Global Market Comments
October 20, 2014
Fiat Lux
Featured Trade:
(MAD HEDGE FUND TRADER HITS NEW ALL TIME HIGH WITH 40% GAIN),
(SPY), (TBT), (TSLA), (BAC), (GILD), (DAL), (AAPL), (VIX),
(OCTOBER 22 GLOBAL STRATEGY WEBINAR)
SPDR S&P 500 ETF (SPY)
ProShares UltraShort 20+ Year Treasury (TBT)
Tesla Motors, Inc. (TSLA)
Bank of America Corporation (BAC)
Gilead Sciences Inc. (GILD)
Delta Air Lines, Inc. (DAL)
Apple Inc. (AAPL)
VOLATILITY S&P 500 (^VIX)
It was Thursday night, and the family was glued to the TV set. The San Francisco Giants were playing the St. Louis Cardinals for the National League Pennant.
It was the bottom of the 9th inning, the score was tied 3-3, and the Giants were up. Two men were already on base.
Then right fielder Travis Ishikawa blasted a home run out of the park, winning the game by 6-3. The fans went wild.
My kids rushed to the windows at my mountain top home and watched the barrage of fireworks in the distance.
It looks like I am going to the World Series for the third time in five years.
I have been smashing homers out of the park in my own way this year.
After weathering the worst market turmoil in three years, I managed to boost the performance of my Trade Alert Service this week to 40%, a new all time high.
So far in October, my followers are up a breathtaking 5.39%, a month when most professional traders are getting carried out on stretchers and sent to the Ebola ward.
This is compared to the miserable performance of the Dow Average, which is down -2% during the same period. That was on the heels of blockbuster 5.01% gain in September.
The nearly four year return is now at an amazing 162.4%, compared to a far more modest increase for the Dow Average during the same period of only 33%.
That brings my averaged annualized return up to 42%. Not bad in this zero interest rate world. It appears better to reach for capital gains and trading profits than the paltry yields out there.
This has been the profit since my groundbreaking trade mentoring service was first launched in 2010. Thousands of followers now earn a full time living solely from my Trade Alerts, a development of which I am immensely proud.
What saved my bacon this month was my decision to pile on a hefty 40% short position at the September market top. I warned readers that the Alibaba IPO would suck the life out of the knocked the market and it would take a while to recover. Once the deal was priced, it was all over but the crying.
Wall Street gets so greedy, and takes so much money out for itself, there is nothing left for the rest of us poor traders and investors. They literally kill the goose that lays the golden egg. Share prices have nowhere left to go but downward.
Add to that Apple?s iPhone 6 launch on September 8 and the market had nothing left to look for. The end result has been the worst trading conditions in three years. However, my double short positions in the S&P 500 (SPY) and the Russell 2000 (IWM) provided the lifeboat I needed.
This gave me the extra profit I needed to weather the losses I took on my long side positions. One long stock position I did have, in Tesla (TSLA), I stopped out of with a tolerable loss, strategically cutting my highest beta momentum position.
A second long in Bank of America (BAC) I held on to, knowing full well that an impending positive earnings report would provide a parachute there. That is the power of research, to enable you to stick to your guns when the going gets rough.
I rolled another long position down and out for another loss, switching my (SPY) October $180-$185 vertical bull call spread into a November $168-$173 strike. As long as the (SPY) stays above $173, I should make back everything I lost n the first trade.
Finally, after spending two months touring dreary economic prospects on the Continent, I doubled up my short positions in the Euro (FXE), (EUO).
This extra protection kicked in this week when the market meltdown ensured in earnest and volatility (VIX) soared from $17 to $30.
I then spent Wednesday and Thursday covering short positions, and piling in new longs in Gilead Sciences (GILD), Delta Airlines (DAL), and Apple (AAPL). We may get a one day wonder from Apple, which reports quarterly earnings after the close today.
The market melt up that ensued on Friday delivered the biggest up day in the history of the Trade Alert Service, gaining 6.2%. All in all, it was a chorus of masterful trading, if I do say so myself.
It has all been a vindication of the trading and investment strategy that I have been preaching to followers for the past seven years. No one got wiped out. No one got a margin call. I quickly cut the highest risk positions, enabling me to ride out the storm with the rest. It all worked.
