Global Market Comments
February 22, 2019
Fiat Lux
Featured Trade:
(FEBRUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (MU), (AMD), (LRCX), (GLD), (FXE), (FXB), (AMZN),
(PLAY IT SAFE WITH ANTHEM), (ANTM), (CI)
Posts
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader February 20 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: If there is a China trade deal, should I buy China stocks, specifically Alibaba?
A: To a large extent, both Chinese and US stocks have already fully discounted a China trade deal, so buying up here could be very risky. The administration has been letting out a leak a day to support the stock market, so I don’t think there will be much juice left when the announcement is actually made. The current high levels of US stocks make everything risky.
Q: Is it time to buy NVIDIA (NVDA)?
A: The word I’m hearing from the industry is that you don’t want to buy the semiconductor stocks until the summer when they start discounting the recovery after the next recession (which is probably a year off from this coming summer). The same is true for Micron Technology (MU), Advanced Micro Devices (AMD), and Lam Research (LRCX).
However, if you’re willing to take some heat in order to own a stock that’s going to triple over the next three years, then you should buy it now. If you’re a long-term investor, these are the entry points you die for. Looking at the charts it looks like it is ready to take off.
Q: Should I be shorting the euro (FXE), with the German economy going into recession?
A: No. We’re at a low for the euro so it’s a bad time to start a short. It’s interest rates that drive the euro more than economies. With the U.S. not raising interest rates for six months, maybe a year, and maybe forever, you probably want to be buying the currencies more than selling them down here.
Q: Would you buy the British pound (FXB) on Brexit fears?
A: I would; my theory all along has been that Brexit will fail and the pound will return to pre-Brexit levels—30% higher than where we are at now. I have always thought that the current government doesn’t believe in Brexit one iota and are therefore executing it as incompetently as possible.
They have done a wonderful job, missing one deadline after the next. In the end, Britain will hold another election and vote to stay in Europe. This will be hugely positive for Europe and would end the recession there.
Q: What do we need to do for the market to retest the highs?
A: China trade deal would do it in a heartbeat. If this happens, we will get the 5% move to the upside initially. Then we’re looking at a double top risk for the entire 10-year bull market. That’s when the short players will start to come in big time. You’d be insane to new positions in stocks here. There is an easy 4,500 Dow points to the downside, and maybe more.
Q: Do you think earnings growth will come in at 5%, or are they looking to be zero or negative?
A: Zero is looking pretty good. We know companies like to guide conservative then surprise to the upside; however, with Europe and China slowing down dramatically, that could very well drag the U.S. into recession and our earnings growth into negative numbers. The capital investment figures have been falling for three months now. US Durable Goods fell by 1.2% in January.
This explains why companies have no faith in the American economy for the rest of this year. This was a big reason why Amazon (AMZN) abandoned their New York headquarters plans. They see the economic data before we do and don’t want to expand going into a recession.
Q: When will rising government debt start to hurt the economy?
A: It already is. Foreign investors have been pulling their bids for fear of a falling US dollar. They have also become big buyers of gold (GLD) in order to avoid anything American, so we have a new bull market there. In the end, the biggest hit is with business confidence.
Nothing good ever comes from exploding US deficits and companies are not inclined to invest going into that. That is a major factor behind the sudden deterioration in virtually all data points over the past month.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 20, 2019
Fiat Lux
Featured Trade:
(THE NEXT COMMODITY SUPER CYCLE HAS ALREADY STARTED),
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX),
(WHY THE REAL ESTATE BOOM HAS A DECADE TO RUN),
(DHI), (LEN), (PHM), (ITB)
Global Market Comments
February 19, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or ALARM BELLS ARE RINGING)
(SPY), (TLT), (GLD), (AMZN)
There is not a single hedge fund manager out there today who doesn’t believe that stock markets are on the verge of a very sharp selloff.
Earnings are falling. Europe is tipping into recession. The money supply is shrinking at a dramatic pace (see chart below). And government borrowing will double this year as compared to last. Yet the major indexes are 5% of an all-time high with valuations at an 18X multiple, the high end of the historic range.
You may be wondering why a correction, if not a new bear market, hasn’t already started yet. Every trader on Wall Street is nervously awaiting a China trade deal, possible weeks away, that they can all sell into, including me. The China negotiations have robbed traders of a decent short side entry point for a year now.
