Global Market Comments
July 26, 2019
Fiat Lux
Featured Trade:
(JULY 24 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (VIX), (VXX), (UUP), (TLT), (EEM), (ELD), (CEW), (GLD),
(FXA), (FXE), (FXC), (FXY), (FXB), (AMZN),
(TESTING TESLA’S SELF DRIVING TECHNOLOGY),
(TSLA)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader July 24 Global Strategy Webinar broadcast from Zermatt, Switzerland with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: What are your thoughts on the Freeport McMoRan (FCX) long position here?
A: We could take a profit here. We probably have about 50% of the maximum potential profit, but I want to hang on and go to the max on this because we’re so far in the money. Cash always has a premium ahead on any Fed interest rate decision. But long term, I think the stock could double, and with the earnings report now out of the way, we have room to run.
Q: What can you say about semiconductor stocks?
A: Long term we love them, short term they are too high to chase here. I would wait for any kind of pullback and, better yet, pull back from the other side of the next recession. We’re not seeing an improvement in prices or orders so this is strictly a technical/momentum-driven trade right now.
Q: How do you play the Volatility Index (VIX)?
A: There are numerous ways you can do it; you can buy call options on the (VIX), you can buy futures on the (VIX), or you can buy the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX). We are probably a week away from a nice entry point on the long side here.
Q: Does a languishing U.S. dollar mean emerging market opportunities?
A: It absolutely does. If we really start to get a serious drop in the U.S. dollar (UUP)—like 5-10%—it will be off to the races for commodities, bonds (TLT), emerging stock markets (EEM), emerging bond markets (ELD), emerging currencies (CEW), and gold (GLD). All of your weak dollar plays will be off to the races—that’s why I went straight into bonds, the Aussie (FXA), and copper through Freeport McMoRan (FCX). All of these trades have been profitable.
Q: When should we sell the U.S. dollar?
A: How about now? For any kind of strength in a dollar against the (FXA), (FXE), (FXC) and (FXY), I would be buying any dips on those foreign exchange ETFs. We’re about to enter a six-month - one-year period weakness on the dollar. It could be the easiest trade out there. The only one I would avoid is the British pound (FXB) because of its own special problems with Brexit. You never want to go long the currency of a country that is destroying itself, which is exactly what’s happening with the pound.
Q: Should I start selling pounds?
A: It’s pretty late in the pound game now. We went into Brexit with the pound at $1.65 and got all the way down to $1.20. We’re a little bit above that now at $1.21. If for some reason, you get a surprise pop in the pound, say to $1.25, that’s where I would sell it, but down here, no.
Q: I missed the (FCX) trade—would you get in on the next dip?
A: Yes, we may not get many dips from here because the earnings were out. Today, they were not as bad as expected, and that was keeping a lot of buyers out of the market on (FCX), so any dips you can get, go a dollar out on your strikes and then take it because this thing could double over the medium term. If the trade war with China ends, this thing could make it to the old high of $50.
Q: Is now a good time to refi my home?
A: Yes, because by the time you get the paperwork and approvals and everything else done (that’ll take about 2 months), rates will likely be lower; and in any case you’re looking to refi either a 7/1 ARM or a 15-year fixed, and the rates on those have already dropped quite substantially. I was offered 3.0% for a 15-year fixed loan on my home just the other day.
Q: On trades like (FCX), why not sell short the put spread?
A: It’s really six of one, half dozen of the other. The profit on either one should be about the same. If it isn’t, an options market maker will step in and arbitrage out the difference. That’s something only an algorithm can do these days. I recommend in-the-money call spreads versus shorting sell short vertical bear put credit spreads because for beginners, in-the-money call spreads are much easier to understand.
Q: The Mueller hearings in Congress are today. Is there any potential impact on the market?
A: The market has completely detached itself from Washington—it couldn't care less about what’s happening there. I don't think politics have the capacity to affect stock prices. The only possible impact was the prospect of the government shutdown in September. That seems to have been averted in the latest deal between the House and the White House.
Q: What about Amazon (AMZN)?
A: Like the rest of technology, long term I love it, but short term it’s overdue for a small correction. I’m looking for Amazon to go to $3,000 a share—it’s essentially taking over the world. The antitrust threats will go absolutely nowhere; Congress doesn’t even understand what these companies do, let alone know how to break them up. I wouldn’t worry about it.
Q: I just received an email inviting me to buy a new Bitcoin auto trading system that is guaranteed to make me a millionaire in four months. It is being promoted by Nicole Kidman. Do you think I should try it?
A: I wouldn’t touch this with a ten-foot pole. No, wait. I wouldn’t touch this with a 100-foot pole! Whenever a new type of security comes out, these types of "get rich quick" investment scams come out of the woodwork. Cryptocurrency is no different. Nicole Kidman was probably paid $500,000 to make the pitch by a promotor. Or more likely, Nicole Kidman has nothing to do with these people and they just swiped her picture off the Internet. I hear about these things daily. Follow their plan and you are more likely to get completely wiped out than become a millionaire. There are NO get rich quick schemes. There are only get rich slowly strategies, such as following this newsletter. Click here to see the above-mentioned scam which you should avoid at all cost. Gee, do you think Nicole Kidman would be interested in promoting the Mad Hedge Fund Trader?
