Part of what we love to study at MarketGauge.com, is cycles. We particularly like cycles of huge megatrends that move up or down depending on supply and demand.
The Electric Vehicle space is classic. With years of mass adoption globally, the price of EVs skyrocketed.
Then, as one would expect from relatively new technology, issues arose.
Rising costs, tariffs, infrastructure, competition and the glut of supply all superseded tax incentives and concerns about green energy.
The price of EVs has come down. Infrastructure, while still a concern, has improved.
Consumers are beginning to buy lower priced used EVs more than they’re buying gas operated cars.
Stock prices have come down as well, now offering excellent value on buying into a megatrend that is perhaps at its cycle lows, but far from over.
We are not alone in this evaluation.
Some of the top reasons EVs could experience significant growth in the near future:
Government Policies and Incentives: Governments encouraging adoption of electric vehicles with tax credits, subsidies, and stricter emission regulations, all of which can make EVs more attractive to consumers and manufacturers.
Technological Advancements: Rapid advancements in battery technology including lower battery costs and faster charging times
Infrastructure Development: The expansion of charging infrastructure with Increased investment in charging networks, both public and private.
Consumer Demand: Growing environmental awareness and a shift in consumer preferences towards sustainable and eco-friendly products. Used EV car sales are now outpacing gas-powered used car sales as prices have come down.
Automaker Investments: As more models become available, consumers have more choices, which can drive market growth.
Economies of Scale: Like with the EV used car market, as production volumes increase, the cost of producing electric vehicles is expected to decrease.
Climate Goals: Many countries are transitioning to electric vehicles is a key part of these strategies, creating a favorable environment for the EV market to grow.
Innovation and Competition: The entry of new players into the electric vehicle market, including startups and tech companies, fosters innovation and competition.
The following chart looks at EV sales since 2021 in the various markets. Note that the goal of NET ZERO has been achieved by two and three wheelers while heavy and commercial vehicles still have a way to go to hit net zero.
In the area of Global Sales Growth, as of 2023, the market share of EVs reached around 20% of total vehicle sales, marking a milestone in mass adoption. Many countries saw substantial increases in EV registrations and sales.
In Europe, EVs constituted about 30% of new car sales.
In China, as well as developing economies like Thailand, India, Turkey, Brazil and others, they are all experiencing record sales as more low-cost electric models are targeted at local buyers.
The United States is well behind at only 10% of new vehicle sales as EVs. That could easily change, and we predict it will soon enough.
Many, including myself, will tell you that a huge reason for not buying an EV is because of the lack of infrastructure. We live in New Mexico, which has a massive amount of land with a very small population. That makes it challenging and time-consuming to find a charging station.
However, we are seeing improvement in Infrastructure Expansion.
As of 2023, the number of public charging stations globally had grown significantly, making long-distance travel more feasible and reducing range anxiety for consumers.
Many governments have introduced or extended EV incentives, including tax credits, rebates, and grants. Additionally, stricter emission regulations have pushed automakers towards electric vehicle production.
Major automakers have committed to increasing their EV offerings and investing in electric vehicle technology. This has led to a greater variety of models and increased consumer choice.
Battery demand is rising quickly. Growth in battery demand for EVs has slowed slightly in the last year, but demand for stationary storage applications is rising faster than ever. Manufacturing of battery cells and the production of key battery components – such as cathodes, anodes, separators and electrolytes – is concentrated in China.
NIO Inc., a prominent Chinese electric vehicle (EV) manufacturer, recently had a good rally off the new lows made in April 2024.
NIO is seeing Strong Sales Growth, New Model Launches, Battery Technology and Swap Stations and Expansion into International Markets.
Additionally, NIO has formed strategic partnerships with various companies to enhance its technology, infrastructure, and overall business strategy. Collaborations with tech firms, battery suppliers, and other stakeholders strengthen its competitive position.
These positive developments contribute to a strong outlook for NIO and highlight its potential for continued growth and success in the electric vehicle market.
In the U.S., Tesla remains the leading electric vehicle (EV) manufacturer for several reasons.
Perhaps the biggest reason for Tesla’s dominance is brand recognition and leadership. Tesla has established itself as a pioneering force in the EV industry. Tesla also leads in Innovative Technology such as advanced battery systems, autopilot (its semi-autonomous driving system), and over-the-air software updates.
Tesla has invested heavily in its proprietary Supercharger network, providing fast and widespread charging infrastructure.
Overall, its Tesla’s strong product lineup which includes a range of models that cater to different segments of the market, from the more affordable Model 3 to the luxury Model S and the recently introduced Model Y and Cybertruck that is appealing to a broad customer base.
However, the main reason we see Tesla holding that lead is because of Elon Musk. His leadership has driven the company’s innovative approach and aggressive growth strategy, positioning Tesla as a key player in the future of transportation.
Another American car company to watch in the future is Rivian, which appears to be a growing player in the electric vehicle (EV) market.
Rivian has introduced innovative and well-received vehicles, including the R1T electric truck and the R1S electric SUV. These models are designed to appeal to outdoor enthusiasts and adventure seekers, tapping into a niche market with strong demand.
Rivian is also working on securing substantial investment from Amazon and Ford.
Rivian has been working to scale up its production capabilities, pre-order demand, battery technology, brand image, development of new models and potential international expansion, and a strong customer experience.
While Rivian has promising growth potential, it is also important to note that the company faces challenges common in the EV industry, such as scaling production, managing supply chain issues, and competing with established players.
Overall, Rivian’s innovative approach, strong backing, and positive market reception position it as a notable player in the growing electric vehicle sector.
Charts
Tesla-This is a monthly chart with two moving averages that represent both a 2-year (blue line) and a 6–8-year business cycle (green line).
Note that Tesla found support on the longer-term moving average back in 2020 and has not broken it since.
Now, Tesla is sitting atop the 2-year business cycle moving average and looks ready for expansion.
In contrast, Rivian, a newer stock issue which began trading in November 2021, does not have a 6–8-year business cycle average yet.
However, the 2-year business cycle moving average sits just above July 2024 highs.
As always, we like to pair the fundamental story with technical analysis.
As we are now into the second half of 2024, we are watching both Tesla and Rivian.
In general, the entire EV space has our attention.
Watch Mish Schneider's appearance on WealthWise by clicking here:
Fed Rate Cut Predictions & Top Equity Picks: Jordan Kimmel with Mish Schneider
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When the crowd is scared and nervous, they hold back their investments and wait for better times. Ask yourself this simple question- do you sense the overall public to be optimistic or pessimistic about the world in general, or the stock market right now?
Of course I encourage you to be aware of current events. You need to have your resources for news and current events- just do not make your investments based on the news of the day!
The media knows that bad news sells. Sadly, at the media control centers you hear the expression- “if it bleeds- it leads.” They serve up stories to flame your fears with scary images- wars and hot spots all over the globe, the climate crisis, crime and political protests. That is enough for most to want to hide in their basement. Who could feel comfortable investing for the long-term?
I am not always bullish on the stock market, nor am I bullish on most stocks. I have and continue to stress careful stock selection. I use my proprietary Magnet® Stock Selection Process to isolate companies that are showing rapid revenue growth, rapid profit margin acceleration, and are producing strong cash flow. We then insist that we are also buying “growth at a discount.” When I can find companies with these fundamentals, and they are under accumulation, it is easy to tune out the noise.
I use the Wall of Worry as one of my guides. Valuation is the other. I am comfortable owning the highest ranked Magnet® stocks while everyone else is waiting for a better time. The stock market is an auction market. I like to bid when the crowd is small and too nervous to buy.
It is important to wait for good entry points, even when buying your best ideas. While I like to share Magnet’s best ideas, I do not currently have shares in all of them. I suggest you get some “wish list prices” ready for your favorite ideas. You will probably get them. When those alerts go off, remember the news will be awful, and most people will freeze.
Top Magnet ideas for consideration:
Company Ticker Sector
Allstate Corp ALL Finance
Amgen AMGN Medical
Applovin Corp APP Business Services
Brookfld Infr-A BIPC Utilities
Ies Holdings IESC Computer and Technology
Interdigital Inc IDCC Computer and Technology
Kratos Defense KTOS Aerospace
Progressive Cor PGR Finance
Technipfmc Plc FTI Oils-Energy
Vertex Inc VERX Computer and Technology
Jordan Kimmel Discusses Fed Rate Cut & Stock Picks with Jefferies’ Economist on FOX Business
Watch the interview here: https://youtu.be/UFlgPypk6lI?si=RaWMpKRyi92au2jU
Be sure to pick-up a copy of Jordan Kimmel's books on Amazon
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Pump maker Flowserve (FLS) will be trading ex-dividend on September 27 for a $0.21 per share dividend. The next earnings report is not until the end of October. We will do a buy write. – J.D.
Flowserve (FLS) - Buy Write
Buy 100 FLS
Sell to Open 1 October 18 $47 Call
Execute for Net Debit of $45.05 or lower
Dallas, Tex.-based Flowserve (FLS) is a maker of flow control systems that include pumps, valves, seals, and services. Customers are from a wide range of industries, including oil and gas, chemical, power generation, and water management. Flowserve also provides aftermarket equipment services for installation, diagnostics, repair, and retrofitting. Sales are roughly split across many global regions, with North America and Europe contributing the majority of total revenue.
Revenue this year is expected to grow 5.9% to $4.58 billion, and earnings are forecast to jump 30.5% to $2.75 per share. The next earnings report is due late October, and there will be an ex-dividend date in two weeks on September 27 for a payout of $0.21 per share.
Here is the buy write: Buy 100 FLS, and sell to open one contract of $47 October 18 calls for a net debit (stock price minus premium) of $45.05 or lower.
