Great Stuff 8-20-2018

Millennial Market Madness

We have a problem in the market right now. It’s driving massive amounts of fear and panic.

No, not U.S.-China tariffs … the other problem.

Not slowing global economic growth … the other problem.

Not the potential for General Electric Co.’s (NYSE: GE) crappy accounting to bring Wall Street to its knees … the other, other problem (although that’s a good one).

I’m talking about the age of the average retail investor. In short, the millennial generation.

These investors — ages 22 to 38 — make up an increasingly large portion of the retail investing market. With a booming U.S. jobs market, millennials are finally making enough money to take investing seriously.

The problem is that they’re investing in the back end of a 10-year bull market. They’ve never known anything else. Stocks go up. Stocks keep going up. Everything is fine.

Despite what the past 10 years have offered this new crop of investors, this axiom isn’t true … at least, over the short to intermediate term. Market crashes happen. Recessions happen.

Millennials know this — they’re not stupid. But they’ve never seen a crash or a recession in their investing lifetimes. As a result, every 2%-plus dive in the market is, quite literally, the worst they’ve ever seen.

And it leads them to think: “This is the big one!”

Banyan Hill expert Michael Carr pointed this out yesterday: “Investors Are Wrong — This Isn’t the Big One.”

Adding to this, millennial investors’ ideas of “the big one” are centered squarely on events such as the dot-com crash and the 2008 financial crisis. Events such as these aren’t the norm. They’re the outliers.

But, in their limited market experience, new investors often hear media headlines predicting market crashes, recessions and inverted yield curves and think: “Here it comes! It’s 2008 all over again!”

And so, they panic. They sell and empty their portfolios in an emotional haze, adding to the problem. Then, when the market rebounds days later, they buy just as emotionally.

It doesn’t help that the financial media are screaming: “The sky is falling!”

The Takeaway:

I want to preface this takeaway with one of my favorite market quotes from John Maynard Keynes: “The market can stay irrational longer than you can stay solvent.”

Right now, I would say we’re in pretty irrational times. The bull market needs a breather, and yet it keeps going up. We probably should have seen growth flatline for a year or so after 2016, just to stabilize. But tax cuts and persistently low interest rates made this impossible.

Still, there are three things I want to leave you with regarding all the fear about the looming recession:

  1. No one expected the dot-com or 2008 crashes. There weren’t any media headlines calling for doom and gloom. Everything appeared just fine. That’s a far cry from where we’re at right now. The market is still aware of the risks. Once it shakes off that fear and everyone says the worst has passed, that’s when you worry. We aren’t there … yet.
  1. Economists are calling for a recession. A recession is defined as two consecutive quarters of negative growth. This doesn’t equal a market crash, although it also doesn’t preclude one. In short, if central banks don’t overreact (say, like slashing interest rates by 100 basis points) and global economic concerns subside, all returns to normal and we get a soft landing and resume growth quickly.
  1. If the worst does come to pass, don’t panic. To do this, you also need to be prepared in advance. That doesn’t mean ditching all your beloved tech stocks, hoarding gold and stuffing cash in your mattress (does anyone really do that anymore?). What it means is taking a measured approach to the market with portfolio allocations appropriate to your age and retirement expectations. You know, what you should have been doing all along instead of chasing YOLO returns on Beyond Meat.

As I’ve said here multiple times before, if you want to prepare for the worst while still growing your investments, Ted Bauman has you covered. Click here to find out more.

Great Stuff The Good The Bad and The Ugly

The Good: Chinese Tech Takeout

Great Stuff 8-20-2018

If you love Chinese takeout, Baidu Inc. (Nasdaq: BIDU) has you covered.

The tech giant continued a string of strong quarterly reports from Chinese firms, beating both top- and bottom-line earnings expectations last night.

Revenue rose a mere 1% year over year, but topped Wall Street’s target. Earnings of $1.47 per share came close to doubling the consensus estimate of $0.88 per share.

What’s more, Baidu also saw a 27% increase in daily active users of its mobile app and a 44% increase in video-streaming, cloud and smart-device revenue.

