Global Market Comments
October 5, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or IS HISTORY REPEATING ITSELF?)
(SPY), (INDU), (DIS), (TLT)
Posts
In 1919, President Woodrow Wilson traveled to Europe to negotiate the end of WWI and the Versailles Treaty. Midway through the talks, he suffered a major stroke and was hustled back to the US in an American battleship, the USS George Washington.
The Spanish Flu pandemic was underway, killing millions, so it was thought best to keep the whole matter secret. The president’s wife essentially ran the country for the last three years of Wilson’s administration, claiming to represent the president’s wishes.
This was the history that flashed through my mind when I learned of President Trump’s Covid-19 infection on Thursday night. The presidential election is now effectively over. All fundraising has ceased. It is now an open question whether Trump can even live until the November 3 election. He is, after all, a high-risk patient. Any remaining public campaign events on which the president thrived is out of the question.
The minute the president got sick, media coverage has been wholly devoted to Covid-19. That was not in the Trump plan. Not at all.
The London betting markets soared from a 60% chance of a Biden win to 90% minutes after the Covid-19 news broke. The only question is the extent of the landslide. This election won’t go anywhere near the courts or the Supreme Court, as the stock market has been pricing in. If there is another big gap down, you should be picking up stocks by the bucket load as fast as you can.
Fund managers who thought Trump had a chance of returning will spend this weekend pouring over Biden’s economic policies. All investment decisions will now be made based on the assumption that these will be the policies in force for the next 4, 8, or 12 years.
Think:
higher taxes
more economic stimulus
big infrastructure spending
more quantitative easing
grants to state and local municipalities
no inflation
low-interest rates
more alternative energy subsidies
the return of the Paris Climate Accord
more regulation of the oil industry
end of the trade wars
rejoining the NATO alliance
Oh, and the huge technological advancements and the burgeoning profit opportunities that have emerged in response to the pandemic? We get to keep those.
That is great news for long-term investors. All of this combined is very pro-investment and pro stock market. It firmly solidifies my own Dow target of 120,000 in a decade and another Roaring Twenties and coming American Golden Age. Now, we even have the trigger.
That explains why the market made back a hefty 500 points in hours, even turning positive on the day for a few fleeting moments. On a six-month view, the upside risks are far greater than the downside ones. An S&P 500 of $3,500-$3,700 by yearend is within range, up 6%-12% from here.
The September Nonfarm Payroll Report bombed, coming in at 661,000, well below expected. The headline Unemployment Rate is at a historically high 7.9%. The U-6 real “discouraged worker” jobless rate is at 12.6%. Leisure & Hospitality was the big winner at 318,888, Healthcare gained 107,000, and Retail posted 142,000. Local Government lost a staggering 232,000 jobs and towns run out of money.
US Q2 GDP came in at a horrific negative 31.4% in the final read, the worst in US history. It’s a tough economic record to run for office on. The first Q3 GDP read will not be released until October 29, five days before the presidential election, and should be up huge.
US Capital Goods hit a six-year high, up 1.8% in August. July was revised upward as well. The boost may be short-lived as stimulus money runs out.
Office Rents won’t recover until 2025, says commercial real estate leader Cushman & Wakefield. Some 215 million square feet of demand has been lost due to the pandemic. Many knowledge-based workers are never coming back to the office.
Pending Homes Sales hit a record high in August, up a mind-blowing 8.8% from July and a staggering 24.5% YOY. Hot housing markets are seeing 11%-20% YOY price increases. The northeast saw the biggest gains. This trend has another decade to run. Buy before they run out of stock.
Case Shiller rose 4.8% in July as its National Home Price Index shows. Phoenix (9.2%), Seattle (7.0%), and Charlotte (6.0%) were the price leaders. A stampede to the suburbs fueled by record-low interest rates is the main driver. Look for these trends to continue for years.
Consumer Confidence soared in September, from 84.8 last month to 101.8. Those who have money are spending it. Those who don’t are waiting in lines at food banks, disappearing from the economy. New York bankruptcies surged 40%. If you haven’t spent the past decade investing in your online presence or yourself, you’re toast.
Disney (DIS) laid off 28,000 to stem hemorrhaging losses at its theme parks, hotels, and cruise line. It will take a year to come back. Clearly, their recent $78.3 billion purchase of 21st Century Fox movie and TV studios last year was poorly timed, just before the pandemic, and they borrowed massively to close it. And they had a major presence in China! It’s one of the biggest mass layoffs since Corona began to decimate the economy.
