August 2018

Mad Hedge Hot Tips for August 31, 2018

Mad Hedge Hot Tips
August 31, 2018
Fiat Lux

The Five Most Important Things That Happened Today
(and what to do about them)

1) Warren Buffett Says Stocks are Expensive, in the most polite and indirect way possible. What else can $120 billion in cash mean? If he has so much cash, why don’t you? Click here.

2) Canada Trade Talks Wobble, as they refuse to negotiate over agriculture. Do you think Canada will do better under this U.S. Congress or the next one? Volatility (VIX) spikes again. Click here.

3) Amazon Closes in on the next $1 Trillion Market Value, making Jeff Bezos worth $162 billion, and his original investors, his parents, worth $30 billion. And all I got from my kids was a used “Feel the Bern” T-shirt on my birthday. Click here.

4) Apple is Up 18.3% in August, adding $185 billion in market cap, or the GDP of a small country. If a portfolio manager didn’t own Apple this month, now 4% of the total American market, he’s screwed. Click here.

5) Core Inflation Hits the Fed’s 2% Target. Finally, after a 10-year wait, as consumers max out their credit cards. It means the Fed has to keep raising interest rates from here. Sell short those U.S. Treasury bonds (TLT)! Click here.

Published today in the Mad Hedge Global Trading Dispatch:

(MONDAY, OCTOBER 15, 2018, ATLANTA, GA,
GLOBAL STRATEGY LUNCHEON),
(WATCH OUT FOR BEARS!), ($INDU),
(MORE BIOTECH AND PHARMA STOCKS TO SOAK UP)

August 31, 2018 - 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

August 31, 2018

Diary, Newsletter, Summary

Global Market Comments
August 31, 2018
Fiat Lux

Featured Trade:
(MONDAY, OCTOBER 15, 2018, ATLANTA, GA, GLOBAL STRATEGY LUNCHEON),
(WATCH OUT FOR BEARS!), ($INDU),
(MORE BIOTECH AND PHARMA STOCKS TO SOAK UP)

Watch Out for Bears!

Diary, Newsletter

I just got off the phone with a hedge fund veteran who I have long known and respected. He showered me with 27 reasons why stocks were peaking out and were about to crash.

I told him he was right on every point, but that these were all arguments that future historians will put forward giving the origins of a bear market that started years before.

Right now there is only one bit of analysis that counts for traders and that is the amount of cash in the system, and that indicator is screaming “BUY.”

There is $50 trillion is excess liquidity sitting in cash accounts around the world looking for a home. With both Europe and Japan still in the quantitative easing business that number is expanding.

And what is the primary target of all this money? U.S. stocks, particularly technology ones.

In fact, I have been recently showered with charts, reports, and even tea leaves showing that stock markets are ridiculously high and headed for a fall. Look at the chart below showing the yield curve for the bond market and it shows that whenever it inverts, recessions and bear markets follow in every single case!

Warning: Yield curves are only months away from inverting.

There is another chart below a friend sent in illustrating the ratio of stock prices to home prices for the past 123 years. It is now approaching a peak seen only three times over the past century.

And it’s not like home prices have been sitting stationary either. The price for your personal residence has been rocketing as well, no matter where you live.

However, this chart shows something far more important. Market tops aren’t one-off events. They can take five or more years to play out. And we have just entered one of those long-term topping processes now.

Roll back the video tape. Remember our old friend, Federal Reserve governor Alan Greenspan? He uttered his “irrational exuberance” prediction for the stock market in 1996.

The Dow Average ($INDU) rose for four more years, nearly doubling in the process. Portfolio managers who followed his sage advice were later seen driving taxis in Manhattan.

So, while markets may be topping, this action could continue for quite some time, possibly well into the next decade. Therefore, don’t let news like we received today about the president imposing tariffs on $200 billion worth of Chinese imports scare you out of the market.

And I say this in full knowledge that September and October are usually the worst-performing months of the year. The six months after a midterm election are usually the best, always.

Proceed With Caution

More Biotech and Pharma Stocks to Soak Up

Diary, Newsletter, Research

One has to be truly impressed with the bounce in biotech and pharmaceutical stocks over the past month.

This is something to pay attention to, as biotech and technology will be two of the top-performing stock market sectors for the next 20 years.

If you want to be lazy, just buy these two sectors on every dip and you should outperform the main indexes (SPY), (INDU) by three or four to one.

Since June, there were sign that life was returning to this beleaguered sector.

