The Race to Become the Next $100 Billion Company

Facebook’s shares have gained over 50% the past year, making it the 4th largest company in America. Several years ago, the stock was a fraction of what’s its worth now, trading under $20 per share. So who are the new up and comers? Are there any, in this market of death, famine, and destruction?

There are a few choice names that have been gaining ground, edging their way towards the magical $100 billion market cap mark.

(stock, mkt cap, 1 yr return)

HON $77 bill, +3%
SBUX $89 bill, +39%
RAI $70 bill, +47%
COST $65 bill, +6%
LOW $65 bill, +6%
MDLZ $66 bill, +19%
ACN $65 bill, +23%
TWC $51 bill, +35%

Which is your favorite?

You know the old saying, “as the price of oil goes, so does western finance.”

Futures are spiking as oil creeps higher. There are overnight reversals in everything, from crude, to futures, to a miraculous turn in Europe.

Considering yesterday’s bloodbath, I wouldn’t be surprised to see a modestly strong market, providing crude can stay above $30.

Peter Oppenheimer, Chief Global Equity Strategist at Goldman Sachs, prefers domestic consumer stocks in developed markets. He’s skeptical over the industrials and commodities and claims their valuations aren’t at shock levels, due to decelerating earnings.

He believes this is the ‘last wave’ of crisis and points to how the US and Europe moved to zero rates and QE to stabilize markets. He thinks Asia needs policy adjustments that will convince markets that growth is sustainable. In other words, Asian needs QE.

My only question to Peter is, how the hell is that going to happen without the world throwing a fit about devaluing Asian currencies? By devaluing their currencies, they’re exporting deflation to western markets.

John Woods, CIO of Asia-Pacific, wealth management for Credit Suisse, is suggesting that clients go to cash on rallies, lighten up until three things are clarified.

1. The Fed

2. China

3. Oil

He isn’t sold on the idea that the Fed is done hiking rates and views it as a negative for equities. And, of course, both China and oil are two things that constantly harangue investors–driving them to the outer limits of sanity.

“Rather than accumulate, in the likelihood of a technical rebound…lighten your exposure in higher prices. The balance of risk is tilted to the downside.”

I am unsure as to the extent of the sell off. However, I do know that U.S. bonds are infinitely more attractive than Irish bonds, which are now trading with negative yields up to 5 yr durations. Because of the spread between treasuries and EU bonds, I am bullish on long dated treasuries and will hold my TLT position until the spread narrows enough to give me a calm normality about the whole damned situation.

Inside of Exodus, I’ve dedicated my trading to just playing the oversold signals. I’ve also have implemented an unprecedented transparency with my trades, in order to give members a clear view of how I use the system.

Early this morning, I closed out my final tranche in SPY, which was purchased exactly 10 trading days ago at $185 ish. Here is my Exodus blog post from this morning.

I sold my last piece of SPY at $191.80 for a profit of $864.

Here is my year to date update.

I am about 75% cash and 25% TLT. My SPY purchases, 6 in total, ended up losing me $4,105.67 on a theoretical $100k portfolio, or 4.1%. Remember, those losses are higher because I was 200% levered SPY at the time of my 6th purchase. To date, my TLT position (207 shares) is up $8.58 from a basis of $120.42 or 7.12%–for a monetary gain of $1,776.06 (basis adjusted for 2/1 divvy of 0.24 paid).

Year to date, my net loss is 2.32%.

Although disappointing, the -2.32% is a very easy number to make up. With Exodus armed with the new stress levels in the market, I am confident in future success trading the oversold signals. It’s important to note my choice of investment is SPY. I chose it because I was bearish on stocks and wanted something that offered a modicum of safety, when playing the long side.

Going forward

I have zero equity exposure, only long TLT, which is looking like a pretty good bet considering the current mood.

In case you’re wondering, for the sake of simplicity, I started this account with $100k and will be updating it as the year progresses.

In summary, I have zero equity exposure and think the market trades lower. I will, however, trade extreme levels and attempt to catch inflection points–using SPY. Although the recent spate of SPY purchases ended up losing me money, I am confident in the intuitive nature of our algorithms to better adjust to this tape, going forward. The very nature of the algorithms is to adjust to market environments and learn from them. For example, a few weeks ago, today’s closing level of 2.40 would’ve been considered Oversold. But the threshold is lower now and Exodus is suggesting to chill, eat sandwiches, and wait for lower prices.

That’s exactly what I intend to do.

The NIKKEI 225 is at the lows of the morning session, off more than 635 points, or 3.6%.

Crude oil is off by another 1.4% and the Hang Seng is down 3.3%. China, naturally, is down again to the tune of 1%.

U.S. futures are down 0.7% and european futures are fairing much worse, with the DAX indicating a 1.5% drop at the open.

