This
Week in Barrons – 12-25-2016:
“Markets react to people,
and sometimes people are a little strange.”
Alan Greenspan
Thoughts:
Regardless
of how you celebrate the holiday, I think we would all agree that the ‘spirit’
of the season is one of sharing. In the
spirit of the holiday, allow me to share my ‘Tip Jar’ with you.
Leadership Tips:
- Say ‘No’
sparingly but strategically.
- Managing with Care and Gratitude
improves creativity.
- Failing early and often is a
recipe for success.
- Always Position
yourself next to the smartest person in the room.
- Learn to use Sleep to help solve your most difficult problems.
- Work Only
on your top 5 problems, and toss the rest away.
- Ask more questions
before giving answers.
- Always Prioritize:
Budget, Decision-maker, and Timeframe.
- Know which 2 out of 3 to
emphasize: Cheaper, Better and/or Faster.
Stock Tips for 2017:
- Twitter’s
difficulty
in being acquired stems from its foundation: money-losing, niche,
non-growth, tarnished brand – with a part-time CEO?
- Ai will become the new
shiny object / buzz-word.
- Uber will not IPO because
they will not have to.
- Stock
Markets and Interest Rates will NOT go much higher. Valuations are stretched, corporations
continue to invest in buybacks over growth, and our FED is all talk no
action.
- Corporate
Buybacks will have another record year.
- Unemployment will NOT top 5%. The labor market continues to decline along with
the number of truly qualified applicants for the skilled positions.
- Oil will drop under $40 a
barrel again as OPEC’s planned production cuts will not stop: “Drill, baby,
drill”. Fracking introduced a new
age of energy efficiency and oversupply.
- Tax Changes will NOT happen. Even Republicans (although controlling
both houses) will not be able to come together on anything meaningful.
- Federal Deficits will soar. Any stimulus spending is
simply a gift to conservative voters, and won’t be paid for with growth or
budget cuts.
- Millennials will come of age. Household formation is at a 50-year low, and the
average 30-something makes less than their parents – but that is what
happens when you take out over $20,000 in debt and graduate into the worst
recession in 100 years. The metrics
have nowhere to go but up.
Health Tips:
-
Sitting is the new smoking. Sitting for five hours is the same as smoking
a pack of cigarettes.
-
It’s not how long you sleep, but rather that you get up and
go to bed on a Regular Schedule.
-
Every Year you
delay your retirement - you reduce your incidence of Alzheimer's by 3%.
-
Dieting is all about manipulating
the bacteria in your GI tract. Dieting
is as much about what you are DOING – as it is about what you’re EATING.
Happy
Holidays to everyone. Hug your children,
kiss your spouse, pick up the phone and call someone you love. It's the most important thing you can do.
The Market:
“2016 was the year
everybody got it wrong.”
2016
taught us that the mood on both sides of the Atlantic was based upon a sense
that governments were NOT looking after their own. The ensuing governmental anger was exploited
by outlier politicians like Donald Trump, Nigel Farage in the UK, and Beppe
Grillo in Italy. All three of these
‘populists’ (a) used unusually blunt language, (b) explained complex issues in
simple terms, and (c) often sided with the underdog. Their ideologies
were NOT often effectively challenged with facts or tempered with reason. In fact, their positions were often
anti-factual, anti-intellectual, and anti-science.
And
the end of 2016, TV’s talking heads are taking us ‘Back to the Future’.
They’re
talking about investing’s ‘new paradigm’ – where earnings don’t matter. Hedge funds are openly comparing their
investing styles to that of 1999 – only it will end ‘differently this time.’
And
as for it ending ‘differently this time’ – let’s do some math:
- The P/E
Ratio (price-to-earnings)
of the Russell 2000 is approximately 237. At the height of the Internet boom the
NASDAQ’s highest P/E levels were only 175.
And days after it achieved that level, the market began its 75%
plunge.
- The CAPE
Index (created
by economist Robert Shiller) is now over 27. That level has only been achieved 3
times: (a) during the 1929 crash, (b) prior to 2000 tech mania, and (c)
during the 2007 housing bubble.
- Investor
sentiment is cheering for DOW 20,000, but remember: (a) 2012 when cheers
were urging gold to go to $5,000/once – right before it plunged to
$1,100/ounce, and (b) 2014 when cheers were moving oil toward $150/barrel
– right before it plunged below $50/barrel.
- Retail
sentiment indicators such as: RSI, the AAII (American Association of
Individual Investors) survey, and the Investors Intelligence survey
continue to reflect the belief that stocks are not going down. These beliefs always happen when the
market is near extremes – just like in 1999.
- And Insider
Selling is heating up in the banking, industrial goods, and energy
sectors. According to Ben Silverman
(Director of Research at InsiderScore), "It's interesting that the
sectors that seem poised to benefit the most from the incoming
administration's policies are leading the insider selling charge."
According to Vickers Weekly Insider, there were almost 5 insider
sale transactions for every 1 purchase last week, and that is bearish in
anybody’s book. The firms leading
in Insider Sales were: United
Rentals, Automatic Data Processing, Athena Health, ON Semiconductor and
Targa Resources.
So
be safe and continue to play the hand that you’ve been dealt – because it’s
still an adventure out there.
Tips:
The
fact that ALL of the above trend lines are moving in lock-step scares the heck
out of me, and brings me to my ‘Tip of the Week’ – the mining sector. The mining sector has been pummeled in the
last month, with the Market Vectors Gold Miners ETF (GDX) dropping 15.4% since
early November. Eventually a bottom will
be established, and these stocks will bounce.
On Friday, someone made a hefty bet that this bounce will happen soon by
purchasing 35,000 GDX January monthly, out-of-the-money calls for $0.63
each. That is a $2.2m investment in pure option premium, and requires
that GDX rally almost 7% within the next month for this trade to
break-even. If GDX can recover (half of what
it lost in November), this position will make $3.5 million for every $1 GDX
rises above $20.63.
To
follow me on Twitter.com and on StockTwits.com
to get my daily thoughts and trades – my handle is: taylorpamm.
Please
be safe out there!
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