By Bryan Rich

December 11, 5:00 pm EST

We’ve talked about the market volatility the past few days.

Let’s take a look at a chart of the many swings in stocks for the year.

You can see we’ve had seven significant declines this year.  A clear observation in this chart is that the declines are fast.  As they say, the market goes up on an escalator and down in an elevator.

We’ve had a 12% decline over six days.  A 5% decline in three days.  A 9% decline in thirteen days. An 8% decline in six days (to open October).  A 7.8% decline in eight days. A 6.8% decline in ten days.  And, this recent, 8.2% decline in five days (assuming yesterday was the bottom).

So, the seven declines of the year have averaged 8%, over a period of seven days. This argues that we probably have, indeed, seen the low on this recent sharp slide.

And that leaves us, at today’s close, with a stock market trading at 15 times earnings — among the cheapest valuation we’ve seen only two times in the past 26 years.

What stocks do you buy?  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.

By Bryan Rich

December 7, 5:00 pm EST

Last year, the stock market broke a 21-year old record of the most consecutive days without a 3% intraday drawdown — some 240+ straight days.

We’ve now had a 3% intraday drawdown (open to low) three times since just early October.

So, what is responsible for the rise in volatility?  Why such a contrast from last year?

It’s regime change.  After nine years of zero interest rates and trillions of dollars of QE, the torch was passed this year.  We entered the year with big tax cuts to implement.

This was the official transition from a monetary policy-driven economic recovery, to a fiscal stimulus-driven recovery.  The Fed passed the economic stimulus torch to the White House.

Now, there was good reason that volatility remained subdued under the Fed’s emergency level zero-interest-rate policy.  Why? The Fed told us, explicitly, that they (and other major global central banks) stood “ready to act” against any potential shocks that could disrupt the global economic recovery.  That was an explicit promise to absorb risks so that investors (businesses, consumers, etc) would keep economic activity moving, by spending, hiring and investing.

The Fed (and other central banks, namely the ECB) had to be the backstop, so that people would pursue higher risk/return assets, in a world where risk-free assets yielded nothing.  That was good enough to secure an economic recovery, but only at stall-speed levels of growth.

With that, as we entered the year, the U.S. economy was, for the first time in more than nine years, removing the central bank backstop (removing the life support for the economy).  The gameplan: To replace low interest rates and QE with a $1.5 trillion fiscal stimulus package to catapult the economy out of the economic rut of 1% growth, and back toward sustainable 3% (trend) growth. And with that influence, the economy might have a chance to sustainably mend and breath on its own again.

So far we’ve gotten the growth (whether or not it’s sustainable has yet to be seen).  But this regime change has also introduced uncertainty (and shock risks) back into the economy and markets.  That resets the scale on volatility. And I think that adjustment has been underway.

With that said, the pendulum often swings a little too far in the opposite direction at first (from little-to-no volatility to a lot, in this case).

What stocks do you buy?  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.

By Bryan Rich

December 6, 5:00 pm EST

We had quite a reversal for stocks today.  It started with a plunge as the futures market re-opened yesterday, following the day of mourning for the 41st President. 

For perspective, the futures markets can be very illiquid outside of the New York trading day, especially in the transition between the end of business in New York and the opening of business for the new day in Asia.Consequently, that’s when some damage can be done in markets, if there is an overwhelming interest by someone to try to move the markets during that illiquid period. That’s what we had yesterday evening when the U.S. stock market futures re-opened. Within 2 minutes of the opening, the S&P futures were down 2%, after a barrage of large sell orders hit.  And with investor sentiment already vulnerable, that damage translated into more fear selling by broader market participants when volumes came into the cash market this morning.

But at some point this morning, after a 7% decline in three days, it became impossible to ignore the disconnect between what stocks have been doing and what the economy is doing.  We have an economy growing at 3+%, unemployment under 4%, inflation at 2%, a 10-year yield under 3%, gas at $2 a gallon, and a stock market trading at less than 15 times earnings.  Stocks are a buy, not a sell. 

