The Market Shrugs

The Market Shrugs Off the Government Shutdown Circus

by Louis Navellier

January 23, 2018

Senate Rotunda Image

The Dow and S&P 500 are both up over 5% so far in 2018, so the stock market has done a relatively good job of ignoring the ongoing reality TV show in Washington DC; but now that the government has shut down for the first time since 2013, it may get a bit harder to ignore the DC circus.

In fact, some cynics were secretly hoping that the government would shut down for a week or two, since the S&P 500 rose 3.1% during the 17-day government shutdown in 2013, but the Senate voted by a comfortable 81-18 margin on Monday to end the government shutdown after just two days.

In the meantime, the most important indicator to watch is the 10-year Treasury bond, which peaked at 2.66% on Friday, the highest level in almost four years. This could give the Fed room to raise rates without flattening the yield curve too much, but it also makes financing the federal debt more expensive.

With earnings expected to be the strongest in six years and analyst earnings revisions the strongest in a decade, I expect wave after wave of earnings surprises to continue to lift this market, but the news might get even better when first-quarter earnings announcements come out in April and May and we begin to hear positive company earnings guidance based on the expected benefits of the recent corporate tax cuts.

In This Issue

All our authors believe the market is overdue for a pause of some sort. Stocks can’t soar this far, this fast, without a breather. Bryan Perry, like me, sees a continued surge through the spring, with the correction likely coming in the summer months. Gary Alexander agrees that a correction is coming and sees gold as a hedge and a portfolio balancer. Ivan Martchev looks toward the bond market for the clearest clue as to when the stock market might correct. Jason Bodner is looking at four or five S&P sector candidates for the potential leader of 2018, and then I will take a closer look at the new tax law and Bitcoin vs. gold.

Income Mail:
Yield Curve Turns Up Ahead of the Next Fed Meeting
by Bryan Perry
Will a Spring Surge be Followed by a Summer Swoon?

Growth Mail:
Market Milestones are Falling – Maybe Too Fast
by Gary Alexander
Gold Shines in Mid-Winter – Especially in Recent Years

Global Mail:
When Stocks Go Parabolic…
by Ivan Martchev
Commodities Don't Seem to Confirm the Move in Stocks

Sector Spotlight:
Can the Market Defy Gravity Forever?
by Jason Bodner
Look for Profit-Taking, Not a Major Correction

A Look Ahead:
Lower Tax Rates Fuel More Corporate Expansion
by Louis Navellier
Which is Better – Bitcoin or Gold?

Income Mail:

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

Yield Curve Turns Up Ahead of the Next Fed Meeting

by Bryan Perry

The stock market continues to feed on improving economic data, tax reform, and a gradualist Fed policy that doesn’t receive a lot of press at present. The Federal Open Market Committee (FOMC) raised the fed funds rate a quarter point to 1.5% on December 13, 2017. It had previously raised it to 1.25% on June 14, 2017. That's just two months after it raised it to 1.0% in March. In other words, the Fed forecasted three rate hikes in early 2017 and it was eventually able to stick to that dot plot plan schedule.

The yield on the 10-year T-Note closed at 2.64% last Friday, the highest level in nearly four years. For the upcoming January 30-31 FOMC meeting, there is currently a 96.9% probability that they will stand pat on rates after just hiking in December, but I would think that if the 10-year T-Note yield spikes up sharply towards 3.0% by the time the Fed meets next week, we will see a more hawkish policy statement emerge, setting the table for a rate hike in March.

Over the last few weeks, much of the concern has been focused on the threat of an inverted yield curve, and deservedly so, as that situation has barely improved. The 10/2-year spread is currently sitting at 0.57%, a level not seen since February 2008. However, if this past week’s move up for the 10-year is any indication, these fears of an inverted yield curve could be dampened materially. In fact, the Fed may use the current pop in yields as a basis for more hawkish rhetoric simply to goose the spread further off the multi-year low and apply a little braking action to what they might see as an overheated stock market.

Yield Curve Chart

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

The rotation to a new management team at the FOMC comes at an interesting time. The U.S. economy, and the global economy for that matter, is picking up steam. Meanwhile, major stock indices are at record highs and asset valuations have been stretched on the persistence of low interest rates; so the question entering 2018 isn't whether the FOMC will raise the fed funds rate, but rather how many times.

