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 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.
By Bryan Rich

November 21, 5:00 pm EST

We looked at the below chart yesterday.  We’re continuing to get a bounce off of this big trend line that incorporates the lows of the oil price crash of 2016, and the election later that year. 

Importantly, as I said yesterday, the stock declines of this year appear to have 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.

As we discussed last month, the top for stocks in January and the top in October, both align perfectly with the timing of events in Saudi Arabia.

Let’s revisit that timeline from my October note: “Remember, last November the Saudi Crown Prince Salam, successor to the King, ordered the arrest of many of the most powerful Saudi Princes, country ministers and business people in Saudi Arabia on corruption charges. More than $100 billion in assets were claimed to be under investigation (a third frozen) in what was called the “Saudi purge.”

These subjects were detained for nearly three months. The timing of their release and the market correction of early this year is where it all begins to align.

They were released on Saturday, January 27. S&P futures open for trading on Sunday night. Stocks topped that night and proceeded to drop 12% in six days. And rallies in stocks were sold aggressively for the better part of the next seven months.

Fast forward to this month and we have the murder of the journalist who was a public critic of the Crown Prince Salam. As the details of story pointed back to Salam, on October 3, U.S. bond markets got hit (to the hour of news hitting the wires) and stocks topped that day, and have proceeded to drop by more than 8%.

Clearly, the destabilization in Saudi Arabia has put considerable assets in jeopardy. With that, those in control of those assets have likely been scrambling to protect them, as U.S. Congress pushes for sanctions, which could include freezing Saudi assets.”

Now, over the past few weeks, we’ve seen some back and forth onwhether or not the Saudi Crown Prince would be implicated in the Khashoggi murder and/or, most importantly, sanctioned.  And the moves in stocks have been reflecting that whipsaw.  Remember, the Saudi sovereign wealth fund is worth more than half a trillion dollars.  They’ve been heavily invested in the tech giants.  And those (the tech giants) have led the way down.  Any uptick in the probability that we see more U.S.-based Saudi assets frozen or threatened, has created selling in stocks.

But as we said yesterday, Trump seems to be settled on the sanctions that have already been levied (excluding the Crown Prince and broader government).  That’s a positive for stocks.

And he’s leveraging the Saudi crisis to get oil prices lower.  Remember, we talked about the oil bargaining chip earlier this month.  Here’s an excerpt from my November 9 note:  “It’s probably no coincidence that the slide in oil prices started the day that the Saudi Crown Prince was implicated in journalist Jamal Khashoggi’s disappearance. Remember, the bond market got hit, to the hour, of this headline hitting …
Stocks topped a few hours later, and that was the top for oil prices too.
When Trump spoke with the Saudi Crown Prince on the phone on October 16, oil was trading above $71. We haven’t seen that level since.
Trump‘s position on high oil prices is no secret. He doesn’t like it. And Saudi Arabia is well aware. Is it possible that Trump has leverage and is using it? Likely. Is it possible that the Crown Prince is willing play ball with U.S. demands (on oil production) in order to avoid sanctions (or worse).
Interestingly, Trump is now confirming the above with his statements over the past couple of days.
Bottom line:  When stocks decline for non-fundamental reasons, it’s a huge buying opportunity.  This is one of those moments.
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.
Have a great Thanksgiving!

By Bryan Rich

November 15, 5:00 pm EST

One of the spots weighing on the market has been the Fed’s persistent increase in interest rates.  With that, and with some soft spots showing in the global economy and a more challenging policymaking environment ahead in Washington, we were watching Fed Chair Powell’s remarks very closely late yesterday (after the market close) for some signalling that a pause on rate hikes might be coming.

Unlike past Fed heads, Powell is a plain spoken guy.  And he tends to be very clear in his messaging.  With that, he didn’t seem to have an agenda for sending a clear signal to markets yesterday. But he did have some dovish takeaways.  He said they are at the point where they have to take seriously the risk of moving too far and stifling the recovery and not moving far enough to manage inflation. On that note, he acknowledged that the level of interest rates are weighing on the house market.  And he said signs of a global slowdown are concerning.  So, he tells us they’re watching the data closely for next moves, and then he tells us some data is suggesting slowing.

