NFT, Bank of Japan on Bonds, FUTU and Value Stocks

Podcast Transcript

Hey this is Jeffrey with another edition of Stock Smart, March 8th 2021 edition. Hope you’re doing well. Hope you had a good weekend. I want to do an update on the bitcoin correlation. So we updated our stats again the crack staff which is me and I did a index of essentially the bitcoin and how it’s correlated to the S&P 500. Is it inversely correlated or negatively correlated or is a positively correlated. And the last time we did this it was about 68% positively correlated meaning when the S&P 500 goes up bitcoin goes up. And guess what? It’s the same. It’s about 70% so continued on over 50 similar trading days meaning bitcoins traded every single day, the S&P 500 and the stock market only open on the regular trading days not weekends nor holidays, but bitcoin trades all the time.

[00:00:50]
So 70% when bitcoin goes up and the S&P 500 goes up they’re in perfect correlation. 30% of the time one goes up one goes down or vice versa. Now Goldman Sachs did a recent survey and it revealed that 22% of its clients expected bitcoin will hit at least 100,000 in the next 12 months. Now, I’m telling my friends, I’m just saying, you know what? you need to learn about it. So if you don’t feel comfortable with the investment, you should get involved in some way, meaning you know, if you’re just a small investor. You want to learn about it, put $100 in it. You can go to Coinbase, I’m not getting any payment from Coinbase to do this.

[00:01:24]
And you buy, you deposit some funds and you can buy bitcoin pretty much instantaneously buy a little bit and see how it does, just watch it. But it does seem as more companies add this to their balance sheet that it’s becoming an asset that isn’t going to be traded so heavily, which means it will have more value and become stable. So 54% in the survey predicted the price of cryptocurrency will hover between 40 and 100,000 in that same period of time.

Stock Smart contest. We’re coming up, we’re going to have a stock picking contest.

[00:01:56]
I think we’re going to limit the age, maybe for the first one to leave it wide open, but I do want to make this an educational tool for younger people, I’m going to have questions from them and we’ll continue to try to answer them and we’ll update people on the show how people are doing in a contest, we’re going to be launching that pretty soon, excited about it. Non fungible tokens again made the news today and we’re doing a piece on it, it’s going to take a little more research. There was an image of Jack Dorsey with one of the original tweets from Twitter which was worth about two and a half million dollars and we’re going to talk more about how this digital art form is becoming more and more prominent. We’re still oversold when we look at the S&P 500 oscillator.

[00:02:34]
So this is a good time to add and we’re going to get into this a little bit later keep adding to your positions. We’re doing this value rotation. We’re going to talk about that in a second. But if you can stomach it you’re going to feel poor you’re not going to feel well if you get out of all your growth stocks. If you’re in growth stocks and you’ve made some money and then you got scared, you’ve lost ten eleven twelve percent in growth stocks, it’s getting washed out. It’s getting overdone the move to value is getting overdone and I’ll tell you how you can play that move to value and stay in it and maybe kind of hedge yourself with the value and adding back to the growth positions. So we had some interesting news Friday. And this is really key.

[00:03:11]
Now, this is hard to follow if you’re a new investor and you don’t really understand this and even people who are in this industry probably advisors don’t understand it, the bond market is confusing,  a lot of people don’t understand how bonds work, how rates are adjusted, how the bidding goes, 10-year note hit 1.59, but we see the bond prices ceasing here, bank of Japan over the weekend on Friday said that it does not intend to raise interest rates. So the bank of Japan governor Kuroda said, they have no intention of pushing up the 10-year bond yields above its target of around 0. So 0% that’s what you get in a bond in Japan. What that means is that we’re going to get more and continued buying from foreign countries of our US bond. That’s going to keep the prices down.

[00:03:58]
And so what’s happened in the last few years why bond prices have been so just you know smoked and are just so low it’s because in Europe and in other countries, they have negative bond rates right now negative interest rates and their bonds are terrible, some of them -25 the bund and other countries in Europe are really suffering there with their bond prices. So what happened is all those European investors bought American bonds, US treasury notes and bonds and that drove the prices down, but if you get Japan keeping their rate at zero, you’re going to get more foreign buying from Japan and the Japanese bank which by the way that is not a small bank. That is like a massive mega bank, bank of Japan. Their holding is as much debt as the entire GDP of Japan.

[00:04:51]
So that bank of Japan is much debt as the entire GDP of Japan. So it’s a massive massive bank, so when they’re going to be buying our bonds, even to hedge their own rates, that’s going to increase buying, which is going to drive the prices of bonds down which is going to then change the rotation out of these value stocks back in to growth. And so yeah, we may get 1.99, but the two and a half which is the concern probably isn’t coming because worldwide competition isn’t going to allow it until other countries move up their interest rates and their bond prices get better, you’re not going to see our bond price go to the moon. It just doesn’t make any sense so continue to be a buyer of growth stocks.

[00:05:33]
Maybe buying on the dips adding slowly to your positions and maybe hedge yourself with a little bit of the value play. And we’re going to get into that. So Deutsche Bank just did a survey and this is interesting because we just got the stimulus check passed, and depending on where you rate and where you hang in that stimulus, you’ll get a check of I don’t know $1,400 or something like that and Deutsche Bank did a survey and it said responses to the survey said half of 25 to 34 year olds will spend nearly 50% of their stimulus money on stocks, that’s pretty cool, and we saw this and we knew this reporting earlier, all the other stimulus checks, again, same thing, it went right in the stock market, the growth of the retail investor can’t be denied, so meanwhile 18-24 year-olds among the survey said they plan to use at least 40% of their stimulus on stocks. That’s great too.

