Global Market Comments
January 31, 2019
Fiat Lux
Featured Trade:
(MARKET GETS A FREE PASS FROM THE FED),
(SPY), ($INDU), (TLT), (GLD), (FXE), (UUP),
(APPLE SEIZES VICTORY FROM THE JAWS OF DEFEAT),
(AAPL)
When the Oxford English Dictionary considers the Word of the Year for 2019, I bet “PATIENCE” will be on the short list.
That was the noun that Federal Reserve governor Jerome Powell had in mind when describing the central bank's current stance on interest rates.
Not only did Powell say he was patient, he posited that the Fed was currently at a neutral interest rate. The last time he opened on this matter four months ago, the neutral rate was still 50 basis point higher, suggesting that more rate hikes were to come.
What a difference four months makes! The last time Powell spoke, the stock market crashed. Today, he might as well fire a flare gun signaling the beginning of a stampede by investors.
The Dow ($INDU) average at one point gained 500 points. Lower rates for longer term meant that bonds took it on the kisser. And gold (GLD) absolutely loved it as they now have less competition from interest-bearing instruments.
The US dollar (UUP) was taken out to the woodshed and beaten senseless paving the way for a nice pop in the euro (FXE). Even oil (USO) took the cue as cheaper interest rates mean a stronger global economy that will drink more Texas tea.
I believe that the Fed move today will definitely take a retest of the December 24 lows off the table for the time being. Now, if we can only get rid of that damn trade war with China, it will be off to the races for risk in general and stocks specifically.
What Did You REALLY Mean Jay?
After an almost 40% swan dive, Apple has found solid footing at these levels for the time being. 40% seems to be the magic number. Declines ALWAYS end at 40% with Apple.
About time!
It’s been an erratic last few months for the company that Steve Jobs built and this last earnings report will go a long way to somewhat stabilize the short-term share price.
The miniscule earnings beat telegraphs to investors that the bad news has been sucked out.
That is what Tim Cook wants the investor community to think.
But is he right?
I would argue that the bad news is over for the short-term but could rear its ugly head again later – it all rides on China’s shoulders.
Let’s take a look at the numbers.
Chinese revenue was down 27% YOY locking in $13.17 billion in quarterly revenue compared to $17.96 billion the prior year.
There is no two ways about this – it’s an awful number and a hurtful manifestation of the Chinese economy decelerating.
The unrelenting pressure of the geopolitical trade war has handcuffed Beijing’s drive to deleverage its balance sheet and steer its economy to a more consumption-supportive model.
China is lamentably back to its traditional ways - the old economy - infusing $2.2 trillion into its balance sheet along with cutting the reserve ratio for state banks hoping to incite economic growth.
Positive short-term catalyst but negative long-term consequences.
This is why I urged Apple lovers to stay away from this stock earlier because of the uncertainty of its current strategic position.
It makes no sense to place an indirect on the current Washington administration navigating a China soft landing.
As it stands, most of Apple’s supply chain is in China and moving it out will be done in piecemeal which is happening behind the scenes and will cause massive job loss in China further hurting the Chinese economy.
The ratcheting up of tensions signals the untenable end of American tech supply chains in China and no new foreign investment will pour into China.
Maybe even never.
I wholeheartedly blame CEO of Apple Tim Cook for not foreseeing this development.
That is what he is paid to do.
Then there is the issue of iPhone sales in China.
Chinese citizens aren’t buying iPhones because of three reasons.
The cohort of wealthy Chinese who can afford a $1,000 iPhone might think twice if they want to be seen outside with a product from a country that is becoming adversarial. Apple has incurred hard-to-quantify brand damage to its once pristine brand in a land that once worshipped the company.
The refresh cycle has elongated because Apple manufactures great smartphones and iPhone holders are waiting it out on the sidelines two or even three iterations down the road to upgrade because that is when they can unearth the relative value of the product.
Lastly, local Chinese smartphone markers have greatly enhanced their products because of a function of time and borrowed Western technology. It is now possible to buy a smartphone that offers around 80% of performance and functionality of an iPhone but for less than half the price.
The customers on the fence who once viewed iPhones as a must-buy are now migrating to the local Chinese competitor because they are a relatively good deal.
I can surmise that these three headwinds are just beginning and will become more entrenched over time.
If the trade war becomes worse, the brand damage will accelerate. iPhones are becoming incrementally better which will delay new iPhone upgrades unless something revolutionary comes out that requires customers to upgrade to be a part of the new technology.
