Democrats can’t win for losing as summer comes to a close, and the final sprint to the November elections is upon us. On Friday, the U.S. Labor Department revised the jobs and unemployment numbers once again to show an additional 35,000 jobs and another drop in unemployment below 4%. In the history of presidential midterms, it’s very rare for a peacetime president with a booming economy to lose his party’s grip on Congress. It’s more bad news for Democrats, who can’t seem to catch a good break.
The U.S. economy added another 157,000 jobs in July and the unemployment rate fell to 3.9 percent, according to a Labor Department report Friday.
Economists had expected a nonfarm payrolls gain of 190,000 and the jobless rate to tick down to 3.9 percent.
Nonfarm payroll growth for June was revised up to 248,000 from 213,000. May’s jobs were revised to 268,000 from 244,000. So what seems to have happened is that many of the jobs that were expected in July were actually created in prior months.
Manufacturing added 37,000 jobs, with most of the gain in the durable goods component. Over the past 12 months, manufacturing has added 327,000 jobs. Construction added 19,000 jobs and has increased by 308,000 over the year.
One reason job creation may have slower: the closing of Toys R Us. The category for toy and hobby stores fell by 32,000 workers.
President Trump took to the South Lawn at the week’s end to sing praises for revised economic numbers that showed a revision of more than 2% to the original projections of GDP growth. The U.S. economy crossed the 4% mark in the second quarter of the year, continuing the acceleration on the heels of the GOP tax reform bill coupled with the administration’s slicing and dicing of federal regulations. Of course, none of this should come as a surprise to us; businesses generally like investing in expansion when they know the government isn’t going to penalize them for creating jobs.
The U.S. economy exploded in the second quarter of 2018, with the gross domestic product (GDP) climbing 4.1% — nearly doubling the first quarter, which was revised up to 2.2%.
The booming rate is the highest since the third quarter of 2014 and just the third-highest since the Great Recession began in 2008. The running four-quarter average is 3.1%, considered by economists to be a very strong number.
In Q2 of 2018, consumer spending grew 4%, while nonresidential business investment jumped 7.3%, both also considered strong numbers.
Trump took a victory lap on the White House’s South Lawn, telling reporters that the high numbers are “sustainable.”
“We’re going to go a lot higher,” Trump said. “As the trade deals come in one by one, we’re going to go a lot higher than these numbers, and these are great numbers. …
“We’ve accomplished an economic turnaround of historic proportions,” Trump said. “Once again, we are the economic envy of the entire world.”
According to a report this week, Texas is on pace soon to become the world’s third largest oil producer, edging out all other countries except Russia and Saudi Arabia. It’s a massive endorsement for free market principles. Especially given that it marks an historic turnaround from the oil glut and resultant plunge in prices just a few years ago. It’s also a reminder of what can be accomplished when the federal government gets out of the way of private industry.
America is a powerhouse and I mean that literally as well as figuratively. CNN Money reported Wednesday that Texas is set to become the world’s number three oil producer thanks to a boom in production:
Plunging drilling costs have sparked an explosion of production out of the Permian Basin of West Texas. In fact, Texas is pumping so much oil that it will surpass OPEC members Iran and Iraq next year, HSBC predicted in a recent report.
If it were a country, Texas would be the world’s No. 3 oil producer, behind only Russia and Saudi Arabia, the investment bank said.
“It’s remarkable. The Permian is nothing less than a blessing for the global economy,” said Bob McNally, president of Rapidan Energy Group, a consulting firm…
“The industry cracked the code on fracking,” said McNally.
Texas is producing so much oil that it will soon be bumping up against pipeline capacity. Some producers are already selling at a discount because of the limitations. Another problem is a shortage of labor, though that will likely be good news for the state and for people moving to Texas to find work.
The boom in Texas is one reason the U.S. is set to become the world’s number one oil producer. Last week, U.S. production reached an all-time high of 11 million barrels per day.
