Global Market Comments
August 5, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING THE ELEVATOR DOWN),
($INDU), (SPY), (TLT), (IWM), (WMT), (FXB)
It is often said the markets take the escalator up and the elevator down. A thousand Dow points in three days? That’s like taking the elevator down from the 101st floor of the Empire State Building down to the basement in one shot.
Welcome to your new $30 billion tax, or about $90 per American per year. That will be the effect of the new 10% tariff increase on $300 billion worth of goods imported from China. Unfortunately, this comes on top of an existing $210 per American, bring the total bill due from the China trade war to $300 per person.
Clearly, the Chinese think they can get a better deal from the next president and are inclined to wait it out. This has been my base case since the trade war started 18 months ago.
It was one of the most frenetic, emotion-charged, and violent weeks of the year, with almost daily wild swings on a daily basis. This is the environment where hedge funds and newsletters like this one earn their pay.
The July Nonfarm Payroll Report came in at 164,000, keeping the headline unemployment report to 3.7%. Average hourly earnings grew by a hot 3.2% YOY. The previous two months were revised down by 41,000. Overall, it was a disappointing report.
Manufacturing has been especially weak all year, adding only 16,000 jobs in July and averaging 8,000 jobs a month all year. The headline charge into the services economy continues. Retail lost 3,600, the sixth consecutive monthly decline. The strength was in Professional Services, up 31,000, Health Care at 30,000, and Social Assistance at 20,000.
The broader U-6 “discouraged worker” structural unemployment rate dropped from 7.2% to 7.0%, a new cycle low.
The British Pound (FXB) crashed by 1%, as the harsh reality of a hard Brexit looms. That’s because Boris Johnson, the pro Brexit activist, was named UK prime minister and filled his cabinet with anti-EC doormats. It virtually guarantees a recession there and will act as an additional drag on the US economy.
The end result may be a “Disunited Kingdom”, with Scotland declaring independence in order to stay in the EC, and Northern Ireland splitting off to create a united Emerald Island. The stock market there will crater and the pound will go to parity against the greenback.
Home Price Gains are Still Shrinking, from a 3.5% to a 3.4% annual gain in May, according to the S&P Corelogic Case Shiller National Home Price Index. The Median Home Price hit a new high of $285,700. That can’t buy you a parking space in San Francisco. This is removing a major leg from the economy.
Las Vegas saw the biggest increase at 6.4%, followed by Phoenix at 5.7% and Tampa at 5.1%. Shrinking price gains in the face of falling interest rates is a classic pre-recessionary indicator.
Apple hurdled a low bar, with an upward forward guidance delivering a 5% pop in the stock. Revenues rose 1% to $53.8 billion, while profits dropped 7%. The future looks bright on the eve of 5G iPhones. Hardware drops to less than half of sales for the first time. Services revenues jump to 21% of the total.
China is still a drag. Amazingly, Apple only bought $17 billion worth of its own stock last quarter against a commitment of $100 billion. So why are analyst “BUY” ratings at a decade low? Maybe it's because threats of retaliation in the China trade war are hanging over Apple like a sword of Damocles.
It took only three words to kill Wall Street. Confusion reigns. “Mid Cycle Adjustment” was how Fed governor Jay Powell described Wednesday’s 25 basis point interest rate cut, the first in 12 years, absolutely what the market didn’t want to hear. That implies that the Fed is “one and done,” and that there will be no more interest rate cuts in this economic cycle.
The president added insult to injury piling abuse on his own appointee, further eroding confidence in the independence of the Fed. A truly data dependent Fed wouldn’t have budged last week.
Bonds soared on “one and done.” Higher rates for longer give a new lease on life for the fixed income markets everywhere. Since 2008, major central bank balance sheets have exploded from $3 trillion to $16 trillion, and there is nowhere better for this mountain of money to go but the ten-year US Treasury bond.
Yields have smashed the four-year low at 1.82% and are headed to 1.40% by yearend. The market is wildly overbought for now on the back of an instant three-point rally, so keep buying those dips. Next up is the century low in rates.
Oil crashed 8% on increased global recession fears, in the worst plunge in four years and one of the biggest swan dives in history. The strong dollar doesn’t help either. I have recommended that investors avoid energy like the plague all year and it has worked like a charm. Long term, it’s going out of business anyway, so I don’t even want to trade it here.
Retailers got destroyed on the China news, with stocks down 6%-12% across the board. Best Buy (BBY) did a 12% swan dive. This will be the stick that broke the camel’s back for a lot of retailers already hanging on by their fingernails. Some 42% of US apparel, 69% of footwear, and 84% of accessories come from China.
Squeezed by Amazon on one side and administration China policies on the other, this will spell the death of retail. It looks like we’re going to have to go barefoot this winter. Thank goodness there’s global warming. The death spiral was further confirmed by the weak jobs figures in retail this morning.
