?For 240 years, it?s been a terrible mistake to bet against America, and now is no time to start.? America?s golden goose of commerce and innovation will continue to lay more and larger eggs.? said Oracle of Omaha, Warren Buffett.
Global Market Comments
December 13, 2016
Fiat Lux
Featured Trade:
? (A DAY IN THE LIFE OF THE MAD HEDGE FUND TRADER),
(SPY), (TLT), (TBT), (FXE),
?(GLD), (GDX), (USO), (NVDA), (GM), (XOM)
SPDR S&P 500 ETF (SPY)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
CurrencyShares Euro ETF (FXE)
SPDR Gold Shares (GLD)
VanEck Vectors Gold Miners ETF (GDX)
United States Oil (USO)
NVIDIA Corporation (NVDA)
General Motors Company (GM)
Exxon Mobil Corporation (XOM)
Diary Entry for Monday, December 12, 2016
Dear Diary,
4:30 PM Sunday-the day before- Thought I?d check my Bloomberg to see how the Asian markets were opening. Yikes! Oil is up another 4%!
Looks like it is going to be a ?RISK ON? day for the umpteenth day in a row. Better fasten my seat belt, put on my hard hat, and get ready for a busy day taking calls from clients.
5:00 PM- Call from one of the top New York hedge funds. What?s going on with the market? How many days can it go up in a straight line?
The economy is presenting the most bullish picture in 8 years, yet he is getting hammered in the market.
Four weeks after the election and his traders are already worn out and gun shy from these gigantic, day-to-day triple digit swings. Worse, he is losing money. His longs are going up all right, but the shorts are rising even faster.
I told him that it is a brave new world out there now. You can take your old time worn investment assumptions and toss them in the trash. Boom and bust is back!
The market is discounting investment nirvana right now, and ?irrational exuberance? has returned with a vengeance. Giant tax cuts and the end of regulation? How could you NOT make money on that?
I also told him that the year end effects are amplified.
Why sell now when you can wait a few more weeks, owe lower capital gains taxes, and not have to pay them for 16 months?
Markets will settle down next year once the euphoria burns out and we return to normal bull market trading patterns.
But don?t kid yourself. With the bull market entering its eighth year, volatility will be higher this year than in the last. We aren?t trading the $600 handle in the S&P 500 (SPX) anymore.
He thanked me for my Nvidia tip (NVDA), which soared by 35% in a month and was key to him making his year. So, he invited me to a Trump licensed restaurant in Manhattan. I begged off, fearing a terrorist attack.
Instead, he could take me to a nice dinner at Masa in Time Warner Center on Columbus Circle when I come through town for my next New York Strategy Luncheon.
I don?t care if it costs $500 a person. High end Japanese sake is cheaper than the best Bordeauxs, because Chinese billionaires have bid up the prices so much.
Then he told me the real reason for his call. He knew I grew up near Hollywood, had dated several movie stars, and even appeared in a movie as an extra (Francis Ford Coppola?s Apocalypse Now).
Perhaps, I had some insights on the upcoming Academy Awards on February 26th? His firm had put up the money to make the film, Star Trek Beyond. What were my thoughts?
Yes, I confess to being a lifetime trekkie and took my kids to see it. It stuck to the formula. I had just finished rewatching the original 1966-1969 series, and it was fun to see the modern context. I swear to god, but I?m sure I saw Captain Kirk use an iPad on the bridge in 1968.
And yes, I already have my ticket for the next Star Wars installment, Rogue One, which premiers on Friday.
9:00 PM-Call from a friend at the People?s Bank of China in Beijing. Is Donald Trump really going to start a trade war with China?
I replied that he is certainly going to pretend to.
The anti-Chinese rhetoric during the election was so unrelenting that Trump has to make the gesture or risk losing his base.
My bet is that Trump will engage in some saber rattling, enforce some token punitive import duties like Obama did, but not much more. The US has gone too far down the globalization road to contemplate a reversal.
Is Trump really going to stop $400 billion in annual two-way trade with China. Will Wal-Mart have to raise prices by 35% overnight?
Better yet, what if the Chinese retaliate by dumping their trillion dollars worth of US Treasury bond holdings? The bond market says that?s already happening.
Will the additional trillion dollars of direct US investment in China become a hostage? Remember, General Motors (GM) sells more cars in the Middle Kingdom than the US.
The ten-year Treasury yield would be at 6% tomorrow, demolishing any Trump engineered economic growth.
