Global Market Comments
October 25, 2019
Fiat Lux
Featured Trade:
(WHY FINANCIAL ADVISORS ARE GOING EXSTINCT),
(HOW THE UNDERGROUND ECONOMY IS EXPLODING)
Global Market Comments
October 25, 2019
Fiat Lux
Featured Trade:
(WHY FINANCIAL ADVISORS ARE GOING EXSTINCT),
(HOW THE UNDERGROUND ECONOMY IS EXPLODING)
About one-third of my readers are professional financial advisors who earn their crust of bread telling clients how to invest their retirement assets for a fee.
They used to earn a share of the brokerage fees they generated. After stock commissions went to near zero, they started charging a flat 1% a year on the assets they oversaw.
So it is with some sadness that I have watched this troubled industry enter a long-term secular decline which seems to be worsening by the day.
The final nail in the coffin may be the new regulations announced by the Department of Labor that controls this business.
Brokers, insurance agents, and financial planners were already held to a standard of suitability by the government based on a client’s financial situation, tax status, investment objectives, risk tolerance, and time horizon.
The DOL is now raising this bar to the level already required of Registered Investment Advisors, as spelled out by the Investment Company Act of 1940.
This requires advisors to act only in the best interests of their clients, irrespective of all other factors, including the advisor’s compensation or conflicts of interest.
What this does is increase the costs while also greatly expanding advisor liability. In fact, the cost of malpractice insurance has already started to rise. All in all, it makes the financial advisor industry a much less fun place to be.
As is always the case with new regulations, they were inspired by a tiny handful of bad actors.
Some miscreants steered clients into securities solely based on the commissions they earned, which could reach 8% or more, whether it made any investment sense or not. Some of the instruments they recommended were nothing more than blatant rip-offs.
The DOL predicts that the new regulations will save consumers $15 billion a year in excess commissions.
Knowing hundreds of financial advisors personally, I can tell you that virtually all are hardworking professionals who go the extra mile to safeguard customer assets while earning incremental positive returns.
That is no easy task given the exponential speed with which the global economy is evolving. Yesterday’s “window and orphans” safe bets can transform overnight into today’s reckless adventure.
Look no further than coal, energy, and the auto industry. Once a mainstay of conservative portfolios, all of these sectors have or came close to filing for bankruptcy.
Even my own local power utility, Pacific Gas & Electric Company (PGE), filed for chapter 11 in 2001 because they couldn’t game the electric power markets as well as Enron.
Some advisors even go the extent of scouring the Internet for a trade mentoring service that can ease their burden, like the Diary of a Mad Hedge Fund Trader, to get their clients that extra edge.
Traditional financial managers have been under siege for decades.
Commissions have been cut, expenses increased, and mysterious “fees” have started showing up on customer statements.
Those who work for big firms, like UBS, Morgan Stanley, Goldman Sacks, UBS, Merrill Lynch, and Charles Schwab, have seen health insurance coverage cut back and deductibles raised.
The safety of custody with big firms has always been a myth. Remember, all of these guys would have gone under during the 2008-09 financial crash if they hadn’t been bailed out by the government. It will happen again.
The quality of the research has taken a nosedive, with sectors, like small caps, no longer covered.
What remains offers nothing but waffle and indecision. Many analysts are afraid to commit to a real recommendation for fear of getting sued, or worse, scaring away lucrative investment banking business.
And have you noticed that after Dodd-Frank, two-thirds of a brokerage report is made up of disclosures?
Many advisors have, in fact, evolved over the decades from money managers to asset gatherers and relationship managers.
Their job is now to steer investors into “safe” funds managed by third parties that have to carry all of the liability for bad decisions (buying energy plays in 2014?)
The firms have effectively become toll-takers, charging a commission for anything that moves.
They have become so risk-averse that they have banned participation in anything exotic, like options, option spreads, (VIX) trading, any 2X leveraged ETFs, or inverse ETFs of any kind. When dealing in esoterica is permitted, the commissions are doubled.
Even my own newsletter has to get a compliance review before it is distributed to clients, often provided by third parties to smaller firms.
“Every year they try to chip away at something”, one beleaguered advisor confided to me with despair.
Big brokers often hype their own services with expensive advertising campaigns that unrealistically elevate client expectations.
Modern media doesn’t help either.
I can’t tell you how many times I have had to convince advisors not to dump all their stocks at a market bottom because of something they heard on TV, saw on the Internet, or read in a competing newsletter warning that financial Armageddon was imminent.
Customers are force-fed the same misinformation. One of my main jobs is to provide advisors with the fodder they need to refute the many “end of the world” scenarios that seem to be in continuous circulation.
In fact, a sudden wave of such calls has proven to be a great “bottoming” indicator for me.
Personally, I don’t expect to see another major financial crisis until 2032 at the earliest, and by then, I’ll probably be dead.
