Global Market Comments
October 14, 2020
Fiat Lux
Featured Trade:
(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)
Posts
I have been following quantum computing since they moved from the theoretical to the practical about five years ago.
The reason is very simple. They promise to bring a 1 trillion-fold increase in computing power at zero cost, promising to solve in seconds some for the world’s most vexing problems.
They also have the potential to ramp the stock market up at least ten times over the next decade and bring on a new golden age. No kidding!
Last week an academic paper leaked and was quickly withdrawn suggesting that Google has accomplished a major breakthrough in the field.
Google claims to have built the first quantum computer that can carry out calculations beyond the ability of today’s most powerful supercomputers, a landmark moment that has been hotly anticipated by researchers.
A paper by Google’s researchers was briefly posted earlier this week on a NASA website before being removed, claimed that their processor was able to perform a calculation in three minutes and 20 seconds that would take today’s most advanced classical computer, known as Summit, approximately 10,000 years. Yikes!
The researchers said this meant the “quantum supremacy”, when quantum computers carry out calculations that had previously been impossible, had been achieved. This dramatic speed-up relative to all known classical algorithms provides an experimental realization of quantum supremacy on a computational task and heralds the advent of a much-anticipated computing paradigm. This experiment marks the first computation that can only be performed on a quantum processor.
The system can only perform a single, highly technical calculation, according to the researchers, and the use of quantum machines to solve practical problems is still years away. But the Google researchers called it “a milestone towards full- scale quantum computing”.
They also predicted that the power of quantum machines would expand at a “double exponential rate”, compared to the exponential rate of Moore’s Law, which has driven advances in silicon chips in the first era of computing. That means a potential doubling of computing power every nine months with a halving of cost.
While prototypes of so-called quantum computers do exist, developed by companies ranging from IBM (IBM) to start-ups such as Rigetti Computing, they can only perform the same limited tasks classical computers can, albeit quicker. There is also a huge problem accessing stored data. Quantum computers, if they can be built at scale, will harness properties that extend beyond the limits of classical physics to offer exponential gains in computing power.
A November 2018 report by the Boston Consulting Group said they could “change the game in such fields as cryptography and chemistry (and thus material science, agriculture, and pharmaceuticals) not to mention artificial intelligence and machine learning . . . logistics, manufacturing, finance, and energy”.
Unlike the basic binary elements of classical computers, or bits, which represent either zeros or ones, quantum bits, or “qubits”, can represent both at the same time. By stringing together qubits, the number of states they could represent rises exponentially, making it possible to compute millions of possibilities instantly.
Some researchers have warned against overhyping the quantum supremacy, arguing that it does not suggest that quantum machines will quickly overtake traditional computers and bring a revolution in computing. Led by John Martinis, an experimental physicist from the University of California, Santa Barbara, Google first predicted it would reach quantum supremacy by the end of 2017. But the system it built, linking together 72 qubits, proved too difficult to control. It eventually revamped the system to create a 53-qubit design it codenamed Sycamore.
The system was given the task of proving that a random-number generator was truly random. Though that job has little practical application, the Google researchers said that “other initial uses for this computational capability” included machine learning, material science, and chemistry.
“It’s a significant milestone, and the first time that somebody has shown that quantum computers could outperform classical computers at all,” said Steve Brierley, founder of quantum software start-up Riverlane, who has worked in the field for 20 years and is an adviser on quantum technologies to the UK government. “It’s an amazing achievement.”
To illustrate where we are with Quantum computers today, think of it as 1945, when only five mainframe computers existing in the world, all in the US and England. That’s when IBM founder Thomas Watson famously predicted that “The total market for computers is five.”
Oops.
