You never know how far this research is going to go. After all, the Internet is a pretty big thing. Still, I was amused to see that my opinion on crude oil prices was picked up by none other than the Hong Kong-based Asia Times, which I wrote for 50 years ago. Please click here and enjoy.
Microsoft (MSFT) has risen over 565% in the last 11 years and that is why they can boast of surpassing a market cap over $1 trillion every day since June 7.
They are the best tech stock in America that doesn’t have potential anti-trust risk and continue to parade us with their brilliance.
That is the crucial takeaway from their recent announcement that they will initiate a new share buyback program and dividend increase.
This vindicates my call last year that it was the only guarantee in the tech sector to finish higher this year.
To say the stock has generated outperformance is an understatement with the broader market feeling the heat but Microsoft shares mushrooming almost 40% YTD.
The other FANGs of Amazon and Apple have also outperformed the wider market up over 40% themselves.
Even though there has been no trade deal, Apple has benefited from the softening of rhetoric between the two nations.
Striking a deal seems far away but the rhetoric helps massage Apple shares higher.
Microsoft is poised to trudge higher as the hawkish rate cut by the Fed has led equities to price in a global slowdown, current earnings recession, more tech regulation, and uncertainty of more rate cuts.
The net effect is a conspicuously low bar to jump over for Microsoft and the dividend hike and fresh buyback program signal they need no freebies and neither does Microsoft’s shares.
The company has now hiked its quarterly dividend by 10.9% to $0.51 per share from $0.46. Microsoft raised its dividend by 9.5% last September, and by 7.7% in 2017.
The company’s annual dividend of $2.04 per share means a dividend payout ratio of 48%.
Oracle is another legacy company that often rewards shareholders through dividends and share buybacks too.
In its recently reported fiscal 2020 first quarter, Oracle increased its share repurchase authorization by $15 billion.
At the end of the day, strong free cash flow and revenue growth have been the lynchpin to Microsoft’s growth.
They manage to do this with growth divisions like the Azure cloud complementing a robust legacy business.
Microsoft bought back $19.5 billion, $10.7 billion, and $11.8 billion in stock in fiscal 2019, fiscal 2018, and fiscal 2017, respectively.
Microsoft’s double-digit earnings and sales growth grew its operating cash flow to $16.1 billion in fiscal 2019’s fourth quarter and returned $7.7 billion to shareholders through share repurchases and dividends in the quarter.
Consensus expects the company to grow earnings by 10.3% YoY in fiscal 2020 and around 13.5% YoY in fiscal 2021 and the buyback will help boost EPS metrics.
At some point, the law of large numbers will catch up with Microsoft because it’s not easy to grow fast at its size.
Expect shares to motor higher and any and every buyback should be bought while enjoying the higher dividend.
Global Market Comments
September 19, 2019
(HOW TO RELIABLY PICK A WINNING OPTIONS TRADE)
Global Market Comments
September 18, 2019
(HOW TO HANDLE THE FRIDAY, SEPTEMBER 20 OPTIONS EXPIRATION),
(AMZN), (DIS), (FB), (MSFT), (VIX),
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT)
Millennials usually stick with the stocks that they know.
That’s all fine until it takes a bite out of their wallet.
Some of these decisions based on the products that represent this generation have been stock market disasters of late.
Sadly, many Millennials were too young to catch the ride up for Tesla.
Many older generations got into the stock at $20, $40 and $100 and rode the elevator up with an ultra low-cost basis.
I can’t say the same for Millennials as many came of age and finally had the money to splurge for shares after the stock had plateaued.
This was a cringe-worthy lesson that just because a company has a great product doesn’t always mean the stock is just as great.
Electric Vehicles (EV) are front and center of the Millennial consciousness and that also meant that many scooped up NIO which is the Chinese version of Tesla.
After peaking at $10 in March, the stock is now trading at $3.
Many Chinese IPOs that go public in New York are of a pump-and-dump mentality as they shower the public with losses.
In fact, many Chinese IPOs only have the goal of going public without the goal of doing much more after that.
NIO has yet to be found out completely, but the Chinese economy is hurting and the Chinese consumer has reigned back the purse strings as times become lean.
As we head into a global slow down, electric car companies that lose boatloads of money will be in the firing line for value revaluations.
In fact, I would urge any reader to steer clear of any Chinese company traded on the public markets because of opaque financials that are intentionally obfuscated.
Baidu is another favorite of the Millennial generation pigeonholed as the “Google search of China.”
That moniker is an impressive catchphrase but it doesn’t do much to rejuvenate the large loss in market share that Baidu has ceded to Alibaba and WeChat platforms.
