Global Market Comments
June 4, 2019
Fiat Lux
Featured Trade:
(WEDNESDAY, JUNE 26 SYDNEY, AUSTRALIA STRATEGY LUNCHEON)
(TEN UGLY MESSAGES FROM THE BOND MARKET),
(TLT), (TBT), (USO), (GLD), (GS), (SPY)
Global Market Comments
June 3, 2019
Fiat Lux
Featured Trade:
(MONDAY, JUNE 24 MELBOURNE, AUSTRALIA STRATEGY LUNCHEON)
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR WHAT A WASTE OF TIME!),
(SPY), ($INDU), (JPM), (MSFT), (AMZN), (TSLA)
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Update which I will be conducting in Melbourne, Australia on Monday, June 24, 2019 at 1:15 PM.
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.
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 $232.
I’ll be arriving at 1:00 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a downtown five-star 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.
Global Market Comments
May 31, 2019
Fiat Lux
Featured Trade:
(FRIDAY, JUNE 21 AUCKLAND, NEW ZEALAND GLOBAL STRATEGY LUNCH)
(MAY 29 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (SDS), (SPX), (FXI), (CYB), (PYPL), (SQ), (V), (AMEX), (MC), (GS), (JPM), (C), (NVDA), (MU), (AMD), (COPX), (FXB) (REMX)
May 29 Biweekly Strategy Webinar Q&A
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader May 29 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Why haven’t you added any short positions?
A: My floor is littered with trade alerts on short positions that didn’t get executed because the market fell apart too fast. In fact, that happened just yesterday; I tried to buy the Russel 2000 June $155-$160 vertical bear put spread but the rally only lasted essentially 10 minutes so there was no way to get it off.
Q: Would you buy United States US Treasury Bond Fund (TLT) at this point?
A: Please, have you learned nothing? A ten-point move up in weeks is where you sell, not buy! We last bought the (TLT) at $118 and we’re now at $130. The idea of buying on top of a ten-point rally is a great way to simply throw away money. So, no, I would not buy the (TLT) at this point.
Q: What is your opinion on the Fed backstopping the market with accommodative policy stance?
A: The bond futures are already indicating a 50% chance of a half-point rate cut by the end of the year, and an 88% chance of a 25-basis point cut by the end of the year. So, the market is already doing what the Fed should do and it’s having no impact whatsoever. If we’re really going into a recession, the Fed can take interest rates to zero and still it will provide no support for stocks because 1) Interest rates have been so low for so long, they’re no longer much of a factor in the economy 2) Falling stocks trump cheap money all day long, and if earnings are collapsing because of the trade war (which they are), even negative interest rates from the Fed wouldn’t support the market. I have a feeling that’s what we’re rolling into this summer.
Q: What is your target for the bond on the upside and the downside on yield?
A: My immediate target is $133 on the (TLT). That’s where I might entertain a short position, but even then, it would be something very cautious like the June $137-$140 vertical bear put spread. And my downside yield target is 2.05%—that’s only 15 basis points away, or three full points in the (TLT). So, we’re getting close to the most extreme upside targets in the bond market.
Q: Would you buy the ProShares Ultra Short S&P 500 ETF (SDS)?
A: Yes, but only on a rally—now would be a terrible time. We could get a rally into the month's end on Friday. If we do, selling the close or buying the -2X inverse bear (SDS) would be a good idea. If the (SPX) recovers one third of its recent loss, or 65 points from yesterday’s low, that would be a good entry point on the short side. Up two-thirds and you double up. Above that and you’re wrong.
Q: Copper producer Freeport McMoRan (FCX) is lagging again; is it time to buy?
A: No, FCX is getting slaughtered by collapsing copper demand from a slowing Chinese economy. You should note that if the Chinese say growth is at 6%, what you’re really looking at is more likely growth of about 3%. These are some of the lowest growth rates China has seen 20-25 years.
Q: CNBC and FOX are claiming today’s drop was caused by the Mueller statement on his report. Do you buy that?
A: No, absolutely not. That’s absolute garbage. The only important or relevant news for me right now is the whole trade war news flow.
Q: I know you’re not crazy about selling naked options, but I just sold 50 X Tesla (TSLA) August $100 puts for $20,000 in premium. I like this trade for income and would gladly own Tesla at a $100 long-term.
A: I would do that trade all day long. The only issue there is whether you have the margin to hold the position like this if you get a move all the way down to say $150 or $125, because margin requirements tend to double and triple when markets start to fall sharply. Sounds like you are a Tesla owner. The S, the X, or the 3?
Q: What is your gut feeling on which trade issues will actually resolve?