Because of all of the above, about half of my financial advisor readers have confided in me a desire to go independent in the near future, if they are not already.
Sure, they won’t be ducking all these bullets. But at least they will have an independent business they can either sell at a future date or pass on to a succeeding generation.
Overheads are far easier to control when you own your own business, and the tax advantages can be substantial.
A secular trend away from non-discretionary to discretionary account management is a decisive move in this direction.
There seems to be a great separation of the wheat from the chaff going on in the financial advisory industry.
Those who can stay ahead of the curve, both with the markets and their own business models, are soaking up all the assets. Those that can’t are unable to hold on to enough money to keep their businesses going.
Let’s face it, in the modern age, every industry is being put through a meat grinder. Thanks to hyper accelerating technology, business models are changing by the day.
Just be happy you’re not a doctor trying to figure out Obamacare.
Those individuals who can reinvent themselves quickly will succeed. Those that won’t will quickly be confined to the dustbin of history.
Global Market Comments
October 24, 2019
Fiat Lux
Featured Trade:
(HANGING WITH LEONARDO)
Global Market Comments
October 23, 2019
Fiat Lux
Featured Trade:
(BIOGEN’S HUGE DISCOVERY),
(BIIB), (IBB), (NOVN), (ROG),
(PLEASE USE MY FREE DATABASE SEARCH)
It is the sort of development that most Biotech investors only dream about. It also shows what’s possible in biotech investing, which is occurring with increasing frequency.
Biogen shares (BIIB) have exploded to the upside on its FDA application for its new Alzheimer’s drug. Written off for dead six months ago, the company secretly kept working on Aducanumab until today’s blockbuster announcement.
The drug reverses amyloid plaques thought responsible for Alzheimer’s. This could eventually cure tens of millions of Alzheimer’s sufferers and maybe even myself someday. The stock is up an incredible 40% today and has even dragged up the biotech ETF (IBB) an impressive 3%.
Way back in March, we saw a huge flop for Biogen (BIIB) as the biotech company supposedly shut down research for Alzheimer's treatment: aducanumab (BIIB037) on the failure of a stage 3 trial. This announcement was a curveball for its shareholders as the drug was touted as a potential groundbreaking miracle treatment with sales pegged at the tens of billions.
Biogen has for some time made Alzheimer's experiments the epicenter of their new drug pipeline. It also offers a multiple sclerosis treatment called Tecfidera.
Generic competition has been hot on its heels and shareholders can expect a number of patent challenges in the next few years. This would undoubtedly lead to a fall in sales soon especially with the recent crackdown on the skyrocketing prices of meds.
To combat these looming challenges, Biogen has shifted its focus on Spinraza which has been beating expectations since its release three years ago. Set to exceed the $2 billion in sales mark, this spinal muscular atrophy drug has been dominating the rare disease market for quite some time.
This reign might not last long though as Novartis AG (NOVN) and Roche Holding AG (ROG) are gunning to release their own version of the drug by 2020 or 2021. This means Biogen would once again see another blockbuster drug go flat.
How does Biogen plan to deal with the backlash?
If history is any indication, then investors can expect Biogen to start looking into acquiring medium-size biopharma firms as soon as possible. Since the company closed 2018 with $3.5 billion in cash along with $5.3 billion in its free cash flow, a buyout is a viable solution at the moment. However, the biotech giant can only afford one.
The medium-sized biopharma firms speculated to be under consideration include ACADIA Pharmaceuticals, Biohaven Pharmaceutical Holding Company, and Alder Biopharmaceuticals. However, Neurocrania Biosciences and Sage Therapeutics are said to be potential frontrunners for a Biogen takeover.
While a lot of investors would understandably be wary of another risk from Biogen, Neurocrania and Sage could be promising targets for the biopharma giant.
Neurocrania has been raking in huge profits from their blockbuster tardive dyskinesia drug Ingrezza since gaining FDA approval in 2017. In fact, annual sales of this product has reached $410 million in 2018.
Aside from their success with Ingrezza, Neurocrine has taken the first step towards gene therapy via their collaboration with Voyager Therapeutics. Just this month, Neurocrine has invested $165 million to commence the process of coming up with a treatment drug for Parkinson's disease.
Another good option is Sage as the company also focuses on neurology, which means their goals could align with Biogen's. The recent approval of Zulresso makes Sage the first company to provide treatment for severe postpartum depression.
While the Alzheimer's debacle can be overwhelming, Biogen's fundamentals remain attractive. In terms of revenue estimates, the company is anticipated to report a 2.2% increase this year or up to $13.75 billion. Meanwhile, growth for earnings per share is projected to be at 9.4% or up to $28.67 from its current EPS of $21.58.
