?It doesn?t take Herculean assumptions to get to $125 for S&P 500 earnings this year. Slap a 16 multiple on that, and you get 2,000 for the index,? said Brian Jacobson of Wells Fargo Advantage Partners.
Global Market Comments
June 13, 2016
Fiat Lux
(WHAT?S ON YOUR PLATE FOR THIS WEEK),
(SPY), (MUB),
(THE PASSING OF A GREAT MAN),
(JUNE 20 LONDON STRATEGY LUNCHEON)
SPDR S&P 500 ETF Trust (SPY)
iShares National Muni Bond (MUB)
Talk about someone sucking all the air out of the room!
That?s what Federal Reserve chairwoman Janet Yellen is doing, keeping us on the edge of our seats until 2:00 PM Wednesday, when the Open Market Committee?s decision on interest rates is announced.
Will she, or won?t she?
The bigger question is whether stocks will peak on the news, ending a torrid four-month, 30 handle upside move in the S&P 500 (SPY).
I bet she won?t, but then I have never been that good at predicting the needs of women.
Certainly the economic data is not there to justify a rise. And inflation is nowhere to be seen, the sole prerequisite for dearer money that Janet has told us she needs to see first.
In the meantime, a steady drumbeat of warning of an imminent stock market sell off from my old friends, George Soros and Carl Icahn, is rising to a deafening din.
Call them old fashioned, but equity price earnings multiple rising towards a nosebleed 20X against falling earnings, shrinking volume, and narrowing breadth does not scream ?BUY? to anyone with a memory.
Yes, global quantitative easing and negative interest rates may suck in enough foreign money to squeeze a few more points of upside from the S&P 500. But you can chase those pennies with your money, not mine.
In the meantime, individual investors are voting with their feet. According to data released by Lipper Analytical Services, some $850 million fled equity mutual funds last week, the sixth consecutive week out outflows.
The money fled into municipal bonds, $1.2 billion worth. No doubt investors find the stratospheric 1.32% yields irresistible. I guess the IShares National Muni Bond ETF (MUB) is the modern equivalent of a mattress.
It all sets up my scenario of the high frequency traders triggering a few more stop losses to squeeze a few more points of upside, then stocks rolling over and folding like a wet taco shell over the summer.
If that happens, US Treasury bonds will rocket to challenge century low 10-year yields of 1.36%. Fasten your seat belt, don your hard hat, and pass the ammunition!
I?m hearing that risk managers at all the major hedge funds are battening down the hatches and running scenario analyses until their mainframes melt.
Any other data releases will pale this week in the shadow of the Fed decision.
On Tuesday at 10:00 AM EST will be a yawn. The weekly Wednesday bond auctions should be well bid.
The Weekly Jobless Claims at 8:30 AM EST on Thursday will continue to peg numbers at four-decade lows.
It will be interesting to see if $50 plus oil will cause the Baker Hughes rig count to rise for a second week in a row at 1:00 PM EST on Friday.
A quadruple witching option expiration should provide the usual excitement at the Friday close as the plungers and market makers game the even money strikes.
If you have any questions on the above, you can call me via international radiotelephone on the Queen Mary 2 in the aft deck 10 Owner?s Penthouse Suite.
I should be somewhere in the mid Atlantic sipping my Dom Perignon sailing over the wreck of the Titanic.
It was with a heavy heart that I boarded a plane for Los Angeles a few years ago to attend a funeral for Bob, the former scoutmaster of Boy Scout Troop 108.
The event brought a convocation of ex-scouts from up and down the West coast, and said much about our age.
Bob, 85, called me two weeks before to tell me his CAT scan had just revealed advanced metastatic lung cancer. I said ?Congratulations Bob, you just made your life span.?
It was our last conversation.
He spent only a week in bed, and then was gone. As a samurai warrior might have said, it was a good death. Some thought it was the smoking he quit 20 years ago.
Others speculated that it was his close work with uranium. I chalked it up to a half century of breathing the air in Los Angeles.
Bob originally hailed from Bloomfield, New Jersey. After WWII, every East coast college was jammed with returning vets on the GI bill. So he enrolled in a small, well-regarded engineering school in New Mexico in a remote place called Alamogordo.
His first job after graduation was testing V2 rockets newly captured from the Germans at the White Sands Missile Test Range. He graduated to designing ignition systems for atomic bombs. A boom in defense spending during the fifties swept him up to the Greater Los Angeles area.
Scouts I last saw at age 13 or 14 were now 60, while the surviving dads were well into their 80?s. Everyone was in great shape, those endless miles lugging heavy packs over High Sierra passes obviously yielding lifetime benefits.