[00:06:20]
That’s going to keep the market up and up and up, the VIX by the way, down slightly today. 24.35 Safe number is around 20. So we’re a little bit elevated, but not too high and we are coming down a little.

STOCK WATCH

OK so let’s look at a stock. We’ll do the marketing language again. We are a technology company. And I’m going to tell you this is a foreign stock, where you have an ADR. So we are a technology company which engages in online brokerage services and margin financing services for clients in Hong Kong and China. Okay, so it’s in China. We already talked about the stock, it’s Futu, FUTU ticker symbol. Okay, we focused on it in the past. We like it now more than we liked it then because it’s oversold, or at least to a place where it’s in a good buying zone. We talked about the RSI relative strength index, 0 to 100.

[00:07:12]
It’s a number, this thing is falling into the 40 range. It’s not going to get to oversold probably but it was so overbought at one point that its becoming a more palatable buy. What they do, Futu, is they are essentially a brokerage in China. The reason their growth is expected and the reason the stock is booming, is because Futu along with one other company called Tiger, brings most of the IPOs live in China, so they’re getting a lot of money and China had a record number of IPOs last year. So Futu was right involved with 70% of those. And so the expectation is that their brokerage services have made a lot of money and generated a lot of money.

[00:07:53]
So their growth is expected to be huge, now the stock went kind of parabolic, it’s a nutty chart if you look at it, and the technicals on the chart now look not so great because it doesn’t really have support until like a hundred and sixteen but if you’re smart here, you are going to add some down and I’ll tell you why because they’re heading into an earnings period about three weeks away, so now is a good time if you haven’t been in this stock and we did we made a lot of money for clients in this stock.

[00:08:19]
We got it around a hundred went to about a 190, 180, 170, did really well, bumped, now it didn’t have any support so it fell through the cracks and especially when these oversold growth type companies or companies that gained a lot, got oversold in the last 2 weeks, Futu was a victim. But this company is kind of finding support. It bumped a bit on Friday, today it was down about 7-8 points, now it bumped up to to about three down coming into earnings, the company is going to have really good numbers because all these IPOs, record number of IPOs in China, and Futu was in the middle of 70% of them

THE AVERAGE INVESTOR

So, we got a question from Paul, we’re going to talk about this, value move, the move from growth to value, and remember, this is what you need to know about the stock market as soon as you know about it,

[00:09:08]
It’s probably too late. So you need to almost shift your direction again and go back into growth because it’s overdone but and this is what I recommend. So question from Paul is, you know, which companies in the S&P 500 have the lowest PE ratios or would be considered value stocks. Right? Good book to earnings ratios, low PE ratios, we talked about this a little bit last week. So the value stocks and here’s how I’d play it and we’re going to go through a couple of these and then I’ll tell you how I’d recommend playing in this, so a couple of them, Berkshire Hathaway, the Berkshire B, this is a good investment. You’re going to get all the companies that their people like, so you’re essentially getting an experienced financial advisor.

[00:09:49]
You’re getting Warren Buffett’s team to manage your money for you for sure. Berkshire B, good investment. Norton LifeLock, Allstate, you know Aflac insurance, that does really well, regular payments, regular payments, regular payments. They know what they’re getting. They know how to build their company they have good returns. Not a lot of outflow lots of inflow, Progressive, again Insurance, Cigna, insurance, PNC Financial Services, going to make money on the spreads banking if you know the FED funds rate goes up, PNC that’s a good buy, so a lot of these companies are in that financial sector, which has done really well which is why why I recommended the RSP over the S&P for a while because the SPY I should say, so the RSP because it included more of the equal weight stocks rather than the SPY, which was the market cap stocks.

[00:10:40]
That’s why the RSP is outperforming again. It is outperforming the SPY today. So these companies, Whirlpool, Hartford Financial Services, Lennar Building Company, right? Bank of New York Mellon, Principal Financial Group, financials all have good PE ratios, and they’re getting piled into, XLF is a good play. If you want to play in the financials. Things like oil, financials are kind of overdone, oil got another boost today because there was some attack on Saudis on one of their oil refineries so that got a little bump today but oils getting overdone. So I don’t know if I’d be in oil going forward. Anyway the way you play this because you’re going to get hurt if you stay in too many of these and you’re like why did I buy all these value stocks?

[00:11:22]
They got moved and I missed the move, and I’m too late, buy the IVE which is iShares. Essentially, what you’re going to do is you’re going to get the entire value group without having to buy individual stocks. Just buy the IVE which is the iShares trust value ETF. It’s done extremely well. Today it’s up again about 1.4% and you don’t have to get involved in buying all these other stocks and adding to them. The Berkshire one might be a good buy anyway, but all these other ones they probably made most of their big move, and then we’re going to get the rotation and when the 10-year note goes down and we expect the 10-year note, the rate to go down, then you’re going to get it moved back to growth stocks.

[00:12:02]
You’re going to be like shoot I missed it. So don’t do that add something like the IVE, get a little position. So little bit of a hedge in the value and add lightly maybe to the growth. So hey thanks again for another great show. I hope you guys are doing well, send the questions to Jeffrey@JeffreyKamys.com and we’ll see you again next time on Stock Smart.