What stocks do you buy?  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.

By Bryan Rich

December 5, 5:00 pm EST

I was away from the markets yesterday, on a big down day.  With markets closed today to honor the 41st President, let’s take a look at what happened on Tuesday.

Why the ugly and persistent plunge in stocks?

Many of the reasons that have been attributed to the two stock market corrections this year, bubbled up again yesterday. But as we’ve discussed, the stock declines this year appear to have had everything to do with Saudi capital flows–and less to do with all of the hand-wringing issues you hear and read in the financial media.  Same can be said for yesterday.

When prospects rise that Saudi assets may be threatened by sanctions(or seizures in the case earlier this year, related to the Crown Prince’s corruption crackdown) indiscriminate and aggressive selling of U.S. assets hit immediately (likely led by the Saudi sovereign wealth fund, which has assets over half a trillion dollars).

We had it again yesterday.  Stocks had a big gap up on Monday on movement on U.S./China trade. It was after the close on Monday that the news hit that the CIA would brief the special Senate committee on Tuesday.  Stocks immediately started moving lower. The Dow futures were down 250 points by midnight.  And then of course, yesterday, when news hit that the briefing was underway (just after noon), the bottom immediately fell out of stocks. A little more than half an hour later, U.S. Senators were standing in front of cameras telling the world that the Crown Prince was involved in the murder and that Congress should invoke the Magnitsky Act.  This law authorizes the government to sanction human rights offenders, freeze their assets, and ban them from entering the U.S.

That sounds ominous for the Crown Prince.
But the Magnitsky Act comes in the form of a request from Congress, and the President has the discretion to act or not (but must decide within 120 days).

With that, I suspect this was nothing more than grandstanding.  Trump will not (can not) act for the reasons we discussed last month.

From a security standpoint, Saudi Arabia is a critical alliance in the fight to defeat ISIS and check of Iran. Maybe more importantly, pushing Saudi Arabia toward an alignment with China and Russia in the long game would be a grave danger for the U.S.
Taking action against the Crown Prince would jeopardize both.
So, as I said last month, Trump has been leveraging the Saudi crisis to get oil prices lower. And he’s gotten it – to the tune of a 35% decline in oil prices. And to this point, it appears Trump has settled on the sanctions that have already been levied already on Saudi individuals involved in the Khashoggi murder (which don’t include the Crown Prince).

If he sanctioned the Saudi government over this, oil prices would probably explode and stocks would crash (not really an option).

We’ll see how stocks react tomorrow after a day of reflection.  I suspect Tuesday created another buying opportunity.

What stocks do you buy?  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.

By Bryan Rich

December 3, 5:00 pm EST

On Friday, we closed the week with the view that a standstill agreement (at the very least) on the U.S./China trade war, resulting from the Trump/Xi meeting, may be enough to fuel a melt-UP to new highs on stocks by the end of December.  
Indeed, we got a standstill on the trade war.  And with that, we had a big gap UP on the opening for stocks on the week.  That puts us up around 5% on the year.  And I suspect we’ll continue to see stocks on the climb — moving back to the highs of the year, and possibly much higher.We have plenty of fuel for stocks.

From a valuation standpoint:  As of Friday’s close we had a stock market trading under 16 times earnings, on a 3% ten-year yield.  That’s very cheap for a low rate environment.  Expect that P/E multiple to expand.  As volume lightens up into the holidays, it’s not unusual to see markets make signficant moves on end-of-year light volume.

From a fundamentals standpoint:  Remember, last week we discussed the Goldilocks scenario created by the fall in oil prices.  The sharp adjustment in oil prices has taken the pressure off of the Fed, allowing them to signal a pause on their rate normalization program (i.e. rate hikes).  If they were worried about inflation accelerating above their favored 2% level, a 35% slide in oil has a way of calming those fears.  And today we get some data to support it.

