Global Market Comments
January 10, 2020
Fiat Lux
Featured Trade:
(FRIDAY, FEBRUARY 7 PERTH, AUSTRALIA STRATEGY LUNCHEON)
(JANUARY 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(VIX), (VXX), (TSLA), (SIL), (SLV),
(WPM), (RTN), (NOC), (LMT), (BA), (EEM)
Posts
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 8 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: If the market is doing so well, why is the Fed flooding the market with liquidity?
A: It’s election year, so their primary focus is to get the president reelected and do everything they can to make sure that happens. If we continue at the current rate, the Fed will have zero ability to get us out of the next recession which will make it much deeper than it would be otherwise. Doing this level of borrowing and keeping interest rates near zero with the stock market going up 30% a year is insane, and we will be severely punished for it in the future.
Q: With the Volatility Index (VIX) near a 12-month low and the Mad Hedge Market Timing Index near an all-time high, is this a good time to put on LEAPs for the (VXX)?
A: Yes, in fact, a (VXX) LEAP (Long Term Equity Participation Security, or one-year-plus option spread), is the only LEAP I would put on right now. I get asked about LEAPs every day because returns on them are so huge, but I am holding back on a trade alert on a (VXX) leap because it seems like in January they really want to run this market high and run volatility down low. On the next move to a (VIX) in the $11 handle, you want to put out a one-year LEAP with a $16 strike. And that is essentially a guarantee that you will make money sometime in the coming year on a big down move in the stock market. (VXX) LEAPs are coming, just not yet.
Q: Do you think Iran is done with their attacks against the US or will there be more?
A: The belief there will be no more attacks is to call the end of a 40-year trend. There will be more attacks, and those are going to be your long side entry points. Every geopolitical crisis for the last 10 years has been a great entry point on the long side and the next one will be no different. Just hope you are not one of the victims.
Q: What would a war with Iran mean for the US economy and should I buy defense stocks?
A: You can take the Iraq war, which cost us about $4 trillion, and multiply that by three times to $12 trillion because Iran’s economy is three times the size of Iraq and has a much more sophisticated military. The Iranians are really in a good position because they know the US has no appetite for another Iraq, Afghanistan, or Vietnam. They just want us out of their neighborhood. As far as defense stocks, those really move on very long-term investments and production for government contracts. When you get an attack like this, you get a one-day pop of 5% and then they usually give it all back. So, I wouldn't be chasing defense stocks like Lockheed Martin (LMT), Northrop Grumman (NOC), and Raytheon (RTN) at these high levels—it’s a very high-risk trade.
Q: Will Boeing (BA) take heat from the Ukrainian crash in Tehran?
A: Yes. It’s down about $5, and you might even consider running the numbers on a February call spread. This may be the last chance to get into Boeing at those low levels. The 737 MAX will fly this year, their most important product.
Q: What’s your opinion on Thai Baht?
A: This really is the home here for opinion on all asset classes, large and small. The Thai Baht will rise. It’s a weak dollar play. Money is pouring into all the emerging currencies because of the massive overborrowing that’s going on in the U.S. Countries that overborrow and print money like crazy always debase their currencies over the long term. That makes emerging markets (EEM) a great buy, which are trading at half the valuation levels of US ones.
Q: U.S. hog farmers missed the opportunity of a lifetime last year because of African Swine Flu. Any thoughts on the price of pork and commodities for 2020?
A: They should do better now that we’re at least getting relief from an escalation of the trade war. However, I gave up covering agriculture because the American farmer is just too efficient; every year they just produce more and more crops with fewer and fewer inputs—it’s a loser’s game. They occasionally get bad weather and get a big price spike, but that Is totally unpredictable. I'm staying away from ag stocks. In terms of buying soybeans or Apple, or Google, or Amazon, I’ll take the tech stocks any day over ag’s. Plus, the insiders have a big advantage in ag’s.
Q: What is the ticker symbol for the Silver ETFs?
A: The Silver metal ETF is (SLV), Silver miners is (SIL), and the Silver Royalty Trust, Wheaton Precious Metals, is (WPM).
