Research - Page 24 - Mad Hedge Fund Trader

Taking the E-Ticket Ride with Walt Disney

I'll never forget the first time I met Walt Disney. There he was at the entrance on opening day of the first Disneyland in Anaheim, Calif., in 1955 on Main Street shaking the hand of every visitor as they came in. My dad sold the company truck trailers and managed to score free tickets for the family.

At 100 degrees on that eventful day it was so hot that the asphalt streets melted. Most of the drinking rooms and bathrooms didn't work. And ticket counterfeiters made sure that 100,000 jammed the relatively small park. But we loved it anyway. The band leader handed me his baton and I was allowed to direct the musicians in the most ill-tempoed fashion possible.

After Disney took a vacation to my home away from home in Zermatt, Switzerland, he decided to build a roller-coaster based on bobsleds running down the Matterhorn on a 1:100 scale. In those days, each ride required its own ticket, and the Matterhorn needed an "E-ticket," the most expensive. It was the first tubular steel roller coaster ever built.

Walt Disney shares have been on anything but a roller-coaster ride for the past four years. In fact, they have absolutely gone nowhere.

The main reason has been the drain on the company presented by the sports cable channel ESPN. Once the most valuable cable franchise, the company is now suffering from on multiple fronts, including the acceleration of cord cutting, the demise of traditional cable, the move to online streaming, and the demographic abandonment of traditional sports such as football.

However, ESPN's contribution to Walt Disney earnings is now so small that it is no longer a factor.

In the meantime, a lot has gone right with Walt Disney. The parks are going gangbusters. With two teenaged girls in tow I have hit three in the past two years (Anaheim, Orlando, Paris).

The movie franchise is going from strength to strength. Pixar has Frozen 2 and Toy Story 4 in the pipeline. Look for Lucasfilm to bring out a new trilogy of Star Wars films, even though Solo: A Star Wars Story was a dud. Its online strategy is one of the best in the business. And it's just a matter of time before they hit us with another princess. How many is it now? Nine?

It is about to expand its presence in media networks with the acquisition of 21^st Century Fox (FOX) assets, already its largest source of earnings. It will join the ABC Television Group, the Disney Channel, and the aforementioned ESPN.

It has notified Netflix (NFLX) that it may no longer show Disney films, so it can offer them for sale on its own streaming service. Walt Disney is about to become one of a handful of giant media companies with a near monopoly.

What do you buy in an expensive market? Cheap stuff, especially quality laggards. Walt Disney totally fits the bill.

As for old Walt Disney himself, he died of lung cancer in 1966, just when he was in the planning stages for the Orlando Disney World. All that chain smoking finally got to him. Despite that grandfatherly appearance on the Wonderful World of Color weekly TV show, friends tell me he was a complete bastard to work for.

Walt Disney Earnings by Source in Fiscal 2017

August 7, 2018/by MHFTR

The Market Outlook for the Week Ahead, or Finding a New Gig

Diary, Newsletter, Research

I'm back! Yes, I have freshly debarked from the KLM 10-hour nonstop from Amsterdam, with little gin bottles in the shape of old Dutch houses in my pockets.

And what do I do upon landing but rush to pound out another newsletter, digesting what I learned from reading a mountain of research on the way home.

Oops! It looks like I forgot how to type!

My 24-hour layover there enabled me to view the great Rembrandt masterpieces at the Rijksmuseum and explore Anne Frank's house, now part of a large museum complex. When I visited there 50 years ago you could just walk right in the front door, as there was almost no one there.

It was not a bad summer as far as losses go; a charger left behind on the Queen Mary, a hair brush in Paris, and all of my money in Zermatt, Switzerland. That last item was the result of my daughter breaking an ankle while riding a scooter down the Matterhorn.

If you are going to break something make sure you do it in Switzerland. The X-rays, MRI scans, doctors, and cast cost me only $1,000. The same would have cost me $10,000 in the U.S. But the wheelchair set me back $650. A better one could be had at home from Amazon for $115.

Still, there is no better way to breeze through customs and immigration but in a wheelchair. We avoided the long lines and saved so much time that my other daughter promised to break her ankle next year to achieve the same shortcuts.

Arriving at home in San Francisco it immediately became clear that a lot of chart formations are busted as well, especially those for Facebook (FB), Twitter (TWTR), Intel (INTC), and Netflix (NFLX). Apple (AAPL) is bumping up against my 2018 target of $220, while Amazon nearly hit my $2,000 goal.

With tech likely resting until the NEXT round of 25% earnings growth that starts in two months, we are going to have to find a new gig to earn our crust of bread. That will most likely be small caps, value plays, and multiyear laggards. Last year's big August play was in steel, gold, industrials, and commodities, which are all now getting hammered by trade wars.

Even if I had stayed at home in July trading like a one-armed paperhanger I'm not sure I would have made any money. Tech melted up, then melted down, and as we all know from hard-earned experience, the losses always cost more than the gains.

The week went out with a July Nonfarm Payroll Report that was tepid at best at 157,000. But headline unemployment stayed at 3.9%, a 17-year low. With the fifth week of gains and the (SPY) now up 6.2% in 2018 it appears that the markets only want to hear good news...for now.

Professional and Business Services were up 51,000, Manufacturing gained 37,000, while Hospitality and Leisure picked up 40,000 jobs. The bankruptcy of Toys "R" Us seems to have cost the economy 32,000 jobs. The broader U-6 "discouraged worker" unemployment rate fell to 7.5%.

Now is the golden age of the working high school dropout, the criminal background, and the DUI conviction. Many companies would rather hire former junkies that pay up for expensive college grads, which is why wage gains are still going nowhere, and perhaps, never will. Expensive retiring baby boomers replaced by cheap minimum-wage millennials is also a drag on wages.

Deflation isn't just hitting wages. It is destroying the financial industry as well, as high-paid yuppies are replaced by robots. This is the first bull market in history with no net hiring by Wall Street.

Wells Fargo no longer actually manages money, although it will readily accept your money to do so and farm it out to bots. Fidelity launched the world's first zero fee index fund, the Fidelity ZERO Total Market Index Fund (FZROX). As interest rates are now providing new income sources for managers, expect negative fee funds to come soon.

Markets are certainly climbing a wall of worry, a Great Wall. The Chinese are matching our threatened 25% tariffs on an additional $200 billion of trade with $60 billion of their own. After that retaliation will have to take indirect forms, as they have run out of tats to match our tits (oops, doesn't really work, does it?).

They might shut down the massive General Motors (GM) plants in China, where they sell more cars than in the U.S., and a LOT more Buicks. They could also interfere with the Apple assembly line. Remember, trade wars are only easy to win when you run a dictatorship. They could also continue weakening the yuan to offset the tariffs, as they have done so far. We can't retaliate there with a rising interest rate regime.

