Our Best Hope

As 2018 Dawns, Our Best Hope is a Replay of 2017

by Louis Navellier

January 3, 2018

*All content in this Introduction to Marketmail represents the opinion of Louis Navellier of Navellier & Associates, Inc.*

As we close the books on 2017, it was a much better year than nearly any market pundit expected. The S&P 500 rose 19.4%, while the Dow Jones Industrials broke through the 20,000 barrier in January and never looked back, rising 25.1%. NASDAQ gained 28.2%. Gold added 13.5% to top $1,300 per ounce while bitcoin soared to over $19,000 before correcting to $13,830 at year’s end. The lingering stigma of North Korea hacking into a South Korean bitcoin exchange continues to haunt the cryptocurrency mania.

Shoppers Image

The big news last week was that MasterCard reported that its credit card sales between November 1 and December 24 rose 4.9% compared to a year ago, rising at the fastest annual pace since 2011.  Furthermore, December 26 was reported to be the fourth strongest shopping day of the year as many retailers offered post-holiday discounts that re-energized shoppers. No matter how you slice it, consumer spending is very healthy, which bodes well for GDP growth. And now, since over 80% of taxpayers are expected to have less tax withholding in 2018, I expect consumer confidence to rise in the near future.

In This Issue

We look ahead to 2018 with confidence – sort of. Bryan Perry is confident about dividend growth and other selected income strategies, while Gary Alexander favors growth stocks, gold, and patience, but Ivan Martchev is concerned that we are late in the recovery and bull market cycle. Jason Bodner marvels at the ability of most S&P sectors to generate new growth – just when it looks like they have petered out – and in my closing column, I’ll cover two recent controversial events: Oil over $60 and the new Apple phones. 

Income Mail:
Seemingly Perfect Conditions for Dividend Growth Investing in 2018
by Bryan Perry
Looking Through the Crystal Ball for the Year Ahead

Growth Mail:
Two More Forecasts for 2018 – and a Look Back
by Gary Alexander
Times Were a Lot Worse in 1968 and 1918 (but stocks rose anyway)

Global Mail:
How to Define the Bitcoin Bubble
by Ivan Martchev
The Crypto Boom is a Sign of a Mature Bull Market

Sector Spotlight:
Sectors are Dead – Long Live the Sectors
by Jason Bodner
Tech is Still #1, But Other Sectors Have Recovered Smartly

A Look Ahead:
Crude Oil Climbs Above $60 at Year’s End
by Louis Navellier
Why I am Skeptical of the Negative Rumors About Apple Phones

Income Mail:

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

Seemingly Perfect Conditions for Dividend Growth Investing in 2018

by Bryan Perry

The past year proved to be a great time to be long the stock market as both a passive and active investor. While the S&P 500 gained 21.83% for the year (dividends included.

Without question, every new year brings with it a flood of fresh strategies to catalyze portfolios. Aside from the usual favorites, such as “the Dogs of the Dow,” the advent of the robo-advisors has made its presence known in a bigger way than ever. Artificial Intelligence (AI) is now a household acronym that seems almost a prerequisite to any new investment model seeking credible public value. But as we turn the calendar page to 2018, my main New Year’s investing resolution is “if it ain’t broke, don’t fix it.”

All of this year-end rapid fire of how to invest for the next year invites volatility, so it is no wonder that the month of December has seen some aggressive profit-taking in tech as fund managers perform their year-end portfolio balancing, pairing off winners with losers in order to smooth out tax efficiency. That is to be expected in any good year when the market posts big gains. And there was a rush to own stocks of companies that would benefit most from passage of tax reform after it became evident it was a done deal.

Industries Winning from Corporate Tax Cuts Chart

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

The new lower corporate tax rate of 21% will be favorable to companies with primarily domestic businesses that are paying close to the full tax rate. Of the major S&P sectors, financials pay the highest effective tax rate at 27.5%, according to a Wells Fargo analysis of historical tax rates. There was massive rotation out of technology stocks into telecom, transportation, financials, and retailers in mid-December when it became clear the tax bill would make it to President Trump’s desk for his signature.

