I don?t think there will be a trade war between the US and China.
Please forgive me, but I am new at this. I have only been covering China for 45 years now, since the Cultural Revolution was sweeping an impoverished, starving country.
With $659 billion in bilateral trade in goods and services in 2015, we have gone too far down the road to attempt any kind of substantial reversal.
Thousands of businesses in the US would go bankrupt and millions would be unemployed. Trans Pacific transportation would grind to a halt, filling up harbors with hundreds of redundant ships.
Trillions of dollars of direct investment in the two countries would be held hostage.
So, it?s not going to happen. It would be like cutting off our nose to spite our face.
However, I DO believe there will be some serious saber rattling, and suffer ample potholes down the road, as big as those found during a winter in San Francisco.
We may all laugh at Donald Trump?s moronic tweets. The Chinese take them deadly seriously.
Just as America has its Tea Party and right wing conspiracy theorists, so does the Middle Kingdom.
Their entire worldview revolves around the merciless exploitation of China by the western powers that took place during the 19th century.
British trading companies, like Jardine Matheson, imported cheap opium from India and sold it to the Chinese at the point of a gun, triggering three wars. With only primitive weapons at hand, the Chinese were powerless to resist.
By the time of the fall of the Qing Dynasty in 1912, the entire country had been carved up into spheres of influence dominated by the West and Japan.
Then, the Japanese invaded in 1937, and 29 million Chinese died. As recently as 1938, my Marine Corps uncle, Colonel Mitchell Paige, was charged with protecting American gunboats cruising the Yangtze River.
To us, this is all ancient history inhabiting dusty textbooks in libraries never visited. Patriotic Chinese feel like this happened yesterday.
You could dismiss all this as academic musings.
But national pride and sovereignty are really big deals in China today.
During China?s last trade war with Japan, only three years ago, several Japanese facilities were burned down by angry, uncontrollable mobs, and visiting businessmen were assaulted on the street. Trade ground to a halt.
It became so dangerous that my son switched from using his Japanese passport to using his American one, lest he be fired from his job as a university teacher.
So it behooves us to analyze which companies will suffer the most from any deterioration in the US-Chinese relationship before markets figure this out. The Chinese are not interested in any ?America First? policy in any way, shape, or form.
Here is my hit list:
1) Apple (AAPL) ? Yes, Cupertino, CA based Apple has a big fat bull?s eye on its back. The company is a vast, finely tuned machine that needs everything to work perfectly in order to deliver 180 million iPhones a year around the world.
The number of things that can go wrong here are beyond calculation. What if the one million workers at its Foxconn subcontractor fail to show up for work some day? What if they are not allowed to go to work?
Another problem is that Chinese growth is a key part of Apple?s long-term sales strategy. A Chinese boycott would put a huge dent in those plans.
Remember, Apple is getting it from both sides, with Trump promising a 35% import duty on all Apple products. That would certainly hurt sales.
I?m sure Apple management is on tenterhooks as to how all this will play out in the coming months.
There is no back up plan here. Apple is just too big and too sophisticated to change any part of its incredibly complex supply chain in less than a decade.
2) General Motors (GM) ? Is one of the most globalized US companies. GM can?t build a car in Detroit without 40% of its parts coming from Japan, Mexico, South Korea or dozens of other countries.
General Motors is also hugely dependent on Chinese sales. In November, it sold an eye popping 371,740 cars there, up 7% YOY, compared to only 252,644 in the US. That is one third of GM?s total worldwide sales.
Now the company plans to sell Chinese made Buicks in America.
And with the new, super strong dollar, the price advantage of those Chinese made cars is improving by the day.
While we weren?t looking, General Motors has become a Chinese company, and many others are following suit.
3) Wal-Mart (WMT) ? Imagine walking into your local Wal-Mart one day and finding out that all of the prices have been marked up by 35%?
This is a reason why the company is called the ?Chinese Embassy.? I dare you to find anything there that is NOT made in China, except for the food and the flowers (a dozen long stem red roses are only $10!).
Like Apple, the company is so big that any change in its supply chain would take years. You can add Target (TGT) to this hit list for the same reasons.
On top of that, Wal-Mart has 432 stores operating in China. Imagine the effect that a boycott would have there.
4) Boeing (BA) - The local flight school that maintains my plane has been totally taken over by Chinese students. That is because China needs to buy $1 trillion worth of aircraft over the next 20 years, some 6,800 jetliners in all.
