We Don’t Care About Thursday’s “Triple Threat”

  • An anxiety-ridden — and totally useless — mainstream headline
  • Stepping back from the headline noise: Altucher on what really matters when investing
  • Analysts, schmanalysts: Basenese on why Apple still isn’t an expensive stock
  • Venture capital wakes up to weed… judge slaps down meddling bureaucrats… inflation and a ham-and-cheese sandwich, revisited… and more!

On the surface, the information seems momentous. On further inspection, however, it’s meaningless.

A MarketWatch story this morning begins thus: “The stock market could face its most turbulent week of trading so far this year…

[Are you scared yet?]

“… with a trio of potentially destabilizing events on deck:

[Oooh, bad news comes in threes!]

“… former FBI director James Comey’s testimony, the U.K. election and the ECB monetary policy meeting. The trifecta, coming nearly all simultaneously on June 8, threatens to derail U.S. equities’ record-setting run.”

[All at once!]

Seriously, what are you supposed to do with information like that? Sell everything? Sell half of everything? Hold on and gut your way through the volatility?

The article doesn’t say. Therefore, one would infer the only thing you’re supposed to do… is keep an open tab on MarketWatch and hit “refresh” every 15 minutes.

We bring up this scrap of mainstream piffle this morning to reinforce information our newest contributor James Altucher imparted here on Friday — information that’s actually useful.

He said there are three types of people who make money in the market — people who hold stocks forever, people who hold stocks for a millionth of a second and people who cheat.

Assuming you’re honest and you don’t have access to high-frequency trading software… that leaves you only the option of holding stocks forever.

On that score, James is fond of quoting Warren Buffett: “If you think a company will be around 20 years from now, then it is probably a good buy right now.”

In addition, James says Buffett applies these additional criteria: Management who’ve demonstrated they’re trustworthy, a company name with a strong brand, a demographic tail wind (buying furniture companies shortly before the housing boom)… and a share price that’s crashed despite all those other reasons.

[Ed. note: We’re still accepting signups to James’ project he’s calling “the 1,000% backdoor.” Using a strategy that’s worked in his own portfolio, you could make 10 times your money before 2017 is over.

He’s leading a live webinar for Agora Financial readers like you this Thursday at 1:00 p.m. EDT. Ordinarily, he charges $525 for access, but because he’s joining forces with Agora Financial… you can look in on this event FREE. Here’s James’ personal invitation. You can RSVP at the bottom of the page.]

If volatility is in the cards later this week, it sure isn’t showing up in the markets today.

As we write, the major U.S. stock indexes have barely budged from Friday’s closes. Gold has added a couple of bucks to reach $1,279.

Crude has been gyrating all day, but at last check, a barrel of West Texas Intermediate is down nearly 1% at $47.21. Traders are trying to tease out the implications of several Arab governments — including Saudi Arabia’s — cutting off ties with the government of Qatar. They accuse Qatar of backing Islamist militants. (Pot, meet kettle.)

The only noteworthy economic number today is another disappointment in manufacturing.

Factory orders slipped 0.2% in April. Hopes for a second-quarter recovery are going unfulfilled — at least so far. Once again, the “hard data” look weak relative to the “soft data” that turn up in sentiment surveys like the ISM manufacturing index.

The analysts at Econoday didn’t even try to paint a smiley face on today’s number: “The factory sector is not living up to the promise of the highflying regional reports and, instead of accelerating this year, now appears to be struggling.”

“If you think Apple’s stock has run too far, too fast –– think again,” says our Louis Basenese.

Apple’s Worldwide Developers Conference is underway today in San Francisco. And AAPL shares are down about 1% after a rare downgrade by a Wall Street analyst. Pacific Crest issued a price target of $145; as we write, shares are at $154.

Louis isn’t interested in what the analysts say; he was dissing them to his True Alpha readers last week even when they were raising their targets.

Much more relevant, Louis tells us, is that once the iPhone 8 is launched later this year, “upward of 90 million phones are expected to be sold during the first quarter of availability, compared with the previous high for quarterly iPhone shipments of 78.3 million.”

“IPhone users are the most loyal in the world,” Louis goes on. “92% of current iPhone owners who intend to upgrade their phones in the next year plan to stick with an iPhone.

“If we assume an average two-year upgrade cycle, there are roughly 300 million iPhone users due for an upgrade over the next 12 months. And if 92% of them upgrade, it will translate into over 275 million iPhone sales in the coming year.