The manufacturing data this morning showed a big downside surprise in the inflation data  — the lowest reading since June of last year.

dec3 prices paid2

Meanwhile, the manufacturing activity came in higher than was expected.  That means activity is hotter, while prices are tame.

So, as stocks have been in correction, the narrative from the media and Wall Street has been “slowdown” and “inflation pressures” (trying to fit a story to the price, as they usually do).  Meanwhile, the data today shows manufacturing activity running at the 12-month moving average, and with price data running well below the 12-month moving average.  Friendly reminder:  Things are good!

What stocks do you buy?  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.

By Bryan Rich

November 30, 5:00 pm EST

As we close the week and month, let’s take a look at some key charts.

Stocks have now bounced 5% since last Friday.

And that bounce was technically supported by this big long-term trendline we’ve been watching …

And, as of this week, stocks now have the additional fuel of a more stable outlook for interest rates.  

The surge above 3% on the ten-year yield sustained that level, even in the face of a stock market decline.  That signal created fears that the Fed might be on course to choke-off economic momentum.  But that has now been quelled by the Fed’s clear signal this week that they are near the end of their rate normalization program.  The 10-year ends the week well off the highs of the past two months, and at the important 3% level.

The dramatic adjustment lower in oil prices should also be additional fuel for stocks …

An overhang of risk to global markets has been the potential for sanctions on the Saudi government.  But the issue seems to be now settled, with the sanctioning of Saudi individuals which do NOT include the Saudi Crown Prince and/or government.  And as we’ve discussed, Trump has used the leverage over the Saudi Crown Prince to influence oil prices lower (for the moment).

With that above in mind, stocks finish the week well bid.  If we can get at least a standstill agreement on the U.S./China trade war from this weekends meetings between Presidents Trump and Xi, that may be enough to fuel a melt-UP to new highs on stocks by the end of December.  It may be time for Trump to get a deal done, and solidify economic momentum to get him to a second term, where he may then re-address the more difficult structural issues with China/U.S. relations.

What stocks do you buy?  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.

By Bryan Rich

November 29, 5:00 pm EST

Today I want to talk about the decline in Bitcoin. 

As we often see with markets, people tend to confuse forced capital flows with genius.We’ve seen it in the tech giants.  The “disrupters” in Silicon Valley were only able to  disrupt long-entrenched industries because of the hundred billion dollars that flowed from Washington to Silicon Valley as part of the American Recovery and Reinvestment Act.  When the government is pouring that kind of money into “new technologies”, private equity (i.e. pension fund money) will follow it.  Plenty of funding, regulatory advantage, and no pressure to (in some cases, ever) produce a profit turns out to be a recipe for destroying industries.  The entrepreneurs are credited for their genius, but they have those capital flows from Washington, at the depths of the economic crisis, to thank for it.

Bitcoin is another case of confusing capital flows with genius.  It’s no coincidence that the ascent of Bitcoin coincided perfectly with the crackdown on capital flight in China.  In late 2016, with rapid expansion of credit in China, growing non-performing loans, a soft economy and the prospects of a Trump administration that could put pressure on China trade, capital was moving aggressively out of China.  That’s when the government stepped UP capital controls — restricting movement of capital out of China, from transfers to foreign investment.

Of course, resourceful Chinese still found ways to move money.  Among them, buying Bitcoin. And that’s when Bitcoin started to really move (from sub-$1,000). China cryptocurrency exchanges were said to account for 90% of global bitcoin trading. Capital flows were confused with Silicon Valley genius.

But in September of last year China crackdown on Bitcoin – with a totalban.  A few months later, Bitcoin futures launched, which gave hedge funds a liquid way to short the madness. Bitcoin topped the day the futures contract launched.

With the above in mind, I want to copy in my Pro Perspectives note from last December where I discussed the Bitcoin bubble.

THURSDAY, DECEMBER 7, 2017

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 (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 America 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.

That was the top.

What stocks do you buy?  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.

By Bryan Rich

November 28, 5:00 pm EST

Yesterday we talked about the perfect setup, coming into today’s scheduled speech by the Fed Chair, for Powell to signal a pause in the Fed’s rate normalization program.

