In this week’s Market Talk, Amber Lancaster and I discuss:
- Friday’s Federal Reserve speech and what it means for markets this year.
- The Internet of Things.
- The No. 1 macro indicator I follow … and what it’s telling me now.
- Plus, we unveil the Bold Profits Disruptification Index.
January 21, 2019
Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined by Paul Mampilly. Our colleague Ian Dyer is away on assignment.
Each week we look forward to sharing our viewpoints with you, our readers, and giving you insight into what’s on our radar. We’re recording today’s call on Friday, January 18, because the U.S. stock markets will be closed on Monday, January 21, in observance of Martin Luther King Jr. day.
I’ll begin by sharing with you what I’m watching and then we’ll hear from Paul.
On the U.S. economic front we will be anticipating a flurry of economic releases to gauge the overall health of the U.S. economy. Due to the partial government shutdown, releases will continue to be delayed as their reporting agencies are unable to collect and process the data.
Despite the delays, over the next week or so we can expect several vital print releases including new home sales, construction spending, factory orders, durable goods orders, retail sales and housing starts. But of all the releases, one that’s most top of mind for many economists is the GDP number.
An interesting take on the effects of the partial government shutdown on first quarter GDP was just released by Bloomberg Economics. Their consensus is that the risk for the economic outlook remained contained and they estimate that macroeconomic impact will be manageable.
The estimate is 0.3 percentage points as the expected drag on the first quarter GDP if the shutdown were to exceed past the end of this month.
Just this morning, in his speech, New York Fed President John Williams stated that interest rates are closer to normal levels and inflation is tame and the approach is one of prudence, patience and good judgement.
Overall, he doesn’t see worrying signs of inflation pressure and the economy is strong, its outlook is healthy. His number one priority is using monetary policy to keep it that way. So in short, he’s watching, listening and prepared to adjust his viewpoint depending on the data.
On the technology front, the world’s largest retail conference and expo just wrapped up in New York City this week. This conference was attended by 37,000 people, 16,000 retailers and more than 800 exhibitors from 99 countries. It’s the National Retail Federation Big Show.
It’s a fantastic gathering place for exhibitors to showcase new innovations in the retail sector. Of course, our constant theme here at Bold Profits Daily, is the internet of things — IOT. The paradigm shift in technology of IOT was on full display at the conference.
It was reported in Bloomberg News that a partnership between Microsoft and Starbucks is emerging where the coffee chain’s brewing machines are concerned. Within the coffee house’s brewing machines is a small device that contains a chip. This chip will be Microsoft’s Azure machine chip.
The chip connects the coffee machine to servers so new recipes can be uploaded directly to them. Before this innovation, twice a year Starbucks had to upload the recipes to USB thumb drives — about 8,000 of them — and have them delivered by regional maintenance techs to the stores across the country. With this new technology using IOT, innovation is astounding and will cut down on so much legwork in delivering these USBs.
So that’s what I’m watching this morning. I’ll pass it on to Paul. Tell us what’s on your radar.
Paul Mampilly: Thanks, Amber. Love that story about Starbucks and Microsoft.
I have always felt that people think about innovation in terms of technical thinking, but innovation is really about making our lives better, easier, more convenient, cheaper. And making things that we want to be more accessible. That story is just perfect. I probably couldn’t survive without coffee daily, to be completely truthful.
I’ve got a few things that I want to mention. This morning, the number one macro thing that I pay attention to is production. It really tells you what a country is making in real terms. This morning it was announced that industrial production for the United States grew by 0.3%. I know that sounds tiny; however, that’s about what you would expect it to grow most months.
Given what the stock market did for the last three months of 2018, it’s clear that some number of people thought that industrial production was going to fall off a cliff — and it actually grew. On an annual basis, industrial production or output grew at 3.8%.
Even within the report, there’s lots of really great signs. Manufacturing output grew 1.1%. The making of motor vehicles, which is a very weak part of the economy for most of 2018, actually showed gains. Capacity utilization, which is another number I keep track of, rose to nearly 79%. It’s the highest level in four years.
