Global Market Comments
August 12, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or
(CYB), (FXE), (TLT), (FXY), (COPX), (USO),
(GLD), (VIX), (FXB), (IWM0, (DIS), (CRB), (FB)
(A COW BASED ECONOMICS LESSON)
Posts
So, this is what the best trading week looks like.
Investors panicked. The hot money fled in droves. Predictions of escalating trade wars, recessions, and depressions abounded.
The bottom line for followers of the Mad Hedge Fund Trader? We picked up 4.4% on the week, as may make as much next week.
A number of trading nostrums were re-proven once again. That which can’t continue, won’t. When too many people gather on one side of the canoe, it will capsize. If you execute a trade and then throw up on your shoes, you know it will be a good one. I could go on and on.
The week also highlighted another trend. That is the market has become a one-trick pony. The focus of the market is overwhelmingly on technology, the only sector that can promise double digit growth for years to come. And it’s not just technology, but a handful of large cap companies. Investing has become a matter of technology on, or technology off.
This is always how bull markets end, be it the Nifty 50 of the early 1970s, Japanese stocks of the late 1980s, or the Dotcom Bubble of the 1990s.
It was a week that ran off fast forward every day.
China retaliated against the US in the trade war and stocks dove 900 points intraday. The Middle Kingdom imposed a total ban on all US agricultural imports and took the Yuan (CYB) down to a decade low to offset tariffs.
All financial markets and asset classes are now flashing recession and bear market warnings. The Mad Hedge Market Timing Index fell from 70 to 22, the steepest drop in recent memory. The US dollar dropped sharply against the Euro (FXE) and the Japanese yen (FXY). Oil (USO) went into free fall. Copper (COPX) collapsed to a new low for the year.
The New York Fed lowered its Q3 GDP growth to a lowly 1.56%, with the Atlanta Fed pegging 1.9%. Payrolls, orders, import/export prices, and trade are shrinking across the board, all accelerated by the ramp up in the trade war. Manufacturing and retailing are going down the toilet. Sow the wind, reap the whirlwind.
The German economy (EWG) is in free fall, as most analysts expect a negative -0.1% GDP figure for Q2. The fatherland is on the brink of a recession which will certainly spill into the US. That Mercedes Benz AMG S class you’ve been eyeing is about to go on sale. Great Britain (FXB) is already there, with a Brexit-induced negative -0.2% for the quarter.
Some 50% of S&P 500 dividends now yield more than US Treasury bonds. At some point, that makes equities a screaming “BUY” in this yield-starved world, but not quite yet. Is TINA (there is no alternative to stocks) dead, or is she just on vacation?
Ten-year US Treasury bonds (TLT) hit 1.61%, down an incredible 50 basis point in three weeks. Zero rates are within range by next year. The problem is that if the US goes into the next recession at zero interest rates, there is no way to get out. A decades-long Japanese style Great Depression could ensue.
Bond giant PIMCO too says zero interest rates are coming to the US. Too bad they are six months late from my call. It’s all a matter of the US coming into line with the rest of the world. The global cash and profit glut has nowhere else to go but the US. Much of the buying is coming from abroad.
Gold (GLD) hit a six-year high, as a rolling stock market panics drive investors into “RISK OFF” trades and downside hedges. While high interest rates are the enemy of the barbarous relic, low rates are its best friend and negative rates are even better. We are rapidly approaching century lows on a global basis.
Do your Christmas shopping early this year, except do it at the jewelry store and for your portfolio. Above $1,500 an ounce gold is beating stocks this year and the old all-time high of $1,927 is in the cards.
As I expected, August is proving to be the best short selling opportunity of the year. Not only can we make money in falling markets, elevated volatility means we can get into long side plays at spectacularly low levels as well.
With the Volatility Index (VIX) over $20, it is almost impossible to lose money on option spreads. The trick was to get positions off while markets were falling so fast.
The week started out with a rude awakening, my short in the US Treasury Bond Fund rising 1 ½ points at the opening. I covered that for a tear-jerking 3.26% loss, my biggest of the year. But I also knew that making money had suddenly become like falling off a log.
I fortuitously covered all of my short positions in the S&P 500 (SPY) and the Russell 2000 (IWM) right when the Dow average was plumbing depths 2,000-2,200 points lower than the highs of only two weeks ago. Then I went aggressively long technology with very short dated August plays in Walt Disney (DIS), Salesforce (CRM), and Facebook (FB).
