By Bryan Rich

February 19, 8:00 pm EST

With the big decline and wild swings in the stock market, earnings season has gotten little attention.

We’ve now heard from 80% of the companies in the S&P 500 on Q4. According to FactSet, 75% of the companies have beat on earnings. And 78% have had positive revenue surprises.

Now, earnings estimates are made to be broken. And they tend to be beaten at a rate of about 70% of the time. But the same cannot be said for revenues. This has been a key missing piece in the economic recovery. Companies have been cutting costs, refinancing and trimming headcount, all in an effort to manufacture margins and profitability. But revenues, the true gauge of business activity and demand, had been dead for the better part of the past decade.

It was just last year that we finally saw some decent revenue growth coming in from the earnings reports. And this most recent quarter, revenue growth is running at the hottest rate since FactSet has been keeping records. That’s a very good sign for the economic outlook.

And corporate earnings are running 15.2% higher than the same period the year prior. That’s the hottest earnings growth we’ve seen since 2011. More importantly, that’s four percentage points higher than analysts were projecting at the end of the year–with knowledge of the tax cut legislation.

With that said, remember, just last Friday, we had a moment during the day when the forward P/E on the S&P 500 hit 16.2. But if the fourth quarter is any indication, those forward earnings (estimates) will likely get ratcheted UP over the coming quarters, but will still undershoot. That will keep downward pressure on the P/E. Stocks are cheap.

If you are hunting for the right stocks to buy, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers. You can add these stocks at a nice discount to where they were trading just a week ago.

By Bryan Rich

February 13, 7:00 pm EST

On Friday, stocks bottomed into two big technical levels: 1) the two-year rising trendline that represented the recovery from the lows of 2016, which were induced by the oil price crash, and 2) the 200-day moving average.

We’ve since seen a 5.5% bounce off of the bottom.

Interestingly, the market that has had so many people concerned over the past two weeks–interest rates–were tame and lower on the day. But only after printing a new high (at 2.90%, which is the highest since January of 2014).

That climb in rates, of course, has had everyone uptight about the inflation outlook. But the market you would expect to reflect inflation fears hasn’t been telling the inflation story at all. I’m talking about the price of gold. And gold has been lower, not higher, since stocks have fallen.

Here’s a look at that chart …

With this in mind, the psychology always changes when stocks go down. People search for stories to fit the price–for trouble to fit the price. Even some of the more rational market practitioners were succumbing to this over the weekend, trying to conjure up a negative scenario unfolding for markets.

Having been involved in markets for 20 years, I’ve seen, within both short- and long-term cycles, thousands of turning points, trend changes, phases of a cycles, trends and corrections of trends. Markets can and do have technical corrections. And they can and do correct for no reason, other than price.

So, for perspective, things are good. We will have the hottest economy this year that we’ve seen in a decade. The benchmark 10-year yield, at 2.90%, remains very low relative to history. That means, although borrowing costs are ticking higher, money is still cheap. Gas is cheap. Consumer and corporate balance sheets are as good as they’ve been in a long time. And we’ve just gotten a blue light special on stocks–marking down prices from 18 times to something closer to 16 times earnings. And with the prospects for earnings to come in better than expected, given influence of tax cuts, we are probably looking at a P/E on the S&P 500 forward earnings closer to 15.

If you are hunting for the right stocks to buy, join me in my Billionaire’s Portfolio. We have a roster of 20 billionaire-owned stocks that are positioned to be among the biggest winners as the market recovers. You can add these stocks at a nice discount to where they were trading just a week ago.

NYSE:GLD, NYSE:GG, NYSE:WFC, NYSE:BAC, NYSE:NEM, NYSE:SPY

By Bryan Rich

February 11, 7:00 pm EST

Two weeks ago there were signals that a correction was underway.  First we had a swing back into positive yield territory for the German 5-year government bond. That was a significant marker for the end of the negative interest rate era and the end of global QE.

And with the outlook for rate normalization formalizing in the market, we should expect stock market growth to be driven from that point by earnings and dividends, and therefore economic growth. And then we had a perfect trigger lining up to set off the correction: earnings from the big tech giants. On script, Google missed. Apple disappointed on guidance, and the broad market sell-off began.

With that, when stocks broke down on February 2nd, we remembered that the stock market has had about a 10% decline on average, about once a year, over the past 70 years.

Then on Monday, the sell-off accelerated, and for a target in the S&P 500 we looked at this chart, which projected a reasonable spot to think we might find a bottom–around 2,560. We hit that on Friday and traded through to the 200-day moving average (2,539)–and we got an aggressive bounce.

