Global Market Comments
? July 28, 2016
Fiat Lux
Featured Trade:
(AUGUST 3 GLOBAL STRATEGY WEBINAR),
(SHAKING THE HAND THAT KILLED OSAMA BIN LADEN)
Global Market Comments
? July 28, 2016
Fiat Lux
Featured Trade:
(AUGUST 3 GLOBAL STRATEGY WEBINAR),
(SHAKING THE HAND THAT KILLED OSAMA BIN LADEN)
The team fought their way up two flights of stairs in pitch-blackness, dispatching several fighters along the way.
A tall figure emerged in the green glow of the night vision goggles. It hesitated. Two shots were fired, and the body hit the ground.
That was how Navy Seal Team Six member, Mark Owen, described the last seconds of Al Qaida leader, Osama bin Laden, in the raid on his Abbottabad, Pakistan compound.
I can?t tell you how I met Owen, except that the circumstances are classified, and it took place at an undisclosed location. A number of terrorist groups are seeking retribution for the raid, making Mark and his teammates prime targets.
He and his family now live in the witness protection program buried deep somewhere in the US.
Owen isn?t his real name of course, but a nom de? guerre. In fact, I can?t even tell you what he looks like. His prosthetic make up and wig were so convincing, I doubt his own mother could recognize him.
But there was no doubting the bone-crushing handshake of a Navy Seal.
Spending an hour with ?Owen?, I learned several fascinating details about the raid. Just before launching, the team was told there was a 70% chance the Pakistani Air Force would shoot them down on the way in.
There was also the possibility that their top-secret stealth helicopters would crash on a ground hugging flight through the mountains on the darkest night of the month. Every man was given the option to pass on the mission.
Not one did.
However, that didn?t stop them from joking among themselves about the suicide aspects of their assignment.
What guts!
What was the inside story of the raid?? The most wanted man in the world, the author of the 9/11 attack that killed 3,000 at the World Trade Center, used ?Just for Men?. ?
That was the brand of the hair-coloring agent the Seals discovered in the world?s greatest terrorist?s bathroom, used to make him look younger than he was.
Some of the seals speculated he did this to cut a more threatening figure in his online propaganda diatribes. Others said it was because he had two wives at the site.
The discovery of bin Laden?s secret fortified compound was the result of a decade of tireless investigation by CIA analyst, Maya Lambert. Her role was portrayed in the 2012 film, Zero Dark Thirty, with much embellishment.
The US torture of suspects probably slowed down the hunt, rather than accelerated it, because a glut of false information obscured valuable tips. People will say anything to stop the water boarding, right?
I would.
In the end, it was a junior CIA analyst trolling through ten-year-old archived data gathered in Morocco that uncovered the crucial clue. That was the name of Ibrahim Saeed Ahmed, who turned out to be bin Laden?s personal courier to the outside world.
Constant National Security Agency monitoring of his mother?s phone line in the Persian Gulf led to Ahmed?s location in Pakistan. He was then discretely followed to the mysterious compound in Abbottabad.
Bin Laden successfully hid for so long because he had fallen far off the grid of modern civilization. He never left the building, and didn?t use cell phones or the Internet. Trash was burned on site.
His sole means of communication was via flash drives and DVDs physically carried by Ahmed on an infrequent and unpredictable basis. Bin Laden had effectively jailed himself for five years to stay under the American radar. How ironic.
Since there was no means to verify the identity of the compound?s occupants before the raid, the Seals were the only option. Maya Lambert personally saw them off on their departure from an Eastern Afghanistan base. She too was committed to the mission to the very end.
Even when the helicopter in which Owen was riding crashed because of freak lift conditions, the mission went ahead. Since their carefully crafted and much practiced plan fell apart, they improvised on the spot, a mandatory Seal quality.
They professionally and methodically breached the compound?s outer wall and blew some steel doors off their hinges before they reached their third floor destination.
Owen went to great lengths to explain how the civilians on the site, including bin Laden?s own family members, were kept out of harm?s way.
