Featured Trade: (HOW THE INVESTMENT WORLD IS HORRIBLY OUT OF POSITION, OR THE MARKET OUTLOOK FOR THE WEEK OF NOVEMBER 28TH), (TLT), (TBT), (LQD), (MUB), (ELD), (VIX), (VXX), (PRINT YOUR OWN CAR), (TESTIMONIAL)
iShares 20+ Year Treasury Bond (TLT) ProShares UltraShort 20+ Year Treasury (TBT) iShares iBoxx $ Invst Grade Crp Bond (LQD) iShares National Muni Bond (MUB) WisdomTree Emerging Markets Lcl Dbt ETF (ELD) VOLATILITY S&P 500 (^VIX) iPath S&P 500 VIX ST Futures ETN (VXX)
That is my harsh conclusion after speaking to dozens of portfolio managers, financial advisors, and hedge fund traders around the world.
Virtually ALL are overweight bonds, or fixed income instruments of endless description.
American high net worth individuals are up to their ears in tax free municipal bonds. Many loaded the boat expecting a Clinton win which would lead to higher tax rates and boost the value of tax free investments.
Instead, we got a Trump win. This dramatically chops the value of any tax free instrument, especially muni bonds. If you don?t believe me, look at the chart below showing the sharpest selloff since the Great Crash.
The last time muni bonds fell this fast, analyst Meredith Whitney predicted that the number of local government defaults would explode to 2,000. In the end, I think, we only got two defaults, both in California.
I have spent the last half century watching professional money managers overweight market tops and underweight the bottoms. And you wonder why I manage my own money.
This is why global bond market losses since the November 8th presidential election now exceed $2 trillion. Next year they will grow exponentially.
So when the Trump euphoria runs out of gas, or at least takes a break, ten-year Treasury bonds (TLT) should rally five points. When that happens, sell the daylights out of them. It may be your last chance to do so with yields at the 2% handle.
Trump is certainly living up to his reputation as The Great Debt Destroyer right out of the gate.
And here is the big question for 2017.
Trump?s gargantuan tax cuts and monster spending increases should boost the Federal budget deficit from $400 billion this year to $1.0-$1.5 trillion next year.
How is Trump going to launch a trade war against China when he needs them to buy up to $750 billion of our new government debt?
This dilemma should certainly put his much vaunted negotiating skills to the test.
Less than three weeks after the election, Trump is already adopting Hillary Clinton?s business, trade, foreign policy, and trade strategies, one by one. He is, in effect, turning into Hillary Clinton.
But Wait! It gets worse.
Not only do investors lack adequate weightings in equities, they own the wrong ones.
They are loaded to the gills with high growth technology stocks, and almost completely lacking the shares of companies that were pariahs only three weeks ago, like financials, health care, construction, commodities, energy, and defense.
Call it the double underweight.
It will take many months, if not years, for institutions to rebalance their portfolios into the right asset classes and industry selections.
The good news is that the net push on the major stock indexes will be to the upside. That?s because managers will be selling stocks at seven-year tops and replacing them with those at five-year bottoms.
Technology is not dead for good. It is just resting. It will come roaring back after a long overdue three-six month correction.
Don?t throw away stocks today that you may have to buy back ten times higher in a decade.
Having said all that, all asset classes are now sitting on top of extreme moves, both to the upside and the downside, and are far overdue for corrections.
While stocks have been rising, so has the Volatility Index (VIX), (VXX) for the past two days which is never a good sign.
As they used to say on the eighties TV show, Hill Street Blues, ?Be careful out there.?
As for the week?s data releases:
Monday, November 28th at 10:30 AM EST, we get the Dallas Fed Manufacturing Survey.
On Tuesday, November 29th at 10:00 AM EST, we get a new update on the Q3 GDP Growth. We?ll see if the previously reported hot 2.9% annual rate can be sustained. November Consumer Confidence follows at 10:00 AM.
On Wednesday, November 30th at 2:00 PM, the Fed releases its Beige Book, the most current look at the state of the US economy. The three Fed speakers on Wednesday should all tilt hawkish.
