I’m headed to NYC tomorrow night with my beautiful wife and 5-year old daughter. I’ll be meeting with hedge fund managers, media executives and tech analysts. I’ll even be making my return to Fox with an appearance on Fox News on Wednesday sometime in the 4pm ET hour and on Fox Business on Thursday in the noon ET hour. I don’t know what the topics are yet, but like old times, I’ll be happy to discuss just about anything they want, including the economy, stock markets, technology, politics, etc.
As for the markets, I think the earnings season (and the stock market’s reaction to it) is more important than the Fed’s pending rate cut announcement. The conventional wisdom is that if the Fed cuts 50 basis points, the markets will rally big. If the Fed cuts 25 bps, the markets will rally a little bit. And I’m not sure anybody expects the Fed to sit tight, but if the Fed were to sit tight, conventional wisdom is expecting the markets to fall. As I’ve explained before, conventional wisdom about the Fed is usually wrong — as the markets might actually start to worry that the Fed is seeing a crisis ahead if they cut 50 bps.
Then again, I wouldn’t panic ourselves out of this Bubble-Blowing Bull Market just yet, no matter what the Fed does next. The fact is that there’s still tons of money looking for positive returns and the collapse of interest rates is making it hard for people to dis-invest from stocks, bitcoin, etc. And more apropos, remember when I explained how most every asset class you can find is up huge this year and how maybe the Fed’s already been pumping trillions into the economy and the stock markets? As I pondered back in April:
“I have a new working theory that the Fed has been already been secretly pumping a trillion dollars or so into the economy using some of the levers they and Congress created for themselves in all those “emergency measures” from the 2008 crisis. Might help explain why just about every asset class in the world, from stocks to oil to bitcoin etc, have been on fire this year. It’s not about cutting rates — they’ve got at least a dozen other ways of pumping liquidity these days from QE variations to even more complex tricks. Trump wants the Fed to pump even more money into the economy and I think they have secretly been doing that anyway and he and his economic team know that. Remember that much of what any politician says in public is for gamesmanship, not because they mean it.”
Meanwhile, the near-term might be all about earnings and not the Fed. The markets have been willing to ignore the earnings and revenue impact of The Great Trade War so far, but this is probably the first earnings report where the magnitude of the impact on earnings is going to be felt across most of the country. The consumer keeps chugging as employment has stayed strong, but there are many China-based companies that are pulling back from the US. Here’s an article that underscores the China-capital-flight issue starting to impact real estate in NYC and other sectors of the economy:
Chinese Money in the U.S. Dries Up as Trade War Drags On “Chinese foreign direct investment in the United States fell to $5.4 billion in 2018 from a peak of $46.5 billion in 2016, a drop of 88 percent, according to data from Rhodium Group, an economic research firm. Preliminary figures through April of this year, which account for investments by mainland Chinese companies, suggested only a modest uptick from last year, with transactions valued at $2.8 billion.”
Those numbers aren’t big by themselves, but remember my point a couple weeks ago when I explained how big the impact from Huawei’s $40 billion revenue guidance cut was. $40 billion here, $40 billion there, pretty soon we’re talking about real money.
There are times to swing for the fences and there are times to get net short. This is probably not the best time for people to load up on the S&P 500 or Nasdaq or FAANG. I’m not saying they’re going to crash either though, so it’s probably not the best time to load up on the shorts. I do think we have several names in the portfolio that look terrific risk/reward for the long-term (and maybe for the short-term too), including TSLA, UBER, TWTR, TSM and QCOM. But I’m not adding to them today as I am almost hoping we can get volatility that would open up some opportunities to buy some more, maybe even nibble some call options, also like old times!
Be careful with putting money to work, at least that’s what I’m mostly doing. You guys know that I’m more than willing to get aggressive when the pitches, the valuations, the markets, the cycles are set up for us. This doesn’t feel like one of those times. One week from now, one month from now, things will be very different and there will be some terrific pitches coming our way here. I’m on it but I won’t force it. Let’s rock.