By Bryan Rich

August 13, 5:00 pm EST

We have a currency devaluation in Turkey that is shaking up markets.  Let’s talk about what’s happening and why (if at all) it matters for the big picture outlook.

First, here’s a look at the Turkish lira chart (orange line moving up means a stronger U.S. dollar, weaker lira)…

 

Now, the problems in Turkey aren’t new.  The country is economically fragile.  But the collapse in the currency probably has more to do with its leadership – and the erosion of democracy in Turkey.

There are a lot of people comparing Turkey’s currency crisis to the Thai Baht devaluation in 1997 — which ultimately ignited a currency crisis in Asia, which culminated in a sovereign default in Russia.  That’s the fear: a currency crisis turning into a contagion of sovereign debt defaults.

But Thailand was about economic policy – specifically, the Thai currency policy.  Speculators attacked to close the valuation gap between the central bank managed currency and its economy.

This Turkey issue looks more like the collapse in the Russian Ruble in late 2014.  That was geopolitically driven.  Back in 2014, Putin was forcing his way into Ukraine – an affront to the Western world.  This was viewed as a proxy war against the West. That led to capital flight out of Russia and speculative attack on the currency.

With this chart on the Ruble (the orange line going up means a stronger dollar and weaker ruble), Russia was quickly made vulnerable and on a sovereign debt default watch.

But like Turkey, the contagion risk was driven by Russia’s foreign currency denominated debt (primarily euro denominated debt owed to European banks).

With that said, the world wasn’t “normal” in 2014, nor is it now.  Remember, the European Central Bank remains in quantitative easing mode.  That means, we should expect central bank (or policy) intervention (if needed) to quell any shock risks that could come from European bank exposure to Turkish debt.  So the ECB’s “ready to act” commitment of the post-financial crisis era should calm fears of contagion.

As for Turkey, the crippling effects of the currency attack should put pressure on the freshly re-elected Ergodan (i.e. should make him vulnerable to an uprising).

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By Bryan Rich

July 27, 5:00 pm EST

As we end the week, let’s take a look at a few charts ….

We had the first look at Q2 GDP today. Here’s an updated look at the chart of the average four-quarter annualized growth rate we looked at
yesterday ….

This number will be formally revised two more times, but the “advance” number came in at 4.1%. Yesterday we talked about the prospects for the highest four-quarter annualized growth rate since 2006. We just missed it, in this first reading. But the Q1 number was revised UP to 2.2%, so adding in today’s Q2 number, and we get 3.1% four-quarter average annualized growth. Only for a moment, in 2010, was it better (at 3.15%).

I suspect we will see a bigger number in the coming Q2 revisions. And if sentiment on trade indeed bottomed out on Wednesday, with the EU concessions, we will likely have a big Q3 growth number coming.

That steadily rising trend, since the election, in the four-quarter average growth rate is a big deal. With that, I would call the above chart, the most important chart of the week…

Let’s look at the second most important chart of the week ….

I’ve been making the case that the massive Nasdaq outperformance, relative to the Dow, would begin correcting. In the chart above, you can see that it’s starting (Dow moving up, Nasdaq moving down). And it’s being led by strength in the blue chips following strong Q2 earnings, and weakness in two of the big tech giants (Netflix and Facebook) following big misses. With that, Facebook has quickly revisited levels of early May (which should give us all perspective on how aggressive this run in the tech giants has been over the past two months).

The question: Is it “peak Zuck?”

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By Bryan Rich

July 23, 5:00 pm EST

We have a big earnings week.  The tech giants report, along with about a third of the S&P 500.  And we get our first look at Q2 GDP.

As we’ve stepped through the year, we’ve had a price correction in stocks, following nearly a decade of central bank policies that propped up stocks.  This correction made sense, considering central banks were finally able to make the hand-off to a U.S. led administration that had the will and appetite (and alignment in Congress) to relax fiscal constraints and force the structural reform necessary to promote an economic boom.

From there, for stocks, it became a “prove-it to me” market.  Let’s see evidence of this “hand-off” is working — evidence the fiscal stimulus is working. That came in the form of first quarter earnings.  This showed us clear benefits of the corporate tax cut.  The earnings were hot, and stocks began a recovery.