And sadly, Chinese competition is catching up quicker than Apple can innovate and that will not stop.
However, the silver lining is that the worst-case scenario won’t happen in the next quarter and the market won’t get wind of this until the second half of the year.
Instead of a meaningful sell-off because of this earnings report, Cook chose to front-run the weakness by reporting the hideous performance at the beginning of January.
Cook knew he needed to come clean with the negative news and the reformulated projections that were re-laid a few weeks ago were the same ones that Apple barely beat by one cent on the bottom line by posting EPS of $4.18 and marginally on the top line by $420 million.
I am in no way saying that this was a great earnings report – it wasn’t.
Apple mainly delivered on the mediocrity that they discussed a few weeks ago lowering the bar to the point where it would be a failure of epic proportions if Apple couldn’t beat significantly revised down earnings.
Then the outlook for the next quarter wasn’t as bad as people thought, but that doesn’t mean it was good.
When you start playing the game of not as bad as the market thought – it is a slippery slope to head down and halfway to the CEO getting sacked down the road.
I mentioned before that the macro headwinds came 2 years too early for Cook and pegging 60% of company revenue to a smartphone which has trended towards mass commoditization is a bad bet.
Cook has been painstakingly slow rewriting Apple as a service company which is his current get-out-of-jail-free card dangling in front of him like a juicy carrot.
iPhone gross margin is now 34.3% which is lower than the other Apple products whose margins are 38%.
Their flagship product isn’t as profitable on a per-unit basis as it once was highlighting the necessity for refreshing the product lines with not just new iterations but game-changing products.
The type of products that Steve Jobs used to mushroom popularity would suffice.
Gross margins will continue to come down as the smartphone market is saturated and customers won’t buy iPhones now unless they receive a drastic price reduction.
The result is that Apple no longer publishes iPhone unit sales to conceal the worst number for their most important and volume-heavy product.
A little too late if you tell me and irresponsible to investor transparency if you ask me.
Apple Pay, Apple Music, and iCloud storage eclipsed $10.9 billion demonstrating a 19% YOY increase.
This shows that this company still has strengths, but don’t forget that services are still less than 15% of total revenue even though they are the fastest growth part of their portfolio.
Cook isn’t doing enough to supercharge the content and services at Apple.
The top line number was $84.3 billion, a 5% YOY decline in revenue – a YOY decline hasn’t happened in 18 years and this is deeply troublesome.
Let me explain why Cook is the center of the problem.
The underlying issue is Cook doesn’t know what product should be next for Apple.
Apple dabbled with the Apple TV which didn’t pan out.
Then the autonomous vehicle unit just closed down sacking 200 employees.
And the content side of it hasn’t been developed fast enough relative to the slowing down of iPhone sales which is why you can blame Cook for being reactive instead of proactive.
It’s not like he can claim that his head was in the sand and couldn’t take note of what Netflix was doing and had gotten into that original content game sooner.
The hesitation is exactly what worries me with Cook. Cook is a great operations guy and can take an existing product, beef up margins, shave down expenses, streamline execution and boost top and bottom line profits.
Cook is being painfully exposed now that he is out of his comfort zone and must aggressively move in a direction that doesn’t have a red carpet laid out for him.
Even though the pre-earnings red flag raised many questions, Cook only satisfied these red flags on a short-term basis and Apple still needs to reconfigure its product roadmap for the long term.
If Cook plans to milk more out of the iPhone story, Apple becomes a sell the rallies stock, but the market will give the benefit of the doubt to Apple for a quarter or so.
The 800-pound gorilla in the room is the Chinese economy which could go into a hard landing if the stimulus fails to deliver economic respite or if the trade war tensions are exacerbated.
At the bare minimum, the waterfall of downgrades should be over for the time being, but this will come to the fore in a quarter or so when Apple will need to shine light on its plans moving forward.
I wouldn’t bet the ranch on Cook being innovative.
It looks like Apple will start to trade in a range.
It’s hard to believe any bad news superseding what came out at the beginning of this month in the short-term, but at the same time, there are no idiosyncratic catalysts to cause this stock to bullishly break out.
We are at an inflection point in Cook’s career and he is finding out that it's not as easy to be Apple as it used to, and mammoth decisions are on the horizon that must be addressed or possibly become the next IBM.
If you ask me, I’ve been calling on Apple to replace Cook for a while with Jack Dorsey as the signal caller, I still believe this is the only way to stay in the heavyweight division of tech titans five years from now.
Such is the competitive nature of the tech landscape these days.
