The next long-term driver of financial markets will be rising interest rates.
It’s not a matter of if, but when. Is it this month, or next month? One way or the other it’s coming.
Which means you should be rearranging your portfolio right now big time.
In a rising interest rate regime seven big things will happen:
1) Bonds (TLT) will collapse.
2) Domestic recovery and commodity stocks (FCX) will soar.
3) Technology stocks (QQQ) will move sideways to down 10%
4) The US dollar (UUP) craters
5) Foreign stock markets (EEM) do better than American ones.
6) Bitcoin (BLOK), (MSTR) and other cryptocurrencies go through the roof.
7) Residential real estate keeps appreciate, but at a slower rate.
These trends will continue for six months, or until long-term interest rates hit an interim peak, such as at 2.00%.
The delta variant gave us a secondary recession. Its demise will give us a secondary recovery, and the same sectors will prosper as with the first. According to the Johns Hopkins University of Medicine, this is happening right now.
The only caution here is that long-term investors should probably keep their technology stocks. Once rates hit the next interest rate peak again, it will be off to the races for tech once again. In the long term, tech always comes back, and tech always wins.
Of course, the major event of the coming week will be the Federal Reserve’s Open Market Committee meeting where interest rates are decided and the press conference with Jay Powell that follows.
Interest rates won’t move. It’s the press conference that is crucial, where we gain insights into the taper. What’s different this time is that the European Central Bank has already begun their taper with an economy far weaker than ours. Will Jay take the cue?
Far and away, the most reliable indicator for “BUY” timing since the presidential election has been the 50-day moving average for the S&P 500. Increasing stock weightings there and you were golden.
The problem now is that we have not seen the index close below the 50-day for two consecutive days for a record 221 days. This has not happened for 31 years.
We all know the reasons: Record low-interest rates making cash trash, seven years of quantitative easing, and a global liquidity glut. Exploding equity in homes and stock portfolios helps too. Still, 31 years is a long time to be this bullish.
I saw all this coming a mile off.
Since the election, I have relentlessly pursued this market with a super aggressive 100% weighting. Then I started paring back risk in June. In July and August, I cut back further to the bone, running minuscule 20% long weightings against a few shorts.
And this is how you manage your risk control.
When markets are rigged in your favor and the lunch is free, you bet the ranch. When they aren’t, you cower on the sidelines and watch others take insane risks.
But who am I to know? I’ve only been doing this for 51 years, and 58 years if you count the (IBM) shares I bought with my paperboy earnings.
Antitrust Comes Home to Roost at Apple, sending the stock down $9 in two days. A judge ruled that Apple will no longer be allowed to prohibit developers from providing links or other communications that direct users away from Apple in-app purchasing. Apple typically takes a 15% to 30% cut of gross sales. It’s a slap on the wrist, as Apple’s main revenue stream is still from iPhones. The judge ruled in favor of Apple on nine of ten other issues. It creates massive new opportunities for hundreds of other Silicon Valley start-ups. Still, if you were looking for an excuse to take profits, this is it. Buy (AAPL) on dips.
Tesla to get EV Tax Credit Restored in a new overhaul of alternative energy subsidies. Both Tesla (TSLA) and General Motors (GM) lost their $7,500 per car subsidies when sales topped 200,000. GM will get an extra $5,000 discount for union-made cars. Tesla is ferociously non-union. Maybe this explains the 36% rally since May. It should help (TSLA) get reach its million-vehicle target for 2021 if it can get enough chips. Buy (TSLA) on dips.
China Inflation Hits 13 Year High, up 9.5% YOY. Soaring commodity and coal prices are the issue. Coal is up 57% YOY, reflecting an energy shortage during the covid economic rebound. It predicts a hot CPI for the US on Tuesday.
The Consumer Price Index rose by 5.3% YOY and up 0.3% in August. It was a seven-month low, with delta clearly a drag. Food and energy came in lighter than expected. Prices for used cars, air tickets, and insurance fell. Stocks loved it, rising triple digits, and bond prices halved losses. St next week’s FOMC we’ll see how Jay really feels.
House Looking at a Top 26.5% Corporate Tax Rate, well up from the current 21% but not as high as the 28% that was feared. Capital gains would rise from 20% to 25%. The goal is to raise $2.5 trillion to get the $3.5 trillion spending package into law. It’s all a trial balloon for what might be possible. Stocks loved it.
Amazon to Hire 125,000 and boost wages to $18 an hour. They are also paying $3,000 signing bonuses and taking pay up to $22.50 in prime areas like New York and California. It’s all part of a strategy to make (AMZN) the “best employer in the world”. Buy (AMZN) on dips as its dominance on online commerce grows.
China Destroys Casino Stocks, threatening to increase oversight of their Macao operations. The concern is that China will pull the gaming licenses of foreign companies when they come up for renewal in June. Buy (WYNN) and (LVS) on the dip.
Weekly Jobless Claims Come in at 332,000, a new post-pandemic low. The previous week was revised down even lower, to 312,000. The end of pandemic unemployment benefits is no doubt a factor, driving people off of their couches and back to the salt mines. Is this the light at the end of the tunnel?
Bitcoin Charts are Showing a Golden Cross, which usually presages upside breakouts in the cryptocurrency. A golden cross is where the 50-day moving average pierces the 200-day to the upside. This is crucial because technicals are more important in crypto than in any other financial instrument. In the meantime, (AMC) has started accepting Bitcoin for online movie ticket purchases. Buy (MSTR) on dips.