Speaking of rates, you can bet your bottom dollar that the Fed will raise them another 25 basis points to a 2.0% to 2.25% range at their upcoming September 25-26 meeting, after having passed last week. A market killing inverted yield curve is now only months away. Rising rates don't matter until they do, and then they matter A LOT!

Also, of concern is the appreciating levels of the Mad Hedge Market Timing Index, which at a nosebleed 71 is approaching seven-month highs. Buying up here never offers a good risk/reward ratio.

As I have been climbing in the Alps and out of the markets my 2018 year-to-date performance remains unchanged at an eye-popping 24.82% and my 8 1/2-year return sits at 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.

This coming week will be a very boring week on the data front, which is usual after the big jobs reports of the previous week..

On Monday, August 6, there will be nothing of note to report.

On Tuesday, August 7 at 8:30 AM EST, the May Consumer Price Index is released, the most important indicator of inflation.

On Wednesday, August 8 at 7:00 AM, the MBA Mortgage Applications come out. At 2:00 PM EST the Fed is expected to raise interest rates by 25 basis points. At 2:30 PM Fed governor Jerome Powell holds a press conference.

Thursday, August 9, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 13,000 last week to 222,000. Also announced are May Retail Sales.

On Friday, August 10 at 9:15 AM EST, we get May Industrial Production. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, I'll be recovering from jet lag and getting back into my groove. I'll send you a Trade Alert as soon as I find a good entry point. The year-end sprint is now on.

Below look at the gigantic smoke plume rising to 40,000 feet from the massive California fires that I flew past on the way home.

Good luck and good trading.

August 6, 2018/by MHFTR

What's Next for Netflix?

Diary, Newsletter, Research

In its latest earnings report for Q2 2018 Netflix definitely disappointed. Revenues came in at $3.91 billion compared to an expected $3.94 billion. New subscribers came up short 1 million of those expected.

It also provided weaker guidance, expecting to ad only 5 million new subscribers versus an earlier expected 6 million, with most coming from international.

The stock market noticed, taking the shares from $420 down to $330, a loss of 21.42%. Is it time to bail on Reed Hasting's miracle firm? Or is it time to load the boat once again?

If you have any doubts just ask any former employee of Blockbuster. In 1997, Blockbuster was the 800-pound gorilla in the VHS video rental business, with 9,000 worldwide, a 31% market share, and a $5 million market capitalization.

Today, Blockbuster has only one store left somewhere in rural Alaska. There is but one company to blame for this turn of events, and that would be Netflix.

Not only did Blockbuster bite the dust, so did the entire $8 billion-a-year movie rental industry, including Movie Gallery, Hollywood Video, and the rental operations of Walmart (WMT) and Amazon (AMZN).

That year, Reed Hastings returned his rental of the video Apollo 11 a month late and was hit with a huge $40 late charge. He was struck with a bolt of lightning. "There must be a business opportunity here," he thought.

The next day, he and friend Marc Randolph bought an oversized greeting card, tossed the card, and mailed a CD in the remaining envelope to Hastings' house. It arrived the next day in perfect condition. It was a simple matter of geometry. While the CD sat in the middle of the envelope, the Post Office only stamped the corners. This simple experiment became the basis of a business that eventually grew to $186 billion.

Yes, and now you're all thinking, "Why didn't I think of that?"

Hastings was the scion of an East Coast patrician family, a member of the social register and a regular in the New York Times society pages. His great-grandfather, Alfred Lee Loomis, was an early quant who made a fortune.

He received his undergrad degree from Bowdoin College and then joined the Peace Corps. Following a two-year stint in Swaziland to teach math, Hastings then obtained a master's degree in Computer Science from Stanford University in 1988.

Hastings founded his first firm at the age of 30, Pure Software, which went public in 1995. It then merged with Atria Software in 1996 and as Pure Atria was acquired in 1997. That left him flush with cash and looking for new challenges.

Based on the successful mail experiment Hastings invested $2 million into the Netflix idea, which Marc Randolph ran for the first two years.

Netflix then become the lucky beneficiary of a number of sea changes in technology then underway, none of which it anticipated. Sales of DVD players were taking off. The Internet and online commerce were gaining respectability, and massive overinvestment in broadband led to exponential improvements in streaming speeds.

There was also a crucial Supreme Court decision regarding the Copyright Act of 1909 that protected the right to rent a video that you owned. Hollywood had been fighting rentals tooth and nail to protect their substantial profits from DVD sales.

Hastings assembled a team of former colleagues who managed to build a website and a primitive distribution system. The Netflix website went live on April 14, 1998. The site crashed within 90 minutes, overwhelmed by demand. A rushed trip to the nearest Fry's Electronics brought 10 more PCs, which were quickly wired in as servers. By the end of the first day, Netflix had rented 500 videos.

The DVD optical format first launched in March 1997, creating the DVD player industry. Sales reached 400,000 units by the first half of 1998 and prices collapsed, from $1,100 to $580 in the first year. Netflix was swept up in the tide and monthly revenues reached $100,000 within four months.

Since newly released titles were so expensive at $15, Netflix focused on older, niche films in anime, Chinese martial arts, Bollywood movies, and, yes, soft-core porn. Netflix later exited this market when Hastings accepted an appointment to the California State Board of Education.

The company thrived. The headcount rose from an initial three to more than 100. But it was losing money - some $11 million in 1998.

Then the company caught a major break. The French luxury goods tycoon, Bernard Arnault, CEO of LVMH, was desperate to get into the Dotcom Boom and invested $30 million in Netflix. This attracted another $100 million from other venture capitalists and angel investors.

This allowed the company to experiment with its business model. It launched next-day delivery in San Francisco, which proved wildly popular, new sign-ups, renewals, and customer loyalty soared. Then in a stroke of genius Netflix initiated its Marquee Program, which allowed customers to rent four DVDs a month for only $15.95 a month, with no late fees. DVD player sales in 1999 reached 6 million, but Netflix lost $29.8 million that year.

In 2000, the Marquee Program evolved into the Unlimited Movie Rental service and the price rose to $19.95. It included a free rental, which customers could obtain by entering their credit card data, which then renewed indefinitely. This is common now but was considered wildly aggressive in 2000. Netflix was also an early artificial intelligence user, using algorithms to find movies that both members of a couple would like based on past rental data.

Netflix is a company that did 100 things wrong, any one of which could have wiped out the firm. It was the few things it did right that led it to stardom.

Hastings worked out deals with manufacturers to include a free Netflix rental coupon with every DVD player sold. The move earned it valuable market share, but almost bled the company dry since most didn't return. But a labeling error caused hard-core Chinese porn discs to get sent out instead.

