In this week’s Market Talk, Amber Lancaster, Ian Dyer and I discuss:
- The biggest economic reports coming out this week.
- An AI-powered recycling program in China that lets users trace their waste.
- Why biotech leaders are rushing to buy up small companies.
- One of the most bullish signs you can ever see.
March 4, 2019
Amber Lancaster: Welcome to this week’s Market Talk. I’m Amber Lancaster, joined by Paul Mampilly and Ian Dyer. 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 March 4, 2019. I’ll begin by sharing with you what I’m watching for the week ahead. Then we’ll hear from Ian and Paul.
Last week, fourth quarter GDP showed the U.S. economy slightly took its foot off the gas pedal at the end of last year and that it is coasting along. But it hasn’t come to a complete stop by any means. This is encouraging news.
Economists adjusted their fourth quarter GDP forecasts to 2.2%, but the actual reading came in above forecasts at 2.6%. The prior reading was 3.4% for the third quarter in 2018.
One of the most prescient economic released this week will be the February jobs report. Based on its reading, we’ll know if the labor market is shrugging off most of the sluggish economic data reported at the end of 2018. Per Bloomberg, economists are anticipating 185,000 jobs were added in February. This is a decrease from the 304,000 jobs that were added in January.
Meanwhile, the February unemployment rate is forecast to move down just slightly to 3.9% versus 4% in January. As you can see in this slide, this will be yet another busy week for economic releases.
We’ll see December’s new home sales released on Tuesday, March 5. February’s ADP employment change and December’s trade balance print on Wednesday, March 6. And, as mentioned earlier, the jobs report numbers on Friday, March 8, at 8:30 a.m.
This week will also witness a momentous occasion in the markets. This Wednesday will mark the 10th anniversary of the longest U.S. bull market in history. As you can see in this chart, back in March 2009 the S&P tanked to a low of 666 points. It has since gained 320 points since Friday’s close.
On the trade front, it’s being reported by Bloomberg that today the U.S. and China are closing in on a deal to end most U.S. tariffs. This will happen if Beijing protects most intellectual property rights and buys a large amount of American-made products.
Turning to artificial intelligence (AI), I wanted to share an interesting technology that’s aiming to make China greener and, I suspect, could make its way to the U.S. It’s all about recycling and its applications, based on your smartphone.
According to People’s Daily online, AI-powered waste management is underway in China. As you can see in this chart, Xiaohuanggou — a smart garbage recycling platform — has rolled out more than 10,000 AI-powered waste sorting bins. These bins, now in more than 30 cities in China, have gained nearly 3,000 users on its app in under one year.
People’s Daily states: “The AI-powered garbage sorting bin could automatically identify waste using cameras or the average density and size of items. It also pays users when they recycle metals, plastic and paper boxes.” The People’s Daily also states: “Besides image identification and real-time payment, the smart waste sorting bins also provide services such as big data, cloud computing, and accurate location, which enable users to trace their waste.
“The monitoring system will notify garbage collectors once 80 percent of bin space is used and deliver waste to the sorting center, where the garbage will be further processed and transferred to factories as renewable resources.”
In addition to this technology, Xiaohuanggou plans to establish an online shopping mall and personal credit rating system as well as build industrial parks and chains for garbage classification.
Lastly, as this graph shows, our Disruptification Index continues to beat major indices more than two-to-one year-to-date. As of Friday’s, March 1 close, the index is up 27.9% versus 11% on the Dow and 11.8% on the S&P 500.
That’s it for me. Ian, what are you watching?
Ian Dyer: Thanks, Amber.
Right now I’m watching Tesla, which had a lot of hype surrounding it last week. Last Thursday they came out with a whole bunch of announcements, but the most important announcement was that they are going to begin selling their Model 3 base model for a price of $35,000.
This is a really cheap price compared to its competitors in the electric vehicle luxury sedan market. The closest that I could find was the Volvo Polestar 2 which doesn’t even go on sale until the end of 2020 and it will cost a lot more than the Model 3. It will cost about $68,000 when it does come out.
Tesla is ahead in terms of price and time. By the time the Polestar 2 comes out who knows what they’ll be selling the Model 3 for and who knows what other models they’ll have. Right now they really do have full control of the electric vehicle market in the United States.
The Model 3 …didn’t really go on sale until July when they started mass-producing it, but it still sold over one-third of the electric vehicles in the United States. This has been a huge hit. It’s cheaper now and we believe it is going sell even more in the future.
Another announcement Tesla made was that they are switching all of their sales to online. This disrupts the car-buying industry, and the whole process of buying a car. A lot of people think it is tedious, it takes a lot of time going back and forth between dealerships and sales people and negotiations — it just really wears on people.
Obviously, it’s a lot more convenient to be able to do it from the comfort of your own home at your computer. We’ve seen this from a few companies like Carvana, Auto Trader and Cars.com. But Tesla is entering into this space and we believe that also gives them an advantage as the internet car-buying industry continues to disrupt things like car dealerships and the traditional car-buying experience.
Another thing that I have my eye right now is the IPO market. One of the big companies that just finished doing their IPO information is Lyft, which is as everybody knows kind of the younger brother to Uber. The IPO actually was given a valuation of about $15 billion at the beginning of 2018, that valuation has now gone up to $26 billion.
I believe that Lyft is going to have a huge effect on the IPO market. There’s a lot of other companies that are planning on going public in 2019. One of which being Uber, which is Lyft’s biggest competitor.
Lyft has grown very popular in the United States. It has about 32 billion users in 2018. We believe the IPO of Lyft could really have a chain effect on the IPO market as more and more private companies that are this big continue to go public.
