Pose and Strut

World Leaders Pose and Strut but Will Likely Cooperate in the End

by Louis Navellier

June 12, 2018

GroupOfSeven.jpg

As we go to press, President Trump is meeting North Korean Supreme Leader Kim Jong-un in Singapore. Over the weekend, there was a lot of outraged reaction by G7 leaders to President Trump’s appearance at the G7 meeting, but I expect that most countries will follow China, which offered last week to purchase nearly $70 billion of U.S. farm, manufacturing, and energy products in order to keep the trade flowing.

The truth of the matter is that the U.S. has the leverage, since it is typically the biggest buyer of exports. Countries with big trade surpluses, like China and Germany, do not want to jeopardize their lucrative trade relationships. President Trump’s tariff threats are merely tactics to negotiate more favorable trade deals. It will be interesting to see how each country responds, but I expect the U.S. to prevail in the end.

The Fed is also meeting this week. New Fed Chairman Jerome Powell was reportedly hand-picked by Treasury Secretary Mnuchin to be more “market friendly.” The Fed wants stable financial markets, since it is good for the banking industry, especially now that some major money center banks are under stress from troubled emerging markets and the flattest Treasury yield curve in over a decade. So again, I expect a relatively dovish FOMC statement that will continue to boost both the bond and stock markets.

In This Issue

In bringing the global headlines back to the world of investing, Bryan Perry favors covered calls on U.S.-based technology stocks. Gary Alexander also counsels focusing on domestic stocks, due in part to the rise in global conflicts – soon to be dramatized in the World Cup matches in Russia. Ivan Martchev sees problems in several emerging-market currencies as well as the deflating bitcoin bubble, while Jason Bodner compares sectors to sports teams (and stocks to sports stars) with Info Tech being the new sector “dynasty.” In the end, I’ll return with a look at small stock realignment and the Fed’s meeting this week.

Income Mail:
Fashioning Outsized Income in a Stingy Market
by Bryan Perry
A Double Dose of Too-Big-to-Fail (TBTF) “Flies” in the Ointment

Growth Mail:
Is the World (Cup) Half Empty or Half Full?
by Gary Alexander
Bring Those Investment Dollars Home, Pilgrim

Global Mail:
The Problem with “Undervalued” Crypto-Currencies and Emerging Markets
by Ivan Martchev
Some Currencies are Under Severe Stress in 2018

Sector Spotlight:
Finding the One in 25 Stocks That Outperforms
by Jason Bodner
The Latest Winning “Dynasty” is Information Technology

A Look Ahead:
Expect More Small Stocks to “Melt Up” from Index Realignment
by Louis Navellier
What to Expect from the Fed’s FOMC Statement Tomorrow

Income Mail:

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

Fashioning Outsized Income in a Stingy Market

by Bryan Perry

There is a constant challenge for investors to generate a reliable income stream that accomplishes the goals of beating the rate of inflation, while not risking price erosion because of rising interest rates, and sporting a yield that greatly exceeds that of investment-grade bonds, CDs, Treasuries, and money markets.

One can delve into a number of rising-rate-resistant high-yield asset classes – such as convertible bonds, energy Master Limited Partnerships, private equity stocks, floating-rate business development companies, and aircraft leasing – but nothing works better for producing a robust stream of consistent absolute total yield than a well-managed covered call strategy (or ‘buy-write’ strategy, as some call it). They both mean the same: Buying common stocks and selling call options against the stock to generate immediate income.

Since NASDAQ broke out to new all-time highs last week, it behooves those who want to put to work a proactive covered-call strategy to have exposure to a heavy weighting in the sector that matters the most, namely Information Technology, while also seeking outsized yield. While a handful of mature big-cap tech stocks pay dividends with yields ranging from 1.5% to 2.5%, most technology stocks are owned for their growth prospects, not for their income. Still, they do offer some of the very best buy-write vehicles.

At the end of the first quarter, the outlook seemed best for the Financial sector, based on the widely-held view that bond yields from the 10-, 20- and 30-year Treasuries would widen out the persistently flat yield curve. That simply hasn’t happened and, for the most part, the mega-banks and regional bank stocks have lagged. At the same time, information technology and consumer discretionary have been trending higher:

Sectors Exhibiting Relative Strength Chart

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

Investors looking to craft a dynamic covered-call portfolio should look no further than putting together a high-quality list of stocks that will get the job done. History is on the side of tech and consumer discretionary companies outperforming when interest rates begin to rise. Rising rates reflect a growing economy, with IT and consumer discretionary as two of the most leveraged sectors in a healthy economy, as evidenced by the strong sequential sales and earnings growth exhibited in the first quarter of this year.

