Global Market Comments
April 2, 2015
Fiat Lux
Featured Trade:
(FRIDAY, APRIL 17 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON)
(AN UPGRADE FOR THE TESLA SUPERCHARGER NETWORK),
(TSLA),
(NOTICE TO MILITARY SUBSCRIBERS)
Tesla Motors, Inc. (TSLA)
I am writing this to you from the veranda of my penthouse suite at the Maui Hyatt Hotel.
I am sipping my fifth cup of Kona coffee for the morning. You see, the New York market opens at 3:30 AM here. On the other hand, Tokyo hours run from 3:00 ? 8:00 pm, ideal working hours if surfing every morning is your priority.
That explains why so many Asian oriented hedge funds are based here. You can tell by all the BMW?s and Ferrari?s parked at the prime surfing beaches.
The channel in front of me between the islands of Maui and Lanai is a veritable freeway for whales. I can see pods of humpbacks blowing and breaching every few minutes, chased by a flotilla of tourist bearing whale-watching boats. It is truly one of the greatest sights in nature.
I received an email from Tesla (TSLA) this morning informing me of the latest additions to the Tesla National Supercharger Network. Drivers of the Tesla Model S-1 and soon the Model X SUV will be ecstatic.
Should holders of the shares be similarly ebullient? I?ll get to this last point later.
The new station in Truckee, California now makes it possible to drive to Salt Lake City, and then on to Chicago and New York.
An addition in Petaluma, California now makes possible a round trip for a romantic weekend in Mendocino. Before, you had to spend at least three days there while a lowly 110-volt charge got you enough juice to get home, excuses in hand.
There is also another supercharger in remote Inyokern, California, on US Highway 395 in the Owens Valley. This puts ski weekends at Mammoth Mountains for Los Angeles Tesla drivers on the calendar (if they ever get any snow).
It is all exciting news for me, who has been following the construction of the National Supercharger Network since it consisted of only two stations. Over the years, readers have been faithfully emailing me photos of stations as they were built from locations as far away as North Dakota (thanks Susanna!).
By the end of next year, no point in the continental United States will be more than 200 miles from a station.
Superchargers allow a full charge for a depleted battery in 45 minutes, giving you a 270 miles range, and it is free. They are usually located in big shopping malls where one can pick up a Starbucks or catch a meal while your car is getting juiced up. Many support vast arrays of solar panels.
This is a big deal.
It is not just a luxury toy for the rich and famous. It is all part of an infrastructure build out for when Tesla takes over the global car market in three years. That?s when the Tesla 3 model comes out at a cost of $35,000 with a 300-mile range. Initial production is slated for 400,000 units a year.
As for the stock, it is a ?no touch? here. How do you value a company that will be producing 15 million units annually in 15 years, and is miles ahead of the competitors on the technology front, but is losing money now after the tax breaks are stripped out?
It beats me.
Apparently, other investors are having the same problem, as a position in the stock has been dead money for the past year. Now, we have the technical picture starting to roll over and play dead.
All I know is that it was a screaming ?BUY? at $16 when I first recommended to readers after a disastrous IPO years ago.
In the meantime, it is best to wait for Tesla to announce new drivers for the share price until we dive back in. An announcement of a launch date for the Model X would be a big help.
Until then, buy the car and not the stock.
Back to whale watching.
Plenty of Spaces at the Truckee Supercharger Station
Buy the Car, Not the Stock
I am writing this to you from Terminal 3 at San Francisco airport, awaiting my flight to Honolulu, Hawaii.
The pilot strides by quickly and purposefully, and I?m wondering if I should stop him for a brief pilot to pilot chat.
How are you feeling? Are you satisfied with your life?
Are you feeling depressed at all?
Hey, did you hear the one about the chicken that crossed the road...?
Two guys walk into a bar, and there?s a duck sitting on a barstool...?
Did you know that the three most often told lies are ?the check is in the mail?, ?I?ll get back to you? and ??
A Protestant, a Catholic and a Jew are sitting next to each other when the engine fails?
My kids quickly talk me out of the idea. They convince me that if I did make it to Hawaii, I probably would only get as far as the Federal Detention Facility in Honolulu. This must be the only family in the world where the kids have to ask the dad to exercise discretion.
But I digress.
No, this is not some kind of April Fool.
You would think that homebuilders would be the worst place in the world to invest right after the biggest bond bull market in history is ending, and interest rates are going to rise.
