Global Market Comments
May 14, 2021
Fiat Lux
Featured Trade:
(MAY 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (QQQ), (JWN), (DAL), (MSFT), (PLTR), (V), (MA), (AXP), (UUP), (FXA), (SPWR), (FSLR), (TSLA), (ARKK), (CLX), (NIO), (EPEV), (SOX), (VIX), (USO), (XLE)
Global Market Comments
May 10, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE SUSHI HITS THE FAN),
(SPY), (TLT), (TBT), (V), (UNP), (DAL), (MSFT), (GS), (JPM), (FCX)
Global Market Comments
February 12, 2021
Fiat Lux
Featured Trade:
(TEN STOCKS TO BUY BEFORE YOU DIE)
(MSFT), (AAPL), (GOOGL), (QCOM), (AMZN),
(V), (AXP), (NVDA), (DIS), (TGT)
Global Market Comments
January 12, 2021
Fiat Lux
Featured Trade:
(MAD HEDGE 2020 PERFORMANCE ANALYSIS),
(SPY), (TLT), (TBT), (TSLA), (GLD),
(SLV), (V), (AAPL), (VIX), (VXX)
(TESTIMONIAL)
Global Market Comments
October 30, 2020
Fiat Lux
Featured Trade:
(OCTOBER 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (VIX), (AMZN), (TSLA), (FEYE), (HACK), (PANW), (V), (TLT), (FXA), (FXC), (ZM), (DOCU), (RTX), (LMT), (NOC), (GD)
Below please find subscribers’ Q&A for the October 28 Mad Hedge Fund Trader 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: Do you think if Trump contests the election, it will be bad for stocks?
A: Yes, count on that knocking another 10% off of stocks. The market has spent the last six months pricing in a Biden win. Take that away and you have to price that back out again, about 6,000 Dow Average points (INDU). We’ve already dropped 2,500 points so that leaves another 3,500 points of downside t0 go in the event of a Trump win.
Q: Will that result in a crash?
A: Yes. At least 1,000 points in the overnight session following.
Q: Do you think it’s going to happen?
A: No. According to the polls, Trump will lose by at least 15 million votes. While the polls missed the Electoral College result last time, they were dead on with the popular vote, with Hillary Clinton winning by 3 million votes. If the margin were only a few hundred or thousand votes in a single battleground state, Trump might win a court fight. But he can’t win if the margin is in ten states and tens of millions of votes. That is too much to fudge. That is how markets react: they hate surprises, and a second Trump win would be the surprise of the century.
Q: With all of the earnings positive, do you think markets will stay positive?
A: Earnings aren’t important right now. Everyone knew earnings would be great because we were coming off of hundred-year lows caused by the pandemic. So yes, we knew they’d be up 50%, 100%, 150%; that's not the surprise. The bigger issue is what the pandemic is going to do, and of course, only biochemists know that—most stock traders have no idea, which is reflected in these gigantic swings we’re seeing in the market both on the upside and the downside. As a biochemist, I can tell you that this is our final wave that's coming up and it could last several months. After that, we get a vaccine or herd immunity. When it's done, you have the bull market of a lifetime—up 400% in ten years from these levels. Dow 120,000 here we come!
Q: Do you see a tax selloff if Biden gets in? Should we get short?
A: Definitely; there will be a tax selloff. Past ones have only lasted a week or two and those were the last two weeks of December, so it really won’t be that bad. It’s not like it’s a surprise that Biden is ahead in the polls, because he has been for 6 months. Nor is it a surprise that he is going to raise taxes on the wealthy. I wouldn’t get short though. The short play was last week and the week before; and I did manage to get out three shorts but didn't want to get too big in front of an election. So those all worked. I'm out of all of them now, and now we’re looking only at long plays. And with the Volatility Index (VIX) over $40, you can go 20% or 30% in-the-money on these call spreads and still look to make 10%-20% profit on the position in a month.
Q: Isn’t the pandemic great for Amazon (AMZN)?
