Interesting from Rev Shark and old friend Brian Reynolds: “‘A normal day in February would see investors buy $4-5 billion of new corporate bonds. Yesterday, they bought over $19 billion. That activity pushed new purchases of corporates over the quarter-trillion level for only the sixth time in the first two months of a year.’ This is very bullish for stocks as the money that goes into corporate bonds is used for acquisitions, buy backs, expansion of operations and other things that bolster stock prices. Essentially this is the liquidity that drives the market higher when equity investors are focusing on big picture negatives.”
This ties into why another round of QE and/or (less likely) negative interest rates in the US seem so likely to me in 2016. The Fed enables artificially lower interest rates which enables corporations to borrow billions to buy back stock to prop up their earnings per share and blunt market sell-offs and create bubbles and crashes and hope that the crashes are contained and kick the can down the road and bailout if you have to and so it goes
….this is the game the Fed has played for the for my entire life time, and they probably won’t change this year. Cornered, they are, as Yoda might put it.
And all of this ties back into why we’ll probably want to be ready for another leg of the Bubble-Blowing Bull Market when the Fed’s made it yet even cheaper for giant corporations to borrow billions.
Feet to fire, I still expect some more panicky market sell-offs into the next few months and that we’ll have the opportunity to do some stock picking at some very compellingly cheap levels. And that bear market action near-term will give the Fed the last bit of cover it needs to start another round of QE and/or those negative interest rates.
And then later this year as the Fed’s started implementing that new QE program by purchasing trillions of corporate and other bond securities from the Too Big To Fail banks, we’ll see months in which a normal day will see investors buy $20 billion of new corporate bonds, which would, as noted above, be considered huge numbers by today’s standards.
Will the Fed successfully help create another round of strong corporate earnings growth (largely because of the aforementioned borrow-to-buyback-stock games) and another leg to the Bubble-Blowing Bull Market (partly through forcing savers around the country to put their cash into higher risk assets like stocks yet again)? Probably, at least for a couple years, I would guess. And maybe I’m wrong about all of this. Obviously, as I’ve noted many times in the last few months, I’ve raised a lot of cash and more than halved the number of longs we have and added some more short hedges than where we were back from 2011-2013. We don’t have to be all in or all out or nail the top and the bottom in the broader market cycles. We can use our playbook to guide us, but we also leave ourselves room for error by remaining long great long-term revolution stocks and always being opportunistic, flexible and as objective as we can be.
On that note, I think Qualcomm’s on a roll as I continually see new supply wins and future possibilities for the SnapDragon processor. I’ve already been buying this stock in the mid $40s and regrettably didn’t do more when it was in the low $40s. The stock seems to have stabilized for now and I’m going to nibble a 1/5th-sized tranche today and will look to buy more on weakness. Someone in the TWC Chat Room asked me yesterday,
I told them, “I’d nibble some more $QCOM sooner rather than later if you feel like you don’t own enough.” Like I said, we don’t have to try to catch the exact bottom in our trades, we are trying to maximize the returns and minimize the risks in our portfolio over our lifetimes. Accepting that reality, using tranches and spreading your purchases out over time, being opportunistic and just generally using our playbook reduces the pressure on you when you do make a trade.
Here’s a note a long-time Trading With Cody subscriber sent me last week:
Wow, now that is what I strive for in this service and I was proud enough of that email that I wanted to share it with all of you subscribers.
Don’t forget to join me for this week’s Live Q&A Chat at 2pm ET today rather than on our typical Wednesday. Talk to you later.