The chart below forecasts that the overall S&P will see earnings benefit by better than 6%, according to UBS. This backdrop heading into fourth-quarter earnings season should have investors feeling confident about the prospects of not just a strong reporting season, but the likelihood of a swath of blue chip companies raising guidance, raising the amount of stock buy-backs, and raising dividend payouts.

Just as the market critics have been loudly voicing the notion of a grossly overbought market based on historical valuations, the Goldilocks Economy gets a huge shot in the arm of passing through more top line revenue to the bottom line. It’s my view that the economy will continue to operate in an optimal state by providing full employment and economic stability for the year ahead, characterized by a low unemployment rate, increasing asset prices, low interest rates, brisk GDP growth, and low inflation.

How Much Standard and Poor's 500 Sectors will Benefit from a Corporate Tax Cut Chart

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

Add to this Goldilocks porridge recipe an expected wave of mergers and acquisitions and a record year for stock buy-backs and we’re looking at the primary bull trend remaining intact for at least six months.

Looking Through the Crystal Ball for the Year Ahead

During the month of December, the most notable developments were (1) the bump in Treasury yields that set financials in motion for new highs, and (2) the sharp spike in the energy sector. The Fed raised short-term rates and laid out a dot plot plan for next year that includes three more rate hikes. This news was all that was needed to fuel a strong rally in financials, which should last well into the first half of 2018.

WTI crude oil prices surpassed $60 and the energy sector got a slingshot move off the low end of a multi-month range. We saw the major integrated oils and refiners vault to new 52-week highs. This trade caught most investors flatfooted, having moved from the energy patch months ago on the notion that coordinated production cuts would provide only temporary relief from what is perceived as a glut in global supplies.

There is still a lot of potential production that is currently idle and which could come online and force prices back down. The larger investment theme of “synchronized global economic expansion” has kept a bid under crude, betting that rising demand will soak up the threat of new supply. My current view on energy is that while the rally has been nice, the sector is overbought and due for some consolidation.

Going forward into early January, the first two weeks of the new year is always a toss-up as to where short-term sentiment will dictate the market’s direction. However, I expect strong representation from leading stocks in the technology, financial, industrial, and aerospace/defense sectors to lead the market higher as fourth-quarter earnings season approaches.

Gold prices have been rallying of late, challenging $1300 per Troy oz., with the U.S. dollar trading lower as the federal deficit is projected to be higher this year due to lower anticipated tax receipts from the new 21% corporate rate. It is hard to ascertain anything larger from this development, as the rally in gold might be in reaction to the recent volatility of Bitcoin.

Speaking of Bitcoin and the whole cryptocurrency revolution, I’m a believer in the transformational change taking place regarding blockchain technology. Protocol platforms such as Ripple are a new breed of open payment network providers that are seeing rapid adoption by credit card companies and financial organizations focused on seamless transactions. Ripple provides a frictionless experience to send money globally using the power of blockchain. Hence, Ripple and other blockchain tech companies might be the larger more investable theme within the broader crypto-asset revolution that became a huge story in 2017.

Looking overseas, it is my view that emerging markets and European markets will follow the direction of the fortunes of the U.S. market. A lower dollar, coupled with the global reflation trade, bodes very well for top- and bottom-line growth for U.S. multinational companies, and their stocks should perform well. It should be a fantastic year for dividend growth stocks against what is an ever-flatter yield curve, the spread between the 2-yr and 10-yr Treasury now at just 57 basis points.

2017 Yield Curve Chart

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

I look for 2018 to be a year of record dividend increases that will attract massive institutional and retail fund flows. While dividend growth as a strategy took a back seat to pure EPS growth in 2017, that all changed with the passing of tax reform. The risk of owning long-dated fixed income rises with an improving global economy where most sovereign interest rates of developed countries are still on the floor. It is my personal view that the very best asset class for income investors going forward is a portfolio of highly selective blue-chip dividend growth stocks that make the grade.

