You have just been adopted by a new rich uncle.
I doubled my short position in the US Treasury bond (TLT) market today.
Furthermore, I?ll be using any subsequent price rise to sell more bonds, roll forward put options and put spread option positions, sell short bond futures, and buy the ProShares Ultra Short 20+ Treasury Bond Fund (TBT).
It is undoubtedly the cleanest trade out there in the world today.
Of all the momentous changes in the prospects for asset classes as a result of the presidential election, bonds absolutely top the list.
And not just US bonds, but German, Japanese, British, and every other kind of bond out there in the world as well are exiting a 30-year bull market and entering a 20-year bear market.
Fixed income instruments are totally toast for the next four and possibly eight years. Indeed, the list of reasons is so long that I?ll have to list them one by one.
1) The hallmark of Trump?s economic policy revealed so far is to lift the economy out of the mire by launching a massive round of deficit spending.
Independent analysis predicts that the US national debt could rise by as much as $10 trillion over the next decade.
That?s what a massive tax cutting, spending rises gets you.
Call it Reagan 2.0.
Even if the Federal Reserve does nothing, this unprecedented issuance of new government paper will crowd out private borrowers and drag interest rates upward, to the detriment of bond prices and borrowers everywhere.
2) The bond market was already in trouble well before the election. Prices peaked in July, and have been steadily eroding since. Every bond position I have strapped on since then has been from the short side.
This was because the world was assigning a growing probability of a Fed interest rate hike at their December 14th meeting. You could see this in the way bank shares traded which started moving off of multiyear bottoms during the same time period.
All the election did was pour gasoline on a small fire that was just starting to build.
3) After hiding in a deep cave for the past nine years, inflation is about to make a dramatic comeback. It was already starting to edge up with recent economic reports.
The October Nonfarm Payroll Report showed us that hourly earnings leapt by 2.9% YOY, while the headline U-6 structural unemployment plunged to only 9.5%.
And here is the problem. If you initiate a huge new jobs program with weekly jobless claims already at a 43-year low, wages will take off like a scalded chimp.
Oh, and by the way, wages are the largest component in any inflation calculation.
4) Years of zero, or subzero, interest rate policies from central banks around the world have created a substantial malinvestment bubble in all fixed income assets. As a result, the relative valuations have reached ludicrous levels.
The S&P 500 (SPY) is now trading at 18.5 times earnings, and possibly 17 times 2017 earnings. US Treasury bonds (TLT) at a 2.20% yield are trading at an amazing 45 times earnings.
Yes, the liquidity and risks are better for bonds, but they are not THAT much better.
This sets up the mother of all asset reallocations, out of the worst yielding financial instruments in the world into the best.
5) After spending 50 years in the financial markets, I can describe to you a problem that I have noticed from the very start. Institutional investors keep their foot firmly on the gas pedal while only looking in the rear view mirror.
Call it the herd instinct, safety in numbers, or lack of imagination, but portfolio managers, by definition, ALWAYS overweight the wrong asset classes at market tops, and underweight the right ones at market bottoms.
Making matters worse is the fact that these institutions move with the speed of molasses in the dead of a High Sierra winter. Some entertain changes in sector and asset weightings only once a quarter, while others do it annually.?
Yes, this means they can minimize tax bills. But it also assures that they are perpetually behind the curve. When the memo gets out and real changes DO occur, they unfold over years if not decades.
Every institution in the world is now overweight bonds and underweight stocks.
Guess what happens next?
Not a Time to Launch a Jobless Plan
The Fat Lady Is Singing
Global Market Comments
November 15, 2016
Fiat Lux
Featured Trade:
(LAST CHANCE TO JOIN THE NOVEMBER 18TH LAS VEGAS GLOBAL STRATEGY LUNCHEON),
(NVIDIA REPORTS . . . STOCK ROCKS),
(NVDA),
(TESTIMONIAL),
(WHY TECHNICAL ANALYSIS DOESN?T WORK)
(SPY), (QQQ), (IWM), (VIX)
NVIDIA Corporation (NVDA)
SPDR S&P 500 ETF (SPY)
PowerShares QQQ ETF (QQQ)
iShares Russell 2000 (IWM)
VOLATILITY S&P 500 (^VIX)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update which I will be conducting in Las Vegas, Nevada on Friday, November 18, 2016.
