By Bryan Rich

November 6, 5:00 pm EST

In my note yesterday, we talked about the probable outcomes for the elections.

Whether we see the Republican’s retain control of the house, or lose it, both scenarios should be a greenlight for stocks.

Why? Because the cloud of uncertainty will be lifted. Even if we were to have gridlock in Washington, from here forward, the economy has strong momentum already, and the benefits of fiscal stimulus and deregulation are still working through the system.

Now, given today’s midterm elections are feeling a bit like the Presidential election of 2016 (as a referendum on Trump, this time), I want to revisit my note from election day on November 8, 2016.

As I said at that time, central banks had been responsible for the global economic recovery of the prior nine years, and for creating and maintaining relative economic stability.  And creating the incentives to push money into the stock market (i.e. push stocks higher) played a big role in the coordinated strategies of the world’s biggest central banks.  With that, I said “neither the economic recovery, nor the stock market recovery can be credited much to politicians.  In this environment, in the long run, the value of the new President for stocks will prove out only if there’s structural change. And structural change can only come when the economy is strong enough to withstand the pain. And getting the economy to that point will likely only come from some big and successfully executed fiscal stimulus.

It turns out, Trump has indeed executed on fiscal stimulus.  And he’s gone aggressively after structural change too (perhaps too early, and with some success, but at a price he may pay for politically).  Still, he’s been able to execute ONLY because he’s had an aligned Congress.

Importantly, the economic policies out of Washington have allowed the Fed to bow-out of the game of providing life support to an economy that was nearly killed by the financial crisis.  That’s good!

By Bryan Rich

November 5, 5:00 pm EST

The elections tomorrow are said to be a referendum on Trump’s Presidency.

And given the sentiment, I think it’s fair to say the surprise scenario for markets would be for Republicans to retain control of Congress.  For that to happen, it looks like the Republicans would need to win 61% of the “toss up” races in the house.  Of those, 84% are currently Republican held.

That scenario would be a vote of confidence for the Trump economic agenda.  And for markets, it would be “risk on,” which would likely draw more attention to the inflation outlook, and the speed at which market interest rates will move. Trump would retain his leverage over China on trade concessions.

Scenario two, would be a split Congress.  If we get a split Congress, the Trump economic plan would likely turn to infrastructure.  The belief is that a Democrat led house would likely be a partner to Trump on a big infrastructure spend.

Though I suspect, given the political atmosphere, they may work to block any further progress on the economic stimulus front, in effort to position themselves for the 2020 Presidential election.   On China trade negotiations, I suspect a split Congress would begin to fight against Trump’s executive order-driven trade wars.  This scenario would mean, gridlock in Washington.

However, after the cloud of election uncertain lifts, both scenarios should be a greenlight for stocks.

Remember, we already have an economy running north of 3%, with record low unemployment, and consumers are sitting on record high household net worth and record low debt service ratios.  Companies are growing earnings at over 20% (yoy), and growing revenues at over 8% (yoy).  And corporate credit market debt is near the lowest levels (relative to market value of corporate equities) of the past 70 years.

So there is plenty of fuel in the economy to continue the trajectory of economic boom.  Maybe most importantly, following the October correction, the tech giants have been pricing out the “monopoly scenario” which paves the way for a broader-based bull market for stocks.

Join me here to get all of my in-depth analysis on the big picture, and to get access to my carefully curated list of “stocks to buy” now.

By Bryan Rich

October 31, 5:00 pm EST

As we discussed yesterday, it’s very dangerous to let political views influence your perspective on markets and investing.

And I suspect we are seeing plenty of people make that mistake.

That means many will be left behind on a stock market recovery, again.  That probably means the bull market for stocks still has a ways to run.  John Templeton, know to be one of the great value and contrarian investors of all time, said “bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Incredibly, after a more than four-fold run from the financial crisis bottom, the stock market continues to have a LOT of skepticism. Does this mean we are only half way through this cycle?  Maybe.