Now, I’ve said a decline like this would make stocks cheap–“maybe something closer to 15 times forward earnings.” That sounded crazy two weeks ago. But guess what? We’re pretty darn close. At the lows on Friday, the P/E on earnings forecasted over the next four quarters was 16.2!

But as we know, Wall Street has a long history of underestimating earnings. That’s why about 70% of companies beat on earnings every quarter. And in this case, we’re talking about a huge earnings bump coming in the first quarter from the tax cuts. And Wall Street has barely bumped earnings expectations to incorporate that.

As said earlier this week, when the tax cut was in proposal stages, Citigroup estimated it would add $2 to S&P 500 earnings for every 1 percentage point cut in the tax rate. We’ve gone from 35% to 21%. With that, the forward four-quarter estimate for S&P 500 earnings, before the tax bill (in late November) was around $142.

If we add $28 in tax savings, we get $170. At the lows today in the S&P 500 that puts the P/E on a $170 in S&P 500 forward earnings at 14.8! That’s cheap relative to the long run historical P/E on stocks. And it’s extremely cheap in a world of low rates. And rates are still very low relative to history. And the low-rate environment will continue to motivate investors to seek higher returns in stocks–and pay higher valuations as stocks rebound. With hotter earnings and multiple expansion from here, we could reasonably see a 20%-30% rebound in stocks by year end.

Remember, the psychology always changes when stocks go down. People search for stories to fit the price–for trouble to fit the price. Rather than one of these stories leading to another major fallout, it’s a much higher probability that we are in the early innings of an economic boom, and stocks will be much higher than here in a year’s time.  It’s time to be greedy while others are getting fearful.

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks. Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years. You can join me here and get positioned for a big 2018.

By Bryan Rich

February 5, 7:00 pm EST

We talked last week about the correction underway in stocks. As I said, since 1946, the S&P 500 has had a 10% decline about once a year. And we haven’t had one in a while. Since the November 2016 election, the worst decline in stocks from peak to trough had been only 3.4%.

So we were due. And we’ve gotten it.

Today we’ve seen it accelerate. With the steep slide in stocks today, for a brief moment, the Dow futures were down 11% from the peak of just 7 days ago.

Now, let’s add a little perspective on this …

First, as I’ve said, when you are a hedge fund or trader and you’re leveraged 10, 20, 50, 100 times, then avoiding corrections or trend changes is critical to your survival. Getting it wrong, can mean your portfolio blows up and maybe goes to zero. That’s the mentality the media is speaking to, and frankly much of Wall Street is speaking to, when addressing any market decline.

The bottom line is that 99.9% of investors aren’t leveraged and should have no concern about U.S. stock market declines, other than saying to themselves: “What a gift! Do I have cash I can put to work at these cheaper prices? And, where should I put that cash to work?”  As the great Warren Buffett has said, “be greedy when others are fearful.”

So, for the average investor, dips are an opportunity to buy stocks at a discount. Don’t let the noise distract you.

Remember, we’ve talked about the transition that is underway, with a global economy that now has the potential to officially exit the economic slog of the past decade, driven by pro-growth policies in the U.S. And those economic tailwinds have introduced the likelihood that the world will finally be able to exit central bank life support (i.e. QE). That’s all very positive.

But it has also been the trigger of the correction in stocks–this transition. QE has promoted higher stock prices. Now we get a correction, and a new catalyst (earnings and the growth picture) to justify the next leg of the global economic recovery (and stock bull market).

With that in mind, the fundamentals for stocks are very strong. As stocks tick down, the better valuation on stocks will only be amplified, when we get hot first quarter earnings hitting in a few months (thanks to the big corporate tax cut). For the S&P 500 P/E: We have the “P” going down, and the “E” going up.

How long could this correction last?

Remember when we were discussing the probability of a correction back in November, we looked at this chart …

In September 2014, with no significant one event or catalyst prompting it, the S&P 500 went on a slide. Stocks closed on a record high on Friday, September 19 (2014). On Monday, stocks gapped lower and over the next 18 days fell 10%. But over the following 12 days it all came back–a sharp V-shaped recovery. It was a textbook technical correction–right at 10%, right into the prevailing trend. You can see it in the chart above: the v-shaped move in stocks, and the bounce right off of the big trendline.

