Global Market Comments
March 19, 2018
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or DEALING WITH CHAOS OVERLOAD),
(TLT), (FB), (AAPL), (FXE), (AVGO), (QCOM),
(THE BEST TESTIMONIAL EVER)
?
Thank goodness I don't work in the White House press corps any more, for the week's events would have sent me turning in circles like a whirling dervish.
First, Secretary of State Rex Tillerson was fired by tweet. Then threats were made of an additional $60 billion in special tariffs on Chinese imports.
A Democrat overcame a massive 20-point deficit to win in Pennsylvania by election right in the heart of Trump country.
Next, a TV talk show host was named the president's Chief Economic Advisor, replacing the former head of Goldman Sachs. That makes so much sense coming from a reality show presidency.
We learned the president's company was subpoenaed for a criminal investigation followed by more hints that the chief investigator may be about to be fired. A torture expert was appointed head of the CIA.
Then the No. 2 man at the FBI was fired the day before he was to retire.
Oh, I almost forgot. The most important technology takeover of this generation, Broadcom's (AVGO) bid for QUALCOM (QCOM), was stopped in its tracks by the administration.
Fortunately, I now live in another world, where sales, earnings, EPS and dividends are the things that matter, and all of those things are still good, if not great.
In fact, the market did not care a whit about the goings on east of the Potomac. At worst, we were down 389 points on the week, hardly a mosquito bite.
Here's the problem with this logic: If the chaos in Washington is not bad enough to cause a stock market crash now, it WILL become that bad eventually.
We are all passengers on a runaway train and the engineer has gone insane. It is not a matter of IF the train will crash, but WHEN.
Of course, the trampoline for the market was the most perfect Nonfarm Payroll Report in a decade, published on March 9. A market can tolerate a lot of abuse with 313,000 monthly job gains and a YOY Consumer Price Index (CPI) of 2.2%.
This means that inflation is essentially at zero. That's what got us the latest bond rally in which to sell.
If there is a dark cloud behind the silver lining it was the February Retail Sales of -0.1%, the third consecutive down month.
The massive tax cuts were supposed to send us pouring into the stores to spend as if we were storming the Bastille. So far, it isn't. If that doesn't start soon it could become a big problem for the market, and for your retirement funds.
I shall reiterate a conversation I had with a concierge client this morning. At this point in the economic cycle you want to be as aggressive as hell with your trading account. But keep in mind that your last trade will be a total loss.
Black swans can alight at any time, as can a total Washington blowup.
Those who are negative on the market, especially technology stocks, have totally missed the recent bull move and are therefore embarrassed, confused and bitter. They are talking their own book.
If you can tolerate this kind of risk/reward, then go for it. If you can't, better to execute my "Long Cruise" strategy. There will be fabulous short selling opportunities in 2019.
It was a good week for the Mad Hedge Trade Alert Service. Our double long in Apple (AAPL) raced up to a new all-time high.
Our remaining March options in Facebook (FB), both long and short, and our short in the Euro (FXE) all expired at our maximum potential profit points on the Friday options quadruple witching.
I also managed to take advantage of a rare rally in the US Treasury market (TLT) that took the yield down to 2.80% to jump back in on the short side.
You would think that selling bonds right before another Fed interest rate high was a good idea, but I was one of the few who actually executed this trade.
These happy and well foreseen developments took our March performance up to a robust 5.02%, our 2018 number to 10.65%, and our eight-year number to 288.12%. We are a scant 30 basis points below another new all-time high.
Yes, I know I make this look like a walk in the park. The truth is that this is the hardest 10.65% I have ever earned.
This coming week will see only one event of note, on Wednesday, when the Fed raises interest rates by 25 basis points. The Q1 earnings cycle doesn't start for another month. That should bring us the next leg up in the bull market.
On Monday, March 19, nothing of note takes place. Hit the "snooze" button on the alarm.
On Tuesday, March 20, the Federal Open Market Committee (FOMC) meeting begins.
On Wednesday, March 21, at 2 p.m. EST, the FOMC will most likely raise interest rates by 25 basis points to a 1.50%-1.75% range.
Thursday, March 22, leads with the Weekly Jobless Claims at 8:30 a.m. EST, which hit a new 49-year low last week at an amazing 210,000. Leading Economic Indicators follow at 10 a.m. EST.
