Global Market Comments
January 13, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TITANIUM MARKET)
(SPY), (TLT), (TSLA), (GLD), (USO), (NFLX), (DIS), (LEN), (BA)
It is not true that this is a Teflon market, rising almost every day for four months.
It is a titanium market.
The more worries placed in front of us, the faster it rises. And this is happening in the face of falling earnings. This can only end in tears. The only question is how many pennies we can pick up in front of the steam roller before we get run over.
Here’s another sobering prediction. Goldman Sachs’ David Kotick expects that a Democratic win in this year’s election will cause S&P earnings to drop from $169 in 2019 to $163 in 2021, the result of rising corporate tax rates.
Take the earnings multiple down from the present 20 to 15 times earnings where it was three years ago, and the stock index can plummet by 25%.
These are numbers to take seriously, especially given that the president is behind the front runners by 14 points in the national polls.
It all underlines the rising risk that the election poses to the market. Everyone I know to a man is pulling money out of the market, and inquiries about long volatility strategies (VIX) are rising daily.
The general agreement is that in 2020, we are going to have to work a lot harder for a lot less money. There isn’t going to be a repeat of the 28% gain we saw in 2019.
If there is, you want to sell all your stocks and your home, change your name, and move to Brazil, where there is no extradition treaty, because the following crash will be so enormous that no one will be spared.
The end of January 2018 comes to mind, which, after a meteoric move, markets plunged 17%.
Cash is a position, it is an opinion, has option value, and it is probably the best one of all to have right now. You can’t take advantage of any 17% dives if you go into them fully invested. I believe that once the New Year equity allocation is done, we could have a problem.
Risk exploded with the US assassination of an Iran general, with the country vowing revenge. Airline stocks globally went into free fall, and oil prices soared. Wildly overbought markets got their comeuppance, with the Mad Hedge Market Timing Index at an all-time high of 97. Wait three days for markets to price this in. I told you 2020 would be harder!
Gold approached a seven-year high on Iran attack, as over-leveraged traders scrambled for cover. So far, gold and oil are the trades of the decade, which is only seven days old. Keep buying (GLD) on dips, oil (USO) not so much. $1,927 an ounce, here we come!
Tesla deliveries hit new high in Q4, to a record 112,000. There was clearly a stampede before the $3,250 per vehicle clean air subsidy expired at yearend. Musk also cut prices 16% to $43,000 for the Shanghai-made Model 3, creating another stampede there. Keep buying (TSLA) on dips.
The Tesla market cap just peaked at $86 Billion, with the stock at an incredible $490 a share, making it the most valuable American car company in history. What is 25% of the global car market worth in a decade? Apparently quite a lot.
Netflix won big in the Golden Globes, capturing 17 nominations, with Amazon Prime close on their tail. It’s all about content streaming now. If they can only figure out how to take on Disney Plus and Apple Plus. Avoid (NFLX), buy (DIS) and (AMZN).
The S&P Case Shiller National Home Price Index rose 2.2% in October. Phoenix (5.8%), Tampa (4.9%), and Charlotte, NC (4.8%) showed biggest gains. Only San Francisco was down, the victim of lost SALT deductions. Housing still has another decade to run. Buy (LEN) on dips.
Boeing backs simulator training as a path back to flightworthiness for the 737 MAX. As a former flight instructor myself, this is what I have been advocating all along. Whenever things start to improve for Boeing, another crash happens as did with an antiquated 737 in Tehran last week, accidentally shot down by their own people. Keep buying dips in (BA).
The ADP Report showed a red-hot December, with 202,000 private sector job gains. If so, interest rate rises may come sooner than you think.
I never thought I’d say this, but the Mad Hedge Trade Alert Service has made no money so far this year. Of course, the year is only seven trading days old.
Buying the Mad Hedge Market Timing Index at 90 and selling it at 97 is not my kind of market. Nor should it be yours. The money being made now is very high-risk.
Better to sit on your laurels of a 55.86% profit last year and wait for a better entry point.
My Global Trading Dispatch performance held steady at +356.91% for the past ten years, an all-time high. My 2019 year-to-date came in at a final +55.86%. We closed out December with a market beating +4.97% profit. My ten-year average annualized profit ground back up to +35.28%.
The coming week will be a noneventful one on the data front, with only housing data gaining our attention..
On Monday, January 13 at 9:00 AM, Consumer Inflation Expectations for December are out.
On Tuesday, January 14 at 7:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, January 15, at 6:15 AM, New York State Manufacturing is announced.