What’s happened in the markets the last few days reminds me of that correction. The moves can be fast, and the recovery can be fast, in this (post-crisis) environment. Big institutions have been trading stocks through computer programs for a long time, but the speed at which these algorithms can access markets and information have changed dramatically over the past decade–so has the massive amount of assets deployed through high frequency trading programs. They can remove liquidity very quickly. Combine that with the reduced liquidity in markets that has resulted from the global financial crisis (i.e. the shrinkage of the marketing making community and of hedge fund speculators, and the banning of bank prop trading) and you get markets that can go down very fast. And you get markets that can go up very fast too.

The proliferation of ETFs exacerbates this dynamic. ETFs give average investors access to immediate execution, which turns investors into reactive traders. Selling begets selling. And buying begets buying.

With the above dynamic, we’ve seen a fair share of quick declines and quick recoveries in the post-financial crisis era.

How do things look now?

In the chart above, this big trend line represents the move off of the oil crash lows of 2016. This 2560 area would give us a 10.8% correction in the S&P 500. I wouldn’t be surprised if we got there over a few days, and a recovery began. And I expect to stocks to end the year up double digits (still).

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks. Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years. You can join me here and get positioned for a big 2018.

By Bryan Rich

February 5, 7:00 am EST

We talked this past week about the prospects that a correction was underway in stocks.  Stocks in China, Japan, Germany and the UK were already leading the way.  And with earnings from the big tech giants, I thought any cracks in the armor might give people reason to accelerate the profit taking.

That was the case.  Google (NASDAQ:GOOG) missed on earnings. And Apple (NASDAQ:AAPL) disappointed on guidance.  And the global stock markets were a sea of red on Friday.

Now, markets don’t go in a straight line, there are corrections along the way.  Remember, since 1946, the S&P 500 has had a 10% decline about once a year.  And we haven’t had one in a while. Since the election (in November of 2016), the worst decline in stocks from peak to trough has been only 3.4%.  We’ve matched that now.

Now, it should be noted that this decline isn’t driven by a negative turn in fundamentals, rather it’s driven by profit taking, and (more importantly) the increasing likelihood that a higher growth environment will ultimately allow the central banks in Europe and Japan to exit QE — the remaining instruments of life support for a global economy that has been brought back to life by fiscal stimulus.

With that, as I’ve said, it’s fair to expect a correction until the data begins to prove out the benefits of fiscal stimulus (i.e. when we see first quarter corporate earnings and GDP growth – both of which should be very strong).

Now, as they do, the media wrings their hands over a slide in stocks and tries to find a story of trouble to fit the price.  The reality is, most investors should see a decline in the U.S. stock market as an exciting opportunity. The best investors in the world do. If you are 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.

And when better earnings from tax cuts start coming in for Q1, a lower stock market would amplify the impact of a higher denominator in the P/E ratio — that means stocks could become cheap (er) – maybe something closer to 15 times forward earnings, in a world of (still) low rates.

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio subscription service, where you look over my shoulder as I follow the world’s best investors into their best stocks.  Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years.  You can join me here and get positioned for a big 2018.

Aapl, amzn, goog, fb, nflx, ge, spy, dia, gld, tbt

By Bryan Rich

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.     

For help building a high potential portfolio, follow me in our Billionaire’s Portfolio subscription service, where you look over my shoulder as I follow the world’s best investors into their best stocks.  Our portfolio of highest conviction, billionaire-owned stocks is up close to 50% over the past two years.  You can join me here and get positioned for a big 2018.

By Bryan Rich

January 1, 4:00 pm EST

Remember, this time last year, the biggest Wall Street investment banks told us stocks would do just 3% in 2017.

They were looking for about 2,300 on the S&P 500. The most aggressive forecast was 2,500 — coming from the Canadian bank, RBC (Royal Bank of Canada).

Here’s another look at the snapshot of those projections for 2017:

They undershot by a lot. The S&P finished just shy of 2,700 for the year.  And S&P 500 earnings came in around $131. Wall Street was looking for $127.

But their big miss was underestimating the outlook for “multiple expansion.” The reason:  They continue to underestimate the demand for stocks, in a world where ultra-low yields continue to incentivize people to reach for higher returns (i.e. opt for the choice of more risk for more return).

Investors will pay more for each dollar of future earnings if they expect to earn a higher future rate of return. And they have expected just that over the past few years, because 1) central banks promised to keep pumping up asset prices through QE and to continue warding off any shock risks that could derail the recovery for the economy and stocks, and 2) we’ve had the major shift away from austerity, which has promoted a weaker than typical recovery out of recession (and worse, stall speed growth) and toward big and bold fiscal stimulus (one that can potentially return the economy to a more normal, higher long term growth rate).

That’s why the P/E on stocks can and should rise well north of 20 times earnings in this environment, just as it has over the past three years.

