The times, they are a-changing

November 4, 202016 Comments

Today, I have a few investment thoughts to present to you for consideration.

Before getting started- be sure to tune in to my MoneyShow talk at 2:00pm EST today. Its free. More info, and registration here.

We all woke up this morning to find out there was no winner in the US election. With millions of votes in battleground states still being counted, and close contests in five key states, the presidential outcome may not be decided for days, or longer. Mucking all of this up, of course, will be the re-counts and court cases if the vote comes in close. To me, this uncertainty spells volatility on the markets.

Big swings = opportunity

I read some research by BearTraps yesterday (I subscribe to their institutional package, and find it to be the best research I have used in my 30+ year career). They presented some data that predicted a much closer race than the “Biden sweep” that traditional polling institutions had been pumping over the past month or two. BearTraps has been talking about this disconnect for some time. So it didn’t surprise me to see a lack of dominance by the Dem’s last night. Its going to be close, no matter what, but my view is to use any dips to buy in the coming days or weeks. When the market gets clarity, it will rally – no matter who wins.

 

Morgan Stanley research coincides with  ValueTrend’s contrarian outlook

I’ve harped on the hype surrounding tech and “Stay at home” stocks since the late summer – and I’ve made it clear that opportunity presents itself in what the market is NOT paying attention to. That is, the “Go outside” stocks and the value names are where the opportunity lies.

Morgan Stanley: “In that post-vaccine world, people will be able to spend the $1.8T in excess savings deposits they’ve built since February, equivalent to 9% of annual GDP. People have never had excess savings on anything like this scale in the modern era. Accordingly, we’re expecting an unprecedented wave of spending on discretionary services like leisure, travel, and entertainment, just as soon as people feel safe and the sector fully re-opens.”

My take: As I have been pounding the table on – continue to focus on value and “go outside” stocks for your portfolio. “Stay at home” stocks are overvalued, and overbought. Market indices like the SPX and Nasdaq are overweight in the “Stay at home” names. This is about to become a rotational, stock pickers market , rather than an index players market, or growth focused market, as it has been.

Fed influence

Morgan Stanley: “We think 10 year yields are about to rise significantly and a 100 bps move cannot be ruled out. .. the driver of the next leg in this bull market will likely be earnings, not valuations ..” 

My take: don’t count on Monetary policy to continue pumping the market’s overvalued darlings forever. For now, rates remain low. But the fiscal stimulus packages being injected into the system will eventually influence inflation.  Rates will rise eventually. We think an investor should slowly add the commodity plays, including producers, producing countries (and their currencies), and the commodities themselves. Inflation hedges can include precious metals, base metals, agriculture, and yes, even energy. This is a longer termed strategy that wont necessarily profit in the short term. As such, we are legging in a bit at a time – not all at once.

Further, we think that buying stocks that have longer termed potential for earnings growth with reasonable valuation are the way to go. If the FAANGs tread water (as they have been for 2 months) for a while longer and allow for fair value to re-appear in their names, they will become attractive candidates. For now, per my comments above, we like the overlooked value names.

16 Comments

  • Hi Keith,
    Can you please describe what you mean by “Go Outside Stocks”?
    Thanks

    Reply
    • Anything from the “old” economy–industrials, utilities, brick and mortar retail, entertainment (DIS, etc), wining dining, air travel,
      These are the opposite of all of the indoor shopping like SHOP, AMZN, indoor entertainment like NFLX-indoor conference facilitators like ZOOM (I just did one of them today for the MoneyShow)-these are “stay in” stocks

      Reply
  • HIGH YIELD TO TREASURIES (JNK:IEF) PRINTED A NEW CLOSING HIGH FOR THE RALLY OFF THE MARCH 23 LOW. GOOD FOR STOCKS, NOT SO MUCH FOR BONDS.

    J.P.

    Reply
      • Good morning sirs,

        If Biden wins, since he takes a non pro-oil stance, that should hurt the energy sector, which is a big proportion of the High-Yield space.

        So many moving parts…

        Reply
        • ONLY if he wins house AND senate
          If he doesn’t hold senate then nothing gets passed. That’s what the market is rallying on. The potential for a split government where nobody can just have it their way.
          In other words: goldilocks situation.

          Reply
    • BearTraps research–they get institutional research from many of the big firms, and quote anything that is interesting for their subscribers (me) within their own research.

      Reply
  • HI saw your presentation yesterday. I enjoyed it.
    Wondering what length of time do you focus on when reviewing the consolidation chart-1-2 3 years?
    I just looked at loblaws. it looks like resistance is around $71 and support is $66 or so. This means an upside of about 7-8%. is it worthwhile to try to trade in this “narrow range”? Not much of an upside.

    Reply
    • Thx Jeff
      I look at consolidations in different ways. For example, one of my charts yesterday was GE – very neartermed trading range which I traded recently in our aggressive account
      Loblaws is a longer consolidation. Correct–support is $66 (right now!). Resistance is $71 with potential for $75 which it hit twice over the years.
      Is it worth the trade? Well, we think so. We view it as low risk at current price (it has a defined support level that if broken tells you exactly how to sell–wait a week after a break, then sell). So yes, it is worth the low risk trade in our eyes. But true, not a huge upside. Probably 10%. But..if that happens in 6 months…not bad!

      Reply
  • Hello Keith

    I was unable to catch your presentation. Is there a recording that can be viewed?

    Thank you
    Carey

    PS how many km on the bike this year?

    Reply
    • Hi Carey
      I will post it on the blog – hopefully next Monday–when they send the link to me–thanks for asking.
      Re the bike- just coming up on 14,000 km. Likely 15,000 km for the year. I was aiming for 16,000 km (10,000 miles) as a goal, but now that the Canadian Cycling Association has boldly posted a race schedule including the big one that I was originally aiming for this year–I have re-directed into training for a race season next year- this means I ride less, but harder!

      Reply
  • 6 NOVEMBER WEEKLY RECAP (DAILY CHARTS).

    SMH FAVORED OVER TLT
    QQQ FAVORED OVER TLT
    SCHX FAVORED OVER IEF
    SPY FAVORED OVER TLT
    GLD FAVORED OVER TLT
    IEF FAVORED OVER TLT
    CARZ FAVORED OVER SPY
    XLY FAVORED OVER XLP
    FDN FAVORED OVER TLT
    IWM FAVORED OVER TLT
    JNK FAVORED OVER IEF
    SPY FAVORED OVER IEF
    $VIX DOWN 34.61% FOR THE WEEK
    NO PREDICTIONS, NO FORECASTING, NO ASSUMPTIONS (TRADE THE CHART IN FRONT OF YOU)

    (CIOVACCO CAPITAL MANAGEMENT)

    Reply
  • Lord Richards,

    – Regarding commodity countries, which would you watch? Play through ETFs? (note: I was watching EPOL pull back, but waited too long :/

    – Regarding agriculture, would you play through an ETF like COW? (note: already missed a big rebound :/

    – Regarding energy, you still suggesting SU if tax-loss selling takes a bite out closer to Xmas?

    Reply
    • We like Brazil, Chile in particular for commodity countries
      Re agriculture–I can’t advise you on an ETF, but I will say we own an individual stock in the sector.
      We bought a little energy last week (wow– we were lucky! Note the move today!). There is a good potential for a pullback near year end into tax loss season, but we have to take it as it plays out.

      Reply

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