Generating unconventional yield requires unconventional methods. When investing outside the bond market for high quality yields above 3%, this approach works. In applying a buy-write strategy, investors get their “cake” of being in the hottest sectors and “eating it too” by selling out-of-the-money call option premiums against the underlying portfolio, which can generate 6%+ extra yield per year.

One can stagger the call expirations so that monthly income becomes systematic. Buy the stocks, sell the calls, go to the beach, and pay for the vacation with passive call option income. Nice!

A Double Dose of Too-Big-to-Fail (TBTF) “Flies” in the Ointment

Even in a market landscape that is being described as “Goldilocks-like” from many well-respected market participants and fund managers, we always have to keep a keen eye open for negative developments that could escalate into a crisis that risks impacting the smooth path of the Goldilocks economy.

In the European landscape, I see (1) the Italian bond market and (2) the balance sheet of Deutsche Bank AG (DB) as two possible “flies in the ointment” of the global stock market rally.

(Please note: Bryan Perry does not currently hold a position in DB. Navellier & Associates does not currently own a position in DB for client portfolios).

Italy has managed to get through its election crisis by structuring a coalition government that will keep the country embedded in the euro currency. However, that does not change the composition of its publicly held debt, now at 160% of GDP, if Italy’s Target 2 liabilities to the European Central Bank (ECB) are factored in. This is Italy’s highest ratio of debt to GDP in 100 years. In addition, estimates of Italian banks’ non-performing loans amount to as much as 15% of their balance sheets. Italy’s bond market is the biggest in Europe and fourth largest globally. I expect a too-big-to-fail (TBTF) bailout plan to emerge at some point, since the ECB always seems willing to bail out its weakest members.

Italy's Public Held Debt Chart

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

The other fly in the ointment is the future of Deutsche Bank short sellers, who are targeting Deutsche Bank after reports that U.S. regulators added the bank to its group of troubled lenders sent the stock to a record low on May 31. Bets against DB rose to 5.1% of outstanding shares on Thursday, the highest level since May 2017, according to IHS Markit data. AQR Capital Management increased its short position against DB to over $520 million last week, and hedge fund Marshall Wace has a $150 million position.

Deutsche Bank Shorts Chart

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

S&P reduced DB’s rating by one notch to BBB+, the third-lowest investment grade, citing “significant execution risk” after several management changes and strategy updates in the past years, saying repeated leadership changes pose questions over its long-term direction, against a background of chronically low profitability. Adding to the market concerns about DB is its exposure to derivatives, a large pool of hard-to-value assets that the bank holds, currently estimated at $47 trillion – yes, that’s trillion, with a “T.”

According to newly-appointed CEO Christian Sewing, the true net exposure to the bank’s balance sheet is around $41 billion. Most of Sewing’s banking career has been with Deutsche Bank, which makes a lot of analysts cautious, to say the least. Shares of DB are trading at 0.28 times book value when healthy banks usually trade at one to two times book value. The stock has shed 44% in the past four months and closed at $11.25 Friday, with the shorts still piling on despite shares’ new all-time lows in recent sessions.

Deutsche Bank Stock Index Chart

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

Simply speaking, Deutsche Bank is too big to fail. Its tentacles are spread all over the world, with huge counter-party risk. If DB were to fail, JP Morgan would have serious problems of its own. It will take massive intervention by the German government and major central banks to infuse the level of liquidity necessary or, as some argue, nationalize the bank. The idea is not irrational. General Motors shares went to zero and wiped out shareholders in 2009, triggering a government (TBTF) takeover, and this may be where this story goes next. One thing I do know is that DB is one big whopping fly in a pool of ointment.

Growth Mail:

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

Is the World (Cup) Half Empty or Half Full?

by Gary Alexander

This is “the end of the world as we know it,” or so it seems. On Friday, as he left for the G7 meeting in Canada, President Trump said, “We have a world to run” and we should “let Russia come back in because we should have Russia at the negotiating table.” Then he walked out of the G7 meeting early Saturday to head to Singapore for negotiations with North Korea after slapping tariffs on our allies while negotiating lower trade barriers with Red China. What’s going on here? Is the world suddenly turned upside down?