On Friday, March 23, at 8:30 a.m. EST we get February Durable Goods Orders. February New Home Sales follow at 10 a.m.
At 1 p.m. we receive the Baker-Hughes Rig Count, which saw a small rise of three last week.
As for me, I will be working with my electrician to rewire my home to accommodate a doubling of my solar array to accommodate my new all-electric heating system.
The hoops I had to jump through with my local utility, Pacific Gas and Electric (PCG) were unbelievable, and will be the subject of a future research piece.
Suffice it to say, it would be easier for a Democrat to obtain a presidential pardon from the current administration.
Good luck and good trading!
Riding the Bull Can Be Tough
Global Market Comments
March 16, 2018
Fiat Lux
Featured Trade:
(MARCH 14 GLOBAL STRATEGY WEBINAR Q&A),
(TLT), (QCOM), (GS), (NVDA), (PANW), (FEYE),
?(VIX), (SQM), (SPY), (UUP), (FXE), (FXY)
(THE LEAGUE OF EXTRAORDINARY TRADERS)
Global Market Comments
March 16, 2018
Fiat Lux
Featured Trade:
(MARCH 14 GLOBAL STRATEGY WEBINAR Q&A),
(TLT), (QCOM), (GS), (NVDA), (PANW), (FEYE),
(VIX), (SQM), (SPY), (UUP), (FXE), (FXY)
(THE LEAGUE OF EXTRAORDINARY TRADERS)
Below please find subscriber Q&A for the Mad Hedge Fund Trader March Global Strategy Webinar with my guest co-host Anka Metcalf of TradeOutLoud.com.
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: Will the CFIUS (the Committee on Foreign Investment in the United States) rejection of foreign mergers, such as the Qualcomm (QCOM) merger with Broadcom, hurt the American economy?
A: No, we have the superior technology—everybody in the world is always going to aim to buy that, especially Russians and Chinese. However, what this does do is take some of the takeover premium out of the target tech target companies, and that may be what really caused the big-tech sell off yesterday.
Q: What’s the catalyst that gets US Treasuries over 3%?
A: A red hot inflation number. One more 50 basis point, or .5% report on wage growth, and we will blast through 3% like there’s no tomorrow. You will not have a chance to sell, which is why we’re scaling into short bond (TLT) positions right now.
Q: What are your thoughts on Goldman Sacks changing CEOs?
A: It has no impact on Goldman whatsoever. They are run by a management committee (Morgan Stanley used to be run the same way) and they have an incredibly deep bench of talent there. You lose one managing director and there are 10 more great ones behind them.
Q: What will happen to volatility (VIX) for the rest of the year?
A: I’ll use J.P. Morgan’s famous quote, “It will fluctuate.” I think we’re going to see a lot more of these volatility spikes—we basically had none last year so we’re going to get a 3-year accumulation this year. A VIX of $15-$20 seems to be the new range and this is typical of late cycle bull markets, so I would watch out for that.
Q: What about lithium?
A: Long term we like lithium; what caused the recent 25% selloff is Chile, the world’s largest producer, increasing its quota for new lithium production by 400%. Eventually that new supply will get soaked up. Good entry points for all of the lithium stocks—and there are about half a dozen of them, like (SQM)—are setting up. So yes, we like lithium; the number of electric cars in the world is about to increase 100-fold, and a car uses 10,000 times more lithium than a phone.
Q: I’ve had poor results with calls on volatility spikes—I don’t understand it.
A: I can see what your problem is. When volatility spikes-implied volatilities on the options goes through the roof, you pay exceptionally high prices when you buy these things. Then you get eaten up by time decay as the volatility comes back down. You’ve stumbled into a perfect money destruction machine. That’s one of the reasons we do call spreads on volatility spreads—that way you have a short position offsetting a long position, and that eliminates the problem of time decay; the two offset each other.
Q: What to do about NVIDIA (NVDA)?
A: It looks like it’s breaking out to the upside; however, the main market keeps slapping it back every time it does this. These marginal new highs are worrisome; they suggest that we’re getting close to a final top—this stock is up nearly 10 times in 2 years, so I would not chase it up here. Even though my final target is 320, it may take a while to get there.
