On this week’s show, Karl discusses whether or not investors have everything they need. Also on this episode, a blowout jobs report, the Fed halts,progress on trade, and a gangbuster of a January in the stock market.
Hey everybody. Welcome to The Eggerss Report, it’s your investing playbook. Thanks for joining me. Appreciate it, as always, and if you’d like to get ahold of us, the best way is on the website, EggerssCapital.com. E-G-G-E-R-S-S Capital.com. We’ve got podcasts, videos, we’ve got articles, charts, graphs, you name it, it’s all on the website. And if you want to get ahold of us for any type of help in the financial realm, you can still go to
EggerssCapital.com , click on the green button, and we’ll try to help you out. Or you can give us a call, 210-526-0057. 210-526-0057 .
This is our weekly podcast, we’ve been doing it consecutively for I don’t know how many years, been over a decade, and every week it seems like, somebody reaches out to me that says, “I’ve been listening to you for well over 10 years.” It could just be somebody wanting to thank us, could be somebody needing help, and we’re always appreciative of longtime listeners and short time listeners. And by the way, on the website, we’ve started to do more video. You can actually go straight to our YouTube channel if you want. My YouTube channel on there. Just YouTube.com/KarlEggerss, and you’ll find it. But yeah, we did one this past week on investment biases, and these are things that really get a lot of us, we get in our own way, and a lot of this is really good information because it could help you find your own flaws. And that’s what we should be doing is always looking in the mirror and saying, “What did I do right or wrong?” And, “Is it working?” If it’s not working and I keep doing it, I need to switch.
Again, what we’ve been talking about the last several weeks is due to the volatility in the fourth quarter of 2018 and into 2019, what did you do? Many of you have emailed me, called me to basically tell me what you have been doing, both good and bad, being very transparent. The idea is to help you. And some of these biases that we have, some of them have to do with our upbringing, our view of the world, maybe what the market’s been doing recently, so go check that out on EggerssCapital.com , or like I said, you can just subscribe straight to the YouTube channel if you wish and watch those videos. We probably do one every couple of weeks, and if there’s a topic you’d like covered, let us know. We’ve actually done some on financial planning things such as, should you buy long term care insurance? Should you take a monthly pension or a rollover? Those are decisions to make. In fact, people call us all the time for all kinds of financial questions.
One of them this week, a gentleman was laid off from AT&T. You probably saw AT&T was going to cut some workers, and he has some options in front of him, but there’s a lot of financial decisions. There’s personal decisions that I helped walk him through, but couldn’t make those particular decisions in terms of where to live, and uprooting family, and all of that, versus the pure mathematics behind it. And we walked through some of those things. And I’ve talked to him in the past, I knew this was a possibility, but again, what does he do? So we walked through that, and we’ll continue to explore that and help him out.
All right, let’s jump to the market this week. We finished, obviously, with a very strong January. You kind of hear sometimes, “As January goes, the markets go.” Well, for the month of January, we saw pretty much small caps, emerging markets, technology all up around 10% for the month. The Standard & Poor’s and the DOW up about 7%. And volatility. Remember how volatility was up in the 30s just a month ago? Now, it’s down around 16, down 35% for the month of January. And guess what some of the big winners for January were and some of the big losers? Again, the outliers. We know what the basic markets did.
Some of the big winners, the pot stocks. As a basket, we’re up 41% in the month of January, and we’re starting to and continuing to do some research in this area, and it’s still kind of the Wild West, although I do believe this has a lot more merit and a lot more chance of success overall than the cryptocurrencies. And I think there will probably be less volatility, but what you have to be careful of is, in this particular arena, it’s still the Wild West. We still have some states it’s legal, some it’s not. Some just want the CBD side. There’s companies that are doing manufacturing, there’s companies doing distribution, there’s companies that are just selling technology to help really sell this and keep in compliance, but there’s a lot of companies that don’t know if they’re doing something illegal or not. So you have all kinds of stuff going on, and you need to be very careful because some of these companies, just because they’re public and you have access to them, they still could be very, very expensive and speculative.