And – rest assured – no robo-advisor is going to figure that one out on its own.

Growth Mail:

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

Two More Forecasts for 2018 – and a Look Back

by Gary Alexander

To recap from last week, I can now put specific numbers on my first four forecasts from last week:

Forecast #1: A 12% to 16% Gain for the S&P 500 in 2018 means a peak of over 3000 in the S&P 500.
Forecast #2: No recession in 2018 or 2019 would mean the longest recovery in U.S. history.
Forecast #3: I predict that 10 ounces of gold (now $1,300 an ounce) will be worth more than one bitcoin.
Forecast #4: I predict tax revenues added to the U.S. Treasury will grow by over $150 billion in 2018.

Now, on to the more convoluted psycho-political side of the year ahead:

Forecast #5: The Democrats will take back control of Congress in 2018.  Even if everything I’ve predicted above comes true by next November, I fear that the majority of voters will ignore the good news of rising stock profits, full employment, and rising GDP growth rate and vote in the opposition candidates.

The opposition Party has taken back large shares of Congress in the last three mid-term elections (2006, 2010, and 2014). In the few scattered elections held in late 2017, the Democrats won in traditionally “red” states like Alabama and Virginia. This indicates that Democrats will likely win strongly next November.

Here’s the record from the last three mid-term elections:

  • In the 2006 mid-term election, with Bush in the White House, the Democrats gained 31 seats in the House, six in the Senate, and six state governorships – a broad repudiation of the Bush agenda.
  • In the 2010 mid-terms, with Obama in the White House, the Republicans gained 63 seats in the House, six in the Senate, and six governorships – a “restraining order” on the Obama agenda.
  • In the 2014 mid-terms, the Republicans gained 13 more seats in the House and nine in the Senate.

Forecast #6: The mainstream media will continue to prosper by focusing on bad news and ignoring good news. In specific monetary terms, the New York Times will continue to prosper – as it has since Trump’s election – because there is a great and rising demand for a negative anti-Trump, anti-prosperity slant. New York Times stock (NYT) had been mired in a long-term decline from $16.70 in early 2014, falling 36% in a strong bull market, closing at $10.72 on November 3, 2016, the day before Trump won. NYT closed at $18.50 last Friday, up 73% since Trump’s election – a godsend to the old Gray Lady!

Here’s some evidence that a focus on negative news is working for the Times, Jeff Bezos’ Washington Post, and other major media. An NBC News poll taken December 13-15 showed that a huge and growing plurality (over 2-to-1) of Americans thinks that the country is moving in the wrong direction.

Is America Moving in the Right or Wrong Direction Poll Table

After a year in which stocks rose 20%, ISIS had lost 98% of its territory, illegal immigration from Mexico was down 80%, America reached near-full employment, and a major tax bill passed, most Americans (by over 2-to-1) said we were moving in the wrong direction. This flies in the face of record-high confidence surveys for small businesses and consumers, which tells me that people think they are doing fine but that most others aren’t. The blame for this division falls on the overwhelming negative bias of news reporting.

Most Americans buy into this negative spirit. Millions believe that we are living in the most trying times in U.S. history – when a close look at almost any year before around 1990 reveals a far more difficult time. For instance, please take a look at two specific years in history – precisely 50 and 100 years ago.

Times Were a Lot Worse in 1968 and 1918 (but stocks rose anyway)

Some say Donald Trump is our worst President ever, but if you go back 150 years, Andrew Johnson was being impeached, only to be replaced by scandal-ridden U.S. Grant. A century ago, we had the grandiose (and racist) Woodrow Wilson, replaced by hard-drinking, womanizing, scandal-ridden Warren Harding). In 1968, war-mongering LBJ was replaced by Tricky Dick Nixon. We survived all those sub-par leaders.