Baidu has lost its mojo and is bleeding usership and it will be hard to reverse it as Baidu never evolved with the changing trends of Chinese consumers.
Baidu peaked in April 2018, at $250 and is now trading at less than $108 and the slide isn’t over yet as Baidu has no adequate response to the domination of the other Chinese tech behemoths.
Yes, many tech trends have legs and are secular shifts that have major ramifications to the global economy.
But the devil is in the details and peels back the layers to be aware of developments such as CEO of Tesla Elon Musk building an American Gigafactory in Shanghai at the worse time in economic history as a legitimate canary in the coal mine.
As robust as the Chinese consumer has been, the latest contagion of African swine flu that culled a major amount of Chinese pigs has raised the price of pork by over 45%.
Chinese consumers are hyper-aware of these economic developments in the year of the pig.
After a massive ride up in Chinese tech shares and electric car story that took many investors breath away, we are at the beginning of a meaningful revaluation that will change the narrative moving forward.
Timing is everything in this game.
The focus of this letter is to show people how to make money through investing in fast-growing, highly profitable companies which have stiff, long-term macroeconomic winds at their backs.
That means I ignore a large part of the US economy, possibly as much as 80%, whose time has passed and are headed for the dustbin of history.
According to the Department of Labor’s Bureau of Labor Statistics, the seven industries listed below are least likely to generate positive job growth in the next decade.
As most of these stocks are already bombed out, it is way too late to short them. As an investor, you should consider this a “no go” list no matter how low they go. I have added my comments, not all of which should be taken seriously.
1) Realtors – The number of realtors is only down 10% from its 1.3 million peak in 2006. I have always been amazed at how realtors who add so little in value take home so much in fees, still around 6% of the gross sales price. Someone is going to figure out how to break this monopoly.
2) Newspapers – these probably won’t exist in five years, as five decades of hurtling technological advances have already shrunk the labor force by 90%. Go online, or go away.
3) Airline employees – This is your worst nightmare of an industry, as management has no idea what interest rates, fuel costs, or the economy will do, which are the largest inputs into their business. Pilots will eventually work for minimum wage just to keep their flight hours up.
4) Big telecom – Can you hear me now? Nobody uses landlines anymore, leaving these companies with giant rusting networks that are costly to maintain. Since cell phone market penetration is 90%, survivors are slugging it out through price competition, cost-cutting, and all that annoying advertising.
5) State and Local Government – With employment still at levels private industry hasn’t seen since the seventies, firing state and municipal workers will be the principal method of balancing ailing budgets. Expect class sizes to soar to 80 or go entirely online, to put out your own damn fires, and keep the 9 mm loaded and the back door booby-trapped for home protection.
6) Installation, Maintenance, and Repair – I have explained to my mechanic that the motor in my new electric car has only eleven moving parts, compared to 1,500 in my old clunker, and this won’t be good for business. But he just doesn’t get it.
The winding down of our wars in the Middle East is about to dump a million more applicants into this sector. The last refuge of the trained blue-collar worker is about to get cleaned out.
7) Bank Tellers – Since the ATM made its debut in 1968, this profession has been on a long downhill slide. Banks have lost so much money in the financial crisis, they can’t afford to hire humans anymore.
It hasn’t helped that hundreds of banks have closed during the recession, with many survivors merging to cut costs. Your next bank teller may be a Terminator.
Out With the Old
And in With the New
Global Market Comments
September 17, 2019
(PROFITING FROM AMERICA’S DEMOGRAPHIC COLLAPSE)
Demographics is destiny.
If you ignore it as an investor, your will be constantly behind the curve wondering why your performance is so bad.
Get ahead of it, and people will think you are a genius.
I figured all this out when I was about 20.
I realized then, back in 1972, that if I could just get ahead of the baby boomer generation everything magically seemed to work.
Buy what boomers want to buy next, and the world will be your oyster.
That strategy is still working today.
Back then, that meant buying residential real estate in California and New York, which has since risen in value 100 fold, and more, once the generous tax breaks of home ownership are added in.
Now, it means investing in health care and big pharma.
Except now, there is a new crowd in town: The Millennials.
As a long-term observer of America’s demographic picture, I was shocked to hear of a recent report from the US Census Bureau (click here for the link.)
The US population grew by a scant 0.72% in 2012, the lowest since 1942.
You can’t start or expand a family when an essential partner in the process is off fighting WWII, and there were 17 million of them back then.
This is far below the 2.09% replacement rate that the country was holding on to only a few years ago.