NOTE: Forbes Premium Income Report is intended to provide information to interested parties. As we have no knowledge of individual circumstances, goals and/or portfolio concentration or diversification, readers are expected to complete their own due diligence before purchasing any assets or securities mentioned or recommended. We do not guarantee that investments mentioned in this newsletter will produce profits or that they will equal past performance. Although all content is derived from data believed to be reliable, accuracy cannot be guaranteed. John Dobosz and members of the staff of Forbes Premium Income Report may hold positions in some or all the assets/securities listed. Copyright 2024 by Forbes Media LLC.
For further information: John Dobosz (forbes.com)
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Markets are tumbling as recession fears mount following this morning’s weaker-than-expected Jobs Report. While stocks are selling off, we are witnessing a sustained de-inversion of the yield curve that we warned about in yesterday’s commentary. Indeed, a positive spread across the 2- and 10-year Treasury maturities following a long period of a negative difference has historically preceded economic downturns. Investors are responding by unloading almost everything, but they are scooping up downside insurance via index put derivatives and volatility call options as well as fixed-income instruments and homebuilder shares that are likely to benefit from lighter borrowing costs amidst undersupplied conditions.
In further evidence of a decelerating labor market, today’s nonfarm payrolls posted a sizable downside miss amidst non-cyclical leadership. The US economy added 142,000 jobs last month, above July’s downwardly revised 89,000 and the median estimate of 164,000. Nearly half of the total was created by two non-economically sensitive categories: private education and health services, which added 47,000 positions, and the government sector, which posted a 24,000 increase in headcounts. The leisure and hospitality category, which expanded by 46,000 folks, had the second-largest total growth. Other sectors that advanced and the number of added employees were as follows:
Manufacturing, with a 24,000 decline, had the largest number of lost jobs, followed by retail trade, information and utilities, which recorded declines of 11,100, 7,000 and 200, respectively. Payrolls for mining and logging had no change.
It’s Not All Bad
Looking under the hood, there were some positive signs at the margins. Joblessness declined, wage pressures picked up and the labor force expanded. The unemployment rate ticked down 10 basis points (bps) to 4.2% even as 120,000 new folks entered the labor force. Average hourly earnings accelerated to 0.4% month over month (m/m) and 3.8% year over year (y/y), exceeding forecasts by 10 bps on both fronts and July’s 0.2% and 3.6%.
Canada’s Unemployment Climbs Above Forecasts
North of the border, Canada’s employment figures were also bifurcated. In fact, jobs expanded by 22,100 in August, missing expectations of 23,700 but recovering from July’s loss of 2,800. Driving the monthly gain was growth in part-time work, with the segment adding 65,700 while full-time jobs declined by 43,600. The unemployment rate increased to 6.6%, exceeding the anticipated 6.5% and the previous month’s 6.4%.
Outlook for AI Sales Falls Short of Investors’ Exuberance
Artificial Intelligence (AI) helped grow sales at Broadcom and DocuSign. However, guidance from the companies failed to match investors’ strong optimism regarding the technology’s potential for accelerating earnings and revenue growth.
Broadcom (AVGO) reported revenue and earnings for its fiscal third quarter ended July 31 that exceeded analyst consensus estimates with total sales climbing 47% y/y, but its outlook for the current quarter fell short of investors’ expectations regarding AI powering strong growth for the manufacturer of specialty chips and networking equipment. Broadcom’s share price fell 7% in last night’s extended trading after the company said it expects to generate $14 billion in revenue this quarter, missing the analyst consensus forecast of $14.04 billion. The revenue guidance includes sales from AI optimized chips being revised upward to $12 billion.
DocuSign (DOCU) reported earnings and revenue that surpassed analyst expectations, explaining that its AI-enabled product, Intelligent Agreement Management (IAM) helped generate new sales. For the recent quarter, revenue climbed 7% y/y, but the company’s earnings guidance disappointed investors even though it was a tad higher than expectations. Shares of DocuSign fell approximately 6% in after-market trading. IAM uses AI to make finalizing agreement documents quicker while also transforming agreement data into insights. DocuSign CEO Allan Thygesen, in a conference call with investors, said IAM is experiencing higher customer win rates, larger average deal sizes and shortened periods for closing deals.
Stocks are on track for their worst week in a year as investors begin to question the feasibility of 2025 earnings estimates. All major equity indices are tanking with the Nasdaq Composite, Russell 2000, S&P 500 and Dow Jones Industrial benchmarks lower by 2.3%, 1.9%, 1.5% and 0.9%. Sectoral breadth is awful with every segment losing on the session. The laggards are comprised of technology, consumer discretionary and communication services, which are down 2.6%, 1.8% and 1.5%. The homebuilder sub-sector is up 0.4% though. Rates are plunging with the 2- and 10-year Treasury maturities changing hands at 3.66% and 3.68% in bull steepening fashion, 9 and 6 bps lighter on the session. The dollar is near the flatline as the US currency appreciates versus the euro, pound sterling and Aussie and Canadian dollars but depreciates relative to the franc, yen and yuan. Commodities are getting pounded, with crude oil, lumber, copper, silver and gold down 2%, 1.4%, 1.1%, 0.7% and 0.1%. WTI crude is trading at $67.90 per barrel on demand concerns as Riyadh enacts discounts on exports sent to Asia.
Despite the cooling employment market, rate watchers are still penciling a 25-bp reduction from the Fed on September 18. While figures so far this month haven’t been weak enough to warrant a 50, next week’s consumer and wholesale inflation data may move the needle further. The November meeting is a different story though, ladies and gentlemen: Fed fanatics are expecting a 50-bp trim as economists and traders alike see the data getting worse before it gets better. Meanwhile, IBKR Forecast traders are investing, speculating and hedging in our Fed Funds and Consumer Price Index (CPI) instruments amidst a volatile and turbulent landscape. I’m seeing an attractive opportunity in the over, or Yes, contract, which is priced at just $0.33 for a CPI figure exceeding 2.5%. My projection is in-line with the consensus this time at 2.6%, providing what I consider to be favorable odds for a triple.
For further information, please click here: Home | Interactive Brokers LLC
Louis Navellier sometimes humorously says we should just close the market in August, since much of Wall Street is on vacation and the trading desks are staffed by the “B” team. That turns August into a generally miserable month, packed with trading shenanigans and volatility.
Fair enough, but I hereby vote that we add September to that list. I’ll go one step further: If I had to choose between the two months, I would leave August alone and close September. Why? Historically speaking, September is unanimously the worst month of the year, measured by market performance.
To continue reading, including reviewing the graphs provided, please click here to be directed to the Navellier corporate website:
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Argan, Inc. (NYSE: AGX), a construction company founded in 1961 and covered by MarketGrader since 2007, operates across four business segments: Power Industry Services, Telecommunications Infrastructure Services, Industrial Fabrication and Field Services. The company operates in the United States, the Republic of Ireland, and the United Kingdom.
MarketGrader upgraded Argan to a BUY rating on June 12, 2024, reflecting a significant improvement from its previous HOLD rating, which we had maintained since December 2023.
Our BUY rating, based on an overall grade of 65 (out of 100), stems from our analysis of 24 fundamental indicators within our GARP (growth-at-a-reasonable-price) + Quality framework, and underscores Argan’s balance between growth and value, bolstered by solid profitability and cash flow indicators. The stock has risen almost 17% since the upgrade, with strong investor sentiment to go along with solid company fundamentals.
Argan’s recent financial performance showcases impressive growth, with a 61% surge in year-over-year revenue and a 43% rise in operating income. Its latest quarterly report of $1.31 in earnings per share blew past the consensus estimate of $0.97. And despite rising operating expenses, Argan’s growth trajectory appears sustainable.
From a valuation perspective, Argan trades at 18 times its expected EPS for the next 12 months, a discount to our optimal P/E ratio of 37, which is based on the company’s strong EPS growth rate. Along with a price-to-tangible book ratio of 4.3, this suggests an attractive entry point, despite a price-to-sales ratio of 1.7, which is slightly higher than its peers group average. Overall, in our view the valuation picture is compelling.
Profitability metrics, Argan’s weakest category within our GARP + Quality framework, reveal thin net margins of 6.1% and gross margins of 13%, both of which have declined in the last year. However, Argan’s conservative capital structure, with a debt-to-total capital ratio of under 2%, provides room for strategic debt utilization should management choose to leverage its balance sheet to boost its return on equity of 14%. And Argan’s cash flow position is robust, with trailing 12-month operating cash flow almost tripling to $173 million in the past year, affording the company financial flexibility for continued investment in growth initiatives without compromising profitability.
In summary, Argan presents an enticing investment opportunity despite some concerns around the company's recent margin contraction. Additionally, our current Sentiment score for the stock is a perfect 10, adding strong momentum to what is already a compelling fundamental story.
Today I want to talk to you about a very touchy and very personal subject: cancer and chemotherapy.
We all know how brutal cancer is, and how brutal chemotherapy is.
I remember growing up my grandmother was the first person I knew who had cancer.
I was very young at the time, but she seemed fine until she started the chemo, and then she was very sick.
I remember back then there used to be an expression…
“The chemo will get you before the cancer ever does.”
That always struck me.
I remember reading a study published in 2014 in The Lancet Oncology, that chemotherapy kills up to 50% of cancer patients at some hospitals.
Now, some of this is due to the type of care received. But that number, 50%, just shocked me.
I dug deep into the research at the time, when I was battling my own health issues.
What I learned is that chemotherapy really didn’t just attack cancer cells. It also attacked healthy cells.
And in that way, the analogy I used is that chemo treatments were like the “dumb bombs” dropped in WWII.
Just imagine flying over Germany and dropping bombs everywhere just to hit one factory – indiscriminate.
But thankfully, new drugs are emerging we’ve been talking about called “antibody drug conjugates,” or ADCs.
