Global Market Comments
October 21, 2016
Fiat Lux
Featured Trade:
(OCTOBER 26TH LIVE GLOBAL STRATEGY WEBINAR),
(DEFLATION IS STILL ACCELERATING),
(USO), (CORN), (SOYB), (WEAT), (DBA),
(THE WORST TIMED TRADE OF ALL TIME),
(GLD)
United States Oil (USO)
Teucrium Corn ETF (CORN)
Teucrium Soybean ETF (SOYB)
Teucrium Wheat ETF (WEAT)
PowerShares DB Agriculture ETF (DBA)
SPDR Gold Trust (GLD)
A number of friends have recently approached me asking the best way to refinance their home.
Should they be ultra conservative and lock in a historically low 3.6% conventional fixed rate 30-year loan?
Or should they throw caution to the wind and be seduced by a 5/1 ARM (adjustable rate mortgage) available for half the monthly payment?
I tell them that the answer is obvious.
I ask them to consider the average real wage gain for US blue-collar workers over the past 30 years which happens to be zero.
If my answer puzzles them, I then direct them to the recent statement by the Saudi Oil Minister, who says he is happy with prices at the current $50 a barrel level.
If they then appear perplexed, I point out to them that US ethanol production just surpassed a once unimaginable 1 million barrels a day, a new all time high.
Corn prices have fallen so far that it is cheaper to burn food than to eat it.
At this point, the expression on my friends? faces is now one of complete befuddlement. They start checking their watch, their iPhone for any new text messages, look for new tweets, or updates to their Facebook account.
Now my friends are utterly clueless. Wasn?t this supposed to be a conversation about homes, loans, and interest rates.
If they still don?t get it, I then spell it out more clearly, with the appropriate soaring logic and literary flourishes.
The bottom line for all of these disparate data points is that deflation is accelerating.
The continuing collapsing cost of many commodities is still driving prices relentlessly downward.
Adding fuel to the fire is the relentless march of technology, which is replacing expensive humans with cheap machines, further lowering costs.
The offshoring of jobs, once a major driver of the ongoing price collapse, is barely a factor anymore.? Rapidly rising wages are steadily pricing Chinese labor out of the market.
Sure, there has been some modest cost increases on the US wage front with the new minimum wage movement. Many cities like Seattle and San Francisco have already mandated wage hikes from $8 to $15 an hour.
But these only apply to a tiny fraction of the total job market.
This will only bring higher prices for those who eat fast food cheeseburgers, tacos, and burritos, which my doctors have expressly forbidden me to consume.
What this means is that interest rates are going to remain far lower for longer than even the Federal Reserve can imagine.
Sure, we will get a 25 basis point rise in December, followed by a second one in 2018. But that may be it.
As unbelievable as it may seem, we might go into the next recession WITH INTEREST RATES ALREADY CLOSE TO ZERO!
All of this makes my friends? choice about how to refinance their home a complete no brainer.
Take the 5/1 ARM, NOW!
Chances are that we will enter a recession sometime in the next five years, before the first five-year interest rate reset. Then they can refinance again, probably at an interest rate even lower than the subterranean one they are getting now.
How low can home mortgage rates go?
One of my Latvian readers informed me that with Euro interest rates at -0.40, the interest rate on his 5/1 ARM home loan is 1.9%.
By the way, real estate in Latvia is booming.
They can also reconsider the 30-year fixed rate at that time, as I expect inflation to return with a vengeance sometime in the 2020s.
More than a few homeowners have already figured out that the only way to afford sky-high housing prices in San Francisco and New York is to finance them with the ultra low giveaway cost of money.
The only pre conditions for this plan to work is for them to keep their jobs, the payments on time, and their credit rating up.
At this stage, my friends thank me effusively and rush off to call their loan brokers.
People who have known me a long time are used to me making incredible, spectacular, out-of-consensus long-term forecasts which eventually come true.
Gold is going from $34 to $1,000 an ounce (1972).
Of course the Nikkei Average is about to rise tenfold from Y3,500 to Y35,000 (1982).
Dow 10,000 by 2,000? You betcha (1992)!
Why can?t oil collapse from $100 to $50 if we make peace with Iran (2014)?
Consider it all part of being Mad.
Now that I see gold closing today at $1,269 today I am reminded of one of the worst calls I have seen in my 50-year trading career.
One of the great asset management blunders of all time has to be the European Community?s decision to sell its gold reserves in the wake of the launch of the Euro in 1998.
The decision led to the fairly rapid sale of 3,800 metric tonnes of the yellow metal at an average price of $280/ounce, reaping about $56 billion, according to the Financial Times.
The ECB almost perfectly picked the bottom of the market.
Today, the stash would be worth $253 billion. On top of this, the Swiss National Bank is poorer by $60 billion, after offloading 1,550 tons of the barbaric relic.
The large scale, indiscriminate selling depressed gold prices in the early part of the last decade, and made the final bottom of a 20-year move down.
It is a classic example of what happens when bureaucrats take over the money management business, ditching the best performing investment on the eve of a long-term bull market.
Where did all that gold go? To hedge funds, gold bugs, and inflationistas of many stripes, despite the fact that long dreaded price hyperinflation never showed.?
The good news for gold bugs is that these reserves are largely drawn down now, and future selling will trail off in the years ahead.
