Global Market Comments
September 4, 2020
Fiat Lux
Featured Trade:
Global Market Comments
August 24, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or ON FIRE EVERYWHERE)
(INDU), (JPM), (GLD), (GDX), (GOLD), (FB),
(TLT), (AAPL), (AMZN), (TSLA)
Global Market Comments
August 17, 2020
Fiat Lux
Featured Trade:
(JOIN THE AUGUST 24-26 MAD HEDGE TRADERS & INVESTORS SUMMIT),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME BACK FROM YOUR CRUISE),
(INDU), (TLT), (GLD), (TBT), (FB), (AMZN), (AAPL), (BAC), (JPM)
Global Market Comments
August 10, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GET READY FOR THE REVERSAL)
(INDU), (SPY), (TLT), (DIS), (BAC), (GLD)
Epidemics ebb and flow.
Every spike is followed by a retreat. The cycle continues until everyone has been exposed to the disease….or is dead.
Covid-19 has been on a tear for the last two months, doubling the number of US deaths to 162,000. An interim peak is just around the corner.
What happens when Covid takes a vacation? All existing trends in the financial markets will reverse. The big tech stocks will take a long-needed rest. Bonds will sell off. Gold will retest its recent breakout level at $1927. The US dollar will briefly get off the mat.
That means we are about to see a resurgence of “recovery” stocks, which have been ignored since June due to the declining probability of an economic resurgence as the “V” shaped recovery went out the window. Any break in the disease will bring a rally in this group. Those include hotels, casinos, movie theaters, restaurants, airlines, cruise lines….and banks.
Banks are far and away the quality play here. While other sectors may not see black ink for years, or may not survive at all, banks are making money right now.
Thanks to Dodd-Frank, the banks entered this crisis with less leverage and far stronger balance sheets than in 2008-2009. They will profit from falling bond prices, rising interest rates, waning defaults, and benefit mightily from generous government subsidies from multiple stimulus programs.
Institutions are underweight in banks, yet they are still at two-thirds of their January peak prices when the market leaders are 50% above old all-time highs.
If I am wrong and the next “recovery” rally takes weeks, or even months to start, they will continue to drift sideways. That makes them perfect candidates for short-dated option calls spreads. These make money whether the share goes up, sideways, or down small.
The campaign for a spectacular second-half performance has begun!
The U.S. Economy added jobs at a slower pace. US job growth weakened in July, with only 1.763 million people re-employed around the US as opposed to nearly 5 million in June, higher than estimates. The unemployment rate fell to 10.2% from 11.1% in June. At least 31.3 million people were receiving unemployment checks in mid-July.
Weekly Jobless Claims ticked down. The advance figure for seasonally adjusted initial claims was 1,186,000, a decrease of 249,000 from the previous week’s revised level. The report reflected the 20th straight week that new claims topped 1 million as the pandemic was the catalyst for a slew of firings. This number was the lowest since late March when the country saw an unprecedented explosion in requests for unemployment assistance.
The rehiring trend loses pace, indicating that virus infections slowed the economic recovery. Many states closed parts of their economies again and consumers remained cautious about spending. U.S. firms added just 167,000 jobs in July, payroll processor ADP said Wednesday, far below June’s gain of 4.3 million and May’s increase of 3.3 million. The economy still has 13 million fewer jobs than it did in February.
Congress is still unable to agree on a stimulus bill, with the $600 per week unemployment benefit ending. This is taking place while the virus rages through the mid-west and south. New Corona cases have exploded to 60,000 per day. Republicans want to cut the $600 per week excess benefit to $200, while the Democrats believe the $600 per week should be upheld.
A vaccine could hammer tech stocks, says Goldman Sachs, sparking a sell-off in bonds and rotation out of technology into cyclical stocks. The U.S. election and the evolution of the virus will be key drivers of the market. Approval of a vaccine could challenge market assumptions both about. This also could end with high-quality tech stocks having a massive correction.