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 pushed through to a new all-time high last week on the strength of a position that I kept for a single day. All I needed was the 700-point dive in the Dow Average in 24 hours to realize half the maximum profit in my short (SPY) position. When the market offers me a gift like that, I take it, no questions asked. I am back to a rare 100% cash position, waiting for a bigger dump to buy.
The risk/reward in the market now is terrible. I believe we have to test the 200-day moving averages before it’s safe to go back in with the indexes and single stocks.
That takes our 2020 year-to-date performance back up to a blistering +35.46%, versus a loss of 2.87% for the Dow Average. October shot out the gate at +0.96%. That takes my 11-year average annualized performance back to +36.12%. My 11-year total return returned to another new all-time high at +391.37%. My trailing one-year return popped back up to +51.82%.
The coming week will be a dull one on the data front. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, now at 210,000, which you can find here.
On Monday, October 5 at 10:00 AM, the ISM Non-Manufacturing PMI Index for September is released.
On Tuesday, October 6 at 9:00 AM EST, the JOLTS Job Openings for August is published.
On Wednesday, October 7 at 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out. At 2:00 PM EST, the Fed Minutes from the last Open Market Committee Meeting six weeks ago are disclosed.
On Thursday, October 8 at 8:30 AM EST, the Weekly Jobless Claims are announced.
On Friday, October 9, at 2:00 PM The Bakers Hughes Rig Count is released.
As for me, I’m headed up to Lake Tahoe again to escape the thick clouds of choking smoke in the San Francisco Bay Area. Also, the polls for the presidential election in Nevada open on October 17 and I have to VOTE!
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Is History Repeating Itself?
No Smoke Here
Global Market Comments
September 28, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or DID THE ELECTION OR COVID JUST HIT THE STOCK MARKET?),
(SPY), (TLT), (GLD), (TSLA), (UUP)
Did the election finally hit the stock market? It could have been both or neither.
Certainly, the passing of Supreme Court Justice Ruth Bader Ginsberg was worth 1,000 points, and maybe more. It may open the door to a period in politics that is uncertain at best or become violent at worst.
But the Coronavirus is making a comeback too. The US topped 7 million cases and 200,000 deaths, more than any other country in the world. The president’s new pandemic advisor, Scott Atlas, seems to be advocating a “herd immunity” approach. If so, 53% of the population will get the disease causing a total of 3 million deaths. The pandemic will continue for years.
New cases are spiking in Europe. The UK, which was on the verge of ordering workers back to their offices is now going back to a total shutdown. That augers for a second big wave in the US as kids go back to school and universities reopen.
With the S&P 500 now down 1% on the year, 2020 basically never happened. We saw a whole lot of volatility with no net movement. It makes my own 34.50% profit this year look stellar by comparison.
With the twin challenges of Covid-19 and the election lower lows for the market beckon. The one-year charts show that a “head and shoulders” top is in place for the (SPY), so my downside target at the 200-day moving average stands. That would be 3,074 for the (SPX) and $84 for Apple (AAPL).
There is a chance that the Fed could intervene in the stock market one more time right before the election if the markets resume the cascading falls of the spring. If that happens, buyers will return in hoards. My view is that this is but another dip in a long-term bull market that started in 2009 and may run all the way to 2030. You especially want to load the boat with Apple again.
However, the mystery of why technology stocks are so expensive remains. Let me take another shot at this.
From a technology point of view, we have just completely skipped the 2020s and are already in 2030. A year ago, would you have ever imagined that all of the country’s children would now be going to school online or that you’d be sending your business suits to the Good Will?
Stock markets have yet to price in the 2030 level of technology and profit, so the stocks will keep going up. Maybe we are already at 2023 or 2025 prices. I’ll let you know when I find out.
Volatility rocketed last week, and stocks collapsed. Any chance of further Covid-19 economic stimulus this year has just been demolished. If you were worried about the presidential election eroding confidence in the market before, now you have to be positively suicidal.
Any doubts about traders going into cash before the election have been vaporized. A 4-4 Supreme Court now makes an election outcome uncertain, no matter what the actual vote. Price that into your dividend discount model!
US Corona Deaths topped 200,000, weighing heavily on the economy and the election. There is no sign that the death rate is slowing, possibly reaching 400,000 by yearend. I went out to dinner last weekend and one-third of all businesses were boarded up, with no sign of reopening, ever.
Twelve IPOs to hit last week. This is in the wake of the Snowflake (SNOW) deal last week that tripled off its initial price talk. Apparently, there is an extreme shortage of high-growth large cap technology stocks and Silicon Valley is more than happy to meet that demand. Flooding the market like this ends up killing the goose that laid the golden eggs and is a common signal of market tops. Existing stock holdings have to be sold to buy new ones, taking markets south.