The Federal Reserve's latest interest rate projections point to the potential for at least three rate hikes in 2018. The fed funds futures market, however, is only pricing in the probability of two rate hikes in 2018. That's an important divergence, but unlike past years, there is a healthy respect for the possibility that the Federal Reserve, and not the market, will be right with its rate-hike projections. The latter consideration stems in part from the fact that the Federal Reserve raised the fed funds rate three times in 2017, as it thought it might, and yet the economy and stock market strengthened right along with those rate hikes. Additionally, the passage of the tax bill is regarded by many as an expedient for stronger growth in 2018.

The incoming FOMC officials appear to be aligned with the gradual approach to raising the target range for the fed funds rate but, importantly, no one at this juncture is trying to sell the thought that the U.S. doesn't need another rate hike. Also, there is no clear-cut “dove” on the 2018 FOMC, as there was on the 2017 FOMC with Minneapolis Fed President Neel Kashkari, who voted against all three rate hikes. Now, there seems to be a broad collection of centrists, which is fitting given the disparate economic dynamic of accelerating growth and low inflation as we enter 2018. A centrist, by definition, doesn't have polarizing convictions. The 2018 FOMC, then, could do more (or less) than expected on the rate-hike front.

The stock market has greatly appreciated an FOMC that has been slow and deliberate with its rate hikes. With this in mind, there is an inherent risk to the stock market if the 2018 FOMC ends up being more aggressive with its interest rate policy than is currently expected by the Federal Reserve itself.

Will a Spring Surge be Followed by a Summer Swoon?

Looking ahead to the March 21 FOMC meeting, the probability of another rate hike has increased in the latest week from 66.5% to 71.8%, and I expect that this number will increase sharply by mid-February as the current earnings season unfolds, since it is my view – and that of many others – that Q4 2017 earnings will range between “robust” and something along the lines of “gangbusters.”

Rate Hike Probability Table

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

Heading into the fourth quarter, U.S. business investment topped $500 billion (see chart, below) and that number is only going to expand with the passage of a tax reform law that lowered the average corporation’s tax rate estimates by 5% to 7% on a net basis. It’s my view that solidly bullish forward guidance will accompany earnings as the brunt of earnings reports cross the tape, sowing the seeds for a March rate hike. And while there is little expectation of a rate hike in May, there is already a 54% forecast for another hike in June, as a 2.0% fed funds rate would coincide with a 3.0% rate of GDP growth.

United States Domestic Business Investment Chart

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

The stock market is enjoying the best of times against Goldilocks-like credit market conditions. Even though rates are rising now, seeing where the fed funds rate was in years past and where it is today offers a stark picture (below). We have a long way to go before we reach normalization, much less “high” rates.

Fed Funds Rate Bar Chart

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

To this point, the case for a classic “sell in May and go away” scenario could well be shaping up, at least for the long-awaited “correction” that refreshes the bull market’s longevity. Think about it: First-quarter earnings reporting season from mid-April through early May will be “in the bag,” the probability of a Fed rate hike will likely be in the high 90s percentile by then, heightened chatter of the ECB curtailing QE will be in focus, the seasonality of listless summer trading will be just around the corner, and the toxicity of the mid-term election campaign trail will be like a firehose of venom. Sounds like a good time to cash in some gains, head to the beach for fun and games, and let the summer months play themselves out.

Growth Mail:

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

Market Milestones are Falling – Maybe Too Fast

by Gary Alexander

It was a year ago this week (January 25, 2017) that the Dow Jones Industrial Average first closed above 20,000. That big round number had proved to be a ceiling for several weeks. At the start of 2017, however, Louis Navellier began this letter by saying that 20,000 could prove to be a “launching pad”:

“While 20,000 on the Dow Industrials continues to be a temporary ceiling, I expect that the upcoming fourth-quarter announcement season could turn that temporary ceiling into a new floor. In fact, ‘Dow 20,000’ could become a ‘launching pad’ if fourth-quarter sales and earnings beat analyst estimates.”

--Louis Navellier in MarketMail, January 2, 2017, when the Dow stood at 19,881

The Dow took a while to get warmed up, but in 2018 we crossed two major barriers in the first 17 days:

Dow Barriers Table

Similarly, the S&P 500’s first close above 2600 was November 24, then 2700 came on January 3, but it took only nine trading days to reach the next mark, 2800. Whoa, Nellie! Maybe it’s time for a breather!

