Global Market Comments
October 15, 2020
Fiat Lux
Featured Trade:
(OCTOBER 14 BIWEEKLY STRATEGY WEBINAR Q&A),
(VXX), (INDU), (TLT), (GLD), (IB), (XPEV),
(TSLA), (MRNA), (AMD), (SDS), (ITB)
Below please find subscribers’ Q&A for the October 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Do you think Interactive Brokers (IB) will give better executions?
A: No, these executions are all done by identical computers with identical programs now, across eleven differences of electronic exchanges. It’s like trying to decide whether to buy Exxon or Mobile gas. It’s all the same stuff. The only real difference in brokers these days is in customer service; and you really have to shop around there and find what you like. Even on customer service, most brokers have cut back staff to a minimum. In the end, the only difference among brokers may be “hold” times.
Q: What are your thoughts on Xpeng, Inc. (XPEV), the Chinese electric car manufacturer?
A: The Chinese have actually had electric cars longer than Tesla (TSLA) has and I have visited their factories in China, like BYD Auto (https://en.wikipedia.org/wiki/BYD_Auto). The problem has always been quality—the batteries tend to catch on fire, the cars fall apart—and that’s why they have never exported an electric car to the U.S. I don't expect that to change. What’s more likely is Tesla building more factories in China, where they overwhelmingly have the technology, brand, and quality lead. I don't think any electric car company can threaten Tesla now that they’re so far ahead.
Q: Is it a good time to buy the iPath S&P 500 VIX Short Term Futures ETN (VXX)?
A: No, because you only make money on the (VXX) when you get a volatility increase almost immediately after you buy it. So, if you have some great insight on the next volatility explosion, try it; otherwise, the time decay will kill you. By the way, everyone knows there is going to be a presidential election in three weeks so it’s already in the price.
Q: What is the likelihood of a financial transaction tax, and how would it affect our trading?
A: It wouldn't hurt our trading, because we’re mostly small fry. It would wipe out high-frequency trading where they’re trading for a penny with no transaction costs. And that, in fact, would be the goal: to wipe out high-frequency trading. Unfortunately, they’re about 80% of the market now, so I’m not sure who would step in and fill in that space. But there’s always someone.
Q: What about Moderna (MRNA)?
A: Yes, I like it for the long term. I think next year will be another golden age for biotech, and they have had a great rally so I’d be looking to buy on dips. MRNA is certainly going to participate. After Corona, there are 100 other diseases they could be working on. It’s not a COVID-19-only story, which is what some of the short sellers got wrong.
Q: How far does Gold (GLD) go down before it goes up?
A: Probably not much more; we have had a decent 10% correction. I was actually thinking about buying gold today, but I also hate leaning into a downtrend. So, any downtrends are temporary, we're looking at new highs in gold next year. This is a QE (quantitative easing) trade, not a risk-off trade like it used to be. So, the continuation of QE for years means that gold goes higher.
Q: When is it time to trade bonds (TLT) again?
A: Bonds just had their narrowest trading range in years in the last month. We only want to play on the short side; it broke down last week so we don't want to do anything here.
Q: Is a 1% drop in Advanced Micro Devices (AMD) a dip?
A: No, a 10% drop in AMD is a dip. Buying a 1% drop is a chase, which is an invitation to a lot of pain.
Q: Have SPACs (Special Purpose Acquisition Corporation) replaced IPOs?
A: I think SPACs are one of the greatest scams of all time. Everybody will get ripped off after paying enormous fees, and once these things go illiquid, no one will be able to get out, so I would not chase the SPAC game. They are only created to dodge the investor protections in the IPO process, I've seen too many of these fads happen over the last 50 years. They always end in tears.
Q: I think there will be another surprise Trump win similar to 2016. How would the market react to a Trump win?
A: It would crash because the market has built in a Biden win and chased up Biden sectors. So, if that doesn’t happen, the market has to give up all those gains and reorient itself. Trump had a 2-3-point polling deficit last time, and now he has to overcome a 17-point deficit or whatever the number is depending on the poll you look at. So, I don’t think so. Remember, Trump only won the election by 78,000 votes in three states. The 220,000 who have died from the pandemic are definitely NOT voting for Trump, nor are their 10X family members. That’s 2.2 million votes lost. Remember, the Corona death rate in red states is far higher than in blue states.
