Yes, We’re in a Market Bubble — It’s Not What You Think
In today’s Market Talk, Amber Lancaster, Hudson Cashdan and I discuss:
- Why China’s new STAR market is something we’re watching carefully but aren’t ready to recommend just yet.
- What the future of construction looks like thanks to virtual reality and graphene tech.
- How we’ll prepare you for a real market bubble through updates, recommendations and all the advice you need.
July 29, 2019Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined by Paul Mampilly and Hudson Cashdan. Each week we look forward to sharing our viewpoints and giving insight into what’s on our radar. Today’s outlook is for the week of July 29, 2019. I’ll begin by sharing with you what I’m watching and then we’ll hear from Hudson and Paul.Today I’ll cover three major topics, plus a very special announcement. The first will be my take on recent and upcoming U.S. economic releases. Then I’ll highlight my innovation story of the week.
Next I’ll share our Good News Roundup in conjunction with the latest performance numbers on our Disruptification Index. Lastly, we want to share with you the fine details about our upcoming Total Wealth Symposium in September. Let’s begin.
All eyes will be on the Federal Reserve this week with the rate decision this Wednesday at 2 p.m. Economic forecasters anticipate an easing by about 25 basis points. If rates are cut, it will help stimulate corporate confidence and further strengthen consumer confidence and spending.
Also, according to Bloomberg data, last week’s preliminary June durable goods orders suggested that conditions are starting to improve in the factory sector. Orders placed with U.S. factories for business equipment in June posted its largest gain in over a year as shipments unexpectedly increased.
As you can see in this Commerce Department and Bloomberg chart, non-military capital goods, which are orders excluding aircraft, jumped 1.9% in June.
This week we can look forward to a ton of major economic releases. As you can see in this graphic, on Tuesday, personal income, personal spending and the consumer confidence numbers will post at 8:30 a.m. and 10 a.m., respectively.
On Wednesday, Market News International Chicago Business Barometer and the FOMC rate decision will post at 9:45 a.m. and 2 p.m., respectively. On Thursday, market manufacturing PMI final print for June will post at 9:45 a.m. July’s ISM manufacturing and June’s construction spending will report at 10 a.m.
On Friday, we’ll see the July jobs report and June trade balance at 8:30 a.m. The University of Michigan sentiment final print for July, June durable goods orders and the June factory orders will all post at 10 a.m.
Also this week, as you can see in this table, 236 U.S. companies will report earnings. Some of the largest companies reporting are Merck, Apple, Humana, GE and General Motors.
My innovation story of the week is focusing on graphene. If you don’t know, graphene is a state-of-the-art material that’s a single layer of carbon atoms tightly bonded in a honeycomb shape.
GrapheneCA, which is a New York-based, privately owned producer and developer of graphene is partnering with Apis Cor, which is the first company to develop a specialized equipment for 3D printing in construction.
It’s capable of printing whole buildings, completely on site. Together, these two companies plan to develop a 3D printer that will be able to print structures using graphene. Per ConstructionDive.com, the material is thin but nearly 200 times stronger than steel.
GrapheneCA said it’s foreseeable that this graphene 3D printing system could manufacture a 2,500 square foot house for $8,000. It could withstand earthquakes and hurricanes. That’s a wow factor.
Next, our three good news headlines to carry around with you this week. Good News Roundup story number one: A strong labor market is making mortgage borrowers more creditworthy.
According to HousingWire.com, the average credit score for borrowers of all mortgage types rose to 731 in June, an almost three-year high as a “strong labor market helped Americans pay their bills on time.”
Good News Roundup story number two: Gallup recently reported that, “Americans’ confidence in the U.S. economy improved in July, with Gallup’s Economic Confidence Index rising seven points to 29. The U.S. economy may have received a boost from a strong June jobs report.
“Additionally, the month of June saw massive gains in the U.S. stock market, with the Dow, S&P and Nasdaq reaching new highs in early July. The Dow cracked the 27,000 mark for the first time in history just before the end of Gallup’s polling period.”
Good News Roundup story number three: ConstructionDive.com reported that a video-game-like technology is drawing younger people to the construction industry. By using interactive technology like virtual reality headsets, youth, especially young girls, are now able to try out simulators for activities like crane operation, excavation and welding.