You may think I am being excessively cautious with these views. However, US equity mutual funds have suffered eleven straight weeks of outflows worth $80 billion, an all-time record. You really wonder what is supporting the market here. Are we in for a “Wiley Coyote” moment?
Who is left to buy the market? Short coverers, algorithms, and corporations buying back their own shares. There are in effect no real net investors.
One can’t help but notice the constantly worsening in the economic data that took place last week. Was this all happening in response to the December stock market crash? Or is it heralding a full-blown recession that has already started?
This is all backward-looking data, in some cases as much as two months. But what followed the December crash? The January government shut down which we already know pared 75 basis points off of Q1 GDP growth. That’s why companies announced middling earnings for Q4 but horrendous guidance for Q1.
December Retail Sales came in at a disastrous ten-year low. If you’re looking for an early recession indicator, this is a big one. Maybe it’s because the prices are falling so fast?
The NY Fed slashed Q1 GDP estimates to below 2% with more cuts to come. Trade war uncertainty cited as the number one reason.
Consumer Spending is slowing. That means the recession is near. Fund managers are universally moving into defensive and value stocks. So, should you.
Car Sales fell at the fastest rate in a decade, as US Manufacturing Output drives off a cliff. There is also a subprime crisis going on here, if you haven’t heard.
Amazon (AMZN) told New York City to drop dead as it canceled plans to build a second headquarters in New York, thanks to opposition from a local but vociferous minority. Some 25,000 jobs went down the toilet. More likely, they don’t want to expand their business right ahead of a recession. Jeff Bezos can see into the future infinitely better than you and I can.
You have to take Jeff’s thoughts seriously. Amazon added more square feet in the US than any other company last year, bringing the total to 288 million square feet. That is a staggering 28 World Trade Centers. Do they know something we don’t?
In the meantime, American Personal Debt is soaring, hitting a new apex at $13.5 trillion. Some 9.1% of this is already delinquent, and credit cards are being canceled at an alarming pace.
Business Confidence hit a two-year low, and Consumer Confidence hits an eight-year low. It seems a government shutdown and a stock market crash are not good for business. Now that stocks are up, will confidence return?
Inflation hit a one year low, with the Consumer Price Index coming in at only 1.9%. It means the next recession will bring deflation.
The Mad Hedge Market Timing Index is entering danger territory with a reading of 70 for the first time in five months. Better start taking profits on those aggressive leveraged longs you bought in early January. Your best performers are about to take a big hit. The market has since sold off 500 points proving its value.
There wasn’t much to do in the market this week, given that I am trying to wind my portfolio down to 100% cash as the market peaks.
February has so far come in at a hot +3.31%. My 2019 year to date return leveled out at +12.79%, boosting my trailing one-year return back up to +34.12%.
My nine-year return clawed its way up to +312.93%, another new high. The average annualized return ratcheted up to +34.12%.
I am now 90% in cash and 10% long gold (GLD), a perfect downside hedge in a “RISK OFF”. We have managed to catch every major market trend this year, loading the boat with technology stocks at the beginning of January, selling short bonds, and buying gold (GLD).
Government data is finally starting to trickle out now that the government shutdown is over.
On Monday, February 18 was Presidents Day and the markets were closed.
On Tuesday, February 19, 10:00 AM EST, the Homebuilders Index is released.
On Wednesday, February 20 at 2:00 AM EST, Minutes from the January FOMC meeting are released. How dovish are they really?
Thursday, February 21 at 8:30 AM EST, we get Weekly Jobless Claims. At 10:00 AM, Existing Home Sales are out.
On Friday, February 22, there will be a half a dozen public Fed speakers suggesting that interest rates will go up, down, or sideways. The Baker-Hughes Rig Count follows at 1:00 PM.
As for me, I’ll be digging out from the massive series of snowstorms that hit me at my Lake Tahoe Estate. Snowfall this season has so far hit 50 feet and is challenging the 70-foot record from three years ago.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 4, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or FROM PANIC TO EUPHORIA),
(SPY), (TLT), (AAPL), (GLD),
What a difference a month makes!
In a mere 31 days, we lurched from the worst December in history to the best January in 30 years. Traders have gone from lining up to jump off the Golden Gate Bridge to ordering Dom Perignon Champaign on Market Street.
