Character Shifts Of The Jubilant Type
When commodities develop a bid over a period of many months that bid doesn't simply dissolve into a puddle and go away. The technically driven nature of commodities, in particular, gives weight to price moves that develop structure. The structure of the move reinforces the price trend over the long-term. This is exactly why the price trend developing in gold and silver should be taken seriously by investors. While it is by no means a guarantee, there is growing evidence from both a technical and fundamental view that we are still very early within a secular uptrend in metals that could last years. Fundamentally, the most obvious issue is with the perpetual nature of QE that has become a religion among the central banking crowd in the U.S., Europe and Japan. The deficits that are being generated are a guarantee of future currency debasement. Further, the role of central banks within the economy seems to be changing from an opponent of inflationary economics to a proponent of inflationary economics. This is a massive fundamental shift in the function of the Fed as a defensive weapon to what is now an offensive weapon for the economy. There is no possible means of the Fed being offensive without sacrificing their balance sheet and thus, the currency. Technically, we are seeing breakouts of multi-year trajectory points that have very significant historical weight. Silver just joined this festival of jubilant price dynamics by breaking through a multi-year trajectory yesterday and following through with a high volume confirmation today. This type of positive fundamental and technical whirlwind won't disappear overnight, by any stretch. In fact, gold and silver are both set to thrive over the long-term with an acceleration in the price trend as the secular bull market is reinforced in the virtuous cycle for metals to come. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the...
Silver Is Set To Lead The Next Leg Of The Bull Market In Metals
While gold is primarily considered a currency and a safe haven asset, silver is much more an industrial metal. For this reason, the economic sensitivity that silver possesses is a relevant consideration when investing. During periods of global recession, while gold may outperform, silver will typically lag. This is the primary reason why silver has lagged in recent months while gold is up nicely. Any type of indication that global economies, especially those of an emerging nature, are not dipping into a recessionary territory should cause silver to narrow the gap in value between gold substantially. Conversely, should the global economy actually move towards the recessionary route, silver is already discounted to a point where the downside will be cushioned. This is especially true in light of what has a high probability of being continued outperformance in gold, global recession or not. In the chart above, we have a 30 year historical perspective on the ratio between gold and silver. As we stand currently, the ratio of value between gold and silver is at its highest point in 30 years. Scrolling further back, it is in fact at one of its highest points in value of the past 100 years. This type of anomalous condition will be resolved in one of two ways: 1. Gold goes down 2. Silver goes up Given the recent strength in gold, with a host of macro factors working in its favor, the probability of gold moving down to narrow the spread is unlikely. Instead, it should be silver that narrows the spread with a move up over time. Any indication of vitality in the global economy for the remainder of the year has the potential to quickly cause investors to recognize the discrepancy taking place in silver, creating a substantial increase into year end. With global bond investors misallocated into mostly negative yielding fixed income assets, there is plenty of firepower on the sidelines remaining to invest in both emerging and developed markets for the remainder of 2019. These are latent bids that will be have a reflexive effect, reinforcing any positive momentum in global economic growth, as it becomes apparent in the months ahead. During the next leg of the metals bull market, silver has a high probability of not only refusing to take a back seat to a gold rally, but actually leading the rally higher. This has everything to do with progressive stages of a bull market further unleashing animal spirits into assets perceived as riskier in nature, as well as a high probability of a China deal and the accompanying surge in the global economy negating the bearish silver...
Bulls – You Aren’t Bullish Enough. Bears – A Hellish Landscape Awaits For The Remainder Of 2019.