A: None. The Chinese (FXI) are actually in a very strong position. They would settle for going back to the status quo as of two years ago and nothing else. The U.S. is only 25% of the world economy, and China is still trading with the other 75%; they feel they can withstand the rest of the current presidential term.
Q: Banks are performing terribly—is this a chance to get in?
A: No, banks will continue to perform terribly. We now have an inverted yield curve during which banks basically lose money hand or fist. They’re also being replace by Fintech, which is PayPal (PYPL), Square (SQ), and all the credit card companies. I would much rather own a Visa (V), American Express (AMEX), or Mastercard (MC) than Goldman Sachs (GS), JP Morgan (JPM) or Citibank (C). That’s where the money is going.
Q: Is it time to start adding chip stocks like Nvidia (NVDA), Micron Technology (MU) and Advanced Micro Devices (AMD)?
A: No, this sector really looks like it wants to retest the December lows—chip prices are falling off a cliff, and the Chinese are banning the import of specific American made chips. It’s a major predictor of global recession and victim of the global trade war. Given that companies like Micron get 50% of their business from China, that is not good news. This has the makings of a major meltdown.
Q: Would you put on the same Tesla vertical bull call spread right here? The June $140-$150?
A: Yes, I would. Now it’s even lower risk because you have only 17 days left until the June 21 expiration.
Q: When will gold start to perform?
A: I’m not sure. With all the horrible things going on in the world right now, it’s just not happening. I don’t know why, but I think it eventually will. Gold is now trading like a commodity and not a precious metal. It’s tracking perfectly with other commodities like copper (COPX), which have been terrible. I think the market is wrong, but I don’t know when it will turn around.
Q: How can one short the Chinese currency, the yuan?
A: Very simple. The Wisdom Tree Chinese Yuan Strategy Fund (CYB) is the ETF on yuan, so just sell short the (CYB).
Q: If Trump caves on the trade deal, what effect will that have on things?
A: If the cave comes in the form of a treaty-like agreement that gets signed, the market will rally. Presumably, all the 25% punitive tariffs will disappear immediately, and we should have a big resurgence in the economy. Otherwise, it will continue to weaken. We need a Chinese trade deal to pull the US economy out of an imminent recession.
Q: What happens to the pound (FXB) in a hard Brexit?
A: If there is a “No Deal”, Brexit the United Kingdom would be committing economic suicide. It would gain no preferential tariffs outside the European Community. In that case, the pound goes to parity against the dollar, or 1:1. The last time that happened in 1984, I bought a mansion in London next door to Jacob Rothschild for $500,000. Today it is worth $20 million. Maybe you should do the same.
Q: Is it a good time to invest in rare earth metals?
A: Yes, but the second the trade war ends, those things are going to collapse. And as we’ve learned during the last 8-year bear market in the rare earths, liquidity is terrible on the down side. Take a look at the Van Eck Vectors rare Earth/Strategic Metals ETF (REMX). It was issued at the top of the last bubble and is up 15.67% since the trade war escalated.
Good luck and Good trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
"I think this is about Russia reasserting itself on the international stage, basically saying that Russia is back and is a force to be reckoned with. I think we underestimated for a long time the extent of the humiliation that Russians felt after the collapse of the Soviet Union," said former Secretary of Defense and CIA head Robert M. Gates.
Global Market Comments
May 30, 2019
Fiat Lux
Featured Trade:
(FRIDAY, JULY 19 ZERMATT, SWITZERLAND STRATEGY SEMINAR)
(HOW THE MAD HEDGE MARKET TIMING ALGORITHM TRIPLED MY PERFORMANCE),
(TESTIMONIAL)
“The car business is hell,” said founder Elon Musk when announcing he would sleep in the Fremont Tesla factory until Model S production reached 2,500 units a week.
Global Market Comments
May 29, 2019
Fiat Lux
Featured Trade:
(WEDNESDAY, JULY 10 BUDAPEST, HUNGARY STRATEGY LUNCHEON)
(ONSHORING TAKES ANOTHER GREAT LEAP FORWARD),
(TSLA), (UMX), (EWW),
(KISS THAT UNION JOB GOODBYE),
Have you tried to hire a sewing machine operator lately?
I haven’t, but I have friends running major apparel companies who have (where do you think I get all those tight-fitting jeans?).
Guess what? There aren’t any to be had.
Since 1990, some 77% of the American textile workforce has been lost, when China joined the world economy in force, and the offshoring trend took flight.
Now that manufacturing is, at last, coming home, the race is on to find the workers to man it.
Welcome to onshoring 2.0.
The development has been prompted by several seemingly unrelated events.