Q: Why has volatility been so minimal even with massive geopolitical risk going up?
A: Liquidity trumps all. This month, the fed is pumping a record $160 billion into the financial system, and all that money is going into stocks, making them go up and making volatility go down. Until that changes, this trend will continue.
Q: Apple just passed $300, is the next stop $400?
A: Yes, and we could get that this year in the run up to 5G in September. By the way, my average cost on my Apple shares split adjusted is 50 cents. I bought it in the late 1990s when the company was weeks away from bankruptcy.
Q: Any thoughts on Tesla (TSLA)?
A: Yes, go out and buy the car, not the stock. Wait for some kind of pullback. We have just had a fantastic run of good news kicking the stock from $180 up to $490. I think we will make it up to $550 on this run. But you don’t want to get involved unless you’re a day trader because now the risk is very high. The next big move for Tesla is going to be the announcement of a production factory in Berlin, where they will try to take on Mercedes, BMW, VW, and Audi on their home turf. Then, they will own Europe.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 17, 2019
Fiat Lux
Featured Trade:
(WEDNESDAY, FEBRUARY 5 MELBOURNE, AUSTRALIA STRATEGY LUNCHEON)
(THE NEXT COMMODITY SUPER CYCLE HAS ALREADY STARTED)
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
Global Market Comments
September 6, 2019
Fiat Lux
Featured Trade:
(SEPTEMBER 4 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (FXY), (FXB), (USO), (XLE), (TLT), (TBT),
(FB), (AMZN), (MSFT), (DIS), (WMT), (IWM), (TSLA), (ROKU), (UBER), (LYFT), (SLV), (SIL)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader September 4 Global Strategy Webinar broadcast from Silicon Valley with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: If Trump figures out the trade war will lose him the election; will he stop it?
A: Yes, and that is a risk that hovers over all short positions in the market at all times these days because stocks will soar (INDU) when the trade war ends. We now have 18 months of share appreciation that has been frustrated or deferred by the dispute with China. The problem is that the US economy is already sliding into recession and it may already be too late to turn it around.
Q: Do you see the British pound (FXB) dropping more on the Brexit turmoil? Do you think the UK will stay in the EU?
A: If the UK ends Brexit through an election, then the pound should recover from $1.19 all the way back up to $1.65 where it was before Brexit happened four years ago. If that does happen, it will be one of the biggest trades of the year anywhere in the world, going long the British pound. This is how I always anticipated it would end. I was in England for the Brexit vote and I was convinced that if they held the election the next day, it would have lost. The only reason it won was because nobody thought it would— a lot like our own 2016 election. That brings Britain back into the EEC, saves Europe, and has a positive impact on markets globally. So, this is a big deal. Not to do so would be economic suicide for Britain, and I think wiser heads will prevail.
Q: Do you think it’s a good idea for Saudi ARAMCO to go public in Japan as reports suggest?
A: When the Arabs want to get out of the oil business (USO), (XLE), you want to also. That’s what the sale of ARAMCO is all about. They’re going to get a $1 trillion or more valuation, raising $100 billion in cash. And guess who the biggest investors in alternative energy in California are? It’s Saudi Arabia. They see no future in oil, nor should you. This is why we’ve been negative on the sector all year. By the way, bankruptcies by frackers in the U.S. are at an all-time high, another indicator that low oil prices can’t be tolerated by the US industry for long.
Q: Is it time to buy the ProShares Ultra Short 20 year Plus Treasury Bond Fund (TBT)?
A: No, not yet; I think we’re going to break 1.33% — the all-time low yield for the (TLT) will probably be somewhere just below 1.00%. We probably won’t go to absolute zero because we still have a growing economy. The countries that already have negative interest rates have shrinking economies or are already in recession, like Germany or Great Britain can justify zero rates.
Q: Are you going to run all your existing positions into expiration?
