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BCN Advantage - 2017 Annual ReportFebruary 22, 2018
Jeff Bratzler, CFPBCN Financial
For 2017, the S&P 500 rallied 19.4% to 2,674, the Nasdaq 28.2% to 6,903, and the Dow 25.1% to 24,719. It's been a nine-peat: nine straight years of market gains. The U.S. stock market has returned a compound 15.5% per year over that span, growing cumulatively more than 250%. January saw the best start since 2006. In four weeks the S&P 500 gained 7.5%, the Dow 7.7% and the Nasdaq 8.7%. Then came February. The Dow lost more than 1,000 points twice in one week, leaving the markets in a correction, down 10% from their January 26th record highs. While the headlines focused on the largest point drop ever for a single day, in percentage terms the Dow’s 4.6% fall was the worst since August 2011, but only the 25th largest since 1960. For perspective, the Dow plunged 22.6% on the Black Monday crash of October 19, 1987. GAAP estimates for 2018 are a whopping $145 per share, a 32% increase. Such spectacular results would go a long way to bringing stock prices in line, but a healthy dose of skepticism is warranted. Despite the recent 10% correction, the S&P 500 is still trading at 25 times trailing 12-month GAAP earnings. That’s expensive by any measure. Price discovery is lacking, replaced in the bond markets by price insensitive central banks, and in the stock market by price insensitive corporate share buybacks and passive ETF buyers. The yield on the benchmark U.S. Treasury 10-year note is 2.83%, more than double the multiyear low of 1.37% set in July 2016. Up to a certain point, rising yields are seen as the barometer of a robust recovery. But if yields rise too far, too fast, it sets up a policy conundrum. The current fed funds range is 1.25% - 1.50%, with three quarter-point hikes priced in by December. But consider the changing landscape: In the U.S., the administration has just passed a deficit-funded tax cut and budget-busting spending bill, piling fiscal stimulus atop an overheating economy at a time when the Fed is trying to hike. Past a certain point, inflation would force central banks to end their reflexive relationship with markets. No more “Fed Put.” They would need to lean against inflation irrespective of what that would entail for risk assets. 25x earnings may not seem unreasonable so long as the Fed has your back. But absent faith in continued Fed accommodation and intervention, stratospheric valuations no longer look appetizing. For the first time ever, both the Fed and Treasury will be dumping massive amounts of public debt on the bond market – $1.8 trillion in FY 2019 alone. The double whammy of government debt coupled with Fed “quantitative tightening” could spark a “yield shock” – even in the absence of inflation. As we learned during the EU debt crisis of 2010, bond investors are enticed by high yields only so long as rates are seen as stable or poised to go lower. But what if perception shifts? And bond investors become fearful that rates will not only rise, but rise rapidly. Demand even for sovereign debt can disappear overnight, creating a vicious cycle. This is what we saw in Europe before the banks stepped in. Repatriation of overseas cash by U.S. multinationals could bring $2 trillion back to the U.S, much of it used to buy back company stock. Corporate repurchases totaled $570 billion in 2017, and are expected to reach $590 billion in 2018. Stocks should rally, lifted by those share buybacks and strong earnings. But we fully expect the lows set by this current pullback to be retested, probably no later than October as the Fed and other central banks accelerate their quantitative tightening. 10-year yields rising above 3% may set the stage for sharp declines. And the “Fed Put” may not be available the next time markets take a sustained tumble. This current market selloff could be the beginning of a more serious correction, but it's too early to tell. If the ensuing rally fails before making a new market high, subsequent declines will become increasingly more dangerous. We are already positioned for a decline as severe as -25%. But we definitely do not want to commit further to growth stocks until the pattern of this current selloff becomes clear. For us, deep corrections become buying opportunities, because we have the financial ammunition (defensive cash) to buy aggressively once the markets bottom.

Job Gains Better Than Expected in JuneJuly 10, 2018
Myles UdlandSource Address    Yahoo - Finance
The June jobs report is out and it’s a beat. The U.S. economy added 213,000 jobs in June while the unemployment rate rose to 4%, according to the latest figures from the Bureau of Labor Statistics. May’s job gains were also revised up to 244,000 from 223,000, and job gains have now averaged 211,000 ...

The Debt Clock is Ticking July 10, 2018
John MauldinSource Address    Mauldin Economics
The total of Federal debt, state debt, and city debt (unfunded liabilities included) exceeds $200 trillion dollars. There is no set of math that works to pay this off. Let me be sure it’s heard by repeating it: There is no set of math that works to pay this off. Therefore, there has to be some form ...

Merkel Would Back Lower Car TariffsJuly 9, 2018
Markus WacketSource Address    Yahoo - Finance
German Chancellor Angela Merkel said she would back lowering European Union tariffs on U.S. car imports, responding to an offer from Washington to abandon threatened levies on European cars in return for concessions. However, she added EU tariff negotiations required a "common European position and ...

China Warns U.S. on TradeJuly 9, 2018
David LawderSource Address    Yahoo - Finance
President Trump said the United States may ultimately impose tariffs on more than a half-trillion dollars' worth of Chinese goods as the world's two largest economies hurtled toward the start of a trade war. Trump confirmed that the U.S. would begin collecting tariffs on $34 billion in Chinese goods ...