"There is tremendous amounts of money sitting on the sidelines. There is enormous M&A activity. The greatest thinkers in the corporate world are saying that it is cheaper to buy than to build. This says to me that the stock market still has value in it. We?re a long way from expensive,? said Milton Ezrati, senior economist and market strategist for money management giant, Lord Abbett.
Global Market Comments
April 28, 2016
Fiat Lux
Featured Trade:
(JUMPING BACK INTO APPLE),
(AAPL),
(THE SECOND AMERICAN INDUSTRIAL REVOLUTION),
(INDU), (SPY), (QQQ), (GLD), (DBA),
(TSLA), (GOOGL), (XLK), (IBB), (XLE)
Dow Jones Industrial Average (^DJI)
SPDR S&P 500 ETF (SPY)
PowerShares QQQ ETF (QQQ)
SPDR Gold Shares (GLD)
PowerShares DB Agriculture ETF (DBA)
Tesla Motors, Inc. (TSLA)
Alphabet Inc. (GOOGL)
Technology Select Sector SPDR ETF (XLK)
iShares Nasdaq Biotechnology (IBB)
Energy Select Sector SPDR ETF (XLE)
I have been holding back from buying Apple shares (AAPL) for the past 10 months, since back in June, 2015, the last time the shares peaked at $132.50.
That was when the stock fully discounted the launch of the iPhone 6s, it's last blockbuster product. I knew then that the company was about to enter a wide parched desert of falling sales, declining earnings, and sliding share prices.
We have just reached the end of that desert.
I have been saying for all of 2016 to buy (AAPL) after the disastrous Q1 earnings. So I am going to put my money where my mouth is and do exactly that.
From today?s $95.20 low the shares have to gain 28.15% to match their old high. I expect them to do exactly that by the end of the year.
The driver will be the launch of the iPhone 7 in September, which the entire world is obviously holding back to buy.
From this point on, Apple is a long play. Put your buying boots on, stop those buy rights, sell short some puts, salt away some shares in your 401k. I?m talking about a total risk reversal here.
Worst case, you lose $5; best case, you make $37.30. A risk/reward ratio like that is hard to find these days in this indifferent market.
With a PE multiple of 9X and $230 billion in cash on the books, every value player in the world is going to be forced to load up on these shares or get fired.
If you buy the stock, you will be competing with the company to do so, which announced a further $50 billion in buy backs yesterday.
It was definitely a pig of an earnings report that took the stock down 8% at the opening. Sales of its flagship product, iPhones, at 51.2 million units were actually better than the 50.3 million units that were expected.
But overall sales fell for the first time in 13 years. China revenues were down an eye popping 26%. The comps were terrible. But then, we knew all this was coming.
I thought there were more positives in the report than negatives. Service revenues leapt by 20% and are now the second biggest earner in the company, after iPhones. That?s where the future of the company lies, in things like Apple Pay and itunes.
The dividend will be increased by 10% to 2.20%. In a NIRP (negative interest rate) world that is positively high yield.
Record numbers of Android owners are switching to iPhones.
I have covered this company for 36 years and knew co-founder Steve Wozniak when he was a teenager. My first ?buy? of the stock was at a split-adjusted price of $1.
There is one thing that I have learned.
When things are good, they are never as good as people think they are. When they are bad, things are really not as bad as they appear either.
This is one of those latter times.
Circulating among Europe's top global strategists this spring, visiting their corner offices, camping out in their vacation villas, or cruising on their yachts, I am increasingly hearing about a new investment theme that will lead markets for the next 20 years: The Second American Industrial Revolution.
It goes something like this.
You remember the first Industrial Revolution, don't you? I remember it like it was yesterday.
It started in 1775 when a Scottish instrument maker named James Watt invented the modern steam engine.? Originally employed for pumping water out of a deep Shropshire coalmine, within 32 years it was powering Robert Fulton's first commercially successful steamship, the Clermont, up the Hudson River.
The first Industrial Revolution enabled a massive increase in standards of living, kept inflation near zero for a century, and allowed the planet's population to soar from 1 billion to 7 billion. We are still reaping its immeasurable benefits.
