Global Market Comments
July 18, 2016
Fiat Lux
Featured Trade:
(WHAT?S ON YOUR PLATE FOR THIS WEEK?),
(SPY), (TLT), (FXY), (YCS), (JNK), (GLD),
(TEN STOCKS TO BUY ON THE NEXT DIP)
SPY SPDR S&P 500 ETF
TLT iShares 20+ Year Treasury Bond
FXY CurrencyShares Japanese Yen ETF
YCS ProShares UltraShort Yen
JNK SPDR Barclays High Yield Bond ETF
GLD SPDR Gold Shares
Finally, finally, the stock markets broke out to an all time high last week.
After trying, and failing, for two years, traders finally got the print they were begging for, with the S&P 500 closing above 2015.
The world has too many people and not enough bonds.
That is the undeniable conclusion of the recent market action.
A surplus of humans means that wages can never rise fast enough to bring on true inflation. Hyper accelerating technology is exacerbating the trend.
So tidal waves of cash are flowing into disinflationary plays, primarily in fixed income, of which there never seem to be enough.
The global ultra-low interest rates this has brought us suddenly made stocks look cheap. A 2.5% (SPY) dividend yield, versus 2.27% for a 30-year US Treasury Bond?
REALLY?
New all time highs thus became a done deal.
Giving the bulls further confidence was the abundance of cross asset class confirmations.
As I expected, the Japanese yen (FXY), (YCS) tickled ?100 briefly, and then plunged 4.1%. Ten year Treasury bonds (TLT) also took a six-point respite. Junk bonds (JNK) held on to heady gains.
That great inflationary play, gold (GLD), took a much-needed breather.
But is this really the breakout that the pundits have been baying about? Or is it just the umpteenth head fake?
After all, trading for 2016 has been characterized by an endless series of false breakdowns, followed by false breakouts, relentlessly punishing traders and investors alike.
Blame the high frequency traders that received a huge fresh infusion of new capital at the beginning of this year. That gave them the juice to trigger a big round of stop losses on either side of recent trading ranges, every time.
I?m a firm believer that markets will do whatever they have to do to screw the most people, so I vote for the head fake.
The coming week may give us some clues.
On Monday at 10:00 AM EST, the National Association of Home Builders New Housing Starts Index should bring us a continued reacceleration, thanks to the incredibly low interest rates brought to us by Brexit. Expect a report of 61 or higher.
We get a follow up on Tuesday at 8:30 AM EST with New Housing Starts, which should best the 1,170,000 consensus.
The trifecta of positive housing reports will get wrapped up by an explosive increase in Mortgage Banker Association Mortgage Applications, with new refinancings as a major driver.
Needless to say, all of this upbeat housing data has a big multiplier effect on the rest of the economy.
The never to be missed Weekly Jobless Claims will be reported at 8:30 AM EST. We have been hovering at a near four-decade low of 254,000. However, you might expect a seasonal summer economic slowdown to bump those numbers back up a bit.
Friday brings us nothing exciting, except for the Baker-Hughes Rig Count at 1:00 PM EST, which has been trending up of late, putting pressure on oil prices.
If you were lulled into a false sense of complacency, expecting tedious summer doldrums to continue, and missed the move, you are not alone.
That would include me.
Virtually every hedge fund I know was caught either in cash, or net short. It is another nail in the hedge fund industry.
Personally, I wasn?t expecting the new highs in stocks until August at the earliest, and the end of the year at the latest.
Which means that we may get another chance to buy this market. The breakout certainly isn?t based on any earnings revival that usually accompanies such a move.
So if we do get the 5% correction in stocks I am expecting in August, it will be time again to close your eyes, hold your breath, and ?BUY?.
If we get another 5% correction in stocks in the coming weeks, it is best to have your ?BUY? list on the table and ready to go. That way you don?t have to waste time looking up ticker symbols.
I?ll give you mine.
Let me get this right. Stocks screamed upward last week because:
1) The Federal Reserve isn?t going to raise interest rates anymore.
2) The price of oil is holding steady in the high $40s, less than half the levels two- year ago.
3) Commodities are still holding close to multi-year lows.
4) The US dollar finally took a rest.
5) Corporations are continuing to buy back their own stock like there is no tomorrow.
6) Investors are yanking money from abroad and pouring it into the US, because it is the only place they can obtain a positive return, especially in stocks.
7) The FBI gave presidential aspirant Hillary Clinton a boost when it closed its email investigation.