On Thursday, January 16 at 8:30 AM, Weekly Jobless Claims come out. December Retail Sales are published at 9:30.
On Friday, January 17 at 9:30 AM, December Housing Starts s are printed. At 10:30 Industrial Production is released.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I will be leading an Orienteering class in San Francisco this weekend, teaching 20 Boy Scouts how to use a compass and navigate over a ten-mile course. Hey, how bad can it be? I found California! Spoiler alert: after a ten-mile hike, we end up at the Ghirardelli Square Chocolate factory at Fisherman’s Wharf.
When I applied for the position, I listed as qualifications 50 years as an FAA commercial pilot and navigator, and a stint as a Marine Corps combat pilot.
They accepted me on the spot.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 10, 2020
Fiat Lux
Featured Trade:
(FRIDAY, FEBRUARY 7 PERTH, AUSTRALIA STRATEGY LUNCHEON)
(JANUARY 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(VIX), (VXX), (TSLA), (SIL), (SLV),
(WPM), (RTN), (NOC), (LMT), (BA), (EEM)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 8 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: If the market is doing so well, why is the Fed flooding the market with liquidity?
A: It’s election year, so their primary focus is to get the president reelected and do everything they can to make sure that happens. If we continue at the current rate, the Fed will have zero ability to get us out of the next recession which will make it much deeper than it would be otherwise. Doing this level of borrowing and keeping interest rates near zero with the stock market going up 30% a year is insane, and we will be severely punished for it in the future.
Q: With the Volatility Index (VIX) near a 12-month low and the Mad Hedge Market Timing Index near an all-time high, is this a good time to put on LEAPs for the (VXX)?
A: Yes, in fact, a (VXX) LEAP (Long Term Equity Participation Security, or one-year-plus option spread), is the only LEAP I would put on right now. I get asked about LEAPs every day because returns on them are so huge, but I am holding back on a trade alert on a (VXX) leap because it seems like in January they really want to run this market high and run volatility down low. On the next move to a (VIX) in the $11 handle, you want to put out a one-year LEAP with a $16 strike. And that is essentially a guarantee that you will make money sometime in the coming year on a big down move in the stock market. (VXX) LEAPs are coming, just not yet.
Q: Do you think Iran is done with their attacks against the US or will there be more?
A: The belief there will be no more attacks is to call the end of a 40-year trend. There will be more attacks, and those are going to be your long side entry points. Every geopolitical crisis for the last 10 years has been a great entry point on the long side and the next one will be no different. Just hope you are not one of the victims.
Q: What would a war with Iran mean for the US economy and should I buy defense stocks?
A: You can take the Iraq war, which cost us about $4 trillion, and multiply that by three times to $12 trillion because Iran’s economy is three times the size of Iraq and has a much more sophisticated military. The Iranians are really in a good position because they know the US has no appetite for another Iraq, Afghanistan, or Vietnam. They just want us out of their neighborhood. As far as defense stocks, those really move on very long-term investments and production for government contracts. When you get an attack like this, you get a one-day pop of 5% and then they usually give it all back. So, I wouldn't be chasing defense stocks like Lockheed Martin (LMT), Northrop Grumman (NOC), and Raytheon (RTN) at these high levels—it’s a very high-risk trade.
Q: Will Boeing (BA) take heat from the Ukrainian crash in Tehran?
A: Yes. It’s down about $5, and you might even consider running the numbers on a February call spread. This may be the last chance to get into Boeing at those low levels. The 737 MAX will fly this year, their most important product.
Q: What’s your opinion on Thai Baht?
A: This really is the home here for opinion on all asset classes, large and small. The Thai Baht will rise. It’s a weak dollar play. Money is pouring into all the emerging currencies because of the massive overborrowing that’s going on in the U.S. Countries that overborrow and print money like crazy always debase their currencies over the long term. That makes emerging markets (EEM) a great buy, which are trading at half the valuation levels of US ones.
Q: U.S. hog farmers missed the opportunity of a lifetime last year because of African Swine Flu. Any thoughts on the price of pork and commodities for 2020?
A: They should do better now that we’re at least getting relief from an escalation of the trade war. However, I gave up covering agriculture because the American farmer is just too efficient; every year they just produce more and more crops with fewer and fewer inputs—it’s a loser’s game. They occasionally get bad weather and get a big price spike, but that Is totally unpredictable. I'm staying away from ag stocks. In terms of buying soybeans or Apple, or Google, or Amazon, I’ll take the tech stocks any day over ag’s. Plus, the insiders have a big advantage in ag’s.