Mad Hedge Technology Letter
July 26, 2019
Fiat Lux
Featured Trade:
(WHY 3D PRINTING WILL BOOST THE AIRPLANE INDUSTRY),
(SSYS), (ETSY), (MSFT), (BA), (NFLX), (GE), (LMT)
If you need a new investment idea – here’s one.
3D printing.
Yes, the same 3D printing that was once considered a raging but hopeless fad.
A lot has changed since then.
Early adopters were largely cut down at the knees as they tried to traverse the rocky terrain from a niche market to going full out mainstream.
The teething pains echo bitcoin which was the fad of 2017, on the contrary, this technology it is built on is rock solid, yet the path to sustainability is littered with corpses.
Production complications and the lack of specialists in the industry meant that problems were rampant and nurturing an industry from scratch is harder than you think.
It is time to stand up and take notice of 3D printing, this time it is here to stay.
Certain tech companies love this technology.
Etsy (ETSY) e-commerce participants gravitate towards 3D printing because it gets firms from paper to the real world in a fraction of the time.
The cost of production doesn’t change whether you’re producing one item or a million because of the economies of scale.
The previous 3D printing bonanza was a frenzy and this corner of tech became known for the use of buzzwords representing the potential to reinvent the world.
With lofty expectations, there was a natural disappointment when outsiders understood growing pains were part of the critical evolution instead of a direct route to profits.
The initial goal was to democratize production which sounds eerily similar to bitcoins mantra of democratizing money.
The way to do this was to make it simple to produce whatever one wishes.
That would assume that the general public could pick up professional production 3D printing skills on arrival.
That was wishful thinking.
The truth was that applying 3D printers was time-draining and aggravating.
Issues cropped up like faulty first-generation hardware or software -problems that overwhelmed newbies.
Then if everything was going smoothly on that front, there was the larger issue of realizing it’s just a lot harder to design specific things than initially thought without a deep working knowledge of computer-aided software (CAD) design.
Most people know how to throw a football, but that doesn’t mean that most people can wake up one day in their pajamas and convince themselves they will be the next starting quarterback to lead an NFL team to the Super Bowl.
The high-quality 3D printing designs were reserved for authentic professionals that could put together complicated designs.
The move to compiling a comprehensive library will help spur on the 3D printing revolution while upping the foundational skill base.
Then there is the fact that 3D printing technology is a lot better now than it once was, and the printing technology has come down in price making it more affordable for the masses.
These trends will propel broad-based adoption and as the printing process standardizes, more products can rely on this technology from scratch.
The holy grail of 3D printing would be 3D printing on demand like Netflix (NFLX), but imagine this on-demand 3D printing would function to personalize a physical product on the spot.
Think of a hungry customer walking into a restaurant and not even looking at a menu because one sentence would be enough to trigger specific models in the database that could conjure up the design for the meal.
This would involve integrating artificial intelligence into 3D printing and the production process would quicken to minutes, even seconds.
At some point, crafting the perfect meal or designing a personalized Tuscan villa could take minutes.
The 3D printing industry is reaching an inflection point where the advancement of the technology, expertise, and an updated production process are brewing together at the perfect time.
The company at the forefront of this phenomenon is Stratasys (SSYS).
Stratasys produces in-office prototypes and direct digital manufacturing systems for automotive, aerospace, industrial, recreational, electronic, medical and consumer products.
And when I talk about real pros who have the intellectual property to whip out a complex CAD-based 3D design, I am specifically talking about Stratasys who have been in this business since the industry was in infancy.
And if you add in the integration of cloud software, 3D printing would dovetail nicely with it.
All the elements are in place to fuel this industry into the mainstream.
Take for example airplanes made by Boeing (BA) and Airbus, 3D printer-designed parts comprise only 0.1% of the actual plane now.
It is estimated that 3D printed design parts could consist up to 20% of the overall plane.
These massive airline manufacturers like Boeing (BA) have profit margins of around 15% to 20%, and carving out more 3D printer-designed parts to integrate into the main design will boost profit margins to up to 50%.
The development of the 3D printing process into aerospace technology is happening fast with Boeing inking a five-year collaboration agreement with Swiss technology and engineering group Oerlikon to develop standard processes and materials for metal 3D printing.
Any combat pilot knows who Oerlikon is because they are famed for building ultra-highspeed machines to shoot down, you guessed it, airplanes and missiles.
They will collaborate to use the data resulting from their agreement to support the creation of a standard titanium 3D printing processes.
Only last November, GE announced that GE’s Aviation’s GEnx-2B aircraft engine for the Boeing 747-8 will apply a 3D printed bracket approved by the Federal Aviation Administration (FAA) for the engine, replacing a traditionally manufactured power door opening system (PDOS) bracket.
