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Lessons managing a stock portfolio today

Not all is going up. Energy has come down, e.g.

Exxom

My present rule is 10% down and I’m out. This doesn’t always work. I just lost out on Mobileye. These made gyrations often happen with hot tech stocks. Mobileye just jumped because Intel bought buy it. Another big success for an Israeli startup.

Mobileye

Meanwhile, everyone and their uncle is predicting gloom and doom. Business Insider says UBS believes that the Federal Reserve’s likely rate hike on March 15 and expected weak economic data in the first quarter of 2017 will drive the market down at least 10%. The bank said:

“While we do not expect the current bull market to expire imminently, valuations consistent with prior tops, a more aggressive Fed likely to hike on 3/15 even as the economic data and growth proxies such as oil and high yield bonds are softening, and the potential for fund flows to slow down nearer to the US tax deadline of April 15th could cause a convergence of Realized volatility toward Implied, resulting in a broad market pullback consistent with other such corrections of the past several years, toward the 200 Day moving average near 2,192.”

And this weekend’s Economist published this leader:

Flying high
Are stockmarkets in a bubble?
It will be hard to satisfy both populists and businesses

HAVE investors become irrationally exuberant? That is the biggest question hanging over global stockmarkets. Despite tumultuous politics across much of the rich world, share prices are reaching ever loftier heights. After breaking the 20,000 barrier in January, the Dow Jones Industrial Average swiftly passed 21,000 earlier this month. In Britain the FTSE 100 has been notching up fresh records, too. The MSCI World Index has hit an all-time high.

At first sight, the warning signals are flashing. The recent flotation of Snap, an internet firm that is yet to make a profit, brought back memories of the dotcom boom; its shares soared by 44% on their first day of trading (although they have fallen back since). By historical standards, valuations in the American market are worryingly dear. The cyclically adjusted price-earnings ratio, which averages profits over ten years, is just under 30, according to Robert Shiller of Yale University. Only twice has it been higher-in the late 1990s, during the internet boom, and just before the crash of 1929.

There are three reasons why investors are ignoring the alarm bells, each of them reasonable. First, investors’ exuberance comes after a long period of restraint. The S&P 500 index is up by 5.5% so far this year. But in 2016 it returned less than 10%. In 2015 it fell. Contrast that with the late 1990s, when the S&P 500 returned 20% or more in five successive years. Nor have investors bet the farm on shares. After suffering net outflows for the previous 12 months, equity mutual funds in America recorded their first week of net inflows in February. That same month a Bank of America Merrill Lynch survey of fund managers found that they held more cash than usual. Investors have a negative view on government bonds: ten-year Treasuries yield 2.5%, compared with 1.8% before Donald Trump’s election. Equities look attractive in comparison.

Second, there are indications of a pickup in the global economy. That is a big change from the start of 2016, when investors were preoccupied by the state of the Chinese economy and the threat of deflation. After a feeble performance over the past few years, with annual growth in trade volumes barely keeping pace with GDP, the signs are that global trade is picking up again. The volume of South Korean exports rose by 20% in the year to February, the fastest growth rate in five years. Commodity prices are 10% higher than a year ago (see article). Even European growth forecasts have been revised higher.

Third, expectations of tax cuts, infrastructure spending and deregulation from the Trump administration have invigorated animal spirits in America. In December American small-business confidence saw its biggest rise in nearly 40 years, according to the National Federation of Independent Business. Profits for firms in the S&P 500 index are expected to rise by 12% in 2017 after being squeezed during the past couple of years, partly because a low oil price hit the energy industry.

The risks to this happy prospect are manifold, however. Despite the strong tone of surveys, the recent economic data in America have been mixed: consumer spending and industrial production both fell in January. After eight years, this recovery is already long in the tooth. Mr Trump’s fiscal-stimulus programme could take till next year to get through Congress and will be watered down along the way. Some of Mr Trump’s proposals-cracking down on immigration, say, and threatening trade sanctions-would harm growth.

Meanwhile, monetary policy, which has played a big role in supporting stockmarkets since 2009, is becoming less accommodating. The Federal Reserve is widely expected to raise interest rates this month (see article). The European Central Bank will scale back the volume of its monthly bond purchases in April. Around 80% of all global private-sector credit creation happens in China, according to Citigroup; the authorities there are already starting to tighten policy. Parties weren’t meant to last

A deeper problem lies in a contradiction between politics and economics. Elections in the Netherlands, France and Germany this year will give voters the chance to hammer established parties. Just as with Mr Trump in America, workers are backing insurgent candidates because they want a bigger slice of the economic pie. But mathematics cannot square a surge in real wages with a market rally based on the hope that profits will rise faster than GDP. As a movement that rejects globalisation, populism is a menace to companies that thrive on the free movement of goods, labour and capital. So it will be hard to keep both populist voters and the equity markets happy. Stocks may fly high for some time yet, but investors should keep a parachute handy.