My Ten-Year View
When we come out the other side of the pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a modest +1.10% loss so far in September following a blockbuster 9.36% profit in August. My 2021 year-to-date performance soared to 77.47%. The Dow Average is up 13.02% so far in 2021.
That leaves me 70% in cash, 10% short in the (TLT), and 20% long in the (SPY) and (DIS). Both of our September option positions expired at max profits.
I’m keeping positions small as long as we are at extreme overbought conditions. However, a Volatility Index (VIX) above $20 shows there may be a light at the end of the tunnel.
That brings my 12-year total return to 500.02%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.86%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 109.26%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 42 million and rising quickly and deaths topping 673,000, which you can find here.
The coming week will be all about the Fed meeting on Wednesday.
On Monday, September 20, at 11:00 AM, the NAHB National Housing Market Index for September is out.
On Tuesday, September 21 at 9:30 AM, Housing Starts for August are printed.
On Wednesday, September 22 at 11:00 AM, Existing Home Sales for August are announced. At 2:00 PM, the Fed interest rate decision is released and an important press conference about taper issues follows.
On Thursday, September 23 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, September 24 at 8:30 AM, we learn US Durable Goods for August. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, with the shocking re-emergence of Nazis on America's political scene, memories are flooding back to me of some of the most amazing experiences in my life.
I have been warning my long-term readers for years now that this story was coming. The right time is now here to write it.
I know the Nazis well.
During the civil rights movement of the 1960s, I frequently hitchhiked through the Deep South to learn what was actually happening.
It was not usual for me to catch a nighttime ride with a neo-Nazi on his way to a cross burning at a nearby Ku Klux Klan meeting, always with an uneducated blue-collar worker who needed a haircut.
In fact, being a card-carrying white kid, I was often invited to come along.
I had a stock answer: "No thanks, I'm going to another Klan meeting further down the road."
That opened my driver up to expound at length on his movement's bizarre philosophy.
What I heard was chilling.
During 1968 and 1969, I worked in West Berlin at the Sarotti Chocolate factory in order to perfect my German. On the first day at work, they let you eat all you want for free.
After that, you get so sick that you never wanted to touch the stuff again. Some 50 years later and I still can’t eat their chocolate with sweetened alcohol on the inside.
My co-worker there was named Jendro, who had been captured by the Russians at Stalingrad and was one of the 5% of prisoners who made it home alive in 1955. His stories were incredible and my problems pale in comparison.
Answering an ad on a local bulletin board, I found myself living with a Nazi family near the company's Tempelhof factory.
There was one thing about Nazis you needed to know during the 1960s: They loved Americans.
After all, it was we who saved them from certain annihilation by the teeming Bolshevik hoards from the east.
The American postwar occupation, while unpopular, was gentle by comparison. It turned out that everyone loved Hershey bars.
As a result, I got free room and board for two summers at the expense of having to listen to some very politically incorrect theories about race. I remember the hot homemade apple strudel like it was yesterday.
Let me tell you another thing about Nazis. Once a Nazi, always a Nazi. Just because they lost the war didn't mean they dropped their extreme beliefs.
Fast-forward 30 years, and I was a wealthy hedge fund manager with money to burn, looking for adventure with a history bent during the 1990s.
I was mountain climbing in the Bavarian Alps with a friend, not far from Garmisch-Partenkirchen, when I learned that Leni Riefenstahl lived nearby, then in her 90s.
Attending the USC film school with a young kid named Steven Spielberg decades earlier, I knew that Riefenstahl was a legend in the filmmaking community.
She produced such icons as Olympia, about the 1932 Berlin Olympics, and The Triumph of the Will, about the Nuremberg Nazi rallies. It is said that Donald Trump borrowed many of these techniques during his successful 2016 presidential run.
It was rumored that Riefenstahl was also the onetime girlfriend of Adolph Hitler.
I needed a ruse to meet her since surviving members of the Third Reich tend to be very private people, so I tracked down one of her black and white photos of Nubian warriors, which she took during her rehabilitation period in the 1960s.
It was my goal to get her to sign it.
Some well-placed intermediaries managed to pull off a meeting with the notoriously reclusive Riefenstahl, and I managed to score a half-hour tea.
I presented the African photograph and she seemed grateful that I was interested in her work. She signed it quickly with a flourish.
I then gently grilled her on what it was like to live in Germany in the 1930s. What I learned was fascinating.
But when I asked about her relationship with The Fuhrer, she flashed, "That is nothing but Zionist propaganda."
Spoken like a true Nazi.
The interview ended abruptly.
I took my signed photograph home, framed it, hung it on my office wall for a few years. Then I donated it to a silent auction at my kids' high school.
Nobody bid on it.
The photo ended up in storage at my home, and when it was time to make space, it went to Goodwill.
I obtained a nice high appraisal for the work of art and then took a generous tax deduction for the donation, of course.
It is now more than a half-century since my first contact with the Nazis, and all of the WWII veterans are gone. Talking about it to kids today, you might as well be discussing the Revolutionary war.
By the way, the torchlight parade we saw in Charlottesville, VA in 2017 was obviously lifted from The Triumph of the Will, except that they didn't use tiki poolside torches in Germany in the 1930s.
Leni Riefenstahl
Olympia
Former Paperboy