Now, there may be plenty of private companies that haven’t gone public yet, and maybe you have access to some of those, but these are going to remain volatile. And we’ve seen some volatility. I mean, look, as a basket, from mid-August, or early August, I should say, until September, we literally in one month, some of them had doubled as a basket, and then they dropped all the way down and pretty much dropped by 40 or 50% from the fall all the way until Christmas Eve, and from that point, they’ve jumped another 60%, so it is a wild ride, and they’re probably over-bought at this point, but it’s becoming something that a lot of people are following, and as I’ve said, it’s gotten more merit than even I believed several months ago, and it’s interesting. So just doing some research. Haven’t ever bought any. And a lot of people feel different ways about that, but just bringing you what has been working, and that was working obviously in the month of January.
Oil, gas, and equipment stocks up about 22% as a basket. Oil itself was up over 17% in the month of January. Biotech, metals and mining, the E&P companies, banks all up 14, 15%. Those were some of your real big winners, but broad areas. Home builders, banks, all kinds of stuff was working in January. Not much on the downside in January. Bitcoin, we just talked about cryptocurrencies, but Bitcoin was down about 9 and a half percent along with volatility, as I said. Interest rates were down just a bit, but other than that, not much. Bonds as a whole were up about 1% as well, but not much was down in the month of January.
So we know really what started the sell off, and we’ve said that for many weeks, the three, the big three in my opinion were the slowing economy, the fed raising rates, and the trade war. And what are we seeing progress? The feds easing back, trade war pensions are minimized right now. We’re seeing progress. And we may have gotten some better news on Friday regarding the economy. So we have at least two of the boxes checked and maybe three. So this week was real interesting because we first came in Monday, and we’ll kind of run through the week here, Caterpillar reported weaker than expected earnings. Revenue was okay, but their profit wasn’t. Well, that’s big because if their revenue is okay, that tells you more about the economy than their profits. The profits are more about how good or bad management is.
But we also saw a warning from Nvidia. And Nvidia NVDA is the symbol, has had a really rough go of it. Nvidia is down somewhere around 50% off its high in pretty short order, and that is a classic overvalued company, or it was. Maybe it’s more fairly valued now, but it was very overvalued, and when an overvalued company says something bad or growth slows down it gets hammered, hard. What you look for is an undervalued company who even if they say something that’s not great it goes up on that news, that tells you that everything’s priced in. Then the next thing you look for, of course, is some positive news. Nvidia just got hammered and so there was fear that day on Monday that, Caterpillar weaker than expected earnings, Nvidia warned, is this saying something about the economy? We also heard from the CBO that said the first quarter GPD could be reduced by as much as 0.2% because of the shutdown. Now you go, “0.2% rounding error. 0.2% on our side of the economy is a big deal. Instead of being at three it’d be at 2.8, two would be 1.8. Just doing some simple math for you.
The stock market finished down that day but it rallied into the close. We continued this theme versus 2018 where it kept selling into the close. Tuesday, PG&E, big, huge utility company. Of course, all those fires in California, filed bankruptcy with 50 billion dollars in debt. 50 billion. Now that’s a great lesson. We won’t go into detail but it’s a great lesson on owning concentrated positions because PG&E was a nice, stable utility company, right? Paid a dividend, grandma stock, everything’s great and then this happens and poof, they file for bankruptcy.
That is what can happen if you have too much of your money in one particular stock. I’m fine with owning stocks. We have strategies for our clients where we do own individual stocks but we don’t just have one, we don’t have five, we don’t even have 10, we have more. That was Tuesday. Wednesday Boeing came out and this is kind of when the … We just kind of went up to another level. Boeing came out with excellent earnings and basically beat on the top line, the bottom line, they guided higher, it was just a great, great report. Then Apple came out with earnings that were, let’s just say they were less bad and so Apple jumped, so we had that.
