Global Market Comments
October 15, 2020
Fiat Lux
Featured Trade:
(OCTOBER 14 BIWEEKLY STRATEGY WEBINAR Q&A),
(VXX), (INDU), (TLT), (GLD), (IB), (XPEV),
(TSLA), (MRNA), (AMD), (SDS), (ITB)
Posts
Below please find subscribers’ Q&A for the October 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Do you think Interactive Brokers (IB) will give better executions?
A: No, these executions are all done by identical computers with identical programs now, across eleven differences of electronic exchanges. It’s like trying to decide whether to buy Exxon or Mobile gas. It’s all the same stuff. The only real difference in brokers these days is in customer service; and you really have to shop around there and find what you like. Even on customer service, most brokers have cut back staff to a minimum. In the end, the only difference among brokers may be “hold” times.
Q: What are your thoughts on Xpeng, Inc. (XPEV), the Chinese electric car manufacturer?
A: The Chinese have actually had electric cars longer than Tesla (TSLA) has and I have visited their factories in China, like BYD Auto (https://en.wikipedia.org/wiki/BYD_Auto). The problem has always been quality—the batteries tend to catch on fire, the cars fall apart—and that’s why they have never exported an electric car to the U.S. I don't expect that to change. What’s more likely is Tesla building more factories in China, where they overwhelmingly have the technology, brand, and quality lead. I don't think any electric car company can threaten Tesla now that they’re so far ahead.
Q: Is it a good time to buy the iPath S&P 500 VIX Short Term Futures ETN (VXX)?
A: No, because you only make money on the (VXX) when you get a volatility increase almost immediately after you buy it. So, if you have some great insight on the next volatility explosion, try it; otherwise, the time decay will kill you. By the way, everyone knows there is going to be a presidential election in three weeks so it’s already in the price.
Q: What is the likelihood of a financial transaction tax, and how would it affect our trading?
A: It wouldn't hurt our trading, because we’re mostly small fry. It would wipe out high-frequency trading where they’re trading for a penny with no transaction costs. And that, in fact, would be the goal: to wipe out high-frequency trading. Unfortunately, they’re about 80% of the market now, so I’m not sure who would step in and fill in that space. But there’s always someone.
Q: What about Moderna (MRNA)?
A: Yes, I like it for the long term. I think next year will be another golden age for biotech, and they have had a great rally so I’d be looking to buy on dips. MRNA is certainly going to participate. After Corona, there are 100 other diseases they could be working on. It’s not a COVID-19-only story, which is what some of the short sellers got wrong.
Q: How far does Gold (GLD) go down before it goes up?
A: Probably not much more; we have had a decent 10% correction. I was actually thinking about buying gold today, but I also hate leaning into a downtrend. So, any downtrends are temporary, we're looking at new highs in gold next year. This is a QE (quantitative easing) trade, not a risk-off trade like it used to be. So, the continuation of QE for years means that gold goes higher.
Q: When is it time to trade bonds (TLT) again?
A: Bonds just had their narrowest trading range in years in the last month. We only want to play on the short side; it broke down last week so we don't want to do anything here.
Q: Is a 1% drop in Advanced Micro Devices (AMD) a dip?
A: No, a 10% drop in AMD is a dip. Buying a 1% drop is a chase, which is an invitation to a lot of pain.
Q: Have SPACs (Special Purpose Acquisition Corporation) replaced IPOs?
A: I think SPACs are one of the greatest scams of all time. Everybody will get ripped off after paying enormous fees, and once these things go illiquid, no one will be able to get out, so I would not chase the SPAC game. They are only created to dodge the investor protections in the IPO process, I've seen too many of these fads happen over the last 50 years. They always end in tears.
Q: I think there will be another surprise Trump win similar to 2016. How would the market react to a Trump win?
A: It would crash because the market has built in a Biden win and chased up Biden sectors. So, if that doesn’t happen, the market has to give up all those gains and reorient itself. Trump had a 2-3-point polling deficit last time, and now he has to overcome a 17-point deficit or whatever the number is depending on the poll you look at. So, I don’t think so. Remember, Trump only won the election by 78,000 votes in three states. The 220,000 who have died from the pandemic are definitely NOT voting for Trump, nor are their 10X family members. That’s 2.2 million votes lost. Remember, the Corona death rate in red states is far higher than in blue states.
Q: Do you think a Bollinger Band squeeze is forming in Tesla right now?
A: Yes, even though this stock has had a prolific run, it looks like it wants to go higher. I wouldn’t go short.
Q: What about over issuance of US debt?