The only position I have currently bedeviling me is a premature short in the Treasury bond market in the form of the ProShares Ultra Short 20+ Treasury ETF (TBT).
Occasionally, the world does go mad. From the Tuesday high to the Wednesday low, yields on the ten-year Treasury bond plunged an unbelievable 44 basis points, from 2.30% to 1.86%, and then back to 2.20%.
All of the short positions in the market have been cleaned out (except ours). All of the margin calls are done. Fortunately, the hit there for us has been manageable. Our position in the (TBT) is relatively unleveraged and small.
Quite a few followers were able to move fast enough to cash in on the move. To read the plaudits yourself, please go to my testimonials page by clicking here. They are all real, and new ones come in almost every day.
Our business is booming, so I am plowing profits back in to enhance our added value for you. The latest, our updated website, has a new look and is more user friendly.
The coming year promises to deliver a harvest of new trading opportunities. The big driver will be a global synchronized recovery that promises to drive markets into the stratosphere by the end of 2014.
Global Trading Dispatch, my highly innovative and successful trade-mentoring program, earned a net return for readers of 40.17% in 2011, 14.87% in 2012, and 67.45% in 2013.
Our flagship product, Mad Hedge Fund Trader PRO, costs $4,500 a year. It includes Global Trading Dispatch?(my trade alert service and daily newsletter). You get a real-time trading portfolio, an enormous research database and live biweekly strategy webinars. You also get Jim Parker?s?Mad Day Trader?service and?The Opening Bell with Jim Parker.
To subscribe, please go to my website at?www.madhedgefundtrader.com, click on the ?Memberships? located on the second row of tabs.
It Has Been a Week of Soaring Homers
?The dirty little secret in Washington is that the biggest doves wear uniforms. They have seen wars and they have seen consequences. They have also been sent into conflict and then seen political support evaporate. We need to be a lot more careful when deploying our military forces.? said former Secretary of Defense, Robert Gates.
Global Market Comments
October 17, 2014
Fiat Lux
Featured Trade:
(THE BOTTOM BUILDING PROCESS HAS BEGUN),
(SPY), (TLT), (TBT), (GILD), (AAPL), (DAL),
(FRIDAY OCTOBER 24 SAN FRANCISCO STRATEGY LUNCHEON)
(REVISITING CHENIERE ENERGY),
(LNG), (USO), (UNG)
SPDR S&P 500 ETF (SPY)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
Gilead Sciences Inc. (GILD)
Apple Inc. (AAPL)
Delta Air Lines, Inc. (DAL)
Cheniere Energy, Inc. (LNG)
United States Oil ETF (USO)
United States Natural Gas ETF (UNG)
I have an arrangement with several large hedge funds where they pay me a small fortune every month for the privilege of calling me one day a year.
Wednesday was that day.
It was a day when the $20 billion hedge fund waited on hold while I got off the phone with the $100 billion hedge fund. And that?s not including urgent calls from the White House, the office of the Joint Chiefs, and the Federal Reserve.
Of course, no one needs to tell these guys how to chew gum. They were interested to know if they were missing anything.
The advice I gave them was very short and simple: ?Keep your eye on the economic data, and ignore everything else.?
You can palpably feel the tension when enduring crisis like these. The Internet noticeably slows down. Transatlantic and Transpacific phone lines get clogged up. Traffic on our website, www.madhedgefundtrader.com, rises tenfold.
So do plaintive emails from followers, everyone of which I attempt to answer quickly. To save time, I will give a generic answer to all of you in advance: ?No, it is not time to stop out of your ProShares Ultra Short 20+ Treasury Bond ETF (TBT) position at the $46 handle.? We are at a multiyear peak in bonds, and this is absolutely not the place to puke out. That?s why I always keep my positions small.
You have to allow room for markets to breathe and still be able to hang on when it goes against you. It is also nice to have the dry powder to double up.
I know some of you are suffering from sleepless nights, so I?ll make it easy for you. We have hit bottom for the year. This is the best time in three years to buy stocks, just in case you forgot to load up at any time since 2011. Ditto for bonds on the sell side.
Earnings started coming out last week, and many companies have been delivering blockbuster reports, as I expected. Over all, I think we can expect total S&P 500 earnings to rise by $11.
This means that, given the market?s recent 10% plunge, stocks are now selling at 12.5 X 2015 earnings. That is a rare bargain. It is a chance to buy shares at 2011 valuations. Don?t blink and miss it.
