Global Market Comments
July 6, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MEET THE NEW MARKET)
(SPY), (TLT), (TSLA), (GLD)
Meet the new market.
Remember “RISK ON, RISK OFF”?
That’s long gone, tossed in the dustbin of history.
We now have a stock market that runs on “COVID ON, COVID OFF”.
When the rate of increase in the number of new US Covid-19 cases soars, stocks dive. When they fade, stocks rocket. It doesn’t get any more complicated than that.
In fact, the market is becoming immune to induced Covid shocks. In February and March, it was a huge black swan. Now, it is put in front of our face every day, from the moment we put on our masks in the morning to the when we vigorously wash our hands on our return.
Which leads us to the question, “What are we buying here with the Dow Average at 26,000 and the S&P 500 price earnings multiple at a nosebleed 26X?” The lead sector of technology is seeing a four times price to sales multiple, the highest since the Dotcom Bubble top.
You certainly aren’t paying for 2020 earnings, which have been completely written off by investors long ago. (SPY) earnings could drop from $162 a share in 2019 to $125 this year…. or $85, depending on how long the Great Depression extends.
You are not paying for 2021 or 2022 earnings either because stocks are still expensive according to traditional benchmarks. Now, you have to go out to 2023 before we recover that historic $162 a share level. And that is the bull case. The bears don’t see earnings returning to peak levels until 2025, or even 2030 before we recover the 2019 earnings power.
Good thing I am not a habitual bear. I believe the America that comes out the other side of the pandemic will be immensely more powerful and profitable than the one going in. Fat is being trimmed at an incredible pace. New product lines and services are being invented out of whole cloth. What is going on in biotech is out of science fiction. And you want to buy a piece of this right now.
All of this sets up my coming American “Golden Age” scenario and another Roaring Twenties. Investors are not paying for the last America, but the next one, and that one is much more valuable. Stocks in the old America are expensive. Stocks in the new America are cheap.
I can see how this plays out with all the clarity of a sage. The Dow Average will grind up to just short of the all-time high. Then, a true vaccine will be announced and stocks will rise by 5% a day until the Index doubles to $50,000.
If the Oxford vaccine succeeds with its stage three trials in August, this could be only weeks away. Hence, the superheated market action right now.
It isn’t going to be all Champaign and roses. We are on the verge of losing the bottom quarter of the US population, the part that doesn’t own stocks, rents their homes, and once had low-waged jobs in restaurants, retailers, hotels, local government, and airlines. As many as ten million could get evicted from homes. The U-6 unemployment rate will stay permanently in double digits.
Then the next government will have to roll out 1930s style Roosevelt programs that put millions to work, like the Civilian Conservation Corps, which built much of the public infrastructure that we enjoy today.
June Nonfarm Payrolls blew it away, up 4.8 million, taking the unemployment rate to a still half-century high of 11.1%. A gain of only 2 million was expected. The problem is that the states that powered the greatest gains are now showing the biggest increases in new infections. Leisure & Hospitality gained 2.1 million, Retail 739,000, Manufacturing 356,000, Construction 158,000. It’s probably the most meaningless number ever reported.
Bonds were the best performing asset class in June, up 9%, with a huge flight to safety bid chasing every category of fixed income. It’s setting up one of the best short-selling opportunities of the century….again. The bond market is about to get crushed by historic over-issuance of paper by the US government.
The IMF predicts a 4.9% global GDP loss in 2020, a 1.9% drop in only two months. They are expecting a 5.4% bounce back in 2021. It lines up with my own forecast that things will get much worse before they get better.
Pending Home Sales up a staggering 44.3% in May, far and away the largest pop in history on a signed contract basis. They’re still down 5% YOY. Most builders will take that as a win. The west saw the biggest gains, up 56%. It bolsters my argument that housing will be immune to the current Great Depression, thanks to a surging Millennial demographic tailwind.
Fed Governor Powell warns of unprecedented uncertainty in his comments to be delivered to the House today. Translation: interest rates will stay lower for longer. Oh, and we need more fiscal stimulus too.
Tesla announced blockbuster Q2 sales. Of course, the news that Tesla delivered an amazing 90,650 vehicles in Q2, 20,000 greater than the most optimistic expectations, was the trigger. This is at the height of the pandemic with the factory closed for two months. I sent out a trade alert on the stock two days ago with a $1,200 target and it is already up 20%. The bottles of single malt Scottish whiskey have already started to arrive (hint, hint).
Tesla now has a market capitalization of an eye-popping $225 billion. Tesla has had everything thrown at it that should have wiped it out, like a pandemic, Great Depression, and negative oil prices. Yet, it has gone from strength to strength, the shares tripling off the March lows. Next stop $2,500.
The PPP is running out, and companies are not allowed to double-dip, unless congress changes the law and replenishes the funds. Some 47% of Americans work for companies with less than 500 employees, so the unemployment rate could surge to over 52 million. Me thinks the market won’t like this. Grounds for another 10% correction? My downside target is $270 in the (SPY).