The sharp fall in oil prices in the past two months has taken some of the edge off of inflation concerns.  And there has already been evidence that the speed at which rates have moved has caused a slowdown in housing. So this was the perfect opportunity for the Fed Chair to give a clear signal that they are near the end on rate normalization.

Indeed, that’s what we got.  And that did indeed provide a positive catalyst for stocks, and I suspect it will be a positive catalyst for what has been some deterioration of confidence in the economic outlook.

That all aligns nicely with the technical picture we’ve been watching in stocks.

Here’s another look at the bounce off of this big trendline for stocks, that continues to grow in scale.

So this adjustment in the market’s perception on the interest rate outlook is a catalyst for what could be a very aggressive rebound in stocks into the year end.  More fuel would be a positive outcome from the Trump/Xi meetings on U.S./China trade, which will come toward the end of the week.

With the above in mind, among the biggest rebounds in global markets should be emerging markets.

As of last month, the MSCI Emerging Markets Index was down 27% from the January highs.
What stocks do you buy?  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.

By Bryan Rich

November 27, 5:00 pm EST

Earlier this month, we talked about the big fall in oil prices.

If we look back over the past five years, the magnitude of that move is only matched (or exceeded) in cases where there was significant manipulation in the oil market and/or a systemically threatening oil price crash.

As we’ve discussed, the pressure on oil this time around seems to be about manipulation — and appears to have everything to do with Trump’s leverage over the Saudis (related to sanctioning the Kingdom over the Khashoggi murder).

But we’ve now traded down to the important $50 mark.  That’s 35% from the highs of just October 3.  And this is an inflection point where it could go bad, but it also could present a goldilocks scenario (a level that’s just right for the U.S. economy).

Sure, cheap oil is good for consumers.  You save a few extra bucks at the pump.  But in the current environment, it presents risks to the financial system.  The shale industry’s break-even point on producing oil is said to be $50.  Below that, they dial down production, lay off workers, stop investing and quickly become a default risk to their creditors (U.S. and global banks).  We saw it back in 2016.  The same can be said for those countries heavily dependent on oil revenues (i.e. they become default risks as oil prices move lower).

That’s the bad side. The good side to the oil price slide?  As we’ve discussed, it should relieve some pressure on the Fed. The Fed likes totalk about their inflation readings excluding effects of volatile oil prices.  But they have a record of acting on monetary policy when oil is moving.

The bottom line: Oil plays a big role in their view on inflation.  And given the quick drop in oil prices, the Fed’s concerns about inflation should be cooling. Again, this opens up the door for the Fed Chair, tomorrow, to take the opportunity in a prepared speech at the Economic Club of New York, to signal a pause coming in the Fed’s rate normalization program. That would be a positive catalyst for economic and market confidence.

What stocks do you buy?  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.

By Bryan Rich

November 26, 5:00 pm EST

After a down 7% October, the S&P 500 was down another 3% for November as we started the week.

But stocks had a nice day, continuing to bounce from this big trendline we’ve been watching over the past week.  

And the better news:  We have potential positive catalysts on the docket for this week that could put a final stamp on this correction.

Powell (Fed Chair) gives a prepared speech on Wednesday at the Economic Club of New York.  Remember, we were looking for some signal a couple of weeks ago that the Fed might take a pause normalizing rates.  We got it, but from the Atlanta Fed President.  This week, any indication from the Fed Chair that rate hikes are nearing an end would be a greenlight for stocks.

And then we get new information on U.S./China trade relations by the week’s end as Trump and Xi are scheduled for a sit down at the G20 meetings.  Among all of the concerns that might be curbing risk appetite (both in markets and the economy) this one is among the biggest.  Progress on that front should also trigger relief in stocks.

The combination of a more dovish Fed and some clarity on trade would set up for what could be a very aggressive bounce for stocks into the year end.

What stocks do you buy?  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.