Global Market Comments
November 13, 2020
Fiat Lux
Featured Trade:
(NOVEMBER 11 BIWEEKLY STRATEGY WEBINAR Q&A),
(AMZN), (TSLA), (FB), (AAPL), (ROKU), (UUP), (ITB), (TLT), (TBT), (FXI), (SPY), (BIDU), (TCTZF), ($NATGAS), (DIS) (AMD), (IP), (BIIB), (VRTX)
Below please find subscribers’ Q&A for the November 11 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: I bought Amazon (AMZN) on the dip and am concerned.
A: What I would say for all tech questions is take profits for the short term but keep them for the long term. All we’re seeing is a natural rotation out of big tech into domestic recovery stocks, which is long overdue; Where do you raid the piggy bank to get the money to buy domestic recovery stocks? Tech! But tech always comes back so if you can take the pain then keep them. Otherwise, if you’re a trader, then you probably should be looking at other new sectors like the one we’ve been calling.
Q: How does Tesla (TSLA) compete with Chinese electric vehicles? They copy, then improve, that’s their mojo.
A: Not actually; 12 years ago, I toured China visiting all of their electric car factories. They were pumping out tens of thousands of electric cars before Tesla ever produced even one of them. The problem is that the quality and safety standards are terrible, and they have a nasty habit of catching on fire. They have never been able to produce a car to compete in the US market and I expect that to remain true in the foreseeable future. What is more likely is Tesla will build more cars in China and invite the Chinese to participate as partners.
Q: Is there more downside in tech?
A: Probably, but not much. Apple (AAPL) down 40% from the high after a new iPhone generation launch is always a good rule of thumb. So far, it dropped 25% from the September high.
Q: Will we get another lockdown in the US?
A: Probably not; the states are handling it on a state-by-state basis. I don’t think we’ll ever go back to the total lockdown we had in March/April. It will be much more selective than it was, and the economy will be still able to function to some extent. Plus, it will be over in 3-6 months. The market is trading on recovery, not on the prospect of a further lockdown economy. Use the lockdown risk down days to buy.
Q: Do you see Facebook (FB) going down next year because of anti-trust issues?
A: No, antitrust will go absolutely nowhere; at the very worst they’ll put a disclosure on page 25 of their website, get fined a million dollars and then walk away. That's how these things always work. I was at Facebook quarters yesterday and antirust was the furthest thing from their minds.
Q: What happens to stocks if the vaccines don’t work?
A: We all die and stock go to new lows.
Q: Are you positive on Roku (ROKU)?
A: Yes, but it's overbought and having a correction just like all of the rest of tech.
Q: Would you sell homebuilders based on the chance of interest rates rising under a new administration?
A: Probably yes. Homebuilders (ITB) practically doubled this year. We’ve been recommending them for the entire year, and they have had a fantastic run, but there are better fish to fry right now buying these domestic stocks where you have much more upside potential. It a great place to raid the piggy bank.
Q: Are you saying the dollar (UUP) is going lower against all of the currencies?
A: Yes. The multiyear prospects for the greenback are grim. Sell every rally.
Q: Should we be buying the ProShares Ultra Short 20-year plus US Treasury Fund (TBT) now?
A: No, $14-$15 was the buy. Here you just want to run your long unless we get another $5-$7-point rally in the (TLT), then you want to go into the (TBT); but right now is a terrible entry point for any short bond plays.
Q: If we get a big increase in COVID-19, could the Treasury Bond ETF (TLT) make it back to $161?
A: That is entirely possible because then the fear will become a return to lockdown, and that could cause interest rates to crash and bonds to rally sharply.
Q: Is Advanced Micro Devices (AMD) a buy now or wait for pullback?
A: Wait for a pullback on all of tech, it looks like it has more to go. A lot of these domestic stocks haven’t been touched for years. That's where the money is going in now, and the only way to raid the piggy bank is to sell your tech stocks.
Q: Are the S&P 500 (SPY) put spreads you have risky?
A: Yes, but we don’t get $4,000 points in the Dow Average very often, basically once every 100 years, so I'm hanging on trying to get a better exit point. With any luck, the market will move sideways, and time decay will take our position to max profit next week. The rational thing to do here is at least to come out of one position for a small loss on the next big dip, and then run the other one into expiration and recover that loss.
Q: Can Chevron hit $100?
A: Maybe, as the entire sector is so oversold. But oil will still be the wrong industry to be in going into a Biden administration. Remember, the US had one million leatherworkers back when the population was only 100 million, or about 2% of the workforce. There are no more ten 10,000 leatherworkers today. You don’t want to be investing in the next leather industry.
Q: Any chance that Tesla will be added to the S&P 500 this December?
A: Probably not because all of the Tesla profits are coming from Zero Emission Vehicle (ZEV) credits they receive from other car companies. That’s considered accounting-based income, which Standard and Poor’s does not permit in their profit calculations. You have to have three quarters of consecutive operating profits to qualify for inclusion in the S&P 500, and these green credits don’t meet that qualification.