Big new barriers usually take some time to digest. Back in February 1966, the Dow flirted with 1,000 intra-day then it fell sharply to 744 in October. The Dow finally closed above 1,000 in late 1972, only to fall to 577 in 1974. The Dow did not stay above 1,000 permanently until late 1982 – 16 years after it first touched the four-digit mark. Something similar happened at 10,000 Dow – a barrier first touched in 1999, but then the Dow fell to terrible lows of 7286 in 2002 and 6547 in 2009 before finally recovering, so it was a full decade between the first close above 1,000 (or 10,000) and the last close below 1,000 (or 10k).

However, moving from 19,999 to 20,000 does not add a digit, so a more appropriate comparison may be the 1986-87 bull surge, when the Dow shot up from 1,810 to 2,720 in rapid order, only to endure a 35% crash (22% in one day). The Dow began rising rapidly in late 1986 based on a historically important new tax cut bill (sound familiar?) The Dow shot up by an unsustainable 50% in nine months, closing at 2722 on August 25, 1987. Although the Dow actually rose 2% for the full year of 1987, the 1987 crash still defines that market year and is remembered with great pain by those who lived through “Black Monday.”

While all things are possible, every market is different, and it’s important to remember that the 1987 crash really was just a big burp in the biggest bull market of our lifetimes – a 17-year, 15-fold surge in the Dow.

Are we finally overdue for a more normal (7% to 10%) correction after such a sharp rise? (Answer: Yup!) Readers of this column know how perma-bullish I am, but I am concerned that the Investor Intelligence Bull/Bear ratio just soared from 4.07 to 4.77 in the first full week of January – to the highest reading since March 1987. Ed Yardeni reported last Tuesday that the latest reading showed that 64.4% of investment advisers were bullish while only 13.5% were bearish. The remaining 22.1% were in the correction camp.

Bulls and Bears Percentages Charts

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

The American Association of Individual Investors (AAII) poll is also near historic bullish highs. This reflects an “overbought” market condition. If this many investors are bullish, then they are probably fully invested, so any new buying power tends to dry up. On the plus side, if fourth-quarter earnings continue to deliver positive surprises, we can postpone a deep correction, but we’re certainly overdue for a normal (7%-10%) correction, which at these levels means a drop of 2,000 or more Dow points. Don’t get me wrong. I don’t sell stocks in normal corrections. I just batten down the hatches and ride out the storm.

Here’s one way to hedge your bets for the months ahead.

Gold Shines in Mid-Winter – Especially in Recent Years

On January 24, 1848, James Marshall found gold on John Sutter’s mill at the junction of the American and Sacramento rivers in California. Gold fever soon swept the nation, fueling mass migration, inflation, and California statehood. Alas, Sutter and Marshall couldn’t defend their claims. Both died in poverty.

On January 21, 1974, gold hit a record $161 and silver hit a record $4 an ounce in London, but it was still illegal for Americans to own gold. The first New Orleans gold conference was also held that weekend.

On January 21, 1980, gold hit $850 an ounce, an all-time high in real (after-inflation) terms and a level it would not exceed for the next 28 years, but this was an unsustainable one-day spike in a “bubble” market.

Gold has been performing marvelously in mid-winter in recent years. Normally, September to December has been the “golden season” for gold, due to seasonal fabrication demand for jewelry gifts in preparation for various fall and winter holidays in global cultures, but winter has been gold’s best season since 2014.

The first winter surge took place in early 2014 in conjunction with the Winter Olympics in Sochi, near Crimea, followed by Putin’s takeover of Crimea and his invasion of eastern Ukraine. Then, during the last three years, gold started to rise soon after the Federal Reserve’s announcement of a 0.25% interest rate increase. The mainstream press keeps repeating that gold should fall if interest rates rise, since gold “offers no interest income,” but it turns out that gold has rallied after most of the recent rate increases:

Gold Prices Table

We don’t know how far gold will rise this winter, but it is already up $90 since December 12. Also, gold tends to rise when stocks fall, so it might be a good portfolio balancer in the months ahead. And then there’s this wild card: Like 2014 in Sochi, here comes a Winter Olympics in a political hot spot: Korea!

Global Mail:

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

When Stocks Go Parabolic…

by Ivan Martchev

I often get the following question from clients: “When is this bubble going to burst?”

