3,150 Friday – Finishing the Month Strong on the S&P 500

3,150!  

That's up 150 points (5%) from where we cashed out most of our Member Portfolios in September and, though we missed a 10% pullback right after that – we have now missed a 15% recovery.

 

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Wednesday Wipeout – Let the Slaughter of 50M Turkeys Begin!

Thanksgiving Turkey DinnerGetting ready for Thanksgiving?

If you are an American, of course you are – it's what we do here.  And, of course, after the orgy of food to be consumed tomorrow – we begin the orgy of shopping known as Black Friday – because that is, traditionally, the day that the ledgers for retailers finally gets into the black for the year.  

The Retail Sector has already made a bit of a comeback, with the Retail ETF (XRT) gaining 7 points (18%) from the August lows, outpacing the 10.5% gain on the S&P by a wide margin.  Still, overall, XRT is still about 15% below last year's highs so there's still a lot of bargains out there – including our beloved Macy's (M), who host the Thanksgiving Day Parade from their flagship store in Herald Square – which is the World's Largest Department Store at 2.5 MILLION square feet and, in downtown New York City, with rents at $776 per square foot – that's $2Bn a year if they decide to rent it out – yet you can buy the whole company for just $4.75Bn at $15.37/share.  

Image result for miracle on 34th street macy's"Macy's has been entertaining the idea of SPENDING about $1.5Bn to build 1.2M feet on top of the existing structure and use that space to generate about $1Bn a year in rental income.  They already have to maintain the building so, aside from the building costs – they wouldn't be taking on a lot of running expenses – so it's a very good idea and, when you consider that Macy's "only" drops about $1Bn a year to the bottom line (on $25Bn in sales) – it's a GREAT idea.

Unfortunately, for about 3 years, it's all costs and no income so nothing to get excited about for the short-term investor but, for a long-term accumulator, Macy's just narrowly missed being our 2020 Stock of the Year and I predict it will be our 2023 Stock of the Year as construction nears completion and income is poised to double.  I don't think Retail is dead in the same way that Radio isn't dead just because we have TV now. 


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Trade Talk Tuesday – USMCA (NAFTA), Not China

Image result for usmca cartoon"We might have another trade deal!

Yeah, that's right, I'm going to pretend to be excited about signing the US-Mexico-Canada trade deal and I'm going to pretend it's not just NAFTA with a different name and I'm going to pretend that deal wasn't supposedly all set 18 months ago and is only finally being ratified by Congress in a meaningless gesture that changes nothing.  Of course, it's not ACTUALLY being ratified but – PROGRESS IS BEING MADE – so the market is, of course higher.

Meanwhile, back in the real World, China's Ministry of Commerce says "external rumors" about the trade talks are not accurate and that the "so called" phase-one agreement may not be completed until next year as Beijing presses for greater reductions in tariffs and the Trump Administration pushes back with its own demands.  Trump has, so far, been sticking to his threat that tariffs will INCREASE on Dec 15th – it's very hard to imagine any deal getting done if that happens, as it would then look like China is breaking under Trump's tariff pressure and China would rather walk away than look weak.  

At least Alibaba (BABA) is having a good day, raising $11.2Bn in Hong Kong despite stores being shuttered and the streets smokey with tear gas.  BABA stock popped 6.5% this morning as they raised money on that exchange though that was already anticipated in a weeklong run on their Nasdaq proxy (BABA) – so don't expect the same over here as it came in right around their original HK target of $24, which they then lowered, so they could beat it.

Alibaba’s share sale was the largest offering of any kind in Hong Kong since 2010. The money raised by Alibaba will be added to the company’s cash pile, which is now $43 Billion – enough to buy M, JWN, KSS, BBY, BBBY, LB AND HBI – if they ever want to escape Hong Kong's Democracy and come to America…  

 

 

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Manic Monday on a Short, Low-Volume Week

Image result for china protest"The Futures are up again – yawn! 

Progress was made on the Trade War – again – as China agreed to raise the penaties they never enforce on IP Theft over the weekend but keep in mind our expectations have been lowered so much that the market is now celbrating SOME progress on a PARTIAL trade deal – 2 years after the fact!  When did we all become such idiots?  Because of the trade progress, Trump has left the Hong Kong protesters out on a limb by refusing (so far) to sign Congresses bill sanctioning China for their brutal crackdown.

