Neared New Record High

The Market Neared a New Record High, Until Turkey Collapsed

by Louis Navellier

August 14, 2018

Turkish Lira Image

The overall market was strong in the middle of last week, rising to within 10 points of an all-time high on the S&P 500, but the collapse of the Turkish lira on Friday sent the Dow down 150 points and caused the S&P to close down -0.25% for the week. I’ll have more to say about the markets and global events later.

The big news last week was Elon Musk’s tweet on Tuesday that he has a buyer for Tesla (TSLA) to go private at $420 per share. That amounts to over $82 billion in market value, and since Musk owns almost 20% of the stock, $66 billion would be required to go private. However, since Musk subsequently tweeted that shareholders could remain invested in Tesla when it goes private, that means that his elusive buyer does not have the full $66 billion required to go private. Musk’s tweet chain was clearly designed to “squeeze the shorts” in Tesla, and now the SEC is investigating whether he acted improperly. Overall, I find the whole “going private” claim bizarre and if the private buyer doesn’t materialize, then Elon Musk may be investigated for purposely “squeezing short sellers” without a material backer to go private.

(Please note: Louie Navellier  does not currently hold a position in Tesla. Navellier & Associates does not currently own a position in Tesla for any client portfolios).

In This Issue

Both Bryan Perry and Gary Alexander take this traditional mid-August vacation time to look at market history through a longer lens. Bryan looks at the last 30 years of market returns through good times and bad while Gary looks at specific trials that hit the market 20, 50, 100, even 150 years ago, with the market rising through past impeachments, wars, and riots that make today’s headlines seem trivial. From his perch in nearby Bulgaria, Ivan Martchev has a bird’s eye view of the crisis in Turkey, while Jason Bodner is pleased to see growth stocks return to favor in the sector sweepstakes. Then, I’ll return to handicap the slim chances Tesla can be worth $82 billion, plus my update on global currency markets and fund flows.

Income Mail:
Market Timers Don’t Hold a Candle to Long-Term Investors
by Bryan Perry
There Is No Substitute for Wealth Creating from Dividends

Growth Mail:
Why Today’s Near-Record High is Safer than Last January’s High
by Gary Alexander
Quantifying the Risks of Market Externalities

Global Mail:
The Turkish Lira Collapse…
by Ivan Martchev
Safe Havens for the Turkish Mess

Sector Spotlight:
Growth is Back in Style
by Jason Bodner
Growth Companies are Routinely Beating Expectations

A Look Ahead:
Is Tesla Worth More than GM, Ford, or Even VW?
by Louis Navellier
The U.S. Dollar is the Global Safe Haven in the Emerging Markets Collapse

Income Mail:

*All content of "Income Mail" represents the opinion of Bryan Perry*

Market Timers Don’t Hold a Candle to Long-Term Investors

by Bryan Perry

The average annualized total return for the S&P 500 index over the past 90 years is 9.8% per year. Even during periods of hyperinflation, like the early 1970’s, the S&P managed to grow by mid-single digits over a five-year period. And for those that bailed out at the low in 1974, after the S&P had declined by 41.1% over an 18-month period, did so at the peril of missing out on the great rally that followed. Over the next two years the S&P gained +37.2% in 1975 and +23.8% in 1976, erasing all the 1973-74 losses.

In fact, going back to the period of 1927-1931 that included the 1929 crash and the two years that followed, only then and the period of 1937-1941 did the stock market lose significant value over a five-year period. During the Great Recession of 2007-2011, the S&P was essentially unchanged. But because the Great Recession is the most recent time when many investors were severely hurt, the time chart shows that jumping out of the market at any time in the past 100 years has been an expensive decision.

Five Year Returns on Standard and Poor's 500 Bar Chart

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

Investors are now trained to think that history will repeat itself, and because the current bull market is about to become the longest ever recorded, the noise level about an inevitable major market correction is way up. I think much of the fear mongering is out of the need for ratings by the financial media because the data simply doesn’t support trying to time the market. It is well documented that the cost of being out of the market is considerably greater than staying in, assuming one has a long-term time horizon.