Following Friday’s massive losses on Wall Street amid reports of a trade war between the United States and China, the market bounced back Monday after China signaled it is willing to negotiate better trade deals with the Trump administration.
The Dow’s point increase was the largest single-day gain since 2008. The Financial Times reported early Monday morning that China is offering to buy more U.S.-made semiconductors to help reduce the $375 billion merchandise trade surplus it has with America.
Gordon Chang, an expert on North Korea and China, told Newsmax TV Americans shouldn’t worry about a trade war anyway because it would be a one-sided affair.
“Everyone has been worried about a trade war, but we shouldn’t because we hold most of the high cards,” Chang said. “And the Chinese really have no way to win a trade war with the United States if they face a determined American president.”
New applications for unemployment insurance benefits plunged by 41,000 to 220,000 in the second week of 2018, the Labor Department reported Thursday, the lowest level in nearly 45 years.
The report easily beat forecasters expectations for new jobless claims to drift down to around 250,000.
Low jobless claims are a good sign because they suggest that layoffs are relatively scarce. Federal Reserve officials and investors watch the numbers because they come out weekly, providing an early warning sign of any trouble.
New claims, which are adjusted for seasonal variations, are well below the mark that would suggest that unemployment is going to rise. Over the past year, new claims have scraped multi-decade lows as the jobs recovery has steadily reduced the number of unemployed workers.
The total number of people receiving unemployment benefits, which are available for up to 26 weeks in most states, stayed below 2 million, also near the lowest levels since the 1970s.
And at 4.1 percent in December, unemployment is as low as it has been since the dot-com bubble.
“Energy superpower” is the same term an S&P analyst used today to describe America’s exploding shale industry, predicting that the U.S. will be a top-10 global oil exporter by the end of Trump’s term. Today’s decision makes that even more likely. The catch: Although righties love the idea of more drilling, voters in coastal states like North Carolina and Florida tend not to because it poses environmental risks (right, BP?) and damages tourism.
A 2016 poll of Florida found support for offshore drilling at 32/47, a steep decline from the 44/39 split of two years earlier. Rick Scott, normally a Trump ally, put out a statement today noting that “I have asked to immediately meet with Secretary Zinke to discuss the concerns I have with this plan and the crucial need to remove Florida from consideration.”
North Carolina and Florida are both crucially important to Trump in 2020 and he has no margin for error in the latter given the influx of Democratic-leaning Puerto Ricans after Hurricane Maria. Maybe it won’t matter, as the new drilling policy is still 18 months away from being finalized and many years away from drilling actually beginning in the new waters given the lack of infrastructure out there right now. But it’s a risk politically.
One crucial task of the agile trader is keeping up with market-moving news. One little event anywhere in the world can throw gasoline on the hottest bullish fire OR send it plunging like a barrel over Niagara. In fact, in this ever-more-connected world, hot news- good or bad- may be the biggest catalyst for short-term gains or losses- bigger than traditional fuel like earnings reports, new product announcements and perhaps even FED decisions. Every day I’m consuming headlines like most people consume air. It’s a relentless global hunt for new, short-term profit opportunities that (sometimes distant) world events are presenting to stock & options traders.
To these well-seasoned, “been there and done that” eyes, the pile of evidence in support of the forecasts I’ve been sharing with you keeps building. And note: I work d*mn hard to keep subjectivity & bias out of such reviews, striving very hard to avoid the terrible amateur trap of seeing only what I want to see. I know compromising one’s objectivity is a massive killer of any good trading discipline, so I probably look for counterpoint harder than I look for point.
Nevertheless, I see it unfolding more & more… like the old tv shows & movie prop crystal balls going from smoky & foggy to an ever-clearer picture. Markets are predictable. Markets repeat events again and again and are driven by the same catalysts again and again. The trick to convert market smoke & fog to clarity or even near-certainty is knowing where to look, recognizing the patterns of the past and weaving that with the group sentiment of the present. Big volatility is coming… probably more than we’ve ever seen before. It’s going to be a wildly exciting ride to my medium-term forecast target of DOW 30K. Knowing when to profit on the big bull plays AND, perhaps more importantly, when to profit (not run & hide) on the big bear slides and you can make a fortune… FAST.
