"Savers are losers," said a radio ad for a mortgage broker in Reno, Nevada.
Global Market Comments
August 27, 2019
Fiat Lux
Featured Trade:
(FIVE STOCKS TO BUY AT THE BOTTOM),
(AAPL), (AMZN), (SQ), (ROKU), (MSFT),
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD)
(AAPL)
With the Dow Average down 2,000 points in four weeks, you are being given a second bite of the apple before the yearend tech-led rally begins.
So, it is with great satisfaction that I am rewriting Arthur Henry’s Mad Hedge Technology Letter’s list of recommendations.
By the way, if you want subscribe to Arthur’s groundbreaking, cutting edge service, please click here at https://hi290.infusionsoft.com/app/orderForms/tl-sub
It’s the best read on technology investing in the entire market.
You don’t want to catch a falling knife, but at the same time, diligently prepare yourself to buy the best discounts of the year.
The China trade war has triggered a tsunami wave of selling, tearing apart the tech sector with a vicious profit-taking few trading days.
No doubt that asset managers are frantically locking in profits for the rest of the year and protecting ebullient performance from a first quarter to remember.
This week shouldn’t deter investors from picking up bargains that were non-existent since December because the bulk of the highest quality tech names churned higher with lurching momentum.
Here are the names of five of the best stocks to slip into your portfolio in no particular order once the madness subsides.
Apple
Steve Job’s creation is weathering the gale-fore storm quite well. Apple has been on a tear reconfirming its smooth pivot to a software services-tilted tech company. The timing is perfect as China has enhanced their smartphone technology by leaps and bounds.
Even though China cannot produce the top-notch quality phones that Apple can, they have caught up to the point where local Chinese are reasonably content with its functionality.
That hasn’t stopped Apple from vigorously growing revenue in greater China 20% YOY during a feverishly testy political climate that has their supply chain in Beijing’s crosshairs.
The pivot is picking up steam and Apple’s revenue will morph into a software company with software and services eventually contributing 25% to total revenue.
They aren’t just an iPhone company anymore. Apple has led the charge with stock buybacks and will gobble up a total of $150 billion in shares by the end of 2019. Get into this stock while you can as entry points are few and far between.
Amazon (AMZN)
This is the best company in America hands down and commands 5% of total American retail sales or 49% of American e-commerce sales.
It became the second company to eclipse a market capitalization of over $1 trillion. Its Amazon Web Services (AWS) cloud business pioneered the cloud industry and had an almost 10-year head start to craft it into its cash cow. Amazon has branched off into many other businesses since then oozing innovation and is a one-stop wrecking ball.
The newest direction is the smart home where they seek to place every single smart product around the Amazon Echo, the smart speaker sitting nicely inside your house. A smart doorbell was the first step along with recently investing in a prefab house start-up aimed at building smart homes.
Microsoft (MSFT)
The optics in today look utterly different from when Bill Gates was roaming around the corridors in the Redmond, Washington headquarter, and that is a good thing in 2019.
Current CEO Satya Nadella has turned this former legacy company into the 2nd largest cloud competitor to Amazon, and then some.
Microsoft Azure is rapidly catching up to Amazon in the cloud space because of the Amazon-effect working in reverse. Companies don’t want to store proprietary data to Amazon’s server farm when they could possible destroy them down the road. Microsoft is mainly a software company and gained the trust of many big companies especially retailers.
Microsoft is also on the vanguard of the gaming industry taking advantage of the young generation’s fear of outside activity. Xbox-related revenue is up 36% YOY, and its gaming division is a $10.3 billion per year business.
Microsoft Azure grew 87% YOY last quarter. The previous quarter saw Azure rocket by 98%. Shares are cheaper than Amazon and almost as potent.
Square (SQ)
CEO Jack Dorsey is doing everything right at this fin-tech company blazing a trail right to the doorsteps of the traditional banks.
The various businesses they have on offer makes me think of Amazon’s portfolio because of the supreme diversity. The Cash App is a peer-to-peer money transfer program that cohabits with a bitcoin-investing function on the same smartphone app.
Square has targeted the smaller businesses first and is a godsend for these entrepreneurs who lack immense capital to create a financial and payment infrastructure. Not only do they provide the physical payment systems for restaurant chains, they also offer payroll services and other small loans.
The pipeline of innovation is strong with upper management mentioning they are considering stock trading products and other bank-like products. Wall Street bigwigs must be shaking in their boots.
The recently departed CFO Sarah Friar triggered a 10% collapse in share price on top of the market meltdown. The weakness will certainly be temporary, especially if they keep doubling their revenue every two years like they have been doing.