A programing glitch caused members' video queues to be sent out all at once, landing some happy subscribers with 300 videos all at once. Coupon counterfeiting was rife until the company began individually coding each one.

Netflix planned to go public in 2000. Existing shareholders rushed to top up their holdings in expectation of cashing in on a first-day pop in the share price. But the Dotcom Crash intervened, and all new tech IPOs were canceled for years. This episode of greed and attempt at insider trading left Netflix well-funded through the following recession. Netflix lost $57.4 million in 2000.

In the meantime, the installed base on DVD players reached 8.6 million by 2002. Then disaster struck. Hastings learned that Amazon was entering the DVD sales market, the only source of Netflix profits. Hastings flew up to Seattle to sell Netflix to Amazon. But Jeff Bezos only offered $12 million and Hastings walked. It was a rare miss for Bezos. DVD players dropped to $200, and demand for content soared.

An important part of the Netflix story was the self-destruction of industry leader Blockbuster. Hastings offered to sell Netflix to Blockbuster at the bargain price of $50 million. By then, Netflix had 300,000 paid subscribers compared to Blockbuster's 50 million. But Blockbuster charged late fees while Netflix didn't. That difference would change the world. However, CEO John Antioco passed believing that online commerce was nothing more than a passing fad. It was a disastrous decision.

To dress up the company's financials for an IPO in 2002, Hastings fired about 40% of the company's workforce to cut costs. On May 23, 2002, Reed Hastings stood on the floor of wealth manager Merrill Lynch as the stock started trading on NASDAQ under the ticker symbol of (NFLX) at $15 a share. The company raised another $82.5 million in the deal. A year later Netflix announced it had 1 million paid subscribers, and the stock soared to $75 and the stock later split 2 for 1.

Realizing his error, Blockbuster's Antioco launched an all-out effort to catch up with Netflix in online rentals. When that news hit the market, (NFLX) shares fell back to its IPO price of $15. Late in 2004, Blockbuster launched a clunky copy of the Netflix website, but without the magical algorithms in the backend that made it work so well. Blockbuster undercut Netflix on price by $2, offering memberships for $17.95. It immediately captured 50% of all new online sign-ups but continued with its notorious late fees.

Blockbuster Online was plagued with software glitches from the start and every day presented a new crisis. Netflix also fought back with its own price cut, to $17.99. Both companies bled money. Short sellers started accumulating big positions in Netflix stock. Hastings vowed to run Blockbuster out of the online market with a $90 a quarter ad spend.

This Netflix received some manna from heaven. Corporate raider Carl Icahn secretly accumulated a chunk of Blockbuster stock in the market and then demanded that the company pursue an asset stripping strategy. Icahn eventually obtained three board seats and became de facto CEO. So, to say that management time was distracted was a gross understatement.

Netflix received another gift when Walmart finally threw in the towel for online movie rentals. Hastings jumped in and did a deal whereby (WMT) would refer all future movie rental customers to Netflix.

Blockbuster finally decided to dump its despised late fees, costing it $400 million in annual revenues. Hundreds of stores were closed to cut costs. The downward spiral began. The value of Blockbuster fell to $684 million. With 4.2 million subscribers Netflix was now worth about $1.5 billion. Blockbuster lost an eye-popping $500 million in 2005.

DVD sales and rentals reached their all-time peak of $27 billion in 2006. Slightly more than 50% of Americans then had broadband access.

Blockbuster, growing weary of the competition from Netflix, finally decided to deliver a knockout blow. It launched its Total Access program in another attempt to bleed Netflix to death by undercutting Netflix's membership price by $2. It worked, and Netflix was facing another near-death experience. Blockbuster Online's share of new subscriptions soared to 70%, and total subscribers soared from 1.5 million to 3.5 million in months. The Netflix share fell to only 17%, and the company was now losing money for the first time in years.

In a last desperate act, Netflix offered to buy Blockbuster Online for $600 billion, and would have gone up to $1 billion just to eliminate the competition. An overconfident Blockbuster, smelling blood, refused. Movie Gallery and Hollywood Video were already on the bankruptcy trail, so why shouldn't Netflix go the same way?

And then the inexplicable happened. Icahn refused to pay Antioco a promised $7 million performance bonus based on the Blockbuster Online success. Instead, he offered only $2 million and Antioco resigned, collecting an $8 million severance bonus in the process. Icahn replaced him with Jim Keyes, the former CEO of 7-Eleven.

Keyes immediately pulled the plug on the Total Access discount, thus dooming Blockbuster Online. Instead, he ordered that the company's 6,000 remaining stores sell Slurpees and pizzas to return to profitability, in effect turning them into 7-Elevens that rented videos. It was one of the worst decisions in business history. Many of the senior staff resigned and sold their stock on hearing this news. Keyes in effect seized defeat from the jaws of victory.

Reinvigorated and with subscriptions soaring once again, Netflix launched headlong in online streaming. It introduced its set top box, Roku, in 2008. It then got Microsoft to offer Netflix streaming through its Xbox 360 game console that Christmas, instantly adding potentially10 million new subscribers.

And this is what makes Netflix Netflix. Although the company had the best recommendation engine in the industry, CineMatch, Hastings thought he could do better. So, in 2006, he offered a $1 million prize to anyone who could improve Cinematch's performance by 10%. To facilitate the competition, he made public the data on 100 million searches carried out by the firm's customers.

It was the largest data set put in the public domain. Some 40,000 teams in 186 countries entered the contest, including the best artificial intelligence and machine language and mathematical minds. It became the most famous scientific challenge of its day.

After a heated three-year struggle, a team named BellKor's Pragmatic Chaos won, a combination of three teams from Bell Labs, Hungary, and Canada. The copyright for the algorithm is owned by AT&T and licensed to Netflix for a fixed annual fee. AT&T also uses the winning algorithm for its own U-verse TV programming.

When the 2008 financial crisis hit, Netflix subscribers just kept on rising at the rate of 10,000 a day as consumers stayed at home and obtained cheaper forms of entertainment. Total subscriptions topped 10 million in 2009. Those at Blockbuster cratered. A new competitor appeared on the scene, Redbox, with 20,000 supermarket kiosks offering DVDs for 99 cents a day. But Netflix was hardly affected.

By 2012, Netflix subscriptions reached 20 million. Streaming was a blowout success, with half of its customers using streaming only to watch TV shows and movies. Hollywood beat a path to Hastings' door, with Paramount Pictures, Lionsgate, and MGM earning a collective $800 million in Netflix fees. Netflix now accounted for 60% of movies streamed and 20% of total broadband usage.