The P/E on the S&P 500 was 20 in 2015, 22 in 2016 and 23 for 2017 (on trailing earnings). In each case, we came into the year, with the market undervaluing earnings — given what people have proven to be willing to pay up for them.

The market is now valuing the New Year’s earnings at 19 times earnings.  And that ignores the probability that actual earnings can come in much better than estimates next year, given the corporate tax cut. That would ratchet down that “19 times” earnings valuation – making stocks cheaper.

For help building a high potential portfolio for 2018, follow me in The Billionaire’s Portfolio, where you look over my shoulder as I follow the world’s best investors into their best stocks. Our portfolio is up 45% over the past two years. Join me here

By Bryan Rich

December 14, 2:19 pm EST

The Fed decided to hike interest rates by another quarter point yesterday.  That was fully telegraphed and anticipated by markets. That’s the third rate hike this year, and the fifth in the post-crisis rate hiking cycle.

Still, the yield on the 10-year Treasury note (the benchmark market determined interest rate), moved lower today, not higher — and sits unchanged for the year.

We talked earlier in the week about the biggest central bank event of the month. It wasn’t the Fed, but it will be in Japan next week.  Japan’s policy on pegging their 10-year yield at zero has been the anchor on global interest rates.

When they signal a change to that policy, that’s when rates will finally move.

With this divergence between what the Fed is doing (setting rates) and what market rates are doing (market-determined), people have become convinced that the interest rate market is foretelling a recession coming — i.e. short term rates have been rising, while longer term rates have been quiet, if not falling. For example, when the Fed made it’s first rate hike in December of 2015, the 30-year government bond yield was 3%. Today, after five rate hikes on the overnight Fed determined interest rate, the 30-year is just 2.72% (lower, not higher than when the Fed started).

This dynamic has created a flattening yield curve.  That gets people’s attention, because historically, when the yield curve has inverted (short term rates rise above long term rates), recession has followed every time since 1950, with one exception in the late 60s.

And it turns out, this “flattening of the yield curve” indicator, historically (and ultimate inversion, when it happens), is typically driven by monetary policy (i.e. rate hikes — check).  In these cases, the market anticipates the Fed killing growth and eventually leading rate cuts!  They find more certainty and stability in owning longer term bonds (leaving short term bonds pushing those rates up and moving into long term bonds, pushing those rates down — inverting the curve).

The question, is that the case this time?  Or is this time different.  It’s rarely a good idea in markets to think this time is different than the past. But in this case, following trillions of dollars of central bank intervention and a near implosion in the global economy, it’s probably safe to say that this time is certainly different than past recessions.  Though the Fed is in a hiking cycle, rates remain well below long term averages. And, as we know, we have unconventional monetary policies at work in other key areas of the world — stoking liquidity, growth and skewing demand for U.S. Treasuries (which suppresses those long term interest rates).

So the flattening yield curve fears are probably misplaced, especially given big fiscal stimulus is coming.  And when Japan  moves off of its “zero yield policy,” the U.S. yield curve may steepen more quickly than people think is possible.

Join our Billionaire’s Portfolio today to get your portfolio in line with the most influential investors in the world, and hear more of my actionable political, economic and market analysis. Click here to learn more. 

By Bryan Rich

December 10, 4:00 pm EST

We had a jobs report this past Friday.  The unemployment rate is at 4.1%.  We’re adding about 172k jobs a month on average, over the past twelve months.  These are great looking numbers (and have been for quite some time).  Yet employees, broadly speaking, still haven’t been able to command higher wages.  Wage growth continues to be on the soft side.

With little leverage in the job market, consumers tend not to chase prices in goods and services higher — and they tend not to take much risk.  This tells you something about the health of the job market (beneath the headline numbers) and about the robustness of the economy.  And this lack of wage growth plays into the weak inflation surprise that has perplexed the Fed.  And the weak growth that has perplexed all policy makers (post-crisis). That’s why fiscal stimulus is needed!

And this could all change with the impending corporate tax cut. The biggest winners in a corporate tax cut are workers.  The Tax Foundation thinks a cut in the corporate tax rate would double the current annual change in wages.

As I’ve said, I think we’re in the cusp of an economic boom period — one that we’ve desperately needed, following a decade of global deleveraging.  And today is the first time I’ve heard the talking heads in the financial media discuss this possibility — that we may be entering an economic boom.

Now, we’ve talked quite a bit about the run in the big tech giants through the post-crisis era — driven by a formula of favor from the Obama administration, which included regulatory advantages and outright government funding (in the case of Tesla).  And we’ve talked about the risk that this run could be coming to an end, courtesy of tighter regulation.