Just going back 30 years to 1988 and using a hypothetical investment of $100,000 in the S&P 500, those that stayed invested through the 1990 Iraqi invasion of Kuwait, the 1997 Asian economic crisis, the 2000 collapse of the technology bubble, the 9/11 attacks during 2001, Hurricane Katrina in 2005, the failure of the mortgage credit markets in 2008, and the Greece-led European credit crisis and Flash Crash of 2010 have seen that same $100,000 appreciate to $1,907,620.

Those that were out of the market for just the five best days during that 30-year period forfeited almost $700,000 in gains and the numbers get more sobering for those that missed out on the best 10, 15, 20, or 25 days of the 7,920 trading days during that same 30-year period. Imagine missing out on over $1.5 million in total return because of not being in the market for the 25 best days during a 7,920-day stretch.

Ending Value of a Hypothetical Investment Bar Chart

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

There Is No Substitute for Wealth Creating from Dividends

What is even more glaring is seeing how much of the returns were credited to dividends. During that 1988-2017 period if we back out the inclusion of dividends, $100,000 grew to $1,082,000. So, dividends accounted for $825,620 of the total of $1,907,620 or a whopping 43.3% of the total return.

What most people don’t remember is that S&P dividend payments were slashed by an average of 22.6% in 2009, making it the largest decline since a 36.3% slide in 1937. During 2009, there were 21 financial firms in the S&P that slashed or suspended dividends altogether. And yet there were some standout companies that raised their dividends 10% or more that year, so stock selection is always important.

Many investors need the income from dividends so the compounding effect is minimized, but having the right dividend growth stocks that double their dividend payouts on average every seven years is like getting an annual pay raise that keeps up with the pace of household inflation. And for today’s vast majority of investors that have underfunded retirement accounts, buying those stocks that are “A” or “B” rated by Navellier’s Dividend Grader are where investible dollars should be dedicated.

It is no secret that the headwinds of a tighter Fed have weighed on performance. But the winds of change are already at work and as market volatility has started to pick up, rotation into dividend growth stocks and sectors is notable. While technology still leads all sectors YTD, energy, consumer discretion, and healthcare are pushing higher and are also where the fastest growing dividend payouts can be found.

With the 2-year Treasury Note yielding 2.61% as of last Friday’s close, some might view this yield as tempting. While the element of safety is always a nice feature, there are no fundamental signs of an impending recession. Quite the opposite is happening – an economy expanding at a 4%+ pace of growth. Careful stock selection of blue-chip companies paying 3.0%+ yields on qualified dividends that are hiking those payouts by 10% to 20% this year and next should be the center of every income investor’s attention. And don’t try to time the market. Just turn down the noise and enjoy the ride.

Growth Mail:

*All content of "Growth Mail" represents the opinion of Gary Alexander*

Why Today’s Near-Record High is Safer than Last January’s High

by Gary Alexander

The S&P 500 came within 10 points (0.3%) of its January 26 high last week. If we happen to surpass that previous high of 2872.87 this week, we’ll be on safer ground than we were during January’s manic highs. As of last Friday, 458 of the S&P 500 firms have reported second-quarter earnings and they are up 24.6% over the same quarter last year, marking the third consecutive quarter of double-digit earnings gains.

According to economist Ed Yardeni, forward earnings of the S&P 500 have risen 16.8% since the start of 2018. S&P 500 forward earnings were estimated at $147.23 at the start of 2018, but since then, they have risen to $171.93 as of the week ending August 2. Last January 26, the S&P 500 had a forward P/E of 18.6. Currently, the index trades at a forward P/E of just 16.7, due to the phenomenal rise in earnings.

