In today’s Market Talk, Amber Lancaster, Ian Dyer and I discuss:
- February’s surprising jobs report.
- The Federal Reserve’s latest stance on interest rates.
- The millennial trend of getting into the housing market.
- Big news for the semiconductor industry.
I’m bullish on the subscription economy.
These are internet-based business models like Amazon Prime, which charges a yearly subscription for free two-day shipping. It has more than 100 million subscribers.
Or Netflix, the world’s biggest streaming video service, which has 139 million subscribers.
Or the music-streaming service Spotify, which has 200 million active users.
Companies like these charge only $9 or $10 a month, so their customers don’t worry about the cost. And this business model provides a reliable stream of revenue.
Here at Bold Profits, we focus on innovative companies like these that take something you do every day — shop online, watch TV or listen to music — and make it easier, cheaper and more convenient.
In today’s Market Talk, we also discuss:
- Australia’s solar power industry leads the world. It now has over 2 million residential solar installations — about 20% of all Australian households. We tell you about exciting developments in the land down under.
- Our bull market is now 10 years old. You’d be up 305% if you bought the S&P 500 Index at the bottom in March 2009. We explain why there are still huge gains ahead for those who buy now.
- There’s a dirt-cheap tech stock that very few people are thinking about. We talk about a hot market in Asia — and it’s not China or India. Look out for an email about this company and a special promotion for my $10 Million Portfolio service.
Editor, Profits Unlimited
March 11, 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 11, 2019. I’ll begin by sharing with you what I’m watching and then we’ll hear from Ian and Paul.
Last week’s February jobs report, showing that only 20,000 jobs were added for the month, was a definite surprise. But after digging deeper, we here at Bold Profits Daily say, “Don’t panic!” We had a team discussion about the report Friday afternoon and came to this conclusion: For the months of December and February — as you can see in this chart denoted by two green arrows — we saw extraordinary jobs growth numbers.
December’s non-farm payrolls saw an increase of 227,000 jobs added, while January’s non-farm payrolls were revised even higher to 311,000 from the original print of 304,000. If we were to average all three of these extreme numbers together, we’re looking at an average growth rate of 186,000 added over the last three months — which is more than respectable.
The report also showed us that wage growth was the highest gain in average earnings for private workers clocking in at 0.4%. This gain in household income will more than likely show that stronger consumer buying will occur in the medium term.
Plus, the jobs report showed over that the unemployment rate ticked down to 3.8%. This rate is 100 basis points better than what economists were expecting — all positives.
Another piece of encouraging economic data from last week was the housing starts numbers. As you can see in this chart, U.S. housing starts rebounded in January, surpassing forecasts.
Construction on new homes rebounded more than anticipated. Housing starts rose nearly 19% to 1.23 million while permits rose 1.4% to 1.5 million. Lower mortgage rates and rising wages are contributing to home builders’ budding optimism.
As you can see in this graphic, for this week we can expect the following economic releases:
• February’s Consumer Price Index month-over-month print on Tuesday: The prior reading was flat at 0.0%, but economists are expecting a slight rise of 0.2%.
• Durable goods orders on Wednesday: Surveyed economists are anticipating a print of -0.5% on this number.
• Month-over-month construction spending for January: The prior reading was -0.6, but economists are expecting a positive gain of 0.4%.
• January new home sales on Thursday: Economists are thinking we’ll see around 622,000 homes purchased, which is about in line with December’s number.
• Rounding out the week, we’ll Empire Manufacturing month-over-month industrial production for February and the ever-popular University of Michigan Sentiment number, which will be the preliminary print for March.
Now we’re going to move on to the Federal Reserve front. It’s being reported by Bloomberg News today that, “Federal Reserve Chairman Jerome Powell stated interest rates can remain on hold on the U.S. Central Bank waits to see how conditions abroad will evolve — signaling there’s no clear time limit to the Fed’s pause.”
Jerome Powell is quoted as saying on CBS News’ 60 Minutes that, “Inflation is muted and our policy rate we think is in an appropriate place.” He called the current rate setting “roughly neutral” — meaning its neither stoking nor slowing growth — and tied to the definition of the Fed’s stance, which is patience. So, “Patient means that we don’t feel any hurry to change our interest rate policy,” he said.
On the technology front, one of our ongoing themes here at Bold Profits Daily is watchfully keeping track of technological innovations. CleanTechnica, a top online source for news on electric vehicles, wind and solar, just reported that Australia is adding one mega-solar project per month.
Australia’s solar industry skyrocketed during 2018. — 1.5 gigawatts of solar came online for the continent, about 10 times as much solar as the year prior. The utilities segment is the main cause for Australia’s solar growth, but commercial, industrial and residential installs also continue to record at record speed.