To which I often reply: “Which particular bubble are you referring to?”

As far as the stock market is concerned, I do not believe that we are in a bubble. Typically, when we are late in an economic and stock market cycle – as we are now -- stocks can get pricey. According to the latest FactSet estimates, the forward 12-month P/E ratio for the S&P 500 is 18.4. This P/E ratio is above the 5-year average (15.9) and 10-year average (14.2). But since December 31, the expected earnings growth rate for the S&P 500 for 2018 has increased dramatically, from 12.3% to 18.6%.

Standard and Poor's 500 Forward Price to Earnings Ratio Chart

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

The latest move in stock prices is being driven by massive upside earnings revisions, the biggest driver of which is the large tax cut enacted at the end of 2017, as well as a robust global economy. If earnings are rising sharply higher, that typically tends to push stock prices. That said, it is a little silly for the chart of the S&P 500 to “curve almost backwards” in parabolic fashion with valuation multiples being stretched.

United States Federal Corporate Tax Rate Chart

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

I do not believe it is normal for us to be going up in this fashion with very little correction as such moves tend to build selling pressure when the correction comes. Simply put, whenever the correction comes it is likely to be bigger than it otherwise would have been if we had had more normal pullbacks along the way.

What could trigger a correction in stocks?

One word: bonds.

United States Ten Year Government Bond Versus United States Fed Funds Rate Chart

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

We closed at 2.6390% on the 10-year Treasury yield on Friday, which is about one basis point above the highest level seen in the 10-year after the November 2016 election. Somewhere between these levels and 3%, stock market investors may very well start to panic as the Federal Reserve intensifies its quantitative tightening (QT) operations, i.e., as they start to increase the pace of bonds allowed to run off its balance sheet from the present $10 billion rate. Combine that with up to four fed funds rate hikes expected in 2018 and the seeds have been sown for some bond market panic spilling into the stock market.

United States Central Bank Balance Sheet Chart

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

When the Fed wound up its balance sheet, the central banks in effect took a short volatility position as it dominated the Treasury market, in effect suppressing yields. When the Fed is unwinding its balance sheet, as it is doing now, it reverses that bond market volatility short position. I am pretty sure that as bond market volatility rises, stock market volatility will rise, too.

We will have a new Fed Chairman coming on board in early February and the financial markets have been known to test new Fed chairmen. Given how long we have been going up without a meaningful correction in stocks, I would not be surprised to see such a test in the next 2-4 weeks, particularly given the fact that the month of February has definite negative seasonality when looking at a 50-year average.

Commodities Don't Seem to Confirm the Move in Stocks

With the dollar weak in a rising interest rate environment – which is rather strange and probably won't last too much longer – the commodity markets have rebounded. While a weak dollar tends to translate into stronger commodity prices (in dollar terms) and vice versa, the dollar is not the main driver of commodity prices. The main drivers are, you guessed it, supply and demand.

Commodities Research Bureau Index Chart

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

The main commodity index, the CRB, does not seem to be as excited about the economy as the stock market is. The CRB is consolidating, with major resistance near the 200 level. It remains to be seen if it will “break out,” as traders like to say. I do believe that the U.S. dollar will have a significant rebound in 2018 in a rising interest rate environment, so I don't think there will be big rally in commodities.

Of course, the Chinese economy has become a bigger driver of commodity prices than the U.S. economy, so it very well may be that China is keeping a lid on commodity prices. I think the Chinese economy has very serious problems in the form of a credit bubble, which ultimately will result in a hard economic landing. A major Chinese recession may come this year or next year – we cannot be sure, as there is a big crackdown on unregulated lending on the mainland at the moment – but when it comes you will see it in the CRB index as China is the #1 or #2 consumer of most major commodities. Suffice to say those January 2016 lows in the CRB index may not hold in the case of a Chinese hard economic landing.

In the meantime, enjoy the parabolic move in the U.S. stock market with the caveat that we are likely to have a positive year for stocks that is likely to be much more volatile than 2017, courtesy of the Federal Reserve unwinding its huge short volatility position in the bond market.

Sector Spotlight:

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

Can the Market Defy Gravity Forever?

by Jason Bodner

We take gravity for granted, but astronauts can also take a lack of gravity for granted. Skylab 2 astronaut Jack Lousma once forgot he was no longer in space when he let a bottle of aftershave hang in the air at home and then watched it smash to the floor below. Our view of gravity is skewed on earth, too. Research shows that humans perceive objects falling better when sitting up as opposed to lying on their sides.