Then we saw a little glimpse of the employment report number. Remember, we get employment report on Friday but on Wednesday with the ADP private company, with their employment, changed $213,000.00 versus the 181,000.00 estimate so a better than expected jobs number. Of course, we got the FOMC rate decision which was basically everybody knew the Fed wasn’t going to raise rates but it was what they said. They removed the word gradual increases from their statement so remember, this has been a progression. Let me remind you what happened.
Back a few months ago, Chairman Powell who everybody said, “Oh, he’s going to be a great chair.” He was raising rates, raising rates, raising rates, and of course the president was saying you need to stop him. You heard about him fire them, all this stuff which is hilarious but, basically, he was putting all this pressure on them. Then the market’s going through and just falling, falling, falling, and Powell comes out and says, “We’re way below neutral,” which means we’re going to keep raising rates. The market just kept spiraling down. Then he changes his tune.
I want to say November he says, “Well, we’re just below neutral. Then in December we hear the Fed say, basically they changed their language that they’re softening up even more and they’re going to be more data dependent and they’re kind of changing their tune, and, lo and behold, the stock market turns around Christmas Eve or not Christmas Eve but the 26th and it starts going straight up. Well, their commentary the other day was they took out the word gradual increases so they’re not even talking about raising anymore and the market just, up 400 points on the Dow Jones. I
It was already up before that but it gave it that boost. Everything turned around because the Fed is off the table now, or are they? Well, we’ll talk about that in a second but looks like they’re off the table. Merging markets, which you know I love, has closed above its 200 day moving average for the first time since last Spring and continues to outperform the US markets. Thursday, got a mixed day. The Dow was flat, the Nasdaq was up, kind of led by Facebook and FANG. FANG … Facebook, Amazon, Apple, Netflix, Google. Are those back in vogue now? May be, they’re at least running in the right direction.
Then Friday we get the big jobs report, 304,000 jobs created in the month of January versus 165,000. Huge number but what was weird was we had a 90,000 job revision down for last month. You take away 90 from last month’s and then this one beat by 160,000, all-in-all, very good report but very strange how they revised it so far down. But this was the number that we didn’t know what it was going to be because of the shutdown but they claim … They, meaning the powers that be that released this, that it wasn’t affected at all by the shutdown. Furloughed were still considered employed and so it was just a good solid number.
Then, of course, the market was up most of the day on Friday, kind of finished up about 60 points and Nasdaq was down a bit but it was interesting because then you started to hear chatter late in the week. “Well, is this number good enough to get the Fed back raising rates?” The answer is no. The Feds told us they’re on pause right now, that box is checked, they’re on pause. Yes, if we continue to see inflation really pick up, maybe so. The wage inflation is picking up a bit, people are getting some raises, it’s a tight labor market but we still don’t have any signs of massive inflation that they should be jacking rates every time they meet. And so, they basically have said, “We’ve raised them and we’re on pause for right now.
That is a huge boost to the stock market, no question about it. Then, what did we see on Thursday? This, basically, press conference, if you will, with the press with leader of China and President Trump. They’re progressing and I told you a few weeks ago, all we need is progression from the trade tension. We don’t need an absolute deal today but we do need progression. We need to keep seeing things going the right direction. Then yes, we eventually need to have a deal and I still don’t think it would be a comprehensive deal because I just think it’s going to take a long time. We can get 60, 70% of it in a deal and they’ll label it as a deal but it seems like both sides want a deal, they need a deal, and they will get a deal and so that progression of improvement is another thing that the market has liked and investors.