My Global Trading Dispatch has hit a new all-time high of 324.78% and my year-to-date shot up to +24.68%. My ten-year average annualized profit bobbed up to +33.60%.
I coined a blockbuster 6.31% so far in August. In a mere three weeks I shot out 12 Trade Alerts, 11 of which made money, bringing in a 10% profit net of the one-bond loss. All of you people who just subscribed in June and July are looking like geniuses.
The coming week will be a snore on the data front. Believe it or not, it could be quiet.
On Monday, August 12 at 11:00 AM EST, the Consumer Inflation Expectations for July are released.
On Tuesday, August 13 at 8:30 AM US Core Inflation for July is published.
On Wednesday, August 14, at 10:30 the IEA Crude Oil Stocks are announced for the previous week.
On Thursday, August 15 at 8:30 AM EST, the Weekly Jobless Claims are printed. At 9:15 we learn July Industrial Production.
On Friday, August 16 at 8:30 AM, the July Housing Starts are out.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I’ll be headed to the Land’s End Music Festival in San Francisco this weekend and listen to many of the local rock groups. Hopefully, I will be able to unwind from the stress and volatility of the week.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
You Need Special Glasses to Understand This Market
Global Market Comments
July 5, 2019
Fiat Lux
Featured Trade:
(FRIDAY JULY 19 ZERMATT SWITZERLAND STRATEGY SEMINAR)
(WHERE THE ECONOMIST “BIG MAC” INDEX FINDS CURRENCY VALUE),
(FXF), (FXE), (FXA), (FXY), (CYB),
(WHY US BONDS LOVE CHINESE TARIFFS),
(TLT), (TBT), (SOYB), (BA), (GM)
My former employer, The Economist, once the ever-tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its "Big Mac" index of international currency valuations.
Although initially launched as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.
The index counts the cost of McDonald's (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.
What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the Hong Kong dollar, the Chinese Yuan (CYB), and the Thai baht are cheap.
I couldn't agree more with many of these conclusions. It's as if the august weekly publication was tapping The Diary of a Mad Hedge Fund Trader for ideas.
I am no longer the frequent consumer of Big Macs that I once was as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool than a speedy lunch.
The Big Mac in Yen is Definitely Not a Buy
Global Market Comments
May 20, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR I’LL TAKE SOME OF THAT!)
(FXI), (CYB), (TSLA), (AAPL), (BA), (WMT), (TLT), (INTU), (GOOGL)
Whatever the market is drinking right now, I’ll take some of that stuff. If you could bottle it and sell it, you’d be rich. Certainly, the Viagra business would go broke.
To see the Dow average only give up 7% in response to the worst trade war in a century is nothing less than stunning. To see it then make half of that back in the next four days is even more amazing. But then, that is the world we live in now.
When the stock market shrugs off the causes of the last great depression like it’s nothing, you have to reexamine the root causes of the bull market. It’s all about the Fed, the Fed, the Fed.
Our August central bank’s decision to cancel all interest rate rises for a year provided a major tailwind for share prices at the end of 2018. The ending of quantitative tightening six months early injected the steroids, some $50 billion in new cash for the economy per month.
We now have a free Fed put option on share prices. Even if we did enter another 4,500-point swan dive, most now believe that the Fed will counter with more interest rate cuts, thanks to extreme pressure from Washington. A high stock market is seen as crucial to winning the 2020 presidential election.
Furthermore, permabulls are poo-pooing the threat to the US economy the China (FXI) trade war presents. Some $500 billion in Chinese exports barely dent the $21.3 trillion US GDP. It’s not even a lot for China, amounting to 3.7% of their $13.4 trillion GDP, or so the argument goes.
Here’s the problem with that logic. The lack of a $5 part from China can ground the manufacture of $30 million aircraft when there are no domestic alternatives. Similarly, millions of small online businesses, mostly based in the Midwest, couldn’t survive a 25% price increase in the cost of their inventory.
As for the Chinese, while trade with us is only 3.7% of their economy, it most likely accounts for 90% of their profits. That’s why the Chinese yuan (CYB) has recently been in free fall in a desperate attempt to offset punitive tariffs with a substantially cheaper currency.
The market will figure out all of this eventually on a delayed basis and probably in a few months when slowing economic growth becomes undeniable. However, the answer for now is NOT YET!