Jack Lousma in Space Image

Perception can become skewed in markets, too, according to the climate at the time. The markets are “melting up” and many wonder when to cut risk. Parabolic price charts and the rare down day have many nervous that we’ve gone up too far too fast. In truth, price trends can be both rational and irrational. FOMO (fear of missing out) can propel values to astonishing levels that on paper just aren’t merited. These are the hallmarks of the classic bubble: In the last two decades, Internet stocks and Housing both had these characteristics. Cryptocurrency might be a bubble, too, but that’s not stopping people from getting rich along the way. Even if bubbles are founded on logic and fundamentals, human emotion and group-think can easily override reason. But the question is: Are we currently in an equity bubble?

I don’t believe we are in a bubble. Treasury yields are still near historic lows. Even with consecutive rate hikes, fixed income securities won’t offer yields compelling enough to cause an exodus out of the equity market. If rates of return were equal for bonds and stocks, simple taxation puts bonds at a disadvantage. Bond interest is taxed as ordinary income, while equity dividends are taxed as long-term capital gains. So, even with rate hikes imminent, I don’t see an exodus out of stocks. Lastly, equities have built-in positive expectations coming from historic performance. Owning a stock that has a good probability of capital appreciation at a more desirable tax rate still makes more sense than bonds – until rates are far higher.

The sharp equity rise is based on actual valuation. The tulip bubble mania of 1637 was pure human fervor mixed with speculation. The internet bubble of 1999 saw stocks trading at infinite valuations. These companies made no money and their P/E ratios couldn’t even be calculated (you can’t divide by zero!). Housing prices kept going up because everyone thought housing values couldn’t decline, but there was still underlying value of land and property. Cryptocurrency, despite its recent volatility, is based on the perception of future value, but its current value is based only on market perception.

The S&P 500 currently has a P/E ratio of 26.17 (based on trailing 12-month earnings), according to mulpl.com. Granted, that is notably higher than the mean of 15.69 going back to the 1800s and at the top end of the range (barring the outlier May 2009 reading of 123.73, based on super-low 2008-9 earnings).

Standard and Poor's 500 Price to Earnings Ratio Chart

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

Sales and earnings, however, have been growing and continually beating analyst expectations. Couple this with higher revisions and the rally makes sense. And then comes tax reform – a 14% tax break that will have many positive effects for the corporate bottom line. Some companies will see it flow through directly as cash to distribute in bigger dividends. Some companies may relieve debt or buy back shares. Growth companies may have more fuel to reinvest in R&D and plow cash back into further growth.

The fact is that the future tax environment is favorable for corporate America. I don’t believe it’s as simple as the entire analytics industry reducing the tax line in their models by 14%. There will be some positive impacts that are currently difficult to quantify, but I see these as positive for the market. There is also one key distinction between bonds and dividends: Dividends can grow while bond coupons can’t.

Standard and Poor's 500 Index Dividend versus Fixed Coupon Income

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

So, we have U.S. companies, already standing on solid footing, now getting the boost of paying lower rates, facing potentially less regulation, and repatriating cash to the U.S. to put to work at home. This all sets up quite well for owning shares of U.S. equities. So, will equities keep going straight up?

Look for Profit-Taking, Not a Major Correction

I believe a pause is unavoidable, but I am not thinking of a significant “correction.” I see a round of profit taking to cool an overheated market. Recently we’ve seen equities fall a few percent and then keep on chugging higher. “Buy the dip” has been prudent advice to be heeded recently. The thing is, we haven’t even talked about inflows yet. Institutions are accelerating their buying. “Cash on the sidelines” was headline material for what seemed like years. But now we are seeing consistent inflows. Take, for example, this chart of equity 4-week cumulative inflows. The buying is really “bigly” and really real.

Equity Funds Inflows Chart

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

By looking at sector strength and weakness, we can hope to assess how each may fare. This gives us a good focal point for equity investing.

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

Tech was the major force last year with just north of 40% performance, according to FactSet, but recently we have seen a mini-washing machine cycle of sector activity, with each jostling for some limelight. Consumer Discretionary was basically written off from “death-by-Amazon” but now it is our strongest sector in the last three months. Nearly tied for second, we have Energy, Tech, and Financials, then Industrials, which was recently in the top-3. What this means is that there is a battle for new leadership in the sector world, and make no mistake, Information Technology is still very much in the running for #1.