One of the things I have mentioned actually in Bold Profits Daily is the IPO Renaissance ETF (NYSE: IPO). This is a great way to invest in companies that have not yet gone public, but this ETF buys shares right when they do go public. This has gone up about 34% year-to-date. As these companies continue to go public, we believe this is going to be a very good investment going forward.
Paul Mampilly: Thanks, Ian.
The Tesla news is really, to me, a real example of this enormous movement, which we call disruptification. Initially you saw it in retail and Amazon has become the symbol of it. Now Tesla moving car buying online — well, that is going to transform the car-buying industry.
All the dealers that are trying to work their way out to some middle world are going to be left behind. And all car transactions are eventually going to go this way. In fact, Elon Musk said in his blog post said that no one — not GM, not Ford, not BMW — can replicate this. Only a new startup could do this.
I can tell you, if you look at Tesla’s difficulties just to stay in business during its 18 years, it’s really hard to be a car startup, it’s really a very difficult industry. The car-buying industry is going to change enormously.
You saw another announcement where Amazon said they are going to launch grocery stores. In reaction, the stocks of Kroger and others went down. That’s because Amazon is going to bring something very different to the grocery space.
Which is that, their stores are going to be driven by data and that’s one thing they have an enormous amount of. Kroger has data however it is very different. Amazon has a very direct relationship with the customer and so their stores are going to reflect that.
Once again, disruptification is spreading just from one part of the economy to the next and anyone who thinks they are somehow exempt or immunized is somehow going to eventually be targeted and, in the end, be destroyed.
Another trend that is sitting a little under the radar and no one’s keeping track of is the rise of manufacturing employment. The manufacturing employment is now up for 18 months straight. That’s 247,000 non-managerial jobs. We’re talking about jobs where people are actually doing things.
Some of you may have seen there was a Wall Street Journal article saying there are more Americans than at any time in the recent past making something. Just for context, the peak in manufacturing jobs was all the way back in 1979 at 19.6 million jobs. Today it sits at 12.6 million. At the very low, which was in 2010, it was 11.5 million.
Also, for additional context, during the last so-called expansion between 2001 and 2007, we lost 2 million manufacturing jobs. If you’ve been following Bold Profits…I’ve told you about the industrial Internet of Things (IoT). It’s this big very large sub-trend within the IoT megatrend.
Within it are things that we talk about — 3D printing, robotics and even 5G — these all come together to combine to become this huge megatrend. If you’re in our services, you’re in these stocks and you’re getting the benefit of it. We’ve seen these stocks go up and do very well.
In fact, I told you to invest in the Industrials ETF and we originally told you about it in October and you’d be flat if you followed us from there. I re-recommended it in January of 2019 and you’re up 11% since then. This is a huge growing mega trend that’s going to continue to keep growing.
The United States is going back to an economy that makes things. We make things in a very different way than in 1979. We use very modern ways, even artificial intelligence and all these other things coming together. And now we can make things in a way that are cheaper, easier and have a certain complexity that only we at this point can put together.
Another thing going on in the markets that people may be missing is that biotech companies that we told you about …when I told you to buy into the biotech ETF. They’ve been buying up companies, specifically gene therapy companies.
Three big transactions have happened. Novartis has bought AveXis for $8.7 billion. That was an 81% pop if you owned AveXis stock. Roche bought Spark Therapeutics for $4.3 billion. That was 121% pop if you owned the stock. And then Biogen, just today, bought Nightstar for $877 million — it’s a 68% pop.
These biotechs need new drugs in their pipelines and they are buying up their small-cap brethren and these are the stocks that are in our Extreme Fortunes service and our True Momentum service. We’re very interested in this because they are part of the bigger mega trend of precision medicine. The big biotechs are largely not in it and they need these small companies.
Finally, I’m going to end with one last thing. All of you know what happened at the end of 2018 — there was essentially a gigantic panic. Now we have the data to confirm it. Bank of America, which tracks these things, says that the cash position in the market — in other words: the cash position in portfolio managers’ cash balance accounts — is the highest since January 2009.
In other words, people are acting as if we have just gone through a 2008-style crash. When, as Amber just said, our economy just reported a 2.6 growth number. Unemployment is at one of the lowest levels in the last 30 or 40 years. And people’s response to that is to build cash positions.
I can tell you from being in the market for 25 years, this is one of the most bullish signs that you can see: Cash on the side while there’s no reason to panic. Eventually all that cash is going to come back in and bid those stocks up.
So, I would tell you that I’m still very optimistic and bullish for all the reasons I just laid out.
That’s all I have. Back to you, Amber.
Amber: Thank you so much for sharing your thoughts today. Thank you to our listeners for tuning in this week. Until next week, have a great day.
Tesla recently announced that it will close most of its stores and only sell cars online.
That will cut costs enough to let Tesla sell its Model 3 luxury sedan for only $35,000 and still make a profit.
That’s really cheap. By comparison, a similar car, Volvo’s Polestar 2, will cost $68,000 — and it doesn’t even come out until 2020.
But on top of that, Tesla is offering the convenience of shopping for a car on your computer or mobile device. And that’s disrupting car dealerships and the entire traditional process of buying a car.
Only a startup like Tesla could bring this kind of disruption and innovation to the auto industry.
In today’s Market Talk, we also discuss:
- Ride-sharing service Lyft was valued at $15 billion last year. Now that it’s about to go public, its estimated valuation has soared to $26 billion. We talk about the big impact this will have on startups in 2019.
- Amazon plans to launch a new grocery-store business. The news has already sent the stocks of grocery chains such as Kroger heading down. We explain what gives Amazon an edge over its competitors.
- The U.S. is going back to being an economy that makes things. But this time will be a lot different than the 1970s, when manufacturing last peaked. We discuss the industrial Internet of Things, and why it puts the U.S. in a unique position.
Editor, Profits Unlimited