The Biggest Macroeconomic Transformation since WWII Is Starts Now
Hey Subscriber,
Greetings--take a load off and read (or print out) this Part II of the March 2021 newsletter--Part III to follow.
We have been in no hurry to buy a ton of new stocks since early January. We have sold more than we have bought. The reason is simple--as I have shared for too long we have about 5-6 different stock markets that all run on various forms of caution to outright mania (See Beeble selling a digital image file for $67 million).
While we knew the vaccine rollout was coming, so were the variants. While America thankfully has returned to the "can-do" America I grew up in and we jacked up vaccinations to 3 million a day (yet sadly still with 12,000 deaths as recently as yesterday), the complex nature of the European Union has not had nearly the cohesive response. And now--cases in Europe (75,000 new cases in France alone TODAY) are exploding again and the shutdown cycle has exploded.
Key point: With 500+ million people in Europe and the UK, travel shutdowns, for one thing, Euro shutdowns means the bid for oil disappeared. The $10 drop in oil Brent prices and $7 in North America (combined with gasoline price explosion due to the Texas refinery close-downs) needs to settle down or we will have to protect our prodigious 220%-245% profits from our March 28-April 2020 buying as we stepped into the firestorm and got some generational buy prices.
U.S. equities fell today for unfortunately familiar reasons: companies that would benefit from an end to lockdowns faring the worst, amid concern that rising virus cases and new restrictions in Germany signal the global reopening will be delayed. The S&P 500 Index slumped and the small-cap Russell 2000 dropped 3.6% as beneficiaries of the reopening trade including Carnival Corp. and TripAdvisor Inc. tumbled. An index of airline shares fell the most since October.
Do YOU feel in a rush to put valuable cash to work now? Especially when the latest research on the Idiocracy part of America (about 25% of adults) who are STILL SAYING "No way--I'm not going to be a lab rat for unproven vaccines."
THE data is clear: we CAN END the pandemic in America by FALL IF and ONLY IF we get to 70% herd immunity and the virus runs out of hosts. Here is the latest data--PLEASE share this with any friends or family who remain in the conspiracy theorist camp. "The U.S. could experience a “perfect storm” for a jump in Covid-19 cases this year if 25%+ Americans remain unvaccinated while increasing social activity, according to the Penn Wharton Budget Model.
An estimated one-quarter of Americans say without ANY EVIDENCE they will opt-out of coronavirus vaccinations this year, the non-partisan research organization said in a report. If activities involving personal contact surpass 70% of pre-pandemic levels, an additional 4.6 million people could catch the virus this year.
“If all eligible US residents are vaccinated in 2021, we project that the pandemic will effectively be over by the fall,” researchers Alex Arnon and John Ricco wrote in the report. “Differences in the vaccine take-up rate lead to large differences in the state of the economy at the end of 2021.”
Universal vaccination would mean 8.3 million FEWER virus cases this year, and would trigger an economic boom according to the projections, with fourth-quarter GDP growth 2 percentage points faster and an extra 2.6 million jobs CREATED by December"
For Pete's sake--we all have to do our part and help reduce this anti-vaxxer insanity--we are SO CLOSE to a Covid-free FALL!! Here is the best article on why mRNA vaccines can not "get inside and change your DNA!!!"
But back to reality--here are the key levels of WTI oil support we are watching that, for no good rationale reason at all, make MLPs lose value EVEN if they have minuscule or no oil or natural gas commodity risk
The KEY here is to have this pull back maintain the 50-day price moving average!
| Period | Moving Average | Price Change | Percent Change | Average Volume |
|---|---|---|---|---|
| 5-Day | 59.65 | -7.21 | -11.16% | 510306 |
| 20-Day | 62.66 | -5.58 | -8.86% | 279499 |
| 50-Day | 58.56 | +5.36 | +10.3% | 174208 |
| 100-Day | 52.02 | +18.38 | +47.08% | 99762 |
| 200-Day | 47.07 | +17.60 | +44.2% | 52486 |
| Year to Date | 57.70 | +8.73 | +17.93% | 162035 |
Advice: BE ON THE LOOKOUT for an XOP Option Hedge and/or outright profit-taking.
While we are looking at worrisome short-term charts, the S&P 500 is looking shaky here as well.
