Global Market Comments
January 17, 2019
Fiat Lux
Featured Trade:
(WHAT HAPPENED TO THE DOW?)
($INDU), (EK), (S), (BS), (CVX), (DD), (MMM),
(FBHS), (MGDDY), (FL), (GE), (TSLA), (GM)
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)
Posts
Global Market Comments
November 7, 2018
Fiat Lux
SPECIAL ELECTION ISSUE
Featured Trade:
(THROWING RED MEAT TO MY BASE)
(RTN), (LMT), (NOC), (HON), (XOM), (CVX), (DVN)
It turned out to be a category two blue wave, not the Category four or five one Democrats had hoped for.
The Democrats picked up 28 seats in the House of Representatives but lost two in the Senate.
The one-liner here is that the most generous corporate tax cuts in US history are frozen in place for two more years. That is good for the economy and good for stocks.
You have to laugh at some of the stories that started filing in on Tuesday. In Brooklyn, NY election, officials called the fire department to break down the door of the polling place because they had the wrong keys. Polls everywhere ran out of ballots, while others suffered voting machine breakdowns.
Not so here in Nevada where everything ran flawlessly. My smiling face was safely stored in the Washoe County voter database and a backup paper ballot was created for good measure. No Russians here! Nevada now has two Democratic Senators for the first time in history.
Fortunately, I am old enough to have taken a civics class in high school which has not been taught in public schools for decades. A year working in the White House Press Corps (during the Reagan era) gives me additional perspective.
It shows. According to a recent survey, only 27% of Americans can identify all three branches of the federal government (executive, legislative, and the judicial).
The responsibility, therefore, falls to me to explain the outcome of yesterday’s midterm election and the trading and investment implications therein.
With the Democrats winning the House of Representatives and the Republicans controlling the Senate, we are about to enter the golden age of gridlock.
It is now impossible for any new law to be passed at the federal level. The only way it could is if they agreed on something, but so far, the two parties have shown little propensity to do so. They might as well be chalk and cheese.
Even if they did jointly pass a bill, it could still be vetoed by president Trump. Can you really see Donald Trump signing a bill sponsored by Nancy Pelosi? Given his preference for disruption, I would say there is a little chance of that happening.
The Democrats now have a crucial power and that is complete control of the purse strings. If Trump wants to spend anything at all, it can only be with Democratic approval.
It is highly unlikely that the Democrats will not approve ANY expansion of the debt ceiling, given the enormous increases in government spending Trump has inspired.
You can certainly expect the growth of defense spending to slow, if not stop completely, so avoid these stocks like the plague, like Raytheon (RTN), Lockheed Martin (LMT), Northrop Grumman (NOC), and Honeywell (HON).
This perfectly sets up a number of government shutdowns in the coming two years. Each one of these will bring a 10% stock market correction, but probably not much more. This was the case when Republicans shut down the government under President Obama sometime for weeks.
Control of the Senate isn’t really all that important. Once one branch of government is gone, the legislative calendar grinds to a halt. It does retain for the president the right to appoint judges. But that really involves social issues, not market ones, and will have no market impact. I can’t think of any big business issues coming up before the Supreme Court.
You can count on the House to resurrect the investigation of Russian influence in the 2016 election which was put to sleep with no findings by the Republicans nearly a year ago. On the first day in office, the new Democratic majority will subpoena Donald Trump’s tax returns. Long in hiding like the Loch Ness monster and bigfoot, they will finally see the light of day.
An impeachment motion against Trump will almost certainly pass the House but it won’t be anything more than a symbolic gesture. Without a two-thirds vote in the Senate, it will go nowhere. I doubt it will even come up for a vote.
The House can also use the Congressional Review Act to roll back any Trump administration rule it doesn’t like, which is pretty much all of them. Just last week, Trump said he could overturn a constitutional amendment with an executive order.
Expect the courts to get clogged with litigation on everything. Oil companies will be the big victims here. Avoid Exxon (XOM), Chevron (CVX), and Devon Energy (DVN). Their free pass on environmental regulation is about to end.
And while the tax cuts have been frozen on place, so is the steep upward trajectory of the growth of government debt. Borrowing is expected to top $1.4 trillion next year, levels not seen since the Great Recession. That means the Golden Age of short selling in the bond market, now 2 ½-year-old, has many more years to run. Keep selling the United States Treasury Bond Fund (TLT) on rallies and buy the (TBT) on dips.
