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
November 16, 2016
Fiat Lux
Featured Trade:
(THE FAT LADY IS SINGING FOR THE BOND MARKET),
(TLT), (TBT), (LQD), (ELD), (MUB),
(IS USA, INC. A ?SELL?)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
iShares iBoxx $ Invst Grade Crp Bond (LQD)
WisdomTree Emerging Markets Lcl Dbt ETF (ELD)
iShares National Muni Bond (MUB)
You have just been adopted by a new rich uncle.
I doubled my short position in the US Treasury bond (TLT) market today.
Furthermore, I?ll be using any subsequent price rise to sell more bonds, roll forward put options and put spread option positions, sell short bond futures, and buy the ProShares Ultra Short 20+ Treasury Bond Fund (TBT).
It is undoubtedly the cleanest trade out there in the world today.
Of all the momentous changes in the prospects for asset classes as a result of the presidential election, bonds absolutely top the list.
And not just US bonds, but German, Japanese, British, and every other kind of bond out there in the world as well are exiting a 30-year bull market and entering a 20-year bear market.
Fixed income instruments are totally toast for the next four and possibly eight years. Indeed, the list of reasons is so long that I?ll have to list them one by one.
1) The hallmark of Trump?s economic policy revealed so far is to lift the economy out of the mire by launching a massive round of deficit spending.
Independent analysis predicts that the US national debt could rise by as much as $10 trillion over the next decade.
That?s what a massive tax cutting, spending rises gets you.
Call it Reagan 2.0.
Even if the Federal Reserve does nothing, this unprecedented issuance of new government paper will crowd out private borrowers and drag interest rates upward, to the detriment of bond prices and borrowers everywhere.
2) The bond market was already in trouble well before the election. Prices peaked in July, and have been steadily eroding since. Every bond position I have strapped on since then has been from the short side.
This was because the world was assigning a growing probability of a Fed interest rate hike at their December 14th meeting. You could see this in the way bank shares traded which started moving off of multiyear bottoms during the same time period.
All the election did was pour gasoline on a small fire that was just starting to build.
3) After hiding in a deep cave for the past nine years, inflation is about to make a dramatic comeback. It was already starting to edge up with recent economic reports.
The October Nonfarm Payroll Report showed us that hourly earnings leapt by 2.9% YOY, while the headline U-6 structural unemployment plunged to only 9.5%.
And here is the problem. If you initiate a huge new jobs program with weekly jobless claims already at a 43-year low, wages will take off like a scalded chimp.
Oh, and by the way, wages are the largest component in any inflation calculation.
4) Years of zero, or subzero, interest rate policies from central banks around the world have created a substantial malinvestment bubble in all fixed income assets. As a result, the relative valuations have reached ludicrous levels.
The S&P 500 (SPY) is now trading at 18.5 times earnings, and possibly 17 times 2017 earnings. US Treasury bonds (TLT) at a 2.20% yield are trading at an amazing 45 times earnings.
Yes, the liquidity and risks are better for bonds, but they are not THAT much better.
This sets up the mother of all asset reallocations, out of the worst yielding financial instruments in the world into the best.
5) After spending 50 years in the financial markets, I can describe to you a problem that I have noticed from the very start. Institutional investors keep their foot firmly on the gas pedal while only looking in the rear view mirror.
Call it the herd instinct, safety in numbers, or lack of imagination, but portfolio managers, by definition, ALWAYS overweight the wrong asset classes at market tops, and underweight the right ones at market bottoms.
Making matters worse is the fact that these institutions move with the speed of molasses in the dead of a High Sierra winter. Some entertain changes in sector and asset weightings only once a quarter, while others do it annually.?
Yes, this means they can minimize tax bills. But it also assures that they are perpetually behind the curve. When the memo gets out and real changes DO occur, they unfold over years if not decades.
Every institution in the world is now overweight bonds and underweight stocks.
Guess what happens next?
Not a Time to Launch a Jobless Plan
The Fat Lady Is Singing
When a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what security to buy, 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.
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
While the Global Trading Dispatch focuses on investment over a one week to six-month time frame, Mad Options Trader, provided by Matt Buckley, will focus primarily on the weekly US equity options expirations, with the goal of making profits at all times. 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
November 15, 2016
Fiat Lux
Featured Trade:
(LAST CHANCE TO JOIN THE NOVEMBER 18TH LAS VEGAS GLOBAL STRATEGY LUNCHEON),
(NVIDIA REPORTS . . . STOCK ROCKS),
(NVDA),
(TESTIMONIAL),
(WHY TECHNICAL ANALYSIS DOESN?T WORK)
(SPY), (QQQ), (IWM), (VIX)
NVIDIA Corporation (NVDA)
SPDR S&P 500 ETF (SPY)
PowerShares QQQ ETF (QQQ)
iShares Russell 2000 (IWM)
VOLATILITY S&P 500 (^VIX)
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.
I really, really hope all of you read my report on Artificial Intelligence published on November 2nd, committed it to memory, and acted on its recommendations (click here for ?The Great Artificial Intelligence Stock Play You?ve Never Heard Of?).
For at the very end, it strongly recommended the shares of processor manufacturer Nvidia (NVDA), which occupies the nexus of the entire movement towards machine learning.
On Friday, Nvidia reported some of the most amazing earnings of the year, with the stock delivering a massive one day gain.
And Nvidia shares did this on a day when the entire rest of technology was taken out to the woodshed and beaten senseless.
?
Revenue leapt 54% to just over $2 billion, the first time Nvidia has posted a $2 billion quarter.
Its gross margin set a record at 59%, with a record 63% increase in gaming-derived revenue.
Nvidia?s dominance of the high-end GPU market is allowing it to soak up all of the spending that would normally have been at least somewhat split between itself and AMD.
Gaming was the big revenue booster for Nvidia.
Data center revenue grew by 59% as well, though this was much smaller in absolute terms ($230 million in data center sales versus over $1 billion in gaming revenue).
Jen-Hsun Huang, the CEO of Nvidia, noted that he saw strong growth in AI, though he opted not to break those figures out at this time.
Nvidia?s automotive program is also going well, with $127 million in revenue (a 61% increase year-on-year) and a 7% increase sequentially.
What Jen-Hsun talked about in the conference call is how Nvidia wants to build a computing platform that stretches from desktop GPUs, to cloud solutions like GRID, to automotive computing and self-driving cars.
It?s not that the rhetoric is different, but rather the fact that Nvidia is well on its way to accomplishing it.
These blew away even my own, wildly optimistic predictions.
Sales of Nvidia?s flagship product, the passively cooled 16GB Tesla P100 GPU, is being ravenously consumed by data centers around the country, and should grow by 95% during 2016, and another 50% in 2017.
Hold one of these dense, wicked fast processors in your hand and you possess nothing less than the future of western civilization.
Over the long term, the picture looks even better. It should continue with annual earnings growth of 20%-30% a year for the foreseeable future.
At a minimum, the shares have at least another double in them, and perhaps another double after that as well.
To learn more about Nvidia, please visit their website at http://www.nvidia.com/content/global/global.php .
Having said all that, I recommended to my concierge clients that they take profits on (NVDA) for the short term.
As much as I like the stock long term, in view of the presidential election result, it is clearly in the wrong sector at the wrong time.
Portfolio managers have been raiding their technology holdings since Wednesday, using them as an ATM, to pay for the newly discovered opportunities in financials, health care, construction, and industrials.
So better to get out of the way, and get back in when the sector has a tailwind, and not a gale force headwind, as it does now.
For those of you who did the trade, well done!
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