Not so.
In fact, homebuilders are the current number one pick of Bill Miller, the legendary stock picker at fund manager Legg Mason. He argues strongly that it will be the easiest place to make money in the market for the rest of the decade, with the stocks doubling or more from current levels.
I like the sound of this.
Bill argues that there is a 500,000-unit deficit in homebuilding industry capacity compared to market demand. It trades at a 25% discount to the S&P 500 earnings multiple of 17X. He expects profit growth to run at a 20% annual rate for the next 3-5 years.
And let?s face it. The data out of the real estate industry in February was nothing less that blockbuster. February new home sales were up a red hot 7.8% and January was revised up to a smoking 4%. February pending home sales clocked 6.1% and 12% year on year.
When you see an entire data range catch fire like this, it becomes highly convincing.
This rocketing demand is occurring in the face of shrinking supply. There are now only 1.8 million existing homes on the market in the United States, a 4.6 month supply, close to an historic low. Real estate agents are clamoring for new supply, but the builders are taking their own sweet time.
After a quiescent 2014, home prices in America have started to rise once again.
You would think that anyone going into the homebuilders just as interest rates are starting to increase has a hole in their head. But look at the correlation between rates and homebuilder share prices, and the opposite is true.
When prices began their meteoric rise last year, culminating in an eye popping 1.62% yield on ten year Treasury bonds (TLT) in January, homebuilder stocks looked liked they had Montezuma?s revenge.
Now that rates have backed off, and the Fed has been rattling its saber for more interest rate rises (goodbye ?patience?), the sector has been on fire.
The reason is that the Fed will raise rates only if they see inflation coming. This would be fantastic news for the entire real estate industry, the most reliable inflation hedge out there for the individual investor.
Having your inventory appreciate in value through no effort of your own is also about the best thing that can happen to any developer.
The key to understanding these stocks is that this is not you father?s real estate industry.
Absolutely no one competes for market share anymore. Companies are constructing only enough homes they are certain to sell at high margins. They?re also getting cagier on land acquisition costs.
Hence the shortage.
Look no further than Lennar (LEN). At the top of the last housing cycle in 2005, they built 53,000 houses. In 2015, they will construct only 25,000, but will earn a far greater profit margin on them.
Those firms that reached for market share with leverage were wiped out by the great cleansing of the 2008 crash, or were taken over for pennies on the dollar.
Mind you, the industry still has major challenges. The entry-level buyer is missing in action, as millions of students buckle under crushing debt loads. Some 10% of all homeowners representing 5.4 million units are still underwater on their mortgages, blocking trade ups.
These factors alone explained the market?s and the homebuilder shares lack of sizzle in 2014.
But longer term, the outlook is fantastic.
My ?Golden Age? scenario for the 2020?s makes the homebuilders an absolute sweet spot to be in. A demographic shortfall will make workers scarce, lead to rising wages, and at long last bring a return of inflation. It is a perfect storm for rising home prices.
Could the market already be starting to discount the great things to come in the next decade?
In addition to (LEN), the usual suspects in this sector include Pulte Homes (PHM), KB Homes (KBH), the old Kaufman & Broad (who sold out right at the top) and DR Horton (DHI). You can also contemplate the Real Estate iShares ETF (IYR).
Coming Soon to a Neighborhood Near You
Global Market Comments
March 31, 2015
Fiat Lux
Featured Trade:
(WEDNESDAY APRIL 1 GLOBAL STRATEGY WEBINAR),
(ENTERING THE QUIET TIME),
(SPY), (IWM), (QQQ), (IJR), (GS), (FXE),
(CHINA?S COMING DEMOGRAPHIC NIGHTMARE)
SPDR S&P 500 ETF (SPY)
iShares Russell 2000 (IWM)
PowerShares QQQ Trust, Ser 1 (QQQ)
iShares Core S&P Small-Cap (IJR)
The Goldman Sachs Group, Inc. (GS)
CurrencyShares Euro ETF (FXE)
I?ll let you in on my top secret investment strategy that has brought me blockbuster results over the past six years.
Listen to the Wharton Business School?s professor, Jeremy Siegel.
The good doctor has been unremittingly bullish year in and year out, nearly pegging the stock index performance annually.
So, when he says that the Dow Average is going to rise to 20,000 by the end of 2015, that?s good enough for me. In fact Siegel thinks that at current price earnings multiple of 17 times, the bull market has years to run.