And that’s just the beginning. President Trump failed to sign the G7 accord, infuriating America’s leading allies. The following photo went viral when Angela Merkel (center) posted it on her Instagram account:

G7 Meeting Impasse Image

Meanwhile, Mexico placed $3 billion in tariffs on U.S. goods, after Trump imposed tariffs on Mexico…

But alas, most of the world doesn’t care about the G7 or tariffs or North Korea. They care more about their team at the upcoming World Cup in Russia. In this Thursday’s opening match, Russia hosts a 1,000-to-1 long-shot squad from Saudi Arabia, in what looks more like an oil exporters’ summit meeting.

What’s odd about this 32-team World Cup contest is the absence of the world’s superpower, the United States, and Italy, the world’s 4th best soccer team – and today’s most troubled developed economy. Otherwise, it looks like a battle between 16 developed nations (mostly European) and 16 poor countries.

The two favored World Cup teams are from Brazil – whose stock market fell over 5% last week as part of the emerging markets meltdown – and Germany, whose economy leads the Eurozone, and whose leader, Angela Merkel, seems to be the leader of the pack trying to convince Donald Trump to reconsider tariffs.

Germany’s “Mannschaft” executes a clinical game in black-and-white garb, while Brazil’s more colorful gang (in yellow and blue) plays a more fluid “beautiful game” that emerged from their steamy favelas.

World Cup Favorites Table

Turning to the markets, Brazil is suffering, along with Italy, while the U.S. and Germany are doing better.

Biggest Market Declines Table

Every February, Transparency International ranks the 180 top nations on how corrupt their public sector (government) is perceived to be – on the theory that this perception dictates how freely individuals and businesses are willing to launch or transact business in that country. The 2017 index, released February 18, 2018, shows tiny New Zealand and Denmark once again leading the way, with the U.S. at #18.

2017 Corruption Perceptions Index Table

Like the World Cup, where 13 of the top 20 ranked World Cup soccer teams are in Europe, nine of the 12 top-ranked (least corrupt) governments are in Europe, but some major southern euro-zone nations did not make the top 40, including three “PIGS,” #42-Spain, #54-Italy, and #58-Greece (Portugal is a lofty #29).

Bring Those Investment Dollars Home, Pilgrim

It’s no wonder that economist Ed Yardeni has reverted to his “Stay Home” investment strategy instead of his alternative “Go Global” plan. With a strengthening dollar, an emerging markets crisis, and an upheaval in the international order, it’s just not the right time to try to pick winners and losers on the global stage.

As Louis Navellier has been saying, the Russell 2000 small-cap stocks are rising because of the strong dollar. That’s because small stocks are more domestically oriented and less exposed to global markets. In addition, they are profiting this time of year from index realignment, which forces several index funds, ETFs, and portfolio managers to buy the stocks which comprise the new fund index. Through last Friday, the Russell 2000 is up 7.4% year-to-date, almost double the 3.9% gain for the S&P 500 year-to-date.

The late 2017 tax cut continues to fuel phenomenal levels of corporate investment and potential growth. As of Friday, the Atlanta Fed’s GDPNow model, which weighs current GDP components, predicts a 4.6% growth rate for the U.S. GDP this quarter. On May 17, Reuters reported that corporate capital spending grew 21% year-over-year in the first quarter, on track to be the highest year-over-year growth since 2011. In reviewing this data, S&P’s Howard Silverblatt said, “These numbers are high, and I would expect higher numbers in capex this year. It takes a little bit longer for companies to plan and to execute.”

A recent survey of National Association of Manufacturing members reported that 86% were planning to increase investments due primarily to tax reform. The tax cut, as expected, has brought a lot of overseas corporate cash home. The Bureau of Economic Analysis (BEA) released the National Income and Product Accounts (NIPA) on May 30, showing that corporate “dividend receipts from the rest of the world” shot up from $349 billion during all of 2017 to $1.36 trillion in the first quarter of 2018 (shown below).

United States Income Receipts Chart

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

Another reason to stay at home with your investing is that the “synchronized global growth” scenario we described over the last year is no longer in effect. First, the emerging markets are not partaking in this growth as they once were. The stronger dollar and higher U.S. interest rates have hurt capital flows into emerging economies. And now, euro-zone growth has become more sporadic between member nations, with another hand-wringing existential crisis in Italy and potential soap operas in Spain and Greece, too.

And who knows what turmoil will emerge from Asia next. So maybe it’s time to bring some chips home.

Global Mail:

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

The Problem with “Undervalued” Crypto-Currencies and Emerging Markets

by Ivan Martchev

Voltaire famously said that “paper money eventually returns to its intrinsic value – zero.”

