Global Market Comments
January 28, 2020
Fiat Lux
Featured Trade:
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)
Global Market Comments
January 27, 2020
Fiat Lux
Featured Trade:
(WELCOME TO THE WONDERFUL WORLD OF OPTIONS),
(WHAT IS AN OPTION? -THE BASICS)
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Luncheon, which I will be conducting in Perth, Australia on Friday, February 7, 2020 at 12:30 PM.
An excellent meal will be followed by a wide-ranging discussion and a question-and-answer period. I’ll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, energy, and real estate.
I also hope to provide some insight into America’s opaque and confusing political system. And to keep you in suspense, I’ll be throwing a few surprises out there too.
Tickets are available for $235.
The lunch will be held at an exclusive hotel in downtown Perth, the location of which 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 click here.
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 22 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Are you concerned about a kitchen sink earnings report on Boeing (BA) next week?
A: No, every DAY has been a kitchen sink for Boeing for the past year! Everyone is expecting the worst, and I think we’re probably going to try to hold around the $300 level. You can’t imagine a company with more bad news than Boeing and it's actually acting as a serious drag on the entire economy since Boeing accounts for about 3% of US GDP. If (BA) doesn’t break $300, you should buy it with both hands as all the bad news will be priced in. That's why I am long Boeing.
Q: Do you think IBM is turning around with its latest earnings report?
A: They may be—They could have finally figured out the cloud, which they are only 20 years late getting into. They’ve been a lagging technology stock for years. If they can figure out the cloud, then they may have a future. They obviously poured a lot into AI but have been unable to make any money off of it. Lots of PR but no profits. People are looking for cheap stuff with the market this high and (IBM) certainly qualifies.
Q: Will the travel stocks like airlines and cruise companies get hurt by the coronavirus?
A: Absolutely, yes; and you’re seeing some pretty terrible stock performance in these companies, like Delta (DAL), the cruise companies like Royal Caribbean Cruises (RCL), and the transports, which have all suffered major hits.
Q: Will the Wells Fargo (WFC) shares ever rebound? They are the cheapest of the major banks.
A: Someday, but they still have major management problems to deal with, and it seems like they’re getting $100 million fines every other month. I would stay away. There are better fish to fry, even in this sector, like JP Morgan (JPM).
Q: Will a decrease in foreign direct investment hurt global growth this year?
A: For sure. The total CEO loss of confidence in the economy triggered by the trade war brought capital investment worldwide to a complete halt last year. That will likely continue this year and will keep economic growth slow. We’re right around a 2% level right now and will probably see lower this quarter once we get the next set of numbers. To see the stock market rise in the face of falling capital spending is nothing short of amazing.
Q: Do you think regulation is getting too cumbersome for corporations?
A: No, regulation is at a 20-year low for corporations, especially if you’re an oil (USO), gas (UNG) or coal producer (KOL), or in the financial industry (XLF). That’s one of the reasons that these stocks are rising as quickly as they have been. What follows a huge round of deregulation? A financial crisis, a crashing stock market, and a huge number of bankruptcies.
By the time you read this, I will be winging my way over the Pacific Ocean on my way to Fiji, Guadalcanal, and the better part of Australia, where I will be involved in fundraisers for fire relief. I’ll be making stops along the way to visit with my existing subscribers.
The Golden State has already sent 200 firefighters to the Land Down Under to advise on fighting these enormous conflagrations and we suffered our first three fatalities today, C130 pilots, who I happen to know well as I am one myself.
I am also making a stopover at Guadalcanal in the Solomon Island to make a documentary film about the epic WWII battle there for the 78th anniversary. I’ll send you the link to the video when it is finished.
In the meantime, I will be posting my options training course over the next ten days. We have recently taken in a large number of new subscribers and they will need to be instructed on the basics. Some of you veterans may have also forgotten what’s important so you should probably give a read as well.
I’ll be back on February 8 after an endless series of 42 hours of flights.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
I asked Anthony Scaramucci, CEO and founder of Skybridge Capital, why we should attend his upcoming SALT conference point-blank.
“It’s going to be exciting,” he said.
“How exciting?” I enquired.
“I’ve invited former White House chief of staff General John F. Kelley to be my keynote speaker.” General Kelley, an old friend from my Marine Corps days, fired Anthony after only eight days on the job as Donald Trump’s Press Secretary.
“That’s pretty exciting,” I responded. “Humble too.”
This was the answer that convinced me to attend the May 7-10 SkyBridge Alternative asset management conference (SALT) at the Las Vegas Bellagio Hotel. You all know the Bellagio. That is the casino that was robbed in the iconic movie Oceans 11.