Uber has already run into bans in key markets. We’ve had the repeal of “net neutrality” which may ultimate lead big platforms like Google, Twitter, Facebook and Uber, to transparency of their practices and accountability for the actions of its users (that would be a game changer).  And we now know that Trump is considering that Amazon might be a monopoly and harmful to the economy.

With this in mind, and with fiscal stimulus in store for next year, 2018 may be the year of the bounce back in the industries that have been crushed by the “winner takes all” platform that these internet giants have benefited from over the past decade.

That’s probably not great for the FAANG stocks, but very good for beaten down survivors in retail, energy, media (to name a few).

Join our Billionaire’s Portfolio today to get your portfolio in line with the most influential investors in the world, and hear more of my actionable political, economic and market analysis. Click here to learn more. 

By Bryan Rich

December 7, 2017, 10:00 pm EST

With all that’s going on in the world, the biggest news of the day has been Bitcoin.

People love to watch bubbles build.  And then the emotion of “fear of missing out” kicks in.  And this appears to be one.

Bitcoin traded above $16,000 this morning. In one “market” it traded above $18,000 (which simply means some poor soul was shown a price 11% above the real market and paid it).

As we’ve discussed, there is no way to value bitcoin.  There is no intrinsic value.  To this point, it has been bought by people purely on the expectation that someone will pay them more for it, at some point.  So it’s speculation on human psychology.

Let’s take a look at what some of the most sophisticated and successful investors of our time think about it…

Billionaire Carl Icahn, the legendary activist investor that has the longest and best track record in the world (yes, better than Warren Buffett): “I don’t understand it… If you read history books about all of these bubbles…this is what this is.”

Billionaire Warren Buffett, the best value investor of all-time:   “Stay away from it. It’s a mirage… the idea that it has some huge intrinsic value is a joke.  It’s a way of transmitting money.”

Billionaire Jamie Dimon, head of one of the biggest global money center banks in the world: “It’s not a real thing. It’s a fraud.”

Billionaire Ray Dalio, founder of one of the biggest hedge funds in the world: “Bitcoin is a bubble… It’s speculative people, thinking they can sell it at a higher price…and so, it’s a bubble.”

Billionaire investor Leon Cooperman: “I have no money in bitcoin.  There’s euphoria in bitcoin.”

Billionaire distressed debt and special situations investor, Marc Lasry:  “I should have bought bitcoin when it was $300. I don’t understand it. It might make sense to try to participate in it, but I can’t give you any analysis as to why it makes sense or not. I think it’s real, as it coming into the mainstream.”

Billionaire hedge funder Ken Griffin: “It’s not the future of currency.  I wouldn’t call it a fraud either. Bitcoin has many of the elements of the Tulip bulb mania.”

Now, these are all Wall Streeters.  And they haven’t participated.  But this all started as another disruptive technology venture.  So what do billionaire tech investors think about it…

Billionaire Jerry Yang, founder of Yahoo: “Bitcoin as a digital currency is not quite there yet.  I personally am a believer that digital currency can play a role in our society, but for now it seems to be driven by the hype of investing and getting a return, as opposed to transactions.”

Mark Cuban: He first called it a “bubble.”  He now is invested in a cryptocurrency hedge fund but calls it a “Hail Mary.”

Michael Novagratz, former Wall Streeter and hedge fund manager.  He once was a billionaire and may be again at this point, thanks to bitcoin:  “The whole market cap of all of the cryptocurrencies is $300 billion. That’s nothing.  This is global. I have a sense this can go a lot further.”  He equates it to an alternative to, or replacement for, the value of holding gold – which is an $8 trillion market… “over the medium term, this thing is going to go a lot higher.” But he acknowledges it shouldn’t be more than 1% to 3% of an average persons net worth.

Now with all of this in mind, billionaire Thomas Peterffy, one of the richest men in the country and founder of the largest electronic broker in the U.S., Interactive Brokers, has warned against creating exchange traded contracts on bitcoin.  He says a large move in the price could destabilize the clearing organizations (the big futures exchanges) which could destabilize the real economy.

With that, futures launch on Bitcoin on Sunday at the Chicago Mercantile Exchange. This is about to get very interesting.

It’s hard to predict the catalyst that might prick a market bubble.  And there always tends to be an interconnectedness across the economy to bubbles, that aren’t clear before it’s pricked (i.e. some sort of domino effect).

Join our Billionaire’s Portfolio today to get your portfolio in line with the most influential investors in the world, and hear more of my actionable political, economic and market analysis. Click here to learn more.