By the way, was last week's restriction on cash withdrawals from Macau ATMs really aimed at the US casino industry? My friend remained inscrutable on that point.
Then he asked, did I, by any chance, recommend the film, Eye in the Sky, with Helen Mirren, the ultra high tech war movie? Everyone in the Politbureau was seeing it, taking notes on the next western weapons system they should procure.
?Absolutely,? I answered. Most people aren?t aware of how super sophisticated our military has become. Push a button in a Las Vegas suburb, and a terrorist safe house in Kenya disappears. Push Trump too far, and you could be next.
9:30 PM- Hit the rack and try to catch some shuteye before the next call.
2:00 AM-One of my former staff members at Morgan Stanley calls me from a Private Bank in Geneva to tell me that the Euro (FXE) is getting the stuffing knocked out of it this morning. Is it time to buy?
I told him ?Not in your wildest dreams!?
With massive government deficit spending headed our way, US interest rates are going to soar, taking the greenback with it. The Euro has been trying to break parity for two years now and it looks like its time has finally arrived.
Then he moved on to the real purpose of his call. He was planning to take his wife out this weekend. Should they go to see Manchester by the Sea with Casey Affleck, Ben?s younger brother, the family drama set in New England?
I said sure, if you want to watch a movie where something isn?t blowing up every five minutes or features super heroes, an increasing rarity. And you have to love those New England accents, which are slowly dying out.
I slammed the phone back on the hook and went back to sleep.
10:00 AM- I get a call from a leading money manager in London?s Mayfair district. Europe is closing. With gold down $150 in a month, is it time to buy?
I said ?Hold your horses?.
The barbarous relic does terrible in an environment of rapidly rising interest rates, as the opportunity cost increases dramatically.
There is a bull market in the yellow metal ah
ead of us somewhere, just not yet. You need to wait for inflation to make a big comeback first.
The next big bull market for gold won?t begin until the 2020s, when inflation returns for real. Then it should run to $3,000-$5,000. Not until then will gold bugs be able to afford clean shirts and new suits.
And go have a pint of Guiness for me at the Pig & Whistle next door, will you. Tell the owner, Nigel, to put it on my running tab. He owes me from my last Manchester United win.
He then raved about last summer?s Armageddon film, 10 Cloverfield Lane, a creepy murder mystery movie with John Goodman. Did I see it?
I did and loved it. Growing up during the Russian missile crisis, the prospect of hiding out in a bomb shelter is not such a distant memory. And there is a surprise ending that will blow you away. Is Goodman insane or not? I?m not telling you the ending.
1:15 PM-My friend, JR, a senior executive at an oil major, calls from Houston. What the hell was going on with the price of oil (USO)? Is the OPEC production capping agreement real and will it hold?
I said the price of oil now depends on US and Russian production. OPEC has become irrelevant. But the prospect of deregulation of the energy industry in the US could bring a flood of new supply. Oil could rise to $60 in 2017, but not much higher than that.
The outlier is that with former ExxonMobil CEO, Rex Tillerson, now a possible Secretary of State, the chances of a new US ground war in the Middle East have greatly increased. Now THAT would get the price of Texas tea back above $100 a barrel in a hurry.
One can only hope.
The last time that happened, Exxon stock rose 436%, making my friend, Rex, a billionaire and a major Republican Party donor. It?s amazing when you have an oil man as president.
He said thanks, and next time I was in town he would buy me a 24-ounce chicken fried steak at Billy Bob?s that spilled over both sides of the plate (2,500 calories). I can?t wait. I?ll let my doctor have the heart attack.
He then confided in me why he really called.
He knew I grew up on a western ranch. Had I seen Hell or High Water, the quirky alternative western with Jeff Bridges? Is it worth seeing? His buddies down on the ranch had just seen it on Netflix and liked it. Should he bother?
I said only for the guys. There's too much shooting for the wife to tolerate. But there is a truly original story line there, with everyone coming out a good guy. It says a lot about our post crash, pro gun society.
But The Good, The Bad, and The Ugly this is not.
2:00 PM-Still haven?t started on the letter yet. I have been answering dozens of email requests for information about the Trade Alert Service. This always happens whenever I have a hot performance streak on. The watchers want to become players.
With my six-year return approaching 218%, new subscribers are pouring in.
4:45 PM- Well, I got the letter done, but I?m too late. The web editor has gone to the DMV to register his new Prius, and the backup has gone to the yoga studio.