ADCs are part of a new class of drugs dubbed “smart chemo,” because they’re more like precision-guided missiles.
They go right after cancer cells.
And we’ve done very well the past couple of years focusing on “smart chemo” stocks.
===
NVIDIA buys 7 million shares of AI-biotech.
There’s an AI biotech selling for under $10 a share that seems poised to soar in 2024…
ARK Investment recently bought 6.8 million shares…
Bayer just signed a deal worth as much as $1.5 billion to have them develop new drugs…
And NVIDIA has just partnered with them.
Get the name of the stock here.
===
You think about ImmunoGen we recommended, and it got taken over for 463% above our recommended price…
Seagen, we recommended which was taken over by Pfizer for a nice, fast profit in Takeover Targets.
We’ve done well and I wanted to bring your attention back to a special report we wrote a few months back: “Smart Chemo.”
Inside, we highlight the different companies we like that are leading this ADC/”Smart Chemo” revolution.
One of the companies in that special report is Daiichi Sankyo (SYM: DSKYF).
I’m putting its name out there as a public service announcement.
They have a new drug called Enhertu which is a breakthrough breast cancer drug.
To me, Daiichi is the best big pharma company you’ve never heard of – it’s like Japan’s “Pfizer.”
We recommended shares back in February at $32, it went to $45 and now it’s at $39 a share so it’s pulled back a bit.
In our “Smart Chemo” special report, we focus on a few of these stocks. This is just one of them.
The reason I like Daiichi is its Enhertu is the most potent drug ever developed for breast cancer.
I’m revealing the name to you, even though we’re in the business of selling stock research, because we’re talking about breast cancer.
I’ve had a lot of friends who have gone through this.
This is the most serious stuff in the world.
And I want to make sure, God forbid, if you or your loved one ever have to deal with this that you go to your doctor and you ask about Enhertu.
If that drug applies to your condition then God-willing you get access to it because it has stopped tumors in their tracks. It’s pretty powerful.
But this is part of this new class of ADCs – “Smart Chemo” drugs – and the companies that are making these new drugs are really changing how we treat cancer.
I’m very bullish on this in the long-term.
Oncology is something I’m very interested in…
It’s something we’ve done very well on at Biotech Insider.
We’ve killed it the past six years investing in oncology stocks.
So I just wanted to say that I’m a big believer in “Smart Chemo.”
They’re doing to cancer drugs what smart bombs, precision-guided weapons, did to warfare…
Just revolutionizing the way we fight cancer.
I hope you never need it as a patient, but you certainly might want it as an investor.
Here’s my full report on “Smart Chemo.”
Have a wonderful day.
“The Buck Stops Here”
For further information: www.BehindTheMarkets.com
Investors should understand that companies cannot sustain growth unless their employees, customers, suppliers, and community are also treated respectfully. Long-term value creation is not about maximizing each quarterly earnings report. A better business strategy is to consider all the stakeholders, and then to optimize around them over the next 5 and 10 years. Happy employees and loyal customers lead to sustainable profits. Go ahead and treat your community and suppliers well too. The companies that have the financial resources and take this approach become known for their high quality and for being trustworthy.
The FACTS® model ranks companies by evaluating their “trustworthiness”. We are interested in investing in companies that are both doing well financially and are also satisfying their other stakeholders. We feel that incorporating these extra factors, FACTS gives us a unique lens to evaluate “quality.”
We are not alone in our thinking about “how” a company operates. Following the Enron and WorldCom scandals, data sources that measure various aspects of corporate behavior began selling “extra-financial” data. By integrating these metrics, we created a more holistic evaluation of companies.
This approach not only benefits investors but also contributes to a healthier market and society. FACTS encourages a shift away from short-termism and encourages a more sustainable approach, while not sacrificing returns.
The FACTS Framework is a model that includes five factors, or measured aspects of trustworthy business behavior. They are:
• Financial stability
• Accounting conservativeness
• Corporate governance
• Transparency
• Sustainability
The Trust 200 Index, based on the FACTS model, has continued to outperform all major diversified indexes over the last 13 years. The index was created by Index One, based in London.
To learn more about FACTS with exclusive details from Jordan Kimmel, please watch this short video: Jordan Kimmel shares the FACTS model
Separately Managed Accounts based on FACTS and the "most trustworthy companies in America" have been live for years and are currently available for investors.
For further information: www.MagnetInvestingInsights.com
I recently participated in a special webinar for Cabot Wealth subscribers, along with several other Cabot analysts. We were each asked to recommend a stock for the remainder of this year.
I selected private mortgage insurer MGIC Investment Corporation (MTG), due to my view that the housing market, which has been plagued by too-fast rising prices, low inventory, and high mortgage rates, was beginning to show new life. And, of course, if home sales increase, so does the writing of private mortgage insurance (PMI).
The PMI insurance industry has had a rough go of it. In the first quarter of 2024, new insurance written (NIW) fell by 9%, year-over-year. But the industry saw improvement in the second quarter, posting the smallest year-over-year decline in new business in almost three years. NIW came in at $79.8 billion, down just 2% from the same period a year ago, according to Keefe, Bruyette & Woods.
Already, buyers are coming back to the market, primarily due to home prices softening somewhat and mortgage interest rates that are forecast to drop to the 5% range in 2025. In July, existing home sales in the U.S. were up 1.3% from the 19-month high decline of 5.4% in the previous month, and inventory rose by 0.8% to about a four-month supply.
And, of course, the Federal Reserve is expected to begin dropping interest rates in its meeting next week, by some 0.25%--the first of maybe three declines for the rest of 2024, according to some economists.
All of these catalysts prompted my interest in MGIC.
MGIC Investment Corporation (MTG) also offers pool insurance for secondary market mortgage transactions; and contract underwriting services, as well as reinsurance. Its scope covers originators of residential mortgage loans, including savings institutions, commercial banks, mortgage brokers, credit unions, mortgage bankers, and other lenders, as well as government sponsored entities in the United States, the District of Columbia, Puerto Rico, and Guam.
Primary mortgage insurance provides mortgage default protection on individual loans, as well as covers unpaid loan principal, delinquent interest, and various expenses associated with the default and subsequent foreclosure. And in most cases, unless you put 20% or more down on a loan, you will have purchased PMI when you bought your home. MGIC Investment Corporation was founded in 1957 and is headquartered in Milwaukee, Wisconsin.
The company is generally ranked as the second largest private mortgage provider in the U.S. But in the first quarter of this year, MGIC moved to #5 in the market—a strategy implemented by the company, citing its focus on pricing discipline. Its CEO, Timothy Mattke, noted, “But from our perspective, good return, we want to remain disciplined on price," Mattke continued. We haven't lost any access to customers…and so for us, we look at it over the long run and aren't overly concerned about that dip from a Q1 perspective.”
The company’s second quarter report reflected that the strategy was working. Earnings per share were $0.77 per share, handily beating the analyst consensus estimate of $0.62 per share, and revenues also beat, coming in at $305.55 million, compared coming in at $295.66 million and beating the analyst’s forecasts by 0.61%.
Recent Earnings Estimates Revisions
Earnings estimates continue to improve for the company, as you can see below:
I recently participated in a special webinar for Cabot Wealth subscribers, along with several other Cabot analysts. We were each asked to recommend a stock for the remainder of this year.
I selected private mortgage insurer MGIC Investment Corporation (MTG), due to my view that the housing market, which has been plagued by too-fast rising prices, low inventory, and high mortgage rates, was beginning to show new life. And, of course, if home sales increase, so does the writing of private mortgage insurance (PMI).
The PMI insurance industry has had a rough go of it. In the first quarter of 2024, new insurance written (NIW) fell by 9%, year-over-year. But the industry saw improvement in the second quarter, posting the smallest year-over-year decline in new business in almost three years. NIW came in at $79.8 billion, down just 2% from the same period a year ago, according to Keefe, Bruyette & Woods.
Already, buyers are coming back to the market, primarily due to home prices softening somewhat and mortgage interest rates that are forecast to drop to the 5% range in 2025. In July, existing home sales in the U.S. were up 1.3% from the 19-month high decline of 5.4% in the previous month, and inventory rose by 0.8% to about a four-month supply.
And, of course, the Federal Reserve is expected to begin dropping interest rates in its meeting next week, by some 0.25%--the first of maybe three declines for the rest of 2024, according to some economists.
Housing Market and Interest Rate Environment are Improving
As I mentioned above, mortgage rates are trending downward, with current 30-year rates at 6.2%-6.9%, and looking to go lower.
Home prices are retracting. I my real estate business, I’m seeing as many as 20 price reductions in my small area every week. In May 2024, the median sale price for an existing home in the U.S. reached a record high of $419,300, according to the National Association of Realtors (NAR). But it had declined to $412,300 by July.
And in an interesting turn of events, last quarter, the median price for an existing home was higher than that of a new home (by $3.50 per square foot), due to limited resale inventory and efforts by home builders to increase affordability.
“I don’t expect to see a meaningful increase in the supply of existing homes for sale until mortgage rates are back down in the low 5% range, so probably not in 2024,” says Rick Sharga, founder and CEO of CJ Patrick Company, a market intelligence and business advisory firm.
Inventory is some 33% lower than pre-pandemic averages, and current inventory levels sit at their smallest deficit since fall 2020, according to Zillow analysis. That state of affairs should continue improving.
Likelihood of Recession Diminishing
Research firm FactSet said it recently searched for the term “recession” in the conference call transcripts of all the S&P 500 companies that conducted earnings conference calls from June 15 through August 15.
Of these companies, 28 cited the term “recession” during their earnings calls for the second quarter, significantly under the 5-year average of 83 and the 10-year average of 60. FactSet went on to say that “this quarter marks the second-lowest number of S&P 500 companies citing “recession” on earnings calls for a quarter since Q4 2021.”