The next steps, as fiscal stimulus works through the economy, we’ve needed to see that the uptick in sentiment (from the pro-growth policies) is translating into better demand and economic activity.  So, with Q2 earnings we should start seeing better revenue growth, companies investing and hiring.  And we should see positive surprises beginning to show up in the economic data.

We’re getting it.  Almost nine out of ten companies reporting thus far have beat (lofty) earnings expectations.  And about eight out of ten have beat on revenues.  This week will be important, to solidify that picture.  And though many of the economists all along the way of the past year didn’t see big economic growth coming, it has been steadily building since Trump was elected, and the Q2 number should push us to over 3% annual growth (averaging that past four quarters).

Now, let’s talk about the big mover of the day: interest rates.  The 10-year yield traded to 2.96% today, closing in on 3% again.

We’ve discussed, many times, the role that Japan continues to play in our interest rate market.  Despite 7 hikes by the Fed from the zero-interest-rate-era, our 10 year yield has barely budged.  That’s, in large part, thanks to the Bank of Japan.

As I’ve said in the past, “Japan’s policy on pegging its 10-year yield at zero has been the anchor on global interest rates. Forcing their benchmark government bond yield back to zero, in a world where there has been upward pressure on interest rates, has meant that they can, and will, buy unlimited amounts of JGBs to get the job done. That equates to unlimited QE. When they finally signal a change to that policy, that’s when rates will finally move.”

With that in mind, there were reports over the weekend that the Bank of Japan may indeed signal a change in that “yield curve control” policy at their meeting next week. And global rates have been moving!

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By Bryan Rich

July 20, 5:00 pm EST

We’ve been watching the Chinese currency very closely, as the Chinese central bank has been steadily marking down the value of its currency by the day, in efforts to offset U.S. trade tariffs.

Remember, in China, they control the value of their currency. And they’ve now devalued by 8% against the dollar since March. They moved it last night by the biggest amount in two years. That reduces the burden of the 25% tariff on $34 billion of Chinese goods that went into effect earlier this month.

But Trump is now officially on currency watch. Yesterday in a CNBC interview he said the Chinese currency is “dropping like a rock.” And he took the opportunity to talk down the dollar.

The Treasury Secretary is typically from whom you hear commentary about the dollar. And historically, the Treasury’s position has been “a strong dollar” is in the countries best interest. But Trump clearly doesn’t play by the Washington rule book. So he promoted his view on the dollar (at least his view for the moment)–and it may indeed swing market sentiment.

The dollar was broadly lower today. We’ll see if that continues. If so, it may neutralize the moves of China in the near term. Nonetheless, the U.S./China spat is reaching a fever pitch. Someone will have to blink soon. Trump has already threatened to tax all Chinese imports. The biggest risk from China would be a big surprise one-off devaluation. As we discussed yesterday, that would stir up a response from other big trading partners (i.e. Europe and Japan). And they may coordinate, in that scenario, a threat to block trade from China all together.

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.

 

By Bryan Rich

July 19, 5:00 pm EST

Yesterday CNBC hosted their Delivering Alpha conference. This conference is primarily an opportunity for investors to hear views and ideas from some of Wall Street’s best.

However, the bigger picture geopolitical environment is far more important for the market at the moment, than what a big hedge fund manager thinks about valuation (for example).

On that note, there were some interesting takeaways from yesterday’s event. As we discussed yesterday, we heard from Larry Kudlow, the White House Chief Economic Advisor. And we also heard from Steve Bannon, the former White House Chief Strategist.

Bannon has been given plenty of unappealing labels by the media in recent years, but his perspective on the White House game plan and how it’s executing is invaluable. I think everyone would agree that the communication on the economy and foreign policy could be handled better by the White House.

And Bannon articulates the issues in the Trump plan, maybe better than anyone. It’s an interview everyone should watch (here’s a link).

As we’ve discussed here in my Pro Perspectives piece since I started writing this nearly three years ago, the trade war is nothing new. And it’s all about China. As Bannon said, China has been waging an economic and cyber war with the U.S. for the better part of the past 25 years. Now they’ve run into a wrecking ball in Trump: someone with the leverage and the credibility to act on threats to end the gutting of global economies (including the U.S. and other major developed market economies). Bannonsays we’re in the early stages of a “reorientation of the supply-chain around freedom loving countries.”