The Second Industrial Revolution is centering on my own neighborhood of San Francisco. It seems like almost every garage in the city is now devoted to a start up.
The cars have been flushed out onto the streets, making urban parking here a total nightmare. These are turbo charging the rate of technological advancement.
Successes go public rapidly and rake in billions of dollars for the founders overnight.? Thirty-year-old billionaires are becoming commonplace.
However, unlike with past winners, these newly minted titans of industry don?t lock their wealth up in mega mansions, private jets, or the Treasury bond market.
They buy a Tesla Model S-1 (TSLA), and then reinvest the rest of their windfall in a dozen other startups, seeking to repeat a winning formula.
Many do it.
Thus, the amount of capital available for new ideas is growing by leaps and bounds. As a result, the economy will benefit from the creation of more new technology in the next ten years than it has seen in the past 200.
Computing power is doubling every year. That means your iPhone will have a billion times more computing power in a decade. 3-D printing is jumping from the hobby world into large-scale manufacturing. In fact, Elon Musk's Space X is already making rocket engine parts on such machines.
Drones came out of nowhere, and are now popping up everywhere.
And don?t get me started on virtual reality. Ever wanted to date Cybil Shepherd or Nicole Kidman? How about both, at the same time? The possibilities boggle the mind.
It is not just new things that are being invented. Fantastic new ways to analyze and store data, known as ?big data? are being created.
Unheard of new means of social organization are appearing at breakneck speed, leading to a sharing economy. Much of the new economy is not about invention, but organization.
The Uber taxi service has created $65 billion in market capitalization in only five years, and is poised to replace UPS, FedEx, and the US Postal Service with ?same hour? intracity deliveries.?Now they are offering ?Uber Eats? in my neighborhood, which will deliver you anything you want to eat, hot, in ten minutes!?
Airbnb is arranging accommodation for 1 million guests a month, including 120,000 in Brazil for last year?s World Cup. They even had 189 German guests staying with Brazilians. I bet those were interesting living rooms on the final day! (Germany won).
As for me, I am planning my own all Airbnb trip to Europe next summer. It should be interesting.
And you are going to spend a lot of Saturday nights at home alone if you haven?t heard of Match.com, eHarmony.com, or Badoo.com.
Biotechnology (IBB), an also-ran for the past half-century, is sprinting to make up for lost time. The field has grown from a dozen scientists in my day 40 years ago, to several hundred thousand today.
The payoff will be the cure of every major disease, like cancer, Parkinson?s, heart disease, AIDS, and diabetes, within ten years. Some of the harder cases, such as arthritis, may take a little longer. Soon, we will be able to manipulate our own DNA at will.
The upshot will be the creation of a massive global market for these cures, generating immense profits. American firms will dominate this area, as well.
Energy is the third leg of the innovation powerhouse. Into this basket you can throw in solar, wind, batteries, biodiesel, and even ?new? nuclear.? The new Tesla home battery will be a game changer. Visionary, Elon Musk, is ramping up to to make tens of millions of these things.
The message to big oil is that Elon sold 400,000 of his new Tesla 3?s in just two weeks, and that is for a car that won?t be delivered for two more years.
Use of existing carbon based fuel sources, such as oil and natural gas, will become vastly more efficient. Fracking is unleashing unlimited new domestic supplies at costs that are falling at an incredible rate.
Welcome to ?Saudi America.?
The government has ordered Detroit to boost vehicle mileages to an average 55 miles per gallon by 2025. The big firms have all told me they plan to beat that deadline, not litigate it, a complete reversal of philosophy.
Coal will be burned in impoverished emerging markets only, before it disappears completely. Energy costs will drop to a fraction of today?s levels, further boosting corporate profits.
If you thought the Internet was big, free energy will have a far greater impact on the global economy.
Coal will die, not because of some environmental panacea, but because it is too expensive to rip out of the ground and transport around the world when all of the costs are factored in.