When Blockbuster finally declared Chapter 11 bankruptcy on September 23, 2010, so did its Canadian operations. That opened the way for Netflix to enter the international market, picking up 1 million new subscribers practically overnight. Next it launched into Latin America, introducing Spanish and Portuguese streaming in 43 countries.

As streaming replaced DVD rental by mail, Hastings attempted to spin off the rump of the business into a firm called Quickster. Customers would now have to open two accounts, one for streaming and one for mail and pay high prices. Customers and shareholders rebelled, taking the stock from $305 down to a heartbreaking $60. This was the last chance you could buy the stock at a decent price.

Hastings recanted on Quickster and let go the 200 staff applied to the unit. Icahn made a reappearance in this story, this time accumulating a 10% share in Netflix. After demanding management changes nothing happened, and Icahn eventually sold his shares for a large profit. Finally, Icahn made money in the video business.

Going forward, Netflix's strategy is finally straightforward. Create a virtuous circle whereby superior content attracts new subscribers, who then deliver the money for better content.

CineMatch knows more about what you want to watch than you do. The immense data it is generating gives Netflix not only the insight on how to sell you the next movie, it also proves unmatched insight into trends in the industry as a whole. It also makes Netflix unassailable in the movie industry.

That has given the firm the confidence to double its original content budget from $4 billion to $8 billion this year to produce Emmy-winning series such as House of Cards and Orange is the New Black.

So, the future for Netflix looks bright. As for me, I think I'll spend the rest of the evening watching the 1931 version of Frankenstein on Netflix.

August 2, 2018/by MHFTR

The Market Outlook for the Week Ahead, or Pouring Gasoline on the Fire

Diary, Newsletter, Research

Pour gasoline on a fire and you get a reaction. It's a simple matter of physics. That is the natural result of hitting the economy with tax cuts, fiscal stimulus, and low interest rates all at once. But at what price?

Of course, the headline number of the week was the first read on Q2 GDP growth, which came in at a strong 4.1%, the hottest number in four years. What was one of the biggest contributors? Soybean sales, as buyers rushed to beat the imposition of retaliatory Chinese tariffs. Consumers also hit the stores hard, spending their rising by a robust 4%.

The big question now is how much of this is sustainable? The answer is probably not much, which leaves investors with the queasy feeling that by coming in now they risk buying the absolute peak in the stock market. By temporarily pulling forward so much growth you may be creating a growth hole in Q3. So better mark your calendars now.

Q2 almost always delivers a string rebound from a usually weak Q1. The tax cuts delivered a one-time-only boost. But the investment spending that the administration had hoped for hasn't materialized, with a disproportionate portion of corporate profits going into share buybacks instead. Inventories are rising sharply, which is always bad.

We'll know for sure in a year when a recession will most likely begin. And remember, this extra growth is at the expense of an increase in the national debt by 10%, from $21 trillion to $23 trillion. And that is definitely NOT sustainable, but everyone in the world seems to have forgotten that, except me!

Interestingly, the report placed the current inflation rate dead on the Fed's target at 2.0%. That is a guarantee that any continued economic strength will be offset by rising interest rates.

The Facebook (FB) earnings highlighted the poor risk/reward of buying tech stocks at these elevated levels. Facebook shares plunged by 20% on their earnings announcement, creating the largest single day loss of market capitalization in history, some $120 billion. It was obviously a "kitchen sink" quarter.

If you get an earnings beat, as you did with Microsoft (MSFT) and Amazon (AMZN), you get a 2-, 3-, 4% pop in the stock price. If you disappoint, as did Facebook, Netflix (NFLX), and Twitter (TWTR), they crater by 10% to 20%. It is all typical end-of-cycle price action.

On the other hand, Amazon knocked the cover off the ball with its earnings, which came in at double analyst forecasts. The company is about to reach my end 2018 target of $2,000 a share. That is double the February lows.

Amazon Web Services delivered a stunning $6.1 billion quarterly revenue, up 49% YOY. Advertising is now becoming a major factor, as the company challenges Google (GOOG) and Facebook. For more on the longer-term prospects of Jeff Bezos's incredible company please see the special report that I published yesterday.

Bonds (TLT) continued their moribund price action, barely eking out a gain in yields to 2.97%. Either they are already discounting the next recession, are flooded with cash from a global QE hangover, or are getting a nice flight to safety bid brought on by multiple trade wars. Most likely it is all three.

Better to opine from the sidelines than to attempt to trade in the least volatile bond market conditions in 30 years.

As for gold, it continues to be a trader's worst nightmare as it plums new 2018 lows. Clearly, globally rising interest rates are not of what bull markets in gold are made. It doesn't help that Venezuela continues to hammer the market by liquidating its entire gold reserves on its way to national bankruptcy. Whenever distress liquidations take place, they are bad for everyone, not just the seller. Competition from crypto currencies for the speculative dollar doesn't help either.

As I have been sitting on top of an Alp contemplating the future and out of the markets, my 2018 year-to-date performance remains unchanged at an eye-popping 24.82% and my 8 1/2- year return sits at 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.

It will be a big week on the data front, with an FOMC Meeting and an onslaught of jobs data.

On Monday, July 30 at 10:00 AM we obtain the June Pending Home Sales.

On Tuesday, July 31 at 9:00 AM EST, then we get the May S&P CoreLogic Case-Shiller National Home Price Index.

On Wednesday, August 1 at 2:00 PM, the Fed announces its decision on interest rates. Given the hot 4.1% Q2 GDP report, another 25-basis point rate rise is entirely possible.

Thursday, August 2, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a rise of 9,000 last week to 219,000.

On Friday, August 3 at 9:15 AM EST we get the July Nonfarm Payroll Report. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, the highlight of the week was being handed the keys to the City of Zermatt by the mayor for visiting for the 50^th year. Yes, I camped out here at the Youth Hostel in 1968. Also, with the honor came a Swiss Army knife with my name on it and a beautiful 10-pound coffee table book outlining the route I usually take to the Matterhorn summit.

I am now contemplating my return to the U.S., which is always hellish. It will require two trains (to Visp and Geneva), two flights (to Amsterdam and San Francisco), the last one of which lasts a punishing 10 1/2 hours. Then there is the eight hours of jet lag to deal with when I get home. So, I'll be getting up at 2:00 AM for a while. During those days I will be posting some of my favorite pieces from the past.

Still, to see the 14,692-foot Matterhorn from where I am sitting in the brilliant sunshine in all its glory, listening to an Alpine river rushing outside my window, and watching the swaying pines, it is all worth it.

Good luck and good trading.

July 30, 2018/by MHFTR

Stocks to Buy on the Outbreak of Trade Peace

Diary, Newsletter, Research

So, how will the trade war end? It could be the crucial trading call of 2018.