The economy slows as stimulus hopes fade as confirmed by last week’s economic data. US Consumer Sentiment dove in August, while Weekly Jobless Claims hover just below a Great Recessionary one million. The pandemic remains the dominant economic issue unless you live online.
The NASDAQ whale continues to sell, as Softbank (SFTBY) continues to unwind its massive technology long options positions. Last week, it was Adobe (ADBE), Salesforce (CRM), and Facebook (FB) that got hit. We won’t know if they made money on these for months, but they certainly put the final spike top in for the technology bubble.
The biggest debt increase in history occurred, with Federal government borrowing up an eye-popping 59% YOY. Sell every rally in the (TLT). It’s just a matter of time before a flood of new issuance destroys this market. We are sowing the seeds for the next financial crisis. The government was running record deficits BEFORE the pandemic even started.
Existing Home Sales soared in August, up 2.4% MOM to 6 million units, the hottest since 2006. Prices are up a huge 11.4% YOY. Homes over $1 million increased by 44% YOY as both work and school move home. Properties sit only 22 days on the market to sell, a record low.
Elon Musk promised a $25,000 car in three years, fully autonomous with long range and no maintenance for the life of the vehicle. The lifetime cost would be half of conventional gasoline-powered cars. That was the outcome of Battery Day in Fremont, CA, attended by hundreds of devotees safely enclosed in Teslas who honked instead of clap. It is all the result of dozens of revolutionary design and manufacturing improvements currently in the works, like moving from lithium to raw silicon for batteries. If so, General Motors (GM) and Ford (F) have had it.
A US dollar crash is imminent, says my old Morgan Stanley colleague Steven Roach. The double dip recession is here inviting even lower interest rates. The current account deficit soared to record highs in Q2. Buy the Aussie (FXA), Euro (FXE), and yen (FXY) on this dip.
Investors pull $25 billion from Equity funds last week as a new wave of nervousness hit the market. It’s the third largest weekly outflow in history. Everyone and his brother is trying to get out before the election. Pick your conspiracy theory as to what could go wrong.
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 stayed level at just short of an all-time high this week. I dumped my last two positions at the Monday morning opening as I could see the 1,000-point drop coming from a mile off, going to a rare 100% cash position.
The risk/reward in the market now is terrible. I believe we have to test the 200-day moving averages before it is safe to go back in with the indexes and single stocks.
That takes our 2020 year-to-date back up to a blistering 34.50%, versus a loss of 7.00% for the Dow Average. September stands at a nosebleed 7.95%. That takes my eleven-year average annualized performance back to 36.06%. My 11-year total return returned to another new all-time high at 390.41%. My trailing one-year return popped back up to 54.09%.
The coming week is a big one for jobs data. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, now at 203,000, which you can find here.
On Monday, September 28 at 10:30 AM EST, the Dallas Fed Manufacturing Index is released.
On Tuesday, September 29 at 9:00 AM EST, the S&P Case Shiller National Home Price Index for July is announced.
On Wednesday, September 30, at 8:15 AM EST, the ADP Private Employment Report is printed. At 8:30 AM EST, the final figure for US Q2 GDP is disclosed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
change.
On Thursday, October 1 at 8:30 AM EST, the Weekly Jobless Claims are announced.
On Friday, October 2 at 8:30 AM EST, the all-important September Nonfarm Payroll Report is out. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, we have another superheating of the climate in store this weekend, with San Francisco Bay Area temperatures expected to top 100 degrees. The fires are out now, but high winds are coming so PG&E is expected to cut off electric power once again.
I’ll be fine with my solar and battery back-up. The Tesla power management software knows in advance when this is going to happen and automatically goes into maximum storage mode. But just to be safe and to keep the trade alerts coming, I am charging up the car and every battery I own.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 21, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE’S THE BLACK SWAN FOR 2020),
(SPY), (INDU), (TSLA), (JPM), (TLT), (C),
(V), (GLD), (AAPL), (AMZN), (UUP)
I had the pleasure of meeting Supreme Court Justice Ruth Bader Ginsberg only last year. She was funny, a great storyteller, and smart as a tack. If she disagreed with you, she pounced like a lion with a prescient one-liner.
She was also a goldmine of historical anecdotes about American history over the past 60 years, recalling incidents seen from her front-row seat as if they had happened yesterday.