At first, January was a manic up-market; then a mid-winter collapse scared us to death. After the January 26 peak, the S&P 500 fell over 10% in just nine trading days. In the middle of that free fall, Janet Yellen retired as Federal Reserve Chair-lady on Groundhog Day. Jerome Powell took over the next Monday, on February 5. He was thrown into a trial of fire and acquitted himself quite well, taking on a voice of calm and confidence in a time of panic. His firm guidance of the Fed and his ability to talk more plainly than previous Fed heads – avoiding “Fedspeak” whenever possible – have moderated the market’s volatility.

In addition to rising earnings, the GDP has come in at 4.1%, matched by consumer spending at +4.0%, exceeded by real capital spending (at +7.3%), due partly to the more favorable corporate tax rates. The last time the U.S. economy grew by more than 3% in a full year was during George W. Bush’s first term in 2005, when growth came in at +3.3%. The best annual growth during Obama’s eight years was +2.9%.

In addition, consumer confidence for July came in at a healthier-than-expected 127.4 vs. expectations of 126. You can see confidence shooting sharply above its historical average of 94.5 after the 2016 elections:

Consumer Confidence Chart

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

Yes, but what about externals risks – like wars, trade wars, impeachment, epidemics, riots, or worse?

Quantifying the Risks of Market Externalities

I was intrigued by a letter in Barron’s “Mailbag” this weekend, which states, in full:

“Trump is likely to face some charges from Robert Mueller’s investigation, and his take-no-prisoners approach to self-defense will trigger a Constitutional crisis. Anyone wanting to quantify that risk?”

– Paul Pirrotta on Barrons.com, August 13, 2018

OK, I’ll take that on, Paul. Over 150 years ago, we had our deepest Constitutional crisis in the Civil War. When it became evident the Union would prevail, the best stock market measures of the day rose 55.4% in 1862 and 38% in 1863. After the war, President Andrew Johnson faced impeachment in 1868 and was spared by one vote. The market rose 10.8% that year and it rose seven years in a row, from 1866 to 1872.

If you want to turn to a Trump vs. Mueller analogy, 20 years ago this week, August 17, 1998, President Bill Clinton delivered an earnest four-minute speech on national TV on l’affaire Lewinsky, exhibiting the strain of a day spent sparring with his special prosecutors. How did the market react? The Dow quickly rose 290 points on August 17 and 18, the day before and after the evening speech, rising to 8715, in the market’s last great fling (pardon the expression) before drooping to 7539 on August 31. However, the market’s fall was unrelated to the President. It had to do with hedge funds and the Russian Ruble crisis.

The actual Clinton impeachment drama ran from October 8, 1998, when the House voted to begin the impeachment proceedings against President Clinton, ending on February 12, 2009, when the Senate failed to reach the necessary guilty votes. During those four months, the S&P 500 rose by a stunning 28%.

Reaching back 100 years, the world was mired in a seemingly endless “Great War” (not yet called World War I). The War to End all Wars seemed like the War That Never Ends, as men in foxholes advanced and then retreated a few hundred yards amidst millions of casualties per year. In August 1918, the Battle of Amiens (later called the 100 Days Battle) began, another endless siege. Then, another threat began – the Spanish Flu – eventually killing tens of millions, far more deaths than all World War I deaths combined.

How did the stock market respond?  There was a short retreat during the biggest flu death siege in the fall of 1918, followed by a huge market rally – the Dow rose 10.5% for all of 1918 and then +30.5% in 1919.

Spanish Flu and the Dow Jones Industrial Average Chart

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

Here’s a brief summary of what happened at various historical anniversaries, and how the market reacted:

Market Reaction at Various Historical Anniversaries Table

Let me close with the worst week of the worst year in our living memory – August 21-28, 1968.

On Wednesday, August 21, after the false hope of liberalization behind the Iron Curtain (dubbed “the Prague Spring”), Soviet tanks rolled into Prague, killing 72 and injuring over 700. Then, over the next weekend, France became the fifth nuclear club member, detonating a hydrogen bomb in the Pacific. Then riots dominated the Chicago Democratic National Convention, August 26-29, as police beat protestors.

How did the market react?  It rose 1.1% in August, +3.9% in September, and +7.7% for the full year 1968.