Q: In light of the move in Palo Alto Networks (PANW), do you also like FireEye (FEYE)?
A: Absolutely, yes. Big companies tend to buy products from all three of the major cyber security firms at the same time to hedge their bets, so prosperity in one automatically feeds over into the others.
Q: Can we assume Washington will provide traders with zero volatility if Gary Cohen’s demise did almost nothing?
A: The market has been moving under its own power for quite a long time. Any geopolitical selloff has been a buying opportunity for the last 3 years—that even includes the presidential election. So yes, I say zero impact by Washington, and thank goodness for that—you can imagine if the market started discounting all the chaos in Washington.
Q: Do you think the market (SPY) could sell off and retest the 200-day moving average?
A: Yes, it could do that. I think it will try and fail—we’re still in a bull market that has a year to run, but you never know what’s out there in Black Swan land. That’s why I’m advising you to be a little more cautious than you may have been in the last couple years.
Q: What are your expectations for next quarter earnings?
A: I’m looking at up 15% for the next reporting season that starts the end of April for Q1 2018. I think that will give us a new high on the market and after that, watch out. The first quarter of this year is when the first of the tax cut news really hit the market big-time—that’s why we had that huge melt up in January. That’s also flowing through to actual real business with companies. It should show extremely positive results, some of the best corporate results year over year, ever. After that you might want to take a hard look at a short play as we go into summer doldrums.
Q: Can the U.S. dollar (UUP) go any lower?
A: Yes, as long as exploding deficits are the focus of the market, you can expect the dollar to decrease significantly. You can essentially count on our deficits in the U.S. to rise dramatically. All of the figures that we have seen on estimates—$1.2 trillion budget deficit this year, the national debt rising from $20 trillion to $30 trillion—are low-ball numbers, optimistic numbers, best case scenarios missing crucial parts of the equation, which all means a lower dollar.
Q: What’s the best way to make money from a weaker dollar?
A: Wait for the next euro or yen rally and then buy in the money—put spreads on the yen (FXY) and the euro (FXE) —as I always do; it’s the safer play.
With all that said, good luck and good trading.
I never cease to be impressed with the readers of this newsletter.
I was reminded of this once again in Portland, Ore, a few months ago.
Readers seem to fall into three categories.
1) Entrepreneurs whose businesses become so successful that they are throwing off plenty of excess cash to invest. This leads them to an online search (they are also technically very savvy) that brought them to my newsletter.
One of my Portland guests runs a manufacturing business that builds drones. In five years his gross revenues have rocketed from $400,000 a year to $40 million, and he says the best has yet to come.
Two years ago, the Federal Aviation Administration predicted that there would be 1,500 drones in the air by 2020. Today, there are 220,000.
Interestingly, he says he is now besieged by constant foreign takeover offers. These are from European and Asian firms that have gone ex growth and are desperately searching for new profit streams at any cost. So far, he has rebuffed all comers.
2) Financial advisors who have been following my long-term macro and trading advice and who have also become very successful. Winning financial advisors always have new clients and cash coming, which they need to know how to invest.
3) Young men and women in 20s and 30s who dropped out of the mainstream economy and taught themselves to become professional full-time traders.
Perhaps several hundred earn a full-time living just off of my own Trade Alerts. This business has taken a quantum leap with my introduction of the Mad Hedge Technology Letter.
My first-hand observations of the economy in no way indicate that it is in no way performing at a suboptimal 2.5% GDP growth rate.
Airplanes going anywhere are all full. The airports are packed. The cost of overnight parking in San Francisco has risen by 100%. The free electric charging stations, of which there are now 50, are always full.
My favorite Pendleton store in Portland no longer has sales. It’s full price for everything everywhere now. People have plenty of money to spend.
Stores are stocking more expensive, higher margin profits and offering imaginative displays.
Placing your goods on worn-out industrial heavy machines is a popular approach in Portland. I spend more time analyzing the machines than the goods for sale.
The irony is rich.
Restaurants are more expensive, too, always are full, and are also making the grab for higher margins. They now offer food that is gluten free, locally gown and “artisanal.”
When I ordered a steak I was informed that it was hormone- and preservative-free. I asked if I could have one WITH hormones and preservatives, as they put hair on my chest and preserve me as well.
