Global Market Comments
August 22, 2016
Fiat Lux
Featured Trade:
(WHAT'S THE MARKET OUTLOOK FOR THE COMING WEEK?),
(OCTOBER 21st SAN FRANCISCO, CA GLOBAL STRATEGY LUNCHEON),
(MIXING WITH THE 1% AT THE PEBBLE BEACH CONCOURSE D? ELEGANCE)
The Jackson Hole Economic Policy Symposium will be the dominant event of the coming week, the annual confab of central bankers, economists, and academics on August 27-29.
Whatever leaks out or not, will, or won?t be the principal driver of asset prices in the coming days.
Certainly the Fed has made the lives of traders increasingly miserable lately, ramping up their flip-flop at an ever-increasing rate. Should rates rise or not?
Who WOULDN?T be confused by such behavior?
I can see a pattern setting up here where Fed members talk the market down into September, then Janet Yellen jumps in, overrules everyone and does absolutely nothing.
That would give us a modest 3% correction into mid September, followed by an absolutely monster rally to new highs into the election.
YOU HEARD IT HERE FIRST!
Whatever data releases are coming this week, they will be vastly overshadowed by the Jackson Hole event.
On Monday, August 22 at 8:30 AM EST, the Chicago Fed National Activity Index should see some improvement.
Tuesday, August 23 will be a big day. That?s when we receive Housing Starts and the Consumer Price Index at 8:30 AM EST, followed by Industrial Production at 9:15 AM EST and E-Commerce Retail Sales at 10:00 AM EST.
On Wednesday, August 24 at 10:00 AM we see Existing Home Sales, which are moving from strength to strength.
On Thursday, August 25 at 8:30 AM EST the Weekly Jobless Claims should confirm that employment remains at decade highs. We will also get Durable Goods, which could go either way.
Friday, August 26 should be interesting. We get an update on Q2 GDP at 8:30 AM EST. With the last update, we saw a shockingly large upward revision. Then Janet Yellen speaks at Jackson Hole.
We wind up with the Baker Hughes Rig Count on Friday at 1:00 PM EST. Worryingly, the trend has been up for the past two months, driving oil prices lower.
The net net of all of this could be continued sideways trading with low volatility which is driving all of us nuts.
This Week the Big Guns Meet
On the right was my friend?s 1958 Ferrari Testa Rossa Scaglietta. On my left was a 1929 Dusenberg Murphy convertible sedan with a V-12 engine. I just walked past a 1914 Rolls Royce Silver Ghost Portholme Alpine Tourer.
Yes, it?s August in Pebble Beach, California, and that can only mean one thing. It?s time for another Concourse d? Elegance car show.
This is my annual opportunity to mix with my fellow 1%, hobnob with movie stars, and chitchat with the ultra wealthy, fanatically devoted to restoring ancient cars to pristine condition.
Held on the 18th fairway of the famed Pebble Beach golf course, Concourse d? Elegance has been held every year since 1950.
It was a largely local affair until the 1990?s, when wealth started concentrating at the top with a ferocious pace, minting billionaires by the hundreds.
Then the big-ticket sponsors started pouring in, turning it into a luxury global event.
Everywhere you look, you find promotions from Rolex, Flexjet, Davidoff Cigars, Osprey of London, Dom Perignon, and a dozen California vineyards. Every carmaker of note in the world is there in force.
Prices for anything the 1% bought skyrocketed accordingly, especially those for classic cars. Some of the price increases have been astronomical.
Comedian, Jay Leno, once told me that he was bid $10 million for a vehicle he paid $11,000 for during the early nineties. ?What has done better than that in the stock market,? he asked, ?Apple or Google??
Rich Europeans, Asians, and Australians now actually fly their cars to the event in the hope of snagging a much coveted ?Best in Show? prize.
Winners see the value of their ride double overnight as well as? the prestige that goes along with it. Even getting your car into the contest is a big deal. Of the 700 applications, only 200 cars were allowed to compete.
The 2014 prize went to a silver 1954 Ferrari 375MM Scaglietti Coupe, originally built for Italian neorealism filmmaker Roberto Rossellini, husband to the starlet, Igrid Bergman.
