Global Market Comments
February 15, 2018
Fiat Lux
Featured Trade:
(THE NEW CASE FOR EUROPE),
(FXE), (DXJ), (RSX), (FXE), (EUO),
(WHY ARE BOND YIELDS STILL SO LOW?),
(TLT), (TBT), (JNK), (LQD), (MUB)
It is time to revisit this once troubled continent. The reality is that the European economy is now growing substantially faster than the US, with a better stock market performance to match.
Not only that, the Euro has been rising, thanks to America’s exploding budget deficits.
Rising markets and rising currencies create an upward hockey stick effect on your profits.
I bet you didn’t know that the Greek stock market rose over 40% from November, and the Euro (FXE) added another 7%!
I have been to Greece many times over the past 50 years, and I’ll tell you that I just love the place.
The beaches are perfect, the Ouzo wine enticing, and I’ll never say “No” to a good moussaka.
As for the old Youth Hostel in Athens with the permanently clogged sewer lines, I now much prefer the five star King George Hotel.
However, I don’t let Greece dictate my investment strategy.
Greece, in fact, accounts for less than 2% of Europe’s GDP.
It is not a storm in a teacup that is going on there, but a storm in a thimble.
Greece is really just a full employment contract for financial journalists, who like to throw around big words like bankruptcy, default, and contagion.
I have other things to worry about.
In fact, I am starting to come around to the belief that Europe is looking pretty good right here, refugee crisis, Brexit, and trade wars be damned!
That’s why the better hedge funds have been piling in there since the presidential election. In fact, many managers prefer foreign developed stock market than the domestic US variety.
Fiat CEO, Sergio Marchionne, the brilliant personal savior of Chrysler during the crash, thinks the beleaguered continent is about to recover from “hell” to only “purgatory.”
Only a devout Catholic could come up with such a characterization.
But I love Sergio nevertheless because he generously helps me with my Italian pronunciation when we speak (“aspirapolvere” means “vacuum cleaner”, really?).
Notice that these European based equity ETF’s vastly outperform those for the main US indexes during the same time by a large margin, many by 2:1.
And here is where I come in with my own 30,000-foot view.
The undisputed lesson of the past nine years is that you always want to own stock markets that are about to receive an overdose of quantitative easing.
Since the US Federal Reserve launched their aggressive monetary policy, the S&P 500 (SPY) has nearly quadrupled off the bottom.
Europe was a late entrant to the QE game, and it could run for at least six more months.
Corporations across the pond are being force-fed mountains of cash at recently neagative interest rates, much like a goose being fattened for a fine dish of foie gras (only decriminalized in California last year).
Get Europe off the mat, and you can also add another 10% to US share prices as well, as the global economy revives.
Buy the Wisdom Tree International Hedged Equity Fund ETF (HEDJ) down here on dips, which is long a basket of European stocks and short the Euro (FXE). The recent correction just gave us a nice fat entry point.
These could be the big performers this year.
Praise the Lord and pass the foie gras!
"It is impossible to compete with a big company that doesn't want to make money," said J. Crew founder Mickey Drexler about Amazon.
Global Market Comments
February 14, 2018
Fiat Lux
Featured Trade:
(AUTONOMOUS SELF-DRIVING CARS ARE COMING SOONER THAN YOU THINK),
(TSLA), (GM), (F), (GOOG),
(INDIA IS CATCHING UP WITH CHINA),
(PIN), (TTM), (EPI), (INP)
I was somewhat taken aback when I picked up my new Tesla Model S-1 a few weeks ago. Right now, with only 20 miles on the odometer, the car is stupid, said the salesman.
But it has an artificial intelligence program that will start learning as soon as you drive it off the lot. He added, Don't even try the self parking function until you have at least 3,000 miles on the clock?
I was stunned. Self-driving cars are coming sooner than you think. Much sooner.
So, here is where we are with self-driving cars, right now, today. My new S-1 will:
- 1) Stay in a single freeway lane and slowdown if someone cuts you off. You can adjust the following distance from one to seven car lengths.
- 2) Change lanes for you when you hit the turn signal.
- 3) Move without a driver a fixed distance out of a garage at the push of a button.
- 4) Self park, either parallel, or by backing into a space.
- 5) Full automation, or address to address self driving, is still about two years off.
My first read on all of this? The car can drive better than I can, especially at night.
The technology will go mainstream in volume when the Tesla 3 begins mass production in early 2018. The company plans to manufacture 500,000 vehicles a year by late 2020.
The stock market has noticed. Since the November 8th presidential election, Tesla shares have rocketed a staggering 40%. Last year was just a pit stop on its way to $1,000 or much more.