Hybrid cars lined both sides of the street. A tag along guest called out for a cigarette and a hush came over a crowd numbering over 100.
Apparently, some things stuck. It was a real cycle of life weekend. While the elders spoke about blood pressure and golf handicaps, the next generation of scouts played in the back yard, or picked lemons off a ripening tree.
Bob was the guy who taught me how to ski, cast for rainbow trout in mountain lakes, transmit Morse code, and survive in the wilderness. He used to scrawl schematic diagrams for simple radios and binary computers on a piece of paper, usually built around a single tube or transistor.
I would run off to Radio Shack to buy WWII surplus parts for pennies by the pound, and spend long nights attempting to decode impossibly fast Navy ship to ship transmissions. He was also the man who pinned an Eagle Scout badge on my uniform in front of beaming parents when I turned 15.
While in the neighborhood, I thought I would drive by the house in which I grew up, once a modest 1,800 square foot ranch style home to a happy family of nine. I was horrified to find that it had been torn down, and the majestic maple tree that I planted 40 years ago had been removed.
In its place was a giant, 6,000 square foot marble and granite monstrosity under construction for a wealthy family from China.
Profits from the enormous China-America trade have been pouring into my home town from the Middle Kingdom for the last decade, and mine was one of the last houses to go.
When I was class president of the high school here, there were 3,000 white kids, and one Chinese. Today those numbers are reversed. Such is the price of globalization.
I guess you really can?t go home again.
At the request of the family, I assisted in the liquidation of his portfolio. Bob had been an avid reader of the Diary of a Mad Hedge Fund Trader since its inception, and he had attended my Los Angeles lunches.
It seems he listened well. There was Apple (AAPL) in all its glory at a cost of $21. I laughed to myself. The master had become the student and the student had become the master.
Like I said, it was a real circle of life weekend.
The Mad Hedge Fund Trader at Age 11
?Outsourcing is quickly becoming mostly outdated as a business model,? said GE CEO, Jeffrey Immelt.
Global Market Comments
June 10, 2016
Fiat Lux
Featured Trade:
(JULY 9 FLORENCE, ITALY GLOBAL STRATEGY LUNCHEON),
(MY YEAREND STOCK MARKET VIEW),
(SPY), (QQQ), (PANW), (GILD), (IBB), (BAC),
?(AAPL), (KBE), (GS), (LEN), (USO), (DIS),
(SAN FRANCISCO?S LONG SUFFERING RENTERS
?TAKE ANOTHER HIT)
SPDR S&P 500 ETF Trust (SPY)
PowerShares QQQ Trust, Series 1 (QQQ)
Palo Alto Networks, Inc. (PANW)
Gilead Sciences Inc. (GILD)
iShares Trust - iShares Nasdaq Biotechnology ETF (IBB)
Bank of America Corporation (BAC)
Apple Inc. (AAPL)
SPDR Series Trust - SPDR S&P Bank ETF (KBE)
The Goldman Sachs Group, Inc. (GS)
Lennar Corporation (LEN)
United States Oil Fund LP (USO)
The Walt Disney Company (DIS)
I hate to be the bearer of sad tidings guys.
But I think the choppy, volatile, trendless, trading conditions we are all suffering right now will continue for a few more weeks.
The risk/reward ratio for initiating new positions here is terrible. If you are long and right, you might eke out another two or three points on the S&P 500 (SPY) on the upside.
If you are long and wrong, you could lose 20 points in a heartbeat. Not for me, not for me, not even with your money.
Man! I wish I were still back in the Sahara Desert. There, I only had to worry about scorpions, poisonous snakes, heat stroke, kidnapping by ISIS, and raiding Berber tribesmen.
This is why you?re hearing a steady drumbeat from long time pros, like George Soros and Carl Icahn, turning negative on stocks and buying gold.
This is why I am going into the June 15 Federal Reserve Open Market Committee meeting with 100% cash.
In fact, the Fed meeting could signal the top of the entire recent move in stocks, even if they don?t raise interest rates, which my money is on.
The Dow is up 3,000 points in four months, taking company price earnings multiples close to a 20X multiple, a generational high. Breadth is terrible and volume is falling.
The calendar has flipped from friendly to hostile, as we enter the half year period which sees the greatest amount of stock selling (at least it has for the past 60 years).
It all screams ?Stay away!? to me.
Adding to the multiple weirdnesses of this year is the fact that presidential candidate Donald Trump scared many plungers out of the market at the February lows, predicting an imminent crash of epic proportions. Was that before he offered to give the residents of Berlin and Hiroshima nuclear weapons, or after?
I know it was definitely before he launched the withering personal attacks on the federal judge in his current fraud case.
