Global Market Comments
January 28, 2019
Fiat Lux
Featured Trade:
(THE MARKET FOR THE WEEK AHEAD, or IT’S FINALLY OVER)
(SPY), (TLT), (FXE), (MSFT), (AAPL),
(PG), (F), (LRCX), (AMD), (XLNX)
Posts
Last week, I was too busy to cook dinner for my brood, so I ordered a pizza delivery. When an older man showed up with our dinner, I told the kids to tip him double. After all, he might be an unpaid federal air traffic controller.
It is a good thing I work late on Friday afternoon because that's when the government shutdown ended after 35 days. The bad news? The government stops getting paid again in only 18 more days. If you have to travel, you better do it quick as the open window may be short.
The most valuable thing we learned from all of this is that the weak point in America is the airline transportation system which relies on 4,000 flights to get the country’s business done.
Having once owned a European air charter company, I could have told you as much was coming. Every nut, bolt, and screw that goes into a US registered aircraft has to be inspected by the federal government. They are painted yellow when viewed which is called “yellow tagging”. No inspection, no screw. No screw, no airplane. No airplane, no flight. No flight, no economy. I can’t tell you how many times I have seen a $30 million aircraft grounded by a failed 50-cent part.
And here’s what most investors don’t get. We lost 75 basis points in GDP growth from the shutdown. We may lose another 75 basis points restarting. And if you lose 1.50% from a post-Christmas period that is normally weak anyway, Q1 GDP may well come in negative. Hello recession!
We won’t know for sure until the first advanced estimate of Q1 GDP from the US Department of Commerce’s Bureau of Economic Analysis is published on April 26. That’s when the sushi will hit the fan. That, by the way, is perilously close for the May 10 prediction of the end of the entire ten-year bull market.
How did investors fare during the shutdown? We clocked the best January in 32 years with the Dow Average up 7.55%. Maybe the government should stay closed all the time!
It is not like the government shutdown, the fading Chinese trade talks, and the arrest of the president’s pal were the only things happening last week.
A slowing China is freaking out investors everywhere. Even if a trade deal is cut tomorrow, it may not be enough to pull the economy out of a downward death spiral. Look out below! A 6.6% growth rate for 2018 is the slowest in 30 years.
Existing Home Sales were down a disastrous 6.4%, in December and 10% YOY, the worst read since 2012. The government shutdown is made closings nearly impossible.
The EC’s Mario Draghi said there would be no euro rate rises until 2020 and the US bond market took off like a rocket. Another point or two and we’ll be in short selling territory again. Don’t count on Europe to pull us out of the next recession. Whoever came up with the idea of putting an Italian in charge of Europe’s finances anyway? Like that was such a great idea.
Procter & Gamble (PG) beat with an upside earnings surprise. It must be all those people buying soap to wash their hands of our political system. But Ford (F) disappointed, dragged down by weak foreign earnings. The weakest big car company to get into electric cars is really starting to suffer. The last of the buggy whip makers is taking a swan dive
The semis have bottomed in the wake of spectacular earnings reports from (LRCX), (AMD), and (XLNX). The great artificial intelligence play is back in action after a severe spanking. I never had any doubt they would come back. Now for an entry point.
Farmers are leaving crops to rot in the field as the trade war with China destroys prices and the Mexicans needed to harvest them are trapped at the border. There’s got to be an easier way to earn a living. Avoid the ags and all ag plays. Short tofu stocks!
Investors are now sitting on pins and needles wondering if we get a repeat of the horrific February of 2018, or whether so far great earnings reports will drive us to higher highs. Earnings tail off right when the next government shutdown is supposed to start so our lives will be interesting, to say the least.
My January and 2019 year to date return soared to +7.24%, boosting my trailing one-year return back up to +30.23%.
My nine-year return climbed up to +308.14%, a mere 1.72% short of a new all time high. The average annualized return revived to +33.61%.
I have been dancing in between the raindrops using rallies to take profits on longs and big dips to cover shorts.
I started out the week using the 4 1/2 point plunge in the bond market (TLT) to cover the last of my shorts there, bring in a whopper of a $1,680 profit in only 13 trading days. To quote the Terminator (whose girlfriend I once dated, the Terminatrix), I’ll be back.”
