“The stock market is not expensive at 0% Fed funds and 0.60% government bonds,” said my old investor and mentor Leon Cooperman of Omega Advisors.
Global Market Comments
August 21, 2020
Fiat Lux
Featured Trade:
(COME JOIN THE JOHN THOMAS-HARRY DENT DEBATE ON AUGUST 25)
(JOIN THE AUGUST 24-26 MAD HEDGE TRADERS & INVESTORS SUMMIT
I have been arguing with Harry Dent over the future of all asset classes longer than I can remember.
Online, on stage, in the US, Australia, and around the world, it has been a never-ending debate about who has been right and who has been wrong on where best to invest.
It is a perfect example of two intensive researchers, analysts, and strategists looking exactly at the same data and coming to totally opposite conclusions….sometimes.
The only certainty is that listeners receive a great education on how to look at investments while being wildly entertained.
Harry Dent is one of the early founders of demographic investment. With 40 years in the financial markets, there is much to learn from his many published books on the topic.
Harry is not exactly a shrinking violet and is vociferous in expressing his views. No Marquis of Queensbury rules here.
After decades of searching, I am the only one Harry has found who can stand up against him.
Our debate, or call it a knockdown drag-out brawl, begins at 5:00 PM EST on Tuesday, August 25. To attend, please click this link at XXX.
I’ll see you there.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
I have spent the last 50 years looking for the best traders and investors around the world. Now, I have assembled the cream of the crop to share their wealth of knowledge with you.
These are individuals who can make money in any market conditions, including a global Covid-19 pandemic. Listen to these speakers and they will enhance your earning power mightily.
As much as I loved hosting my annual Mad Hedge Lake Tahoe Conferences, the Coronavirus had other ideas. I doubt followers are racing to get on airplanes and stay in hotels anytime soon. The desire to sit shoulder to shoulder with your fellow investors has also probably waned as well, no matter how fascinating they may be.
I am therefore hosting the online Thursday, August 24-26 Mad Hedge Traders & Investors Summit.
The event will be far bigger and better than the old analog bricks and mortar version. I will be hosting 27 expert traders from all over the world over three days. They will be speaking on the hour every hour starting from Monday, August 24 at 9:00 AM EST.
Some of these speakers I have known for decades. Every trading style and asset class will be covered, including stocks, options, bonds commodities, foreign exchange, precious metals, energy, and real estate. It will be your best investment educational opportunity of the year.
I will also be offering $100,000 in prizes to attendees in the form of free subscriptions to speaker newsletters, as well as those of the other speakers.
To spice things up, I have invited some real heavyweights. On Monday at 5:00 PM EST, my old friend and SALT host, former White House Press Secretary Anthony Scaramucci and I will discuss the current state of the investment world as well as the outlook for the November presidential election.
On Tuesday, August 25, my buddy Harry Dent, one of the founding fathers of long term demographic investing, will slug it out with me over the outlook for every asset class coming out of the current Great Depression. My colleague, Tom Sosnoff, founder of Tastytrade, will provide a tutorial on using online trading platforms.
I will be at Lake Tahoe, and you will be wishing you were here. As far as I know, human viruses can’t travel over the Internet….yet.
To register for the event, please click here.
To view the list of speakers and their topics, please click here.
Global Market Comments
August 20, 2020
Fiat Lux
Featured Trade:
STORAGE WARS),
(MSFT), (IBM), (CSCO), (SWCH),
Global Market Comments
August 19, 2020
Fiat Lux
Featured Trade:
(THE DEATH OF THE FINANCIAL ADVISOR)
Global Market Comments
August 18, 2020
Fiat Lux
Featured Trade:
(HOW TO HEDGE YOUR CURRENCY RISK),
(FXA), (UUP),
Let’s say you absolutely love a stock but despise the currency of the country it comes from.
The United States comes to mind.
The US Federal Reserve has announced they don’t expect to raise interest rates for three years. The US government is running record budget deficits. Debt to GDP is now at the highest level since WWII.
That means the greenback is about to become the weakest currency in the world. Look at the ten-year chart below and you’ll see that a major double bottom for the Aussie may be taking place.
Most American technology stocks are likely to gain 30% or more over the next two years. However, it’s entirely possible that the US dollar declines by 30% or more against the Australian (FXA) and Canadian (FXC) dollars during the same period. Making 30% and then losing 30% leaves you with precisely zero profit.
There is a way to avoid this dilemma that would vex Solomon. Simply hedge out your currency risk. I’ll use the example of the Australian dollar, as we have recently had a large influx of new subscribers from the land down under.
Let’s say you want to buy AUS$100,000 worth of Apple (AAPL), the world’s most widely owned stock.