And that bodes well for the housing and PMI industries.
Why I Like MTG
· MTG is one of the leading private mortgage insurer companies in the United States.
· Higher insurance in force, resulting from an increase in new business written, higher annual persistency, a decline in loss and claims payments, lower delinquency, better housing market fundamentals and prudent capital deployment, bode well for growth.
· The expected long-term earnings growth rate is pegged at 6.8%.
· Dividend Yield, 2.11%
· Shares are gaining momentum, but still trading at a P/E of just 9.11, a discounted level.
For further information: CabotWealth.com
Will it be a 25 basis point cut or a 50 basis point cut? That is the dominant question in both the bond and equity markets now. With the exception of the elections, this is the major question that will determine how the markets will react.
Traders now see less than a one-in-five chance of a half-percentage-point rate cut at the Fed's Sept. 17-18 policy meeting, according to Reuters. That is down from a better-than one-in-four chance before the release of data on Wednesday that showed the consumer price index (CPI) rose 2.5% in August from a year earlier, down from July's 2.9% increase. Investors, however, have sharply increased their bets on a half-percentage-point interest rate cut by the Federal Reserve next week, as the U.S. central bank prepares to lower borrowing costs for the first time in more than four years. Traders in the swaps markets are currently pricing in a 49 per cent chance that the Fed will opt for a bumper cut in a bid to prevent high rates from damaging the economy. In the prior week, they had priced in just a 15 per cent chance. The reassessment helped send stocks higher on Friday. That pushed the S&P 500 and the Nasdaq Composite to large increases which are reflective of the change in the markets’ outlook.
A closely watched survey from the University of Michigan showed that consumer expectations of inflation over the next year had fallen to 2.7 per cent, the lowest rate since late 2020. The university’s report on Friday also showed consumer sentiment for September rose to a four-month high. All of the major Bloomberg bond indexes also rose in price last week. Bloomberg’s Treasury index was up 0.30%, corporates up 0.43%, high yield up 0.28% and their municipal bond index rose 0.12%. Consequently, it appears as if both the bond and stock markets have further to run when the Fed starts cutting rates, no matter the speed or duration. Data last week showed U.S. hiring has slowed in recent months, but the drop in the unemployment rate to 4.2% in August provided some reassurance that the job market does not need an immediate bout of Fed support. The CPI and PPI reports last week were the last major announcements of major economic data before the Fed's meeting next week. I suspect that they will have a major impact upon the Fed’s decision. Fed Chairman Jerome Powell said on Friday that “the time has come for policy to adjust.” Powell also noted the timing and pace of cuts will "depend on incoming data," but the markets, according to Bloomberg, quickly moved to fully price in four rate cuts of 0.25% by the end of 2024 after the Fed chairman said the central bank has "ample room" to maneuver as policy enters its next phase. Powell also addressed the conditions in the labor markets.
“It seems unlikely that the labor market will be a source of elevated inflationary pressures anytime soon. We do not seek or welcome further cooling in labor market conditions.” -Fed Chairman, Jerome Powell
It appears as if “caution” is decreasing, but I remain on the conservative side of things. With our forthcoming elections just around the corner now, there could be news that changes this perception. Walk carefully and keep your eyes wide open! That is my advice.
For further information: www.Colliers.com
Stories of investing loss that underscore the importance of preparation, vigilance and learning from others’ experiences.
Have you ever made a disastrous investment? My worst investment ever was sinking money into a friend’s start-up, resulting in a painful and embarrassing loss. I tell you about it in this article.
Have you bought an investment you later realized was a mistake? I know that I am not alone in making investment decisions that I later regretted. I know this to be true because I started the “My Worst Investment Ever” podcast in mid-2018 to interview people about their worst investment experiences.
Six years and 800 interviews later, I’ve uncovered six common mistakes. I share them—along with six stories from guests on my podcast who made such mistakes—to help you avoid them.
Josiah Smelser is a licensed real estate agent who operates an investment property business with a partner. He shared his story in the episode “Push Through When Everything Goes Wrong.”
Many real estate investors dream of achieving the perfect flip—a quick buy, a swift renovation and a profitable sale. Eager to enter real estate, Smelser devised a plan: buy low-priced houses, fix them up, sell them for a profit and use the earnings to acquire rental properties.
He found a seemingly promising investment: a house far from the city center but attractively priced. On the day Smelser was to close the deal, water rushed through the bathroom ceiling. Despite this warning sign, the seller’s significant price reduction convinced him to proceed. This was a decision he would soon regret.
Smelser then skipped a property inspection to save time and money. Unfortunately, he discovered extensive termite damage after purchasing the house. As renovations progressed, he uncovered mysterious holes in the backyard. Pest control revealed an unexpected armadillo infestation, adding to the costs. Further complications included rotten wood around the windows, which, in turn, stretched his budget.
With the house finally ready for sale, Smelser faced another setback. He arrived with the first potential buyer only to find the front yard swarming with hornets. This required another costly pest control visit.
Months passed before another buyer showed interest. Then, the buyer returned with a home inspector. The inspector identified 30 issues needing attention. Smelser painstakingly fixed all of them only for the buyer’s appraiser to find 15 more. Finally, the buyer found six additional problems close to the closing date. These problems included water damage to the foundation.
In a frantic race to meet the closing date, Smelser fixed everything. However, a chimney cleaner accidentally blew black soot into the living room on the closing day, necessitating a last-minute cleanup. With mere minutes to spare, Smelser and his team cleaned and painted the walls, finally making the house presentable.
Smelser sold the house at a significant loss of $20,000. Beyond the financial hit, the experience cost him precious time and delayed his business plans. The ordeal taught him the importance of thorough research and due diligence, highlighting the true cost of missed opportunities and lack of preparation.
Smelser’s story leads us to lesson number one: failing to do your own research. To avoid this, consider writing down your research about your investment idea—whether it is a house, stock, fund, etc.—and the potential gains you expect to realize.
Author of two No. 1 bestselling books on Amazon—“Money Grows on Trees” (2019) and “The Naked Trader” (2020)—and CEO of Real Life Trading LLC, Jerremy Newsome told his story in the episode “Stop Trying to Hit the Home Run Trade.”
Inspired by Forrest Gump’s success with Apple Inc. (AAPL), Newsome convinced his father to give him money for investing. Newsome exited this first trade with excellent gains. This made his father happy and willing to further support his son’s newfound success.
Buoyed by the early win, Newsome’s father decided to go all in as Newsome turned his attention to investing in fast-rising silver. Unfortunately, this second investment didn’t go as planned, as Newsome bought just before a peak. Being a novice to the world of investing, he failed to consider a risk management plan to handle the market’s volatility.
To make matters worse, Newsome’s investment was not in physical silver but through derivative instruments, a risky move. As silver’s price plummeted, Newsome faced a 100% loss. The real blow came when he realized his father had given him his entire retirement savings, making this a devastating loss.
Newsome’s oversight was not considering the downside risk. The experience taught him the harsh reality of speculation and the importance of managing risk. The painful lesson: Always protect your capital and be cautious when everyone feels excited about an investment. The lesson for his father was to never allocate all your money to any particular investment opportunity.
Newsome helped us understand lesson number two: failing to properly assess and manage risk. To avoid this, separate your research on return from your research on risk. Then rank risks by probability and severity. Finally, use your research analysis to create a risk-reduction plan in case the investment does not go your way.
Jim Ponvanit is the founder and CEO of PeerPower Platform Co. Ltd., a fintech start-up focusing on the small- and medium-sized business marketplace lending in Thailand. Ponvanit shared his story in the episode “Apply Behavioral Finance Principles to Make Better Decisions.”
Ponvanit, who had seen gains in U.S. stocks post-2008, became obsessed with investing in market volatility in 2015. He invested 50% of his portfolio in the iPath S&P 500 VIX Short-Term Futures ETN (VXX) on the belief that volatility had bottomed out.
After a 40% loss in four months, Ponvanit doubled down. In doing so, he ignored opposing views and put the rest of his money into the falling investment. Though he was exposed to a myriad of opposing opinions by seasoned professionals, his belief in his research led him to disregard market signals and criticism.
By early 2017, Ponvanit sold his position. The total loss was equivalent to 70% of his initial investment (Figure 1). His story illustrates the dangers of overconfidence and the importance of listening to contrary opinions. The key takeaway: Never ignore market realities and avoid information-selection bias.
FIGURE 1
Overconfidence Can Lead to Big Losses
Jim Ponvanit became obsessed with investing in market volatility in 2015. He invested heavily in the iPath S&P 500 VIX Short-Term Futures ETN (VXX) on the belief that volatility had bottomed out. When his investment fell 40% in four months, he bought more shares rather than listening to opposing opinions. This eventually led to a 70% loss—a mistake that could have been avoided if he was open to the possibility of being wrong.
The exchange-traded note (ETN) Ponvanit bought was delisted in 2019. In its place, this 10-year chart of the ProShares VIX Mid-Term Futures ETF (VIXM) illustrates the drop exchange-traded funds (ETFs) and ETNs tracking the Chicago Board Options Exchange’s (CBOE) Volatility index (VIX) incurred between 2015 and early 2017, when Ponvanit sold his position.
Lesson number three is about making the right decisions. The mistake is to be driven by emotion or flawed thinking. To avoid this, find, explore and list opposing views. It is a good idea to discuss your ideas with a knowledgeable and objective person.
CEO, venture founder, speaker and author Azran Osman-Rani shared his story in the episode “From Zero to a Billion Dollar IPO.”
Osman-Rani, the founding CEO of airline AirAsia X, invested all his savings and took out loans to buy shares of the company after being urged on by the founder and investment bankers. Of course, people who sell commission-based financial products (like stockbrokers and insurance agents) make money no matter what happens. Osman-Rani, himself, believed in the concept of “skin in the game.”
