Global Market Comments
March 28, 2014
Fiat Lux
SPECIAL TESLA EDITION
Featured Trade:
(ON THE TESLA MELT UP),
(TSLA), (F), (FIATY), (PEUGY), (SCTY),
(BBRY), (HLF), (NFLX), (FSLR)
Tesla Motors, Inc. (TSLA)
Ford Motor Co. (F)
Fiat S.p.A. (FIATY)
Peugeot S.A. (PEUGY)
SolarCity Corporation (SCTY)
BlackBerry Limited (BBRY)
Herbalife Ltd. (HLF)
Netflix, Inc. (NFLX)
First Solar, Inc. (FSLR)
Tesla (TSLA) was the short squeeze that was begging to happen. Five guys owned 50% of the company, including the visionary founder, Elon Musk. Of the remaining float, 45% had been borrowed and sold short by hedge funds. All that was needed to ignite a rally was for someone to say ?Boo?.
Someone said exactly that, and their shares rocketed from $30 to $265 in little more than a year.
A poorly researched hatchet job by the New York Times on the new all electric Tesla Model S-1 produced a flood of countervailing positive reviews extolling the many virtues of the revolutionary vehicle (click ?My Take on the Tesla Tiff?). The Times could not have delivered a more effective marketing campaign if you paid them millions.
Then the company announced its first profit in history. It sold 4,900 cars, versus an expected 4,500, one of which was to me. Some 70% were of the highest margin, 80 kWh, $80,000, 300-mile range version. This was on the heels of its first ever price increase. The Q1, 2013 net jumped to $11.9 million compared to an $89.9 million loss in the earlier quarter. It boosted its forecast of this year?s total production from 20,000 to 21,000 vehicles. In 2014, this figure could hit 40,000.
There is now a one-year waiting list for the least expensive $60,000 model. Cash is pouring in so fast that Tesla announced it would pay back its $465 million Department of Energy loan five years early. It is also talking to Google about adopting its driverless technology.
South African native, Elon Musk, is said to be the model on which the Iron Man character, Tony Stark, is based. His late 2012 IPO for Solar City (SCTY) has also delivered a gangbusters performance, up 216%. Next on the calendar is taking Space X public, his heavy lift rocket company with a NASA contract potentially worth $1 billion. Since last year, his personal fortune has soared to $15 billion. This is truly the man with the golden touch.
The onslaught of good news triggered one of the sharpest and most furious short squeezes in stock market history. (TSLA) is now one of the top performing shares in the world this year, for the second year in a row. Elon did get some outside help. Squeezing the largest short open interest stocks was one of the most profitable trading strategies of 2013. Tesla simply followed on the heels of BlackBerry (BBRY), Herbalife (HLF), and Netflix (NFLX), with similar results.
There is a cautionary tale in the Tesla action. Many of the players on the short side were global warming deniers who believed the whole thing was a leftist hoax. They thought Tesla, and all the other ?green? plays, like First Solar (FSLR), were the artificial creations of government subsidy that were all going to zero once the free money was withdrawn.
After I toured the Tesla factory and saw that he car was real, I warned some of these guys they were out of their mind. Whenever one filters investment decisions through a political prism, whatever that prism is, you might as well pile up your money and set fire to it.
At $206 a share, with a market capitalization of $25 billion, Tesla is now one of the world?s largest car companies, beating out Fiat (FIATY), which owns Chrysler and Peugeot (PEUGY) and is nearly half the size of General Motors (GM). This is for a company that has only made 60,000 cars!
Tesla is now considering whether it should sue the states of Texas and New Jersey, which have banned sales of the cars. They are trying to force the company to sell through a local, good ol? boy dealer network. Tesla only sells its cars online, another ground breaking and cost cutting aspect of their business model. So much for deregulation in the Lone Star State. I guess they are trying to keep us hooked on Texas Tea.
Next year Tesla broadens out its product line to include the Model X, an all electric SUV, which should cost about the same. I am number 465 on the waiting list for that one, even though I ordered it on the first day it went on sale (everyone else ordered the car on their cell phones, while I waited to get home and do it on my Mac).
Most on Wall Street have completely missed the main point of the whole Tesla story. The real play here is for a low end mass market vehicle, which Tesla will bring out in 4-5 years, using the manufacturing expertise and technology they developed with the earlier Roadster and the S-1.
Keep in mind that electric car battery ranges are doubling about every four years. Look no further than my own garage, where I jumped from an 80 mile range Nissan Leaf to the Tesla S-1 in just two years. I just sold my starter electric car to an ecstatic PhD in biochemistry at UC Berkeley for a bargain $18,500.