Many of you remember the heartaches of 1968. I was married that January and observed 1968 closely as a newly-minted financial journalist. Let me just run through a few 1968 lowlights, and how it all ended:

Events from 1968:
January 23: The USS Pueblo and its 83-man crew were seized and imprisoned by North Korea
January 30: North Vietnam launched the Tet offensive deep into South Vietnam
March 31: President Johnson said that he would not run for re-election
April 4: Martin Luther King was murdered in Memphis
May: Radical students took over Columbia University, and the Sorbonne in Paris
June 6: Robert Kennedy was killed in Los Angeles
August 21: Soviet tanks rolled into Prague, Czechoslovakia, crushing dissidents
August 29: Police beat demonstrators at the Democratic national convention in Chicago
October 27: Black militants raised clenched fists at the Mexico City Olympics
November 5: Richard Nixon narrowly defeated Hubert Humphrey for President
By year’s end, 16,899 U.S. soldiers had died in Vietnam, the most of any year by far.

How did the stock market react?  The S&P 500 rose 7.7% in 1968. Perhaps that’s because 1968 was also the year that Boeing introduced the 747 Jumbo Jet and Apollo 8 was the first manned spacecraft to orbit the moon. My father, a project manager at Boeing, was closely involved with both events, and my current neighbor, Astronaut Bill Anders, snapped the iconic “Earthrise” photo from the moon on Christmas eve.  Last summer, Anders, I, and others sponsored the world premiere of a musical tribute to that photo:

Earth Rise and Musical Tribute Image

Also in 1968, Intel was founded by Gordon Moore and Robert Noyce, giving birth to Moore’s Law:

Moore's Law Image

On Monday, December 9, 1968, the day my daughter was born, the “mother of all demos” took place at Stanford – the first use of a computer mouse, teleconference, word processing, and linked hypermedia– early whiffs of the Internet! None of this made news, but these events planted seeds of future prosperity. (Please note: Gary Alexander does not currently hold a position in BA but does own INTC. Navellier & Associates does currently own a position in both BA and INTC for client portfolios).

Now, let’s go back 100 years, when times were a whole lot worse…and the market rose by even more:

In 1918, the U.S. lost over 100,000 soldiers in World War I, but after the war came a global influenza epidemic which cost far more lives than the war. About 550,000 Americans died of the flu epidemic as one-fourth of all Americans caught the bug, causing panic throughout the world during 1918 and 1919.

What did the market do in those two years?  In 1918, according to the Almanac Investor, the Dow Jones Industrials rose 10.5%; then they rose an astonishing 30.5% in 1919 – years of war and flu deaths – but the stock market looks beyond the challenges of the moment to the seeds of future growth and recovery. 

Global Mail:

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

How to Define the Bitcoin Bubble

by Ivan Martchev

When I sat down to write my first 2018 column, I looked at one of my favorite sites, tradingeconomics.com. The opening page lists a summary table, which shows the daily moves in global stocks, bonds, currencies, and commodities. More often than not, there is plenty of fodder for my column, just from that table.

The format of the summary table had not charged for more than a year until a couple of months ago, when a new line appeared in the currency section. What was it? You guessed it: Bitcoin! And given the wild daily swings that we have seen in this electronic tulip bulb market in the past couple of weeks, it makes it hard not to “mouse over” that table item and gaze at the volatility on a tick-per-tick basis. If you zoom in on a 1-minute or 5-minute chart, you can see the trades coming in with $50 or higher bid/ask spreads.

Bitcoin Index in United States Dollars Chart

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

While I have written about bitcoin being a bubble in the past couple of weeks, I have not clearly defined what a bubble actually is. The key is a rapid surge in market capitalization – the number of shares times the share price. The value of a company (market capitalization) is the discounted future sales and earnings for as far as the majority of all investors, or simply put the market, can see into the future. In that regard, the term “market capitalization,” when it comes to bitcoin or any other electronic tulip bulb, is absurd.

