This Week in Barrons – 12-25-2016:
“Markets react to people, and sometimes people are a little strange.” Alan Greenspan
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.
- 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.
- 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.
“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.
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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Until next week – be safe.