A: Yes, Amazon was taking over the world anyway, and forcing everyone to an online-only economy which couldn’t be better for them. A lot of this shifting is permanent and won’t be going back to the way it was before the pandemic with brick and mortar shops and malls. So yes, we love Amazon and I would buy on the dips. There’s a double from here.
Q: Do you have long term names I can buy to sit on?
A: Yes, we actually do have a long-term portfolio posted on the website. It would be listed under your subscription area once you log in—we rebalance that twice a year. And of course, we had a 10% holding in Tesla (TSLA) which went up ten times, so the performance of the long-term portfolio is through the roof. To find the long-term portfolio, please click here.
Q: Do you record this webinar?
A: Yes, we post it on the www.madhedgefundtrader.com site in two hours.
Q: Do you still like the Internet security stocks like FireEye (FEYE)?
A: Yes. Hacking is growing faster than the Internet itself. You should also look at Palo Alto Networks (PANW) and the ETF (HACK).
Q: Should we hold on to the Visa (V) spread hoping it will come back after the election drop?
A: Hope is not an investment strategy. I always stop out of positions when they hit a 2% loss. The only time I have 4% losses is when we get these gigantic gap moves overnight, which tend to happen once every one or two years. In this case, Visa got hit with a surprise antitrust suit from the Department of Justice that knocked $10 off of the stock. So no, I will not hold on to it in the hope that it does better; I will try to minimize my losses, get out, and get into the next winning position. Hope is what turns a 4% loss into a complete 10% write off.
Q: What’s your view on the Canadian dollar (FXC)?
A: I like it, but it’s not as good as the Australian dollar (FXA) because Canada has a major oil exposure, and actually the worst kind of oil exposure—tar sands in northern Alberta. The outlook for oil is poor and that will be a drag on the currency in the form of fewer exports. Buy the (FXA). No oil troubles here. Kangaroos are another story.
Q: Will you be looking to sell short on the United States Treasury Bond Fund (TLT)?
A: Yes, if we can just get a little bit higher. We’re looking at an economic recovery next year, so we’d expect the (TLT) to be lower by at least $20 points in 2021.
Q: Do you think the San Francisco and New York housing markets will return to what they were before with so many people are moving out of the city?
A: Yes, they will come back, I’ve been through many of these cycles in San Francisco over the past 50 years; it always comes back. Once the pandemic is over, people will say, “Oh my gosh, I can’t believe you can get a two-bedroom apartment in San Francisco for only $2 million.” That's probably another year or two off after a vaccine is in widespread distribution.
Q: Is real estate in a bubble?
A: Absolutely, but real estate bubbles can go on for a long time, like ten years. The bubble in Australia has been going on for 30 years. Ultimately, real estate prices are driven by the earnings power of the local economy which, in the case of San Francisco, is huge. This time around, we have a record large millennial generation looking for real estate. There are 85 million millennia buyers with only 65 million Gen X-er’s selling homes. So, we have to make up a shortfall of 20 million houses at some point. That’s why building permits are through the roof every month.
Q: Zoom (ZM) and DocuSign (DOCU) are the darling stocks of COVID 2020—what do you think about them at these high prices?
A: Very high risk. If you bought these a year ago when we first started covering them, good for you as they're up ten times. However, there are better fish to fry than chasing these big pandemic winners at all-time highs.
Q: If Biden wins, what happens to defense stocks like Raytheon Technology (RTX)?
A: They go down. It turns out a lot of the defense business is in very long term contracts that can’t be broken. They have to supply so many planes a year to the government for a decade or more. However, the sentiment on these sectors sours under democratic administrations because they are not initiating new weapons systems where the big money is made. Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD) all have the same problem. I grew up with these companies. They were the FANGs of their day.
Q: How does a Biden win affect Tesla (TSLA)?