A three-course lunch will be followed by a PowerPoint presentation and an extended question and answer period.
I?ll be giving you my up-to-date view on stocks, bonds, foreign currencies, commodities, precious metals, and real estate.
And to keep you in suspense, I?ll be throwing 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 $212.
I?ll be arriving early and leaving late in case anyone wants to have a one-on-one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a top restaurant at a major Strip casino. The exact location will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research.
To purchase tickets, please click here.
I really, really hope all of you read my report on Artificial Intelligence published on November 2nd, committed it to memory, and acted on its recommendations (click here for ?The Great Artificial Intelligence Stock Play You?ve Never Heard Of?).
For at the very end, it strongly recommended the shares of processor manufacturer Nvidia (NVDA), which occupies the nexus of the entire movement towards machine learning.
On Friday, Nvidia reported some of the most amazing earnings of the year, with the stock delivering a massive one day gain.
And Nvidia shares did this on a day when the entire rest of technology was taken out to the woodshed and beaten senseless.
?
Revenue leapt 54% to just over $2 billion, the first time Nvidia has posted a $2 billion quarter.
Its gross margin set a record at 59%, with a record 63% increase in gaming-derived revenue.
Nvidia?s dominance of the high-end GPU market is allowing it to soak up all of the spending that would normally have been at least somewhat split between itself and AMD.
Gaming was the big revenue booster for Nvidia.
Data center revenue grew by 59% as well, though this was much smaller in absolute terms ($230 million in data center sales versus over $1 billion in gaming revenue).
Jen-Hsun Huang, the CEO of Nvidia, noted that he saw strong growth in AI, though he opted not to break those figures out at this time.
Nvidia?s automotive program is also going well, with $127 million in revenue (a 61% increase year-on-year) and a 7% increase sequentially.
What Jen-Hsun talked about in the conference call is how Nvidia wants to build a computing platform that stretches from desktop GPUs, to cloud solutions like GRID, to automotive computing and self-driving cars.
It?s not that the rhetoric is different, but rather the fact that Nvidia is well on its way to accomplishing it.
These blew away even my own, wildly optimistic predictions.
Sales of Nvidia?s flagship product, the passively cooled 16GB Tesla P100 GPU, is being ravenously consumed by data centers around the country, and should grow by 95% during 2016, and another 50% in 2017.
Hold one of these dense, wicked fast processors in your hand and you possess nothing less than the future of western civilization.
Over the long term, the picture looks even better. It should continue with annual earnings growth of 20%-30% a year for the foreseeable future.
At a minimum, the shares have at least another double in them, and perhaps another double after that as well.
To learn more about Nvidia, please visit their website at http://www.nvidia.com/content/global/global.php .
Having said all that, I recommended to my concierge clients that they take profits on (NVDA) for the short term.
As much as I like the stock long term, in view of the presidential election result, it is clearly in the wrong sector at the wrong time.
Portfolio managers have been raiding their technology holdings since Wednesday, using them as an ATM, to pay for the newly discovered opportunities in financials, health care, construction, and industrials.
So better to get out of the way, and get back in when the sector has a tailwind, and not a gale force headwind, as it does now.
For those of you who did the trade, well done!
?You want to rotate your money into the sectors where Donald Trump?s policies are potentially going to work: those are financials, health care, and industrials?. said Erin Browne, head of macro investing at UBS O?Connor.
Global Market Comments
November 14, 2016
Fiat Lux
Special New World Order Issue
Featured Trade:
(TRUMP?S GIFT TO TRADERS),
(SPY), (TLT), (TBT), (GLD), (USO), (CAT),
?(X), (FCX), (BAC), (GS), (LEN), (ITB)
SPDR S&P 500 ETF (SPY)
iShares 20+ Year Treasury Bond (TLT)
ProShares UltraShort 20+ Year Treasury (TBT)
SPDR Gold Shares (GLD)
United States Oil (USO)
Caterpillar Inc. (CAT)
United States Steel Corp. (X)
Freeport-McMoRan Inc. (FCX)
Bank of America Corporation (BAC)
The Goldman Sachs Group, Inc. (GS)
Lennar Corporation (LEN)
iShares US Home Construction (ITB)
In 50 years of trading, I have never seen markets turn on a dime as they did last week. As a result, they have created some of the best trading opportunities of the century.