She was also frail and rail-thin as if a faint breeze could knock her over at any time. Contracting cancer five times will do this to a person. Assistants helped her walk.
Her unexpected passing is now on the verge of creating a new financial crisis. Any chance of passing further stimulus in the US congress has just turned to ashes. The focus in Washington has turned entirely to the Supreme Court for the rest of 2020.
As a result, tens of thousands more small business will go under, millions of families will be thrown out on to the street, and the Great Depression will drag on. There is nothing left to spike the punch bowl with.
The Dow Average on Monday morning will open down 1,000 points, led by Tesla (TSLA) and the big technology stocks. US Treasury bonds (TLT) will rocket $5. The US dollar (UUP) will soar on a flight to safety bid.
Traders were already cutting positions and scaling back risk to duck the coming turmoil of the presidential election. We are also trying to front-run a yearend stock selloff prompted by a Biden rise in the capital gains tax from 21% to 40%.
That’s a bit of a moot point as 75% of stock ownership is owned by tax-exempt funds. The remaining 25% is most tied up in institutions that duck the tax by never selling or are embedded on corporate cross ownerships which never change.
Now we have uncertainty with a turbocharger, with gasoline poured in the air intake (pilot talk).
With Democrats refighting the battle of the Alamo, I doubt that Trump can ram through a third Supreme Court nomination. Remember how the last one went, for Brett Cavanaugh? Filibusters alone could delay proceeding by a month. These are NOT developments that make stocks go up.
If Trump succeeds, it may be a pyrrhic victory, costing Republicans at least five Senate seats, losing a majority, and increasing the margin of a presidential loss. If retired astronaut wins the Senate in Arizona on November 3, only two Republicans need to fold to make a Supreme Court nomination impossible.
It’s not like the stock market was in such great shape going into this, the biggest black swan of 2020. The market is being flooded with high priced initial public offerings, some 12 in the coming week alone. Apparently, there is an extreme shortage of high growth large-cap technology stocks and Silicon Valley is more than happy to meet that demand.
Cloud storage player Snowflake (SNOW) saw price talk at $70, an IPO of $120, and a first-day peak of $275. This created $70 billion in market value with the stroke of a key.
Of course, flooding the market like this ends up killing the goose thay laid the golden eggs and is a common signal of market tops. Existing stock holdings have to be sold to buy new ones, taking markets south.
We have already seen the 30-day and 50-day moving averages broken, and sights are clearing set on the 200-day. They would take us to a full top to bottom correction in the indexes of 20%. That would take the S&P 500 from $3,600 to $3,000, The Dow Average from $26,298 to $24,000, and Apple from $137 to $84.
If the Volatility Index (VIX) goes over $50, I’ll start sending out lists of very low risk, high return two-year options LEAPS like I did last time.
The Fed says no interest rate hike until 2023 and promises to heat up the economy even more than previously. The long-term average 2% inflation target I reaffirmed. Jay sees a net shrinkage of the US GDP this year ay 3.7%. Since governor Jay Powell promised to run the economy hot weeks ago, ten-year US treasury bonds have only eked out a paltry rise to 72 basis points.
The market isn’t buying it. It’s tough to beat ever hyper-accelerating technology that crushes prices. Still, I’ll keep selling short bond rallies because it’s just a matter of time before the government crushes the market with massive over-issuance. Sell every rally in the (TLT). The Fed put lives! Buy stocks on dips.
Election chaos is starting to price in, with the US dollar (UUP) getting an undeserved bid in a flight to safety trade and stock down 1,000 points from the week’s high. All sorts of Armageddon scenarios are making the rounds now and traders are pulling out of the market to protect hard-earned profits. For details watch the final season of House of Cards, where martial law is declared in Ohio to reverse an election outcome. No kidding!
Citigroup announced a surprise $900 million loss. I can’t wait for the excuse for this surprise, out-of-the-blue “operational error.' It’s most likely an expensive hack. It’s the kind of black swan that can hit you any time if you are a short-term trader. Long term investors should be buying the dip in (C).
China’s Retail Sales rise for the first time in 2020, up 0.5% in August. First into the pandemic, first out. Keeping Corona deaths to 4,000 was also a big help. It’s proof that economies CAN recover post-COVID-19. Buy China on dips (BABA), (BIDU). Stocks there will enjoy a huge post-election rally once the trade war winds down.
US Consumer Sentiment hits six-month high, up from a 75 estimate to 78.9. The University of Michigan report is proof that those who have money are spending it. Another green shoot. Didn’t help stocks today though.