A: Any concerns about over issuance of debt won’t hit for a while because the Fed is going to keep the short-term rates at zero, which will anchor everything else at low levels. The initial heat will be felt in the ten- and 30-year bonds where you should be permanently short.
Q: Reminder that 4 years ago, you said a Trump win would crash the market.
A: Yes, I did say that, and it did crash the market—it dropped 1,000 points overnight and made it all back the next morning. I spent that entire night rebuilding portfolios which then had a massive run, so I remember that very well. That is the only election I was wrong on in 50 years. So, the lesson is don’t bet against the guy who's only wrong once in 50 years and count on him being wrong again. There are hundreds of data points now which show that Trump has no chance of winning and he’s acting in a way that backs that up.
Q: Is there a second COVID wave priced in yet?
A: No, the way these things work is scientists predict waves, traders say no it will never happen, then it happens and the traders puke out. And if that happens, we will know that is the buying opportunity of the century because that is exactly what we got on the last puke out in March. And yes, I was wrong; I said the stocks would double in two years and instead they doubled in three months.
Q: Do you think a real estate bubble is forming?
A: Yes, but it may not pop for another 10 years because we have 85 million millennials trying to buy housing right now, with interest rates near zero. I just refinanced my home at 2.75%. And only 65 million Gen Xers have homes to sell them, which is being expressed in higher home prices. That’s why I love the homebuilders (ITB).
Q: What about ProShares Ultra Short S&P 500 2X bear ETF (SDS)?
A: I would bail on that because the long-term trend is still up. Dow 120,000 here we come! You only want to use the (SDS) on short term dips, and then come out at the bottom.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 2, 2020
Fiat Lux
Featured Trade:
(SEPTEMBER 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (AMD), (JPM), (DIS), (GM), (TSLA), (NKLA),
(TLT), (NFLX), (PLTR), (VIX), (PHM), (LEN), (KBH), (FXA), (GLD)
Below please find subscribers’ Q&A for the September 30 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Which is a better buy, NVIDIA (NVDA) or Advanced Micro Devices (AMD)?
A: NVIDIA is clearly the larger, stronger company in the semiconductor area, but AMD has more growth ahead of it. You’re not going to get a ten-bagger from NVIDIA from here, but you might get one from Advanced Micro Devices, especially if a global chip shortage develops once we’re out the other side of the pandemic. So, I vote for (AMD), and did a lot of research on that company last week. You can find the report at www.madhedgefundtrader.com but you have to be logged in to see it.
Q: Do you have any thoughts on the JP Morgan Chase Bank (JPM) spoofing cases, where they had to pay about a billion in fines? Is this a terrible time to invest in banks?
A: No, this is a great time to invest in banks because this is the friendly administration to banks now; the next one will be less than friendly. On the other hand, an awful lot of bad news is already in the price; buying these companies at book value or discount of book like JP Morgan, it's a once in a lifetime opportunity. All the bad behavior they’re being fined on now happened many years ago. So yes, I still like banks, but you really have to be careful to buy them on the dip, just in case they stay in a range. If you stay in a range, you’re buying them call spread, you always make money. The bigger drag on share prices will be the Fed ban on bank share buybacks but that may end after Q4.
Q: Is it time to buy Disney (DIS) after they laid off 28,000?
A: This is a company that practically every fund manager in the company wants to have in their portfolio. However, it could be at least a year before they get back to normal capacity in the theme parks, meaning customers packing in shoulder-to-shoulder. So, it could be another wait-for-a-turnaround, buy-on-the dip situation for sure. This company is so well managed that you’re always going to have to pay up to get into the Mouse House. By the way, my dad did business with Disney during the 1950s so we got Disneyland opening day tickets and I got to shake Walt Disney’s hand.
Q: How desperate is General Motors (GM) in buying the fake Tesla (TSLA) company, Nikola (NKLA), who've been exposed as giant frauds? Is GM hopeless?
A: Yes, the future is happening too fast for a giant bureaucracy like General Motors to get ahead of the curve. The fact that they’re trying to buy in outside technologies shows how weak their position is, and of course, it’s a great way to get stuck with a loser, as Tesla selling out to anyone. The Detroit companies are all stuck with these multibillion-dollar engine factories so they can’t afford to go electric even if they wanted to. So, I expect all the major Detroit car companies to go under in the next 5 years or so. Electric cars are already beating conventional internal combustion engines on a lifetime cost basis and will soon be beating them, within 3 years, on an up-front cost basis as well.
Q: Will Netflix (NFLX) pass $600 before the year's end?
