When you look at the historical odds of the stock market, there are only two consistent months that are considered dangerous to investing. Yes, they come back-to-back and we are in the first one, but the other ten favor investing. In addition, the market makes it easier to buy a stock than to short a company. Nevertheless, life happens and the bears do beat the bulls from time-to-time. With that said this month's piece centers more on the negative or cautious rather than on buying into the longest rally in the history of Wall Street.
Of course, all the news isn't negative in the market. There are many stocks hitting new highs like the trillion dollar club. It has two members in Apple and Amazon. Google would like to join, but the problem for the market is the clutter of obstacles on the horizon. There is the issue of trade deals. President Trump is trying to bring manufacturing back to the US. He sees the continual deficits by trading partners as cheating. Sebastian agrees with this point. His adding tariffs will slow global trade and US stocks. The Fed is raising interest rates. There is the geo-political concerns with N. Korea, Iran and the possible contagious ones like in Venezuela and in the EU. There is the present rotation of stocks within the market. One of the leaders in this rally has been the chip stocks. Dear reader, that is no longer the case. Although some companies like Qualcomm(QCOM) and Advanced Micro(AMD) are still rising, Micron(MU) was $64 and now, $44. It is heading to $37. Broadcom(AVGO) is doing likewise. It was $270 and now, $236. It touched $200. Ouch! The ETF for the chips(SMH) has been range bound since December 2017. Not good. Finally, the most traded, high risers, the FAANG stocks. Let's take a look.
Company Was Now Heading
*Facebook(FB) $218 $162 $149
*Apple(AAPL) $229 $223 still rising
*Amazon(AMZN) $2050 $1970 - still rising, recent stumble
*Netflix(NFLX) $423 $364 $310
*Google(GOOG) $1273 $1172 consolidating.
As the numbers on the chart reveal, the big boys are losing steam. Apple stated that the tariffs will effect their bottom line. This aspect could end its rising ability. The S&P had tech make up 26% of their index. They notice the trend and now, they have reconfigured tech down to 20%.
Then, there is the warnings from people and institutions that have a name. I use that expression because literary agents told me and Sabastian that we have some interesting ideas, but we don't have a name to which is the numero uno reason why my book has not been published. Anyway, you can read what they are saying. In many instances you will feel that you read the same comments before. You have. Right here!
Pimco: is raising a "yellow flag" due to rising prices.
JP Morgan: sees Tesla down to $195. It was $390. I said $249. Does it matter? This is lost sleep and financial pain. They see a recession beginning in 2020. Market will be down 20%, maybe more. They point to liquidity as the cause.
Jeff Gundlach: says you cannot have deficit-funded stimulus while at the same time, a hawkish monetary policy.
Gary Shilling: his warnings from 2004-2006 on housing was the inspiration for the book and movie, "Big Short." Excess leverage will always bring down a financial institution. Now, he says, there is $249B in debt in the emerging markets due next year. If it can't be rolled over, CONTAGION!
Jim Stack: said in 2005, there is a trillion dollar bubble in housing. Now, he says, housing related stocks went up parabolic. They will fall just as hard in the next 12 months. Not good for housing.
Raghuram Rajan: said in 2005 when he was an economist for the IMF at the Jackson Hole conference of central bankers, the banking industry is in danger with risk and possible systemic collapse. Now, he says, there is a danger with the rise of shadow banking that is unregulated. They have excessive leverage.
John Mauldin: foresaw a pullback in housing and consumer spending which will hurt equities in 2006. He claimed that they could fall 40%. This guy is spot on! Now, he says, there is danger in unfunded liabilities as excess debt makes everything rising unsustainable. He sees Europe starting the problem, maybe from Italy. Members will want to put all debt into ECB. This problem could cause a 50% collapse in prices.
Speaking of Europe, Hungry faces losing its membership voting rights in the EU due to its immigration policy. They stopped it. This is another angry member to which there is many.
The chairwoman of the IMF revised her global outlook, downward due to trade tensions.
And just yesterday three prominent business leaders, Roubini, Tepper and Dalio all turned bearish.
Maybe one reason is this tidbit about the US national deficit. Every month it cost the US, $32Billion just to pay interest on its debt. Imagine how this rises with the Fed raises interest rates?
Best wishes to go out to all under duress from Hurricane Florence. FEMA says that just one inch of water in someone's house cost $25,000 in damage to repair. That is scary...
Finally, this one goes under Wild and Crazy
Tilray(TLRY) a cannabis style company that had an IPO earlier this year at $17 per share is over $154 today. It has little revenue, roughly $34 million. Well, it has a market cap greater than the largest gold mining company, Barrick Gold(ABX) which has revenues of $7.6 billion. The market is indeed irrational and this one has trouble written all over it. Don't get me wrong. Under disclosure, I have shares of Aurora Cannabis. Good for those who have TLRY, but I'd take my windfall, now!
I like to add one point to the phony high ground coming out of Europe toward the US for not signing their climate accord. A German energy company, RWE, is destroying the last ancient forest in the country(Hamback Forest) to extract, COAL! Their phony high court gave them the go ahead to remove people from the forest who are tree and nature lovers, so the bull dozers can rip out the forest. At least, in the US we keep coal in regions and try to maintain our green environment at the same time. Also, if Germany needs some coal, we can sell them all they want, but I bet that they have restrictions against to many imports. An invisible tariff!
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