After dispatching their target, the Seals quickly photographed him, took a DNA sample, and uploaded it via satellite link to Washington DC. Confirmation came back in minutes.
They had gotten their man.
Before the team cleared out, they bagged every possible item of intelligence value. There was so much material that they ran out of bags to carry it. Computers were smashed open and the hard drives pried out to save on space and weight.
Analyzed back home, this data revealed that several new attacks on the United States were in the planning stages.
After blowing up the remains of the crashed helicopter, the entire team piled into the remaining operational one, with only minutes of reserve fuel left. A much-feared counterattack from the Pakistani military never appeared.
After further identification, bin Laden was buried at sea from a US aircraft carrier in the Indian Ocean.
The success of the raid has done much to alter the discussion on the future of military forces, in the US, and around the world.
It turns out that it is strategically and tactically advantageous, and much more cost efficient to field a small number of super warriors, like the Seals, than a large number of cannon fodder.
Every general and admiral I know, and there are quite a few, would love to junk expensive, antiquated Cold War weapons systems whose sole benefit is that they create jobs in battleground congressional districts.
The Army still buys useless, unprotected, IED vulnerable Humvee?s because they are built in Florida, a major swing state in the last six presidential elections.
The Air Force has more wheezing, ancient, fuel inefficient C-130?s than pilots to fly them (we?re now on upgrade number 22) because they were assembled in Georgia, the home state of former Speaker of the House, Newt Gingrich.
Oh, and the manufacturer, Lockheed Martin (LMT), made sure to buy parts supplied by all 50 states to make it politically ?kill proof.?
Better to spend money on training, cyber warfare, drones, and Special Forces, which will be essential to fight the wars of the future.
?The greatest threat to national security is wasting money in the defense budget,? one brass hat told me, with some irritation.
In fact, the Seals, and the Army?s Delta Force are so effective and destructive that they could well replace entire divisions of the past. It?s a matter of hundreds doing the job of tens of thousands.
Owen went into great detail to explain the incredible difficulty of Navy Seal training. Only small fractions succeed at the 24 week Basic Underwater Demolition/Seal (BUDS) program.
The majority, ?ring the bell,? give up early, and are reassigned elsewhere in the military, without shame.
Mark says he was trained to ?eat the elephant one bite at a time,? and described how he struggled to get through a half year of torture a half day at a time. ?You wake up hoping to make it to lunch without quitting. Then at lunch you focus on getting to dinner without giving up. You then repeat this everyday until you graduate.?
Mark spoke of being dumped a few miles offshore and told to swim home in the icy Pacific. Classes would link arms and lie in the surf for eight hours to get accustomed to hypothermia.
They were tied up and thrown in a swimming pool for ?drown proofing.? For good measure they would then have to push a bus uphill, or repeatedly hoist a telephone pole over their heads.
Modern Seals can not only jump out of a plane at high altitude and blow up anything, they can also hack into computers, disassemble cell phones, and track you down online, no matter where you are.
Spurred on by my Dad?s tales of the old Under
water Demolition Teams (UDT), with whom he had experience during WWII, I once thought about applying to the Seals myself. But in the end, I passed. I didn?t think I could make it through the training. There are not a lot of things I won?t try, but this was one.
Because of their prolonged and extreme training, the Seals always get the toughest missions. Owen also participated in the rescue of Mark Phillips, the captain of the containership, Maersk Alabama, kidnapped by Somali pirates.
The cost of these accomplishments is high. Owen held up his cell phone and said it still contained the numbers of 40 close friends killed in action. He will never delete those contacts.
The Seals? focus on teamwork and leadership is so legendary that it has become an area of interest by American corporate management. Seals will volunteer for once unheard of 10th, 11th, and 12th tours to Iraq and Afghanistan, not because of any extreme patriotism, but because they want to be there to support their buddies.
Unsurprisingly, the divorce rate among Seals is about 90%.
Because of this spectacular record, the Seals are shouldering an ever-larger share of our defense burden.
Their numbers have expanded greatly in the past decade. I can?t tell you how many Seals are in action today because it is classified, but it is a much larger number than you think.
