What a week, what a month and what a year it has been already.
Can we have a redo to 2016, please?
I have been screaming for more than a year about the morons at the Federal Reserve being wrong on their jihad to raise rates, and toward the end of the year threw in the towel just to get them off our backs. Now, whether we like it or not, things have come home to roost for global markets and certainly for the pinheads at the Federal Reserve and for all the rest of us as well.
So between watching the NFL playoffs and playing a round of golf in a foursome that includes guys I have known all my life (actually, since the first day of kindergarten), here's what I will be thinking of this weekend:
First and foremost on my mind will be whether we will see some sort of respite/lift/bounce from the hellish three weeks of selling we have been through in the global markets. My heart says yes, but my mind says no, we will not. Maybe we'll get a repeat of this week, where we get a sharp bounce like we did on Thursday and then the selling could resume. Most of it has to do with the huge, huge, huge mistake the Fed made by raising rates last month.
In the last month or so, we have finally seen the FANG quartet -- Facebook (FB), Amazon (AMZN), Netflix (NFLX) and Google, now Alphabet (GOOGL) -- start to weaken, with selling in those names intensifying in the last couple weeks. The question is not about growth, which more than likely should continue, but about the valuations of a couple of those names.
With very little earnings to show versus where the companies currently are valued, a serious bear case could be made for those names. However, the Facebook and Google/Alphabet in the FANG quartet are not really an issue at the moment. It's the lack of meaningful earnings from Netflix and Amazon that are the cause of concern.
My take on those two is simple. They are in hyper growth mode and are sacrificing profitability at present to invest in their respective hyper growth. Both companies have the triggers to rein back spending, and investors would see a big pop in earnings if management were to do so. Yes, I can't deny that at the moment they could be overvalued. However, valuations are based on future earnings, so I am comfortable with my positioning in the FANG quartet even though investors/traders/flash boys/hot money still seem to be chasing these names despite the horrific selloff we have seen thus far.
With almost every sell-sider already reducing his or her estimates on Apple (AAPL) along with the accompanying price target, can Apple and CEO Tim Cook pull a rabbit out of the hat and surprise investors when the company reports at the end of the month? Investors still seem to think so -- otherwise Apple would be sporting an eight handle at best.
Now that the Fed has managed to jam itself into another corner -- with the earlier mistake being the crusade it began in June 2014 to raise rates and eventually forcing itself to raise them last month despite every global central banker pleading with the governors not to do so -- what should we expect from the geniuses at our Federal Reserve going forward? Given the self-serving nature of Fed members, I think they slowly but most unwillingly will be forced to continue to ease off the "four rate hikes in 2016" mantra. More than likely, we will not see more than one rate hike in 2016, probably at the end of the year at best. (One of my 2016 predictions already would be incorrect if this plays out, although the principle would still be spot on.)
Chipotle Mexican Grill (CMG) has been the big winner in this dismal week, up around 13% as investors once again run to eat their burritos. I have a bad feeling in the pit of my stomach (sorry) that a small part of the other shoe is still to drop. We shall see.
Finally, I am going to be thinking that, while we are enjoying our long weekend, China will be releasing a slew of its economic data, including fourth-quarter GDP and fiscal 2015 GDP numbers. I wonder how close to 7% that final GDP reading will be? Will it also be "manufactured in China" like almost everything nowadays seems to be, or will it be an accurate release of what the actual GDP growth was in that country in 2015? I'm not calling our Communist friends liars, but I don't trust their economic data, either.
With that I wish each and every one of you and a safe and joyful long weekend with your loved ones.
May all your trades always be in your favor.