Believe it or not. I love the tweets from @realDonaldTrump. No matter what the content of the tweets are, I love the fact it moves the markets. Why would I love it? Because I love volatility.
In December, Trump tweeted out;
The United States must greatly strengthen and expand its nuclear capability until such time as the world comes to its senses regarding nukes
The tweet sent shares in small uranium miners soaring, including Uranium Resources (NASDAQ: URRE) and Uranium Energy Corp. (NYSE: UEC) by 31% and 13%, respectively.
Despite the real world complications, I just love the fact it agitates the markets.
More tweets;
The F-35 program and cost is out of control. Billions of dollars can and will be saved on military (and other) purchases after January 20th.
These tweets, as you can guess – sent the shares of Lockheed Martin (NYSE: LMT), which is the supplier of F-35 program, and Boeing (NYSE: BA) – down. From both tweets, Lockheed Martin lost billions in market cap. The rival Boeing was barely unchanged at the end, as it means more opportunities for them to gain more contracts.
However, Trump targeted Boeing in earlier December when he tweeted this;
Boeing is building a brand new 747 Air Force One for future presidents, but costs are out of control, more than $4 billion. Cancel order!
Trump’s tweets are just awesome. The volatility it brings allows me to make more money than the non-volatility. As I mentioned in my previous article, I recently opened RobinHood account, broker with $0 commissions. Using the broker in the future, I’m planning to buy some shares of the companies Trump negatively targets, especially if investors overreact.
Since it seems Trump has a strong hatred towards Mexico and the U.S. companies working there, here are the potential targets;
It seems there are seconds delay until the stocks react to Trump’s tweets. That’s rare considering the era of algorithm trading which can react in milliseconds and less.
10 seconds elapsed between Donald Trump’s tweet and the so-called drop in Boeing stock. Just FYI
Algos have yet to incorporate Trump’s tweets into their codes. It’s not that simple yet as it can be difficult to determine the sentiment from a tweet. Algos can easily get the direction of the stock wrong. We need more tweets to better analyze it.
But, will the future tweets move the markets or not? It all depends on how successful Trump is in implementing what he tweets. If Trump is unable to do so, he will just lose credibility.
Meanwhile, markets will react to the tweets and I plan to take advantage of them.
Trigger (originally a class project at Cornell Tech) just recently introduced “Trump Trigger” that will send you a notification every time Trump tweets about your investments. Not an algo, but notification that can be useful for amateur investors. Not my thing.
Whatever it is, I plan to take take advantage of them for financial gain.
Speaking of Twitter, follow me. I tweet about some of the articles I read, my trades and some sarcasm. Unfortunately, my tweets do not move the markets……for now.
As you may know, I met legendary investor Bill Ackman (Short Herbalife) in the first half of this year. He was taller and bulkier than I expected. Ackman speaks in a soft voice (to strangers of course) and has a firm handshake. My tiny hands were nothing compared to the strong hands of Mr. Bill Ackman.
Great meeting with Mr. Bill Ackman, Founder and CEO of Pershing Square Capital Management
In case you don’t know, Ackman is one of the world’s most famous hedge fund managers and activist investors. Pershing Square Capital Management net return was 40.4% in 2014, the highest among its peers. Since inception in 2004, Pershing Square posted net gains of 567.1% versus 135.3% return for the S&P 500. The hedge fund’s 1.5% base fee and 16% performance fee is low relative to industry standards.
Last Tuesday (September 13th), another legendary investor Carl Icahn (Long Herbalife) was right next to me at the Delivering Alpha and I didn’t even see him.
Yes, I know!!! Oh my god.
In case you don’t know, Icahn is one of the world’s most famous hedge fund managers and activist investors. As the chairman of Icahn Enterprises LP, Icahn says “Some people get rich studying artificial intelligence. Me, I make money studying natural stupidity” according to his Twitter bio. I love that quote.
How did this happen? During a coffee break before Stephen Schwarzman – Chairman, CEO, and Co-Founder of Blackstone (another legend) – was due to speak in front of investors, press, students (me unfortunately), etc…I lost my focus.
How did I lose my focus? I wanted to be on the cover of Institutional Investor magazine. Well, not the real magazine. There was a photo booth at the conference.
Why was the fake magazine cover so important? Besides being in love with finance, I wanted to get a picture of my handsomeness. Someone who works for NBC even told me I was handsome when I was leaving the event. My response was “I always look handsome” which is a fact.