5:00 PM I put on a 60-pound pack and my heavy climbing boots and head out the back door on a ten-mile hike up Berkeley?s Grizzly Peak. I find the sections of the trail outside of cell phone reception most enjoyable.
Gotta stay boot camp ready! You never know when Uncle Sam is going to come calling again. Who cares if I?m 65? I can still hit a quarter on a tree at 50 yards with my Winchester Model 98 30-30.
I listen to a 60-hour audio book on my iPhone 6, the seven volume Truman, by David McCullough, about our 33rd president.
It is an amazing story. They don?t make them like him any more.
Considered by most to be an average man at best, he dropped the atomic bombs on Japan, negotiated with Stalin at Potsdam, created the CIA and the Defense Department, desegregated the Army, ordered the Berlin airlift, went forward with the hydrogen bomb project, stared down a megalomaniac Senator McCarthy, and fought the Korean war to a draw.
By the time I hit the trail, a layer of thick fog already blankets the city below me.
9:00 PM Back to my screens. The Euro has broken $1.01 again. Where was I last week when it rallied for a day? Asleep? I should have sold the daylights out of it. As they used to say in karate school in Japan, you can?t block all the punches.
Still, I am going to avoid the Euro for now. It has recently had such a sharp move down over the past month that the risk of a sudden, rip your face off, short covering rally is ever present.
I?d rather keep some dry powder and buy it a few cents lower. At this point, The World is short the Euro.
Maybe they read my letter?
?
10:00 PM-Time to call it a night and break out a bottle of Duckhorn Merlot. Geez louise, it seems people only wanted to talk about the movies today. Is the market really that impossible to trade?
The phone rings. Does anybody want my job?
Gunslinger for Hire
?Over the long term, all of the fiat currencies of the world are involved in a competitive devaluation. The structural stresses in most of the western economies are such that centrals banks will attempt to continue to substitute liquidity for solvency.? said Rick Rule, chairman of Sprott US Holdings, a precious metals specialist.
Global Market Comments
December 12, 2016
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK OF DECEMBER 12TH AKA TRADE THE TWEET),
(BA), (WYNN), (TLT), (TBT),
(TESTIMONIAL),
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)
The Boeing Company (BA)
Wynn Resorts, Limited (WYNN)
iShares Trust - iShares 20+ Year Treasury Bond ETF (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
Trade the Tweet.
That seems to be the new strategy adopted by traders who are still groping in the dark trying to figure out how to make money in the brave new world.
So, when the President-elect says something idiotic and knocks a stock down 10% in seconds, you buy it.
When sanity returns and the stock bounces back the next day, you take profits.
It worked with Boeing (BA) this week. It worked with Wynn Resorts (WYNN) when the Chinese later figured out the game.
Who?s next? Only The Donald knows for sure.
At this rate, we should have one out of two good trades a day for the next four years.
With selling now apparently illegal, expect stocks to continue their grind up until year end.
That?s because sellers are postponing realizing capital gains until 2017, when lower tax rates are expected to kick in.
So, if all the traditional December selling has been pushed back to January, what happens to markets in January?
Politics aside, we could be facing one of the seminal decisions of the decade when the Federal Reserve renders its decision on interest rates this coming Wednesday.
Will they raise by 25 basis points, or will Janet Yellen go for the full 50? I?m betting on the former, as my friend, Janet, is still a dove, regardless of which way the political winds are blowing.
By the way, I have arranged a private meeting with the nation?s central bank governor in January while she is here for the holidays and a round of meetings at the San Francisco Fed.
I?ll let you know what I discover in a New Year newsletter.
Of course, I?m filled with holiday cheer, thanks to the double short in the Treasury bond market (TLT) I have maintained since the November 8th election.
Bonds are in free fall, and are now approaching two-year lows. The (TLT) has collapsed a staggering 12 points since Election Day.
In the meantime, another one of my heroes, the ProShares UltraShort 20+ Year Treasury 2X ETF (TBT) hit a new multiyear high of $42.20, up an eye popping 41.57% since the July low.
Although we have already moved a lot, how many bonds do you want to be short when ten-year yields are on their way from 2.50% to 6%?
How about a truckload?
This will be the trade that keeps on giving. Think of it as your new rich uncle, or the cousin that just IPO'd a hot new tech company.
You better get out there and refinance your house before rates really take off. And while you?re at it, you better buy a second and third home too.
With Dodd-Frank about to be set on fire, lending standards will disappear, and everyone and his brother will be out there borrowing to buy new homes before rates rise further.