That means that by 2018, you will be able to buy a 300-mile range, five passenger Tesla hatchback for about $40,000. This will enable the company to grow into a major worldwide industry presence. That?s when the ?Big Three? becomes the ?Big Four?. That?s what a $206 share price is screaming at you.
Let me explain what else is in the works. By next year, there will be 20,000 Tesla?s in the San Francisco Bay Area. Our local utility, PG&E (PGE), currently sells us power for electric cars for 5 cents a kWh between midnight and 7:00 AM. By some time in 2014, if you leave your car plugged in, it will then buy it back from you during the day at 40 cents a kWh!
With the backup supply of 20,000 1,000-pound Tesla lithium ion batteries, (PGE) might be able to take a few natural gas power plants offline (the last coal fired plant in California was closed about 10 years ago). Not only will the power for your car be free, your utility will pay you to drive it! The system is already undergoing beta testing at a utility in Delaware. Welcome to the future!
Last weekend, I drove to the local shopping mall to run some errands. There was a classic car show on, so there was no spare parking. I asked the show organizers if they were accepting late entries, just to get a parking space.
Both the fans and the other exhibitors were drawn to my S-1 like a magnet, mobbing the car and barraging me with questions. Some thought it was a joke, as there was no visible motor. I felt like Marty McFly bringing a car from Back to the Future. I popped out to run my errands. When I returned, I had won first prize and a blue ribbon.
There is one battery problem that I should write about here. Since the end of the ski season, my Toyota Highlander Hybrid has sat neglected in my driveway, accumulating pine needles and bird poop. ?Since I?m not driving it enough to recharge the conventional lead acid battery, it keeps going dead. The Auto Club has already been out to give me a jump-start three times, and they say next time, they are going to bill me.
I have written at length about Tesla since the inception of this letter five years ago. To read another recent piece with more details on the engineering and the specs, please click here ?Follow Up on Tesla?. Expect to hear a lot more.
The Competition
First Prize for a Late Entry
I Could Have Sworn I Left the Engine There Yesterday
In Your FutureGlobal Market Comments
March 27, 2014
Fiat Lux
SPECIAL VOLATILITY ISSUE
Featured Trade:
(LAS VEGAS WEDNESDAY, MAY 14 GLOBAL STRAGEGY LUNCHEON),
(WILL CANDY CRUSH CRUSH THE MARKET?),
(SPY), (QQQ), (IWM), (KING), (VIX), (VXX),
(BUY FLOOD INSRANCE WITH THE (VXX), (VIX)
SPDR S&P 500 (SPY)
PowerShares QQQ (QQQ)
iShares Russell 2000 (IWM)
King Digital Entertainment Plc (KING)
VOLATILITY S&P 500 (^VIX)
iPath S&P 500 VIX ST Futures ETN (VXX)
Feed the ducks while they are quacking. That is one of the oldest nostrums heard on Wall Street, and feed them they have, to the point of absolute gluttony.
This year we have seen the market for new initial public offerings for newly listed companies explode to life. There have been 46 so far in 2014, some 26 from the biotechnology area alone. Last Friday, there were an astounding seven in one day. When the demand is there, investment bankers are more than happy to run the printing presses overtime to meet it, creating new stock as fast as they can.
This morning saw the debut of King Digital Entertainment (KING), maker of the kid?s digital game ?Candy Crush?. Much to the chagrin of the bankers and the existing shareholders, the stock immediately traded down -10%. You know that when you see huge, dancing lollypops on the floor of the New York Stock Exchange, it is time to get out of the market, post haste.
It all seems frighteningly familiar, like d?j? vu all over again. The last time things were this hot was in April of 2000. Then, an onslaught of IPO?s put in the top for NASDAQ, igniting the great Dotcom crash. Share prices have yet to recover those heady levels a decade and a half later.
Looking at the quality and quantity of the new companies being floated, with minimal earnings, sky high multiples, and market capitalizations in the tens of billions of dollars, a similar outcome is assured. Wall Street never fails to kill the golden goose. There is no limit on greed.
As a result, the IPO market is threatening to take the main market down with it. The number of short-term indicators that I am seeing roll over and die is nothing less than astounding. At the very least, I think we are in for the kind of 5%-7% correction of the sort that we saw in January and February. I?ll give you two big ones.
The scary tell here is the strength of the bond market (TLT), which just broke out to a new seven-month high. Today?s Treasury five-year bond auction went like a house on fire. Stocks and bonds rarely go up in unison, and bonds usually end up being right.