Fortunately, Hong Kong citizens weren't waiting for Trump and Putin's approval and they went to the polls this weekend and overhwelmingly voted for pro-Democracy (the thing Trump and Putin are against) candidates who won 90% of the seats up for grabs with a record 71.2% turnout at the polls despite China's voter intimidation tactics.  This is very worrying for Trump and the GOP, who are counting on their own voter intimidation tactics to keep potential Democratic supporters away next November.  

Hong Kong's embattled Government took a page out of Team Trump's playbook and attempted to spin reality with this statement:

"There are various analyses and interpretations in the community in relation to the results, and quite a few are of the view that the results reflect people's dissatisfaction with the current situation and the deep-seated problems in society, (The government) will listen to the opinions of members of the public humbly and seriously reflect."

Image result for china protest"Democratic candidates on Hong Kong ran on a central theme of "Five Key Demands" from the protests, which boil down to this:

  1. Withdraw the extradition bill that kicked off the entire crisis (since achieved)
  2. Launch an independent inquiry into allegations of police brutality
  3. Retract any categorization of a protest on June 12 as a "riot"
  4. Amnesty for arrested protesters
  5. Introducing universal suffrage for how the Chief Executive and Legislative Council are elected.

You…
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Friday Follies – Market Drifts Into the Weekend Slightly Weaker

Watch the Russell.

Both the Russell 2,000 and the NYSE (about 1,900) are broad-market indicators and both of those indexes have been weak, not just this week but for the month of November.  The Dow has just 30 stocks and any one (AAPL) can lift it higher and the S&P 500 has 500 stocks and heavyweight stocks (AAPL) can lift it higher without broad participation and the Nasdaq (100) is dominated by one stock (AAPL) and even the broader Nasdaq Composite (3,300) is very heavily weighted to it's top stocks (AAPL).

Apple is up over 30% since early August and up 50% since the June swoon and 70 AAPL points time 8.5 Dow points per Dollar (yes, the index is that stupid) means AAPL alone added about 600 points (33%) of the Dow's 1,800 point run since early August.  That's a lot of eggs in one basket!

I would argue that AAPL may deserve its valuation but United Health (UNH) is up 55 points since October (467 for the Dow) so there's two stocks responsible for more than half the gains right there.  How much did the rest of the index go up just because the leaders went up and NOT based on their own merits?  

As I mentioned on Wednesday, we are approaching the point of peak valuation on the broad indexes.  My prediction when we cashed out our last batch of portfolios on September 18th was that EVEN IF there were a trade deal with China, the S&P 500 would top out at 3,300 (10% gain) but, if there were no deal – we were just as likely to see 2,400 (20% drop) and, since we were sitting on some very large birds in the hand – it simply wasn't worth chasing others in the bush until we saw how 2019 played out.

That didn't last too long, by October 1st we were already bored and we started making short-term picks and then we decided they were good enough to build a new portfolio around, so we started a new Short-Term Portfolio and then, for balance, we started two more in October.  My intent was to wait out the year but it's kind of boring just watching the markets and
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Thursday Flip Flop

The madness continues!  

Yesterday, the Dow dropped 200 points as Trade Talks turned sour but then recovered into the close as the White House insisted they were still talking to China but then rumors came out after the close that we were still very far apart but then China invited the US to come to Beijing to continue negotiations and we are back up 200 points yet again into this morning's open.  That little range pays $1,000 per contract in the Futures EACH TIME – so much fun!  

If only I had a friend in the White House who could tell me which way the wind was going to blow so I could place my bets…  That's rumored to be happening – a lot – but, so far, no whistles have been blown on that one.  

 

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Wednesday Weakness – Broader Indexes Can’t Close the Deal on New Highs

Image result for water freeze animated gif"Water freezes at 32 degrees

That's a FACT we can all agree on, right?  Unless, of course, you are using Celsius, in which case 32 degrees is 90 degrees (89.6 for your sticklers) Fahrenheit and -402.07 Farenheit if your 32 was in Kelvin.  But water doesn't care, it still turns from solid to liquid at the same temperature – no matter what your opinion of measurement is.  It's not the FACT of water changing that is in dispute, it's how you choose to interpret that fact but that does NOT mean that "everyone is entitled to their own opinion" about what temperature water freezes at.  

So there can be an absolute fact but there can be endles confusion about how to report the fact and that then leads to many interpretations of what the facts actually mean and the more facts you are using the more complex the interpretations can become – and that's the stock market.  Not only are the measurements used by Economorons always in flux but there is even the added challenge that we don't have consistent measuring tools. 