Global Market Comments
October 22, 2019
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE MAD HEDGE LAKE TAHOE, NEVADA CONFERENCE, OCTOBER 25-26, 2019)
(THE TECHNOLOGY NIGHTMARE COMING TO YOUR CITY)
Tickets for the Mad Hedge Lake Tahoe Conference are selling briskly. If you want to obtain a ticket that includes a dinner with John Thomas and Arthur Henry, you better get your order in soon.
The conference date has been set for Friday and Saturday, October 25-26.
Come learn from the greatest trading minds in the markets for a day of discussion about making money in the current challenging conditions.
How much longer can the Fed keep boosting the market?
Will the recession start in 2020, or will we have to wait until 2021, and how soon will the stock market start discounting it?
How will you guarantee your retirement in these tumultuous times?
Will the next bear market be as bad as 2008-2009, or worse? And is it worth selling out everything now?
What will destroy the economy first, rising interest rates, collapsing earnings, a trade war, or all three?
Who will tell you what to buy at the next market bottom?
John Thomas is a 50-year market veteran and is the founder, CEO and publisher of the Diary of a Mad Hedge Fund Trader. John will give you a laser-like focus on the best-performing asset classes, sectors, and individual companies of the coming months, years, and decades. John covers stocks, options, and ETFs. He delivers your one-stop global view.
Arthur Henry is the author of the Mad Hedge Technology Letter. He is a seasoned technology analyst and speaks four Asian languages fluently. He will provide insights into the most important investment sector of our generation.
The event will be held at a five-star resort and casino on the pristine shores of Lake Tahoe in Incline Village, NV, the precise location of which will be emailed to you with your ticket purchase confirmation.
It will include a full breakfast on arrival, a sit-down lunch, coffee break. The wine served will be from the best Napa Valley vineyards.
Come rub shoulders with some of the savviest individual investors in the business, trade investment ideas, and learn the secrets of the trading masters.
Ticket Prices
Copper Ticket - $699: Saturday conference all day on October 26, with buffet breakfast, lunch, and coffee break, with no accommodations provided
Silver Ticket - $1,399: Two nights of double occupancy accommodation for October 25 & 26, Saturday conference all day with buffet breakfast, lunch and coffee break
Gold Ticket - $1,598: Two nights of double occupancy accommodation for October 25 & 26, Saturday conference all day with buffet breakfast, lunch, and coffee break, and an October 26, 7:00 PM Friday night VIP Dinner with John Thomas
Platinum Ticket - $1,599: Two nights of double occupancy accommodation for October 25 & 26, Saturday conference all day with buffet breakfast, lunch, and coffee break, and an October 27, 7:00 PM Saturday night VIP Dinner with John Thomas
Diamond Ticket - $1,999: Two nights of double occupancy accommodation for October 25 & 26, Saturday conference all day with buffet breakfast, lunch, and coffee break, an October 25, 7:00 PM Friday night VIP Dinner with John Thomas, AND an October 26, 7:00 PM Saturday night VIP Dinner with John Thomas
Schedule of Events
Friday, October 25, 7:00 PM
7:00 PM - Exclusive dinner with John Thomas and Arthur Henry for 12 in a private room at a five-star hotel for gold and diamond ticket holders only
Saturday, October 26, 8:00 AM
8:00 AM - Breakfast for all guests at the Lakeshore Ballroom
9:00 AM - Speaker 1: Arthur Henry –The Mad Hedge Technology Letter -The Next Big Trends in Technology and How to Play Them
10:15 AM – 15-minute coffee break
10:30 AM - Speaker 2: John Thomas – Global Trading Dispatch - The Markets in 2020 – Risks and Rewards
12:00 PM - Lunch
1:30 PM - Speaker 3: Arthur Henry – The Mad Hedge Technology Letter - Pain and Pleasure in the Technology IPO Market
2:45 PM – Coffee Break
3:00 PM - Speaker 4: John Thomas – Global Trading Dispatch – The 2020 Election and the Markets
4:15 PM – Adjourn to Lone Eagle Bar
7:00 PM - Exclusive dinner with John Thomas for Platinum and Diamond ticket holders only in the lakeshore Ballroom
To purchase tickets, click here.
“Facebook, Google, Microsoft, and Amazon have a voodoo doll about each and every one of us regarding each and every touchpoint of our lives. They’re as much a part of us as our kidney or our legs,” said Roger McNamee of Elevation Partners.
Global Market Comments
October 21, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FORK IN THE ROAD),
(SPY), (TLT), (WMT), (GM), (FXI), (NFLX)
I usually don’t pay attention to technical analysis. It is the last refuge of the inexperienced and the uneducated.
However, I don’t ignore it either.
And that sets of a quandary for investors today. For on the one hand, the economic data couldn’t be worse, pointing to a certain trade war-induced recession sometime in 2020.