The ISM Manufacturing Index shocked to the upside in June, coming in at 52.6 from 31.8, the best report in a year. It shows there was some kind of reopening going on last month. Can we repeat in July?
Gun Sales are soaring, according to FBI background check statistics for June. New owners are seeking protection in our current dystopian world on riots and pandemic. Many will end up shooting themselves or loved ones in accidents. The greatest of all ironies here is that Remington is now owned by the Navajo Indian tribe, who are almost wiped out by Remington’s in the 19th century, which they just obtained ownership of in a bankruptcy settlement.
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.
My Global Trading Dispatch enjoyed the best week in its 13-year history, up an astounding +10.67%, even though it was only a holiday-shortened four-day week. We have taken in an eye popping +2.85% just in the first two days of July.
June closed at an awesome 10.38%. It was a week when everything worked in the extreme. My eleven-year performance rocketed to a new all-time high of 379.46%. Double weightings in Tesla, gold, and biotech were a big help.
That takes my 2020 YTD return up to an industry-beating +23.25%. This compares to a loss for the Dow Average of -9.4%, up from -37% on March 23. My trailing one-year return popped back up to 63.85%, THE HIGHEST IN THE 13 YEAR HISTORY of the Mad Hedge Fund Trader. My eleven-year average annualized profit recovered to a record +35.85%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here. It’s jobs week and we should see an onslaught of truly awful numbers.
On Monday, July 6 at 10:00 AM EST, the June ISM Non-Manufacturing Index is released.
On Tuesday, July 7 at 8:00 AM EST, the US Vehicle Sales for June are announced.
On Wednesday, July 8 at 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, June 9 at 8:30 AM EST, Weekly Jobless Claims are announced.
On Friday, June 10 at 8:30 AM EST, the US Producer Price Index is released. The Baker Hughes Rig Count is out at 2:00 PM EST.
As for me, I’ll be hitting the beach at Incline Village, Nevada, managing the appropriate social distance. The Coronavirus has a much short life span in the supper dry High Sierra air so I should be OK. And as far as I know, the virus can’t swim….yet.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 2, 2020
Fiat Lux
Featured Trade:
(THE DEATH OF THE FINANCIAL ADVISOR)
Global Market Comments
July 1, 2020
Fiat Lux
Featured Trade:
(HOW THE MAD HEDGE MARKET TIMING ALGORITHM WORKS),
(TESTIMONIAL)
I am absolutely sure that John does not need, expect, or want to hear about compliments, but his eBook on Stocks to Buy for the Coming Roaring Twenties is a Da Vinci piece of art. It’s just fantastic, exactly what I was expecting to get my hands upon but could not afford to do so.
I have to read and re-read it to understand the 5th wave of evolution.
Indirectly, John does touch upon AI (artificial intelligence) and AR (augmented reality), i.e. XR (extended reality) and Analytics but it would be great if he sheds his brilliance here too so we are aware of the incoming tsunami and prepare ourselves for the shock and the aftershocks as these will be like tectonic shifts in our future lives.
All in all, it is just a monumentally fantastic compilation of what is happening and going to happen. Somehow this piece of work reminded me of the painting of Mona Lisa, where her smile is like telling us, “Just wait and see what is about to happen.”
Now, I am aware that I have gotten carried away – but do convey to John my "thank you" from the bottom of my heart –a colossal piece of work, the culmination of past, present, and future in 154 pages.
I don’t know how one could trade without reading this. Quite the “Fiat Lux” I had waited for. Thanks again for allowing me to take a look at the “unfinished” piece of art.
Now, I have months to see that I can make enough money to continue being a member of John's group to access the enlightened rest of my life.
I had stopped working to look after a terminally relative who had no one except me and my wife and we did everything we could to make his life a good as possible and in the end, got rewarded by stumbling on to Johns seminar and getting the possibility to get into it – as they say, what goes around comes around!
In gratitude - Shabaz
Global Market Comments
June 30, 2020
Fiat Lux
Featured Trade:
(STORAGE WARS),
(MSFT), (IBM), (CSCO), (SWCH),
(THE MAD HEDGE JUNE 4 TRADERS & INVESTORS SUMMIT RECORDING IS UP),
Global Market Comments
June 29, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or COVID-19 IS BACK!)
(SPX), (TLT), (TBT), (TSLA), (BAC),
(XOM), (CCL), (MGM), (WYNN), (UAL)
This was the week that the Coronavirus came back with a vengeance.
The market had been backing out the pandemic for the past three months. Now it is abruptly pricing it back in.
Hospitalizations soared in 16 states to new all-time highs, as the first wave continues to grow exponentially. Deaths have topped 125,000. The good news is that only 5,000 died last week. That is nearly two 9/11’s, or 12 Boeing 747’s crashes worth of victims.