Haven’t we seen this movie before?
Yes! Yes we have. During the 1980s, we saw a similar boom in stock values with investors getting hyped up on the apparent record growth rally in the markets. And it was welcomed news after a dismal environment of stagflation with mortgage interest rates in the stratosphere.
But what happened toward the end of that movie? We experienced one of the worst stock market corrections in our nation’s history, second only to the crash that preceded the Great Depression. We remember that day as Black Monday when the Dow Jones dropped nearly 25% in a single day. That crash was precipitated by some market trends that are eerily similar to what we’re seeing today. You might be thinking, “Such as?..”
The Dow’s explosive growth had risen to over 2,700 that summer (remember when DOW 2,700 was a sky high measure of market success?), having closed at its height to a gain of 44% over the previous year. Similarly, we saw the crash presiged by unrest in OPEC with a bust in the oil markets of 50% the previous year. And of course there was unrest in the Middle East and elsewhere, which made market prices highly volatile.
Looking back at those events today, it’s a classic version needing to see the (catalyst) news in all of the right places… and separating noise from the news that would make- or shake- the markets. Does any of that sound familiar? It should because we have much the same conditions setting up here- in late 2017. And that’s why I perked up to the headline that trumpeted David Stockman’s criticism of President Trump’s new tax reform package.
Stockman was the Director of the Office of Management and Budget under the Reagan administration. So he knows what a Black Monday scenario looks like… because HE WAS THERE. And he’s doing the craziest of crazy things in modern politics: he’s calling a spade a spade. That’s something almost no other public figure dares to do: say what he REALLY foresees instead of spinning some almost canned PR message hoping the herd will keep right on ignoring reality. Just ignore that spade. Just keep throwing your money into the same pot. Just keep kicking that can a little further down the road. Oh boy! Haven’t we all seen this movie too many times before?
In a recent CNBC piece, Stockman is quoted with a prediction of as much as a 70% drop in stock prices. SEVENTY PERCENT! If that actually plays out, the DOW would be much closer to that record back in 1987 than the record in 2017. Take a moment and do the math yourself. Where is the DOW today? Multiple that by 0.3. Look at that result. Think about that result. Impossible? Where was it just about 10 years ago when we had the last market meltdown? Is the result and that reality really so far apart one could see it as an impossibility now?
Stockman explained that the economy sees a major correction around every eight years, give or take. It’s been more than that since the Great Recession. He detailed, “There is a correction every seven to eight years, and they tend to be anywhere from 40 to 70 percent. If you have to work for a living, get out of the casino because it’s a dangerous place.”
In the interview he explained the factors that might be creating an inevitable drop in the market. He goes on, “This is a bubble created by the Fed. We’re heading for higher yields. We are heading for a huge reset of pricing in the risk markets that’s been based on ultra-cheap yields that the central banks of the world created that are now going to go away because they’re telling you that they’re done.”
Perhaps worse than that is this other somewhat quiet discussion about unwinding the FED balance sheet. While that could mean a lot of things, I suspect a massive big buyer- perhaps the default buyer that has thrown much of the money at this market to drive it up to these incredible records is now wanting to STOP BUYING and start selling. What happens to any market when enthusiastic buyers become sellers? Only one thing happens there. You can count on it.
If that sounds familiar, it should. It’s essentially what I’ve been saying for months now. The prices of major stocks are hitting records every week which is creating artificial paper wealth that isn’t backed up by anything tangible. I really don’t think it’s the traditional buyers doing all this buying to push the markets higher & higher. I increasingly think it’s mostly ONE buyer- a holy mother of all buyers if you will- and even “she” has now formally communicated that “she” wants to wind down “her” purchasing and flip into selling off some of “her” holdings. Where does that go? Where is the only place that can go?