A: I’m expecting a monster after-election rally to new all-time highs in the market and Netflix will be one of the leaders, so easy to tack on another hundred bucks to Netflix. That’s one of my targets for a call spread if we can get in at a lower price. And if you really want to be conservative, buy 2-year LEAPS, two-year call options spreads on Netflix, and you’ll get an easy 100% return on those.
Q: Who will win, Trump or Biden?
A: Neither. You will win. I am not a member of any political party as I would never join any club that would stoop to have me as a member. Groucho Marx told me that just before he died in the early 70s. Don’t ask me, ask the polls. Suffice it to say that the London betting polls are 60%-40% in favor of Biden, having just added another 5% for Biden after the debate. My expectation is that Biden picks up another point in the opinion polls in all the battleground states this weekend. So, Biden will be up anywhere from 6-10% in the 6 states that really count.
Q: What will the market impact be?
A: It makes no difference who wins. The mere fact that the election is out of the way is worth a 10% move up in the stock market.
Q: Should we keep the January 2022 (TLT) 140/143 bear put spread?
A: Absolutely, yes. That’ll be a chip shot and we in fact should go in the money on those number sometime next year. A huge cyclical recovery will create an enormous demand for funds and crowding out by the government will crush the bond market.
Q: Do you think it would be better to wait a week or two to lock in refis on home loans?
A: I think we are at the low in interest rates in the refi market. Even if the Fed lowers interest rates, banks aren’t going to lower their lending rates anymore because there's no money in it for them. It’s also taking anywhere from 2-4 months to close on a loan, as the backlogs are so enormous. If you can even get a loan officer to return a phone call, you’re lucky. So, I wouldn't be too fancy here trying to pick absolute bottoms; I would just refi now and whatever you get is going to be close to a century low.
Q: Why so few trade alerts?
A: Well, very simple. We only do trade alerts when we see really good sweet spots in the market. There aren’t sweet spots in the market every day; you’re lucky if you get 1 or 2 in a month. Then we tend to pour in and out of the market very quickly with a lot of alerts. There is no law that says you have to have a position every day of the year. That buys the broker’s yacht, not yours. You should only have positions when the risk reward is overwhelmingly in your favor. That is not now when our market timing index is hugging the 50 level. At 50, you actually have the worst possible entry point for new trades, long or short, so I’d rather wait for it to get away from that level before we get aggressive again. We have gone 100% invested multiple times in the last two months and made a ton of money. So, you just have to wait for your turn to get a sweet spot, and then you’ll make a very quick 10% or 15% in the market. Patience is rewarded in this business.
Q: Would you wait for the election because of the high implied volatility?
A: No, I would not wait. The game is to get in at the lowest price before the election. When the implied volatilities drop after the election, the profits you can make on these deep out of the money LEAPs drop by about half. Thank the volatility while it’s here because it’s creating great trading opportunities now, not in two months after the volatility Index (VIX) has collapsed.
Q: What about Zoom (ZM)?
A: As much as Zoom has had a 10-fold return since we recommended it a year ago, it looks like it wants to go higher. The Robinhood traders just love this stock; it’s a stay at home stock, stay at home is lasting a lot longer than anyone thought. Zoom is just coining it on that.
Q: Is the best outcome a Biden presidency and a Republican Senate?
A: No, that is the worst outcome. When you have a global pandemic going on, you don’t want gridlock in Washington. You want a very active Washington, controlled by a single party that can get things done very quickly. That is not now, which is possibly a major reason that we have the highest Covid-19 death rate in the world. It’s because Washington is doing absolutely nothing to stop the virus; the president won’t even wear a mask, so yes, you need one party to control everything so they can push stuff through. If it works, great, and if not then you kick them out of office next time and let the other guys have a try.
Q: Will property markets be up 20% by the end of the year?
A: If you live in a suburb of New York or San Francisco, then yes it will be up that much. For the whole rest of the country, the average is more like 5% gains year on year. In the burbs of these big money-making cities, prices are going absolutely nuts. My neighbor put his house up and it sold in a week for a $1 million over asking. So, the answer to that is yes, hell yes.
Q: Can you explain why the IPO market is suddenly booming now?
A: A lot of these companies like Palantir (PLTR) have been in development for 20 years, and prices are high. On valuation terms, we are at dot com bubble peaks now. That is the very best time to take your company public and get a huge premium for your stock. When the world is baying for paper assets, you print more of them.
Q: What is the best way to play real estate?
A: Buying the single home building companies like Pulte Homes (PHM), Lennar Homes (LEN), and KB Homes (KBH).
Q: What is your Tesla overview in China?
