- Posted by Joe Fahmy on August 17th, 2014 at 11:03 pm
1) During the 2008 financial crisis, the Federal Reserve stepped in to provide liquidity and took measures to possibly prevent the US from experiencing its worst depression since the 1930s. Whether we agree with what they did is not the point. In their view, the Fed did what they had to do to keep the banking system from collapsing and to help the economy get back on its feet again.
2) Now, in 2014, many say that the economy has improved and the Fed should step aside. In other words, they no longer need to help with liquidity, they should stop all their bond buying, and they should consider raising rates soon. One problem with that thinking is that the health of the economy is measured by 50 different reports. There is no question that some parts of the economy have improved and stabilized, but there are other parts that are still fragile (specifically wage growth, housing, and the retail sector).
3) Here’s my crazy prediction: Not only will the Fed NOT raise rates anytime soon, but they will possibly start another version of QE (quantitative easing) again. The easing might not be the exact bond buying program as QE3, but it will be some variation of easing. Remember, the Fed has many different weapons at their disposal. They could announce or hint at their next version of easing as soon as this week (at the Jackson Hole Symposium Aug 21-23) or at one of their next two Fed Meetings (Sept 17 or Oct 29).
4) Part of my reasoning for this prediction is political. The problem is many people are WAY TOO sensitive about politics, so I won’t get into the details. Let’s just say that the powers that be are not going to come this far and not fully execute their plan (which is to make sure the economy is 100% back on its feet, which it’s NOT right now). Many say the Fed is usually late to act. In this case, I think the Fed would prefer to be late than to raise rates too soon (as they did in 1937) and possibly send the economy back into recession. In addition, the Treasury would be completely screwed if the Fed raised rates, but that’s a whole different story.
5) For those of you who think I’m blindly bullish and I just want the stock market to go higher, you are 100% incorrect. I know this all ends badly, it always does! The problem is I think this uptrend could go on for much longer than people expect, partially due to the continued accommodative environment. As I’ve said for many years, who cares! Just take advantage of this liquidity-driven market and when the warning signs appear, reduce your exposure. For all we know, the Fed has been buying bonds all along without telling us. After all, they are their own separate entity and are they required to notify us of EVERYTHING they do?
One final note, if my crazy prediction comes true, you will see many on Wall Street absolutely furious! Just remember, the only people that are REALLY complaining are those who are NOT making money…because no one I know doing well in the stock market really cares about any of this.
I can be reached at: [email protected].
- Posted by Joe Fahmy on August 12th, 2014 at 12:42 am
Readers of my blog know that I have liked Netflix $NFLX for a long time. I continue to feel it will move higher over the next 6-12 months for the following reasons:
1) Fundamentals – The company has posted triple-digit earnings growth for the past 6 quarters. Their revenues have accelerated to a 25% growth rate and their margins continue to expand. Their subscriber growth still has huge potential, especially when they enter countries such as China and India.
2) Technicals – The chart is showing VERY strong technicals on multiple timeframes, with many key areas of institutional support. Also, it looks like the stock is potentially working on the right side of a new base.
3) High short interest – The stock remains highly shorted, mainly due to valuation concerns. I think they can earn between $8-$10 per share by 2016. Also, historical studies show that P/E ratios are not a relevant factor in determining price movement. I will blog more about P/E in the future, but just remember that you can’t use traditional valuation metrics to value companies that are revolutionizing the way we do things.
The second stock I like is a Mid Cap company called Integrated Device Technology $IDTI
1) Fundamentals – They offer a wide variety of semiconductor solutions, but I am mostly interested in their WIRELESS CHARGING products. Research reports estimate that wireless charging could be a $5-$10 Billion industry. Over the past 3 quarters, the company has grown their earnings +183%, +367% and +143%. They already have a relationship with LG Electronics and I wouldn’t be surprised to hear about future design wins with Apple and/or Samsung.
2) Technicals – The chart is in a strong uptrend. I especially like the high volume week (ending on 8/1/14) where HUGE institutional support came in after the company reported strong earnings that week.
3) Option activity – There has been recent bullish call option activity in the November 2014 $14, $15 and $17 strikes.
In interest of full disclosure, I currently own both these positions for my clients. Of course, if either stock turns against me, I always use stops to protect the downside. If you take a position, I recommend doing the same. I can’t tell you where to put your stop because I don’t know your timeframe. Besides idea generation, the main purpose of this blog post is to show you how I combine AS MANY FACTORS as possible to help increase my probabilities of a trade working out. Good luck!
I can be reached at: [email protected].
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Joseph Fahmy is the managing director at Zor Capital, LLC, a New York based investment management firm. Joe has over 17 years of trading experience...More »