A: Then $2,500 a share for Tesla looks cheap (it’s now at $410). Biden will do everything he can to slow climate change and accelerate alternative energy. Tesla is front and center on that. Under current law, car manufacturers are limited on the number of units they can sell to get the $7,500 tax break per vehicle. Tesla used up all their subsidies five years ago. My bet is that the limits will be eliminated and that leads to a huge surge in Tesla sales in the U.S., which is why the stock has gone up 10 times in the last year. Tesla has promised to drop their car price to $25,000 in three years. If you throw in $10,000 in federal and state tax subsidies you get the car for free. Then you can write off General Motors (GM) and Ford (F).
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 19, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
OR WHY THE NEXT TWO WEEKS ARE A WRITE-OFF)
(V), (SPY)
You can pretty much write off trading for the next two weeks.
The election has been decided. It’s going to be a scandal a day in the media, but everyone has already made up their minds. All attention will be devoted to politics at the expense of trading, investment, and research. In the end, the president will lose by more than 15 million votes. All that is left but the imprimatur of the Electoral College.
Yet the Democrats are not declaring victory, with the memory of the 2016 debacle too fresh, when overconfidence and complacency ruled.
The few who are trading are jockeying around to position for the 2021 market. That means keeping big tech and adding to positions in domestic recovery and industrial stocks, like banks, couriers, railroads, and drug companies.
Tech will keep rising because of the catapult into the future provided by the pandemic yet to be reflected by share prices. Domestic industrials will see a recovery that is normal when coming out of a tradition recession, or Great Depression.
But they are doing so hesitantly, with little conviction.
After all, there are national elections in two weeks.
As for me, I have limited myself to the cautious two positions, one long in Visa (V) and one short in the S&P 500 (SPY), both of which are making money.
So, it is a good time to do your research, build your short lists of stocks to buy, and gird your loins. The main event begins after November 3.
Markets jumped on stimulus hopes. Investors don’t really care if stimulus happens before or after a Biden win. They’re buying now. And Biden will almost certainly double up spending later in the year. No dips for latecomers. The post-election market melt-up has begun and new highs beckon. Fears of election disruption have vaporized.
Markets just entered the strongest six months of the year. It’s the inverse of sell in May and go away. October to May portfolios have yielded 64% annually for the past 20 years, while May to October investments yield exactly 4%. It traces back to America’s agricultural cycle of a century ago. Take every tailwind you can find.
The IMF predicted negative 4.4% growth for 2020, the worst since the Great Depression. Believe it or not, this is an upgrade from more dismal numbers. By comparison, the 2008-09 Great Recession brought only a 0.1% drawdown. If the US passes another stimulus package, it will recover its 2019 GDP in 2021 instead of 2022.
The new 5G iPhone is out! After a year of speculation, we get a better screen, improved camera, and magnetic charging for $999. The stock dumped on a classic “buy the rumor, sell the news.” Also out is a new mini iPhone for $699. Your neighborhood won’t have 5G for a year. Buy Apple (AAPL) on dips.
The US PC market saw best quarter in a decade, with millions of new home offices joining the fray. Some 71.4 million computers were shipped in Q3, up 3.6% YOY. Think enormous demand for new chips. Buy (AMD), (MU), and (NVDA) on dips.
Used car prices are soaring, jumping the most since 1969, and lifted the Consumer Price Index by 0.2% in September. It’s the fourth straight month of increasing inflation.
Ships are backed up in Los Angeles waiting to unload. America’s import boom and soaring trade deficit with China leaves no available dock space on the west coast. It’s another sign of a recovering economy.
US Producer Prices pop in September bringing the first YOY gain since March. They were up 0.4% following a 0.3% gain in August. Another sign of a recovering economy.
Weekly Jobless Claims ballooned to 898,000, now that California is reporting again. Not what you want to see going into an election. A slowing economy and spreading virus don’t help either. Some 25.5 million Americans are out of work.
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. Dow 120,000 here we come!
My Global Trading Dispatch hit a new all-time high last week by staying 100% in cash. I was just as grateful for having no positions on the up 600-point days as I was on the down 600-point days. Safe to say that I will be an increasingly more aggressive buyer on ever smaller dips and a seller on bigger rallies. October has now reached to a welcome 1.61% profit.