Bad things happen. They always have. But the market tends not to react to the outside world as much as to corporate earnings. It’s as if the Zen Market Masters seem to be telling us, “This, too, shall pass.”

Global Mail:

*All content of "Global Mail" represents the opinion of Ivan Martchev*

The Turkish Lira Collapse…
And Why Divine Intervention Will Not Be Forthcoming

by Ivan Martchev

Observing the freefall in the Turkish lira from 30 minutes away on the Bulgarian side of Turkey – where I am visiting friends and family – I must say that I am not surprised. After years of rampant dollar borrowing, running large current account deficits (due to the lack of domestic oil production), as well as an autocratic President who thinks that high interest rates produce inflation and meddles in the economy in ways that are guaranteed to backfire (as they are doing at the moment), the lira is now in freefall.

Turkish Lira versus Argentinean Peso Chart

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

Such dramatic weakening is rubbing off on other emerging-market currencies with similar macroeconomic issues, like the Argentine peso, and this is spilling over into emerging markets’ stocks and bonds. For more, see my May 30 Marketwatch article, “The carnage in emerging markets stocks is just beginning,” where I identified Turkey, Argentina, and China as trouble spots.

J. P. Morgan Emerging Market Currency Index Chart

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

The JP Morgan Emerging Markets Currency Index has broken major support levels and is much lower than its January 2016 level, when the Chinese stock market re-crashed and the S&P 500 had its weakest January ever, based on worries of a hard economic landing in China. In such currency freefall situations, there needs to be decisive action by Turkey’s central bank (by hiking interest rates) and by their economics team, which in Turkey is headed by Erdogan’s son-in-law, Berat Albayrak (pictured below).

Turkey's Minister of Finance, Berat Albayrak Image

If marrying into Erdogan’s family is a qualification for a ministerial post, one has to wonder as to the level of expertise that this person possesses to deal with a currency crisis.

Russia Interest Rate versus Russian Ruble Chart

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

Furthermore, amidst the lira slide, President Erdogan called none other than Russian President Vladimir Putin to discuss the economic situation. The Russians famously stemmed a slide in the ruble in late 2015 by hiking interest rates rather aggressively. There has been a belated rate hike by the Turkish central bank in this case, but it can only be characterized as too little too late. How can a central bank chief do his job when an authoritarian president is breathing down his neck saying, “High interest rates cause inflation”?

Turkey Ten Year Government Bond Chart

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

As of Friday’s close, Turkish 10-year government bonds yield 18.85% and who knows what they will yield next week. This reeks of wholesale dumping of bonds by investors who previously chased yields. The problem with chasing 19% bond yields is that if the lira decline is not arrested, the surging inflation caused by the collapsing lira wipes out any coupon payments, even over a 10-year period. Plus, bond investors surely think that capital controls may be forthcoming, so government bonds are in a freefall.

In the middle of all this mess, which started with the Federal Reserve upping the rate of quantitative tightening in 2018, exacerbated by the recent Trump steel and aluminum tariffs, President Erdogan decided to invoke the name of God: “…they have their dollars, we have our people, our God. We are working hard. Look at what we were 16 years ago and look at us now,” he said last week in a speech.

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

Turkey Current Account to Gross Domestic Product Chart

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

Based on 20 years in the trenches in the fascinating world of finance, I can tell you that the Good Lord has very little to do with sound macroeconomic policies. There are pretty-well established procedures of what a central bank does in order to fight currency weakness and what economic policies the government runs in order to assure a balanced current account and overall sound macroeconomic foundation. There are some very serious issues on both the monetary and fiscal policy front in Turkey, exacerbated by the new Trump tariffs, that suggest to me that divine intervention will likely not be forthcoming.

Safe Havens for the Turkish Mess

In the U.S., one safe haven would be Treasury bonds. In the eurozone, it would be the German 10-year bunds or the still negative-yielding 2-year bundesschatzanweisungen, dubbed schatze notes to avoid tongue injuries. The bunds closed last week at 0.31% while the schatze notes closed at -0.61% (last year, the schatze yielded as low as -0.95%).

