Bye Bye, GE: Buy the Blue-Chip Stocks of Tomorrow
In today’s Market Talk, Amber Lancaster, Hudson Cashdan and I discuss:
- Why household and car debt delinquency is on the downswing and what that means for the economy.
- Why it’s critical investors embrace a new wave of tomorrow’s blue-chip stocks as household names such as GE fade away.
- A new biotech innovation that stands to change painkillers forever.
August 19, 2019
Amber 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 with you and giving insight into what’s on our radar. Today’s outlook is for the week of August 19, 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. The first will be my take on upcoming and recent economic releases. Then I’ll highlight my innovation story of the week with our Good News Roundup and then end with the latest performance numbers of our Disruptification Index. Let’s begin.
While we wait and see how reignited U.S. trade talks with China progress, all eyes and ears will be on Fed Chair Jerome Powell’s speech in Jackson Hole, Wyoming on Friday. His speech will likely offer clues as to where the Federal Reserve stands regarding interest rates. Will there only be an insurance rate cut or a full-scale easing cycle?
I regularly check the Bloomberg U.S. interest rate probability forecasts. As you can see in this table and line chart, as of today the chances of a rate cut are at 100%, as seen in the orange line, while the chances of no change in rates is at zero percent as denoted by the blue line.
In addition, I want to draw your attention to last week’s July housing start number. The news may have had a glaring headline that housing starts fell 4% to a 1.19 million rate, but there was an important notable subtext in this release. Building permits actually surged higher by 8.4% in July. This is the biggest gain since June 2017.
This positive picture on building permits is most significant because permits, as Bloomberg data notes, are a less volatile barometer on demand for new construction. It’s very important to keep note and track those numbers.
Moving on to major economic releases this week, we can look forward to July existing home sales on Wednesday. They will post at 10 a.m. On Thursday, U.S. manufacturing PMI preliminary August print will post at 9:45 a.m. July’s leading index will post at 10 a.m. On Friday, July new home sales will post at 10 a.m.
My innovation story of the week highlights a new discovery by researchers at EPFL, a research institute and university in Switzerland. According to Machine Design, these scientists are developing an implant that releases a local anesthetic on demand in your body over several days and then it biodegrades on its own.
The implant reduces pain and discomfort, especially post-surgery. There will be no need for further surgery to remove it. For now, the implant which is still in development is geared toward individuals who are fitted with orthopedic prosthetics, but the sky is the limit for this innovation.
Next, here are three good news headlines to carry with you this week. Good News Roundup story number one: According to recently released data from New York Federal Reserve Bank household debt and credit report, the rate for household debt delinquencies was 4.67% in the second quarter and has been very consistent over the last year.
In all, the report showed that year-over-year, the rate of delinquencies for auto loans was largely stable and credit cards and residential mortgage delinquencies only saw a modest increase. What this shows us and what Paul continually finds is that investors are panicked but the real economy is fine. This shows that delinquencies are all in normal ranges with no signs of an impending crash or crises.
Keeping with the theme of loans and debt, Good News Roundup story number two shows how more Americans are making more loan payments on time. As this chart shows, 30 days, 60 days, 90 days, 120+ days and severely derogatory loan payments have been a on a steady decline since 2009. Late payments are now at or below 2003 levels.
Good News Roundup story number three: A new report for ATTOM Data Solutions shows the number of zombie foreclosures has been cut in half since 2016. .Their data shows that an improved economy and tighter lending standards have led to fewer abandoned homes. That’s good news in all cases.
Turning to our Disruptification Index, as this chart shows, the index continues to outperform major indices year to date. It’s up 27.9% versus 19% on the Nasdaq and 10.9% on the Dow.
That it for me. Hudson, what are you watching for this week?
Hudson Cashdan: Thanks, Amber. A couple things I saw that were interesting over the weekend. First, I saw that the week before last money market mutual funds and money market assets, which are basically cash instruments, had one of the biggest jumps ever since November 2009.
It’s up 9.5% year to date, 16.5% this year and with retail investors it’s up 22.2%. What that means is a lot of people have been scared and taking money out of the markets, especially retail investors. Last week that seems to have eased, we’ll see if that’s a trend.
I think that’s a contrarian indicator on the markets when small investors are whipped into fear by the media and coverage of the markets. I expect to see that turning around. I think it’s actually a contrarian positive indicator for the markets.
Second thing I saw is something that all investors out there might want to consider for their own accounts. There was an article in Barron’s that talked about how in brokerage accounts when you have a cash balance the brokers used to default you into these money market mutual funds that, on average, pay 1.8%.
It was very safe. But now they are defaulting you into overnight sweep accounts, which pay you 0.25%. They allow the bank to use that money on international markets in all kinds of complicated transactions. The essence of it is, you’re getting it at 0.25% and they’re lending it out at far more and they’re making a lot of money off of this.