The figures belie the massive leftwing swing that has taken place in the nation. West Virginia went for Trump by 43 points in 2016 but just reelected a Democratic Senator, Joe Manchin. In Colorado, they elected the first openly gay governor. The Republicans only won the Senate in Arizona because the Green Party split the vote, taking 2.2%.
Where Republicans did win, it was only by razor-thin margins, seeing 2016 leads disappear from double digits to tenths of a percent across the country, as we saw in Florida and Texas. That sets up and interesting 2020 where demographic change alone should be enough to tip the balance leftward. Oh, and we will be in recession by then too.
Fortunately, you will be rewarded for your long suffering during the campaign which saw an unwelcome 46% increase in negative advertising. Markets have delivered an average 8.5% return in every fourth quarter since 1980 and are up 89% of the time. Since WWII, every midterm election has generated an eye-popping 14.5% average return in the following 12 months.
And now for the bad news: the 2020 presidential campaign starts tomorrow, and we won’t know who the Democratic candidate is until TWO MONTHS BEFORE THE ELECTION!
Mad Hedge Technology Letter
May 29, 2018
Fiat Lux
Featured Trade:
(HERE ARE SOME EARLY 5G WIRELESS PLAYS),
(T), (VZ), (INTC), (MSFT), (QCOM), (MU), (LRCX), (CVX), (AMD), (NVDA), (AMAT)
How would you like to be part of the biggest business development in the history of mankind?
This revolution will increase business functionality up to 10 times while flattening costs by up to 90%.
Still interested?
Enter the Internet of Things (IoT).
The Internet of Things (IoT) can be boiled down to Internet connectivity with things.
Your luxury juice maker, hair removal kit, and multi-colored Post-its will soon be online.
No, you won't be able to have Tinder chats with the new connectivity, but embedded sensors, tracking technology, and data mining software will aggregate a digital dossier on how products are performing.
The data will be fed back to the manufacturing company offering a comprehensive and accurate review without ever asking a human.
The magic glue making IoT ubiquitous and stickier than a hornet's nest is the emergence and application of 5G.
4G is simply not fast enough to facilitate the astronomical surge in data these devices must process.
5G is the lubricant that makes IoT products a reality.
Verizon Communications (VZ) and AT&T (T) have been assiduously rolling out tests to select American cities as they lay the groundwork for the 5G revolution.
The aim is for these companies to deliver customers a velocious 1 Gbps (gigabits per second) wireless connection speed.
Delivering more than 10 times the average speed today will be a game changer.
America isn't the only one with skin in the game and some would say we are not even leading the pack.
China Mobile (CHL) is carrying out a bigger test in select Chinese cities, and Chinese telecom company Huawei can lay claim to 10% of the 5G patents.
Americans should start to notice broad-based adoption of 5G networks around 2020.
Once widespread usage materializes, watch out!
It will go down in history books as a transformational headline.
The IoT revolution will follow right after.
Until the 5G rollout is done and dusted, tech companies are licking their chops and preparing for one of the biggest shifts in the tech ecosphere affecting every product, service, and industry.
The worldwide IoT market is poised to mushroom into a $934 billion market by 2025 on the back of cloud computing, big data, autonomous transport technology, and a host of other rapidly emerging technology.
The arrival of 5G will have an astronomical network effect. Companies will be able to enhance product specs faster than before because of the feedback of data accumulated by the tracking technology and sensors.
The appearance of this flashy new technology will spawn yet another immeasurable migration to technological devices by 2020.
In just two years, the world will play host to more than 50 billion connected devices all pumping out data as well as consuming data.
What a frightful thought!
IoT's synergies with new 5G technology will have an unassailable influence on the business environment.
For instance, industrial products in the form of robots and equipment will be a huge winner with 5G and IoT technology.
The industrial IoT market is expected to sprout to $233 billion by 2023.
Robots will pervade deeply into economic provenance acting as the mule for brute strength heavy labor plus more advanced tasks as they become more sophisticated.
Total global spending related to IoT products will surpass 1.4 trillion dollars by 2021, according to the International Data Corporation (IDC).
IoT growth will become most robust in the thriving Asian markets fueled by a bonus tailwind of the fastest growing region in the world.
The advanced automation abilities of Germany and the U.K. will also give them a seat at the table.