As of today, there are 327.1 million Americans. This accounts for 4.3.08% of the global population of 7.2 billion, which was up 1.1%.
This places American population growth at the bottom of the international reproduction sweepstakes, down with Italy (0.32%), Germany (0.11%), and Poland (0.02%).
According to the World Bank, 22 countries suffered population declines, like Portugal (-0.29%) and Japan (-0.20%). Click here for the link.
The tiny Sultanate of Oman, one of my old stomping grounds as a military pilot, enjoys the planet’s highest growth rate at 9.13%.
But then, it helps if you have four wives.
The obvious cause here of America’s demographic dilemma was the Great Crash in 2008-09. There is a high correlation between economic health and fertility a year later.
So, we can only hope that the improvement in the economy sent more to the maternity ward.
If it doesn’t, it could be great news for your investment portfolio. Fewer births today translate into a shortage of workers in 20 years. That brings rising wages, flying inflation, and rapid price hikes. And stock markets love inflation because companies can pass costs on to consumers, while bond holders can’t.
Corporate profits go through the roof, as do share prices. It also produces fewer relying on government services in 40 years, which makes it easier for the government to balance the budget.
This Goldilocks scenario is already scheduled for the coming decade of the 2020s, when a 15-year demographic headwind flips to a tailwind, thanks to the coming demise of the “baby boomer” generation, now a big cost to the economy.
Demise, that is, except for me. As long as I hike ten miles a day, I’ll probably live forever. I’ve already outlived three doctors.
The new data suggest that the coming “roaring twenties” could extend well into the 2030s and beyond.
California is the most populous state, with over 39.56 million, followed by Texas (28.7 million) and New York (8.6 million). Two states saw population declines, Maine and West Virginia, where the collapse of the coal industry is sucking the life out of local businesses.
Parsing through the report, it is clear that predictions of population trends is becoming vastly more complicated, thanks to the increasingly ministrone like makeup of the US people.
By 2040 no single racial group will be in a majority in the US. That is already the case for the entire States of California and Texas now. Hispanics now account for 38% of the population of the Golden State, followed by Caucasians at 37%.
America will come to resemble other, much smaller multiethnic societies, like Singapore, South Africa, England, and Israel. This explains much about the current state of politics in the US today.
Texas saw the greatest increase in population, with a jump of 387,397, to 26,020,000, as people flock in to take advantage of the big increase in local government hiring there.
Some 80% of new Texans were Hispanic and black, confirming my belief that the Lone Star State will become the next battleground in presidential elections.
This no doubt explains the recent rise of the white nationalist movement and the election of Donald Trump.
Single ethnic groups historically will only lose their majority with a fight.
This is why gerrymandering (redistricting) is such a big deal there, with the white establishment battling to hang on to power at any cost.
Further complicating any serious analysis is the rapid decline of the traditional American nuclear family, where married parents live with their children.
With a vast concentration of wealth at the top, and a long-term decline of middle-class earnings, kids are increasingly becoming a luxury of a prosperous elite.
As a result, the country’s birthrate has declined by half since 1960.
Those who do are having fewer kids, the average family size dropping from three to two. In 1964, the final year of the baby boom, 36% of Americans were under the age of 18.
Today, that figure is just 23.5%, and is expected to fall to 21% by 2050. Only 80% of women have children now, compared to 90% in the 1970s.
One possible explanation is that the full, end-to-end cost of child rearing has soared to $241,080 per child now.
I was a bargain as a kid, costing my parents only a tenth of that. Rocketing college costs are another barrier, with 70% of high school grads at least starting some higher education.
I went to Boy Scouts and Little League baseball, each of which cost $1 a month. A full scholarship covered my college expenses.
When I look at the checks I have written for my own children for ski lessons, soccer, youth sailing, braces, international travel, and assorted masters degrees and PhDs, I recoil in horror.
Fewer women are following that old adage of “marriage before carriage.” Some 41% of children are born out of wedlock, up 400% in 40 years.
It is definitely an education and class-driven divide. Only 10% of college-educated mothers are still single, compared to 57% for those with a high school education or less.
It is a truism in the science of demographics that educated women have fewer children. It makes possible careers that enable them to bring home paychecks instead of babies, which husbands prefer.
Blame Roe versus Wade, the Equal Rights Act, and Title Nine, but every social reform benefiting women of the past half-century has helped send the birthrate plummeting.
More women wearing the pants in the family hurts the fertility rate as well, as they are unable, or unwilling, to bear the large families of yore. The share of families where women are the primary breadwinners has leapt from 11% to 40% since 1960.
When couples do marry, they are sometimes of the same sex, now that gay marriage is legal, further muddying traditional data sources.