However, not everything is as it appears. The suicide prevention hotline on the bridge has been broken for years, and you can now pick up Dom Perignon at Costco for only $120 a bottle.
Clearly, investors are enjoying the show but are keeping one eye on the exit. Perhaps that’s why gold (GLD) hit an 8-month high as nervous investors Hoover up a downside hedge against their long positions.
In fact, it has been the best January since 1987, with a ferocious start. The problem with that analogy is that I remember what followed that year (see chart below). After a robust first nine months of the year, the Dow Average (INDU) broke the 50-day moving average. It looked like just another minor correction and a buying opportunity.
The market ended up plunging 42% in weeks including a terrifying 20% capitulation swan dive on the last day. I tried actually to buy the stock at the close that day. The clerk just burst into tears and threw the handset on the floor. I didn’t get filled. Since the tape was running two hours late, NOBODY got filled on any orders entered after 12:00 PM.
It doesn’t help that markets have been rising in the face of a collapsing earnings picture. Look at the chart below and you’ll see that after peaking out at an annualized 26% a year ago in the wake the passage of the new tax bill, earnings have been rolling over like the Bismarck on their way to zero.
If you own stocks anywhere in the world, this chart should have made the hair on the back of your neck stand up. It’s almost as if the tax bill was delivering the OPPOSITE of its intended outcome.
How multiple expansion will we get in the face of fading earnings? How about none? How about negative!
A totally red-hot January Nonfarm payroll Report on Friday at 304,000 confirmed that the economy was still alive and well, at least on a trailing basis. Headline Unemployment Rate rose to 4.0%.
The Labor Department said that the government shutdown had no impact on the numbers because federal employees were furloughed and not unemployed. Tomato, tomahto.
However, 175,000 workers were laid off in the private sector and that is why the Unemployment Rate ticked up to a multi-month high. Noise from the shutdown is going to be affecting all data for months.
That’s also why part-time workers jumped 500,000 in January. A lot of federal employees started working as Uber drivers and pizza delivery guys to put food on the table without a paycheck.
Further confusing matters was the fact that December was revised down by 90,000.
Leisure & Hospitality led the way with 74,000 new jobs, followed by Construction with 52,000 and Health Care by 42,000 jobs.
The shutdown is over, but how much did it cost us? Standard & Poor’s says $6 billion but the restart costs will be greater. More recent estimates run as high as $11 billion.
Weekly Jobless Claims were up a stunning 53,000, to 253,000, an 18-month high. While government workers can’t claim, their private subcontractors can, hence the massive shutdown-driven jump.
Bitcoin hits a new one-year low at $3,400. Some $400 billion has gone to money Heaven since 2017. Only $113 billion in market capitalization remains. I told you it was a Ponzi scheme. US coal production hits a 39-year low as it is steadily replaced by natural gas and solar. Could there be a connection? Talk about data mining.
Earnings were mixed, with some companies coming out hero’s, others as goats.
Apple (AAPL) slightly beat expectations with revenues at $84.31 billion versus $83.97 billion expected, and earnings at $4.18 per share versus $4.17 expected. Guidance going forward is very cautious of a slowing China.
Good thing I saw the ambush coming and covered my short two days ago. A penny beat is the most managed earnings I have ever seen. To warn about earnings and then surprise to the upside is classic Tim Cook.
December Pending Home Sales cratered, down 2.2% in December and 9.8% YOY. Despite the dramatically lower mortgage interest rates, buyers fled the crashing stock market.
“PATIENCE” is still the order of the day at the Federal Reserve with its Open Market Committee Meeting ordering no interest rate rise. It was a trifecta for the doves. The free pass for stocks continues. That’s why I covered all my shorts starting from last week. Even a blind squirrel occasionally finds an acorn.
Tesla reported another profit for the second consecutive quarter, and the company is about to reach escape velocity. Model 3 production in 2019 is to reach 75% of the total output and we can expect a new pickup truck. A second factory in Shanghai will take the “3” to over a half million units a year. That $35,000 Tesla is just over the horizon.
Why are all major companies reporting good earnings but cautious guidance? Are they reading the newspapers, or do they know something we don’t? Not a great sign of a continuing bull market. Sell the next capitulation top.
