October 23, 2018

I wanted to say that “I am writing this to you from Bermuda,” but I can’t.

I had the honor of presenting at an investment conference on that beautiful and remote island this past week. I wanted to write from there, but I was just too busy, so I spent all my time speaking and listening. There were so many ideas rocketing around that I didn’t want to miss anything. I wrote this from home.

This crowd was clearly right-leaning, politically. There were many conservatives, so it was fascinating to see that their overwhelming collective view was pessimistic, creating a pall of gloom and doom. There was a lot of emphasis placed on our ballooning unpayable debt. There was relentless talk of the deep personal violations that all Americans suffer at the hands of the big social media giants, which offer free services and then they yank our personal data from under us to use to sell to us a variety of products.

There were tales of how cryptocurrency will be the last free means of exchange once the fiat currencies fall and burn. There was talk of an overheated stock market with an utter disregard for debt. Speaker after speaker said we are due for some sort of cataclysmic type of event that would mirror or even upstage the Great Depression. A Wall Street event would trip the trigger. One guy, whom I highly respect, knows someone who builds bunkers for the super-rich. He is so busy he doesn’t know what to do.

In short, the world is a ticking time bomb.

After the conference, I wanted to look at “the other side” to get some balance. I have a lot of friends and family who lean leftward, but I got no relief there. More bad news; no cheer there, either. The prevailing theme: Trump is a fascist. Our modern society of demonizing the press is like early Nazi Germany. The systematic deconstruction of socially responsible laws and programs of the Obama era is soul-crushing. Women, immigrants, non-whites, non-heterosexuals, and everyone getting brainwashed are among the victims. The health system is broken, and Wall Street is a greed machine that will tip us over the edge.

The two things both sides unanimously agree on? The world is going to end, and Wall Street will signal that end. The fat cats will nudge us just far enough over the horizon that there will be no coming back.

Contrary to what my parents said, looking right and looking left is not going to help me cross the street.

Being interested in science, I Googled the “effects of negativity.” This is what I learned:

The Left is negative. The Right is negative. The stock market is currently ugly and pessimistic. Don’t count on the news to uplift your spirit, either. So, are we really doomed?

Now is a good time to meet Dr. Masaru Emoto. He thought that human consciousness can affect the outcomes for non-emotional objects. He analyzed two batches of water crystals, one talked to lovingly, and one yelled at negatively. He concluded that downer vibes had ill-effects, even on water crystals.

His experiment was independently repeated with rice. Basically, rice flourished when talked to positively, and rice rotted when talked to negatively after a month. This experiment is lauded by believers and loathed by skeptics and debunkers, but the talk certainly had an effect on the talkers as well as the rice.

True or not, it’s not healthy to be negative! I want to be happy and positive! So, I’m going to shower you with bold statements of bloom: The world isn’t going to end! If we work together, there’s no better force at solving problems. Wall Street is a good way to make money, and stocks are going to go up!

Recent actions may not make you feel that way, so let’s look at the market for a moment. This past week started weak, then Tuesday rolled around. It was a screamer. All sectors saw a major rally. Thursday began the retest we have been talking about. The Russell 2000 tested the lows on Friday but not on big volume. The ratio I look at that tracks unusual institutional buying and selling says that we are days away from a trough before a significant recovery. In short, the bottom is either here or near.

October Has Been Ugly for All Sectors (Except Two)

Sector-wise, October has stunk so far, for every sector save Utilities and Consumer Staples. But much of the gains for those came on Tuesday and Friday of last week. October has just been ugly for stocks.

The good news is that earnings season is here. Last week showed big beats, and I expect to see a lot more.

At the Bermuda conference, where negativity was everywhere, I realized that fear is very popular in the publishing world – fear sells better than greed, both of which sell infinitely better than logic.

Yet logic on my part continues to say:

  • Record low taxes have not fully worked their way through to the bottom lines of U.S. companies.
  • Record cash repatriation continues.
  • Record buy-backs persist – $721 billion through September: +88% YOY according to Goldman Sachs. We will likely have $1 trillion of U.S. stock buy-backs for all of 2018.
  • This will be the third consecutive quarter of +10% sales-growth and +24% (expected) earnings-growth on the S&P 500. The S&P 600 should have +34% earnings growth.
  • Jobless rates are at 49-year lows.
  • There are 7.1 million jobs available with not enough bodies to fill them.
  • People are worried about rates ticking up. Who in their right mind would pull money out of double-digit sales and earnings growth equities to chase ~3.25% on 10-year Treasury bonds?
  • Where else is there to invest? China, Europe, and Latin America are all a mess.
  • Interest rates are still historically low. They are only more favorable compared to recent history.

I am bullish on U.S. equities for likely another six years. In Bermuda, I shocked some attendees by being positive – like Michael Jordan – and by giving them some “Michael Jordan stocks” for their portfolios.

Be like Mike: “Always turn a negative situation into a positive situation.”

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*


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