The Saudi “Oil Price Crisis” and Top Mega Trends of 2020
If I saw that headline 15 years ago, I would be worried. And we’d feel the hit in the markets.
But today, I’m not worried.
Today, new-world technology and innovation make the U.S. self-sufficient when it comes to oil. Which makes the crisis in Saudi Arabia a nonissue for us.
We have fracking and renewable energy not tied to foreign oil. I believe the country has enough oil — and other energy sources — to combat any price hikes that we may face.
On top of that, we’re moving toward a new era of renewable energy — take Tesla’s new 24-station electric vehicle charging point in Las Vegas, Nevada, as an example. And that’s only the beginning.
Watch this week’s Market Talk to hear exactly why I think oil dependence is already becoming a thing of the past as we move forward.
And knowing what’s happening behind the scenes, I’ll tell you where I’m seeing money move today. These mega trend stocks are like a coiled spring getting ready to soar.
Check out this week’s Market Talk below:
September 16, 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 and giving insight into what’s on our radar. Today’s outlook is for the week of September 16, 2019. I’ll being by sharing with you what I’m watching and then we’ll hear from Hudson and Paul.
Before we begin, I just want to note that Paul, Hudson and I, along with Ian, Nick, Sarah, Patrick and Tamara are back this week after attending the 18th annual Total Wealth Symposium in Amelia Island, Florida.
As I noted in a recent YouTube interview with Paul — you can watch it on the Paul Mampilly YouTube channel — it was an experience like no other. From my own perspective, I had the chance to meet and talk with several of our readers Each and every person was absolutely wonderful.
They are the most genuine, most kind people I have ever met. A heartfelt thank you to our viewers who had a chance to travel down to the symposium this week. We enjoyed spending quality time with each of you. Bar none, the best experience ever.
Getting to this week’s update, I’ll cover three major topics. The first will be my take on recent and upcoming U.S. economic releases. Then I’ll highlight my innovation story of the week with our Good News Roundup and the latest performance numbers on the Disruptification Index. Let’s begin.
Per Bloomberg, economists believe it is highly anticipated that the Federal Reserve will now begin cutting rates 25 basis points at a time until the yield curve is no longer inverted. It’s forecast that rate cuts will occur this Wednesday, September 18, October 30 and December 11.
As you can see in this implied probability table, as of September 16, the likelihood for cuts in September, October and December are 96.8%, 98.2% and 99.2%, respectively. It’s also worth noting that Bloomberg economics sees recession fears “over blown.” As this line chart shows you, they are currently estimating that recession risks are at 15-20% through the end of 2020.
This past Friday, September preliminary University of Michigan sentiment number posted and it showed a major rebound, rising to 92 from a three-year low of 89.8 in August. This shows that consumers are ready to keep moving the U.S. economy forward notwithstanding any trade war or global slowdown reservations.
Also on Friday, retail sales advance month-over-month for August posted. The results were solid. Sales in autos and online purchases paved the way for a strong reading. August retail sales came in at 0.4%, doubling economists’ estimates of 0.2%.
This week here economic releases are concerned there will be five major releases. On Tuesday, the industrial production month-over-month August print will post at 9:15 a.m. On Wednesday, August housing starts and the FOMC rate decision will post at 8:30 a.m. and 2 p.m. respectively.
On Thursday we will have a pair of major releases: existing home sales and the leading index print for August. They will both post at 10 a.m.
For my innovation story of the week, Disrupt San Francisco 2019 kicks off in a few weeks. From October 2 to October 4, Disrupt San Francisco is a flagship event sponsored by TechCrunch that brings together thousands of founders, investors, developers, technologists and business people who are interested in the startup and technology world.
This year, Disrupt is expected to have 10,000 people in attendance. 74% of attendees are director level or above. The conference covers multiple technology tracks and startups rather than focusing on one specific topic of interest. There is something for everyone at Disrupt San Francisco.
This year’s speakers include Slack’s co-founder and chief technology officer, Uber’s chief product officer, the co-founder of Open AI, chairman and CEO of Salesforce and the founder and CEO of Impossible Foods. It promises to be a one-of-a-kind tech startup conference.
Now to your Good News Roundup. Good News Roundup story number one: As electric vehicles become more mainstream, cities and local governments, especially in Las Vegas, Nevada, are doing what they need to do to make the convenience of charging EVs easier.
The Associated Press is reporting that casino companies, Clark County, shopping centers and the University of Nevada Las Vegas are now offering charging stations. Las Vegas city planners are exploring ways to make the city more EV friendly as they put together a 2050 master plan.
This is all reported from the Las Vegas Sun. In July, Tesla and Caesar’s Entertainment partnered to open a solar-powered facility dubbed a super charging station near high roller observation on the Las Vegas Strip. It’s the first site in Nevada to feature 24 V3 hookups for Tesla owners to rapidly charge batteries for 180 miles in about 15 minutes.
