June 2016

My Yearend Stock Market View

I hate to be the bearer of sad tidings guys.

But I think the choppy, volatile, trendless, trading conditions we are all suffering right now will continue for a few more weeks.

The risk/reward ratio for initiating new positions here is terrible. If you are long and right, you might eke out another two or three points on the S&P 500 (SPY) on the upside.

If you are long and wrong, you could lose 20 points in a heartbeat. Not for me, not for me, not even with your money.

Man! I wish I were still back in the Sahara Desert. There, I only had to worry about scorpions, poisonous snakes, heat stroke, kidnapping by ISIS, and raiding Berber tribesmen.

This is why you?re hearing a steady drumbeat from long time pros, like George Soros and Carl Icahn, turning negative on stocks and buying gold.

This is why I am going into the June 15 Federal Reserve Open Market Committee meeting with 100% cash.

In fact, the Fed meeting could signal the top of the entire recent move in stocks, even if they don?t raise interest rates, which my money is on.

The Dow is up 3,000 points in four months, taking company price earnings multiples close to a 20X multiple, a generational high. Breadth is terrible and volume is falling.

The calendar has flipped from friendly to hostile, as we enter the half year period which sees the greatest amount of stock selling (at least it has for the past 60 years).

It all screams ?Stay away!? to me.

Adding to the multiple weirdnesses of this year is the fact that presidential candidate Donald Trump scared many plungers out of the market at the February lows, predicting an imminent crash of epic proportions. Was that before he offered to give the residents of Berlin and Hiroshima nuclear weapons, or after?

I know it was definitely before he launched the withering personal attacks on the federal judge in his current fraud case.

That left everyone underweight in a rising market, which is why the current move has gotten so extended.

From here, I see stocks selling off 5-10% over the summer. Use the swoon to buy stocks with both hands.

I think there will be a huge autumn rally that will take us to new all time highs, as the presidential election fades into the history books.

It really makes no difference who wins. The mere fact that ?the election is gone will be a major market positive. Once again, it will be safe to turn our TV sets back on.

And if Hillary wins, which she almost certainly will, that is another big plus. Remember, her husband Bill presided over a 400% rise in stocks. History could repeat itself.

Sectors? You want to know about sectors? Jeeze, you?re a tough crowd to please.

I think we can go back to our old reliables of technology (QQQ), health care (GILD), consumer discretionaries (DIS), cyber security (PANW), and biotech (IBB).

This coming cycle will see some new additions. They include interest sensitives, like banks (GS), regional banks (KBE), and? homebuilders (LEN).

The interest rate rise we don?t get next week will almost certainly occur in December, and the interest sensitive?s are already starting to reflect that.

Energy stocks (XOM), (OXY), (COP) have run too far too fast, and are already reflecting an oil recovery to $70 a barrel.

Solar (FSLR), (SPWR) will be another winning sector if oil doesn?t go to zero again. Remember, the federal solar subsidy was expended for five more years last December.

As for Apple, expect the slumber to continue until the next new product cycle for the iPhone 7 launches in September. In between cycles is never a great time to buy Apple.

For those who have been prudently sitting on their hands all year waiting for a chance to put more long term, non-trading money to work, that time is coming. Your entry point will open up over the summer.

Let me tell you that I have an unfair advantage in making market calls like this that are bold, confident, and possibly bordering on hubris.

I have the good fortune to live in the San Francisco Bay area. It is like living 10-20 years in the future.

The GDP here is definitely not growing at a feeble 2% annual rate, as it may be for much of the rest of the country (like North Dakota, Oklahoma, and Texas).

It is really growing at a 5% rate, and possibly much more.

The technology boom in the City by the Bay is reaching a 1990?s fever pitch. You can?t get restaurant reservations or lease office space. Companies have launched serial poaching of staff with only the most limited experience at eye-popping salaries.

Contractors everywhere have turned into prima donnas.

Housing is a joke. A friend of mine managed to score a tiny, rent controlled pre-war studio apartment for $2,000 a month after winning a lottery against 50 other entrants. He had to pay a $100 ?application fee? just to enter the lottery.

Oh, and since this is one of the few dog friendly buildings in the city, the whole place smells like crap and dog hair, as every resident owns a pet. Open the door, and you get a slap in the face.

Yes, I know that the United States is not San Francisco.

However, the tools and services that are created here, at a breakneck pace, can be used by the rest of the world to dramatically improve productivity and profitability.

That boosts growth and share valuations everywhere.