In short, we’re in a deflationary vortex, one that sucks capital out from the system and into bonds. There is nothing more telling than Irish 5yr sovereigns trading with a negative yield. After all, the Irish are all drunks and haggards. Their economy is a mess and yet they’re able to make money by borrowing money.

GET YOUR AFFAIRS IN ORDER.

UPDATE: Oil has stabilized, now flat. As such, U.S. futs have recovered much of their gains and the NIKKEI is down just 400 or so points.

Kansas City is an absurd part of the United States. It houses the most uncouth athletes, analysts, and Fed heads in the entire country. Today, as the market reeled lower, Fed’s George felt it was incumbent upon her to reiterate her distorted and hawkish views on the economy, suggesting we all shut the fuck up and get used to an onerous Fed policy, which is out to slay the windmills in our midst.

“My own view is that a pickup in economic growth, steady job gains and modestly higher core rates of inflation will warrant further increases,” George said in prepared remarks in Kansas City, Missouri, before the Central Exchange.

“Even looking at developments so far this year, financial markets have been quite volatile. While taking a signal from such volatility is warranted, monetary policy cannot respond to every blip in financial markets,” she said.

“While a single quarter of slower growth is important to watch, I take reassurance that the economy remains on track due to strong job gains. In fact, job gains actually picked up toward the end of last year. Looking at longer trends, employment growth has been quite strong over the past few years. More jobs were added in both 2014 and 2015 than in any year since the late 1990s.”

“Finally, inflation has remained muted as a result of lower oil prices and the strong U.S. dollar. Recent movements in each of these have been quite large by historical standards. Yet, despite these headwinds, core measures of inflation have recently risen on a year-over-year basis. And although inflation rates over the past few years have hovered below the Fed’s goal of 2 percent, they have been positive and broadly consistent with price stability.”

Yes, she actually cited inflation risks to the economy, in a speech given today.

We are entirely screwed.

I love a good banking crisis. I have a portion of my net worth in hard assets, diamonds, gold bars and collectibles. I am fully prepared for the coming collapse, with all of its grande trimmings.

I’ve pointed out here, numerous times, the extent of debt in the basic resource space. The distressed debt is somewhere between $700-$999 billion–pick and choose your spots.

I’ve pointed out the southwest banking sector and how they just want to die. But there’s a broader story here, a narrative that cannot be told with fundamentals yet. Just like in 2008, banks are hiding their bodies and lying about exposure. But the stock price action never lies.

Here are the worst performing bank stocks of 2016, worldwide.

But don’t worry, Dick “I called the 2008 crisis EXACTLY wrong” Bove is saying the banks are alright. The balance sheets are strong. Super strong!

For the day, PUK was down 9.5%, Standard Chartered -7.7%, SIVB -7.3%, PFG -7.3%, BCS -6.5% and CIT -7.2%.

WTI is down another 5% to $30. All of the OPEC-Russian supply cut rumors have dissipated. Now, only the stark realities of cash strapped petrol nations exists, clamoring for cash flow–pumping oil as fast as they can.

Arthur Cashin sums it up pretty good. Crude oil below $30 means one of the four horsemen of the apocalypse will visit the NYSE, for a gingerly session of afternoon tea and chest kicking. Any movement towards $40 and the perverts and degenerates crawl out from their holes to buy small cap stocks.

In the meantime, the great debt reset of 2017, for the oil and gas industry, edges closer.

Don’t worry, ladies and gents. It is only a test. Had this been a real emergency, your stock market would be falling apart and our allies abroad would be drowning in negative rates.

In its latest addition to perversion on Wall, the wonderful Federal Reserve are stress testing negative rates and how our banks might fair under an unbelievable, far fetched, environment.

As interest rates turn negative around the world, the Federal Reserve is asking banks to consider the possibility of the same happening in the U.S.

In its annual stress test for 2016, the Fed said it will assess the resilience of big banks to a number of possible situations, including one where the rate on the three-month U.S. Treasury bill stays below zero for a prolonged period.

“The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities,” the central bank said in announcing the stress tests last week.

In that particular simulation, the unemployment rate doubles to 10 percent, the same level it reached in the aftermath of the last financial crisis.

Three-month bill rates have slipped slightly below zero several times in recent years, including in September after the Fed delayed rate liftoff amid global financial market turmoil, touching a low of minus 0.05 percent on Oct. 2.

But in the stress test, banks would have to handle three-month bill rates entering negative territory in the second quarter of 2016, and then falling to negative 0.5 percent and holding there through the first quarter of 2019.

Not a Forecast

“This scenario does not represent a forecast of the Federal Reserve,” the central bank said. It also assumes “that the adjustment to negative short-term rates proceeds with no additional financial market disruptions.”

Fed officials have made clear that they are a long way from contemplating a reduction in rates below zero in their benchmark overnight policy rate. Some, though, have suggested they’d be more open to such a move than in the past should the economy deteriorate significantly.

It’s not a forecast, but only a test. Please remember that. Okay, now back to your regularly scheduled program.