Good News Roundup story number two: According to HousingWire, multi-family originations are set to hit another all-time high in 2020 according to the Mortgage Bankers Association. 2019 is “on another great track looking to break records once again. The MBA forecast last week that commercial and multi-family mortgage bankers will close a record $652 billion in loans backed by income-producing properties this year, an increase of 14% from last year.”
Good News Roundup story number three: Engadget is saying that fast food is about to get even faster. McDonald’s recently announced that it’s buying the voice tech startup Apprente so it can automate its drive through window. The Mountain View based company specializes in building voice-based agents that can take orders in multiple languages and accents.
The fast-food giant has been testing Apprente’s technology in several locations and expects it will allow for faster, simpler and more accurate order taking as its drive throughs continue to flourish.
Turning to our Disruptification Index, it continues to outpace major indices year to date. It’s up 28% versus 23% on the Nasdaq and 16.7% on the Dow. That’s it from me. Hudson, is on location again. Hudson, where are you this week?
Hudson Cashdan: I flew into JFK from the conference, which was amazing. Just like you said, it was great to meet everybody who is following us and hear their stories and understand what their business is, how they’re looking at the market and what they’re like. It was a great event and a lot of fun.
I flew back in to JFK and my sister lives not far in Brooklyn so I took the opportunity to visit her, my brother-in-law and their two kids. Kids are a little loud so I found a co-working space to work out of today. Instead of going to WeWork, which I am familiar with and is a turnkey operation which are all pretty much the same, it’s seamless, it works well, there’s coffee — it’s all very standardized.
I went to a local mom-and-pop here in Brooklyn. It’s a little different experience. It’s older chairs. No one was here when I got here. I tried to book online and the website wasn’t working. I’m just in the conference room right now. I’m not actually even officially using this yet. If someone comes in in the middle of this you will know why.
It’s good, but it’s not the WeWork experience. Small ones like this will continue to exist, but they will get competed away. To really be a global brand it takes a lot of effort. You need to have a formula and execute on that. I think WeWork does that. This WeWork IPO is always a contentious topic. We’re still following it. If it comes up at a lower valuation I think it’s an interesting company still.
On a macro level I’m looking at something I read by a guy named Fred Wilson who runs Union Square Ventures. Pension funds and insurance companies allocate broadly to venture cvapital. They will take 5-10% of their funds under management and allocate it to venture capital. Fred Wilson is saying the returns are something like 7-9% annually.
For a venture capital fund, that might last 10 years. Your money is going to compound as a pension fund about 7-9% over those 10 years. Some of that is going to come from big winners like Uber and Lyft and WeWork maybe. But you will have a lot of that will be small winners and a bunch of it will go under.
That’s just how the venture capital game works in the earlier stage. There were some comments on Twitter in the thread and one person said they will take 7-9% in venture capital all the time because there’s no volatility compared to the public markets.
Honestly, the allocators make themselves feel good by using a formula to say these private equity funds come up with monthly estimates or quarterly estimates of what the holdings are worth in the portfolio, but they’re just estimates. They say it’s just rising in a step a little bit by a little bit. They say there’s low volatility and it’s worth more than being a market that has ups and downs every day.
That’s just something to make them feel better. If you poll their investors who are tied up for years in these companies every day, they will tell you a different story. Their confidence level will ebb and flow wildly based on what’s going on in the companies and their competitors. It’s a false sense of security.
If there’s a misperception that small-caps or public stocks are more volatile than anything else and people are staying away from that, it’s creating an opportunity for us to take advantage of that. There’s what’s called a risk premium built into that. From that comment it seems to be the case. Paul, what do you think?
Paul Mampilly: I have been reading for some time and I have been telling readers for some time that there are two worlds here. You can buy innovation really cheap in the stock market and in private markets it’s way more expensive. We see some of this battle being played out as companies come to IPO.
That’s to our favor because we can only invest after they come public, so some of this seems to be the usual Wall Street game. “All these valuations are going up in a nice steady state.” Anyone who works on Wall Street knows that’s imaginary.
Nothing moves up in a steady state. There’s always different views of what a company’s value is or what a business is worth. What the growth rate is. What it costs to actually run it. We’ve been seeing this for a number of years.
Folks at ARK Invest — we recommend their ETFs in our daily e-letters — have been noting this. The private market is expensive for innovation and we can find unbelievable companies that we put into our services that are trading in public markets that are significantly cheaper. If they were in private markets they would have valuations in the billions.
However, because they are in the stock market they have it sometimes less than $100 million.