A: I’m going to try to—it’s only 12 days to expiration, and we get to keep the full profit if we do. As long as the market is dead in the middle here, there are no other positions to put on, no extreme low to buy into or extreme high to sell into. It’s a question of letting this sort of nowhere-trend play out, but also there's nothing else to buy, so there is no need to raise cash. So, we’re 60% invested now and we’re going to try running as many of those into expiration as we can. Looks like all the long technology positions are safe (FB), (AMZN), (MSFT), (DIS). The only thing we’re pressing here are the shorts in Walmart (WMT) and Russell 2000 (IWM).
Q: Do you think it’s a good idea for Tesla (TSLA) to build another Gigafactory in Shanghai, China during a trade war? Will this blow up in Elon’s face?
A: I don’t think so because the Chinese are desperate for the Tesla technology and they just gave Tesla an exemption on import duties on all parts that need to go there to build the cars. So, that’s a very positive development for Tesla and I believe the stock is up about $10 since that news came out.
Q: Will Roku (ROKU) ever pull back? Would you buy it up here?
A: No, we recommended this thing last year at $40; it’s now up to $165, and up here it’s just wildly overbought, in chase territory. Of course, the reason that’s happening is that the big concern last year was Amazon wiping out Roku, yet they ultimately ended up partnering with Roku, and that’s worth about a 400% gain in the stock. You know the second you get into this, it’s over. There are just too many better fish to fry in the technology area.
Q: What happens if our existing Russell 2000 (IWM) September 2019 $153-$156 in-the-money vertical BEAR PUT spread Russell 2000 position closes between $156 and $153?
A: You lose money. You will get the Russell 2000 shares put to you, or sold to you at $153.00, which means you now own them, and you’ll get a big margin call from your broker for owning the extra shares. If ever it looks like we’re getting close to the strike price going into expiration, I come out precisely because of that risk. You don’t want random chance dictating whether you’re going to make money in your position or not going into expiration. If you’re worried about that, I would get out now and you can still come out with a nice profit. Or, you can always wait for another down day tomorrow.
Q: Is it time to get super aggressive shorting Lyft (LYFT) or Uber (UBER) when they openly admit that they won’t make a profit anytime in the near future?
A: The time to short Uber (UBER) and Lyft was at the IPO when the shares became available to sell. Down here I don’t really want to do very much. It’s late in the game and Uber’s down about one third from its IPO price. We begged people to stay away from this. It’s another example where they waited for the company to go ex-growth before it went public, but it didn’t leave anything for the public. It was a very badly mishandled IPO—it’s now at $31 against a $45 IPO price and was at a new all-time low just 2 days ago. You knew when they offered the drivers shares, the thing was in trouble. Sometime this will be a buy, but not yet. Go take a long nap first.
Q: Is the fact that rich people are hoarding cash a good indicator that a recession is approaching?
A: Yes, absolutely. Bonds yielding 1.45% is also an indication that the wealthy are hoarding cash from other investment and parking it in US treasury bonds. I went to the Pebble Beach Concourse d’ Elegance vintage car show a few weeks ago and all of the $10 million plus cars didn’t sell, only those priced below $100,000. That is always a good indicator that the wealthy are bailing ahead of a recession. If you can’t get a premium price for your vintage Ferrari, trouble is coming.
Q: Argentina just implemented currency controls; is this the start of a rolling currency crisis among emerging nations?
A: No, I believe the problems are unique to Argentina. They’ve adopted what is known as Modern Momentary Theory—i.e. borrowing and printing money like crazy. Unfortunately, this is unsustainable and results in a devalued currency, general instability, and the eventual hanging of their leaders from the nearest lamppost. This is exactly the same monetary policy that the Trump administration has been pursuing since he came into office. Eventually, it will lead to tears, ours, not his.
Q: Is the new all-electric Porsche Taycan a threat to Tesla?
A: No, it’s not. Their cheapest car is $150,000 and it gets one third less range than Tesla does. It’s really aimed at Porsche fanatics, and I doubt they will get outside their core market. In the meantime, Tesla has taken over the middle part of the electric market with the Model 3 at $37,000 a car. That’s where the money is, and Porsche will never get there.
