One trade I’m going to make, covering one of our short positions. I think it’s time we lock in our small profit on GW Pharma and move on.There’s a lot of research on both sides that show cannabis-related drugs might or might not be effective for epilepsy and/or other seizures and/or other illnesses. GW Pharma has enough of a war chest now to try and prove its drugs are effective that I want to move on. The company recently raised a quarter of a billion dollars in a secondary offering and the fact that the company itself actually put that money on the balance sheet rather than just facilitating a bunch of insiders selling shares sets it up to actually try and get some of its cannabis-related drugs approved and into the market place.
Have the stock markets finally broken this wild up trend that it’s been on since the Brexit lows? That’s the big question for most managers and traders and people who are stressed about their portfolios. Here are a list of factors that have contributed to this big rally and a comment or two about where those factors are now.
* Global Negative Interest Rates – As I’ve outlined repeatedly this year and have reminded you every time the stock markets have sold off, the negative interest rates around the developed world make the US stock market look ever more attractive relative to most people’s options in say, the EU or Japan. I expect to see more negative interest rates from central banks and on government bonds around the developed world throughout 2016 and into 2017.
* Fed cover – You do realize that the US Central Bank still has yet to pullback from the “emergency measures” and easy money policies it has created and added to repeatedly since The Great 2008 Financial Crisis. The Fed has lots of cover to avoid raising rates and/or even create new “emergency measures” if there’s “turmoil” in the EU or China, etc because every other major economy are in an even easIER-money mode. the US Dollar is the safest of all fiat currencies. No rate hikes for 2016 and into 2017.
* Earnings growth – As I’ve also repeatedly explained even when other analysts have declared the end of earnings growth (how many of those analysts foresaw the earnings growth that they’re now saying is over?), corporate earnings continue to grow. And leading the way is tech, specially #AppRevolution-related stocks and the other Revolution Investing names we own. Earnings growth looks like it will continue, lead by our stocks, for 2016 and into 2017.
* Cheap valuations – Unfortunately, it’s a lot harder to say stocks are cheap when many names have rallied 30-50% since the Brexit panic and/or are up 50-100% from their lows of the year during the January stock market crashes (what were the reasons for those again? I honestly can’t remember what crisis du jour was back then). Twitter was cheaper at $14 six weeks at the Brexit lows when I was adding to it than it is at $20. Same can be said for Facebook, Nvidia and the other names I add to while the stock markets were in the Brexit panic.
In sum then, the overall bullish framework for the stock market remains in tact, but I don’t want to be plowing into new long exposure. And since we had for the foresight to buy stocks lower, we can be patient and even a bit cautious right now. Don’t forget we’re heading into a Presidential Election that will include a lot of trade bashing, CEO-bashing, health care costs-bashing and warnings about how bad the economy and the stock market will be if the “other” candidate wins. (The “other” candidate being the one you aren’t voting for, whichever one that is…and everyone will be worried “their” candidate won’t win.)