Yet market records are being realized almost on a weekly basis… and touted hard in every way they can be heard. The herd doesn’t (maybe can’t) listen that attentively… or doesn’t remember the past or recognize how the past repeats again and again… until… in hindsight, the “shoulda, coulda, wish I hads” are flying near the tail end of a swift crunch… or crash. The herd may hear a little bit of such warnings before the event… but fall prey to the much louder allure of “another record day…” perhaps throwing even more money into the pot to try to capitalize on the endless record days that are certainly going to come after this one. How often has ANY stock market gone up and up and up indefinitely? Exactly. “But it’s different this time.” Watch out!
Many people may discount this warning as just another conspiracy theory. Others will freak out and start pulling their investment dollars from the market. But the smart money sees such scenarios as opportunities. Agile investors will make the most of bull & bear by taking advantage of the tools that make money on BOTH. A great tool is also a dirt-cheap one: options. A call option buyer is making a relatively cheap, leveraged bet on a rising stock or market. A put option buyer is making a comparably cheap, leveraged bet on a falling stock or market. A shrewd & agile investor will buy & close call & put options interchangeably… like one is just as good as the other (and it is when used at the right time and in the right way).
Most investors & traders only see the markets through a singular (always bullish) lens. In other words, the only way they see to make money is on the rising side: buy a stock, stock moves bullishly, sell the stock & book a profit. There’s almost a dependency on a perpetual bull market for most people. However, the few that make the MOST money investing & trading work the other side too. They are not OUT doing nothing when the bull cedes the stage. A roaring bear is just as lucrative- often even more in many cases- when one is positioned to make money on such a move.
Do you know how? Do you have a good feel for vehicles like call & put options and how to use them to make money as this market rises AND when it’s falling too? Maybe you think you know a little but are not confident you know enough to actually put such knowledge to good- and profitable- use? If any of that resonates for you, speak up… right now. Email me at Mike@MikeGaliga.com. My team & I are hard at work developing some major new goodies to help individual investors just like you take full advantage of the wild volatility rapidly approaching all of us. Email me letting me know you want to learn and you’ll be the first I alert when our work is ready to be utilized. Don’t be a “shoulda, coulda, wish I had” ever again. My team & I are here to help. Let us.
N HIS classic, “The Intelligent Investor”, first published in 1949, Benjamin Graham, a Wall Street sage, distilled what he called his secret of sound investment into three words: “margin of safety”. The price paid for a stock or a bond should allow for human error, bad luck or, indeed, many things going wrong at once. In a troubled world of trade tiffs and nuclear braggadocio, such advice should be especially worth heeding. Yet rarely have so many asset classes—from stocks to bonds to property to bitcoins—exhibited such a sense of invulnerability.
Dear assets are hardly the product of euphoria. No one would mistake the bloodless run-up in global stockmarkets, credit and property over the past eight years for a reprise of the “roaring 20s”, or even an echo of the dotcom mania of the late 1990s. Yet only at the peak of those two bubbles has America’s S&P 500 been higher as a multiple of earnings measured over a ten-year cycle. Rarely have creditors demanded so little insurance against default, even on the riskiest “junk” bonds. And rarely have property prices around the world towered so high. American house prices have bounced back since the financial crisis and are above their long-term average relative to rents. Those in Britain are well above it. And in Canada and Australia, they are in the stratosphere. Add to this the craze for exotica, such as cryptocurrencies (see Free exchange), and the world is in the throes of a bull market in everything.
Right now, people are betting on how many hard-boiled eggs this market can eat in an hour. The “smart money” and the financial press is spinning 50 as completely impossible. The crowd seems to wholeheartedly agree. Place your bets now. And hint: bet wisely.
In previous reports I warned that the excitement among investors over a pro-trade Trump administration is driving an exuberance which is forcing the Dow to new records almost on a weekly basis. This is happening in spite of the underlying assets and financials not changing all that much since the Obama administration. Sure, employment numbers are looking much better, but those are just a function of business leaders increasing payroll based on the same attitudes driving the stock market.