That left everyone underweight in a rising market, which is why the current move has gotten so extended.
From here, I see stocks selling off 5-10% over the summer. Use the swoon to buy stocks with both hands.
I think there will be a huge autumn rally that will take us to new all time highs, as the presidential election fades into the history books.
It really makes no difference who wins. The mere fact that ?the election is gone will be a major market positive. Once again, it will be safe to turn our TV sets back on.
And if Hillary wins, which she almost certainly will, that is another big plus. Remember, her husband Bill presided over a 400% rise in stocks. History could repeat itself.
Sectors? You want to know about sectors? Jeeze, you?re a tough crowd to please.
I think we can go back to our old reliables of technology (QQQ), health care (GILD), consumer discretionaries (DIS), cyber security (PANW), and biotech (IBB).
This coming cycle will see some new additions. They include interest sensitives, like banks (GS), regional banks (KBE), and? homebuilders (LEN).
The interest rate rise we don?t get next week will almost certainly occur in December, and the interest sensitive?s are already starting to reflect that.
Energy stocks (XOM), (OXY), (COP) have run too far too fast, and are already reflecting an oil recovery to $70 a barrel.
Solar (FSLR), (SPWR) will be another winning sector if oil doesn?t go to zero again. Remember, the federal solar subsidy was expended for five more years last December.
As for Apple, expect the slumber to continue until the next new product cycle for the iPhone 7 launches in September. In between cycles is never a great time to buy Apple.
For those who have been prudently sitting on their hands all year waiting for a chance to put more long term, non-trading money to work, that time is coming. Your entry point will open up over the summer.
Let me tell you that I have an unfair advantage in making market calls like this that are bold, confident, and possibly bordering on hubris.
I have the good fortune to live in the San Francisco Bay area. It is like living 10-20 years in the future.
The GDP here is definitely not growing at a feeble 2% annual rate, as it may be for much of the rest of the country (like North Dakota, Oklahoma, and Texas).
It is really growing at a 5% rate, and possibly much more.
The technology boom in the City by the Bay is reaching a 1990?s fever pitch. You can?t get restaurant reservations or lease office space. Companies have launched serial poaching of staff with only the most limited experience at eye-popping salaries.
Contractors everywhere have turned into prima donnas.
Housing is a joke. A friend of mine managed to score a tiny, rent controlled pre-war studio apartment for $2,000 a month after winning a lottery against 50 other entrants. He had to pay a $100 ?application fee? just to enter the lottery.
Oh, and since this is one of the few dog friendly buildings in the city, the whole place smells like crap and dog hair, as every resident owns a pet. Open the door, and you get a slap in the face.
Yes, I know that the United States is not San Francisco.
However, the tools and services that are created here, at a breakneck pace, can be used by the rest of the world to dramatically improve productivity and profitability.
That boosts growth and share valuations everywhere.
By the way, if any of you has a twenty something kid looking for a job and a purpose in life, send them to San Francisco immediately. With any luck, they will be able to gain a foothold and pick up some coding skills before the next crash occurs.
As for me, I am going to try and maintain discipline and not chase every little gyration of the market.
You can?t take advantage of the coming best buying opportunity in a year if you blew all your money trying to catch the small fry.
I Much Prefer Being Here Than in the Market
The San Francisco Bay area?s beleaguered renting class moaned again when the social media giant, Twitter (TWTR) finally went public a couple of years ago.
The deal immediately placed $1.82 billion into the pockets of early shareholders, almost all of whom live near the company?s San Francisco headquarters.
This is adding insult to injury to those in the region who are desperately seeking a home. San Francisco already has the most expensive rentals in the country.
The median rent for a modest two-bedroom apartment in a marginal neighborhood with poor access to public transit and no view is $4,500 a month.
Forget about it if you smoke, have a pet, or suffer from a poor credit rating. That compares to $3,150 a month in New York City, $2,300 in Boston, and $2,250 in Los Angeles.
This is just the latest tsunami of cash to hit the city?s torrid real estate market. Since 1998, Apple (AAPL) has created $700 billion in equity for shareholders, while Google (GOOG) has manufactured a further $450 billion.
In 2012 Facebook (FB) joined their ranks with a $100 billion IPO that quickly went sour. What is hoody wearing Mark Zukerberg?s creation worth today? A stunning $339 billion.
The first thing these newly enriched entrepreneurs do is buy a nice big house. This is not just limited to founding technology nerds and geeks wearing hoodies.
During the early start up days of these cash starved companies, shares are handed out to employees in lieu of better pay, all the way down to the secretary level. When they go public, thousands of millionaires are created and not a few billionaires.