That is not all Scaramucci had to offer about the upcoming event, known to his friends since his college days as “The Mooch”.
Among the other headline, speakers are former UN ambassador Nikki Haley, AOL Time Warner founder Steve Case, artificial intelligence guru Dr. Kai-fu Lee who I have written about earlier, and Carlyle Group co-founder David Rubenstein.
SALT will give seasoned investors to update themselves on the hundreds of alternative investment strategies now in play in the market, raise or allocate money, meet fascinating people, and just plain have fun. Some SkyBridge services accept client investments as little as $25,000. Their end of conference party is legendary.
SkyBridge is led by Co-Managing Partners Anthony Scaramucci and Raymond Nolte. Ray serves as the Firm’s Chief Investment Officer and Chairman of the Portfolio Allocation and Manager Selection Committees. Anthony focuses on strategic planning and marketing efforts.
While I had “The Mooch” on the phone, I managed to get him to give me his 30,000-foot view of the seminal events affecting markets today.
The proliferation of exchange-traded funds and algorithms will end in tears. There are now more listed ETFs than listed stocks, over 3,500.
The normalizing of interest rates is unsustainable, which have been artificially low for ten years now. One rise too many and it will crash the market. The next quarter-point rise could be the stick that breaks the camel’s back (an appropriate metaphor for a desert investment conference).
However, rising rates are good for hedge funds as they present more trading opportunities and openings for relative outperformance, or “alpha.”
There has been a wholesale retreat of investment capital from the markets, at least $300 billion in recent years. The end result will be much higher volatility when markets fall as we all saw in the Q4 meltdown until this structural weakness has been obscured by ultra-low interest rates. The good news is that banks are now so overcapitalized that they will not be at risk during the next financial crisis.
Ever the contrarian and iconoclast, Scaramucci currently has no positions in technology stocks. He believes the sector has run too far too fast after its meteoric 2 ½ year outperformance and is overdue for a rest. Earnings need to catch up with prices and multiples.
What is Anthony’s favorite must-buy stock today? Berkshire Hathaway (BRK/A), run by Oracle of Omaha Warren Buffet, is almost a guarantee to outperform the market. Scaramucci has owned the shares in one form or another for over 25 years.
While emerging markets (EEM) are currently the flavor of the day, Anthony won’t touch them either. The accounting standards and lack of rule of law are way too lax for his own high investment standards.
SkyBridge is avoiding the 220 IPOs this year which could total $700 billion. Many of these are overhyped with unproven business models and inexperienced management. The $100 billion in cash they actually take out of the market won’t be enough to crash it.
SkyBridge Capital is a global alternative investment firm with $9.2 billion in assets under management or advisement (as of January 31, 2019). The firm offers hedge fund investing solutions that address a wide range of market participants from individual investors to large institutions.
SkyBridge takes a high-conviction approach to alpha generation expressed through a thematic and opportunistic investment style. The firm manages multi-strategy funds of hedge funds and customized separate account portfolios, and provides hedge fund advisory services. SkyBridge also produces a large annual conference in the U.S. and Asia known as the SkyBridge Alternatives Conference (SALT).
Finally, I asked Anthony, if he were king of the world what change would he make to the US today? “If I could wave a magic wand, I would reduce partisanship,” he replied. “It prevents us from being our best.” Will he ever go back into politics again? “Never say never,” he shot back wistfully.
With that, I promised to give him a hug the next time I see him in Vegas which I have been visiting myself since 1955 during the rat pack days.
To learn more about SkyBridge, please visit their website here.
To obtain details about the upcoming May 7-10 SALT conference at the Bellagio Hotel in Las Vegas, please click here. Better get a move on. Their discount pricing for the event ends on March 15. Institutional Investors are invited free of charge.
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Sydney Australia at 12:30 PM on Tuesday, February 4, 2020.
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, energy, and real estate.
And to keep you in suspense, I’ll be throwing a few surprises out there too.
Tickets are available for $233.
The lunch will be held at an exclusive downtown hotel the details of which will be emailed with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research. To purchase tickets for this luncheon, please click here.
Occasionally, I discover a piece of research from one of my other Mad Hedge publications that is so important that I send it out to everyone immediately.
Today piece from the Mad Hedge Biotech & Health Care Letter is one of the instances. It makes the case and provides the numbers as to why Biotech & Health Care will be one of two dominant sector to follow for the next decade. It also is a key plank in my argument for a return of a new Golden Age and a second “Roaring Twenties.”
Here it is.
Biotech investors, take note: 2019 was a great year for the industry, but the best is yet to come.