Since Apple is listed on the New York Stock Exchange, its shares are denominated in US dollars. When you buy Apple in Australia, your local broker will automatically buy the US dollars for your account to settle this trade in the US, taking out a small commission along the way. You are now long US dollars, thus creating a currency risk.
Getting rid of this currency risk is quite simple. You need to offset your US dollar long with a US dollar short of equal value. Long dollars/short dollars give the Australian investor a currency-neutral position. The US dollar can go to hell in a handbasket and you won’t care.
There are several financial instruments with which you can do this. Buying Invesco Currency Shares Australian Dollar Trust ETF (FXA) is the easiest. This ETF invests 100% of its assets in long Australian dollar/short US dollar futures and overnight cash positions.
I’ll do the math for you on the final hedged position assuming that the Australian dollar is worth 70 US cents.
BUY AUS$100,000 long US dollars X US$0.70 cents/dollar = US$70,000.
US$70,000/$210 per share for Apple = 333 Apple shares
BUY US$70,000/$70 (FXA) price = US$1,000 shares of the (FXA)
Thus, by owning AUS$100,000 shares of Apple shares and 1,000 shares of the (FXA) you have completely removed the currency risk in owning Apple. You have, in effect, turned Apple into an Australian dollar-denominated stock. Apple can rise, the US dollar will fall, and you will make twice as much money in Australian dollars.
There are a few problems with this precise trade. The liquidity in the (FXA) is not great, especially during US trading hours. Understandably, the bulk of Aussie liquidity takes place during Australian business hours.
There are other instruments with which you can hedge out the currency risk of Apple, or any other US dollar-denominated investment.
You can take out your own short dollar position in the futures market. You can ask your bank to create a short position in the US dollar in the cash market. Or, you can simply ask your broker to hedge out your US dollar currency risk, for which they will charge you another small commission.
Hedging out currency risk not only is free, the market will pay you to do it. That’s because Australian dollar overnight interest rates at 1.00% are lower than US dollar overnight interest rates at 2.50%. By shorting Aussie against the buck, you get to keep this 1.50% interest differential.
You don’t have to be Australian to want your Apple shares denominated in Australian dollars. In fact, hedge funds do this all day long. They pursue a strategy of keeping their long position in the world’s strongest securities (Apple), and their shorts positions in the world’s weakest securities (the US dollar). This, by the way, is also the strategy of the Mad Hedge Fund Trader. It’s called “global long/short macro.”
The better ones often make money on both sides of the equation, with the longs rising and the shorts falling. You can do the same in your own personal online trading platform.
I should urge a word of caution here. What happens if you hedge out your US dollar risk, and the dollar continues to appreciate? Then you will get none of the gains from that appreciation and will end up losing money in Australian dollars if Apple shares remain unchanged.
In the worst case, if both Apple and the Aussie could go down, this accelerates your losses. So, currency hedging can be a double-edged sword. Yes, this may be irrational given the fundamentals of the Aussie and Apple. But as any experienced long term trader will tell you, “Markets can remain irrational longer than you can remain liquid.”
Many thanks to John Maynard Keynes.
Looks Like a Good Bet to Me
Global Market Comments
August 17, 2020
Fiat Lux
Featured Trade:
(JOIN THE AUGUST 24-26 MAD HEDGE TRADERS & INVESTORS SUMMIT),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME BACK FROM YOUR CRUISE),
(INDU), (TLT), (GLD), (TBT), (FB), (AMZN), (AAPL), (BAC), (JPM)
I have long advocated a long cruise as the best of all long-term investment strategies. After all, over the past 100 years, stocks have gone up 80% of the time, including the last Great Depression and WWII. Almost all news is negative, so ignoring should boost your investment returns immensely.
The last six months offer the most recent example. If you had departed on February 14 and return on Friday, August 14, the index return would have been absolutely zero, but you would have collected 1% in dividends. If you had been overweight in technology and biotech stocks, as I have been advocating for the past decade, you would have been up 20-30%.
Of course, this year, cruising presented its own risks, not from a sinking ship, pirates, or the norovirus, but from Covid-19. Many guests departed in the best of spirits to return DOA in the ship’s overcrowded meat locker.
The stock markets are offering more than the usual amount of risks as well. Think of an irresistible force, massive liquidity, meeting the immovable object, record-high valuations.
Only action in Washington could break this stalemate to the upside, a deal between the House and the White House that brings yet another stimulus package. Most of whatever money gets approved will head straight for the stock market, either directly or indirectly. Until then, we will be trapped in a narrow range.
These conditions could last into September, or until after the election. Nobody knows. That’s why eight of my nine positions expire on Friday, in four trading days.