The last thing is, what’s happening with the economy? I just mentioned that jobs are good and we had some good numbers today on ISM. There’s some other stuff that came out that is good so look, the economy is not going into recession. Has it been slowing? Absolutely, it’s been decelerating but it has not given any classic signs of a recession. Then we’re left with, okay, if we know all that stuff has been going in the right direction, what about the overall market, what is the market telling us? Again, we saw a big V and it wasn’t just that it went down and then up, we saw some things that rarely happen which is the capitulation on the downside and the get me in at whatever cost on the upside, and that has typically led to longer term gains.
As I’ve been saying, I think we earned a continued bull market. There’s people arguing that we’re not, this is a bear market bounce, but the data doesn’t suggest that, and so that’s where I’m going with this is that we’re still in a bull market. Now, when it comes to you and your money, bull market, bear market, does it have a bearing? Yes, it has a bearing but it doesn’t mean you should be 100% stocks if Karl and everybody on TV says it’s a bull market and you should be 0% stocks if Karl or anybody on TV thinks it’s a bear market, that’s not what you do.
What you do is you already know, in general, what your overall allocation should be. If you say, “I’ve got tons of money, I don’t need to worry about it but I do want to benefit from beating inflation over the long term and I went on some stocks,” maybe you should have 20% stocks. Then within that 20%, do you adjust, make some trades, go up or down a little bit? Yes. Do you go from 70/30 to 90/10 at times? Sure, but what I see people making the mistake is, is where they just, they go hog wild when things are good and they get hit hard when things are bad or they freak out when it goes down and they panic out and go way too conservative. It’s
Really important to get the allocation right and then do some tweaks depending on what kind of an environment we’re in. Right now, we are in a bull market, and the 24th of December was a time to look at the portfolio and say, “Should I adjust up a little bit? I’ve been safe, and if I’d been safe and the market’s falling 20% and some stocks 30 and 40%, shouldn’t I take some of that safe money and put it in? Isn’t this why I was being partially safe?” Why else would you be safe with your money? Well, it’s because you’re going to need it, right? Or you’re worried about the market falling.
Well, if the market falls, that risk has been taken out. That’s when you’d adjust your allocation. We’re still seeing really good underpinnings, and to me that’s even more important than some of the headlines. I mean, we know that … Look, China and the U.S., they’re not stupid. They know they need to come out say they’re making progress, even if it’s not as much as either side wants, but we’re getting there. They’re saying that. Well, that’s fine. What are investors doing? Are investors buying it or not? Investors are buying what they’re saying and they’re buying it and we can see that they’re buying it based on the underlying technicals and internals of the stock market.
We’ve been seeing, too, that some of these things that we were worried about a couple of months ago are starting to improve a bit, right? I mean, if you take a look at things like, I don’t know, junk bonds, I mean junk bonds were falling … Junk bonds have gone up, I don’t know, almost 10% from Christmas Eve. That’s a big move. We do want to watch the credit markets. What is the bond market telling us. The bond market was telling us things were getting worse and worse, and now it’s improving.
One of those things that is improving, by the way, is we’re seeing … If you look at The Advance-Decline Line, this is basically … Let’s take the New York Stock Exchange. The number of stocks that are going up versus the ones that are going down. It’s higher now than it was just a month or two ago, even though if you look at something like the Dow Jones, it’s making more lower lows, right? Some of these indices still look like, “Yeah, they’ve gone up”, but they’re making lower highs and lower lows and the Advance-Decline’s not. We’re seeing some positive divergences, you would call them.
The other thing is, look, there was a big test. I wrote a blog about it. There was a big test. When the Dow Jones basically got to about 24,200 we’ll call it, that’s where it had broken down. It broke through that, it kind of paused a little bit. Looked like it could roll over, and then we went up another level. Now we’re sitting above 25,000. On the S&P 500, that level was about … We’ll call it 2600. That was a big test for the markets. Kind of went sideways and now it’s broken through, a little bit of the upside. There’s still more tests to come. There’s still things like, “Do we need to go above the 200-day moving average?” Sure, that would help. Do we need maybe a little pullback and that gets more people that are sitting on the sidelines still, gets them to buy? Maybe so.
