Bullseye View (Issue #43.4 – Dec 4, 2017)

Bullseye View


S&P 500 Index 2,642 +20.54% (1-yr chg)

Rocket Fuel: One of my early Bullseye supporters co-manages $650B for a notable U.S. insurance company, and last week on FOX Business he described tax reform as “rocket fuel” for what is already a fundamentally strong market. I whole heartedly agree, and since the basket of high effective tax rate companies is actually down 5% compared to the S&P 500 over the past month, I would add its benefits are not yet priced in. For months I have been extolling the Two Es of Earnings and Employment as an incredibly powerful tonic for stock prices. With the Senate’s passage of a tax proposal early Saturday morning, the two houses can now convene and draft a bill for the President to sign within days. Bottom Line: I believe tax reform will add 7-10% to earnings next year, and I remind you 4Q profit growth is already tracking +12%. Rocket fuel indeed.

10-yr Treasury 2.36% (vs. 2.38% 1-yr ago)

Inflation Nation. I fully expect the Fed will increase rates at next week’s meeting, as well as three times next year given the recent acceleration of GDP to 3.3%.  The 10-yr yield has fallen below 2.3% only one day since September 30, and it’s beginning to feel like a coiled spring. The economy is improving and higher yields reflect underlying growth. If you STILL haven’t locked in a 30-yr mortgage or shorted TLT in your trading account, please do so now. Time is running out. I reiterate my view the 10-year yield will rise to 3% over the next six months.

Dollar Index (DXY) 92.89 -7.20% (1-yr chg)

Still Here. The U.S. dollar has held the low to mid 90s since August, a welcome stabilization after the stunning 10% decline which began last January. With tax cuts no longer merely on the horizon but virtually underfoot, coupled with strong employment and GDP, dollar bears have little ground to stand on. Looking overseas, the world’s major currencies have yet to breach key technical levels established over the past several months. The Euro stopped rising at 1.20, the yen held at 108 and the yuan reversed from 6.50. Unless these levels are challenged in a major way, I see the Dollar Index holding steady… possibly rallying back to 100.

Gold $1,279/oz. +8.82%% (1-yr chg)

As Goes Inflation… As Goes Inflation… Gold trades steadily between $1,275 and $1,300 as the economy shows increasing signs of strength. I know what you’re thinking… Stocks are a better proxy for growth and a better hedge against inflation. Okay fine, but gold also diversifies my portfolio. I’ve been long since $1,150 and I am staying long. Recall I am also long the junior gold miners via the exchange traded fund GDXJ. I intend hold this position as well. The longer gold holds near $1,300, the less likely it is to fall.

Oil $58.36/bbl 12.93% (1-yr chg)

When Producers Start Selling… No-PEC. Ministers managed to agree on extending the current cuts of 1.8Mb/d… and oil rallied all of $2. Sorry bulls. While global demand is rising, the world is embracing clean energy with a vigor that will likely result in “peak oil” becoming a reality within a decade. It’s why Norway’s sovereign wealth fund is beginning to liquidate $35B in oil and gas holdings. It’s also why Saudi Aramco is selling stock in an IPO. When the world’s biggest producers start lining up as sellers, you need to pay attention. For me oil is a buy at $42 and a sell at $55. At $58 it’s a short. screen-shot-2016-09-17-at-11-27-27-am


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