…So here I am, stepping on the booth while Icahn is just passin’ by!
The legend is on the left. I’m on the right. Is Icahn looking at me?
I was 5-10ft away from the man I admire and I didn’t even see him. I didn’t even notice the cameraman with a strong lighting. I noticed nothing. I was thinking about how I made it to the cover of Institutional Investors magazine and Forbes is next.
Here is the video of me on CNBC for the first time and Carl Icahn on the same screen.
BECKY QUICK: I think Blackstone has gone from something around $35 to around $26 over the course of the last year. Why is that? What is that a reflection of?
STEPHEN SCHWARZMAN: That’s a reflection that investors are wrong.
I love the sarcasm.
STEPHEN SCHWARZMAN: I don’t want to be selling an asset that’s gone down because the world has gone down. If it’s a wonderful company, if I want to sell it, I’d sell it after everything goes well.
What Schwarzman is trying to say is…
“Investing is the only business I know that when things go on sale, people run out of the store” – Mark Yusko
Here comes Carl Icahn on stage:
Everybody excited. Their phones are out. Chairs are being moved to get a better angle of the legend.
Carl Icahn, Icahn Enterprises chairman during his keynote at the 6th annual CNBC Institutional Investor Delivering Alpha Conference
CARL ICAHN: I really think he’s [BILL ACKMAN] a smart guy.
CARL ICAHN: I sort of like him [BILL ACKMAN]. I think he’s smart.
CARL ICAHN: I really believe Ackman being smart
I also think/believe Ackman is smart and so is Icahn.
I didn’t know Icahn was right next to me until I came home. At around 8:40 P.M, I come home. Until 10:24 P.M, I eat my dinner and some snacks, while checking emails and twitter, and reading news.
At 10:24 P.M, I’m scrolling through @CNBCnow twitter and that’s when I saw the video. My reaction was too graphic to describe it here.
The rest is history.
Delivering Alpha 2016 is one of the moments I will forever remember. I really enjoyed the conference and meeting people from the media and hedge fund world.
Although I came late to the conference, at around 1:40 P.M, and missed Ray Dalio, the experience was still amazing. Not just amazing, but also incredible, stunning, astonishing, etc.
Delivering alpha as a concept is all about beating the market. Over the past six years, the investment conference has brought many great investors who got a track record of actually delivering alpha to speak in front of audience.
CNBC and Institutional Investor hosted the annual Delivering Alpha conference at NYC’s Piere Hotel.
I will forever remember this day, September 13, 2016.
What’s Next?
So far I met Ben Bernanke, Marcus Lemonis, Chamath Palihapitiyaa (CEO of Social Capital), Bill Ackman, and Carl Icahn. Who’s the next high-profile person I will meet? Janet Yellen? Mario Draghi? Warren Buffett? Stay tuned.
So far I made it to Bloomberg (for real) and Institutional Investors (literally), what’s next? Forbes? WSJ? Time Person of the Year? Stay tuned.
It’s only matter of time before I’m on stage at the Delivering Alpha and media asks me questions. Stay tuned.
Yes, I know markets have been rallying and S&P 500 has been hitting all-time highs. But, remember Brexit?
In case you forgot, the people of United Kingdom voted to leave European Union on June 23rd. Markets then destroyed more than $3 trillion in paper wealth in the next 2 days (Friday and Monday).
After that, market just shook it off. As Taylor Swift says, “Shake It Off.” “It’s gonna be alright.”
The actual businesses and people in the UK just cannot shake, shake, shake, shake, shake,….it off.
The UK job market went into “freefall” as the number of people appointed to full-time roles plunged for a second successive month in July, according to a survey. An index of permanent positions dropped to 45.4 from 49.3 the previous month, the lowest level since May 2009. A number below 50 indicates a decline in placements (contraction). Employers in the survey cited Brexit-related uncertainty.
The same uncertainty that scared away some investors and sit on cash, including me. 91% of investors made money in July as US markets kept hitting record highs, according to Openfolio, an app that allows you to connect and compare your portfolio to 60,000 other investors. Average cash holdings of these investors grew 25% over the past three months leading up to July.