Oil collapsed 15% on the dimming outlook for the global economy. Not even massive well shutdowns caused by this week’s hurricane could boost prices. Avoid all energy plays like the plague.
Morgan Stanley says the trading boom won’t last forever, says my former employer coming off of a record quarter. Too much of a good thing won’t last forever. Make hay while the sun shines.
The value rotation is on, with large scale selling of technology stocks and the chasing of banks and other recovery plays. It’s been a long time coming and could well persist until the end of the year. The option expiration at the close on Friday was exacerbating all moves, which is why I dumped my last two tech positions days prior. It’s too early to buy tech again on dips. Wait for a pre-election meltdown.
Copper hit a new four-year high as traders bet on an accelerating recovery in the global economy. My favorite, Freeport McMoRan, the world’s largest copper producer and a long time Mad Hedge subscriber is soaring, up 257% from the market lows. China, which is done with the Coronavirus and whose economy is recovering rapidly, has returned as a major buyer of the red metal. Keep buying (FCX) on dips.
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 clocked its third blockbuster week in a row. I cashed in on my winnings with longs in (JPM), (TLT), (V), (GLD), (AAPL), and (AMZN), rang the cash register with shorts in (TLT) and (SPY), and booked a small loss in a long in (C). This took my cash position from 0% to 80% and I am looking to go to 100% in the coming week. The risk/reward in the market now is terrible.
Notice that I am shifting my longs away from tech and toward domestic recovery plays.
That takes our 2020 year-to-date back up to a blistering 35.74%, versus -2.93% for the Dow Average. September stands at a nosebleed 9.19%. That takes my eleven-year average annualized performance back to 36.43%. My 11-year total return is back for another new all-time high at 392.12%. My trailing one-year return popped back up to 54.87%.
The coming week is a big one for housing data. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, September 21 at 8:30 AM EST, the Chicago Fed National Activity Index is out.
On Tuesday, September 22 at 10:00 AM EST, Existing Home Sales for July are released.
On Wednesday, September 23 at 9:00 AM EST, the US Home Price Index for July is printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
change.
On Thursday, September 24 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 10:00 AM the all-important Existing Home Sales for July are published.
On Friday, September 25, at 8:30 AM EST, US Durable Goods Sales for August are disclosed. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, I’ll climb up on the roof this weekend and clean the ash from my 59 solar panels. The fallout from the nearby raging forest fires has been so extreme that it has cut my solar output by 25%.
It’s not just me. Over a million homes in California have the same problem, putting a serious dent in the state’s electricity production.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 14, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE 200-DAYS ARE IN PLAY),
($INDU), (SPX), (SPY), (AAPL), (AMZN),
(JPM), (C), (BAC), (GLD), (TLT), (TSLA)
Six months into the quarantine, I feel like I’ve been under house arrest with no visiting privileges. And if I go outside for even a few minutes, I have to inhale the equivalent of a pack of cigarettes as I am surrounded by three monster fires.
All I can say is that I’m getting a heck of a lot of work done.
We are in the middle of a 20-year move in the Dow Average from 6,500 to 120,000. We have just completed a fourfold move off the 2009 bottom. All that remains is to complete a second fourfold gain by 2030.
The move is being driven by hyper-accelerating technology on all fronts. The first half of this move was wrought with constant fear and disbelief. The second half will be viewed as a new “Golden Age” and a second “Roaring Twenties.” The euphoria of July and August were just a foretaste.
And here is the dilemma for all investors.
The Dow has just pulled back 6.1% from the all-time high of 29,300 to 27,500. Should you be buying here, keeping the eventual 120,000 target in mind? Or should you hold back and wait for 26,000, 25,000, or 24,000?
The risk is that if you lean out too far to grab the brass ring, you’ll fall off your horse. By getting too smart attempting to buy the bottom, you might miss the next 93,000 points.
And now, I’ll make your choice more complicated.
The president has recently whittled away at his deficit in the polls, however slightly, typical of the run-up to the November elections. That increases the uncertainty of the election outcome and increases market volatility (VIX). Ironically, the better Trump does, the lower stocks will fall. So, if you do hang out for the lower numbers you might actually get them, and then more.
That puts the 200-day moving averages in play, not only for the major indexes but for single stocks as well. That could take Apple (AAPL) from a high of $137 to $80, a Tesla down from a meteoric $500 to $300.
Hey, if this were easy, your cleaning lady would be doing this for a tiny fraction of the pay.
Did I just tell you the market may go up, down, or sideways? I sound like a broker.
The 200-day moving averages are definitely in play. The 200-day moving average for the Dow Average is 26,298, down an even 10% from the high for the year. The technology-heavy S&P 500 could fall as much as 14% to its 200-day at 3,097.