Markets can be dumb, poor sighted, and mostly deaf animals. It takes them a while to see the obvious. One of the problems with seeing things before the rest of the world does, I can be early on trades, and that can translate into losing money. So, I have to be cautious here.
When that happens, I revert to an approach I call “Trading devoid of the thought process.” When prices are high, I sell. When they are low, I buy. All other information is noise. And I keep my size small and stop out of losers lightning fast. That’s how I managed to eke out a modest 0.63% profit so far this month, despite horrendous trading conditions.
You have to trade the market you have, not what it should be, or what you wish you had. It goes without saying that the Mad Hedge Market Timing Index become an incredibly valuable tool in such conditions.
It was a volatile week, to say the least.
China retaliated, raising tariffs on US goods, ratcheting up the trade war. US markets were crushed with the Dow average down 720 intraday and Chinese plays like Apple (AAPL) and Boeing (BA) especially hard hit.
China tariffs are to cost US households $500 each in rising import costs. Don’t point at me! I buy all American with my Tesla (TSLA).
The China tariffs delivered the largest tax increases in history, some $72 billion according to US Treasury figures. With Walmart (WMT) already issuing warnings on coming price hikes, we should sit up and take notice. It is a highly regressive tax hike, with the poorest hardest hit.
The Atlanta Fed already axed growth prospects for Q2, from 3.2% to 1.1%. This trade war is getting expensive. No wonder stocks have been in a swan dive.
US Retail Sales cratered in March while Industrial Production was off 0.5%. Why is the data suddenly turning recessionary? It isn’t even reflecting the escalated trade war yet.
European auto tariff delay boosted markets in one of the administration’s daily attempts to manipulate the stock market and guarantee support of Michigan, Wisconsin, and Pennsylvania during the next presidential election. All government decisions are now political all the time.
Weekly Jobless Claims plunged by 16,000 to 212,000. Have you noticed how dumb support staff have recently become? I have started asking workers how long they have been at their jobs and the average so far is three months. No one knows anything. This is what a full employment economy gets you.
Four oil tankers were attacked at the Saudi port of Fujairah, sending oil soaring. America’s “two war” strategy may be put to the test, with the US attacking Iran and North Korea simultaneously.
Bitcoin topped 8,000, on a massive “RISK OFF” trade, now double its December low. The cryptocurrency is clearly replacing gold as the fear trade.
The Mad Hedge Fund Trader managed to blast through to a new all-time high last week.
Global Trading Dispatch closed the week up 16.35% year to date and is up 0.63% so far in May. My trailing one-year rose to +20.19%. We jumped in and out of short positions in bonds (TLT) for a small profit, and our tech positions appreciated.
The Mad Hedge Technology Letter did OK, making some good money with a long position in Intuit (INTU) but stopping out for a small loss in Alphabet (GOOGL).
Some 10 out of 13 Mad Hedge Technology Letter round trips have been profitable this year.
My nine and a half year profit jumped to +316.49%. The average annualized return popped to +33.21%. With the markets incredibly and dangerously volatile, I am now 80% in cash with Global Trading Dispatch and 80% cash in the Mad Hedge Tech Letter.
I’ll wait until the markets retest the bottom end of the recent range before considering another long position.
The coming week will see only one report of any real importance, the Fed Minutes on Wednesday afternoon. Q1 earnings are almost done.
On Monday, May 20 at 8:30 AM, the April Chicago Fed National Activity Index is out.
On Tuesday, May 21, 10:00 AM EST, the April Existing Home Sales is released. Home Depot (HD) announces earnings.
On Wednesday, May 22 at 2:00 PM, the minutes of the last FOMC Meeting are published. Lowes (LOW) announces earnings.
On Thursday, May 16 at 23 AM, Weekly Jobless Claims are published. Intuit (INTU) announces earnings.
On Friday, May 24 at 8:30 AM, April Durable Goods is announced.
