The Safest Stocks Aren’t Safe Anymore; Valuations Are At Record Highs

Since the recovery and ZIRP, investors have piled into consumer goods stocks, due to predictable earnings trends, global outreach, and because they paid dividends.

Inside of my laboratory (Exodus), I’ve affixed tons of visuals to accompany the hard data. Humans are a visual species.

Let’s revive three core industries of the consumer goods sector: personal products, cleaning products and processed and packaged goods.

Best represented by PG, CL and KMB

Best represented by PEP, MDLZ and GIS

Best represented by CLX, CHD and ECL

The consumer goods industry is trading at a 50% premium to the median PE of the overall market. Ten years ago, it was trading at just a 11% premium.

The processed & packaged goods industry is trading at a 40% premium to the median PE of the overall market. Ten years ago, it was trading at just a 3% premium.

The personal products industry is trading at a 16% premium to the median PE of the overall market. Ten years ago, it was trading at just a 8% premium.

We run data for over 200 industries, and in my experience, have been able to foretell plenty of corrections. For example, during live demos we ran last year with customers, the biotech industry was something that was highlighted as being historically expensive. One year, whereunto, the industry has been racked with losses in excess of 30%.

Cramer did an excellent job this evening in describing the inexorable rock you now find yourselves in, long stocks into the teeth of a grindhouse. Make no mistake about it, the path towards prosperity, the ephemeral pursuit of happiness that is always out of reach, is lined with groundworks designed to waste you, leave you at the side of the road, killed.

The Federal Reserve is dead serious about hiking rates. At first, I didn’t believe they would. But the incessant rhetoric cannot all be for show. They’re manipulative scoundrels, not children. Ergo, the only logical conclusion that I can make is they’re interested in causing economic turmoil.

Higher rates will stress oil companies trying to access lines of credit. It will cause issues on both the local and national level. With the world entering a negative interest rate era, it makes no sense for America to diverge by such a degree that we’re seriously talking about hiking rates up to and above 3% by 2018.

If America is the sole bastion of economic prosperity in the world, why on earth would you want to risk upsetting that apple card?

Cramer thinks you need to pray that Yellen isn’t on a war path towards ruin.

Markets gave back yesterday’s gains, as the chop continues. The Dow is down about 600 points over the past month and the ‘sell in May’ thesis seems to be playing out exactly according to schedule. Even still, there will come a point in time when the market will swing higher, providing succor to those of you caught at the high end of the recent range.

Unfortunately, according to the laws of mathematics, that time is not now.

I’ve been in a 75% cash position, 25% TLT for about a month, ever since covering my XLE short. Truth be told, I never should’ve deviated away from my Exodus inspired program buying of SPY upon systemwide oversold signals. Nevertheless, we can only move forward and must not lament over the past.

When Exodus flags oversold, I will be going long SPY in 25% clips. The track record is indelibly profound.

The Fed minutes will be released tomorrow. In light of Fed’s Kaplan, Williams and Lockhart’s absurd comments today, suggesting 7 fresh rate hikes are just around the bend, you should fear those minutes.

As you were.

I do not think this has anything to do with the pseudo inflation scares that seem to be causing people to buy raw commodities. Today’s rout in food related stocks, at a time when the market is off by 200, is concerning. If the market was up, I’d say this was rotation out of safe stocks into risk. But, this isn’t that. This is distribution, investors locking in profits in some of the safest winners over the past year, heading into cash.

Let’s review.

TSN -3%
HRL -3.7%
SAFM -5%
CORE -4.3%
SPTN -5%
CALM -3.5%
DF -3%
CVGW -4%
MDLZ -3.3%
GIS -2.7%
K -2.5%
CPB -3.25%
CAG -2.7%
SJM -2.6%
THS -3.4%
FARM -7%

If you have a better explanation, I am all ears. With gold and treasuries higher, stocks down, one could only surmise that the big money that has been hiding in these consumer staples is starting to unwind that trade. Inside Exodus, I have what’s called an ‘Old Man Index’ which is, essentially, a portfolio of safe haven stocks. It is, by far, the worst performing index, amongst several that I operate, inside of the platform.

What’s amazing about this, is the events that have led up to it. Just yesterday, I posited the idea that we’re firing warning shots across The House of Saud’s bow.

Not only is the Senate passing a bill to permit the families of 9/11 to sue the Saudi government or any government that sponsors terrorism, it’s being done in spite of Obama’s threat to veto it.

Long term waterboy, Chuck Schumer, defied his grace and said an Obama veto would not hold up. What!?

“This bill is very near and dear to my heart as a New Yorker because it would allow the victims of 9/11 to pursue some small measure of justice,” Sen. Charles Schumer (D-N.Y.) said. “[This is] another example of the [John] Cornyn-Schumer collaboration, which works pretty well around here.”
President Obama has threatened to veto the bill. Schumer said he wouldn’t uphold a veto, and expects that most senators wouldn’t, either.

“I think we easily get the two-thirds override if the president should veto,” Schumer said.

The House of Saud isn’t happy about this and have threatened to punish America, monetarily.

Saudi Arabia’s foreign minister, Adel al-Jubeir, pushed back against the reports in Geneva earlier this month while warning that the legislation could impact Saudi investments, according to Reuters.

Schumer going in for another round (extra gangster).