According to CleanTechnica, Australia’s solar irradiance is off the charts. Solar irradiance is the power per unit area received from the sun. Australia is a natural leader in this area. Worldwide demand for solar trackers continues to grow rapidly in locations with higher irradiance — like Australia — where solar tracking can now deliver 20%–25% increased power production.
Residential solar installations also are growing rapidly for Australia with nearly two million installations for the year so far — and that’s equivalent to about 15,000 installs per month. According to BP, energy from solar will actually grow about 400% by 2040.
That’s why we recommend great solar picks here in our premium services. One recommendation that was personally selected by Paul is well positioned to ride the growing solar energy wave.
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 8 close, the index is up 21.9% versus 9.1% on the Dow and 9.4% on the S&P 500.
That’s it from me. Ian, what are you watching this morning?
Ian Dyer: Thanks, Amber.
Just building off what you said, in the home building market there was a number released last Tuesday on new home sales for December. That number revealed that in December, new homes sales grew by 3.7%, which is good in itself. But it’s very good because the expectation for December was that it would fall by 8.7%.
So, the fact that it was expected to fall that much and it actually grew is extremely encouraging for the housing market, as well as the overall economy. Because, of course, real estate is a huge part of the U.S. GDP.
This is driven by the millennial trend of them getting into the housing market. We’ve seen huge amounts of millennials in the past year… They grew their market share in the housing market by 1.2% and they now comprise about 36.8% of all home buyers. They also are driving the first-time home-buyers statistic.
There was a report by Freddie Mac that 46% of the loans they gave out in the first quarter of 2018 were first-time homebuyers. These trends are really shaping the housing market and we believe it’s going to continue to grow. A lot of people are saying a shrinking housing market is coming and a recession is coming because of that.
But, of course, we are optimistic on both of those things. We don’t believe a recession is right around the corner, as most people are saying. We also believe that the housing market is going to continue to be strong.
So, the housing market is looking great. Another thing I’m looking at now is the subscription economy, which has really emerged over the past three to five years. One of the big drivers of this was Amazon Prime. As a lot of people know, that’s the service Amazon offers …it was increased to $129 recently. This is a service where they offer free, two-day shipping for pretty much any product that you can buy on Amazon — they have all kinds of things, millions of products that you can get with free shipping. This really sparked a trend in the online retail market, as well.
Amazon bought Whole Foods a couple of years ago and this launched their Amazon Fresh service. So now they have a lot of different fresh organic food choices that you can order from Amazon. They deliver them once a week or bi-weekly or really whenever you prefer. This is another subscription they offer and another piece of the subscription economy.
We’re seeing a lot of that with food delivery. Amazon is one example. We’re also seeing companies like Blue Apron that give you three meals a week that you can put together yourself and it reduces a lot of worry. Because a lot of people go to the grocery store and end up buying the same things or they have no idea what they’re going to buy. But they have a lot of variety with these services. So this is another weekly service with food delivery.
That’s one aspect of the subscription economy. Another one is streaming. When you say streaming a lot of people automatically think of Netflix, which is of course the world’s biggest online steaming movie and TV service. Monthly, Netflix can cost you anywhere from about $9 to $16.
People really don’t worry about this being taken out of their bank accounts every month. So it’s extremely popular with consumers. People use it really every day and it’s also a very reliable stream of cash for Netflix.
So, any business can benefit from that because they have a good idea what they can expect to make from customers. People love it because it’s relatively cheap — it’s just a monthly small fee.
Another player in that industry is Spotify, which has really taken off over the past few years. This is part of the music streaming industry… Music steaming is really growing its market share.
In 2015, music streaming represented about 34% of all the revenue in the music industry around the world. In 2018, it had jumped to 75%. Music streaming is a huge growth business. It’s only $10 a month. Again, people don’t worry about $10 a month coming out of their bank account.
A lot of people listen to Spotify every day or services like that. Streaming is another huge area of the subscription economy. Netflix and Spotify combined have more than 250 million subscribers worldwide. While that’s a lot of people, there’s still room to grow. In a few years we’re going to see billions of people subscribing to these services — not just Netflix and Spotify, but their competitors as well.
We’re very bullish on this part of the economy. There are a lot of different opportunities to invest in. We believe this, as well as the home-buying market … are looking great and going to continue to grow at a good pace.
So that’s what I’m looking at this week. Paul?
Paul Mampilly: Thanks, Ian.
Thanks, Ian. I actually saw something recently that said Spotify, which recently entered the Indian market, got one million subscribers in their first week. Which is really mind blowing. It doe shows you the power of the subscription economy and the subscription business model. Which is really the internet business model.
People forget that someone had to create the retail business model. We take that for granted. Amazon created and is creating what an online business does, how it operates and how it makes money. Subscriptions are a critical part of it.