THE NEXT IBM?
Global Market Comments
January 30, 2019
Fiat Lux
Featured Trade:
(WHY WATER WILL SOON BE WORTH MORE THAN OIL),
(CGW), (PHO), (FIW), (VE), (TTEK), (PNR),
(WHY WARREN BUFFETT HATES GOLD),
(GLD), (GDX), (ABX),
Global Market Comments
January 29, 2019
Fiat Lux
Featured Trade:
(RISK CONTROL FOR DUMMIES),
(SPY), (AMZN), (TLT), (CRM), (VXX)
There is a method to my madness, although I understand that some new subscribers may need some convincing.
Whenever I change my positions, the market makes a major move or reaches a key crossroads, I look to stress test my portfolio by inflicting various extreme scenarios upon it and analyzing the outcome.
This is second nature for most hedge fund managers. In fact, the larger ones will use top of the line mainframes powered by $100 million worth of in-house custom programming to produce a real-time snapshot of their thousands of positions in all imaginable scenarios at all times.
If you want to invest with these guys feel free to do so. They require a $10-$25 million initial slug of capital, a one year lock up, charge a fixed management fee of 2% and a performance bonus of 20% or more.
You have to show minimum liquid assets of $2 million and sign 50 pages of disclosure documents. If you have ever sued a previous manager, forget it. The door slams shut. And, oh yes, the best performing funds are closed and have a ten-year waiting list to get in. Unless you are a major pension fund, they don’t want to hear from you.
Individual investors are not so sophisticated, and it clearly shows in their performance, which usually mirrors the indexes less a large haircut. So, I am going to let you in on my own, vastly simplified, dumbed down, seat of the pants, down and dirty style of risk management, scenario analysis, and stress testing that replicates 95% of the results of my vastly more expensive competitors.
There is no management fee, performance bonus, disclosure document, lock up, or upfront cash requirement. There’s just my token $3,000 a year subscription fee and that’s it. And I’m not choosy. I’ll take anyone whose credit card doesn’t get declined.
To make this even easier, you can perform your own analysis in the excel spreadsheet I post every day in the paid-up members section of Global Trading Dispatch. You can just download it and play around with it whenever you want, constructing your own best case and worst-case scenarios. To make this easy, I have posted this spreadsheet on my website for you to download by clicking here.
Since this is a “for dummies” explanation, I’ll keep this as simple as possible. No offense, we all started out as dummies, even me.
I’ll take Mad Hedge Model Trading Portfolio at the close of October 29, the date that the stock market bottomed and when I ramped up to a very aggressive 75% long with no hedges. This was the day when the Dow Average saw a 1,000 point intraday range, margin clerks were running rampant, and brokers were jumping out of windows.
I projected my portfolio returns in three possible scenarios: (1) The market collapses an additional 5% by the November 16 option expiration, some 15 trading days away, falling from $260 to $247, (2) the S&P 500 (SPY) rises 5% from $260 to $273 by November 16, and (3) the S&P 500 trades in a narrow range and remains around the then current level of $260.
Scenario 1 – The S&P 500 Falls 5%
A 5% loss and an average of a 5% decline in all stocks would take the (SPY) down to $247, well below the February $250 low, and off an astonishing 15.70% in one month. Such a cataclysmic move would have taken our year to date down to +11.03%. The (SPY) $150-$160 and (AMZN) $1,550-$1,600 call spreads would be total losses but are partly offset by maximum gains on all remaining positions, including the S&P 500 (SPY), Salesforce (CRM), and the United States US Treasury Bond Fund (TLT). My Puts on the iPath S&P 500 VIX Short Term Futures ETN (VXX) would become worthless.
However, with real interest rates at zero (3.1% ten-year US Treasury yield minis 3.1% inflation rate), the geopolitical front quiet, and my Mad Hedge Market Timing Index at a 30 year low of only 4, I thought there was less than a 1% chance of this happening.
Scenario 2 – S&P 500 rises 5%
The impact of a 5% rise in the market is easy to calculate. All positions expire at their maximum profit point, taking our model trading portfolio up 37.03% for 2018. It would be a monster home run. I would make back a little bit on the (VXX) but not much because of time decay.
Scenario 3 – S&P 500 Remains Unchanged
Again, we do OK, given the circumstances. The year-to-date stands at a still respectable 22.03%. Only the (AMZN) $1,550-$1,600 call spread is a total loss. The (VXX) puts would become nearly a total loss.