The big driver hasn?t been the Ebola virus, the risk of which has been wildly exaggerated by the media, but the collapse of the price of oil.
I think we got very close to a bottom of the entire move this morning when we tickled $80. I take North Dakota fracking pioneer John Hamm?s view: If this isn?t the bottom, it is close, and wherever the bottom, we will race right back up to $100 sometime next year on China?s insatiable demand.
That means you buy stocks right now.
For a fuller explanation of the fundamentally bullish argument for the stock market, please click here ?10 Reasons Why the Bull Market is Still Alive?.
Now Is the Time to Have a Gunslinger Working on Your Behalf
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in San Francisco on Friday, October 24, 2014. An excellent meal will be followed by a wide-ranging discussion and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $188.
I?ll be arriving at 11:00 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a private club in downtown San Francisco near Union Square that will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
Global Market Comments
October 16, 2014
Fiat Lux
SPECIAL AIRLINE ISSUE
Featured Trade:
(DELTA AIRLINES IS CLEARED FOR TAKEOFF),
(DAL), (UAL), (AAL), LUV), (USO), (TLT)
Delta Air Lines, Inc. (DAL)
United Continental Holdings, Inc. (UAL)
American Airlines Group Inc. (AAL)
Southwest Airlines Co. (LUV)
United States Oil ETF (USO)
iShares 20+ Year Treasury Bond (TLT)
When I was a young, clueless investment banker at Morgan Stanley 30 years ago, the head of equity sales took me aside to give me some fatherly advice. Never touch the airlines.
The profitability of this industry was totally dependent on fuel costs, interest rates and the state of the economy, and management hadn't the slightest idea of what any of these were going to do. If I were ever tempted to buy an airline stock, I should lie down and take a long nap first.
At the time, the industry had just been deregulated, and was still dominated by giants like Pan Am, TWA, Eastern Air, Western, Laker, Braniff, and a new low cost upstart called People Express. None of these companies exist today. It was the best investment advice that I ever got.
If you total up the P&L's of all of the US airlines that ever existed since Orville and Wilber Wright first flew in 1903 (their pictures are on my new anti-terrorism edition commercial pilots license), it is a giant negative number, well in excess of $100 billion. This is despite the massive government subsidies that have prevailed for much of the industry's existence.
The sector today is hugely leveraged, capital intensive, heavily regulated, highly unionized, offers customers terrible service, and is constantly flirting with, or is in bankruptcy. Its track record is horrendous. It is a prime terrorist target. A worse nightmare of an industry never existed.
I became all too aware of the travails of this business while operating my own charter airline in Europe as a sideline to my investment business during the 1980?s.
The amount of paperwork involved in a single international flight was excruciating. Every country piled on fees and taxes wherever possible. The French air traffic controllers were always on strike, the Swiss were arrogant, and the Italians unintelligible and out of fuel.
The Greek military controllers once lost me over the Aegean Sea for two hours, while the Yugoslavs sent out two MIG fighter jets to intercept me. As for the US? Did you know that every rivet going into an American built aircraft must first be inspected by the government and painted yellow before it can be used in manufacture?
While flying a Red Cross mission into Croatia, I got shot down by the Serbians, crash landed at a small Austrian Alpine river, and lost a disc in my back. I had to make a $300 donation to the Zell Am Zee fire department Christmas fund to get their crane to lift my damaged aircraft out of the river (see picture below). Talk about killing the competition!
Anyway, I diverge.
So you may be shocked to hear that I think there is a great opportunity here in airline stocks. A Darwinian weeding out has taken place over the last 30 years that has concentrated the industry so much that it would attract the interest of antitrust lawyers, if consumers weren?t such huge beneficiaries.
With the American-US Air (AAL) deal done, the top four carriers (along with United-Continental (UAL), Delta (DAL), and Southwest (LUV) will control 90% of the market.
That is up from 60% only five years ago. The industry has fewer seats than in 1982; while inflation adjusted fares are down 40%. Analysts are referring to this as the industry?s new ?oligopoly advantage.?
Any surprise bump up in oil prices is met with a blizzard of higher fares, baggage fees, and fuel surcharges. I can't remember the last time I saw an empty seat on a plane, and I travel a lot. Lost luggage rates are near all time lows because so few now check in bags. Interest rates staying at zero don?t hurt either.