By the way, if any of you has a twenty something kid looking for a job and a purpose in life, send them to San Francisco immediately. With any luck, they will be able to gain a foothold and pick up some coding skills before the next crash occurs.

As for me, I am going to try and maintain discipline and not chase every little gyration of the market.

You can?t take advantage of the coming best buying opportunity in a year if you blew all your money trying to catch the small fry.

I Much Prefer Being Here Than in the Market

San Francisco?s Suffering Renters Take Another Hit

Diary, Free Research, Newsletter

The San Francisco Bay area?s beleaguered renting class moaned again when the social media giant, Twitter (TWTR) finally went public a couple of years ago.

The deal immediately placed $1.82 billion into the pockets of early shareholders, almost all of whom live near the company?s San Francisco headquarters.

This is adding insult to injury to those in the region who are desperately seeking a home. San Francisco already has the most expensive rentals in the country.

The median rent for a modest two-bedroom apartment in a marginal neighborhood with poor access to public transit and no view is $4,500 a month.

Forget about it if you smoke, have a pet, or suffer from a poor credit rating. That compares to $3,150 a month in New York City, $2,300 in Boston, and $2,250 in Los Angeles.

This is just the latest tsunami of cash to hit the city?s torrid real estate market. Since 1998, Apple (AAPL) has created $700 billion in equity for shareholders, while Google (GOOG) has manufactured a further $450 billion.

In 2012 Facebook (FB) joined their ranks with a $100 billion IPO that quickly went sour. What is hoody wearing Mark Zukerberg?s creation worth today? A stunning $339 billion.

The first thing these newly enriched entrepreneurs do is buy a nice big house. This is not just limited to founding technology nerds and geeks wearing hoodies.

During the early start up days of these cash starved companies, shares are handed out to employees in lieu of better pay, all the way down to the secretary level. When they go public, thousands of millionaires are created and not a few billionaires.

Presto! A housing bubble!

Renters are getting creative in dealing with the high prices. Some are doubling up the use of bedrooms. Others rent out their beds during the day to programmers who often prefer working all night, much like hot sheet hotels of old.

Many have moved into the garage and sleep with the business they are trying to develop. Some homeowners with yards are leasing out spaces to pitch tents, while others are taking advantage of new services on the internet that allow them to rent spare rooms by the night.

There is no way of telling how far this will go. The last technology bubble popped when price earnings multiples hit 100. Most established tech firms are now trading in the 11-18 range, so the day of reckoning could be quite a ways off. Rentals could reach the astronomical levels now seen in London and Hong Kong.

In the meantime, I?m thinking of renting out my tool shed in the garden. My agent says that I could get at least $1,000 a month. The alternative is for home seekers to move to Las Vegas, where they can get a larger two bedroom without the need for heating for only $900 a month.

Do you think it is worth the commute?

Trade Alert - (FXY) June 9, 2016

Trade Alert

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price. Read more

June 9, 2016 - MDT Pro Tips A.M.

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more

June 9, 2016

Diary, Newsletter, Summary

Global Market Comments
June 9, 2016
Fiat Lux

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(TACKLING THE INFLATION MYTH),
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(THE CALL YOU DREAD TO GET)

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The Call You Dread to Get

Diary, Newsletter

It was one of those phone calls you dread getting.

On Saturday morning, I recognized the area code as coming from my hometown in Los Angeles where I grew up. It was my old friend, Jim, who I went to high school with.

He asked me if I was sitting down.

I answered, ?Yes.?

His brother, Robert, had just retired after a 33-year career with the City of Los Angeles as a programmer.

An avid banjo player and lover of blue grass music, he had bought a new RV and planned to start his retirement touring the summer music festivals in Alaska.

He made it as far as Madera, California on CA Highway 99, where he and his wife Elise were killed in a crash.

It was difficult for the California Highway Patrol to piece together what happened, as all of the participants in the accident were killed and there were no witnesses. Nearby residents reported hearing a loud explosion at 10PM.

All they could do was speculate.

Maybe a truck driver fell asleep and rear-ended the RV, driving both vehicles into a giant eucalyptus tree. The RV?s LP tanks ruptured and exploded in a ball or flame, killing everyone.

Or maybe the RV was passing the truck, and unfamiliar with driving a long vehicle they pulled back into the lane too soon, clipping the truck. We will never know.

Rob and Elise leave behind two children. Devon, 23, was hiking the Pacific Crest Trail from Mexico to Canada and no one knew where she was.

I offered to go look for her, as I know the trail well. But I was told that friends were waiting at her next food drop in Independence, CA to tell her that both parents had died.