A: Tesla’s already announced that they’re doubling production of the Shanghai factory, from 250,000 units a year to 500,000. They built the last one in 18 months. It would take (GM) like 5 years to build something like that.
Q: Why has gold (GLD) lost its risk-off status?
A: It’s now a quantitative easing asset—like tech stocks, like bitcoin, and the stay at home stocks. It is being driven much more by QE-driven speculators flush with free cash than anyone looking for a flight to safety bid. When this group sells off, gold drops as well. The only risk-off asset right now is cash. That is the only “no risk” trade.
Q: What does reversal in lumber prices tell you?
A: Lumber was another one of those QE assets—it tripled. But you have this monster increase in new home building, huge demand for new homes in the suburbs, huge import duties leveled by the Trump administration on lumber coming from Canada. Also, a lot of people are getting COVID-19 in the lumber mills. So, they’re having huge problems on the production side in lumber, as a result of the pandemic.
Q: Are there any alternative ways to buy the Australian dollar besides (FXA)?
A: You go into the futures market and buy the Australian dollar futures. That is an entirely new regulatory regime so can be a huge headache. It requires you to register with the Commodities Futures Trading Commission, which is the worst of all the major regulators, but that is an alternative. If you’re an individual and not regulated instead of being a professional money manager, then it’s much easier.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Summit of Mount Rose
Global Market Comments
September 28, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or DID THE ELECTION OR COVID JUST HIT THE STOCK MARKET?),
(SPY), (TLT), (GLD), (TSLA), (UUP)
Did the election finally hit the stock market? It could have been both or neither.
Certainly, the passing of Supreme Court Justice Ruth Bader Ginsberg was worth 1,000 points, and maybe more. It may open the door to a period in politics that is uncertain at best or become violent at worst.
But the Coronavirus is making a comeback too. The US topped 7 million cases and 200,000 deaths, more than any other country in the world. The president’s new pandemic advisor, Scott Atlas, seems to be advocating a “herd immunity” approach. If so, 53% of the population will get the disease causing a total of 3 million deaths. The pandemic will continue for years.
New cases are spiking in Europe. The UK, which was on the verge of ordering workers back to their offices is now going back to a total shutdown. That augers for a second big wave in the US as kids go back to school and universities reopen.
With the S&P 500 now down 1% on the year, 2020 basically never happened. We saw a whole lot of volatility with no net movement. It makes my own 34.50% profit this year look stellar by comparison.
With the twin challenges of Covid-19 and the election lower lows for the market beckon. The one-year charts show that a “head and shoulders” top is in place for the (SPY), so my downside target at the 200-day moving average stands. That would be 3,074 for the (SPX) and $84 for Apple (AAPL).
There is a chance that the Fed could intervene in the stock market one more time right before the election if the markets resume the cascading falls of the spring. If that happens, buyers will return in hoards. My view is that this is but another dip in a long-term bull market that started in 2009 and may run all the way to 2030. You especially want to load the boat with Apple again.
However, the mystery of why technology stocks are so expensive remains. Let me take another shot at this.
From a technology point of view, we have just completely skipped the 2020s and are already in 2030. A year ago, would you have ever imagined that all of the country’s children would now be going to school online or that you’d be sending your business suits to the Good Will?
Stock markets have yet to price in the 2030 level of technology and profit, so the stocks will keep going up. Maybe we are already at 2023 or 2025 prices. I’ll let you know when I find out.
Volatility rocketed last week, and stocks collapsed. Any chance of further Covid-19 economic stimulus this year has just been demolished. If you were worried about the presidential election eroding confidence in the market before, now you have to be positively suicidal.
Any doubts about traders going into cash before the election have been vaporized. A 4-4 Supreme Court now makes an election outcome uncertain, no matter what the actual vote. Price that into your dividend discount model!
US Corona Deaths topped 200,000, weighing heavily on the economy and the election. There is no sign that the death rate is slowing, possibly reaching 400,000 by yearend. I went out to dinner last weekend and one-third of all businesses were boarded up, with no sign of reopening, ever.
Twelve IPOs to hit last week. This is in the wake of the Snowflake (SNOW) deal last week that tripled off its initial price talk. Apparently, there is an extreme shortage of high-growth large cap technology stocks and Silicon Valley is more than happy to meet that demand. Flooding the market like this ends up killing the goose that laid the golden eggs and is a common signal of market tops. Existing stock holdings have to be sold to buy new ones, taking markets south.