One of the greatest honors I have received in writing this letter is when I was invited by Seal commanders to attend a BUDS graduating class in Coronado, California.
Despite receiving many medals and commendations, Mark comes across as humble and self-effacing. It turns out that the braggarts and big talkers don?t make it through BUDS training.
The son of Christian missionaries in Alaska, Owen is now retired from the forces and is trying to get his life back together.
On complaining about neck pains after his helicopter crash, Mark said the Veterans Administration sent him home with a one-year supply of Motrin. After a hedge fund manager friend volunteered to pay for a private specialist, he was told his neck was ?broken? and sent into surgery the next day.
That sheds some uncomfortable light on the current VA scandal.
When my precious hour was up, I thanked Mark for his service and wished him well.
Mark has published his amazing account of the Abbottabad raid in his book ?No Easy Day.? It is a real page-turner, partially ghost written by a journalist friend. To purchase the book from Amazon, please click here.
?Investing now is like taking a shower while Norman Bates is somewhere in your house,? said Jim McTague, a journalist at Barrons.
Global Market Comments
July 27, 2016
Fiat Lux
SPECIAL BLACK SWAN ISSUE
Featured Trade:
(THE COMING BLACK SWANS OF 2016),
(TESTIMONIAL)
Let me make this clear.
These are not forecasts, predictions, or prognostications. They are not even guesses.
They ARE events which have a very low probability of occurring, but which can have an extremely large market impact if they do.
That is the textbook definition of a ?Black Swan?, a concept created by my friend, fellow mathematician, and fractal geometry fan, Nassim Taleb.
And here?s the bad news: Black Swans almost always have hugely negative impact on asset prices.
Black Swans have been occurring with disturbing regularity this year. Brexit, which almost everyone thought would fail, is a perfect example. So would an extreme, out-of-consensus monthly Nonfarm Payroll Report.
A black swan can come out of nowhere and completely wipe out your performance for the year. I have seen it happen to the unfortunate and the unwary too many times.
So it behooves us to engage in the intellectual exercise of what possible black swans are headed our way.
I won?t engage in the ridiculous, the fanciful, or in science fiction.
So an asteroid destroying the earth, a global pandemic, a giant solar electromagnetic pulse, or a visit from aliens, are definitely off the list.
I?ll limit myself to the highly unlikely, but not impossible.
1) Janet Yellen raises interest rates at the September 14 FOMC Meeting
You may guffaw at this one, with deflation accelerating, Brexit, a strong US dollar, and global uncertainty running amok.
However, I happen to know that the Fed governors absolutely HATE low interest rates, seeing them opening up a Pandora?s Box of risks for the US economy in the 2020s, and would love to abandon them at the earliest opportunity.
So if the recent bout of stock market strength continues into autumn, Janet may use the opportunity to nudge up overnight rates by 25 basis points. And you all remember what happened to risk assets the last time she did this.
Unlikely, but definitely a ?maybe?.
2) Donald Trump Wins the US Presidential Election
Despite all of the fanfare generated by the Republican National Convention, Hillary Clinton is still massively ahead of Donald Trump by 33 points, or 67% to 33%, on the betting sites, the most accurate predictors of election outcomes this year (click here at http://tippie.uiowa.edu/iem/).
This compares to the Bloomberg poll results, which still give Hillary an 18-point lead, 54% to 36%.
As a result, markets are discounting a Clinton win, which is why we have seen such a monster stock market rally since June, and is also why the Dow Average rose for nine consecutive days after the FBI gave her a clean bill of health on the email server matter.
However, TRUMP COULD STILL WIN.
If complacent Democrats stay at home and highly energized Trump supporters show up in droves, even the betting pools could get upset.
Just ask Thomas Dewey, who was supposed to beat Harry Truman, hands down, in the 1948 election.
Since details of Trump?s economic plans have yet to be clearly elicited, companies would simply cease new investment and sit on their hands.
At this point, they only know about the walls, the isolation, and the deglobaliztion of Trump?s, dark dystopian view made clear in the primaries, not exactly barn burners for risk takers anywhere.