As it turned out, Scenario 2 played out and was the way to go. I stopped out of the losing (AMZN) $1,550-$1,600 call spread two days later for only a 1.73% loss, instead of -12.23% in the worst-case scenario. It was a case of $12.23 worth of risk control that only cost me $1.73. I’ll do that all day long, even though it cost me money. When running hedge funds, you are judged on how you manage your losses, not your gains, which are easy.
I took profit on the rest of my positions when they reached 88%-95% of their maximum potential profits and thus cut my risk to zero during these uncertain times. October finished with a gain of +1.24. By the time I liquidated my last position and went 95% cash, I was up 32.95% so far in 2018, against a Dow average that is up 2% on the year. It was a performance for the ages.
Keep in mind that these are only estimates, not guarantees, nor are they set in stone. Future levels of securities, like index ETFs, are easy to estimate. For other positions, it is more of an educated guess. This analysis is only as good as its assumptions. As we used to say in the computer world, garbage in equals garbage out.
Professionals who may want to take this out a few iterations can make further assumptions about market volatility, options implied volatility or the future course of interest rates. And let’s face it, politics was a major influence this year.
Keep the number of positions small to keep your workload under control. Imagine being Goldman Sachs and doing this for several thousand positions a day across all asset classes.
Once you get the hang of this, you can start projecting the effect on your portfolio of all kinds of outlying events. What if a major world leader is assassinated? Piece of cake. How about another 9/11? No problem. Oil at $150 a barrel? That’s a gimme.
What if there is an Israeli attack on Iranian nuclear facilities? That might take you all of two minutes to figure out. The Federal Reserve launches a surprise QE5 out of the blue? I think you already know the answer.
Now that you know how to make money in the options market, thanks to my Trade Alert service, I am going to teach you how to hang on to it.
There is no point in being clever and executing profitable trades only to lose your profits through some simple, careless mistakes.
So I have posted a training video on Risk Management. Note: you have to be logged in to the www.madhedgefundtrader.com website to view it.
The first goal of risk control is to preserve whatever capital you have. I tell people that I am too old to lose all my money and start over again as a junior trader at Morgan Stanley. Therefore, I am pretty careful when it comes to risk control.
The other goal of risk control is the art of managing your portfolio to make sure it is profitable no matter what happens in the marketplace. Ideally, you want to be a winner whether the market moves up, down, or sideways. I do this on a regular basis.
Remember, we are not trying to beat an index here. Our goal is to make absolute returns, or real dollars, at all times, no matter what the market does. You can’t eat relative performance, nor can you use it to pay your bills.
So the second goal of every portfolio manager is to make it bomb proof. You never know when a flock of black swans is going to come out of nowhere, or another geopolitical shock occurs, causing the market crash.
I’ll also show you how to use my Trade Alert service to squeeze every dollar out of your trading.
So, let’s get on with it!
To watch the Introduction to Risk Management, please click here.
Mad Hedge Market Timing Index
Global Market Comments
January 28, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or IT’S FINALLY OVER)
(SPY), (TLT), (FXE), (MSFT), (AAPL),
(PG), (F), (LRCX), (AMD), (XLNX)
Last week, I was too busy to cook dinner for my brood, so I ordered a pizza delivery. When an older man showed up with our dinner, I told the kids to tip him double. After all, he might be an unpaid federal air traffic controller.
It is a good thing I work late on Friday afternoon because that's when the government shutdown ended after 35 days. The bad news? The government stops getting paid again in only 18 more days. If you have to travel, you better do it quick as the open window may be short.
The most valuable thing we learned from all of this is that the weak point in America is the airline transportation system which relies on 4,000 flights to get the country’s business done.
Having once owned a European air charter company, I could have told you as much was coming. Every nut, bolt, and screw that goes into a US registered aircraft has to be inspected by the federal government. They are painted yellow when viewed which is called “yellow tagging”. No inspection, no screw. No screw, no airplane. No airplane, no flight. No flight, no economy. I can’t tell you how many times I have seen a $30 million aircraft grounded by a failed 50-cent part.
And here’s what most investors don’t get. We lost 75 basis points in GDP growth from the shutdown. We may lose another 75 basis points restarting. And if you lose 1.50% from a post-Christmas period that is normally weak anyway, Q1 GDP may well come in negative. Hello recession!
We won’t know for sure until the first advanced estimate of Q1 GDP from the US Department of Commerce’s Bureau of Economic Analysis is published on April 26. That’s when the sushi will hit the fan. That, by the way, is perilously close for the May 10 prediction of the end of the entire ten-year bull market.