Boeing expects to provide the lion?s share of these. The company has already entered the planning phases for the construction of a giant new aircraft assembly plant in China.
It would be really easy for China to switch a major part of these orders over to Europe?s Airbus Industries, which has been aggressively competing to accomplish exactly that.
Boeing didn?t get the business because of the advanced technology seen in the 787 Dreamliner. China was simply attempting to even out the trade balance.
5) Starbucks (STBX) ? Starbucks founder, Howard Schultz, made no secret of his dislike for Donald Trump before the election. With 2,500 stores in China, and plans to double that figure, he had little other choice.
With relations between the US and China turning colder than the firm?s overpriced iced espresso, sales, growth plans, and share prices could take a big hit. Chinese may have to postpone their caffeine addiction until the next Democratic administration.
6) Caterpillar (CAT) ? You can?t have an infrastructure boom anywhere in the world without Caterpillar, whose heavy machinery is the gold standard for large public works projects. I have been covering the company for 40 years.
As a result of the upcoming US round of massive deficit spending, Caterpillar?s share have been one of the best performers since the November 8th presidential election, up some 21.87%.
The shares are now trading at a positively stratospheric dotcom valuation level of 93.7 times 2016 earnings.
Unfortunately, this time the company is so heavily invested in China that it has also built a large assembly plant there. China accounts for 20% of the firm?s worldwide sales.
Time for a short?
The net effect on the impairment of business at all of these companies will be lower profits, higher volatility of profits, and continued uncertainty. The shares will be forced to trade at a discount.
When you are running a mammoth global business, the last thing in the world you want is unpredictability.
It will also bring a rapid rise in inflation, as prices are raised to offset higher costs and a strong dol
lar.
Who will be the biggest victims?
Working class Trump voters in rust belt states, least able to afford price hikes, especially those who already have jobs in Midwest manufacturing.
Where is the ?REFUND? Button?
Global Market Comments
December 14, 2016
Fiat Lux
Featured Trade:
(CATCHING DINNER WITH ENERGY SECRETARY NOMINEE, RICK PERRY),
(USO), (XLE), (TSLA)
United States Oil (USO)
Energy Select Sector SPDR ETF (XLE)
Tesla Motors, Inc. (TSLA)
Given that my friend, former Texas Governor, Rick Perry, was nominated for the position of Secretary of Energy yesterday, I thought I would recount a dinner I had with him.
The irony is great since Rick promised to close down the agency while campaigning for president in 2012.
It confirms my suspicion that many of the people Trump is appointing have the mission to destroy the agencies they will head.
As a precondition to joining a dinner with the former Texas governor, I had to promise a few things.
I was not allowed to bring up the fact that he shoots coyotes while jogging. I couldn?t mention statistics proving that 70% of the jobs created in his state during his 12-year tenure as governor were government, not private.
Having agreed to all of that, I was told, ?Sure, come along, we?d love to hear your questions and your insights.?
Perry was making his 12th?visit to the Golden State in the past two years to convince local companies, plagued with onerous taxes, stringent regulations and high operating costs, to pull up stakes and move camp to the Lone Star State.
When I first shook hands with the governor, I was surprised at how short he was. But then he wasn?t wearing the three-inch heeled cowboy boots that normally elevated him at home.
Then I mentioned my secret words: ?Go Aggies.? He recoiled.
?How did you know?? he demanded.
I told him that during the early 1970s, I drove my sister from California to his home state so she could attend Texas A&M University. Perry was a cadet then, and I speculated that they had probably dated.
He answered, ?Nah, I didn?t play around much in those days.?
Probably not.
But after that, he melted, only engaging me in serious conversation, while sticking to canned, stock answers to questions from everyone else.
I was Rick Perry?s new best friend.
As he spoke, I realized that he was much more reasonable in his views than when appealing to his ultra conservative base back home. That is simply the mark of a savvy and successful politician.
Perry said that the country needs both states to lead change and succeed, and that he rooted for California to do well.
The governor was still basking in the glow of Toyota?s recent announcement that it was moving 3,000 jobs from Long Beach, California to Texas.?
It has been a controversial win for him, as his state is paying $10,000 in subsidies per person to lure the white-collar work force.
I spoke to Toyota USA CEO, Jim Lentz, about this recently. He said the real reason had to do with working in the same time zone as the company?s large manufacturing facilities in Kentucky and Tennessee.