May I point out the blatantly obvious right here?
These are all reasons for the 90% of US companies that consume energy to increase earnings and boost their share prices.
Only the 10% that derive revenues from ripping oil and commodities out of the ground should get hurt here.
Of course, the market doesn?t know that. It was anything but rational last week. There was only one direction, and that was UP.
The Dow and the S&P 500 are now, once again, posting positive numbers for 2016.
What is even more stunning is that these increases in prices are occurring in the face of US macro economic numbers that are mediocre, at best.
Only housing, which accounts for about one third of the US economy, has been on fire. Prices are still rising everywhere.
Even more incredible is that the stock market reached new highs in the face of a geopolitical backdrop that was nothing less than horrendous, with a major terrorist attack in Nice, France, followed by a coup d?etat in NATO ally Turkey.
If nothing else, corporate buybacks, sticking close to record levels, should reaccelerate here, which could reach $1 trillion in 2016. Some 4.7% of the outstanding share float of corporations is disappearing every year!
I am, therefore, going to give you a list of MY TEN FAVORITE STOCKS to buy during the next dip, highlighting the sectors that will lead us into a pre/post election yearend rally.
The themes here are homebuilders, consumer discretionary, solar, biotech, big technology, and international. And I?ll give you some mouth watering yield plays among the REIT?s and master limited partnerships.
?Even the entire interest sensitive sector is on the table as a value play.
Watch out, because when I sense that the market has opened a window, the Trade Alerts are going to be coming hot and heavy.
You have been forewarned!
Read ?em and weep with joy!
10 Stocks to Buy at the Bottom
Lennar Homes (LEN) $48.65
Home Depot (HD) $134.78
Facebook (FB) $116..86
IShares NASDAQ Biotech Index (IBB) $272.53
Apple (AAPL) $98.78
First Solar (FSLR) $47.73
Gilead Sciences (GILD) $86.67
Alerian MLP ETF (AMLP) $12.88 with a 6.84% yield
Simon Properties Group REIT (SPG) $222.94 with a 2.87% yield
Wisdom Tree Japan Hedged Equity (DXJ) $41.37
Global Market Comments
July 15, 2016
Fiat Lux
Featured Trade:
(JULY 20 GLOBAL STRATEGY WEBINAR),
(WHY STOCKS COULD RISE 50% HIGHER),
(SPY), (QQQ), (IWM),
(THOUGHTS ABOARD THE QUEEN MARY, PART III)
SPY SPDR S&P 500 ETF Trust
QQQ PowerShares QQQ Trust, Series 1
IWM - iShares Russell 2000 ETF
?
When things are going to happen, and the market gets a whiff of it, fast forward often kicks in.
That seems to be what is happening to my forecast that US stocks would end 2016 on the back of both rising earnings and a price earnings multiple expansion.
Hey Mr. Market! Check your watch! You?re three months early!
Earnings are growing modestly, as I expected. But multiple expansion has taken off like a rocket and is approaching the highs not seen since the 2000 dotcom bubble top.
S&P 500 earnings multiple are about to approach the 20X line, and 21X beckons.
How high will multiples rise in this cycle? The old previous high of 26X seems like a chip shot.
However, we now live in a brave new world.
Is a 30X multiple possible? That would require the stock market to rise by 50% on current earnings, and much more if they start to reaccelerate as well, which seems to be happening now.
This could take the Dow Average up to an eye popping 27,000, and the S&P 500 (SPX) to a scorching 3,227.
But wait! There?s more!
If earnings and multiples BOTH rise 50% each, as we enter the 2020?s, that boosts the Dow Average up to a fanciful 40,000, and the S&P 500 (SPX) to an unbelievable 4,837.
Is anyone ready to sit down and have a stiff drink yet? I recommend the Jameson 12 year old, neat. A bottle will do.
I have been predicting these levels for years. I just didn?t think they would appear so quickly.
There is no shortage of reasons for the current, out-of-the-blue stock melt up.
The negative interest rates that now afflict the bulk of the world?s bond markets are a major cause.
These are the result of global central banks absolutely flooding the world?s financial markets with liquidity.
A surprise Brexit vote put a turbo-charger on this trend from which ultra high bond prices are yet to retreat.
The harsh reality that the bond bears fail to face is that there is a global bond SHORTAGE!
This is why the 30-year US Treasury bond with a 2.20% yield is well below the average stock dividend yield of 2.5%.