How did investors fare during the shutdown? We clocked the best January in 32 years with the Dow Average up 7.55%. Maybe the government should stay closed all the time!
It is not like the government shutdown, the fading Chinese trade talks, and the arrest of the president’s pal were the only things happening last week.
A slowing China is freaking out investors everywhere. Even if a trade deal is cut tomorrow, it may not be enough to pull the economy out of a downward death spiral. Look out below! A 6.6% growth rate for 2018 is the slowest in 30 years.
Existing Home Sales were down a disastrous 6.4%, in December and 10% YOY, the worst read since 2012. The government shutdown is made closings nearly impossible.
The EC’s Mario Draghi said there would be no euro rate rises until 2020 and the US bond market took off like a rocket. Another point or two and we’ll be in short selling territory again. Don’t count on Europe to pull us out of the next recession. Whoever came up with the idea of putting an Italian in charge of Europe’s finances anyway? Like that was such a great idea.
Procter & Gamble (PG) beat with an upside earnings surprise. It must be all those people buying soap to wash their hands of our political system. But Ford (F) disappointed, dragged down by weak foreign earnings. The weakest big car company to get into electric cars is really starting to suffer. The last of the buggy whip makers is taking a swan dive
The semis have bottomed in the wake of spectacular earnings reports from (LRCX), (AMD), and (XLNX). The great artificial intelligence play is back in action after a severe spanking. I never had any doubt they would come back. Now for an entry point.
Farmers are leaving crops to rot in the field as the trade war with China destroys prices and the Mexicans needed to harvest them are trapped at the border. There’s got to be an easier way to earn a living. Avoid the ags and all ag plays. Short tofu stocks!
Investors are now sitting on pins and needles wondering if we get a repeat of the horrific February of 2018, or whether so far great earnings reports will drive us to higher highs. Earnings tail off right when the next government shutdown is supposed to start so our lives will be interesting, to say the least.
My January and 2019 year to date return soared to +7.24%, boosting my trailing one-year return back up to +30.23%.
My nine-year return climbed up to +308.14%, a mere 1.72% short of a new all time high. The average annualized return revived to +33.61%.
I have been dancing in between the raindrops using rallies to take profits on longs and big dips to cover shorts.
I started out the week using the 4 1/2 point plunge in the bond market (TLT) to cover the last of my shorts there, bring in a whopper of a $1,680 profit in only 13 trading days. To quote the Terminator (whose girlfriend I once dated, the Terminatrix), I’ll be back.”
I used the big 500-point swoon in the Dow on Monday to come out of my (SPY) short at cost. An unfortunate comment on interest rates by the European Central Bank forced me to stop out of my long in the Euro (FXE), also at cost.
That has whittled my portfolio down to only two positions, a long in Microsoft (MSFT) and a short in Apple (AAPL). As a pairs trade you could probably run this position for years. I am now 80% in cash.
The goal is to go 100% into cash into the February option expiration in 14 trading days, wait for a big breakout, and then fade it. Essentially, I am waiting for the market to tell me what to do. That will enable me to bank double-digit profits for the start of 2019, the best in a decade.
The upcoming week is very iffy on the data front because of the government shutdown. Some government data may be delayed and other completely missing. Private sources will continue reporting on schedule. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.
Jobs data will be the big events over the coming five days along with some important housing numbers. We also have several heavies reporting earnings.
On Monday, January 28 at 8:30 AM EST, we get the Chicago Fed National Activity Index.
On Tuesday, January 29, 9:00 AM EST, the Case Shiller National Home Price Index for November is released. The ever important Apple (AAPL) earnings are out after the close, along with Juniper Networks (JNPR).
On Wednesday, January 30 at 8:15 AM EST, the ADP Private Employment Report is announced. Pending Home Sales for December follows. Boeing Aircraft (BA) and Facebook (FB), and PayPal (PYPL) announce.
Thursday, January 31 at 8:30 AM EST, we get Weekly Jobless Claims. We also get the all-important Consumer Spending Index for December. Amazon (AMZN) and General Electric (GE) announce.
On Friday, February 1 at 8:30 AM EST, the January NonFarm Payroll Report hits the tape.
The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings. Home Sales is released. AbbVie Inc (ABBV) and DR Horton (DHI) report.
As for me, I will be celebrating my birthday. Believe me, lighting 67 candles creates a real bonfire. I received the best birthday card ever from my daughter which I have copied below
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 25, 2019
Fiat Lux
Featured Trade:
(JANUARY 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (EDIT), (NTLA), (CRSP), (SJB), (TLT), (FXB), (GLD),
(THE PRICE OF STARDOM AT DAVOS)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 23 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Would you buy Tesla (TSLA) right now?
