The Five Most Important Things That Happened Today
(and what to do about them)
1) China Retaliates, raising tariffs of most US goods, ratcheting up the trade war. US markets are crushed, with the Dow average down 500 and Chinese plays like Apple (AAPL) and Boeing (BA) especially hard hit. Click here.
2) FourOil Tankers Attacked, at the Saudi port of Fujairah, sending oil soaring. America’s “two war” strategy may be put to the test, with the US attacking Iran and North Korea simultaneously. Click here.
3) Bitcoin Tops 7,000, on a massive “RISK OFF” trade. The cryptocurrency is clearly replacing gold as the fear trade. Click here.
4) Antitrust Suit Proceeds against Apple, on its monopoly position in the App Store, says the Supreme Court. The stock craters $12.00. Another buying opportunity is setting up here. Click here.
5) Heard at SALT. Some 95% of all financial transactions in China take place on smartphones, compared to only 4% in the US, so they are well ahead in fintech. Can they come here?
Published today in the Mad Hedge Global Trading Dispatch and Mad Hedge Technology Letter:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR A GAME OF CHICKEN),
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-05-13 11:20:292019-05-13 11:25:41Mad Hedge Hot Tips for May 13, 2019
In summarizing the global financial system today, I recall the classic fifties James Dean movie, Rebel Without a Cause. Two cars are racing towards a cliff and the chicken has to bail out first. But the chicken gets his jacket sleeve stuck on a door knob, and his car dives over the cliff and crashes and burns.
Thus, here we are entranced by the world’s two largest economies in a race towards a cliff, but this time, it’s an economic one. Will rational minds prevail, or will our leaders miscalculate and plunge the world into a Great Depression? In other words, will the crashing car land on us?
That’s what happened during the 1930s when after the 1929 stock market crash lead to tit for tat tariffs that eliminated economic growth for a decade. It was only after the massive defense spending of WWII that the slump ended. This time the script is playing out exactly the same way.
Certainly, the stock market believes in the rosier scenario. The Dow average only fell 1,278 points last week. In a real “NO DEAL” case, it would have given up the full 4,500 points it gained since December.
A prolonged trade war until the next election would take us well into a recession and back to down the 18,000 that prevailed before the last presidential election.
For the short term, the S&P 500 (SPY) is clearly gunning for the 200-day moving average at $275. That would take us down 6.78% from the recent high. I have been using soybean prices (SOYB) as an indicator of China trade negotiation success. It hit a seven-year low this morning.
It's all about trade talks all the time now and nobody has the slightest idea of what is coming next. So, I’ll sit back and wait until the Volatility Index (VIX) hits $30, or the (SPY) drops to $275 before entertaining another trade alert. Until then, I’ll maintain my 100% cash position.
I reach all these conclusions after two days of solid sleep, recovering from four days of bacchanalia at the SALT conference in Las Vegas. I'll write more about this when the market stops crashing long enough for me to write it up.
Long term followers of this letter are laughing because they recall that two years ago I predicted that the next bear market would start precisely on May 10 at 4:00 PM EST. That estimate was arrived at by an intricate calculation of the timing of a coming yield curve inversion and recession.
The S&P 500 (SPY) hit an all-time high of $295 on May 2 at 4:00 PM EST, seven trading days early. Who knew that it would be a Tweet that did it?
Uber went public last week, likely at an $82 billion valuation which sucked $10 billion out of the market. Not helping was a stock market crash and an Uber driver’s strike that spread from the US to London. After car operating expenses are taken out, drivers only net a paltry $5 an hour.
The Fed warned about high stock prices, and business borrowing is at an all-time high just two days before the market dumped. Maybe we should listen to our central bank?
US Job Openings soared in March, by a stunning 346,000 to 7.5 million. This is what tops look like.
Bonds exploded to the upside on stock market panic, as the world stampedes to “RISK OFF.” There’s a great (TLT) short sale setting up here, but not quite yet.
The US trade deficit hit a five-year low in March, down 16.2% to $20.7 billion. This is due to a big 23.7% jump in US exports to China, thanks to China’s massive economic stimulus program, not ours. But at what cost?
The Mad Hedge Fund Trader dumped its last position Monday morning and, as a result, was completely up 50 basis points on the week. You may have noticed that I have been stopping out of positions must faster than usual recently and now you know the reason why.