Now, it’s common for other Fed governors to be out talking, between meetings, in an effort to set market expectations. With that said, the bigger signalling came today.  The Atlanta Fed President and a voting Fed governor on monetary policy (Bostic), had a prepared speech in Madrid today.  He said the Fed is in the final steps of getting to the neutral rate (which means neither accommodative nor restrictive).  He said that’s where they “want to be” and then said he thinks the neutral rate is between 2.5% and 3.5%. Rates are currently 2%-2.25% (almost the low end of his neutral range).  And he said they should proceed cautiously with rate increases.  Bottom line:  These statements suggest the Fed could be done with the ‘normalization’ process of rates after one or two more hikes.

So, we were looking for the Fed to use the weakening global growth data this week (from Japan and Europe), some softer global inflation data, and the changes in Congress, as an excuse to dial down the market’s expectations for the path of rates.  It was subtle, but I think we’ve seen it.

Indeed, stocks ripped higher on Bostic’s comments this afternoon.  The Dow jumped about 1.5% today as the comments hit the news wires.

Moreover, we’ve had some more uncertainty removed from marketsin the past 24-hours.  We now have trade discussions re-opened between China and the U.S.  And today, the U.S. Treasury has named the individuals that will be sanctioned in Saudi Arabia, regarding the murder of Khashoggi.  To this point, the Saudi Crown Price isn’t one of them, which means the Saudi government is not being sanctioned.

It’s been a violent six weeks for stocks, but the lows from late October remain well intact.  And we may now be clear for another recovery leg of this recent broad market correction.

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

November 14, 5:00 pm EST

Later today Fed Chair Powell will be speaking at a Dallas Fed event.  We’ve talked over the past two days about the potential for Powell to use this opportunity to dial down expectations of a December rate hike.

Overnight, Japan reported a contraction in their economy for the third quarter. And this morning Germany’s GDP report showed the first contraction in more than three years. Meanwhile, U.S. core CPI came in softer than expected this morning.  And the headline number will be hit, in the next reading, by a 28% plunge in oil prices.

Add this to the outlook for gridlock in Washington on any further pro-growth policy-making, and Powell has the perfect excuse to start telegraphing a pause on rate hikes.

If he does, expect stocks to respond very favorably.  We will see.  He speaks at 6:05pm EST.

Here’s a look at stocks and the decline of the past month, as we head into this Fed discussion on the economy …

Technically, today the S&P and the Dow both hit a big retracement level and bounced aggressively.  This sets up nicely for the Fed discussion.
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

November 13, 5:00 pm EST

In the past two notes, I’ve focused on oil.  And that does indeed seem to be the tail that is wagging the global markets dog.

Oil lost another 8% today.  Over the past 31 days, crude prices have dropped 27%.

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.

  nov12 oil

You can see in the chart above, we’ve dropped 27% over the past 31 days.  The other big drops in crude were in February of 2016 (the crash) and in November of 2014 (OPEC’s refusal to cut oil production).

Interestingly, these historic crude price declines were occurring as the Fed was preparing markets for the beginning of its normalization campaign (i.e. moving rates away from the emergency zero interest rate level).  And it was these price declines that threw a wrench in those plans.

Despite what the central bankers say, oil prices have a big influence on their read on inflation.  Lower oil prices put downward pressure on inflation.  And as oil prices were plunging from 2014 through 2016, the Fed clearly and dramatically held back on their rate hiking plans.

On that note, remember yesterday we talked about the prospects that Powell (Fed Chair) may use the opportunity to dial down expectations of a December rate hike, if we see some soft data this week (growth data from Japan and Europe and inflation data from U.S., Europe and UK).  We now have a big haircut on oil prices to factor into the inflation data.  That too, may give him the excuse to pause on rates.  We’ll hear from him tomorrow at a Dallas Fed meeting.

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

November 8, 5:00 pm EST

The midterm elections are behind us, and I’ve suspected that the lift of that cloud of uncertainty would be the greenlight for stocks to make a run into the end of the year.

We’re seeing it start today.

Remember, the big work on economic stimulus has been done, and that will continue to drive the best growth we’ve had since 2006.

Add to that, there is the potential that Trump can get infrastructure done with a split Congress.  With that, it would be a matter of how hot the economy will get.

But as I said, there’s probably a better chance that the Democrats will block any more progress on the economic front, to best position themselves for a run at the 2020 Presidential election.

Interestingly, this gridlock scenario could actually be the optimal scenario for stocks here.

The notion that the economy might be on the verge of accelerating too fast/ running too hot, has dialed UP the inflation-risk-premium for the stock and bond markets.  The hot trajectory for the economy has kept pressure on the Fed to continue the path higher in interest rates.