I know history repeats itself, but does it have to be so predictable?
As the year winds down, I feel the increasing gravitational pull of Incline Village at Lake Tahoe in the High Sierras which is forecast to get snow every day for the next week.
I?m looking forward to writing my 2017 All Asset Class Annual Review which take me two weeks to write.
I?ll only be taking breaks to play Monopoly, Jenga and Risk, eat freshly baked chocolate chip cookies, and, of course, snow shoe vast distances at high altitude.
As for the coming week?s data releases:
Monday, December 12th, has absolutely nothing of note to be released as we move into the year end wind down.
On Tuesday, December 13th at 10:00 AM EST, we get a new update on November Factory Orders.
On Wednesday, December 14th at 2:00 PM, the big event of the week takes place when the Fed releases its interest rate decision. A press conference with Janet Yellen will follow.
At 10:30 AM the EIA Petroleum Status Report will give us updated inventory numbers. Will oil peak out here? Or does it have a few more dollars to run?
On Thursday, December 15th, we learn the Weekly Jobless Claims at 8:30 AM EST. We also get a new Consumer Price Index for November. These may be the last low inflation numbers we see for a generation.
On Friday, December 16th, we get a quadruple witching options expiration, with the big players gaming the opening and the close. I am out of my December options positions so I really don?t care what happens.
At 1:00 PM we get the Baker Hughes Rig Count. We?ll see if falling oil production puts a dent in US oil production.
Keep in mind that virtually all economic indicators are still backward, and not reflective of our brave new world. We won?t see that until January.
I am one of your MDT subscribers in Tasmania Australia (currently 16 hours ahead of NY).
I have a regular day job, and am unable to day trade US markets and an unable to participate in the bi-weekly webinars. And although a MDT subscriber for nearly three years now it is only that last six months that I have got into the groove of your webinars and daily updates.
The daily updates on the markets levels have been very instructive as to where JT places his spreads, so that now I have started placing my own independently with success.
When the market dipped at the horror of a Trump win on 6 Nov, it seemed like a good time to put with a (SPY) $204-$207 Bear Put Spread.
This success led me to put on a (SPY) $222-$225 Bear Put Spread on 15 Nov when the (SPY) was 217. Your persistent subsequent urging not to short the market led me to look for an exit. This came on Friday 18th when the market dipped again, allowing me to exit for a 9 cent? loss.
Of course I should have applied the same logic (likely further rise in the market? further falling of VXX) to JTs VXX position at the same time. Would have come with a similar negligible loss instead of (as JT said) a nosebleed.
I have just started writing covered calls on my Interactive Brokers platform and have covered (weekly) calls on FCX (long 10.02) and FEYE (long 12.38) and managing to stay in the game.
There has been a noticeable uplift in your voice in recent webinars as market action has picked up.
Keep up the good work.
Kind regards
Malcolm G
Hobart, Tasmania, Australia
?Confidence is the cheapest form of stimulus.? said former Clinton Treasury Secretary, Larry Summers.
Global Market Comments
December 9, 2016
Fiat Lux
Featured Trade:
(TECHNOLOGY OR TOILET PAPER?),
(KMB), (AAPL), (UTX), (TLT), (UUP), (WYNN),
(THE 1% HIT IN THE BOND MARKET),
(TLT), ($TYX), (LQD), (MUB), (ELD)
Kimberly-Clark Corporation (KMB)
Apple Inc. (AAPL)
United Technologies Corporation (UTX)
iShares 20+ Year Treasury Bond ETF (TLT)
Powershares DB US Dollar Index Bullish Fund (UUP)
Wynn Resorts, Limited (WYNN)
Treasury Yield 30 Years (^TYX)
iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD)
iShares National Muni Bond (MUB)
WisdomTree Emerging Markets Local Debt Fund (ELD)
The world?s largest maker of toilet paper, Kimberly-Clark (KMB) currently earns a net profit margin of 5.45% and trades at a price earnings multiple of 20.68X.
Apple (AAPL), the world?s largest technology company, earns a net profit margin of 22.3% and trades at a price earnings multiple of 13.51X.
These numbers suggest that making toilet paper is 6.26 times more profitable than selling iPhones.
But it isn?t.
So is the future of the world economy in toilet paper? Should we toss out iPhones in the dustbin of history and unload the stock?
That may be the answer, at least for the short term.
Or are we seeing nothing less than a wild mispricing of sectors and shares that will eventually correct itself?