This is precisely the sort of irrational trend I’ve been warning about that could take the Dow to as high at 30,000 in the very near term. And other financial institutions have begun to take notice of the same thing, albeit months too late. According to a recent Bloomberg story, “Analysts at the Wall Street behemoths cite signals including the breakdown of long-standing relationships between stocks, bonds and commodities as well as investors ignoring valuation fundamentals and data. It all means stock and credit markets are at risk of a painful drop.”
Pointing to the intramarket correlation factor — which describes the rise and fall of stock, bond and option prices in relations to each other — there is a growing phenomenon of a decoupling of those relationships wherein the price of trades continue to go up independently of each other.
So what’s driving them up if not the mutual increase in prices? The answer is really nothing but pure trader speculation. And now it’s even worse than that: it’s speculation on speculation. In other words, prices are increasing because investors continue to expect prices to increase.
That’s a very dangerous environment for markets because, again, there’s nothing solid underpinning that speculation. As Bloomberg points out, investors are seeking out “excuses to stay bullish,” which means they’re ignoring all the fundamentals which might otherwise bid them to exercise caution and restraint.
And what’s most concerning is that the charts are looking eerily similar to what they revealed in the run-up to 2007, which should give pause for concern to everyone. Anyone still remember 2007? All was rip-roaring great until it was not. Discussed in hindsight, 2007 was described as a bubble(s) bursting. Anyone see much mention of the word “bubble” in the modern press describing 2017? Not much. Instead- to me- it’s practically deja vu, looking like the return of the same kind of “irrational exuberance” before the bubble burst.
If it’s not obvious, I’ve been around for a while. Perhaps you have been too? We both know that direct experience is a great educator if we learn the lessons… and remember them. One of the things that makes me a profitable trader is a completely objective ability to call a spade a spade. I do not forget the past or readily subscribe to Wall Street spin of “…but it’s different this time.” Contrary analysis says that when just about everybody is buying and spinning any and all reasons to keep buying more, it only takes a little bit of selling to set off a correction. Just think about it: in any situation where there is almost all buyers and practically no sellers, which way do prices have to go? And when those buyers are finally just about all in?
Toward the ends of extreme scenarios like that, what do things look like? In the increasingly bullish scenario, everyone looks for just any additional reason to “buy more.” Good news supporting the cause is amplified and bad news is mostly ignored or “shrugged off” seems to be the most popular phrase spun in the investing press today. And that’s what things increasingly look like to me. The tangible stuff on which record markets should be built is mostly lacking. Fundamentals- that is BUSINESS fundamentals- are generally about the same as they were months ago. The business data that matters most isn’t painting any pictures that all is particularly great and gaining strength, except the SUBJECTIVE (aka massaged and/or amplified) data that helps support the cause of finding any reason to encourage buyers to buy more.
Where does this lead? We already know… because history has shown us again and again, and again. Where does this always lead?
Imagine yourself at an auction. A desirable item is up for bids. You want it. The guy next to you wants it. The lady next to him wants it. The whole room wants it. And they want it bad. The auctioneer is rolling and bids are fast & furious. How do all such auctions play out? No matter how much enthusiasm there is to own the item at the beginning of the auction, eventually the bidders start thinning out. Once someone bids up to as much as they have- they’re out (much like once investors are basically “all in”, they can’t “buy more” no matter how bullish they feel because there’s no more spare funds to use). The richer among them who still have some spare funds bid, push the “market” higher… and higher… and higher. A few around the room may start gasping in almost disbelief that “treasure” has been (irrationally) bid up to such a record high. And then those with the last remaining spare cash bid their final, “all in” bid. Going. “Anyone else (have any other spare cash to throw at this thing)?” Going? “This market is going to the moon. Better buy more now.” Going. “You don’t want to miss out on a market that is only going higher!” Going. “Anyone else? Anyone?” Sold!