Q: What is the ticker symbol for the Silver ETFs?
A: The Silver metal ETF is (SLV), Silver miners is (SIL), and the Silver Royalty Trust, Wheaton Precious Metals, is (WPM).
Q: Why has volatility been so minimal even with massive geopolitical risk going up?
A: Liquidity trumps all. This month, the fed is pumping a record $160 billion into the financial system, and all that money is going into stocks, making them go up and making volatility go down. Until that changes, this trend will continue.
Q: Apple just passed $300, is the next stop $400?
A: Yes, and we could get that this year in the run up to 5G in September. By the way, my average cost on my Apple shares split adjusted is 50 cents. I bought it in the late 1990s when the company was weeks away from bankruptcy.
Q: Any thoughts on Tesla (TSLA)?
A: Yes, go out and buy the car, not the stock. Wait for some kind of pullback. We have just had a fantastic run of good news kicking the stock from $180 up to $490. I think we will make it up to $550 on this run. But you don’t want to get involved unless you’re a day trader because now the risk is very high. The next big move for Tesla is going to be the announcement of a production factory in Berlin, where they will try to take on Mercedes, BMW, VW, and Audi on their home turf. Then, they will own Europe.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 9, 2020
Fiat Lux
Featured Trade:
(WEDNESDAY, FEBRUARY 5 MELBOURNE, AUSTRALIA STRATEGY LUNCHEON)
(CAPTURING SOME YIELD WITH CELL PHONE REITS),
(CCI), (AMT), (SBAC),
(JNK), (SPG), (AMLP), (AAPL), (VZ), (T), (TMUS), (S)
Come join me for lunch at the Mad Hedge Fund Trader’s Global Strategy Update, which I will be conducting in Melbourne, Australia on Wednesday, February 5, 2020 at 12:30 PM.
An excellent meal will be followed by a wide-ranging discussion and an extended question-and-answer period.
I’ll be giving you my up-to-date view on stocks, bonds, currencies commodities, precious metals, energy, and real estate.
I also hope to provide some insight into America’s opaque and confusing political system. And to keep you in suspense, I’ll be throwing a few surprises out there too.
Tickets are available for $232.
I’ll be arriving at 12:30 PM and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a downtown five-star hotel the details of which will be emailed with your purchase confirmation.
I look forward to meeting you and thank you for supporting my research.
To purchase tickets for the luncheons, please click here.
I am constantly bombarded with requests for high-yield, low-risk investments in this ultra-low interest rates world.
While high-yield energy Master Limited Partnerships LIKE (AMLP) can offer double-digit returns, they carry immense risks. After all, if the prices of oil drop to $5-$10 a barrel, replaced by alternatives as I eventually expect, all of these instruments will get wiped out.
You can earn 5%-8% from equity-linked junk bonds. However, their fates are tied to the future of the stock market at a 20-year valuation high against flat earnings.
You might then migrate to Real Estate Investment Trusts (REITs) like Simon Property Group (SPG), which acts as a pass-through vehicle for investments in a variety of property investments. However, many of these are tied to shopping malls and the retail industry, the black hole of investment today.
So where is the yield-hungry investor to go?
You may have heard about something called 5G. This refers to the rollout of fifth-generation wireless technology that will increase smartphone capabilities tenfold. Whole new technologies, like autonomous driving and artificial intelligence, will get a huge boost from the advent of 5G. Apple (AAPL) will launch its own 5G phone in September.
5G, like all cell phone transmissions, rely on 50-200-foot steel towers strategically placed throughout the country, frequently on mountain peaks or the tops of buildings. With demand from the big phone carriers soaring, there is a construction boom underway in cell phone towers. There just so happens to be a class of REITs that specializes in investment in this sector.
Cells Phone REITs constitute a $125 billion market and make up 10% of the REIT indexes. They own 50%-80% of all investment-grade towers. They are all benefiting from a massive upgrade cycle to accommodate the 5G rollout. These REITs own or lease the land under the cell towers and then lease them to the phone companies, like Verizon (VZ), AT&T (T), T-Mobile (TMUS), and Sprint (S) for ten years with 3% annual escalation contracts.
American Tower (AMT) is far and away the largest such REIT, with 170,000 towers, has provided an average annual return over the past ten years, and offers a fairly safe 1.65% yield. They are currently expanding in Africa. Even during the 2008 crash, (AMT) still delivered an 8% earnings growth.
SBA Communications (SBAC) is the runt of the sector with only 30,000 towers. However, it has a big presence in Central and South America and is seeing earnings grow at a prolific 80% annual rate. (SBAC) is offering a 1.48% yield at today’s prices.
