What goes up must come down! Prior to this week, all professional managers were getting concerned about the market’s parabolic move up (“meltup”) while the retail investors were overly bullish. That is a real danger sign as this happens at market tops. “Meltups” could end in “Meltdowns”. On 2/2/18, the Dow dropped by 666 points! Is God/Universe trying to tell us something? Just kidding! All the Dow 30 stocks went down on 2/2/18. For this market to have a normal correction, the Dow must go down by about 2500 points. That would be healthy for the long run. Why did this happen today? For the same reason the market crashed on 10/19/87; the 10 year bonds went over 2.7% and the Federal Reserve talked about inflation making a comeback and having 4 possible interest rate hikes in 2018. In 1987, Dow went down 25% in one day, for us to get a similar crash, the market has to go down 6,000+ points. It will not happen in one day due to circuit breakers where markets get halted for a while for people to cool down. That could have the opposite effect as it happened in Shanghai in 2015 as every halt and restart brings the market down even more sharply. We are dealing with “mass psychology”. People who have made a lot of money over the past 9 years can put their funds in risk free government 10 year old bonds and get 2.7%+ for the next 10 years. It is just common sense. If the 10 year bond rate go to 3% or 5%, the value of your bond will get devalued but if you wait for 10 years, you will get 100% of your initial investment. Now as margin calls come in, we could have one wave after another to the low side. As I have been saying for months, stocks bought on margin in the US alone was more than a half a trillion dollars! Most people were assuming that the market can only go up! That never happens!
In the 1980s, a very good market analyst/manager, Martin Zweig came with a good saying, “Do not fight the Feds”. What he meant was when the Federal Reserve start to increase interest rates, get out of the market and when the Federal Start to lower interest rates, start buy stocks. There is always a time lag and people who wait for the last minute could lose all the gains they accumulated during the bull market. Decades or centuries prior to economics getting in to ‘behavioral economics’, technical analysts and other astute market analysts knew that ‘mass psychology’ drove markets. In 2017, economist Richard Thaler was awarded the Nobel Memorial Prize in Economic Sciences for his contributions to behavioral economics and his pioneering work in establishing that people are predictably irrational in ways that defy economic theory.
There are three prevalent themes in behavioral finances. About 100 years ago, John Pierpont Morgan Sr. (J P Morgan) was an American financier and banker who dominated corporate finance and industrial consolidation in the United States of America in the late 19th and early 20th centuries. When J P Morgan was asked how he made so much money in the stock market, he replied, “ I never bought stocks at the bottom and I never sold at the top”. This does not mean that people should not buy low and sell high. It is okay to allow others to make on the final stages of a bull market. This is why I recommend having 50% in cash at all times and buying a little at a time as the stock or the market moves lower.
On each of the stocks listed on this newsletter, I have given a price level where you can purchase more to decrease the average cost; however beware of what market experts call a “catching a falling knife” (buying when prices are dropping sharply and decreasing your portfolio sharply). This is why I have always asked everyone to have at least 50% in cash and when buying stocks, only, “nibble”(buy a little and wait for it to drop much more and then buy more). After that we have to be patient for the recovery. The past 40 years is not a good example. At times, you might have to wait for many years to see a profit.
In my last edition I talked about the bubble in Bitcoins and how many analysts stated that they heard from their Uber drivers how they were going to retire early with their Bitcoin “investments”; and how that was similar to Joe Kennedy being told by his shoe shine boy that he was going to make money on stocks prior to the 1929 crash. Since my last edition, in a month, Bitcoin fell from $17,000 to $7,000 on 2/5/18!
For the first time, we purchased Twitter on 8/3/15, we have a gain on Twitter! These days, most analysts are optimistic about Twitter’s future. Patience paid off!
The US market has been on fire, returning 22% last year. And the action so far in 2018 suggests there’s no looking back. The huge run-up has brought the total market value of the Russell 3000 index (which covers 98.5% of the US market) to $30 Trillion, a staggering amount of money. (Bespoke Investment Group, 1/19/18) The Dow has been accelerating, it only took 8 days to go from 25,000 to 26,000; 23 days for the Dow to move from 24,000 to 25,000, 30 days for the Dow to move from 23,000 to 24,000.
For the past few years, on a weekly basis, I have been checking on the weekly net performance of the 25 biggest international equity markets in the world. Every single week I have seen at least 1 or 2 markets with net losses but for the very first time, during the first week of January 2018, all top 25 international equity markets had gains! This is a nightmare for a contrarian!