It is also month end, so the window dressers will be out in full force, probably taking markets up to higher all time highs.
Thursday, December 1st, we learn the Weekly Jobless Claims at 8:30 AM EST. The PMI Manufacturing Index follows at 9:45 AM EST.
On Friday, December 2nd, we get the big number of the week, the November Non Farm Payroll Report. This month will be especially important, as it may give the first hint of real post election business activity. This could be our one shot at volatility for the week.
At 1:00 PM we get the Baker HughesRig Count. We?ll see if falling oil production puts a dent in US oil production.
Keep in mind that virtually all economic indicators will be useless for the next two months because they will only reflect spending and investment conditions prior to the November 8th presidential election, and will be for a world that no longer exists.
Will the economy improve, reflecting a new optimism for the pro-business administration?
Or will it get worse, showing the rise of uncertainty pending a 180-degree change in US economic policies and a massive expansion of the national debt?
https://www.madhedgefundtrader.com/wp-content/uploads/2016/11/John-with-Backpack-On-e1480181904746.jpg300400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2016-11-28 01:08:152016-11-28 01:08:15How the Investment World is Horribly Out of Position AKA the Market Outlook for the Week of November 28th
?I can't tell you how much I enjoy your blog. It is the first place I go every morning and I miss you on the weekends.
I stumbled upon your site about 4 months ago and have been addicted to it since day one. I really appreciate not only your insight into the markets, but also your global and historical perspectives.
All of this served up with your great sense of humor makes it a must read! Thanks for all your hard work.
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.
If you have followed the recent trade alerts, you would have two positions that expire today.
The first is the short $14 call on FEYE.?? FEYE sold off on the earnings report from PANW.?
As I write this, it is trading around $13.34 or about 70 cents under the strike price.? Assuming there is no late day rally, the $14 call should expire worthless today and you will book the profit on the calls you sold.
I will look to sell more calls next week.
The second position is the short $14 call on FCX.
With FCX trading a good $2 over the strike, the short calls will be assigned.
And that is what I recommend.
Usually, I do like to roll out and collect more time premium, but with the run that FCX, and the metals have made, I expect a pullback.
And I would prefer to try and enter again after some profit taking sets in.
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.
Even though I like the prospects for Cerner Corp. (CERN), I am going to suggest you close the position because the market appears a bit overbought.
My suggestion today is this ...
Sell to Close January $50 call for $2.10
Buy to Close January $55 call for $.40
You will net about $1.70 per contract on the trade.
Based on a debit of $1.25 per contract, the net result will be $45 per contract or $450 if you traded the recommended lot size.
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
Featured Trade: (RESIDENTIAL REAL ESTATE IN THE NEW WORLD ORDER), (THE PASSIVE/AGGRESSIVE PORTFOLIO), (ROM), (UYG), (UCC), (DIG), (BIIB), (UGL), (UCD), (TBT), (TESTIMONIAL)
You would think having a real estate guy for president would be good for real estate.
That is not necessarily so.
Remember that Donald Trump went bankrupt four times with his property ventures. You may lack his skills in extricating himself from these misadventures, let alone reap a billion dollars in tax benefits.
Suffice it to say, it?s complicated.
This is important because most people's best performing investment over the past five years has been their home.
Depending on where you live, and the amount outstanding on your mortgage, the return could be as much as 1,000%.
There is no doubt that the initial impetus a Trump economy will have on residential real estate is positive.
The magnitude of deficit spending that Trump is talking about with jobless claims at all times lows is highly inflationary. Trump wants to throw gasoline on the fire and toss in a few sticks of dynamite for good measure.
Real estate is the best inflation hedge out there.
What?s more, rising incomes will increase purchasing power in what is already a supply constrained market.
As a result, home prices should break free from the current sedentary 5% annual increases to 10% or more, for at least the first couple of years.
The dark side of Trump?s economic policies is that interest rates have taken off like a rocket.
This was already a work in progress as the entire world was already expecting the Federal Reserve to raise interest rates at their December 14th meeting.
The Trump win put a turbocharger on this trend.