Crown Castle International (CCI) is in the middle with 40,000 large towers and 65,000 small ones. 5G signals travel only a 1,000 meters, compared to several miles for 4G, requiring the construction of tens of thousands of small towers where (CCI) is best positioned. (CCI) offers a hefty 3.39% yield.
Small cell towers are roughly the size of an extra-large pizza box and will soon be found on every urban street corner in the US. AT&T (T) has estimated that there is a need for over 300,000 small cell phone towers in the US alone.
So, if you’re looking for a sea anchor for your portfolio, a low-risk, high-return investment that won’t see a lot of volatility, Cell phone REITs may be your thing. Buy (CCI) on dips.
Can you hear me now?
Global Market Comments
January 8, 2020
Fiat Lux
Featured Trade:
(WEDNESDAY FEBRUARY 4 SYDNEY STRATEGY LUNCHEON)
(CALIFORNIA GOES WHOLE HOG ON SOLAR),
(FSLR), (SPWR), (TAN)
As of January 1, 2020, it is illegal to build a home in California without solar panels.
Furthermore, dozens of cities have gone as far as banning natural gas appliances like ovens, heaters, and burners.
It is the most ambitious solar initiative anywhere in the world today. Those who invest in backup storage batteries like the Tesla Powerwall, will receive additional cash incentives.
It’s not like solar is new in the Golden State. It boasts over one million homes with installed panels out of a total housing stock of 16 million. It is all part of a grand plan for the state to obtain 100% of its electric power from alternative sources by 2030.
The new measures are expected to add $9,500 to the cost of new home construction. Builders are expected to eat most of it.
However, it will cut utility bills by $19,000 over the 30-year life of a solar system. And that is at today’s prices. California homeowners have already suffered two back-to-back 15% price increases over the past two years. With northern California’s utility PG&E (PGE) in bankruptcy, more stiff price hikes are expected.
You would think that the news would set the share prices of American solar companies, like First Solar (FSLR) and SunPower (SPWR), on fire.
They haven’t.
That's because solar prices are joined at the hip with conventional energy sources.
When oil is cheap, solar share prices die a horrible death. When oil is dear, everybody and his brother wants to pile into everything alternative, be it solar panels, storage batteries, windmills, electric cars, and high mileage hybrid cars like the Prius.
The sole exception has been the Invesco Solar ETF (TAN). It has a globally diversified portfolio that invests in countries with much higher electricity prices than hours, thanks to local regulation and taxes. Only 53% of its investments are in the US, with a hefty 19% in Hong Kong alone, of all places.
The last two years have produced a new reason to go off the grid. Ferocious wildfires in the Golden State that have killed hundreds have led to total statewide blackouts from PG&E whenever wind speeds exceed 40 miles an hour.
Unless you want to keep throwing out all your frozen food every few weeks, the only way to move forward is with a solar-powered battery backup system. It’s just a matter of time before high-end homes can only be sold with 48 hours of backup power. The same logic applies to the hurricane-ravaged east and Gulf coasts. It’s especially an issue today with up to 25% of Bay Area residents working from home.
No juice, no job.
As for me, I am in the process of doubling up my own solar system, taking it up to a gargantuan 23,114 kWh, with three Tesla Powerwalls thrown in for good measure.
But then I have a Tesla P110D Model X that eats up 1,000 kWh a month. All of my appliances are electric except the gas burner because my traditional chef can’t cook without it and the water heater, because I want to have 200 gallons of water at all times in case an earthquake hits. I am turning into my own mini electric power utility, and I am not alone.
I have been encouraged by my experience with my first solar system, which I installed five years ago. It has worked flawlessly, since it has no moving parts. The installer promised me a six-year breakeven against my $500 a month power bill. I covered my cost in four years, thanks to soaring power prices.
And who has the highest electricity prices in the United States? That would be Hawaii, where all fuels have to be imported from great distances. Hawaiians have to pay a massive 66 cents a kilowatt. California only has to pay a peak rate of 55 cents a kilowatt, also among the highest in the country. Drive along Honolulu Interstate H1 today and all you see are solar panels.
Aloha!
Global Market Comments
January 7, 2020
Fiat Lux
Featured Trade:
(MONDAY FEBRUARY 3 BRISBANE, AUSTRALIA STRATEGY LUNCHEON),
(HOW “HIGH” CAN MARIJUANA STOCKS GO?)
(TLRY), (CGC), (TOKE)