The Fed Missed Its Chance. Now What?

The business cycle is peaking, with no interest-rate increase. The central bank has blown it. Still, better late than never.

By Edward P. Lazear
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The Federal Reserve is in a tough spot. When the central bank’s policy makers meet next week, many observers expect them to leave interest rates untouched, perhaps citing the shock of Britain’s vote to leave the European Union.

The difficulty is that many indicators, particularly from the labor market, suggest that the U.S. economy is peaking and that the recovery from the Great Recession is nearly complete. This is bad news—and not only because the summit is too low. It also means the Fed has blown it.

At this point in the business cycle, the Fed would normally be holding steady, looking ahead to a time when it might cut interest rates. Instead it is preparing for a prolonged path of increases, even though the best time to raise rates may have already passed.

Historically, the central bank increases its target federal-funds rate as the economy recovers, beginning within two to three years of the recession’s end—but often sooner. It then cuts the target around the time that the peak is reached. The exception is the current recovery, during which the target and actual rates remained flat for more than seven years. After only a minor increase in December, rates are still near zero. The Fed has fallen seriously behind the curve.

No one can divine exactly when the economy will peak. But most of the evidence suggests that the moment is near. The unemployment rate is 4.9%, and it hit 4.7% in May, figures consistent with full employment.

Job growth tells the same story. When the economy is in recovery mode, job growth exceeds population growth, making up for the employment lost during the recession. That slows as the peak approaches, until job growth just keeps pace with population growth. That’s where we are now.


To keep up with population growth, the economy needs to create about 130,000 jobs a month. During the past three months, job growth averaged 147,000. That’s down from an average of 229,000 a month last year. The trend suggests that the labor market is in full-employment equilibrium.

Further evidence suggesting the economy has begun to level off: The hiring rate reported by the Bureau of Labor Statistics now hovers at 3.5%, down from a high of 3.8% last December.

Or consider wage growth. During the early stages of recovery, real wages are flat, but they increase as the labor market tightens and full employment approaches. Although wage growth has been less than spectacular, the Bureau of Labor Statistics reports it at 2.6% during the past year, above the rate of inflation.

Finally, GDP growth is steady or slowing. The first quarter rate of 1.1% is below the already anemic recovery average. Figures for the second quarter, even if considerably better, won’t do much to change that picture.

At this stage of the business cycle, it is unrealistic to expect that the economy will soon become more robust and better able to withstand rate increases. Even if we are at a growth plateau rather than a peak, the postrecession drop in unemployment to 4.9% from 10% will not be matched by a future drop to 0%.

Yet the Fed’s unwillingness to raise rates can be explained, if not defended. If this is a peak, it is too low a summit. Growth rates have fallen short of the prerecession average and cannot make up for lost ground. Further, the labor market has not returned to full strength: The employment rate, which reports the ratio of those with jobs to those in the working-age population, was 63.4% in December 2006 but now stands at only 59.6%. Some of this difference reflects an increasing numbers of retirees. But the rate for those of prime working age, 25 to 54, is also 2 percentage points below prerecession highs. Additionally, the hiring rate during this recovery never reached the 4% peak attained in 2006, during the previous boom.

Each time it appears appropriate to raise rates, some new shock hits the world economy, Brexit being the most recent example. Fundamentally, the Fed fears a repeat of 1938, when a recovering economy was sent into a second strong contraction as a result of central-bank tightening.

Still, interest-rate increases are overdue. If this is the peak of a business cycle, or close to it, rates should have gone up long ago. The Fed has already waited too long to move back to a more normal posture, one that would permit aggressive monetary policy when it is next needed.

Now the Fed’s position must be better late than never—hoping that the costs of poor timing will be small.


Mr. Lazear, a former chairman of the Council of Economic Advisers (2006-09), is a professor at Stanford University’s Graduate School of Business and a Hoover Institution fellow.


What Gold, Silver, And Bitcoin Are Telling Us About Stock, Bonds, And Currencies

by: Andrew Hecht


- Gold and silver bull markets.

- Bitcoin - a validation of weak fiat paper currencies.

- Currencies all move lower.

- Bonds - interest rates are not going up. They are going lower.

- Stocks - it is a bad time to be overvalued.
 
 
2016 has been a year for trading rather than investing. Over the first six weeks of the year, the S&P500 dropped 11.5%. By the end of the first quarter, it was back up and closed at the end of March with a 0.77% gain. At the end of June, the critical equity index had posted a 2.69% gain on the year. Those who held their noses and bought the dip that took the market to lows on February 11 profited handsomely, so far.
 