Q: Do you think a Bollinger Band squeeze is forming in Tesla right now?
A: Yes, even though this stock has had a prolific run, it looks like it wants to go higher. I wouldn’t go short.
Q: What about over issuance of US debt?
A: Any concerns about over issuance of debt won’t hit for a while because the Fed is going to keep the short-term rates at zero, which will anchor everything else at low levels. The initial heat will be felt in the ten- and 30-year bonds where you should be permanently short.
Q: Reminder that 4 years ago, you said a Trump win would crash the market.
A: Yes, I did say that, and it did crash the market—it dropped 1,000 points overnight and made it all back the next morning. I spent that entire night rebuilding portfolios which then had a massive run, so I remember that very well. That is the only election I was wrong on in 50 years. So, the lesson is don’t bet against the guy who's only wrong once in 50 years and count on him being wrong again. There are hundreds of data points now which show that Trump has no chance of winning and he’s acting in a way that backs that up.
Q: Is there a second COVID wave priced in yet?
A: No, the way these things work is scientists predict waves, traders say no it will never happen, then it happens and the traders puke out. And if that happens, we will know that is the buying opportunity of the century because that is exactly what we got on the last puke out in March. And yes, I was wrong; I said the stocks would double in two years and instead they doubled in three months.
Q: Do you think a real estate bubble is forming?
A: Yes, but it may not pop for another 10 years because we have 85 million millennials trying to buy housing right now, with interest rates near zero. I just refinanced my home at 2.75%. And only 65 million Gen Xers have homes to sell them, which is being expressed in higher home prices. That’s why I love the homebuilders (ITB).
Q: What about ProShares Ultra Short S&P 500 2X bear ETF (SDS)?
A: I would bail on that because the long-term trend is still up. Dow 120,000 here we come! You only want to use the (SDS) on short term dips, and then come out at the bottom.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 14, 2020
Fiat Lux
Featured Trade:
(GOOGLE’S MAJOR BREAKTHROUGH IN QUANTUM COMPUTING),
(GOOGL), (IBM)
“The stock market is very much a mood ring,” said Josh Brown, of Ritholtz Wealth Management.
Global Market Comments
October 13, 2020
Fiat Lux
Featured Trade:
(COFFEE WITH RAY KURZWEIL), (GOOG)
Global Market Comments
October 12, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK TO THE NIFTY FIFTY),
(CAT), (JPM), (BAC), (NSC), (UNP), (V),
(MA), (FDX), (UPS), (IP), (AAPL), (TSLA)
My daughter needed a desk so she could go to high school from her bedroom. So, I drove around Northern Nevada to get the perfect piece, visiting Reno, Sparks, Carson City, and Minden. It is one of the most conservative parts of the country, probably 90% republican.
What I saw was amazing.
There were Biden/Harris signs everywhere. Yes, there will still some Trump signs, but they were in a definite minority. Four years ago, you only saw Trump signs. The rare Clinton/Kaine sign was full of bullet holes, torn down, or copiously marked with offensive graffiti.
I thought, hmm, there must be a trade here.
We seem to be on the verge of massive changes in the US economy. Get in front of them and you’ll make a fortune. Lag behind, and you’ll be seen driving an Uber cab.
Technology undoubtedly led the decade, bringing in a 30% annual return since 2009. Industrial and other domestic stocks brought in no more than 12%. The “Roaring Twenties” could bring the reverse.
Technology will continue to do OK. Ever falling prices and greater service is a tough business model to beat. But let’s face it, none of these things are cheap. Apple (AAPL) going from a 9X multiple to 45X?
Industrials could be playing a massive catch up game initiating a new supercycle as they did from 2000-2010 when tech lagged in the wake of the Dotcom Bust.
This switch is made easier by the fact that most big industrial companies are now de facto technology ones. They all now use advanced cloud software, sophisticated robots, and state of the art distribution systems. Caterpillar (CAT) even has a 290-ton dump truck that drives itself like a giant Tesla (TSLA)!
Many of these companies I have covered for nearly 50 years, when they last belonged to the Nifty Fifty. So, for me, it’s a matter of dusting off my old research, seeing who is left, and giving them a modern spin. The great thing about these stocks is that many pay decent dividends.