A lower cost of living, cheaper rents, and discount labor costs were also issues. Lower taxes were at the bottom of a list of ten priorities.
Past experience has shown that most departing workers, fleeing from California, return after three years. It seems the summer heat and humidity kill them.?
Thus chastened, they are more than willing to pay a premium for the lifestyle here, despite the higher taxes and earthquakes.
Perry says the US needs an ?all of the above? solution to its energy problems. It is not a good idea to be dependent on foreign energy sources, especially from unstable countries.
Despite its stereotype as an oil-based economy, Texas was now the top producer of wind power in the country. The installed base there now exceeds 12 gigawatts, making it the fifth largest in the world.
My friend, T. Boone Pickens, has been a major investor in wind power generation there.
An aggressive approvals process made possible the construction of long distance transmission lines needed to send it to other states and eventually to California itself, thus creating a national market for wind power.
The governor says that Texas will become a major exporter for liquefied natural gas within the next two years. Cheniere Energy (LNG), the front-runner in the field, has been a favorite recommendation of mine for the past five years, and? Trade Alert followers have chased the shares up from $6 to $70.
Despite the controversy over fracking wells polluting fresh water supplies, Perry says there has not been a single incidence of this occurring in Texas. This is no doubt a result of the state?s ferocious regulation of the energy industry, of which I, myself, have no small amount of experience.
Thanks in part to new federal regulations, air pollution has fallen dramatically in Texas. Ozone emissions have dropped by 23% since 2000, while nitrous oxides are off by 57%.
These, and other measures have enabled the US to cut its dependence on foreign oil imports from 33% to 15% since 2000. During the same period, natural gas production, which produces half the carbon of oil based fuels, has soared by 57%.
At that point, another guest raised his hand and asked his stance on gay rights. Perry opined that sexuality was a choice that could be controlled, and that gay marriage would never get his support. An audible hiss was heard in the roomwhich Perry stonily ignored.
That invited the question about the legalization of marijuana. He simply said that it would never be legalized in his state, and, ?If people want to get high, they can go to Colorado.?
Finally, a woman at the table asked about reproductive rights. When Perry said that he was proud to sign a Texas law limiting termination to the first five months of pregnancy, murmurs were heard. The law is not expected to survive a pending challenge at the Supreme Court.
Another attendee queried his view of Hillary Clinton. I braced myself. He then surprised me by saying that he thought she was ?a very capable Secretary of State and a great public servant.?
That spoke volumes to me. It meant that with access to all his private polling data, Rick Perry thought that Hillary would win the 2016 presidential election. As the astute politician that he is, Perry doesn?t want to burn his bridges.
Perry likes to tell people that he is probably the last governor who used an outhouse on a dry cotton farm near Abilene, West Texas.
He became an Eagle Scout and I confirmed this with the secret scout handshake.
He earned a degree in animal science at Texas A&M where he was also a Corps Cadet and a yell leader. His first part-time job was as a door-to-door salesman. When he graduated, he joined the Air Force and became a C-130 pilot.
Perry originally started in politics as a Democrat, getting elected to the Texas House of Representatives in 1984.
He worked on Al Gore?s presidential campaign in 1988. This was back when Southern Democrats were more conservative than the right wing of the Republican Party.Perry became a Republican in 1989.
He moved up to the governorship in 2000, when sitting governor George W. Bush was elected president. Perry has been reelected three times, making him the longest tenured Texas governor in history.
Perry said that his time spent as the front runner in the 2012 presidential election ?were the three most exhausting hours of my life.?
He then repeated his ?Oops? moment when, if elected, he couldn?t remember the third government department he would close (it was the Department of Commerce, in addition to Energy and Education). That was probably to head off someone else bringing it up first.
I told the governor I knew two facts about our respective states which I bet he didn?t know. He asked what they were.
I responded that California and Texas were the only two states that had been independent countries before joining the Union. California had been the Bear Flag Republic for six months until mid 1848, while the Republic of Texas stood on its own for a decade, until 1846. Texans have been regretting joining the Union ever since.
Today, the two states make up 19.1% of America?s GDP, and 20.4% of its population.
The other mystery fact was that while Texas was independent, it maintained an embassy in London, England on St. James Street.Today, the space is occupied by a pub and is across the street from the Ritz Hotel and next door to my old office at The Economist?magazine headquarters. Perry said he?d check it out on his next visit there.