Thus far, the seven quarter-point hikes the Fed has made to the benchmark overnight lending bank rate has NOT choked off economic momentum. But it has, finally, started to get market rates moving.  The ten-year government bond yield is near 3.25%, the highest in seven years. And stocks haven’t liked this 3%+ level on rates.  And that has a lot to do with what it does to consumer rates, specifically mortgages.

As you can see in the chart below, we now have 30-year mortgages running north of 5% for the first time since 2010.

This move in rates has slowed down the housing market. And this is an example of how this path of hotter growth and an aggressively normalizing Fed has been tracking toward growth killing interest rate levels.

Perhaps some gridlock in Washington will slow the speed at which both are adjusting and allow for some time for the economy to sustain at this 3% growth level.

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

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

November 2, 5:00 pm EST

If you are a regular reader of my daily notes, you’ll know I’ve suspected we are seeing an end to the “wild west” days in Silicon Valley.

I think we’ve finally seen it play out in the stock market in the past month.

The media has spent the past month pontificating about big macro economic stories and how these risks have driven this correction stocks. But the intermarket correlations don’t support it.  Despite the sharp slide in stocks, money hasn’t fled to the safety of bonds.  The currency market has shown little to no stress.  And gold has been relatively quiet.  This is all antithetical to what you would find in a world shaken from elevated global risks.

Ultimately, this correction has been about repricing the tech giants. And one of the power players in Silicon Valley said about as much this week.

Peter Theil, founder of PayPal and the first investor in Facebook said he doesn’t expect to see another innovative breakthrough consumer internet company. I agree (for a number of reasons).

With that, I want to revisit my note from March of 2017, as Trump was just getting his feet wet as President:

A big component to the rise of Internet 2.0 was the election of Barack Obama.

With a change in administration as a catalyst, the question is: Is this chapter of the boom in Silicon Valley over? 

Without question, the Obama administration was very friendly to the new emerging technology industry. One of the cofounders of Facebook became the manager of Obama’s online campaign in early 2007, before Obama announced his run for president, and just as Facebook was taking off after moving to and raising money in Silicon Valley (with ten million users). Facebook was an app for college students and had just been opened up to high school students in the months prior to Obama’s run and the hiring of the former Facebook cofounder. There was already a more successful version of Facebook at the time called MySpace. But clearly the election catapulted Facebook over MySpace with a very influential Facebook insider at work. And Facebook continued to get heavy endorsements throughout the administration’s eight years. 

In 2008, the DNC convention in Denver gave birth to Airbnb. There was nothing new about advertising rentals online. But four years later, after the 2008 Obama win, Airbnb was a company with a $1 billion private market valuation, through funding from Silicon Valley venture capitalists. CNN called it the billion dollar startup born out of the DNC. 

Where did the money come from that flowed so heavily into Silicon Valley? By 2009, the nearly $800 billion stimulus package included $100 billion worth of funding and grants for the ‘the discovery, development and implementation of various technologies.’ In June 2009, the government loaned Tesla $465 million to build the model S. 

When institutional investors see that kind of money flowing somewhere, they chase it. And valuations start exploding from there as there becomes insatiable demand for these new ‘could be’ unicorns (i.e. billion dollar startups). 

Who would throw money at a startup business that was intended to take down the deeply entrenched, highly regulated and defended taxi business? You only invest when you know you have an administration behind it. That’s the only way you put cars on the street in NYC to compete with the cab mafia and expect to win when the fight breaks out. And they did. In 2014, Uber hired David Plouffe, a senior advisor to President Obama and his former campaign manager to fight regulation. Uber is valued at $60 billion. That’s more than three times the size of Avis, Hertz and Enterprise combined.

Will money keep chasing these companies without the wind any longer at their backs?

Again, this note above was from about 18 months ago.  And administration change has indeed become a problem for these emerging monopolies.

Trump’s scrutiny has come, and so has the regulatory scrutiny.  But admittedly is has taken longer than I expected.

Still, it has become clear now to lawmakers (in the U.S. and abroad) that the lack of regulatory oversight of these companies (if not regulatory favor) has created a “winner takes all” environment.  And the power transfer into so few hands has quickly become a big threat.

Now these companies look forward to the next decade of regulatory purgatory.  But given the maturity of these tech giants, higher regulation only strengthens their moat.  That means there will never be a competition to Facebook emerging from a dorm room or garage.  The compliance costs will be too high.

But regulation on the tech giants also creates the prospects for those “old-economy” competitors that have survived, to bounce back.
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