For the past few decades I have been a big fan of the halftime report on CNBC. They do a good job of covering equity markets. Kevin O’Leary on Shark Tank got in to a partnership with an immigrant contestant who invented “Benjilocks” that use finger print sensor to open padlocks. Just after this invention was shown on the CNBC Halftime Report, within a few minutes, Kevin O’Leary got calls from Saudi Arabia (a royal prince), Asia and Europe if they too can get in to a licensing deal on these Benjilocks. According to Kevin this was proof that this show is popular in Saudi Arabia and the rest of the world. It also show the global interest in US equities.
Deutsche Bank has released a series of charts that paint a stark picture of the widening gulf between the haves and have-nots in the US and around the world-with broad implications for investors. A record of 30% of all US households had either zero or negative net worth. Another shows that income inequalities is higher in the US than in other industrialized countries. “This development, combined with associated populism, could over the coming years become the most important theme for investors in US equities, rates, and FX”, writes the bank. (Market Week/Barron’s, 1/5/18)
Anyone remember Dow 30 stock Eastman Kodak which was on the Dow till 2004 or so? On 1/9/18, the share price of Eastman Kodak (KODK) jumped from $3.10 to $9.35 –tripling of price, in one day (in about 9 hours)! The very next day, it rose another 57% !! What made this happen? Kodak announced that they were going to get in to cryptocurrencies! Jokingly one good wealth manager said that he is waiting for Polaroid Cryptocurrencies,
Twitter- Aegis Capital upgraded Twitter to a buy (from a Sell) with a target price of $30. Revenue growth is expected and cleanup of Nazis and so on were indicated. Twitter has a reputation of having one good quarter followed by a terrible one; and if they can stop that trend, it would be good for Twitter. Technically speaking, the chart looks very bullish. (CNBC Halftime Report, 1/16/18). Shares of Twitter (ticker: TWTR) soared 9.5% to $24.27 today after a research firm in a tweet called 2018 "the year for"Twitter and said it could be a takeover target. The endorsement and speculation from Citron Research sent Twitter stock to its biggest one-day gain in more than a month. Citron, which put a target price of $35 on Twitter, thinks Chinese social-media giant Tencent Holdings Ltd. (Hong Kong: 0700) could acquire Twitter. Earlier in the week, rumors resurfaced that Salesforce (CRM) may emerge as a buyer of the micro-blogging company. Twitter and Salesforce declined comment. In each case, Twitter shares rose in the same week it lost its Chief Operating Officer, Anthony Noto, to online lender SoFi as its next Chief Executive Officer. Twitter shares have been on the rise since it reported better-than-expected results in October, leading to upgrades and higher target prices from at least six Wall Street analysts. Its shares declined 5% after Noto's resignation. (Jon Swartz, Tech Trader Daily, 1/26/18) For the first time, we purchased Twitter on 8/3/15, we have a gain on Twitter! These days, most analysts are optimistic about Twitter’s future. Patience paid off!
GM-Wall Street’s stance on car stocks recalls an unsubtle bumper sticker seen on some pickups: “I’d rather push a Chevy than drive a Ford.” A slight majority of analysts who cover Chevrolet owner General Motors (ticker: GM) say to buy shares. Fewer than one-quarter like Ford Motor (F). Even though fourth-quarter results for the two will likely show a deeper revenue decline at GM than Ford. Ford reports Wednesday after the close. GM is slated for the morning of Feb. 6. Falling revenues are not a put-off for investors now, for three reasons. First, pricing has been strong, and inventories look manageable. Second, a long U.S. boom for the industry has left investors expecting demand to soften. Last year, U.S. car sales likely slowed for the first time since the Great Recession, and 2018 is expected to be another down year. But declines so far have been modest. Third, GM has shown that shrinking can be good for business. Last May, it announced its exit from European operations. Last quarter, it said all of its operating segments were profitable for the first time since the fourth quarter of 2014. That has gained it credibility now, when it says it is cutting back on slow-selling cars and retooling its key North American truck lineup. By contrast, when Ford warned earlier this month at a Detroit auto show that profits would decline in 2018, it was seen as skimping on details. Morgan Stanley’s Adam Jonas, who is bearish on Ford and neutral on GM (Jack Hough, Feature/Barron’s, 1/24/18)
