The LEI: A 50 Year Record of Success


And away she goes – one of biggest initial public offerings for the US this year.

I’m talking about Tencent Music Entertainment Group. It’s the dominant streaming platform in China.

It’s a beast of a business. Over 600 million subscribers.

But I’m not bringing your attention to this business, in particular.

Rather, it’s what’s coming afterwards that we should focus on.

That’s because 2019 is shaping up to see some even bigger initial public offerings.

In fact, we may even see the biggest IPO of all time.

Yep – you probably already guessed.

I’m talking about Uber.

It’s due to come to the public markets next year. And it won’t be alone by the looks of it, either. It’s competitor Lyft is on the table as well.

We are talking serious cash here.

Uber alone could be valued at over US$100 billion…

But you see…this money has to come from somewhere.

It’s also an indication that we may reach some sort of peak next year.

Today’s Profit Watch explores why…

Raising huge amounts of money requires sentiment and the markets to be strong.

Nobody is going to raise a lot of money in the middle of a major bear market.

That’s why a lot of IPOs – in terms of their number and their valuations – have historically tended to arrive around market peaks.

That’s because these are the times are when things appear most rosy.

One of the most prolific periods for IPOs in the USA was between 1999-2000.

Yep – the height of the internet bubble.

Now, today, we’re nowhere near those numbers.

But the arrival of Uber and Lyft to the market is a sign that the bears are watching.

Don’t forget, we’ve also seen another little warning sign – exploding art prices.

Now, don’t let me put you off.

I think 2019 is going to be exciting and positive for stocks.

2020 might be a little different. Let’s see when we get closer!

Point being: These little clues suggest we’re much closer to the end of this current bull market than the beginning – which is perfectly reasonable after 9 years.

Unlike most commentators who are calling the market down from here, I think we’ll see one last big push up.

The fundamentals are there for this to happen – as long as the trade war is called off or an acceptable deal is done.

Of course, there’s no guarantee of that happening. So day by day we go.

But it’s not as if the US economy is in horribly bad shape.

It’s actually the complete opposite.

Unemployment is at 3.7%. It was over 9% in 2009. It’s been trending down for years.

I remember in the years from 2012 to about 2016, many people said the US government was fiddling the numbers here.

They probably were – and still do! But there’s no denying the US economy is strong now. The bears went quiet on this line of thought a long time ago.

We can see this strength using a different measure.

It’s called the US Conference Board Leading Economic Index (LEI).

The year on year percentage change has gone negative before every recession in the last 50 years.

It’s only given one false signal in that time.

It’s currently signalling the US economy is fine.

We’ll keep an eye on it – and let you know if it changes!

Why is this relevant?

A truly exciting time to be an investor

Because we can get on with the business of finding good stocks to buy.

It’s not as if the world stops turning because of a dud period for the stock market.

Value is still being created all over the world.

The problem with following the mainstream media is they focus constantly on the short-term.

China, India and emerging markets are still expanding the global base of consumers on a historic scale.

For example, did you know that 21 of the world’s 30 fastest growing urban markets are in Africa?

And the informal ‘gig’ economy is opening up much more sales potential for local entrepreneurs in these markets.

Smartphones are especially important here. They give access to banking and other services that have previously been shut off from these markets.

We’re shaping up for a very exciting decade – and beyond – all in all.

There’ll be dips and bumps along the way – but who can doubt the trend is anything but up?

They key is to find the best way to ride this long-term growth. More tomorrow.


Callum Newman Signature

Callum Newman,
Editor, Profit Watch