2017 Review and 2018 Forecast

Size: px

Start display at page:

Download "2017 Review and 2018 Forecast"

Helena Maxwell
5 years ago
Views:

1 2017 Review and 2018 Forecast 2018 Phoenix Capital Research, OmniSans Publish, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties.

1 Review and 2018 Forecast 2018 Phoenix Capital Research, OmniSans Publish, LLC. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This newsletter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of OmniSans Publishing, LLC. All Rights Reserved.

2 Disclaimer: The information contained on this newsletter is for marketing purposes only. Nothing contained in this newsletter is intended to be, nor shall it be construed as, investment advice by Phoenix Capital Research or any of its affiliates, nor is it to be relied upon in making any investment or other decision. Neither the information nor any opinion expressed on this newsletter constitutes and offer to buy or sell any security or instrument or participate in any particular trading strategy. The information in the newsletter is not a complete description of the securities, markets or developments discussed. Information and opinions regarding individual securities do not mean that a security is recommended or suitable for a particular investor. Prior to making any investment decision, you are advised to consult with your broker, investment advisor or other appropriate tax or financial professional to determine the suitability of any investment. Opinions and estimates expressed on this newsletter constitute Phoenix Capital Research's judgment as of the date appearing on the opinion or estimate and are subject to change without notice. This information may not reflect events occurring after the date or time of publication. Phoenix Capital Research is not obligated to continue to offer information or opinions regarding any security, instrument or service. Information has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. Phoenix Capital Research and its officers, directors, employees, agents and/or affiliates may have executed, or may in the future execute, transactions in any of the securities or derivatives of any securities discussed on this newsletter. Past performance is not necessarily a guide to future performance and is no guarantee of future results. Securities products are not FDIC insured, are not guaranteed by any bank and involve investment risk, including possible loss of entire value. Phoenix Capital Research, OmniSans Publishing LLC and Graham Summers shall not be responsible or have any liability for investment decisions based upon, or the results obtained from, the information provided. Phoenix Capital Research is not responsible for the content of other newsletters to which this one may be linked and reserves the right to remove such links. OmniSans Publishing LLC and the Phoenix Capital Research Logo are registered trademarks of Phoenix Capital Research. OmniSans Publishing LLC - PO BOX 2912, Alexandria, VA 22301

3 2017 Review and 2018 Forecast Last year, 2017, by all counts, was a fantastic year for us. As I ve stated previously, when it comes to tracking our performance, the model I use is as follows: 1) Equal position sizing in all core positions (everything except Hedges/ Shorts which I repeatedly emphasize should be kept smaller). 2) Focusing on closed positions due to the fact they are the only positions I can 100% guarantee subscribers participated in. #1 insures that I am not biased towards the winners (many in my industry will claim that clients should have put a ton of money in the big winners and little in the losers). #2 insures that I am only talking about positions that clients definitively opened and closed (as opposed to including hypotheticals). Based on these metrics, 2017 was an incredible year for us, with 92% of our closed positions making us money and a portfolio return of 32% (outperforming the S&P 500 by 12%). January SHORT-TERM ISSUES Commodities overbought. $USD to rally, putting pressure on inflation hedges into February. Long-bonds prepared to sell-off. INTERMEDIATE-TERM ISSUES Inflation trades to outperform stocks for the next 12 months. $USD to drop into the 80s. Emerging Markets ready for new bull market. LONG-TERM ISSUES A Crisis worse than Eventual market collapse of 50%+ in real terms. A scramble for high-end collateral to bring about derivatives collapse/ implosion of big banks. Of course, skeptics will point out that we are not including positions that remained open at yearend and that this could skew our returns. To that I would counter that even when you include all of our open positions at the end of 2017 (including paper losses), we STILL had a success rate of 79% and a portfolio return of 28% (still beating the S&P 500 by 9%). And for the ultimate skeptics, who would argue 3

4 that including positions we opened prior to 2017 could also skew performance, if you were to focus solely on those positions that we opened in 2017 AND include those positions that were still open at year-end we STILL had a success rate of 78% and we STILL beat the market. Again, no matter how you dice up our investment strategy, in 2017, we beat the market AND maintained a success rate of at least 78% on our investments. I d put that performance up against ANYONE. Put simply, a lot went well for us last year. My primary thesis as laid out in my 2017 Forecast was as follows. I believe that 2017 will mark a major turning point for the financial markets. That turning point will consist of a confirmed shift in market expectations from a fear of deflation to the expectation of inflation. ~2017 Forecast, Published 1/11/17 At that time, I also made four main predictions for the year: 1) The S&P 500 corrects. 2) The $USD falls sharply. 3) The long-term Treasury ETF (TLT) rallies hard. 4) Gold rallies hard. #1 was flat out wrong. The S&P 500 finished the year up 19.42%, staging the longest streak without a 3% pullback in history (over 388 days). Put simply, the stock market went straight up almost non-stop in What went wrong? First and foremost, the market was still being driven by excess liquidity from global Central Banks. While it s true that the Fed has officially ended QE, is raising rates, and has even begun shrinking its balance sheet (albeit marginally), the Bank of Japan (BoJ) and European Central Bank (ECB) alone were engaged in monthly QE purchases in excess of $100 billion throughout Add to this the fact that the Trump administration effectively dangled the carrots of a 4

