Global Market Comments
November 8, 2019
Fiat Lux
Featured Trade:
(WHAT I TOLD MY BIGGEST HEDGE FUND CLIENT)
(SPY), (AAPL), (AMZN), (MSFT)
Mad Hedge Technology Letter
November 8, 2019
Fiat Lux
Featured Trade:
(WANDERLUST TAKES A HIT),
(TRIP), (EXPE)
This week, I had to fly off to a party given by my biggest hedge fund client at the Penthouse Suite at the Bellagio Hotel in Las Vegas. And what a party it was!
The showgirls were flowing hot and heavy, roaming magicians performed magic tricks, and there was the odd fire-breather or two. For entertainment, we were treated to rock legend Lenny Kravitz who played his signature song, American Woman.
I managed to get a few hours in private with my client, one of the wealthiest men in the world whom you would all recognize in an instant, and this is what I told him.
SELL THE NEXT BIG RALLY IN STOCKS. IT MAY BE YOUR LAST CHANCE TO GET OUT AT THE TOP BEFORE THE NEXT BEAR MARKET. ANY STOCK YOU KEEP AFTER THAT YOU WILL HAVE TO OWN FOR AT LEAST TWO YEARS AND 4-5 YEARS TO GET BACK UP TO YOUR ORIGINAL COST!
The markets are coiled for a sharp year-end rally for the following 16 reasons:
1) The S&P 500 (SPY) is more overbought than at any time in a decade, according to my Mad Hedge Marketing Timing Index at 90. Technology is the most oversold since the Dotcom bubble. We are in the early stages of the final melt-up.
2) The algorithms that drove the markets down so quickly and severely are now poised to flip to the upside.
3) Bear markets never started with real interest rates of zero (1.75% inflation rate – 1.75% ten year US Treasury yield).
4) Bear markets also don’t start with all-time high profits reported by the leading companies like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT)
5) We are now in the strongest seasonal period of market gains from November to May.
6) Sales during both Black Friday and Cyber Monday will do exceptionally well as the consumer is on fire.
7) At least $100 billion in corporate share buybacks have to kick end by yearend.
8) Risk Parity Traders, another new hedge fund strategy bedeviling the markets, are now in a position to strongly buy stocks, and sell bonds, which have gone nowhere.
9) Both month-end and year-end window-dressing purchases are not to be underestimated.
10) Much stock selling is being deferred to January when capital gains taxes are not payable for 16 months.
11) A lot of hedge fund shorts have to be covered by the end of 2019.
12) Global liquidity growth is slowing but is still enormous. There is nothing else to buy but US stocks. If you missed 2019, you get to do it all over again in 2020.
13) The collapse of oil prices from $77 to $50 a barrel has created a $200 billion surprise economic stimulus package for the US, especially for big energy consumers like transportation.
IT ALL ADDS UP TO A BIG FAT “BUY.”
I expect this rally to set up a classic head and shoulders top in the first quarter of 2019 (see chart below). Here’s where stocks fail, and we enter a new bear market. Here are ten reasons why:
1) Next year, S&P 500 earnings growth will sharply downshift from a 26% annual growth rate in 2018 to zero in 2020.
2) The upfront benefits of the corporate tax cuts will be all spent. With all the tax breaks in the world, companies won’t spend a dime if they believe the US is going into recession.
3) The massive expansion of government spending Trump brought us will be slowed by a Democratic-controlled House of Representatives, especially for defense.
4) The trade war with China will continue, cutting US growth. The Chinese are determined to outlast Donald Trump. The Middle Kingdom can take far more pain than the US, which has open elections.
5) The global synchronized recession worsens, dragging the US into the tar pit.
6) The Fed will cut interest rates any more in this cycle. You’re going to have to live on the hyper stimulus you have already received.
7) If the Fed had any doubts, they only need to look at the inflationary impacts of new duties on most imported goods.
8) A continuation of the China trade war also will trigger depression in the agricultural sector which is suffering from a China boycott that has crushed prices. Millions of tons of crops rotting in storage silos. This will spill over into a regional banking crisis.
9) The mere age of this Methuselah-like bull market at 11 years is an issue. Too many people have made too much money too easily for too long.