In the final three months of 2019, the biotech sector grew by 32% -- notably outpacing the pharmaceutical industry, which only recorded a 9.5% gain.
However, the biotechnology sector is estimated to grow substantially in 2020, and reach over $775 billion in revenue by 2024 as more and more treatments for previously incurable diseases get discovered.
Looking at all the progress in the biotechnology space, this could even be the year we’d finally discover the cure to many life-threatening and debilitating conditions like cancer and Alzheimer’s disease.
With all these technological advancements, two revolutionary tools have been overhauling the entire biotechnology and healthcare industry from the ground up: precision medicine and CRISPR. Actually, the impressive growth of the biotechnology industry has been largely attributed to the excitement generated by the gene-editing sector.
While the majority of companies concentrating on the human genome are still in the research phase, the growth of this industry is undeniable.
Here’s tangible proof.
Just 20 years ago, reading all the DNA of a single person cost approximately $3 billion. Now, this price is down to only $1,000. In the future, this number will go even lower at $100. There are now gigantic factories in China sequencing DNA for companies like Ancestry.com and 23andMe.
This is just one example of how the biotechnology industry has grown by leaps and bounds. It’s also the reason behind the surge of CRISPR shares.
In effect, the specialists in this niche, including Crispr Therapeutics (CRSP), Bluebird Bio (BLUE), and Editas Medicine (EDIT), are amplifying their efforts in 2020.
Among the specialist companies, CRISPR Therapeutics is considered as one of the frontrunners -- if not the top stock. This is because compared to its rivals, which are still in preclinical phases of development, CRISPR Therapeutics’ already has two drugs going through Phase 1 trials: CTX001 and CTX110.
The promising results of the company’s research resulted in a 113% rise in shares last year, with the bulk of the surge starting in October. In fact, CRISPR Therapeutics’ performance had been so impressive that its market cap reached $3.4 billion.
CTX001 is created to target patients suffering from genetic blood disorders, specifically sickle-cell disease and transfusion-dependent beta-thalassemia.
Meanwhile, CTX110 is a CAR-T treatment. The process involves the extraction of immune cells from the patient. These are then retrained and later re-introduced to the human body.
CRISPR Therapeutics’ CAR-T treatment is anticipated to be offered at a cheaper price compared to the other CAR-T therapies.
Both Novartis (NVS) and Gilead Sciences (GILD) are pursuing the same treatment. However, the cost of the therapy from the latter two is expected to reach as much as $475,000 for every patient annually.
Apart from CTX001 and CTX110, CRISPR Therapeutics has two more immunology candidates, currently dubbed CTX120 and CTX130.
If both phase trials succeed, these will bring massive home runs for CRISPR Therapeutics, especially since the cancer immunology market is expected to reach $127 billion by 2026. Over the next 10 years, this niche is estimated to reach $25 trillion in sales.
Among the gene-editing treatments under development today, CRISPR is projected to grow tenfold in the number of applications and potentially curing 89% of disease-causing genetic variations by 2026.
Taking this pace into consideration, the valuation for this market is expected to grow from $551 million in 2017 to reach roughly $3.1 billion by 2023 and $6 billion by 2025.
Meanwhile, precision medicine as a whole is estimated to show a significant jump from $48.6 billion in 2018 to $84.6 billion by 2024. In 2028, this market is expected to rake in $216 billion.
Hence, further success with CTX001 and CTX110 along with additional treatments in the drug pipeline would all but guarantee that Crispr Therapeutics could beat the market again in 2020.
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Luncheon, which I will be conducting in Brisbane, Australia on Monday, February 3, 2020 at 12.30 PM.
An excellent meal will be followed by a wide-ranging discussion and a question-and-answer period. I’ll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, energy, and real estate.
I also hope to provide some insight into America’s opaque and confusing political system. And to keep you in suspense, I’ll be throwing a few surprises out there too.
Tickets are available for $234.
The lunch will be held at an exclusive hotel in downtown Brisbane, the location of which will be emailed with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research. To purchase tickets for this luncheon, please click here.
Let me make this clear.
My forecast for the Dow Average for 2030 is 120,000, which I have been predicting since the market bottomed in March, 2010, up 313% from here.
My problem is that so many people have recently come over to my own line of thinking that it has become impossible for me to take advantage of it.
The only chance you had to get into the market in 2020 was when the president ordered the execution of an Iranian general. Even then, the Dow dropped only 400 points, a miniscule 1.4%, and the Mad Hedge Market Timing Index backed off a smidgen, from 93 to 87. It then took off again like a scalded chimp.
