June 5, 2017, 4:30pm EST               Invest Alongside Billionaires For $297/Qtr


Last week we looked at the some of the clear evidence that the economy is as primed as it can possibly get for a catalyst to come in and pop growth.That catalyst, despite all of the scrutiny, will be Trumponomics.

At the very least, a corporate tax cut will directly hit the bottom line of corporate America.  And one of the huge drags on demand, structurally, is the lack of wage growth.  And as we discussed, the big winner in a corporate tax cut will be workers/wage growth — a non-partisan tax think tank thinks it can pop wage growth, by as much as doublethe current growth rate.  That would be huge, especially for one of the key pillars of the recovery — housing.Remember, the two biggest drivers of recovery have been: 1) stocks, and 2) housing.  Those two assets have done the lion’s share of work when it comes to restoring confidence. And a lot of other key pieces fall into place when confidence comes back.

On the housing front, over the past year, both mortgage rates and house prices have gone UP – a new dynamic in the post crisis recovery (adding higher rates into the mix).  So owning a house has become more expensive over the past year.  But how much?

Let’s take a look at how that has affected the monthly outlay for new homeowners over the course of the past year.

From March 2016 to March 2017, the average 30 year fixed mortgage went from 3.70% to 4.20%.

The Case-Shiller housing price index of the top 20 markets in the U.S. is up 6% over that twelve month period (the most recent data).  That’s increased the monthly outlay (principal and interest) for new homeowners by 11% over the past year.

Now, with that said, we look at the recent behavior of the 10 year note (the benchmark government bond yield that heavily influences mortgage rates).  It’s been in world of its own — sliding back to seven month lows, while stocks are hitting record highs.  Manipulation?  Likely. As I’ve said before, don’t underestimate the value of QE that is still in full force around the world — namely in Japan and Europe.  That’s freshly printed money that can continue to buy our Treasuries, keeping a cap on interest rates, which keeps a cap on mortgage rates, which keeps the housing recovery and the recovery in consumer credit demand intact.

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March 21, 2017, 4:00pm EST                                                                                 Invest Alongside Billionaires For $297/Qtr

Over the past week, I’ve talked about the potential for disruption in what has been very smooth sailing for financial markets (led by stocks).  While the picture has grown increasingly murkier, markets had been pricing in the exact opposite – which makes things even more vulnerable to a shakeout of the weak hands.

With that, it looked like we are indeed working on a correction in stocks. But it’s not just because stocks are down.  It’s because we have some very important technical developments across key markets.  The Trump trend has been broken.

Let’s take a look at the charts …


The above chart is the S&P 500.  We looked at a break in the futures market last week.  Today we get a big break in the cash market.  This trendline represents the nice 45 degree climb in stocks since election night on November 8th. We have a clean break today.

mar 21 yields

Stocks ran up on the prospects that Trumponomics can end the decade long malaise in, not just the U.S. economy, but the global economy too.  With that, the money that has been parked in U.S. Treasuries begins to leave. Moreover, any speculators that were betting the U.S. would follow the world into negative rate territory run for the exit doors.  That sends Treasury bond prices lower and yields higher (as you can see in the chart above).  So today, we also get a break of this “Trump trend” in rates as well (the yellow line). Remember, this is after the Fed’s rate hike last week — rates are moving lower, not higher.

Next up, gold …

mar 21 gold

I talked about gold yesterday — as being the clearest trade (higher) in an increasingly murkier picture for global financial markets.  You can see in the chart above, gold is now knocking on the door of a break in this post-election Trump trend.

Remember, we’ve talked about the buy-the-rumor sell-the-fact phenomenon in markets. The beginning of the Trump trend in stocks started on election night (buying “the rumor” in anticipation of pro-growth policies). The top in stocks came the day following the President’s speech to the joint sessions of Congress (selling “the fact”, entering the “show me” phase).

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February 8, 2017, 4:00pm EST               Invest Alongside Billionaires For $297/Qtr

We’ve talked about the drift (now slide) lower in interest rates over the past couple of days.  This is a big deal and something to keep a close eye on.  Remember, this move lower comes in the face of a strong jobs number on Friday.  Following that number, the yield on the 10-year traded up to 2.50%.  Today we’re looking at 2.35% (low of 2.32%).

In contrast to this move in rates, stocks are sitting on record highs, if not making new record highs.  Oil has been stable in a $50-$55 range.  The dollar isn’t doing much.  Implied volatility on the stock market is dead. And commodities are relatively quiet, except for gold.

On that note, yesterday we looked at the tight correlation of the inverse price of gold and yields since the election (i.e. gold goes up, yields go down).  And in recent weeks, yields have been lagging the strength in gold, making the case for even lower yields to come.

We looked at the below trendline on the 10-year yesterday that was testing… that gave way today.

This move lower in yields puts both the Trump administration and the Fed in a much more comfortable spot.

A continued rise in market interest rates would force the Fed to be more aggressive, both of which would work against fiscal stimulus, dulling the contribution to growth, if not neutralizing it all together. Higher rates would slow the housing market and slow spending, especially in a fragile economy.  Among the things to be worried about, higher rates, too soon, could be the biggest (bigger than protectionism, European elections…)

President Trump was said to be asking for advice on the administration’s view on the dollar overnight.  I suspect the upcoming meeting with Japan’s Prime Minister (and co.) had something (a lot) to do with it.  This is precisely what we’ve been talking about.  The dollar and the yen are squarely in the crosshairs for this face-to-face meeting. But Trump may learn from the meeting that he would far prefer a stronger dollar and weaker yen, than a 4-4.5% ten year yield by the end of the year.

As I’ve said, Japan’s QE policies, which weaken the yen, also offer an anchor to U.S. interest rates, keeping them in check.  I suspect the softening of U.S. yields, as all other markets are quiet, may have something to do with Chinese money leaving China (as we discussed yesterday).  But it also may be influenced by Japan, finding the best, safest parking place for freshly printed money (i.e. buying U.S. Treasuries, which pushed down U.S. rates) – and showing that benefits of that influence to the new President.

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