Trump Does a 180
Inflation is falling again... Trump does a 180... Earnings season begins... A mixed bag for banks... Keep an eye on margins... A 'behind-the-scenes' look at Porter's latest business venture... P.J. O'Rourke returns from the Space Symposium...
Editor's note: The markets are closed tomorrow in observance of Good Friday, so we won't be publishing the Digest. We'll pick back up with our regular fare again on Monday. Enjoy the holiday.
"Reflation" has stalled...
This morning, the U.S. Department of Labor's Bureau of Labor Statistics ("BLS") reported wholesale prices – as tracked by its Producer Price Index ("PPI") – rose 2.3% over the last 12 months.
As you can see in the following chart, this is the highest level of producer-price inflation in five years, since March 2012...
But beneath the surface, there could be cause for concern...
The BLS also reported producer prices fell by 0.1% in March.
This is a relatively small decline. But it marks the first month-over-month decline in the PPI since inflation started moving higher seven months ago.
And along with the recent declines in "soft data" indicators, it could be the first indication that the reflationary trend that began last summer – and accelerated following November's election – is faltering.
Has Donald Trump become a "dove"?
If his latest statements are to be believed, the answer is yes...
In an interview with the Wall Street Journal yesterday, Trump said the U.S. dollar is "getting too strong," and that he now hopes the Federal Reserve will keep interest rates low. From the Journal...
"I do like a low-interest rate policy, I must be honest with you," Mr. Trump said at the White House...
"I think our dollar is getting too strong, and partially that's my fault because people have confidence in me. But that's hurting – that will hurt ultimately," he added. "Look, there's some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good."
He continued, "It's very, very hard to compete when you have a strong dollar and other countries are devaluing their currency."
He also said he's now open to reappointing Federal Reserve Chair Janet Yellen when her term ends next year.
This is a dramatic shift from his stance last fall when he accused Yellen and the Fed of "doing political things" by keeping rates too low. As the Journal reported in September...
Mr. Trump, presumably speaking of Ms. Yellen, said interest rates have been kept low "because she's obviously political and doing what Obama wants her to do." Mr. Trump, in an interview on CNBC, added "what they [the Fed] are doing is, I believe, it's a false market. Money is essentially free."
Ms. Yellen, he said, "should be ashamed of herself."
Trump also said he no longer considers China a "currency manipulator," noting that the country hasn't actually been manipulating the yuan in "months." (Where have we heard that before?)
What should we make of these statements?
Frankly, it's too soon to say.
They may simply be the latest off-the-cuff remarks that carry little long-term weight. Or as our colleagues at the Stansberry Newswire noted when the news broke yesterday, the White House could be trying to send a message about its plans for tax and trade reform...
That message could be that the playing field is tilted against the U.S. and that trade agreements will be "adjusted." Don't forget about a border adjustment tax or "BAT."
We'll be following this closely.
Big banks JPMorgan Chase (JPM), Citigroup (C), and Wells Fargo (WFC) all reported this morning. And the results were a mixed bag...
Both JPMorgan and Citigroup reported a 17% rise in first-quarter profits, due largely to higher trading revenues and increased "net interest margin" thanks to rising interest rates. Wells Fargo's earnings were flat, due to rising costs related to its recent sales-practice scandal.
But all three also noted the slowdown in loan growth we've discussed in recent Digests. As the Journal reported today...
At JPMorgan Chase, total loans outstanding at the end of the first quarter rose 6% from a year earlier, a slight deceleration from 7% growth at the end of last year. In the first quarter of 2016, JPMorgan's overall loan growth was a much stronger 11%...
At Citigroup, loans grew by 8% from a year earlier in its global consumer operations, and by 3% at its corporate bank...
Wells Fargo, which acts more like a regional bank because it lacks a big investment-banking operation, said the slowdown is an industry trend. The bank said growth of average quarterly loans slowed to 4% in the first quarter from 6% in the fourth quarter.