The AirAsia X initial public offering (IPO) initially yielded a 600% return. So, Osman-Rani seemed to be rich, at least on paper.
In 2007, the airline owner urged Osman-Rani, as CEO, to invest his wealth rather than be awarded stock options. Investing nearly all his wealth was a stretch for Osman-Rani, but he did it. Before the IPO in 2013, Osman-Rani trusted his investment banker’s advice to use his original shares as collateral for a loan. Doing so allowed Osman-Rani to borrow more money from the bank to use toward buying additional shares of AirAsia X at the IPO price.
AirAsia X aggressively expanded by using the proceeds from its IPO to double its fleet and focus on China and Australia. Then, three major airline disasters hit in succession. Malaysia Airlines Flight 370 disappeared with 239 people on board in March 2014. Malaysia Airlines Flight 17 was shot down over Ukraine in July 2014, killing all 298 passengers and crew. Indonesia AirAsia Flight 8501 crashed into the Java Sea in December 2014, resulting in 162 fatalities. These crashes severely impacted the industry and AirAsia X’s stock price.
As CEO, Osman-Rani couldn’t sell his shares even as they plummeted. In fact, he decided to buy more. Osman-Rani had trusted his mentor and investment bankers and ended up having leveraged investments in AirAsia X. He eventually lost all of his shares when the bank sold them to cover his debt. Osman-Rani incurred a seven-digit loss and tendered his resignation.
This leads us to mistake number four: misplacing trust. To avoid this, get to know the person you are investing with, as trust only develops over time. Additionally, avoid excessive leverage like Osman-Rani accumulated, have a backup plan for unforeseen risks and be cautious of financial advice motivated by fees and commissions.
Creator and host of the weekly personal finance podcast “Money for the Rest of Us” David Stein shared his story in the episode “Trading Currencies and Commodities is Harder Than You Think.”
As he was transitioning into retirement, Stein was enticed by the excitement of the trading he witnessed at a hedge fund. With years of investment experience, he ventured into commodity futures and currency options. However, in doing so, he underestimated the difficulty of trading.
Despite his knowledge, Stein found trading challenging. He decided to stop but forgot a buy order he had previously placed. This order was to automatically buy silver if the price fell to a particular level. When silver’s price dropped, it triggered the buy order. The purchase led to an unexpected loss of $25,000 as silver continued its collapse. This oversight turned into a costly mistake made by a seasoned investor.
Stein’s experience highlights that trading is speculative and risky, even for experts. The key takeaways are to always monitor your trades and never underestimate the market’s unpredictability.
The loss reminds us of the importance of vigilance and caution. It also brings us to our fifth mistake: failing to monitor your investments—in this case, outstanding orders. To avoid this mistake, follow a regular, predetermined monitoring process.
Viola Llewellyn is the president and cofounder of Ovamba Solutions Inc. and now helps empower women to succeed. She told her story in the episode “Learn to Embrace Failure.”
Llewellyn and her partner Marvin Cole launched a peer-to-peer lending platform for small African market enterprises with initial investments from friends and family. They soon attracted the interest of an investment firm at a conference. This seemed like it would secure a promising partnership. Because Llewellyn was so eager for funding, she didn’t spend time doing a background check on the potential investor.
After a glamorous start, the investment firm promised a significant investment but delayed transferring the funds. Llewellyn faced mounting pressure, as she had committed to funding small businesses and launched a major marketing campaign. However, the promised capital never arrived.
Llewellyn had to retract her promises to her customers and face the embarrassment of failure. The collapse of the investment firm partnership taught her the importance of thorough due diligence and not relying solely on positive references. She learned to do background checks on financial advisers and planners. The process included regulatory agency checks on those professionals and their firms. The experience underscored the necessity of a backup plan and transparent communication with stakeholders.
Mistake number six occurred when my podcast guests invested in a start-up. To avoid losing everything in a start-up investment, allocate only what you can lose to start-up companies.
This brings me back to my story. Like Llewellyn, my worst investment was investing in my friend’s start-up. I found the experience painful because I lost a sizable portion of my wealth. It was also shameful because, as a top analyst and president of the CFA Society Thailand at the time, I was someone who should have been well-equipped to avoid such errors.
Through my journey of interviewing 800 people on the “My Worst Investment Ever” podcast, these six stories highlight crucial lessons. The lessons underscore the importance of preparation, vigilance and learning from others’ experiences to avoid repeating the same costly errors.
For more information, please visit AAII.com
Falling inflation, weak manufacturing activity, cautious consumer sentiment, and sluggish GDP and jobs growth have conspired to elicit a dovish tone from the Federal Reserve and the likely start of a rate cut cycle to avert recession and more jobs losses. I continue to pound the table that the Fed is behind the curve and should have begun to cut at the July meeting. Why? Well, here are my key reasons:
1. Although official inflation metrics still reflect lingering “stickiness” in consumer prices, my research suggests that real-time inflation is already well below the Fed’s 2% target, as I discuss in detail in today’s post.
2. Last week’s BLS jobs report shows 66,000 fewer employed workers in August 2024 versus 12 months ago after massive downward revisions to prior reports. And if you dig deeper into the August household survey it gets worse, indicating a whopping 1.2 million fewer full-time jobs (yikes!), partially offset by a big growth in part-time jobs.
3. The mirage of modest GDP and jobs growth has been temporarily propped up by unhealthy and inefficient government deficit spending (euphemistically called “investment”) rather than true and sustainable organic growth from a vibrant private sector that is adept at efficient capital allocation. Thus, despite government efforts to “buy” growth, recessionary signals are growing at home and abroad.
4. The burden caused by elevated real interest rates on surging debt across government, business, consumers at home and emerging markets abroad, and the impact of tight monetary policy and a relatively strong dollar on our trading partners must be confronted.
So, a 50-bps cut at the September FOMC meeting next week is warranted—even if it spooks the markets. As Chicago Fed president Austan Goolsbee said, “You only want to stay this restrictive for as long as you have to, and this doesn’t look like an overheating economy to me.”
A terminal fed funds neutral rate of 3.0-3.5% seems appropriate, in my view, which is roughly 200 bps below the current range of 5.25-5.50%). Fortunately, today’s lofty rate means the Fed has plenty of potential rate cuts in its holster to support the economy while remaining relatively restrictive in its inflation fight. And as long as the trend in global liquidity is upward (which it is once again), then it seems the risk of a major market crash is low.
Regarding the stock market, as the Magnificent Seven (MAG-7) mega-cap Tech stocks continue to flounder, markets have displayed some resilience since the cap-weighted S&P 500 and Nasdaq 100 both topped in mid-July, with investors finding opportunities in neglected market segments like financials, healthcare, industrials, and defensive/higher-dividend sectors utilities, real estate, telecom, and staples—as well as gold (as both a store of value and protection from disaster). However, economic weakness, “toppy” charts, and seasonality (especially in this highly consequential election year) all suggest more volatility and downside ahead into October.
Of course, August was tumultuous, starting with the worst one-day selloff since the March 2020 pandemic lockdown followed by a moon-shot recovery back to the highs for the S&P 500 (SPY) and S&P 400 MidCap (MDY), while the Dow Jones Industrials (DIA) surged to a new high. However, the Nasdaq 100 (QQQ) and Russell 2000 SmallCap (IWM) only partially retraced their losses. And as I said in my August post, despite the historic spike in the CBOE Volatility Index (VIX), it didn’t seem like the selloff was sufficient to shake out all the weak investors and form a solid foundation for a bullish rise into year end. I said that I expected more downside in stocks and testing of support before a tradeable bottom was formed, especially given uncertainty in what the FOMC will do on 9/18 and what the elections have in store.
In addition, September is historically the worst month for stocks, and October has had its fair share of selloffs (particularly in presidential election years). And although the extraordinary spike in fear and “blood in the streets” in early August was fleeting, the quick bounce was not convincing. The monthly charts remain quite extended (“overbought”) and are starting to roll over after August’s bearish “hanging man” candlestick—much like last summer. In fact, as I discussed in my post last month, the daily price pattern for the S&P 500 in 2024 seems to be following 2023 to a T, which suggests the weakness (like last year) could last into October before streaking higher into year end. Anxiety around a highly consequential election on 11/5 (with counting of mail-in ballots likely to last several days beyond that once again) will surely create volatility.
Many commentators believe the Fed is making a policy mistake, but it goes both ways. Some believe the Fed is turning dovish too quickly because inflation is sticky, the jobs market is fine, and GDP is holding up well, so it risks reigniting inflation. Others (like me) think the FOMC is reacting too slowly because the economy, jobs growth, and inflation are weaker than the mirage they seem, masked by inordinate government deficit spending, misleading headline metrics, and political narratives. As Fed Chair Jerome Powell said at the July meeting, “The downside risks to the employment mandate are now real,” and yet the FOMC still chose to hold off on a rate cut. Now it finds itself having to commence an easing cycle with the unwanted urgency of staving off recession rather than a more comfortable “normalization” objective within a sound economy.
Indeed, now that we are past Labor Day, it appears the “adults” are back in the trading room. As I discuss in detail in today’s post, economic metrics seem to be unraveling fast, stocks are selling off, and bonds are getting bought—with the 2-10 yield curve now “un-inverted” (10-year yield exceeds the 2-year). So, let’s get moving on rate normalization. After all, adjusting the interest rate doesn’t flip a switch on economic growth and jobs creation. It takes time for lower rates and rising liquidity to percolate and reverse downward trends, just as it took several months for higher rates and stagnant liquidity to noticeably suppress inflation. Fed funds futures today put the odds of a 50-bps cut at about 27%.
