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
September 4, 2019
Fiat Lux
Featured Trade:
(HOW FREE ENERGY WILL POWER THE COMING ROARING TWENTIES),
(SPWR), (TSLA)
(ARE YOU IN THE 1%?),
(SNE), (HMC), (TLT)
Global Market Comments
September 3, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or VISIBILITY IS POOR),
(SPY), (TLT), (FXB), (WMT), (USO), (XLE)
I have a pretty good view from my home on a mountaintop in San Francisco.
To the west, I can see through the Golden Gate Bridge all the way out to the Farallon Islands 20 miles off the coast. To the south, there is Stanford’s Hoover Tower and all of Silicon Valley. In the winter I can look east and see the snow-covered High Sierras 200 miles away.
However, during last year’s wildfires, I couldn’t see a thing. Visibility ended at 100 yards, the cars parked outside were covered in ash, and I could barely breathe. We were all confined indoors.
I kind of feel that’s the way the stock market is right now. You can’t see a thing, so it’s better to stay indoors.
Not only are market gyrations subject to unpredictable and random, out-of-the-blue influences. The old playbook about cross market correlations and how asset classes respond at different points of the economic cycle doesn’t work either.
The good news is that August is over, the second worth trading month of the year. The bad news? September is the WORST trading month of the year!
So, what does a trader do on the first day of the worst investment month of the year?
Research.
That's what I’ll be doing, waiting for the next cataclysmic collapse to buy or the next euphoric bubble to sell short. Until then, I’ll be sitting tight. Just running my existing long/short trading book, I’ll be up 3.4% by the September 20 option expiration date in 15 trading days.
There is one BIG positive for the economy that no one is talking about. The home ATM is open for business, and open like it’s never been open before.
The thirty-year fixed rate mortgage rate is now at 3.56%, 10 basis points over a decade low and 20 basis points above an all-time low (see the chart below). There are currently $9.4 trillion of outstanding home mortgages in the US. Some $5 trillion is in Fannie Mae and Freddie Mac conforming loans, some 90% of which have interest rates higher than the current market.
If just ten million of these mortgages refinance obtaining an average of $4,560 in annual savings each, that will amount to a de facto tax cut of $456 billion per year, not an inconsequential amount. And Goldman Sachs thinks we could be in for as much as 37 million refis. It could be enough to offset the negative impact of the trade war.
As for the past week, it seemed like a disaster a day.
Trump ordered all US companies out of China. Like you can reverse 40 years’ worth of trillions of dollars of investment with a Tweet. If they did, an iPhone would cost $10,000 and your low-end laptop $15,000. An escalation of the trade war is the last thing your 401k wanted to hear. Kiss that early retirement goodbye.
Oil crashed (USO) on trade war escalation, with the industry now seeing a recession as a sure thing. Russian cheating on quotas is pouring the fat on the fire creating a massive supply glut in the face of shrinking demand. Take a long nap before considering any energy investment (XLE). The long-term charts show they are all going to zero.
Prime Minister Boris Johnson suspended Parliament, prompting a free fall in the pound. It’s to keep Parliament from blocking his hard Brexit, where it would certainly loose by a landslide. It’s all up to the Queen now, the monarch, not the rock group.
The yield inversion is deepening, with the US Treasury selling two-year notes today at a 1.56% yield, with ten-year yield closing at 1.45%. And that’s with the Treasury selling a total of a gob smacking $113 billion worth of bonds last week, which should have driven rates UP! US ten-year TIPS now showing negative interest rates.
Company stock buy backs are fading. That's a big deal as corporations retiring their own shares have been the biggest buyers in the market for the past two years. As if you needed another reason for downside risk.
US 15% tariffs hit on Sunday, and the Chinese paused in retaliation. Christmas is about to get more expensive. Many large retailers won’t make it until the new year. Keep selling short Macy’s (M) on rallies.
Bond yields hit new lows, at 1.44% for ten-year US Treasury bonds. The next stop is zero. Fixed income markets are saying that a recession is imminent. “Inversion” will be the world of the year for 2019. Go refi that home if you can get a banker on the phone!
There is no way out of the next recession, says hedge fund titan Ray Dalio. With global rates below zero, you can’t cut to stimulate business. You can’t do any more quantitative easing either, as the world is already glutted with paper. This is the trap Japan has been caught in for the last 30 years. It is all sobering food for thought.
US growth slowed with the second reading of the Q2 GDP marked down from 2.1% to 2.0%. The downturn has continued since the economy peaked 18 months ago. Q3 will be much worse when the trade war and earnings downgrades hit big time. And then there’s the soaring deficit. Sow the wind, reap the whirlwind.
US Consumer Sentiment took a dive from 98.4 to 89.8 in August. Has the spending boom just peaked? If so, we’re all toast. The "tariff cliff" is already taking its toll.
The Mad Hedge Trader Alert Service has posted its best month in two years. Some 22 or the last 23 round trips, or 95.6%, have been profitable, generating one of the biggest performance jumps in our 12-year history.