Record high bonds prices suddenly made stocks look cheap, not just in the US, but globally.
And guess what? Everyone was underweight stocks, and increasingly so.
Every crisis of the past year panicked investors into dumping stocks at market lows, be it the prospect of a Chinese economic collapse, a Donald Trump presidency, or Britain leaving the EC.
None of these things happened (Brexit will get undone), so stocks quickly snapped back every time.
This is why cash levels are at multi-decade peaks, and we are all underweight stocks, in a market that is appreciating to new all time highs daily.
Once again, buying stocks AND bonds on every dip for the past seven year now looks like a stroke of genius.
I hate to say ?I told you so,? but I told you so.
I have been making exactly this kind of widely ridiculed and disbelieved prediction since I originally posted my ?Second American Industrial Revolution? research piece on July 23, 2014 (click here). The later revision is available here.
Dow 100,000 anyone? If you don?t like that, how about Dow 200,000?
None other than long term Mad Hedge subscriber Warren Buffet has opined that if interest rates go to ultra-low levels and stay there for years, stock prices could rise TEN TIMES from here.
This is why every new subscriber to the Diary of a Mad Hedge Fund Trader immediately receives my opus on ?10 Reasons Why US Stocks Are Dirt Cheap? (click here).
And I penned that prediction way back when the (SPY) PE multiple was still at a lowly 16X.
Why can?t you find such ambitious forecasts elsewhere? I am told that being negative sells more newsletters, and being hugely negative sells millions of them.
Just thought you?d like to know.
50 degrees, 26.68 minutes North, 022 degrees, 29.98 minutes West, or 1,000 nautical miles South of Iceland, heading 089 degrees.
Four days of hearing foghorns is starting to get tiring. Captain Wells has been ducking many of his social responsibilities, feeling more secure in the bridge close to the radar.
After a few days of intermittent access, the internet is now gone for good, the satellite connection having given up the ghost.
People are blaming everything from a lightening strike on the Virginia ground station to late night watching of porn by the crew.
Instead of surfing the web, I am devoting more time to exercise in anticipation of my upcoming Swiss mountain climbing adventures.
I have developed a careful routine where I fast walk three times around deck 7 in a brisk wind, take the elevator down to deck 1, walk up their stairs to deck 13, speed past the kennels, the practice golf range, two swimming pools and a bar.
I can accomplish all of this three times in an hour, and do it with 40 pounds of books stashed in my backpack.
My butler, Peter, tells me there is always a certifiable nut case on every cruise, and I have been designated by the crew as ?THE ONE?.
The 2,600 passengers are quite a mixed batch. We have 1,200 British, 750 Americans, 350 Germans, 80 Canadians, 4 dogs, three cats, and an assortment of other nationalities, and exactly one Japanese couple who don?t speak a word of English.
I took pity on them and spent an evening translating and catching up on the world at large with them. He was a retired dance instructor, which explains why he and his wife owned the dance floor on most nights.
They were grateful for the conversation, for during their entire 30 day cruise from New York to Southampton, then the Baltic Sea and the Norwegian fiords, then back to New York, they had no one to speak to. Still, that was better than last year, when they completed a 105-day round the world cruise with no one to talk to.
Before they left, they gave me an exquisite, hand made, traditional Japanese purse as a gift.
All those hours on the Tokyo subway memorizing flash cards finally paid off!
The Hard Life at Sea
Breakfast on the High Seas
Your Intrepid Reporter
?This is an epic bond bubble that we may have just seen the end of, not only here, but in Europe too,? said Peter Boockvar, an analyst at the Lindsey Group.
Global Market Comments
July 14, 2016
Fiat Lux
Featured Trade:
(JULY 27 BASEL, SWITZERLAND GLOBAL STRATEGY LUNCHEON)
(WELCOME TO GLOBAL TRADING DISPATCH),
(WHY I HAVE BECOME SO BORING),
(SPY), (QQQ), (IWM), (AAPL), (TSLA), (BIDU), (LNG)
SPY SPDR S&P 500 ETF Trust
QQQ PowerShares QQQ Trust
IWM? iShares Russell 2000 ETF
AAPL Apple Inc.
TSLA Tesla Motors, Inc.
BIDU Baidu, Inc.
LNG Cheniere Energy, Inc.
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As Are the Rewards
?Sure, things are crazy now, but they can remain crazy for a little bit longer,? said a hedge fund trader friend of mine.