Q: How will the US pull out of recession if the interest rates are at or below zero?
A: It won’t—that’s what a lot of economists are concerned about these days. With interest rates below zero, the Fed has lost its primary means to stimulate the economy. The only thing left to do is use creative means like feeding the economy with currency, which Europe has been doing for 10 years, and Japan for 30, with no results. That’s another reason to not allow rates to get back to zero—so we have tools to use when we go into a recession 12-24 months from now.
Q: What’s the best way to buy silver?
A: The ETF iShares Silver Trust (SLV) and, if you want to be aggressive, the silver miners with the Global X Silver Miners ETF (SIL).
Q: Have global central banks ruined the western economic system as we know it for future generations?
A: They may have—mostly by printing too much money in the last 10 years in order to get us out of recession. This hasn’t really worked for Europe or Japan, mind you, though who knows how much worse off they would be if they hadn’t. What it did do here is head off a Great Depression. If we go back to money printing in a big way, however, and it doesn’t work, we will not have prevented a Great Depression so much as pushed it back 10 or 15 years. That’s the great debate ongoing among economists, and it will eventually be settled by the marketplace.
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)
The news from Australia?s Perth Mint was horrific last week. The refiner for the world?s second largest producer reported that sales hit a new three year low.
And the worst is yet to come.
Shipments of gold coins and bars plunged to 21,671 ounces in May, compared to 26,545 ounces in April. Silver sales have seen similar declines.
I have been warning readers for the last four years that investors want paper assets paying dividends and interest, not the hard stuff, now that the world is in a giant reach for yield.
Ten-year US Treasury yields jumping from 1.83% to 2.43% this year is pouring the fat on the fire.
This all substantially raises the opportunity cost of owning the barbarous relic. With bond yields now forecast to reach as high as 3.0% by the end of the year, the allure of the yellow metal is fading by the day.
The gold perma bulls have a lot of splainin? to do.
Long considered nut cases, crackpots, and the wearers of tin hats, lovers of the barbarous relic have just suffered miserable trading conditions since 2011. Gold has fallen some 39% since then during one of the great bull markets for risk assets of all time.
Let me recite all the reasons that perma bulls used your money to buy the yellow metal all the way down.
1) Obama is a socialist and is going to nationalize everything in sight, prompting a massive flight of capital that will send the US dollar crashing.
2) Hyperinflation is imminent, and the return of ruinous double-digit price hikes will send investors fleeing into the precious metals and other hard assets, the last true store of value.
3) The Federal Reserve?s aggressive monetary expansion through quantitative easing will destroy the economy and the dollar, triggering an endless bid for gold, the only true currency.
4) To protect a collapsing greenback, the Fed will ratchet up interest rates, causing foreigners to dump the half of our national debt they own, causing the bond market to crash.
5) Taxes will skyrocket to pay for the new entitlement state, the government?s budget deficit will explode, and burying a sack of gold coins in your backyard is the only safe way to protect your assets.
6) A wholesale flight out of paper assets of all kind will cause the stock market to crash. Remember those Dow 3,000 forecasts?
7) Misguided government policies and oppressive regulation will bring financial Armageddon, and you will need gold coins to bribe the border guards to get out of the country. You can also sew them into the lining of your jacket to start a new life abroad, presumably under an assumed name.
Needless to say, things didn?t exactly pan out that way.
The end-of-the-world scenarios that one regularly heard at Money Shows, Hard Asset Conferences, and other dubious sources of investment advice all proved to be so much bunk.
I know, because I was once a regular speaker on this circuit. I, alone, a voice in the darkness, begged people to buy stocks instead.
Eventually, I ruffled too many feathers with my politically incorrect views, and they stopped inviting me back. I think it was my call that rare earths (REMX) were a bubble that was going to collapse was the weighty stick that finally broke the camel?s back.
By the way, Molycorp (MCP), then at $70 a share, recently announced it was considering bankruptcy. Rare earths didn?t turn out to be so rare after all.