As the report noted, big banks like JPMorgan and Citigroup tend to be more resilient to slowdowns in lending. Smaller regional banks – which will report earnings over the next few weeks – will likely give us a better indication of what's happening here.
It's also worth noting that despite this morning's positive results, both companies' stocks traded lower today.
As regular readers know, banks and financial stocks have been among the market's best performers following November's election. But they've been moving lower since March, and the group as a whole – as tracked by the Financial Select Sector SPDR Fund (XLF) – has now turned negative for the year.
Today's decline on positive earnings suggests there could be further downside ahead.
Speaking of earnings, we've seen that analysts expect a strong quarter from S&P 500 companies...
Estimates from market-data firms FactSet and Thomson Reuters suggest earnings will rise as much as 10% or more in the first quarter. This would be the strongest earnings growth since 2011.
But remember... The S&P 500 is comprised of large, multinational companies. And this same earnings trend may not apply to smaller, domestic firms.
Why? Because while economic growth in the U.S. remains slow, labor costs have been rising significantly. According to last Friday's jobs report, wages were up a huge 4.1% in March. And this puts pressure on profit margins.
Domestic profit margins have already been falling for more than two years now, according to Bloomberg data. But the decline could now be accelerating... And this would be another massive headwind for stocks.
Of course, as we've discussed, this trend could quickly reverse if Trump and Congress can pass significant tax and trade reform.
We're ending today's Digest with something that has nothing to do with the investment world...
Regular readers know that Porter has spent several years and more than $2 million creating his world-class shaving razor, the OneBlade. Here's Porter, on the idea that started it all...
When I turned 40 (four years ago) I decided that I wanted to start a new business. I wanted to build a "thing" – a great product. I wanted to build something that could last forever. I wanted to build something that my children could point to and say: "My Dad made that, and it's the best in the world." (My young sons still don't really understand what I do at Stansberry Research.)
I've always admired Rolex and Ferrari. Long before I could afford to own either of these company's products, I was deeply impressed by their passion. It was the incredible effort they've expended to build watches and cars that are objectively better than any other in the world.
So right after I turned 40, with that in mind, I decided to build a razor.
As Porter explained, ever since he started shaving in the 1980s, he had never been happy with any shaving product. He always suffered from razor burn and ingrown hairs after using cartridge razors. He continues...
By my late 30s, I was only shaving once a week – and only by going to a barber to get a straight-razor shave. That was the only solution that worked for me... And that time-honored ritual was the idea that launched OneBlade.
Like many luxury brands, I wanted to build a brand that would be valued not because of its marketing... but because of its technical capabilities and reputation for innovation. Several years and more than $2 million later, I firmly believe we have produced the best razor in the world.
Porter isn't alone in this opinion. In addition to receiving positive coverage from Fast Company magazine, Business Insider, and a host of other news outlets, his OneBlade razor has amassed an impressive collection of accolades.
Meanwhile, hundreds of Stansberry Research subscribers have written in over the years telling us they agree, like Terry G...
I consider the best investment I've made in the last 90 days to be the OneBlade. I've been looking for a decent shave my entire adult life. Finally, at 54, I found it. The OneBlade gives me a close, comfortable shave. Even in the tough areas, like where the chin turns under and becomes neck. I've always had a problem cutting myself there. The OneBlade just floats right over that area, taking all the hair with it.
Sweet! I've thrown away my styptic pencil. My last desperate attempt to buy a decent shave was a Norelco triple head electric shaver. $275. What a supreme waste of money. I think I'll short Norelco to get my $275 back.
And Mike C., who told us...
The real reason I'm writing in tonight... It's OneBlade! What an awesome shave! If you don't own one you are missing out! I know it sounds expensive at first, but it isn't when you experience the great close shave you get without the irritation of every other razor I've tried. Believe me, in 36 years of shaving I've tried just about – no make that everything in existence to get a comfortable shave! Haven't had one until OneBlade.