In Short: So yea, we have let most of our GARV "Growth at Reasonable Valuations" 2021 winners in both Ultra Growth and Ultra Income run since starting the new year while taking some opportunistic profits and collecting handsome dividends (actually insane levels of dividends from our courageous buys into the teeth of the Pandemic market meltdown on March 28, 2020 and later).
Because of those actions, we continue to be rewarded with 8-10X outperformance of the SP 500 at 4.59% (including dividends) from the first of 2021.
Our combined Ultra Growth/Ultra Income remaining positions + profits taken+ dividends paid adds up to a 38.6% return so far this year i.e. near 8X/800% outperformance of the SP 500 lead by amazing moves by 1) Oasis Midstream up 64%, 2) Sonos up 77%, 2) a very nice 200%+ gain on OPTI and a sweet 4) Moderna Call option trade for another quick 255% gain.
But the REAL questions we are ALL grappling with today is
1) Are the 25% of America's literal mental Neandrathals or conspiracy theorists going to condemn the American economic recovery to another 6 months of lockdowns
2) Do we now know enough about the Q2-Q4 to Q2 2022 to add some additional growth and recovery stocks so we can KEEP beating the S&P 500 by 8X-10X as we have since our launch in 2013 (bearing in mind our 420% return in 2020 was 40 YEARS of stock market wealth in just 9 months--and that likely ain't happening again).
Key Point: Today I think the answer is "Maybe" with a few caveats. Let's get at solving this puzzle for all of us--and let the bond market and energy market give us a bottom so we can get advantageous entry points.
But first quick review on the core Transformity Investment strategy that is responsible for our 8x-10x outperformance of our Ultra Growth and Ultra Income portfolios over the SP 500. And the reason is simple: we are NOT a static or rules-based algorithm or ANY inflexible investment dogma.
Our 8-10X outperformance strategy is very simple and but flexible:
1) We are LONG stocks when the US economy (as the proxy for the world economy) is in a macroeconomic expansion and we are hedged/short or in cash 60-90 days AHEAD of a normal economic recession (or an oncoming exogenous economic event like a pandemic in 2020 or impending financial crash that we called and positioned for in early 2008 during my ChangeWave Research days after my contacts in the Southern California high-yield/subprime mortgage paper biz told us their credit lines had been cut and they were effectively out of business.)
Today our TR MacroMarket Timing Index stands today at 19.6--the highest reading in its 32-year history (we licensed the basic model from the amazing work of the London School of Economics using a 35-piece index of current and leading indicators). A drop below 15 reading means a high degree of likelihood that the economy has fallen or is about to fall into recession in the next 4-6 months (which the market sniffs out and drops before the news is official).
Today, the Nowcasting Index of the Atlanta/NYC Fed closely matches our proprietary index and they both show 6.2-6.8% GDP growth in the Q1 is 5.7% and the NYC Fed is 6.3%--NO recession in site the next 4 quarters at least. Most obviously, dumping almost 4.2 $trillion of cash into a $21 trillion economy is (on a percentage basis) the largest monetary and fiscal stimulus since WWII and 3-to-4 million Americans getting their first or second vaccine jab per DAY is rapidly setting up the monster of all "Return to Normal" economic recovery since WWII.
Now it MAY seem like a decade ago today, but just this time last year, we closed out our history-making 10X winning Put Option hedges bought on Jan 24, 2020, when we got intel from our China contacts that 1) the pandemic was much worse than the Chinese let on and 2) our contacts in the semiconductor fabs in China said they were closed down and the main cities were preparing for lockdown.
On Feb 25, we advised our subscribers and managed accounts "GO TO CASH--Pandemic Depression Ahead" and we built a lot of dry powder (and saved literally $millions in managed account losses) for the once-in-a-lifetime bargains that came to us 30-days later.