Q: Is Alibaba (BABA) a good buy now?
A: Probably yes, because the disaster over the Ant Financial listing is a short-term problem. I think eventually, they will list Ant Financial somewhere, they’ll get that money and then it’s off to the races again for (BABA). I predict that US China relations (FXI) are about to improve and that will be good for all Chinese assets.
Q: Is it too late to get into Copper (FCX) or wait for a pullback?
A: Wait for a pullback, that’s why I said stand aside on commodities. They really have had incredible runs already.
Q: Do you think once all the votes are recounted, Trump will be elected? And what will the market do?
A: Recounts never, or very rarely, produce changes in vote counts of more than 500 votes, so that is definitely a short-dated option. If Trump were elected, the Dow would drop about 4,000 points, probably in a day. We would give up the entire Biden rally that’s occurred over the last 6 days and a lot of you would end up jumping out of windows because your stocks have just been slaughtered.
Q: Is Chinese tech a buy?
A: Yes, and that’s one of the reasons I recommended Alibaba. We also like Baidu (BIDU), Tencent Holding (TCTZF), and several of the other Chinese majors. We think there's about to be an improvement in trade relations with China for some strange reason...
Q: Do you record this?
A: Yes, we post it on the website in about 2 hours later to allow for the format conversion. You just have to log in and go to your account section. If you can’t find it, just send an email to our customer support.
Q: Is International Paper (IP) a buy?
A: Yes, it is one of the domestic commodity plays that should do better.
Q: What about Natural Gas ($NATGAS)?
A: We’re not touching that right now because we’re trying to avoid the entire energy sector as the current tax system guarantees never-ending gluts of supply in the face of falling demand. That makes it very difficult to trade against unless you have inside information, on which 90% of all the trading in energy is indeed based.
Q: Best domestic stock play now?
A: Walt Disney Corp. (DIS). Buy Disney on the dip if we get one for some reason. Disney was a perfect storm on the downside, with theme parks, hotels, and cruise lines. It will become a perfect storm on the upside as well. It is also one of the best run companies in the world but hell to work for. Disney characters are not allowed to throw up on duty. They have to do it inside their character suits.
Q: Do you think the Vertex Pharmaceutical (VRTX) pipeline justifies a buy now?
A: Yes, we love the entire biotech sector; and the same is true for Biogen (BIIB).
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 12, 2020
Fiat Lux
Featured Trade:
(IS USA, INC. A SHORT?)
(TESTIMONIAL)
Global Market Comments
November 11, 2020
Fiat Lux
SPECIAL VETERANS DAY LETTER
Featured Trade:
(A TRIBUTE TO A TRUE VETERAN)
Global Market Comments
November 10, 2020
Fiat Lux
FEATURED TRADE:
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)
(THANK GOODNESS, I DON’T LIVE IN SWEDEN), (EWD),
Global Market Comments
November 9, 2020
Fiat Lux
FEATURED TRADE:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or THE ROARING TWENTIES HAVE JUST BEGUN),
(SPY), (TLT), (TSLA), (CAT), (JPM), (GOLD), (UNP), (UPS), (AMGN)
I have a prediction to make.
If you are unhappy about the election result, the world will still turn, the sun will rise in the east and set in the west, and the moon will continue to wax and wane every month.
There, I promise I won’t talk about politics for another four years unless it’s for the Official Incline Village, Nevada Bear Wrangler.
The plywood has started coming down from storefronts in San Francisco, no doubt stored away for another day. Mass celebrations have broken out everywhere.
It is now back to the serious business of making money.
That is easy for me to do because I have just enjoyed the most profitable week in the 13-year history of the Mad Hedge Fund Trader. From the Thursday low last week, our 2020 year-to-date performance has rocketed by an eye-popping 11.46%. This was a once-in-a-decade setup and I struck while the iron was hot.
For only the third time this year, I went 100% fully invested right before the election, and every position dutifully made money across all asset classes. Stocks (SPY) and gold (GLD) soared, while the US Treasury bond market (TLT) and the US dollar (UUP) crashed. On the stock side, everything went up like the true quantitative easing, liquidity-driven market that it is.
My fundamental call on the market came true. It made no difference who won the election, the mere fact that it is over is a major positive for stocks.
With such a historic move last week, the major indexes have pulled forward performance from the rest of 2020 and possibly a piece of 2021 as well. So, I expect to see sideways chop for the next seven weeks with a slight upward bias.
I don’t need to remind the veterans out there that this is the perfect environment for vertical bull call spreads. We may stay fully invested for a while and shoot for a record performance for 2020.
The chance of a market crash now is effectively zero. If for some reason we do get a 5% pullback, for Heaven’s sake please dive in with both hands. The Roaring Twenties and the next American Golden Age have only just begun. Globalization resumes its inevitable course.