The sector rotation has been fast and furious. And trading volumes across all asset classes exploded to their highest levels in years.
Of course, they were responding to the biggest election upset in history which flipped the direction of the global economy 180 degrees in a heartbeat.
I am suddenly reminded of economist John Maynard Keynes' famous quote: "When the facts change, I change my mind. What do you do, sir"?
My ancestors hailed from Missouri, before they moved to California during the 1849 gold rush. Their black and white tintypes adorn the walls of my Lake Tahoe estate.
Every time I cross Donner Pass on Interstate 80, I remember their gaunt grim faces.
And you know what the motto of the state Missouri is?
SHOW ME!
Incredible as it may seem, I am already in touch with several senior officials of the Trump administration, thanks to my ancient Wall Street ties.
That will give me an early read on which Trump policies are campaign fluff, which will be seriously watered down, and the few that will actually be implemented.
AS EVERYONE IN THE FINANCIAL MARKETS KNOWS, THIS IT TRADING GOLD!
Early indications are that the incoming economic policies will be Reagan 2.0.
I remember well the jovial, backslapping president, who served from 1982-1990. I knew him too well for 25 years.
For three decades, he campaigned from the far right, championing McCarthyism, bemoaning Rowe versus Wade, demanding a balanced budget, and constantly warning of the communist threat.
The day he got into office he forgot all of this, negotiating huge arms reduction treaties with the Russians, and never lifting a finger to curtail women's rights.
We know how Reagan 1.0 ended. Thanks to large tax cuts and massive spending increases, the national debt skyrocketed 400%, from $1 trillion to $4 trillion. The bond market got killed.
And despite all his saber rattling on the campaign trail, Reagan never ensnared America in a single serious war.
Trump could well do the same. The big shock of the decade would be how fast Trump rushes to the middle.
But he has to "SHOW ME" first.
I am expecting a similar result with Reagan 2.0. Certainly the bond market thinks so, the ten-year Treasury yield adding a hair-raising 40 basis points in yield in a mere three days.
What we do know for sure is virtually the entire investment industry has been caught seriously wrong footed by the Trump win.
They were all, to a person, perfectly positioned for a Clinton win, and owned a heavily-weighted Clinton portfolio.
What they got was a Trump wild card.
IT WILL TAKE YEARS FOR INSTITUTIONS TO ROTATE SECTORS AND REPOSITION FOR THE NEW WORLD ORDER.
THIS IS NOTHING LESS THAN THE GREATEST GIFT TO TRADERS OF ALL TIME.
There is one great structural tailwind to this unbelievable sector rotation.
It takes you out of over owned, expensive sectors close to all time highs, like technology, that have been leading the market for most of this decade.
It moves you into under owned, cheap sectors, such as financials, heath care, commodities, and energy, that have been despised for years .
That's fine with me. I was getting tired of chasing technology for small incremental gains at the risk of gigantic one-day crashes, some four in the last 15 months.
You can make a lot more money buying stocks off of five-year bottoms than seven-year tops.
Maybe I can squeeze a few thousands basis points of performance out in 2016?
I have presented four Emergency Strategy Webinars for major hedge funds, clients, and the Online Trader's Summit in as many days.
Financial advisors tell me they are finding the points contained enormously helpful in explaining the New World Order to their clients.
So I am giving them to you in full below:
THE NEW WORLD ORDER:
Control of the Presidency, the House of Representatives, the Senate, and the Supreme Court mean the Republicans have a free hand
Republicans blocked fiscal spending for eight years, but will now move forward full steam ahead
$1 trillion in new infrastructure spending in the Midwest amounts to Quantitative Easing 5.0
Massive Keynesian stimulus could double US economic growth in the short term
Inflation will make an earlier return
It all adds up to a big RISK ON and BUY!