The economy slows as stimulus hopes fade as confirmed by last week’s economic data. US Consumer Sentiment dove in August, while Weekly Jobless Claims hover just below a Great Recessionary one million. The pandemic remains the dominant economic issue unless you live online.
The NASDAQ whale continues to sell, as Softbank (SFTBY) continues to unwind its massive technology long options positions. Last week, it was Adobe (ADBE), Salesforce (CRM), and Facebook (FB) that got hit. We won’t know if they made money on these for months, but they certainly put the final spike top in for the technology bubble.
The biggest debt increase in history occurred, with Federal government borrowing up an eye-popping 59% YOY. Sell every rally in the (TLT). It’s just a matter of time before a flood of new issuance destroys this market. We are sowing the seeds for the next financial crisis. The government was running record deficits BEFORE the pandemic even started.
Existing Home Sales soared in August, up 2.4% MOM to 6 million units, the hottest since 2006. Prices are up a huge 11.4% YOY. Homes over $1 million increased by 44% YOY as both work and school move home. Properties sit only 22 days on the market to sell, a record low.
Elon Musk promised a $25,000 car in three years, fully autonomous with long range and no maintenance for the life of the vehicle. The lifetime cost would be half of conventional gasoline-powered cars. That was the outcome of Battery Day in Fremont, CA, attended by hundreds of devotees safely enclosed in Teslas who honked instead of clap. It is all the result of dozens of revolutionary design and manufacturing improvements currently in the works, like moving from lithium to raw silicon for batteries. If so, General Motors (GM) and Ford (F) have had it.
A US dollar crash is imminent, says my old Morgan Stanley colleague Steven Roach. The double dip recession is here inviting even lower interest rates. The current account deficit soared to record highs in Q2. Buy the Aussie (FXA), Euro (FXE), and yen (FXY) on this dip.
Investors pull $25 billion from Equity funds last week as a new wave of nervousness hit the market. It’s the third largest weekly outflow in history. Everyone and his brother is trying to get out before the election. Pick your conspiracy theory as to what could go wrong.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old.
My Global Trading Dispatch stayed level at just short of an all-time high this week. I dumped my last two positions at the Monday morning opening as I could see the 1,000-point drop coming from a mile off, going to a rare 100% cash position.
The risk/reward in the market now is terrible. I believe we have to test the 200-day moving averages before it is safe to go back in with the indexes and single stocks.
That takes our 2020 year-to-date back up to a blistering 34.50%, versus a loss of 7.00% for the Dow Average. September stands at a nosebleed 7.95%. That takes my eleven-year average annualized performance back to 36.06%. My 11-year total return returned to another new all-time high at 390.41%. My trailing one-year return popped back up to 54.09%.
The coming week is a big one for jobs data. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, now at 203,000, which you can find here.
On Monday, September 28 at 10:30 AM EST, the Dallas Fed Manufacturing Index is released.
On Tuesday, September 29 at 9:00 AM EST, the S&P Case Shiller National Home Price Index for July is announced.
On Wednesday, September 30, at 8:15 AM EST, the ADP Private Employment Report is printed. At 8:30 AM EST, the final figure for US Q2 GDP is disclosed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
change.
On Thursday, October 1 at 8:30 AM EST, the Weekly Jobless Claims are announced.
On Friday, October 2 at 8:30 AM EST, the all-important September Nonfarm Payroll Report is out. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, we have another superheating of the climate in store this weekend, with San Francisco Bay Area temperatures expected to top 100 degrees. The fires are out now, but high winds are coming so PG&E is expected to cut off electric power once again.
I’ll be fine with my solar and battery back-up. The Tesla power management software knows in advance when this is going to happen and automatically goes into maximum storage mode. But just to be safe and to keep the trade alerts coming, I am charging up the car and every battery I own.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 21, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE’S THE BLACK SWAN FOR 2020),
(SPY), (INDU), (TSLA), (JPM), (TLT), (C),
(V), (GLD), (AAPL), (AMZN), (UUP)
I had the pleasure of meeting Supreme Court Justice Ruth Bader Ginsberg only last year. She was funny, a great storyteller, and smart as a tack. If she disagreed with you, she pounced like a lion with a prescient one-liner.
She was also a goldmine of historical anecdotes about American history over the past 60 years, recalling incidents seen from her front-row seat as if they had happened yesterday.
She was also frail and rail-thin as if a faint breeze could knock her over at any time. Contracting cancer five times will do this to a person. Assistants helped her walk.
Her unexpected passing is now on the verge of creating a new financial crisis. Any chance of passing further stimulus in the US congress has just turned to ashes. The focus in Washington has turned entirely to the Supreme Court for the rest of 2020.
