June 25, 2019

Amazing desert scenery is the stuff of dreamy cinema. Blistering sun roasts an endless ocean of sand. Wavy light distortions become a mirage of an oasis before it vanishes. Exotic sandy dunes conjure classics like Lawrence of Arabia, The English Patient, and Ishtar (just kidding about Ishtar.) But like most things, reality versus perception brings a huge gap. I was surprised to learn the Sahara Desert is only 15% sand and dunes. In fact, most of the Sahara (and other deserts) is rock and gravel. Sand is just a result of rock erosion from wind. Even brainiacs like Milton Friedman didn’t know that. He said: “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

Here’s why I am telling you this: Perception often becomes reality. The market is scary because the media are endlessly beating the drums of fear. I know that I sound like a broken record, but they sow fear because consumers tune in less (and buy less) when they’re happy. They buy more when they’re scared.

Every day we can see that the news desperately wants a war with Iran. The only thing that could boost media profits more than Trump is a war. Daily headlines egg him on, but I believe Trump doesn’t want war and will continue with sanctions on Iran. We won’t know yet, but I can tell you one thing clearly:


There is fear as far as the eye can see, but the market doesn’t seem to care. Populism is sweeping Europe. Rates on German bonds are negative. European political change is in the air, clouding the future climate of commerce and politics. China and its relations with the U.S. are still preventing the perceptions of safe investment there. Latin America is volatile and a tough place to park assets. Meanwhile, U.S. sales and earnings are growing. Interest rates are headed for a cut. The dividend yield on the S&P 500 is favorable over bond income, so U.S. stocks are the place to be. This is all causing a capital flight to the U.S.

Want an Oasis in the Desert? Try U.S. Stocks.

After the June surge pushed stocks to new highs, the chance to back-up-the-truck on stocks seems to have passed, so if stocks are the place to be – and we may have missed the latest chance to grab this big leg up in June – what do we do? That’s where the sand comes in. Just like a little sand paints a better desert picture than rocks and gravel, a handful of great stocks is all you need. You don’t need the whole market. Let other people chase market-timing and brag about entries and exits. We focus on a few winners. Only 15% of the desert is sand. Likewise, a few big winners usually make all the gains in a well-run portfolio.

Winners can come from anywhere! Here’s a perfect example: Hockey’s best team this year was the worst team midway into the season. On January 3, 2019, the St. Louis Blues were dead last in the NHL and miles behind the last wild-card spot in the Western Conference. Now, St. Louis players are taking turns eating Wheaties out of the Stanley Cup.

That’s why I spend so much time on what the big money is buying. Last week saw massive buying in all kinds of stocks. Health Care saw the biggest buying, with 89 buys, split between Pharmaceuticals, Biotech, Health Equipment, and Services. This is important because Health has been beaten down for a while. Tech also saw big buying in Software. Real Estate stocks saw buying as they offer higher yields in the face of lower interest rates. Financials, Industrials, and Utilities also saw big capital inflows.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

Investors are buying stocks, but something interesting happened in the details. Thursday was the single largest ETF buy day since January 24, 2018. We’ve had 35 days in our 30-year history with 40+ ETF buys in a single day. That’s particularly interesting because this big ETF buy happened with a low ratio of 50%. Generally, big ETF buys coincide with a higher ratio. This is rare risk-off then risk-back-on switch. Our two prior instances of lower ratio and big ETF buying, saw a much higher market one year later.

Graphs are for illustrative and discussion purposes only. Please read important disclosures at the end of this commentary.

That means “game on” to me for the long run.

Don’t worry if you think you’ve missed this latest rally. Research the best stocks that “big money” is buying. Focus on opportunities that come every day. Comedian Steven Wright had it right: “If someone asked me, if I were stranded on a desert island what book would I bring… ‘How to Build a Boat.’”

About The Author

Jason Bodner

Jason Bodner writes Sector Spotlight in the weekly Marketmail publication and has authored several white papers for the company. He is also Co-Founder of Macro Analytics for Professionals which produces proprietary equity accumulation/distribution research for its clients. Previously, Mr. Bodner served as Director of European Equity Derivatives for Cantor Fitzgerald Europe in London, then moved to the role of Head of Equity Derivatives North America for the same company in New York. He also served as S.V.P. Equity Derivatives for Jefferies, LLC. He received a B.S. in business administration in 1996, with honors, from Skidmore College as a member of the Periclean Honors Society. All content of “Sector Spotlight” represents the opinion of Jason Bodner