- Good retail, bad retail
- How Apple became a 100-bagger long before it became the world’s biggest company
- Do you have what it takes to hold onto a 100-bagger all the way?
- Jim Rickards on a not-so-earth-shaking event next year
- A run on “prepper” supplies that’s not what you might think… reader calls out The 5 for our Shemitah quip… the evil genius of the SDR… and more!
This morning’s market action is all about a tale of two retailers.
Wal-Mart delivered a big fat earnings “miss” for the second quarter. And it’s “guiding lower” for future quarters, as the saying goes. Some of that is a function of raising its workers’ pay. A little of it is the strong dollar.
At least it’s not lousy sales. WMT is down nearly 3% as we write.
On the other hand, Home Depot merely had to equal the vaunted “analyst estimates” to get a 2.8% bump in its stock price today, hitting another all-time high.
HD is enjoying a tail wind from the continued revival among homebuilders. As noted yesterday, homebuilder confidence is its highest in 10 years. Even a weak building-permit number this morning hasn’t dissuaded traders from the sector — ITB, one of the big homebuilder ETFs, is up 1.6% at last check.
“Even though the market is throwing investors into the wood chipper right now, homebuilders are a bright spot that could quickly turn into one of your best trades of the year,” suggests Greg Guenthner of our trading desk.
Meanwhile, there’s Apple — off 11.7% in just under a month.
“Apple captures an enormous amount of mindshare,” writes money manager and Bloomberg columnist Barry Ritholtz. “Apple’s influence is largely a function of its outsized weighting in various indexes” — 3.62% of the S&P 500, 12.9% of the Nasdaq 100.
“The recent decline, ostensibly on disappointing demand for Apple Watch, has lopped off more than $100 billion in market value from Apple’s shares. Apple’s stock price is at an eight-month low and is below its 200-day moving average for the first time since September 2013.”
For the record, Apple is not a current recommendation among any of our editors.
For our purposes today, we’re more interested in Apple’s past than its future. There’s a lesson within its ups and downs — one that could make your retirement, or a legacy you leave to the next generation.
“Volatility has also been an enduring feature of Apple’s shares during the past decade,” Mr. Ritholtz goes on, “as it rose to become the world’s most valuable company. Since 2005, Apple has lost 25% of its value on at least six occasions. After it rose to all-time highs in September 2012, it declined by almost half, losing 44% by the following April.”
And that was all after Apple became a 100-bagger.
If you’d bought AAPL at the end of 1980, you’d have turned a $10,000 investment into $1 million by 2005. (It would be a staggering $5.6 million now.)
As you might already know, these extraordinary stocks that return 100-to-1 or better have become the focus — nay, the obsession — of our investment director Chris Mayer.
The downdrafts in Apple have been extreme. “Those who held on had to suffer through a peak-to-trough loss of 80% — twice!” Chris writes in his new book, 100 Baggers: Stocks That Return 100-to-1 and How to Find Them. “The big move from 2008 came after a 60% drawdown. And there were several 40% drops.”
Of course, many people will be scared out of a stock long before it tanks 80%. And that can be fatal to capturing a 100x return.
“Monster Beverage became a 100-bagger in 10 years,” Chris writes, performing a thorough case study in his book. “I count at least 10 different occasions where it fell more than 25% during that run. In three separate months, it lost more than 40% of its value.
“Yet if you focused on the business — and not the stock price — you would never have sold. And if you put $10,000 in that stock, you would have had $1 million at the end of 10 years.”
Do you have what it takes to hold on through thick and thin? Maybe you’re not sure. If that’s the case, Chris’ book contains an excellent “cheat” you can put to work in your portfolio right away. Maybe you won’t end up with 100-bagger — but you might well end up with 10 times your money in 10 years. You wouldn’t turn that down, would you?
We’d be delighted to send you a FREE copy of Chris’ book, if you can cover the shipping and handling. Click here for access.
The major U.S. stock indexes are in the red this morning, though not by much. The S&P 500 sits a fraction of a point above 2,100.
That’s resilient in light of a 6% tumble on the Chinese stock market today. The contagion spread into Europe, with major indexes closing down 2-3%. But here? Nary a blip.
Gold is little moved at $1,115. Crude dipped below $42 overnight, but has recovered at last check to $42.35. The dollar index is inching up, knocking on the door of the 97 level.
“Including the yuan in the SDR next year will be a highly important symbolic step, but it will have no immediate impact on the international monetary system,” says our Jim Rickards — wrapping up some thoughts begun here yesterday.