Micron CEO Sanjay Mehrotra gushed about the future at Micron's investor day celebrating IoT and data as the way forward. Mehrotra explained that the explosion of IoT products will create a new tidal wave of "growing demand for storage and memory."
Chips are a great investment to grab exposure to the 5G, IoT, and big data movement.
Up until today, the last generation of technological innovation brought consumers computers and smartphones.
That world has moved on.
Open up your eyes and you will notice that literally everything will become a "data center on wheels or on feet."
To arrive at this stage, products will need chips.
As many high-grade chips as they can find.
Data centers are one segment in dire need of chips. This market will more than double from $29 billion in 2017 to $62 billion in 2021.
The general-purpose chip market for servers is cornered by Intel.
Industry insiders estimate Intel's market share at 98% to 99% of data center chips. Clientele are heavy hitters such as Amazon Web Services, Google, and Microsoft Azure along with other industry peers.
The only other players with data server chips out there are Qualcomm (QCOM) and Advanced Micro Devices Inc. (AMD).
However, there have been whispers of Qualcomm shutting down the 48-core Centriq 2400 chip for data centers that was launched only last November after head of Qualcomm's data center division, Anand Chandrasekher, was demoted via reassignment.
AMD's new data center chip, Epyc, has already claimed a few scalps with Baidu (BIDU) and Microsoft Azure promising to deploy the new design.
IoT integration is the path the world will take to adopting full-scale digitization.
Microsoft just announced at its own Build 2018 conference its plans to invest $5 billion into IoT in the next four years.
The Redmond, Washington-based company noted operational savings and productivity gains as two positive momentum drivers that will benefit IoT production.
Consulting firm A.T. Kearny identified IoT as the catalyst fueling a $1.9 trillion in productivity increases while shaving $177 billion off of expenses by 2020.
These cloud platforms give tech companies the optimal stage to win over the hearts and dollars of non-tech and tech companies that want to digitize services.
Many of these companies will have IoT products percolating in their portfolio.
Examples are rampant.
Schneider Electric in collaboration with Microsoft's IoT Azure platform brought solar energy to Nigeria by the bucket full.
The company successfully installed solar panels harnessing its performance using IoT technology through the Microsoft cloud.
Kohler rolled out a new lineup of smart kitchen appliances and bathroom fixtures coined "Kohler Konnect" with the help of Microsoft's Azure IoT platform.
Consumers will be able to remotely fill up the bathtub to a personalized temperature.
Real-time data analytics will be available to the consumer by using the bathroom mirror as a visual interface with touch screen functionality giving users the option to adjust settings to optimal levels on the fly.
Kohler's tie-up with Microsoft IoT technology has proved fruitful with product development time slashed in half.
To watch a video of Kohler's new budding relationship with Microsoft's Azure IoT platform, please click here.
It is safe to say operations will cut out the wastefulness using these new tools.
Look no further than legacy American stocks such as oil and gas producer Chevron (CVX), which wants a piece of the IoT pie.
Chevron announced a lengthy seven-year partnership with Microsoft's Azure platform.
The fiber optic cables inside oil production facilities generate more than 1 terabyte of data per day.
In the Houston, Texas, offices, sensors installed six miles below the surface shoot back data to engineers who monitor human safety and system operations on four continents from the Lone Star State.
The newest facility in Kazakhstan, using state-of-the-art technology, will produce more data than all the refineries in North America combined.
Using the aid of artificial intelligence (A.I.), computers will analyze seismic surveys. This pre-emptive technology customizes solutions before problems can germinate.
The new smart-work environment will multiply worker productivity that has been at best stagnant for the past generation.
To get in on the IoT action, buy shares of companies with solid IoT cloud platforms such as Microsoft and Amazon.
Buy best-of-breed chip companies such as Nvidia (NVDA), Intel (INTC), Advanced Micro Devices (AMD) and Micron (MU).
And buy tech companies that produce wafer fab equipment such as Applied Materials (AMAT) and Lam Research (LRCX).
_________________________________________________________________________________________________
Quote of the Day
"Don't be afraid to change the model." - said cofounder and CEO of Netflix Reed Hastings.
Global Market Comments
May 10, 2018
Fiat Lux
Featured Trade:
(TUESDAY, JUNE 12, NEW ORLEANS, LA, GLOBAL STRATEGY LUNCHEON),
(THE END OF THE IRAN NUCLEAR DEAL AND YOUR PORTFOLIO),
(USO), (XOM), (OXY), (CVX), (DAL), (XLP),
(UPGRADING OUR CUSTOMER SUPPORT)
My first contact with Iran was during the horrific 1980-88 Iran-Iraq war. I was a war correspondent for The Economist magazine living in the Kuwait Hilton.