A: It’s tempting; I’m waiting to see if we take a run at the $250-$260 level that we saw at last October’s low. If so, it’s a screaming buy. Tesla is one of a handful of stocks that have a shot at rising tenfold in the next ten years.
Q: CRISPR stocks are getting killed. I know you like the science—do you have a bottom call?
A: What impacted CRISPR stocks was the genetic engineering done on unborn twins in China that completely freaked out the entire industry and killed all the stocks. That being said, CRISPR has a great long-term future. They will either become ten-baggers or get taken over by major drug companies. The first major CRISPR generated cure will take place for childhood blindness later this year. The ones you want to own are Editas (EDIT), Intellia Therapeutics (NTLA), and CRISPR Therapeutics (CRSP).
Q: Do you ever reposition a trade and add contracts?
A: I very rarely double up. I’d rather go on to a new trade with different strike prices. A bad double up can turn a small loss into a big one. Sometimes I will do a “roll down,” or buy back one spread for a loss to earn back that loss with a spread farther in-the-money.
Q: For us newbies, can you please explain your trading philosophy regarding purchasing deep in the money call spreads and how that translates to risk management?
A: I did a research piece in Global Trading Dispatch yesterday on deep in-the-money call spreads, and today on deep-in-the-money put spreads. The idea is to have a position where you make money whether the market goes up, down, or sideways. Your risk is defined, and you always have time decay working for you, writing you a check every day. Here are the links: Vertical Bull Call Spread and Vertical Bear Put Spread.
Q: What’s the risk reward of floating rate corporate debts?
A: Number one: interest rates go down—if we go into recession, rates will fall. That wipes out the principal value of the security. Number two: with corporate debts, you run the risk of the corporation going bankrupt or having their business severely impacted in the next recession and their credit rating cut. It’s far safer to invest in a bank deposits yielding 2-2.5% right now. Some smaller banks are offering certificates of deposit with 4% yields.
Q: What are your thoughts on the British pound (FXB)?
A: I think Brexit will fail eventually and the pound will increase 25%; so play from the long side on the (FXB). It would be economic suicide for Britain to leave the EC and eventually people there will figure this out. If the Brexit vote were held today, it would lose and that may be how they eventually get out of this.
Q: Is it a bear market for bonds (TLT)?
A: Yes, it’s back on again. I expect we will visit $112 in the (TLT) sometime this year, down from the current $121. That brings us back up to the 3.25% yield on the ten-year US Treasury bond. That is down nine points from here, so it’s certainly worth taking a bite out of.
Q: What’s the best time to buy the ProShares Short High Yield (SJB)?
A: At the top of the next equity market run. It rose a whopping 10% during the December stock market meltdown so that gives you a taste of what can happen. Junk bonds are called “junk” for a reason.
Q: How do you see gold (GLD)?
A: Take profits now and buy back on the next dip. If we dip 5%-10% in gold, that would be a good entry point for a larger move later on in the year. To get a real move in gold, we need to see real inflation and that will eventually come. Another stock market crash will also gain you another 10% in gold.
Q: When will the government shutdown end?
A: I think it will go a lot longer than anyone realizes because Trump needs a deal worse than the Democrats do. Trump is basically saying pay for my wall or I’ll keep shooting another of MY supporters in the head every day. The Democrats can wait a really long time in that circumstance. Trump’s standing in the polls has also collapsed to new lows. By the way, the Chinese are using the same approach in the trade talks so that could be a long wait as well.
Q: There’s been a big shift in the MHFT Profit Predictor in the last 30 days—does this mean we should not be adding any positions?
A: Absolutely; this is a terrible place to be adding any new positions. The index went from 2 to 57 which shows you how valuable it is at calling market bottoms. Now we are at the top end of the middle of the range. All markets are now dead in the middle of very wide trading ranges which means the best thing you can do is take profits on existing positions, which I have been doing. Or watch Duck Dynasty and Pawn Stars replays. As for me, I am an Antiques Roadshow guy.
Q: What percentage should you be invested in the market now?
A: I’ve gone from 60% to 30% and have only 3 weeks left on my remaining position. I’m looking to go 100% cash as long as we’re stuck in the middle of this range. Better to sit on your hands than chase a high risk/low return trade.
Did I mention that we have had the best start to a New Year in a decade?