Hudson: What we mean by cheaper is that it’s cheaper relative to where they are as companies. You could be investing in one of these companies seven years ago when it was just an idea, there was no execution and there was a whole bunch of uncertainty. You would have gotten in at a lower valuation.
The amount of risk you were assuming at that point was exponentially higher than what you’re assuming when the company is coming public. They are at a higher valuation, but relative to the level of risk and their maturity we might argue that they’re at a lower valuation.
Paul: The difference comes back to what you were talking about. These companies go through a daily pricing process where people vote every day on their confidence in these businesses. In the private markets, you don’t have that. Somebody uses a valuation model and prices it and says, “Congratulations, your fund went up by 9%.”
Whereas in the stock market, if there’s a big seller of that stock that is disappointed, does not want to hold that stock because they don’t want to show that stock in the portfolio come yearend, they clear it out and it causes a 30% decline in the stock.
Hudson: More often, if they are losing money in some other stock that’s doing poorly they say, “Let’s just dump all these other ones to make money and generate capital because we took a loss in this other thing.” Company A’s loss had nothing to do with company B, C and D, but they are going to clear out B, C and D just because it’s there.
Paul: It goes back to another market truism: When people need to sell, they don’t sell what they want to sell, they sell what they are forced to sell. It’s often pretty good merchandise that is put out. There’s a buyer for it. The stuff that you need to sell there is often no buyers for.
I’m sure you have seen what’s going on in the markets today. There is all that news from Saudi Arabia and oil. I was thinking if this was 15 years ago, before we had the fracking revolution, markets would be down 2-3% today. They would be down a lot.
However, because we are largely self-sufficient in terms of oil and we have this new energy revolution starting to take off where it’s a large and growing part of our energy pie, the markets are down a little bit but it’s really not dramatic in any way at all. When I look at it, I see no real prospect of that causing a significant problem for the United States market.
However, if oil went up a lot, it would be a problem for China. They are very reliant.
Hudson: Europe as well.
Paul: Europe as well, though Europe has also moved to renewables, so it’s less of an impact there.
Hudson: It would be a short-term disruption in Europe, but I think it would push forward European easing and monetary expansion, which would be good for the markets.
Paul: Right. We’ve seen a transition going on. Those of you in our services would have seen last week we sold out of a number of stocks that have been on a huge run for several years now. We took profits because having been in the market for years now I know what is going on behind the scenes.
Some mixture of people seeing the growth in these sectors for a little bit of time has peaked out and they are clearing the decks. That money is going to be looking for a home. Hudson and I were chatting at Total Wealth Symposium and we were talking about that money looking for a home. Some of those IPOs we’ve been in and we’ve had volatility, but they’re going to come for new names.
They’re going to have to put it to work. The other places I’m seeing money push in is a millennial theme of housing, Internet of Things, block chain, artificial intelligence and robotics through semiconductors. Also, new energy. I believe this money is going to keep pushing into these sectors.
We also released a trade in one of services for gaming. The other place I think is really a coiled spring setting up to take off is industrials. Speaking of coiled springs, I wanted to put in a coiled spring shameless plug. Rapid Profit Trader is a true coiled-spring service. The profits there can come really quick.
These are companies where we find incredible option trades where the stock is rising. There’s a lot of interest in bidding the stock up and we jump on the back of these stock moves and buy options in it. We’ve gone through periods where Ian and I have had streaks of seven or 12 profitable trades where the money comes fast.
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I want to mention before I end that there is a transition going on so we’ve been selling some stocks. We have a lot of new stocks we’re going to be putting into our services. If you are interested in any of them, now is a great time to join in.
With that, I am going to hand it back to you, Amber.
Amber: Great insights as always. Thank you to our viewers for tuning in this week. We wish you a wonderful week. Until next time, take care.
This week, Amber Lancaster, Hudson Cashdan and I also talk about:
- Why initial public offerings like WeWork’s stand out from the crowd.
- How artificial intelligence will revolutionize the way we order fast food.
- A breakdown of what tech innovations to expect at next month’s Disrupt SF 2019 conference in San Francisco, California.
In Case You Missed It…
We had a phenomenal time meeting many of you at this year’s Total Wealth Symposium last week! And I want to make sure, if you couldn’t make it, that you get to catch up on some of my favorite moments this year.
So, in your Bold Profits Daily this week, my team and I are going to share some videos we produced live at the conference.
In today’s video, I had the chance to sit down with longtime subscribers Fred and Sandy. In it, they talk about how they grabbed their slice of the American dream.
To watch our full Total Wealth Symposium playlist, click here and subscribe to my YouTube channel.
And if you want to get full access to the event, we’ve got you covered. Click here to find out how you can get every stock pick, power play and financial insight from the greatest investing minds of Banyan Hill.
Editor, Profits Unlimited