His words serve as an inspiration for many precious metals enthusiasts, but if Voltaire were alive today he very well might modify that statement to cryptocurrencies “eventually returning to their intrinsic value – zero.” The same could be said for the Argentine peso, the Turkish lira, and other currencies that have turned into confetti in the 21st century, which is only 18 years old.

First, let's look at bitcoin.

I don't have a problem with blockchain as a technology, which I admit is revolutionary; but I do have a problem with bitcoin, as I believe it is an electronic line of code that is unnecessary in the blockchain process. It was designed with the idea of creating a global bubble. This bubble has now popped, and it is deflating before our very eyes.

BitcoinIndex.png

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

There have been stories in the press that huge sell-offs have happened before, but the bitcoin bubble has still managed to reflate. The most notable such bitcoin sell-off and recovery came in early 2014 around the failure of the largest bitcoin exchange in the world at the time, the Mt. Gox exchange, after it was decimated by hackers. The reason why I think this bubble will be impossible to reflate is that regulators have finally figured out how big traders spoof the bid-ask spreads in order to manipulate crypto prices.

The Justice Department has jumped in with a criminal investigation and the CFTC is furious at the CME for not having put in place agreements in order to properly settle its futures contracts, as the exchanges whose prices the CME relies on for settlement values refuse to share the data! (See June 8, 2018, Marketwatch, “U.S. regulators demand trading data from bitcoin exchanges in manipulation probe.”)

Still, I am grateful that the CME launched bitcoin futures contracts, even though it is glaringly obvious that they did so prematurely, because that created a two-way market. Although I think these contracts have a very high chance of being discontinued as trading volumes decline and the bitcoin price keeps going lower, the CME futures contracts popped the bitcoin bubble even before the regulators jumped in.

As any fund manager worth his salt will tell you, no market price is real unless you can short the asset. Before the listing of bitcoin futures, we had a global mania that was a one-way street. I believe bitcoin is the first truly global mania because of the rise of the Internet. Previously, bubbles were geographically segregated, such as Tulip Bulb mania, the South Sea bubble, the 1929 Wall Street crash, and many others.

There is nothing evil about short-selling. If an asset price is overvalued, based on a thorough analysis of the situation, then an investor can short it. If a thorough analysis calls for the price to appreciate, which is typically due to rising profits and/or rising cash flows, then the investor should buy. There are numerous devils in the details of shorting and/or buying stocks, bonds, commodities, and (crypto)currencies, but if properly done, this analysis is what rational investing is all about.

At the time of this writing, bitcoin has a “market cap” of $123 billion according to coinmarketcap.com. As I have mentioned previously, I think the term “bitcoin market cap” is absurd, as there are no sales and earnings to discount into the future. A market in bubble mode is not a discount mechanism but a runaway train just marking time until it goes off the tracks.

That means $123 billion is invested on the way to zero, which is where I think bitcoin is going.

Some Currencies are Under Severe Stress in 2018

It has not been a good year for the Brazilian real, Turkish lira, Argentine peso, Mexican peso, or South African rand. On September 13, 2017, Bloomberg ran a story on how the Turkish lira was among the most undervalued among emerging market currencies based on “z-scores,” which is a model that measures standard deviations away from 10-year averages. Although the Bloomberg story was published nine months ago, all Fed QT operations were already announced at the time of its publication and the rampant emerging markets dollar borrowing had been well-known (to those who pay attention).

LookingForValue.png

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

I would like to point out to the z-score model creators that the term “undervalued emerging markets currency” has been a spectacular oxymoron under certain conditions, which I believe we have at present. The currency does not have to fail in order for the oxymoronic relationship to hold true, but it can get so badly clobbered and not come back that it is not worth catching the falling knife before the bottom is in. This is due to the negative feedback loops, where a weak currency creates higher inflation and the central bank feels obligated to hike interest rates to stop the flight of capital and there is a domino effect on the banking system where banks stop lending activities. This sequence of events, which is a little different in various financial crises, can create a bad recession in the economy whose currency is in a free fall.

TurkeyStats.png

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

Let’s use Turkey as an example, where both inflation and interbank lending rates are on a severe uptick right now, while the central bank is hiking interest rates. This type of domino effect can be arrested before it becomes irreversible – the Russians famously stopped a rout in the ruble in 2016 – but for that, a nation needs high foreign exchange reserves and a current account that is close to balancing, as well as a pro-active central bank. The Russians had all of the above, but the Turks face problems in all these categories.