I've suffered from razor burn all the time and bumps on my neck at times from shaving and hated it! Now, I actually don't mind shaving, and love the results I get with the OneBlade razor! It delivers the closest shave I've ever had without any of the irritation! Yes, you read that right, no irritation!!! OneBlade is a small price to pay for a great comfortable shave! Now that's a value for $$ in my book! Thanks for a great shave.
But Porter has never shared the whole story of the incredible amount of work that went into researching, designing, and testing the OneBlade razor... until now.
Porter recently sat down on camera with OneBlade CEO Tod Barrett, lead industrial designer Mark Prommel, and "barber to the stars" Craig Whitely.
Even if you're not interested in buying a razor for yourself, it's a fascinating "behind the scenes" look at what Porter and the OneBlade team have accomplished in a short time. This free video is only available for a few days. You can watch it here.
New 52-week highs (as of 4/12/17): Tencent Holdings (0700.HK), JD.com (JD), Monsanto (MON), Annaly Capital (NLY), Naspers (NPSNY), Guggenheim China Real Estate Fund (TAO), and Tencent Holdings (TCEHY).
We've gone on long enough for today... We'll catch up with the mailbag on Monday. As always, please send your e-mails to email@example.com. And be sure to read on below for a brand-new essay from bestselling author and Digest contributing editor P.J. O'Rourke.
April 13, 2017
Propelling Humanity out of the Gutter
I just came back from the Earth's largest gathering of international businesses, industries, governmental agencies, scientific institutions, and other people who want to get away from Earth.
Given what's happening on Earth, who can blame them?
The nonprofit Space Foundation organized this year's Space Symposium (and the 32 annual events before it). I have the honor to sit on the board of directors. (I think they needed an Average Joe to balance out all the rocket science the rest of the board understands.)
The Space Foundation's motto is, "To advance space-related endeavors to inspire, enable, and propel humanity."
Sounds good to me. What with terror attacks, refugee crises, international clashes, and combat raging from Africa to Afghanistan, humanity could use some inspiration... and some enablement of the good guys and some propulsion of the bad guys with a kick in the pants.
But you may well wonder why am I reporting, again, on the Space Symposium in the Stansberry Digest.
Space is a risky field for investment. It's probably not the place for most individual investors, like you and me. Amazon founder Jeff Bezos is investing in space exploration. According to SpaceNews, Bezos is selling $1 billion per year in his company's stock to fund his Blue Origin space project. Bezos is not like most individual investors.
That said, the global space industry is a $330 billion a year business and 76% of the business is commercial. Now that the space industry isn't just government monopolies, the lottery will have winners.
To give you a tip: The two major topics of conversation at the Symposium were micro-satellites and space debris.
A communication satellite is no longer the hulking quarter-ton Telstar that inspired the 1962 Billboard No. 1 instrumental hit of the same name by The Tornados. The new idea is to launch clusters – called "constellations" – of pocket-sized orbiting devices that provide a high level of operational redundancy at a low level of cost.
Large profits will accrue to companies that make micro-satellites the most micro-est, get them into space cheaply, and effectively disperse the clusters so that they don't turn into a "cluster-#%&*."
Speaking of which, low Earth orbit, where most satellites are placed (as much as 1,200 miles in altitude), has become a flying junkyard. There are about 1,100 active satellites and 2,600 that are dead as smelt, plus another 500,000 pieces of space flotsam and jetsam large enough to track on radar. These could pulverize existing satellites or punch holes in the International Space Station, thereby creating more space garbage. All of it is whizzing around in different directions at 17,500 mph. (The slug of a 0.30-06 Remington is a garden slug by comparison, going only 1,910 mph.)
Whoever discovers how to clean up space debris will become very rich. Maybe you can take your son's Boy Scout troop's recycling campaign and blast it into low Earth orbit.
