Global Market Comments
September 13, 2024
Fiat Lux
Featured Trade:
(The Mad SEPTEMBER traders & Investors Summit is ON!)
(SEPTEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (UUP), (FXA), (FXE), (FXC), (FXB), (DJT), ($INDU), (JPM), (BRK), (TSLA), (NVDA), (IBM), (CCJ), (BRK/B)
The Fed has stopped raising interest rates, inflation is falling, and tech stocks are on fire!
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Below please find subscribers’ Q&A for the September 11 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.
Q: Will the Fed cut by 50 basis points at their next meeting?
A: The probability of that happening actually dropped by about half with the warm CPI report this morning with core CPI at 0.3%. That may have pushed the Fed from a 50% basis point rate cut back down to only 25%. I think if we only get 25%, the market will sell off. So that’s Wednesday next week. Mark that on your calendars—the market may well be on hold until then.
Q: Is $50/barrel oil (USO) coming by the end of this year?
A: No, but I think $60 is in the works. And that may be the bottom of this cycle because after that we expect an economic recovery, greater demand for oil, and rising prices in 2025. Until then, overproduction both in the US and in the Middle East is knocking prices down.
Q: Will the US dollar (UUP) continue its terrible performance through the end of the year?
A: Yes, and in fact, it may be for the next 10 years that the US dollar is weak—certainly 5—so any rally or dips you get in the currencies (FXA), (FXE), (FXC), and (FXB) I’d be buying with both hands.
Q: Where are you hiding at the moment?
A: 90-day T-bills, which are yielding 4.97%. You can buy and sell them any time you want, and the interest is only payable when you sell them.
Q: Is September 18th the selloff?
A: It depends on how much we do before then. Obviously, we’re making good progress today with the Dow ($INDU) down 700 points, so we shall see. However, the market is flip-flopping every other day, making it untradable—you can’t get any position and hold on to it long enough to make money, so it’s better just to stay out. There’s no law that says you have to be in the market every day of the year, and this is a day not to be in the market for sure.
Q: How will the presidential debate reaction affect the market?
A: There’s only one stock you have to follow for that and that’s the (DJT) SPAC, and that’s Trump’s own personal ETF, and it is down 13% today to a new all-time low. I believe that’s well below its IPO price, so anyone who’s touched that stock is losing money unless they got out at the top. That is a good signal.
Q: JP Morgan (JPM) stock had a steep pullback to $200/share—is it a buy here?
A: No, but we’re getting close. If we can get (JPM) close to its 200-day moving average at $188 on high volatility, that would be a fantastic buy, because (JPM) will benefit enormously from falling interest rates, and it is the world's quality banking play.
Q: Is it too soon on Berkshire Hathaway (BRK) and Tesla (TSLA)?
A: Yes on both. It’s too soon for anything right now. I wouldn’t touch anything before the interest rate cut unless you have a really special situation, and there are some out there.
Q: Do you think Nvidia (NVDA) could test $90 again?
A: It could very easily; it got within $10 of that last week. So, it just depends on how bad the news is and how scared people get in September.
Q: Is the end of carry trade affecting the market?
A: No, we had a big deleveraging there. Although people are going back in again now, it’s not enough to hurt the market.
Q: I heard Putin is threatening over raw materials. What do we get from Russia, and what stocks or ETFs would be impacted?
A: We get nothing from Russia anymore. We used to get a lot of commodities and oil from them, and that has ceased. Russia has essentially exited the global economy because of the sanctions and the war in Ukraine, so they can’t really hurt anyone at this point.
Q: What about Russia doing an end-run around with direct trade? BRICS block is going to make the dollar even more worthless in the future.
A: I don’t buy that at all. I’ve been covering sanctions for 50 years; they always work, but they always take a long time. You could always do black market trade through the back door, but the volumes are way down, and the profits are much less because people only buy sanctioned goods at big discounts. The oil that China is buying from Russia is something like a 30% discount to the market. They execute a high cost of doing business, and nobody wants to be in sanctions if they can possibly do avoid. That said, when the war ends, the sanctions may end. That could be some time next year when Russia completely runs out of tanks and airplanes.
Q: Should I buy Nvidia (NVDA) call options now?
A: It's not just a matter of Nvidia. It's what the general market is doing, and tech is doing. And tech is not doing that well—even on the up days. So I would hold off a bit on Nvidia.
Q: Why is Warren Buffet (BRK/B) unloading so much of his equity portfolio?
A: He thinks the market is expensive, and he has thought it has been expensive for years and he's been unloading stocks for years. He has something like $250 billion in cash now so he can buy whole companies in the next recession. Whether he'll live long enough to see that recession is another question, but his replacement staff is already at work and running the fund, so Berkshire will continue running on autopilot even after he’s gone.
Q: Is IBM an AI play?