As the dinner wound down, I asked the governor if he had ever driven a Tesla Model S-1. He said he hadn?t. I asked if he would like to because my own high performance model was conveniently parked out front. He said he?d love to.
At that point, the plain clothed Texas Rangers who accompany him as bodyguards noticeably tensed up.
I have some experience providing quick tutorials for the uninitiated on how to drive this incredible electric car from the future. My chassis number is 125 out of a fleet of 45,000 and is one of the oldest S-1s around.
Newcomers invariably underestimate the car?s power and acceleration, which works out to about 450 horsepower in the carbon world. This can be unexpectedly dangerous for newbies.
With some careful coaching, Perry gingerly drove the car a few times around San Francisco?s Huntington Park, atop Nob Hill with two nervous, but heavily armed, Rangers in the back seat.
When we carefully turned back onto California Street and came to a stop in front of the Mark Hopkins Hotel, Perry pronounced the vehicle ?a marvelous piece of technology?.
With that, Perry invited me to visit the governor?s mansion the next time I visited Austin, Texas.
I said I?d be honored, and silently drove my Tesla off into the night, thus christened by a true Texan.
You Want Me to Do What?
?For 240 years, it?s been a terrible mistake to bet against America, and now is no time to start.? America?s golden goose of commerce and innovation will continue to lay more and larger eggs.? said Oracle of Omaha, Warren Buffett.
Global Market Comments
December 13, 2016
Fiat Lux
Featured Trade:
? (A DAY IN THE LIFE OF THE MAD HEDGE FUND TRADER),
(SPY), (TLT), (TBT), (FXE),
?(GLD), (GDX), (USO), (NVDA), (GM), (XOM)
SPDR S&P 500 ETF (SPY)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
CurrencyShares Euro ETF (FXE)
SPDR Gold Shares (GLD)
VanEck Vectors Gold Miners ETF (GDX)
United States Oil (USO)
NVIDIA Corporation (NVDA)
General Motors Company (GM)
Exxon Mobil Corporation (XOM)
Diary Entry for Monday, December 12, 2016
Dear Diary,
4:30 PM Sunday-the day before- Thought I?d check my Bloomberg to see how the Asian markets were opening. Yikes! Oil is up another 4%!
Looks like it is going to be a ?RISK ON? day for the umpteenth day in a row. Better fasten my seat belt, put on my hard hat, and get ready for a busy day taking calls from clients.
5:00 PM- Call from one of the top New York hedge funds. What?s going on with the market? How many days can it go up in a straight line?
The economy is presenting the most bullish picture in 8 years, yet he is getting hammered in the market.
Four weeks after the election and his traders are already worn out and gun shy from these gigantic, day-to-day triple digit swings. Worse, he is losing money. His longs are going up all right, but the shorts are rising even faster.
I told him that it is a brave new world out there now. You can take your old time worn investment assumptions and toss them in the trash. Boom and bust is back!
The market is discounting investment nirvana right now, and ?irrational exuberance? has returned with a vengeance. Giant tax cuts and the end of regulation? How could you NOT make money on that?
I also told him that the year end effects are amplified.
Why sell now when you can wait a few more weeks, owe lower capital gains taxes, and not have to pay them for 16 months?
Markets will settle down next year once the euphoria burns out and we return to normal bull market trading patterns.
But don?t kid yourself. With the bull market entering its eighth year, volatility will be higher this year than in the last. We aren?t trading the $600 handle in the S&P 500 (SPX) anymore.
He thanked me for my Nvidia tip (NVDA), which soared by 35% in a month and was key to him making his year. So, he invited me to a Trump licensed restaurant in Manhattan. I begged off, fearing a terrorist attack.
Instead, he could take me to a nice dinner at Masa in Time Warner Center on Columbus Circle when I come through town for my next New York Strategy Luncheon.
I don?t care if it costs $500 a person. High end Japanese sake is cheaper than the best Bordeauxs, because Chinese billionaires have bid up the prices so much.
Then he told me the real reason for his call. He knew I grew up near Hollywood, had dated several movie stars, and even appeared in a movie as an extra (Francis Ford Coppola?s Apocalypse Now).
Perhaps, I had some insights on the upcoming Academy Awards on February 26th? His firm had put up the money to make the film, Star Trek Beyond. What were my thoughts?