Trump took executive action to help the economy but offers not a penny in funding. He expects states running record deficits to pay for a big chunk. It’s a symbolic act that will have no impact on the economy. The bottom line is no more stimulus for the economy. Stocks will hate it. Trump fiddles while America burns.
A bond market collapse is imminent, with record new issuance in the coming week and a strong July Nonfarm Payroll Report last Friday. Expect ten-year Treasury yields to go back to 0.95% and prices to collapse. Inflation is ticking up, with Consumer prices rising to 1.6% YOY. Fed buying of $80 billion a month is already in the price. I am selling short the (TLT).
Warren Buffet was a major buyer of His own stock, picking up a record $5.1 billion worth of Berkshire Hathaway (BRK/B). With $146.6 billion in cash on hand, what else is he going to do? Berkshire Class A shares were down 7.4% for the year through Friday’s close, compared with the 3.7% gain in the S&P 500. It’s his way of betting on the long-term future of industrial America at a discount.
Russia claimed Covid-19 Vaccine, causing stocks to pop. The rotation trade continues with a vengeance, with tech (I’m short), bonds (I’m short), and gold down big and “recovery” stocks like cruise lines, hotels, restaurants, and banks (I’m long) on a tear. Some $5 trillion in cash is pouring in from the sidelines, so there is only “UP” and “UP BIG”. (SPY) hit a new all-time high.
Tesla announced 5:1 stock split on August 21, which is the options expiration day. Long expected, it is just the latest in a series of Elon Musk attacks against the shorts, of which I am now one. The shares are up only 7% on the announcement. The impact won’t be so great, as it only takes the shares back to where they were in March.
Biden picked Kamela Harris as VP. It is the safe choice, not that California was ever in doubt in the electoral college. A moderate choice clearly takes aim at the conservative Midwest. Markets will rally because she is not Elisabeth Warren, who would have pilloried the banks and big tech and is essentially anti-capitalist.
College Football is postponed for 2020-2012, delivering a $4 billion hit to sponsoring colleges and another drag on GDP. No more free Corvettes for USC players. It's another example of local government taking the lead on Corona measures where the federal government is totally absent.
Van Eck targets $3,400 for gold. One of the original players in gold mutual funds who I know from the big bull market during the 1970s sees a 72% increase in the barbarous relic coming. With the government running the printing presses 24/7 to end the Great Depression collapsing the US dollar, it’s a no-brainer.
Consumer Prices unexpectedly jump, up 0.6% in July and 1.6% YOY. It’s a legitimate “green shoot” and provided yet another reason for the recovery trade. Rebounding inflation is always a great time to be short the US Treasury bond market (TLT). Keep selling every rally in the (TLT).
Retail Sales jump 1.2% in July, despite rising Corona cases, taking it back above pre-pandemic levels. Industrial Production picked up 3%. A lot was bought on credit. The problem is that all of those stimulus and unemployment dollars are now gone. In the meantime, further aid is frozen in Washington. No shopping, no growth.
Weekly Jobless Claims drop below one million for the first time since March. It’s still terrible, but it’s progress. Take what you can get. However, the rate of decline is flagging, and the next report could well bring an upturn.
When we come out the other side of this, 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% 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.
Nothing refreshes and clears the mind like a vacation.
As a result, my Global Trading Dispatch blasted through to a substantial new all-time high. August is running at a blistering 6.03%, delivering a 2020 year to date of 34.66%, versus -2.00% for the Dow Average. That takes my eleven-year average annualized performance to a new all-time high of 36.61%. My 11-year total return has rocketed to 390.57%.
It certainly helped being short big tech (AAPL), (AMZN), (FB), short US Treasury bonds (TLT), (TBT), long banks (JPM), (BAC), and long gold (GLD).
The only numbers that count for the market are the number of US Corona virus cases and deaths, which you can find here.
On Monday, August 17 at 8:30 AM EST, the August New York Empire State Manufacturing Index is published.
On Tuesday, August 18 at 8:30 AM EST, Housing Starts for July are released.
On Wednesday, August 19 at 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, August 20 at 8:30 AM EST, the Weekly Jobless Claims are announced.
On Friday, August 14, at 10:00 AM EST, Existing Home Sales for July are printed. At 2:00 PM The Bakers Hughes Rig Count is released.
As for me, with six days of 100-degree temperatures forecast, I attempted to go to the beach. A car crash on the Richmond Bridge trapped me in traffic for an hour. By the time I made it to the coast, the beaches were unreachable, thanks to unprecedented crowding.
With the local real unemployment rate at 25%, people have a lot of free time on their hands these days. It’s all part of the times we live in.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