That’s where brokers are making a lot of money and it’s coming at your expense. You might want to look at that with your broker and stop allowing them to default your cash balances into their low-paying sweep accounts and put it into money market mutual funds. Take some back from the brokers.
That’s what I’m looking at this week. What are you seeing over there, Paul?
Paul Mampilly:.Great stuff from both of you. To start off with, this has been a feature of the markets since October. People are in a panic, want to be in a panic and have acted like they are in a panic. Meanwhile, we have been monitoring what is going on.
While there has been some amount of shifting within the economy, for the most part there has been nothing wrong with our economy. Our consumers are spending, they are keeping their debt levels in a way where they can maintain it. People can argue that debt levels are too high, but debt levels vary with different points in the economy.
There are no excesses of any kind that you can point to. Largely this is a self-generated panic. As Hudson pointed out, this has now led to nearly historic levels of cash. Think about this, our economy is growing somewhere between 2-3%, interest rates are incredibly low, one-third of all the bonds in the world, at least sovereign debt bonds, have negative interest rates.
Inflation is nonexistent. We have an incredible world that is being created in front of us as a result of technology that even 10 years ago you would have said was science fiction. Self-driving cars? Are you crazy? Artificial intelligence? That’s junk, that’s never going to work.
Being able to record video and have this available, phones with video, computers in your hand. All that and we are huddled in fear as a result? Think of how insane that is. We at Bold Profits tell you to forget that. This is a time of phenomenal opportunity.
However, you do have to cast away your fear. You do have to go in, take action and take the initiative. All our services look forward into the future. What we see are bright days because people are euphoric. Anybody that was around for the top in 1999 or 2010 know this. If you were negative at the top, people told you you were an idiot.
People told you you were a fool. People told you that you were one of these people who was pessimistic all the time and they would essentially shout you down. We have the opposite now. Generally speaking, it indicates that people still, even with the market within a few percent of all-time highs, really don’t own stocks.
Certainly if they do they own safe stocks and the stocks of the old that are just getting crushed every day. Think about stocks like General Electric. Last week it went down by 14% in a day. That’s after hitting new lows for a lot of 2019. There is a reputable analyst saying General Electric’s cash flow is all manipulated.
While I have not done the forensic analysis that this person has, it would not surprise me. Companies that are in trouble often are doing things that seem to make sense from the inside, but when someone on the outside looks at it they say, “What are you doing?”
The same thing with Kraft or any of the others. Which is why I’ve been telling our readers that in our disruptification stocks there is volatility, which seems scary, but our stocks are on the rise. I expect them to continue to keep rising. However, those stocks like General Electric, Kraft and the stocks of the old have only one destination.
Only the speed is unclear. The destination is zero.
Hudson: Paul, what you’re saying too is that in the late 90s General Electric was the blue-chip, large-cap company everybody needed to own. It was the face of the economy of innovation. There were small-cap companies then that people didn’t hear of, they were dismissed, they didn’t have a lot of institutional ownership yet.
They weren’t household names yet, but people were buying them because they would eventually eat General Electric’s lunch. We are in the same place now. There are blue-chip companies now that are going to have their lunch eaten by some of these small-cap companies out there.
Within our portfolio we have Amazons. We have the Netflixes of the world that are going to take down the Blockbusters of the world and all the household names that people think are unbeatable now.
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This company, in our judgment, has the best autonomous technology after Tesla. It’s an unbelievable company. We’ve been tracking it and it’s at a crazy all-time low. This is the one service where we look for setups like that.
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I’m going to end this one here and say everyone is negative, but we’re positive. We’ve been positive. Yes, you’ve had to endure through volatility. As Hudson said, you can invest in the GEs which are going away or you can invest in the Teslas, the Ubers, the Facebooks, and IPOs Hudson focuses on that are going to be the brand-name signatures of today and make 10 times your money. However, you can never do it while you’re sitting in cash or sitting in stocks of the old.
That’s all I have. Back to you, Amber.
Amber: Great reassuring words this week, Paul. Thank you so much. Great insights as always, Hudson. Thank you to our viewers for tuning in this week. Until next week, have a great week everyone.
Here’s how you can kill your portfolio — by holding on to the current blue-chip stocks.
See, the stocks and companies that many investors consider “safe bets” are on the verge of being replaced by the next generation of tech.
Take for example General Electric Co. (NYSE: GE), a company that was once at the top of the market food chain. It’s having its lunch eaten by a whole host of up-and-comers we recommend here at Bold Profits…
Today’s tech innovations and devices were, in recent years, considered only science fiction. From self-driving cars to artificial intelligence, the companies spearheading these innovations and more are giving blue-chip stocks a run for their money.
And by investing in the future of the market rather than playing it safe, you have a much brighter future filled with gains than those who stay tethered to the past.
This week, we also discuss:
- When it comes to loan payments, Americans have had trouble paying back loans on time in the past. But according to recent reports, late payments are about to be a thing of the past.
Editor, Profits Unlimited