THE NEW BIG TRENDS:
OUT WITH THE NEW & IN WITH THE OLD
WINNERS:
Value
The Economy
Deregulation
Taxpayers
Domestic US Stocks
Defense Stocks
Inflation
Oil & Gas
Commodity Stocks
Bridges and Freeways
The Midwest Rust Belt
The US Dollar
Savers
Homeowners
Cheap Stocks
THE NEW STOCK PLAYS:
Get These Right and You'll Retire Early
Caterpillar (CAT) - Infrastructure
US Steel (X) - Infrastructure
Nucor (NUE) - Steel
Pfizer (PFE) - Big Pharma
Ely Lily (LLY) - Big Pharma
Lockheed Martin (LMT) - Defense
Freeport-McMoRan (FCX) - Commodities
Exxon Mobil (XOM) - Big Oil
Occidental Petroleum (OXY) - Energy
Bank of America (BAC) - Financials
Goldman Sachs (GS) - Financials
Lennar Homes (LEN) - Homebuilding
LOSERS:
Growth
Globalization
Regulation
Multinational Stocks
Telecom and Utilities
Emerging Markets
The Budget Deficit
Solar Energy
Bonds
Yield Plays
The Euro
The Japanese Yen
Borrowers
Renters
Expensive Stocks
THE OLD STOCK PLAYS:
Time to Say "Thank You Very Much" and Unload:
Alphabet (GOOG) - Technology
Apple (AAPL) - Technology
Facebook (FB) -Technology
Amazon (AMZN) - Technology
Tesl
a (TSLA) - Electric Cars
First Solar (FSLR) - Solar Panels
Sun Power (SPWR) - Solar Panels
General Motors (GM) - Globalization
AT&T (T) - Telecommunications
Mexico (EWW) - Mexico ETF
China (FXI) - China ETF
Euro (FXE) - Euro ETF
Yen (FXY) - Yen ETF
Gold (GLD) - Gold
THE BOND MARKET: THE FAT LADY IS SINGING:
Sell Short every Five Point Rally in the 20+ Year Treasury Bond ETF (TLT) for the next Ten Years
Bonds are Toast
The first fiscal stimulus in eight years will pour $1 trillion into infrastructure spending
Taxes will be cut across the board, concentrated for the wealthy and business
Replenishing of the military adds further spending demands
All of this adds $10 trillion to the national debt in eight years
Throw in a new war and that doubles it to $20 trillion
Is a replay of the 400% rise in national debt under Reagan during 1982-1990, when Treasury bond yields hit 12%
Interest rates will rocket
Buy the Ultrashort 20+ Year Treasury Bond ETF (TBT)
FOREIGN CURRENCIES: DOLLAR RALLY CONTINUES
Rising interest rates have the US dollar rocketing against all other currencies
Interest rate differentials are the biggest driver of foreign exchange rates
Buy the US Dollar Index ETF (UUP), calls, call spreads, and futures on dips
Yen fundamentals are as bad as ever, the Japanese will be the last to raise interest rates, if ever, expect a long-term decline, sell short Japanese Yen Trust (FXY), or buy the Ultrashort Yen (YCS)
Future of Euro is dependent on whether or not the EC breaks up
ENERGY: THE DOUBLE-EDGED SWORD
Stronger economy is oil positive
But a trade war with China, the world's largest new marginal consumer, could cause demand to slow there
Any run up to $60 will see new US fracking production pour into the market
Sell rallies up to $52, buy dips to $40
PRECIOUS METALS: TRUMPED!
Spiking interest rates are hugely negative for gold (GLD)
Current selloff creates a great entry point for long term investors
When inflation really shows up, that is when you want to pile back into gold
China and emerging nations have to buy several thousand tonnes to bring their holdings up to western level
Should take prices from $1,250 to $5,000 an ounce in 15 years
REAL ESTATE: A 20-YEAR BOOM
Millennial demographic wave is about to drive US home prices northward for the next 20 years
Only 2.4 million homes are for sale, down -6.8% YOY, creating a severe shortage; normally, homes for sale rise in the fall which predicts a very hot market in the spring
US home building is proceeding at less than half the peaks seen in the 2000s, despite rapidly rising demand, creating a structural shortage
Home equity has been the top-performing, individually owned asset class for the past 5 years
All this makes homebuilders a big long term ?BUY?
