Global Market Comments
September 19, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FART HEARD ROUND THE WORLD)
(SPY), (TLT), (TSLA), (RIVN), (FDX), (FCX)
It was the fart heard around the world.
Every investor was positioned for inflation to crater and stocks to soar. We got the opposite instead with the Dow delivering its worst day since the pandemic lows 2 ½ years ago.
But every trader I know thought the recent rally smelled of three-day old fish and was poised for a selloff. I was expecting the latter and went into a rare 100% cash position. I have probably had 100% cash positions maybe six days over the last 15 years.
A lot of traders who only trade the CPI got flushed out of the market on Wednesday at the lows because they were the wrong way.
I attended karate school in Japan for ten years, and besides learning a fearsome attitude and losing my front teeth I also picked up a valuable lesson. ALWAYS kick a man when he is down because that is when he is least likely to hit you back.
The market got that second kick-in with the FedEx earnings on Friday indicating that the economy is in much worse shape than traders realize. Not only did (FDX) crater by 23%, the entire technical structure of the market broke down.
A double bottom in the (SPY) at $362 is now not only a possibility, but a probability and a cycle final low of (SPY) $330 is now on the table, if only for seconds. The latter would give us a top to bottom bear market of $150, or 31.25%. This is “screaming buy” territory.
It’s an old market that has seen the stock market discount 12 of the last six recessions. This is one of those “non-recessions.” Tuesday saw only 1% of stocks up on the day. Whenever this happens the return for the following 12 months averages 15.6%. Sell here at your peril.
The next major market event will be a Fed interest rate rise of 75 basis points on September 21. That will probably be the last hike of this magnitude this decade. After that, we’re dealing with quarter-point rate rises at worst and cuts at best.
Inflation expectations are falling. Consumers are morphing from “I’ll take it whatever the price” to “can you give me a deal.” Price competition is returning after a long absence. Supply chain problems have disappeared. All those ships in the harbor have gone.
Competition from imports is also increasing, thanks to a super strong US dollar. Look how fast they turned the lights out in the residential real estate market.
I have been in the market for 54 years and can tell you that when inflation peaks, stocks bottom. That means you should start scaling into your favorite positions right now.
With my Mad Hedge Market Timing Index gaping down to 32, I decided to dip my toe in the water with what will probably be the lead sector in the market for the next decade. You may not have noticed, but we have just entered the golden age of the electric vehicle, thanks to climate change and massive government support.
That draws me to Tesla (TSLA), the overwhelming leader and Rivian (RIVN), the top up and comer, or should I say it, the next Tesla.
Of course, whenever a report defies expectations like the CPI, naysayers come out of the woodwork decrying its validity. My old friend, Dr. Jeremy Siegel of Wharton School of Business, says the CPI is overreading inflation by employing an arcane method of calculating housing costs that make up half the index.
The result is a read on real estate costs which is 18 months out of date. The CPI says home costs are still rising sharply, while any real estate broker in the country will tell you it’s in free fall.
My own agent has six homes for sale and expects to get another seven this month. The only people showing up for her open houses are neighborhood gawkers. Actual buyers are a thing of yesterday and prices have easily dropped 10% in six months and that’s being charitable.
And here is the bet that you are going long here. In 2021, technology stocks, the overwhelming lead sector in the market, saw earnings increase by 30%. In 2022, they will probably come in at 6%. In 2023, they will likely bounce back to 10-12%. Here, today, the market has not yet discounted next year’s bounce. If there is a recession, it is a small one and is already fully backed into prices.
I have been fighting off requests for LEAPS (Long Term Equity Anticipation Securities) all year. Well, start checking your inbox because my LEAPS alerts are going to start coming hot and heavy. I sent out LEAPS for Tesla (TSLA) and Rivian (RIVN) last week and there are more to come. Hint: watch the price of copper with an eagle eye.
Consumer Price Index Came in at a hot 8.3% in August, much higher than expected. Stocks dropped 500 points in a heartbeat. It’s not what traders wanted to hear, up from 8.2% last month. It guarantees a 75-basis point rate hike next week. Is 100 basis points now on the table? Good thing I’m 100% cash.
Yikes! That’s Going to Leave a Bruise after the worst day in the markets since the pandemic low 2 ½ years ago. Investors were perfectly positioned for falling inflation. Tech stocks led the charge to the downside, with NASDAQ off 5%. Bitcoin crashed 10%. Bonds almost hit my 2022 target with a 2.43% yield. The US Dollar (UUP) soared. Get the Volatility Index (VIX) over $30 and I will start adding call spreads from my 100% cash position.