Yes, I confess to being a lifetime trekkie and took my kids to see it. It stuck to the formula. I had just finished rewatching the original 1966-1969 series, and it was fun to see the modern context. I swear to god, but I?m sure I saw Captain Kirk use an iPad on the bridge in 1968.
And yes, I already have my ticket for the next Star Wars installment, Rogue One, which premiers on Friday.
9:00 PM-Call from a friend at the People?s Bank of China in Beijing. Is Donald Trump really going to start a trade war with China?
I replied that he is certainly going to pretend to.
The anti-Chinese rhetoric during the election was so unrelenting that Trump has to make the gesture or risk losing his base.
My bet is that Trump will engage in some saber rattling, enforce some token punitive import duties like Obama did, but not much more. The US has gone too far down the globalization road to contemplate a reversal.
Is Trump really going to stop $400 billion in annual two-way trade with China. Will Wal-Mart have to raise prices by 35% overnight?
Better yet, what if the Chinese retaliate by dumping their trillion dollars worth of US Treasury bond holdings? The bond market says that?s already happening.
Will the additional trillion dollars of direct US investment in China become a hostage? Remember, General Motors (GM) sells more cars in the Middle Kingdom than the US.
The ten-year Treasury yield would be at 6% tomorrow, demolishing any Trump engineered economic growth.
By the way, was last week's restriction on cash withdrawals from Macau ATMs really aimed at the US casino industry? My friend remained inscrutable on that point.
Then he asked, did I, by any chance, recommend the film, Eye in the Sky, with Helen Mirren, the ultra high tech war movie? Everyone in the Politbureau was seeing it, taking notes on the next western weapons system they should procure.
?Absolutely,? I answered. Most people aren?t aware of how super sophisticated our military has become. Push a button in a Las Vegas suburb, and a terrorist safe house in Kenya disappears. Push Trump too far, and you could be next.
9:30 PM- Hit the rack and try to catch some shuteye before the next call.
2:00 AM-One of my former staff members at Morgan Stanley calls me from a Private Bank in Geneva to tell me that the Euro (FXE) is getting the stuffing knocked out of it this morning. Is it time to buy?
I told him ?Not in your wildest dreams!?
With massive government deficit spending headed our way, US interest rates are going to soar, taking the greenback with it. The Euro has been trying to break parity for two years now and it looks like its time has finally arrived.
Then he moved on to the real purpose of his call. He was planning to take his wife out this weekend. Should they go to see Manchester by the Sea with Casey Affleck, Ben?s younger brother, the family drama set in New England?
I said sure, if you want to watch a movie where something isn?t blowing up every five minutes or features super heroes, an increasing rarity. And you have to love those New England accents, which are slowly dying out.
I slammed the phone back on the hook and went back to sleep.
10:00 AM- I get a call from a leading money manager in London?s Mayfair district. Europe is closing. With gold down $150 in a month, is it time to buy?
I said ?Hold your horses?.
The barbarous relic does terrible in an environment of rapidly rising interest rates, as the opportunity cost increases dramatically.
There is a bull market in the yellow metal ah
ead of us somewhere, just not yet. You need to wait for inflation to make a big comeback first.
The next big bull market for gold won?t begin until the 2020s, when inflation returns for real. Then it should run to $3,000-$5,000. Not until then will gold bugs be able to afford clean shirts and new suits.
And go have a pint of Guiness for me at the Pig & Whistle next door, will you. Tell the owner, Nigel, to put it on my running tab. He owes me from my last Manchester United win.
He then raved about last summer?s Armageddon film, 10 Cloverfield Lane, a creepy murder mystery movie with John Goodman. Did I see it?
I did and loved it. Growing up during the Russian missile crisis, the prospect of hiding out in a bomb shelter is not such a distant memory. And there is a surprise ending that will blow you away. Is Goodman insane or not? I?m not telling you the ending.
1:15 PM-My friend, JR, a senior executive at an oil major, calls from Houston. What the hell was going on with the price of oil (USO)? Is the OPEC production capping agreement real and will it hold?
I said the price of oil now depends on US and Russian production. OPEC has become irrelevant. But the prospect of deregulation of the energy industry in the US could bring a flood of new supply. Oil could rise to $60 in 2017, but not much higher than that.
The outlier is that with former ExxonMobil CEO, Rex Tillerson, now a possible Secretary of State, the chances of a new US ground war in the Middle East have greatly increased. Now THAT would get the price of Texas tea back above $100 a barrel in a hurry.