As we’ve discussed, the best reflection of China’s strategic response to Trump’s pressure is their currency. What are they doing with it? They continue to walk it lower every day. This is a signal that they have no options–playing by the rules and getting slower economic growth isn’t an option for the ruling regime in China. They can only fight back by offsetting tariffs with a weaker currency. And that may ultimately lead to blocking China trade completely.

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.

By Bryan Rich

June 20, 6:00 pm EST

Stocks continue to prove resilient in the face of trade war noise. After a global stock sell-off that started last night on news that the tit for tat tariff threats were escalating, small caps actually printed another new record high today and finished up on the day.

Bottom line: Dips continue to be bought.

In the category of “stocks that can soar even on tumultuous market days?”

We had these three charts today …

The first two stocks are biotech. If you have much experience in investing, you’ll know that biotech stocks can cut both ways (most of the time, painfully).

Here’s my pro tip: ONLY BUY BIOTECH STOCKS WHEN A BILLIONAIRE INVESTOR IS INVOLVED!

Who was involved in the two above?

Not surprisingly, the best biotech investor in the world, billionaire Joe Edelman of Perceptive Advisors, is the biggest shareholder in SLDB.

He was also the biggest investor in Sarepta until it quintupled back in 2016 on an FDA approval. Sarepta was up as much as 50% today on early trial results of gene therapy treatment of the devastating Duchenne Muscular Dystrophy (DMD) disease in boys. SLDB is similarly working on gene therapy for DMD.

What about SandRidge (the energy stock)? SandRidge was up nicely today, in a broadly down market, because billionaire activist Carl Icahn successfully de-seated a corrupt board of directors at the post-bankruptcy energy company. That board and leadership that drove the company into bankruptcy, yet has been handsomely compensated in the process, has finally been shown the door. Great news for shareholders.

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

June 18, 5:00 pm EST

For much of last summer, we talked about the building bull market in commodities.

The price of crude oil has nearly doubled since that time. But broader commodities have yet to take off.

Remember, we’ve looked at this chart of commodities versus stocks quite a bit.

You can see the clear divergence in these two key asset classes over the past five years.

As we’ve discussed, the only two times commodities have been this cheap relative to stocks were at the depths of the Great Depression in the early 30s and at the end of the Bretton Woods currency system in the early 70s.

And from deeply depressed valuations, commodities went on a tear, both times.

Now, since last summer, the trajectory of commodities has been up. But so have stocks. Still, this gap has narrowed a bit. Stocks are up 13% in the past year. The CRB index is up 17%.

The big difference between this year and last year, is the level on the 10-year yield. Last year this time, yields were 2.20%. Today, yields are closer to 3%. That’s because the economy is hotter, and inflation is finally reaching the Fed’s target of 2%.

What asset class should perform the best in a rising inflation environment? Commodities. As we’ve discussed in recent weeks, the data on the economy is lining up for some big positive surprises. That will be fuel for commodities prices.

If you are hunting for the right stocks to buy,  in my Forbes 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.

By Bryan Rich

June 15, 5:00 pm EST

The big approval on the AT&T takeover of Time Warner has opened the door to big industry consolidation coming down the pike.

When Trump won the election in November of 2016, by December, the billionaire Japanese business man Masayoshi Son was meeting with the President-elect in Trump Towers.  Son owns more than 80% of Sprint and was wanting to merge with TMobile to challenge the duopoly in the wireless carrier industry (AT&T and Verizon).  The prospects of this deal (a merger) were killed by the Obama administration, as antitrust enforcers warned it would put the dominance of the wireless industry in too few hands (from four to three) – making it less competitive.  That deal had new prospects with Trump.  So Son got on a plane.

He clearly knew the Trump administration was going to be very pro-business.  And the likelihood of getting a deal blessed under Trump’s watch (relative the outgoing administration) improved dramatically on election day.Indeed, deal making is hot under Trump.  Last year, there were over 18,000 merger and acquisition transaction in North America — the highest on record.  This year, a little less than half way through the year, and we’ve had a little less than half the volume of last year.  And Son’s deal with TMobile is now in the queue for FCC approval.

