The Enhanced Investor Weekly Macro
January 8, 2017
ENHANCED INVESTOR WEEKLY WRAP & UPDATE Market Wrap and Update Alright Ladies & Gentlemen a lot to cover in this report, so let’s jump right into it. First and foremost, the global financial markets will continue to focus on key U.S. reports in the week ahead to gauge if the world's largest economy is strong enough to withstand higher borrowing costs in the months ahead, with Friday’s retail sales data in the spotlight. Honestly speaking, when you look at the data it appears that the U.S. cannot entertain such thoughts, yet it’s always speculated. I cover this in the education section at the bottom of this report. In addition, there are a handful of Fed speakers on tap, including Chair Janet Yellen, as traders look for more clues on the likelihood of higher interest rates later this year. Again, monetary policy will be covered weekly in the education section of this report. Meanwhile, U.S. President-elect Donald Trump is to hold a press conference which investors will be watching for any hints about the possible direction of economic policy. This week also marks the start of the fourth-quarter earnings season in the U.S. Elsewhere, China is to release what will be closely watched trade and inflation data amid ongoing concerns over the health of the world's second biggest economy. 1.
U.S. December Retail Sales
The Commerce Department will publish data on December retail sales at 8:30AM ET (13:30GMT) Friday. The consensus forecast is that the report will show retail sales rose 0.7% last month, after gaining 0.1% in November. Core sales are forecast to inch up 0.5%, after rising 0.2% a month earlier. Rising retail sales over time correlate with stronger economic growth, while weaker sales signal a declining economy. Consumer spending accounts for as much as 70% of U.S. economic growth, which is not really growth at all, but rather consumption. Growth based on production is NOT the same as growth based on consumption.
Monetary Policy After the Financial Crisis will be on watch from now through the end of Q2 of 2017.
Besides the retail sales report, this week's calendar also features U.S. data on The Enhanced Investor Weekly Macro
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The Enhanced Investor Weekly Macro
January 8, 2017
initial jobless claims, producer price inflation and consumer sentiment. 2. Fed Speakers A handful of Fed policymakers are due to make public appearances that may offer insight into how divided they are about raising rates in the coming months. As always, these guys drive gold prices so if you’re wondering why JNUG/NUGT, or JDST/DUST are moving rapidly, it’s most likely because one of these people are talking. These boys get paid to talk, as well. Around $40k+ per speech, so always refer to the economic calendar to know when and where they’re speaking. Markets remained unconvinced of the Fed's projection of three rate hikes in 2017. Instead, investors are pricing in just two rate hikes during the course of this year. That’s bullish for the market and gold. 3. Trump Press Conference U.S. President-Elect Donald Trump takes center stage with his first post-election news conference on Wednesday. Investors will welcome any detail he may give on his promises of tax reform, infrastructure spending and deregulation, as well as insight regarding policies on China and the domestic economy. This may be the day the DOW hits 20,000. President-elect Trump has been credited with being a major catalyst behind the market's impressive rally since election day, although he has yet to outline his economic policies in detail. He will officially take office on January 20.
The DOW may eclipse 20,000 on Wednesday. Be prepared for indexes and sectors to rally even higher.
4. U.S. Q4 Earnings Season Kicks Off Analysts expect fourth-quarter earnings will The Fed may have no other choice but to raise interest rates show an increase of 6.1% from a year ago. The to combat an overheated S&P financial sector earnings are expected to market. have the biggest gains, with earnings up 15.7%. Friday will see earnings from major banks such as JPMorgan Chase (NYSE, JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC) and PNC Financial (NYSE:PNC). 5. China December Trade Data
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January 8, 2017
China is to release December trade figures at around 03:00GMT on Friday (10:00PM ET Thursday). The report is expected to show that the country’s trade surplus widened to $46.5 billion last month from $44.6 billion in November. Exports are forecast to have dropped 3.5% in December from a year earlier, following an increase of 0.1% a month ago, while imports are expected to rise 2.7%, after climbing 6.7% in November. Additionally, on Tuesday, the Asian nation will publish data on December consumer and producer price inflation. The reports are expected to show that consumer prices rose 2.3% last month, while producer prices are forecast to increase by 4.5%.