Big capital only invests in high probabilities and certainties, not maybe's, possibilities, or uncertainty.
Recession would ensue, corporate earnings would collapse, and the stock market would crash. And I?m not talking about a measly 10% correction. This would be more like a severe 30%-40% bear market.
You have been forewarned!
3) The Apple iPhone 7 Bombs
Steve Jobs? creation has produced one of the longest strings of successful product rollouts in corporate history. Each one pushed the technology envelope unimaginably forward, to the very cutting edge.
So far, the next generation iPhone 7 roll out is scheduled for September. New sales records are anticipated, partly on the back of accelerating sales in China.
But what if the iPhone 7 is delayed? What if consumers fail to show? What if it just plain doesn?t work.
If the most widely owned stock in America, and one of the largest capitalized, suddenly drops by a third, as it has done on many occasions in the past, it would cast a pall on risk taking generally.
The downstream suppliers would certainly take a giant hit.
I don?t buy it, have great faith in Tim Cook, and think Apple will deliver once again. But there is one seriously disconcerting fact to consider.
Apple?s stock chart show than many investors believe this dire scenario is at least a possibility.
Apple?s shares have already been one of the worst performing big tech shares of 2016.
4) The Disintegration of Europe Accelerates
Sitting here in Europe, listening to the political posturing in the aftermath of Brexit, I can tell you that the future of Europe is uncertain, to say the least.
Will Brexit get undone? Will it stall for six years and drown in an endless series of meetings? Or will it accelerate?
If the latter occurs, the sharp recession now unfolding in the UK could spread Europe wide. Only last week, British business confidence hit an all time low, while redemptions from publicly traded commercial property ETF?s have been frozen.
A European recession would produce a serious drag on global growth, demolishing stock markets around the world.
So far, the Germans seem to be insisting, ?If you play, you pay.? The idea that Britain could maintain free access to the European market, while retaining it's subsidies, but restricting immigration, is being proven a fantasy.
It looks like my 2017 Mad Hedge Fund Trader European Global Strategy Tour is going to be a lot cheaper.
5) A Large Unicorn Goes Bankrupt
OK, I am definitely not naming names here, as I don?t want to prematurely trigger a stampede.
But there is no doubt that the San Francisco ?Unicorns?, non-public technology companies owned by founders, employees, and venture capital firms, are the most overvalued financial assets anywhere in the world today.
Many of these start ups either lose money, or sport astronomical price earnings valuations.
If any one of these 70 or so companies goes under, it could have a cataclysmic effect on the valuations of all the others.
There is a tree in the forest effect here protecting the general public. If no one is there and a tree falls, would anyone know it?
However if a serious unicorn collapse occurs, it could have a spill over impact on the public markets. That could hurt.
At least I?d finally be able to get a reservation at a decent restaurant at home.
Just thought you?d like to know.
Your background is very impressive and intriguing. You definitely have a lot of valuable and unique experience.
I read your most recent post on activist investing and couldn't agree more. I have always been a fan of activist strategies because even under an assumption of efficient markets, activism can still generate alpha in theory.
I have also heard about how process-oriented investments such as activism or distressed investing, where you have a greater influence over the final outcome, are valuable from a standpoint of downside protection.
Many thanks,
Andrew
Global Market Comments
July 26, 2016
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE JULY 27 BASEL, SWITZERLAND GLOBAL STRATEGY LUNCHEON),
(THE BULL MARKET IN AMERICAN COLLEGE DEGREES),
(TESTIMONIAL)
Come join me for lunch for the Mad Hedge Fund Trader?s Global Strategy luncheon, which I will be conducting in Basel, Switzerland on Wednesday, July 27, 2016.
A three-course lunch will be followed by an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate.
And to keep you in suspense, I?ll be tossing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $257.
I?ll be arriving at 11:30 AM 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 an exclusive five star hotel in the downtown area of the city, the location of which will be emailed to you with your purchase confirmation.
Basel is the city in Northwestern Switzerland where the German, French, and Italian cultures meet.
