2014 RECAP

10 Surprises of 2014 RECAP (What I said in 2013:):

Surprise No 1: Apple’s next product

Sometime in 2014, AAPL may begin to get its act together. It is still a great company but shrinking margins and higher competition is really hurting AAPL's bottom line. The company needs to make a game changer product, possible a competitor to GOOGLE's Glass. The company lost its CEO so it needs to revamp the cult following by doing some type of spectacle. 

The company may launch the I-Watch, and I-Glasses. The company may not be able to out compete Samsung who has done an amazing job at its products.

AAPL is still in big trouble as far as I see it for now.  The prices may stay in this range all year next year.

Result:  I was 100% correct. The company has risen higher and near an all time high. Even thou this split the stock.

 



 Surprise No 2: TSLA continues higher

Tesla has done well this year but the company is trading too high and growing too fast. The stock took a beating late this year after 3 cars caught on fire. But the stock is still up allot of points. I still think the company will do well in 2014, they will sell more cars and this will continue the stock price higher. It may get a nice flush out before the next big wave up sometime in 2014. The electric car is here to stay and the industry is still very young. Upside targets 300+

This is also good for F, GM as well who are working hard to deploy electric cars to the retail public.

Result:  I was 100% correct. 

  Surprise No 3: GOOGLE Glass

The google glass should be launched this year and it will be a game changer. The tablets will be replaced by the GOOGLE Glass. It is the next evolutionary shift in mobile computing. The project will be a major success for google and I think it may push GOOGLE even higher. The company is doing well, and is in the position to do well for many years to come. The company has become a conglomerate of technologies. 

This is a very good company. The company should approach 1500 now.

The only risk I see to GOOGLE is the advertisement revenue begin to dwindle again and the earnings projections change.

Result:  I was wrong. Earnings contracted
 

 

 
Surprise No 4: 3D Printing industry grows, stocks should crash

The industry will grow in 2014. I still am not sure all these stocks will follow the industry growth. I think many of these companies are bubbles that are trading to insane P/Es. These companies have no earnings and is built on hype. This generally never ends good for stocks like these. I still think the industry will grow and a standard must be developed for retail 3-D printers. Currently no standards exist and its the wild wild west in 3D printing technologies.

Its great technology, I am a bull on the industry but a bear on the stocks

Result:  I was wrong the industry collapsed in 2014

 

Surprise No 5: Exon Mobile should continue higher

Now I said that oil may be going into a bear market last year but what I am seeing is the local US production on OIL has made us totally independent to oil already. We have so much new oil coming out the ground the story for oil will last allot longer than the alternatives.

Oil will be around for another 30 years and this is why I think XOM will be the leader. XOM is a great company originally owned by Mr. Rockefeller. I was on the last conference call and learned that XOM has over 20+ wells in development all over the world. If you add up all the revenue found in the new wells you can say the company is on a good path to grow. 

With all the local wells found in the USA in places such as the Baken and other wells, you can safely say that XOM will do well in the next 10+ years if they double there production. This will also double the company in size and is great for value investors. 

XOM has always been a leader for premium gasoline and I suspect that it will continue being a leader next 30 years. Maybe this is why buffet bought 5 Billion worth near high of year ($86.42 - $95.2) average $90.22

When oil is the core to the modern world, it will always be in demand for years to come. So picking the best horse for the next 30 years out is a safe bet that the bet is correct. Oil is used in heating, cars, plastics, toys, housing products. It is essential to life. XOM is also producing Natural gas products as well.

Result:  I was wrong the industry collapsed in 2014

Surprise No 6: Natural gas grows in demand

Recently, America has produced allot of natural gas and we have so much supply it has killed natural gas prices. Storing the natural gas was a problem for years but now we can transport the product to other countries and sell it. 

This means that if we can get cars, more homes and other uses for the energy it will also help our reliance on oil. 2014 may be the first year where the demand starts to eat into the massive supply we have in the USA that will help cause prices to rise for the commodity.

Result:  I was wrong the industry collapsed in 2014

Surprise No 7: Housing picks up

 

In 2014, the housing market will pick up and prices will begin to rise. Also production for contractors, building materials and all other related jobs may increase as well. This bodes well for unemployment because many jobs in the economy are construction related.

Soft areas may begin price appreciation, and places like New York will go on fire. The only risk to housing recovery is loan issues with banks, higher credit standards and stability of the economy.

Result:  I was right

Surprise No 8: Social Networking the Bubble

 

I continue to be a bear on social networking. I think the whole industry is a bubble that is waiting to be popped. The hype of sending messages and posting things is heavily leveraged for advertisers. I still think FB and TWTR are bubbles. I was dead wrong on GOOG for years thinking it was a bubble. It may still be, but they have moved away from just advertisements to make money. 