5 potential Obamacare Repeal, Tax Reform and even an Infrastructure program in front of stocks throughout the year and 2017 was one of the best years for the S&P 500 on record. Put simply, with #1, I underestimated just how committed Central Banks would be to continuing QE even when the global economy is growing as well as the degree to which the Trump administration would see stock price levels as a report card (one they could influence via tweets, I might add). In contrast, my second prediction (that the $USD would tank in 2017) was a home run. The $USD collapsed almost non-stop in 2017, ending the year down 10%. All in all, it was the greenback s worst performance in over 10 years. My third prediction (that the long-term Treasury ETF (TLT) would rally hard) was also a home run, with the Long-Treasury ETF (TLT) ending 2017 up nearly 10%. And finally, my fourth major prediction (that Gold would rally hard in 2017) was a also a home run with Gold rallying nearly 14%, putting in its best annual performance since Put simply, we nailed three out of four of our major predictions for the year in I ll take that any day of the week, particularly when you consider just how unusual these predictions were at the start of Going into 2017, financial advisors were massively bullish stocks with 96% of them expecting to allocate additional assets to them that year. In contrast, less than one in three financial advisors were intent on allocating capital to Treasuries in And less than one in four were looking to allocate capital to Gold. 5

Put simply, our 2017 forecast was extremely contrarian. And it paid off handsomely as our track record has attested. Which brings us to 2018.

6 Put simply, our 2017 forecast was extremely contrarian. And it paid off handsomely as our track record has attested. Which brings us to While 2017 was the year in which the world shifted from fearing deflation to expecting inflation, 2018 will be the year in which inflation officially arrives. The actual turning point (if you can call it that) took place June That was the month that: 1) Fed Chair Janet Yellen began the process through which the Fed publicly admitted that it has no clue about how inflation really works. 2) The Bank of Japan (BoJ) announced it would continue its massive QE program despite clear evidence Japan s economy was out of trouble. 6

7 3) The European Central Bank (ECB) affirmed it would continue its own massive QE program despite clear evidence that the EU economy was stable. Put simply, in June 2017, the most important Central Bank in the world gave up any pretense that it understands inflation... right around the same time that the second and third most important Central Banks announced they would continue emergency levels of monetary easing despite the fact their respective economies were stable and growing. The markets took the hint. From July 2017 onwards, commodities (which usually rally hard during periods of higher inflation) outperformed the S&P 500 by a wide margin (with a brief exception in early December). This major trend is only just beginning. The fact is that after $14 trillion in QE and something like 700-interest rate cuts (since 2008) Central Banks have finally managed to achieve inflation. The reason is that they continued to maintain emergency levels of monetary easing, despite the fact that the global economy is now humming along. To whit 7

8 The US economy has been growing since the first quarter of It just posted back-to-back quarters of 3+% GDP growth. And by the look of things, 1Q18 will be a 3%+ quarter as well. The US is not alone. The EU s GDP growth rate has been positive since the second quarter of We re not talking high growth by any means, but we re also not talking about a contraction let alone a recession. Even Japan, the poster-child for no growth, has now put in seven consecutive quarters of GDP growth. 8

9 Throughout this time period, global Central Banks (with the exception of the US Federal Reserve) have printed over $3 trillion and funneled it into the financial system. To give you an idea of how insane this is, consider that taken as a whole, Central Banks were providing MORE liquidity at a time when the global economy was growing than they were during the depth of the Great Financial Crisis. This has finally unleashed inflation. And 2018 is the year it will fully take hold. Indeed, the bond market is already signaling what s to come. As I outline in my bestselling book, The Everything Bubble: The Endgame For Central Bank Policy, the single most important bond in the world is the 10-Year US Treasury. This is the socalled risk free rate of return against which all risk assets (stocks, corporate bonds, muni bonds, commodities, mortgages, etc.) are valued. The yield on the 10-Year Treasury trades based on inflation (and economic activity). So if inflation is on the rise, the yield on this bond will ALSO rise. With that in mind, consider that in 2017, the yield on the 10-year US Treasury initiated its first confirmed breakout in 20 years. 9

10 This is literally the single most important bond in the financial system warning that inflation is on the rise in ways that it hasn t in 20 years. It is not alone. The yield on the 10-Year German Bund has also broken out, this time from a 10- year downtrend. 10