The arguments for the stock market bears and pessimists on the economy have many holes, but the biggest is the lack of context.  That context:  the global economic crisis, and the aftermath (up to present day).

You can’t evaluate anything about this economy without taking into account where we’ve been over the past decade, the role central banks have played throughout, the coordinated intervention that has taken place globally (along the way) to avoid a global depression, and the interconnectedness of global economies that continues.

Without this context, the skeptics like to call it “late in the cycle” for an economy that (on paper) is in the second-longest expansion in U.S. history.   With context, we’re probably closer to “early cycle,” given that the decade of ultra-slow growth was manufactured by central banks.

By Bryan Rich

October 30, 5:00 pm EST

This violent repricing of the tech giants came with clear warnings (i.e. the tightening of regulatory screws).

Now that we have it.  And it is very healthy, and needed.

As we discussed yesterday, I would argue we are seeing regulation priced-in on the tech giants, which can create a more level playing field for businesses, more broad-based economic activity, and a more broad-based bull market for stocks.  This is a theme we’ve been discussing in my daily note here for quite sometime.

And I suspect now, we can see the areas of the stock market that have been beaten down, from the loss of market share to the tech giants, make aggressive comebacks.

On that note, here’s another look at the big trendline we’ve been watching in the Dow …

Again, this line holds right at the 10% correction mark.  And we’ve now bounced more than 700 dow points.

As I’ve said, it’s easy to get sucked into the daily narratives in the financial media, and it’s especially easy and dangerous (to your net worth) when stocks are declining.  They tend to influence people to sell, when they should be buying.

And as someone that has been involved in markets more than 20 years, I can tell you that it’s also very dangerous to let political views influence your perspective on markets and investing.  And I suspect we are seeing that mistake made in this environment (by pros and amateurs alike).

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.

 

By Bryan Rich

October 25, 5:00 pm EST

Yesterday we looked at this big trendline support in stocks (the yellow line).

 

We had a good bounce today, but experience tells me that we will make a run at that trendline, and things will look a little messy before we bottom.

We still have seven trading days before the mid-term elections.  A stock market in correction is not as easy to promote as one at record highs (as we had just earlier this month).  With that, I suspect there are plenty of interests (China among them) to keep the pressure on stocks in hopes of dividing U.S. Congress come November 6th.

When the dust clears from the elections, market folks will realize that stocks are incredibly cheap at 15 times next year’s earnings estimates, in an economy growing better than 3%.

On that note, we have our first look at third quarter GDP tomorrow.  The market is looking for 3.6% growth, which would give us 3.22% annualized growth averaged over the past four quarters. That would be the best growth since 2006.

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.

By Bryan Rich

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.

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

By Bryan Rich

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.

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

By Bryan Rich

October 11, 5:00 pm EST

Yesterday we talked about the repricing of the tech giants as the catalyst for the slide in global stocks.  That slide continued today. 

But the brunt of the punishment is back on the Dow, which was down another 2%.  At the lows today, that takes us back to flat on the year for the DJIA … up 1% for the S&P 500.  And the Nasdaq, at the lows today, was up just 4.8% on the year.

As they say, stocks go up in an escalator and down in an elevator.

Interestingly, in this slippery slide for stocks, money has NOT been piling into bonds.  This is the flight to safety trade we’ve seen throughout the post-financial crisis era.  It doesn’t seem to be happening this time.  The 10-year yield remains in sniffing distance of 3.25% (closing today at 3.14%).

So, where is the money going?  Gold.

Gold is on the move — the top performer in global markets today.  And it looks like it’s just getting started.  As I said last week, “the set up for a bounce in gold here looks ripe. The level to watch will be 1,214.”

You can see in the chart, the 1214 level gave way today, and we had a break of the downtrend of the past six months.

Now, when we discussed gold last week, we were talking about the potential for China to perhaps try a few shenanigans over the next month, in order to influence the outcome of the November elections.