It would not be until we hit nosebleed levels of 25X or 30X earnings that he would get worried. And the current ultra low level of interest might even make these high multiple numbers justifiable.
So for the foreseeable future, we are going to see long periods of tedious range trading, followed by frenetic rounds of buying, once the market decides that it is time to discount the next rise in corporate earnings.
We happen to be in one of those range-trading periods right now, which my partner, Mad Day Trader Jim Parker, thinks could last all the way until September.
Actually, it is a little more complicated than that.
There is good reason for the stock market to go to sleep over the next two weeks.
Do you hear that great sucking sound? That is the noise of 170 million tax payers writing checks to the US Internal Revenue Service.
Foreign readers may not realize this, but tax payments are due in the United States on April 15 every year. I would ask for your sympathy, but I know all of you pay far more in taxes than we do. I know, because I used to pay them myself when I lived abroad for 23 years.
Of the $6 trillion in revenues from all sources due to Uncle Sam in 2015, 37%, or $2.2 trillion will come in the form of individual income taxes. That is a big hit for the financial system. That means for the next two weeks there won?t be any extra money lying around to put into the stock market.
There is another reason why the stock indexes are stagnating here. The Q1, 2015 corporate earnings reporting season kicks off when Alcoa (AA) reports on April 8, or in six trading days. Until then, we are in the quiet period, and companies are not allowed the buy back their own stock.
This is a big deal, since companies buying back their own shares have provided major support for the stock market for many years. Possibly a quarter of all the net cash flow pouring into stocks since 2009 has come from this source.
Take it away, even for a short period, and the most bullish thing the market can do is move sideways, which is exactly what it has been doing for the past two months.
What happens when the tax payment deadline passes and the quiet period ends? Stocks take off like a bat out of hell. That will take us to the spring interim peak.
This is why I strapped on three new ?RISK ON? positions last Friday, longs in the Russell 2000 (IWM) and Goldman Sachs (GS) and a short in the euro (FXE).
Global Market Comments
March 30, 2015
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE FRIDAY, APRIL 3 HONOLULU, HAWAII STRATEGY LUNCHEON)
(TAKE PROFITS ON CYTRX CORP. (CYTR)
CytRx Corporation (CYTR)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in Honolulu, Hawaii on Friday, April 3, 2015. 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 and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $208.
I?ll be arriving at 11:30 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 the premier hotel on Waikiki Beach, Honolulu on the island of Oahu. The precise location will be emailed with your purchase confirmation.
As I am unlikely to make it down to Australia and New Zealand this winter, I urge my many followers there who are chock a block with frequent flier points to make the trip up to the balmy Hawaiian Islands to attend the lunch. So should readers in Alaska, British Columbia, Washington state, and Oregon. There are plenty of other things to do there besides listening to the dulcet tones of John Thomas speak.
You can?t lose by renting a car and spending a day driving around the island to experience the lush, fragrant jungle and gigantic crashing waves at Waimea Bay. Pineapple plantations offer an enticing lunch stop.
A visit to the USS Missouri at Pearl Harbor, the site of Japan?s surrender ending WWII, is a must see for history buffs. You can still see the dent in the hull from a crashing Kamikaze plane.
I always try to squeeze in a workout by climbing to the top of Diamond Peak. The surfing instructors at Waikiki Beach are always ready to tune up your skills. A trip to the Polynesian Cultural Center will set you up with dancing natives in grass skirts and a pig roasted on a spit.
While in America?s 50th state, I?ll be renewing my interisland flying skills, renting a plane to fly to Maui, Kauai, and the Big Island. Flying there is so dangerous that the state requires mainland pilots to obtain a special amendment to their licenses, which I have had for the last 40 years.
Among the many challenges there are erupting volcanoes, unbelievable wind shear, sudden tropical thunderstorms and enormous waves that threaten to hit your plane on takeoff and bend your propellers forward. If you crash on Mt. Haleakala, the Park Service will charge you (or your estate) for carting down the wreckage.
And the slightest miscalculation in fuel consumption will find you drifting back to Australia in a life raft, Unbroken style. Don?t worry, they closed the leper colony on Molokai a few years ago.
It?s all worth it just to see the torrential waterfalls cascading off the southern cliffs of Molokai, to catch a pod of migrating humpback whales, or witness one of those amazing tropical sunsets.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
?