A nonprofit construction-training program based in Alabama called Power UP hopes this technology will “translate to future jobs for girls.”
Turning to our Disruptification Index, as this table shows, our index continues to outperform major indices year to date. It’s up 35% versus 25% on the Nasdaq and 16.6% on the Dow.
Lastly, for our special announcement this week, Banyan Hill Publishing — our publisher here at Bold Profits — will be hosting its 18th annual Total Wealth Symposium from September 12 to September 14.
It’s just a few short weeks away. It’s in Amelia Island, Florida. If driving, Amelia Island is about 45 minutes north of Jacksonville, Florida. At this event you will be able to hear from, and meet in person, all the gurus and analysts at Banyan Hill, including our very own Paul Mampilly, Hudson Cashdan, Ian Dyer and me, Amber Lancaster.
Plus, you’re going to meet in person and hear a special presentation from national bestselling author and radio host, Dave Ramsey. The event will be held at the beautiful Amelia Island Resort. You can see in this photo it’s nestled on 1,350 acres at the tip of a barrier island just on the northeast part of Florida’s coast.
You can enjoy luxurious oceanfront accommodations, world-class resort pools, championship golf, full-service spa, endless dining options and family-friendly activities. For more information about this, you can visit TotalWealthSymposium.com.
I’m sure Paul will have more on this later as we talk further this morning. That’s it from me today. Hudson, what are you watching?
Hudson Cashdan: Thanks, Amber. That’s interesting. I like the news on the construction industry.
Paul Mampilly: Also, it made me want to go to Total Wealth Symposium right now. I’m ready to go. Listening to Amber describe it I thought, “Let’s go right now. Why wait until September?”
Hudson: I was picturing a pool and a piña colada.
This weekend I was reading an article from Nikkei. “Disclose or Leave” is the headline. It’s about a bipartisan bill sponsored by Marco Rubio and Kristen Gillibrand that aims to address the discrepancy in the markets with respect to Chinese listings.
Right now, Chinese listings are getting some exemptions from the listing requirements of U.S. and other international companies. The U.S. auditors don’t have access to the Chinese companies. You’d almost have to rely on the Chinese auditors’ word on what’s going on with these companies.
Starting in 2025, after a three-year grace period beginning in 2022, the idea is that they will be held to the same standards as U.S. companies. They will either have to disclose information to the investors as every other company does, or they will have to delist and go somewhere else.
A lot of Chinese companies are starting to prepare for an exit by preparing listings on the Hong Kong exchange or other places. They are having their own problems also in Hong Kong. This is just another front on the trade war going on with the U.S. and China.
I think it’s interesting to see it’s a bipartisan effort now, realizing there’s a problem with our trade relationship with China and it needs to be addressed together as a company. One of the few areas in this country where this seems to be happening — both sides moving together to solve a problem.
I think that’s a positive for U.S. investors and it fits in with our view. With respect to IPOs, we’ve been staying away from Chinese IPOs. We don’t trust the numbers. My experience with China is I’ve seen a lot of frauds over there.
I have never gotten a clear explanation for how the legal system works, how the bankruptcy resolution process works and what you actually own. I think Paul is going to speak about this further.
Paul: In the $10 Million Portfolio that I run with Ian Dyer, we stay away from China. We have actually been getting questions about the STAR market in China, which is perhaps related to what you are bringing up. I never heard about any of it, and suddenly they have this market.
It has companies that are worth in excess of $40 billion on it. It’s kind of like their Nasdaq. I suppose it’s paving the path for them to exit from U.S. listings to having a primary listing over there.
Hudson: It’s their venture market. There’s a few things. The number that they throw around are interesting, but the fact is, Western investors can’t access most of these companies in most of these markets.
They’re essentially no different than what we just spoke about. They are domestic listed companies in China, there’s no clear legal system surrounding what you own. They are essentially lottery tickets in the very closed Chinese market.
Take all the numbers and all the trading there with a grain of salt. We will follow it. We will see if one day U.S. investors can access it, but I doubt it.
Paul: Even more, personally, I have never really thought that international diversification means a lot. In the end, to me, a dollar is a dollar. A return in any form is a return. For sure, like you said, in China there is no real ownership of any sort.