I’ll give you a short list of where to buy the dips.
Banks – JP Morgan (JPM), Bank of America (BAC)
Railroads – Norfolk Southern (NSC), Union Pacific (UNP)
Credit Cards – Visa (V), Master Card (MA)
Couriers – FedEx (FDX), UPS (UPS)
Consumer Discretionary – International Paper (IP)
Hmm, a market where everything goes up. I like it! Dow 120,000 here we come!
Trump ordered all Stimulus Negotiations to cease, and then changed his mind six hours later. Clearly, the president has given up on the election and wants the next administration to inherit a Great Depression. Or is this Covid-19 talking? It’s the perfect scorched earth strategy. Write off another 2 million small businesses. Down ticket republican candidates will be beaten like a red-headed stepchild. Stocks plunged 600, with airlines in free fall, then bounced 700.
Jay Powell REALLY wants a stimulus package, claiming the economy desperately needs fiscal help to maintain a recovery or face a prolonged depression. “The risks of overdoing it seem, for now, to be small,” the central bank chief told the National Association for Business Economics. Are his pleas falling on deaf ears in Washington? Trump just gave our Fed governor the middle finger salute.
Share Buybacks vaporized T\this year and will be miniscule next year, with companies whose earnings have been crushed by the pandemic not participating. The ban on bank share buybacks imposed by the Fed continues. This has been the largest portion of net stock buying for the past decade. The good news is that foreign investors stepped in as big buyers in 2020, taking the indexes to new highs.
Apple to announce new 5G iPhone this week. The release came a month late, thanks to the pandemic. Scheduled for October 13, the event is called “High Speed”. Apple’s biggest sales quarter in history has just begun. Buy dips in (AAPL).
The Election is Noise and its best to focus on the bull market that has just begun, says JP Morgan. Record fiscal stimulus and quantitative easing in the face of near-zero interest rates create a perfect storm in favor of equities. The best stock to own going into the October 13 Prime Day?
Weekly Jobless Claims edged down to 840,000, still missing 200,000 from California, due to an upgrading computer system. California stopped reporting data so they can rebuild the antiquated computer system of the Employment Development Department, which has been breaking down due to overwhelming demand. Some 26.5 million workers are now claiming unemployment benefits.
Banks are making record trading profits on the back of the US Treasury market where volume has exploded. Even though there has been little net movement in prices in six months, the two-way bets have been enormous. It helps to have a massive home refi boom, incredible QE, and a government that is printing new debt like there’s no tomorrow.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old.
My Global Trading Dispatch maintained a new all-time high last week by staying 100% in cash. I was just as grateful for having no positions on the up 600-point days as I was on the down 600-point days. Safe to say that I will be an increasingly more aggressive buyer on ever smaller dips.
That keeps our 2020 year-to-date performance at a blistering +35.46%, versus a gain of 0.5% for the Dow Average. That takes my eleven-year average annualized performance back to +36.14%. My 11-year total return stood at new all-time high of +391.37%. My trailing one-year return dropped to +44.26%.
The coming week will be a dull one on the data front. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, now at 210,000, which you can find here.
On Monday, October 12 at 8:30 AM EST, the government is closed for Columbus Day so there will be no data releases, even though the stock market is open.
On Tuesday, October 13 at 9:00 AM EST, the US Inflation Rate for September is out.
On Wednesday, October 14, at 8:30 AM EST, The Producer Price Index for September is released. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, October 15 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get the Empire State Manufacturing Index.
On Friday, October 16, at 8:30 AM EST, US Retail Sales are printed. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, I eventually found the perfect desk on Craigslist Reno. It was from the 1930s and had once occupied the office of the Metropolitan Life Insurance Company of New York, complete with two inkwells.
The company logo was prominently displayed in its wrought iron legs. When the Metropolitan modernized its offices in the 1950s, it sold off its furniture, which has been in circulation in the antique market ever since.
I told the seller, who had just moved from the east coast, of my amazing connection with the company. My Uncle Ed spent three years on a Navy destroyer in the Pacific during WWII. Enlistees in the 1940s were required to take out life insurance policies before they went off to war.