Are US Treasury Bonds Now a “BUY” with yields approaching my 2022 target of 3.50%? Even allowing for overshoot, you can start adding longs close to here. Notice how the (TLT) opened low and then rallied all day, despite despicable trading conditions. We all know that inflation will be back to 2% in a year.
Google gets hit with a $4.1 Billion fine in Europe over antitrust concerns where it controls 92% of the online advertising market. It’s the largest fine in corporate history, but it’s like water off a duck's back with a $1.67 trillion market capitalization. Just a cost of doing business. Buy (GOOGL) on dips.
It’s Like They Shut the Lights Out in the real estate market, which flipped from the offer to the bid side of the market in weeks. A 30-year fixed at 5.89% hasn’t helped. Open Houses are now clogged with gawking neighbors and few buyers. Six months ago, you needed an appointment. No More. It’s a global problem. I can get you a great deal on a mansion.
British Pound Hits 37-Year Low at $1.14 to the US dollar. Traders cite a lack of confidence in the new prime minister Liz Truss. The real reason is the structural toll taken by Brexit, the consequences of which will take a half-century to play out. It means a weak economy, falling standards of living, and a much lower British pound.
US Oil Reserves Hit 38-Year Low at 434 million barrels, down 39% from maximum capacity. That is about 22 days of consumption. Capping oil prices to save consumers has its price.
Weekly Jobless Claims Come in at 213,000, down 5,000 and lower for the fifth consecutive week according to the Department of Labor. The data gives ample room for a 75-basis point Fed rate hike next week.
Rail Strike Averted at the last possible minute after an all-night session. Biden clearly called in his IOUs with the unions to get a deal done. A rail strike would have been a complete disaster for the economy and demolished his election hopes.
Ether Dives on the Merge, down 6%, with the short sellers piling in at the highest possible prices. The merge involved the transition from a proof-of-work to proof-of-stake model. Avoid all crypto while the winter continues, especially (ETHE). Looks like a great head-and-shoulders top on the charts to me.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil peaking out soon, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
With some of the greatest market volatility in market history, my September month-to-date performance clawed its way up to +2.45%. My 2022 year-to-date performance ballooned to +62.41%, a new high.
I used the monster selloff to add my first new longs in a while, in EV makers Tesla (TSLA) and Rivian (RIVN).
The Dow Average is down -18.26% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +74.75%.
That brings my 14-year total return to +574.97%, some 2.66 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.84%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 95.6 million, up 100,000 in a week and deaths topping 1,053,000 and have only increased by 1,000 in the past week. You can find the data here.
On Monday, September 19 at 8:30 AM, the NAHB Housing Market Index for September is released.
On Tuesday, September 20 at 7:00 AM, the Housing Starts and Building Permits for August are out.
On Wednesday, September 21 at 7:00 AM, Existing Homes Sales for August are published. At 11:00 AM EDT, we get the Fed interest rate decision where they are likely to raise by 75 basis points.
On Thursday, September 22 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, September 23 at 7:00 AM, the S&P Global Flash PMI for September is disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I am reminded of my own summer of 1967, back when I was 15, which may be the subject of a future book and movie.
My family summer vacation that year was on the slopes of Mount Rainer in Washington state. Since it was raining every day, the other kids wanted to go home early. So my parents left me and my younger brother in the hands of Mount Everest veteran Jim Whitaker to summit the 14,411 peak (click here for his story). The deal was for us to hitchhike back to Los Angeles when we got off the mountain.
In those days, it wasn’t such an unreasonable plan. The Vietnam war was on, and a lot of soldiers were thumbing their way to report to duty. My parents figured that since I was an Eagle Scout, I could take care of myself.
When we got off the mountain, I looked at the map and saw there was this fascinating country called “Canada” just to the north. So, we were off to Vancouver. Once there, I learned there was a world’s fair going on in Montreal some 2,843 away, so we hit the TransCanada Highway going east.
Crossing the Rockies, the road was closed by a giant forest fire. The Mounties were desperate and were pulling all abled-bodied men out of the cars to fight the fire. Since we looked 18, we were drafted, given an ax and a shovel, and sent to the front line for a week, meals included.
We ran out of money in Alberta, so we took jobs as ranch hands. There we learned the joys of running down lost cattle on horseback, working all day at a buzz saw, inseminating cows with a giant hypodermic, and eating steak three times a day.
I made friends with the cowboys by reading them their mail, which they were unable to do. There were lots of bills due, child support owed, and alimony demands. Now I know where all those country western lyrics come from.
In Saskatchewan, the roads ran out of cars, so we hopped on a freight train in Manitoba, narrowly missing getting mugged in the rail yard in the middle of the night. We camped out in a box car occupied by other rough sorts for three days. There’s nothing like opening the doors and watching the scenery go by with no billboards and the wind blowing through your hair!