Some 2 million children are now being raised by gay parents. In fact, there is a gay baby boom underway, which those in the community call the “gayby” boom.”
All female couples have produced one million children over the last 30 years, 95% of whom select for blond-haired, blue-eyed, Aryan sperm donors who are over six feet tall ($40 a shot for donors if you guys are interested and live walking distance from UC Berkeley).
I’m told by the sources that know that water polo players are particularly favored.
The numbers are so large that it is impacting the makeup of the US population.
There was a time when I could usually identify the people standing next to me on San Francisco cable cars. That time has long passed. Now I don’t have a clue.
Whenever we go to war, we become our enemy to a modest degree, both as a people and a culture.
After WWII, 50,000 German and 50,000 Japanese wives were brought home as war prizes. Sushi, hot tubs, Toyotas, and Volkswagens quickly followed.
The problem is that the US has invaded another 20 countries since 1945 and is now maintaining a military presence in 140. That generates a hell of a lot of green cards.
This has spawned sizeable Korean, and later, Iranian communities in Los Angeles, a Vietnamese one in Louisiana, a Somali enclave in Minneapolis, and large minority of Afghans in San Jose.
The fall of the Soviet Union in 1992 unleashed another dozen Eastern European ethnic groups and languages on the US. Haven’t you noticed the proliferation of Arab fast food restaurants in your neighborhood since we sent 20 divisions to the Middle East?
What all this means is that the grand experiment called the United States is entering a new phase.
Different ethnic, racial, religious, and even political groups are blending with each other to create a population unseen in the history of the world, with untold economic consequences.
It is also setting up an example for other countries to follow.
Get your investment portfolio out in front of it, and you could prosper mightily.
Ignore Demographics at Your Portfolio’s Peril
Global Market Comments
September 16, 2019
(MARKET OUTLOOK FOR THE WEEK AHEAD, or CHOPPY WEATHER AHEAD),
(SPY), (TLT), (FB), (GOOGL), (M), (C),
(XOM), (NFLX), (DIS), (FXE), (FXI)
The pitfalls of getting it wrong can bring you tears.
Proctor and Gamble (PG) got a taste of precisely that.
We underestimate the power of digital marketing and how it can make or break a company’s fortune.
Even many small businesses rely on media platforms such as YouTube, Patreon, Snapchat, Twitter and so on to disseminate their message and nurture their brands.
But what if it goes badly wrong?
The story of personal grooming brand Gillette is a stark warning for companies to stay in their lanes and not reach too far when it comes to their digital marketing campaigns.
Once companies start diving into delicate social issues, they risk alienating half or more of their targeted audience.
In January, Gillette debuted a short film in part of continuing their woke campaign with a self-titled phrase called “toxic masculinity.”
To see the short video please, click here.
Gillette’s underlying message suggested that men in general pose a deep problem in society.
Their self-coined phrase “toxic masculinity” rolls through clips of portraying a young boy being bullied by other boys, sexual harassment, catcalling, and a man speaking over a woman in a meeting highlighting the disappointment in the male gender.
Instantly, the backlash from Gillette’s core demographic, men who shave, were heard from in full force with many shouting from the rooftops for a boycott on Gillette’s and even Procter and Gamble’s products.
Gillette didn’t blink and doubled down on their woke campaign rolling out a “fat acceptance” ad.
They did not stop there and tripled down distributing an ad depicting a father’s first time teaching his female-to-male transgender child how to shave.
Gillette were defiant in their beliefs and felt an obligation to dip into social discourse and take a stand for what they think is the right message to sell razors.
Just a mere seven months after Gillette’s social justice campaign began, Gillette’s parent company Procter & Gamble took an eye-popping $8 billion write-down citing a painful charge for Gillette’s personal grooming division.
The company would have produced net profits without this ghastly charge.
Granted that Gillette was already having a tough time selling more razors as a combination of trends and demographics decrease the volume of male shaving, but the exacerbation of underperformance was purely due to the revolt against the digital marketing campaign which drove away their core customer.
Gillette’s excuse was currency fluctuations and increasing competition but that can in no way explain the giant uptick in customer deterioration.
Management’s strategy of profiting from woke capitalism on the back of the #MeToo movement blew up in their face and many men chose to respond with their wallets.
This also represents the viral nature of digital marketing in 2019 and it really works both ways.
It also indicates how powerful these tech platforms are as the cradle of human discourse and underscores how reliant even the largest of corporations are on digital marketing through the likes of Instagram, Facebook, Google, Amazon and the who’s who of Silicon Valley.