One can only hope.
The last time that happened, Exxon stock rose 436%, making my friend, Rex, a billionaire and a major Republican Party donor. It?s amazing when you have an oil man as president.
He said thanks, and next time I was in town he would buy me a 24-ounce chicken fried steak at Billy Bob?s that spilled over both sides of the plate (2,500 calories). I can?t wait. I?ll let my doctor have the heart attack.
He then confided in me why he really called.
He knew I grew up on a western ranch. Had I seen Hell or High Water, the quirky alternative western with Jeff Bridges? Is it worth seeing? His buddies down on the ranch had just seen it on Netflix and liked it. Should he bother?
I said only for the guys. There's too much shooting for the wife to tolerate. But there is a truly original story line there, with everyone coming out a good guy. It says a lot about our post crash, pro gun society.
But The Good, The Bad, and The Ugly this is not.
2:00 PM-Still haven?t started on the letter yet. I have been answering dozens of email requests for information about the Trade Alert Service. This always happens whenever I have a hot performance streak on. The watchers want to become players.
With my six-year return approaching 218%, new subscribers are pouring in.
4:45 PM- Well, I got the letter done, but I?m too late. The web editor has gone to the DMV to register his new Prius, and the backup has gone to the yoga studio.
5:00 PM I put on a 60-pound pack and my heavy climbing boots and head out the back door on a ten-mile hike up Berkeley?s Grizzly Peak. I find the sections of the trail outside of cell phone reception most enjoyable.
Gotta stay boot camp ready! You never know when Uncle Sam is going to come calling again. Who cares if I?m 65? I can still hit a quarter on a tree at 50 yards with my Winchester Model 98 30-30.
I listen to a 60-hour audio book on my iPhone 6, the seven volume Truman, by David McCullough, about our 33rd president.
It is an amazing story. They don?t make them like him any more.
Considered by most to be an average man at best, he dropped the atomic bombs on Japan, negotiated with Stalin at Potsdam, created the CIA and the Defense Department, desegregated the Army, ordered the Berlin airlift, went forward with the hydrogen bomb project, stared down a megalomaniac Senator McCarthy, and fought the Korean war to a draw.
By the time I hit the trail, a layer of thick fog already blankets the city below me.
9:00 PM Back to my screens. The Euro has broken $1.01 again. Where was I last week when it rallied for a day? Asleep? I should have sold the daylights out of it. As they used to say in karate school in Japan, you can?t block all the punches.
Still, I am going to avoid the Euro for now. It has recently had such a sharp move down over the past month that the risk of a sudden, rip your face off, short covering rally is ever present.
I?d rather keep some dry powder and buy it a few cents lower. At this point, The World is short the Euro.
Maybe they read my letter?
?
10:00 PM-Time to call it a night and break out a bottle of Duckhorn Merlot. Geez louise, it seems people only wanted to talk about the movies today. Is the market really that impossible to trade?
The phone rings. Does anybody want my job?
Gunslinger for Hire
?Over the long term, all of the fiat currencies of the world are involved in a competitive devaluation. The structural stresses in most of the western economies are such that centrals banks will attempt to continue to substitute liquidity for solvency.? said Rick Rule, chairman of Sprott US Holdings, a precious metals specialist.
Global Market Comments
December 12, 2016
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK OF DECEMBER 12TH AKA TRADE THE TWEET),
(BA), (WYNN), (TLT), (TBT),
(TESTIMONIAL),
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)
The Boeing Company (BA)
Wynn Resorts, Limited (WYNN)
iShares Trust - iShares 20+ Year Treasury Bond ETF (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
Trade the Tweet.
That seems to be the new strategy adopted by traders who are still groping in the dark trying to figure out how to make money in the brave new world.
So, when the President-elect says something idiotic and knocks a stock down 10% in seconds, you buy it.
When sanity returns and the stock bounces back the next day, you take profits.
It worked with Boeing (BA) this week. It worked with Wynn Resorts (WYNN) when the Chinese later figured out the game.
Who?s next? Only The Donald knows for sure.
At this rate, we should have one out of two good trades a day for the next four years.
With selling now apparently illegal, expect stocks to continue their grind up until year end.
That?s because sellers are postponing realizing capital gains until 2017, when lower tax rates are expected to kick in.