Another is the elevating bottom in the volatility Index (VIX). During November and December, the (VIX) put in rock solid bottoms at the $12 level. After the January dump, the support rose to $14. This means that investors are now more nervous, willing to pay a premium for downside protection, and intend to unload shares at the first sign of trouble. As much fun as rising bottoms can be, you never want to see them in volatility if you own stocks.
The only question is whether they can hold the market up until Friday, March 28, the month end on Monday, March 31, or the new start to the quarter on Tuesday, April 1.
So how best to participate in the coming debacle? Cut back any leveraged long positions that you have. If you want to keep your stocks for tax or other reasons, then write front month call options against them, known as ?buy writes.?
Use the good days to lay on positions in long dated put options for the S&P 500 (SPY), the NASDAQ (QQQ), and the Russell 2000 (IWM). Long dating heads off the time decay problem, reducing the volatility of your position, and helps preserve capital.
Traders can also buy volatility through the iPath S&P 500 VIX Short Term Futures ETN (VXX), an exchange traded note, which rises when stocks fall.
The set up here for the iPath S&P 500 VIX Short Term Futures ETN (VXX) is a no brainer. If we get the modest weakness that we saw in early March, the (VXX) should rise 10% from current levels to the $48 handle. If we get a January replay, that is worth 20% for the (VXX), potentially boosting it to $55. If we finally get the long overdue 10% correction, the (VXX) should rocket by 30% or more.
If the selloff decides to wait a few more days or weeks you can afford to be patient. Since this is an ETN, and not an option play, a flat lining or rising market isn?t going to cost you much money. The February low in the (VXX) at $42.25 looks pretty safe to me in a rising volatility environment. A revisit would only cost us pennies.
Take your pick, but all paths seam to lead skyward for the (VXX), sooner or later.
The Time to Trade Volatility is HereGlobal Market Comments
March 26, 2014
Fiat Lux
Featured Trade:
(FRIDAY APRIL 25 SAN FRANCISCO STRATEGY LUNCHEON)
(THE AMERICAN ONSHORING TREND IS ACCELERATING),
(GE), (TSLA),
(TESTIMONIAL)
General Electric Company (GE)
Tesla Motors, Inc. (TSLA)
Global Market Comments
March 25, 2014
Fiat Lux
Featured Trade:
(FRIDAY APRIL 4 INCLINE VILLAGE, NEVADA STRATEGY),
(HEED THE MAD DAY TRADER?S Q2 FORECASTS),
(SPY), (QQQ), (IWM), (TLT), (TBT), (FXY),
(FXE), (FXA), (CU), (USO), (GLD), (GDX)
SPDR S&P 500 (SPY)
PowerShares QQQ (QQQ)
iShares Russell 2000 (IWM)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
CurrencyShares Japanese Yen Trust (FXY)
CurrencyShares Euro Trust (FXE)
CurrencyShares Australian Dollar Trust (FXA)
First Trust ISE Global Copper Index (CU)
United States Oil (USO)
SPDR Gold Shares (GLD)
Market Vectors Gold Miners ETF (GDX)
Mad Day Trader, Jim Parker, thinks that the next three to six months will be a tough time for the financial markets. They won?t crash, but won?t break out to new highs either.
Instead, they will stay confined to technically driven, narrow, low volume ranges that will cause traders to tear their hair out. It will be an environment where it will be tough for anyone to make money. The long only crowd will be particularly challenged. Better to take your summer vacation early this year, and make it a long one.
Jim uses a dozen proprietary short-term technical and momentum indicators to generate buy and sell signals, which he has developed over 40 years of trading in the Chicago futures markets. Last year Jim?s Trade Alerts generated returns for followers well into triple digits. He absolutely nailed the performance of every asset class this year in his Q1 Medium Term Outlook (click here for the link at http://madhedgefundradio.com/january-2-2014-mdt-medium-term-outlook-1st-qtr-2014/ . Ignore him at your peril.
Parker has been using NASDAQ (QQQ) as his lead contract for 2014. When it rolled over two weeks ago, it broke momentum across asset classes. Look no further than the biotech area, formerly the hottest in the market. It?s dramatic, sudden reversal, along with the losses seen in other speculative names, like Tesla (TSLA), Netflix (NFLX), and Herbalife (HLF), indicate that the easy money is gone.
The big confirming move for this cautious stance has been in the Treasury bond market (TLT). Its failure to break down has amazed many strategists. Instead of the ten-year bond yield exploding to a 3.05% yield as expected, it ran all the way down to 2.58%. This was the tell that the bull markets days were numbered. Bond prices are now threatening to break to new highs, taking yields to 2.50% or lower.