Disney’s (DIS) digital subscriber base surged past 100 million. The company’s digital streaming segment was the sole bright spot for the company with Disney+ having 60.5 million paying customers as of Monday – up from 54.5 million on May 4. Disney also announced blockbuster feature Mulan in select markets as a $30 rental. I can’t wait to watch it.
The U.S. economy will recover to pre-pandemic levels by the end of 2021. Federal Reserve Vice Chairman Richard Clarida revealed that he expects the economy to grow in the third quarter. The health crisis hasn’t yet caused long-term damage to the U.S. economy, he said in an interview with CNBC, but the risks will grow the longer the pandemic lasts.
The 30-year fixed mortgage rate dropped to 3.14%. Mortgage rates have fallen faster than ever, and they've been remarkably willing to set record low after record low. Risk-adverse investors have been plowing their money into Treasury bonds (TLT) and government guaranteed mortgage backed securities, for safety.
Gold (GLD) to surpass $3,000 per ounce in 18 months, says Bank of America (BAC). Prices for gold futures for December delivery climbed to a record high above $2,000 per ounce. Retailers in malls and dealers in New York City’s Diamond District are swamped by orders due to the pandemic.
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 has been flatlining for the past two weeks while I have been on vacation. July finished at a red hot 7.93%, delivering a 2020 year to date of 28.63%. That takes my eleven-year average annualizede performance to a new all-time high of 36.05%. My 11-year total return has stretched to 384.54%.
The only number that counts for the market is the number of US Coronavirus cases and deaths, which you can find here.
On Monday, August 10 at 11:00 AM EST, July US Inflation Expectations are published.
On Tuesday, August 11 at 6:00 AM EST, The NFIB Small Business Optimism Index for July is released.
On Wednesday, August 12, at 8:30 AM EST, the July US Inflation Rate is out. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, August 13 at 8:30 AM EST, the Weekly Jobless Claims are published.
On Friday, August 14, at 10:00 AM EST, the University of Michigan Consumer Sentiment is printed. At 2:00 PM, the Bakers Hughes Rig Count is released.
As for me, I shall be recovering from the multiple cuts and bruises I suffered from my 50-mile hike with the Boy Scouts. Nothing major, that beset multiple other hikers we encountered along the way, for which I provided first aid.
I managed to bring back 16 scouts who finished the entire 50 miles in seven days, accomplishing a vertical climb of 6,300 feet. Only a Marine graduating from boot camp could accomplish such an endurance contest.
It was all worth it. Every morning, I wound up to a view taken from a Christmas calendar. My exertions lost me 20 pounds, thus tripling my wardrobe. And the bears mercifully left us and our food supply alone.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 13, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE COME HERD IMMUNITY),
(INDU), (TSLA), (SPY), (GLD), (JPM), (IBB), (QQQ), (AAPL), (MSFT), (DCUE), (NVDA)
Global Market Comments
June 15, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WAITING FOR MY SUGAR CUBE),
(SPY), (INDU), (UUP), (GLD), (TLT), (HTZ), (TSLA)
I was born in the middle of a pandemic.
It was polio, and in the early 1950s, it was claiming 150,000 kids a year just in the US. You know polio. You’ve seen the pictures of the kids with withered legs or living in iron lungs, the ventilators of their day.
My mom contracted polio in the 1930s and spent a year in quarantine. They didn’t understand then that the virus was in the drinking water.
She lost the use of her legs for a time. My grandfather’s cure was to take her hiking in the High Sierras every weekend to rebuild her muscles. During WWII, he had to buy gas coupons on the black market to make the round trip from LA to Yosemite.
It worked well enough for mom to earn a scholarship to USC where she met my dad, a varsity football player. By the time I came along, Jonas Salk discovered a vaccine, which was infused into a sugar cube and given to me at the Santa Anita Racetrack along with tens of thousands of others. It was one of the big events of American history.
Some 70 years later, I am maintaining the family tradition, forcing my kids out on backpacks a couple of times a week, they're moaning and complaining all the way.
It looks like the first wave of the Corona pandemic isn’t even over yet. That’s why the Dow Average managed to puke out some 10% in days.