Don’t bet against the Fed as Tuesday’s 700-point rally in the Dow Average sharply reminded traders. Don’t bet against the global scientific community either. That’s why I am fully invested and within spitting distance of a new all-time high. After a pre-election low, the market will soar to new highs. Even if Trump loses the election, quantitative easing and fiscal stimulus will continue as far as the eye can see.
The elephant unwinds. Softbank dumped $718 million worth of technology call options deleveraging in a hurry. (NFLX), (FB), and (ADBE) were the targets according to market makers. They still own $1.66 billion worth of long positions in call options. Softbank’s position has grown so large that even my cleaning lady and gardener know about them.
The Tesla bubble popped, down a record 22% in one day after traders learned it would NOT be added to the S&P 500. Tesla approached my medium-term downside target of down 40%, or $300 a share. It seems too much of its earnings were coming from non-recurring EV subsidies from the Detroit carmakers. With a peak market cap for an eye-popping $450 billion, it’s probably the largest company ever turned down from the Index.
Google ditched Irish office space, putting on ice a plan to rent additional office space for up to 2,000 people in Dublin. The retreat from global office space continues. The company was close to taking 202,000 sq ft (18,766sq m) of space at the Sorting Office building before the virus hit.
AstraZeneca halted their vaccine trial after a patient fell ill. It’s not clear if the vaccine killed off the phase 3 trial volunteer, a preexisting condition felled them, or an unrelated illness hit. The company was developing the “Oxford” vaccine, which had been the best hope for developing Covid-19 immunity. It definitely creates a pause for the headline rush to develop a vaccine. Notice the tests are being held in South Africa where patients have little legal recourse. Keep buying (AZN) on dips.
“Skinny” failed, tanking the Dow Average by 450 points. A Republican Senate failed to provide even $500 billion to support a COVID-19-ravaged economy. There will be no more stimulus until a new administration takes office. Until then, unemployment will remain in the high single digits, tens of thousands of small businesses will fail, and home foreclosures will explode. The stock market cares about none of this, as it is dominated by large, heavily subsidized companies.
Nikola crashed, down 33%, in response to a damning report from a noted short-seller. They don’t have a truck, they lack a claimed hydrogen fuel source, and the founder is milking the company for every penny he can. It’s all hype, thanks to endless quantitative easing. None of the Tesla wannabees are going anywhere. General Motors (GM), which just bought 11% of the company, has egg on its face. With a market cap of $20 billion, Nikola is this year’s Enron. Sell short (NKLA) on rallies.
US inflation jumped, with the Consumer Price Index up 1.3% YOY in August, compared to only 1% in July. Soaring used car prices accounted for the bulk of the gain. More proof that the economy lives. Is this the beginning of the end or the end of the beginning?
Goldman Sachs moved global stocks to “overweight”. They’re preparing for the post-pandemic world. Cyclical “recovery” stocks like banks will take the lead. It fits in nicely with my view of a monster post-election rally and a Dow 120,000 by 2030.
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 clocked its second blockbuster week in a row, thanks to aggressively loading up on stocks at the previous week’s bottom (JPM), (C), (AMZN). My long in gold (GLD) looked shinier than ever. I bet the ranch again on a massive short in the US Treasury bond market (TLT) which paid off big time. My short position in the (SPY) is looking sweet.
My only hickey was an ill-fated long in Apple (AAPL), which I stopped out of at close to cost. Notice that I am shifting my longs away from tech and toward domestic recovery plays.
You only need 50 years of practice to know when to bet the ranch.
That takes our 2020 year-to-date back up to a blistering 35.51%, versus -2.93% for the Dow Average. September stands at a robust 8.96%. That takes my 11-year average annualized performance back to 36.41%. My 11-year total return has reached to another new all-time high at 391.42%. My trailing one year return popped back up to 58.13%.
It will be a dull week on the data front, with only the Federal Reserve Open Market Committee Meeting drawing any attention.
The only numbers that really count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, September 14 at 11:00 AM US Inflation Expectations are released.
On Tuesday, September 15 at 8:30 AM EST, the New York Empire State Manufacturing Index for September is published. A two-day meeting at the Federal Reserve begins.
On Wednesday, September 16, at 8:30 AM EST, September Retails Sales are printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out. At 2:00 the Fed announces its interest rate decision, which will probably bring no change.
On Thursday, September 17 at 8:30 AM EST, the Weekly Jobless Claims are announced. Housing Starts for August are also out.