Suddenly, every company has become a takeover target.

(GILD) followers like me had long bemoaned the company’s failure to profitably deploy its cash mountain by growing through M&A.

Something had to replace their its drug eventually, once everyone in the world was cured of the dread disease.

Once the top-performing sector, they went from heroes to goats, so fast that it made your head spin.

What I called “The ATM Effect” kicked in big time.

That’s when frightened investors run to the sidelines and sell their best stocks to raise cash.

After all, no one wants to sell other stocks for a loss and admit defeat, at least in front of their clients.

It’s not that the companies themselves were without blood on their hands.

Valuations were getting, to use the polite term, getting “stretched” after a torrid five-year run.

Gilead Sciences (GILD) soaring from $18 to $125?

Celgene (CELG) rocketing from $20 to $142?

It was a performance for the ages.

If a financial advisor wasn’t in health care during the salad days, chances are that he is driving a taxi for Uber in a bad neighborhood by now.

Raise your hand if you think Americans aren’t paying enough for their prescription drugs.

Yes, I thought so.

Here’s the key issue for health care and biotech for investors.

It’s all about politics.

Much remains to be seen about the future of health care in America.

Obamacare weathered the last assault by the administration. Will it survive the next one?

Remember, Obamacare passed by one vote only after a year of cantankerous infighting, and then, only when a member changed parties (the late Pennsylvanian Arlen Specter).

Nobody knows.

However our health care is fixed, open bidding for government contracts would be anathema to the industry, something from which they have, until now, been exempted.

I believe the United States will eventually stagger toward a national single payer system. But it may take another 20 years of turmoil to get there.

California will certainly take the first step. It is now considering a statewide single payer system that would provide full coverage to the state’s $39 million residents.

The bad news is that it would cost $400 billion. The good news is that it would save the state $375 billion in expenses, so it may be worth doing.

The state legislature in Sacramento is currently mulling alternatives.

It’s easy to understand why these stocks were so popular and are found brimming to overflowing in client portfolios and personal 401k’s and IRA’s.

We are just entering a Golden Age for biotech and health care.

Profit growth for many firms is exceeding 20% a year.

Hyper-accelerating biotechnology is rapidly bringing to market dozens of billion-dollar-earning drugs that were, until recently, considered in the realm of science fiction.

And we have only just gotten started.

Cures for cancer, heart disease, arthritis, diabetes, AIDS, and dementia?

You can take your pick. And the new CRISPR technology is accelerating everything further.

If you missed biotech and health care the first time around, you’ve just been given a second chance at the brass ring.

Here’s a list of five top-quality names to get your feet wet:

Gilead Sciences (GILD) – Has the world’s top hepatitis cure, which it sells for $80,000 per treatment. For a full report, clear here for “Keep Gilead Sciences on Your Radar."

Celgene (CELG) – A biotech firm that specializes in cancer cures (thalidomide) and inflammatory diseases. It also produces Ritalin for the treatment of ADHD.

Allergan (AGN) – Has the world’s third largest low-cost generic drug business. In addition, it has built a major portfolio of drug therapies through more than two dozen acquisitions over the past decade.

Regeneron (REGN) – Already has a great anti-inflammatory drug, and is about to market a blockbuster anti-cholesterol drug that will substantially reduce heart disease.

If you want a lower risk, more diversified play in the area, you can buy the Health Care Select Sector SPDR (XLV). Please note that a basket of stocks is going to deliver a fraction of the volatility of single stocks.

Therefore, we have to be more aggressive with our positioning to make any money, picking call option strikes that are closer to the money.

Johnson and Johnson (JNJ) is the largest holding in the (XLV), with a 12.8% weighting, while Gilead Sciences (GILD) is the fourth, with a 5.1% share. For a list of the largest components of this ETF, please click here.

The other classic play in this area is the Biotech iShares ETF (IBB) issued by BlackRock (click here for the link).

Their largest holding is Biogen (BIIB), followed by Gilead Sciences (GILD), Celgene (CELG), Amgen (AMGN), and Regeneron Pharmaceuticals (REGN).

I’ll be shooting out Trade Alerts on biotech and health care names as soon as I see another sweet entry point.

Until then, enjoy the ride!

Yes, It’s $1,000 a Pill.

Mad Hedge Hot Tips for August 30, 2018

Hot Tips

Mad Hedge Hot Tips
August 30, 2018
Fiat Lux

The Five Most Important Things That Happened Today
(and what to do about them)

1) Amazon Hits $2,000. My 2018 target is achieved, while Morgan Stanley raises theirs to $2,500. Stock markets are now generally overheated. Click here.