Early every morning, hotel staff hurried down to the beach to clean up the remains of shark-eaten bodies that had washed up from the pitched battles overnight. It was essentially a replay of WWI. More than 1 million died, and poison gas was a regular feature of the conflict.
You are either getting killed yourself, or are having a fabulous day today because of the end of the U.S. participation in the Iran Nuclear Deal, depending on your sector exposure.
If you own energy producers, like the oil majors we have been bullish on for several months, including ExxonMobil (XOM), Occidental Petroleum (OXY), and Chevron (CVX), you are sitting pretty.
If you own energy consumers, such as Delta Airlines (DAL), and Consumer Staples (XLP), which we have been dissing to the nth degree, you are taking it in the shorts.
But what happens beyond today?
For the short term, you can expect nothing to result from the American abrogation of the treaty, which even the administration's own Secretary of Defense, Marine Corps General James Mattis, strongly advised against.
Three years into the agreement, very little trade between Iran and the U.S. actually took place. The big Boeing (BA) aircraft order never showed. American oil companies were gearing up to bid on the reconstruction of Iran's oil infrastructure. But so far it has been all talk and no do.
If you were looking forward to getting a great deal on a new Persian carpet you're out of luck. But there is an ample supply of used ones on the market.
At the end of the day, the Iranians would rather do business with Europe, treaty, or not. It is the natural trading partner, is close, and most of the Iranian leadership was educated at continental universities.
The European Economic Community (EEC) offers far larger export subsidies than the U.S. ever would. Remember, Iran was once a quasi-British colony. And let's face it, Iran never trusted the U.S., given our coddling of the previous Shah.
It is most likely Europe, Russia, and China; the other signatories will continue with the treaty in its current form. China will take all the oil Iran can produce, no questions asked. Russian interests are the same as Iran's, higher oil prices.
Yes, the U.S. has threatened to blacklist any bank financing trade with Iran going forward. There is absolutely no way this will work, unless the U.S. wants to ban American trade with Europe, its largest foreign customer.
If they try it, Fortune 500 companies will land on Washington like a ton of bricks, which earns up to 70% of their earnings from foreign sales. In the end all this will do is cut the U.S. out of the global economy.
Longer term, geopolitical risks will undoubtably rise. Iran will almost certainly ramp up its attempts to overthrow the government of Saudi Arabia, still the largest single source of American oil imports. It also has no cost of continuing mischief in Yemen and Syria. Iran already has a dominant influence in Shiite Iraq, which we fought a war to hand over to them.
Of course, the big winner in all of this is Russia, as it has been with almost everything else recently. Moscow loves higher oil prices, enabling Putin to deliver the higher standard of living he promised in last month's presidential election. It also gives him another opportunity to stick a thumb in America's eye, which he apparently loves to do.
Trump can threaten war all he wants, but the Iranians know this is nothing but a bluff. After 17 years of war in Afghanistan, the U.S. his little appetite for another one. Even though we are officially out of Iraq, it is still a massive drain on the U.S. budget. And we still haven't paid for the last one, unless the Chinese want to lend us more money.
In the end it will depend on how long oil will stay this high. The end of the treaty is worth at least $20 in higher oil prices. If oil continues to appreciate then it brings forward the next recession, possibly by years. Energy is a major component in the inflation calculation, which should now speed up smartly and crush the bond market, bringing higher interest rates.
Rising oil prices, inflation, and interest rates with a flagging global economy? Not good, not good.
While U.S. fracking production is rising, it can't increase fast enough to head off the current oil price spike. Production can't be ramped up faster because the U.S., with production now more than 10 million barrels a day, is oil infrastructure constrained, and much of the new infrastructure that has been added is aimed at increased oil exports, not domestic consumption. It makes a big difference.
And why are we focusing on the country that has zero nuclear weapons, primitive technology, and an economy in free fall, while ignoring the one that has more than 7,000 (Russia)? Will someone please explain that to me? Remember, Iran is a country that still relies on camels and donkeys as a major mode of transportation.
So you can take your nuclear treaty and toss it in the ash can of history. The problem is that it may cost you and your portfolio a lot more than you think.
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