This social networking fad will fade as teens grow sick of these silly tools. Online advertisement may be growing but I see it as a bubble continue to expand until one day all these online ad related companies get destroyed by a massive re-evaluation. 

Online impressions has a flaw. The fundamental flaw will creep up and hurt many people one day. Mark my words!

Result:  I was wrong the stocks like Facebook and Linked-in did well.

Surprise No 9: Market Enthusiasm

 

Emotion will trump logic as investors trade momentary comfort for long-term security. I think the markets will continue to trade form a short term perspective. Things will move faster and faster due to Weekly Options. We will also have some nice moves in 2014 on both sides. 

I think eventually allot of people will get hurt on any major reversals in the economy because many of the money on the sidelines will eventually be too late buying at these current levels. The people buying on the highs will be the ones who get crushed first.
 

Result:  I was wrong the market just trended higher with few corrections
Surprise No 10: Bitcoin Grows stronger

 

I think even thou FIAT currencies are blowing up due to Fed printing all over the world the need for an alternative FOREX currency may take hold. This new currency is very similar to GOLD, or a minor pair currency. I think the need for a global currency that is not controlled by governments may be the biggest threat to all industrialized nations. The general population are tired of massive government debt, runaway spending and would support something that has better stability. 

Now bitcoin is a baby currency and must first be more popular in circulation before it actually become something that has legs.  Currently its all speculation and that is very dangerous.  If more exchanges are built and you can actually trade it on the FOREX market it may turn into something as a world alternative.   We need more products and services using the coins, allot more liquidity and less volitility for Bitcoin to grow. I think in 2014 it will continue to grow but will it survive the long hall, I have no clue!

Result:  I was wrong the industry collapsed in 2014

10 Surprises for 2015

10 Surprises for 2015

Surprise No 1: Low oil is here to stay

 I think low oil is here to stay and its become the new norm for oil to trade between $30-$60 dollars a barrel for the next 2 years. Why? Too much supply and most shale producers are not planning to cut production. The only way they cut is if their companies go bankrupt which is a possibility. Most investors are expecting a quick rebound. I don't think so for some time. I think it would be difficult for oil to cross $80 a barrel for the next 5 years. Low oil is the new norm.

Surprise No 2: Airlines outperform

I think if the low oil stays low for a long period of time the airline stocks will all go parabolic. This is because the industry has suffered for 30 years with high oil CAP EX. The industry has cleaned up its CAP EX with technology and with better margins on ticket sales it will help rally this sector to parabolic levels. Especially when they rip you off with the extra bag costs.
 

Surprise No 3: Cyber wars go big

 I think there is a good chance the US and another country such as China or North Korea get entangled into a cyber war due to hacking. Either a company vs a country or a country vs a company will ensue more cyber violence. Some big network could be affected and we could loose a part of the internet or one of the major exchanges in the US go down.

Surprise No 4: Apple hits 1 Trillion market cap

 As mobile computing continue to expand across the world and more people jump on the information super highway it has helped so many social related companies. I honestly think Apple computer is the pinnacle player in this realm. They have high margins and high volume. Apple continues to innovate and create new products for the next generation of the technology evolution. Apple will possibly the first US company to hit a 1 trillion market cap. To gain another 300 billion in market value requires another 2-3 years of great innovation and wonderfull sales tactics which Apple has always been able to deliver.

Surprise No 5: Healthcare continues outperform

 Companies like Wallgreens and CVS are going to continue higher. Health related sector has gained massively from Obama care.  All sorts of health related companies now are gaining value from the regulation in healthcare. The government is splitting the costs of drugs.

Surprise No 6: Autos outperform

 If oil continues to stay low this may create an opportunity for car makers and dealers to do better then expected and the lack for E/V cars fall as people flock traditional gas vehicles.  Auto makers and dealers will continue higher into 2015 as the big three sell more cars ever than before in recent history. The better economy helps all auto dealers wit low interst rates on auto loans.

Surprise No 7:  Electric cars demand fall bad for TSLA

 I think TSLA will not do so well in 2015 because lack of demand for electric will be delayed until oil stabilizes. This is bearish for Tesla motors and the stock may head down to the $120 level during 2015. Tesla will rebound eventually as oil prices continue higher in the back half of 2015.

Surprise No 8: Bond Yields Rise

The long bubble in the bond market will finally come to an end as the payout of bonds to stocks has finally begin to shift the reversal. The moves by the fed will switch the trend from equities to bonds in the back half of 2015.

Surprise No 9: China housing crashes 

I think the long awaited crash in the housing bubble of china begins to break down asset prices. China will have to devalue its currency to deal with the major housing collapse. They have been building one stop without the need for organic growth. Sooner or later this market will collapse. This could also spill over into all markets and become a catalyst for a selloff in all asset prices in the world

Surprise No 10: Inflation comes back

 I think the low oil prices coupled with easy money printing as well as a good economy with jobs will finally create asset inflation for the common folks of the economy. This will jack up asset prices in consumer inflation. This is the ugly form of inflation that hurts consumers. This will spur the fed to raise interest rates quicker than expected.