On Friday, September 18, at 8:30 AM EST, the University of Michigan Consumer Sentiment is announced. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, the Boy Scout camporee I was expected to judge and supervise this weekend was cancelled, not because of Covid-19, but smoke. This will certainly go down in history as the year from hell.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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)
This isn’t the “Big One.”
This isn’t even a Middle One.”
This is no more than a 10%-15% correction typical for long term bull markets.
Sure, we saw every technical indicator known to man scream “SELL” in the run-up to the recent market top. There were other factors at play as well.
The bulk of the buying focused on only the top six stocks, more concentrated than seen during the Dotcom Bubble Top in 2000.
There really was only one buyer. That would be my friend Masayoshi Son’s Softbank (SFTBY). He bought $4 billion worth of big tech call options in the run-up to the top with an exercise value of $30 billion. When he started to sell last Monday, the market for these options vaporized and stocks plunged.
The fact that both Apple (AAPL) and Tesla (TSLA) shares split the same day also defined a market top that I have been warning readers about for weeks.
This is all in the face of the incredible reality that 50% of all S&P 500 (SPY) stocks are down over the past two years. It really has been a stock picker’s market with a turbocharger.
And this isn’t just any old bull market. We are in fact 11 ½ years into a bull market that started in March 2009 that has another decade to run. We have completed the first 400% gain. What lies ahead of us is another stock market increase of 400%, taking us up to 120,000 in the Dow Average by 2030.
And this is a bull market that has suffered plenty of 10%-15% corrections since its inception. The one that began in Thursday is no different. The sole exception to this analysis was the COVID-19-induced 37% meltdown that began in February. That little event only lasted six weeks.
For you see, the fundamentals have not changed one iota. No, I’m not talking about earnings, valuations, or sales growth. That is so 20th century.
No, I’m referring to the only fundamental that counts in the 21st century: Liquidity.
And liquidity isn’t shrinking, it is in fact increasing. That includes the unprecedented expansion of quantitative easing by the Federal Reserve, massive deficit spending by the US government, and zero interest rates, which Fed governor Jay Powell has promised us will continue for another five years.
During the last Dotcom Bubble top, the FAANGs and Tesla (TSLA) did not even exist. Apple was just coming out of its flirtation with bankruptcy and Amazon (AMZN) had just barely gone public. Google (GOOGL) and Facebook (FB) were still but glimmers in their founders’ eyes.
Except now we have a new bullish fundamental to discount: a Biden win in November. Since Biden decisively pulled ahead in the polls in May, the stock market has risen almost every day. He is 4%-10% ahead in every battleground state poll.
Even if Trump were to win every red and red-leaning state accounting for 163 electoral college votes, plus all 63 votes from toss-up states (AZ, NC, IA, FL, GA, OH), he would still lose the election, where 270 votes are needed to win. Just THAT is a 1:100 event, on the scale of Harry Truman’s historic 1948 compact, and Trump is no Harry Truman.
So what of Biden wins?
You can count on the $3 trillion stimulus bill passed by the House in March to go through, which primarily allocates money to keep states and local municipalities from firing policemen, firemen, and teachers.
Next to come are another $3 trillion in infrastructure spending. And I absolutely know from past experience that markets love this kind of stuff. It enhanced liquidity even more.
As I say, cash is still trash, and it may remain so for years.
The Top is in, with a horrific two-day 1,500-point selloff in the Dow Average ($INDU) coming out of the blue on no news and signaling the end of the current rally. Whatever went up the most is now going down the most as the Robinhood traders flee in panic. This was long overdue. Margin calls are running rampant.
Volatility (VIX) soared to $38, up 70% in two days, meaning that we may be close to the end of this correction. The (SPX) is down 24 points, 6.7% from the Wednesday high. The last (VIX) peak was at $44 in June and $80 in March. Time to start buying stocks for a yearend rally? Look at the banks.
Was Apple (AAPL) really up 400%? Did Tesla gain 500%? You might be fooled if you didn’t know that these stocks just split, Apple at 4:1 and Tesla for 5:1. In fact, both stocks posted robust gains in real terms, Apple up 5% and Tesla up 10%. Tesla just hit my five-year split-adjusted target of $2,500. Every other analyst had a much lower target or were bearish. Time to run a mile as splits often herald intermediate market tops.
Apple hit a $2.3 trillion in market cap at the peak, up a staggering $300 billion in days. We are truly in La La Land here. The price-earnings multiple has soared from 9X to 40X. That 5G iPhone better deliver. Didn’t you hear that 5G was causing Coronavirus, a popular internet conspiracy theory?