Gravity is perceptual, as is the tone of the market sometimes. This nearly-nine-year-old bull market is alive and well on great fundamentals and soon we may see new sector leadership emerge. When it does, we will know. As we move through the beginning of the year and look forward, it is wise to recall the words of Will Rogers: “People's minds are changed through observation and not through argument.”

Will Rogers 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.*

Lower Tax Rates Fuel More Corporate Expansion

by Louis Navellier

The big news last week was that Apple announced that it would pay a one-time tax of $38 billion to repatriate its overseas cash and invest $30 billion in the U.S. as well as create 20,000 new jobs. The company was keeping its cash overseas as long as top corporate tax rates were 35%, but at a new 15.5% tax rate, they were willing to bring $250 billion back to work in America (minus the $38 billion tax hit).

Last Wednesday, Apple CEO Tim Cook appeared with Nevada Governor Brian Sandoval and Reno Mayor Hillary Schieve just down the street from my Reno office for a groundbreaking ceremony for a new $4 million downtown facility in support of its cloud computing services center 15 miles east of downtown Reno in the Tahoe Reno Industrial Center, where a $1 billion expansion is planned.

Interestingly, Apple is looking for a third headquarters (in addition to Cupertino and Austin) for its new client service center, so various states are now lining up to offer incentives to attract Apple. Clearly, the recent corporate tax reform law is working well as many states are offering business incentives for expansion in their various states, setting a positive tone for both business confidence and spending.

The Fed released its latest Beige Book survey on Wednesday. The Beige Book looks at current conditions so it can’t foresee all the future benefits from the latest tax cuts, but it still sees “modest to moderate” growth. A key conclusion of the survey is that we are facing a skilled-labor shortage, as it reported the “ongoing labor market tightness and challenges finding qualified workers across skills and sectors.” (Please note: Louis Navellier does currently hold a position in Apple and Amazon in mutual funds. Navellier & Associates does currently own a position in Apple and Amazon for client portfolios).

Which is Better – Bitcoin or Gold?

Bitcoin and Gold Image

Gold has been a store of value for at least 4,000 years of recorded history, while Bitcoin was invented less than 10 years ago. Which will win in the long run? Or will both be worth owning in the long run? Last December may have marked a turning point in Bitcoin mania. CBOE Bitcoin futures were introduced on December 10th and Bitcoin subsequently peaked intraday on December 16th at $19,870.62. During that week, gold bottomed out at $1,240 on December 12, closing the week at $1,254 on December 15. That means that the “Bitcoin/Gold ratio” peaked at 15.8 ounces of gold per Bitcoin on December 16.

After its December 16th intraday peak, Bitcoin declined 50% in the following month to a low of $9,325 last Wednesday, January 17, before recovering. As I predicted several weeks ago, as soon as Wall Street added liquidity via Bitcoin options and futures contracts, Bitcoin prices would begin to collapse. Complicating matters further, other lesser-known cryptocurrencies have also collapsed 50% or more from their highs. The fact that North Korea successfully hacked a cryptocurrency exchange and South Korea has moved to ban Bitcoin and other cryptocurrencies has also spooked some Bitcoin holders.

The central bankers and government regulators of the world will not accept a threat to their monopoly on the right to mint or print money without a fight. The Wall Street Journal reported on Thursday that the SEC is blocking any proposed ETFs that would trade Bitcoin options and futures. Furthermore, Bloomberg reported on Thursday that the International Monetary Fund (IMF) is calling for global coordination of cryptocurrencies and U.S. Treasury Secretary Steven Mnuchin recently called for G20 nations to prevent cryptocurrencies from becoming the digital equivalent of a Swiss bank account. Even though monetary authorities like the IMF and the Fed call Bitcoin an “asset,” the Fed says Bitcoin is “not legal tender.”  This confusion in terminology does not help, but we clearly have a long way to go until the cryptocurrency market is an acceptable part of the global financial marketplace.

Gold is a much more established and liquid market than Bitcoin and other cryptocurrencies, but it is also a bit more boring, since it cannot “melt up” in price quite as fast. Still, the recent gold rally is impressive. I would guess that the Bitcoin/Gold ratio would continue to favor gold on a relative basis at these prices.


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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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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