Global Market Comments
September 8, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHY CASH IS STILL TRASH),
(JPM), (AAPL), (AMZN), (V), (TLT), (SPY), (GOOGL),
(BAC), (C), (FCX), (VIX), (VXX), (TSLA), (FB)
(JPM), (AAPL), (AMZN), (V), (TLT), (SPY), (GOOGL),
(BAC), (C), (FCX), (VIX), (VXX), (TSLA), (FB)
Global Market Comments
August 5, 2020
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(MSFT), (TLT), (BA), (GOOGL), (SPY)
Global Market Comments
July 22, 2020
Fiat Lux
Featured Trade:
(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CELG), (CRSP), (FB), (PYPL), (GOOGL), (AAPL), (AMZN), (SQ), (JPM), (BAC), (BABA), (EEM), (FXA), (FCX), (GLD)
I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on October 17, 2019. In fact, not only did we nail the best sectors to go heavily overweight, we completely dodged the bullets in the worst-performing ones, especially in energy.
For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing, these are the investments you can make, and then not touch until you start drawing down your retirement funds at age 70 ½.
For some of you, that is not for another 50 years. For others, it was yesterday.
There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.
Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red.
To download the entire portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com , log in, go to “My Account”, then “Global Trading Dispatch”, then click on the “Long Term Portfolio” button.
My 5% holding in Biogen (BIIB) was taken over by Bristol Myers (BMY) at a hefty premium at an all-time high, so I’ll take the win. I am replacing it with Covid-19 vaccine frontrunner Bristol Myers (BMY) itself.
I am also taking out healthcare provider Cigna (CI), whose profits have been hammered by the pandemic. A future Biden administration might also move to a national healthcare system that will cap profits. I am replacing it with another Covid-19 vaccine leader Pfizer (PFE).
My 30% weighting in technology remains the same. Even though these stocks are 30% more expensive than they were three years ago, I believe they will lead the charge into the 2020s. It’s where the big growth is. These have doubled or more over the past nine months.
I am sticking with a 10% weighting in banking. Thanks to trillions in stimulus loans, they are now the most government-subsidized sector of the economy. I also believe that massive bond issuance by the US Treasury will deliver a sharply steepening yield curve, another pro bank development.
With my 10% international exposure, I am taking out a 5% weight in slow-growth Japan and replacing it with Chinese Internet giant Alibaba (BABA). The US will most likely dial back its vociferous anti-Chinese stance next year and (BABA) will soar.
I am executing another switch in my foreign currency exposure, taking out a long in the Japanese yen (FXY) and a short in the Euro (EUO) and substituting in a double long in the Australian dollar (FXA).
Australia will be a leveraged beneficiary of a recovery in the global economy, both through a recovery on commodity prices and gold which has already started, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.
I’m quite happy with my 10% holding in gold (GLD), which should move to new all-time highs imminently….and then go ballistic.
As for energy, I will keep my weighting at zero, no matter how cheap it has gotten. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free.
My ten-year assumption for the US and the global economy remains the same.
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.
I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 17, 2020
Fiat Lux
Featured Trade:
(JULY 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(EEM), (GLD), (GDX), (NEM), (GOLD), (UUP), (FXA), (FXE), (FXY), (AMZN), (AAPL), (GOOGL), (FB), (BIDU), (TLT), (TBT), (IBB), (ROM)
Below please find subscribers’ Q&A for the July 15 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Do you expect foreign equities to begin to outperform US equities sometime soon?
A: I expect them to outperform imminently simply because Europe did their shutdown properly, a total shutdown, and got rid of the virus, so their economy and schools are opening. We did a partial shutdown, some states did not shut down at all, and as a result, the epidemic is on fire here, and our shutdown will have to last an extra six months to a year. So that means you’ll probably want to be rotating out of US stocks and into emerging stocks, and the (EEM) is the ETF to go with there.
Q: Would you buy gold LEAPS at this point?
A: Normally, I say only buy LEAPS on capitulation selloffs like we had in March. We actually put out 25 LEAP recommendations on the long side in tech and biotech in March and they all proved spectacular winners. However, at this point, gold is just short of an all-time high; if you break the high you could get a $500 or $1,000 move very quickly to the upside. If you want to do LEAPS, I would go out one year, I would go fairly close to the money, something like a $200-$210 LEAP in the (GLD) ETF. Your much bigger bang, by the way, would be to do LEAPS on the individual stocks; go 10% or 20% out of the money, you might make 100%-200% on those and the stocks to do there would be Newmont Mining (NEM) and Barrick Gold (GOLD).