The Dow Average just lost its Apple turbocharger. Some 1,000 of the 2,000 points the Dow Average gained in August were due to Apple alone. With the Dow rebalancing today, with (XOM), (PFE), and (RTX) out and (CRM), (AMGN), and (HON) in, Apple’s influence has been greatly diluted. With the (VIX) back up above $26, the worst is yet to come. The stock market is screaming for a correction.
Copper (FCX) hit a new 3-year high, with demand soaring in China. They were the first to cap Covid-19 and restore their economy. The red metal is a great call on the recovery of the global economy. Those who bought the Freeport McMoRan (FCX) LEAPS I recommended in March are sitting pretty. The shares are up 228% since then.
Tesla to sell $5 billion in stock to finance the construction of new factories in Nevada, TX, and Germany. (TSLA) fell 5% on the news. I had been advising clients to sell all week. It won’t be a conventional secondary stock offering but an effort to sell into every stock spike. More proof that Elon hates Wall Street as if we needed more. With a market cap of $450 billion, investors are finally viewing Tesla as a data company rather than a car company.
US car sales recover to 15.2 million in August on an annualized basis. That brings us almost back to pre-pandemic levels. This is the best indicator yet that the US is returning to a semi-normal economy. Of course, zero interest rates and other unprecedented incentives are a big help.
Consumer Spending popped, up 1.9% in July, which accounts for two-thirds of the US economy. Those who have money are spending like there’s no tomorrow, and with a global pandemic, maybe there won’t be. New car purchases were a big winner as buyers take advantage of 0% financing everywhere.
Weekly Jobless Claims dropped to 880,000, still terrible, but less terrible than last week. California claims have topped 8 million since the pandemic began. Continuing claims drop to 13.3 million, down from the 25 million peak in May.
US Unemployment Rate plunged to 8.4% in August, from 10.2%. The August Nonfarm Payroll report jumps by 1.37 million. It’s a much faster improvement than expected. Retail gained 248,000, Education & Health Services were up 147,000, and Leisure & Hospitality were up 174,000, Government was up 344,000. It’s all thanks to the miracle of government spending. The Dow Average is down 500 points anyway.
China to dump US Treasury bonds in response to Trump's escalating trade war, putting $200 billion in paper up for sale. They hold $1.07 trillion in total and is our largest single creditor. The (TLT) is down two points on the news, where I am running a double short position. Who is going to fund America’s massive borrowing?
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 bounced back hard with some super aggressive buying of stocks right at the Thursday and Friday market bottoms and selling short of bonds at the top.
By going full speed ahead, damn the torpedoes, I brought in the best two-day return in the 13-year history of the Mad Hedge Fund Trader, up a heroic 8.27%.
It started out as a terrible week, getting flushed out of one of my short positions in the (SPY) for a big loss as the market hit a new all-time high.
Then I got long banks (JPM), Apple (AAPL), Amazon (AMZN), Visa (V), and went triple short bonds (TLT). I still retain one short in the (SPY), which is now profitable. I would have bought Bank of America (BAC) and Citigroup (C), but the market ran away before I could write the trade alerts.
The instant crash was yet another gift. Right after I shorted bonds, the Chinese hinted that they would unload $200 million worth of their US Treasury bond holdings. The harder I work, the luckier I get.
If these positions expire at max profit in eight trading days, I will be back at new all-time highs. Notice that I am shifting my longs away from tech and toward domestic recovery plays.
You only need 50 years of practice to know when to bet the ranch.
That takes our 2020 year to date back up to 30.99%, versus -0.70% for the Dow Average. September stands at 4.44%. That takes my eleven-year average annualized performance back to 36.27%. My 11-year total return returned to 386.90%. My trailing one-year return popped back up to 51.60%.
It is a quiet week as always following the fireworks of the jobs data.
The only numbers that really count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, September 7, it is Labor Day in the US, and markets are closed.
On Tuesday, September 8 at 10:00 AM EST, the Economic Optimism Index for September is released.
On Wednesday, September 9, at 8:13 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, September 10 at 8:30 AM EST, the Weekly Jobless Claims are announced. US Core Producer’s Price Index for August is also out.
On Friday, September 4, at 8:30 AM EST, the US Inflation Rate for August is printed. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, I am headed back to Lake Tahoe to flee the horrific smoke in the San Francisco Bay Area drifting our way from the rampant California wildfires. If people don’t believe in global warming, they should come here where we have it in spades. We’ll even give you some.
At least we’ve been getting spectacular sunsets.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