On the other hand, look at the chart for the S&P 500 (SPY) below and you can see that stocks have been in a clear uptrend for 2 ½ months. Another few weeks, and we might see a breakout to new all-time highs. Or, we might get a false breakout driven by algorithms only and then collapse to new 2019 lows.
Welcome to my world.
While my recent track record may say otherwise, I actually don’t know what markets are going to do every day of every week. And when I don’t know what to do, I do nothing. That’s especially easy to do now with my Mad Hedge Market Timing Index at a dead on neutral position of 50.
Of course, the elevated level of share prices could be the result of ultra-low interest rates and a complete lack of viable alternatives. At 11.9% dividend yield, US stock are among the highest yielding financial instruments in the world. At this year’s 15% capital gain and they are especially compelling, particularly to the many foreigners earning negative interest rates.
In the meantime, I wait for the markets to tell me what to do. I’m basically looking for a higher high to sell into, or a lower low to buy.
The IMF Downgraded Global Growth, from 3.2% to 3% and trade gets the blame. At 2.5% growth, many major economies will be in recessions. Risks are to the downside. More than 90% of the Global Economy is Slowing. It's the worst forecast since 2008.
Bank earnings were mixed, with JP Morgan taking the lead with record revenues and credit card revenues the big winners. Goldman Sachs (GS) looks awful due to failing mergers and acquisitions. Wells Fargo is worse. Trading revenues are the drag.
Retail Sales dove off a surprising 0.3% in September when a 0.3% jump was expected. The individual shopper has been the sole support of the economy this year and when they bail the stock market will hate it.
A Brexit deal is finally on the table, but will Parliament vote for it? I doubt it. If they do, it will be a huge “RISK ON” development. This just could be like Trump announcing another China trade deal. If Brexit lives, Scotland will almost certainly vote to leave the United Kingdom and join Europe.
US Housing Starts fell in September from a 12-year high, down 9.4% to 1.256 million units. The mid-Atlantic gets the blame. Land and labor shortages are a problem.
The GM Strike (GM) is settled and the union probably will vote for it. The strike has definitely been a drag on the US economy. Part of the deal involved closing three old high cost US plants. It’s tough to vote against economic reality.
China’s Economy (FXI) slowed to a 6% growth rate as the trade war drags on business there. That’s a 30-year low. Export demand for US products is plunging. Almost every economic indicator is in decline. Not only is China one of America’s largest customers, it is also Europe’s. The data definitely put the kibosh on the week’s rally.
Netflix soared on an earnings beat, soaring 9%. It looks like it is too early to write off the inventor of movie streaming. I guess a 20-year head start still counts for something. But I am staying away anyway.
I hate to be boring, but my Mad Hedge Trader Alert Service has scored yet another new all-time high. In fact, I have hit new highs almost every day for the last three months. Worse yet, my thesaurus is running out of metaphors for “new high.”
My Global Trading Dispatch reached new pinnacle of +349.64% for the past ten years and my 2019 year-to-date accelerated to +49.50%. The notoriously volatile month of October stands at a blockbuster +12.08%. My ten-year average annualized profit clawed its way up to +35.56%. If I make any more than this, no one will believe it, a frequent problem during my hedge fund days.
Some 28 out of the last 29 trade alerts have made money, a success rate of a stunning 96.55%! Under promise and over deliver, that is the business I have been in all my life. It works. This is rapidly turning into the best year of the decade for me. It is all the result of me writing three newsletters a day, and doing research for 12.
With my Mad Hedge Market Timing Index sitting around the neutral 50 level, there was very little to do this week but take profits on existing positions. Nothing like watching the money roll in. It’s like having a rich uncle write you a check once a month.
All I am left with after the October 18 option expiration is 80% cash and short positions in Wal-Mart (WMT) and the S&P 500 (SPY).
The coming week is pretty non-eventful of the data front. Maybe the stock market will be non-eventful as well.
On Monday, October 21 at 2:00 PM, the US monthly Budget Statement for September comes out, most likely showing a horrific $200 billion deficit.
On Tuesday, October 22 at 10:00 AM, Existing Home Sales are out for September.
On Wednesday, October 23 at 10:30 AM, EIA Energy Stocks are published.
On Thursday, October 24 at 8:30 AM, US Durable Goods are out. Weekly jobless claims are out at the same time.
On Friday, October 25 at 10:00 AM, the University of Michigan Consumer Sentiment is announced. The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I'll be driving up to Lake Tahoe to start organizing my October 25-26 conference, briefly stopping at Vacaville for breakfast at Mel’s Drive In and a top up charge for my Tesla Model X to make the climb over Donner Pass. First on the list is to unload there my five cases of vintage wine so it can adjust to the altitude.
Oh, and I haven’t had time for a haircut since I left for Australia four months ago. My kids are starting to call me a hippie.
The Mad Hedge Lake Tahoe Conference begins that night. Tickets are available by clicking here.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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