Ford- Does Chickasaw see single-letter tickers going down the tubes? At the end of the third quarter, it owned 18,300 Ford shares and 6,250 AT&T shares but both names were out in the cold by the end of the year. Perhaps the investment manager believes a move by Ford to boost domestic production of autonomous vehicles could cause the stock to lose even more drive; shares of the automaker turned in a lackluster 8.7% gain for 2017. (Ed Lin, Inside Scoop,1/6/18). Ford Motor (F) tumbled to the bottom of the S&P 500 on Wednesday, hurt by its guidance. Ford slipped 92 cents, or 7%, to $12.18, while the S&P 500 climbed 26.14 points, or 0.94%, to 2802.56. Ford said that it will invest more in electric and autonomous vehicles, but investors were disappointed by its forecast for this year and next, which comes a day after a much more upbeat outlook from rival General Motors (GM). Ford is down 2.5% this year, and has fallen 2% in the past 12 months. (Teresa Rivas, Stocks to Watch, 1/17/18) Wall Street’s stance on car stocks recalls an unsubtle bumper sticker seen on some pickups: “I’d rather push a Chevy than drive a Ford.” A slight majority of analysts who cover Chevrolet owner General Motors (ticker: GM) say to buy shares. Fewer than one-quarter like Ford Motor (F). Even though fourth-quarter results for the two will likely show a deeper revenue decline at GM than Ford. Ford reports Wednesday after the close. GM is slated for the morning of Feb. 6. Falling revenues are not a put-off for investors now, for three reasons. First, pricing has been strong, and inventories look manageable. Second, a long U.S. boom for the industry has left investors expecting demand to soften. Last year, U.S. car sales likely slowed for the first time since the Great Recession, and 2018 is expected to be another down year. But declines so far have been modest. Third, GM has shown that shrinking can be good for business. Last May, it announced its exit from European operations. Last quarter, it said all of its operating segments were profitable for the first time since the fourth quarter of 2014. That has gained it credibility now, when it says it is cutting back on slow-selling cars and retooling its key North American truck lineup. By contrast, when Ford warned earlier this month at a Detroit auto show that profits would decline in 2018, it was seen as skimping on details. Morgan Stanley’s Adam Jonas, who is bearish on Ford and neutral on GM (Jack Hough, Feature/Barron’s, 1/24/18)
GE- In 2017 GE became the symbol of the sick man of the Dow if not the entire stock market as it lost nearly half its value. As the shares continued to slide in the fourth quarter, Chickasaw bought nearly 105,000 of them, pushing its holdings to 185,390 GE shares at Dec. 31, up from 80,800 shares at Sept. 30. JPMorgan still thinks the stock will underperform.(Ed Lin, Inside Scoop, 1/6/18). CenturyLink Investment more than doubled its holdings of General Electric (GE), a stock that lost nearly half its value in 2017. It also bought more shares of Bank of America (BAC) and initiated a position in United Technologies (UTX) while exiting CSX (CSX) and Bristol-Myers Squibb (BMY). Even people who don’t own GE shares or have any interest in buying the stock are eying the company. Can the Spruce Goose of the investing world take flight once more or will it fall apart? CenturyLink Investment is betting on a takeoff. It bought an additional 91,442 GE shares in the fourth quarter, more than doubling its investment to 173,150 shares at Dec. 31. CenturyLink Investment isn’t the only entity bulking up on GE.(Ed Lin, Inside Scoop, 1/9/18) Last November, new GE CEO John Flannery slashed the dividend by half and talked about asset sales to streamline the company. The stock (ticker: GE) fell 12.6% in two days in what looked to be a technical washout event. After a long decline, a sudden big drop in price action accompanied by a surge in trading volume often can mean the final capitulation of the bulls. Whoever held out hope for a recovery threw in the towel and sold their shares at any price just to get out. That can clear the decks for an ensuing recovery. Sometimes it can be quick, with a surge to the upside creating a classic “V” pattern on the charts. Or it can be a long period of directionless trading where interest fades, fast money moves on, and the media focuses on something else.(Michael Kahn, Getting Technical, 1/16/18)
EXXON- In the fourth quarter, ExxonMobil Investment Management reduced its U.S.-traded equities portfolio by 12.3% to $3.5 billion from $4 billion as of Sept. 30. The Exxon Mobil (ticker: XOM) investment arm, whose portfolio mimics the allocations of the Standard & Poor’s 500 index, reduced holdings nearly completely across the board by 12% to 13%.ExxonMobil Investment Management (EIM) didn’t hesitate to sweep out its own kitchen, reducing holdings in parent Exxon Mobil to 673,700 shares on Dec. 31 from 773,800 shares on Sept. 30. Notable exceptions were made, however. EIM bought more shares of Intuitive Surgical (ISRG) and EQT (EQT), and initiated a position in Norwegian Cruise Line Holdings(NCLH). The advisor also bulked up on iShares Core S&P 500 exchange-traded fund (IVV). (Ed Lin, Inside Scoop,1/10/18) US oil (WTI) rising over $60 ($63 on 1/11/18 and Brent or foreign oil at $68), oil stocks have not risen at the rate of oil in the recent past.