11 Even Japan s 10-Year Government Bonds are at risk of a breakout, despite the BoJ targeting a 0% yield on this bond. 11

12 This is the beginning of what s to come. The fact that we re already seeing these kinds of moves in the bond markets tells us that Central Banks are woefully behind the curve when it comes to inflation. They will collectively realize this by mid-2018, when the bond market truly begins to revolt. In particular, I believe we ll see the yield on the 10-Year US Treasury move to 3% during the first half of When this happens Central Banks will realize their mistake (continuing emergency levels of QE) as rates across the globe will begin to adjust to the upside. Let me give some context here. Since 2007 the world has added over $68 TRILLION in debt. All of this was issued based on a bubble in sovereign bonds that was intentionally created by Central Banks to combat the Great Financial Crisis. Put another way, the world has added nearly 100% of its GDP in debt based on a false risk profile of the financial system. NONE of this new debt can stomach a significant rise in rates. Which is why, when the yield on the 10-Year US Treasury (the most important debt yield in the world) hits 3% in the coming months, Central Banks will begin to panic and start walking back their monetary easing. 12

13 That will likely mark the beginning of the next bear market in stocks as Central Banks begin cutting back on their liquidity injections. Please note, I am not saying that stocks will CRASH right then and there. I am saying that mid-2018 will mark the next phase for stocks as Central Banks are forced to begin withdrawing liquidity or risk blowing up the bond bubble. With that in mind, I m making the follow forecasts: 1) Commodities will DRAMATICALLY outperform stocks in ) US Treasuries will drop, then rally, as Central Banks are forced to tighten aggressively mid-year to choke off inflation. By year-end the yield on the 10-Year Treasury will likely be flat. Bonds are to be traded, not bought long-term this year. 3) Value will dramatically outperform Growth. 4) The $USD will end 2018 in the mid- 80s. Looking at the above, most readers will probably think now is the time to rush out and buy commodities, particularly Gold. It s not. Going into year-end 2017, Gold, Oil and other commodities all became extremely overbought. And we re likely entering a brief 6-week period in which the $USD will rally, putting pressure on Commodities. Nothing ever goes straight up or straight down; and the massive sell-off in the $USD and massive rally in Commodities into year-end 2017 smells of window dressing to me. Put simply, I believe we re about to have a Shake out in the commodities space. Below are the levels at which I d look to have us buy with both hands. Gold remains in a downward channel. I think we re going to the mid-$1200s. When that happens it will be time to back up the truck as that will be THE low for Gold s next major bull market. 13

14 Oil has come too far too fast. Even CNBC is talking about loading up on Oil plays right now. If that s not a sign of excess sentiment, I don t know what is. I m looking for Oil to bottom in the mid-to-low-$50s in February. THAT is when we buy and hold for a massive run into the mid-$70s by end of year

15 So I don t want us rushing out to load up on inflation hedges or commodities right now. Doing so is only asking for short-term pain as most of these spaces are severely overbought. We ll have MUCH better entry points on all of them in February. However, doesn t mean I don t have anything for you today. Indeed, I ve got a new position for our long-term inflation portfolio: Diamond Offshore Drilling (DO). The company specializes in ultra-deepwater, deepwater, and mid-water services. Share prices got annihilated in the aftermath of the BP Oil disaster of 2010 as the US Government cracked down on deep sea drilling. However, DO shares have recently broken out of their six-year downtrend in a big way. The likely catalyst is the Trump administration s statements that it intends to roll-back safety measures regarding deepwater drilling. 15

16 On top of this, the company is dirt cheap, trading at an Enterprise Value/ EBITDA of less than 7. Throw in the fact that DO s business is also turning a corner, having returned to profitability in the last 12 months and this play has the makings of a MASSIVE rally into mid We re adding this to our Inflation portfolio. Action to Take: Buy Diamond Offshore Drilling (DO). This concludes this week s market update for Private Wealth Advisory. I m watching the markets closely and will issue updates as needed. Barring any new developments you ll next hear from me next Wednesday in our usual weekly market update. Until then Best Regards, Graham Summers Chief Market Strategist Phoenix Capital Research 16

OPEN POSITIONS STOCKS PORTFOLIO BUY BUY CURRENT GAIN/ POSITION SYMBOL DATE PRICE PRICE LOSS RPX Corp RPXC 8/5/15 $15.48 $13.56-12% Agricultural -6% RJA 1/12/17 $6.46 Commodities ETF $6.