Germany Two Year Schatz Yield versus Germany Government Ten Year Bond Chart

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

It looks like Erdogan is digging in his heels as to the Trump administration confrontation while not being proactive as to the Turkish lira crisis. This means the whole mess is spilling into the other emerging markets – and that’s even before the major confrontation with China kicks in around September 5, after most Chinese tariff packages begin to go into effect.

United States Dollar Index Chart

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

The only response to this mess is for the dollar to keep surging, which ironically creates a negative feedback loop, making the Turkish (and other emerging markets) situation more difficult to contain. We came to within 3.5 points from 100 last week on the U.S. Dollar Index, and I would not be surprised if we cross that centennial mark on the U.S. Dollar Index rather expeditiously.

Sector Spotlight:

*All content of "Sector Spotlight" represents the opinion of Jason Bodner*

The “Dog Days of Summer” are Almost Over

by Jason Bodner

There has been a lot of cheer recently that Apple (AAPL) has become the world’s first trillion-dollar corporation. This is a major milestone and it has been anticipated for the past several years.

Apple Stock Quote Image

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

It may surprise you to find out, though, that Apple is not nearly the biggest company in human history, not by a longshot. In 1637, the Dutch East India Company was worth $7.9 trillion, adjusted for inflation.

Now that we’ve seen the $1 trillion barrier broken, it may pave the way for larger and larger companies to follow suit. The stage is certainly set for more mergers and stock buy-backs, as I wrote about in my white paper for Navellier & Associates (click to view), Honey I Shrunk the Stock Market. In short, tax reform enabled companies to bring home cash earned overseas at very low tax rates, leading to record buy-backs.

Companies are buying back their own stock at a record pace this year. In the first quarter of 2018, companies completed $178 billion of buy-backs, up more than 42% from Q1 2017, according to S&P, blowing away the previous quarterly record from the third quarter of 2007.

While it’s true that we are in a slowly rising interest rate environment, we still have historically low rates. It’s still relatively cheap for corporate borrowing in order to fund operations or even fund more buy-backs.

Fed Interest Rate Chart

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

Then we have the strength of the U.S. dollar. Foreign national currencies are eroding in value relative to the U.S. dollar on a significant scale. As tariffs heat up and the trade-war continues to drive headlines, it looks as though the U.S. dollar is winning, including this huge rise in the second quarter:

United States Dollar Index Chart

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

Finally, we have another record earnings season. With 91% of the S&P 500 having reported earnings, 79% of those companies have beaten earnings expectations, the highest on record since FactSet started tracking in 2008. We have the second-highest earnings growth since 2010, at 24.6% according to FactSet. In addition, 72% of companies are beating revenue estimates, well above the 5-year average of 58%.

So, we have low corporate tax rates, near-record low interest rates, a strong U.S. dollar, record buy-backs, record sales and earnings, and a near-record high stock market. That’s a lot of record highs. It makes me wonder why so many people worry. I think it speaks to human nature. We humans seem happiest when we have something to fret about. I think newspapers and the media figured this out a long time ago…

What If Image

Growth Companies are Routinely Beating Expectations

As trade-war talk intensifies, it would seem logical that sector leadership would favor the more defensive sectors. Several weeks ago, we saw a visible rotation towards more defensive sectors, as investors used the trade-war headline fears to take profits out of growth. It seemed, for a moment, that a large rotation was underway, and growth was going to log some bench time. But that fear quickly faded away as more evidence emerged. There is a premium being paid for growth. In talking to several Wall Street traders I know, I have heard what seems like the same discussion many times about stock stories along these lines.