Nevertheless, stock prices are always forward-looking and speculative with respect to expectations of economic growth, corporate earnings, and interest rates, so prices will begin to recover before the data shows a broad economic recovery is underway. I continue to foresee higher prices by year end and into 2025. Moreover, I see current market weakness setting up a buying opportunity, perhaps in October. But rather than rushing back into the MAG-7 stocks exclusively, I think other stocks offer greater upside. I would suggest targeting high-quality, fundamentally strong stocks across all market caps that display consistent, reliable, and accelerating sales and earnings growth, positive revisions to Wall Street analysts’ consensus estimates, rising profit margins and free cash flow, solid earnings quality, and low debt burden. These are the factors Sabrient employs in selecting the growth-oriented Baker’s Dozen (our “Top 13” stocks), the value-oriented Forward Looking Value, the growth & income-oriented Dividend portfolio, and Small Cap Growth, which is an alpha-seeking alternative to a passive position in the Russell 2000.
We also use many of those factors in our SectorCast ETF ranking model. And notably, our Earnings Quality Rank (EQR) is a key factor in each of these models, and it is also licensed to the actively managed, absolute-return-oriented First Trust Long-Short ETF (FTLS) as an initial screen. Each of our alpha factors and their usage within Sabrient’s Growth, Value, Dividend, and Small Cap investing strategies is discussed in detail in Sabrient founder David Brown’s new book, How to Build High Performance Stock Portfolios, which will be published shortly.
In today’s post, I discuss in greater detail the current trend in inflation, Fed monetary policy, and what might lie ahead for the stock market as we close out a tumultuous Q3. I also discuss Sabrient’s latest fundamental-based SectorCast quantitative rankings of the ten U.S. business sectors, current positioning of our sector rotation model, and several top-ranked ETF ideas. And be sure to check out my Final Thoughts section with some political comments—here’s a teaser: Democrats have held the presidency for 12 of the past 16 years since we emerged from the Financial Crisis, so all these problems with the economy, inflation, immigration, and global conflict they promise to “fix” are theirs to own.
I invite you to share it as appropriate (to the extent your compliance allows). You also can sign up for email delivery of this periodic newsletter at Sabrient.com.
Market Commentary
It is often argued that a tax cut without a corresponding reduction in spending only serves to increase the budget deficit and add to the federal debt, thus passing the bill to the next generation. But as the folks at DataTrek have observed, “Regardless of individual and corporate tax rates, federal receipts have averaged 17% of GDP since 1960. Economic growth is the only reliable way to increase government revenues.” This suggests that lower taxes shift capital from the public sector to the private sector, which has proven itself much more adept at creating return on capital through efficient capital allocation rather than malinvestment and boondoggles of Big Government making top-down selections of winners and losers, like a politburo.
The reality is that truly organic economic growth equates to faster and more sustainable GDP growth than government-directed “investment” (i.e., spending bills, including boondoggles and “crony capitalism”) written by politicians (and their donors/lobbyists). It also equates to rising earnings and taxable income—and faster growth in tax receipts. (This works well as long as companies use their tax savings to grow the business through capital spending and hiring rather than only for share buybacks, which only benefits shareholders.) So, even if spending is not cut but simply held steady, the budget deficit and total debt should fall with lower tax and interest rates.
Therefore, rather than instituting high tax rates to fund the government and then stimulating the economy through deficit spending and monetary inflation (by flooding the financial system with liquidity), it is much more effective to keep tax rates at a modest level that provides the private sector with more working capital while keeping the money supply growing at a rate in line with the resulting organic economic growth rate. Velocity of money supply will ebb and flow a bit to offset minor policy mistakes, so the Fed doesn’t need to thread-the-needle on liquidity. But it should seek to incentivize lending--not by paying banks a high interest rate to hold reserves at the Federal Reserve, as is done today with the Fed’s “abundant reserves” policy, but rather with traditional “scarce reserves” policy.
The biggest hurdle to all of this is that politicians always seem to believe that their role in the world is to “fix” problems by throwing more money at them (and then creating new oversight boards—also on the taxpayer dole—to administer them!). To be fair, this is what the electorate often expects of them (“Do something!”). But as President Reagan once said, “The nine most terrifying words in the English language are: I’m from the government and I’m here to help.” It’s a surefire path to waste, distortion, division, and inefficiency.
Rather than relying on government spending on favored sectors, which inevitably creates only lackluster economic growth at best, the free market is best poised to decide what merits investment for the greatest returns and benefits. An expectation of high returns on capital spending means there are lots of willing buyers eagerly awaiting the production that comes from that spending—unlike today’s government subsidies which only distort markets. Government’s best role in the economy is as “referee” to enforce the rules of the game. Surely the poor outcomes (including low standards of living and oppression of individual rights) of every socialist system in history proves this point. There are only three ways to dig our way out of this enormous pile of debt: cut spending, “inflate away” the debt, or grow our way out of debt. But I believe it will require a combination of all three as such:
1. Reduce government spending and intervention to turn our budget deficit into a surplus through smaller government and restraints on spending and regulation (“red tape”).
2. Maintain a modest rate of inflation (2-3%) to devalue the debt by making the dollars owed worth less over time without crippling consumers today.
3. Foster solid, sustained, organic economic growth, led by the private sector and supported by low tax rates for all, as robust economic growth generates greater tax receipts (remember, 17% of GDP on average over time) and more opportunities and prosperity for everyone.
This approach puts money back in the pockets of consumers and businesses and loosens the reins to unleash innovation, R&D, and capital investment; foster robust commerce, competition, and the most efficient use of capital; and ultimately generate better profit margins, higher earnings, disinflation (through productivity and efficiency), and stronger GDP growth—leading to higher tax receipts (more than offsetting the lowered tax rates). It’s also good for gold and commodities, which may be entering a “Supercycle.”
But it really depends not just on who becomes president but also on the make-up of Congress and whether onerous tax and regulatory policies are rammed through that hinder corporations, small businesses, and entrepreneurs across the board—or whether they are given the freedom to invest, innovate, grow, hire, and prosper.
Regardless, I expect higher stock prices by year end and into 2025 (no matter who wins the election) as the Fed brings interest rates down and global liquidity rises. Keep in mind, rate cuts are implemented not simply by decree but also by injecting liquidity into the banking system (by buying securities) to increase the money supply available to lend, including through the Fed’s open market operations (OMO).
Inflation, employment, and Fed policy:
This week will reveal August PPI and CPI reports on 9/11-12, followed by the FOMC meeting on 9/17-18. So, let’s look back at the July readings, including Personal Consumption Expenditures (PCE), aka consumer spending. In the graphic below, the upper chart compares the trends since June 2021 in PPI, CPI, Core CPI, and Core PCE (“core” means that it excludes the volatile food & energy components). PPI cratered to nearly zero in June 2023 but then chopped around since then. Similarly, headline CPI essentially went sideways since June 2023. However, Core CPI and Core PCE have maintained a consistent downward trend from their September 2022 highs, and over the past couple of months, the headline versions have been falling in tandem with the core versions. July PPI was +2.27% year-over-year (YoY), CPI was +2.92%, and Core CPI was +3.21%. The Fed's preferred inflation metric is Core PCE, which came in at +2.62% for July.
However, these YoY readings are skewed by one-time items like the big reset in insurance premiums at the start of the year—I can tell you that my auto and homeowners premiums spiked by a shocking amount. And every monthly comparison to the same month last year is going to be impacted by that one-time price hike until Q1 2025. Moreover, it seems to me that inflation in other items is no longer going up as fast. So, to get a better read on the current inflation trend, one might look at the annualized month-over-month (MoM) price changes, but that can be quite volatile for a single month, so I prefer to watch the rolling 3-month annualized average of MoM readings, as shown in the lower chart. You can see that annualized 3-month Core PCE fell to +1.72% in July, while 3-month Core CPI fell to +1.58%, 3-month headline CPI at just +0.42% (!), and 3-month PPI fell to +1.19%. So, the current trend is much better than looking back 12 months (before the insurance reset).
However, I have always been skeptical of numbers presented to me, even from supposedly objective sources. I think it’s the analytical bent I was born with (which can be quite annoying to my wife) along with my engineering training and experience and my years applying the bulletin board test (aka “smell test”) to studies run by my analyst colleagues through the years. As Mark Twain once said, “Lies, damn lies, and statistics.” You can create “truthful” metrics to effectively support any argument or position. The Fed has been basing its monetary policy primarily on metrics calculated by federal agencies regarding inflation, jobs growth, and GDP. But headline numbers be illusory…the devil is in the details—particularly our overreliance on government deficit spending. So, I like to look beyond the headline numbers to discover what really might be going on.
One such alternative inflation metric I recently came across is “Harmonized Index of Consumer Prices” (HICP), which is a European method of accounting for inflation across countries in the EU. As such, it was designed to facilitate international comparisons of consumer price inflation. The U.S. Bureau of Labor Statistics (BLS, in the Department of Labor) began calculating a US version of the index as a research project in 2006. Compared to CPI, there are two main differences. First, HICP includes rural populations while CPI focuses solely on urban areas, and second, HICP excludes the fictitious concept of owners' equivalent rent (OER) and replaces it with the true cost of owner-occupied housing (e.g., price of home acquisition, repairs, and improvements). The July reading for HICP came in at +1.72% YoY, and the rolling 3-month annualized reading was just +0.85%.
So, as illustrated in the lower chart above, all five of the annualized 3-month metrics are well below the Fed's 2% target. In addition, the real-time, blockchain-based "Truflation" metric (which is published daily and historically presages CPI by several months) just hit a new all-time low of +1.17% (as of 9/9).