Ostensibly, the reason for this gigantic move has been the flowering love affair between the new president and Tesla founder, Elon Musk, the largest creator of new manufacturing jobs in the US in recent years.
The real reason is much more complex. Tesla's main competitors, General Motors (GM), Ford (F), and Chrysler have a substantial portion of their manufacturing in low wage foreign countries, like Mexico and China.
That has placed a big fat bullseye on their backs with the new administration. Current policy is to intimidate, cajole, and threaten these pillars of US industry to move a big part of their production from a $3 an hour labor force to a $30-$50 an hour one.
I've never been much of a stock analyst, but even I can tell you this will be terrible for the profits of GM and Ford . . . and great for Tesla. This explains the recent feeble performance of the big three auto shares and the ballistic move of Tesla. The stock market agrees with me.
So, by now, you are probably asking why I am buying my third $110,000 Tesla in three years. Of course, midlife crisis has to be at the top of the list. After all, I just turned 65. So I bought the fire engine red model to match the color on my new Medicare card.
Free fuel is another reason, as the massive solar array on my roof will power the car indefinitely. A new car also comes with a four-year warranty, meaning that all repairs are on Tesla. There is no maintenance, save for occasional tire rotations.
But the real reason is that I just totaled my last Tesla and needed a quick replacement. The dealer in Bellingham, WA had just what I wanted . . . and in red! It was on a flatbed trailer and at my door in two days.
Did I mention that insurance companies hate me? This time, it wasn't my fault. I swear!
I was parked in Berkeley, CA when a GM Silverado driven by a drunk driver plowed into the side of my car just as I was getting out. I missed getting killed by about six inches. I hope that wasn't my ninth life!
Tesla isn't the only company on the verge of a major breakthrough in self-driving cars. It just so happens to be the leader in quality and volume.
Uber's self-driving vehicles are now plying the streets of Pittsburg (after having been banned in San Francisco). The company is now experimenting with 18-wheeler trucks for cross-country trips.
Ford has announced the production of a fleet of self-driving cars for ride sharing by sometime in 2021. General Motors is planning a similar venture with Lyft.
Alphabet (GOOG) has created an entire division dedicated to the field, with the ultimate goal of becoming a major supplier of technology to third party manufacturers. It also has a ride sharing deal in the works with Chrysler.
The 30,000 foot view of what is going on here is that the major car companies are experimenting with new business models to forestall a secular decline in car ownership expected for the 2020s.
It is even spilling over into the agricultural sector, where self-driving tractors and other farm machinery are the hot new thing.
It is even spilling over into the agricultural sector, where self-driving tractors and other farm machinery are the hot new thing.
Out With The Old Wheels . . .
And in With the New Wheels
When I first visited Calcutta in 1976, more than 800,000 people were sleeping on the sidewalks.
I was hauled everywhere by a very lean, barefoot rickshaw driver, and drinking the water out of a tap was tantamount to committing suicide.
Aggressive population control measures where underway, and strict quotas were in force. Everyone was taking their grandmother in to get sterilized.
Some 38 years later, and the subcontinent is poised to overtake China's white hot growth rate.
My friends at the International Monetary Fund just put out a report predicting that India will grow by 8.5% this year. While the country's total GDP is only a quarter of China's $6 trillion, its growth could exceed that in the Middle Kingdom as early as 2018.
Many hedge funds believe that India will be the top growing major emerging market for the next 25 years, and are positioning themselves accordingly.
India certainly has a lot of catching up to do. According to the World Bank, its per capita income is $3,275, compared to $6,800 in China and $46,400 in the US. This is with the two populations close in size, at 1.3 billion for China and 1.2 billion for India.
But India has a number of advantages that China lacks. To paraphrase hockey great, Wayne Gretzky, you want to aim not where the puck is, but where it's going to be.
The massive infrastructure projects that have powered much of Chinese growth for the past three decades, such as the Three Gorges Dam, are missing in India. But financing and construction for huge transportation, power generation, water, and pollution control projects are underway.
A large network of private schools is boosting education levels, enabling the country to capitalize on its English language advantage.
When planning the expansion of my own business, I was presented with the choice of hiring a website designer here for $60,000 a year, or in India for $5,000.
That's why booking a ticket on United Airlines or calling technical support at Dell Computer gets you someone in Bangalore.
India is also a huge winner on the demographic front, with one of the lowest ratios of social service demanding retirees in the world.
Even though it has recently been terminated, China's 30-year-old ???one child??? policy is going to drive it into a wall in ten years, when the number of retirees starts to outnumber their children.