75% of investors lost money in June as Brexit uncertainly weighted in. The portfolio of the majority of investors are tracked with S&P 500. The problem here can be described by Ron Chernow,
As a bull market continues, almost anything you buy goes up. It makes you feel that investing in stocks is a very easy and safe and that you’re a financial genius.
93% of investors lost money in January as the energy prices plunged and uncertainty in China scared investors.
Investor Average vs. S&P 500 Returns
Source: app.openfolio.com
Here’s another quote by Robert Kiyosaki (Rich Dad),
As a bull market turns into a bear market, the new pros turn into optimists, hoping and praying the bear market will become a bull and save them. But as the market remains bearish, the optimists become pessimists, quit the profession, and return to their day jobs. This is when the real professional investors re-enter the market.
I’m naturally contrarian like Bill Ackman. I love going against the crowd. I love Bill Ackman. When I met him, I had no problem keeping my cool after learning my lesson from the Ben Bernanke experience.
Bill Ackman (left) Khojinur Usmonov (right)
Being contrarian has made me money. It has also got me into “value trap” like buying $TWTR around $34.
On Thursday (August 4th), Bank of England (BoE) cut rates by 25bps (0.25%) to 0.25%, the lowest since the central bank was founded in 1694 (322 years) and the first cut since March 2009.
The central bank signaled further cut to the interest rate if the economy deteriorates further, “If the incoming data prove broadly consistent with the August Inflation Report forecast, a majority of members expect to support a further cut in Bank Rate to its effective lower bound at one of the MPC’s forthcoming meetings during the course of the year.” (I’ll address the recent economic reports and BoE’s forecasts later in this article)
During the press conference, Mark Carney (The Governor of BoE), stated he is not a fan of negative interest rates. He clearly stated that MPC (Monetary Policy Committee) is very clear lower bound is above zero. Options other than NIRP (Negative Interest Rate Policy) are available, “we have other options to provide stimulus if more stimulus were needed.”
Carney told banks they have “no excuse” not to pass on the rate cut in full to customers. In other words, he’s telling them not to mess with him.
“With businesses and households, anyone watching, if you have a viable business idea, if you qualify for a mortgage, you should be able to get access to credit.”
With 6-3 vote, they will provide an extra 60 billion pounds ($78 billion) of newly created money by buying government bonds over six months, extending the existing quantitative easing (QE) to 435 billion ($569 billion).
To cushion the blow to banks’ profitability, BoE will provide up to 100 billion pounds ($130 billion) of loans to banks close the base rate of 0.25% under the Term Funding Scheme (TFS). The scheme will charge a penalty rate if banks do not lend.
“The TFS is a monetary policy instrument. It reinforces the transmission of Bank Rate cuts and reduces the effective lower bound toward zero, it charges a penalty rate if banks reduce net lending, it covers all types of lending, and it is funded by central bank reserves.” (Page 6)
With 8-1 vote, BoE will also buy as much as 10 billion pounds ($13 billion) of corporate bonds in the next 18 months, starting in September. For that, BoE is targeting non-financial investment-grade corporate bonds, issued by “firms making a material contribution to the UK economy” (Page 3)
I did not expect that much of stimulus.
I expect .25% rate-cut by Bank of England. But, not more QE. There's a little chance I think QE will be less than £20bn. $GBPUSD#BoE
Note: I’m always active on Twitter. Follow me, @Khojinur30.
The stimulus comes as recent economic data has been weak. Confidence tumbled. Manufacturing, construction activity, and service-sector all shrank sharply.
Consumer confidence dropped 11 points to -12 in July, the sharpest month-to-month drop (M/M) since March 1990.
Activity among UK manufacturers contracted at its fastest pace at the start of third quarter. UK manufacturing PMI (Purchasing Mangers’ Index) fell to 48.2 in July, down from 52.4 in June, the lowest levels since February 2013.
Market/CIPS UK Manufacturing PMI Source: Markit/CIPS
Manufacturing sector accounts for 11% of the UK economy.
Employs 2.6 million workers, accounting for 8.20% of the working population.
“UK manufacturing employment decreased for the seventh straight month in July, the rate of job loss was the second-sharpest for almost three-and-a-half years” the PMI report said.
It also stated “Weaker inflows of new work and declining volumes of outstanding business also suggest that employment may fall further in coming months.”
Contributes to 10% of GVA (Gross Value Added), which measures how much money is generated through goods and services produced. In 2014, GVA per head on average in the UK was 24,616 pounds ($32,113), growing 3.6% Y/Y.
