Here’s What Emailgate Means for Your Money

“Every night when I get home

The monkey’s on the table,

Take a stick and knock it off,

Pop goes the weasel!”

-English children’s nursery rhyme

“You can call us wrong, but don’t call us weasels.” -FBI Director James Comey to Congress

Dear Sure Money Investor,

FBI Director James Comey threw what may prove to be a hand grenade into the 2016 presidential election on Friday with a letter informing Congress that he is reopening the investigation into Hillary Clintons use of a private email server.  Weasels aside, the resulting scandal may very well paralyze a future Clinton presidency.

And the consequences for the markets will be huge.

Here’s what to watch…

Every New Leak Is Bad News for The Markets

The electoral map still favors a Clinton victory but the gap between her and Donald Trump is closing, setting the table for a cliff-hanger election whose result could rock markets.   But if Mrs. Clinton manages to fight through the latest mess, maintain her lead and prevail, she will enter office highly compromised and without a mandate.

Even worse, new disclosures regarding conflicts of interest in the handling of the investigation into her emails may well lead to a genuine constitutional crisis. Mrs. Clinton’s media and other supporters are doing her, themselves and this country no favor by denying the reality of the crisis that is looming in the horizon.  A crippled presidency is not only bad for the country but bad for financial markets and investors should take heed of what is happening right in front of their lyin’ eyes.

Stocks were enjoying a reasonably happy day on Friday (other than healthcare stocks, which were selling off on McKesson’s lousy earnings and commentary that future drug price hikes are going to be much tougher to come by) until Mr. Comey ruined the fun.  Markets closed down on the day and ended the week flat.  The Dow Jones Industrial Average gained 0.09% to close at 18161.19 while the S&P 500 lost 0.69% to 2126.41.  The normally ebullient Nasdaq Composite Index dropped 1.28% to 5190.10 on the back of earnings disappointments at Amazon.com, Inc. (AMZN) and Apple, Inc. (AAPL). Investors will be holding their breath until November 8 while reacting to every new leak that may affect the election outcome (and their money).

Short investors, though, may see a few unexpected windfalls between now and then….

Bonds continue to give up ground with the yield on the benchmark 10-year Treasury rising 10 basis points on the week to 1.85%, its highest level in months. Consensus is gathering that the Fed will raise rates by 25 basis points in December but the entire curve is rising – two year yields hit 0.89% last week, their highest level since June. Inflation expectations are also rising. Five and ten-year inflation breakevens are trading at their highest levels since July 2015.  Corporate earnings have benefitted from years of record low interest rates; that party may be ending, in which case it will produce another headwind to already difficult earnings seas.

Third quarter GDP clocked in at a strong 2.9% (annualized) last week, slightly higher than the 2.6% expected.   But before anybody gets too excited, this only brought the four-quarter average run rate to a measly 1.5% and the third quarter was saved by a big pop in exports. The bottom line on the US economy remains that 8 years of over-regulation and over-borrowing are suffocating growth.  And despite what politicians say, you can’t tax, borrow and regulate a country into greatness.

Two “Short List” Stocks To Watch As The Scandals Keep Swirling

Tesla Motors, Inc. (TSLA) surprised investors by reporting a third quarter profit last week but a peek under the hood shows that the company is headed for a demolition derby.  While its cash only declined by about $150 million to $3.1 billion, the company delayed paying its bills and saw its accounts payable by a huge $600 million. Elon Musk may think he is very clever in manipulating Tesla’s numbers into a phony profit, but the company would have lost money had it paid its bills on time.  Furthermore, it is about to merge with Solar City (SCTY) if investors are corrupt or stupid enough to approve the pending deal, loading Tesla with hundreds of millions of dollars of additional losses and capital needs.  The company will be coming back to the markets for more capital most likely in the form of a combination of debt (convertible bonds) and stock.  This will create significant dilution for already overvalued shares and the offerings should be avoided by any investor who doesn’t want to lose his shirt.

Amazon.com, Inc. (AMZN) surprised markets (and the analysts calling for the stock to reach $1,000/share) by missing earnings expectations last week. Investors need to remember that AMZN is largely a distribution company, which means that it has thin margins. Last quarter, it spent nearly as much money as it took in, which is remarkable when you think that it had revenues of roughly $35 billion.  It is no mean feat to spend $35 billion in a single quarter, yet that is how much AMZN spent.  No doubt investors will continue to give the company the benefit of the doubt and grant the stock a P/E multiple of hundreds of times, but the 5% plunge in the stock after earnings were announced shows how vulnerable the stock is to a return to sanity in the markets.

If you recall, I’ve had this stock on my short list for quite some time. I would keep an eye on AMZN if I were you.

Sincerely,

Michael

25 Responses to “Here’s What Emailgate Means for Your Money”

  1. For all of Hillary Clinton’s faults, which are many, do you really believe Trump would avoid a constitutional crisis? After all, he is clearly a fascist with no understanding of or respect for any kind of democratic process. I have little doubt that if Trump were president the democratic space we enjoy would shrink more than it already has. At least Hillary does not advocate violence.

  2. Thanks Mike for your comments. You have alot of insight. It’s a shame that the last email investigation ended, like it did, because of political influence (and more from what I have read). But after Comey was being shunned by many of his agents, even high level, and agents were resigning from the FBI, for not following through with their responsibility and bringing disgrace to the FBI, and more evidence was brought in, the investigation was rightly reopened. I think it’s going to be a rocky Fall, including the economy, whatever happens with the election. With the many scandals and lies (even to Congress) that Hillary has been caught in, it’s amazing that many think she would run this country, as President, with wisdom and integrity. Yes, Trump does open his mouth before he thinks, at times, but he at least believes in and supports the constitution and will bring some positive changes to our country over time. But it may not be a pretty picture this fall, no matter what.

  3. “At least HIllary doesn’t advocate violence.”

    Yeah, right. Tell that to the Iraqis, Lybians, Syrians, Serbs, Houtis, Somalians, Pakistanis, Russians, and Chinese and see if any of them agree.

    Government has a monopoly on the institutionaliized use of violence. And she has ordered and directed way more than her share. The woman is a stone cold killer … a wolf in sheep’s clothing … a barbarian.

  4. If the company goes bankrupt the compensation chamber of the stock exchange will compensate you with the cash value of the contract; the strike price. During the drop, margin calls will be placed to the seller of the put in order to secure his/her liability towards the buyer of the put.

  5. I have heard Amazon is knocking it out of the park on their web services division and may be considering spinning it off. It supposedly is extremely profitable. Do you know anything about it and could that be part of why the stock is valued so high. I agree with you its overvalued, but by how much?

  6. If the companies go bankrupt, you celebrate, because they’ll be trading at very near zero and you own the right to “put” them to someone at the strike price you agreed to when you entered the contract. There is no better outcome.

  7. Emailgate will cease being a legal issue, for all practical purposes, when Obama grants Clinton a presidential pardon for anything and everything relating to the private server and The Clinton Foundation. Expect it sometime between November 9 and January 19.

  8. Hill & Bill have been running what amounts to an organized crime cabal for decades that has grown to worldwide proportions (and Hillary has done most all of the heavy lifting /hitting all along) so, thank God for the hackers out there who may finally bring such to the attention of the “distracted majority” of Americans!

  9. No interest in politics. I would like to know Who is Elon Musk. Is he a good business manipulator or a good fellow for our future? I knew troubles when the Solar City bonds offering, Elon and friends had bought big chunks of them cause no one wants it. Musk’s products are pictures perfect, why does he do all the push? Its healthy for the stock to have a correction…

  10. What world are these people in that think Trump is a fascist? Are you a fascist if you support the constitution? Do you really know what you are getting with Hilary other than she is in bed with wall street. Spend a little time and look at her record, not good, she should be in jail.. The country needs to be run like a business and who better than someone who has a record of controlling cost and creating jobs, how many job has Hilary created?

  11. Vasilica Vasilescu

    Thank you Michael for all your comments. I do not go to Politics because I do not know too much but I see the dynamic of the financial situation in the world. One think I know Michael I will be with you from now on. God bless you and your family.

  12. I am a bit stunned, you guys an these Facist comment. WHAT THE … you must get all your info from the main stream, the drive by media. Fascist. Better check talk radio, some t v shows, Lord your uninformed, this is very important, get FACTS. I fear if her, next election will be handled FOR you. You won’t figure it out for a while but really to late by then. D.

  13. Do any of you genius understand that this countries voters have not elected a candidate in about forty years? For those of you that don;t know it is called DEEP STATE & ELITES the group that gets together and picks who will be the next President of this country. If you doubt this go to Bill Boners site and check it out. So it really won’t matter who is elected as it should come out Hillary. However Trump is a loose cannon and my upset their well laid plans and if this happens then it would seem all best will be off. What I can’t understand is why he is still walking around free especially cheating on his taxes, bribing a District Attorney of Texas, just to name a few indiscretions he has committed. I won’t start with the women violated by him as well as threatening to have the Democratic shoot. Of course that was just talk he really didn’t mean that> But one of his supports shot in to a car full of teenagers because they appeared to be immigrants. Yes he sure is the perfect Republican Candidate because this is the sewer he has been dipping in. Just think about what you will end up with if you Vote Trump your chances of have a better life after he is elected I believe that you will be sadly mistaken, but then it will be to late.

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