Regardless, some political opportunists today are trying to suggest that the inflation problem was caused by greedy businesses “price-gouging” vulnerable consumers, so they propose to institute close monitoring (another government oversight board!) and harsh penalties. But the econ team at First Trust has pointed out that inflation only became a global phenomenon in the wake of the pandemic, with strong correlation to the massive global liquidity injections (i.e., money supply growing far faster than GDP growth). As First Trust opines, “Ultimately, the best way to fight inflation is to have the Fed focus on price stability while the government minimizes taxes and regulation to encourage competition and risk-taking. Competition, not new regulations, is the way to keep prices down.”
Other central banks around the world are already starting to cut rates and inject liquidity—with perhaps as much as $2 trillion on the way by some estimates. Already, total global liquidity recently hit an all-time high of about $175 trillion, according to economist Michael Howell of CrossBorder Capital. This suggests greater access to capital around the world, which likely will induce rising demand for risk assets like equities and high-yield bonds. Indeed, Howell reminds us that the best time for investors is when policymakers are trying to stimulate sluggish economies. The Fed will be the last major central bank in the West to begin an easing cycle. As famed investor Jim Paulsen espoused, "This is the first post-war bull market where the Fed has maintained tight policy throughout its entire duration. Typically, the Fed begins easing even before the bull market takes off. In a sense, the Fed is resetting the clock on this bull run by its latest actions."
Deteriorating jobs and economic metrics:
Last Friday’s BLS nonfarm payroll (jobs) report for August showed continued weakness, falling short of expectations. Although the unemployment rate fell slightly to 4.2% from 4.3% in July (the highest since October 2021), there were fewer new hires than expected and a continued trend of downward revisions to the June and July reports—so, while 118,000 new jobs were added (although it seems inevitable it will be revised down next month), June and July were revised down by 86,000 total, largely offsetting August’s gains.
Most shocking was the -818,000 downward revision to new jobs created during the April 2023 through March 2024 period (the biggest negative revision since 2009), suggesting the reports have been overstating the strength of the job market. Indeed, we continue to see consistently downward revisions to prior monthly jobs reports (which smells of deliberate manipulation)—and a notable overdependence on government-created jobs rather than organic private-sector growth. For example, the August jobs report showed 24,000 new government jobs and 24,000 fewer manufacturing jobs. As the econ team at First Trust recently opined, “We are worried that we have come very close to state-run capitalism. In the past year, 82% of all net new jobs have been in government, healthcare and education.”
There has also been an increasing skew toward growth in part-time jobs while full-time jobs are falling. In fact, digging deeper into the August household survey (within the BLS jobs report) shows 66,000 fewer employed workers than in August 2023, but there are 609,000 more “”part-time for economic reasons” and 531,000 more “part time for noneconomic reasons”—which implies a whopping 1.2 million fewer full-time jobs versus 12 months ago.
Moreover, August ADP private payrolls showed the smallest monthly hiring growth since in 3.5 years at just 99,000 versus an expectation of 145,000, marking five straight months of MoM slowing. The latest BLS JOLTS report showed that July closed with the fewest number of job openings since January 2021 and the ratio of job openings to unemployed persons seeking work fell to 1.1, which is below pre-pandemic levels.
The New York Fed consumer expectations survey showed fear of becoming unemployed in the next four months at the highest level since 2014. The University of Michigan survey section regarding expected changes in household income is nose-diving. The Conference Board Consumer Confidence survey showed that its labor differential gauge continues to deteriorate.
What else is weakening besides inflation, jobs growth, and consumer sentiment? Well, construction spending is down, led by falling homebuilding activity, and while the jobs report showed construction jobs at an all-time high, the JOLTS report showed construction job openings and housing starts are in freefall. The ISM Manufacturing Index for August declined yet again to 47.2 and remains in contraction (below 50) for 21 of the last 22 months. Most notably, the new orders component is at its lowest level since May 2023 and has been in contraction for 22 or the last 24 months, while order backlogs have been contracting for 23 straight months, and the production index is at its lowest level since the pandemic lockdowns, leading to worker furloughs and a contractionary employment index. The ISM Services Index for August reflected stagnant activity and a slowdown in hiring, with the employment component falling once again.
Furthermore, the Fed’s Summary of Commentary on Current Economic Conditions (aka “Beige Book”) revealed that economic activity is flat or falling in 9 of its 12 districts, with heightened concerns about economic activity and recession rather than inflation. Moreover, WTI crude oil price fell below $70/bbl to a new 52-week low, which is disinflationary (good) but also recessionary (bad); the important industrial metal copper (CPER) has weakened substantially after surging in May; and the Invesco Commodity ETF (DBC) just set a new 52-week low.
I can go on. Core shipments of durable goods fell in July for the third consecutive month and have fallen substantially since the pandemic-era PPP loans and stimulus payments. New Chapter 11 bankruptcy filings have surged to the highest since 2012. Commercial real estate foreclosures have surged. Real retail sales have been essentially flat for 3 years. Credit card delinquencies continue to rise, and credit card defaults are at record levels--even higher than during the Financial Crisis.
And don’t overlook the economic struggles in China, with a worse-than-expected slowdown in the PMI Manufacturing (also suggestive of falling energy demand), and as unemployment continues to climb (with youth unemployment surging above 21%), GDP growth slows (4.7% in Q2), and public unrest builds. Although Chairman Xi has been adamantly against new stimulus measures (that would add more debt for his “house of cards” economy), he had no choice but to let the PBoC begin injecting liquidity via interest rate reductions and reverse repos, and likely will need much more.
Stock valuations:
Below is an update to last month’s chart showing how the 2024 stock market (thru 9/6) is looking a lot like 2023. Of course, while 2023 began on the heels of the 2022 bear market, 2024 commenced amid the AI-driven, Tech-led optimism and the promise of immense productivity growth, rising earnings, falling inflation, and a supportive Fed. So, while the macro climate was quite different entering this year, the S&P 500 continues to track quite similarly to 2023. If it continues this way, we might expect further downside (and better prices) yet to come, perhaps with the ultimate buying opportunity arriving in October—or perhaps in early November, given election uncertainty (and anxiety).
A cautionary message comes from the so-called “Buffett Indicator,” named of course for Warren Buffett of Berkshire Hathaway (BRK.B). He believes that stocks are oversold when the ratio of total market capitalization to GDP moves too far above the long-term mean. Well, the long-term mean is about 82%, and it is currently approaching 200%. Of course, there is abundant (and rising) liquidity that needs to go somewhere, and much of it is going into risk assets like stocks, but the point is well taken.
Price ratios of key indexes can illustrate changes in market breadth. As examples, the upper chart below shows the 3-month price ratio of the equal-weight S&P 500 (RSP) divided by the cap-weight S&P 500 (SPY), and the lower chart shows the 3-month ratio of S&P 500 Value (SPYV) divided by S&P 500 Growth (SPYG). Both charts are nearly identical over this timeframe. Notably, the value and quality-oriented Dow Jones Industrials (DIA) divided by Nasdaq 100 (QQQ) looks quite similar as well. All are at 3-month highs and on buy signals—above the 20-day simple moving average and pointing upwards.
After displaying extreme positive performance and valuation divergences into mid-July, the market began to rotate and broaden into the lagging segments. Long-invincible Growth has been crushed by Value (although Growth is still well ahead YTD). Moreover, Technology (XLK) has fallen dramatically while defensive/value sectors like Consumer Staples (XLP), Real Estate (XLRE), and Utilities (XLU) have held up much better over the past month. After all, for quite a while the Big Tech titans have served as a safe, “defensive” play given their wide “moats,” impenetrable brand loyalty, huge cash balances, and massive capex budgets providing a huge advantage in innovation.
When the imminence of Fed rate cuts was in doubt, capital kept flowing into the cash-flush mega-cap Tech titans, pushing up their valuation multiples. But when the economic data soured, rate cuts came back in play, and the capital-intensive and interest-rate-sensitive value and quality stocks became attractive given their much lower valuation multiples. For example, the forward P/E ratio on the Nasdaq 100 (QQQ) is 24.5x and the forward P/E-to-Growth ratio (PEG) is 1.50x, and the S&P 500 (SPY) is at 21.0x and 1.54x, as of 9/6. But looking beyond cap-weighted, broad market indexes we find more palatable valuations, with the equal-weight Nasdaq 100 (QQQE) at a forward P/E of 22.0x and forward PEG of 1.50x, and the equal-weight S&P 500 (RSP) at 16.7x and 1.58x. The lower the forward P/E and PEG, the better, so while the forward PEG ratios for the equal-weight indexes are about the same as their more popular cap-weight versions, the forward P/Es for the equal weights are much more attractive. On the other hand, small caps surged in July but have fallen out of favor, likely due to recession fears. Some commentators opined at the time that the small-cap rally was unsustainable because it was not supported by fundamentals given that the percentage of companies in the Russell 2000 that are unprofitable (negative trailing 12-month EPS) has risen from 15% in the 1990’s to 41% today.
Moreover, they have high debt loads and thus rely on new debt issuance to stay solvent (euphemistically called “zombie” companies). But when you look at the subset of fundamentally sound small caps, they comprise an undervalued asset class. For example, the quality-oriented S&P 600 SmallCap (SPSM), which requires consistent profitability for index eligibility, has a forward P/E of 14.5x and a forward PEG of 1.41x, while the zombie-laden Russell 2000 (IWM) is at 15.3x and 1.23x.
Assuming the Fed provides a combination of falling interest rates with a modest uptrend in M2 money supply (in line with organic economic growth), an active selection approach that identifies high-quality companies with the best fundamentals and growth prospects—which is what Sabrient seeks to do with our Small Cap Growth portfolio. Furthermore, our new Scorecard for Stocks (soon to launch as a research subscription) provides the Top 30 stocks on a weekly basis for each of four investing strategies, including a rules-based version of Sabrient founder David Brown’s Small Cap Investing strategy, as described in his new investing book—which will be published on Amazon.com shortly.