Apple has closed eight stores in Texas and another 14 stores in Florida. Arizona is on the verge of running out of hospital beds. This is going to weigh heavily on the market until we see another interim peak. It looks like the last one was certainly a false summit, in climber’s lingo.
What was really interesting last week is what DIDN’T happen. While the “reopening” stock LIKE banks (BAC), energy (XOM), cruise lines (CCL), hotels (MGM), casinos (WYNN), airlines (UAL) were absolutely slaughtered, gold, technology, and biotech barely moved. It says volumes about what happens next. You want to use selloffs to buy quality at a discount, not garbage that is going to zero.
Technology and biotech are where you want to focus your buying of stock, futures, and LEAPS. The next big dip is the one you buy.
You can count on the government stepping in and announcing more stimulus on the next down 1,000-point day. Thursday mornings seem to be a favorite time, right before the next horrific Weekly Jobless Claims are announced, which also seem to be reaccelerating.
The Fed can do this for free, without spending any money, simply by expanding the asset classes eligible for quantitative easing. Some $8 trillion in QE certainly buys a lot of friends in the market. I believe that any run in the S&P 500 (SPX) down to 2,700 will be met by government action.
Treasury Secretary Steve Mnuchin expects another stimulus package in July, but only if he gives away the store to Nancy Pelosi. Just what the market needs, more stimulus. Most of the 40 million out of work are still jobless. It could be $1 trillion worth of stimulus checks and other giveaways headed for the stock market, like the last lot. My kids still haven’t spent their first checks! We’re going broke anyway, so why not?
The stock market is clearly running out of gas, at a 26 multiple, the highest since the Dotcom bubble top. Any more stimulus may simply go into bank deposits. The risk/reward for new positions here is terrible. It sits nicely into my sideways range scenario for the rest of the year.
Existing Home Sales are down 9.7% in May, the worst in ten years. They are off 26.6% YOY, the worst figure since 1982 when home mortgage rates were at 18%. Inventories are down an eye-popping 18.8% to 4.8 months as sellers pulled listing to avoid virus-infested buyers. The first-time buyers live, but the action is shifting out of condos and into single family homes in the burbs.
Weekly Jobless Claims jump 1.5 million, far worse than forecast. It looks like we are getting a second wave of jobless as Corona ravages the south and business hangers-on throw in the towel. Some 20 million Americans remain on state unemployment benefits, which will start to run out shortly. Will stocks look through this?
Banks are banned from paying dividends and buying back shares, orders the US Treasury. The Fed estimates that pandemic-related loan losses could reach $700 billion, wiping out their capital. Every bailout comes with a pound of flesh. The banks have made billions off of stimulus loans, like the PPP. The banks rallied because the news wasn’t worse, like a mandatory 5% share giveaway, which happened last time. Buy banks like (JPM), (BAC), and (C) on an expected yield curve steepening.
Tesla (TSLA) is now the world’s most valuable car company, with a market capitalization of over $180 billion. It just passed Toyota Motors (TM). (TSLA) is now worth more than the entire US car industry combined. That could double very quickly. The upcoming model Y is expected to be its biggest seller and a third production plant will be announced imminently. The rush out of public transit and into private cars simply accelerated a pre-existing trend or the company.
When we come out on 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.
My Global Trading Dispatch enjoyed another respectable week, taking in a welcome 3.87%, bringing June in at +2.56%. Despite the market diving nearly 10%, we pulled in big profits from our short positions and captured accelerated time decay on our longs. My eleven-year performance stands at a new all-time high of 368.75%.
That takes my 2020 YTD return up to a more robust +12.88%. This compares to a loss for the Dow Average of -12.3%, up from -37% on March 23. My trailing one-year return popped back up to 53.27%. My eleven-year average annualized profit recovered to +34.91%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here. It’s jobs week and we should see an onslaught of truly awful numbers.
On Monday, June 29 at 11:00 AM EST, US Pending Home Sales for May are out.
On Tuesday, June 30 at 10:00 AM EST, the April Case-Shiller National Home Price Index is published.
On Wednesday, July 1, at 9:15 AM EST, the ADP Private Employment Report is released. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are published.
On Thursday, June 2 at 8:30 AM EST, Weekly Jobless Claims are announced.
On Friday, June 3, at 8:30 AM EST, the June Nonfarm Payroll Report is printed. Since last month was a large overstatement, June could be positively diabolical. The Baker Hughes Rig Count is out at 2:00 PM EST.
As for me, I am rushing out and doing errands, like a trip to the barber, haircut, hardware store, dry cleaners, the dentist, and the doctor in case the California economy shuts down once again. We’ve been slightly open for a few weeks.
That may be all we get this year.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
June 26, 2020
Fiat Lux
Featured Trade:
(THEY’RE NOT MAKING AMERICANS ANYMORE),
Global Market Comments
June 25, 2020
Fiat Lux
Featured Trade:
(5 REASONS GOLD IS GOING TO A NEW HIGH),
(GLD), (GOLD), (NEM), (GDX)