"That which can't continue, won't," I paraphrase the noted economist Herbert Stein. I think that logic neatly applies to our global trade wars today.

In 1970, some 25% of world GDP was accounted for by international trade. Today it is 52%. Germany has been the powerhouse, with trade growing from 25% to 80%, largely through exploding auto exports. Trade growth in the U.K. has been pitiful as the old colonial ties loosened, improving only from 40% of GDP to 52%.

In the U.S., trade has grown from 10% to 25% of GDP during this time. It is far lower than the rest of the G7 nations because of the massive size of its domestic economy.

Still, placing restraints on 25% of U.S. GDP, or about $5 trillion, is quite a big hit. Think an imminent recession, quite possible a severe one. The $13 billion in subsidies offered the agriculture sector is but a drop in the bucket. It would be like killing off the goose that laid the golden egg.

Trump has a weak hand, which is growing weaker by the day. It is just a matter of time before he folds. Not to do so would entirely wipe out the benefits of the December tax package, yet still leave the U.S. government with $2 trillion in new debt. It is a perfect money destruction machine.

My bet is that Trump will claim victory at some point soon, regardless of what transpires on the negotiation front. Take the trade war away, and stocks will immediately jump 10%. That's what the stock market thinks, with NASDAQ (QQQ) at an all-time high, and the S&P 500 (SPY) just short of one. Stocks are trading over the medium term as if Donald Trump doesn't exist.

Which stocks should you buy when trade peace breaks out? Buy those that have suffered the most. The ags have to be at the top of your list, such as Soybeans (SOYB), Corn (CORN), and Wheat (WEAT), the worst hit. The old industrials such as Caterpillar (CAT), John Deere (DE), and Boeing (BA) also have to be a priority.

In the technology area you have to rotate out of the FANGs and into chip stocks, the worst performers of the sector this year. Perhaps this is what the market is shouting at us with the horrific one-day decline in Facebook (FB) yesterday. China relies on the U.S. for 80% of its chips and all of its high-end graphics cards.

China's canceling of the QUALCOM (QCOM) takeover of its NXP Semiconductors shows to what extent it is willing to retaliate in the tech area. Chip stocks to buy for the rebound should include Micron Technology (MU), Cirrus Logic (CRUS), and Lam Research (LRCX).

Even if the trade war ends tomorrow, business conditions will never be the same. Confidence in American reliability will never completely recover. Sure, Trump will be gone in 2 1/2 years. But what if he is replaced by someone worse? Trading with the United States now incurs a level of political risk not seen since the War of 1812, when Washington burned.

But no trade war is certainly better than a trade war if you are a trader or investor.

Telling the Captain How to Steer the Ship

July 27, 2018/by MHFTR

So Where Did Those Amazon Earnings Really Come from and Where Are They Going?

Diary, Newsletter, Research

Amazon earnings come out after the close today so it's a good time to bone up on the history of the online retail giant. Forewarned is to be forearmed.

Is to time to cash in on the huge profits you have already attained or is it time to load the boat some more?

Jeff Bezos, born Jeff Jorgensen, is the son of an itinerant alcoholic circus clown and a low-level secretary in Albuquerque, New Mexico. When he was three, his father abandoned the family. His mother remarried a Cuban refugee, Miguel Bezos, who eventually became a chemical engineer for Exxon.

I have known Jeff Bezos for so long he had hair when we first met in the 1980s. Not much though, even in those early days. He was a quantitative researcher in the bond department at Morgan Stanley, and I was the head of international trading.

Bezos was then recruited by the cutting-edge quantitative hedge fund, D.E. Shaw, which was making fortunes at the time, but nobody knew how. When I heard in 1994 that he left his certain success there to start an online bookstore, I thought he'd suffered a nervous breakdown, common in our industry.

Bezos incorporated his company in Washington state later that year, initially calling it "Cadabra" and then "Relentess.com." He finally chose "Amazon" as the first interesting word that appeared in the dictionary, suggesting a river of endless supply. When I learned that Bezos would call his start-up "Amazon," I thought he'd gone completely nuts.

Bezos funded his start-up with a $300,000 investment from his parents who he promised stood a 50% chance of losing their entire investment. But then his parents had already spent a lifetime running Bezos through a series of programs for gifted children, so they had the necessary confidence.

It was a classic garage start-up with three employees based in scenic Bellevue, Washington. The hours were long with all of the initial effort going into programming the initial site. To save money, Bezos bought second-hand pine doors, which stood in for desks.

Bezos initially considered 20 different industries to disrupt, including CDs and computer software. He quickly concluded that books were the ripest for disruption, as they were cheap, globally traded, and offered millions of titles.

When Amazon.com was finally launched in 1995, the day was spent fixing software bugs on the site, and the night wrapping and shipping the 50 or so orders a day. Growth was hyperbolic from the get go, with sales reaching $20,000 a week by the end of the second month.

An early problem was obtaining supplies of books when wholesalers refused to offer him credit or deliver books on time. Eventually he would ask suppliers to keep a copy of every book in existence at their own expense, which could ship within 24 hours.

Venture capital rounds followed, eventually raising $200 million. Early participants all became billionaires, gaining returns of 10,000-fold or more, including his trusting parents.

Bezos put the money to work, launching into a hiring binge of epic proportions. "Send us your freaks," Bezos told the recruiting agencies, looking for the tattooed and the heavily pierced who were willing to work in shipping late at night for low wages. Keeping costs rock bottom was always an essential part of the Amazon formula.

Bezos used his new capital to raid Wal-Mart (WMT) for its senior distribution staff, for which it was later sued.

Amazon rode on the coattails of the Dotcom Boom to go public on NASDAQ on May 15, 1997 at $18 a share. The shares quickly rocketed to an astonishing $105, and in 1999 Jeff Bezos became Time magazine's "Man of the Year."

Unfortunately, the company committed many of the mistakes common to inexperienced managements with too much cash on their hands. It blew $200 million on acquisitions that, for the most part, failed. Those include such losers as Pets.com and Drugstore.com. But Bezos's philosophy has always been to try everything and fail them quickly, thus enabling Amazon to evolve 100 times faster than any other.

Amazon went into the Dotcom crash with tons of money on its hands, thus enabling it to survive the long funding drought that followed. Thousands of other competitors failed. Amazon shares plunged to $5.

But the company kept on making money. Sales soared by 50% a month, eventually topping $1 billion by 2001. The media noticed Wall Street took note. The company moved from the garage to a warehouse to a decrepit office building in downtown Seattle.