So, here is the conundrum: How much can we take the market down in the face of the greatest monetary and fiscal stimulus in history. Some $9 trillion has already been spent and there is at least another $5 trillion behind it.
My bet is a few more thousand points down to 24,000 but not much more than that. If this turns into a rout and a retest of the lows, the Fed will simply turn on the presses and print more money. After all, the marching orders from the top are to keep stocks high into the election, whatever the cost.
One of the reasons we are seeing such wild swings in the market is that the market itself doesn’t know what it’s worth. That’s because this is the most artificially manipulated market in history, thanks to the government stimulus, 20 times what we saw in 2008-2009.
Stocks can’t figure out if they are worthless, or worth infinity, and we are wildly whipsawing back and forth between two extremes.
Take that stimulus away and the Dow Average would be worth 14,000 or less. Stimulus will go away someday, and when it goes away, there will be a big hit to the market. It’s anyone’s guess as to timing. Ask the Covid-19 virus.
We have seen countless market gurus being wrong about this market, many of whom are old friends of mine. That’s because they, like I, see the long-term damage being wrought to the economy. Recovering 80% of what we lost will be easy. The last 20% will be a struggle.
That alone amounts to one of the worst recessions we have ever seen. This is going to be a loooong recovery. Some forecasters don’t expect US GDP to recover to the 2019 level of $21.43 trillion until 2025.
In the meantime, the national debt is soaring, now at $26 trillion, and will soon become a major drag on the economy. The budget deficit alone this year is now pegged at an eye-popping $3 trillion, the largest in history.
The S&P 500 turned positive on the year for a whole day. It’s been an amazing move, the largest in history in the shortest time, some 47% in ten weeks. NASDAQ hit my year-end target of $10,000, then immediately gave back 10%.
The problem now is that stocks are still the most overbought in history and risk is the highest since January. Much trading is now dominated by newly minted day traders chasing bankrupt stocks like Hertz (HTZ) with their $1,200 stimulus check. Far and away, the better trade is to sell short bonds. After that, buy gold (GLD) and sell short the US Dollar (UUP).
Stocks then dove 7.4% on second wave fears as US cases top 2 million and deaths exceeded 114,000. Jay Powell says he won’t raise interest rates until 2023 at the earliest. The “reopening” stocks of airlines, hotels, and cruise lines are leading the downturn from crazy overbought levels.
Houston may have to close down again, in the wake of soaring Corona cases after a too early reopening. Other cities will follow. Cases in Arizona are also hitting new highs. It’s not what the market wanted to hear.
Weekly Jobless Claims hit 1.54 million, at a falling rate, but still at horrendous absolute levels. That’s better than last week’s 1.9 million. Some 20.9 million are still receiving state unemployment benefits, or 13.1% or the total workforce. These numbers certainly don’t justify a stock market near an all-time high.
The Fed expects Unemployment to remain stubbornly high, not falling to 9.3% by yearend. I think that’s highly optimistic. Some 20% of the 43 million lost jobs are never coming back, giving you an embedded U-6 rate of over 10%. It is easier and faster to fire people than to hire them back.
Election Poll numbers are starting to affect the market. Polls showing Trump 10%-14% points behind Joe Biden in the November presidential election opened stocks down 400 points on Monday. The betting polls in London are confirming these numbers.
The Republican leadership is jumping ship. A Biden win will bring higher corporate taxes, balanced budgets, less liquidity for the stock market, fewer Tweets, and clipped wings for the top 1%. Is this a trigger for the next market correction? We’ll find out in five months. When will stocks notice that?
Bond King Jeffrey Gundlach absolutely hates stocks, predicting we could take out the March lows. He believes the monster rally in big tech is unsustainable. The better trades are to sell short the US dollar (UUP) and to buy gold (GLD). I agree with much of this, but Geoff’s calls can take 6-12 months to come true, so don’t hold your breath, or bet the ranch.
Tesla hit a new all-time high, as I expected, ticking at $1,220. An 11% price cut is boosting sales and market share, while (GM) and (F) are dying. The Model Y, which looks like the love child of a Model X and Tesla 3, is expected to be their biggest seller ever. This is one bubble stock that IS worth chasing. Buy (TSLA) dips up to $2,500. No kidding!