There is an ongoing backlash to several disasters at garment makers in Bangladesh, the current low-cost producer which have killed thousands.
Today’s young consumers want to look cool but have a clean conscience as well. That doesn’t happen when your threads are sewn together by child slave laborers working for $1 a day.
Several firms are now tapping into the high-end market where the well-off are willingly paying top dollar for a well-made “Made in America” label.
Look no further than 7 For All Mankind, which is offering just such a product at a discount to all recent buyers of the Tesla Model S-1 (TSLA), that other great all-American manufacturer.
As a result, wages for cut-and-sew jobs are now among the fastest growing in the country, up 13.2% in real terms since 2007, versus a paltry 1.4% for the industry as a whole.
Apparel industry recruiters are plastering high schools and church communities with flyers in their desperate quest for new workers.
They advertise in languages with high proportions of blue-collar workers, such as Spanish, Somali, and Hmong.
New immigrants are particularly being targeted. And yes, they are resorting to the technology that originally hollowed out their industry, creating websites to suck in new applicants.
Chinese workers now earn $3 an hour versus $9 plus benefits at the lowest paying U.S. factories.
But the extra cost is more than made up for by savings in transportation and logistics, and the rapid time to market.
That is a crucial advantage in today’s fast-paced, high-turnover fashion world. Some companies are even returning to the hiring practices of the past, offering free training programs and paid internships.
By now, we have all become experts in offshoring, the practice whereby American companies relocate manufacturing jobs overseas to take advantage of low wages, missing unions, the lack of regulation, and the paucity of environmental controls.
The strategy has been by far the largest source of new profits enjoyed by big companies for the past two decades.
It has also been blamed for losses of U.S. jobs, with some estimates reaching as high as 25 million.
When offshoring first started 50 years ago, it was a total no-brainer.
Wages were sometimes 95% cheaper than those at home. The cost savings were so great that you could amortize your total capital costs in as little as two years.
So American electronics makers began filing overseas to Singapore, Thailand, Hong Kong, Taiwan, South Korea, and the Philippines.
After the U.S. normalized relations with China in 1978, the action moved there and found that labor was even cheaper.
Then, a funny thing happened. After 30 years of falling real American wages and soaring Chinese wages, offshoring isn’t such a great deal anymore. The average Chinese laborer earned $100 a year in 1977.
Today, it is $6,000, and $26,000 for trained technicians, with total compensation still rising 20% a year. At this rate, U.S. and Chinese wages will reach parity in about 10 years.
But wages won’t have to reach parity for onshoring to accelerate in a meaningful way. Investing in China is still not without risks.
Managing a global supply chain is no piece of cake on a good day. Asian countries still lack much of the infrastructure that we take for granted here.
Natural disasters such as earthquakes, fires, and tidal waves can have a hugely disruptive impact on a manufacturing system that is in effect a highly tuned, incredibly complex watch.
There are also far larger political risks keeping a chunk of our manufacturing base in the Middle Kingdom than most Americans realize. With the U.S. fleet and the Chinese military playing an endless game of chicken off the coast, we are one midair collision away from a major diplomatic incident.
Protectionism constantly threatens to boil over in the U.S., whether it is over the dumping of chicken feet, tires, or the latest, solar cells.
This is what the visit to the Foxconn factory by Apple’s CEO Tim Cook was all about. Be nice to the workers there, let them work only 8 hours a day instead of 16, let them unionize, and guess what?
Work will come back to the U.S. all the faster. The Chinese press was ripe with speculation that Apple-induced reforms might spread to the rest of the country like wildfire.
The late General Motors (GM) CEO Dan Adkerson once told me his company was reconsidering its global production strategy in the wake of the Thai floods.
Which car company was most impacted by the Japanese tsunami? General Motors, which obtained a large portion of its transmissions there.
The impact of a real onshoring move on the U.S. economy would be huge. Some economists estimate that as many as 10% to 30% of the jobs lost to offshoring could return.
At the high end, this could amount to 8 million jobs. That would cut our unemployment rate down by half, at least.
It would add $20 billion to $60 billion in GDP per year or up to 0.4% in economic growth per year.
It would also lead to a much stronger dollar, rising stocks, and lower bond prices. Is this what the stock market is trying to tell us by failing to have any meaningful correction for the past 2 ½ years?
Who would be the biggest beneficiaries of an onshoring trend? Si! Ole! Mexico (UMX) (EWW), which took the biggest hit when China started soaking up all the low-wage jobs in the world.
After that, the industrial Midwest has to figure pretty large, especially gutted Michigan. With real estate prices there under their 1992 lows, if there is a market at all, you know that doing business there costs a fraction of what it did 20 years ago.