So many retirement and investment accounts mirror the performance of the S&P 500 index and the index put in a respectable performance after the carnage seen during the first month and a half of this year. However, there are some ominous signals that the second half of the year could be difficult for equity markets. In fact, other markets could be telling us that dark clouds are gathering, and stocks could be in real trouble in the weeks and months ahead. It is an excellent time to take stock of those stock positions, in a couple of weeks your portfolio results for 2016 could look a lot different than they do today.
 
Gold and silver bull markets
 
Fear and uncertainty have gripped markets across all asset classes in 2016 increasing volatility. The action in precious metal markets has been a direct result of the volatile nature of the political and economic landscape around the world.
 
Early in the year, the gold market gave the first indication that something was underfoot. Gold rallied out of the gate in 2016 while many other commodity markets had yet to make significant multi-year lows.
 
 
As the weekly chart highlights, COMEX gold futures opened 2016 around the $1060 per ounce level. Last week gold traded to highs of over $1375 per ounce, the highest level since March 2014. The over 29% increase in the price of gold has been a sign that investors and traders have sought safe-haven assets for their capital.

The action in silver, a more speculative precious metal, has been even more impressive.
 
 
 
The weekly silver chart illustrates that the precious metal that opened at the beginning of 2016 at the $13.80 per ounce level appreciate to highs of over $21 last week, an increase of 52%. The price increases in both silver and gold have been validated, from a technical perspective, by the rise in open interest to all-time highs. Open interest is the number of open long and short positions in the futures market and the increase in market activity over recent months has been proof of the fear and uncertainty that prevails in markets. Last Friday, after a strong employment report the prices of both gold and silver corrected lower only to bounce back higher later in the session; a sign of real strength.
 
Bitcoin- a validation of weak fiat paper currencies
 
Gold and silver have a long history as hard assets or real money. In fact, these precious metals have been around as means of exchange or currencies long before any of the current currencies of the world existed.
 
Over recent years, a new form of currency has captured the attention of many around the world.
 
Cryptocurrency is a computer-based means of exchange that become more popular particularly with the millennial generation. Bitcoin is the dominant cryptocurrency, and it has appreciated dramatically over recent months.
 
 
As the annual chart of Bitcoin shows, it has moved from $430.05 on December 31, 2015, to over $652 as of last Friday, an increase of over 51%.

Gold silver and Bitcoin all have one thing in common; central banks and monetary authorities around the world cannot create more of these currencies as they are truly pan-global means of exchange. The price action in all three is telling us something significant about the current state of the global economic and political landscape.
 
The Carden Smart Wealth Indices provide an emotion-free view of markets and can dampen volatility when market activity flashes warning signs. These indices may serve as excellent predictive tools at a time when alternative assets are flashing ominous signals to markets.
 
Currencies all move lower
 
The weekly chart of the U.S. dollar index shows that the greenback has appreciated against all the key currencies since May 2014.
 
 
A stronger dollar is traditionally bearish for the value of gold and silver as well as other hard assets. However, in 2016 these precious metals have taken off to the upside despite the fact that the dollar remains far above levels seen in 2014. If gold, silver and Bitcoin have rallied in dollar terms, it means that they have exploded in other currencies as the other main foreign exchange instruments remain weak against the U.S. currency.
 
In 2016, we see a decline in the values of all paper money when compared to precious metals and the cryptocurrency.
 
Bonds- Interest rates are not going up, they are going lower
 
The debasement of currency values around the world is a direct result of the central bank monetary policies. Since the global financial crisis in 2008, policies of slashing interest rates and quantitative easing or buying back debt by central banks have become the norm. The U.S. QE policy ended over a year ago, but interest rates remain just above zero after the first rate hike in nine years last December. The Fed promised to increase rates 3-4 time in 2016 but because of a myriad of domestic and foreign economic issued that have yet to act.

In Japan and Europe, interest rates are in negative territory. The Chinese economy has slowed.
 
In the summer of 2015, Europe faced a default by the Greek government. The bailout put additional strains on the European economy. A massive refugee influx from the Middle East and North Africa into Europe has made a bad situation worse when it comes to Europe's struggling economy. Most recently, the U.K. voted to exit the European Union, which led to a precipitous drop in the value of the pound and worries about other member nations leaving the Union. Now it appears that Italian banks are in a financial mess, and whispers of an Italian exit from the E.U. have stoked new fears of a total breakup and breakdown in economic order.
 