New Zealand became the first Corona-free country, with zero cases, so it can be done. An island country with all international flights grounded, aggressive social distancing restrictions, and an ambitious contract tracing, the land of kiwis had everything going for it. Most importantly, they had the right leadership that listened to scientists, which the worst-hit countries of Sweden, Brazil, and the US are sadly lacking.
The Mad Hedge June 4 Traders & Investors Summit recording is up. For those who missed it, I have posted all 9:15 hours of recordings of every speaker. This is a collection of some of the best traders and investors I have stumbled across over the past five decades. To find it please click here.
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 still at zero, oil at a cheap $34 a barrel, 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 took it on the nose last week. I got stopped out of my shorts at the market top, then took a hit on my bonds shorts. My 11-year performance stands at 360.61%.
That takes my 2020 YTD return up to a more modest +4.70%. This compares to a loss for the Dow Average of -12.2%, up from -37%. My trailing one-year return retreated to 44.88%. My eleven-year average annualized profit backed off to +34.34%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, June 15 at 12:00 PM EST, the June New York State Manufacturing Index is out.
On Tuesday, June 16 at 12:30 PM EST, US Retail Sales for May are released.
On Wednesday, June 17 at 8:15 AM EST, Housing Starts for May are announced.
At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are published.
On Thursday, June 18 at 8:30 AM EST, Weekly Jobless Claims are announced.
On Friday, June 19 at 2:00 PM EST, the Baker Hughes Rig Count is out.
As for me, I am waiting for my sugar cube.
In the meantime, I will spend the weekend carefully researching the recreational vehicle market. If everything goes perfectly, a Covid-19 vaccine will be not available to the general public for at least two years.
Until then, my travel will be limited to the distance I can drive. Travel while social distancing with my own three-man “quaranteam” will be the only safe way to go.
When the New York Times highlights it, as they did this weekend, it’s got to be a major new thing.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
June 8, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HISTORY IS REPEATING),
(SPY), (INDU), (TLT), (TBT) (TSLA), (DAL), (BA)
When I was 13 years old in 1965, the week-long Watts Riots broke out in impoverished South Los Angles, killing 34. It was sparked by a police arrest for reckless driving.
While the ruins were still smoking, my dad drove me downtown to view the wreckage. Prudently, he kept his loaded Marine 1911 Browning .45 caliber automatic under a newspaper on the front seat. It looked like a war zone, with some 256 buildings burned to the ground and another 200 looted.
I have been running towards the sound of guns ever since.
Some 55 years later, we are seeing history repeat itself. However, instead of seeing the riots occur in major cities one at a time, as they did in the 1960s, we saw demonstrations and riots in 356 US cities all at the same time!
The impact on the economy, and eventually the stock market, will be immense.
As a long term follower of the structure of the US economy, what is going on now is utterly fascinating. A million connections within the economy have been severed forever and a million new ones created, which few understand.
The end result will be a far more efficient and profitable form of American capitalism. Companies are rebuilding time-tested business models in weeks. Those who can discern these new connections early will make fortunes. Those who don’t will dry up and blow away like so much dust into the ashcan of history.
Of course, the defining announcement of the week came on Friday morning with the Headline Unemployment Rate, which delivered a blockbuster FALL, from 14.7% to 13.3%, sending stock up 1,000 points. It’s proof that the stimulus is largely going into the stock market.
Economist forecasts were off by a whopping 10 million jobs, delivering the biggest miss in history. Leisure and Hospitality accounted for 1.2 million job gains, half the total.
Something doesn’t smell right here. How do you miss 10 million jobs? The streets and traffic levels tell me the real jobless rate is more like 20%. I can’t even get into my bank to deposit a check.
I believe the streets.
Look for big downward revisions, which may pose another threat to the market, and possibly a secondary crash, but not for another month.
A client told me last week that he wishes there were major market crashes more often where he could load the boat with deep out-of-the-money LEAPS which then double or triple in weeks.