This all adds up to a big “SELL” sometime in the spring.
I just thought you’d like to know.
To watch the video of Lenny Kravitz playing, please click here.
I have slaughtered travel tech nonstop for quite a while now and today is the day that the bearishness turned ugly.
Let’s take a look at why.
I believe travel tech is a vulnerable group waiting to be taken to the emergency room.
We are approaching the dying embers of the economic bull cycle for better or worse, mostly the latter.
Europe is already mired in a recessionary-like environment and hiring has ground to a halt.
When German automobile manufacturers aren’t doing well, usually the rest of the continent follows suit.
No new jobs mean no new money to travel with and austerity usually whacks off luxuries like hotel stays and cross border travel.
Reading the tea leaves, it’s hard not to think that travel tech could be in for a rough next year with revenue growth sliding like Expedia’s vacation rental business in the third quarter.
The company is signaling slowed momentum in its high growth category leading to a lowered profit forecast for 2020.
The short-term rental unit reported revenue growth of 14% to $467 million, lower than the 17% rate in the previous period and missed analysts’ estimates of $462.4 million.
Total revenue grew 8.6% to $3.56 billion, in line with consensus but as we turn the page, there’s not much to like.
Expedia attempts to juice up home-sharing division, VRBO, in a quest to unseat rivals Airbnb Inc. and Booking Holdings Inc. in the booming home-share market will fall flat.
While VRBO is strong in the U.S. for purely vacation rentals, Airbnb and Booking capture a much larger share of the broader global $34 billion alternative accommodation market, which also includes non-traditional hotels and home-sharing.
Expedia is now set for 2020 adjusted Ebitda growth of 5% to 9%, down from a previous forecast of 15% growth.
VRBO only pulls in just over 10% of Expedia’s overall revenue, but its growth prospects revolve around this one asset.
To reach its targets, Expedia will need a greater dependence on higher-cost marketing channels in a secular flat hotel ADR (average daily rate) environment while grappling with the uncertainty around VRBO weathering a change in brand name.
Many tech companies are finding out that now is the wrong time to champion growth at any costs and travel tech is grossly reliant on exorbitant marketing costs to drive incremental home-sharing revenue.
I can’t say what TripAdvisor (TRIP) is doing is much better than Expedia because it is certainly not.
They have just announced a joint venture and global licensing agreement with China’s Trip.com Group which includes assets Ctrip, Trip.com, Qunar, and Skyscanner.
This is probably the worst time in the past 30 years for an online travel company to dive straight into China.
As I read through the detail, there was one red flag that stood out and that was the bit about “sharing inventory.”
I am doubtful that TripAdvisor is able to have an enforceable mechanism for misbehavior.
For example, if a hotel booked through TripAdvisor China is rerouted into the Trip.com portfolio and executed by the Chinese mainland array of digital assets, how would TripAdvisor respond?
There are too many lurking risks that could easily result in Trip.com Group gaming this agreement to tilt the benefits in their favor.
A cynical part of me tells me that this is just a ruse for Trip.com Group to use TripAdvisor’s brand name which dominates in western developed countries to siphon away foreign tourism revenue.
On a personal level, I have found that Trip.com Group has subsidized its prices which is a boon to consumers but is a way to undercut and pervert competition.
TripAdvisor can’t operate freely in China as it stands, but I wouldn’t desperately decide on a joint venture just to get a shoe in the door.
Better off looking elsewhere or keeping their ammunition dry.
Whether its weakness in VRBO in Expedia or a poor licensing agreement between TripAdvisor and China’s Trip.com Group, there is a lack of good ideas since Airbnb created this industry out of thin air.
Probably better to wait for Airbnb to go public if you want to get into travel tech, they have revolutionized the industry and are profitable or invest in Google who is stealing market share from the old guard.
The higher competition will certainly lead to higher marketing costs, lower growth, and a race to zero commissions.
“If there's lots of technology, we won't understand it.” – Said American Investor Warren Buffett
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the 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 Diary of a Mad Hedge Fund Trader focuses on investment over a one week to the 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
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
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
November 7, 2019
Fiat Lux
Featured Trade:
(TRADING FOR THE NON-TRADER),
(ROM), (UXI), (UCC), (UYG)