My 2015 Stock Market Projections

BROAD MARKET

The world market has 2 models for 2015.

I believe 2015 will be setting up for another and the final bull year in equities. We are entering a period where the real economy (main street) which lagged the paper economy for many years has finally caught up and GDP has hit levels that very few analysts projected many years ago. This action is similar to 1999.

We are at cross roads in the market because the GDP is starting to make the US the best house in a bad neighborhood. Europe is currently doing very poorly while the US has continued to outpace all developed nations.

 

What this tells me is that over time more money will flow back into the US because investors from abroad want to keep their money appreciating over time in the best economy that has the best output and performance.

Now let's look at the S&P below:

The S&P is telling us the rotation of stimulus is affecting every single asset price in the US economy. Every single dollar has a little bit of stimulus attached to the unit level.

Now let's look at Europe 5 year history:

Global Stimulus across borders has created a higher valuation environments where P/Es are massively expanded. The rich has gotten richer.

So where are we headed?

We can easily continue the rise higher because the real economy is running nicely.  I see we head higher next year to S&P (2250-2350) area. The bull market is entering its 7th year and generally markets parabolic when they stretch beyond expectations. The main reason I think we can actually keep moving up beyond most consensus estimates is oil is a form of stimulus. The latest collapse in oil has added a big boost to the US economy. 

 

Now if oil prices stay low for a long period of time this may continue to help all companies across the board especially Airlines to continue their pace higher.  The S&P may continue to ramp to maybe (2400-2500) area in 2015.

Low oil is great for most sectors because oil is a TAX on the economy. The rich saudis are not needed anymore.

Another factor that can help propel prices higher is near zero interest rates will not affect the market. Even if they raise rates for a a while it still won't have a negative affect on equities until interest rates go beyond 4-5%. We are currently at zero and it may take a while to get to 4-5% because you have a relaxed fed. This move from 0 to 5 may take 2 years thus giving a good chance equities continue their ramp into 2015. Low interest rates for Houses, Autos, Businesses and so forth won't feel the pinch of higher interest rates as long as the real economy keeps moving.

Most people forget so easily and adjust very quickly to a changing environment. The main reason for this is people don't like to be left out in the cold.

Head winds:

The dangers I see for 2015 
A. Euro-zone Crises with the stimulus
B. Shale out junk bond collapse
C. China Housing Collapse
D. Russia war with US
 

 Euro zone crises:

Euro zone has started to print more money to stimulate their slowing economy and some economists think that it may backfire and drag us down during some time next year because inflation will begin to creep up. The MCX could drop down to 12,000

So what I see in the markets next 6 months out?

Market Forcast 1 for 2015:

I see a correction early next year down to S&P 1800 level. After this correction we ramp and head to the 2300-2500 possible targets.

A few head winds exist such as a few Shale companies go bankrupt and the Junk bond market crashes that will bring this market down into correction mode first half of 2015. Another problem could be the Euro Zone stimulus program back fires and brings down all markets due to fear. Finally the china housing bubble could pop around this time.

Market Forcast 2 for 2015: 

The low oil prices could continue to force stimulus asset prices and the market continues its ramp higher into first half of 2015. The bad news hit sometime in march and the market begins to collapse due to fear. Tax time in the US is around that time as well.

Then either a few Shale companies go bankrupt and the Junk bond market crashes that will bring this market down into correction mode first half of 2015 or the Euro Zone stimulus program back fires and brings down all markets due to fear. Finally it could be the china housing bubble popping around this time.

How will  2015 end?

I think that 2015 will end up and we will shrug off all the bad news from Europe or Oil Junk bonds by the end of the year.

Why? The government is keeping a close eye on bubbles. Bubbles have been the biggest killer of a market in the past 15 years. The stock bubble of 1999. The housing bubble of 2007. and the junk bubble of 2014? I don't think so. 



Government oversight has gotten intense and its hard for bubbles to bring down the market.

Where are the bubbles? 
It's harder than ever for a bubble to exist. High capital levels, stress tests and vigilant watch dogs keep eyes on these dangerous nuances of the capital markets. 

1) I see a bubble in Venture capital funding for tech Start-ups. Most of these companies have no real earnings and are valued at insane levels. They are two many  tourist angel investors who do not want to miss out on the next big thing. Companies like UBER, Google, Linked IN etc.

2) The next bubble I see is in Junk bonds. I hear around 30% of new junk bonds are shale oil related. This can be very dangerous if all these companies go bankrupt.

3) Biotech stocks. This sector has always been bloated with insane valuations for intangible assets. I still can't clearly understand why the valuations are so highly priced for biotech companies. Janet Yellen agrees as well.

We should be fine in 2015 only geopolitical risks are on the table