These are all incredibly optimistic signs that there is no great crisis. There is no great problem. There is nothing of any major magnitude that is currently out there.
As I mentioned last week, I’m incredibly optimistic because this confirms a lot of what we have been hearing from companies on a standalone basis. Things are going actually pretty well. Yes there’s a slight slowdown because of the trade war. However there is nothing that is so drastically wrong as what you might have imagined based on seeing what the stock market was doing from October through December.
In truth, in my experience I have seen the stock market get things wrong before. Then it just turns around and corrects itself. That’s what we have seen since post-Christmas. The stock market has just turned around and gone straight back up, pretty much in a straight line. It’s one reason why, in our services, we have guided people to stay in there. The facts were telling us there was nothing wrong.
Other good news I’m tracking is that interest rates at the very peak in 2018, if I use the 10-year U.S. Treasury bond, were as high as 2.25%. Today, if you look at it, it’s 2.5%. That’s also very stimulative to economic growth.
If you look at mortgage rates, something else I track, at the high last year you would have gotten 5.25% on a 30-year mortgage. That’s down to 4.5%. That stimulative to housing. Even though it’s a small part of the calculated part of the economy, it’s an important thing in terms of the overall growth. It has so many knock-on effects on businesses. The same thing with auto manufacturing as well. Lots of great signs.
Last thing I want to touch on and also introduce something to all of you that’s super exciting and we’re interested to see what shows up. You know that I’ve been referring to the U.S. stock market and the total world as the world of the old — old companies, old ways, old services, old products — that are slowly but surely going away. I’ve mentioned Sears as an example of a company that represents the old.
Then there’s the new. Largely, Bold Profits and all of our services are invested in the new. You saw this week another example, even when an old company does well, the stock largely doesn’t do anything.
For example, American Express, which is an old world company that’s been around a long time, represents and is associated with iconic cards, they actually had a very good number.
However, nobody came to bid the stock up. That’s because people realize the competition for American Express from financial technology companies is rising every day. There are companies out there that have got American Express in their target scope.
People disbelieve American Express can actually continue to do well when they are facing so much disruptive competition coming. This is once again an example of the old and the new. Last time I mentioned Target; even though they did well the stock price went down. Once again, you’re seeing the same thing with American Express.
One thing that Amber, Ian and I have worked on is we have taken all of our stocks across all our services — Profits Unlimited, True Momentum, Extreme Fortunes and the $10 Million Portfolio — and equal weighted them and put them in an index we are calling The Bold Profits Disruptification Index.
Year-to-date, granted it’s been a very favorable environment for it, this index is up 11.8% compared to 4.5% for the DOW and 5.2% for the S&P 500. Very small sample. And, yes, it’s super favorable to us. Still, we are destroying the competition.
We’ll try to give you regular updates on The Bold Profits Disruptification Index because it will give you a measure of the old versus the new. Super exciting stuff for you that we’re going to have for the rest of this year.
Back to you, Amber.
Amber: Thank you, Paul. Yes, exciting indeed.
I want to thank each of our listeners for checking in with us today. We shall be back next week with our next update. Have a great day.
What we’ve seen in the stock market recently is that the large, established companies — I like to call them “old world” companies — are falling out of favor with investors.
American Express, the 169-year-old credit card company, announced good sales recently … and investors didn’t really seem to care.
We saw the same thing happen with Target, which has been around for more than 100 years.
That’s because investors want “new world” companies. They want innovative companies that are disrupting their industries and having incredible, amazing growth stories.
And these are the types of companies we’re going to be recommending to you here in Bold Profits Daily and across all of my services.
Amber and I also talked about:
- How the partial government shutdown is affecting economic growth in the U.S.
- The National Retail Federation recently had its Big Show conference. We discuss some of the exciting innovations at the event.
- There are some incredibly optimistic numbers coming out for industrial production. We review how that’s played into the stock market’s post-Christmas rally.
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Editor, Profits Unlimited