Given that the market of 2019 has developed a propensity for low volatility, steady gains in the face of mounting fears of everything from geopolitical catastrophe to global economic Armageddon, it is only a matter of good form to remind the downtrodden bearish contingent of what lies ahead. Earnings season is about to kick off this week. While earnings won't be spectacular across the board, they won't be disappointing either. There won't be anything there to justify either fear of an impending recession or an economic slowdown in any form. It will be the status quo. Good earnings, generally, with cautious but optimistic guidance. The cautious guidance that is coming will lead to a host of companies that are going to pummel estimates in the quarters ahead, as the economy continues to run at a healthy pace, with numerous upside catalysts in the offing. Further increasing the probability of earnings beats in Q3 and Q4 is a U.S. Dollar that is primed for weakness during the second half of the year. Financials, as has been discussed ad infinitum here in recent weeks, are about to witness a fattening up of their profit margins due to increasing interest rates. A rate cut of some magnitude will likely take place in July, followed by perhaps one more at the next Fed meeting. Right as the market is settling into the reality of two rate cuts at two Fed meetings, the President, having gotten his way of taking back 50 basis points of rate increases late in 2018, will strike a deal with China. In the meanwhile, misallocated investors globally, finally comprehending that they are being relegated to a modern day version of The Golden Girls by remaining in government backed fixed income instruments, will be forced to pour capital in the markets during Q4 at what is perhaps a historic pace. Bulls...you aren't bullish enough. Bearish snowflakes...enjoy the melt. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for...
Week In Review: Financials, Private Equity, Silver, SNAP, RDFN, Interest Rates
FINANCIALS Financials are Zenolytics scream from the rooftops, pound the table and force you to take a good look in the mirror trade for remainder of 2019. It's one thing to say that financials, such as JPM, C and a host of others are undervalued. They are undervalued. It's one thing to say that they are doing everything right in terms of returning cash to shareholders through raising dividends and buying back stock. They are doing exactly that. It's quite another to make the astute observation that despite interest rates falling through the floor, compressing net interest margins and completely changing every single financial equation drawn up over the past 12 months for major banks, they have managed to thrive. The picture only gets brighter from here, as long dated government treasuries have become the "get off my lawn" trade of 2019. The grumpy, geriatric investment types who have piled into fixed income assets will be forced to make amends well before the end of the year. As interest rates move up, expect financials to accelerate. Earnings this week should further set the stage. PUBLICLY LISTED PRIVATE EQUITY Speaking of financials, publicly listed private equity names are finally getting their due as proper investments within a portfolio. Carlyle Group is the latest private equity name to go the corporate conversion route. Blackstone announced a conversion recently, with the stock price firing off like a rocket ever since. KKR is simply going along for the ride, rising 3% plus this past week. The tide for private equity names isn't due to come in anytime soon. Simply consider the fact that negative yielding government assets are creating greater demand among large money types for alternative asset managers. It's also socially acceptable behavior to brag about investing in KKR's latest, accredited investor only, global infrastructure fund to the oohs and aahs of a captive summer cocktail crowd. Everybody wins. GOLD AND SILVER Long before gold became an investment to adore, Zenolytics published "Making The Case For Gold" late in 2018. Perhaps it is now time to publish a piece called "Making The Case For Silver." Silver is lagging far behind gold this year, presumably due to its industrial metal/levered to global economy/scared of a global recession component. However, what needs to be understood is that silver can only lag for so long before a continued rally in gold creates an orgy of animal spirits that will also lift silver. After this week's price action, silver does look like it may be ready to join gold, fear of global recession causing less demand on the industrial side of things be damned. REDFIN/OPENDOOR PARTNERSHIP...