The third largest city in the country, it has been a major trade center since the Renaissance. During the 20th Century, it became the capital of the global pharmaceuticals industry.
Much of the Altstadt, where I?ll be staying, dates back to the 15th century. Basel offers a wealth of museums and other cultural amenities. It is also the site of many international conferences.
I know Basel well from my days as a director of the former Swiss Bank Corporation (now a subsidiary of UBS).
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets to the luncheon, please click here.
Global Market Comments
July 25, 2016
Fiat Lux
Featured Trade:
(WHAT?S ON YOUR PLATE FOR THIS WEEK?),
(SPY), (TLT), (GLD), (USO), (FCY),
(BLAME IT ALL ON THE RISK PARITY TRADERS!),
(VIX), (SPY), (TLT),
(TESTIMONIAL)
SPY SPDR S&P 500 ETF
TLT iShares 20+ Year Treasury Bond
GLD SPDR Gold Shares
USO United States Oil
FXY CurrencyShares Japanese Yen ETF
^VIX VOLATILITY S&P 500
The summer doldrums are back!
That is the only conclusion one can draw after observing the market action last week from my mountain lair in Zermatt, Switzerland.
Try as I might, it is impossible to flee this connected world, unless the power is cut off by an avalanche and your batteries die.
As I expected, last week stopped the monster stock market rally in its tracks. Every other asset class behaved accordingly.
Even the most wildly bullish investor has to be deeply concerned about the extreme overbought condition of the market on a short term basis, the incredibly narrow focus of buyers on a handful of names, and the utter lack of volume.
The bears have to be worried abut the failure of the of the market to selloff last week in the face if such sky high valuation parameters.
The S&P 500 (SPY) begrudgingly gave up a few points. Ten year Treasury bonds (TLT) suffered a much more serious seven-point hickey. Oil (USO) dove. Gold (GLD) flat lined. The Japanese Yen (FXY) churned.
But what else would you expect with someone like Donald Trump sucking all the oxygen out of the room?
And here?s the bad news. Next week, another political party will repeat the feat. Financial markets will react accordingly.
In other words, they won?t react at all.
We might get some nice month end mark ups on Friday to assure managers have some decent performance numbers to report.
That?s if anyone is around to notice.
This is definitely the week of the ?B? Team, with senior decision makers on risk and asset allocations more likely to be found in Southampton, New York, Newport Beach, California, or Cannes, France.
It?s not like they?ll be missing anything, as this coming week is relatively devoid of significant economic data, except for one big one.
At 10:30 AM EST on Monday, July 25, we get a peak of how seriously the oil collapse is affecting the rest of the Texan economy with the Dallas Fed Manufacturing Survey.
I?m looking for continued weakness, as shocks of this magnitude, like the oil crash, take years to work themselves out.
On Tuesday, July 26 at 9:00 AM Eastern the S&P 500 Case Shiller Home Price Index should deliver a housing market going from strength to strength.
As this is a three-month lagging indicator, the benefits of the ultra-low interest rates brought to us by Brexit won?t be apparent for another few months.
The big event of the week will be the Federal Open Market Committee decision on overnight interest rates, out at 2:00 PM EST on Wednesday, July 27.
Any action, other than a change of a word or two in their public statement, is highly unlikely. This cautious group of people is highly focused on the negative economic impact of Brexit and a strong dollar that are still unfolding.
Thursday, July 28, will be dominated by the Weekly Jobless Claims at 8:30 EST. It is unlikely that we will see a break down to a new 43-year low during the traditional summer slowdown.
Friday, July 29 at 8:30 AM brings us another look at Q2 Real GDP. These pre-Brexit estimates should continue to deliver a clear uptrend.
The bottom line here is that we should be setting up for a 4% correction in stocks in August.
If that happens, surely load the boat with risk, as we are headed for higher highs in everything going into the presidential election and the yearend.
Legal Disclaimer
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
This site uses cookies. By continuing to browse the site, you are agreeing to our use of cookies.
OKLearn moreWe may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
Google Webfont Settings:
Google Map Settings:
Vimeo and Youtube video embeds: