Social VR, a Falling Dollar and the Real Apple Story

Posted On Apr 29, 2016 By Dave Gonigam

  • Virtual reality gets a unique stamp of credibility
  • Now that’s growth: From $700 million in a year to $1.1 billion in two months
  • Dollar cracks… gold soars
  • The Apple story the mainstream missed this week
  • Icahn vs. Buffett — yawn, stretch
  • The Fed’s favorite inflation figure, updated… “an inside line on central banks’ global game plan”… second thoughts about munis in a crisis… and more!

You know virtual reality has “arrived” when it makes the A-hed slot in The Wall Street Journal.

That’s the offbeat story on the front page. Before the paper got a makeover a few years ago, you could always find it in the fourth column from the left.

“A Comic Walks Into a VR Comedy Club…” is today’s headline.

The story tells of “a virtual comedy club, where comics have to read a room made up of expressionless digital faces, and audience members who think the jokes are lame can instantly vanish.”

What’s the point? VR comedy is an instance of “social VR.” Put on a VR headset like the comics and you can “move around and interact with others logged into the same app.”

Well, it’s cheaper than going to a real comedy club — at least until the company experimenting with VR comedy decides to add a cover charge. That’s not a joke, either.

Another firm is experimenting with VR karaoke, says the Journal.

Facebook has a team dedicated to social VR, the better to support its Oculus Rift headset, whenever they ship to most of us. (The one we ordered at Agora Financial is still due in late June.)

Meanwhile, VR’s growth trajectory is off the charts.

The research firm Digi-Capital says $700 million was invested last year into companies pursuing virtual reality and its cousin augmented reality.

For the first two months of 2016, the figure soared to $1.1 billion. Extrapolating that to the rest of the year, we’d be looking at $6.6 billion — an 843% increase.

And the potential payoff? Digi-Capital projects revenue from VR and AR will hit $120 billion by 2020.

As we keep emphasizing, the way to play it is not the headset makers like Facebook and Samsung. Rather, you want the companies that make VR possible in the first place. Ray Blanco has identified three of them… and now’s the time act.

You can check out his research one of two ways — the awe-and-wonder version here and the NSFW (not safe for work) version here. Choose wisely.

To the markets… where today, it’s all about a falling dollar.

The U.S. dollar index — which was retesting a six-month low yesterday — has now broken through that low. At 93.2, the index is now approaching a level last seen during the market turmoil in August.

Description: Breaking Down

“A weekly close at these levels will leave the dollar index with one foot in the grave,” says Greg Guenthner of our trading desk. “It’s time to seriously consider what will happen when the dollar begins hemorrhaging the gains it stockpiled during its 2014 bull run.”

The euro is up to $1.144, and it takes 107.4 yen to equal one dollar.

Meanwhile, gold is back to its 2016 highs at $1,284.

And not all of that move can be attributed to dollar weakness; there’s real demand for metal out there, too. That’s a bullish sign indeed going into week’s end.

The major U.S. stock indexes are adding onto yesterday’s losses. The Dow is down another one-third of a percent as we write, to 17,772… and that’s after notching its biggest one-day loss since February.

In earnings-land, Amazon trounced expectations for both profits and revenues. It’s up nearly 10% as we write. That’s not great news for the AMZN put options in David Stockman’s Bubble Finance Trader… but there’s still more than eight months before expiration. Much can happen during that time, and quickly.

Meanwhile, the two big U.S. oil producers are also reporting. Exxon Mobil’s earnings were better than expected; Chevron’s losses were worse than expected. Crude prices are off a touch this morning, at $45.74.

“Don’t let the media and the shortsighted speculative investors cloud your view on Apple,” says our income specialist Zach Scheidt.

We spotlighted AAPL late last year in a “three free stock picks” episode of The 5. (We don’t take the week between Christmas and New Year’s off — miss a day, miss a lot.)

As we indicated on Wednesday, the Street didn’t take Apple’s latest numbers very well; revenue is down in the most recent quarter, and the company “guided lower” for the next quarter. Yesterday, celebrity investor Carl Icahn disclosed he’d sold his AAPL position.

But all of that merely reinforces the points Zach was making in this space at the end of 2015. Apple is transitioning from a “growth stock” to a “mature company.”

“When a company enters the mature phase of its life cycle,” says Zach, “there is no longer a need to spend as much money on growth opportunities. Instead, mature companies have freedom to distribute profits to investors like us. After all, we own the company and we have a right to the profits that our company is generating.”

Lost in the hubbub over Apple’s numbers this week is the fact it’s raising the quarterly dividend 10%.

“This dividend hike should be the first of many for Apple,” says Zach. “After all, my Bloomberg terminal lists the company’s cash balance at $232.9 billion! (Incidentally, that’s an increase of more than $17 billion over last quarter’s cash balance.)”

The company is also buying back shares. That means fewer shares outstanding… and thus more value for each share you own.

“While I’m not always in favor of companies buying back their own shares, I think it’s a great idea for Apple,” Zach goes on. “The company’s stock is cheap, so Apple isn’t overpaying to retire these shares. And unlike a dividend payment, the government can’t tax the money Apple pays to buy back its shares. This week, Apple announced that it is increasing its share buyback program from $140 billion to $175 billion. That should make a big difference in the company’s future earnings per share.”

Bottom line: “AAPL is definitely a buy at these prices, and I’m excited to be able to pick up shares at a discount today.” For access to all of Zach’s Lifetime Income Report recommendations, look here.