We have given them a sweetheart deal to earn their business. They don’t have to meet the same rules as regular companies have to meet when they list on our exchanges. The ownership structure — we allow them to create a fictitious ownership structure so they can list where you are buying something.
It’s really just a trading vehicle. I would never put my long-term money without some level of control in China. Even in your service, Hudson, I’d say we will probably avoid it. Unless it’s going to be such a hyped deal that we want a part of.
We probably avoid most Chinese IPOs, right?
Hudson: Yes, and maybe one day that will change. Maybe one day the news will be built into these stocks. They will trade down at such a low valuation that maybe there will be a trade deal that we’re all following. There will be disclosures and better corporate governance practices.
That could make it very investable at some point, but we’re not at that point now. China is a developing market still in some points. Not all parts, Shanghai is a pretty developed city but the rest of China is still developing.
India is another developing market, but to contrast China with India, it’s difficult for a U.S. investor to invest in India. There’s a lot of rules and regulations. But they have a rule of law that is developed and clear and you know where you stand.
Whereas in China, I never was able to get a sense of what the laws are. When I would ask people they would always say it breaks down to it depends on who you know. That’s just not something that a retail investor in the U.S. should be a part of.
Paul: I agree. Just to bring this to an end, if you are interested in international companies, you have to check out this unbelievable service that Ian Dyer and I run. We are positive on Taiwan, India, we’re looking at companies in Israel and France.
It has some unbelievable companies in there. If you are interested in international opportunities, that’s the one to check out.
Hudson: Paul, another article I read this weekend, related to that, was about 50 companies that are uprooting their manufacturing out of China. Some companies may be coming to the U.S., but a lot of them will be relocating to Taiwan, Vietnam and other inexpensive neighboring countries that have similar capabilities as China, but are a little bit fairer with respect to global trade.
Paul: That’s right.
Just to bring this conversation to what’s going on in our markets, my publisher has been writing me notes and saying we’re getting a lot of email that people are worried that the U.S. stock markets are a bubble.
It makes me realize that Amber, Hudson and I are definitely away from the pack. Pretty much everything we see is positive. We realize that the markets go up and down. Obviously the end of 2018 was a pretty violent move down. However, in preparation for this call I looked some things up.
170 companies in the S&P 500 have reported earnings better than estimates. In other words, you can go back through whatever was reported for third quarter, fourth quarter and first quarter and people feared a great deal, including a bubble, recession, crisis, inverted yield curve — you could make a list that would just go on and on.
Yet, the reality is, nothing really happened. The great bubble of our time is fear. People are fearful all the time. I read a story this weekend about how a bank CEO and CFO were interviewed and they said they see nothing on the horizon, but just in case they are going to raise capital.
There is now a pervasive mentality and mindset of fear where people are afraid to go too far out to even create a bubble. A bubble is where people have no fear and they are willing to do really dumb things with a lot of money and a lot of that money borrowed.
Those are the conditions for a bubble and we really have none of that. In fact, you can look at company valuations, earnings, inflation, sales growth, everything suggests we are in the great moderation, if you will.
I call it the silent boom, the quiet boom or the secret boom. It just keeps going and keeps going and everyone keeps betting on it to end. However, the moderation of it just allows it to keep churning out 2% GDP growth, 3% GDP growth.
Bigger companies are growing at 3-7%. The smaller companies at the tip of the spear of disruptification are growing at 25-30%. For us, this is a great environment. It’s playing out exactly as we imagined.
Hudson: My favorite bubble anecdote is that I was in college in 1999. I remember the local barber had four TVs on in the barbershop .CNBC was on. The barber was known to give stock tips. He would be cutting your hair and in between snips he would say, “I like Cisco,” or “I like Amazon.”
Whatever it was back then. Everyone on campus was talking about what Leo the barber liked. The average person on the street, you’d hear them giving stock tips. I haven’t heard anyone recently just randomly talking about the markets, what they own and my taxi driver giving me tips on what to buy.
I don’t think the shoeshine guy is in the market yet. I don’t think it has bubble characteristics. But what does have bubble characteristics, I think, is the bond market — global sovereign debt market. That’s a different one to watch. I don’t think the stock market has the same thing.