He may get his wish. The faster we rise now, the greater the risk of a secondary crash which could wipe out half the recent gains.
I managed to catch the bottom of the biggest stock market rally of all time with dozens of LEAPS like with (TSLA), (DAL), (UAL), (BRKB), and (BA). I took profits all the way up and went into last week modestly “Risk On.” But the 1,000-point rally on Friday caught me totally by surprise, as it did everyone else.
I’m sorry, but I guess I’m lousy at trading those once in hundred-year events.
My saving grace has been the most aggressive, in-your-face short positions in the bond market (TLT), (TBT) in the 13-year history of this letter at the same time. It’s still a great trade. Selling short US Treasury bonds now with a 0.90% yield is the same as buying the Dow Average at 20,000….again.
Pending Home Sales collapsed 21.8% in April and off 33.8% YOY on a signed contract basis. These are the worst numbers since the data series started. The West was hardest hit, down 50%. No wonder I’ve seen so many real estate agents at the beach. We already know that a sharp rebound is underway as Millennials move to the burbs and flee Corona-infested cities. Home prices will be up this year.
Mortgage Demand is soaring as ultra-low rates spur demand. Housing will lead the recovery of the bricks and mortar economy. It will take another year before jumbo loan rates start to decline as banks avoid risk like the plague. Buy (LEN) and (KHB) on dips.
Stocks are the most overbought in 20 years since the top of the Dotcom bubble. Risk is extreme for new longs. Almost all S&P 500 stocks are trading above 50 day moving average. The technical indicators are screaming “SELL”.
Consumer Confidence is recovering as even the slightest bit of reopening looks like a lot coming off of zero. The Conference Board’s consumer confidence index rose to 86.6 this month from 85.7 in April, well up from an expected 82. Call it “green shoots”.
Used Car Prices have crashed with Hertz going bankrupt and defaults on new car loans reaching record levels. Surviving rental companies have cancelled all new car orders. Vacation travel has vaporized. Wells Fargo has ceased lending to car dealers. Time to upgrade that second car?
The greatest 50-day rally in the S&P 500 is now over, up 40% since March 23. Buyers are getting nervous and exhausted and are overdue for a pullback. But the historical six-month gain after a move like this is another 10.2% up, followed by a one-year gain of 17.3%. Over $14 Trillion in Fed and fiscal stimulus can go a long way.
US Factory Orders collapsed further, down 13% in May after a 14% crash in April. Don’t expect these numbers to decline any time soon. The stock market will never notice.
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 still at zero, oil at a cheap $34 a barrel, 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 was up modestly on the week, my downside hedges costing me money in a steadily rising but wildly overbought market. We stand at an eleven-year performance all-time high of 366.68%.
My huge short bond positions, which I have been adding to all the way down, are still delivering big profits. That’s because time decay is really starting to kick in with nine trading days left until the June expiration.
That takes my 2020 YTD return up to a lofty +10.77%. This compares to a loss for the Dow Average of -4.9%, up from -37%. My trailing one-year return exploded to a near-record 52.27%. My eleven-year average annualized profit ballooned to +34.92%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, June 8 at 8:00 AM EST, Consumer Inflation Expectations for May are announced.
On Tuesday, June 9 at 10:30 AM EST, we learn the NFIB Small Business Optimism Index for May.
On Wednesday, June 10 at 8:15 AM EST, the US Core Inflation Rate for May is printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are published.
On Thursday, June 11 at 8:30 AM EST, Weekly Jobless Claims are announced.
On Friday, June 5, at 10:00 AM EST, the University of Michigan Consumer Sentiment figures are out. The Baker Hughes Rig Count follows at 2:00 PM EST.
As for me, I traveled to the local shopping mall to see how real this 2.5 million gain in jobs really exists. More than 50% of the shops were closed, several had already gone bankrupt and traffic was easily below 10% of pre-pandemic levels. Restaurants had maybe 5% of peak traffic sitting at outside tables. Mall police were there to enforce facemask rules.
Nope, not seeing any recovery here. Caveat Emptor.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