Amazon moved beyond books to compact disc sales in 1999. Electronics and toys followed. At its New York toy announcement Bezos realized that the company actually had no toys on hand. So, he ordered an employee to max out his credit card cleaning out the local Hammacher Schlemmer just to obtain some convincing props.

A pattern emerged. As Bezos entered a new industry he originally offered to run the online commerce for the leading firm. This happened with Circuit City, Borders, and Toys "R" Us. The firms then offered to take over Amazon, but Bezos wasn't selling.

In the end Amazon came to dominate every field it entered. Please note that all three of the abovementioned firms no longer exist, thanks to extreme price competition from Amazon.

Amazon had a great subsidy in the early years as it did not charge state sales tax. As of 2011, it only charged sales tax in five states. That game is now over, with Amazon now collecting sales taxes in all 45 states that have them.

Amazon Web Services originally started out to manage the firm's own website. It has since grown into a major profit center, with $17.4 billion in net revenues in 2017. Full disclosure: Mad Hedge Fund Trader is a customer.

Amazon entered the hardware business with the launch of its e-reader Kindle in 2007, which sold $5 billion worth in its first year. The Amazon Echo smart speaker followed in 2015 and boasts 71.9% market share. This is despite news stories that it records family conversations and randomly laughs.

Amazon Studios started in 2010, run by a former Disney executive, pumping out a series of high-grade film productions. In 2017 it became the first streaming studio to win an Oscar with Manchester by the Sea with Jeff Bezos visibly in the audience at the Hollywood awards ceremony.

Its acquisitions policy also became much more astute, picking up audio book company Audible.com, shoe seller Zappos, Whole Foods, and most recently PillPack. Since its inception, Amazon has purchased more than 86 outside companies.

Sometimes, Amazon's acquisition tactics are so predatory they would make John D. Rockefeller blush. It decided to get into the discount diaper business in 2010, and offered to buy Diapers.com, which was doing business under the name of "Quidsi." The company refused, so Amazon began offering its own diapers for sale 30% cheaper for a loss. Diapers.com was driven to the wall and caved, selling out for $545 million. Diaper prices then popped back up to their original level.

Welcome to online commerce.

At the end of 2018, Amazon boasted some 306,000 employees worldwide. In fact, it has been the largest single job creator in the United States for the past decade. Also, this year it disclosed the number of Amazon Prime members at 100 million, then raised the price from $80 to $100, thus creating an instant $2 billion in profit.

The company's ability to instantly create profit like this is breathtaking. And this will make you cry. In 2016, Amazon made $2.4 billion from Amazon gift cards left unredeemed!

In 2017, Amazon net revenues totaled an unbelievable $177.87 billion. It is currently capturing about 50% of all new online sales.

So, what's on the menu for Amazon? There is a lot of new ground to pioneer.

1) Health Care is the big one, accounting for $3 trillion, or 17% of U.S. GDP, but where Amazon has just scratched the surface. Its recent $1 billion purchase of PillPack signals a new focus on the area. Who knows? The hyper-competition Bezos always brings to a new market would solve the American health care crisis, which is largely cost driven. Bezos can oust middle men like no one else.

2) Food is the great untouched market for online commerce, which accounts for 20% of total U.S. retail spending, but sees only 2% take place online. Essentially this is a distribution problem, and you have to accomplish this within the prevailing subterranean 1% profit margins in the industry. Books don't need to be frozen or shipped fresh. Wal-Mart (WMT) will be target No. 1, which currently gets 56% of its sales from groceries. Amazon took a leap up the learnings curve with its $13.7 billion purchase of Whole Foods (WFC) in 2017. What will follow will be interesting.

3) Banking is another ripe area for "Amazonification," where excessive fees are rampant. It would be easy for the company to accelerate the process through buying a major bank that already had licenses in all 50 states. Amazon is already working the credit card angle.

4) Overnight Delivery is a natural, as Amazon is already the largest shipper in the U.S., sending out more than 1 million packages a day. The company has a nascent effort here, already acquiring several aircraft to cover its most heavily trafficked routes. Expect FedEx (FDX), UPS (UPS), DHL, and the United States Post Office to get severely disrupted.

5) Amazon is about to surpass Wal-Mart this year as the largest clothing retailer. The company has already launched 76 private labels, with half of them in the fashion area, such as Clifton Heritage (color and printed shirts), Buttoned Down (100% cotton shirts) and Goodthreads (casual shirts) as well as subscription services for all of the above.

6) Furniture is currently the fastest growing category at Amazon. Customers can use an Amazon tool to design virtual rooms to see where new items and colors will fit best.

7) Event Ticketing firms like StubHub and Ticketmaster are among the most despised companies in the U.S., so they are great disruption candidates. Amazon has already started in the U.K., and a takeover of one of the above would ease its entry into the U.S.

If only SOME of these new business ventures succeed, they have the potential to DOUBLE Amazon's shares from current levels, taking its market capitalization up to $1.8 trillion. Amazon will easily win the race to become the first $1 trillion company. Perhaps this explains why institutional investors continue to pour into the shares, despite being up a torrid 83% from the February lows.

Whatever happened to Bezos's real father, Ted Jorgensen? He was discovered by an enterprising journalist in 2012 running a bicycle shop in Glendale, Arizona. He had long ago sobered up and remarried. He had no idea who Jeff Bezos was. Ted Jorgensen died in 2015. Bezos never took the time to meet him. Too busy running Amazon, I guess. Worth $160 billion, Bezos is now the richest man in the world.

From a Garage to This

July 26, 2018/by MHFTR

The Market Outlook for the Week Ahead, or It's Suddenly Become Crystal Clear

Diary, Newsletter, Research

Maybe it's the calming influence of the sound of North Atlantic waves crashing against the hull outside my cabin door for a week. Maybe it was the absence of an Internet connection for seven days, which unplugged me from the 24/7 onslaught of confusing noise.

But suddenly, the outlook for financial markets for the rest of 2018 has suddenly become crystal clear.

I'll give you the one-liner: Nothing has changed.

Some nine years and four months into this bull market, and the sole consideration in share pricing is earnings. Everything else is a waste of time. That includes the Greece crisis, the European debt crisis that drove MF Global under, two presidential elections, the recent trade wars, even the daily disasters coming out of the White House.

Keep your eye focused on earnings and everything else will fade away into irrelevance. It that's simple.

As I predicted, the markets are stair-stepping their way northward ahead of each round of quarterly earnings reports.

And now that we know what to look at, the future looks pretty good.

The earnings story, led by big tech, is alive and well. After a torrid Q1, which saw corporate earnings grow by a heart palpitating 26%, we are looking for a robust 20% for Q2, 23% in Q3, and another 20% in Q4.