Summary:
So, this all suggests to me a 50-bps rate cut on 9/18 is justified. In fact, rates should be 100 bps lower now, but that would be too much of a shock to the financial system to implement all at once. But it should get done by January at the latest. The only potential caveat is GDP growth, with Q2 real GDP growth having been revised up from 2.8% to 3.0%. However, Vance Ginn, the former chief economist of the White House's Office of Management and Budget tweeted, “When you correctly subtract volatile inventory investment and redistributionary, unproductive government spending, the productive private sector growth was just 1.3%.... It's good that GDP inflation moderated to 2.3%, but disposable personal income increased by just 1%, and the savings rate declined to a fresh low of 3.5%.... Bottom line: The American economy continues to fluctuate greatly because of bad fiscal and monetary policies that contribute to poor outcomes for many Americans.” Looking ahead, the Atlanta Fed’s GDPNow estimate for Q3 is 2.5% (as of 9/9).
Moreover, two indicators of GDP are Gross Domestic Income (GDI) and economist Mark Skousen’s Gross Output (GO), and both suggest there may be downward revisions to prior GDP readings ahead. GDI typically grows in line with GDP (and is considered a more accurate metric, but the two have diverged of late, with Q2 real GDI growth at just 1.3%. And regarding GO, the BEA publishes GO as a measure of the full scope of commerce throughout the supply chain (not just final demand like GDP), but Skousen also computes an adjusted version of his GO metric that uses gross wholesale and retail figures, as opposed to the BEA’s headline version that uses only net figures. Adjusted GO grew in Q1 at a nominal annualized rate of just 1.0% (for some reason it is reported much later than the other metrics, so Q2 still isn’t out yet). In addition, the latest GO report shows B2B spending growth turned slightly negative—further evidence that only government deficit spending has kept GDP and jobs growth barely positive rather than fostering strong organic growth from a vibrant private sector that is much more adept at efficient capital allocation.
By the way, the 2-10 yield curve “un-inverted” last week, with the 2-year closing the week at 3.65% and the 10-year at 3.71%. So, the technical “inversion” is over. However, I have written in the past that suspected manipulation of the 10-year Treasury note (with issuances mostly occurring on the non-coupon short end of the yield curve) was not indicative of a true market rate. Michael Howell of CrossBorder Capital has computed an adjusted 10-year yield based on essentially risk-free agency mortgage-backed securities (MBS) which suggests the market-based yield curve never actually inverted (and has been steepening for the past 18 months). As do I, Howell thinks that the Fed feels a need to weaken the dollar, which means a surge in liquidity is coming (via tactics like drawing down the TGA and RRP facility, cutting banks’ SLR, and debt monetization) that sparks a stock market rally well into 2025.
So, again, I think the Fed needs to cut more aggressively, particularly if the August inflation metrics fall meaningfully. Indeed, the collapse in market Treasury yields following the FOMC rate decision on 7/31 indicates that investors are signaling a belief that the Fed made a policy mistake by holding off. Many commentators believe a surprise 50-bps cut is unlikely due to the shock it would cause to the global financial system (including leveraged carry trades)—which is why starting with 25 bps in July would have been the prudent move. As a reminder, heading into the July FOMC meeting, former New York Fed President Bill Dudley reversed his hawkish view and called for an immediate rate cut, “I’ve long been in the ‘higher for longer’ camp… The facts have changed, so I’ve changed my mind. The Fed should cut, preferably at next week’s policy-making meeting… Although it might already be too late to fend off a recession by cutting rates, dawdling now unnecessarily increases the risk.”
At the Kansas City Fed's annual economic symposium on 8/23 in Jackson Hole, WY, Fed Chair Powell himself admitted, "Today, the labor market has cooled considerably from its formerly overheated state… the cooling in labor market conditions is unmistakable… All told, labor market conditions are now less tight than just before the pandemic in 2019... The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” But I’m concerned about Powell’s insistence on being “data dependent” with inflation data that seems focused on YoY comps rather than the most current trend (e.g., annualized 3-month metrics). We shall see what the August CPI and PPI reports show on 9/11 and 9/12, respectively.
Again, my view is that “normalization” means ultimately taking fed funds down to a terminal rate of about 3.0-3.5% (from today's 5.25-5.50%), and there seems to be little reason for the FOMC to take a 25-bps baby step when it is now apparent that a July cut would have been appropriate—particularly given the growing struggles in the economy and jobs (and a growing realization that maybe “Bidenomics” has not been so fruitful after all). So, let’s get moving on rate normalization with a 50-bps cut this month. Fed funds futures today put the odds at about 27%.
Final Thoughts:
We as a nation need to bring back calm, sober discourse to offset all the noise and distortion surrounding the presidential election, especially given its potential impact on fiscal policy, the budget deficit, economic growth, and inflation. So, here are some rational musings for you to ponder (and perhaps share).
I can’t help but be dismayed that neither Vice-President Harris nor Governor Walz has worked a day in their adult lives in the private sector, so perhaps it’s no surprise that their first instinct to solving inflation is to accuse private enterprise of price-gouging. They have always been on the taxpayer payroll. They believe in Big Government, even though government spending programs have proven to be bad at generating ROI. In fact, most of the federal budget today goes toward entitlement programs and interest on our massive debt. Their party convention was focused on little more than emotional proclamations of “hope and joy,” identity politics, celebrity speeches, and “anyone but Trump,” with no real substance or policy discussion—except to distance Harris from her long-held views expressed during her previous presidential run (and in her current White House stint as VP). Their platform seems to be heavy on entitlements, deficit spending, taxation, regulation, DEI, and limitations on the Bill of Rights—none of which are popular, which is why they avoid talking about any of it.
But I think what distresses me most about the Democrat ticket is that their desire for the White House seems devoid of passion or true leadership. Harris was installed as a figurehead, a cog in the party machine, rewarded for her loyalty with the party nomination without having to endure a primary campaign or a single debate or press conference. Surely, dutifully obeying her handlers and avoiding honest discussion with the press and instead simply reading teleprompter lines and toeing the party line does not reflect much passion in her mission, or value in her unique ability to lead the greatest and most powerful country on earth, or to fix real problems and repair societal discord and degradation.
Ultimately, Harris seems to be just a fresh coat of paint on the same ramshackle house, i.e., a new face on the same misguided policies. No worries, she promises to double-down on those policies—we just need to print more money to throw at them. Her biggest policy proposal is to punish greedy businesses for price gouging and then raise taxes on them so that they have less to invest in growth, capex, or hiring—all as a way to somehow support the middle class. But while the middle class was gaining ground during the Trump years (with his business- and worker-friendly policies), it has struggled mightily under Democrat leadership and especially over the last 4 years.
As for former President Trump, he came onto the scene in 2015 as a “rogue elephant” from the private sector, bent on upending the Washington “swamp.” Love him or hate him, you can’t deny that Trump is a strong, passionate leader. He has remade the Republican Party in his image with his populist and constitutionalist vision. As a billionaire, it is clear he is not in it to enrich himself (like most career politicians) nor as a vanity pursuit (since he is already rich and famous and does not need the headaches and threats to his life that public office brings). Instead, he seems to sincerely want to “fix” the country and believes only he can—as only a highly successful extrovert from the private sector can do with sincerity (much like Arnold Schwarzenegger when he became “governator” of California). As such, he is unbribable.
Although Trump doesn’t have the vacuous celebrity class behind him, he has something better—brilliant individuals like Vivek Ramaswamy, Elon Musk, David Sacks, Bill Ackman, Marc Andreessen, and RJK Jr., and their reasoned, rational perspectives. Like most of them, I was a reluctant Trump supporter at first. In 2016, I voted in the primary for John Kasich, thinking he had the best qualifications. But I began to appreciate the method to Trump’s madness as president, although I grew weary of his combativeness with the hostile press. He is flawed in many ways (aren’t we all?), and he doesn’t take unfair criticism well. Indeed, the press and Dems revel in pushing his buttons; they were (and remain) relentless. In 2020, given the pervasive and disorienting mind-virus of Trump Derangement Syndrome (TDS), unfounded impeachment proceedings, and the summer violence and vitriol, I briefly considered voting for Biden, thinking he could be a unifier—but then I came to my senses five minutes later. Of course, Biden turned out to be an angry divider, accusing half the population (“the MAGA bunch”) of being potential domestic terrorists and weaponizing the justice system.
Most of all, Trump is extremely passionate about—and loves to extemporaneously expound upon (anytime to any audience, no matter what his handlers tell him)—how he intends to “save the country” by restoring the American ideals of freedom, independence, liberty, equal opportunity, personal responsibility, meritocracy, initiative, entrepreneurship, capitalism. But the Left insists these are racist, homophobic, misogynist, White Christian constructs of oppression. Real freedom, we are told, is legalized drug use; “reimagined” (aka defunded) policing, no-cash bail, and decriminalization; gender fluidity; unrestricted abortion; single motherhood and deemphasis of the family unit; equal outcomes, DEI, and affirmative action; and a benevolent government “nanny state” that decides for you what speech is permissible and how best to allocate scarce capital for the common good. Today’s push for “equity” has cultivated an entitlement mentality that insists upon a lowering of standards, expectations, and outcomes to the lowest common denominator, which serves no one in the long run. Ignorance is not bliss, but progressive ideology thrives in ignorance.
Rather than lowering standards and expectations and encouraging more dependency, society and government leaders should seek to elevate standards and expectations and less dependency—which means a return to the standards that made us great in the first place. I know it can be a scary thought for those who have been conditioned to rely on government handouts, but reducing federal spending and cutting taxes to shift capital from relatively unproductive government spending into the hands of relatively productive private enterprise would be a long-term win for our economy and all the industrious workers who crave greater personal growth and prosperity.
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