Anatomy Of A Correlation: How 1998 & 1999 Are Perfectly Mapping The Market 20 Years Later
Let's begin with a simple premise: The market bottom of December of 2018 was a hurried, violent correction within a grand secular bull market that served as the first real reset of this secular bull since its inception. When Zenolytics was one of the only venues of market intelligence pounding the table on technology stocks late in 2018 in a note titled "How Everything That Happened In 2018 Now Makes Technology Names A Screaming Buy," it was with a correlation to the last time a real reset took place within a secular bull market that was both hurried and violent: 1998. Here is an excerpt from the piece on December 31st, 2018: "The buying opportunity here for technology, in particular, is one of the best over the past decade. Whether this assessment of risk/reward ends up being something that lasts one quarter or the entirety of 2019, I am not sure yet." The correlation to 1998 was even stronger than originally expected, as we are now tracking the market of 1998/1999 almost exactly. Here is an illustration of the Nasdaq Composite from 1998-1999 compared to the Nasdaq since the December lows to present. The price structure between the two timeframes is uncanny, from the persistent manner of the STEP 1 rally in both graphics to the short-term nature of the first correction in STEP 2, all the way to manner in which both markets consolidated following the first correction moving from STEP 2 to STEP 3. STEP 4 we don't see in the chart of the current market, but we have an idea of what to expect. There is an important caveat to consider that will change this correlation for the present market. In the market of 1998/1999, the panic low that set this grand sequence in motion was made in October. The low for the current market was basically made as the calendar flipped from 2018 to 2019. This is important because it will shorten the length of the consolidation period for the the current market by 3 months due to the natural forces that take over towards the end of Q3, into Q4. In other words, the seemingly long consolidation period you are seeing in 1999 won't take place in the current market because of the late-December low. The markets will have a 1999 type of reaction on the upside starting in September and lasting through the end of 2019. By all indications, the upside potential into year end, while perhaps not being as mind-numbing at the market of 1999. will still be substantial. Strap on your mud boots, there's still a lot of sewer salmon in...
Another Look At The Handy Zillow/Redfin Ratio
It's going to be worth keeping an eye on secondary names in the Ibuying space given the momentum that is taking place in the sector, led by Zillow. Have discussed Zillow extensively here in 2019. Most recently in a note titled "Here Is The Bottomline With Zillow At This Point In Their Business Cycle." The basic premise of the piece was that the markets have gone from skepticism about Zillow fully transitioning their business model to Ibuying to complete acceptance and love for the move. With that said, all Rich Barton has to do to keep the train moving is to continue gaining revenue momentum through the acquisition of homes. At the same time, their former bread and butter (Premier Agent) ad based business has to somewhat support the endeavor. In other words, the markets won't like Premier Agent revenue falling off a cliff. This is phase 1 of the transition of Zillow. In the phases that are to come in the quarters and years ahead, Zillow's inventory of homes will reach such a critical mass that it won't allow management to simply boost the share price in the same way they are being allowed now. The massive inventory that is to come will eventually freak the market out to an extent, creating urgency for management to come up with a creative means of capitalizing on being one of the largest homeowners in the country. This is a when not if type of dilemma the company faces. Where Zillow is currently within its overall business cycle, however, is the sweet spot. Their inventory of homes isn't scary yet. Their revenue growth can increase at a nice clip given the early nature of the concept. Competition hasn't yet figured out how to compete effectively with the 800 pound gorilla in the space. All good for now. Bringing us to Redfin. Today RDFN announced a partnership with the largest Ibuyer - Opendoor, which is undoubtedly an urgent response by both companies to Zillow's increasing momentum. While RDFN has a lot of catching up to do to ever reach Zillow's dominance in the space, the primary question from an investor perspective should be whether RDFN has enough going for it to ride Zillow's wave higher over the intermediate to long-term? Today's move by RDFN partnering with Opendoor is an official embrace of the Ibuying model by the CEO of the company who has expressed some skepticism about the business model of purchasing and selling homes in the recent past, mostly because of the balance sheet risk. This is notable given his experience and voice in the space. With a total addressable market...