Q: Would the US or any other country consider backing their currency with gold?
A: Absolutely not. We went off the gold standard in 1972 for a reason. That’s because they’re not making it anymore; there isn’t enough gold to support growth in a global economy. On the other hand, a supply of paper is unlimited, and that’s why we’ve had such terrific economic growth since we’ve gone off the gold standard.
Q: I’m seeing some really great deals in energy. Should I get involved?
A: Absolutely not. Don’t confuse “gone down a lot” with “cheap.” We think the oil business is long term going out of business. It can’t compete with alternatives and electric cars; the economics for investing in a non-scalable energy form just are not there. It’s like asking an analog adding machine to compete with a computer.
Q: Is it too late to sell the US dollar or the Invesco DB US Dollar Index Bullish Fund ETF (UUP)?
A: No, we’re only in the very early stages of the collapse of the US dollar, so you want to be buying all of the nondollar ETFs like the Australian dollar (FXA), the euro (FXE), and the Japanese yen (FXY). Massive over issuance of currency will destroy its value, that’s one of the seminal lessons of currency markets. The US is not immune to that.
Q: Biotech is getting overheated here—should I buy the rumor, sell the news?
A: We’re also just in the opening stages of the biotech golden age. Even if they cure corona tomorrow, there are another 100 diseases they will cure over the next 10 years using all of the new advanced technology that has just been developed, like gene editing, monoclonal antibodies, and quantum computers. It’s another reason to subscribe to the Mad Hedge Biotech and Healthcare Letter for $1,500 a year (click here).
Q: I see Bill Gross is bullish on value stocks—would you go with that view?
A: No, leave the value stocks for Bill Gross. He’s semi-retired and hasn’t been as good on the stock market lately as he used to be, as much as he is a dear friend. This is a chasing-a-winner type market. I would wait for value stocks. You could die a long horrible death by the time value stocks turn around so I would avoid them. Go for earnings growth, that’s the only thing that counts in the future.
Q: What would you recommend as a portfolio starter?
A: I would recommend 100% cash. I know you don’t want to hear that you should keep cash if you just bought an expensive trade alert service, but the fact is the risk now is the highest it’s been in years. I only add new trade at market sweet spots, and you don’t get those every day of the year. I will send you an alert if I see a low-risk high-return trade. Wait for the summer correction—that will set up another bet-the-ranch opportunity. Don’t worry about trade alerts, we’ll be doing about 400 of them this year, but they do tend to come in bunches at market bottoms and market tops.
Q: Do American companies have much of a chance against Chinese tech?
A: The US has an overwhelming lead, which will probably increase at an exponential rate. I think the threat of Chinese tech is vastly overstated by the administration. They needed an enemy to protect us from to stick around. The reality is that the US is so far ahead it’s unbelievable; that’s the reason they steal our technology. And they only have leads in very specific areas, such as surveillance of large populations. I wouldn’t worry too much about tech—if the Chinese really had a lead on tech, would Amazon (AMZN), Apple (AAPL), Alphabet (GOOGL), Facebook (FB) all be going to new highs every day, while Baidu (BIDU) lagged?
Q: Should we close out the Regeneron call spread?
A: At this point, we’re so far in the money I would just wait two more days and it will expire at its maximum $10 value, and you can avoid all the fees. You’ll end up making $1,600 or 16.28% 15 trading days.
Q: Presidential candidate Joe Biden has just had a huge surge in the polls in battleground states. Will he be damaging to the market?
A: No, ever since he started his rise in the polls, the stock market has been rising almost every day, and that’s even after announcing in advance that he’s going to raise corporate taxes from 21% to 28%. He’s also going to eliminate the carried interest, which should have been eliminated a long time ago. I imagine there will be some super punitive Roosevelt style 90% tax on net taxable income over a billion dollars—a real billionaire’s punishment tax, as they’ve basically made all the money for the last 30 years. The stock market is voting with confidence for the future Biden government, who am I to disagree? The market is always right.
Q: Will gold hit a new high?