A: (IBM) wants to think that it’s an AI play. They haven’t disclosed enough to the public to make the stock a real AI investment, so I would say it probably is, but we don’t know enough at this point, and there are probably too many other candidates to buy in the meantime.
Q: How do I invest in green energy stocks, and do you have any names for me?
A: Well here’s one right here and that’s the Canadian uranium producer Cameco (CCJ). There is a nuclear renaissance going on. China just announced an increase in their plants under construction from 100 to 115. You have the new modular technology ready to take off in the US, and it uses uranium alloys, or uranium aggregates, so it’s impossible for a plant to go supercritical. You also have other countries reactivating nuclear plants that have been closed, and California even delayed its Diablo Canyon shutdown by 5 years. So Nuclear is back in play, and we have an absolute bottom in the stock here and it just dropped 37%, in case you needed any more temptation. So this would be a very attractive alternative energy play for the long term right here.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
1942 Grumman Wildcat on Guadalcanal
“Half of the global economy is in recession. Euroland is, Russia certainly is, and all of South America is. Add them all up, and North America is the only decent 2.5% growth area in the world. Rates are going down, not only because of the absence of global growth, but because inflation is very, very low,” said Bill Gross, CEO of bond giant PIMCO.
Global Market Comments
September 12, 2024
Fiat Lux
Featured Trade:
(The Mad SEPTEMBER traders & Investors Summit is ON!)
(THE 13 NEW TRADING RULES FOR 2025)
I’m sitting here at my Lake Tahoe lakefront mansion watching the Dow Average open down 700 points from its Friday intraday high.
It is one of those perfect picture postcard days, with a blue sky and cobalt lake. The fields outside are covered with snow crystals sparkling in the sunshine.
In these heart-stopping trading conditions, it is more important for me to teach you how to avoid doing the wrong thing than pursuing the right thing.
I am therefore going to introduce my 13 Rules for Trading in 2025. Tape them to the top of your computer monitor, commit them to memory, and maintain iron discipline.
They will save your wealth, if not your health. Here they are:
1) Dump all hubris, pretensions, and stubbornness. It will only cost you money.
2) The market is always right, even if all the prices appear wrong.
3) Only buy the pukeouts and sell the euphoria. Do anything in the middle, and you will get whipsawed.
4) Outright calls and puts are offering a far better risk/reward right now than vertical bull call and bear put spreads, which have a built-in short volatility element. It is also better to buy stocks and ETFs outright with a tight stop loss. This won’t last forever.
5) If you do trade spreads, you can no longer run them into expiration. If you have a nice profit, take it, don’t hang on to the last 30 basis points, even if it means paying more commission. The world could end three times, and then recover three times before the monthly expiration date rolls around.
6) Tighten up your stop loss limits. Not losing money is the key to winning in this market. There is nothing worse than having to dig yourself out of a hole. Don’t run hemorrhaging losses.
7) Buy every foreign crisis and sell every recovery. It really makes no difference to assets here in the US.
8) Several asset classes are becoming untradeable for long periods oil, and gas). Stay away and stick to the asset classes that are working (stocks and gold).
9) Keep positions small enough to sleep well at night. The doubled volatility will make up for your reduced risk. This is not the time to get greedy and bet the ranch.
10) Turn off the TV and just look at your screens and data. Public entertainers have no idea what the market is going to do, especially if their last job was sports reporting. Their job is to get you to watch the ads for General Motors and Interactive Brokers.
11) As the bull market in stocks enters its fifth year, too many traders, analysts, and strategists have become complacent. You are going to have to work for your crust of bread this year. This is an earnings, technology, and cash flow-driven bull, not a QE-driven momentum one.
12) It is clear that more money was allocated to high-frequency traders this year. That is driving the new, breakneck volatility, increasing stopouts. A sneeze now generates a 500-point intraday move.
13) It is no accident these tempestuous conditions are occurring in an election year. Some $10 billion will be spent on media convincing you how terrible this is. But over the long term, the stock market goes up 80% of the time.
Oh, and you better change your password from 12345 to DKFGGIDKFOKBJGELXPEVJBKDLKFBBJFCJCKVLBKGTY69!, and hope that the 69 doesn’t give you away. AI hackers are getting close.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Martin B26 Marauder
Global Market Comments
September 11, 2024
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(WHY DOCTORS, PILOTS, AND ENGINEERS MAKE TERRIBLE TRADERS)
Global Market Comments
September 10, 2024
Fiat Lux
Featured Trade:
(IF YOU SELL IN MAY AND GO AWAY, WHAT TO DO IN SEPTEMBER?)
(ONSHORING: THE NEW GLOBAL TREND)
That is the conundrum facing traders, investors, and individuals as we enter the home stretch for the year. For some hedge fund managers, Q3 2024 is clearly turning into the quarter from hell.
I have been in the market for almost six decades, long enough to collect an encyclopedia's worth of words of wisdom. One of my favorites has always been “Sell in May and Go Away.” On close inspection, you’ll find there is more than a modicum of truth in this time-worn expression.