Global Trading Dispatch closed the week up 14.59% year to date and is down -1.13% so far in May. My trailing one-year retreated to +18.96%.
Mad Hedge Technology Letter gave back some ground with two new very short-term positions in Intuit (INTU) and Google (GOOG) which expire on Friday
Some 11 out of 13 Mad Hedge Technology Letter round trips have been profitable this year.
My nine and a half year profit rose slightly to +314.73%. With the markets in free fall, I am now 100% in cash with Global Trading Dispatch and 80% cash in the Mad Hedge Tech Letter. I’ll wait until the markets find their new range and then jump in on the long side.
The coming week will be pretty boring on the data front.
On Monday, May 13 at 11:00 AM, the April Survey of Consumer Sentiment is announced.
On Tuesday, May 14, 6:00 AM EST, the NFIB Small Business Index is out.
On Wednesday, May 15 at 8:30 AM, March Retail Sales are released
On Thursday, May 16 at 8:30 AM, Weekly Jobless Claims are published. March Housing Starts to come out at the same time.
On Friday, May 17 at 10:00 AM, March Consumer Sentiment is printed.
As for me, I will be flying back from Las Vegas over the weekend having attended the SALT conference and my own Mad Hedge Fund Trader strategy luncheon. The highlight of the week was listening to Woodstock veterans Credence Clearwater Revival. I’ll write more about it next week.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-05-13 11:03:222019-07-09 03:44:07The Market Outlook for the Week Ahead, or a Game of Chicken
It’s not Volkswagen’s first attempt at an all-electric car, but it’s certainly the most crucial attempt in their long history.
There have been iterations such as the e-Golf and other pure-electric vehicles before.
This time around, VW will debut the ID.3 and its new MEB platform.
The newest architecture for electric vehicles will be the lynchpin for several models across all of VW Group’s brands.
According to VW, “The architecture is aimed to consolidate electronic controls and reduce the number of microprocessors, advance the application of new driver-assistance technology and somewhat alter the way cars are built.”
The German company has committed $48 billion in car battery supplies too and plans to run 16 factories to build electric cars by the end of 2022.
At the lowest rung, there’ll be a battery expected to get around 205 miles and this ID.3 will be priced at under 30,000 euro ($33,650) before any subsidies or incentives.
In the middle, there’ll be an ID.3 capable of roughly 261 miles on a full charge which could mushroom into the most popular battery size.
Lastly, there’ll be a 342-mile battery option.
VW is certainly betting big on EVs along with its other in-house brands.
In March, VW announced it plans to launch 70 battery electric vehicles over the next decade and sell 22 million of them.
Previously, VW had said it would sell 15 million battery-electric vehicles by 2025.
The previous plan called for 25% of its global sales to be all-electric by 2025.
VW in-house brands are cranking up launches of new all-electric models.
Audi has started with the e-tron SUV and Porsche’s Taycan goes on sale in September.
VW brand’s I.D. and I.D. Crozz will appear next year while its subsidiaries like Skoda and SEAT are also going electric.
VW is not without its problems.
The recent charge by the European Union (EU) that it colluded with other German manufacturers to limit advances in clean emissions technology was another management misstep.
And the EU provides another challenge to all European carmakers with its harsh rules for 2020 fuel efficiency.
Recent research showed that it could cost VW up to 10 billion euros ($11.3 billion) in fines if it is unable to reduce its current fleet average of 123 grams per kilometer.
Cars like VW’s Audi e-tron offer zero reasons for consumers to buy, costing upwards of 70% more than conventionally powered equivalent vehicles.
The efficiency of the Audi is poor compared with Tesla models and the e-tron’s 95kWh battery offered a range of 2.5 miles per kWh, while the Tesla Model X managed 3.25 miles and the long-range Model 3, 4.13 miles.
Costs should come down substantially for vehicles deploying the MEB platform.
Theoretically, it’s the MEB platform that will serve further electric models going forward.
Yet, it’s highly possible the market is being overly optimistic that VW can deliver on its EV strategy and targets, which is the underlying thesis of the bull story.
VW’s lack of transformative structural improvements and its difficulties in making value-accretive strategic decisions that could unlock shareholder value means multiple upgrades in share price is less than probable.
Volkswagen is offering a Tesla style pre-booking to those who purchase an ID.3 and the possibility of charging electric power at no cost for the first year up to a maximum of 2,000 kWh at all public charging points connected to the Volkswagen charging app WeCharge and using the pan-European rapid charging network IONITY.