The other clue to the behavior of this years markets has been the Japanese yen. While the yen was plunging, stocks and other risk assets soared. That came to an abrupt halt on the last trading day of 2013. Notice that since then, the major stock indexes have not been able to hold on to any gains whatsoever.
This is because traders borrow, and then sell the Japanese currency, to fund any new positions. A flat lining yen means that risk taking has ceased, and that?s exactly what we have seen so far in 2014.
It won?t always be this bad. A long period digesting the meteoric gains of the past two and five years could be followed by a bang up fourth quarter, much like we saw in 2013. The key to success will be not to lose all your money before then.
Here is Jim?s Q2 forecast for each major asset class:
Stocks ? The leadership of NASDAQ is dead and buried for now. Don?t go back in until it closes above 3,745 and holds it. The same is true for the S&P 500 (SPX), which must surpass 1,880 to buy.
Bonds ? It?s alright to hold them here (TLT). If we break the years high at $109.60, it could race up to $114. At that point get out, as risk will be high.
Foreign Currencies - $139.50 has got to be the top in the Euro (FXE). As long as the yen (FXY) is comatose, he doesn?t want to touch it. You want to buy the Australia dollar (FXA) on a break above $91.50. Until then, it will remain trapped in an $88.50-$91.50 range.
Commodities ? The fireworks are over for now for oil. We need some digestion of the $15 move from $92 before we can revisit the upside. Hands off, until we break above $101.50. Copper (CU) is at the bottom of an extended range. You would be nuts to go short here, unless of course, we slice through $2.95.
Precious Metals ? Gold (GLD), (GDX) is toast. To see the sell off accelerate when geopolitical risk remains high has to be especially disheartening for the bulls. A retest of the $1,265 low, then $1,180 is in the cards. Unless you went short the barbarous relic the day it peaked last week, avoid.
Agricultural ? Jim called the bottom on this one (DBA), (CORN) at the New Year. Since then, the ags have raced to an intermediate high. The Crimea crisis gave it an added boost. His long side targets for soybeans (SOYB) have all been hit.? Nothing to do here, unless the weather suddenly turns bad.
While the Diary of a Mad Hedge Fund Trader and Global Trading Dispatch focus on investment over a one week to six-month time frame, Mad Day Trader will exploit moneymaking opportunities over a ten minute to three-day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. During normal trading conditions, you should receive two to five market updates and Trade Alerts a day.
As with our existing service, you will receive ticker symbols, entry and exit points, targets, stop losses, and regular real time updates. At the end of each day, a separate short-term model portfolio will be posted on the website.
Jim is a 40-year veteran of the financial markets and has long made a living as an independent trader in the pits at the Chicago Mercantile Exchange. He has worked his way up from a junior floor runner, to advisor to some of the world?s largest hedge funds. We are lucky to have him on our team and gain access to his experience, knowledge, and expertise.
I have been following his alerts for the past five years, and his market timing has become an important part of the ?unfair advantage? that I provide readers.
A trading service with this degree of success and sophistication normally costs $20,000 a year. As a client of The Mad Hedge Fund Trader, you can purchase Mad Day Trader alone for $699 a quarter, or $2,000 a year. Or you can buy it as a package together with Global Trading Dispatch, which we call Mad Hedge Fund Trader PRO, for $4,000 a year, a 20% discount to the full retail price.
To learn more about The Mad Day Trader, please visit my website at http://madhedgefundradio.com/mad-day-trader-service/. To subscribe, please click here.
If you want to get a pro rata upgrade from your existing Newsletter or Global Trading Dispatch subscription to Mad Hedge Fund Trader Pro, which includes Mad Day Trader, just email Nancy in customer support at support@madhedgefundtrader.com.
Ignore Him at Your PerilGlobal Market Comments
March 24, 2014
Fiat Lux
Featured Trade:
(MARCH 26 GLOBAL STRATEGY WEBINAR),
(READ OIL & ENERGY INSIDER FOR TRADING CLUES),
(USO), (UNG), (APC), (NBL)
(END OF THE COMMODITY SUPERCYCLE),
(SLV), (PPLT), (PALL), (CU), (BHP), (USO),
(CORN), (WEAT), (SOYB), (DBA), (RSX)
United States Oil (USO)
United States Natural Gas (UNG)
Anadarko Petroleum Corporation (APC)
Noble Energy, Inc. (NBL)
iShares Silver Trust (SLV)
ETFS Physical Platinum Shares (PPLT)
ETFS Physical Palladium Shares (PALL)
First Trust ISE Global Copper Index (CU)
BHP Billiton Limited (BHP)
Teucrium Corn (CORN)
Teucrium Wheat (WEAT)
Teucrium Soybean (SOYB)
PowerShares DB Agriculture (DBA)
Market Vectors Russia ETF (RSX)
I am often asked to divulge my research sources that give me my unfair advantage in trading. I usually decline such requests, unwilling to part with the ?secret sauce? that enables me to beat the market, as well as most other hedge fund managers year after year. Why level the playing field for my competitors, what few there are?