As a result, tens of thousands more small business will go under, millions of families will be thrown out on to the street, and the Great Depression will drag on. There is nothing left to spike the punch bowl with.
The Dow Average on Monday morning will open down 1,000 points, led by Tesla (TSLA) and the big technology stocks. US Treasury bonds (TLT) will rocket $5. The US dollar (UUP) will soar on a flight to safety bid.
Traders were already cutting positions and scaling back risk to duck the coming turmoil of the presidential election. We are also trying to front-run a yearend stock selloff prompted by a Biden rise in the capital gains tax from 21% to 40%.
That’s a bit of a moot point as 75% of stock ownership is owned by tax-exempt funds. The remaining 25% is most tied up in institutions that duck the tax by never selling or are embedded on corporate cross ownerships which never change.
Now we have uncertainty with a turbocharger, with gasoline poured in the air intake (pilot talk).
With Democrats refighting the battle of the Alamo, I doubt that Trump can ram through a third Supreme Court nomination. Remember how the last one went, for Brett Cavanaugh? Filibusters alone could delay proceeding by a month. These are NOT developments that make stocks go up.
If Trump succeeds, it may be a pyrrhic victory, costing Republicans at least five Senate seats, losing a majority, and increasing the margin of a presidential loss. If retired astronaut wins the Senate in Arizona on November 3, only two Republicans need to fold to make a Supreme Court nomination impossible.
It’s not like the stock market was in such great shape going into this, the biggest black swan of 2020. The market is being flooded with high priced initial public offerings, some 12 in the coming week alone. Apparently, there is an extreme shortage of high growth large-cap technology stocks and Silicon Valley is more than happy to meet that demand.
Cloud storage player Snowflake (SNOW) saw price talk at $70, an IPO of $120, and a first-day peak of $275. This created $70 billion in market value with the stroke of a key.
Of course, flooding the market like this ends up killing the goose thay laid the golden eggs and is a common signal of market tops. Existing stock holdings have to be sold to buy new ones, taking markets south.
We have already seen the 30-day and 50-day moving averages broken, and sights are clearing set on the 200-day. They would take us to a full top to bottom correction in the indexes of 20%. That would take the S&P 500 from $3,600 to $3,000, The Dow Average from $26,298 to $24,000, and Apple from $137 to $84.
If the Volatility Index (VIX) goes over $50, I’ll start sending out lists of very low risk, high return two-year options LEAPS like I did last time.
The Fed says no interest rate hike until 2023 and promises to heat up the economy even more than previously. The long-term average 2% inflation target I reaffirmed. Jay sees a net shrinkage of the US GDP this year ay 3.7%. Since governor Jay Powell promised to run the economy hot weeks ago, ten-year US treasury bonds have only eked out a paltry rise to 72 basis points.
The market isn’t buying it. It’s tough to beat ever hyper-accelerating technology that crushes prices. Still, I’ll keep selling short bond rallies because it’s just a matter of time before the government crushes the market with massive over-issuance. Sell every rally in the (TLT). The Fed put lives! Buy stocks on dips.
Election chaos is starting to price in, with the US dollar (UUP) getting an undeserved bid in a flight to safety trade and stock down 1,000 points from the week’s high. All sorts of Armageddon scenarios are making the rounds now and traders are pulling out of the market to protect hard-earned profits. For details watch the final season of House of Cards, where martial law is declared in Ohio to reverse an election outcome. No kidding!
Citigroup announced a surprise $900 million loss. I can’t wait for the excuse for this surprise, out-of-the-blue “operational error.' It’s most likely an expensive hack. It’s the kind of black swan that can hit you any time if you are a short-term trader. Long term investors should be buying the dip in (C).
China’s Retail Sales rise for the first time in 2020, up 0.5% in August. First into the pandemic, first out. Keeping Corona deaths to 4,000 was also a big help. It’s proof that economies CAN recover post-COVID-19. Buy China on dips (BABA), (BIDU). Stocks there will enjoy a huge post-election rally once the trade war winds down.
US Consumer Sentiment hits six-month high, up from a 75 estimate to 78.9. The University of Michigan report is proof that those who have money are spending it. Another green shoot. Didn’t help stocks today though.
Oil collapsed 15% on the dimming outlook for the global economy. Not even massive well shutdowns caused by this week’s hurricane could boost prices. Avoid all energy plays like the plague.
Morgan Stanley says the trading boom won’t last forever, says my former employer coming off of a record quarter. Too much of a good thing won’t last forever. Make hay while the sun shines.