My Global Trading Dispatch has hit a new all-time high of 334.48% and my year-to-date shot up to +34.35%. My ten-year average annualized profit bobbed up to +34.30%.
I raked in an envious 16.01% in August. All of you people who just subscribed in June and July are looking like geniuses. My staff and I have been working to the point of exhaustion, but it’s worth it if I can print these kinds of numbers.
As long as the Volatility Index (VIX) stays above $20, deep in-the-money options spreads are offering free money. I am now 60% invested, 40% long big tech and 20% short Walmart (WMT) and the Russell 2000, with 20% in cash. It rarely gets this easy.
The coming week will be all about jobs, jobs, jobs.
Monday, September 2, markets were closed for the US Labor Day.
Today, Tuesday, September 3 at 10:00 AM, the August ISM Purchasing Manager’s Index is out.
On Wednesday, September 4, at 2:00 PM, the Fed Beige Book for July is published.
On Thursday, September 5 at 8:30 AM EST, the Weekly Jobless Claims are printed. At 10:30, we learn the ADP Report for private hiring.
On Friday, September 6 at 8:30 AM, the August Nonfarm Payroll Report is printed.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I’ll be filling out the paperwork for my own home refi. JP Morgan Chase Bank (JPM) is offering the best deals, in my case a 30-year fixed rate no-cash-out jumbo loan for only 3.4%. Now where did I put that tax return?
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 29, 2019
Fiat Lux
Featured Trade:
(HOW THE MARKETS WILL PLAY OUT FOR THE REST OF 2019),
(SPY), ($INDU), (USO), (TLT), (UUP), (COPX), (GLD),
(HOW THE MAD HEDGE MARKET TIMING ALGORITHM WORKS)
We are currently caught between a rock and a hard place.
The whims of one man will dictate whether after a brutal summer, markets recover to new all-time highs, or plunge into the depths of despair in a bear market and recession.
My bet is that the S&P 500 (SPY) will trade between the 50-day moving average at $294 and the 200-day moving average at $278. Right now, we are dead in the middle of that range.
Then on September 18, the Federal Open Market Committee convenes to deliver a decision on interest rates. I believe that no matter what the decision is, whether they cut rates or leave them unchanged, you will see another sharp selloff in stocks, possibly as much as another 2,000 Dow points. That will bring us a December 2018 repeat.
So why does falling interest rates bring cratering stock prices? For a start, you can take your traditional playbook on how markets are supposed to work and throw it in the trash. Low rates USED to bring high stock prices, but no more.
What is driving markets now is not the absolute level of interest rates today, no matter how low they may be historically. It is how many interest rate cuts are left until we get to zero. So an August 1 25-basis point rate cut meant there are fewer rate cuts in the future so a heart-stopping 2,000-point plunge in the Dow average ensued.
The same twisted logic will apply on September 18, only 16 trading days away. By the way, I plan to be 100% in cash by September 18.
Long term, the outlook gets more complicated.
If the trade war ends in September, then the stock market could rocket up to new all-time highs, surpassing 3,200 by the end of the year, up 14.2% from present levels.
If the trade war drags on, a recession is a sure thing in 12-24 months. That means a bear market in stocks is a sure thing in 6-15 months. And that assumes we are not already in a bear market. After all, the major indexes have been unable to top new highs made in January 2018.
The next bear market will likely take the indexes ($INDU) down 40%. They are, after all, the most overvalued assets in the world.
Oil (USO) will plunge to $25 a barrel. Ten-year US Treasury bond yield (TLT) will collapse to 0%, as I have long been advertising. The US dollar (UUP) leaps, deepening the recession. Commodity prices collapse (COPX) and gold (GLD) soars. We might even get into a shooting war in the South China Sea, as there will be nothing for the Beijing leadership to lose.
Again, it all depends on the whim of one man, one who has never done business in China, and who is constantly surprised by Chinese reactions to his own moves. There is no Trump Hotel in Beijing, nor one planned.
Good luck with that.
Just thought you’d like to know.
Global Market Comments
August 28, 2019
Fiat Lux
Featured Trade:
(RIGHT SIZING YOUR TRADING)
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
With the Dow Average down 2,000 points in four weeks, you are being given a second bite of the apple before the yearend tech-led rally begins.
So, it is with great satisfaction that I am rewriting Arthur Henry’s Mad Hedge Technology Letter’s list of recommendations.
By the way, if you want subscribe to Arthur’s groundbreaking, cutting edge service, please click here at https://hi290.infusionsoft.com/app/orderForms/tl-sub
It’s the best read on technology investing in the entire market.
You don’t want to catch a falling knife, but at the same time, diligently prepare yourself to buy the best discounts of the year.
The China trade war has triggered a tsunami wave of selling, tearing apart the tech sector with a vicious profit-taking few trading days.
No doubt that asset managers are frantically locking in profits for the rest of the year and protecting ebullient performance from a first quarter to remember.
