|Despite a decidedly green January, the wall of worry in the U.S. stock market is getting harder to climb with each passing day. The age-old strategy of buying and holding an index fund simply won’t cut it anymore – stock picking is the only path forward, and it must be done very carefully.|
It’s gotten to the point where I literally can’t open up the financial news without finding a worse crisis story than yesterday and the day before. We all know about the massive American debt Ponzi scheme that’s been perpetuated by the Federal Reserve since QE was set in motion a decade ago, but here’s a discovery that doesn’t bode well for the house of cards we call an economy:
|Since the time when QE tapering officially ended in September of 2014, we’re seeing U.S. Treasurys (i.e., debt notes) predominantly being held not by the Federal Reserve and banks generally, but by mutual funds and the mysterious “other” category.|
Much of the bizarre “other” category includes retail investors like you and me, and many investors have their holdings in the mutual funds category as well. In other words, the Fed and the banks aren’t holding America’s debt anymore: that burden has been shifted from the 1% to the 99%.
Evidently, the Fed isn’t just “unwinding their balance sheet”; they’re outright handing the debt over to the rest of us. Perhaps they’re hoping we won’t notice that the Federal Reserve has been unloading mid-maturity Treasurys like last week’s trash:
|Apparently the Treasury would like us to believe the narrative that “other investors” have come up with over $3 trillion in cash since 2015 to gobble up government debt notes that yield next to nothing post-inflation. If anything’s “unwinding,” I’d say it’s the Ponzi scheme that’s been holding up the markets for the past decade.|
If that’s not enough to wake everyone up, consider this: Secretary of State Mike Pompeo has recently confirmed that the U.S. is suspending its participation in the Intermediate-Range Nuclear Forces Treaty, effective February 2.
Furthermore, Secretary Pompeo threatened that “if Russia does not return to full and verifiable compliance with the treaty within the six-month period by verifiably destroying its INF-violating missiles, their launchers and associated equipment, the treaty will terminate.”
If this doesn’t all sound eerily familiar, then you might not be old enough to remember the decades-long, costly, and potentially cataclysmic Cold War that destabilized the world order and threatened humankind’s very existence.
The U.S.’s withdrawal from the INF Treaty was precipitated by Moscow’s unveiling of a missile at a public event in late December – a missile which the U.S. claims is in breach of the treaty. Russia’s Deputy Foreign Minister, Sergei Ryabkov, has denied all accusations, asserting that much of the U.S.’s evidence against Russia has been “fabricated.”
Get Focused Like a Laser
It really is just one unsustainable crisis after another. And I must say, as it pertains to the equities market, selective stock picking is the way to go, and my watch list only consists of companies with strong growth potential and a compelling valuation.
One Company to Weather the Storm!
One that I’m looking at right now is a teen discount clothing chain called Five Below Inc. (NASDAQ:FIVE). Jim Cramer once touted this company as having a “perfect balance sheet,” and while I don’t agree with everything that a guy like Jim will say, I tend to agree with that assessment.
I consider Five Below to be the ultimate retail play this year, as the company’s revenues are expected to grow by 22% to $1.56 billion this year, while their earnings are projected to increase by a whopping 48.6% to $2.66 per share.
It’s a growth story that should continue well beyond 2019, as over the next five years the company plans to grow their revenues and earnings by 28% per year. Five Below also plans to have 2,000 stores in the U.S. at some point – an ambitious goal, but entirely possible given the company’s current growth rate.
I’m also impressed with the company’s management, which is helmed by Five Below CEO Joel Anderson. He was the CEO at Walmart.com, so it’s more than fair to say that Anderson knows a thing or two about retail.
Besides, it’s based on a unique concept: a true discount shopping experience with items at $5 or less. And speaking of discounts, I’m seeing FIVE stock at a discount compared to where I expect it to be a year from now and beyond. It’s a perfect example of how even in the toughest market conditions, there are promising investment opportunities to be found.
As I said in my last alert to my readers, it’s an amazing time to be alive and in the middle of winter, will come some of the greatest opportunities of our lifetime.