10-year government bond yield, and global government bond yields in general.

With this at work, there have been few things better telegraphed than a U.S. yield curve inversion, as the Fed has told us for years that they will march their short-term rate beyond the anchored 10-year yield.
It’s often dangerous to say “this time is different”, but I think it’s fair to say that the past yield curve inversion/recession analyses don’t compare, when you have both components (the front-end and the long-end) completely controlled by global central banks for more than a decade.  Join me here to get my curated portfolio of 20 stocks that I think can do multiples of what broader stocks do, through the end of the year.

March 4, 5:00 pm EST

Stocks sold off sharply this morning, before bouncing nicely from the lows.   The range on the day was the third largest of the year.

The question:  Was the selling today technically-driven or was there a catalyst that introduced new risk into the market (i.e. something bigger)?

Let’s take a look at the chart …

With this sharp V-shaped recovery of the past two months, we have stocks testing these highs, and failing today.

But the failure of this level (for the moment) shouldn’t be too surprising.  Following a runup of 20%, for some this is a reasonable technical area to sell some/ to take profit.

But is there more to the sell-off this morning?

We did get an announcement that the Congressional Judiciary Committee has launched an investigation into the Trump administration.  It includes document requests from 80 people/entities tied to the administration.  They will be looking at obstruction of justice, public corruption and abuse of power (the latter of which, might be the most subjective and, therefore, threatening).

After all of the allegations and political mudslinging surrounding Trump, could this pose the biggest risk to the Trump administration and policymaking yet?  Possibly.

Congress has a unchallengeable investigatory and subpoena power.  They can dig as deeply and broadly as the want, and create as much havoc as they want, which means this may dominate what happens on Capitol Hill until the 2020 election.

Now, with all of this said, if we look at the market reaction today, as a proxy for how the market is digesting this — we did not see across the board selling.  That’s good.  If we look inside the U.S. stock market, most active stocks were a mix of up and down on the day (including up days Apple, Facebook, Baba and Amazon).  That’s good.  And foreign stocks were less impacted by the early swing in U.S. stocks.  That’s good. The emerging market futures index MXEF actually finished at the New York close UP from Friday’s close.

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.

February 5, 5:00 pm EST

We’ve now heard from about half of the S&P 500 companies on Q4 earnings.  And about 70% of those companies have beat Wall Street’s earnings estimates.

We’ve heard from the banks, early on, which broadly painted the picture of a healthy economy.  And now we’ve heard from the dominant tech giants/ disrupters of the past decade.

Facebook beat.  Amazon beat.  Google beat.

But times are changing.

Remember, the regulatory screws have tightened on the tech giants over the past year.  It was a matter of when the market would finally price OUT the idea that these industry killers would be left unchallenged, to become monopolies.

With that in mind, back in early October, when market risks were building (from China, to interest rates, to Italy, to Saudi Arabia), we looked at this big and vulnerable trendline in Amazon.


Here’s the chart on Amazon now …

The break of that line gave way to a 30% plunge in what was the biggest company in the world.

Bottom line:  Amazon, Facebook and Google have entered into regulatory purgatory — after being largely left alone for the past decade to nearly destroy industries with little-to-no regulatory oversight.  Costs are going UP and will keep going up..

With all of this said, the stocks of these tech giants might take a breather, but given their scale and maturity, more regulation actually strengthens their moat.  There will never be a competitor to Facebook emerging from a dorm room or garage. The compliance costs will be too high.

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 29, 5:00 pm EST

Today let’s take a look at the recent moves the U.S. administration has made against Venezuela, and what that means for oil prices.

It was August of 2017, when Trump first stepped up pressure on Venezuela.  Venezuela is (and has been) in a humanitarian, political and economic crisis–led by what the U.S. administration has officially called a dictator. Trump slapped sanctions on the Venezuelan President back in 2017 (freezing his U.S assets) and was said to be considering broad oil sanctions. That finally came yesterday (seventeen months later).

For a country that relied heavily on oil exports (ninety-five percent of export revenues in Venezuela come from oil), the U.S. will no longer be sending money to Venezuela for oil.

This is a crushing blow for an already suffering country.

What does it mean for oil prices?

Venezuela has the world’s largest oil reserves. With oil sanctions, should come supply disruptions for the oil market, which could likely send oil aggressively higher.

Back in 2017, when Trump threatened sanctions, oil broke out of its $40-$55 range, and ultimately traded up to $76.

Today, we’re nearing the top end of that same range.

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 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.

January 18, 5:00 pm EST

Stocks and crude oil have led the bounce back this month.  And we’re now getting more broad-based participation as market and economicsentiment rebounds.  Global stocks are rising, and commodities are rising.

Let’s take a look at some key charts as we end the week.

Here’s a look at stocks …

Stocks continue to make this V-shaped recovery.  A return to the December 3rd highs is another 5% from here.

Remember, oil and stocks have been in a synchronized decline since October 3.  The farther the fall (in both), the higher the rise in fears about deflationary pressures, prospects of an economic downturn and maybe even a financial crisis. But the tide has turned. And it was triggered by both Fed and Treasury actions.

With that, as we’ve observed in this oil chart in recent weeks, the big break of the downtrend has unleashed what could be a very sharp rebound (maybe a V-shaped recovery for oil). 

Keep in mind, at $76 oil we had an undersupplied market in a world with growing global demand.  At $42 oil (the low), the fundamentals for much higher oil prices had only strengthened, with OPEC coming back to the table with more production cuts.

Now, with reports that China is coming to the table with big trade concessions, commodities are beginning to reboot. 

As I said last week, “what if this chart on commodities tells us that the decade that followed the financial crisis was indeed a depression, and central banks were only able to manufacture enough economic activity to buffer the pain (not a real economic expansion)? And now, instead of at the tail end of one of the longest economic expansions on record, we’re in the early stages of a real expansion, driven by fiscal policies and structural reform that has started in the U.S. and will be implemented abroad (Europe, Japan, China).”

A trade deal may unlock a real global economic boom.  While it might appear that China will be a big loser in any trade deal with the U.S., relative to where they stood Pre-Trump, being forced to move toward a balanced domestic economy, and fair trade, would position China to be a legitimate long-term player in the global economy.

With that in mind, Chinese stocks look like a very compelling buy …