In this week’s Market Talk, Amber Lancaster, Ian Dyer and I discuss:
- Economists’ new estimates for fourth-quarter growth.
- President Donald Trump’s trade negotiations with China.
- A new sign that people are buying back into the market.
- Why the Bold Profits Disruptification Index is beating the major market indexes by more than 2-to-1.
February 25, 2019
Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined today by Ian Dyer and Paul Mampilly. Each week we look forward to sharing our viewpoints with you, our readers, and giving you insight into what’s on our radar.
Today’s outlook is for the week of February 25, 2019. I’ll begin by sharing what I’m watching for the week ahead. Then we’ll hear from Ian and Paul.
First, economists are paring their fourth quarter GDP forecasts due to lower-than-expected sales for December and lower-than-expected readings for January’s industrial production.
December’s preliminary durable goods orders and January’s existing home sales are all included in that reduction. Right now, the median economists’ consensus for the fourth quarter 2018 GDP forecast stands at 2.4%. The prior reading for third quarter 2018 was 3.4%.
The stock market gyrations over the final quarter of 2018 may have put a damper on overall economic optimism. But we believe, at present, this falter is short lived. This is evident in the strength in the labor market and the recent financial market gains we’ve witnessed since the beginning of this year.
Year-to-date the Dow and the S&P 500 are up just over 11%, respectively. As you can see from this slide, this week will be a busy week for economic releases. We’ll see December’s housing starts and the Conference Board for Consumer Confidence readings all coming to us and released on Tuesday.
December’s factory orders will be released on Wednesday. Initial jobless claims for the period ending February 23, will be released on Thursday. And February’s ISM Manufacturing print will be released on Friday morning.
On the trade front, it’s now being reported that President Trump will extend the deadline to raise U.S. tariffs on Chinese goods. Both he and China’s official Xinhua news agency cite substantial progress in negotiations.
In keeping with our Bold Profits theme of old world stocks versus new world stocks, a recent telling dividend cut is playing right into this thesis. To remind you, our thesis is that we focus on new world stocks because some of the tried and true old world stocks have become risky over recent years.
Well-known companies are suffering from declining revenues and/or dividends. They’re on track to inevitably die away. Meanwhile, investors will think they look safer and cheaper the whole way down.
One recent example of this coming shift occurred late last week. As this Bloomberg screen capture shows, the Kraft Heinz Co., a staple in the packaged food industry, just slashed its quarterly dividend by 36% to 40 cents per share. The company also reported its own $15.4 billion writedown while the SEC examines its accounting practices.
As you can see in this Bloomberg chart, the company’s share price tanked 27% this past Friday, Bloomberg News is reporting that Warren Buffett, a large stakeholder in Kraft, isn’t giving up on the company. But he said he doesn’t expect to buy more of its shares.
On the artificial intelligence front, it’s being reported by the Electrek Green Energy Brief, that BMW and Daimler will invest $1 billion on shared programs for all-electric, on-demand autonomous mobility. As you can see in this slide, per Electrek, the automakers’ partnership will consist of combining several of their existing mobility services into joint ventures.
They are Reach Now for multimodal services; Charge Now for EV charging; Free Now for taxi ride-hailing; Park Now for parking; and Share Now for car-sharing. BMW and Daimler anticipate that these collective services will enable all electric on-demand autonomous mobility in the future.
Now, where our Disruptification Index is concerned, I’d like you to take a look at this chart. Our index continues to outpace major indices more than two-to-one year-to-date. As of Friday’s February 22nd close, the index is up 25.9% versus 11.6% on the Dow and 11.4% on the S&P.
So that’s it for me. Ian, what are you watching?
Ian Dyer: Thanks, Amber.
Something that really caught my attention last week was on Friday when 228 stocks in the United States made new 52-week highs. That really plays into our overall GoingUpness strategy because it shows that stocks are in demand and people are buying them even though they are at a higher price than they have been in at least a year.
The 228 stocks making 52-week highs is the highest amount that we’ve seen in one day since September 13th, which was before the whole downturn and the chaos that happened in the fourth quarter of last year. So this is a really good sign that people are buying back into the market.
At this point, we believe a lot people also are watching this rally and still sitting on the sidelines. That’s going to bring in more people as they think they are going to miss out on a continued rally. It’s a cycle that we believe is going to continue to bring in more buyers.
That’s a very bullish thing that we are seeing — that amount of 52-week highs in the market. We believe that’s going to sustain further highs going forward.
Now I want to talk a little bit about the digital payments industry, which is something that I’ve been researching over the past few weeks. This is a huge opportunity right now. It’s something that we’re seeing in a lot of small businesses popping up in cities, especially — they’re starting to go cashless.