And of course, we now have the 21st Century Fox bidding war.  The company had already agreed to sell (most of) itself to Disney.  But when the AT&T deal was approved, Comcast stepped in an upped the ante.  All of these deals have everything to do with keeping their footing in the “Information Revolution.”  If not, they get made irrelevant by the tech giants.  They are fighting to maintain their moat on internet infrastructure, but they are also fighting to keep their dominant position in content, while going head-to-head with the new players, in taking that content direct-to-consumers.

Meanwhile, the market seems to be pricing in future dominance and monopolies in the FAANG stocks.  These deals are making that less likely.
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By Bryan Rich

June 13, 5:00 pm EST

Watching the media and expert community digest the Fed decision is always interesting.

They are all programmed to home in on the worst-case scenario. It’s very similar to the way they parse politics.

In this case, the Fed projected an extra rate hike this year. They were projecting three hikes for 2018.  Now they are projecting four hikes for the year (two of which are now in the rear-view mirror).  Why an extra hike?  Is it because they want to disrupt the recovery and undo all of their efforts of the past decade to manufacture that recovery?  No.  It’s because they think the economy is good!  In fact, Powell (the Fed Chair) said “the main takeaway is that the economy is doing very well.”

And when asked about the impact of tax cuts, he said, we’ve yet to see the benefits. But, it should “provide significant support to demand over the next three years … encourage greater investment … and drive productivity.”  This is exactly what we stepped through last week in my Pro Perspective notes (here).  We laid out the components of GDP (consumption, investment, government spending and net exports) and we talked about the setup for positive surprises feeding into an economy that’s already running at near 3% growth — because pro-growth policies are just beginning to show up in the data!

With that, it should be no surprise that the Fed feels more comfortable telegraphing another hike, from what is still very low levels of interest rates.

Now, what is the negative scenario the pundits have been harping on?  The yield curve.  With the Fed gradually walking up short term rates (rates they set), the benchmark market interest rates (namely the 10-year government bond yield) has been soft.  That creates yield curve flattening, which gets the bears excited that a yield curve inversion could be coming (a good historical predictor of recession).

Why is the 10 year yield soft?  As we’ve discussed, the two major central banks that are still in the QE game have been anchoring longer term interest rates through their outright purchases of global government bonds (including lots of U.S. Treasuries, which keeps a cap on yields).

On that note, we have the ECB tomorrow.  And the Bank of Japan will meet on monetary policy tomorrow night.  The trajectory of global monetary policy is UP.  And the more the Fed does, the more it forces that timeline elsewhere in the world to follow the Fed’s path on normalizing rates.  The ECB will be following the Fed normalization path soon.  And the Bank of Japan will be last.  And when we get hints that it’s coming sooner rather than later, the yield curve will start steeping, and the bears will have a very hard time justifying their “sky is falling” view.

By Bryan Rich

June 11, 5:00 pm EST

Last week we stepped through all of the components of economic output and talked about the setup for positive surprises.  Keep in mind, the economy is running at near a 3% pace already.  And if Trumponomics is just in the early stages of materializing in the data on consumption, investment, government spending and exports, then we may be in for a big growth number.

On Friday we talked about the exports (i.e. the trade) component.  On that note, the media was stirring over the combative tone from G7 events over the weekend.  What I heard was the potential for big movement (i.e. gains on U.S. exports, which will drive gains in GDP).  Trump went in and proposed taking down all trade barriers.  That’s negotiating from an extreme.  And that typically brings about movement.  Quickly, trade partners were discussing “reducing” barriers.

With hotter than expected growth coming, how will that effect Fed policy?

We will soon see.  The Fed meets this week.  They continue their path of normalizing rates.  They’ve hiked once in 2015, once in 2016, three times in 2017 and once, thus far, this year.  The market is nearly fully pricing in a second hike for the year on Wednesday.  And expectations are for another hike in September.   We’ll see this week if they’re adjusting uptheir growth forecasts.

As for the rate path:  Remember, Powell is a Trump appointee, and from what we’ve heard from him thus far, he sounds like someone that’s not going to risk chipping away at the recovery by jumping ahead with overly aggressive rate hikes.  Unlike the last regime, he will likely take a “whites of inflation’s eyes” approach.

If you are hunting for the right stocks to buy on this dip, 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.