Now think about the modestly different auction that is the stock market. The desirable item is only an idea of either “good returns” for the “half full” crowd or “don’t miss out” for the “half empties. The bidders are not bidding for just a single thing. ALL of them are going to “win” their own auction within THIS auction because the item for bid is available in practically unlimited supply (it’s just virtual pieces of paper stored in some computers on the exchanges. It is incredibly easy to make more virtual paper should all of the existing virtual paper get purchased). The perceived value in unlimited supply is mostly an idea that others will want to pay more for your virtual paper some time after you buy it at near record highs now. In other words, current fundamentals & data that underpin the value of the virtual paper is NOT supporting the idea that it will be worth more in the future. Instead, it’s mostly just the frothy enthusiasm of fellow bidders wanting to believe records will be broken again and again IN SPITE OF conflicting fundamentals and data… and throwing their spare cash at it because they are so convinced.
Perhaps it WILL be different this time?
Where have I seen that before?
And when the last buyer bids… and when the last of those with spare investable cash finally go all in such that there’s pretty much no one else to buy, what happens? What is the only thing that can happen when there’s no more money left to buy in? The auctioneer drops the hammer and proclaims “SOLD!” Beware that hammer.
One of my favorite movies of all time is a Paul Newman classic- Cool Hand Luke. If you haven’t seen it (or haven’t re-watched it in a while) I encourage you to let Newman and a terrific supporting cast entertain you for a couple hours as soon as you can spare those hours. In my opinion, it is truly an oldie but a goodie. Why can’t they make movies like that one anymore?
There’s a particularly relevant scene in that movie that illustrates this message. In the movie, Newman as Luke is basically an especially “cool cat” prisoner. In today’s movie-making mentality, he’s almost an amazing, mythical super-hero without a cape or mask and doesn’t even need any CGI special effects to work his wonders. He and a few friends set up an irrational- maybe impossible- task that he can eat 50 (that’s FIFTY!) boiled eggs in ONE hour.
I love the scene because it is a show within a show- the visible or public show that Luke will try to eat 50 eggs and the private show of how those who compelled by the “public” show can be exploited to make a few people richer. Even Luke’s closer friends in the movie initially scoff at the possibility to throw gas on that fire: “NOBODY can eat 50 eggs.” On cue(?), another suggests the monetary exploit by triggering bets among the public. And the game is on. The beginnings of the game (a clever setup?) goes something like this:
What you don’t see in that clip is the part that helps illustrate the point I’m making today. Shortly thereafter, the public show (Luke attempting to eat all those eggs) is underway. Everyone is enthralled and following this “market” closely. Even during the hour, bets continue to be placed. Luke’s close friends are taking the seemingly-crazy side that he can do it. Just about every other “buyer” is betting that he can’t. Bet (buyer) after bet (buyer) is stacking up against Luke but there’s still a little money sitting on the sidelines, not yet committed.
Well before 50, Luke stops eating. His belly is puffed out, full of eggs. He looks like he may have about reached his limit. He roams around the room. He seems almost sickly. It looks bad-to-worse for the “smart money.” There’s far too many eggs still to go in far too little time… and Luke already looks like he’s about to bust.
New bets fly. There’s just no way he can do it. And the show within the show culminates when Luke’s closest friend leans in and whispers that ALL available cash is now bet. There are no more buyers to be wooed. Every single prisoner is “all in.” The auctioneer’s hammer stands ready to fall.
What happens next? Luke’s appetite for eggs magically returns and he rapidly runs toward the record goal. If you haven’t seen this classic movie, let this be the point where you stop reading so I don’t spoil the final outcome of this scene for you. Assuming just about every reader has probably SEEN it, I’ll assume finishing the tale isn’t really a spoiler…
Luke- the “smart money” side of the market- wins and all the irrational gamblers (investors) on the wrong side of that bet lose. This particular “market” crashes as soon as the 50th egg goes down. All the buyer’s bought and only selling can follow. In this case the selling is represented by the “smart money” switching into a mode of loan officer: loaning the overly exuberant up to just minutes ago what was their own money back… with interest obligations of course. And a new game is afoot. And that game too is probably another that we all know too well if we can take a moment to recall history.