It’s important to remember that Baidu accomplished this beat amidst rising global trade tensions, especially between the U.S. and China. While the shares will remain volatile for this reason, BIDU has proven it can weather the storm.

The Bad: Chinese Tech Leftovers

Great Stuff 8-20-2018If Baidu is delicious Chinese takeout right out of the box, iQiyi Inc. (Nasdaq: IQ), is that leftover egg roll that no one wants to eat.

The Chinese video-streaming service missed earnings expectations by $0.04 per share, and revenue was basically flat. Subscriber growth surged 50% year over year to more than 100 million users.

This resulted in a 38% improvement in membership revenue. However, ad revenue plunged 16%, leading to a hefty loss on the quarter.

Ironically, Baidu is the majority owner of iQiyi — leading some to speculate that the latter is bailing out the former.

The Ugly: High-Res Minecraft?

Great Stuff 8-20-2018

Little boxes in your Minecraft. Little boxes made with ray tracing. Little boxes in your Minecraft and they all look just the same.

More hype for Nvidia Corp. (Nasdaq: NVDA) arrived yesterday when the company announced that Minecraft and other lesser-known video games would support real-time ray tracing.

Ray tracing is a way of drawing images in video games to make them look hyperrealistic. Real-time ray tracing means that games can actively draw images instead of having them all prerendered.

Nvidia has pushed ray tracing in the video game industry since September 2018, when it launched graphics processors capable of the technology. The tech is pretty, but it has yet to really take off and earn Nvidia any returns or revenue.

Minecraft is likely the world’s most popular game. Part of the reason for its popularity is its low-res graphics that can run on practically any device.

In short, using real-time ray tracing on Minecraft is like strapping a Falcon 9 rocket to a Huffy BMX bike. Sure, it’s fun if your hardware can handle it … but you’re still on a Huffy.

While the potential for real-time ray tracing is exciting, I’m reserving my enthusiasm over the technology and Nvidia until we see some real AAA game titles support it. It certainly isn’t worth the nearly 8% rally NVDA shares saw on yesterday’s news.

Great Stuff Quote of the Week

Big, scary stats are usually just that: BS stats.

Few carry meaningful insights into what’s going on.

Case in point is the major event that happened in the market last week.

On August 14, the two-year U.S. Treasury yield jumped above the 10-year Treasury yield. The stat is that whenever we see this inversion, an economic recession follows.

I want to be clear with you: This is a BS stat. And it’s not because it’s false. It lacks context.

— Chad Shoop, Editor of Automatic Profits Alert

Remember when we talked about how you should have a “measured approach” to investing? It’s like having a complete breakfast. You wouldn’t just eat bacon for breakfast. That’s a written invitation to heart disease. You also wouldn’t just eat Grape-Nuts for breakfast, either. That’s a … well, I’ll leave that to you to figure out.

While preparing for an eventual recession is part of a measured investing approach, so too is taking advantage of the current market environment. Sure, the yield curve is inverted. But that doesn’t mean there aren’t opportunities to be had right now.

That is what Banyan Hill expert Chad Shoop is talking about in today’s Quote of the Week. For more on what opportunities Chad has in mind, be sure to check out his article: “The Inverted Yield Won’t Doom Stocks — Buy the Dip With Call Options.”

And don’t let that “O-word” scare you. Options were made for high-volatility markets such as this!

Great Stuff: Showin’ Some Love

Last week, I asked: How much do you love Banyan Hill expert Paul ?

Great Stuff reader Patricia S. happily obliged:

I am a Paul subscriber. I love the videos. Strong hands is his motto. We all need strong hands. He is such an animated fellow. I never get tired of seeing Amber, Paul, Hudson and Ian and I love seeing them each week.

Patricia, thanks for writing in to Great Stuff and for being a Paul subscriber!

Today, I’m going to share some of that Paul McLovin’.

Until next time, good trading!


Joseph Hargett

Great Stuff Managing Editor, Banyan Hill Publishing