Which is why you see so many companies starting to imitate it. Because now there is a proven pathway to success. As you might know, at Bold Profits we define innovation by this: Rather than some technology, it’s really about us. Which is, it’s something you do every day or regularly, and innovation is something that makes it easier, cheaper and more convenient.
That’s what really drives people to go from their old way of doing things to the new way of doing things. That’s really what innovation is. When you provide that value to people, they’ll follow you. And that’s what Netflix, Spotify, Amazon and all these companies we define as “the new” are doing.
All these companies defined as “the old,” well…50 years ago they were the new. And people followed them into whatever changes they were making. And now they’re the old, and now they’re losing share.
I have some points I want to bring up. One thing I notice is there is the beginning of rhetoric that is coming about because of the fact that we are now entering the presidential election cycle. We have everyone from socialists, to people who are against capitalism, people who want to break up technology companies — there’s a lot of stuff being discussed out there.
From day to day you might see stock prices move up and down as a result of it. However, I believe, you go out long term, it’s unlikely any of this rhetoric will end up affecting any of these companies. Our country has been capitalist for a very long time. It is the basis of the way we live and the basis of all of our companies.
And while the rhetoric is out there, I believe selling or reacting to it would be a mistake.
The other thing I’ve been looking at is that, theoretically, if you believe in the ideas of bull markets, we’ve just passed the 10-year anniversary of this bull market. And I just got some numbers together. If you go back to the so-called beginning which is March 9, 2009, that would have been the moment in which $13 trillion in stock market wealth went POOF.
And if you sold, you would have sold into that moment. Equally, because it was a genuine crisis that followed, we were losing 700,000 jobs per month at that moment. Using the worst way of measuring unemployment, it was really at 18%.
So, if you bought in on March 9 — let’s say you bought the S&P 500 — you would be up 305%. So, it’s been an extraordinarily lucrative thing to have bought in rather than sold. You’ll see a number of articles that talk about people’s reactions to this new bull market.
I remember in 1999 and 2000 there was this absolute euphoria as markets went up. There would be these pictures posted on the internet or in newspapers, and it would be people just really being very happy.
However, the reaction to this bull market is grousing, sulking, people looking for reasons why it’s going to end, why there’s going to be a crisis, why there’s going to be a problem.
A number of articles talk about the psychology of what happens after you go through a devastating moment like 2008. People dislike taking risk. They are really scarred. It’s sort of like, if you touch something very hot. I tell my kids if you touch something really hot you’ll remember forever and ever not to touch the burning pot. That’s what’s now embedded into investor psychology.
We can see this the most among young people. The statistics are, if you look at people under the age of 35, just 38% of them own stocks today. Compare that to before the financial crisis in 2007 — that number was 14% higher at 52%.
In our discussions we were talking about if the millennial generation ever came back into the market they would really boost stock prices just significantly higher.
We’ve also done a lot of work showing that the number of stocks available in the market has shrunk by one-third, the number of shares outstanding are stagnant to what they were 10 years ago even though the value has risen. So, the per-share value of stock has gone up.
The other thing that some of these articles bring out is that in 2007 there was just 19% of the money in index funds. Today, 43% of all the money in stock markets is in index funds. In general, it’s just much lower levels of risk taking.
If you’ve studied investor psychology or investor sentiment, economic history or market history, when you see people not wanting to take risk it’s generally a bullish sign.
I mentioned this a couple weeks ago when I said Bank of America had gone back and looked at portfolios and saw that we have the highest cash levels in portfolio accounts since January of 2009, even though our economy is really growing. Unemployment is at one of the lowest rates in 30 or 40 years.
That really shows that investor psychology is in almost permanent low risk-taking mode. Which is, counterintuitively, a very bullish sign. Because it means there’s a lot of demand — latent demand — sitting there for stocks that can push prices up. I’m very bullish and very optimistic as I have been really since the beginning of this bull market.
I still believe there are huge gains ahead, which is why we keep telling people across all of our services to keep buying and to be invested.
We saw a piece of news this morning about Nvidia, which is a large chip company that matters to a number of our megatrends, Internet of Things (IoT), robotics, blockchain and others. They’re buying a semiconductor company called Mellanox. It’s part of something that has been going on for 10 years: The semiconductor industry is consolidating.
We own a lot of semiconductor companies across the various services in Bold Profits. It’s one more reason to own all of them. In any number of Bold Profits Dailies and Winning Investor Dailies I have recommended the semiconductors ETF as a general way to play into all our technology mega trends.
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That’s where this company is located. If you’re interested in that, look out for the emails that will tell you about the promotion that my publisher is running.
That’s all I have. Back to you, Amber.
Amber: Thank you so much Paul and thank you, Ian. Great talk as always. Thank you to our watchers for tuning in this week. We look forward to sharing our insights with you next week. Until then, have a wonderful day.