As for me, I’ll be taking a carload of Boy Scouts to volunteer at the Oakland Food Bank to help distribute food to the poor and the homeless. Despite living in the richest and highest paid urban area in the world, some 20% of the population now lives on handouts, including many public employees and members of the military. It truly is a have, or have-not economy.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 17, 2018
Fiat Lux
(WHERE THE ECONOMIST "BIG MAC" INDEX FINDS CURRENCY VALUE),
(FXF), (FXE), (FXA), (FXY), (CYB),
(CATCHING UP WITH DOWNTON ABBEY),
(TESTIMONIAL)
Global Market Comments
May 4, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE MAY 9 GLOBAL STRATEGY WEBINAR),
(A DAY IN THE LIFE OF THE MAD HEDGE FUND TRADER),
(SPY), (TLT), (TBT), (FXE),(GLD), (GDX), (USO),
(AMLP), (STBX), (NFLX), (DIS), (AAPL), (GM)
Global Market Comments
May 3, 2018
Fiat Lux
Featured Trade:
(STORAGE WARS),
(MSFT), (IBM), (CSCO), (SWCH),
(DON'T BE SHORT CHINA HERE),
($SSEC), (FXI), (CYB), (CHL), (BIDU),
Don?t waste your time trying to analyze financial markets right now.
There is only one ticker symbol you need to know about, that for the Shanghai Stock Exchange Composite Index, the ($SSEC).
When Shanghai goes up, the rest of the world?s risk assets happily join the party. When it drops, ?RISK OFF? fever goes pandemic.
China upped the ante this week when it allowed its currency, the Yuan, or the renminbi as it is known locally (the people?s currency), to float freely for the first time in 25 years. That produced a two-day devaluation of 3.6%.
In the very long history of currency debasements, this one was barely a whimper.
Ancient Sumerians used to shave the edges off of gold and silver coins 5,000 years ago.
When President Nixon took the US off of the gold standard in 1973, the dollar eventually fell 75% against the European currencies.
More recently, the Euro has given up 37% against the greenback, moving from a position of grotesque over valuation to dealing with the Greek credit crisis.
So Beijing?s move this week barely tips the needle in the official history of devaluations.
What it does do is create a giant psychological effect, and therein lies the problem.
Since June, the Mandarins in China have been pulling out all the stops to halt a free fall in the country?s share prices.
It has cut interest rates and relaxed reserve requirements. It banned high frequency trading, blaming the collapse on foreign short sellers (sound familiar?). It has even made stock selling illegal in roughly 94% of the country?s free float.
Still, the bears remain emboldened by their recent success.
By cutting the value of the Yuan, the government is providing a modest boost to the economy. A cheaper currency means less expensive exports and more of them, thus, making local businesses more profitable and creating jobs.
But not by much.
There are not a lot of products that live or die on a 3.6% margin. America has not just lost a chunk of its own exports from the additional competition, contrary to the claims of the TV networks and bogus newsletters with which I compete.
But by taking the first such move to undercut the Yuan in 25 years, it is showing the world how serious a problem is the stock crash.
Will the stock collapse feed into the main economy? Is 10% of the world?s GDP going into a Great Recession? Yikes!
SELL, SELL!
There are a few other problems with the Chinese firecracker.
It violates a secret agreement with the US government, made a decade ago, to allow a steady 3-4% a year appreciation of the Yuan against the dollar.
This was designed to slowly eliminate the artificial under valuation of the Yuan that gave the Middle Kingdom an unfair export advantage. The arrangement was responsible for the 20% rise of the Yuan since 2009.
(Sorry Donald, but you?re holding the chart upside down. Yes, I know, stock charts can be pesky things).
Reneging on the deal is ruffling feathers at the US Treasury in Washington. But it won?t amount to more than that, as long as it is temporary.
Which it will be.
China still has a massive trade surplus with the United States. In 2014, it totaled a staggering $343 billion. It maintained that heady pace, totaling $171 billion during the first half of 2015.
There are an awful lot of Chinese clothes, electronics, and toys sitting on the shelves of American retailers.
Its imports are falling, thanks to the collapse of the price of oil and other bulk commodities.
The natural state of the currency of any country running such huge surpluses is for it to rise in value. That will continue in China?s case for the foreseeable future.
Once the waters settle in the stock market, you can count on the Yuan to regain its upward path.
However, this isn?t going to happen in a day. It could be weeks or months until order returns to Chinese equity markets. Until then, expect some scary days there and here as well.
Compound these problems with the uncertainty over the Federal Reserve?s decision on interest rates in September and slower than expected US growth.
It certainly leaves traders and investors alike, with a full plate of issues to consider.
As if we didn?t have enough to worry about.
For some background on my 45 year coverage of the Middle Kingdom, please click here for my 2011 SPECIAL CHINA ISSUE.