Refer to your handy Stock Traders Almanac and you’ll find that for the last 50 years, the index yielded a paltry 1% return annually from May to October. From November to April, it brought in a far healthier 7% return.
This explains why you find me with my shoulder to the grindstone during the winter, and jetting about from Baden-Baden to Monte Carlo and Zermatt in the summers. Take away the holidays and this is really a four-month-a-year job.
My friends at StockCharts.com put together the data from the last ten years, and the conclusions on the chart below are pretty undeniable. They have marked every May with a red arrow and Novembers with green arrows.
What is unusual this year is that we went into September with markets at all-time highs and on top of a prodigious 11% gain in the S&P 500 (SPY), one of the sturdiest moves in history. History also shows that the bigger the move going into such a peak, the more savage the correction that follows. From my other profession the term “Bombs away” comes to mind.
Being a long-time student of the American, and indeed, the world economy, I have long had a theory behind the regularity of this cycle. It’s enough to base a pagan religion around, like the once-practicing Druids at Stonehenge.
Up until the 1920’s, we had an overwhelmingly agricultural economy which accounted for 50% of our GDP. Farmers were always in maximum financial distress in the fall, when their outlays for seed, fertilizer, and labor were at a peak, but they had yet to earn any income from the sale of their crops. They had to all borrow at once, placing a large call on the financial system as a whole. This is why we have seen so many stock market crashes in October. Once the system swallows this lump, it's nothing but green lights for six months.
Once the cycle was set and easily identifiable by low-end computer algorithms, the trend became a self-fulfilling prophecy, even though only 2% of our economy comes from agriculture. Yes, it may be disturbing to learn that we ardent stock market practitioners may in fact be the high priests of a strange set of beliefs. But hey, some people will do anything to outperform the market.
Bombs Away?
By now, we have all become experts in offshoring, the practice whereby American companies relocate manufacturing jobs overseas to take advantage of low wages, missing unions, the lack of regulation, and the paucity of environmental controls. The strategy has been by far the largest source of new profits enjoyed by big companies for the past two decades. It has also been blamed for losses of US jobs, with some estimates reaching as high as 25 million.
When offshoring first started 50 years ago, it was a total no-brainer. Wages were sometimes 95% cheaper than those at home. The cost savings were so great that you could amortize your total capital costs in as little as two years. So American electronics makers began filing overseas to Singapore, Thailand, Hong Kong, Taiwan, South Korea, and the Philippines. After the US normalized relations with China 50 years ago, the action moved there and found that labor was even cheaper.
Then, a funny thing happens. After 40 years of falling real American wages and soaring Chinese wages, offshoring isn’t such a great deal anymore. The average Chinese laborer earned $100 a year in 1977. Today, it is $6,563, and $24,000 for trained technicians, with total compensation rising 20% a year. At this rate, US and Chinese wages will reach parity in about 10 years.
But wages won’t have to reach parity for onshoring to accelerate in a meaningful way. Investing in China is still not without risks. Managing a global supply chain is no piece of cake on a good day. Asian countries still lack much of the infrastructure that we take for granted here. Natural disasters like earthquakes, fires, and tidal waves can have a hugely disruptive impact on a manufacturing system that is in effect a highly tuned, incredibly complex watch.
There are also far larger political risks in keeping a large chunk of our manufacturing base in the Middle Kingdom than most Americans realize. With the US fleet and the Chinese military playing an endless game of chicken off the Tawan coast, we are one mid-air collision away from a major diplomatic incident. Protectionism constantly threatens to boil over in the US, whether it is over the dumping of chicken feet, tires, or the latest, solar cells.
This is what the visits to the Foxconn factory by Apple’s CEO, Tim Cook, are all about. Be nice to the workers there, let them work only 8 hours a day instead of 16, let them unionize, and guess what? Work will come back to the US all the faster. This week, the Chinese press was ripe with speculation that Apple-induced reforms might spread to the rest of the country like wildfire.
The impact of a real onshoring move on the US economy would be huge. Some economists estimate that as many as 10%-30% of the jobs lost to offshoring could return. At the high end, this could amount to 8 million jobs. That would cut our unemployment rate down by half, at least. It added $20-$60 billion in GDP per year, or up to 0.4% in economic growth per year. It would also lead to a much stronger dollar, rising stocks, and lower bond prices. Is this what the stock market is trying to tell us, rising by 34% off the October lows?
Who would be the biggest beneficiaries of an onshoring trend? Si! Ole! Mexico, which took the biggest hit when China started soaking up all the low-wage jobs in the world. After that, the industrial Midwest has to figure pretty large, especially in gutted Michigan. With real estate prices there below their 1992 lows, if there is a market at all, you know that doing business there costs a fraction of what it did 20 years ago.
I Hear They're Offering $2 an Hour Across the Street