Continued Perfection In An Otherwise Perfect Market
There is a really simple concept that all investors need to grasp about price: long-term bull markets accelerate on volatility contraction and die on volatility expansion. There is an elegant theory behind this phenomenon that is extraordinarily simple: volatility contractions signal orderly, planned, sophisticated buying. It's a signal that large bidders are beneath the market picking and choosing spots to accumulate equities. If you've ever traded size in a security, bidding for days and possibly weeks on end, you can witness this phenomenon for yourself. Volatility contracts as your bids stabilize the market. Volatility expansion on the other hand is the complete opposite of this. Markets top on expansionary, violent moves because it signals unorganized desperation to get in at any price. It is a sign that the last of the holdouts are simply throwing up their hands, screaming "get me in at any price." At the same time, shorts are forced to cover. What happens to the market in this type of scenario is that it gets hollowed out to an extent, becoming susceptible to future volatility in the opposite direction of the primary trend. Bringing us to the here and now. This market continues to be a practice in absolute price perfection. Volatility continues to contract on all the major indices right as the S&P 500 is flirting with a breach of a very important price point in the 3000 range. Individual sectors are practicing rotating corrections with one sector taking over on the upside right in time for another to take a rest, again, aiding in the overall contraction in overall volatility for the general markets. Perhaps most important of all is the fact that there remains a significant portion of assets that do not have nearly the equity exposure necessary given how far the market has advanced this year and how much better the economy is than advertised. These are latent bids in the market that will be forced to participate as the year wears on. The catalyst for these latent bids to come to life is very simply sand shifting through the hourglass as the calendar year wears on. The progressive tightening of the noose around the respective necks of the asset management community will only grow in intensity. Past September and past S&P 3100, there is not going to be a single reason in the world, apart from an iron clad investment mandate forcing the action, for an asset manager to be accepting of a 2% return in a fixed income instrument. Not a single one. In the meantime, the market isn't going to allow these latent bids to get in cheaply or...
GRUB Is Set To Be THE Story Of The Second Half With A Price Target Of $150
It wasn't that long ago that Zenolytics put out a note detailing how Zillow had the potential to be a great first half story given its track record of outperformance during the first half of nearly every year in its existence. The stock didn't disappoint, creating a gain in the 40% range during the first half of 2019. As we turn our attention to the second half of 2019, with every intention of replicating Zillow's results with another big swing type of opportunity, GRUB has popped on the radar in a big way. Well, let's be clear, GRUB has been on the radar since it went public some years ago. The current pullback is not something that was forecast by any stretch of the imagination. It is an opportunity, however, to take advantage of the fear related to the massive turbulence that is taking place in food delivery presently. The turbulence in GRUB's space has been related to a well funded group of competitors making life for the only profitable player in the space (GRUB) difficult. This has led to compressed margins and declining net income as GRUB has had to grab its WuTang Sword to drive back the oncoming swarm. All the meanwhile, due to the various incentives competitors such as DoorDash and Postmates are offering, which basically equates to free food in some circumstances, the competition is picking up market share. To be sure, DoorDash now has greater overall market share than GRUB for the first time ever. All the meanwhile, DoorDash is getting late round funding at a $13 billion valuation. GRUB is currently trading at a $7 billion market cap for a relative comparison. Why step into this seemingly crowded market with GRUB? Total addressable market here is substantial. To date, we are only seeing 5% saturation in the restaurant digital delivery space. Either GRUB is terribly undervalued or venture money is insane for valuing DoorDash at a near 100% premium to GRUB. Highly likely its the former. Management at GRUB is terrific. The CEO is the original founder, having grinded from near nothing into a company with a billion plus in revenue. He recently purchased a million dollars worth of stock in the open market. The chief product officer of the company is a former Amazon executive with a vast amount of experience delivering for consumers as AMZN's head of consumable customer experience. GRUB possesses an end to end solution for restaurants wanting to enter the digital space, with everything from customer relationship management, reward programs and an end to end digital presence. The 95% of restaurant sales that aren't online is the target...
