Global Market Comments
July 3, 2018
Fiat Lux
Featured Trade:
(TAKING OFF FOR EUROPE),
(JOIN ME ON THE QUEEN MARY 2 FOR MY JULY 11, 2018 SEMINAR AT SEA),
(TESTIMONIAL)
Terrorist attacks, trade wars, and crashing airlines all spell one thing to me.
Travel bargains!
Of course, my first choice for a vacation destination this year was the civil war in Syria, so I could find out on the ground what is really happening there. In addition, I could shop for a refugee camp in Jordan for one of my nonprofits to help support.
Unfortunately, my family was not too hot on this idea, not wishing to buy me back from kidnappers at an inflated price, again (the last time was Cambodia in 1976).
The Joint Chiefs were not too thrilled either. At my advanced aged, I simply know too much to fall into the wrong hands. They said I would last a day.
So I compromised. This summer will find me crossing the Atlantic on Cunard's Queen Mary 2 where I will be conducting my Seminar at Sea for a few lucky subscribers.
Then, I'll be camping out at the Hemingway Suite at the Ritz Hotel in Paris for Bastille Day, sailing in a steamboat on the placid waters of Lake Geneva to view the Alps, retreating to my chalet in Zermatt, Switzerland, to climb the Matterhorn for the sixth time, and then passing through Amsterdam to eat some raw herring.
Three tuxes and my white dinner jacket are packed, the five-star hotels are booked, and soon the limo will be waiting outside. The Cessna is fully fueled and the flight plan filed. I am taking off for my 2018 European Strategy Luncheon Tour.
I have worked the hardest in my life the past year, and it is time for a break. I have also put myself through the most grueling training regimen, hiking 2,000 miles and snowshoeing another 600, all with a 60-pound pack.
Every year it seems to get harder to keep the calendar at bay.
Along the way I will be meeting with other hedge fund managers, senior government officials, CEOs at major banks and Fortune 500 companies, large institutional investors, and a Nobel Prize winner or two.
Getting out into the real world and soaking up new data and opinions is invaluable in shaping my own global view, and your performance benefits from it.
Since I don't stumble across these people in my living room, I have to travel the world to seek them out. You can soak up all the online data you want, but nothing beats contact with the real world.
In New York I'll board the Cunard Line's Queen Mary 2 at the Brooklyn Cruise Terminal to take residence in the owner's suite. If the ship's satellite link cooperates this year, I will be filing live reports along the way.
As we pass over the wreck of the Titanic on the second day out, we'll throw a bouquet of flowers as a mark of respect.
I'll then board the Orient Express for Venice, where the dinner is black tie only. Hopefully, there won't be any murders this time.
If a new Brioni suit and pair of Gucci shoes throw themselves upon me while I stroll through the Galleria in Milan I may be unable to resist.
In Geneva I'll be consulting with the representatives of several Middle Eastern royal families while they vacation in the Alps.
One afternoon will be devoted to taking the paddle wheel steamer on Lake Geneva to the Chateau de Chillon in Montreux where Lord Byron used to live, sipping fine Swiss white wines along the way.
The grand finale will be my annual assault on the Matterhorn at Zermatt, which at 14,692 feet is higher than anything we have in the continental U.S. After training all year for this, it's now or never.
I spend my evenings there at public steam baths where afterward I roll around in the snow and beat myself with birch branches. It is invigorating, to say the least.
I will be traveling with my laptop and keeping touch with the markets. While 18th century Internet service is passable, the bandwidth can be snail like. So, unless I see something extraordinary, I will cut back on new Trade Alerts.
After running up a 304% return in 8 1/2 years and beating 99.9% of the hedge funds in the industry, I deserve a break. I need to spend some time alone on a mountaintop, communing with the spirits, attempting to discover the new long-term market trends through the mist.
While on the road, I will continue writing my newsletter, giving you my daily dose of market insight. I will also be re-running some of my favorite research pieces from the past when my travel schedule does not allow Internet access.
This is to expose my thousands on new subscribers to the golden oldies, and to remind the legacy readers who have since forgotten them.
I will be back in San Francisco in early August, glued to my screens once again for another year of toil in the salt mines. In the meantime, please feel free to email me.