A stock trades at what seems like a rich multiple. For example, let’s imagine a stock heads into earnings at a 48 price/earnings (P/E) multiple. Wall Street analysts have high expectations. The shorts pile in because even if the company meets expectations there is a good chance it will trade down because analysts were not stunned. The short interest on the stock swells to nearly 15%. The stage is set, and the market closes on earnings day. The report comes out, and the company absolutely shatters all expectations and guides higher for the ensuing quarter and year. There is only one place for the stock to go, and that’s straight up. That’s precisely what happens to The Trade Desk (TTD) as it closes up +37% on Friday.

Guess what? That premium for growth that seemed so unreasonable the day before earnings came out, now looks conservative or even silly compared to the “new” premium for the growth of that company.

We are seeing outsized moves to the upside for many growth companies beating expectations. This translates into sector leadership, now populated with growth stocks. Last week, for instance, saw a rise in Consumer Discretionary stocks, up +0.79%. Telecommunication was strong but it has a very small makeup of only a handful of stocks. We’ll leave the sector alone for the moment. Information Technology was next in line. Tech and consumers are where the growth is. And in a week that saw the S&P 500 down -0.25%, these two growth sectors were positive. This was largely attributed to strong earnings.

We have seen growth take a pause for a few weeks and it can be seen in the 3-month sector leaderboard. It was a mixed bag with Health Care, Consumer Staples, Consumer Discretionary, Utilities, Infotech, and Real Estate rounding out the top six. But looking around, with a few notable exceptions, earnings are surprising to the upside, not the downside. This is a signal for growth.

Standard and Poor's 500 Sector Indices Changes Tables

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

We can expect summer volatility, but I am bullish on U.S. stocks. I like growth, particularly U.S. domestics that have less sensitivity to currency and trade war risk. Stay focused on the data, which should tell you to be bullish too. Growth is not dead, and the market is rewarding strength, which is abundant now.

Anatole France Quote Image

A Look Ahead:

*All content in this "A Look Ahead" section of Market Mail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

Is Tesla Worth More than GM, Ford, or Even VW?

by Louis Navellier

CNBC reported last Tuesday that Saudi Arabia’s Public Investment Fund bought a 3% to 5% stake in Tesla via public markets. Reuters also confirmed that this Saudi fund bought a stake “at just below 5%” of the company. However, there is no evidence that this Saudi fund wants to help Tesla go private at a whopping cost of approximately $66 billion, plus all the corporate bond debt as well as an ongoing burn rate that would cost at least another $10+ billion. Previously, the most recent mega deal to go private was HJ Heinz in a $28 billion deal back in 2013, so the proposed Tesla deal is much bigger. The rumor that Saudi Arabia is the mythical backer behind Tesla going private may be credible, but if shareholders transfer their public shares for private shares, then they will likely be diluted further by whoever is proposing to fund Tesla’s seemingly perpetual burn rate, plus its more than $10 billion in high yielding junk bonds.

Frankly, I do not see how Tesla can survive with the onslaught of new, more efficient quality competitors coming from VW Group, Toyota, Nissan, Volvo, Jaguar, GM, and other major automakers. As of Friday’s market close, Ford and GM have market capitalizations of $38.8 billion and $51.6 billion, respectively. Toyota Motors is widely viewed as the best-managed automobile company in the world, with a market capitalization of $178 billion reflecting that reputation. Toyota is a pioneer in hybrid electric vehicles. VW Group, with a market capitalization of approximately $82.4 billion, also has an extensive line-up of Tesla killers, like the 2019 electric Audi E-Tron SUV that will premier in San Francisco on September 17th as well as the Porsche Taycan that is accepting orders. These are just two of the all-electric vehicles that VW Group is launching to “destroy Tesla” by offering quality electric vehicles at competitive prices. So, you decide if Tesla is worth $82 billion – more than Ford or GM, or about the same as VW Group?

(Please note: Louie Navellier does not currently hold a position in Tesla, Ford Toyota, Nissan, Volvo, General Motors, VW Group or Apple. Navellier & Associates does not currently own a position in Tesla, Ford Toyota, Nissan, Volvo, General Motors, VW Group or Apple for any client portfolios).