The only thing that would trigger a selloff is an exponential growth of the pandemic, which with 122,000 cases and 1,200 deaths yesterday has already started. I have believed all along that the third peak in cases will be the final hyperbolic one, with deaths eventually topping the 1919 Spanish Flu peak of 650,000.
So far, the stock market has chosen to ignore these grim numbers, preferring instead to focus on vaccine hopes. There is effectively no government in Washington until January 21, 2021 so there is no one to step in and stop it. When the market does notice, the next buying opportunity of the decade may be at hand.
Stocks started expecting a Biden Win on Monday when they exploded right out of the gate. The Volatility Index (VIX) will plunge from $40 to $24 in a heartbeat. This was the biggest post-election rally in 100 years, with a 65% voter turnout not seen since women first got to vote in 1918. Buy dips in the (SPY).
The flip side is that massive spending will create monster deficits. Abuse from Trump has prompted the world’s largest buyer of US Treasury Bonds (TLT), China, to cut back their holdings from $1.24 trillion to $1 trillion. If China won’t buy our debt, who will? Sell short the (TLT) on rallies.
The Senate is another story. If the Republicans win, it will block most Biden programs and gridlock government for two years. Gridlocked government is normally good for stocks, except when you have a global pandemic and a Great Depression. No bold action is possible.
Expect slower economic growth as a result, fewer trading opportunities, and less asset appreciation. The Senate’s main job now is to make sure Biden fails. However, if Biden takes Georgia, we won’t know for sure until two Senate runoff elections take place there in January.
Jay Powell isn’t going anywhere, so interest rates are staying at near zero for three more years, according to yesterday’s press conference. Quantitative easing is still the name of the game.
Gold has turned, with the standard 100-day correction over. New highs beckon. The drivers are US interest rates remaining near zero for years, stockpiling by foreign central banks, and a recovering US economy. Notice also that the correlation between US stocks and gold this year has been 1:11. Gold is just another quantitative easing asset class these days. I’m starting to look at silver too, which usually has much more upside volatility.
China’s PMI is up for eight months, to 51.6%, better than expected. The world’s first post-pandemic economic keeps powering on. Anything over 50 is showing expansion.
The US ISM Nonmanufacturing Index hit a two-year high in October, down from 57.5 estimated to 57.5. That’s a two-year high.
The Nonfarm Payroll Report surprises at 638,000 for October, taking the headline Unemployment Rate down to a still recessionary 6.9%. Some 268,000 government jobs were lost, including 147,000 census workers. The rest came from teachers laid off by cash-starved local governments. Leisure & Hospitality jumped by 271,000. There are still 10 million fewer employed than when the pandemic started. The news crushed the bond market, where I’m short. Keep selling rallies in the (TLT).
When we come out the other side of 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 400% to 120,000 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 120,000 here we come!
My Global Trading Dispatch exploded to another new all-time high last week.
The Friday prior to election week, I picked up new longs in the (SPY), (TSLA), and (CAT). Then on Monday, I bet the ranch, going 100% “RISK ON,” throwing the dice on a post-election melt-up and adding the (TLT), (JPM), (GOLD), (UNP), (UPS), and (AMGN).
It worked in spades.
That keeps our 2020 year-to-date performance at a blistering +44.16%, versus a LOSS of -.06% for the Dow Average. That takes my 11-year average annualized performance back to +36.82%. My 11-year total return stood at new all-time high at +401.96%. My trailing one-year return appreciated to +52.23%.
The coming week will be a sleeper compared to the previous one. We also need to keep an eye on the number of US Coronavirus cases and deaths, now over 10 million and approaching 240,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, November 9 at 12:00 PM EST, US Consumer Inflation Expectations for October are out.
On Tuesday, November 10 at 7:00 AM EST, we get the NFIB Business Optimism Index for October.
Wednesday, November 11 is Veterans Day and I’ll be leading the local parade. The stock market is still open.
On Thursday, November 12 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 9:30 AM EST, the US Inflation Rate for October is released.
On Friday, November 13, at 9:30 AM EST, the US PPI for October is printed. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, driving back from Lake Tahoe, I couldn’t help but sadly notice what a terrible wreck the country is in.
Stores everywhere are shuttered and schools are closed down. Many of my favorite businesses and restaurants are gone for good. Parts are unobtainable because someone in the supply chain either went out of business or died. You can’t go anywhere without being swathed in masks and hand sanitizer.
The new president has a big job ahead of him.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 6, 2020
Fiat Lux
FEATURED TRADE:
(HOW THE UNDERGROUND ECONOMY IS EXPLODING)
Global Market Comments
November 5, 2020
Fiat Lux
FEATURED TRADE:
(A NOTE ON OPTIONS CALLED AWAY),
(SPY), (UNP), (TSLA), (CAT), (JPM), (GOLD), (UPS), (AMGN), (TLT)
Global Market Comments
November 4, 2020
Fiat Lux
FEATURED TRADE:
(THE HARD TRUTH BEHIND BUYING IN NOVEMBER)
(NOTICE TO MILITARY SUBSCRIBERS)