When the engineer spotted us on a curve, he stopped the train and invited us to up to the engine room. There, we slept on the floor, and he even let us take turns driving! That’s how we made it to Ontario, the most mosquito-infested place on the face of the earth.
Our last ride into Montreal offered to let us stay in his boat house as long as we wanted, so there we stayed. Thank you, WWII RAF bomber pilot Group Captain John Chenier!
Broke again, we landed jobs at a hamburger stand at Expo 67 in front of the imposing Russian pavilion. The pay was $1 an hour and all we could eat. At the end of the month, Madame Desjardin couldn’t balance her inventory, so she asked how many burgers I was eating a day. I answered 20, and my brother answered 21. “Well, there’s my inventory problem” she replied.
And then there was Suzanne Baribeau, the love of my life. I wonder whatever happened to her?
I had to allow two weeks to hitchhike home in time for school. When we crossed the border at Niagara Falls, we were arrested as draft dodgers as we were too young to have driver’s licenses. It took a long conversation between US Immigration and my dad to convince them we weren’t.
Then they asked Dad if we should be arrested and sent back on the next plane. He replied, “No, they can make it on their own.”
We developed a clever system where my parents could keep track of us. Long-distance calls were then enormously expensive. So, I called home collect and when my dad answered, he asked what city the call was coming from. When the operator gave him the answer, he said he would not accept the call. I remember lots of surprised operators. But the calls were free, and dad always knew where we were.
We had to divert around Detroit to avoid the race riots there. We got robbed in North Dakota, where we were in the only car for 50 miles. We made it as far as Seattle with only three days left until school started.
Finally, my parents had a nervous breakdown. They bought us our first air tickets ever to get back to LA, then quite an investment.
I haven’t stopped traveling since, my tally now topping all 50 states and 135 countries.
And I learned an amazing thing about the United States. Almost everyone in the country is honest, kind, and generous. Virtually every night our last ride of the day took us home and provided us with an extra bedroom or a garage to sleep in. The next morning, they fed us a big breakfast and dropped us off at a good spot to catch the next ride.
It was the adventure of a lifetime and am a better man for it.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Summit of Mt. Rainier 1967
McKinnon Ranch Bassano Alberta 1967
American Pavilion Expo 67
Hamburger Stand at Expo 67
Picking Cherries in Michigan 1967
Global Market Comments
September 16, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(LONG-TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX),
(CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
Of course, I sent the check out to renew my concierge service to your PO Box. You should receive it this week. Only a fool wouldn't re-up. Thanks, and have another great year.
John
New Jersey
The world will never be the same again.
Not only is the old world rapidly disappearing before our eyes, the new one is kicking down the front door with alarming speed.
In short: the future is happening fast, very fast.
To a large extent, long-term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind has been minimized.
I’ll tick off some of the more obvious changes.
To say that we are merely fatigued from a nearly three-year quarantine would be a vast understatement. Climbing the walls is more like it.
As I write this, US Covid-19 deaths have topped one million and cases have surpassed 95 million. China peaked at over 5,000 deaths with four times our population. The difference was leadership issue. China welded the doors shut of early Covid carriers.
Here, it said it was a big nothing and would “magically” go away.
The magic didn’t work, nor did bleach injections.
In the meantime, you better get used to your new life. You know that home office of yours you’ve been living in? It is now a permanent affair for many of you, as your employer figured out they can make more money and earn a high stock multiple with you at home.
Besides, they didn’t like you anyway.
Many employees are never coming back, preferring to avoid horrendous commutes, $5.40 a gallon gasoline, mass transit, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.
Commerce has changed beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on.
Amazon hired a staggering one million new distribution and delivery people in 2020 and 2021 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $122. It is worth double that, especially if they break up the company.
The epidemic really hammered the mall, where a fatal disease is only a sneeze away. Mall REITs have since taken off like a rocket, once it was clear that the virus was coming under control.
And how are you going to pay for that transaction? Guess what one of the most efficient transmitters of disease is? That would be US dollar bills. Something like 50% of all US paper money already test positive for drugs, according to one Fed study. While in Scandinavia last summer, I learned that physical money has almost completely phased out.
Take paper money in change and you are not only getting contact from the sales clerk, but the last dozen people who handled the money. You are crazy now to take change and then not go swimming in Purell afterwards.
Personally, I leave it all as a tip.
Contactless payment deals with this nicely and is now here to stay. Next to come is simply scanning people when they walk in the store, as with some Whole Foods shops owned by Amazon.
Conferences?
They are now a luxury. All of my public speaking events around the world have been cancelled. Webinars now rule. They offer lower conversion rates but include vastly cheaper costs as well. I can reach more viewers for $1,100 a month on Zoom (ZM) than the Money Show could ever attract to the Las Vegas Mandalay Bay for $1 million.
