From Teeka Tiwari, editor, Jump Point Trader:
“That is the biggest BS I have ever heard… I can’t take him seriously. I can’t understand why you guys brought him in…” – Subscriber
I want to acknowledge something.
I know I’m very much in the minority on my upbeat views on American growth. I’ve received several strongly worded emails (like the one quoted above) suggesting that yours truly is oblivious to government data and central bank manipulation.
I can understand it may seem that my belief in a brighter future may read like the writings of a doe-eyed teenager. Let me assure you that even when I was a doe-eyed teenager, my market prognostications were always based upon hard facts.
I remember the first time in my career when I was mocked for my investment opinion. The year was 1990. I was 19 and had just purchased (on behalf of my clients) $3 million worth of RJR Nabisco junk bonds.
[“Junk” bonds are noninvestment grade debt. They offer higher yields in exchange for higher risk, overall.]
The U.S. was in the early stages of a brutal recession. The stock market was suffering. But it was the junk bond market that was leading the way down.
The prevailing thinking at the time was that we would see wide-scale defaults of junk bonds as corporations suffocated under a mountain of debt and not enough cash flow to service them.
Instead of succumbing to the “groupthink” that appeared to be gripping the entire market, I started doing my own homework. I began investigating RJR Nabisco bonds. The bond had a coupon (interest rate) of 15%, but because they had dropped so far below face value, the yield was now up to 21%.
It seemed to me that even if the entire U.S. did go down the tubes, people would still be smoking cigarettes and eating Kraft snacks. To my eyes, the company’s tobacco and snack business cash flow was bulletproof.
And so, I brought the idea to my entire book of clients. Most of them said no. A few of them accused me of being a “clueless teenager” and closed their accounts. I ended up getting only about $3 million worth of RJR bonds on the books.
Over the next four years, those bonds would end up delivering $1.75 million worth of gains.
The same thing happened with Eastern Airlines. The airline industry was dying, and Eastern Airlines was on the verge of bankruptcy. Eastern’s junk bonds were trading at pennies on the dollar. I knew Eastern Airlines was probably done as a company… but the bonds were still very interesting.
You see, Eastern Airlines’ aircraft secured them. No other claim trumped the junk bonds’ hold on the planes. If the company went bankrupt, the bondholders would be the first to receive compensation once the planes were liquidated.
A series of phone calls to industrial scrap metal merchants showed me that even if the planes were sold for scrap, they would be worth more than what was owed on the bonds. To me, it was a no-brainer way to make a killing. But again, most of my clients were up in arms that I would suggest buying the bonds of a near-bankrupt airline.
All the logic in the world was not enough to pierce their preconceived ideas of how bad the airline industry was. I got only $1 million worth of those Eastern Airlines bonds on the books. Within the year, we made 50% on our money.
My clients made over $2 million off those two trades. It was frustrating that we made so little money. We should have made $100 million. It was easy money. All we had to do was follow the research… not the blind prejudices of a scared market.
Unfortunately, at the time, my book of business was small and my track record not yet established. What I’ve found interesting is that even after a career filled with correct contrarian calls, I’ve still run into outright mockery.
In 2011, when I had a two-decade track record of making correct nonconsensus calls, I was publicly disparaged on live TV for my ideas. This happened on the Fox Business network. I was being quizzed on where investors should put their money.
I said the best trade I saw was to buy U.S. dollars and 30-year Treasuries (I was bullish on bonds at the time). The host of the show laughed at me outright… on air. She asked if I wanted to stand behind my prediction; I said I did.
The call I made proved to be the bottom in the U.S. dollar. Since then the dollar has appreciated by 26%. That’s a massive move for a currency. My bond call did even better. 30-year Treasuries rose 40% over the next 18 months.
So being laughed at, or being called naïve, usually means I’m on the right track… relying on solid research rather than blind opinion. It’s a price I willingly pay in the pursuit of spectacular returns.
Bottom line: My opinion on the U.S. market and the U.S. economy is backed by deep research that goes far beyond one government-provided data point.
Example: If you look at government income receipts, they are growing… dramatically. 2014 was the first year that federal tax receipts hit the $3 trillion mark. (This wasn’t from tax hikes, either… tax revenue represented 17.50% of GDP last year.)
Here’s why this number is important…
Government tax receipts are like the equivalent of the cash flow statement for a corporation. It’s very difficult to monkey around with. Growing tax receipts means that Americans (businesses and individuals) are collectively earning more money.
That’s bullish, period. It shows that this recovery is more than fiat currency-led smoke and mirrors (i.e., only a result of monetary manipulation through central bank money printing). We are seeing real growth begin to take place.
You also have to look at the state-by-state rate of economic growth. As I noted in the January 29 Daily, the coincident indicators are improving every single month. I know you still may not believe it… but the preponderance of the data shows the U.S. economy is healing.
I have been a professional investor for 26 years. I risk my own capital every single day. That means I can’t afford the luxury of naïve Pollyannaish thinking. My investment opinions come from hundreds of hours of ongoing intense research. Hopes, wishes, and dreams have no place in my investment process… nor should they exist in yours.
Reeves’ Note: Teeka just shared another key bullish statistic with his Jump Point Trader (JPT) subscribers. This indicator has led every U.S. economic expansion since 1975. JPT subscribers can click here to learn more about it.