I used the big 500-point swoon in the Dow on Monday to come out of my (SPY) short at cost. An unfortunate comment on interest rates by the European Central Bank forced me to stop out of my long in the Euro (FXE), also at cost.
That has whittled my portfolio down to only two positions, a long in Microsoft (MSFT) and a short in Apple (AAPL). As a pairs trade you could probably run this position for years. I am now 80% in cash.
The goal is to go 100% into cash into the February option expiration in 14 trading days, wait for a big breakout, and then fade it. Essentially, I am waiting for the market to tell me what to do. That will enable me to bank double-digit profits for the start of 2019, the best in a decade.
The upcoming week is very 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, January 28 at 8:30 AM EST, we get the Chicago Fed National Activity Index.
On Tuesday, January 29, 9:00 AM EST, the Case Shiller National Home Price Index for November is released. The ever important Apple (AAPL) earnings are out after the close, along with Juniper Networks (JNPR).
On Wednesday, January 30 at 8:15 AM EST, the ADP Private Employment Report is announced. Pending Home Sales for December follows. Boeing Aircraft (BA) and Facebook (FB), and PayPal (PYPL) announce.
Thursday, January 31 at 8:30 AM EST, we get Weekly Jobless Claims. We also get the all-important Consumer Spending Index for December. Amazon (AMZN) and General Electric (GE) announce.
On Friday, February 1 at 8:30 AM EST, the January NonFarm Payroll Report hits the tape.
The Baker-Hughes Rig Count follows at 1:00 PM. Schlumberger (SLB) announces earnings. Home Sales is released. AbbVie Inc (ABBV) and DR Horton (DHI) report.
As for me, I will be celebrating my birthday. Believe me, lighting 67 candles creates a real bonfire. I received the best birthday card ever from my daughter which I have copied below
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
September 25, 2018
Fiat Lux
Featured Trade:
(AMAZON’S HOME INVASION),
(AMZN), (GOOGL), (HBB), (PG)
In another resplendent display of corporate expertise, Amazon (AMZN) debuted its stunning new lineup of smart home products aiming to dominate your inside walls.
In total, Amazon gave consumers 15 new devices to dabble with – an unprecedented amount.
Amazon Echo, Amazon’s smart speaker, also received a software update.
Jeff Bezos’ company is traversing where they have never been before, infiltrating the car with the Echo Auto, executing location-based routines such as directing drivers running on a brand-new operating system.
Other products in the shop window were smart devices related to security, a clock, an upgraded Echo Dot, and a microwave.
The biggest nugget delivered in this release event was the advent of the Amazon Echo-on-a-chip – Amazon Connect Kit.
Essentially, it would allow any third-party manufacturer that vies for smart home supremacy to embed an Amazon produced chip into its product and design the architecture around it.
This foray has already turned heads with appliance companies already raving about this new development.
Consumer product companies such as Hamilton Beach (HBB) and Procter & Gamble (PG) are in the midst of engineering its own products centered around the Amazon connect kit.
North America sales and marketing senior vice president at Hamilton Beach Scott Tidey said his company has been “surprised at how easy it is to use the Alexa Connect Kit to prototype devices and create Alexa commands with just a few lines of code.”
In the near future, consumers could be maneuvering around their homes with products possessing a legion of these new Amazon proprietary chips.
Amazon is bent on penetrating your home and turning it into the smart home you always dreamed of, and this is one of the in-roads that will take them to the holy grail.
This hard-charging approach has been effective.
Wait to see which products go viral, then go after market share like crazy.
This approach made the Amazon Kindle a favorite of many tablet goers.
It helps that Amazon products are crafted with intense precision and great attention to detail.
As more consumers devour new Amazon devices, the synergistic effects benefit its comprehensive eco-system.
Once a customer becomes entirely drenched in Amazon products, it becomes the backbone to a customer’s existence.
Ask the millennial generation, and a good portion of them entirely depend on Amazon to fuel their daily routine.
Any replacement services would waste them hours and be a whole lot pricier.
As the voice assistants become widely adopted, it could blow a hole in Google (GOOGL) search.