So, here we are, five years later. The Dow Average has gone from 7,000 to 18,000. The dollar has blasted through to a 14 year high against the Euro (FXE).
The deficit has fallen by 75%. Gold has plummeted from $1,920 to $1,150. And no one has apologized to me, telling me that I was right all along, despite the fact that I am from California.
Welcome to the investment business. Being wrong never seems to prevent my competitors from prospering.
Gold has more to worry about than just falling western demand. The great Chinese stock bubble, which has seen prices double in only nine months, has citizens there dumping gold in order to buy more stocks on margin.
This is a huge headache for producers, as the Middle Kingdom has historically been the world?s largest gold buyer. As long as share prices keep appreciating, demand there will continue to ebb.
So now what?
From here, the picture gets a little murky.
Certainly, none of the traditional arguments in favor of gold ownership are anywhere to be seen. There is no inflation. In fact, deflation is accelerating.
The dollar seems destined to get stronger, not weaker. There is no capital flight from the US taking place. Rather, foreigners are throwing money at the US with both hands, escaping their own collapsing economies and currencies.
And with global bond markets having topped out, the opportunity cost of gold ownership returns with a vengeance.
All of which adds up to the likelihood that today?s gold rally probably only has another $50 to go at best, and then it will return to the dustbin of history, and possibly new lows.
I am not a perma bear on gold. There is no need to dig up your remaining coins and dump them on the market, especially now that the IRS has a mandatory withholding tax on all gold sales. I do believe that when inflation returns in the 2020?s, the bull market for gold will return for real.
You can expect newly enriched emerging market central banks to raise their gold ownership to western levels, a goal that will require them to buy thousands of tons on the open market.
Gold still earns a permanent bid in countries with untradeable currencies, weak banks, and acquisitive governments, India, another major buyer.
Remember, too, also that they are not making gold anymore, and that all of the world?s easily accessible deposits have already been mined. The breakeven cost of opening new mines is thought to be around $1,400 an ounce, so don?t expect any new sources of supply anytime soon.
These are the factors which I think will take gold to the $3,000 handle by the end of the 2020?s, which means there is quite an attractive annualized return to be had jumping in at these levels. Clearly, that?s what many of today?s institutional buyers are thinking.
Sure, you could hold back and try to buy the next bottom. Oh, really? How good were you at calling the last low, and the one before that?
Certainly, incrementally scaling in around this neighborhood makes imminent sense for those with a long-term horizon, deep pockets, and a big backyard.
Oops!
Maybe It Doesn?t Look So Good After All
Look at the charts for the barbarous relic below and you can only come to one possible conclusion. If the Federal Reserve disappoints on Thursday, just a little bit, even by a smidgeon, and does not deliver QE3 and gold sells off big, you should jump in and by the stuff like crazy.
All of the charts for gold and the derivative plays are showing major breakouts to the upside. This is true for spot gold and the ETF (GLD), which broke a major downtrend line last week. It is the case for the gold miners ETF (GDX). It is also the reality for silver, the silver ETF (SLV), and the silver miners (SIL).
The entire precious metals space has been floated since the prospect of further quantitative easing from the world?s central banks started in earnest on May 15. Since then, it has been prudent and profitable to buy every dip.
European Central Bank president Mario Draghi did the heavy lifting in mid-July by promising to ?Do whatever it takes to rescue the Euro? (read: huge quantitative easing). He then put his money where his mouth was last week by announcing an unlimited bond-buying program.
Assorted dovish Federal Reserve governors have done their bit by talking up the prospect of further monetary easing. China threw in its ten cents by announcing a $150 billion reflationary budget on Friday. Even the Bank of Japan has been heard murmuring about additional money printing. It all has the smell of an international coordinated effort to reflate the global economy.
Where exactly do you get back in? The sweet spot in the (GLD) will be the 200 day moving average at $159.66, which fell at the end of August. That is down $7.94 in (GLD), or $79.40 in the spot market from here.
Would you Consider a Long-Term Relationship?