Every professional trader I know to a man and woman is out of the market, stunned by euphoria run amok. We all know this ends in tears. The only question is how many pennies you can pick up before the steamroller runs you over. Option implied volatilities are at five-year lows, never a good place to trade.
I’ve been telling big hedge funds to give control of their funds over to their youngest, least experienced, and dumbest traders. It is only they who can make money in this environment, those who have never seen markets go down. I gave the same advice in 2007, 1999, and 1987. Before that, nobody cared what I thought.
So there is nothing left for us to do here but exercise rock-solid discipline, while many others are dancing on the tables. You can take solace in the knowledge that those buying stocks here will be puking them back out when markets are down 5%-10%. Whether that takes place next week or next month is anyone’s guess.
US stocks have risen 40% in 12 months on falling earnings, taking earnings multiples from 14 to 20. And the Volatility Index (VIX) stands at a near-decade low of $12. Am I missing something?
Risk is extreme, with Wharton’s Uber bull, Jeremy Siegal expecting the Dow Average to hit 30,000 in the next ten days. The top five stocks are posting most of the gains. With the Mad Hedge Marketing Timing Index at a lofty 93 last week, how many pennies can you pick up in front of the steamroller? I’m staying in cash with a small long volatility position I bought at a half-decade low.
It’s Q4 Earnings Season, with the big banks kicking off on Tuesday, generally bringing in satisfying result. Will aggregate earnings be flat or show a small gain? Most companies have already cut forecasts enough so 80% will beat predictions. The problem is how much is in the price?
Tesla hit $550, as the stock continues its parabolic run. It’s definitely getting overcooked here with a nonstop $320 run since June. Look for a Q1 sales pullback as the steroids of the rush to beat the 2019 end of federal subsidies wears off. That will be your next chance to buy. My decade target is $2,500 a share.
The Big biotech & healthcare conference last week in San Francisco organized by JP Morgan usually marks an interim top for this sector. If you need short term profits, better now than never. Some of our names have doubled and many are up 25% since the launch of the Mad Hedge Biotech & Healthcare Letter in September. Click here to subscribe.
US Consumer Prices rose in December, up 0.2%, following hotter months. The CPI is up a miniscule 2.3% YOY. With inflation moderating, Goldilocks lives!
Blackrock says climate change will remake investment. The $7 trillion manager is rolling out a new line of ETFs focusing on ESG, or Environmental, Social, and Governance investing. ESG has risen from 1% to 3.6% of all funds in a year. Investing in traditional carbon-based companies is essentially banned.
The Trade wars are still costing us money, with the World Bank cutting growth forecasts for 2020 and 2021. Almost every economic data point is weaker than two years ago. Only jobs remain robust. The Fed says that manufacturing has been hardest hit. How long will the pain continue?
Student debt tops $1.6 trillion making it the next subprime crisis. Most borrowers are only paying monthly interest and not a penny towards principal. That’s millions of consumers that are out of the economy and not spending. I paid off my loans 40 years ago with a single check. The loan officer asked, “You want to do what!?”
Housing starts soared to a 13-year high, up a blockbuster 16.9% in December to 1.608 million units. The industry is cashing in on massive Fed expansion of the monetary base and ultra-low interest rates. Buyers recently enrich by rocketing stock prices are stepping up as the “wealth effect” explodes.
My Global Trading Dispatch performance held steady at +356.91% for the past ten years, an all-time high. My 2019 year-to-date came in at a final +55.86%. We closed out December with a market beating +4.97% profit. My ten-year average annualized profit ground back up to +35.28%.
Option values are at five years low, making the call and put spreads I usually do the least attractive since 2015. My true risk-free trades take place when the Volatility Index (VIX) rises above $20. It has been hugging $12 for the past two weeks.
You don’t need me, or any other advisor, when markets rise every day. When they don’t, you financial life depends on me.
The coming week will be pretty dismal on the data front, with a national holiday and some other minor releases.
On Monday, January 20, market was closed for Martin Luther King Day.
On Tuesday, January 21, no data releases of note take place.
On Wednesday, January 22, at 8:00 AM, Existing Home Sales for December are out, the most important housing number of the month.
On Thursday, January 23 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, January 24, The Baker Hughes Rig Count is released at 2:00 PM.
As for me, I spent Saturday hiking 12 miles around San Francisco with 20 Boy Scouts, instructing them on the finer points of navigating by compass. I found a lot of lesser sights I had never seen before and stumbled across several charming postage stamp-sized community parks. We ended up at Ghirardelli Square where we consumed a celebratory hot fudge sundae.
And what did we come across during our explorations? A naked man with a selfie stick walking down the Embarcadero making a YouTube video!
Only in San Francisco.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