The ID.3 is to be delivered to customers in carbon-neutral form.
Production of the ID.3 1ST is to start as planned at the end of 2019 and the first vehicles will be delivered in mid-2020.
With its electric offensive, the Volkswagen brand plans to become the world's number one by 2025.
Mercedes is getting in on the act as well with the EQC Edition 1886 aiming to deliver 292 miles per charge and, with an output of 402 horsepower.
The metrics indicate that it will pose a direct threat to both Tesla's older Model X and upcoming Model Y.
The new Mercedes isn’t attacking the low-end of the market where Volkswagen hopes to apply pressure by offering the base version at 71,281 euros, or just short of $80,000, slightly less expensive than the e-tron quattro in Europe.
The new product from Mercedes qualifies for Germany's 4,000-euro federal tax incentive for EVs.
Ultimately, the avalanche of supply from the European high-end carmakers will heap more pressure on Tesla’s Elon Musk to deliver outperformance.
The entire pivot to EVs is predicated on millennials picking up the demand slack and buying into this story when the Baby Boomer generation did not.
By then, the stringent requirements from government and regulators in tackling climate change by itself might offer a massive customer base to tap into EVs whether they like it or not.
EVs have come a long way since the Chevy Bolt, but it’s far from certain that the Europeans will destroy Tesla, but the new developments will sap German demand for Tesla’s car with a domestic alternative.
https://www.madhedgefundtrader.com/wp-content/uploads/2019/05/prototype.png502924Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-05-13 01:06:542019-07-11 13:14:35The Tidal Wave of European EV Supply
https://www.madhedgefundtrader.com/wp-content/uploads/2019/05/elon-musk.png462293Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-05-13 01:05:182019-07-11 13:14:44May 13, 2019 - Quote of the Day
The Five Most Important Things That Happened Today
(and what to do about them)
1) Tariffs Hit and the Market Goes into Free Fall. It's all about the trade war now, everything else is meaningless. (SPY) is clearly gunning for the 200-day moving average at $275, down 6.8% in a week, after posting the worst week of 2019. Click here.
2) Bonds Challenge New Highs for the Year, taking ten-year US Treasury yields down to 2.43%. German Bunds crater to negative numbers at -0.05% and Japanese government bonds to -0.06%. Why are bonds discounting a recession? Click here.
3) Weekly Jobless Claims Post Modest Fall, down 2,000 to 228,000. As if anyone cared. Holding on to last week’s huge jump is disturbing. Click here.
4) Uber Valued at $82 Billion, a big haircut from earlier indications, in what is certainly the worst timed IPO of the year. You never want to launch an IPO after a stock market crash and a labor strike. Can’t wait to see how the aftermarket trades. Indications down 5%. Click here.
5) SALT Tips. Heard at the Las Vegas SALT conference, Millennials will inherit $30 trillion by 2025 and will account for 75% of the workforce then.
Published today in the Mad HedgeGlobal Trading Dispatch:
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-05-10 11:58:512019-05-10 11:58:51Mad Hedge Hot Tips for May 10, 2019
The Five Most Important Things That Happened Today
(and what to do about them)
1) It’s Make or Break Time, global trade war and recession or not. The market could be up or down 1,000 points based on what happened this weekend. Click here.
2) US Trade Deficit Hits a 5-Year Low, in March, down 16.2% to $20.7 billion. This is due to a big 23.7% jump in US exports to China, thanks to China’s massive economic stimulus program. But at what cost? Click here.
3) Chevron Walks Away from Anadarko Deal, making Occidental Petroleum the winner in the epic takeover battle. Watch for the (CVX) rally. Click here.
4) Softbank Kills it with Uber Stake, raking in $3.8 billion on its venture capital investment. The big question is whether there’s any juice left in the stock for you. I doubt it. Click here.
5) In the Meantime, the Uber Driver’s Strike Spreads, from the US to London. After car operating expenses are taken out the only net $5 an hour. Click here.
Published today in the Mad HedgeGlobal Trading Dispatch and Mad Hedge Technology Letter:
(NEW TRAINING VIDEO ON “HOW TO EXECUTE A VERTICAL BEAR PUT SPREAD”)
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-05-09 10:34:092019-05-09 10:35:21Mad Hedge Hot Tips for May 9, 2019
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2019-05-09 03:08:432019-05-09 02:38:04May 9, 2019
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