I vote for the latter.
However, financial markets of any description are facing unusual circumstances on every front.
The newly elected president?s disdain for Steve Jobs' creation is no secret.
Only yesterday, he demanded that Apple shut down manufacturing in China and build the world?s biggest factory in the US. That would raise Apple?s labor cost from $3 to $35 an hour.
Needless to say, that is impossible.
To do so would increase the cost of iPhones from $700 to $5,000 which was about what I paid for a Motorola analogue brick phone in 1990 and the service was lousy.
The bulge left in the pocket of my Burberry raincoat is still present and, no, it?s not because I am glad to see you.
The great irony here is that the iPhone has never been made in the US.
It was not a product the manufacture of which was offshored. IPhones have to be made in China or they can?t be made at all. Tens of thousands of cutting edge technology products can be similarly described.
That leaves the hapless company to face the 35% import duty from China threatened by Mr. Trump.
It would be far cheaper for Apple just to pay the duty and then pass the cost on to consumers, which would then raise the cost of an iPhone from $700 to $800. Fewer iPhones would be sold, but not my much.
Apparently, no one has told Trump yet that this arbitrary duty would be illegal under the terms of the World Trade Organization (WTO), an organization created by the United States to enforce international trading rules.
So, what if Trump then withdraws from the WTO? What if he pulls the United States out of the United Nations, another libertarian panacea?
He could do this, since honoring agreements does not seem to be in Trump?s DNA, as his long string of business defaults and bankruptcies attests.
International trade would continue, just without us. That would leave China to take over the rest of the world market. Our economy and stock market would suffer, as well as our defense alliances.
Of course, we really don?t know what Trump is going to do.
But the early indications are horrendous.
He attacked Boeing (BA), knocking 11% off its stock price in minutes which, by the way, has created more high paying jobs exporting aircraft to China than any other American company.
The Carrier bail out means that tax payer money will be siphoned out of the east and west coasts so a company in Indiana, the Vice President?s home state, can build air conditioners at noncompetitive prices.
The union leader then confirmed that it was only 700 jobs that were saved for $7 million, not 1,100, and the president attacked him.
And never mind that the country?s eight other major air conditioning manufacturers are now disadvantaged. Are they in for a handout too?
The president has signed Carrier?s death warrant, making it a ward of the state for a photo op.
This is anything but capitalism.
I?m sure parent company United Technology (UTX), whose stock has soared since the election, is figuring out how to unload Carrier as I write this.
If this is Trump?s new rust belt economic strategy, expect an initial rise in GDP growth as the stimulus hits, and then a collapse when the bill comes due.
That, by the way, is my new economic scenario for the rest of the decade. Higher, artificially induced growth for three more years, and then a recession, with no net gain in GDP. Welcome to boom and bust.
I do fine in this environment, but I?m not so sure about you. Remember, I only have to run faster than you, not the grizzly bear that is chasing both of us.
All of this now raises the question of how to trade and invest under President Trump. He is turning the White House into a reality TV show, and filling cabinet posts with other reality stars, like Linda McMahon.
When Twitter traffic is the primary criteria for policy decisions, what is a sober, long-term portfolio to do?
Since it really is all about creating a false reality, I predict a series of ?pretend? victories on the business front.
Carrier will open a new plant to great fanfare, and then bury the losses in some affiliate. Apple might even open a token factory to build a small number of? ?super premium? iPhones just to make Trump go away.
And now I just heard that China will retaliate against any trade sanctions by clamping down on casino company Wynn Resorts (WYNN) by limiting ATM withdrawals in Macao, instantly vaporizing 11.05% of this company?s market capitalization.
Steve Wynn was a big Trump supporter, but perhaps less so today.
Is this how it?s going to be? Is EVERYTHING now political?
I confess, I can?t write fast enough to keep up with this stuff.
Over the long term, it?s really tough to beat the Law of Supply and Demand.
The last major country that attempted to sidestep it with a closed economy was the Soviet Union, and we know how that worked out; however, it took 70 years to unwind.
The policy that Trump is attempting here is more National Socialism than Republican.
Trump?s bogus economic policies will eventually be exposed for the sham they are. It?s just a matter of time before they blow up. ?
Buying low and selling high based on solid fundamentals will once again become a successful investment strategy.
Until then, that toilet paper company is looking pretty good. And keep selling short Treasury bonds (TLT) and buying the US dollar (UUP).
Not in My Budget
The Future?