Roku (ROKU)
Benefitting from the broad-based migration from cable TV to online streaming and cord-cutting, Roku is perfectly placed to delectably harvest the spoils.
This uber-growth company offers an over-the-top (OTT) streaming platform along with the necessary hardware and picks up revenue by selling digital ads.
Founder and CEO Anthony Woods owns 21 million shares of his brainchild and insistently notes that he has no interest in selling his company to a Netflix or Apple.
Roku’s active accounts mushroomed 46% to 22 million in the second quarter. Viewers are reaffirming the obsession with on-demand online streaming content with hours streamed on the platform increasing 58% to 5.5 billion.
The Roku platform can be bought for just $30 and is easy to set up. Roku enjoys the lead in the over-the-top (OTT) streaming device industry controlling 37% of the market share leading Amazon’s Fire Stick at 28%.
The runway is long as (OTT) boxes nestle cozily in only 40% of American homes with broadband, up from a paltry 6% in 2010.
They are consistently absent from the backbiting and jawboning the FANGs consistently find themselves in partly because they do not create original content and they are not an offshoot from a larger parent tech firm.
This growth stock experiences the same type of volatility as Square.
Be patient and wait for 5-7% drops to pick up some shares.
You Have to Know Which Flowers to Pick
Global Market Comments
August 26, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TWEET THAT SANK A THOUSAND SHIPS),
(SPY), (TLT), (GOOGL), (FB), (DIS), MSFT), (WMT), (IWM)
I always wondered who the enemy was. Now, I know.
Not only is Fed governor Jerome Powell responsible for the upcoming recession, I also heard he fixed the 1918 World Series where the Chicago White Sox deliberately lost.
And come to think of it, Jack the Ripper and D.B Cooper were never caught either. If Tweets are to be believed, the Fed now needs to seek guidance from the president before any subsequent policy decision.
It all reminds me of the last days of the Third Reich when Adolph Hitler was ordering into action divisions that no longer existed.
And I love all of it.
An 850 point top to bottom swan dive in the Dow Average vaporized all my short positions, which I had put on days ago for just this eventuality. It also allowed me to get back into Microsoft (MSFT) down $5, which I have been struggling to get back into for months.
My only miss of the month has been in Gold (GLD), whose move continues to be so parabolic that I haven’t been able to get you, or me, into it.
No doubt the administration will respond with another charm offensive, as this did this week, and ignite another ferocious short-covering rally.
The harsh truth is that confidence is eroding by the day. And the escalating talk of a recession can, in itself, cause a recession. So much depends on belief when share price earnings multiples are trading at a lofty 17X. But it is all looking increasingly like a little boy trying to head off a flood by holding his finger in a hole in a dike.
There’s no more waiting to see if the trade war escalates again on September 1. We already have the answer. It now appears we have instant escalation all the time with every Tweet. It’s not exactly what I want to bet my retirement fund on.
I have been getting questions as to why I have been adding long positions with the outlook so grim. For a start, these positions are all triply hedged.
I’m long a call against a short call with an identical maturity. I have low beta long positions hedged against high beta short positions. And finally, I don’t think we can break down below the 200-day moving average in the major indexes until the September 20 Fed meeting when they FAIL to cut interest rates again because the data isn’t there yet.
The net, net, net of all of this is that my portfolio can take a 1,000-point hit in the Dow Average and its no big deal.
And don’t forget. Ultra-low interest rates will put a higher floor under the market than we have seen in past selloffs.
I pray the insanity keeps up (did I hear a reference to the Messiah the other day?) because it is allowing me to ship out Trade Alerts as fast as I can write them.
Stocks rose briefly on German stimulus prospects. It's an idea imported from America, heavy borrowing and massive deficit spending to float the economy. It’s just what the world needs, more freshly printed money, like the last $17 trillion worked so well. It’s all confirmation that Europe is already in recession.
The US now has the world’s highest interest rates, at 3.60% for 30-year fixed-rate loans. Only the US offers loans of this duration, thanks to heavy government subsidies through Fannie Mae and Freddie Mac.
Floating rate loans in France are 1.39%, in Germany are 1.0%, Japan at 0.65%. In Denmark, banks will lend at a negative -0.50%. Yes, they will pay you to live in your house. But when you’re borrowing at -0.90% you can do that. Only China has higher interest rates, with an overnight at 4.60%. The irony runs deep.
Unsurprisingly, the Congressional Budget Office cut 0.3% off of its 2020 growth forecast and the US budget deficit will rise to a ruinous $1 trillion two years sooner than expected. Fading business investment and weakening consumer spending will be the problems. The trade war is also a drag. It’s funny how no one wants to spend in front of a recession.