However, it would be greedy and selfish of me not to divulge one of my most important sources of red-hot information about the energy markets. That would be the newsletter, Oil & Energy Insider, published by my friend and comrade in arms in the online education business, Jim Stafford.
Jim has put together a crack team of analysts and writers and distills their collective wisdom into a daily publication sent out to paying subscribers. The talent includes my buddy, oil guru, Dan Dicker, Dave Forest and Martin Tiller.
Dicker made a fortune when his oil trading firm was bought out a few years ago, and now hangs around for the love of the trade, much as I do. He consults on trading strategies with major hedge funds and is a regular personality in the media. It hasn?t hurt that he has been dead right on the direction of oil for the past 15 years.
Dan is also a sector stock picker, although he thinks the energy sector is somewhat over stretched after a great run. His favorites to buy here are Anadarko (APC), which should bounce back hard after an outstanding lawsuit is resolved. Another is Noble Energy (NBL), which Dan believes has the best and most undervalued portfolio of assets in the energy space.
Dan is an oil bull, although not a peak oiler. Fracking, alternatives, and conservation are all great, but don?t change the reality that oil will be our major source of energy for the next 30 years.
As I never tire of pointing out to readers, nothing in the energy industry ever happens quickly. US shale oil is only contributing 2 million barrels a day out of global production of 91 million, and is growing slowly.
He doesn?t think that Texas tea will fall below $92 a barrel in the current economic environment. He thinks that the risk/reward of an oil short at $100/barrel is terrible. Only a financial crash could take it substantially below that, such as we had in 2008, when it hit $30.
However, the United States Oil Fund (USO) is another story. Because of the drag created by the contango, whereby far month oil futures contracts trade at huge premiums to front month ones, this ETF is almost guaranteed to go to zero.
It fact, the possibility is even disclosed in the prospectus. This is why short plays in the (USO) on top of an oil spike is one of my favorite in the entire financial arena.
The long term trend for oil is up, driven by ever expanding demand from Asia. He goes into depth on the issue in his 2011 book, Oil?s Endless Bid. Usually the impetus for an oil price spike is a geopolitical one that comes out of the blue.
This is why Oil & Energy Insider has tied up with the Washington political and country risks intelligence firms, Southern Pulse and ISA Intel, regular contributors to Stafford?s newsletter. These guys spend their days scrounging remote countries best known as a reliable source of venereal disease. Hey, better them than me.
The problem is that these are the same counties that regularly unleash flocks of vicious black swan on the financial markets, particularly those homing in on energy. Look no further than the recent crisis in the pipeline endowed Ukraine, which rose up out of nowhere to threaten a global economic recovery. Political instability in Nigeria is another ever-present threat to your energy supply. Ignore them at your peril. The list goes on.
To take a look at recent sample issues of Oil & Energy Insider, please click on the following:
http://oilprice.com/newsletters/premium/oei140314 and
http://oilprice.com/newsletters/premium/oei7314 .
To read a much more detailed description of the breadth of services offered by Oil & Energy and an opportunity to subscribe please click here: Oil & Energy Insider. At $497 a year it?s a real bargain. Better get a move on, because they are about to raise their price to $797, hence the urgency of this piece.
Maybe This Will Affect Prices?Global Market Comments
March 21, 2014
Fiat Lux
Featured Trade:
(CHICAGO FRIDAY, MAY 23 GLOBAL STRAGEGY LUNCHEON)
(THE RECEPTION THAT THE STARS FELL UPON),
(NLR), (CCJ), (CORN), (WEAT), (SOYB), (DBA),
(THE MOST FUNCTIONAL WORD IN THE ENGLISH LANGUAGE)
Market Vectors Uranium+Nuclear Enrgy ETF (NLR)
Cameco Corporation (CCJ)
Teucrium Corn (CORN)
Teucrium Wheat (WEAT)
Teucrium Soybean (SOYB)
PowerShares DB Agriculture (DBA)