Paul: In general, the conditions are simply not there for a bubble. It’s ultimately driven by emotion and greed, which is people see other people getting rich and they think, “My brother-in-law is no smarter than me and he’s getting rich, I better get in on that.”
That was how the stock market bubble was in the late 90s and early 2000s. That’s how the real estate market was. People saw other people who they perceived or thought to be less smart than them and they thought, “They’re getting rich, I need to get into that.”
They suspend their own judgment, suspend their own natural skepticism of doing things we know are too good to be true and they pursue it. Those conditions are not there. The financial conditions are not there either.
Interest rates are low. If you look at any number of indicators, the amount of cash that came out of the market in 2018 is still sitting there, largely un-invested. We are hitting record highs and people are crouched in fear. That is the reality of how people are going through this.
They are stockpiling cash as we see opportunity after opportunity in our megatrends. Whether it be Internet of Things, blockchain, artificial intelligence or precision medicine. This new emerging megatrend I’m really working on is new energy, where we’re looking to replace carbon-based energy.
There’s unbelievable new companies pursuing batteries and new power. It’s a crazy big market that’s coming. What are people doing rather than investing in it? They are piling up cash when interest rates are essentially near zero. Hudson, you’re right. The bubble is in safety, fear, bonds and keeping cash.
In Europe there’s $13 trillion that has negative interest rates. I don’t mean to beat this horse dead.
Hudson: Just in case people don’t understand what that means, that means people are putting $13 trillion into bonds that they have to pay to lend.
Paul: Even crazier is when they look at and are asked why they are buying it. They say, “At negative interest there’s no lower bound.” Negative two could go to negative three and that would increase the value of the bond.
Hudson: It’s the ultimate bubble argument.
Paul: That’s right. That’s the nature of a bubble argument. Nonetheless, I don’t want to make light of anyone’s concerns. Amber, Hudson, Ian, Patrick, Tamara and I are nonstop checking things out for you. If we thought there was a bubble, a crash, a crisis, we would come on here and tell you there is something coming and this is what we’re going to do.
We would sell stocks down, reduce our exposure, if we saw things that could go up we would recommend those to you. We would, for sure, take action. We would never sit there and allow all your assets to decline in value.
Before this gets too long, I just want to mention again that the Total Wealth Symposium is September 12-14. As Amber mentioned, I’ll be there, Hudson will be there, and Ian will be there. All the other gurus from Banyan Hill will be there. If you would like to attend, time is running short.
There’s only a limited number of seats. This sells out every single year because it’s a phenomenal conference. Last year it was in Las Vegas and it was incredibly good. If you are interested in it, just click on this card up here and it will take you to the invitation. If you’ve been thinking about it, now’s the time to act.
We’ll all be there and because this is getting long, I am going to throw it back to Amber.
Amber: Thank you, guys. Great insights as always Thank you to our viewers this week for tuning in, we appreciate you so much. Until next time, have a wonderful week, everyone. Take care.
Amid rumblings of a stock market bubble, I wanted to address this issue head on.
I want you to know that it’s true: We are in a bubble, but not the one you think. You see, investors right now are far less likely to take risks and give in to greed, which are things that we would usually associate with a real market bubble.
But the real bubble happening right now is actually a cash bubble! The amount of cash that came out of the market at the end of 2018 is still largely not invested.
This tells me that the bubble we’re in is actually a positive one for the stock market. More than 170 companies have reported earnings that were better than their estimates, yet there’s still a record amount of cash sitting on the sidelines!
These are just a few of the indicators that we’re actually headed toward a more bullish market than anyone’s anticipating, and this is just the beginning.
This week, we also discuss:
- If you’re looking for Ian Dyer’s market update, look no further than the Paul Mampilly YouTube channel. Ian’s bringing you his own Bold Profits Daily video every Friday! Click here to see last Friday’s update on why Tesla’s stock is beating out Ford’s.
- A new world of technology is about to be opened thanks to a new partnership between Apis Cor and GrapheneCA. Together, these two companies are developing a way to build an entire 2,500-square-foot house for just $8,000!
Editor, Profits Unlimited