TurkeyForeignExchangeReserves.png

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

Relative to the size of the Turkish economy which is nearly $900 billion in annual GDP, the value of its forex reserves is not enough to stem the slide, given the high current account deficit and the need for external financing. The negative feedback loop of rising interest rates, rising inflation, and a falling Turkish lira seems to be ongoing at this very moment.

TurkeyTenYearBond.png

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

Because I do not believe that the Federal Reserve is done with their quantitative tightening operations, I think we have the potential for a much bigger dollar spike than the one we have at present, due to the rampant emerging market dollar borrowing that we have witnessed over the past 10 years. (Dollar borrowing is equal to dollar shorting as the borrowed dollars are sold to use as the borrowers please.) When rising U.S. interest rates catalyze the repayment of those loans, they cause a dollar short squeeze.

As things stand right now, such a spike in the exchange value of the dollar would make all emerging markets’ currency issues deteriorate significantly from present levels through the end of 2018. 

Sector Spotlight:

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

Finding the One in 25 Stocks That Outperforms

by Jason Bodner

The Boys of Summer are here. And the next time you settle in to watch a major league baseball game, you’ll be prepared by knowing that the average game lasts about three hours. A “60 minute” football game runs on average three hours and 12 minutes. When it comes to playing time (with the ball in motion), however, the average baseball game involves somewhere between 10 and 18 minutes of actual play. The rest is a lot of standing around and spitting. For football, it’s not much different: the average time with the ball in motion is about 11 minutes, less than 6% of the time. That leaves three full hours for standing around and watching the airing of an average 100 commercials during a televised game.

BoysOfSummer.jpg

This means that all the action, all the highlight reels, and all the stuff that kids’ dreams are made of happens in a tiny sliver of the actual game. An average 94.2% of a football game is “a whole lotta nada.” To take it a step further, there are three football teams – offense, defense, and special teams – so the all-stars, the best players, play in a stunningly short period of time, about 2%, and most of their plays fail, so the best plays from the best players come about during a stunningly small window of opportunity.

Let me let you in on a little secret. With all the hub-bub of noise that we hear in relation to the thousands of stocks out there, we see the exact same trend in stocks as in baseball or football. A study by Professor Hendrik Bessembinder of Arizona State found that during the 90 years of market performance from 1926 through 2015, only 4% of listed stocks were responsible for the entire overall outperformance of the U.S. stock market. The other 96% collectively matched one-month Treasury bills over their lifetimes.

Only one of 25 stocks (4%) became the monster-winners that provide bragging rights for brokers. As you reach the tip of the tail, just 1% of stocks accounted for 50% of the market gains from 1926 to 2015.

BellCurve.png

To find the best, investors must focus on a tiny sliver of candidates, so how do we find those best stocks? 

The answer to this question has consumed many analysts throughout the years, myself included. Investors all stumble upon their own answers. I have as well. For me, it’s a fairly simple process with complexity added in the form of a massive amount of data. But one of the fundamental base steps in my analysis of stocks comes in looking at the sectors. How are they behaving with each other? Which sectors lead? Which sectors suck wind, and why? How does the best sector compare with the overall market?

Placing a major emphasis on the sectors is like identifying which teams are most likely to make the playoffs. Sure, there are standout players on any team, but ultimately the best players gravitate toward the teams that power forward towards the championships. One individual can have an immeasurable impact. Names like LeBron James, Michael Jordan, Babe Ruth, Wayne Gretzky, Tom Brady, and many others come to mind. When you see a standout player, a team leader, it’s someone you want to get behind.

The Latest Winning “Dynasty” is Information Technology

The same goes for stocks. So what sectors (teams) should we be paying attention to now? As I have been harping on for over a year-and-a-half, Information Technology is the clear winning sector. The growth segments within this sector are coming in Software Services, Internet Retail, and Semiconductors. These three industry groups are powering the sector and pushing much of the market forward. But we have weekly performance changes that we need to monitor should there be a big-picture change.

Let’s take a look at what’s been going on over a few recent time frames:

chart13.png

Last week was a strong one for the overall market. We saw a surge in Telecommunications Services, which is notable because it’s been one of the weaker sectors over the remaining time frames up to a year. Leadership was evident not only in Telecom but also in Consumer Discretionary, Materials, Consumer Staples, Financials, and Health Care. Energy is still facing its recent headwinds after going overbought and correcting. Utilities took a drubbing this week falling more than 3% to be the only negative sector.