All the while, government bond prices have been climbing given the artificial put option in place by the central banks of the world.
 
 
The quarterly chart of the U.S. 30-year bond speaks for itself.
 
Central banks are running out of monetary tools fast. The two most prominent central bankers in the world, Europe's Mario Draghi, and the Fed's Janet Yellen have been cautioning government leaders that monetary policy by itself is not sufficient without fiscal policies to stimulate the economy, reduce saving and increase borrowing and spending. Talk of helicopter money has slowly been creeping into the discourse from central bank officials and respected economists.
 
Meanwhile, while interest rates are at the lowest level in history, the easy money policies have been hampered by the banks that have tightened credit policies. The only people that can borrow in this environment are those who do not need the money. The catch-22 of the current state of monetary policy has left central bankers and government officials scratching their heads on what to do next. The one thing they all seem deathly afraid of is abandoning accommodative policy for fear that it will throw the global economy into a brutal recession.

In the wake of Brexit, it appears that interest rates are once again heading lower and further into uncharted waters. Low rates have caused capital to find any home possible as the debt markets offer little, no or negative yields around the world.
 
Stocks- It is a bad time to be over-valued
 
Money continues to flood the equity markets with interest rates at such low levels. Last quarter, corporate earnings were less than exciting. At the same time, stock prices are trading at rich multiples compared to past years.
 
 
The CAPE ratio is far higher than its mean and median levels dating back more than 100 years meaning equity valuations are too high. Given the current state of the global economy, they may be not only high but in bubble territory. Capital growth in the equity markets is dependent upon earnings. The current economic landscape makes it tough for companies to grow revenues. Therefore, many have turned to stock buyback programs or trimming expenses to pump up short-term profits and share prices. This merry-go-round cannot go on forever, and economic conditions must improve, or we will begin to see massive downdrafts in stock prices and the flow of money into equities will stop. We have already seen two such stock market tremors in August of 2015 and at the beginning of this year. Those tremors could be the harbinger of what awaits us in the months ahead.
 
Currency values are questionable given the appreciation of gold, silver and Bitcoin over recent months. Bond prices have risen to a level where a concrete ceiling is in place, and the only reason they are so high is that governments keep printing more money to buy more bonds and keep interest rates low for the very few with the ability to borrow. Meanwhile, stock prices are at levels that would be high even if the global economy was chugging along in healthy fashion, which is it not.

Precious metals are an effective fear barometer. It is a scary time in the global economy, and the citizenry of many countries are voicing their concerns at the polls as we just witnessed in the United Kingdom. The trend of political change at a time when economic foundations appear so weak could add more volatility to markets in the weeks and months to come with the U.S. Presidential election on the horizon. That is what gold, silver and Bitcoin are telling us about the global economy. It is only a matter of time before stocks, bonds, and currencies begin to crumble under the weight of pressure and artificial central bank accommodation.


Why Bank of Japan Dipped Into Bag of Small Tricks

The central bank underwhelms overexcited expectations but promises some needed introspection

By Anjani Trivedi


The Bank of Japan 8301 -1.66 % is retreating into some much-needed introspection. And while it prepares to do this, it threw markets a not very meaty bone to chew on.

The central bank on Friday underwhelmed overexcited expectations for yet another big bang of monetary stimulus. The Bank of Japan announced a paltry 3 trillion yen ($28.5 billion) increase to its purchases of exchange-traded funds to 6 trillion yen in a bid to boost asset prices. It also doubled down on a relatively minor U.S. dollar lending facility to give Japanese companies a nudge to buy assets overseas.

Markets seem to have taken the disappointment in stride, at least early on. Stocks rose, no doubt helped by news of the ETF purchases. Banks and insurers did best, with investors relieved that negative rates weren’t being taken lower. The yen did strengthen somewhat but remains weaker than it did in the throes of Brexit’s mayhem.

The BOJ’s limited actions Friday were telling of the bank’s limits in practical terms. It didn’t boost its already massive bond-buying, possibly because of diminishing returns and because it is reaching its limits it terms of supply. Other asset markets are too small for the central bank to step into in a big way. Negative rates, unveiled in a shock manner in January, haven’t gone down well. ETFs were one safe corner to tap.