Accounts for 44% of total exports. Exports alone account for 27.4% of the UK’s GDP (Gross Domestic Product).
Export orders rose for the second successive month in response to the weaker pound. On July 6th, sterling plunged to $1.2788, the lowest since 1985.
Represents 69% of business research and development (R&D), which accounts for mini 1.67% of the UK’s GDP.
What is also interesting in the PMI report is the input price. Input price inflation rose to a five-year high in July, “reflecting a sterling-induced rise import costs.” Some part of the increase in costs “was passed through to clients.”
Markit/CIPS UK Input Prices Index Source: Markit/CIPS
UK construction industry, accounting for 6.5% (Parliament.uk – PDF download) of the economic output, suffered its sharpest downturn since June 2009 as the sector came under pressure from the uncertainty. UK construction PMI inched down 0.1 to 45.9 last month.
Markit/CIPS UK Construction PMI Source: Markit/CIPS
Clients of the construction firms had adopted “wait-and-see” approach to projects rather than curtailing and canceling the projects. The same “wait-and-see” that has caused investors like me to sit on cash (Cash on sidelines).
“Insufficient new work to replace completed projects resulted in a decline in employment numbers for the first time since May 2013” the PMI report stated. The construction industry accounts for 2.1 million jobs, 6.62% of the working population. The industry contributes to 6.5% of GVA.
And services too. UK services PMI plunged to 47.4 in July from 52.3 in June, the first contraction since December 2012 and the fastest rate of decline since March 2009 and the steepest M/M decline (-4.9) since PMIs began in July 1996.
The sector accounts for 78.4% of the UK economic output.
Not surprisingly, the sentiment of businesses dropped to the lowest since February 2009.
Markit/CIPS UK Services PMI Expectations Source: Markit/CIPS
Bank of England slashed its growth and increased its inflation forecasts. The central bank slashed its growth forecast for 2017 to 0.8% from initial estimate of 2.3%, making it the biggest downgrade in growth from one inflation report to the next. They now expect inflation to hit 1.9% in 2017, from previous estimate of 1.5%.
For 2018, the economy is expected to grow at 1.8% from previous estimate of 2.3%, and CPI is expected to hit 2.4% from previous estimate of 2.1.
Unemployment is expected to reach 5.4% next year from initial estimate of 4.9%, that is more than 250,000 people losing their job….even after the stimulus.
The bank’s outlook also includes lower income and housing prices to decline a “little” over the next year.
UK house prices fell 1% in July, according to a survey by Halifax, Britain’s biggest mortgage lender. The reports for the next few months will sure be interesting.
Confidence will continue to fall in the coming months as uncertainty will continue to exist and businesses will be extremely cautious with regard to spending, investment and hiring decisions, and people will be cautious with regard to spending.
All these survey conducted shortly after Brexit reflects an initial reaction. What matters now, especially after the new wave of stimulus, is the level of uncertainty and the magnitude of contractions. The three PMIs – manufacturing, construction, and services – accounting for almost 96% of the economic output, does not cover the whole economy as the retail, government and energy sectors (Oh energy), are excluded. However, it is clear the UK economy is slowing and is likely to slow in the coming quarters. Until clouds stop blocking the sun from shining, we won’t have a clear picture of the economy.
Will there be a recession or not? I’m not calling for any recession at the time. I will get a better idea of where the UK economy is heading as we get more data.
Tomorrow (Tuesday):
Manufacturing production.
In two weeks:
Consumer Price Index (CPI) – With data reflected in the PMIs and the amount of stimulus announced by BoE, inflation overshoot is possible. This report in two weeks will only reflect July. We should get better of where inflation is going in September and October.
Jobs report
Retail Sales
In four weeks:
Another manufacturing and construction PMIs. The services PMI comes the week later.
I should make a call on whatever the will be recession after the data and some by mid-September.
Without fiscal stimulus, monetary stimulus alone cannot offset most of the Brexit ills. Philip Hammond, the chancellor, signaled loosening of fiscal policy in October. By then, it just might be too late.
Extra: Bad Karma
Since Brexit (voted for by pensioners) UK 10y yield has plunged from 1.40% to record low 0.65%…decimating pensions pic.twitter.com/CtVUoufWuF