Over the last three months, Energy reigned supreme (+12.5%), head-and-shoulders above all other sectors. This is why we saw such leadership in Oil & Gas Exploration companies for the last few months. Recent pressure on crude oil has hurt some of those companies while helping the refiners who profit from the spread between crude and refined product.

chart14.png

Looking back over the past six, nine, and 12 months, however, Infotech and Consumer Discretionary sit firmly atop the first two spots. Not far behind is Energy. These sectors are where we find our leaders.

chart15.png

So now that we know which sectors to focus on, how do we find the best players on the winning teams? I focus on companies with growing earnings, growing sales, reducing debt, and low leverage (credit) to refine my selection pool. I start by looking at sectors that lead, and then finding leaders within the sectors, and then weeding out the riskier names. This, unsurprisingly, leaves out about 98% of the stock market.

Sound Familiar? Some of the most popular all-star athletes only account for 2% of the playing time in any game. The same goes for stocks. “Never doubt that a small group of thoughtful, committed citizens can change the world; indeed, it's the only thing that ever has.” – Margaret Mead

Margaret Mead 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.*

Expect More Small Stocks to “Melt Up” from Index Realignment

by Louis Navellier

Some of the “melt up” in the stock market this month continues to be related to index realignment in June. The MSCI index changes were effective on June 1st,so some big Chinese ADRs are now benefitting from persistent institutional buying pressure. Additionally, MSCI will announce its next index composition on August 13th and those changes will become effective on September 3rd.

Even more exciting is the annual Russell 1000, 2000, and 3000 index realignment this month. Russell’s add-and-delete lists should be finalized after the market close on the next two Fridays, June 15th and 22nd. The first day of trading for the new Russell indices should be June 25th. Historically, this annual Russell realignment and forced index buying has propelled many small-capitalization stocks dramatically higher.

In my opinion, the “melt up” in small-capitalization stocks is far from over. In the last week of June, I expect more gains due to (1) the annual Russell realignment and (2) normal quarter-end window dressing by institutional investors. As a result, I expect that many small-to-mid capitalization stocks will soar!

What to Expect from the Fed’s FOMC Statement Tomorrow

The Fed’s upcoming Federal Open Market Committee (FOMC) statement (to be released tomorrow) will provide more insight into the Fed’s outlook for inflation, which it implied was subdued in its most recent Beige Book survey. I expect we’ll see a relatively dovish FOMC statement that will continue to boost both the bond and stock markets, especially if there are any comments that inflation pressures are expected to ebb due to a surging U.S. dollar that drives crude oil and other commodity prices lower.

Overall, the U.S. economy remains in a “Goldilocks” environment with strong GDP growth and rising employment without excessive inflation, which should earn a dovish statement from the Fed tomorrow.

One piece of good news last week was that the Commerce Department announced that the U.S. trade deficit declined by 2.1% to $46.2 billion in April from a revised $47.2 billion in March. Economists had forecasted a $48.8 billion deficit in April, so this was a pleasant surprise and the lowest level in seven months. Exports rose 0.3% to a record of $211.2 billion led by petroleum, soybean, and corn exports. Imports declined by 0.2% to $257.4 billion as the imports of cell phones, consumer electronics, and vehicles declined. If the trade deficit keeps declining, economists will revise their GDP estimates higher.

On the same day (last Wednesday), the Labor Department reported that productivity rose by 0.4% in the first quarter, down from its previous estimate of a 0.7% increase. The Labor Department also reported that in the past four quarters unit labor costs only rose 1.3%, reflecting lower inflationary pressures. Put it all together and I don’t think the Fed need be concerned with inflation in tomorrow’s FOMC statement.


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Past performance is no indication of future results.

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IMPORTANT NEWSLETTER DISCLOSURE: The performance results for investment newsletters that are authored or edited by Louis Navellier, including Louis Navellier’s Blue Chip Growth, Louis Navellier’s Emerging Growth, Louis Navellier’s Ultimate Growth, and Louis Navellier’s Family Trust, 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. 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. Navellier & Associates, Inc. does not have any relation to or affiliation with the owner of these newsletters. As noted above, there are material differences between Navellier Investment Products’ portfolios and the InvestorPlace Media, LLC, newsletter portfolios. In most cases, Navellier’s Investment Products have materially lower performance results than the InvestorPlace Media, LLC newsletter portfolios and advertising materials claim to have. The InvestorPlace Media, LLC newsletters and advertising materials typically contain performance claims that can significantly overstate the performance results compared to actual results for similar Navellier Products.

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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