Seven years ago, I used to get two pitches for venture capital investments a quarter, if any. Now, I am getting two a day. I can understand only half of them (those that deal with energy and biotech, and some tech, where I have a background).
My friends at Google Venture Capital are getting inundated with 20 a day each! How they keep all of these stories straight is beyond me. I guess that?s why they work for Google (GOOGL).
The rate of change for technology, our economy, and for the financial markets will accelerate to more than exponential.
It took 32 years to make the leap from steam engine powered pumps to ships, and was a result of a chance transatlantic trip by Robert Fulton to England, where he stumbled across a huffing and puffing steam engine.
Such a generational change is likely to occur in 32 minutes in today?s hyper connected world, and much shorter if you work on antivirus software (or write the viruses themselves!).
The demographic outlook is about to dramatically improve, flipping from a headwind to a tailwind in 2022. That?s when the population starts producing more big spending Gen Xer?s and fewer oversaving and underproducing baby boomers. This alone should add at least 1-2% a year to GDP growth.
China is disappearing as a drag on the US economy. During the nineties and the naughts, they probably sucked 25 million jobs out of the US.
With an ?onshoring? trend now in full swing, the jobs ledger has swung into America?s favor. This is one reason that unemployment is steadily falling. Joblessness is becoming China?s problem, not ours.
The consequences for the financial markets will be nothing less than mind boggling. The short answer is higher for everything. Skyrocketing earnings take equity markets to the moon.? Multiples blast off through the top end of historic ranges. The US returns to a steady 4% a year GDP growth in the 2020's.
What am I bid for the Dow Average (INDU), (SPY), (QQQ) in 2030? Did I hear 300,000, a 17-fold pop from today?s level? Or more?
Don?t think I have been smoking the local agricultural products in arriving at these numbers. That is exactly the gain that I saw during 1982 to 2000, when the stock average also appreciated 17 fold, from 600 to 10,000.
Th
ey?re playing the same movie all over again. Except this time, it?s on triple fast forward.
There will also be commodities (DBA) and real estate booms. Even gold (GLD) gets bid up by emerging central banks bent on increasing their holdings to western levels.
I tell my kids to save their money, not to fritter it away day trading now, because anything they buy in 2020 will increase in value tenfold by 2030. They?ll all look like geniuses, like I did during the eighties.
After that, I will be 78, and it will be up to them to figure out what is going to happen next.
What are my strategists friends doing about this forecast? They are throwing money into US stocks with both bands, especially in technology (XLK), biotech (IBB), and energy (XLE).
That?s why the market bounced back so hard from the 10% correct in Q1.
This could go on for decades.
Just thought you?d like to know.
"The Fed is not worried about inflation in the next few years and wants growth first, growth second, and growth third. With the stabilization of Europe, the apparent pick up in China, and a US economy still on a reasonable footing, the Fed's heavy leaning to a growth policy should lead to a pretty favorable environment for the markets," said legendary hedge fund manager, David Tepper, of Appaloosa Management.
Global Market Comments
April 27, 2016
Fiat Lux
Featured Trade:
(HEARD ON THE ROAD PART II),
(CONTANGO IN THE (UVXY) EXPLAINED ONE MORE TIME),
(UVXY), (VIX), (VXX), (SPY),
(TESTIMONIAL)
ProShares Ultra VIX Short-Term Futures (UVXY)
VOLATILITY S&P 500 (^VIX)
iPath S&P 500 VIX ST Futures ETN (VXX)
SPDR S&P 500 ETF (SPY)
New York City was as alive as I have ever seen it. Maybe it was because it was the beginning of spring and the residents were venturing outdoors for the first time this year, their eyes blinking in the bright sunlight.
Old neighborhoods are gentrifying at an incredible rate. At this pace there won?t be any poor people left in Manhattan. I couldn?t get into the Tenement Museum because the tickets were sold out. That?s where tenements belong, in museums.
Instead of my usual ten-mile hike around the Tahoe Rim Trail, or up Berkeley?s Grizzly Peak, I hoofed it about Lower Manhattan and Brooklyn, and then back over the Brooklyn Bridge.