A: Yes, I think we will have a new high in a couple of weeks. That’s why I said it’s a rare case when you actually buy LEAPS in a rising market, especially if you go one or two years out. Guess where gold will be in two years? My bet is $3,000, so a $200/$210 LEAP in the (GLD) could bring in a 1,000% return, The overwhelming fundamentals are in favor of gold. I’ll keep hammering away at that in the newsletter.
Q: I only trade stocks; how can I take advantage of your recommendations?
A: First of all, buy the stocks. Second, you can buy stocks on margin, which gives you double exposure. Third, there are many 2X ETFs on the stocks or sectors we recommend, like the (TBT), which you can also trade in a stock account. For example, for biotech, you can get your exposure there through the (IBB), and through tech, you can buy the 2X (ROM); but I wouldn’t buy it today because it is too high. In fact, only about 25% of our followers do options, the rest trade stocks or use it to manage their own long-term portfolios.
Q: Will we hit 0% yielding US Treasuries (TLT)?
A: Probably not, that move is behind us. We got down to a 31 basis points yield at the lows. Now, massive oversupply from the US government will be the primary factor dictating Treasury prices, and that means going down a lot.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
May 26, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LOOKING FOR THE NEW AMERICA),
(FB), (AAPL), (NFLX), (GOOGL), (MSFT), (TSLA), (VIX)
We are getting some tantalizing tastes of the new America that will soon arise from the wreckage of the pandemic.
Companies are evolving their business models at an astonishing rate, digitizing what’s left and abandoning the rest, and taking a meat cleaver to costs.
The corporate America that makes it through to the other side of the Great Depression will earn far more money on far fewer sales. That has been the pattern of every recession for the past 100 years.
While the pandemic may take earnings down from $162 per S&P 500 share in 2019 to only $50 in 2020, it sets up a run at a staggering $500 a share during the coming Roaring Twenties and Golden Age. All surprises will be to the upside and anything you touch will make you look like a genius.
For example, Target’s online sales have exploded 153%, allowing customers to order their groceries online and pick them up at curbside. (TGT) pulled this off in a mere three weeks. Without a pandemic, it would have taken three years to implement such a radical idea, if ever.
Survival is a great motivator.
The (SPY) has been greatly exaggerating the public’s understanding of the stock market. Five FANGs and Tesla (TSLA) with 50%-200% moves off the bottom have made the index look irrationally strong.
The fact is that the majority who have shares have not even made a 50% retracement of this year’s losses. A lot of stocks, especially the reopening ones, are still crawling back of subterranean bottoms.
Investors now have the choice of chasing wildly expensive stocks that have already had spectacular runs, or cheap ones that will go bankrupt by the end of the year. It is a Hobson’s choice for the ages. I expect 10% of the S&P 500 to go under by the end of 2020.
I am spending a lot of time on the ground talking to businesses in California and Nevada and have come to two conclusions. They cannot fathom the true depth of the Depression we are now in and are greatly underestimating the length of time it may take to recover. We may not see the headline unemployment rate under 10% for years unless the government redefines the statistics, which they always do.
The S&P 500 is not the economy. It only employs 25% of America’s private sector labor force accounting for 20% of its total costs. Real estate accounts for another 15%. That leaves 35% of costs that can be completely eliminated or reengineered. This creates enormous share price upside possibilities.
The concentration of the market is the most extreme I have ever seen, with five stocks getting most of the action, (FB), (AAPL), (NFLX), (GOOGL), and (MSFT).
There is a staggering $3.6 trillion in equity allocations sitting on the sidelines in cash. All those who got out at the March bottom are now desperately trying to get back in at the May top. Algorithms are making sure you get out cheap and get back expensive.
It will all end in tears.
One of the stunning developments of the crash has been the near doubling of retail stock trading. Options trading has increased even more. Millions of stimulus check recipients have poured their newfound wealth into the stock market instead of spending it on consumer goods, like they were supposed to.
This explains the over-concentration on the five FANG stocks, (FB), (AAPL), (NFLX), (GOOGL), and (MSFT), the greatest momentum stocks are out age, but in high speculative ones like Tesla (TSLA). The lowest cost online platforms like Tastyworks (click here) and Robin Hood (click here).