Her 19-year-old brother was about to join the Marine Corps. I was about to start calling some generals at the Pentagon to get him a good assignment.

Both bodies were burned beyond recognition. It took a CHP detective 10 days to trace the VIN to the next of kin.

The coroner is awaiting dental records before releasing what little remains there are. A memorial service won?t be held until September. There is nothing to bury.

Robert, Dave, John and I were the technology nerds of our days in high school. We built the rockets, shorted out the school power, and set the speed bumps on fire.

There was that night with the case of Ripple which I will never forget.

Robert?s father was the Scoutmaster of our Boy Scout troop (click here for his story, ?The Passing of a Great Man?).

After graduation, we stayed close.

Dave became a resort manager, and died in a mountain climbing accident in Utah in the 1980?s. John, who spent a career as a scientist at the Los Alamos Nuclear labs in New Mexico, is undergoing cancer treatment at UCSF. Now, Robert is gone.

That leaves me as the last man standing of the original four.

To say that I lived a wild and reckless life would be an understatement.

I have been shot, stabbed, broken my neck, and caught almost every disease known to man. I?ve crashed three planes and three more cars. There are whole countries I can?t go back to. Insurance companies hate me.

And I?m still at it. I?m climbing the Matterhorn in Switzerland again next month.

Yet here I am in perfect health, with my 120/75 blood pressure, my resting heart rate of 45, about to walk out the door for another ten mile backpack.

It was Robert, who played it safe, never left town, and was about to collect on a rock solid government pension, who ended up dying a violent death.

Go figure.

It is all proof that you have to live each day of your life as if it is your last, live life like a Mad man, and hope that the check to the undertaker bounces.

For a live TV report of the crash, please click here at http://abc30.com/news/3-people-are-dead-following-a-fiery-crash-in-madera/1356741/?

I?m out the door, headed to the mountains once again.

David and Robert in 1968

June 8, 2016 - MDT Pro Tips A.M.

MDT Alert

While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more

June 8, 2016

Diary, Newsletter, Summary

Global Market Comments
June 8, 2016
Fiat Lux

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(AN AFTERNOON WITH GOVERNOR JERRY BROWN)

An Afternoon With California Governor Jerry Brown

Diary, Newsletter

On a recent trip to my lakefront estate at Lake Tahoe, I stopped off at the state capital, Sacramento, to look in on my old friend, Governor Jerry Brown.

It is crucial that readers across the country, and indeed, around the world, know what Jerry is thinking. California has always been a ?pathfinder? state, and what starts here is often adopted across the country. This little chat could be a hint of what?s headed your way.

As I bounded up the steps of the marble capitol building, the first thing I noticed was the absence of the previous governor, Arnold Schwarzenegger?s, smoking tent.

The "governator" had it erected on the lawn so he could enjoy long puffs on his stogies and not be in violation of the state ban on indoor smoking. After all, this was in the state that invented the anti-smoking movement.

I have trod a very long path with Jerry Brown. His dad, then Governor Pat Brown, ordered teargas dropped on me from a helicopter while I was at a Berkeley anti-war march nearly half a century ago.

He was Secretary of State while I attended the University of California, often going head to head against then governor Ronald Reagan.

I was living in Asia during his first two terms as governor from 1975-83, when his girlfriend, Linda Ronstadt, called him the ?moonbeam governor?, a nickname he has yet to live down.

Warning: don?t call him that to his face. He hates it.

I ran into him at the Democratic convention in New York in 1980 when he mounted his second run for the presidency. After he retired and was considered a political has-been, I bumped into Jerry once again when he studied Zen Buddhism in Japan.

In 1999, he was elected mayor of Oakland, a mostly black Bay Area slum near bankruptcy, which many considered ungovernable. He did a spectacular job, fighting corruption, rebuilding the school system, and sparking an economic renaissance. It was like he had nothing left to lose.

To the amazement of many, Jerry ran and won a third term as governor in 2011, taking over the wreckage left by the disastrous reign of Arnold Schwarzenegger. He has been raising eyebrows nationally ever since.

He immediately launched a crash campaign to raise taxes and cut spending. His Proposition 30 succeeded at the polls, raising sales taxes for everyone and boosting income taxes on those earning more than $500,000.

The Golden State now has the highest combined federal and state taxes in the country, at 51.5%, and more for millionaires. The proceeds of the tax hike are solely dedicated to increasing $6 billion in spending on education.