17 OPEN POSITIONS STOCKS PORTFOLIO BUY BUY CURRENT GAIN/ POSITION SYMBOL DATE PRICE PRICE LOSS RPX Corp RPXC 8/5/15 $15.48 $ % Agricultural -6% RJA 1/12/17 $6.46 Commodities ETF $6.08 Public Storage PSA 3/23/17 $ $ % Energy Transfer -8% ETP 8/2/17 $21.00 $18.88 Partners Enterprise Products 6% EPD 8/10/17 $26.08 $27.63 Partners DB Commodity ETF DBC 9/13/17 $15.26 $ % Helix Energy 3% HLX 10/11/17 $7.75 $8.00 Solutions Exxon Mobil XOM 12/13/17 $83.12 $ % Prices as of market s close 1/3/18 Returns include dividends 17

PRECIOUS METALS/ MINERS PORTFOLIO POSITION SYMBOL BUY DATE BUY PRICE CURRENT PRICE GAIN/ LOSS Gold 3/17/10 $1,120 $1,314.00 17% Silver* 3/17/10 $16.23 $17.17 6% First Majestic Silver*** AG 5/12/17 $7.

07-6% Iamgold IAG 9/28/17 $6.40 $6.04-6% Silver Mining ETF SIL 10/4/17 $33.96 $32.82-3% Silver Mining Juniors -5% SILJ 10/4/17 $11.59 ETF $12.

18 PRECIOUS METALS/ MINERS PORTFOLIO POSITION SYMBOL BUY DATE BUY PRICE CURRENT PRICE GAIN/ LOSS Gold 3/17/10 $1,120 $1, % Silver* 3/17/10 $16.23 $ % First Majestic Silver*** AG 5/12/17 $7.91 $ % Gold Miner ETF GDX 9/20/17 $23.50 $ % Gold Mining Juniors ETF GDXJ 9/20/17 $34.11 $ % Klondex Mines KLDX 9/20/17 $3.61 $ % Wesdome Gold Mines WDO.TO 9/20/17 $2.21 $2.07-6% Iamgold IAG 9/28/17 $6.40 $6.04-6% Silver Mining ETF SIL 10/4/17 $33.96 $ % Silver Mining Juniors -5% SILJ 10/4/17 $11.59 ETF $12.22 SPECIAL SITUATIONS/HEDGES/SHORTS PORTFOLIO POSITION SYMBOL BUY DATE BUY PRICE CURRENT PRICE GAIN/ LOSS France ETF (SHORT) EWQ 9/16/16 $23.38 $ % Italy ETF (SHORT) EWI 9/16/16 $21.56 $ % Apple (SHORT) AAPL 3/23/17 $ $ % Facebook FB 5/31/17 $ $ % Alphabet GOOGL 5/31/17 $ $1, % Prices as of market s close 1/3/18 Returns include dividends *Average price of $17.50 and $14.97 *** Average price of $7.11 and $

CASH/ CURRENCIES PORTFOLIO POSITION SYMBOL BUY DATE BUY PRICE CURRENT PRICE GAIN/ LOSS Euro Trust FXE 8/23/17 $114.05 $115.

19 CASH/ CURRENCIES PORTFOLIO POSITION SYMBOL BUY DATE BUY PRICE CURRENT PRICE GAIN/ LOSS Euro Trust FXE 8/23/17 $ $ % SPECIAL INFLATION PORTFOLIO POSITION SYMBOL BUY DATE BUY PRICE CURRENT PRICE GAIN/ LOSS Copper Miners ETF COPX 12/21/17 $26.55 $ % ArcelorMittal MT 12/21/17 $32.77 $ % Corsa Coal CRSXF 12/21/17 $1.20 $ % Prices as of market s close 1/3/18 Returns include dividends 19

RECENTLY CLOSED POSITIONS POSITION SYMBOL BUY DATE BUY PRICE SELL DATE SELL PRICE GAIN/ LOSS Freeport McMoRan FCX 10/4/17 $14.53 12/13/17 $16.32 12% Russell 2000 ETF (SHORT) IWM 12/14/16 $135.

20 RECENTLY CLOSED POSITIONS POSITION SYMBOL BUY DATE BUY PRICE SELL DATE SELL PRICE GAIN/ LOSS Freeport McMoRan FCX 10/4/17 $ /13/17 $ % Russell 2000 ETF (SHORT) IWM 12/14/16 $ /21/17 $ % Homebuilder ETF XHB 8/10/17 $ /21/17 $ % Oil Services OIH 11/30/17 $ /22/17 $ % Metals and Mining ETF XME 12/6/17 $ /22/17 $ % Pioneer Natural 8% PXD 6/15/17 $ $ Resources 12/27/17 Halliburton HAL 10/11/17 $ /27/17 $ % Biotech ETF IBB 11/15/17 $ /2/18 $ % Wheaton Precious 8% WPM Metals Corp 10/5/16 $ /2/18 $22.42 To view our full track record of all closed positions running back to early-2015, visit: 20

Weekly Market Update Part 2

Weekly Market Update Part 2 1 Weekly Market Update 6-22-17 Part 2 2017 Phoenix Capital Research, Phoenix Capital Management Inc. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This