A slew of fresh economic indicators points to Mr. Kuroda’s conundrum. Inflation continues to head away from the bank’s 2% target, despite ever-tightening labor markets. The unemployment rate fell to its lowest point in decades, and the job-to-applicant ratio rose. But there are no signs of wage increases.

The Bank of Japan’s intention to reflect on its broader project is no doubt aimed at figuring out why it has done so much yet accomplished so little, especially when it comes to households. New strategies might include ways the BOJ can bolster Prime Minister Shinzo Abe’s imminent—and possibly large—stimulus package. News of the fiscal package this week may in fact have taken pressure off Mr. Kuroda to reach deep into his bag of policy tricks to prove his might. A moment’s insight could be worth a lot.


Why the end of austerity would be an earthquake for markets


Any unified fiscal stimulus in developed economies has the potential to change investors’ mindsets
 
 
 
Shock proof. The resilience of markets is standing out as a defining feature, with setbacks shortlived and ultimately providing investors with a buying opportunity.
 
In a climate where everyone worries about the next nerve-jangling event, the past 12 months have been marked by bouts of turmoil and predictions of gloom that ultimately fall short.

The list includes China’s currency devaluation last August, the rout in commodity prices which triggered a plunge in the price of energy junk-rated debt and the global growth scare in January.
 
Recent slings and arrows have also failed to live up to their fearful billing for markets. Initial alarm cast by the long shadow of Brexit and bad loans made by Italian banks has been replaced by equanimity. In plain performance terms, we have a record high for the S&P 500, while the FTSE All World index has climbed 18 per cent from its nadir in February.
 
One obvious reason for the ebbing resonance of market shocks is the easy money policies of central banks, that subdue both interest rates and market volatility. In a world where some $12tn of bonds yield less than zero, a number of investors believe the limits of central banking have long been reached.

Welcome to the era of investing in an earthquake zone, where market tremors are routine and few think the big one will ever occur. Testing the shock proof status of markets therefore requires a departure from the current playbook that has dominated finance in the wake of the 2008-2009 crisis.

Eight years of austerity and a prolonged fall in central bank borrowing rates and bond yields have failed to deliver sustained economic growth. Hence the rise of populist politics, while calls for fiscal stimulus are steadily growing. It is a path being taken by Canada, with a post-Brexit UK looking to loosen the shackles. Both US presidential candidates, notably Donald Trump, are also focusing on the fiscal side of the stimulus equation.
 
Meanwhile, the test bed over the past two decades for policy experiments has been Japan and there, talk of “helicopter money”’ — whereby the budget deficit is financed by a permanent increase in the central bank’s monetary base and not via government bonds — is the current hot topic of debate.
 
Of the 160 fund managers surveyed by Bank of America Merrill Lynch this month, 39 per cent expect “helicopter money” in the next 12 months. That is up from 27 per cent in June.
 
For the broader global economy, any significant fiscal stimulus through infrastructure spending, vouchers for consumers and/or some combination of tax cuts is seen boosting growth and pushing up inflation expectations.

Patrik Schowitz, global strategist at JPMorgan Asset Management, says fiscal stimulus calls for buying cyclicals, rather than looking at dividends and long duration bonds. “The question is how much stimulus would be required to convince investors that it works,” he adds.

Given the extreme hunt for yield in recent years, the prospect of major fiscal expansion, particularly if undertaken by leading economies in unison, would amount to a significant shock for plenty of portfolios.
 
Piling into dividend-paying equities and long-dated bonds has helped these asset classes achieve gains of 20 per cent alone since last summer. An ever shrinking pool of positive yielding bonds has spurred a mad dash for any asset with some kind of fixed return.

Currently, investors such as pension and sovereign wealth funds are pumping money into emerging market bonds at a record pace, lured by yields that remain well above those of developed world sovereigns.
 


The result? A classic crowded trade, and, as market history tells us, these episodes never end well. A decisive flick of the fiscal switch to loosen austerity would herald a stampede from the best performing sectors of global markets. The ensuing surge in market volatility would prompt investors to sell their holdings based on risk management models — known as a value-at-risk (Var) shock — in order to avoid losses.

“There’s clearly a push away from austerity towards fiscal stimulus and a Var shock is a risk here and could be evolving as we speak,” says Chris Watling of Longview Economics.