That keeps our 2020 year-to-date performance at a blistering +36.11%, versus a gain of 0.3% for the Dow Average. That takes my eleven-year average annualized performance back to +36.13%. My 11-year total return stood at a new all-time high at +392.02%. My trailing one-year return appreciated to +42.67%.
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 219,679, which you can find here.
On Monday, October 19 at 8:30 AM EST, the IMF/World Bank virtual annual meeting starts, so we can expect Fed speakers every day. (IBM) reports earnings.
On Tuesday, October 20 at 8:30 AM EST, Housing Starts for September are announced. Netflix (NFLX) reports earnings.
On Wednesday, October 21 at 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out. At 2:00 PM EST, the Fed Beige Book is published, a transcript of the Federal Open Market Committee meeting from six weeks ago. Tesla (TSLA) reports earnings.
change.
On Thursday, October 22 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 10:00 AM EST Existing Home Sales for September are out. AT&T (T) reports.
On Friday, October 23, at 2:00 PM, we learn the Baker-Hughes Rig Count. American Express (AXP) reports earnings.
As for me, I saw a curious thing driving back from Lake Tahoe this weekend. Usually, I see a never-ending parade of out of state license plates moving to the Golden State.
This time, I saw telephone poles coming in by the truckloads, hundreds of them. These are to replace the many burned down in the horrific wildfires that incinerated an area the size of Connecticut. Apparently, California has run out of telephone poles.
Is there a public stock for a company that sells telephone poles?
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 12, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK TO THE NIFTY FIFTY),
(CAT), (JPM), (BAC), (NSC), (UNP), (V),
(MA), (FDX), (UPS), (IP), (AAPL), (TSLA)
My daughter needed a desk so she could go to high school from her bedroom. So, I drove around Northern Nevada to get the perfect piece, visiting Reno, Sparks, Carson City, and Minden. It is one of the most conservative parts of the country, probably 90% republican.
What I saw was amazing.
There were Biden/Harris signs everywhere. Yes, there will still some Trump signs, but they were in a definite minority. Four years ago, you only saw Trump signs. The rare Clinton/Kaine sign was full of bullet holes, torn down, or copiously marked with offensive graffiti.
I thought, hmm, there must be a trade here.
We seem to be on the verge of massive changes in the US economy. Get in front of them and you’ll make a fortune. Lag behind, and you’ll be seen driving an Uber cab.
Technology undoubtedly led the decade, bringing in a 30% annual return since 2009. Industrial and other domestic stocks brought in no more than 12%. The “Roaring Twenties” could bring the reverse.
Technology will continue to do OK. Ever falling prices and greater service is a tough business model to beat. But let’s face it, none of these things are cheap. Apple (AAPL) going from a 9X multiple to 45X?
Industrials could be playing a massive catch up game initiating a new supercycle as they did from 2000-2010 when tech lagged in the wake of the Dotcom Bust.
This switch is made easier by the fact that most big industrial companies are now de facto technology ones. They all now use advanced cloud software, sophisticated robots, and state of the art distribution systems. Caterpillar (CAT) even has a 290-ton dump truck that drives itself like a giant Tesla (TSLA)!
Many of these companies I have covered for nearly 50 years, when they last belonged to the Nifty Fifty. So, for me, it’s a matter of dusting off my old research, seeing who is left, and giving them a modern spin. The great thing about these stocks is that many pay decent dividends.
I’ll give you a short list of where to buy the dips.
Banks – JP Morgan (JPM), Bank of America (BAC)
Railroads – Norfolk Southern (NSC), Union Pacific (UNP)
Credit Cards – Visa (V), Master Card (MA)
Couriers – FedEx (FDX), UPS (UPS)
Consumer Discretionary – International Paper (IP)
Hmm, a market where everything goes up. I like it! Dow 120,000 here we come!