This week was a classic example of how the harder I work, the luckier I get, and I have been working pretty hard lately.
I came out of a near money Apple (AAPL) put spread at cost, then rolled into a far money put spread just before the stock sold off. That little maneuver made me $1,030 in two days.
Then, I spotted a perfect “head and shoulders” top in the bond market set up by a three-point rally in the (TLT). When the red hot January Nonfarm Payroll report printed the next day at 5:30 AM PCT, bonds immediately gave back a full point.
It was all enough to boost my performance to a new all-time high after a hiatus of two months. Those who recently signed up for my service must think that I am some kind of freakin' genius! They’ll learn the truth soon enough.
My January and 2019 year-to-date return soared to +9.66%, boosting my trailing one-year return back up to +29.24%. The is my hottest start to a New Year in a decade. Sometimes you have to make a sacrifice to the trading gods to get rewarded and that is what December was all about.
My nine-year return climbed up to +309.80%, a new pinnacle. The average annualized return revived to +33.79%.
I am now 80% in cash, short the bond market, and short Apple.
The upcoming week is still iffy on the data front because of the government shutdown. Some government data may be delayed and other completely missing. Private sources will continue reporting on schedule. All of the data will be completely skewed for at least the next three months. You can count on the shutdown to dominate all media until it is over.
Jobs data will be the big events over the coming five days along with some important housing numbers. We also have several heavies reporting earnings.
On Monday, February 4 at 10:00 AM, we get the much delayed December Factory Orders. Alphabet (GOOGL) reports.
On Tuesday, February 5, 10:00 AM EST, we learn the January ISM Non-Manufacturing Index.
On Wednesday, February 6 at 8:30 AM EST, the November Trade Balance is published.
Thursday, February 7 at 8:30 AM EST, we get Weekly Jobless Claims. December Consumer Credit follows at 9:30 AM and should be a humdinger. Intercontinental Exchange (ICE) reports.
On Friday, February 8, at 10:00 AM EST, Wholesale Inventories are out. The Baker-Hughes Rig Count follows at 1:00 PM.
As for me, I’ll be sitting down with a case of Modelo Negro and a big bag of Cheetos to watch the commercials during the Super Bowl with my family. (My dad played for USC Varsity in 1948). I never forgave the Rams for defecting from Los Angeles, and Boston is too far away to care about.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Are We in for a Repeat?
Global Market Comments
January 31, 2019
Fiat Lux
Featured Trade:
(MARKET GETS A FREE PASS FROM THE FED),
(SPY), ($INDU), (TLT), (GLD), (FXE), (UUP),
(APPLE SEIZES VICTORY FROM THE JAWS OF DEFEAT),
(AAPL)
When the Oxford English Dictionary considers the Word of the Year for 2019, I bet “PATIENCE” will be on the short list.
That was the noun that Federal Reserve governor Jerome Powell had in mind when describing the central bank's current stance on interest rates.
Not only did Powell say he was patient, he posited that the Fed was currently at a neutral interest rate. The last time he opened on this matter four months ago, the neutral rate was still 50 basis point higher, suggesting that more rate hikes were to come.
What a difference four months makes! The last time Powell spoke, the stock market crashed. Today, he might as well fire a flare gun signaling the beginning of a stampede by investors.
The Dow ($INDU) average at one point gained 500 points. Lower rates for longer term meant that bonds took it on the kisser. And gold (GLD) absolutely loved it as they now have less competition from interest-bearing instruments.
The US dollar (UUP) was taken out to the woodshed and beaten senseless paving the way for a nice pop in the euro (FXE). Even oil (USO) took the cue as cheaper interest rates mean a stronger global economy that will drink more Texas tea.
I believe that the Fed move today will definitely take a retest of the December 24 lows off the table for the time being. Now, if we can only get rid of that damn trade war with China, it will be off to the races for risk in general and stocks specifically.
What Did You REALLY Mean Jay?
Global Market Comments
January 30, 2019
Fiat Lux
Featured Trade:
(WHY WATER WILL SOON BE WORTH MORE THAN OIL),
(CGW), (PHO), (FIW), (VE), (TTEK), (PNR),
(WHY WARREN BUFFETT HATES GOLD),
(GLD), (GDX), (ABX),