The real kicker here is that stock in an airline is, in effect, a free undated put on the price of oil. If the price of oil stays in the $80 handle for a prolonged period of time, which it should, or continues to fall, airline stocks will rocket. This is on top of a $27 plunge in the price of Texas tea, the largest single cost item for the airline industry.
If you are looking for another indirect play, look at the bond market. With a new Boeing 787 Dreamliner costing up to $300 million each, airlines are massive borrowers of capital. With interest rates at all time lows, another huge source of costs have just been lifted off the airlines? backs.
The Ebola virus is an additional sweetener (if you could use such a term for a deadly disease), because it is enabling us to buy the stock down 30% than it would be otherwise. Delta Airlines (DAL) just so happened to be the airline that brought the first Ebola carrier to the US, so it has suffered the most. As frightening as this disease is (I studied it in my Army bacteriological warfare days), I doubt we will see more than a dozen cases in the US.
At least we are finally getting something for our $120 billion investment in Homeland Security since 2002. How much do you want to bet that they don?t cut the budget for the Center for Disease Control (CDC) this year, as they have for the past dozen!
On top of the massive fuel savings, a recovering US economy should boost profitability, given its recent maniacal pursuit of controlling costs. Some airlines have become so cost conscious that they are no longer painting their planes to gain fuel savings from carrying 100 pounds less weight! Just the missing pretzels alone should be worth a few cents a share in earnings.
This is not just a US development, but an international one. The International Air Transport Association (IATA) has just raised its forecast of member earnings from $7.6 billion in 2012 to $10.6 billion in 2013, a gain of 40%. The biggest earnings are based in Asia (China Southern Airlines, China Eastern Airlines, Air China), followed by those in the US, with $3.6 billion in profits.
Add all this together, and the conclusion is clear. The checklist is complete, the IFR clearance is in hand, and it is now time to push the throttles to the firewall for the airline stocks and get this bird off the ground.
And no, I didn't get free frequent flier points for writing this piece.
Meet the New Big Four
Maybe I Should Try Hedge Fund Trading?
Global Market Comments
October 15, 2014
Fiat Lux
Featured Trade:
(KEEP AMERICAN EXPRESS ON YOUR SHORT LIST),
(AXP), (V),
(BECOME MY FACEBOOK FRIEND),
(OIL ISN?T WHAT IT USED TO BE),
(USO), (DIG), (DUG)
American Express Company (AXP)
Visa Inc. (V)
United States Oil ETF (USO)
ProShares Ultra Oil & Gas (DIG)
ProShares UltraShort Oil & Gas (DUG)
With the International Energy Agency cutting global consumption by 200,000 barrels a day in 2014 and 300,000 barrels a day in 2015, all eyes were on the oil market today. I had to slap myself when I saw the $81 handle for West Texas intermediate, it had gotten so cheap so fast.
Virtually every stock market analyst has been puzzled by the seeming immunity of stock markets to the good news of collapsing oil prices (USO), (DIG), (DUG) this year.
In fact, stocks and crude have been tracking almost one to one on the downside. The charts below, sent by a friend at JP Morgan, go a long way towards explaining this apparent dichotomy.
The first shows the number of barrels of oil needed to generate a unit of GDP, which has been steady declining for 30 years. The second reveals the percentage of hourly earnings required to buy a gallon of gasoline in the US, which has been mostly flat for three decades, although it has recently started to spike upwards.
The bottom line is that conservation, the roll out of more fuel-efficient vehicles and hybrids, and the growth of alternatives, are all having their desired effect.
Notice how small all the new cars on the road are these days, many of which get 40 mpg with conventional gasoline engines. As for my own household, it has gone all-electric.
Developed countries are getting six times more GDP growth per unit of oil than in the past, while emerging economies are getting a fourfold improvement.
The world is gradually weaning itself off of the oil economy. But the operative word here is ?gradually?, and it will probably take another two decades before we can bid farewell to Texas tea, at least for transportation purposes.
It took 150 years for America to build its oil infrastructure. Don?t expect it to disappear in 10 or 20 years. Those outside the oil industry are totally unaware how massive the industry is that has to move around our country?s 18.8 million barrels a day, refine it into usable products, and get it to the end individual, industrial and government consumer.
But the Mileage is Great!
Gasoline? What?s that?