At least I won’t have 18 hours of jet lag to deal with anymore on my Australia trips. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the free Champaign.
Entertainment is also morphing beyond all recognition. Streaming is now the order of the day. Disney+ (DIS) was probably the best-timed launch in business history, coming out just two months before the pandemic.
They earned enough to cancel out most of the losses from the closure of the theme parks. Again, this has been a long time coming and the other major movie producers will soon follow suit.
Movie theaters, which have been closed for years, may also never see their peak business again (CNK), (AMC), (IMAX). The theaters that survive will do so by only accumulating so much debt that they won’t be attractive investments for a decade.
The same is true for cruise lines (CCL), (RCL), (NCLH). But that won’t forestall dead cat bounces that are worth a double in the meantime, as they are coming off of such low levels. No vaccination, no cruise.
Exercise has changed overnight. All gyms and health clubs closed, and are only just now slowly reopening. Working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so piece of cake here.
Friends with yoga classes are now doing them in the living room, streaming their instructors online. The economics of online yoga classes are so compelling, with hundreds attending online classes at once. The old model may never come back.
If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow and Cate Winslet die horrible deaths in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic we have been dealt with.
It is bone-chilling.
I hope you learned from the last pandemic because the next one may be just around the corner, thanks to globalization. In 1918, it took three months for an enhanced mutated flu virus to get from Europe to the US. This time, it took a day to get from China.
Stay healthy.
“It’s not like stocks are so compelling. It’s that there is nowhere else to put your cash. There’s a ton of capital coming in here. When it feels this easy, it’s usually time to be cautious,” said Barry Sternwood, CEO of the Starwood Capital Group.
Global Market Comments
September 15, 2022
Fiat Lux
Featured Trade:
(ON EXECUTING MY TRADE ALERTS)
From time to time, I receive an email from a subscriber telling me that they are unable to get prices on trade alerts that are as good as the ones I get.
There are several possible reasons for this:
1) Markets move, sometimes quite dramatically so. That’s why I include a screenshot of my personal trading account with every trade alert to reliably source the price for the readers.
2) Your Trade Alert email was hung up on your local provider’s server, getting it to you late. This is a function of your local provider’s lack of adequate capital investment in their own network and is totally outside our control.
3) The spreads on deep-in-the-money options spreads can be quite wide. This is why I recommend that readers only place limit orders to work in the middle market. Make the market come to you. Never buy at market or pay the offered side of the market unless you are in a stop-loss situation.
4) Hundreds of market makers read Global Trading Dispatch and many have attached algorithms to my service. The second they see one of my Trade Alerts, they adjust their markets accordingly. You may be fast, but you’re not as fast as an algorithm.
This is especially true for deep-in-the-money options. A spread can go from totally ignored to a hot item in seconds. I have seen daily volume soar from 10 contracts to 10,000 in the wake of my Trade Alerts.
On the one hand, this is good news, as my Trade Alerts have earned such credibility in the marketplace, with a 95% success rate. It is a problem for readers encountering sharp elbows when attempting executions in competition with market makers.
5) Occasionally, emails just disappear into thin air. We use cutting-edge technology, and sometimes it just plain doesn’t work.
This is why I strongly recommend that readers sign up for my free Text Alert Service as a backup. Trade Alerts are also always posted on the website as a secondary backup and show up in the daily P&L as a third. So, we have triple redundancy here. To sign up for the text alert service, please email support@madhedgefundtrader.com and put Text Alert Service in the subject line.
6) Options trades are now executed on 11 different exchanges. With two-legged spreads, one leg can be filled on one exchange while the second is filled on another. As a result, one online broker can show a spread trading through your limit other, while at another, it is ignored. I know this can be frustrating, but it is a fact of modern life.
The bottom line for all of this is that the prices quoted in my Trade Alerts are just ballpark ones with the intention of giving traders some name-picking and directional guidance. I pick the name and the direction and that is the heavy lifting when picking winning trades.
You have to exercise your own judgment as to whether the risk/reward is sufficient with the prices you are able to execute yourself.
Sometimes it is better to pay up by a few cents rather than miss the big trend. The market rarely gives you second chances.
Good luck and good trading.
John Thomas
“We have the intelligence of a moss growing on a rock compared to nature as a whole…Don’t get hung up on your views of how things should be because you’ll miss out on learning how they really are,” said hedge fund legend Ray Dalio.
Global Market Comments
September 14, 2022
Fiat Lux
Featured Trade:
(WHAT EVER HAPPENED TO THE GREAT DEPRESSION DEBT?),
($TNX), (TLT), (TBT)