The sushi hits the fan when Q1 2019 earnings grow by a mere 5% YOY as the major elixir of tax cuts wear off, leaving us all with giant hangovers.

Amazon (AMZN), Netflix (NFLX), and Microsoft (MSFT), all Mad Hedge recommendations over the past year, account for 70% of the total market gains this year.

Look at the table below and you see there has only been ONE trade this year and that has been to buy technology stocks. Everything else, such as oil, the S&P 500 (SPY), the U.S. dollar (UUP) has been an also-ran, or an absolute disaster. And we nailed it. Some 80% of our Trade Alerts this year have been to buy technology stocks.

The gasoline poured on the fire by the huge corporate tax cuts are only now being felt by the real economy. Q2 GDP growth could run as hot as 4%. But there is a sneaking suspicion in the hedge fund industry that these represent peak earnings for the entire economic cycle.

Corporate stock buybacks hit a new all-time high in Q2, as companies repatriate cash hoards from abroad at extremely preferential tax rates to buy back their own shares.

Trade wars are certainly a worry. But retaliation is directed only at Trump supporting red states, which accounts for only a tiny share of U.S. corporate profits. Technology stocks, which account for half of all American profits, have largely been immune, except for the chip sector (MU), (LRCX), which has its own cyclical problems.

Yes, we know this will all end in tears. The yield curve will invert in a year, taking short-term interest rates higher than long-term ones, triggering a recession and a bear market. But the final year of a bull market is often the most profitable as prices go ballistic. You would be a fool to stay scared out of stocks by headline risk and an uncertain Twitter feed.

Yes, early leading indicators of a coming recession are popping up everywhere now. A stunning 12.3% drop in June Housing Starts has to be at the top of anyone's worry list, as rising home mortgage rates and disappearing tax deductions take their pound of flesh. It was the worst report in nine months.

The trade wars promise to leave the Detroit auto industry in substantially reduced form, or at least, the stock market believes so. And a 10-year U.S. treasury bond yield that has been absolutely nailed in a 2.80% to 2.90% range for three months is another classic marketing topping indicator.

I'll let you know when it is time to pull up stakes and head for higher ground. Just keep reading the Diary of a Mad Hedge Fund Trader.

As I have been at sea and out of the markets, my 2018 year-to-date performance remains unchanged at an eye-popping 24.82%, and my 8 1/2-year return sits at 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.

This coming week will be a very boring week on the data front.

On Monday, July 23, there will be nothing of note to report.

On Tuesday, July 24 at 8:30 AM EST, the May Consumer Price Index is released, the most important indicator of inflation.

On Wednesday, July 25 at 7:00 AM, the MBA Mortgage Applications come out. At 2:00 PM EST the Fed is expected to raise interest rates by 25 basis points. At 2:30 Fed governor Jerome Powell holds a press conference.

Thursday, July 26, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 13,000 last week to 222,000. Also announced are May Retail Sales.

On Friday, July 27 at 9:15 AM EST we get May Industrial Production. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, I am going to attempt to think of more great thoughts this afternoon while hiking up to the Hornli Hut at 11,000 feet on the edge of the Matterhorn, a climb of about 5,000 feet out the front door of my chalet. I always seem to think of my best ideas while hiking uphill. The liter of Cardinal beer and a full plate of bratwurst with rosti potatoes will make it all worth it.

Good luck and good trading.

July 23, 2018/by MHFTR

America's Native Indian Economy

Diary, Newsletter, Research

When I was remodeling my 160-year-old London house, the chimney was in desperate need of attention. After the bricklayer crawled up the fireplace, he found a yellowed and somewhat singed envelope addressed to Santa Claus.

Thinking it was placed there by my kids, he handed it over to me. In it was a letter penned in a childlike scrawl, written with a quill and ink, dated Christmas, 1910, asking for a Red Indian suit.

Europeans have long had a fascination with our Native Americans. So, in preparation for my upcoming European strategy luncheon tour, I thought I would get myself up to date about our earliest North American residents.

Business is booming these days on Indian reservations, or it isn't, depending on where they live.Of the country's 565 reservations, some 239 have moved into the casino business and the cash flow has followed.

In 2010, Indian gaming reaped some $26.7 billion in revenues, or some $9,275 per indigenous native. That is a stunning 44% of America's total casino revenues.

Some, like the Pequot tribe's massive Foxwoods operation just two hours from New York City, now the world's largest casino, once had money raining down upon it.

But the casino grew so large that it entirely occupied the diminutive Connecticut reservation allocated to it by an obscure 17^th century treaty.

During the salad days, the profits were so enormous that an annual $250,000 stipend was paid to each officially registered tribal member.A poker boom helped.

No surprise that the tribe grew from 167 to 665 members during the past 30 years.Today, the operation is burdened with $2.5 billion in debt, thanks to some bad investments and an ill-timed expansion.

Casinos in more rural locations in the far west, distant from population centers, have fared less well.Those that contracted out for professional management from Las Vegas and Atlantic City firms, such as Harrah's, MGM and Caesars, earn a modest living.

But the reservations attempting local management on their own fall victim to inefficiencies, incompetence, corruption, nepotism, over hiring of locals and outright theft.

Believe it or not, it is possible to lose money in the casino business, and some have had to shut down.

Overbuilding is another problem. In northern New Mexico you can find several casinos within five miles of each other competing for the same customers. Most of their clients (read losers) are in fact local tribal members, the same individuals these houses are intended to help.

The 326 tribes that avoided the casino industry do so at the cost of a big hit to their standard of living.

That explains why Native American median household income reaches only $35,062, compared to $50,046 for the U.S. as a whole. Many, such as the numerous Hopi, shun it because of their religion.

Without gambling there are few economic opportunities on the reservations, which is why they were given the land in the first place.

The parched conditions of the west limit farming. Unemployment runs as high as 80% on some reservations, such as the White Mountain Apaches.

As a result, a high proportion of the country's 2.9 million Native Americans are wards of the federal government, living on food stamps and other government handouts.

That's not how it was supposed to be. The first modern reservation was set up for the Navajo tribe in 1851 at a baking hellhole on the Pecos River, with the intention of enforcing a primitive form of apartheid to ensure their survival.The legendary scout Kit Carson was hired to herd the hapless Indians to their new home.

He did it by burning all the crops in their homelands and cutting down every tree.Because they surrendered early rather than fight, today they are the most populous tribe, with 160,000, owning the largest reservation, at 24,000 square miles, mostly in Arizona.

Those who signed treaties early survived, which gave them status as an independent nation but ceded all matters regarding defense to the federal government.In fact the Iroquois, Sioux, and the Chippewa separately declared war on Germany during WWII.

Some even issued their own passports to attend the last Olympics. Those who didn't had to settle for much smaller reservations, or got wiped out.