If a money-losing company like Tesla can go private in the biggest deal ever to go private, then the entire stock market could be at risk of disappearing. Stock buy-back activity this year is running at close to a $1 trillion pace and according to The New York Times, $754 billion in new stock buy-backs have been authorized this year, up 80% from the same period in 2017. In the first quarter of 2018, companies in the S&P 500 bought back a record $178 billion in stock. In the first six months of 2018, Apple alone bought back $43.5 billion in shares, a record for a six-month period. According to Bespoke Investment Group, an average of 14.7% (and median of 19%) of the outstanding shares in the Dow Industrials have disappeared in buy-backs in a little over a decade and 90% of the Dow Industrials (27 of 30) are buying back shares.

This is a good time to tell you about our new white paper, which documents how the stock market has been steadily shrinking over the past several years. Many thanks to Jason Bodner, who wrote this special report. Check it out, free, online by clicking this link: “Honey, I Shrunk the Stock Market.”

The U.S. Dollar is the Global Safe Haven in the Emerging Markets Collapse

The headlines proclaimed rising inflation, but I thought the news on the inflation front was encouraging last week. On Thursday, the Labor Department announced that its Producer Price Index (PPI) was unchanged in July, significantly below economists’ consensus estimate of a 0.2% increase. Wholesale electricity prices declined 1.6%, causing overall energy prices to decline 1.3%. Furthermore, wholesale meat prices caused food prices to decline 0.9%. Excluding food, energy, and trade margins, the core PPI rose 0.3% in July. Overall, the PPI was up, but not enough for the Fed to change its interest-rate policy.

On Friday, the Labor Department announced that its Consumer Price Index (CPI) rose 0.2% in July, in line with the economists’ consensus estimate. Excluding food and energy the core CPI rose 0.2% and 2.4% in the past 12 months. Food prices rose 0.1%, while energy costs declined 0.5%. Shelter (housing) costs rose 0.3% and now seem to be the primary catalyst behind consumer inflation. Since housing is interest-rate sensitive, any slowdown in rate hikes this year should help improve the housing market.

I suspect that the Fed will raise key interest rates 0.25% at its September 25-26 Federal Open Market Committee (FOMC) meeting, but any rate increases beyond that are very uncertain, since the Fed under no circumstances wants to invert the yield curve. I am expecting a relatively dovish FOMC statement in September, which may ignite a significant market rally; so if you have more money to invest, I recommend that you invest it just prior to the Fed’s September FOMC statement.

Strong Dollar Image

Finally, the other reason that the Fed may want to pause raising rates after its September meeting is that the U.S. dollar is getting “too strong.” On Friday, the Turkish lira collapsed after President Trump authorized doubling tariffs on steel and aluminum imports from Turkey to 20% and 50%, respectively, over the lack of progress in releasing Andrew Brunson, a U.S. pastor that is charged with supporting a group blamed for a failed coup attempt against the Erdogan regime in 2016. On Friday, Erdogan called for Turkey’s citizens to convert out of the dollar and gold and buy the Turkish lira to help in this “national struggle.”

The fact of the matter is that the Turkish lira has been collapsing for some time and is now a major threat to European banks, which effectively means that the European Central Bank (ECB) may have to continue with its quantitative easing beyond 2018. What has essentially happened is that any country that has had tariffs imposed by the U.S. has caused their respective currencies to weaken further – as Canada, China, the European Union, and now Turkey have learned the hard way. On the other hand, any country that has cooperated on trade with the U.S., like Mexico, has not had any material currency erosion.

Overall, the emerging market crisis in Southeast Asia, much of Latin America, and the Middle East (e.g., Iran & Turkey) is spreading. Amidst this crisis, the U.S. dollar is the oasis. Since commodities are priced in U.S. dollars, inflation should continue to subside in the U.S. Interest rates will remain relatively low in Japan and the European Union, so international investors looking for real returns will continue to flock to the U.S. dollar for currency appreciation as well as higher interest rates; so I strongly recommend that investors continue to trim their international investments and invest in more domestic U.S. companies without significant currency risk, so they can also continue to benefit from a strong U.S. dollar.