No wonder everyone thinks I’m weird.
Of course, the ultimate expression of this strategy can be found in Portland’s burgeoning marijuana industry.
Huge billboards along the freeways offer “organic” pot by the kilo. It seems they, too, are seeking that 30% markup that Whole Foods and Costco (COST) reap from organic groceries.
Yet there is evidence also of the failed America, the people got left behind. At one stoplight I encountered a family of four holding a big sign in the pouring rain pleading, “We need money.”
They had recently been evicted from their home. All had serious health problems and were morbidly obese. They looked legit. Maybe it was a health care induced bankruptcy?
I asked no questions, made no judgments, and gave them $20. They reacted like they had won the lottery.
The country clearly is not perfect.
"Getting information off the Internet is akin to trying to sweep back the ocean with a broom," said Ray Kurzweil, director of engineering at Google.
Global Market Comments
March 15, 2018
Fiat Lux
Featured Trade:
(FRIDAY, APRIL 6 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON)
(THE TOP SIX CHINESE RETAILIATION TARGETS),
(AAPL), (GM), (WMT), (TGT), (BA), (SBUX), (CAT),
(AND MY PREDICTION IS?.)
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Global Market Comments
March 14, 2018
Fiat Lux
Featured Trade:
(TEN REASONS WHY APPLE IS GOING TO $200),
(AAPL), (AVGO), (QCOM), (GOOGL), (AMZN),
(TEN REASONS WHY STOCKS CAN'T SELL OFF BIG TIME),
(SPY)
Here it is mid-March, and Apple is already closing in on my 2018 target of $200. Indeed, with a market capitalization today of $930 billion, Apple is on the verge of becoming the world's first $1 trillion publicly traded company.
And here's the really great thing about this year for Apple bulls. If you had the right cajones you had a chance to load the boat just above $150 only five weeks ago.
If you did, as I begged, pleaded, and beseeched you to do, your Apple trade earned a handy 22.33% at today's $183.50 high.
Now for the good news. The best is yet to come. In fact, there are ten reasons why Apple shares should hit my lofty target sometime this year.
1) Share buy backs are first and foremost. With $280 worth of cash in the bank abroad, and two thirds of that committed to buy back Apple stock, shareholders essentially have a free put option.
Indeed, you could see the company's invisible hand in the marketplace during the recent correction, soaking up shares at every opportunity. We won't learn the true numbers until the next quarterly earnings report on May 1.
2) Valuation is still the overwhelming factor driving institutions into Apple stock. With a price earnings multiple of 18X and a dividend yield of 1.40%, Apple is trading not only at a discount to the main market, but a discount to most of tech as well. No one ever got fired for buying Apple, at least not recently.
3) Apple's sales are as good as ever. The expected draw down in between new phone launches is proving less than expected. All of the channel checks suggesting a bigger drop have proven unfounded.
4) The rest of technology is on fire. Even if Apple were stumbling now, which it isn't, it would get dragged up by the meteoric moves seen in the rest of the FANG's.
5) The administration's nixing of the Broadcom (AVGO) takeover of QUALCOMM (QCOM), protects the principal supply of propriety chips for Apple phone safe from foreign interference. Broadcom could have chopped the research budget or transferred crucial technology to foreign competitors.
6) Apple is broadening its product lines, shifting to a new business model that delivers multiple new phones at the same time. This will include low priced models that will compete in new markets like India, as well as go head to head with the market share leaders, Samsung. This will increase market share and profitability.
7) While Apple possesses only 8% of the global cell phone market, it accounts for a staggering 92% of cell phone profits. Apple effectively has a monopoly on cell phone profits.
8) Their new lease program promises to deliver a faster upgrade cycle that will allow higher premium prices for their products and demand more phones. That will bring larger profits.
9) Apple continues to inexorably move into new products and services. While the company was late with the HomePod to compete against Amazon's (AMZN) Alexa and Alphabet's (GOOGL) Google Home, integration with the rest of the Apple ecosystem will enable the company to have the last laugh. Watch out for Apple Pay. Health care is another big target area.
10) Standards of living are rising worldwide. And guess what the first thing a newly enriched middle class does around the planet? They dump their Samsung Galaxies and Google Androids and join the IPhone club for the enhanced status alone.