Long-Term Stock Ideas and 2017 Preparation Last week I mentioned, QTNA (Post IPO base continues for this Wireless Chip and communications solutions provider) & ICHR (Semi Conductor Post IPO base for this Fluid solutions provider to chip industry). They both broke out of their bases and ran as called. Here are some other stocks I like for upside and valuation that is fairly attractive. LIVE- $19.25: The company is changing its business model from an Internet Business to a Business Holding conglomerate, one M&A at a time. Investors are skeptical, and therefore the valuation is absurdly cheap on traditional metrics. Price to sales is about 0.5, that is 1/2 times annual sales of 120 million, with a market cap at $57 million today. P/E is right around 3 times the projected $20 million in earnings. The Price to Free Cash Flow is also about 3x cash flow, so it’s essentially buying into a profitable business and getting a guaranteed 33% cash on cash return. At $19 per share, this stock could TRIPLE in the next 12 months if they continue to execute. 54% of the float is controlled by the CEO and Chairman Jon Isaac and he just bought up all but a few shares of his stock for 5 years to show his commitment to shareholders. VUZI- $7.05: The Augmented Reality and Smart Glasses revolution begins in 2017 in a big way. VUZI is under appreciated by analysts and orders for their new M300 Smart Glasses are coming in faster than analysts are modeling. At $7 per share, this will at least double in the next six months and has the potential to triple in twelve.
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The Enhanced Investor Weekly Macro
January 8, 2017
Education A closer look at the macro picture and valuation dynamics of Gold & Debt: On the heels of the election, initially, stunned investors (a Hillary victory was considered a virtual certainty by the “establishment”) became increasingly convinced that even stouter growth in federal spending, and revitalized corporate profits, were in the offing. Specifically, considering that: • The federal debt has been increasing by over $1 trillion per annum on average (true federal deficits have accordingly been of a similar magnitude), or roughly twice nominal GDP growth, since the beginning of the Obama administration.
• Much bigger federal government deficits are likely due to a progressively weaker economy (lower tax receipts & higher transfer payments) on the heels of the weakest “recovery” on record featuring plummeting productivity growth and higher consumption (not growth). • President-elect Trump’s apparently hungry fiscal (government spending) appetite and Trump’s avowed steep corporate tax rate reduction plans (from 35% to 15%), if enacted, would expand the federal deficit further still, yet would give, all else being equal, aftertax corporate earnings — whatever their level — a huge 31% boost. The Enhanced Investor Weekly Macro
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• The Fed will have to monetize even more gaping federal deficits, especially given the enormous Treasury bond exposure of its own, highly-leveraged balance sheet — and that of the Fed cabal member banks — which in essence commits the Fed to a low interest rate status quo (“Translation:” look for a record-breaking “QE” ahead). • Foreigners have become net sellers of Treasuries, which implies even greater Fed purchases of said and, should this continue, dollar weakness, which would further fan domestic monetary inflation risks. • Additional money printing/Fed bond buying only adds to already unparalleled monetary inflation.
risks that can quickly metastasize if participants begin to experience sustained and rising dollarbased purchasing power erosion • Total US debt ($18.1 trillion personal, $5.8 trillion corporate $23.1 trillion government) is $47 trillion and growing. • A one percentage point higher 10-year Treasury yield will lead to about $470 billion higher interest expense in a relatively short period, which would offset fiscal stimulus while reducing consumer demand/hobbling GDP growth thanks to reduced financing access for mortgages, cars, and student loans (a double whammy!) and investors sold bonds and, irrationally, in our mind, bought already very overvalued stocks. In the meantime, the Fed’s intention to keep raising the Federal Funds rate incrementally has sent the dollar higher still and gold lower still, however strategically flawed.
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Additional Info For any newcomers who don’t know me, I’ve been contributing via the Enhanced Investor Weekly Macro Reports under #WatchList for almost a year. As I noted last week, given the recent market action and my in-depth knowledge of bubbles relative to political shifts and global economics, I’ve decided that it was simply not enough for beginners, or even intermediate traders because in order to have the ability to synthesize what’s truly happening - you need to be operating at the MBA/PhD level. Unfortunately, some PhD’s forget the basics. Anyway, as I said a few weeks ago, it’s not fair for me to assume that all of you have what those at investment banks call “financial sophistication”, but that’s why we’re working together here at Enhanced Investor. Combatting Wall Street and gaining the upper edge is why we do this. Anyway, I am more than happy to help, so if for some reason I don’t receive a tag in the #mainstockchat, or you don’t direct message me on Discord, please feel free to email here adamwood@fas.harvard.edu or you can tag me on StockTwits @ EILeadMacroAnalyst. Don’t fear the bubble. We do not fear bubbles here at Enhanced Investor. Why? Because we’re armed with the strategic, tactical, and historical knowledge of every major bubble that has ever occurred. From the Tulip Mania of 1637 to the Housing Crisis of 2008 and the current market conditions - we’re prepared.
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