TRADE SHEET:? SO WHAT DO WE DO ABOUT ALL THIS?
Stocks- Buy
Bonds-Sell
Commodities-Buy
Currencies- Sell
Precious Metals ?Buy
Real Estate-Buy
The Only Audited Trading Performance Online
?Average Annual Return +37.18%
The Only Audited Trading Performance Online
Major Stimulus with Jobless Claims at a 43-Year Low? Hugely Inflationary
What a Difference a Day Makes!
Oops!
THE NEW WORLD ORDER
?Managing money is going to be fun over the next six months.? said Jeffrey Gundlach of Double Line, on the surprise Trump election win.
Global Market Comments
November 11, 2016
Fiat Lux
Featured Trade:
(A TRIBUTE TO A TRUE VETERAN)
So, I am taking a hard earned day off today.?
It is Veterans Day, and I?ll be putting on my faded Marine Corp fatigues, with gold railroad track bars on my shoulders, and leading the hometown parade. So, I thought it would be a good day to tell you the story of my Uncle Mitch.
Since job prospects for high school graduates in rural Pennsylvania in 1936 were poor, Mitch walked 200 miles to the nearest Marine Corp recruiting station in Baltimore.
After basic training, he spent five years rotating between duty in China and the Philippines, manning the fabled gunboats up the Yangtze River.
When WWII broke out, he was a seasoned sergeant in charge of a machine gun platoon. That put him with the seventh regiment of the First Marine division at Guadalcanal in October, 1942.
When the Japanese counterattacked, Mitch was put in charge of four Browning .30 caliber water-cooled machine guns and 33 men, dug in at trenches on a ridge above Henderson Field.
The Japanese launched massive waves of suicide attackers in a pouring tropical rainstorm all night long, frequently breaking through the line and engaging in fierce hand-to-hand combat.
If the position fell, the flank would have been broken, leading to a loss of the airfield, and possibly the entire battle. WWII would have lasted two more years.
After the first hour, all of Mitch's men were either dead or severely wounded, shot or slashed with samurai swords.
So Mitch fired one gun until it was empty, then scurried over to the next, and then the next. In between human waves, he ran back and reloaded all the guns.
To more easily pitch hand grenades, he cut the arms off his herringbone fatigues. When the Japanese launched their final assault, and then retreated, he picked up a 40-pound Browning and ran down the hill after them, firing all the way, and burning all the skin off his left forearm.
Mitch's commanding officer, Col. Herman H. Hanneken, heard the guns firing all night from the field below.
He was shocked when he visited the position the next morning, finding Mitch alone in front of a twisted sea of 1,000 Japanese bodies, not a scratch on him.
Henderson?s Ridge in 1942
The iconic fictional hero in the 1949 film, Sands of Iwo Jima, Sergeant John M. Striker, was modeled after Mitch.
Tradition dictated that all military officers salute Mitch, even five star generals, and he was given a seat to attend every presidential inauguration from FDR on.
When Mitch got older and infirm, I used my captain's rank to escort him on diplomatic missions overseas to attend important events, like the 40th anniversary of D-Day in Normandy.
Whenever Mitch was in town, he would join me for lunch with some of my clients with a history bent, and a more humble and self-effacing guy you never met.
When I get back from the parade, I'll take out the samurai sword Mitch captured on that fateful day, a 1692 Muneshige, the hilt still scarred with 30-caliber slugs, and give it a ritual polishing in sesame oil and powdered deer horn, as samurai have done for millennia.
To learn more about the First Marine Division's campaign during the war, please read the excellent paperback, The Island: A History of the First Marine Division on Guadalcanal?by Herbert Laing Merillat, which you can buy from Amazon by clicking on the title.