The car was owned by Robert Shirley, the former president of Microsoft, who carried out a loving, no expenses spared, ground up restoration after the car had been in pieces for 25 years.
I have to confess a personal weakness for this pastime, given my love of history, technology, and understanding manufacturing processes.
I was a member of the Rolls Royce Club in England for 20 years, and learned a lot about this very expensive hobby. The monthly newsletter used to run pieces on arcane topics, like ?How to Rebuild Your Phantom II Gearbox,? and ?Prewar Hydraulic Systems for Beginners.?
After a two-decade search, I decided not to buy one. Rolls Royce?s don?t appreciate that much, rising in value more or less with the rate of inflation. In other words, they are a lot like bonds.
Because they are so well made, 70% of those ever built are still running. You would have done much better investing in a prewar racing Bentley, or a postwar Ferrari racecar, if capital gains were your priority.
Besides, you don?t dare drive any of these masterpieces on public roads. Your insurance won?t cover it, and heaven help you if you get hit by someone driving while texting.
The other problem is that I am too big to fit into one. Vintage cars were designed when buyers were physically much smaller than today. Adjustable seats were a postwar invention, and I didn?t want to damage a vehicle?s historical integrity by drilling into the chassis to move the seat back.
Every year, the contest opens up special categories of vehicles to highlight certain marquees.
Last year saw classes for the Tatra, a bizarre, prewar Czechoslovakian company, and the Ruxton, a luxury car that disappeared during the Great Depression. Maserati was featured because of its 100-year anniversary.
Turn of the century steam cars were also a focus, a favorite of Jay Leno. The first car owned by a US president was a steam powered White Model M touring car that parked in front of the White House during the administration of William Howard Taft.
The auction house, Bonham?s, takes advantage of the Pebble Beach confab to hold its vintage car auction of the year, where record prices are often set.
Last year?s big earner was a 1962 Ferrari 250 GTO Berlinetta, which sold for $38 million, the highest prices ever paid for a car.
That beats the $30 million a 1954 Mercedes Benz W196 F1 sold for last year, a Grand Prix winner. Buyers? names are usually kept secret, for security reasons, or to avoid embarrassment (he paid what for that car?).
I spent a pleasant morning strolling around the historic links, bumping into old friends, talking technical details with the owners, and taking in the magnificent scenery of the California coast.
Some contestants really get into it, donning period dress to match the ages of their cars. So you?re constantly bumping into women wearing florid Edwardian hats, Art Deco dresses from the Roaring Twenties, or those killer stiletto heels from the fifties.
As for me, I was wearing a blue blazer and Panama hat favored by the judges, which seems to be timeless.
Reading the biographies of the judges was fascinating, and constitutes today?s automotive royalty.? They could be easily spotted with their telltale clipboards looking under hoods and going over every vehicle with a fine tooth comb.
Points are awarded for originality, authenticity and, of course, perfection. Extra kudos are awarded to those who rescue a historically significant vehicle from a barn, a junkyard, a forgotten garage, or an obscure museum. Some cars even had their original tool kits and jacks.
Owners stood back apprehensively.
The design chiefs of every major auto manufacture were there. So were heads of the major auto museums, like the Harrah?s collection in Reno, Nevada; the Mercedes Museum in Stuttgart; and the Petersen Automotive Museum in Los Angeles, created by the founder of Hot Rod and Motor Trend magazines.
A few racing legends were grading entries, including Sir Moss Sterling and Sir Jackie Stewart.
I had a dinner appointment with one judge, Franz von Holzhausen, who designed my Tesla Model S-1. But his wife had a baby that morning, so I dined with the head of production instead (more on that in a future piece).
If all of this appeals to you, the record sale price for a car is expected to be broken again next year. That?s when the actor Steve McQueen?s 1967 Ferrari 275 GTB/4 comes up for sale. Insiders say it should top $50 million.
I once owned McQueen?s home. Do you think it?s too early for me to get a bid in?
? ?Best of Show?