So, if all the traditional December selling has been pushed back to January, what happens to markets in January?
Politics aside, we could be facing one of the seminal decisions of the decade when the Federal Reserve renders its decision on interest rates this coming Wednesday.
Will they raise by 25 basis points, or will Janet Yellen go for the full 50? I?m betting on the former, as my friend, Janet, is still a dove, regardless of which way the political winds are blowing.
By the way, I have arranged a private meeting with the nation?s central bank governor in January while she is here for the holidays and a round of meetings at the San Francisco Fed.
I?ll let you know what I discover in a New Year newsletter.
Of course, I?m filled with holiday cheer, thanks to the double short in the Treasury bond market (TLT) I have maintained since the November 8th election.
Bonds are in free fall, and are now approaching two-year lows. The (TLT) has collapsed a staggering 12 points since Election Day.
In the meantime, another one of my heroes, the ProShares UltraShort 20+ Year Treasury 2X ETF (TBT) hit a new multiyear high of $42.20, up an eye popping 41.57% since the July low.
Although we have already moved a lot, how many bonds do you want to be short when ten-year yields are on their way from 2.50% to 6%?
How about a truckload?
This will be the trade that keeps on giving. Think of it as your new rich uncle, or the cousin that just IPO'd a hot new tech company.
You better get out there and refinance your house before rates really take off. And while you?re at it, you better buy a second and third home too.
With Dodd-Frank about to be set on fire, lending standards will disappear, and everyone and his brother will be out there borrowing to buy new homes before rates rise further.
I know history repeats itself, but does it have to be so predictable?
As the year winds down, I feel the increasing gravitational pull of Incline Village at Lake Tahoe in the High Sierras which is forecast to get snow every day for the next week.
I?m looking forward to writing my 2017 All Asset Class Annual Review which take me two weeks to write.
I?ll only be taking breaks to play Monopoly, Jenga and Risk, eat freshly baked chocolate chip cookies, and, of course, snow shoe vast distances at high altitude.
As for the coming week?s data releases:
Monday, December 12th, has absolutely nothing of note to be released as we move into the year end wind down.
On Tuesday, December 13th at 10:00 AM EST, we get a new update on November Factory Orders.
On Wednesday, December 14th at 2:00 PM, the big event of the week takes place when the Fed releases its interest rate decision. A press conference with Janet Yellen will follow.
At 10:30 AM the EIA Petroleum Status Report will give us updated inventory numbers. Will oil peak out here? Or does it have a few more dollars to run?
On Thursday, December 15th, we learn the Weekly Jobless Claims at 8:30 AM EST. We also get a new Consumer Price Index for November. These may be the last low inflation numbers we see for a generation.
On Friday, December 16th, we get a quadruple witching options expiration, with the big players gaming the opening and the close. I am out of my December options positions so I really don?t care what happens.
At 1:00 PM we get the Baker Hughes Rig Count. We?ll see if falling oil production puts a dent in US oil production.
Keep in mind that virtually all economic indicators are still backward, and not reflective of our brave new world. We won?t see that until January.
I am one of your MDT subscribers in Tasmania Australia (currently 16 hours ahead of NY).
I have a regular day job, and am unable to day trade US markets and an unable to participate in the bi-weekly webinars. And although a MDT subscriber for nearly three years now it is only that last six months that I have got into the groove of your webinars and daily updates.
The daily updates on the markets levels have been very instructive as to where JT places his spreads, so that now I have started placing my own independently with success.
When the market dipped at the horror of a Trump win on 6 Nov, it seemed like a good time to put with a (SPY) $204-$207 Bear Put Spread.
This success led me to put on a (SPY) $222-$225 Bear Put Spread on 15 Nov when the (SPY) was 217. Your persistent subsequent urging not to short the market led me to look for an exit. This came on Friday 18th when the market dipped again, allowing me to exit for a 9 cent? loss.
Of course I should have applied the same logic (likely further rise in the market? further falling of VXX) to JTs VXX position at the same time. Would have come with a similar negligible loss instead of (as JT said) a nosebleed.
I have just started writing covered calls on my Interactive Brokers platform and have covered (weekly) calls on FCX (long 10.02) and FEYE (long 12.38) and managing to stay in the game.
There has been a noticeable uplift in your voice in recent webinars as market action has picked up.
Keep up the good work.
Kind regards
Malcolm G
Hobart, Tasmania, Australia