All of this is completely irrevocably changing the character of the stock market, perhaps permanently. This may also explain why the Volatility Index remains stuck above$26.
Fed Governor Jerome Powell said no recovery without vaccine, and that’s without a second wave. It could be a long wait. In the meantime, the Atlanta Fed said Q2 US GDP will be down -42%, the weakest quarter in American history. We find out mid-July.
Housing Starts collapsed by 30.2% in April, in the sharpest drop on record. But prices aren’t falling. There is still a massive bid under the market from still-employed millennials. Your home could be you best performing asset this year. The 30-year fixed rate mortgage at 3.0% is a big help.
Weekly Jobless Claims topped 2.4 million, taking the two-month total to a breathtaking 39 million. One out of four Americans is now unemployed, matching the Great Depression peak. US deaths just topped 98,000, 21 times China’s fatality rate where the disease originated and with four times our population. People will keep losing jobs until the death rate peaks, which could be many months, or years.
Leading Economic Indicators crashed by 4.4% for April, showing the economy is still in free fall. So, how much more stock do you want to buy here?
Up to 60% of mall tenants aren’t paying rent, with $7.4 billion skipped in April alone. See my earlier “Death of the Mall” piece. It’s another harsh example of the epidemic accelerating all existing trends.
The market is not reflecting the long-term damage to the economy, says my old buddy and Morgan Stanley colleague David Gerstenhaber. When the bailouts run out, the economy could go into free fall. It could take years to get below 10% unemployment rate again, as many of the layoffs and furloughs are permanent. Keep positions small. Anything could happen. I spent the 1987 crash with David.
Existing Home Sales cratered an incredible 17.8% in April to an annualized 4.88 million units, the largest one-month drop since 2010. Inventory dropped to an all-time low of only 1.7 million, down 19.7%, presenting a 4.1-month supply. Sellers failed to list and those who had a home took them off. Unbelievably, this pushed median home prices to a new all-time high of 286,000, up 7.4% YOY. The biggest sales fall in the west, where the US epidemic started.
China took over Hong Kong, suspending most civil liberties in response to Trump’s multiple attacks. And you know what? There is nothing we can do about it that hasn’t already been done. Talk about going into battle with no dry powder. I’m sure the US 7th Fleet will be out there soon to provoke an attack. Anything to distract attention from the 100,000 Americans who died from Covid-19 on Trump’s watch. As if markets didn’t already have enough to worry about.
When we come out on 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 at zero, oil at $0 a barrel, and many stocks down by three quarters, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade.
My Global Trading Dispatch performance had another fabulous week, up an awesome +4.97%, and blasting us up to a new eleven-year all-time high of 77%. It has been one of the most heroic performance comebacks of all time.
My aggressive short bond positions really delivered some nice profits, despite the fact the bond market went almost nowhere. That’s because time decay for the June 19 expiration is really starting to kick in. I also got away with a small long in the bond market for the second time in two weeks.
That takes my 2020 YTD return up to +10.86%. That compares to a loss for the Dow Average of -12.6%. My trailing one-year return exploded to 50.85%, nearly an all-time high. My eleven-year average annualized profit exploded to +35.21%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here at https://coronavirus.jhu.edu.
On Monday, May 25, I’ll be leading the neighborhood veterans parade for Memorial Day. Markets are closed.
On Tuesday, May 26 at 9:00 AM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, May 27, at 4:30 PM, weekly EIA Crude Oil Stocks are published.
On Thursday, May 28 at 8:30 AM, Weekly Jobless Claims are announced. We also get the second estimate for the Q1 GDP is printed. At 10:00 AM, April Pending Home Sales are announced.
On Friday, May 29, at 2:00 PM, the Baker Hughes Rig Count follows at 2:00 PM.
As for me, I will be hitting the town beaches at Lake Tahoe for the first time this spring, mask in hand, where waitresses serve you mixed drinks on order. Outdoors will be the only safe place this year.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