The International Monetary Fund holds its autumn shindig in Lima, Peru, this October. Already, the yuan’s inclusion in the SDR — the IMF’s “super-currency” — is off the agenda. Additional talks are scheduled for November, but final action might not come till September of next year.
“It means another year of yuan-dollar finesse,” says Jim, “and another year of deflationary forces if the Fed keeps talking tough [on interest rates] and China is forced to go along in order to be admitted to the SDR.”
In other words, the yuan’s fate remains tied to the dollar’s. “The yuan is not even close to replacing the dollar as a global reserve currency,” Jim reiterates a point he’s made before. “There are not enough yuan-denominated sovereign bonds for investors to park their reserves, and there is no well-developed yuan bond market to provide liquidity.”
And don’t expect an earthquake next year, either: “The impact of a September 2016 decision to include the yuan in the SDR will resemble China’s recent updating of its gold reserve position. It happened, but it was not the big deal many expected it to be.
“That’s just how the global elites like things — slow and steady. There is a plan to steal your money with inflation, but it consists of many small steps, not a few big ones.”
We begin to wind down this episode of The 5 where we began — at Home Depot.
The chain’s outlets in northern Nevada are bracing for a run on coolers, generators, batters, water, propane and such.
No, the apocalypse is not nigh — but Burning Man is, starting Aug. 30. “Once a year,” says the Burning Man website, “tens of thousands of people gather in Nevada’s Black Rock Desert (also known as ‘the playa’) to create Black Rock City, a temporary metropolis dedicated to community, art, self-expression and self-reliance. They depart one week later, having left no trace whatsoever.”
“The art consists of mutant vehicles, strange temporary buildings and a giant man-like statue that is burned on the final night of the multiday event,” says the website Tools of the Trade. (If you never go, it’s worth your while to check out a Burning Man documentary — there are several.)
But it takes tools and other supplies to build a community in the middle of empty desert — including dust masks, and rebar for tent stakes. Behold one of the more peculiar charts you’ll ever see in The 5…
Whoa, that must be a lot of rubber bands…
“You should do more research before making your conclusions,” writes a reader who takes exception to our musings yesterday about the Shemitah.
“Jonathan Cahn presented a very strong case in his books. Of course, you intended the insult, but it is Agora that is going to be looking foolish on Sept. 13, 2015. You can mock the fundamentalists, but God will not be mocked. When a nation founded by and sustained by God’s blessings turns away from God, His progressive discipline/wrath is inevitable.”
The 5: At the risk of belaboring the obvious, we would never rule out a black swan — to borrow a more secular term — showing up that day.
And as it happens, Jim Rickards raised a good point on Twitter yesterday…
“The IMF and SDRs have been around for a long time, and from my research, the amount of SDRs at any given time are arrived at by the contributions of the member countries, which are determined by their percentage of voting rights,” writes a reader, dragging us deep into the weeds.
“The USA has 17.69% of the total SDRs issued, but 16.75% of the total votes. Today, the SDRs are backed by the currency contributions of the member states, which I think in all cases are fiat currencies. The countries with the majority votes in descending order are USA, Japan, Germany, France, United Kingdom, China, Italy and so on. Out of these seven, only one does not have a major credit problem today.
“So if the SDR will be used to erase the national debt problems of these countries, the smaller countries around the world will get crushed on the way down. I can’t see it lasting very long if they attempt to inflate away their national debts by increasing the number of SDRs in existence. If the SDR has any hope of succeeding in the future, it can’t be backed by currencies alone.
“They tried this in Germany back in 1923 when they went from the mark, which had exploded from 32 marks per dollar in 1919 to 4,210,500,000,000 marks per dollar in 1923, to the new rentenmark. They promptly tripled the number of these within six months. Neither had any backing except the faith of the people. Most of us know what happened after that.”
The 5: As Jim Rickards has pointed out here before, the evil genius of the SDR is that it would create inflation… but ordinary people wouldn’t know SDRs were causing it.
“Any inflation caused by massive SDR issuance would not be immediately apparent to citizens,” Jim wrote in The Death of Money. “The inflation would show up eventually in dollars, yen and euros at the gas pump or the grocery, but national central banks could deny responsibility with ease and point a finger at the IMF.”
Because being a central banker means never having to say you’re sorry…
Best regards,
Dave Gonigam
The 5 Min. Forecast
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