Where is the Market Going? By: John Mauldin | October 19, 2018
I’m getting more questions at my speeches and in my inbox about whether I think we are entering into a bear market? The honest answer is I don’t know. My particular management system doesn’t really care as we have triggers that will move us out of the market or back into a market based upon various indicators that my underlying managers use. I trust their systems and I sleep at night, not worried about what my portfolio or the portfolio of my clients are doing.
But the question is still reasonable. And it allows a teaching moment. First, looking back in history, there are essentially two types of bear markets: those that happen in a recession and those that don’t. Bear markets that happen accompanied by a recession generally are deeper and the recovery is much longer. Those that happen simply because the market had gone “too far, too fast” and seemingly needed a correction tend to be “V” shaped recoveries. Think 1987 or 1998.
Looking at the economy today, and absent a trigger from Italy/Europe or China (or worse, shooting ourselves in the foot with our China tariff policy) or some Black Swan, there is no true reason for a long-term bear market. The economy is in relatively good shape, and I don’t see a reason for a recession to begin anytime soon, absent some trigger event.
That means if we did have a bear market correction, I would actually expect it to be “V” shaped and a very tradable exercise. The market itself is showing signs of weakness. My friend Dave Wright points out that even during the large upward movement on Monday, the stocks on the NYSE made more new lows than it made new highs. That is not a healthy market. Dennis Gartman gives us this following graph:
Again, this is not the sign of a healthy market. All that being said, much of the correction came in the tech sector, especially the S&P. I’m not going to show a chart here, but if you had taken the technology stocks out of the S&P 500, we would’ve been in a downward market for quite some time. Technology clearly led the way in recent times.
It is very possible that we get into a “sector rotation” market and that we churn sideways for quite some time. It is just as possible that we see what normally bearish David Tice thinks will happen: That we are actually in danger of a market melt-up, which can happen for all manner of reasons. Let me give you a potential. Right now, the market and most commentators believe that Democrats will take the House in the midterm elections a few weeks from now. What happens if they don’t? Could we see the same type of bullishness in the markets and sentiment that developed after Trump was elected?
I know my Democratic friends want to ignore it, but so many sentiment indicators are at all-time highs, and they’ve been getting that way since Trump was elected. Don’t ask me to tell you the reason or discuss politics with you, I’m simply looking at the facts. And I think we all agree that sentiment does drive markets. But we need to remember that sentiment can turn on a dime.
The secret weapon for getting America 5G ready By: John Mauldin | December 10, 2018
Who sells the basics?
That’s the first question I answer when evaluating an investment trend.
In markets, he who sells the basics gets rich.
James Marshall did not sell the basics... and he left California broke.
He was the first guy to pull a gold nugget out of the mud during the 1848 gold rush.
He literally struck gold and ended up penniless.
You know who got fabulously wealthy though?
The businessmen who sold the basic tools needed to find and extract the gold.
Investing in “who sells the basics” requires you to buy stocks that will never make the front page of The Wall Street Journal.
For example, Google (GOOG) is famous for turning the search engine into a $120-billion-a-year business.
Along the way it handed investors 1,900% gains.
But without keyboards, mice, and screens… the search engine wouldn’t have taken off.
Logitech (LOGI) is a leading maker of this “basic” equipment.
Over the past five years its stock has more than doubled Google’s performance, as you can see here:
• We’re getting in on the ground floor of companies making the basics that will power superfast 5G…
We talked about the lightning-fast Fifth Generation Wireless Technology (5G) recently.
In short, 5G is the new wireless network all our phones and computers will soon run on.
It will be superfast—with speeds up to 20 gigabytes per second. That’s 1,000x faster than what we have today.
It’s important to understand that 5G isn’t a small improvement.
It’s a huge leap that will enable world-changing disruptions like self-driving cars and remote surgery.
Launching 5G will require the biggest overhaul of America’s wireless networks EVER. According to the GSM Association, which represents 800 of the world’s largest mobile operators, it’ll cost roughly half a trillion dollars to build out the necessary infrastructure!
• The first wave of dollars will flow straight into the basics that enable 5G.
Superfast speeds are a key benefit of 5G.
But just as important is the HUGE improvement in the amount of data that can run through a 5G network.
Think about a cell network like a highway. The more lanes it has, the more traffic it can handle.
5G is going to widen the wireless “highway” by around 100x from what we have today.
This is crucial because new technologies will require far more data than current 4G networks can handle.
For example, according to Intel (INTC), a single self-driving car uses roughly 4,000 GB a day.
That’s like downloading 1,000 HD movies a day—per car!
To expand 5G’s “highway” network providers like Sprint (S) and AT&T (T) are using something called Multiple Input, Multiple Output—or MIMO.
Sprint Chief Technology Officer John Saw calls it “our secret weapon to getting 5G built.”
• MIMO involves packing more antennas onto cell towers.
Each antenna acts like a new highway lane, allowing the network to handle more traffic.
Using MIMO, Sprint increased 5G’s capacity by 300%.
Demand for MIMO is expected to explode by 1,500% over the next eight years, according to ResearchandMarkets.com.
Here’s a picture of a MIMO box in Seattle. Although it looks basic, each box houses roughly 1,000 antennas. And a large cell tower might house 50 boxes.
• Computer chip maker Xilinx (XLNX) builds the “brain” of these MIMO boxes.
Computer chips are the “brains” of electronic devices like smartphones and computers.
Xilinx is the leading maker of a type of chip called field-programmable gate array (FPGA). Think of them as powerful blank canvases that can be used for many different tasks.
For example, Amazon (AMZN) and Google use Xilinx’s chips in their giant data centers. The U.S. Air Force uses them for its drones.
The key advantage of Xilinx chips is they are adjustable. You can change them to perform a brand-new task, or optimize an existing one.
Most other chips are built for a specific purpose and aren’t adjustable.
This gives Xilinx a huge competitive advantage for 5G.
Network providers like Sprint, AT&T, and Verizon (VZ) are figuring out how 5G works as they build it. For the most part industry standards haven’t been set. Things are constantly changing… which requires the equipment to change along with it.
Several wireless carriers in America and South Korea are already using Xilinx’s chips in their 5G rollouts.
Using Xilinx chips, one carrier was able to slash the energy use of its MIMO boxes in half. It also reduced the number of chips inside each from 24 to 4.
• Xilinx is already collecting checks from the 5G buildout.
It charges roughly $40,000 for each chip inside a MIMO box.
Last quarter sales from this business line jumped 33% to $260 million—thanks mostly to the early 5G rollouts in America and South Korea I mentioned.
Xilinx is a profitable, well-run business. Over the past year its profits soared 24% to an all-time high.
And not only are its margins at record highs—they’re 3x better than the industry average.
Disruptive companies must hit a delicate balance between growth and profitability. To achieve record highs in both at the same time is impressive.
Xilinx is trading at $92 today. My research suggests the stock could hit $130 in the next 12 months as it starts collecting bigger checks from the 5G buildout.
I’ve said it before and I’ll say it again: “The Great Upgrade” to 5G is one of the greatest booms in American history.
Best of all, it’s just getting started. We’re in the initial infrastructure buildout phase. Now’s the time to get in early on companies that “build the basics” to bring 5G to all of America.
Wireless carriers have started upgrading to 5G in several American cities. Are you on 5G yet? Tell me at stephen@riskhedge.com.
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