And we have felt the Var tremors before, notably during the summer of 2013 with the taper tantrum and then, from last April, when the 10-year German Bund yield rose from just above zero per cent to near 1 per cent by early June. As yields and volatility rise, investors embark on a rotation into cyclicals, but as we saw last summer, this type of churning in equities is subsequently overwhelmed by broader market turmoil.

For now, the push for sustained fiscal measures as monetary policy reaches its limits, remains more talk than action. The potential for sparking a massive rush for the exit from what has been a relentless search for yield cannot be ruled out. One can only hope that markets simply experience another tremor and not the big one.


Here’s What Happens When the Easy Money Dries Up

The car sales boom is coming to an end.

This might surprise some folks. After all, the auto industry has been one of the economy’s bright spots since the financial crisis. Sales have grown each year since 2009. Last year, carmakers sold a record 17.47 million vehicles.

Many folks see the booming auto industry as proof that the economy is getting better.

E.B. Tucker, editor of The Casey Report, sees it differently. He says the auto industry boomed because of cheap money. But, with the economy slowing, the easy money is drying up. According to E.B., this will put an end to the auto industry’s seven-year boom.

As you’re about to see, it looks like a crisis could already be underway. That’s because the auto loan market is starting to crack.

Today, we’ll show you why this is a threat to your wealth even if you don't own a single "car stock." We'll also show you how to turn this potential crisis into a money-making opportunity.

• The Federal Reserve made it incredibly cheap to buy a car…

That’s because the Fed has held its key interest rate near zero since 2008.

This has made it cheaper than ever to buy a car. In 2007, the average interest rate for auto loans was 7.7%. It’s now 4.3%.

Because it costs almost nothing to borrow money, everyone is buying cars on credit. According to Experian, 86% of people who bought new cars in the fourth quarter of 2015 took out a loan. That’s up from 81% in 2010.

• It’s also never been easier to buy a car…

Lenders will give money to practically anyone these days. According to Experian, “subprime” loans now make up more than 20% of the auto loan market. Subprime loans are loans made to borrowers with bad credit.

Lenders haven’t just loosened their standards. They’ve also stretched out loan terms to get more folks to buy cars. E.B. Tucker wrote in this month’s issue of The Casey Report:

According to Edmunds.com, the average length of a car loan hit 68.3 months last November.

That’s up 8% from a decade earlier. Credit reporting firm Experian says 30% of new car loans had terms of 73–84 months in early 2015.

E.B.’s even seen one dealer offer a 0% interest loan for as long as 84 months. In other words, they'll let you drive a car for seven years before you have to pay a penny in interest.

• Cheap credit and lax lending standards have caused the auto loan market to explode…

This year, the value of outstanding auto loans topped $1 trillion for the first time ever. It's now 42% bigger than it was in 2009.

The subprime market has grown even faster. The Wall Street Journal reported in April:

Auto lenders have been increasingly comfortable lowering credit standards. They gave out 6.1 million subprime auto loans in 2015, up 8% from a year prior and up 118% since they bottomed out in 2009, according to credit bureau Equifax. New subprime loans totaled $109.5 billion in 2015, the sixth consecutive annual increase, and up 11% from the year prior, according to Equifax.

• Last month, JPMorgan Chase CEO James Dimon said the auto-lending market was getting “a little stretched”…

Dimon warned that “someone is going to get hurt.”

The Office of the Comptroller of the Currency, a watchdog for the lending industry, also thinks auto lending is getting out of hand. Last week, it called the incredible growth in auto loans “unprecedented.”

It warned of rising delinquencies. (A loan is delinquent when a borrower falls 60 days behind on payment.)

• Auto loan delinquencies are already soaring…

In February, subprime auto loan delinquencies hit 5.16%. That’s the highest level since October 1996.

The next month, E.B. said we would see “a lot more” delinquencies. He was right.

Last week, The Wall Street Journal reported that subprime lenders are bracing for huge losses:
Eighteen percent of auto-loan principal dollars securitized by subprime lenders in 2015 aren’t likely to be repaid, according to a report by credit-ratings company DBRS Inc. If so, that would mark a sharp rise from 14.4% in 2014 and 12.8% in 2012…

Also up: Loss expectations for loans securitized by nine smaller subprime issuers that either launched or restructured after the financial crisis. Just over 19% of their auto-loan dollars securitized last year are expected to not be repaid, up from 18.4% in 2014 and 16.7% in 2013.

