Our 1st official call happens tonight. 9 out of the 10 students make the call tonight. So, that is encouraging. Tonight we struggled to get the students on the line. The homework I gave them was confusing. I asked them to listen to a replay of a recent investment call that my firm hosted. They had to dial in to a replay conference call number and were confusing that phone number with this one. We started late, but the students start texting each other to help get on the line.
Now we have an investment group!
I start every call out with a replay of the stock market for the past week. I cover the S&P 500, 10 year bond yields, oil prices, the US dollar index and the VIX (volatility Index). As, I want them to focus on these 5 data points every week. I also cover any important news of the week. This week I emphasized a headline from the investment news. Retail sales were down 1.2% in December, which is well below analyst consensus.
I asked the students to text my personal line and give me a recommendation on their Target stock. Should we buy, short or pass?
The consensus, 6 out of 10, responses were to Short Target Stock. I explain that we will be shorting Target stock tomorrow with 100 shares.
Does headline news affect their decision or do these students think Target is out of date? As I was thinking this, I get a text from a student saying, “We all know that Amazon could kill target.”
On our last call, I asked students: Based on your temperature reading, what Quadrant are we in?
The consensus was we were in QUAD 4. Growth & inflation are slowing.
So, next question. Why is the stock market going up if we are in QUAD 4?
“Speculation”.
I explain to them that investors are focusing on policy right now. The P in the GIP Model.
Policy: the pivot by the Federal Reserve on interest rates. The forecast showed 3 interest rate hikes in 2019. The dovish pivot by the Federal Reserve reduced that to two rate hikes. Thus, investors are buying stocks in anticipation that the US Economy has bottomed. If so, we will see better days. This is the toughest thing about investing. The stock market pays attention to the present but is always anticipating the future.
Throughout these 10 calls, we will discuss important indicators that determine the state of the economy.
And, today the first of these indicators: the yield curve. We discussed the current nature of the yield curve. Also, how the current flat yield curve affects investment decisions. I focused their attention on the difference in yield between two data points. One is 3 months and 10 year bonds. The other is 2 year and 10 year bonds. As expected, short-term rates should be lower than the long-term rates. But, when investors expect growth the slow in the future, sometimes you will be an inverted curve.
For our next call, we will cover Amazon stock.
I asked them to use the PEG Ratio to determine a fair price for AMZN Stock.
Again, they will need to offer a BUY/SHORT/PASS recommendation.
Click here to read about Call #1.