Packing tips

  1. Absolutely critical: Put a business card in your suitcase. When all your outside tags are torn off, your airline will return your bag.

2. Pack your bag full, so that bags on top of yours won’t crush it.

3. Buy only four-wheelers. They’re easier for the baggage handlers. They throw four-wheeler less.

4. Read “Packing Tips from an Airport Baggage Handler.” Click here.

The greatest invention ever. Small cut? Paint this on first. Then put on a band-aid. New Skin is magic.

NewSkin2

Click here. 

Tell your children to become tennis players. You can download this app for BNP Paribas Open at Indian Wells.

BNPParibas

In it, you’ll find the prize money each of the players have earned. Samples:

Roger Federer, age 35, $101,639,200
Novak Djokovic, 29, $107,998,800
Andy Murray, 29, $59,522,060
Jack Sock, 24, $5,044,574
John Isner, 31, $10,858,050
Sam Querrey, 29, $8,056,979
Tommy Robredo, 34, $12,922,120

I included Robredo because he was at the bottom of the rankings, coming in at 471 in the world.
These monies do not include earnings from endorsements, which can be much higher.

Think Federer with Nike, Mercedes, Rolex, Credit Suisse, and Moet & Chandon.

Stuff learned, again

+ Screw your glasses regularly. One lens just fell out of one of my pairs and I lost the screw!

+ Drinking water will cure all aches and pains. Sugar drinks don’t work.

+ Two easy ways to tag web pages: InstaPaper and Evernote’s Web Clipper. I prefer Instapaper.

In case you missed this wonderful tweet

Favoritetweet

How to Maintain a Healthy Level Of Insanity in RETIREMENT…for men

+ At lunch time, sit in your parked car with sunglasses on, point a hairdryer at passing cars.

+ On all your check stubs, write, “For Sexual Favors”

+ Order Diet Water when you go out to eat.

+ Over dinner, tell your children, ‘Due to the economy, we are going to have to let one of you go….’

+ Pick up a box of condoms at the pharmacy, go to the counter and ask where the fitting room is.

HarryNewton
Harry Newton, who’s amazed at the diversity of comments to Friday’s blog on “Sticking my neck out to Russia, Ukraine and Baiku” and wondering “When will all this affect us?” I received reader comments that ranged from Harry ….you are a raving left wing nut job. Please post a picture of the expression on your face when Obama is taken into custody to Massively disappointed in you.

And another comment: In fact, I barely believe you wrote this column. There is only one reason Trump has not released tax returns (other than never-ending audit): It’s because he paid very little tax by using every legal tax avoidance strategy every rich person (like you) employs, plus a number the super-rich (unlike you) are able to employ. It’s that goddamn simple. If you have evidence about Trump/Russia connection, then let’s see it, otherwise STFU. 

More readers actually agreed with me and worried how it will all end up. Probably not pretty.

For now, markets are up. Two tenants are renewing their leases. I won at tennis this morning. The sun is shining. And I’m healthy.

 

  • Joe B.

    Harry, now that SNAP has dipped below $20 a share, is it a good time to jump in? A similar thing happened with FB when it first hit the market where it shot up, then took a breather and then shot up to where it is today. Will the same thing happen with SNAP?

  • Tom

    Two examples of Bat-S%#t crazy people who still support DFT. I love the guy who said show me the evidence as he should change channel from Faux News!

    • Dman

      Now you have Trump’s Tax Returns, and you liberals look like fools again.

      The Obama presidency will be deemed completely illegitimate.

      Hey fuck-face, bat-shit-crazy is voting for Hillary Clinton.

      I can’t wait untill we Trumpsters begin full “Revenge Mode”……..

      • Lowell Rapaport

        no, we do not have trump’s tax returns – only part of one return from 12 years ago. and not the schedule c nor e, nor the vaguely worded “SEE STATEMENT 1”.

        so it does’t show where his income is coming from, nor does it show who he owes money to. and yet it does show why he is so hot to get rid of the Alternative Minimum Tax.

        it’s even possible that he leaked the form (or caused it to be leaked) in an effort to created the same kind of environment obama created when he finally presented his long form birth certificate. but obama was never going to be embarrassed by his own birth certificate. trump’s tax returns, on the other hand, can show much of what he’s been up to, good or bad, for the last 15 years or so.

        and if there really is nothing embarrassing or bad in them, so much the better. we can then dismiss one or more sources of contradiction of interest in the trump administration.

        • Dman

          Obama is going to jail