It was interesting to notice that the French custom of cementing a long term relationship by placing a lock on a public fence has spread to the Brooklyn riverside park. All culture is going global.
I made my ritual lunch stop at Katz?s Deli, the oldest such establishment in the country, and the location of the cult film, ?Where Harry Met Sally?. Nobody makes a better pastrami on rye, even if you have to wait in line a half hour to get one.
On my day off I made the long trek all the way up to visit the Franklin Delano Roosevelt Presidential Library and the Hyde Park Estate where he lived.
It is the best of the presidential libraries I?ve visited. In it I saw a letter from Albert Einstein urging him to start a nuclear program with the goal of building a massive bomb, dated August, 1939, just a month before WWII started.
I also saw a note handwritten by FDR to the Joint Chiefs of Staff ordering them to hold Guadalcanal ?at all cost.? Both my Dad and my Uncle Mitch were fighting on that hellish South Pacific island at the time.
On the way home I stopped at the Vanderbilt mansion, the apex of Gilded Age consumption. Incredibly, there is no Vanderbilt fortune today, once one of the largest in the country. It was all spent.
The only money the Vanderbilt?s now have, such as Gloria and her son CNN reporter Anderson Cooper, they earned themselves.
On the flight to Chicago I sat next to an executive recruiter whose colleague specialized in the oil business. There is a total industry cleanout going on. CEO?s who were complete bastards two years ago have come back begging for jobs. Such is the price of hubris.
We spent much of my Chicago Global Strategy Luncheon discussing the future of the US commercial real estate business with a very intelligent group of people. I think it is one of the safest bets around, and will be a huge winner if my deflationary century scenario unfolds. Where else can you get double-digit returns and still take the paper home to meet your mother?
The big gossip in the Windy City was Hillary Clinton?s aggressive recruitment of a transition team, even though the election was still six months off. Apparently they want to hit the ground running.
At he University Club I listened in on the table next to me as a young African American women was interviewed and answered every question perfectly. She was whip smart.
Having traveled around the United States for a half century, I have noticed a few changes.
The regional accents are dying out, but the food is getting better. The cities have grown enormously, both upward and outward. Some 50 years of mostly nonstop prosperity accomplishes quite a lot.
We are all becoming much more diverse and educated, and far more demanding consumers. Unfortunately, we are a lot bigger too, creating the root of all our health care problems.
The star of the trip was the Uber ride sharing app. In a week I jumped in and out of cars 40 times, each vehicle clean and efficient. No hassles about payment, change, directions, or receipts. Maybe the company really is worth $65 billion.
As I sped down the tracks to New York at 70 miles per hour, I could see cars clustering at every station in New England. Amazing.
It?s all been another week in the life of the Mad Hedge Fund Trader.
It was great seeing you today in Atlanta. Thank you for just being you. As I mentioned, there's so much "crap" out there that's it's so nice to just hear it straight.
Several years ago I finally realized it just doesn't matter what I think, only what is (although I still cringe sometimes). That's the hard part. Actually finding the truth.
Even harder is how to act on it! And risk management. I have much to learn but I was glad to find out how much I do understand. (But I'll never be a coder! Too late for that.)
I'm looking forward to your options video book coming out soon. I will study hard and try to be a model student you can be proud of. Then I can write that glowing thank letter you enjoy using in your newsletters!
Safe journeys! I'll continue to live vicariously through your travels via newsletter, although I'd take you up on being your welcoming committee at your events!
I look forward to hearing you on the webinars!
Thanks again and see you next time!
Karen
Orlando, Florida
?The barriers to Wall Street are quite low, once you have the Ivy League credentials. If you?re a certain kind of kid who doesn?t actually know anything about anything, Wall Street is still a great place to go,? said Michael Lewis, author of ?The Big Short.?
Global Market Comments
April 26, 2016
Fiat Lux
Featured Trade:
(APRIL 27 GLOBAL STRATEGY WEBINAR),
(HEARD ON THE ROAD PART I),
(IT?S ALL ABOUT YIELD),
(SPY)
SPDR S&P 500 ETF (SPY)