Yields on ten-year Treasury bonds have leapt from 1.33% in July to 2.30% today, a near record increase of nearly 1.00% in less than four months.
The initial phase of any rate hiking cycle creates a stampede, as buyers rush to beat interest rate hikes and lock in low 30-year rates.
This is a big deal.
For the past five years, I have been advising readers to refinance their homes with ultra low interest rates offered by 5/1 ARMS or adjustable rate mortgages.
The assumption then was that rates would remain lower for longer under a Clinton administration, and that you could always refinance again at near zero rates during the next recession.
That assumption has gone into the ashcan of history, so I changed my mind.
In the Trump world, you want a 30-year fixed rate mortgage. While the rates here have jumped from 3.45% to 4.01% since July, this will appear laughably low in three years.
Despite the recent pops in rates, they are coming off 200-year lows for the US, and 5,000 year lows for the rest of the world. They have a lot more to run.
Higher interest rates bring a stronger US dollar, so the inward flood of foreign investment from abroad, primarily from China and Europe should increase.
But it won?t go into New York penthouses, the kind that Donald Trump sells, because new anti-money laundering statutes have created a cloud over this market.
Instead, foreigners will flock to commercial real estate, or the McMansions that have recently proved so popular.
Trump has also promised to repeal the Dodd-Frank financial regulation bill. This will make it easier for banks to lend, especially to low income families with lower FICO scores.
Subprime is about to make a big comeback.
If you are planning to sell your home, definitely delay the closing into 2017. While no specifics have been mentioned (as with everything else), the reduction of long-term capital gains taxes has long been a Republican panacea.
Delaying a sale by a few weeks could cut your tax bill by hundreds of thousands of dollars.
That appears to be the new game -? avoiding taxes.
One potential threat to housing would be the demise of Fannie Mae and Freddie Mac.
These two quasi-governmental bodies recycle home loans from the private sector and went into receivership after the 2008 crash.
The United States is the only country in the world that engages in this kind of activity which has delivered a long term push on home prices upward.
Trump surrogates have promised to eliminate these two entities, or at the very least, privatize them. If that occurs the bulk of conforming mortgages will lose their de facto government guarantees.
That would bring much higher long-term interest rates, possibly 100-200 basis points, a definite buzz kill for residential real estate.
Unfortunately, this story does not have a happy ending.
While short-term stimulus will deliver a higher high in real estate prices, a lower low will follow when the stimulus ends.
Boom and Bust, that has been the never ending cycle since real estate was invented. Even Donald Trump can?t repeal the Law of Supply and Demand.
While the next bust is probably at least a couple of years off, the seeds of the next financial crisis are being sewn as I write this.
Rape, pillage, and plunder, that is the new investment strategy.
Just don?t forget to sit down when the music stops playing, as millions did in 2008.
https://www.madhedgefundtrader.com/wp-content/uploads/2016/11/Johns-House-1-e1479865357299.jpg301400DougDhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngDougD2016-11-23 01:08:292016-11-23 01:08:29Residential Real Estate in the New World Order
I have long advocated my ?Buy and Forget? portfolio for those who are terrible at trading.
This is where you buy just six self hedging, counterbalancing exchange traded funds and then rebalance once a year (click here for the article).
But what if you want to be a little more aggressive, say twice as aggressive? What if markets don?t deliver any year on year change, as they have done this year?
Then you need a little more juice in your portfolio, and some extra leverage to earn your crust of bread and secure your retirement.
It turns out that I have just the solution for you. This would be my ?Passive/Aggressive Portfolio?.
I call it passive in that you just purchase these positions and leave them alone and not trade them. I call it aggressive as it involves a basket of 2x leveraged ETFs issued by ProShares, based in Bethesda, MD (click here for their site).
The volatility of this portfolio will be higher. But the returns will be double what you would get with an index fund, and possibly much more. It is a ?Do not open until 2035? kind of investment strategy.
Here is the makeup of the portfolio:
(ROM) ?- ProShares Ultra Technology Fund - The three largest single stock holdings are Apple (AAPL), Microsoft (MSFT), and Facebook (FB). It is up 13.7% so far this year. For more details on the fund, please click here: http://www.proshares.com/funds/rom_daily_holdings.html.