Mad Hedge Technology Letter author Arthur Henry and Mad Day Trader Bill Davis will be working straight through the summer. No rest for the wicked!
In the meantime, I shall be raising a glass to all of you at dinner, the loyal readers of The Diary of a Mad Hedge Fund Trader. Salute! Prost! Kampai, and Cheers! Thanks for making this letter a huge success!
If you want to take the opportunity to meet me in person, please find my strategy luncheon schedule below. To purchase tickets for the luncheons, please click here https://www.madhedgefundtrader.com/category/luncheons/ and choose the country and city of your choice.
Wednesday, July 11, 2018: Queen Mary 2 Seminar at Sea
Monday, July 16, 2018: Paris, France Global Strategy Luncheon
Friday, July 27, 2018: Zermatt, Switzerland Global Strategy Seminar
Friday, August 3, 2018: Amsterdam, The Netherlands Global Strategy Dinner
I'll Meet You on Top
My Plug Adapters Are Ready to Go
Come join me in the grand appointments of the Cunard Line's flagship, the elegant and spacious Queen Mary 2, on an eastbound transatlantic cruise.
The Ship departs New York at 10:00 AM on July 6, 2018 and arrives at Southampton on July 13. There I will be conducting the Mad Hedge Fund Trader's Strategy Update, a three-hour discussion on the global financial markets.
I'll be giving you my up-to-date view on stocks, bonds, currencies, commodities, precious metals, energy, and real estate. I'll highlight the best long and short opportunities. And to keep you in suspense, I'll be tossing a few surprises out there, too. Enough charts, tables, graphs, and statistics will be thrown at you to keep your ears ringing for a week. Tickets are available for $300 for the seminar only.
Attendees will be responsible for booking their own cabin through Cunard. They offer everything from an inside stateroom from $999 per person to $26,780 for Q1 deluxe two-bedroom apartment with its own gym.
Just visit Cunard's website or call them directly at 800-728-6273 to make your own arrangements.
The weather this time of year can range from balmy to tempestuous, depending on our luck. A brisk walk three times around the boat deck adds up to a mile. Full Internet access will be available, for a price, to follow the markets.
Every dinner during the voyage will be black tie, so you might want to stop at Saks Fifth Avenue in Manhattan to get fitted for a second and third tux. Don't forget to bring your Dramamine and sea legs, although the 151,400 tonne, 1,132-foot-long $900 million ship is so big I doubt you'll need them. The Queen Mary 2 just completed a major refit in Germany so everything is new.
The event will be held at a luxurious penthouse suite on the ship's highest deck, the details of which will be emailed to you with your purchase confirmation. To instill us all with a proper sense of humility, I will conduct the seminar as we sail over the wreck of the Titanic. The ship will give a blast of its horn three times as a salute as we pass the site.
I look forward to meeting you and thank you for supporting my research.
To purchase tickets for the seminar alone, please click here.
I can't tell you how much I enjoy your blog. It is the first place I go every morning, and I miss you on the weekends.
I stumbled upon your site about four months ago and have been addicted to it since day one. I really appreciate not only your insight into the markets, but also your global and historical perspectives.
All of this served up with your great sense of humor makes it a must read! Thanks for all your hard work.
Chip
"It doesn't take Herculean assumptions to get to $170 for S&P 500 earnings this year. Slap a 17.5 multiple on that, and you get 3,000 for the index," said Brian Jacobsen of Wells Fargo Asset Management.
Global Market Comments
July 2, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE FUTURE IS HAPPENING FAST),
(HOG), (TLT), (ROM), (MU), (NVDA), (LRCX),
(SPY), (AMZN), (NFLX), (EEM), (UUP), (WBA),
(THE WORST TRADE IN HISTORY), (AAPL)
I feel like I'm living life in fast forward these days.
First we got a slap across the face with a wet mackerel on Monday with a 328 plunge in the Dow Average on yet another trade war escalation.
Harley Davidson (HOG) said it was moving a factory out of the country to bypass new European duties imposed in response to ours. If Harley is doing this you can bet there are 10,000 other companies thinking about it.
And even though robust economic growth should assure us that we remain in a new bear market for bonds, traders think otherwise. A 10-year Treasury bond (TLT) yield at 2.81% says that we're already in the next recession, we just don't know it yet.