There is one more issue out there that few are talking about. The reform of the Chinese electoral process at the People's Congress in 2013 could lead to posturing and political instability, which the markets could find unsettling.
India is the world's largest democracy, and much of its current prosperity can be traced to wide ranging deregulation and modernization than took place 20 years ago.
I have been a big fan of India for a long time, and not just because they constantly help me fix my computers, make my travel reservations, and tell me how to work my new altimeter watch.
In August, I recommended Tata Motors (TTM), and it has gone up in a straight line since, instantly making it one of my top picks of the year. On the next decent dip take a look at the Indian ETF's (INP), (PIN), and (EPI).
??
Better to Own This Pyramid
Than This Pyramid
Global Market Comments
February 13, 2018
Fiat Lux
Featured Trade:
(FEBRUARY 14 GLOBAL STRATEGY WEBINAR),
(THE UNICORNS ARE OUT OF THE CORRAL),
(CDLX), (SNAP),
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD)
My next global strategy webinar will be held on Wednesday, February 14 at 12:00 PM EST, which I will be broadcasting live from Silicon Valley in California.
We'll be giving you my updated outlook on stocks, bonds, commodities, currencies, precious metal, and real estate.
The goal is to find the cheapest assets in the world to buy, the most expensive to sell short, and the appropriate securities with which to take positions.
I will also be opining on recent political events around the world and the investment implications therein.
I usually include some charts to highlight the most interesting new developments in the capital markets. There will be a live chat window with which you can pose your own questions.
The webinar will last 45 minutes to an hour. International readers who are unable to participate in the webinar live will find it posted on my website within a few hours. I look forward to hearing from you.
We recently have taken in a large number of new subscribers. If you miss it the webinar will be posted on the website within the hour.
To log into the webinar, please click on the link we emailed you yesterday entitled "Next Bi-Weekly Webinar - February 14, 2018" or click here
It was perhaps the worst timed IPO (initial public offering) of the decade.
Cardlytics (CDLX) went public at the Friday open, one of the worst days in the history of Wall Street.
The shares were priced at $13, and closed later in the day at a strong $13.33. The Dow Average then collapsed some 1,100 points in hours.
A lesser underwriter would have delayed the issue, given the dark stormclouds building on the horizon. Not so for JP Morgan Chase, which had heavily presold the deal, and went ahead, come hell or high water.
Cardlytics is a data platform that specializes in the collecting purchase and transaction data from financial institutions and converting the data into highly targeted marketing offers.
Cardlytics' flagship offering is called Cardlytics Direct - advertisements to customers that are placed directly in their banks' webpages and mobile apps in the form of "cash back" offers that most are familiar with.
Firms that purchase intelligence data from Cardlytics can target ads to customers who are most likely to respond.
A major part of the appeal of Cardlytics was its use of artificial intelligence in matching the buyers and sellers of ads.
AI is the hottest investment theme in Silicon Valley these days. However, there are very few public companies that allow investors a pure, or even peripheral AI play.
The Cardlytics IPO raises the urgent question of whether there are more unicorns to come. Unlike past market and economic cycles, unicorns, or successful companies still in the private startup stage, are delaying public filings longer than at any other times in the past.
Managers say they want to mature their companies and delay the high legal and regulatory costs that come with going public. The REAL reason is that founders want to milk their firms for all they're worth and sell them only after they go ex-growth.
The end result has been to create a shortage of high tech firms with the most cutting-edge technologies. This has caused investors to price the few public firms that are out there at even higher valuations.
Music streaming service Spotify is thought to be next in the IPO parade, followed by cloud firm Dropbox, followed by AirBnB and the $70 billion mammoth, Uber.
In the nine months ending in September, Cardlytics lost $16 million on sales of $91 million.
Cardlytics has raised more than $200 million in venture funding from ITC Holding Co. LLC, Kinetic Ventures, Canaan Partners, Polaris Venture Partners and TTV Capital, which are all cashing big paychecks today.
Given the recent performance of small tech IPO's, I'll be holding back on sending out a "BUY" recommendation on (CDLX) at this time.
Traders are still too freshly burned from their 2017 experience with SNAP (SNAP) (for more on this unfortunate company, please read the Mad Hedge Technology Letter piece "Don't Fall Into the SNAP Trap" by clicking here for tech letter subscribers only.
SNAP launched in March at $17, and then soared 44% on the first day to $29. It then collapsed to a low of $11.40, off a heartbreaking 60.68%. It was a classic case of investment banker incompetence, greed, and mispricing.
Once burned, twice forewarned, as they say.
Global Market Comments
February 12, 2018
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SO THAT'S A CORRECTION!)
(THE MAD HEDGE FUND TRADER IS HIRING!)