The Next Decade?s Mercedes
Check out This Cool Tatra
The Scenery is Magnificent
So, Which One is the Trophy?
A $38 Million Ride
This One Cost Only $30 Million
Out Of The Traffic Jam at Last!
?Below zero interest rates in the European Community is a game changer.? said Robert Michelle, head of fixed income at JP Morgan Asset Management.
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Global Market Comments
August 19, 2016
Fiat Lux
Featured Trade:
(LAS VEGAS, NV NOVEMBER 18TH GLOBAL STRATEGY LUNCHEON),
(A NOTE ON TODAY?S OPTIONS EXPIRATIONS),
(FXY),
(THANK GOODNESS I DON?T LIVE IN SWEDEN),
(EWD),
(TESTIMONIAL)
CurrencyShares Japanese Yen ETF (FXY)
iShares MSCI Sweden (EWD)
We have one options position that is in-the-money and about to expire at the close of business today, and I just want to explain to the newbies how to best maximize their profits.
This comprises the Currency Shares Japanese Yen Trust (FXY) August $97-$100 in-the-money vertical bear put spread with a cost of $2.70.
As long as the FXY closes at or below $97.00 today, the position will expire worth $3.00 and you will achieve the maximum possible profit of 11.11%.
That is not a bad return in only 11 trading days in this zero interest rate world.
Better that a poke in the eye with a sharp stick, as they say.
In this case, the expiration process is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.
Your broker (are they still called that?) will automatically use the long put to cover the short put, cancelling out the positions. The profit will be credited to your account on Monday and the margin freed up.
Of course, I am watching these positions like a hawk, as always.
If an unforeseen geopolitical event causes the FXY to take off to the upside once again, such as if Janet Yellen announces that there will never be another interest rate hike again, you should get the Trade Alert in seconds.
If the FXY expires slightly out-of-the-money, like at $97.01, then the situation may be more complicated, and can become a headache.
On the close, your short put position expires worthless, but your long put position is converted into a large, leveraged outright naked short position in the yen with a net cost of? $97.30.
You do not want this position on pain of death, as the potential risk is huge and unlimited, and your broker probably would not allow it unless you put up a ton of new margin.
This is not what moneymaking is all about.
Professionals caught in this circumstance then buy an amount of yen equal to the short position they inherit with the expiring FXY $100 put to hedge out their risk.
Then the long yen position is cancelled out by the short yen position resulting from the exercised put, and on Monday both disappear from your statement.
However, this can be dicey to execute going into the close.
So, for individuals, I would highly recommend just selling the August FXY $97-$100 put spread outright in the market if it looks like this situation may develop and the FXY is going to close very near the $97 strike, even if it as a loss.
The risk control is just too hard for individual traders to handle.
There is another reason to come out early. Some brokers exercise the options in the spread into shares on expiration, and then hit you with an extra commission on the sale of the yen.
So check with you broker to see how they handle options expirations.
To be forewarned is to be forearmed.
Keep in mind also, that the liquidity in the options market disappears and the spreads widen, when a security has only hours or minutes until expiration.
This is known in the trade as the ?expiration risk.?
One way or the other, I?m sure you?ll do OK, as long as I am looking over your shoulder, as I will be.
Now your only problem is to figure out how to spend the money.
Well done, and on to the next trade.
Well Done and On to the Next Trade
?There?s a great quote from Warren Buffet where he says ?You don?t know who?s swimming without a swimsuit until the tide goes out.? "The tide is starting to go out for the unicorns. I don?t know if it is 20% out or 80% out, but you are starting to see which unicorns don?t have great business models, lack solid unit economics, or are over promotional on what they are able to achieve.? said Bill Gurley, general partner of venture capital firm Benchmark Capital.
?
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update which I will be conducting in Las Vegas, Nevada on Friday, November 18, 2016.
A three-course lunch will be followed by a PowerPoint presentation and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate.
And to keep you in suspense, I?ll be throwing a few surprises out there too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $212.
I?ll be arriving early and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a top restaurant at a major Strip casino. The exact location will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets, please click here.
