Oh, To Be Young Again… (MSFT)

Oh, To Be Young Again… (MSFT)

Oh, To Be Young Again… (MSFT)

It’s a truth seldom questioned that the young have it best. After all, they’ve yet to suffer life’s slings, the challenges of marriage and child rearing, the uncertainties of earning a livelihood and the timely – and untimely – passing of family and friends.

And yet there are times when even youth lose hope – when even twenty-somethings consider the prospect of building a life and realizing their dreams to be onerous and grave, and not as Shakespeare once put it –

Could it be that today we are witnessing the passage of such an age, when the young are mournful, and the aged more stout?

A look at the following chart from Deutsche Bank Research offers some shocking data. Is it possible that for the first time – possibly ever – the young possess less spirit than their parents?

Have a look –

True, we’re talking about consumer confidence here, but that generally spills over into other areas of life, no?

Put plainly, this is the first time that reliable data are showing those over 55 possessing greater optimism for the future than those under 35.

Remarkable.

Just this month.

First time ever.

Is this a comment on the times in which we live? on a civilization in decline? on a failure in the way we rear or educate our progeny? Or is it just a reflection of the character of a single generation?

Hard to say, but troubling nonetheless, and certainly if the trend continues, we believe it’s fair to project that some unexpected and potentially grave developments lie ahead.

For without the confidence of youth, the willingness to dare and hope and strive for something better, how can we possibly believe that anything worthwhile will endure?

One more –

We have our own take on the above noted ‘confidence problem’, but to explain it would require something more lengthy than the 1000 words you receive from us weekly. Moreover, this is not the address for such an exposition.

Rather, we’ll just assure you that the prospect of a long-term healthy market and economy are close to nil if the phenomenon continues.

And for a healthy civic future…?

No way.

In the fullness of time we’ll comment as necessary.

In the meantime, a trade based on the ‘confidence problem’ is hereunder taking shape.

The Contrarian Rising

For the investor, there is neither good news nor bad, but what he might use to profit by it.

And though that may sound amoral, investing is not ethics, friends. It’s about growing your capital. So if you don’t like the way a profitable company behaves, that’s perfectly acceptable; you needn’t offer it your resources or your confidence. But don’t consider your decision a financial one. It’s something other entirely.

As for our trade this week, we’d like you to consider another bit of “bad news” on the investment front.

It comes by way of a chart of Wall Street analysts’ earnings expectations and the revisions they underwent coming into this earnings season.

And it looks like this –

Before we unpack the content of the chart, you should know that thus far this earnings season, with roughly a fifth of S&P 500 components reporting, earnings beats are in the 57% range and revenue beats are totaling roughly 48%. Not a bad start, though we still have a ways to go.

And that’s where the above chart comes in.

As you can see, this is the first quarter in almost nine years (!), and only the third in over a decade, that earnings revisions have been higher coming into reporting season. That in itself is astounding.

Add to that, the degree to which analysts have raised their sights this quarter – some five percent more than their original projections back in January – and you get a sense of the burgeoning optimism that Wall Street possesses regarding the latest quarter’s numbers.

Furthermore, look again at the beat rate that we’ve noted – admittedly premature; we still have several weeks before we wrap this quarter’s announcements – and you get a sense of just how much impact the Trump administration’s tax and trade reforms, along with rising commodity prices are having on the rate of growth in corporate America.

At this stage, it looks unprecedented.

But as luck would have it, even these wild upward revisions are being read by the mainstream financial press (and many a Wall Street strategist), as too good to be true. Nearly everyone is claiming that expectations are priced for perfection, and that any disappointment is sure to bring calamity to a market with a hair-trigger sell posture, awaiting any excuse whatsoever to liquidate.

Yet it hasn’t happened.

Nor do we believe it will.

And as the market gets used to the idea that even after all the upward revisions the historical beat rate is still being maintained, then the buying will resume in earnest, and most formidably among the tech giants, who have led the market from the outset.

Now look here –

This is a chart of year-to-date buybacks for the S&P 500, and it shows – for the first time ever – the tech sector leading the pack. By a runaway margin!

To our thinking, this constitutes nothing less than a PUT on the tech leaders.

With government tax reforms encouraging buybacks and the tech sector flush with cash and already having announced a bevy of more repurchases to come, there’s little chance the market leading techs will not see new highs – regardless the current bad press plaguing Facebook, Google, et al.

The risk plainly remains on the side of those who sit out the current market drift.

This week’s trade is a direct call on an imminent break higher for the tech sector. It comes amid 1) an unprecedented and exceedingly depressed state among our youth and young adult investing population, 2) a penchant for the worst interpretation of the facts by the mainstream financial press and 3) a tech sector itself which is loaded for bull.

This week will be critical.

Buy it.

- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]

Wall Street Elite recommends you consider using Microsoft as a proxy for tech, buying the MSFT January 18th 95 CALL for $8.60 and selling the MSFT January 18th 95 PUT for $7.80, for a total debit of $0.80.

- Content protected for Normandy Executive Lounge, Wall Street Elite, Executive Lounge members only]

With kind regards,

Hugh L. O’Haynew

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