It?s time to take profits on CytRx Corp., but only if you are a trader. The shares that I first recommended in June, 2014 have just tacked on a healthy 40% over the last three weeks.
However, if you are an investor, hang on. I believe that the biotech boom in the US is only just getting started. The sector should grow from 1% to 20% of US stock market capitalization over the next decade. All major diseases will get cured.
Yes, we will live forever.
CytRx Corp?s cutting edge technology will enable it to continue rising that tsunami.
If there is one complaint about the Diary of a Mad Hedge Fund Trader, it is that I am too short term in my orientation. My response is that this is the only way you can obtain a 163% trading return in 4 ? years.
I can skim off the cream when others can?t.
There is a reason why we are the only investment newsletter that publishes our performance on a daily basis. Basically, all our competitors lose money for their readers. It?s a lot like those Japanese restaurants that display plastic models of their food in the front window, which are inedible.
Still, I like to throw readers ten baggers when I find them. Long-term followers get that warm and fuzzy feeling when I mention Baidu (BIDU) ($12 to $190), Cheniere Energy (LNG) ($5 to $68), Molycorp ($12 to $80), and Tesla (TSLA) ($16 to $260) for a good reason.
Well, I found another ten bagger, one you can just buy and forget about for the next three to five years. I discovered this jewel at the SALT conference in Las Vegas last year organized by my friend, Anthony Scaramucci (click here for ?The Report on the 6th Annual Skybridge Alternatives (SALT) Conference).
At the keynote dinner, I randomly picked a table near the stage. One of the couple next to me wore a UCLA pin where she graduated, prompting a discussion of the Golden Age of Bruin basketball and the salad days of legends John Wooden and Bill Walton (four perfect 30-0 seasons and an 88 game winning streak!).
I casually mentioned I was there as a cancer researcher and DNA scientist during the early 1970?s and graduated in biochemistry. The ears perked up, and the dam broke.
The gentleman I was dining with turned out to be the CEO of CytRx Corp. (CYTR) a revolutionary innovator in the chemotherapy field. Through a top secret, patented chemical reaction, their chemists can add an acid sensitive linker molecule to pre existing generic chemotherapy drug.
That enables the drug to only kill the cancer cells and not the rest of you as well, eliminating side effects, and permitting a substantial ramping up of the dosage. I worked out the chemistry in my mind, and quickly figured out that it would work.
The net effect is to install a turbocharger on existing drugs, greatly enhancing their curative effects. That means lower doses that can cure, with no side effects.
Stage three trials will be completed by 2016, when the company expects full FDA approval. The company has $125 million in cash and no debt.
I lost a wife to cancer 12 years ago, and received a crash update on the state of the science since then. I have been following it ever since, awaiting my turn.
If CytRx is able to pass the FDA gauntlet, then they have found the Holy Grail.
To learn more about the company and obtain the details, please visit their website at http://www.cytrx.com.
Curing of cancer during the 2020?s is a major part of my Golden Age scenario for the coming decade (click here for Here Comes the Next Golden Age).
The kicker here is that there is not just one, but hundreds of companies developing ground-breaking treatments that will come out in the years ahead, many of them located just across the bridge from me. This should collapse the cost of health care for the government, and the rest of us as well.
Remember that buying the shares of a drug company before final approval is always a crapshoot. That last time I did this was with Genentech?s (DNA) Avastin, because I was dating the senior researcher there at the time (tall, long legs, blue eyes, brilliant).
The shares doubled the day they got the green light, and Bank of America flipped from a ?SELL? to a ?BUY? recommendation for the stock on top of a $30 move, tail between legs. That was good.
As we parted ways, the CEO even pushed over his desert, from which his doctor forbade him for health reasons. I gobbled that up as well.
Is CytRx (CYTR) Another Ten Bagger?
Global Market Comments
March 27, 2015
Fiat Lux
Featured Trade:
(WEDNESDAY APRIL 1 GLOBAL STRATEGY WEBINAR),
(FRIDAY, MAY 15 SAN FRANCISCO STRATEGY LUNCHEON)
(TEN TIPS FOR SURVIVING A DAY OFF WITH ME)
?If the dollar stays up here, a lot of companies are going to have to re price their products. Very few firms have the pricing power of Apple,? said my friend, Dan Niles, of Alpha One Partners.