As always happens with the ebb and flow of the trade war, technology got hammered. My favorite early retirement vehicle, the ProShares Ultra Technology 2X ETF (ROM), plunged some 11.19% to an even $100. Chip stocks such as Micron Technology (MU) and Lam Research (LRCX) get particularly hurt as China buys 80% of their processors from the U.S.
In the meantime, Tesla (TSLA) continues its phoenixlike rise from the ashes yet again, burning the shorts for the umpteenth time. The shares are now taking another run at a new all-time high. You would think people would learn but they don't. Einstein's definition of insanity is repeating the same thing over and over again and expecting a different result.
While bearish analysts predicted the imminent demise of the company, I saw a steady stream of trucks delivering new Tesla 3s from the Fremont factory while driving back from Los Angeles last weekend. Nothing beats on-the-ground research.
I'm sorry, but there is definite disconnect from reality with this company. The most hated company in America has produced the fifth best performing stock in over the past eight years, up more than 2,000%. I guess that's what happens when you disrupt big oil, Detroit, the U.S. dealer network, and the entire advertising industry all at the same time.
Interestingly, we caught three of the five best performers early on, including Tesla, NVIDIA (NVDA), and Netflix (NFLX).
Emerging markets (EEM) continue their death spiral, pummeled by the twin threats of trade wars and a soaring dollar (UUP). Most big emerging companies have their debt in dollars.
Sometimes you have to forget what you know to make money, and that has certainly been the case for me with emerging countries, where I spent a large part of my life.
The future is happening fast. Amazon (AMZN) single-handedly demolished the drug sector when it announced its takeover of online pharmacy company PillPack. The traditional brick-and-mortar retail pharmacy sector lost $9 billion in market capitalization just on the announcement. Walgreens (WBA) alone dropped a gut churning 10%.
If anyone can slash America's bloated health care bill it is Jeff Bezos. Just ask any former bookseller or toy maker.
And for a final middle finger salute to investors, the president said he wants to withdraw from the World Trade Organization, which the U.S. itself created after WWII. That means the United Nations is next on the chopping block.
America is rapidly becoming rogue nation No. 1, the next failed state. And failed states don't have great stock markets. Just check out the Somalia Stock Exchange.
They net of all of this is that the rest of the global economy is rolling over like the Bismarck, while the U.S. remains a sole beacon of strength. That's not good when half of S&P 500 earnings come from abroad.
However, that strength is based on a temporary one-time-only stimulus from massive deficit spending and corporate tax cuts that runs out of juice next year.
So keep tap dancing on the edge of the Grand Canyon. We'll miss you when you're gone. And before you ask, the best hedge in this kind of market is cash, which has huge option value that almost no one recognizes.
Despite all the chaos, uncertainty, and massive headline risk, I managed to tiptoe between the raindrops, keeping the Mad Hedge Fund Trader Alert Service performance just short of a new all-time high.
I closed out the month of June at a healthy 4.45%, my 2018 year-to-date performance rose to 24.82% and my 8 1/2-year return catapulted to 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.
This coming holiday shortened week will be all about the jobs, jobs, jobs. Also, the Fed will raise interest rates by 25 basis points on Wednesday to an overnight rate of 2.00%.
On Monday, July 2, at 9:45 AM, the May PMI Manufacturing Index is out.
On Tuesday, July 3, at 10:00 AM, the May Factory Orders are published.
On Wednesday, July 4, U.S. markets are closed for Independence Day. I will be watching the fireworks display over New York's Hudson River from the top of a Midtown Manhattan skyscraper.
Thursday, July 5, sees a huge bunching up of data thanks to the Fourth of July. It leads with the ADP Employment Report for private sector jobs at 8:15 AM EST. The Weekly Jobless Claims follow at 8:30 AM EST, which saw a rise of 9,000 last week to 227,000. Also announced is the all-important 25 basis point interest rate rise from the Federal Reserve and the FOMC Minutes at 2:00 PM, a reading of what was discussed at the last Fed meeting.
On Friday, July 6 at 8:30 AM EST, we get the June Nonfarm Payroll Report. Then the Baker Hughes Rig Count is announced at 1:00 PM EST. I will be sipping a glass of champagne as I board the Queen Mary 2 at the Brooklyn Cruise Terminal. I look forward to all those who signed up for my Seminar at Sea.