“To put that into perspective, the current high-water mark for annual iPhone shipments stands at 231.2 million in 2015.”

Even though AAPL is up 33% this year, “the stock is still far from being expensive,” says Louis. “To the contrary, shares are trading at about a 17% discount to the S&P 500 index, based on price-earnings ratios.

“That was compelling enough to convince Warren Buffett to double his position in the world’s largest tech company in the most recent quarter.”

“Some of Silicon Valley’s hottest venture capital funds are investing in the marijuana industry right now,” says Ray Blanco with a “green rush” update.

“These aren’t fly-by-night operations, either — they’re the heavy hitters. I’m talking about Peter Thiel’s Founders Fund, Tusk Ventures, DCM Ventures and Y Combinator.

“The venture capital angle is a big deal, because just a couple of years ago, it would have been completely unthinkable for these mainstream funds (and their very mainstream, very rich investors) to be pouring money into the pot market. But as you know, a lot has changed in the last couple of years.”

Ray says the poster child for venture-backed pot is an outfit called Eaze…

“It’s basically Uber for pot,” he explains. “Customers order online and a background-checked driver brings the medical marijuana from a local dispensary to the customer’s house. They also provide an app that can connect smartphone users with a live doctor and issue a medical marijuana card for $29.”

Eaze isn’t publicly traded. But venture capital’s interest in cannabis is still a good thing for retail investors interested in cannabis, says Ray: “Venture capital and private equity funds aren’t in the business of running businesses. In other words, they want to invest, help a tiny company grow and then cash out. That’s central to their model.”

That’s when these companies go public — delivering even more staggering short-term trading possibilities than already exist.

Bureaucrats gone wild (and slapped down by the courts), Badger State edition: A judge in Wisconsin has tossed out a ban on the sale of homemade baked goods.

Three women challenged the ban, helped out by the good folks at the Institute for Justice. The law requires bakers — all bakers — to obtain a license. That means the use of a commercial kitchen, state inspections, fees…

Lafayette County Judge Duane Jorgenson ruled last week that it’s bogus — clearly aimed at protecting business interests.

Alas, the victory isn’t final: The state is looking to appeal the ruling.

“I, for one, thought QE was going to be price inflationary,” writes one of our regulars on the topic of the Federal Reserve’s 2008–2014 stimulus. “Instead, it has been asset inflationary.

“I have been following the M2 money velocity on my Fed app, waiting for a change from its continuing plummet to depths never before seen. It has been falling since the late 1990s and looks like a stock chart for Valeant or Pets.com after the tech bubble.”

The chart the reader refers to is this…

“Can Rickards shed some light on if this is even a meaningful metric to watch any longer? Does the Fed pay any attention to it? Should we?

“And finally, isn’t there a possibility that the Fed tightening will cause the M2 to collapse completely as the credit cycle turns? If yes, what are the implications of that M2 velocity collapse? Its collapse so far has been meaningless.

“I bring this up because of the constant discussion in these pages around PCE inflation and that it may bear no resemblance to our own experiences. With a plummeting M2 velocity, I would expect contraction and deflation, but apparently, that is not what we are getting based on PCE, albeit low (I make the assumption that price inflation will also include an increase in M2 velocity).

“M2 is supposed to measure the speed and frequency of transactions and, therefore, if consumers are spending or saving their money. The velocity has been falling off a cliff since the late 1990s.

“Something just doesn’t add up. Maybe it just means the M2 velocity was always flawed and should be ignored. Or?”

The 5: M2 velocity is a perfectly valid thing to watch, although Jim hasn’t written about it in quite a while.

As Jim is fond of saying, inflation is like a ham and cheese sandwich; it needs both ham and cheese. Inflation requires both easy money and velocity — a willingness on the part of businesses and consumers to spend the dollars in their pocket.

Yes, the Fed’s monetary base exploded starting with the Panic of 2008. But “the money printing from 2008–2015 was canceled out by the declining velocity over the same period,” Jim wrote in late 2015. “The result was practically no inflation.”

Jim says the Fed is determined to get inflation one way or another. The problem, as he’s said for a long time, is that once it gets to 2–3%, the psychology of consumers and business owners can turn on a dime. Suddenly, all those dollars they’ve been grasping onto fearfully these last eight years could suddenly be unleashed on the economy… and inflation could quickly spiral far beyond the Fed’s Goldilocks target of 2%.

Fun times, huh?