What happened before the 2007 bubble burst? Every “prisoner” was buying in with all they had. And what happened after the burst? About every “prisoner” was having to beg & borrow to find enough dollars to try to squeak by and/or recover from their losses. The “smart money” of 2007 didn’t even need to suffer through Luke’s bellyache.
As I watch these markets achieve record after record mostly on exuberance and hope more than anything very tangible, I see Luke playing his market, vacuuming in whatever spare cash can be sucked in. Sometimes he stops eating eggs and looks a little sickly to lull in some fence-sitters (“buy the pullbacks”). But the same game is in play. When everyone is just about “all in,” there’s only one way for the market to go. It won’t matter how bullish everyone will be at that point. Collective sentiment does not make markets go up, buying dollars push markets higher.
For those married to only bull-market momentum (that is, those who only know how to profit on a RISING stock market) their losses will be painful… AGAIN. For those that that know how to make money in both rising and falling markets, big moves up or down can be some of the most profitable trades of your life. While many will lose in a crash, there are a few that know how to make a lot of money quickly as stocks or markets crash.
Now, you may read this and think I am extremely bearish today. But that’s not true. WHAT I AM IS EXTREMELY EXCITED. Why? Because I developed my skills over my lifetime to make money both ways. In short, I LOVE volatility. Big swings up or down are especially profitable and it doesn’t really matter to my methods whether the markets rise or fall. What matters is anticipating those peaks and valleys and using the right kinds of trades to take maximum advantage of them. It doesn’t even have to be whole market movements either. The very best profits are in the individual stocks that can rise or fall much more dramatically than whole markets.
Does this mean I’m hoping markets will crash and people will lose a lot of money? Of course not! My work is always focused on trying to help everyone make more money. I hope everyone grows as rich as they possibly can. But hope doesn’t make markets only rise. And history shows markets never move in just one direction forever. When markets are at extremes, they NEVER just keep pushing the bar to greater extremes. They turn. They ALWAYS turn. So while I’ll HOPE- perhaps right with you- that no one ever loses another nickel in the markets again, we both know what will really happen, don’t we? This particular game is just not made to work like that. Most of those prisoners had to LOSE that bet so that the “smart money” could win.
Between here and DOW 30K, I anticipate plenty of lucrative volatility. Markets and stocks will roar higher and crash, over and over, and I look forward to helping my followers take great advantage of all of those events. My team and I are working on something- (to quote from Cool Hand Luke again) A “WORLD SHAKER” SOMETHING- to directly help my followers do just that. If you are interested in learning more, send me an email at: email@example.com and I’ll be in touch about that very soon. In the meantime, I’ll continue to offer broad views in this column AND welcome requests from you as to what topics you might like to see me cover in future editions- just send them to that same address.
Ask away, I LOVE to help people learn and prosper.
Elon Musk, CEO of Tesla Inc. (and of a half dozen other companies) made headlines this week with a prediction that the company will soon be worth as much as Apple. For those not familiar, Apple is the world’s most valuable corporation at roughly $750 billion (yes that’s with a ‘b’). And given the reality that Apple was considered on life support just fifteen years ago, it’s not at all outside of the realm of possibility that it could hit a trillion by 2020.
If we take a closer look under the hood of Musk’s statement, we can easily see the mechanics of why both of these predictions could become inevitable. In my previous reports I’ve projected that the Dow may likely blow past 20,000 and onto 30,000 by the end of the decade. And Musk’s comments reveal a few of the reasons why.
By any measure the so-called Information Revolution fundamentally changed the world in ways the Agricultural and Industrial Revolutions centuries before never could. It didn’t simply change the way we did things making them more efficient. It changed the speed, mode and manner of communication, and it did so on a global scale.
But all of that will be paled in comparison to the coming revolution, whatever we’ll end up calling it. This revolution will make the Information Revolution look like the Industrial Revolution before it in terms of the sheer number and breadth of things that will change. This revolution won’t simply change the way we do things; it will change the way we think and live.