Google search is still reliant on its desktop search, even though more and more people are migrating to its mobile search platform.
But if Amazon can stay ahead of Google in the voice assistant race, it could supplant Google as the premier search engine.
It might be an existential crisis for Google search and the minions of Google ad tech engineers.
Google is still wholeheartedly reliant on advertisement revenue, which is its profit engine.
Although, the cash cow digital advertisement business has made the company famously rich, regulation is a ticking time bomb, as the government has a bull’s-eye marked at this Silicon Valley mainstay.
Amazon has smartly moved up the value chain of search, and believes voice-activated search will be the revolutionary search function in the next few years.
It’s hard to argue with its prognosis.
Providing enough high-caliber accoutrements that mesh with its voice supported portfolio will expedite adoption and put strenuous pressure on Google to evolve faster.
Even worse, the golden years for digital advertisement have passed and the pressure on margins could exacerbate.
Fighting Amazon would provoke the margin bears and in one fell swoop, Alphabet, which is waiting on Waymo to take off, could get hip-checked by the Seattle-based company.
As the FANGs start to bleed over into each other’s business, these new product events take on a more important meaning.
The Amazon-effect has the tendency to destroy smaller company’s stocks, but going forward, large companies will be just as badly affected as Amazon branches off into new spheres spearheading revolutionary initiatives.
This speaks volumes to the innovation of Amazon, and why the best innovators will always stay one step ahead.
Amazon is rated the No. 1 company by the Mad Hedge Technology Letter and after this stellar debut of various IoT products, it’s hard not to like them even more.
And if Amazon’s connect kit catches fire and Google is forced to concede this hardware to Amazon, it would be a kick in the midsection to Google whose IoT strategy is not sticking as strongly as it would like.
Amazon does not want to co-exist with other companies. However, it smartly concedes certain segments until it is confident in taking that segment over.
This is why Amazon’s in-house brands are starting to wreak havoc on the third-party sellers on its e-commerce platform.
Amazon ingenuously chose to make a microwave because the technology hadn’t changed much in a generation, yet it was in dire need of simplification.
Seize the low-hanging fruit before you tackle the more difficult challenges.
Once Amazon masters the simpler devices in the home, watch out!
The rest of the home will be up for grabs too because of the same reason many companies heed way to Amazon – it does it way better than any other company for a fraction of the cost.
The multiplier effect will be in full force when Amazon finally constructs its shiny new headquarter somewhere outside of Seattle giving Amazon more manpower to fulfill Bezos’ vision.
My bet is that it will be placed smack dab in the middle of Washington D.C. – a stone’s throw away from the White House where Bezos has been increasingly active adding to his army of lobbyists.
With regulation on the verge of breaking social media’s back, Bezos is acutely aware of protecting his assets as if his life depended on it.
Bezos also has a house in Washington and owns the Washington Post.
Amazon doesn’t rest on its laurels because it doesn’t dominate 80% of the Android market, and it must be the aggressor and the disruptor at the same time.
Rolling out 15 smart products blew away the drooling audience and left them befuddled and craving for more.
Amazon must do it another way than Google and its way; the Amazon way, is the winning strategy.
It’s hard to imagine that Google is still reliant on a legacy business to print them money. And as the digital ad industry sinks, Google will sink, too.
Google still hasn’t found the next answer that can marshal it to safe waters.
Its eggs are still in one basket – unlike Amazon.
As Amazon steamrolls the little companies that never had a chance, the threat of them taking out a Google- or a Facebook-size company grows exponentially.
Ironically, Amazon’s digital ad business is set to surpass $4 billion by the end of the year, and it’s not even the main aim for Bezos.
The digital ad business is a side business for Bezos.
His visions are grander and awe-inspiring, and this product rollout affirms this vision.
This is the beginning of something much more powerful. Any investor who thinks Amazon shares are expensive is crazy.
The report of bribery in Amazon’s system and the subsequent short-term weakness in the shares is a great chance to buy Amazon on the dip because this stock is going higher.
Anybody would be a fool to short Amazon.
This company exudes quality, and many would agree with me.