But investment opportunity is not the main reason I'm writing about the Space Symposium. Space exploration is about the future. We should all – investors and everybody else – keep our eyes on what's to come.
To put it in investment terms, everything that has ever happened in history up until this moment is "sunk costs." Forget about them and think about the future. The annual Space Symposium is the one place where everyone is thinking about the future. And thinking about that future myself, I detect a gleam of hope.
The four-day event is hosted by the magnificent Broadmoor Hotel in Colorado Springs. It might be the gleam of the gin in the Broadmoor's excellent martinis that gives me hope.
Or it might be the flash of exhibitions from around the world. Two gigantic pavilions house more than 180 booths and displays, some of them two stories high.
Full-sized satellites are suspended from the ceiling. Models of launch rockets dwarf onlookers even in 1/20th scale. Exhibitors range from NASA to a company in a country you've never heard of that makes the least little doohickey upon which the whole success of a space mission may depend.
Among the 12,000 attendees are official civilian and military delegations from more than 50 countries, including Russia and China, and an array of international chief executives who run the commercial space industry. There are astronauts, cosmonauts, observers from most of the world's space programs, and every sort of armed forces top brass.
At least 100 special sessions, panel discussions, and presentations by scientific and technological experts are arranged for the benefit of these worthies.
None of which make much sense to me. I'm not a science or tech person. My tech expertise is limited to one attempt to fix the drain under the kitchen sink... "Honey, get the mop!" And I was the scientific advisor on my son's seventh-grade science-fair project, an experiment to determine "Do Dogs Like Food?"
Yet I've been going to the Space Symposium every year for the past seven years because it's good to think big.
Think small, and we're stuck here on Earth with all its petty problems. Think big and we're out in space.
And gosh, is space big. The observable universe is more than 90 billion light years in diameter. The distance light travels in a year is about 6 trillion miles. Multiply one by the other and you get a universe that's 546 trillion miles across. And that's just the part we can see.
If we don't take a tour, it's like we've bought a 546-trillion room house and all we've done is sit on the toilet in the back-hall half-bath.
And it's good – no, it's great – to talk to the genuine science and tech people.
I mentioned the two major topics of conversation at the Space Symposium. There was also one major non-topic: politics.
You'd think that bringing the U.S., Russia, China, and 47 other countries together in one place would cause a flood of political sewage. You'd be wrong.
Author Oscar Wilde once said, "We are all in the gutter, but some of us are looking at the stars." At the Space Symposium, that "some" would be "all."
The second day of the Symposium featured an extraordinary panel discussion among the heads of 15 international space agencies.
The panel featured some real don't-pack-the-dog-with-the-cat pairings... U.S./Russia, Russia/Ukraine, Mexico/U.S., U.S./China, China/Vietnam, China/South Korea, South Korea/Japan. The European Space Agency pits post-Brexit Britain against EU panel members, including Germany, France, Italy, the Netherlands, and Romania. Only the Canadian space agency lacked someone to pick a fight with.
I expected bombast but got blastoff. That is, instead of quarreling, the 15 panel members seemed to be engaging in a polite, restrained, official version of the celebration at Mission Control after a successful launch.
Not that they fist-pumped, high-fived, or jumped up and hugged each other. But every head of a space agency emphasized cooperation. Igor Komarov, director general of the Russian state space corporation Roscosmos, was the most eloquent. He said, "One of our biggest concerns is that we have so many tasks and projects that need to get done. What we need to consider is how to share in solving those problems, how to cooperate in order to reach multiple targets and goals, how we can cooperate for the benefit of all of us."
The European Space Agency and an improbable mix of nations – Russia, Ukraine, and China – spoke in favor of a joint lunar base or "moon village" as a stepping-stone for Mars exploration. The U.S., which has been focused on using a lunar orbiting vehicle for the same purpose, said it wouldn't rule out the "it takes a village" approach.