I don’t know how all this pattern will turn out, I just know that the underlying technicals and internals of the market continue to improve. Based on what I see on Twitter, there’s a lot of people with … Just trying to talk the market down, so apparently they’re on the wrong side of the trade, and they’d been slaughtered. I mean, some of them probably lost 20, 30% in the past month because they’re so focused on one particular thing. Remember, if you’re a bear and you have alarming headlines, you get publicity. A lot of these people are just … They’re going to be doom and gloom no matter what, so be very careful where you’re getting your information. I will tell you if I think it’s doom and gloom, and I have in the best. I will tell you when I think things are dangerous and when things are toppy.
Are we do for a pullback right now based on the rally we’ve had? Sure, but I’m also focusing on the next few months and I think we’re going higher. Be careful where you’re getting your information, and if you do follow somebody that’s kind of a permabear, go ahead and follow somebody that’s a permabull. Right? Balance it out at least. I see people all the time that have these … Man, they just follow a whole slew of people that just are feeding them all this negativity and it’s just costing them a lot of money. I mean, it has been a spectacular rally from the lows and a lot of people are on the wrong side of the trade.
Hey, did you guys hear about the trader that put on the 500 million dollar trade? This is about a week ago, but Reuters came out and there was a trade alert … Some trade alert data that came out that showed that somebody had sold 19,000 put options on the S&P 500. Let me explain that real quick, and basically it was a 2100 put. They sold 19,000 put options at 2100. Well, the S&P’s above that quite a bit, but if it goes down below that between now and December 18th of 2020, they’re obligated to buy the market at 2100. Now, in exchange for taking that risk, they got paid $175 million in premiums. They get to keep that, but if it goes below, they have to buy the S&P at 2100. What if the S&P’s at 1500? Well, they just bought something at 2100 and it’s worth 1500.
People typically will sell put options if they’re saying, “Hey, you know what? I want some money right now and I was already willing to buy a stock lower anyways.” It can work unless you do too much or you’re making too big a gamble. Of course, this particular trader probably was hedging something else they already owned, so it’s not necessarily just pure speculation. It made waves because they could lose $500 million if this goes against them. Wow. That’s the kind of stuff that people do on Wall Street for various reasons.
All right. Who have you got for the Super Bowl? Rams? Patriots? I’m going for the Rams. I’m going for the Rams. I will admit, I do like dynasties. I think they’re kind of cool. When the Bulls were doing their thing and the Cowboys were doing their thing, ’92, ’93, ’95, winning the Super bowl, but some of the cheating, come on guys. I mean, right? The listening in on practices of somebody else. The Inflate Gate, Deflate Gate, remember that? I don’t know, but what they do is amazing when they basically rotated players and they become these great solid players over and over. Kudos to them, but I still hope the Rams win, so tell me who you got. You got to do it before Sunday. You can’t be emailing me on Monday telling me who you thinks going to win. Doesn’t work that way.
All right. Hey, don’t forget, eggersscapital.com is the website and make sure you go on … If you’re listening to this on iTunes, give us a rating on there. Comment would be great. Don’t forget our YouTube channel as well. Just Google “YouTube Karl Eggerss” and you’ll find it on there and go to the channel. You could subscribe, so every time I put a video out it’s on there. If you need our help, again, click on the big green button on EggerssCapital.com or call us, 210-526-0057. Have a wonderful week and enjoy the Super Bowl, everybody. Take care.
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This show is for entertainment only and information provided by the host, guests, and this station should not be deemed as advice. Your investment decisions should be based on your own specific needs. You should do your own research before you make those decisions. As President and CEO of Eggerss Capital Management, Karl Eggerss may hold securities mentioned in the show for himself and his clients. Just don’t buy or sell anything based on what you get from radio or TV. Use your own judgment or get yourself a trusted advisor.