Chevron- On 1/11/18, CNBC Halftime Report announced that BMO Capital upgraded Chevron with a target price of $140. After paying their high dividend ($4.32 per share or 3.38% as of 1/11/18), in 2018, Chevron will have $7 Billion in cash. US oil (WTI) rising over $60 ($63 on 1/11/18 and Brent or foreign oil at $68), oil stocks have not risen at the rate of oil in the recent past. It was only a few months (less than 2 years) that the financial markets worried about Chevron paying this high dividend when the dividend per share was higher than earnings per share. It was then that oil companies like Conoco Phillips lowered or eliminated their dividend. How things have changed!
IBM- On 1/18/18, Martin Schroeder, Senior VP Global Markets appeared on CNBC show “Mad Money”. Some of the highlights:
· This quarter IBM experienced revenue growth for the first time in 6 years- especially due to “cloud’ etc.
· IBM beat market expectations on earnings per share by 6 cents.
· IBM expects revenue growth for the next 12 months.
· The mainframe business is alive and doing well. 90% of the world’s biggest banks and 90% of the world’s biggest airlines still rely on mainframes but IBM mainframes are secure.
· H&R Block uses IBM Watson . Watson is a question answering computer system capable of answering questions posed in natural language, developed in IBM's DeepQA project by a research team led by principal investigator David Ferrucci. Mr. Schroeder stated, “Our blockchains (crypto currency) are immutable”.
Schlumberger- New York-based John W. Bristol is an investment advisor that manages about $3.5 billion in U.S.-traded equities. Now in its 54th year, Bristol was established as a successor firm to a company that advised college endowment funds. In the fourth quarter, the advisor graduated some stocks out of its portfolio. Bristol exited positions in CSX (ticker: CSX) and PayPal Holdings (PYPL)--both of which had stellar performances in 2017--while buying more shares of Comcast (CMCSA) and Schlumberger (SLB). It also initiated an investment in Shopify (SHOP). Schlumberger shares have already surged more than 14% so far this year through midday Thursday, but that comes after 2017’s 17% drop, excluding dividends. That’s good news for investors who bought in the fourth quarter, including Bristol. The advisor picked up 152,000 more shares of the oilfield-services giant and ended 2017 with 999,300 shares. We noted a December sector breakout that Schlumberger hadn’t yet participated in. It’s happening now. (Ed Lin, Inside Scoop, 1/11/18)
Valley National Bank- WAYNE, N.J., Jan. 30, 2018 /PRNewswire/ -- Valley National Bancorp (NYSE: VLY), is pleased to announce that Valley President and CEO, Ira Robbins will appear on CNBC's Mad Money with Jim Cramer, this evening at 6 pm (ET). Valley National Bancorp is a regional bank holding company headquartered in Wayne, New Jersey with approximately $28 billion in assets, reflecting the recent acquisition of USAB. Its principal subsidiary, Valley National Bank, currently operates over 230 branch locations in northern and central New Jersey, the New York City boroughs of Manhattan, Brooklyn, Queens and Long Island, Florida and Alabama. Valley National Bank is one of the largest commercial banks headquartered in New Jersey and is committed to providing the most convenient service, the latest in product innovations and an experienced and knowledgeable staff with a high priority on friendly customer service. For more information about Valley National Bank and its products and services, please visit www.valleynationalbank.com or call our Customer Service Center at 800-522-4100.(PR Newswire, 1/30/18)
Apple- If it’s a Thursday, which it is, it must be time for another cut to the forecast for Apple’s (AAPL) iPhone production. Earlier today, Chris Caso, semiconductor analyst with Raymond James, reported that suppliers to Apple with whom he spoke just two weeks ago, at the Consumer Electronics Show in Las Vegas, “now have lower expectations” for iPhone. The “proximate cause,” he writes, is an “unusual product transition,” whereby Apple is discontinuing the existing iPhone X later this year, to replace it with two new models, which he’s referring to as “iPhone Xs," something that had been rumored earlier this week in a report from KGI Securities. As a result, he sees sales of iPhone in the March quarter of perhaps 55 million, which is consistent with what Bernstein's Toni Sacconaghi wrote yesterday when he opined Apple's March-quarter outlook may disappoint. Apple is set to report next Thursday, February 1st. (Tiernan Ray, Tech Trader Daily, 1/25/18). “The unpredictability of the ASP could be the Achilles heel (or maybe slingshot) for the stock,” he muses. Piecyk, who has a $198 price target, suggests that investors “avoid trading the quarter,” given the unpredictability of prices. And, he points out, with his new numbers, March iPhone sales of perhaps $38 billion would still be 15% growth, which doesn’t seem very disappointing, he writes. (Tiernan Ray, Tech Trader Daily, 1/26/18).
Have a great month!