As for me, I will be hurriedly packing for the 2018 Mad Hedge European Tour.
Unfortunately, traveling in the grand style of the 19th century Belle Epoque involves bringing 200 pounds of luggage.
Now where are those darn black dress socks? And why am I missing a stud for my formal shirt?
Good Luck and Good Trading.
Time to Get Off the Merry-Go-Round
"Not investing in technology now is like not investing in industrial companies during the Industrial Revolution," said one portfolio manager.
Global Market Comments
June 29, 2018
Fiat Lux
Featured Trade:
(WHY THE WORLD IS ABOUT TO END),
(TLT), (TBT), (HYLD), (LQD), (JNK), (SPG),
(JOIN US AT THE MAD HEDGE LAKE TAHOE, NEVADA, CONFERENCE, OCTOBER 26-27, 2018)
I am basically a positive person. I never have been much of a Cassandra who predicts the end is near and the world is about to end. Nor have I ever been one to exaggerate. In this day, the raw facts are strange enough.
But you know what? The end really IS near and the world IS about to end.
If you knew that a trillion-dollar trade was about to unwind wouldn't you like to get in front of it? If you could you would be able to make a fortune for yourself.
Well guess what? Just such an opportunity is staring you in the face.
I am talking about the inversion of the yield curve, which I have been warning you about for the past two years. Now the mainstream media is finally getting on the bandwagon and starting to focus on this arcane concept.
During expanding economies, long-term interest rates are always higher than short-term ones to compensate investors for the greater risk that extended duration implies. The longer the life of a bond, the more things that can go wrong. They also need to be protected from rising inflation.
Inverted yield curve takes place when long-term interest rates are lower than short-term ones. This takes place when the Federal Reserve raises overnight rates to higher-than-normal levels to cool an overheating economy. This is a rare event, as the Fed action brings results usually in months. Yield curves are only inverted about 10% of the time, or about one year in every 10.
It turns out that the yield curve is the best predictor of recessions and bear markets out there. Take a look at the charts below, which I lifted from my friends at The New York Times. They show a yield curve inverting in 2007. The Great Recession and a 52% slide in the S&P 500 followed. It turns out that every recession of the past 60 years was preceded by an inverted yield curve.
It isn't just the yield curve that is anticipating the end of the Great Bull Market of the 2010s. The headline unemployment rate is also raising a red flag. The current jobless rate is now at 3.8%, an 18-year low. The last time we saw numbers this robust was, you guessed it, back in 2007.
In fact, I am seeing a whole range of data points warning that this economic cycle is coming to an end. As a hedge fund friend of mine told me the other day, "A year from now we'll be kicking ourselves over why we didn't sell. All the signs were there."
With the government about to report a US Q2 GDP figure of anywhere from 3% to 4% you must think I'm smoking California's largest cash crop (it's not grapes).
But having been through nine bull markets during my lifetime, I can tell you this is exactly what tops look like. Business is booming, you can't hire anyone, there are long lines everywhere, and nary a space is to be found in a shopping mall parking lot. This is when economies exhaust themselves, by overheating and pulling growth in from future years.
Now about that trillion-dollar trade.
Back in 2011, the spread between the two-year and 10-year Treasury paper (TLT) was a generous 3.0%. Bond traders made money hand over fist borrowing short, lending long, and leveraging this trade up anywhere from 10 to 100 times. The risk reward was so great that the aggregate value rose to the tens of trillions of dollars.
Today, that spread is on 34 basis points. Traders are still putting it on but keeping every close eye on the exit. After all, 34 basis points X 10 is 3.40%, which still handily beats overnight deposit rates.
When the spread turns negative the sushi hits the fan, and they sell everything, taking the rest of the world with it.
What will they be dumping? The entire long dated maturity range of not just Treasury bonds (TLT), but ALL bonds (LQD), (JNK) and high yielding stocks (HYLD), ETFs, MLPs (AMLP), and REITs (SPG). They call this a "bear market."
What's the cleanest way to play this? Sell short the (TLT) or buy the inverse 2X short Treasury ETF (TBT). Right here, with yield at a five-month low and prices at five-month highs, is a great entry point.
Just thought you'd like to know.