Presto! A housing bubble!
Renters are getting creative in dealing with the high prices. Some are doubling up the use of bedrooms. Others rent out their beds during the day to programmers who often prefer working all night, much like hot sheet hotels of old.
Many have moved into the garage and sleep with the business they are trying to develop. Some homeowners with yards are leasing out spaces to pitch tents, while others are taking advantage of new services on the internet that allow them to rent spare rooms by the night.
There is no way of telling how far this will go. The last technology bubble popped when price earnings multiples hit 100. Most established tech firms are now trading in the 11-18 range, so the day of reckoning could be quite a ways off. Rentals could reach the astronomical levels now seen in London and Hong Kong.
In the meantime, I?m thinking of renting out my tool shed in the garden. My agent says that I could get at least $1,000 a month. The alternative is for home seekers to move to Las Vegas, where they can get a larger two bedroom without the need for heating for only $900 a month.
Do you think it is worth the commute?
Global Market Comments
June 9, 2016
Fiat Lux
Featured Trade:
(JULY 7 DUBROVNIK, CROATIA GLOBAL STRATEGY LUNCHEON)
(TACKLING THE INFLATION MYTH),
(AAPL), (GOOG), (TWTR), (FB),
(THE CALL YOU DREAD TO GET)
Apple Inc. (AAPL)
Alphabet Inc. (GOOG)
Facebook, Inc. (FB)
Twitter, Inc. (TWTR)
It was one of those phone calls you dread getting.
On Saturday morning, I recognized the area code as coming from my hometown in Los Angeles where I grew up. It was my old friend, Jim, who I went to high school with.
He asked me if I was sitting down.
I answered, ?Yes.?
His brother, Robert, had just retired after a 33-year career with the City of Los Angeles as a programmer.
An avid banjo player and lover of blue grass music, he had bought a new RV and planned to start his retirement touring the summer music festivals in Alaska.
He made it as far as Madera, California on CA Highway 99, where he and his wife Elise were killed in a crash.
It was difficult for the California Highway Patrol to piece together what happened, as all of the participants in the accident were killed and there were no witnesses. Nearby residents reported hearing a loud explosion at 10PM.
All they could do was speculate.
Maybe a truck driver fell asleep and rear-ended the RV, driving both vehicles into a giant eucalyptus tree. The RV?s LP tanks ruptured and exploded in a ball or flame, killing everyone.
Or maybe the RV was passing the truck, and unfamiliar with driving a long vehicle they pulled back into the lane too soon, clipping the truck. We will never know.
Rob and Elise leave behind two children. Devon, 23, was hiking the Pacific Crest Trail from Mexico to Canada and no one knew where she was.
I offered to go look for her, as I know the trail well. But I was told that friends were waiting at her next food drop in Independence, CA to tell her that both parents had died.
Her 19-year-old brother was about to join the Marine Corps. I was about to start calling some generals at the Pentagon to get him a good assignment.
Both bodies were burned beyond recognition. It took a CHP detective 10 days to trace the VIN to the next of kin.
The coroner is awaiting dental records before releasing what little remains there are. A memorial service won?t be held until September. There is nothing to bury.
Robert, Dave, John and I were the technology nerds of our days in high school. We built the rockets, shorted out the school power, and set the speed bumps on fire.
There was that night with the case of Ripple which I will never forget.
Robert?s father was the Scoutmaster of our Boy Scout troop (click here for his story, ?The Passing of a Great Man?).
After graduation, we stayed close.
Dave became a resort manager, and died in a mountain climbing accident in Utah in the 1980?s. John, who spent a career as a scientist at the Los Alamos Nuclear labs in New Mexico, is undergoing cancer treatment at UCSF. Now, Robert is gone.
That leaves me as the last man standing of the original four.
To say that I lived a wild and reckless life would be an understatement.
I have been shot, stabbed, broken my neck, and caught almost every disease known to man. I?ve crashed three planes and three more cars. There are whole countries I can?t go back to. Insurance companies hate me.
And I?m still at it. I?m climbing the Matterhorn in Switzerland again next month.
Yet here I am in perfect health, with my 120/75 blood pressure, my resting heart rate of 45, about to walk out the door for another ten mile backpack.
It was Robert, who played it safe, never left town, and was about to collect on a rock solid government pension, who ended up dying a violent death.
Go figure.
It is all proof that you have to live each day of your life as if it is your last, live life like a Mad man, and hope that the check to the undertaker bounces.
For a live TV report of the crash, please click here at http://abc30.com/news/3-people-are-dead-following-a-fiery-crash-in-madera/1356741/?
I?m out the door, headed to the mountains once again.