It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

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Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities in this list. Click here to see the preceding 12 month trade report.

Although information in these reports has been obtained from and is based upon sources that Navellier believes to be reliable, Navellier does not guarantee its accuracy and it may be incomplete or condensed. All opinions and estimates constitute Navellier's judgment as of the date the report was created and are subject to change without notice. These reports are for informational purposes only and are not intended as an offer or solicitation for the purchase or sale of a security. Any decision to purchase securities mentioned in these reports must take into account existing public information on such securities or any registered prospectus.

Past performance is no indication of future results. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. It should not be assumed that any securities recommendations made by Navellier. in the future will be profitable or equal the performance of securities made in this report.

Dividend payments are not guaranteed. The amount of a dividend payment, if any, can vary over time and issuers may reduce dividends paid on securities in the event of a recession or adverse event affecting a specific industry or issuer.

None of the stock information, data, and company information presented herein constitutes a recommendation by Navellier or a solicitation of any offer to buy or sell any securities. Any specific securities identified and described do not represent all of the securities purchased, sold, or recommended for advisory clients. The reader should not assume that investments in the securities identified and discussed were or will be profitable.

Information presented is general information that does not take into account your individual circumstances, financial situation, or needs, nor does it present a personalized recommendation to you. Individual stocks presented may not be suitable for you. Investment in securities involves significant risk and has the potential for partial or complete loss of funds invested. Investment in fixed income securities has the potential for the investment return and principal value of an investment to fluctuate so that an investor's holdings, when redeemed, may be worth less than their original cost.

One cannot invest directly in an index. Results presented include the reinvestment of all dividends and other earnings.

Past performance is no indication of future results.

FEDERAL TAX ADVICE DISCLAIMER: As required by U.S. Treasury Regulations, you are informed that, to the extent this presentation includes any federal tax advice, the presentation is not intended or written by Navellier to be used, and cannot be used, for the purpose of avoiding federal tax penalties. Navellier does not advise on any income tax requirements or issues. Use of any information presented by Navellier is for general information only and does not represent tax advice either express or implied. You are encouraged to seek professional tax advice for income tax questions and assistance.

IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier's Growth Investor, Louis Navellier's Breakthrough Stocks, Louis Navellier's Accelerated Profits, and Louis Navellier's Platinum Club, are not based on any actual securities trading, portfolio, or accounts, and the newsletters' reported performances should be considered mere "paper" or proforma performance results. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. There are material differences between Navellier & Associates' Investment Products and the InvestorPlace Media, LLC newsletter portfolios authored by Louis Navellier. The InvestorPlace Media, LLC newsletters and advertising materials authored by Louis Navellier typically contain performance claims that do not include transaction costs, advisory fees, or other fees a client may incur. As a result, newsletter performance should not be used to evaluate Navellier Investment Products. The owner of the newsletters is InvestorPlace Media, LLC and any questions concerning the newsletters, including any newsletter advertising or performance claims, should be referred to InvestorPlace Media, LLC at (800) 718-8289.

Please note that Navellier & Associates and the Navellier Private Client Group are managed completely independent of the newsletters owned and published by InvestorPlace Media, LLC and written and edited by Louis Navellier, and investment performance of the newsletters should in no way be considered indicative of potential future investment performance for any Navellier & Associates separately managed account portfolio. Potential investors should consult with their financial advisor before investing in any Navellier Investment Product.

Navellier claims compliance with Global Investment Performance Standards (GIPS). To receive a complete list and descriptions of Navellier's composites and/or a presentation that adheres to the GIPS standards, please contact Navellier or click here. It should not be assumed that any securities recommendations made by Navellier & Associates, Inc. in the future will be profitable or equal the performance of securities made in this report. Request here a list of recommendations made by Navellier & Associates, Inc. for the preceding twelve months, please contact Tim Hope at (775) 785-9416.

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