In 1975, Congress passed the Indian Self-Determination and Education Assistance Act, which devolved power from the government to the tribes.

Florida's Seminole tribe won the right in court to open a casino in 1981, which was confirmed by the Supreme Court in 1987. After that, it was off to the races, with Indian bingo parlors sprouting across the country.

During the 19^th century Indian wars when hundreds of thousands died, the practice was to attack a wagon train, kill all the men, marry the women and adopt the children.

As a result, I am descended from three different tribes, the Delaware, Sioux, and the Cherokee, as are about a quarter of native Californians my age. So I tried to cash in on government largess by applying for tribal scholarships to go to college.

It was to no avail. Only those who can trace their lineage to a 1941 Bureau of Indian Affairs census and are one-eighth Native American can qualify.When whites married Indians 150 years ago, the common practice was to baptize them and give them western names, obliterating their true heritage.

They were also pretty casual with marriage records in the Wild West. Jumping over a broom doesn't exactly make it into the county records. But we still have many of the wedding photos, and it's clear who they are.

I never did find out if that little boy got his Red Indian suit for Christmas, but I hope he did.

So, Should I Double Down?

July 12, 2018/by MHFTR

July 5, 2018 - Quote of the Day

Diary, Quote of the Day, Research

"It is difficult to get a man to understand something when his salary depends upon his not understanding it," said the Pulitzer Price winning author, Upton Sinclair."

July 5, 2018/by MHFTR

The Market Outlook for the Week Ahead, or The Future is Happening Fast

Diary, Newsletter, Research

I feel like I'm living life in fast forward these days.

First we got a slap across the face with a wet mackerel on Monday with a 328 plunge in the Dow Average on yet another trade war escalation.

Harley Davidson (HOG) said it was moving a factory out of the country to bypass new European duties imposed in response to ours. If Harley is doing this you can bet there are 10,000 other companies thinking about it.

And even though robust economic growth should assure us that we remain in a new bear market for bonds, traders think otherwise. A 10-year Treasury bond (TLT) yield at 2.81% says that we're already in the next recession, we just don't know it yet.

As always happens with the ebb and flow of the trade war, technology got hammered. My favorite early retirement vehicle, the ProShares Ultra Technology 2X ETF (ROM), plunged some 11.19% to an even $100. Chip stocks such as Micron Technology (MU) and Lam Research (LRCX) get particularly hurt as China buys 80% of their processors from the U.S.

In the meantime, Tesla (TSLA) continues its phoenixlike rise from the ashes yet again, burning the shorts for the umpteenth time. The shares are now taking another run at a new all-time high. You would think people would learn but they don't. Einstein's definition of insanity is repeating the same thing over and over again and expecting a different result.

While bearish analysts predicted the imminent demise of the company, I saw a steady stream of trucks delivering new Tesla 3s from the Fremont factory while driving back from Los Angeles last weekend. Nothing beats on-the-ground research.

I'm sorry, but there is definite disconnect from reality with this company. The most hated company in America has produced the fifth best performing stock in over the past eight years, up more than 2,000%. I guess that's what happens when you disrupt big oil, Detroit, the U.S. dealer network, and the entire advertising industry all at the same time.

Interestingly, we caught three of the five best performers early on, including Tesla, NVIDIA (NVDA), and Netflix (NFLX).

Emerging markets (EEM) continue their death spiral, pummeled by the twin threats of trade wars and a soaring dollar (UUP). Most big emerging companies have their debt in dollars.

Sometimes you have to forget what you know to make money, and that has certainly been the case for me with emerging countries, where I spent a large part of my life.

The future is happening fast. Amazon (AMZN) single-handedly demolished the drug sector when it announced its takeover of online pharmacy company PillPack. The traditional brick-and-mortar retail pharmacy sector lost $9 billion in market capitalization just on the announcement. Walgreens (WBA) alone dropped a gut churning 10%.

If anyone can slash America's bloated health care bill it is Jeff Bezos. Just ask any former bookseller or toy maker.

And for a final middle finger salute to investors, the president said he wants to withdraw from the World Trade Organization, which the U.S. itself created after WWII. That means the United Nations is next on the chopping block.

America is rapidly becoming rogue nation No. 1, the next failed state. And failed states don't have great stock markets. Just check out the Somalia Stock Exchange.

They net of all of this is that the rest of the global economy is rolling over like the Bismarck, while the U.S. remains a sole beacon of strength. That's not good when half of S&P 500 earnings come from abroad.

However, that strength is based on a temporary one-time-only stimulus from massive deficit spending and corporate tax cuts that runs out of juice next year.

So keep tap dancing on the edge of the Grand Canyon. We'll miss you when you're gone. And before you ask, the best hedge in this kind of market is cash, which has huge option value that almost no one recognizes.

Despite all the chaos, uncertainty, and massive headline risk, I managed to tiptoe between the raindrops, keeping the Mad Hedge Fund Trader Alert Service performance just short of a new all-time high.

I closed out the month of June at a healthy 4.45%, my 2018 year-to-date performance rose to 24.82% and my 8 1/2-year return catapulted to 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.

This coming holiday shortened week will be all about the jobs, jobs, jobs. Also, the Fed will raise interest rates by 25 basis points on Wednesday to an overnight rate of 2.00%.

On Monday, July 2, at 9:45 AM, the May PMI Manufacturing Index is out.

On Tuesday, July 3, at 10:00 AM, the May Factory Orders are published.

On Wednesday, July 4, U.S. markets are closed for Independence Day. I will be watching the fireworks display over New York's Hudson River from the top of a Midtown Manhattan skyscraper.

Thursday, July 5, sees a huge bunching up of data thanks to the Fourth of July. It leads with the ADP Employment Report for private sector jobs at 8:15 AM EST. The Weekly Jobless Claims follow at 8:30 AM EST, which saw a rise of 9,000 last week to 227,000. Also announced is the all-important 25 basis point interest rate rise from the Federal Reserve and the FOMC Minutes at 2:00 PM, a reading of what was discussed at the last Fed meeting.

On Friday, July 6 at 8:30 AM EST, we get the June Nonfarm Payroll Report. Then the Baker Hughes Rig Count is announced at 1:00 PM EST. I will be sipping a glass of champagne as I board the Queen Mary 2 at the Brooklyn Cruise Terminal. I look forward to all those who signed up for my Seminar at Sea.

As for me, I will be hurriedly packing for the 2018 Mad Hedge European Tour.

Unfortunately, traveling in the grand style of the 19^th century Belle Epoque involves bringing 200 pounds of luggage.

Now where are those darn black dress socks? And why am I missing a stud for my formal shirt?

Good Luck and Good Trading.