Trump ordered all Stimulus Negotiations to cease, and then changed his mind six hours later. Clearly, the president has given up on the election and wants the next administration to inherit a Great Depression. Or is this Covid-19 talking? It’s the perfect scorched earth strategy. Write off another 2 million small businesses. Down ticket republican candidates will be beaten like a red-headed stepchild. Stocks plunged 600, with airlines in free fall, then bounced 700.
Jay Powell REALLY wants a stimulus package, claiming the economy desperately needs fiscal help to maintain a recovery or face a prolonged depression. “The risks of overdoing it seem, for now, to be small,” the central bank chief told the National Association for Business Economics. Are his pleas falling on deaf ears in Washington? Trump just gave our Fed governor the middle finger salute.
Share Buybacks vaporized T\this year and will be miniscule next year, with companies whose earnings have been crushed by the pandemic not participating. The ban on bank share buybacks imposed by the Fed continues. This has been the largest portion of net stock buying for the past decade. The good news is that foreign investors stepped in as big buyers in 2020, taking the indexes to new highs.
Apple to announce new 5G iPhone this week. The release came a month late, thanks to the pandemic. Scheduled for October 13, the event is called “High Speed”. Apple’s biggest sales quarter in history has just begun. Buy dips in (AAPL).
The Election is Noise and its best to focus on the bull market that has just begun, says JP Morgan. Record fiscal stimulus and quantitative easing in the face of near-zero interest rates create a perfect storm in favor of equities. The best stock to own going into the October 13 Prime Day?
Weekly Jobless Claims edged down to 840,000, still missing 200,000 from California, due to an upgrading computer system. California stopped reporting data so they can rebuild the antiquated computer system of the Employment Development Department, which has been breaking down due to overwhelming demand. Some 26.5 million workers are now claiming unemployment benefits.
Banks are making record trading profits on the back of the US Treasury market where volume has exploded. Even though there has been little net movement in prices in six months, the two-way bets have been enormous. It helps to have a massive home refi boom, incredible QE, and a government that is printing new debt like there’s no tomorrow.
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 maintained a new all-time high last week by staying 100% in cash. I was just as grateful for having no positions on the up 600-point days as I was on the down 600-point days. Safe to say that I will be an increasingly more aggressive buyer on ever smaller dips.
That keeps our 2020 year-to-date performance at a blistering +35.46%, versus a gain of 0.5% for the Dow Average. That takes my eleven-year average annualized performance back to +36.14%. My 11-year total return stood at new all-time high of +391.37%. My trailing one-year return dropped to +44.26%.
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 12 at 8:30 AM EST, the government is closed for Columbus Day so there will be no data releases, even though the stock market is open.
On Tuesday, October 13 at 9:00 AM EST, the US Inflation Rate for September is out.
On Wednesday, October 14, at 8:30 AM EST, The Producer Price Index for September is released. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, October 15 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get the Empire State Manufacturing Index.
On Friday, October 16, at 8:30 AM EST, US Retail Sales are printed. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, I eventually found the perfect desk on Craigslist Reno. It was from the 1930s and had once occupied the office of the Metropolitan Life Insurance Company of New York, complete with two inkwells.
The company logo was prominently displayed in its wrought iron legs. When the Metropolitan modernized its offices in the 1950s, it sold off its furniture, which has been in circulation in the antique market ever since.
I told the seller, who had just moved from the east coast, of my amazing connection with the company. My Uncle Ed spent three years on a Navy destroyer in the Pacific during WWII. Enlistees in the 1940s were required to take out life insurance policies before they went off to war.
When Ed passed away a few years ago, I went through his papers and what did I find but a life policy from the Metropolitan Life Insurance Company for $1,000.
Ever the history buff, I called the company to find out if the policy was worth anything 70 years later. It turned out to have a cash value of $100,000, which they paid out immediately. I divided the money among my mom’s 20 grandchildren to pay for their college educations. Several now have PhDs. Got to love that compounding of interest.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