Here’s an excerpt from that October 3rd note:  “China remains the holdout on making a deal with Trump on trade. And it looks likely that they are holding out to see what the November elections look like.

Will Trump retain a Republican led Congress? I suspect we may see China do what it can to influence that outcome. As we know, the Republicans will be promoting the economy as we get closer to voting day.

What can China do to rock that boat?

They can sell Treasuries, in an attempt to ignite a sharper climb in rates. And a fast move in rates (at these levels) has a way of shaking confidence in equity markets–which has a way of shaking confidence in the economy.

I suspect we may be seeing precisely this above scenario play out.

If you haven’t joined my Billionaire’s Portfolio, where I hand select a 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.

By Bryan Rich

October 3, 5:00 pm EST

China remains the hold-out on making a deal with Trump on trade.  And itlooks likely that they are holding out to see what the November elections look like.

Will Trump retain a Republican led Congress? I suspect we may see China do what they can to influence that outcome.

As we know, the Republicans will be promoting the economy as we get closer to voting day. 

What can China do to rock that boat?

They can sell Treasuries, in an attempt to ignite a sharper climb in rates. And a fast move in rates (at these levels) has a way of shaking confidence in equity markets – which has a way of shaking confidence in the economy.

As we’ve discussed, the economy can withstand a 10-year yield in the low 3s.  But what has spooked market this year (namely stocks) is the fear that a 3% 10-year could quickly turn into a 4% 10-year.

We may have seen a taste of it today.  We had a run from 3.08% to 3.18%.  That’s the highest level since 2011.  And stocks came off of the highs.

If China was the culprit, or if China chooses to dump some Treasuries over the next month, in attempt to stir up some instability in markets, we should see them move that money elsewhere.  The likely recipient of that capital would be gold.

It wasn’t evident with the behavior gold today.  Gold had a big dayyesterday, but backed off today, even as rates ran.  But as you can see in the chart below, the set up for a bounce in gold here looks ripe.  The level to watch will be 1214. 

Attention loyal readers:  The Billionaire’s Portfolio is my premium advisory service.  And I’d like to invite you to join today, as we are beginning what I think will be a tremendous run for value stocks into the end of the year.  It’s a great deal for the money. Just click here to subscribe, and get immediate access to my full portfolio of billionaire-owned stocks. When you join, you’ll get immediate access to every recommendation–past, present and future–in the portfolio. And I’ll deliver my in-depth notes on our portfolio and the bigger picture every week, directly to your inbox.

By Bryan Rich

September 28, 5:00 pm EST

 Back in May, the populist movement that gave us Grexit, Brexit and then the Trump election, gave us a new government in Italy with an “Italy first” agenda.

Italy first, means EU second.  And that puts the future of the European Union and the European Monetary Union in jeopardy.  Today, the new government made that clear by rejecting EU fiscal constraints, in favor of running a bigger deficit spending.

This puts the game of poker the European Union has been playing since the financial crisis erupted, front and center (again).

As we discussed back in May, this story is looking a lot like Greece, which used the threat of leaving the euro as leverage to negotiate some relief from austerity and reforms. It was messy, but it gave them a stick, in a world where the creditors (the ECB, Eurogroup and IMF) had been burying the weak economies in Europe in harsh austerity since the financial crisis.

As the third largest euro zone constituent, Italy brings a lot more leverage in negotiating, in this case, the EU rulebook. We may see this all result, finally, in a relaxing of the fiscal constraints that have suppressed the economic recovery in the euro zone in the post-Great Recession era. And Italy’s pushback may lead the way for a euro-wide fiscal stimulus campaign — following the lead of Trumponomics.

A better economy has a way of solving a lot of problems.  And Europe has a lot of problems.

If you haven’t joined the Billionaire’s Portfolio, where you can look over my shoulder and follow my hand selected 20-stock portfolio of the best billionaire owned and influenced stocks, you can join me here.