Just The Beginning And More Smart Products On The Way
Global Market Comments
April 26, 2018
Fiat Lux
Featured Trade:
(WEDNESDAY, JUNE 13, 2018, PHILADELPHIA, PA, GLOBAL STRATEGY LUNCHEON)
(WHY CONSUMER STAPLES ARE DYING),
(XLP), (PG), (KO), (PEP), (PM), (WMT), (AMZN),
(WHY YOUR OTHER INVESTMENT NEWSLETTER IS SO DANGEROUS)
For those of you who heeded my expert advice to buy the ProShares Ultra Short Euro ETF (EUO) last July, well done!
You are up a massive 48%! This is on a move in the underlying European currency of only 18.5%.
My browsing of the Galleria in Milan, the strolls through Spanish shopping malls, and my dickering with an assortment of dubious Greek merchants, all paid off big time. It turns out that everything I predicted for this beleaguered currency came true.
The European economy did collapse. Cantankerous governments made the problem worse by squabbling, delaying and obfuscating, as usual.
The European Central Bank finally threw in the towel and did everything they could to collapse the value of the Euro and reinvigorate their comatose economies. This they did by imitating America?s wildly successful quantitative easing, which they announced with local variations last Thursday.
And now for the good news: The best is yet to come!
Europe is now six days into a strategy of aggressive monetary easing which may take as long as five years until it delivers tangible, sustainable results. That?s how long it took for the Federal Reserve?s QE to restore satisfactory levels of confidence in the US economy.
The net net is that we have almost certainly only seen the first act of a weakening of the Euro which may last for years. A short Euro could be the trade that keeps on giving.
The ECB?s own target now is obviously parity against the greenback, which you will find predicted in my own 2015 Annual Asset Class Review released at the beginning of January (click here).
Once they hit that target, 87 cents to the Euro will become the new goal, and that could be achieved sooner than later.
However, you will not find me short the Euro up the wazoo this minute. I think we have just stumbled into a classic ?Buy the Rumor, Sell the News? situation with the Euro.
The next act will involve the ECB sitting on its hands for a year, realizing that their first pass at QE was inadequate, superficial, and flaccid, and that it is time to pull the bazooka out of their pockets once again.
This is a problem when the entire investment world is short the Euro. That paves the way for countless, rip your face off short covering rallies in the months ahead. Any smidgeon or blip of positive European economic data could spark one of these.
Trading the Euro for the past eight months has been like falling off a log. It is about to get dull, mean and brutish. So for the moment, my currency play has morphed into selling short the Japanese yen, which has its own unique set of problems.
As for the unintended consequences of the Euro crash, the Q4 earnings reports announced so far by corporate America tells the whole story.
Companies with a heavy dependence on foreign (read Euro and yen) denominated earnings are almost universally coming up short. On this list you can include Caterpillar (CAT), Procter and Gamble (PG), and Microsoft (MSFT).
Who are the winners in the strong dollar, weak Euro contest? US companies that see a high proportion of their costs denominated in flagging foreign currencies, but see their incomes arrive totally in the form of robust, virile dollars.
You may not realize it, but you are playing the global currency arbitrage game every time you go shopping. The standout names here are US retailers, which manufacture abroad virtually all of the junk they sell you here, especially in low waged China.
The stars here are Macy?s (M), Family Dollar Stores (FDO), Costco (COST), Target (TGT), and Wal-Mart (WMT).
You can see this divergence crystal clear in examining the behavior of the major stock indexes. The chart for the Guggenheim S&P 500 Equal Weight ETF (RSP), which has the greatest share of currency sensitive multinationals, looks positively dire, and may be about to put in a fatal ?Head and Shoulders? top (see the following story).
The chart for the NASDAQ (QQQ), where constituent companies have less, but still a substantial foreign currency exposure, appears to be putting in a sideways pennant formation before eventually breaking out to new highs once again.
The small cap Russell 2000, which is composed of almost entirely domestic, dollar based, ?Made in America? type companies, is by far the strongest index of the trio, and looks like it is just biding time before it blasts through to new highs.
If you are a follower of my Trade Alert Service, then you already know that I have a long position in the (IWM), which has already chipped in 2.12% to my 2015 performance.
You see, there is a method to my Madness.