2) Now the question is--WHAT to buy/When to buy it? The most important part of Transformity Investing is still identifying the most powerfully transformative sectors addressing huge global TAM (total addressable markets) and the stocks most likely to, over the next 9-12 months, deliver the top and bottom line "beat, beat, raise" quarters that historically drive our sector and stock selections to their 8-10X outperformance of the overall S&P 500. We are always searching for the beat/beat/raise sectors and companies and disregarding 95% of the rest of the market
Now those of you who have been with us since the ChangeWave days remember some epic secular corporate-specific transformative calls too as we made with Apple with the iPhone, Sirius Satellite radio merger with XM radio for a monopoly in 150+ station satellite radio, CREE with LED lighting, WFR with raw silicone for solar panels and Tesla on the IPO that doubled into late 2010. (OY we sold that one too early as well!)
But more recently, identifying and riding the most powerful secular 2015-2016 transformations produced 10-bagger calls on AMD at $2.50, Nvidia at $45, OLED at $44, Shopify at $85 (which we sold WAY too early--doh!), and semiconductor equipment like Applied Materials and LRCX in the low teens.
Key point: My point here is this: the big difference today in this 6-7% GDP reopening/post-pandemic economy in our "beat top line, beat bottom line, and raise guidance" world of Transformity Investor PRO is "what are the most likely beat/beat/raise guidance sectors and stocks going to be in a world:
A) where the previous beat/beat/raise plays100% leveraged to 10 years of technology adoption that occurred in 3-6 months (i.e., the work-from-home/digitize my hybrid work enterprise NOW! tech stocks) who just experienced 5-10 years of growth in 9 months and are valued at 20-30-40-50+ times their forecast 2022 revenues (not earnings) or
B) The well run indoor consumer service/experience/entertainment companies that had HORRIBLE 2020-Q1 2021 results but have massive pent-up consumer demand and/or
C) The leading enabling technologies of the UNSTOPPABLE 25% CAGR sectors addressing the $trillion transformation to zero-carbon mobility and renewable power world 2025-2030-2035 and/or
D) Corporations that have undergone transformative reformulations for the post-pandemic world.
E) Low P/E Global semiconductor equipment, foundries and producers locked into a global semi chip shortage just as the Electric Mobility takes off with 5X more semiconductors/OLED screens and memory chips.
Where are the most likely sectors and stocks in our beat/beat/raise sweet spot???
Yea you got the picture: B, C, D, and E with a few UNSTOPPABLE high margin software-as-a-service plays added to the mix.
But before we get to the categories our research has the most upside and most excited sentiment, let's get at the elephant in the room: the fear of systemic inflation that would drive 10-year rates back above 2%.
The 1.75% 10 year bond has been kryptonite for secular growth QQQ tech. We have big debt auctions this week--let's see how that turns out. But yes the 40-year bull market for long-duration bonds is dead--it's down 21%.
Does that mean the US bond market is in trouble? The fear of "runaway" inflation completely disregards the reasons why we have had no price inflation since the 2008-2009 financial bailouts or 20 years before. The price inflation case is 1) the drive to return to domestic supply chains vs. China/Vietnam, 2) Synchronized global recovery which, in theory, should put upward pressure on cyclical commodities 3) widespread shortages of Covid related shortages in shipping containers/microchips/etc.
But the answer to why we had such low inflation in the 2009 bailout is the same reason this inflation blip is transitory:
1) A majority of the $$$ created when the Fed buys bonds and mortgage securities every month from banks goes back into the Fed as a deposit--that cash is not making it into the overall economy created ing too much demand/not enough supply.
2) The job market is not subject to the wage spirals driven by 75% of labor tied to fixed cost-of-living COLA raises like the '70s. Wages are the #1 cost for the business and the primary source of price inflation but America's biggest employers have 2X the sales per employee vs. the last inflation scourge.
3)Today international competition and 24/7 price surveillance + real-time inventory management keep domestic companies from jacking up their prices.
4) And of course we are a 68% service economy unlike the '70s with a 54% industrial economy. For example, the healthcare labor that provided 70 million Americans on Medicare/Medicaid with healthcare is paid a fixed monthly "capitated" ie fixed monthly rates and not fee-for-service.
IN short--I can make the case that the inflation scare got priced into .1.76%--most of the earnings season is over--Q2 comps are insanely easy to beat.
ALL we need is to NOT slide backward on the pandemic with the variants that are 30-40% easier to spread.
More to come--but this is the first pandemic in 100 years--there is NO PLAYBOOK if 25% of adult Americans for literally insane reasons won't get vaccinated.