With the positive revelations that the (FAA) is supporting the adoption of 3D printing-based designs, GE is preparing to begin imminent mass production of the 3D printed brackets at its Auburn, Alabama facility.
Eric Gatlin, general manager of GE Aviation’s additive integrated product team gushed that “It’s the first project we took from design to production in less than ten months.”
Defense companies are also dipping their toe into the water with aerospace company Lockheed Martin (LMT), the world’s largest defense contractor, winning a $5.8 million contract with the Office of Naval Research to help further develop 3D printing for the aerospace industry.
They will partner up to investigate the use of artificial intelligence in training robots to independently oversee the 3D printing of complex aerospace components.
3D printed designs have the potential to crash the cost of making big-ticket items from cars to nuclear plants while substantially shortening the manufacturing process.
Further emphasis on cornering the North America aerospace market could cement this stock as a no-brainer buy of 2019 as the (FAA) embraces more of the technology opening up the addressable market for the active participants.
As it stands, Stratasys is the industry leader in this field, and placing best of breed tech companies into your portfolio will put you in better position to weather the squalls of the capricious tech sector.
The company is still relatively unknown even though it has been around for ages.
Stratasys is a company to put on your radar and remember this space as the 3D printing market blossoms.
It’s nonetheless still a speculative punt but a compelling part of the tech industry.
“Capitalism has worked very well. Anyone who wants to move to North Korea is welcome.” – Said Founder and Former CEO of Microsoft Bill Gates
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to a 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
July 25, 2019
Fiat Lux
Featured Trade:
(HOW TO HEDGE YOUR CURRENCY RISK)
(FXA), (FXC), (UUP)
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD)
(AAPL)
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
July 24, 2019
Fiat Lux
Featured Trade:
(THEY’RE NOT MAKING AMERICANS ANYMORE),
E (THE DEATH OF THE FINANCIAL ADVISOR),
You can count on a bear market hitting sometime in 2038, one falling by at least 25%.
Worse, there is almost a guarantee that a financial crisis, severe bear market, and possibly another Great Depression will take place no later than 2058 that would take the major indexes down by 50% or more.
No, I have not taken to using a Ouija board, reading tea leaves, nor examining animal entrails in order to predict the future. It can be much easier than that.
I simply read the data just released from the National Center for Health Statistics, a subsidiary of the federal Centers for Disease Control and Prevention (click here for their link).
The government agency reported that the US birth rate fell to a new all-time low for the second year in a row, to 60.2 births per 1,000 women of childbearing age. A birth rate of 125 per 1,000 is necessary for a population to break even. The absolute number of births is the lowest since 1987. In 2017, women had 500,000 fewer babies than in 2007.
These are the lowest number since WWII when 17 million men were away in the military, a crucial part of the equation.
The reason the American birth rate is such an important number is that babies grow up, or at least most of them do. In 20 years, they become consumers, earning wages, buying things, paying taxes, and generally contributing to economic growth.
In 45 years, they do so quite substantially, becoming the major drivers of the economy. When these numbers fall, recessions and bear markets occur with absolute certainty.
You have long heard me talk about the coming “Golden Age” of the 2020s. That’s when a two-decade long demographic tailwind ensues because the number of “peak spenders’ in the economy starts to balloon to generational highs. The last time this happened, during the 1980s and 1990s, stocks rose 20-fold.
Right now, we are just coming out of two decades of demographic headwind when the number of big spenders in the economy reached a low ebb. This was the cause of the Great Recession, the stock market crash and the anemic 2% annual growth since then.
The reasons for the maternity ward slowdown are many. The great recession certainly blew a hole in the family plans of many Millennials. Falling incomes always lead to lower birth rates, with many Millennial couples delaying children by five years or more. Millennial mothers are now having children later than at any time in history.
Burgeoning student debt, which just topped $1.5 trillion, is another. Many prospective mothers would rather get out from under substantial debt before they add to the population.
The rising education of women overall, a global trend, also contributes to the lag on having children. And spouses focused on career building often have a delayed interest in starting families.
Women are also delaying having children to postpone the “pay gaps” that always kicks in after they take maternity leave. Many are pegging income targets before they entertain starting families.
As a result of these trends, one in five children last year were born to women over the age of 35, a new high.
This is how some Latin American countries moved from eight to two-child families in only one generation. The same is about to take place in African countries where standards of living are rising rapidly, thanks to the eradication of several serious diseases.
The sharpest falls in the US have been with minorities. Since 2017, the birthrates for Latinos have dropped by 27% from a very high level, African Americans 11%, whites 5%, and Asian 4%.
Europe has long had the same problem with plunging growth rates but only much worse. Historically, the US has made up for the shortfall with immigration, but that is now falling, thanks the current administration policies. Restricting immigration now is a guaranty of slowing economic growth in the future. It’s just a numbers game.
So watch that growth rate. When it starts to tick up again, it’s time to buy….in about 20 years. I’ll be there to remind you with this newsletter.
As for me, I’ve been doing my part. I have five kids aged 14-34, and my life is only half over. Where did you say they keep the Pampers?