When Ed passed away a few years ago, I went through his papers and what did I find but a life policy from the Metropolitan Life Insurance Company for $1,000.
Ever the history buff, I called the company to find out if the policy was worth anything 70 years later. It turned out to have a cash value of $100,000, which they paid out immediately. I divided the money among my mom’s 20 grandchildren to pay for their college educations. Several now have PhDs. Got to love that compounding of interest.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Bring on the Roaring Twenties
Global Market Comments
October 9, 2020
Fiat Lux
Featured Trade:
(THE NEW AI BOOK THAT INVESTORS ARE SCRAMBLING FOR),
(GOOG), (FB), (AMZN), MSFT), (BABA), (BIDU),
(TENCENT), (TSLA), (NVDA), (AMD), (MU), (LRCX)
Global Market Comments
October 8, 2020
Fiat Lux
Featured Trade:
(IF BONDS CAN’T GO DOWN, STOCKS CAN’T EITHER),
($NIKK), (TLT), (TBT), ($TNX)
(TESTIMONIAL)
The U.S. Treasury bond market has suddenly ground to a halt, puzzling traders, investors, and hedge fund managers alike.
Today, the yield on the 10-year Treasury bond (TLT), (TBT) traded as low as 0.77%.
This is despite the U.S. economy delivering a horrific negative GDP growth during Q2. Growth is expected to rebound to 2-5% in Q3, depending on if there is another stimulus package from Washington, or not. 2021 could bring economic growth as high as an astronomical 10%.
If I blindfolded any professional money manager, told him the above and asked him where the 10-year Treasury yield should be, most would come in at around the 5% level.
So what gives?
I have put a great deal of thought into this and the answer can be distilled down to two letters: QE.
Global quantitative easing has created about $30 trillion in new money over the past 10 years. It has not been spent, it hasn’t disappeared, nor has it gone to money heaven. It is still around.
The U.S. Federal Reserve, the first to start QE in November 2008 during the Great Recession, ended it in October 2014. From start to finish, it created $4.5 trillion in new money. Over the past five years was wound down to $3.8 trillion by letting debt on its balance sheet mature.
Enter the pandemic. The expectation is that the new round of QE could exceed another $10 trillion or more.
Japan actually began its QE program in 2001, long before anyone else, to deal with the aftermath of the 1990 Japanese stock market crash and a massive demographic headwind (they’re not making Japanese anymore).
Some 20 years later, the Japanese government now owns virtually all of the debt in the country. When you hear about Japan’s prodigious 240% debt to GDP ratio, it’s all nonsense. Net out government holdings and there is no national debt in Japan at all. That’s why the Japanese yen is consistently strong.
After the 2008 crash, the Japanese government expended its QE to include equities as well. As a result, the government is now the largest single buyer of stocks in the Land of the Rising Sun. The Nikkei Average has risen by 234% since the 2009 bottom despite a miserable economic performance, and the yield on 10-year JGBs stand at a lowly 0.03%.
The European Central Bank got into the QE game very late, not until 2015, and its program continues anew, although at half its peak rate. The ECB has just renewed its plan to print a ton of new money.
Part of the problem is that the ECB is running out of bonds to buy, as it already owns most of the paper issued by European entities. That’s why 10-year German bunds are yielding a paltry -0.50%.
As a result, there is excess liquidity everywhere and this has broad implications for your investment or retirement portfolio. It could take as long as a decade before all of this artificial cash is removed from the global financial system.
For a start, bonds may not fall much from here, even if the Fed continues its near-zero interest rate policy for three more years, as promised.
Stocks can’t fall either with this much cash underpinning the market, at least not for a while and not by much. While company share buybacks have virtually disappeared this year, foreign investors have stepped in to pick up the slack.
It also means you can’t have a global contagion leading to a financial crisis. There is ample money available to refinance your way out of any problem when 70% of the world’s debt is still yielding close to zero.
The bottom line here is that global excess liquidity can cover up a multitude of sins. It means the price of everything has to go up, or at least stay level until that liquidity runs out. That includes stocks, bonds, your home, classic cars, and even that rare coin collection of yours gathering dust in a safe deposit box somewhere.
Yes, when the excess free cash runs out in a decade, there will be hell to pay. Until then, make hay while the sun shines.
Hay