Best regards,

Dave Gonigam
The 5 Min. Forecast

The Ultimate Cheat Sheet For Investing All of Your Money Part 3

With a new week, we pick up where James Altucher left off on Friday with his “ultimate cheat sheet” for investing all your money. Friday, he started with the letter “A,” and today we’ll pick it up at “G.”

A quick reminder of his disclaimer: “Don’t follow any of my advice. This is advice that I do and follow and it works for me.”

G) Should I put all of my money in stocks?

No, because you’ll never know anything about a company and you won’t get the kind of deals that Warren Buffett gets.

So use this guideline:

  • no more than 3% of your portfolio in any one stock. But if the stock grows past 3% you can keep it. To quote Warren Buffett again: “If you have Lebron James on your team, you don’t trade him away.”
  • no more than 30% of your portfolio in stocks (unless some of the stocks grow, in which case you just keep letting them grow).

G, Part 2) What is in a bubble?

Some hedge fund manager (David Einhorn) just said we might be in a tech bubble. Back to rule #1: He doesn’t know. It’s just a headline.

Bubbles don’t mean anything. We had an internet bubble in the 90s. Then a housing bubble. Bubbles bubbles bubbles. And if you just held through all of that, your stock portfolio right now would be about a percent from all-time highs.

So ignore cycles and bubbles and ups and downs.

And never ever read the news. The news has no idea about the financial world and what makes it tick. Any investing off the news is like taking out your eyes because you trust a blind person to drive you to work.

H) My friend has a business idea. Should I invest in it?

Probably not. But if you want a checklist, make sure these four boxes can be checked:

  • The CEO has started and sold a business before.
  • The business is a sector with a strong demographic headwind behind it. (or is that a tailwind?)
  • The company has revenues and/or profits.
  • You are getting a really good deal. (This is subjective but you can look at similar companies and what they were valued at.)

I can say this: every time I have invested with this approach it’s worked miracles. And every time I have not invested in this approach it’s been a disaster. Like, a CLUSTERF*(*K

Claudia doesn’t let me invest in a private company unless all four items on my checklist apply. It’s good to be able to say, “I love your idea but my wife won’t let me invest.”

After that, they usually say something like (….. you can imagine…) but I don’t care. I get to keep the money in my wallet and not give it to them.

Which is important because I tend to believe in everything people tell me.

I) What do you think of bitcoin?

I think bitcoin has about a 1 in 100 chance of being a survivor. So I have 1% of my portfolio in bitcoin. I can write a lot more on bitcoin. I sold “Choose Yourself” in bitcoins before the book was officially released. Bitcoin went up 500% after that.

I can explain everything about bitcoin but I can’t explain the future. So we’ll see.

J) What about metals as a hedge against inflation?

No, they have zero correlation with inflation. The best hedge against inflation is the US stock market since about 60% of revenues of the S&P 500 comes from foreign countries.

K) What about metals like gold? Don’t they have intrinsic value?

The only currency in the history of mankind that had actual intrinsic value was when people traded barley in the markets of the ancient city of Ur. Since then, we’ve developed currencies that depended on our faith in their value.

Every currency has faith and hope backing it. When people began to lose faith in US currency (in the Civil War), the words “In God We Trust” were put on the dollar bill to trick people into having faith in it.

But if you’re going to pick a metal, wait until the gold/silver ratio gets higher than it’s historical average and buy silver.

How come? Because silver is both a precious metal (like gold) and an industrial metal (also like gold, but much much cheaper). So there actually is some intrinsic value in silver.

I bought some silver bars back in 2005. But then lost them when I moved. That’s why nobody should listen to me about investing.


James Altucher
for The 5 Min. Forecast

Ed. note: James has even more tips and tricks to share from his ultimate cheat sheet tomorrow and Wednesday. Then on Thursday, you don’t want to miss his live online event, exclusively for Agora Financial readers. That’s Thursday at 1:00 p.m. EDT.

James will reveal what he calls “the 1,000% backdoor secret” — a strategy he’s used to transform a $2,000 grubstake in his own portfolio into a $10 million fortune. And in only nine months.

It won’t cost you a thing to look in on this event. All we ask is that you drop us your email address so we can set aside enough server space to accommodate everyone. Here’s the signup link.

Dave Gonigam

Dave Gonigam

Dave Gonigam has been managing editor of The 5 Min. Forecast since September 2010. Before joining the research and writing team at Agora Financial in 2007, he worked for 20 years as an Emmy award-winning television news producer.

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