(UYG) ? ProShares Ultra Financials Fund - The three largest single stock holdings are Wells Fargo (WFC), Berkshire Hathaway (BRK.B), and JP Morgan Chase (JPM). It is up 6.2% so far this year. For more details on the fund, please click here: http://www.proshares.com/funds/uyg_index.html.
(UCC) ? ProShares Ultra Consumer Services Fund - The three largest single stock holdings are Amazon (AMZN), (Walt Disney), (DIS), and Home Depot (HD). It is up 18.3% so far this year. For more details on the fund, please click here:http://www.proshares.com/funds/ucc.html.
(DIG) -- ProShares Ultra Oil & Gas Fund - The three largest single stock holdings are ExxonMobil (XOM), Chevron (CVX), and Schlumberger (SLB). It is DOWN 38.2% so far this year. For more details on the fund, please click here: http://www.proshares.com/funds/dig.html.
(BIB) ? ProShares Ultra NASDAQ Biotechnology Fund ? The three largest single stock holdings are Amgen (AMGN), Regeneron (REGN), and Gilead Sciences (GILD). It is up 15% so far this year, but at one point (before the ?Sell in May and Go away? I widely advertised) it was up a positively stratospheric 64%. For more details on the fund, please click here; http://www.proshares.com/funds/bib.html.
You can play around with the sector mix at your own discretion. Just focus on the fastest growing sectors of the US economy, which the Mad Hedge Fund Trader does on a daily basis. It is tempting to add more leveraged ETFs for sectors that are completely bombed out, like gold (UGL), which has pared 27% of its value in 2015, and commodities (UCD) which is off 15%.
But it is likely that these despised ETFs will move down before they move up, especially going into year end.
There is also the 2X short Treasury bond fund (TBT), which I have been trading in and out of for years, a bet that long-term bonds will go down, interest rates rise.
There are a couple of provisos to mention here.
This is absolutely NOT a portfolio you want to own going into a recession. So you will need to exercise some kind of market timing, however occasional.
The good news is that I make more money in bear markets than I do in bull markets because the volatility is higher. However, to benefit from this skill set, you have to keep reading the Diary of a Mad Hedge Fund Trader.
There is also a problem with leveraged ETFs in that management and other fees can be high, dealing spreads wide, and tracking errors huge.
This is why I am limiting the portfolio to 2X ETFs, and avoiding their much more costly and inefficient 3X cousins, which are really only good for intraday trading. The 3X ETFs are really just a broker enrichment vehicle.
There are also going to be certain days when you might want to just go out and watch a long movie, like Gone With the Wind, with an all ETF portfolio, rather than monitor their performance, no matter how temporary it may be.
A good example was the August 24 flash crash, when the complete absence of liquidity drove all of these funds to huge discounts to their asset values.
Check out the charts below, and you can see the damage that was wrought by high frequency traders on that cataclysmic day, down -53% in the case of the (ROM). Notice that all of these discounts disappeared within hours. It was really just a function of the pricing mechanism being broken.
I have found the portfolio above quite useful when close friends and family members ask me for stock tips for their retirement funds.
It was perfect for my daughter who won?t be tapping her teacher?s pension accounts for another 45 years, when I will be long gone. She mentions her blockbuster returns every time I see her, and she has only been in them for five years.
Imagine what technology, financial services, consumer discretionaries, biotechnology, and oil and gas will be worth then? It boggles the mind. My guess is up 100 fold from today?s levels.
You won?t want to put all of your money into a single portfolio like this. But it might be worth carving out 10% of your capital and just leaving it there.
That will certainly be a recommendation for financial advisors besieged with clients complaining about paying high fees for negative returns in a year that is unchanged, or up only 1%-2%. Virtually everyone has them right now.
Adding some spice, and a little leverage to their portfolios might be just the ticket for them.
Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2016-11-23 01:07:302016-11-23 01:07:30The Passive/Aggressive Portfolio
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