“Look, if the Saudis did not participate in this terrorism, they have nothing to fear about going to court,” Schumer said. “If they did, they should be held accountable.”

My sixth sense says something is afoot and the U.S. isn’t too happy about Saudi Arabia ravaging the price of oil, in order to capture market share from U.S. producers. The oil lobby is strong.

Mr. Left, as men of distinguished decorum are addressed in these halls, gets a pass for any moral crimes he might commit for at least two more stock picks, in light of his once in a lifetime achievement in his bear case against VRX. It’s very easy to hate against greatness, as all men strive for it and possess genetic traits of jealousy and insecurity which handicap most from recognizing the greatness in others. Lucky for you, the reader class of iBC, Le Fly transcends those menial traits, passed down through the generations of barbarous men.

Andrew Left is an American hero, fighting against wanton corruption inside of a disgusting and filthy pharmaceutical industry. Companies like MNK and VRX would keep doing what they have been doing, ripping off patients and tax payers, if it weren’t for the deleterious stock price declines, originally caused by research firms like Citron.

Mr. Left visited CNBC’s Scott Wapner today to discuss his MNK short. It’s also worth noting that he is now long VRX, with protective puts–hardly a raging bull endorsement, following a 90% drop in the share price. A long bet on VRX paired with protective puts, while being short MNK, is Mr. Left trying to hedge his book, in my opinion.

MNK is higher by 3% on this news, after the company issued this boilerplate response.

In response to Mr. Left calling MNK a potential donut, it’s rumored that they called him a croissant.

I don’t care what John Mcafee plans to do at MGT, or what value his name offers to the enterprise. I’ve seen this story play out dozens of times and the end result is always the same.

Shares of MGT are higher by thousands of percentile since the crazed jungle man took over.

Does that look normal to you?

ASSURED CATASTROPHE AWAITS THOSE WHO ARE BUYING UP HERE.

If the government is surplus spending to the tune of $1-2 trillion per annum, unable to budget its finances, why would it permit its Central Bank to hike rates 7 times over the next year? Wouldn’t the additional interest on the serviceable debt put additional stress on the budget and cause the economy to struggle?

I’ll wait.

Both Fed’s Williams and Lockhart are warning us that they intend to hike rates 2-3 more times in 2016, 1 ahead of BREXIT to boot. And, moreover, they believe 3-4 more hikes in 2017 is the appropriate course of action–because diverging from all other central banks makes sense if you want a really strong dollar and poor export data.

This is planned suicide. Nothing else explains the rationale of the Fed better than the notion that they’re purposely trying to ruin the economy.

As you were. Go buy the dip.

You’re all playing retarded, trying to trade this chop. This vicious cycle has repeated itself over and over since 2014.

There isn’t going to be a great big breakout.

This isn’t the beginning of a new bull market.

What you’re trading is late cycle economic waste, in the middle of a Presidential election cycle.

How do I know this?

For the love of God, the market has risen, almost without pause, since 2009. Since then, we’ve doubled the debt of this country, enacted psychotic central bank policies, transferred enormous wealth from west to east under the guise of globalization, all for the sake of trying to achieve 3% growth.

All we’ve got to show for the effort is $20 Trill in debt and a whole bunch of service jobs.

Meanwhile, back at the ark, TLT is higher by 10% for 2016. Compare that to the flat SPY and -5.5% showing for the NASDAQ, and I think it’s fair to say “The Fly” wins again.

Believe me, I’m not taking anything away from you stock pickers out there. There have been great trades and I’m sure many of you are up more than 10%; but most of you aren’t. In my experience, most people underperform the SPY. At least 70% of you are off for the year.

Commodities are raging higher today, off supply disruptions in Nigeria. You’ve got to be kidding me. This isn’t investable, in my opinion. It’s tradeable, but not investable.

Longer term, markets fall–because that’s what happens at the end of Presidential terms and failed growth cycles.

We’ve become a nation of lumberjacks and home flippers, apparently. HD and LOW have been two of the few retail outlets that have managed to perform, consistently without pause.

The one common denominator: you can’t order lumber, at least not efficiently on Amazon. Moreover, contractors rather drop dead than order a hammer online.

Home improvement stores are the last frontier in retail left unscathed by the Amazon scourge. I’m sure J. Bezos, as we speak, is trying to find a way to hurt the brick and mortar retailer.

06:09 | HD | (135.34)
Home Depot beats by $0.09, beats on revs; raises FY17 guidance; Q1 comps +6.5%

Reports Q1 (Apr) earnings of $1.44 per share, $0.09 better than the Capital IQ Consensus of $1.35; revenues rose 9.0% year/year to $22.76 bln vs the $22.39 bln Capital IQ Consensus.
Comparable store sales for Q1 were +6.5% vs. ests near +5.2%, and comp sales for U.S. stores were +7.4%.

Co issues raised guidance for FY17, sees EPS of $6.27 from $6.12-6.18 vs. $6.22 Capital IQ Consensus Estimate; raises FY17 revs of +6.3% to ~$94.095 bln from $93.03-93.83 bln vs. $93.84 bln Capital IQ Consensus Estimate; Co upside guidance for FY17 comps of ~+4.9% vs prior guidance of ~+4.5%.

Shares are mildly higher in the pre-market.