There will never be any future sales and earnings produced by this line of code. Bitcoin is a case of rising numbers of investors being crammed into a limited number (21 million max) of bitcoins. As long as more money is flowing in than is flowing out, the price will rise. Then, when the tipping point comes – and it may have already come two weeks ago – the price will start cascading lower, as it is doing at the moment.

A good example of a company’s stock that was in a bubble that burst, but came back because the business turned out to be very successful, is Amazon in 2000-02. Amazon’s stock in 2000 peaked at $113 a share with very little sales and earnings to justify the market capitalization of the company. Then, when the Nasdaq bubble burst, shares fell over 95%, all the way to $5.51 in late 2001.

Amazon Stock Index Chart

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

Amazon is a classic example of a company whose shares got grossly overvalued for the amount of sales it generated (it did not have any earnings until recently), which is why the stock crashed. Then, as Jeff Bezos, its brilliant CEO, built out the company and grew those sales and, ultimately, earnings, the stock came back and then some. Amazon is forecasted to finish 2017 with $135.77 billion in sales, while 2018 sales estimates are up over 30%, at $177.19 billion. The same reasoning for why a spectacular share price rise is not a bubble goes for Apple, which is expected to end fiscal year 2018 with $229 billion in sales.

Do you know how much sales and earnings bitcoin will have this year, or ever? Zero. (Please note: Ivan Martchev does not currently hold a position in Apple or Amazon. Navellier & Associates does currently own a position in Apple or Amazon for client portfolios).

The Crypto Boom is a Sign of a Mature Bull Market

Comments on the crypto boom are making it to mainstream Wall Street. Months ago, Jamie Dimon, CEO of J.P. MorganChase dismissed bitcoin as a fraud, a sentiment that I share. More recently, Jan Hatzius of Goldman Sachs commented on bitcoin in his latest 2018 outlook:

“While we have not seen the type of large credit expansions that would be most worrisome for Fed officials concerned about financial imbalances, there are now some signs of speculative behavior in financial markets, e.g. the cryptocurrency boom.”

All I can add here is that this is completely normal in a mature stock bull market and a mature economic cycle. In the latter stages of a mature bull market, bubbles tend to happen. In the economic and stock market cycle that ended in 2000, it was the dot com bubble. In the next economic and stock market cycle, it was a real estate and mortgage finance bubble. This time we have a bitcoin bubble!

As to Mr. Hatzius’ expectation that the Treasury yield curve won’t invert despite him expecting four Fed rate hikes, we will have to wait and see for the next 12 months. As the following chart shows, the difference between the 2-year Treasury yield and the 10-year hit 51 basis points in December 2017.

Ten Year Treasury Yield Curve Chart

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

The 2/10-spread has shrunk by more than 80 basis points in 2017. With four Fed rate hikes (most likely totaling 100 basis points), one could expect the 2-year Treasury note yield to go up by that much or more. That means the Treasury yield curve may actually invert if the 10-year Treasury stays below 3%.

And that would be consistent with a mature economic cycle.

Sector Spotlight:

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

Sectors are Dead – Long Live the Sectors

by Jason Bodner

We all get into the New Year’s spirit, sing “Auld-Lang Syne,” and toast out the old and in the new. The truth, as we all intuitively know, is that the hangover just isn’t worth it; January 1 is just another day.

Golden Retriever Image

I have actually found at least 11 different cultural New Year’s around the globe that don’t coincide with our traditional January 1 date. The planet spins around each day and we get slung around the sun every 365.242 days, which is why we add extra day every four years to compensate the odd fraction.

At the same time, our solar-system orbits at 515,000 mph around the center of the Milky Way galaxy every 230 million years, and the galaxy itself is coasting through space at 1.3 million mph!

The Universe Image

*The small text in this photograph reads: “YOU ARE HERE. ANY DOT OR MARK THAT YOU SEE IS AN ENTIRE GALAXY. THERE ARE 200,000,000 GALAXIES IN THE UNIVERSE, EVERY GALAXY CONTAINING BILLIONS OF STARS POSSIBLY HAVING SOME PLANETS IN ORBIT.” But this caption is already outdated: NASA’s latest estimates are that the Universe contains more than one trillion galaxies, each with hundreds of billions of stars, with every star likely containing one or more planets.