2) Weekly Jobless Claims Rise Slightly, to 213,000 but are still near century lows. The full employment economy continues. Click here.

3) The U.S. Struggles to Salvage a Trade Deal with Canada, to beat tomorrow’s deadline. It’s our car exporters against their cows. Will we see a Friday surprise? Click here.

4) Salesforce (CRM) Lowers Forward Guidance, as too much revenue bunches up in Q2. Stock drops $6; buy the dip. Click here.

5) An Anonymous Bidder Paid $3.3 million to Have Lunch with Warren Buffett, at Smith & Wollensky in New York to fund a variety of anti-poverty charities. Gee, I would have done it for only $2 million, and I would have gone Dutch. He’s still adding to his Apple position at $224. Click here.

Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:

(TUESDAY, OCTOBER 16, 2018, MIAMI, FL, GLOBAL STRATEGY LUNCHEON),
(IT’S TIME TO START LOOKING AT EMERGING MARKETS),
(EEM), (EPHE), (PIN), (FXI), (EWZ),
(INDUSTRIES YOU WILL NEVER HEAR ABOUT FROM ME),
(ON TRUMP’S TECHNOLOGY ATTACK),
(AMZN), (GOOGL), (FB), (AMD), (NVDA), (TWTR)

August 30, 2018 - 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

August 30, 2018

Diary, Newsletter, Summary

Global Market Comments
August 30, 2018
Fiat Lux

Featured Trade:
(TUESDAY, OCTOBER 16, 2018, MIAMI, FL, GLOBAL STRATEGY LUNCHEON),
(IT’S TIME TO START LOOKING AT EMERGING MARKETS),
(EEM), (EPHE), (PIN), (FXI), (EWZ),
(INDUSTRIES YOU WILL NEVER HEAR ABOUT FROM ME)

It’s Time to Start Looking at Emerging Markets

Diary, Newsletter, Research

With major moves down across the entire commodity space this year, it’s time to take another look at emerging markets (EEM).

Buying low and selling high is what the Mad Hedge Fund Trader service is all about. The natural tendency of individual investors is the opposite. Emerging markets are now approaching decade lows.

The worst-performing asset class in the world from 2014-2018, emerging stock markets were certainly taken out to the woodshed for a severe thrashing, just like my grandfather used to do when he caught me shooting at the local stop signs with my .22.

The problem is that a strong dollar is causing the debts of most private companies in these countries to increase dramatically. They usually borrow in dollars because of the lack of local currency indigenous debt markets. When the dollar is weak the math works in reverse, decreasing their debts.

All it would take is a weak dollar and a rebound in commodity prices and it will be off to the races for emerging markets once again. So, it is time to start putting emerging markets on your radar once again.

I managed to catch a few comments in the distinct northern accent of Jim O'Neil, the fabled analyst who invented the “BRIC” term, and who recently retired from the chairman's seat at Goldman Sachs International (GS) in London.

O'Neil thinks that it is still the early days for the space, and that these countries have another 10 years of high growth ahead of them.

I have spent the past half century traveling in emerging economies, starting in 1968 when I spent a summer hitchhiking around Tunisia, Algeria, and Morocco.

To keep from getting bored in college (the advanced math classes were too easy), I took a course in tropical diseases. I then spent the next decade catching them all in Southeast Asia.

As I have been carefully monitoring emerging markets since the inception of this letter in 2008, this is music to my ears.

The combined GDP of the BRICs, Brazil (EWZ), Russia (RSX), India (PIN), and China (FXI), is rapidly approaching that of the U.S. China alone has already surpassed one-third of the $20 trillion figure for American gross domestic product.

“BRIC” almost became the “RIC” when O'Neil was formulating his strategy a decade ago.

Conservative Brazilian businessmen were convinced that the newly elected Luiz Inacio Lula da Silva would wreck the country with his socialist ways.

He ignored them and Brazil became the top-performing market of the G-20 since 2000. An independent central bank that adopted a strategy of inflation targeting was transformative.

Still, with growth rates triple or quadruple our own, (EEM) will not stay “resting” for long.

You can start scaling into the broad iShares MSCI Emerging Markets (EEM) ETF now. Or you can take a rifle shot with the PowerShares India Portfolio ETF (PIN), which has the brightest outlook of the bunch.