• E.B. expects auto loan delinquencies to keep rising…

According to E.B., more folks will struggle to pay their car loans as the economy weakens. Lenders will take big losses. This will lead them to tighten lending standards. Easy money will dry up in the process.

Casey Research founder Doug Casey says this will create serious problems for the auto industry:

I expect a collapse of the new car market in the near future. People are going to have to keep their cars longer, and fix them up instead of trading them in.

This is clearly bad news for carmakers. But it’s an opportunity for companies that help cars stay on the road longer.

• Last week, E.B. recommended the largest provider of used car parts in North America…

E.B.’s thesis is simple. Folks will put more wear and tear on their cars the longer they drive them.

That means more trips to the repair shop.

E.B.'s newest recommendation dominates the used parts business. Its sales have grown by 24% on average since 2011. And it has fat profit margins.

You can learn more about E.B’s new stock pick by signing up for a risk-free trial of The Casey Report. If you act today, you’ll receive The Casey Report for 50% off the regular price. To learn how, watch this short presentation.

In it, E.B. explains why the spike in auto loan defaults is part of a much bigger problem. As you’ll see, a giant “credit squeeze” is sweeping across America. It’s even spread to the banking sector, the bedrock of America’s economy. As E.B. explains, this could trigger a crisis far worse than anything you’ve ever seen.

The good news is that it’s not too late to protect yourself. To learn how, watch this short presentation.

Tech Recommendation of the Day: Buy or Sell Apple?

For the next few days, we’re sharing a special new feature with you. In place of our usual “Chart of the Day,” you’ll find valuable insight on technology stocks from tech expert Jeff Brown. In an interview format, Jeff will explain why you should buy or sell popular tech stocks like Apple (AAPL), Amazon (AMZN), or Facebook (FB) right now.

If you don’t know Jeff, he’s a true tech insider and angel investor. Jeff is a 25-year veteran who's built early-stage startups and ran organizations generating hundreds of millions of dollars in annual revenues. You can learn more about him by clicking here.

Today, we’re featuring Jeff’s take on Apple, the maker of the popular iPhone and the world’s largest publicly traded company. Keep in mind, what you’re about to read came a recent interview between Jeff and Amber Lee Mason, head of our affiliate Bonner & Partners.

Amber Lee Mason: Alright, so let's start with the company most of our readers wanted to know more about – Apple.

Jeff Brown: That’s a great place to start. And some may be surprised, but this is absolutely a sell for me. As much as I love the company, the innovation within Apple has been slowing significantly. The iPhone 7, which is due out in a few months from now, is unlikely, from my perspective, to be a driver for increased revenues. There really isn't that much, from a feature perspective, to drive the next round of upgrades. The rumors are… improved cameras and no audio port, so a wireless audio solution. Equally important is that the smartphone shipments on the high end are really slowing down.

So this is a market industry dynamic. It's only forecast to grow about 3% in 2016 compared to 2015. And that compares to about 10%-plus growth that we saw in 2015. So for the first year since the iPhone was launched in 2007, the number of iPhone shipments this year will actually decrease compared to last year. The sales in China are falling, and that's one of the highest growth markets in the world for smartphones.

The Apple Watch forecasts have been reduced significantly. Apple Pay, which is the contactless digital payment solution from Apple, has been very weak in the United States. Apple has been very far behind in terms of the application of artificial intelligence to its software platform. So I see probably about a 20% downside from where we are today and a complete lack of catalyst to get the company back on track, certainly within the short term (12–18 months).

Now, I will say this… There will be a time to get back into Apple, and it probably is in that 12-to-18-month timeframe. And the things that I'll be looking very closely for are Apple's not-so-secret project to have an electric vehicle, a car. The project is called “Titan,” which was originally targeted to have a car by 2019. It looks like it's been pushed back another year or so to 2020. But for a company that does $200-plus billion a year in revenue… this year, there needs to be a significant product offering to drive enough revenue to impact its valuation in a meaningful way. So the automotive industry is a perfect example of something that might do that.

The other thing is that, depending on what the iPhone 8 looks like, if there are any attractive alternatives or new features for the iPhone 8 that'll be expected in fall of 2017, that could be a potential catalyst for a major upgrade cycle and increase in valuation.

ALM: Okay. So there may be a time to buy Apple in the future, but right now it's a sell on your list.

JB: Definitely.

Jeff may not like Apple right now. But he’s very bullish on the tech space as a whole.