“Mid Cycle Adjustment” is how the Fed described the last interest rates cut in minutes released on Wednesday. It makes further cuts less likely. So does a stock market trading 5% below all-time highs. They also mention the cut as an “insurance policy” not actually justified by the current economic data. Three weeks ago, the fed cut rates for the first time in a decade.
The Mad Hedge Trader Alert Service is posting its best month in two years. Some 22 of the last 23 round trips have been profitable, generating one of the biggest performance jumps in our 12-year history.
My Global Trading Dispatch has hit a new all-time high of 334.61% and my year-to-date shot up to +34.47%. My ten-year average annualized profit bobbed up to +34.62%.
I have coined a blockbuster 16.14% so far in August. All of you people who just subscribed in June and July are looking like geniuses. My staff and I have been working to the point of exhaustion, but it’s worth it if I can print these kinds of numbers.
As long as the Volatility Index (VIX) stays above $20, deep-in-the-money options spreads are offering free money. I am now 80% invested, 60% long big tech and 20% short, with 20% in cash. It rarely gets this easy.
The coming week will be a snore on the data front. Believe it or not, it could be quiet, as we grind through the last week of the summer.
On Monday, August 26 at 8:30 AM, US Durable Goods for July are out.
On Tuesday, August 27 at 9:00 AM, we get a new S&P Case Shiller National Home Price Index for June
On Wednesday, August 28, at 10:30, we learn the EIA Crude Oil Stocks for the previous week.
On Thursday, August 29 at 8:30 AM, the Weekly Jobless Claims are printed. July Pending Home Sales are published at 10:00 AM.
On Friday, August 30 at 10:00 AM, the University of Michigan Consumer Sentiment is printed.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, it will be a busy weekend with volunteer work at the Alameda Food Bank due and CPR training at the local fire department. I feel like I am getting my Eagle Scout rank all over again.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Time to Bring in the Heavy Guns
"They say when you get old, you become wise. The truth is that when you get old, all the people who know you are stupid are dead," said the late comedian Joan Rivers.
Global Market Comments
August 23, 2019
Fiat Lux
Featured Trade:
(AUGUST 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(FXB), (NVDA), (MU), (LRCX), (AMD),
(WFC), (JPM), (BIDU), (GE), (TLT), (BA)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader August 21 Global Strategy Webinar broadcast with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Hey Bill, how often have you heard the word “recession” in the last 24 hours?
A: Seems like every time I turn around. But then we’re also getting a pop in the market; we thought it bottomed a few days ago. The question was: how far were we going to get to bounce? This is going to be very telling as to what happens on this next rally.
Q: Can interest rates go lower?
A: Yes, they can go a lot lower. The general consensus in the US is that we bottom them out somewhere between zero and 1.0%. We’re already way below that in Europe, so we will see lower here in the US. It’s all happening because QE (quantitative easing) is ramping up on a global basis. Europe is about to announce a major QE program in the beginning of September, and the US ended their quantitative tightening way back in March. So, the global flooding of money from central banks, now at $17 trillion, is about to increase even more. That’s what’s causing these huge dislocations in the bond market.
Q: If we’re having trouble getting into trades, should we chase or not?
A: Never chase. Leave your limit in there at a price you’re happy with. Often times, you’ll get done at the end of the day when the high frequency traders cash out all their positions. They will artificially push up our trade alert prices during the day and take them right back down at the end of the day because they have to go 100% cash by the close of each day—they never carry overnight positions. That’s becoming a common way that people get filled on our Trade Alerts.
Q: Will Boris Johnson get kicked out before the hard Brexit occurs?
A: Probably, yes. I’m hoping for it, anyway. What may happen is Parliament forcing a vote on any hard Brexit. If that happens, it will lose, the prime minister will have to resign, and they’ll get a new prime minister. Labor is now campaigning on putting Brexit up to a vote one more time, and just demographic change alone over the last four years means that Brexit will lose in a landslide. That would pull England out of the last 4 years of indecision, torture, and economic funk. If that happens, expect British stock markets to soar and the pound (FXB) to go up, from $1.17 all the way back up to $1.65, where it was before the whole Brexit disaster took place.
Q: Is the US central bank turning into Japan?
A: Yes. If we go to zero rates and zero growth and recession happens, there’s no way to get out of it; and that is the exact situation Japan has been in. For 30 years they have had zero rates, and it’s done absolutely nothing to stimulate their economy or corporate profits. The question then—and one someone might ask Washington—is: why pursue a policy that’s already been proven unsuccessful in every country it’s been tried in?
Q: Will US household debt become a problem if there is a sharp recession?
A: Yes, that’s always a problem in recessions. It’s a major reason why financials have been in a freefall because default rates are about to rise substantially.