I went into the week 100% in cash, giving me the dry powder to pursue the short side aggressively. I always tell followers that cash is a position, that it has option value, and this was a classic example of how well that can work.
The second I heard about the China tariff increase, I went pedal to the metal and increased my shorts from 0% to 40%, against 60% cash. My current shorts include the S&P 500 (SPY), US Treasury bonds (TLT), the Russel 2000 (IWM), and the giant retailer (WMT).
I see August as the best short selling opportunity of the year. I put out my first shorts the day after the Fed rate cut. My Global Trading Dispatch has hit a new all-time high of 320.30% and my year-to-date shot up at +20.16%. A robust earned a robust 1.83% so far in August, and 4.78% since I went back into the market from Zermatt, Switzerland three weeks ago.
My ten-year average annualized profit bobbed up to +33.13%. My Mad Hedge Market Timing Index saw one of the sharpest declines in its history, plunging from 65 to 23 on only two days. We could even be back to “BUY” territory by the end of next week.
The coming week will be a feeble one on the data front. Believe it or not, it could be a quiet week.
On Monday, August 5 at 2:00 PM, the July ISM Non-Manufacturing PMI is out.
On Tuesday, August 6 at 2:00 PM, the June JOLTS Jobs Openings report is published.
On Wednesday, August 7, at 8:30 AM, June Consumer Credit is released.
On Thursday, August 8 at 8:30 AM, the Weekly Jobless Claims are printed.
On Friday, August 9 at 8:30 AM, July Core Purchasing Price Index is printed, an inflation indicator.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, believe it or not, I have not been to the beach this year. As a native Californian, that is near high treason. So I am loading up the old Tesla with an ice chest, boogie boards, and kids and headed to nearby Stinson Beach in Marin County. I’m going early to beat the traffic and will take my usual short cuts I learned while living there eons ago.
Surf’s up!
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 2, 2019
Fiat Lux
Featured Trade:
(DON’T MISS THE AUGUST 7 GLOBAL STRATEGY WEBINAR),
(REPORT FROM THE WORLD)
I beat Phileas Fogg by 55 days, who needed 88 days to complete his trip around the world to settle a gentleman’s bet. But then he had to rely on elephants, sailing ships, and steam engines to complete his epic voyage, or at least the one imagined by Jules Verne.
I actually took a much longer route, using a mix of Boeings and Airbuses to fly 80 hours over 40,000 miles on 18 flights through 12 countries in only 33 days. Incredibly, our baggage made it all the way, rather than see its contents sold on the black markets of Manila, New Delhi, or Cairo.
It was a trip around the world for the ages, made even more challenging by dragging 13 and 15 year old girls along with me. I have always considered my most valuable asset to be the trips I took to Europe, Africa, and Asia in 1968. The comparisons I can make today some 51 years later are nothing less than awe-inspiring. I wanted to give the same gift to them.
It began with a 12 ½ hour flight from San Francisco to Auckland, New Zealand. Straight out of the airport, I rented a left-hand drive Land Rover and drove three hours to high in the steam-covered mountains of Rarotonga where we were dinner guests of a Maori tribe. To earn my dinner of pork and vegetables cooked underground, I had to dance the haka, a Maori war dance.
Of course, with kids in tow, a natural stop was the Hobbit Village of Hobbiton 1½ hours outside of Auckland. I figured the owners of the idyllic sheep farm were earning at least $25 million a year showing tourists the movie set.
In all, I put 1,000 miles on the car in four days, even crossing New Zealand’s highest mountain range on a dirt road. The thick forests were so primeval, my daughter expected to see a dinosaur around the next curve. We reached our southernmost point at Mt. Ruapehu, a volcano used as the inspiration for Mt. Doom in Peter Jackson’s Lord of the Rings.
The Real Mount Doom
The focus of the Australia leg were ten strategy lectures which I presented around the country. I was mobbed at every stop, with turnout double what I expected. The Mad Hedge Fund Trader and the Mad Hedge Technology Letter picked up 100 new subscribers in the Land Down Under in five days. Maybe it was something I said?
My kids’ only requirements were to feed kangaroos and koala bears, which we duly accomplished on a freezing cold morning outside Melbourne. We also managed to squeeze in a tour of the incredible Sydney Opera house in between lectures.
I hosted five Mad Hedge Global Strategy Luncheons for existing customers in five days. The highlight was in Perth, where eight professional traders and I enjoyed a raucous, drunken meal. They had all done well off my advice, so I was popular to say the least. Someone picked up the tab without me even noticing.
After that, it was a brief ten-hour flight to Manila, Philippines with a brief changeover in Hong Kong, where massive protest demonstrations were underway. