Global Market Comments
June 2, 2020
Fiat Lux
Featured Trade:
(CYBERSECURITY IS ONLY JUST GETTING STARTED),
(PANW), (HACK), (FEYE), (CSCO), (FTNT), (JNPR), (CIBR)
Global Market Comments
June 1, 2020
Fiat Lux
Featured Trade:
(JOIN THE JUNE 4 TRADERS & INVESTORS SUMMIT),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE COUNTRY THAT IS FALLING APART),
(SPX), (INDU), (TLT), (TBT), (GLD),
(AAPL), (FB), (JPM), (BAC)
As much as I loved hosting my annual Mad Hedge Lake Tahoe Conferences, it looks like this year, it is not meant to be. I doubt guests are racing to get on airplanes anytime soon. The desire to sit shoulder to shoulder with your fellow investors has also probably waned as well, no matter how profitable they may be.
I am therefore hosting the Thursday, June 4 Mad Hedge Traders & Investors Summit.
The event will be bigger and better than the old analog bricks and mortar version. I will be hosting nine expert traders from all over the world speaking on the hour every hour starting from 9:00 am EDT.
Some of these speakers I have known for decades. Every trading style and asset class will be covered, including stocks, bonds commodities, foreign exchange, precious metals, energy, and real estate. It will be the 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 my newsletters, as well as those of the other speakers.
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 and view the list of speakers and their topics, please click here.
Out of quarantine, into curfew.
Yes, we here at Incline Village, Nevada have received a “stay at home” order because we are in Washoe County, the same county as Reno, where police tear-gassed rioters assaulting a police station yesterday.
I now have the challenge of commuting between two cities that are curfewed, Oakland, CA and Incline Village, NV.
I wonder if this is turning into another 1968, but with a pandemic? That is when casualties peaked from the Vietnam War and there were national race riots and political assassinations.
I hope not.
I’m really getting into this pandemic thing. That’s because people tell me that I am better looking with a mask on. But then I’ve grown a long grey beard since I was locked up three months ago, so maybe less is better.
The great American talent for creativity, which I always knew was lurking under the surface, and exploded into the open.
High-end restaurants are now placing dressed up dummies at every other table to enforce social distancing rules. At one table, a man is on his knee proposing marriage to his girlfriend. At another, an older couple is arguing. Click here for a laugh.
An enterprising dad has captured 2 million YouTube views describing how to perform tasks only dads can do, like jump-starting a car and fixing toilets. If you need his help ask “Dad, How Do I” by clicking here.
Only in America.
In the meantime, the stock market had one of the best weeks of the year in the face of the worst economic data in history. The (SPY) broke the 200-day moving average to the upside as the newly unemployed topped a staggering 41 million. Buyers rotated into recovery stocks as Covid-19 deaths exceeded 100,000.
All of the super smart traders I know who went into cash or strapped on short positions at the end of January are doing the same now. When markets detach from reality, I detach myself from risk. Almost all of my positions are now very low risk, have extremely small deltas, and expire in 14 trading days. The risk/reward for stocks now is terrible. The Mad Hedge Trade Alert Service delivered a stunning 27% profit off the March bottom.
By the way, in 1968 when the country was last falling apart, the Dow Average rose by 4.3% as part of one long 20-year sideways move. Brokers were forced to drive taxi cabs. I went to Tokyo for better fish to fry, and then Cambodia, Laos, and Burma. I came back 20 years later with an ample collection of lead stuck in various parts of my body.
Pending Home Sales fell down 21.8%, in April, and off 33.8% YOY on a signed contract basis. These are the worst numbers since the data series started. The West was hardest hit, down 50%. No wonder I’ve seen so many real estate agents at the beach. We already know that a sharp rebound is underway as Millennials move to the burbs and flee Corona-infested cities. Home prices will be up this year.
Easy In, Easy Out. The Fed pumped $3 trillion into the economy, and exactly $3 trillion has gone into stocks since the March bottom. There is a 90% correlation between stock prices and the direction of the Fed balance sheet. Stimulus checks went straight into day trading accounts as soaring online stock and option volumes show. In the meantime, Q2 GDP estimates have fallen to the -40%-50% range. What happens when the Fed stops buying? The M2 Money Supply (remember that?) is growing at an 80% annual rate. Buy gold (GLD).
Weekly Jobless Claims came in at 2.4 million, meaning that 41 million, or one out of four Americans out of work. That’s worse than seen during the Great Depression. Recent surveys show employers will hire back only 80% of those laid off, meaning that the Unemployment rate could stay above 10% for years. The future is being pulled forward fast and that means far fewer brick and mortar jobs. Only the large and the digital will survive.
The Market Has Flipped, from chasing big tech to chasing reopening stocks. It’s the only place where value is left. Out with (AAPL) and (FB) and in with (JPM) and (BAC). If it lasts, we’re going to new highs.
The China Trade War heats up, with 33 new companies banned from doing business with the US. You can cut global growth forecasts even more as international trade accelerates its decline. Where was Trump when tens of thousands demonstrated for democracy last fall? Wasn’t China’s President Xi Jinping his friend who did a great job controlling Covid-19?
Stocks are the most overbought in 20 years, since the top of the Dotcom bubble. Risk is extreme for new longs. Almost all S&P 500 stocks are trading above 50-day moving average.
Monster market short could force a short squeeze, with trend following commodity trading advisors boasting the biggest bearish bets in five years. The 200-day moving average at (SPX) $2,999.72 could be a real make or break, only 45 points away. The falling Volatility Index (VIX) is priming the pump for a downside collapse.
New Home Sales were up a stunning 0.6% in April versus an expected -21.9% loss, totaling 623,000 units on a signed contract basis only. The premium is now on new, clean, virus-free homes where you don’t die from a model home. Median home prices plunged from $339,000 to $309,000, down 8% YOY. It’s clear that a lot of speculative buying took place at the market bottom.
US Mortgage Applications up for 6th week, surging 54% since April. My forecast that your home will be your best performing asset of 2020 is coming true. I’m hearing stories of bidding wars again. It’s tough to beat a huge Millennial tailwind and record low-interest rates.
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 at zero, oil at $0 a barrel, and many stocks down by three quarters, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade.
My Global Trading Dispatch performance was unchanged on the week, my downside hedges costing me money in a steadily rising, but wildly overbought market. We stand at an eleven year all-time high of 366.23%. It has been one of the most heroic performance comebacks of all time. We have gained an eye-popping 27.03% since the market bottom despite being hedged all the way up.
My aggressive short bond positions are still delivering some nice profits even though we only have 14 days to expiration, despite the fact the bond market went almost nowhere. That’s because time decay is really starting to kick in.
That takes my 2020 YTD return up to +10.32%. That compares to a loss for the Dow Average of -10.93%. My trailing one-year return exploded to 51.09%, nearly an all-time high. My eleven-year average annualized profit exploded to +34.87%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, June 1 at 10:00 AM EST, The US Manufacturing PMI for May is published.
On Tuesday, June 2 at 10:30 AM EST, weekly EIA Crude Oil Stocks are released.
On Wednesday, June 3, at 8:15 AM EST, The ADP Private Employment Report is announced.
On Thursday, June 4 at 8:30 AM EST, Weekly Jobless Claims are announced. I’ll be busy all day with the Mad Hedge Traders & Investors Summit.
On Friday, June 5, at 8:30 AM EST, the May Nonfarm Payroll Report is out. It may be the worst on record.
The Baker Hughes Rig Count follows at 2:00 PM EST.
As for me, my original plan this summer was to take a one-week cruise in Tahiti, lead an expedition to excavate more dog tags from Marines missing in action on Guadalcanal, perform a one-week roadshow for clients in New Zealand and Australia, Fly to South Africa for a one-week safari with my kids, and then cool my heels climbing the Matterhorn and thinking great thoughts at my summer home in Zermatt, Switzerland.
This will be the first time in eight years I have not climbed the great mountain. Don’t worry, I have already emailed the Zermatt Mountain Rescue Service and told them I won’t be able to help out this year because the town is closed.
Covid-19 had other ideas.
Instead, I will be commuting back and forth between San Francisco and Lake Tahoe by Tesla Model X, writing four newsletters a day, issuing uncountable trade alerts, and then taking a daily ten-mile hike to the Tahoe Rim Trail with a 40-pound backpack. Safer and much cheaper.
There’s no rest for the wicked. There’s always next year.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Back Into Storage for Next Year
Global Market Comments
May 29, 2020
Fiat Lux
Featured Trade:
(JOIN THE JUNE 4 TRADERS & INVESTORS SUMMIT),
(THE CONTINUING DEATH OF RETAIL),
(AMZN), (WMT), (M), (JWN),
(TESTIMONIAL)
If you had to pick the biggest loser of our ongoing pandemic and the trade wars, it would be the retail industry (XRT). Higher costs which can’t be passed on, rising minimum wages, lower selling prices, and a massive inventory glut is not what money-making is all about.
Now, take all of those problems and drop your revenues by half, thanks to the pandemic. A future where touching, feeling, and trying on things before you buy them is about to become an extravagant luxury.
The stocks have delivered as expected, providing one of the worst-performing sectors of the past three years. Half of them probably won’t even make it until Christmas.
In fact, Sears and Macy’s have announced more store closings nationwide. The overhead is killing them in a micro margin world devoid of window shopping customers.
So, I stopped at a Walmart (WMT) the other day on my way to Napa Valley to find out why.
I am not normally a customer of this establishment. But I was on my way to a meeting where a dozen red long stem roses would prove useful. I happened to know you could get these for $10 a dozen at Walmart, 60% cheaper than anywhere else.
After I found my flowers, I browsed around the store to see what else they had for sale. The first thing I noticed was that half the employees were missing their front teeth.
The clothing offered was out of style and made of cheap material. It might as well have been the Chinese embassy. Most concerning, there was almost no one there, customers OR employees.
The Macy’s downsizing is only the latest evidence of a major change in the global economy that has been evolving over the last two decades.
However, it now appears we have reached both a tipping point and a point of no return. The future is happening faster than anyone thought possible. The pandemic has forced business evolution to move at hyper fast forward and the Death of Retail is no exception.
I remember the first purchases I made at Amazon 20 years ago. I personally knew the founder, Jeff Bezos, from my Morgan Stanley days. The idea sounded so dubious that I made my initial purchases with a credit card with only a low $1,000 limit. That way, if the wheels fell off, my losses would be limited.
And how stupid was that name, Amazon, anyway? At least he didn’t call it “Yahoo” because it was already taken.
Today, I do almost all of my shopping at Amazon (AMZN). It saves me immense amounts of time while expanding my choices exponentially. And I don’t have to fight traffic, engage in the parking space wars, or wait in line to pay.
It can accommodate all of my requests, no matter how bizarre or esoteric. A WWII reproduction Army Air Corps canvas flight jacket in size XXL? No problem!
A used 42-inch Sub Zero refrigerator with a front door ice maker and water dispenser? Have it there in two days, with free shipping at one fifth the $17,000 full retail price.
So I was not surprised when I learned that Amazon accounted for 25% of all new online sales in 2019 in a market that is already growing at a breathtaking 20% YOY.
In 2000, after the great “Y2K” disaster that failed to show, I met with Bill Gates Sr. to discuss his foundation’s investments.
It turned out that they had liquidated their entire equity portfolio and placed all their money into bonds. It turned out to be a brilliant move, coming mere months before the Dotcom bust and a 20-year bull market in fixed income which only peaked two months ago.
Mr. Gates (another Eagle Scout) mentioned something fascinating to me. He said that unlike most other foundations their size, they hadn’t invested a dollar in commercial real estate. Today, that looks like a prescient move in the extreme with 60% of mall tenants skipping their rent.
It was his view that the US economy would move entirely online, everyone would work from home, emptying out city centers, and rendering commuting unnecessary. Shopping malls would become low rent climbing walls and paintball game centers.
Mr. Gates’ prediction may finally be occurring. In the San Francisco Bay area, the only employed people are those who are telecommuting.
Even before the pandemic, it was common for staff to work Tuesday-Thursday at the office, and from home on Monday and Friday. Productivity increases. People are bending their jobs to fit their lifestyles. And oh yes, happy people work for less money in exchange for personal freedom, boosting profits.
The Mad Hedge Fund Trader itself may be a model for the future. We are entirely a virtual company, with no office. Everyone works at home in four countries around the world. Oh, and we all use Amazon to do our shopping.
The downside to this is that whenever there is a snowstorm anywhere in the country, it affects our output. Two storms are a disaster, and at three, such as last winter, we grind to a virtual halt.
The main thing I am worried about is the Internet in the Philippines which is unable to handle the tenfold increase in demand since the start of the pandemic. They don’t have our infrastructure. If you wonder why your customer support at any company has suddenly gotten poor, that is the reason.
You may have noticed that I can work from anywhere and anytime (although sending a Trade Alert from the back of a camel in the Sahara Desert was a stretch), so was sending out an Alert while hanging on the cliff face of a Swiss Alp. But they both made money.
Moroccan cell coverage is better than ours, but the dromedary’s swaying movement made it hard to hit the right keys.
The cost of global distribution is essentially zero. Profits go into a bonus pool shared by all. Oh, and we’re hiring, especially in marketing.
It is happening because the entire “bricks and mortar” industry is getting left behind by the march of history.
Sure, they have been pouring millions into online commerce and jazzed up websites. But they all seem to be poor imitations of Amazon, with higher prices and worse service. It is all “hour late and dollar short” stuff.
In the meantime, Amazon has soared by an eye-popping 56% since the March 23 low and is one of the top-performing big-cap stocks of 2020. There is now a cluster of Amazon analyst forecasts targeting the $3,000 mark, including me.
And here is the bad news. Bricks and Mortar retailers are about to lose more of their lunch to Chinese Internet giant Alibaba (BABA), which is ramping up its US operations and is FOUR TIMES THE SIZE OF AMAZON!
There’s a good reason why you haven’t heard much from me about retailers. I made the decision 30 years ago never to touch the troubled sector.
I did this when I realized that management never knew beforehand which of their products would succeed and which would bomb, and therefore, were constantly clueless about future earnings.
The business for them was an endless roll of the dice. That is a proposition in which I was unwilling to invest. There were always better trades.
I confess that I had to look up the ticker symbols for this story, as I never use them.
You will no doubt be enticed to buy retail stocks as the deal of the century by the talking heads on TV, Internet research, and maybe even your own brokers, citing how “cheap” they are because the prices are so low.
Never confuse a low stock price with “cheap.”
It will be much like buying the coal industry (KOL) a few years ago, another industry headed for the dustbin of history. That was when “cheap” was on its way to zero for almost every company. Don’t buy the next coal company.
So the next time someone recommends that you buy retail stocks, you should probably lie down and take a long nap first. When you awaken, hopefully the temptation will be gone.
Or better yet, go shopping at Amazon. The deals are to die for.
To read “An Evening with Bill Gates Sr.,” please click here.
Thanks for the great newsletter and advice. I truly enjoy it. You are one of a kind!
Credits to you as my financial navigator, as I am finally making some serious money after years of doing it the hard and wrong way.
Kind regards
Rolf
Global Market Comments
May 28, 2020
Fiat Lux
Featured Trade:
(THE IRS LETTER YOU SHOULD DREAD),
(PANW), (CSCO), (FEYE),
(CYBR), (CHKP), (HACK), (SNE)
Global Market Comments
May 27, 2020
Fiat Lux
Featured Trade:
(JOIN THE JUNE 4 TRADERS & INVESTORS SUMMIT),
(IT’S NOT YOU FATHER’S MARINE CORPS)
This being the week for Memorial Day, I think I will be forgiven for posting one more military piece.
Most Americans don’t know that the US Marine Corps is the oldest government institution in the United States. It was founded at Tun Tavern on Water Street in Philadelphia on November 10, 1775, nearly eight months before the establishment of the country itself on July 4, 1776.
Their original mission was to act as snipers from the top of ships’ masts against British ships, engage in hand-to-hand combat when boarding the enemy, and preventing mutinies by press-ganged crews. It was truly a different age.
Having been involved with the USMC for nearly 50 years in many forms, following in the footsteps of my father in WWII and my grandfather in WWI, I can tell you than many Marines have not strayed far from a bar since.
During the past 245 years, the Marine Corps has built a storied reputation as an elite force of shock troops which will fight anywhere at any time. They literally went into battle from the “shores of Montezuma to the shores of Tripoli”, according to the Marine Corps Hymn.
Over the past century, my own family has served at Belleau Wood, France, where the Germans gave them their nickname, the “Devil Dogs.” Dad was at Guadalcanal, Bougainville, Samoa, and New Zealand.
My own contribution included Cambodia, Guam, Japan, Thailand, Burma, Laos, Croatia, Serbia, Iraq, Kuwait, Saudi Arabia, and most recently, Guadalcanal. We have a family footlocker of war souvenirs to die for. Yes, three months ago I was digging out Japanese bullets fired at dad from his foxhole at the base of Hill 27 (click here for the link).
Now, for the first time in nearly three centuries, the Corps is undergoing radical change. Since 1990, it has been primarily engaged in desert warfare in the Middle East, far from its naval roots. Now that the US has largely withdrawn from this part of the world, it is remaking itself to meet future challenges. In short, it is going back to sea.
In 2018, the Pentagon engaged in a ground-up rethink of its mission. It concluded that “great power competition with China and Russia” would become its primary mission. The consequences are earth-shaking for both the USMC and the country as a whole.
The emergence of high-precision Chinese long-range missiles has rendered an American WWII style dominance of the Western Pacific by our ten aircraft carriers obsolete. These massive, majestic ships manned by 5,000 men each have become white elephants and liabilities in future warfare.
They will be replaced by fast-moving commando-type companies of 50-150 Marines moving atoll to island and bottling up the Chinese Navy with high tech drones, rockets, and anti-ship missiles. The traditional 12-man rifle company platoon is gone. The costly carriers will be reduced to safer support roles thousands of miles at sea.
The implications for the USMC are far-reaching. General David H. Berger, the gentleman who sent me to Guadalcanal, has proposed cutting the Corps from 186,000 to 170,000 men. He will eliminate most artillery, all tanks, and cut the number of F-35 fighters by 30%. The new structure would be designed to work anywhere in the world at a moment’s notice. You can never predict the next crisis, so you have to prepared for all contingencies.
During my reserve days, I once commanded a Marine tank battalion on maneuvers. The indestructible M-1 Abrams tanks were powered by turbine engines, possessed a faultless laser sighting system, and drove like a Cadillac right of the assembly line over the cruelest desert terrain.
But at 50 tons each, they are hard to move around in a hurry. During Desert Shield and Desert Storm, we had to enlist a coal-fired WWII mothball fleet to get them to Saudi Arabia and even that took six months.
As for the 155 mm howitzer, they have been outmoded since WWII. All-weather Boeing AH64D Apache Longbow helicopters are far more mobile and effective and can refuel air to air. But every weapons system breeds its own constituency. Everyone agrees with me except artillerymen.
In the end, it will be politics that determines the future of the Marine Corps. Constancies fight bitterly to hold on to antiquated weapons system to preserve jobs. I remember that during Desert Storm, a Florida congressman fought tooth and nail to keep a massive Humvee contract even though with no armor, they were helpless against IEDs. Hundreds of Marines died as a result.
The same will be true for M1 tanks built in Ohio, the F-35 Lightning II manufactured in Texas, and nuclear-powered aircraft carriers in Virginia.
Notice these are all battleground states in this election. How you vote may determine where I next serve. So, vote carefully.
To participate in the discussion of our future national defense, please click here.
Semper Fidelis.
An Old Marine on Guadalcanal