Here Is What To Expect Once The S&P 500 Conquers The 3,000 Level
Cannot reiterate the following enough: the 3,000 level for the S&P 500 isn't just a cool, neat round number that creates a focal point of attention to the fact that the U.S. markets are pummeling the rest of the world when it comes to overall stock market performance. The 3,000 level also happens to be the meeting place for a number of trajectory points that have some very important DNA, spanning multiple decades for the markets. These types of price points happen to cause volatility, disarray and a general sense of unpredictability in equities. Paired with the attention that is naturally given to neat round numbers on major indices, the markets will take their time in digesting the 3,000 level. How so? Through unpredictable volatility that throws the masses off the scent of the market. And, let's be clear here, there are going to be plenty of catalysts for unpredictable volatility throughout July: Interest rate policy is far from clear following Friday's job report There is a better than even chance that fixed income investors across the curve are currently misallocated, resulting in interest rate volatility throughout the remainder of summer Earnings are going to be all over the place. Guidance, as well. The macro scene is compromising overall confidence in being bold and audacious. Cautious is the word Continuing macro gyrations from China to the Middle East show no signs of abating With investors suddenly taking note of the market with S&P 3,000, significant resistance coming into play that will take awhile to sort through and the aforementioned catalysts towards volatility, the markets will go through a grinding process for the remainder of summer. The good news is that once that grinding process is finished, there will be enough momentum off the 3,000 level to create a slingshot effect for the overall market. Past September, there is a significant chance the markets go into overdrive on the upside. S&P 3,100? Nope. S&P 3,300? Too conservative. Think S&P 3,500 plus by year end, making 2019 one of the best years ever for U.S. equities. That's the power of moving through this level and the slingshot effect that will take place as a result. That's also the power of a blowoff that forces the hands of the masses of investors who are misallocated into fixed income and other investments yielding at or near zero. While the thought of 500 point move in the S&P 500 may seem insane to some, given the current pervasive bearishness, chronic misallocation and inordinately low interest rates in the face of what is a healthier economy than most anybody suspects, a 500 point move is...
Economic Reality Is Making Bond Investors Look Dumb
With news of job creation blazing ahead unimpeded in June, bond investors are having to backtrack on their bets on Fed rate cuts in the months ahead yet again. In the meantime, there may be a realization today that it makes little to no sense to sit in a fixed income asset with a negative real rate of return when you have companies like JPM, as one very obvious example, spitting off a 3% dividend while trading at a 10x forward earnings multiple with the added bonus of a massive stock buyback recently being announced. The reality of the situation is that there is a significant chance that the entirety of the fixed income community globally is completely misallocated presently. The pervasive, perpetual fear of an economic slowdown that seems to be ingrained in the DNA of bond investors can only cost them for so long. At some point, perhaps in the very near-term, the reality of the relative value available in equities becomes apparent. What happens when literally trillions of dollars of misallocated capital globally realizes that the have been overly-pessimistic in their assessment of the economy? What happens when these same investors begin feeling pressure to deliver returns by actually embracing risk instead of settling for capital preservation at a zero real rate of return? While it may seem that equities are extended due to the unprecedented nature of the current expansion, the reality of the situation given global capital allocation favoring fixed income, may be that the persistent trend up in equities has quite a number of years left, with the added bonus of an acceleration in the trend up as capital is forced to seek real returns in excess of zero. Zenolytics now offers Turning Points and ETF Pro premium service Click here for details. Disclaimer This website is for informational purposes only and does not constitute a complete description of our investment advisory services. No information contained on this website constitutes investment advice. This website should not be considered a solicitation, offer or recommendation for the purchase or sale of any securities or other financial products and services discussed herein. Viewers of this website will not be considered clients of T11 Capital Management LLC just by virtue of access to this website. T11 Capital Management LLC only conducts business in jurisdictions where licensed, registered, or where an applicable registration exemption or exclusion exists. Information contained herein is not intended for persons in any jurisdiction where such distribution or use would be contrary to the laws or regulations of that jurisdiction, or which would subject T11 Capital Management LLC to any unintended registration...