Thirty percent of United States adults recently took a survey and said they don’t use a single cash payment in any given week. There’s a lot of market for this, there are a lot of people that are only using credit cards or things like payment apps. When people a big group of people go out to eat, sometimes one person will pay with a credit card and the rest of them will pay them back in something like Venmo, or Square Cash, or PayPal, or something like that.
This trend is really taking over how we even pay for things. This is a huge industry in global markets. By 2021, there’s expected to be $877 billion worth of digital transactions all over the world. It’s especially growing fast in emerging markets as developed markets like the United States, China and Japan head these kind of industry trends and then emerging markets follow.
And they usually follow a lot faster and the growth is a lot higher. By 2021, in emerging markets digital payments are expected to be $459 billion, which is over half of what’s going to be the world’s entire digital payment system.
Recently, even the PayPal CEO came out and said that this could be a $100 trillion market some day. It’s a huge opportunity that we’re looking at in digital payments. This is what I will be focused on this week in Bold Profits Daily. I will have a recommendation for everybody to really get in on this huge trend.
Paul Mampilly: Sounds pretty awesome, Ian. Those are some pretty incredible numbers. To me, it really shows you that this is really an extension of our broader theme about the millennial generation — which is a global generation — taking over larger and larger sections of our economy. Ian is laying out what the future is for finance.
You can actually see it in the housing market in the U.S. I read this article this weekend where the millennial generation now represents 48% of all mortgages that were taken out in 2018. So they are totally dominating this market and their preferences.
We are seeing it ourselves in our services. Last week was a great week for our subscribers because in our Profits Unlimited service, we had two housing-related stocks that just exploded. Crazy, huge, massive gains. We can’t give you the names here because they are still in the portfolio.
But one stock went up nearly 30% — we’re talking about in one day. Another one went up 25%. To me, that’s really a reflection of what I will call this millenialification of our economy. The consumer preferences of this generation are increasingly starting to dominate what is going on.
It even extends to what Amber was talking about — Kraft Heinz, which had a dividend cut of nearly 40%, the stock plummeted 28% in a day. Why is that? That’s because the millennial generation prefers natural, organic things that are not processed. And they’re rejecting these old-time brands that Kraft Heinz represents.
Warren Buffett … in his annual letter which was released this weekend says, look, there is clearly a big shift that’s going on away from these brands that everybody thought would last forever. They are clearly being rejected by the millennial generation. As a result, they are seeing huge declines in sales. They are in trouble and they are a representation of this old-versus-new theme that we keep telling you about.
Invest in the old and you face peril just like what you saw with Kraft Heinz. In a day your stock is down 28%. In a day, your dividend is being cut 40%. And even worse for you, you imagined that this was safe. These were as safe as your savings account, as safe as bonds. But they’re actually incredibly dangerous.
The other thing, from reading Warren Buffett’s letter, which tracks back to something that Ian was saying…. A lot of Warren Buffett’s philosophy of investing in these brands that were believed were going to last forever … really is very problematic today. This is true even for these big banks which have dominated finance.
Now we go to what Ian was talking about: It’s clear that the future of finance is going to be electronic through apps, through a completely different set of companies that involved in technology and set up the financial world. The banks are another bunch of old companies that really are going to be threatened by the new.
I would be wary of these old reliable, old style, and old world dividend stocks that so many people own because of their dividends and because they believe they are safe. They are incredibly dangerous, versus our stocks that can jump 25% in a day.
That’s all I have. Back to you, Amber.
Amber: Thank you so much, Paul. Thank you, Ian, for sharing your insights as well — great information, as always. And thank you to our listeners for tuning in this week. Until next week, have a wonderful week. Take care, everyone.
The millennial generation is taking over one of the largest sections of the economy: the housing market.
In 2018, millennials took on 48% of new mortgages. This shows me we have “millennialification” — the preferences of this generation are increasingly dominating the housing industry.
Profits Unlimited subscribers saw this trend in action last week with the two housing-related stocks in our portfolio.
Both of these companies cater to millennials. And one stock surged 25% in one day. The other soared nearly 30% in one day.
So last week was great for our subscribers. And we’ll continue to see incredible gains like this in all of our portfolios as millennialification happens to every single industry out there.
In today’s Market Talk, we also discuss:
- Kraft Heinz shares plummeted 28% on Friday after it slashed its dividend and reported a huge quarterly loss. We explain why “safe” stocks like Kraft Heinz are actually incredibly dangerous.
- BMW and Daimler will invest more than $1 billion in an exciting new joint venture. We talk about these auto titans’ big plans to disrupt the transportation industry.
- More and more people have stopped using cash. We discuss the huge global trend toward digital transactions, and the threat it poses to the big banks.
Editor, Profits Unlimited