Q: Given the big spike in earnings in NVIDIA (NVDA), what now for the stock?
A: Wait for a 10% dip and buy it. This stock has triple in it over the next 3 years. You want to get into all the chip stocks like this, such as Micron Technology (MU), Lam Research (LRCX), and Advanced Micro Devices (AMD).
Q: Baidu (BIDU) has risen in earnings, with management saying the worst is over. Is this reality or is this a red herring?
A: I vote for A red herring. There’s no way the worst is over, unless the management of Baidu knows something we don’t about Chinese intentions.
Q: When will Wells Fargo (WFC) be out of the woods?
A: I hate the sector so I’m really not desperate to reach for marginal financials that I have to get into. If I do want to get into financials, it will be in JP Morgan (JPM), one of my favorites. The whole sector is getting slaughtered by low interest rates.
Q: Any idea when the trade war will end?
A: Yes, after the next presidential election. It’s not as if the Chinese are negotiating in bad faith here, they just have no idea how to deal with a United States that changes its position every day. It’s like negotiating with a piece of Jell-O, you can’t nail it down. At this point the Chinese have thrown their hands up and think they can get a better deal out of the next president.
Q: Would you short General Electric (GE) or wait for another bump up to short it?
A: I would wait for a bump. Obviously—with the latest accounting scandal, which compares (GE) with Enron and WorldCom—I don’t want to get involved with the stock. And we could get new lows once the facts of the case come out. There are too many better fish to fry, like in technology, so I would stay away from (GE).
Q: How do you put stop losses on your trade?
A: It’s a confluence of fundamentals and technicals. Obviously, we’re looking at key support levels on the charts; if those fail then we stop out of there. That doesn’t happen very often, maybe on 10% of our trades (and more recently even less than that). Our latest stop loss was on the (TLT) short. That was our biggest loss of the year but thank goodness we got out of that, because after we stopped out at $138 it went all the way to $146, so that’s why you do stop losses.
Q: How about putting on a (TLT) short now?
A: No, I think we’re going to new highs on (TLT) and new lows on interest rates. We’re just going through a temporary digestion period now. We’ll challenge the lows in rates and highs in prices once again, and you don’t want to be short when that happens. The liquidity is getting so bad in the bond market, you’re getting these gigantic gaps as a global buy panic in bonds continues.
Q: Do you have thoughts on what Fed Governor Powell may say in Jackson Hole, and any market reaction?
A: I have no idea what he might say, but he seems to be trying to walk a tightrope between presidential attacks and economic reality. With the stock market 3% short of an all-time high, I’m not sure how much of a hurry he will be in to lower interest rates. The Fed is usually behind the curve, lowering rates in response to a weak economy, and I’m not sure the actual data is weak enough yet for them to lower. The Fed never anticipates potential weakness (at least until the last raise) so we shall see. But we may have little volatility for the rest of the week and then a big move on Friday, depending on what he says.
Q: What is your take on the short term 6-18 months in residential real estate? Are Chinese tariffs and recession fears already priced in or will prices continue to drop?
A: Prices will continue to drop but not to the extent that we saw in ‘08 and ‘09 when prices dropped by 50, 60, 70% in the worst markets like Florida, Las Vegas, and Arizona. The reason for that is you have a chronic structural shortage in housing. All the home builders that went bankrupt in the last crash has resulted in a shortage, and you also have an immense generation of Millennials trying to buy homes now who’ve been shut out by higher interest rates and who may be coming back in. So, I’m not expecting anything remotely resembling a crash in real estate, just a slowdown. And new homes are actually not falling at all. That’s because the builders are deliberately restraining supply there.
Q: What is a good LEAP to put on now?
A: There aren’t any. We’re somewhat in the middle of a wider, longer-term range, and I want to wait until we get to the bottom of that; when people are jumping out of windows—that’s when you want to start putting on your long term LEAPS (long term equity anticipation securities), and when you get the biggest returns. We may get a shot at that sometime in the next month or two before a year in rally begins. If you held a gun to my head and told me I had to buy a leap, it would probably be in Boeing (BA), which is down 35% from its high.
Global Market Comments
August 22, 2019
Fiat Lux
Featured Trade:
(WHAT THE NEXT RECESSION WILL LOOK LIKE),
(FB), (AAPL), (NFLX), (GOOGL), (KSS), (VIX), (MS), (GS),
(TESTIMONIAL)
Global Market Comments
August 21, 2019
Fiat Lux
Featured Trade:
(WHY YOU MIISED THE TECHNOLOGY BOOM AND WHAT TO DO ABOUT IT NOW),
(AAPL), (AMZN), (MSFT), (NVDA), (TSLA), (WFC), (FB)