The value rotation is on, with large scale selling of technology stocks and the chasing of banks and other recovery plays. It’s been a long time coming and could well persist until the end of the year. The option expiration at the close on Friday was exacerbating all moves, which is why I dumped my last two tech positions days prior. It’s too early to buy tech again on dips. Wait for a pre-election meltdown.
Copper hit a new four-year high as traders bet on an accelerating recovery in the global economy. My favorite, Freeport McMoRan, the world’s largest copper producer and a long time Mad Hedge subscriber is soaring, up 257% from the market lows. China, which is done with the Coronavirus and whose economy is recovering rapidly, has returned as a major buyer of the red metal. Keep buying (FCX) on dips.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old.
My Global Trading Dispatch clocked its third blockbuster week in a row. I cashed in on my winnings with longs in (JPM), (TLT), (V), (GLD), (AAPL), and (AMZN), rang the cash register with shorts in (TLT) and (SPY), and booked a small loss in a long in (C). This took my cash position from 0% to 80% and I am looking to go to 100% in the coming week. The risk/reward in the market now is terrible.
Notice that I am shifting my longs away from tech and toward domestic recovery plays.
That takes our 2020 year-to-date back up to a blistering 35.74%, versus -2.93% for the Dow Average. September stands at a nosebleed 9.19%. That takes my eleven-year average annualized performance back to 36.43%. My 11-year total return is back for another new all-time high at 392.12%. My trailing one-year return popped back up to 54.87%.
The coming week is a big one for housing data. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, September 21 at 8:30 AM EST, the Chicago Fed National Activity Index is out.
On Tuesday, September 22 at 10:00 AM EST, Existing Home Sales for July are released.
On Wednesday, September 23 at 9:00 AM EST, the US Home Price Index for July is printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
change.
On Thursday, September 24 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 10:00 AM the all-important Existing Home Sales for July are published.
On Friday, September 25, at 8:30 AM EST, US Durable Goods Sales for August are disclosed. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, I’ll climb up on the roof this weekend and clean the ash from my 59 solar panels. The fallout from the nearby raging forest fires has been so extreme that it has cut my solar output by 25%.
It’s not just me. Over a million homes in California have the same problem, putting a serious dent in the state’s electricity production.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 14, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE 200-DAYS ARE IN PLAY),
($INDU), (SPX), (SPY), (AAPL), (AMZN),
(JPM), (C), (BAC), (GLD), (TLT), (TSLA)
Six months into the quarantine, I feel like I’ve been under house arrest with no visiting privileges. And if I go outside for even a few minutes, I have to inhale the equivalent of a pack of cigarettes as I am surrounded by three monster fires.
All I can say is that I’m getting a heck of a lot of work done.
We are in the middle of a 20-year move in the Dow Average from 6,500 to 120,000. We have just completed a fourfold move off the 2009 bottom. All that remains is to complete a second fourfold gain by 2030.
The move is being driven by hyper-accelerating technology on all fronts. The first half of this move was wrought with constant fear and disbelief. The second half will be viewed as a new “Golden Age” and a second “Roaring Twenties.” The euphoria of July and August were just a foretaste.
And here is the dilemma for all investors.
The Dow has just pulled back 6.1% from the all-time high of 29,300 to 27,500. Should you be buying here, keeping the eventual 120,000 target in mind? Or should you hold back and wait for 26,000, 25,000, or 24,000?
The risk is that if you lean out too far to grab the brass ring, you’ll fall off your horse. By getting too smart attempting to buy the bottom, you might miss the next 93,000 points.
And now, I’ll make your choice more complicated.
The president has recently whittled away at his deficit in the polls, however slightly, typical of the run-up to the November elections. That increases the uncertainty of the election outcome and increases market volatility (VIX). Ironically, the better Trump does, the lower stocks will fall. So, if you do hang out for the lower numbers you might actually get them, and then more.
That puts the 200-day moving averages in play, not only for the major indexes but for single stocks as well. That could take Apple (AAPL) from a high of $137 to $80, a Tesla down from a meteoric $500 to $300.
Hey, if this were easy, your cleaning lady would be doing this for a tiny fraction of the pay.
Did I just tell you the market may go up, down, or sideways? I sound like a broker.
The 200-day moving averages are definitely in play. The 200-day moving average for the Dow Average is 26,298, down an even 10% from the high for the year. The technology-heavy S&P 500 could fall as much as 14% to its 200-day at 3,097.
Don’t bet against the Fed as Tuesday’s 700-point rally in the Dow Average sharply reminded traders. Don’t bet against the global scientific community either. That’s why I am fully invested and within spitting distance of a new all-time high. After a pre-election low, the market will soar to new highs. Even if Trump loses the election, quantitative easing and fiscal stimulus will continue as far as the eye can see.