The shrinking supply can only be positive for prices.
?Amazon?s Jeff Bezos IS Dr. Evil. He intends to take over the world. He WILL succeed.? said Michael Pachter, a technology analyst at Wedbush Securities.
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. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more
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
Global Market Comments
October 20, 2016
Fiat Lux
Featured Trade:
(PLEASE BRING BACK QE!),
(DXJ), (HEDJ), (UUP), (SPY), (TLT),
?(FXY), (FXE), (GLD), (USO), (CU), (UNG),
(NOTICE TO MILITARY SUBSCRIBERS)
WisdomTree Japan Hedged Equity ETF (DXJ)
WisdomTree Europe Hedged Equity ETF (HEDJ)
PowerShares DB US Dollar Bullish ETF (UUP)
SPDR S&P 500 ETF (SPY)
iShares 20+ Year Treasury Bond (TLT)
CurrencyShares Japanese Yen ETF (FXY)
CurrencyShares Euro ETF (FXE)
SPDR Gold Shares (GLD)
United States Oil (USO)
First Trust ISE Global Copper ETF (CU)
United States Natural Gas (UNG)
You wanted clarity in understanding the current state of play in the global financial markets?
Here?s your #$%&*#!! clarity.
But maybe that is the cabin fever talking, as I have been cooped up in my Tahoe lakefront estate for a week, engaging in deep research and grinding out Trade Alerts, devoid of any human contact whatsoever.
Or, maybe it?s the altitude.
I did have one visitor.
A black bear broke into my trash cans last light and spread garbage all over the back yard. He then left his calling card, a giant poop, in my parking space. Is there a subtle message there?
Judging by the size of the turds, I would say he was at least 600 pounds. This is why you never take out the trash at night in the High Sierras.
Ah, the delights of Mother Nature!
We certainly live in a confusing, topsy-turvy, tear your hair out world this year. Good news is bad news, bad news worse, and no news the worst of all.
The biggest under performing week of the year for stocks is then followed by the best. Net net, we are absolutely at minimal movement, and lots of clients complaining about poor returns on their investment.
I tallied the year-on-year performance of every major assets class and this is what I found.
+18.05% - Gold (GLD)
+16.65% - Japanese Yen (FXY)
+12.68% - Natural Gas (UNG)
+10.71%? - Bonds (TLT)
+10% - My House
+6.59% - Stocks (SPY)
+4.76% - Hedged European Stocks (HEDJ)
+1.44% -? Copper (CU)
0% - Euro (FXE)
0%? - Oil (USO)
-2.69% - US dollar Basket (UUP)
-10.20% - Hedged Japanese Stocks (DXJ)
There are some sobering conclusions to be drawn from these numbers.
Gold (GLD) has been the top performing asset of 2016.
It is followed by the Japanese yen (FXY), the currency with the world?s worst long term fundamentals.
Stocks came in at the middle of the pack, and with dividends, post at 8.60%. Not bad.
Quite honestly, you only needed one trade this year to outperform 99% of active managers net of fees, and that was to buy Amazon (AMZN).
My former Morgan Stanley colleague, Jeff Bezos,? has seen the shares of his creation rise an eye popping 197%. Blame it all on artificial intelligence.
If you missed Amazon for valuation reasons, you also could have run the bell with Facebook (FB) (+25%),? Apple (AAPL) (12.5%), or Alphabet (GOOG) (+6.1%).
Subscribers to the Diary of a Mad Hedge Fund Trader can?t help but know and love these ticker symbols.
They?ll notice that our long plays were found among the assets classes with the best performance, while our short bets populated the losers.
The problem with that is most financial advisors are not permitted to place client funds in the sort of inverse or leveraged ETFs that most benefit from these kinds of moves (like the Yen (YCS), Euro (EUO), and Oil (DUG)).
That left them reading about the success of others in the newspapers, even when they knew these trends were unfolding (through reading this letter).
How frustrating is that?
What was one of my best investments of 2016?
My San Francisco home, which has the additional benefits in that I get to live in it, have a place to stash all my junk, and claim big tax deductions (depreciated home office space, business use of phone, blah, blah, blah).
Of course, I do have the advantage of living in the middle of one of the greatest technology and IPO booms of all time. Every time one of these ?sharing? companies goes public, the value of my home rises by a few hundred grand.
The real problem here is that investing since the end of the Federal Reserve?s quantitative easing program ended a year ago has become a real uphill battle.
While the government was adding $3.9 trillion in funds to the economy, we traders enjoyed one of the greatest free lunches of all time. It made us all look like freakin? geniuses!
Heaven help us if they ever try to actively unwind some of that debt!
Janet has promised me that she isn?t going to engage in such monetary suicide. So far, natural attrition has taken the Feds bond holdings down to only $3.4 trillion.
The Fed is continuing with Ben Bernanke?s plan to run all of their Treasury bond holdings into expiration, even if it takes a decade to achieve this.
And with deflation accelerating, the need for such a desperate action is remote.
Still, one has to ponder the potential implications.
It all kind of makes my own 20% Trade Alert gain in 2016 look pretty good. If added to the list above, it would be the best performing asset class of all.
But I don?t want to boast too much. That tends to invite bad luck and losses which I would much rather avoid.
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
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. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen. Read more