This week shouldn’t deter investors from picking up bargains that were non-existent since December because the bulk of the highest quality tech names churned higher with lurching momentum.
Here are the names of five of the best stocks to slip into your portfolio in no particular order once the madness subsides.
Apple
Steve Job’s creation is weathering the gale-fore storm quite well. Apple has been on a tear reconfirming its smooth pivot to a software services-tilted tech company. The timing is perfect as China has enhanced their smartphone technology by leaps and bounds.
Even though China cannot produce the top-notch quality phones that Apple can, they have caught up to the point where local Chinese are reasonably content with its functionality.
That hasn’t stopped Apple from vigorously growing revenue in greater China 20% YOY during a feverishly testy political climate that has their supply chain in Beijing’s crosshairs.
The pivot is picking up steam and Apple’s revenue will morph into a software company with software and services eventually contributing 25% to total revenue.
They aren’t just an iPhone company anymore. Apple has led the charge with stock buybacks and will gobble up a total of $150 billion in shares by the end of 2019. Get into this stock while you can as entry points are few and far between.
Amazon (AMZN)
This is the best company in America hands down and commands 5% of total American retail sales or 49% of American e-commerce sales.
It became the second company to eclipse a market capitalization of over $1 trillion. Its Amazon Web Services (AWS) cloud business pioneered the cloud industry and had an almost 10-year head start to craft it into its cash cow. Amazon has branched off into many other businesses since then oozing innovation and is a one-stop wrecking ball.
The newest direction is the smart home where they seek to place every single smart product around the Amazon Echo, the smart speaker sitting nicely inside your house. A smart doorbell was the first step along with recently investing in a prefab house start-up aimed at building smart homes.
Microsoft (MSFT)
The optics in today look utterly different from when Bill Gates was roaming around the corridors in the Redmond, Washington headquarter, and that is a good thing in 2019.
Current CEO Satya Nadella has turned this former legacy company into the 2nd largest cloud competitor to Amazon, and then some.
Microsoft Azure is rapidly catching up to Amazon in the cloud space because of the Amazon-effect working in reverse. Companies don’t want to store proprietary data to Amazon’s server farm when they could possible destroy them down the road. Microsoft is mainly a software company and gained the trust of many big companies especially retailers.
Microsoft is also on the vanguard of the gaming industry taking advantage of the young generation’s fear of outside activity. Xbox-related revenue is up 36% YOY, and its gaming division is a $10.3 billion per year business.
Microsoft Azure grew 87% YOY last quarter. The previous quarter saw Azure rocket by 98%. Shares are cheaper than Amazon and almost as potent.
Square (SQ)
CEO Jack Dorsey is doing everything right at this fin-tech company blazing a trail right to the doorsteps of the traditional banks.
The various businesses they have on offer makes me think of Amazon’s portfolio because of the supreme diversity. The Cash App is a peer-to-peer money transfer program that cohabits with a bitcoin-investing function on the same smartphone app.
Square has targeted the smaller businesses first and is a godsend for these entrepreneurs who lack immense capital to create a financial and payment infrastructure. Not only do they provide the physical payment systems for restaurant chains, they also offer payroll services and other small loans.
The pipeline of innovation is strong with upper management mentioning they are considering stock trading products and other bank-like products. Wall Street bigwigs must be shaking in their boots.
The recently departed CFO Sarah Friar triggered a 10% collapse in share price on top of the market meltdown. The weakness will certainly be temporary, especially if they keep doubling their revenue every two years like they have been doing.
Roku (ROKU)
Benefitting from the broad-based migration from cable TV to online streaming and cord-cutting, Roku is perfectly placed to delectably harvest the spoils.
This uber-growth company offers an over-the-top (OTT) streaming platform along with the necessary hardware and picks up revenue by selling digital ads.
Founder and CEO Anthony Woods owns 21 million shares of his brainchild and insistently notes that he has no interest in selling his company to a Netflix or Apple.
Roku’s active accounts mushroomed 46% to 22 million in the second quarter. Viewers are reaffirming the obsession with on-demand online streaming content with hours streamed on the platform increasing 58% to 5.5 billion.
The Roku platform can be bought for just $30 and is easy to set up. Roku enjoys the lead in the over-the-top (OTT) streaming device industry controlling 37% of the market share leading Amazon’s Fire Stick at 28%.
The runway is long as (OTT) boxes nestle cozily in only 40% of American homes with broadband, up from a paltry 6% in 2010.
They are consistently absent from the backbiting and jawboning the FANGs consistently find themselves in partly because they do not create original content and they are not an offshoot from a larger parent tech firm.
This growth stock experiences the same type of volatility as Square.
Be patient and wait for 5-7% drops to pick up some shares.
Global Market Comments
August 26, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TWEET THAT SANK A THOUSAND SHIPS),
(SPY), (TLT), (GOOGL), (FB), (DIS), MSFT), (WMT), (IWM)