Although New Year’s Day is just another day, it points to our human desire for order, predictability, and comfort in cyclical occurrences. What is so interesting about human behavior is that we observe cycles all the time, even when we blurt out dogmatic statements like “home computers will never be a thing,” or “Trump will never be president” or “Parachute pants are here to stay” (among other famous past gaffes).

Cycles occur, and are often accompanied with bold predictions of continuation or end. There is no better place to witness this than in financial markets; all we have to do is look at the sector behaviors over time.

To start, let’s look at 2017: The official numbers are in, and all the cheer felt in the market is certainly deserved. People have been calling for the end of the tech rally for a long time. The talk of the “tech-wreck” is fresh on many lips but just looking at a +36.9% performance last year makes tech the “by a mile” winner. It should be clear that their leadership may not be over. There is still growth in the sector in terms of revenues and earnings, and looking at the sectors’ 1-year charts (below) shows me more of a potential pause as opposed to those who are quick to say, “Tech is dead.”  But I say, “Long Live Techs.”

Tech is Still #1, But Other Sectors Have Recovered Smartly

Who would have thought that Materials companies would rise to the #2 spot? If we look back to 2014-2015, not many would have guessed that. The performance went from a range-bound 2014 to a mostly abysmal 2015. Materials were dead. Here we are in 2017 with a powerhouse +21.4% performance that would be the envy of any other sector in any other year! “Materials are dead! Long live Materials!”

This is not to say there haven’t been stellar cyclical rotations of capital, especially recently. The fourth quarter has been particularly kind to Consumer Discretionary, Financials, Industrials, Consumer Staples, and even Telecom. In fact, Consumer Discretionary owes no small part of its +21.2% 2017 performance to Q4. But this brings me back to my point: Remember when retail was “dead”? Amazon was taking over the world and putting everyone out of business. Some of the most heavily shorted stocks out there were retail names. All that had to happen was for them to report earnings and say, “We’re not THAT dead!” Well they did that, and even better, and here we are paying attention to the sector once again.

It’s the same story once again for this sector-within-a-sector: “Retail is dead. Long live Retail!” (Please note: Jason Bodner does not currently hold a position in Amazon. Navellier & Associates does currently own a position in Amazon for client portfolios).

Financials were “DOA” after 2008, leaving many wondering which ones would still be in business. After some healthy recoveries and a year’s worth of perceived favorable conditions by a new administration, we saw a superb-in-any-other-year rally of +20%. Again, looking at the 1-year chart below, we see Q4 (especially December) propelling the index into year-end. “Financials are dead. Long live Financials!”

I was on a plane in late summer of 2015. Hillary Clinton had come out with some decidedly anti- Healthcare comments, and I watched the bloodbath of the sector unfold on my seat’s screen at 30,000 feet. The sector proceeded to plummet roughly 16% from peak (7/10/15) to trough (2/5/16). Healthcare was done. Big, bad Washington was going to come after them and the party was over. What do we have in 2017? A 20% rally tied for third place performance. “Healthcare is dead. Long live Healthcare!”

Let’s rewind to 2014 and the collapse of the seemingly “do-no-wrong” Energy sector of the time. The bottom fell out of prices on the physical commodity, exposing the extent of hugely leveraged companies whose margins evaporated. Many, including myself, watched in awe of how fast yet protracted the destruction was. Many talked of failures, bankruptcies, and the possibility of bailouts. Nothing was safe and the value hunters got steamrolled, month after month. Energy was dead. It was dead again this year, with bearishness reaching extremes in August when the sector was down just over 18% year to date. Well the sector rallied + 17.34% according to FactSet, to finish the year down only -3.8%. “Energy is dead-long live energy!” And to round out the other sectors, “Industrials, Staples, Utilities, Real Estate, and Telecom are all dead. Long live Industrials, Staples, Utilities, Real Estate, and Telecom!”