Case in point is Musk’s explanation of what drives Tesla’s revolutionary auto manufacturing process. At first glance, Tesla is merely at the tip of the spear in terms of the green revolution by leading all other automakers in the successful building and marketing of fully electric cars (not to be confused with ‘hybrids’ which still partially run on gasoline).
But lying deep inside Tesla’s operations is a much more profound revolution. This operation does not simply rely on robots that build finely-tuned cars with precision beyond the capability of the human hand. This army of robots also requires sophisticated software that rivals the U.S. Defense Department, all of which is proprietary.
Now let’s move down the road a bit to any one of the top-tier software companies in Silicon Valley and ask them what’s next on the cutting edge of software development. What they’ll tell you is that in ten years, programmers won’t be writing software any longer. Artificial intelligence will be writing our software for us.
To put a finer point on it, imagine this: you work in a professional environment a decade from now and you need to create a new process to help you do your job. Today you’d open up some Microsoft Office application like Excel and start pecking away, itemizing a list of things to be done and so forth. But in ten years you’ll speak to your computer and tell it what you need to accomplish and how often you need it. The computer will build custom software specific to your request and then will ask you questions based on how you want it customized. So in a sense, everyone will be a computer programmer because virtually nothing in the developed world will be done without the aid of artificial intelligence.
If we let our minds run wild for just a minute or two, it’s easy to foresee how quickly and how profoundly our world will change. Now consider that the Internet wave gave way to some of largest economic booms (and busts) in our nation’s history. Imagine how big that boom will be when virtually everything we do changes and new companies are spawned to respond to the needs that are created by those changes.
And that’s just one of the many reasons I’ve been going out on a limb to predict the boom from 20,000 to 30,000. Entire economic sectors will explode or implode. And, as I’ve said before, rapid change yields lucrative investment opportunities. As this revolution unfolds, we’re going to see stocks and options become the surf boards on which investors ride huge waves. The key, however, will be in picking the right board.
Here’s a great example: Tesla stock is probably a safe bet, but betting on an auto-manufacturing ETF for example, would almost surely not be. Why? Because as transportation fundamentally changes with the growth of self-driving cars, Uber and a dozen other innovations, there will be some big losers who don’t respond to the changes quickly enough. Some will relentlessly cling to the old way of doing things, rebelling against the inevitable change in hopes that they can persist the status quo. Fighting this particular current will prove fruitless though as the money to be made in embracing the change is much greater than persisting the “same old, same old.”
The buggy makers talked down the “horseless carriage.” The candle & lantern makers put down the incandescent bulb. Slower forms of transportation tried to beat down newer faster forms of transportation. Traditional ovens vs. microwave ovens. Radio vs. television. Wired phones vs. cell phones vs. smart phones. Tape vs. discs vs. solid state vs. cloud. All of the well-established status quo eventually falls to the newer, faster, cheaper and/or better. It is inevitable. It is fundamental to how we evolve as a people and planet. Even our economic system depends on regular disruption to create new opportunities, new industries & new jobs.
This particular wave will be a monster. It’s effects will be far-reaching… devastating for some industries and amazing for others. But fundamentally, it will be comparable in it’s broad impacts similar to the internet, computers, electricity, fire or the wheel. It will empower many people to be able to do incredible things, leveraging human imagination & ingenuity in new, exciting, far-reaching ways. When I think biggest picture, I believe this will be akin to pushing a collective innovation accelerator… like being handed advanced technology from 50-100 years from now.
An innovation revolution of our own making is coming on fast. Taking advantage of that revolution as investors will require a laser focus to ride the best waves. I already see the early catalysts for such waves. Some companies, sectors & industries are going to roar higher and others are going to be supplanted. Big money is going to be made by taking advantage of both bull & bear opportunities as this plays out. It won’t be very long at all until I’m proclaiming “surf’s up!” Come surf with me.
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