State leaders learned a long time ago that people will pay a premium to live here. They pay double for housing, so why not double taxes? The sunshine has monetary value.

As I explain to guests at my strategy luncheons, high earners don?t mind paying an extra dollar in tax when it means they can make an extra $10, or $100, in profits at their high tech companies.

That has been the case with a technology industry here that has been booming almost non-stop since WWII. That is, as long as the money isn?t wasted. Most consider more money for education a laudable use of funds, as it trains a more useful workforce for their own investments.

Brown originally studied at a seminary school to become a catholic priest. To this day, he frequently quotes from the Bible, and he gave my own Latin a real workout. Citing Luke, Chapter 12, verse 48 with regards to the sharing of the tax burden, ?to those who are given much, much is required.? The seven-year sunset provision for the new income tax also comes from the ?seven years of plenty?, found in the Old Testament.

He argues that this is only fair, since the top 1% of state earners have seen their income increase by 165% since 1980, while the bottom 80% have seen an 8% drop. The top 1% took 10% of state incomes in the seventies. Now it is 22%.

To say Jerry is iconoclastic is a disservice to the word. He is a combative 77 year old who says what he thinks at the drop of a hat, no matter whom it offends, be they friend or foe.

He is a mix that is all too rare in this country, a flaming liberal on social issues, while an ironclad conservative on fiscal matters. There used to be a lot of those. Now they are rare.

He is a staunch advocate for the environment. He appointed the first gay judge in the US. He is about to deliver the toughest anti-gun legislation in the country. He has been a lifelong cheerleader for the alternative energy industry.

Brown has also completed the most ambitious cuts in social spending in the state?s history, including grants for the disabled, child welfare, and Medical. Some 40,000 non-violent inmates were released from prisons into probation to save money.

The University of California saw its budget cut by a massive 25%. State employment was chopped by 50,000, and some 50 redundant state boards were eliminated.

Jerry told me that the state?s problems were caused by two bubbles; the internet in 2000, and the indiscriminate mortgage lending that followed.

That created a budget deficit that ballooned to $27 billion by the time he returned to office, which cut the California?s credit rating to the lowest of the 50 states.

In a short 18 months, Brown balanced the budget, and state debt is now rapidly seeing upgrades, reducing borrowing costs.

The governor says that the spending cuts have been very tough to swallow. Even the carpet in his office is falling apart, and he confesses to eating day old tuna sandwiches.

On the tax front, he says that ?when you have more in the cookie jar, you have more cookies to give.?

Jerry says his goals as governor were threefold. He eliminated false accounting gimmicks, which shuffled the state?s financial problems under that well-worn carpet, where they festered.

He only implemented new taxes if people voted for them. And he returned decision making to cities and counties on schools, because the entities closest to problems have the best ability to solve them, a policy he calls ?realignment?.

Decentralization and devolution of power to local authorities isn?t something you hear about from liberals very often.

He points out that the big growth in state spending didn?t arise from some idealistic social agenda. Three strikes laws mandating extremely long sentences caused an explosive growth of the prison system, which expanded from 3% to 11.5% of the state budget since the seventies. ?

An aging population is also prompting a substantial increase in medical spending. These two items alone account for the entire increase in state spending for the past 40 years on a GDP adjusted basis.

I asked Jerry what he thought about the efforts by other tax-free states, particularly Texas, to lure business away. He erupted into a tirade.

He argued passionately there was absolutely no evidence that people moved to avoid taxes, which amount to only a few thousand dollars a year for millionaires.

The economy here is booming. The best and the brightest minds in the world are pouring into the most creative and innovative place on the planet.

There have been 500,000 private sector jobs created during his current tenure. Exports are up 17%. The state draws 50% of global venture capital investment, and files for four times more patents than runner up New York. The one-ton truck now driving around Mars was built in Pasadena.

My obvious last question had to be ?what?s next? for the energetic governor. Might his tax raising, spending cutting habits have a national audience?

?Do I have more offices in mind? I?m not telling,? he answered, with a twinkle in his eye. That is a lot to say for someone who has already held every high office in his home state.

I got a call from my car telling me it was time to get moving if we were going to make it over Donner Pass before it iced up. I said, ?see you next time? to Jerry. There always seems to be a next time with Jerry.

?What a Long, Strange Trip It?s Been.?

June 8, 2016 - Quote of the Day

Diary, Newsletter, Quote of the Day

?You are either looking out five days or five years in this market. You?re either a surfer or a yacht. There are no small boats anymore,? said Bob Iaccino, a trader at Yourtradingroom.com.