"But," the president of the Italian Space Agency said, "the real future goal... is really getting to the next challenge, which is Mars."
A few awkward moments occurred, such as slightly uncomfortable body language from Igor Komarov when the chairman of the State Space Agency of Ukraine twice announced that Ukraine's first priority was "launch capability" – a phrase that could be taken two ways. But really, I've seen more political tension in a committee meeting for our church's annual rummage sale.
The Space Foundation board hosted a private reception for the Russian delegation. You would never have known that such things as the Hillary campaign hacking, Trump advisor intrigues, sanctions, or foreign-policy faceoffs existed. It was like a college championship sports-team reunion. I watched an American astronaut and a Russian cosmonaut who had flown together on the International Space Station in the 1990s meet again after 20 years. The room was full of laughter and champagne toasts.
The Russian and American space programs are joined at the hip. We need their rockets to get into orbit. They need our money and technical expertise for the same reason.
And something else about the two countries may perhaps... someday... lead to something besides Earthly bickering. I've been to Russia a number of times, starting back when it was still the USSR. I've always been treated by the Russians in Russia better than I have been treated, for example, by the French in France.
I told the cosmonaut that I felt somehow at home in Russia. "Maybe it's the great size of our nations," I said. "Maybe it's the great warmth and sense of humor of our people."
"Maybe," the cosmonaut suggested, "it's the great historical transformations our countries have been through."
Let's keep transforming. I'll lean on Trump, if the cosmonaut will lean on Putin.
I've never talked to an astronaut or a cosmonaut who wasn't awed by how fragile Earth looks from space. And how small. The International Space Station orbits the Earth every 92 minutes. An astronaut can see the whole world in the time it takes to watch a feature movie. We really are all in this together.
I'm sure the Chinese "space-navigating personnel," as China calls them, feel the same. The Space Foundation board also held a private lunch for the Chinese delegation.
At first, the Chinese were more wary than the Russians. They acted less like partners and more like prospective investors, wanting hard facts about budgets, programs, and planning.
I was grilled about the Space Foundation by an older, rather dour Chinese representative. The concept of a private nonprofit that concerned itself with national space strategies eluded him. He frowned. "The Space Foundation must be a government agency," he insisted. I explained corporate sponsorship. He frowned. "The Space Foundation must be a capitalist government agency," he said. I explained public-private partnership. He frowned. So many government people were speaking and attending. Surely, the Space Foundation was some kind of government agency. I explained the decentralized nature of U.S. space policymaking with input from commercial, federal, state, military, and civilian interests. He frowned.
Finally, I explained, "The United States is just really disorganized." He laughed.
It only took a glass or two of wine before comradely banter broke out. One Chinese official even went so far as to joke that in China they are careful not to allow their political leaders to have Twitter accounts.
Were all these gestures of amity and promises of synergy and collaboration just diplomatic politesse and a cover for the usual trickery and guile among great powers?
Maybe. But I have one bit of evidence to the contrary. On the night of Thursday, April 6, the Space Symposium held its final gala dinner with all the good and great from every nation in attendance.
At that very moment, President Trump was using the items, about which everyone in the room was expert, to propel a well-deserved kick in the pants to Syrian bad guy Bashar al-Assad.
I, of course, didn't have a clue. But due to some master of ceremonies duties, I was sitting at a front table with two U.S. Air Force four-star generals and a retired U.S. Navy four-star admiral. I saw someone I know from the State Department whisper something in the admiral's ear. The admiral's genial expression didn't waver. The generals knew. They continued to laugh and chat. The Russians at the dinner knew. President Trump had forewarned Russia. I'm sure the Chinese knew as well.
No one batted an eye. It was a jolly dinner and the jollity continued at the bars and receptions afterward, when the missile-strike news was everywhere.
It's what happens when people think big and get some distance on the world's petty problems.
A little family spat was going on... But it was among distant relatives.
Look to the future. We may have one.