Image result for facts and figures"For example, trade could be up 3% from last year but, if the Dollar is 5% weaker, then our Import Spending would rise 8% while our Export Revenues would fall 0.2%, leading one to conclude that the trade gap had widened by 10%.  Of course, it's much more complicated than that because each trading partner has their own currency exchange and some goods are price flexible and some are not and some, like Oil, are priced in Dollars anyway.  All in all it's enough to make your head spin if you think about it – so most people don't.  

Companies do have real value – it is just distorted through so many lenses that most people think it's difficult to determine as, not only do you have to adjust for current business measurments, currency fluctuations, taxes, etc. but you also have to determine if the past is directly comparable to the future and you then have to predict the future for the company, which means predicting the future of their particular sector and perhaps the overall economy locally, nationally and globally.  …
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Tempting Tuesday – China Adds More Stimulus to the Global Excess

What are they so afraid of?

I know I sound like an old curmudgeon, always looking at the downside of all these rallies but doesn't it seem odd that our Governments seem to find it necessary to add various forms of stimulus to economies they keep telling us are great – again?  This week it's China, with the PBOC cutting rates on its Repos for the first time since October of 2015 – sending the Shenzhen Index up 1.8% overnight and even Hong Kong's Hang Seng Index rose 1.5% to the sound of gunfire on the streets exchanged between students and the police.

Having had a day to digest that news, investors seem to believe that the rate cut is indeed a sign of better liquidity on the way, lifting more sentiment-driven stocks in Shenzhen,“ said Bill Chen, CIO at Shenzhen Valley Asset Management Co.  As to the Hang Seng – it was in danger of failing 26,000 and turning negative for the year and China doesn't want it to look like the protests are affecting their business – even though they clearly are.  

Image result for china state media cartoon"In fact, the headline in the South China Morning Post is:  "Hong Kong's Stock Market Bulls Shrug Aside City's Street Protests" saying: "42% investors surveyed by Bright Smart Securities expect the Hang Seng Index to rise 5% next year, while only 6% see it declining from the current level." 

Apparently, 52% of the investors were hiding from the Government surveyors…  “The protests may have led Hong Kong’s economy into a technical recession in the third quarter, but the survey shows Hong Kong investors are cautiously optimistic about the stock market next year,” said Edmond Hui, chief executive of Bright Smart Securities.

 

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Monday Market Momentum – Still Going Up!

Image result for curiouser and curiouser"Curiouser and curiouser.

Now we're approaching 3,150 on the S&P 500 (/ES) and my prediction was 3,300 IF we got a trade deal (and then back below 3,000) but, if we're getting this simply on rumors of a partial trade deal maybe happening sometime – who knows what madness lies ahead?

"One pill makes you larger, and one pill makes you small
And the ones that mother gives you, don't do anything at all
Go ask Alice, when she's ten feet tall
And if you go chasing rabbits, and you know you're going to fall" – Jefferson Airplane

Image result for a very merry unbirthday animated gif"Uh oh!  The last time I started making Alice in Wonderland references about the stock market being ridiculous was back in the Summer of 2008 when, as it turned out – it was ridiculous and we crashed horribly soon after.  Today we are celebrating that crash's UnBirthday though the situation is a bit different this time and apparently traders have gotten older – simply not wiser… 

Back in 2008 oil was over $100 per barrel and most people thought it was a sign of a strong economy but I said "How can the Consumers afford to keep paying this?" and, lo and behold – they could not.  Now we have a rally that is fueled not by oil money but FREE MONEY and, while Consumers are spending at record levels – their debts are piling up at record levels as well.  How can the Consumers and the Government afford to keep paying this?

 

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Thank Kudlow It’s Friday – Trade On!

Image result for kudlow crazy"Larry Kudlow says things are going great!

That's enough to pop the indexes another half a point overnight because there is ALWAYS about to be a trade deal with China and we ALWAYS celebrate it as if it's a surprise party – over and over again.   As George Orwell said:

"And if all others accepted the lie which the Party imposed -if all records told the same tale — then the lie passed into history and became truth. Who controls the past,' ran the Party slogan, 'controls the future: who controls the present controls the past. And yet the past, though of its nature alterable, never had been altered. Whatever was true now was true from everlasting to everlasting. It was quite simple. All that was needed was an unending series of victories over your own memory. 'Reality control', they called it: in Newspeak, 'doublethink'."

 

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