Standard and Poor's 500 Weekly, Quarterly, and Yearly Sector Indices Changes Tables

Here are the one-year charts for all 11 S&P 500 sectors:

All Standard and Poor's 500 Sector Indices Charts

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

“The king is dead, long live the king!” was first said by the Duc d'Uzès upon the death of Charles VI in 1422 to declare the ascension of Charles VII. In all, 2017 was a stellar year for most sectors and 2018 holds much promise. I issued my overall 2018 prediction two weeks ago, but the truth is that I am not as confident in any specific predictions as I am in this general one: A sector will die, and then it will live.

The King is Dead, Long Live the King 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.*

Crude Oil Climbs Above $60 at Year’s End

by Louis Navellier

It is now bitterly cold for much of the U.S., so energy prices are rising.  Natural gas prices have fallen for most of 2017 but are rising in anticipation of strong demand for heating homes while the cold persists for much of the U.S.  Crude oil prices are less sensitive to heating oil demand, but they continue to rise due to robust global GDP growth, the North Sea pipeline problem, a Libyan pipeline explosion, and tightening inventories.  As a result, crude oil prices have risen steadily for the last six months and closed the year at $60 per barrel, a 30-month high.  It is very odd for crude oil prices to rise during the winter months when demand typically declines for seasonal reasons, so it will be very interesting if crude oil prices will rise significantly during the spring when worldwide demand picks up.  Much of the recent inflation has been energy-related, so we have to keep an eye on inflation brewing, since that could drive bond yields higher.

Speaking of bonds, the Treasury yield curve is getting flatter, since the 10-year Treasury bond yields have fallen for the past few days after hitting 2.501% on December 20.  The spread between the 2-year and 10-year Treasury securities closed at 0.506% on Wednesday, which is close to a decade low.  Trust me, the Fed will not raise short-term interest rates too far, since it does not want to “invert” the yield curve, which destroys a bank’s operating margins.  This flattening yield curve also means that investors are not concerned about a rising federal budget deficit in the wake of the recent corporate tax reform bill, since it appears that it will likely stimulate economic growth, especially in the wake of several major companies declaring that they would pay their workers more in the wake of significantly lower corporate tax rates.

One other very important trend is developing: The “velocity” of money – how fast money changes hands – is now picking up.  In theory, tax rates should be set at where the velocity of money is maximized, so economic growth and tax revenues are maximized.  Ironically, no one knows exactly what the optimal tax rate is to maximize the velocity of money, but based on recent consumer spending patterns and lower Treasury bond yields, it appears that the recent tax reform is stimulating faster economic growth.

Why I am Skeptical of the Negative Rumors About Apple Phones

Last week, the rumors that the iPhone X was not selling well hurt Apple, but I wonder: If the iPhone X is not selling well, why is there still a waiting list?  In fact, I got an e-mail blast from Apple reminding me that I can get on a waiting list if I want an iPhone X.  I suspect that some of the latest iPhone X rumors emanated from China and are not credible.  Based on analyst consensus estimates, there have been no earnings estimate cuts for Apple or its major suppliers, so in my opinion, the iPhone X rumors are not credible.  If Apple changes it sales estimates for the iPhone X or if the analyst community starts to cut its estimates, then I might change my mind, but right now the source of the iPhone X rumors are suspect.

One other reason that I am skeptical of the iPhone X rumors is that the U.S. trade deficit continues to rise, which typically happens when a popular new iPhone is launched, since the iPhones are made in China.

On Thursday, the Commerce Department announced that the U.S. trade deficit rose 2.3% in November to $69.7 billion as exports rose 3% and imports rose 2.7%.  A 0.7% rise in advanced wholesale inventories heading into the holiday shopping season was partially responsible for the surge in the trade deficit.  Since a wider trade deficit reduces GDP growth, some economists may trim their fourth-quarter GDP estimates, but in the wake of record holiday spending in December, it appears that GDP growth still remains robust.


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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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