The elephant unwinds. Softbank dumped $718 million worth of technology call options deleveraging in a hurry. (NFLX), (FB), and (ADBE) were the targets according to market makers. They still own $1.66 billion worth of long positions in call options. Softbank’s position has grown so large that even my cleaning lady and gardener know about them.
The Tesla bubble popped, down a record 22% in one day after traders learned it would NOT be added to the S&P 500. Tesla approached my medium-term downside target of down 40%, or $300 a share. It seems too much of its earnings were coming from non-recurring EV subsidies from the Detroit carmakers. With a peak market cap for an eye-popping $450 billion, it’s probably the largest company ever turned down from the Index.
Google ditched Irish office space, putting on ice a plan to rent additional office space for up to 2,000 people in Dublin. The retreat from global office space continues. The company was close to taking 202,000 sq ft (18,766sq m) of space at the Sorting Office building before the virus hit.
AstraZeneca halted their vaccine trial after a patient fell ill. It’s not clear if the vaccine killed off the phase 3 trial volunteer, a preexisting condition felled them, or an unrelated illness hit. The company was developing the “Oxford” vaccine, which had been the best hope for developing Covid-19 immunity. It definitely creates a pause for the headline rush to develop a vaccine. Notice the tests are being held in South Africa where patients have little legal recourse. Keep buying (AZN) on dips.
“Skinny” failed, tanking the Dow Average by 450 points. A Republican Senate failed to provide even $500 billion to support a COVID-19-ravaged economy. There will be no more stimulus until a new administration takes office. Until then, unemployment will remain in the high single digits, tens of thousands of small businesses will fail, and home foreclosures will explode. The stock market cares about none of this, as it is dominated by large, heavily subsidized companies.
Nikola crashed, down 33%, in response to a damning report from a noted short-seller. They don’t have a truck, they lack a claimed hydrogen fuel source, and the founder is milking the company for every penny he can. It’s all hype, thanks to endless quantitative easing. None of the Tesla wannabees are going anywhere. General Motors (GM), which just bought 11% of the company, has egg on its face. With a market cap of $20 billion, Nikola is this year’s Enron. Sell short (NKLA) on rallies.
US inflation jumped, with the Consumer Price Index up 1.3% YOY in August, compared to only 1% in July. Soaring used car prices accounted for the bulk of the gain. More proof that the economy lives. Is this the beginning of the end or the end of the beginning?
Goldman Sachs moved global stocks to “overweight”. They’re preparing for the post-pandemic world. Cyclical “recovery” stocks like banks will take the lead. It fits in nicely with my view of a monster post-election rally and a Dow 120,000 by 2030.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old.
My Global Trading Dispatch clocked its second blockbuster week in a row, thanks to aggressively loading up on stocks at the previous week’s bottom (JPM), (C), (AMZN). My long in gold (GLD) looked shinier than ever. I bet the ranch again on a massive short in the US Treasury bond market (TLT) which paid off big time. My short position in the (SPY) is looking sweet.
My only hickey was an ill-fated long in Apple (AAPL), which I stopped out of at close to cost. Notice that I am shifting my longs away from tech and toward domestic recovery plays.
You only need 50 years of practice to know when to bet the ranch.
That takes our 2020 year-to-date back up to a blistering 35.51%, versus -2.93% for the Dow Average. September stands at a robust 8.96%. That takes my 11-year average annualized performance back to 36.41%. My 11-year total return has reached to another new all-time high at 391.42%. My trailing one year return popped back up to 58.13%.
It will be a dull week on the data front, with only the Federal Reserve Open Market Committee Meeting drawing any attention.
The only numbers that really count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, September 14 at 11:00 AM US Inflation Expectations are released.
On Tuesday, September 15 at 8:30 AM EST, the New York Empire State Manufacturing Index for September is published. A two-day meeting at the Federal Reserve begins.
On Wednesday, September 16, at 8:30 AM EST, September Retails Sales are printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out. At 2:00 the Fed announces its interest rate decision, which will probably bring no change.
On Thursday, September 17 at 8:30 AM EST, the Weekly Jobless Claims are announced. Housing Starts for August are also out.
On Friday, September 18, at 8:30 AM EST, the University of Michigan Consumer Sentiment is announced. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, the Boy Scout camporee I was expected to judge and supervise this weekend was cancelled, not because of Covid-19, but smoke. This will certainly go down in history as the year from hell.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