The Federal Reserve’s next meeting is still six weeks away, but the likelihood of an interest rate increase at that time just took a dive.

The Commerce Department is out this morning with “core PCE” — the Fed’s favorite measure of inflation. When the Fed says it has a 2% inflation target, it’s core PCE they’re talking about.

After racing up at the end of last year, it leveled off at 1.7% at the start of this year. Now it’s moving in the “wrong” direction…

Description: TheFed'sElusive.png

As Jim Rickards told us a month ago, the Fed no longer cares about jobs when gauging what to do with interest rates. It’s all about inflation now. “Yellen will not believe inflation is a threat until she sees the whites of its eyes. That could be a long time coming.”

Meanwhile, Americans continued their tightwad ways in March: The Commerce Department says consumer spending grew 0.1%, while personal income grew 0.4%.

Indeed, Americans’ saving rate is up to 5.4%, equaling the highest rate of the last three years.

As long as we brought up Carl Icahn earlier, we’re compelled to address the “Battle of the Titans” that’s caught the mainstream’s attention today — to the extent it’s not distracted by an NFL prospect’s youthful indiscretion with a bong and a gas mask.

Icahn held forth on CNBC yesterday, saying he’s “extremely cautious” on the U.S. market. “I do believe in general that there will be a day of reckoning unless we get fiscal stimulus.”

Fiscal stimulus? Icahn said congressional Republicans are “obsessed with this deficit to a point that I think it’s almost pathological.”

Naturally, CNBC sought to create “conflict” in its desperation to attract eyeballs… so today, it lined up Warren Buffett on the eve of Berkshire Hathaway’s annual shareholder meeting in Omaha.

“There are probably — this is the most wildest of guesses — there were probably 50,000 people or more today that bought stocks… and 50,000 people who sold,” he said. “So I don’t know that I would pick out any one of them and put too much weight in what they did.”

But like Icahn, Buffett pooh-poohs the national debt. “Debt can only be evaluated in relation to future income-producing capabilities, and the countries with income producing capabilities have never been larger, and they keep growing.”

Until they’re not. But that’s classic Buffett. On the night Agora Financial’s documentary I.O.U.S.A made its nationwide debut in August 2008, Buffett said during the panel discussion afterward, “It has not paid to sell America short since 1776, and the time to start is not in 2008.”

Perhaps not. But less than a month later, the Panic of ’08 was in full swing. A “day of reckoning,” indeed. It’s never too early to prepare for the next one. Jim Rickards can give you a running start at this link.

“Dave, reading The 5 lately is like having an inside line on the central banks’ global game plan,” writes a complimentary reader.

“It’s funny you describe the Shanghai Accord as Jim Rickards’ outlier thesis. His gift for using inverse causality to figure out what’s going on is a classic example of Occam’s razor: Beneath the surface complexity and noise, there seems to be a simple explanation for what’s happening.

“And with every thread of evidence that lines up in support of a hypothesis, its probability of being correct rapidly approaches 100%. Jim is definitely onto something!

“Thanks (as always) for all the great work your team does. Otherwise the mainstream media pepper us with so much nonsense and propaganda, making it tough to keep one’s eye on the ball.”

“In regard to municipal bonds failing when the stocks crash in a deflationary world,” a reader writes, “I would agree that tax receipts and income would falter. But I question that they would collapse.

“I have a position in a fund currently yielding 5.8%. The history of the fund for the last 20 years shows it has sustained this yield and never missed a dividend payment. It went through the dot-com bust and the Great Recession. The fund did lose 20% of its NAV, but again, it never missed or reduced the dividend. It also recovered at the same rate as the stock market.

“Shoot, markets don’t always go down 50% in one day. I would want to be cautious, and I realize that as a retail investor, the market could tank faster than I could move or not be able to catch a bid if it tanked, but The 5 keeps us thinking on a da- to-day basis. I don’t think we will get a big surprise. You folks generally alert us to big shocks. A big black swan, maybe, but even then, you would be on top of it, and a person could make his play, get out and live to play another day.

“But for my money, collect the cash as long as you can. Just don’t get wiped out by owning a single bond.

“It bears watching closely and knowing your risk and positional stop loss. But I don’t 100% agree that gold would be the best defense. I do own some gold and silver.”

“As a working stiff who recently turned 66, I was able to take advantage of the “file and suspend” tactic I first read about in the book you just mentioned in Wednesday’s edition of The 5, Get What’s Yours.

“I must say that I never before felt sorry for anyone younger than I, but for the first time, I feel somewhat smug in the ‘luck’ of being born just two months before the “file and suspend” deadline and ‘smart’ enough to know about it.

“My wife and I are also grateful to you folks, because I’m pretty sure I heard about this book from reading about it in The 5 Min. Forecast. THANK YOU!”

The 5: In fairness, we never did mention the book. But we started writing about the White House’s threats against file-and-suspend last May. If it inspired you to do more research and get a copy, well, we’ll take credit for that!

Have a good weekend,

Dave Gonigam
The 5 Min. Forecast

P.S. Wow. As we get closer to virtual press time, gold is now at $1,290.

Meanwhile the HUI — one of the big indexes of gold stocks — is up 5% on the day. It’s up 128% from a 14-year low reached in February.

Before you dive headlong into gold stocks, we’re compelled to advise you to proceed with caution. You need a strategy, one that’s tailored to the unique market circumstances we face right now.

Rest assured our team is refining that strategy right now. Stay tuned…


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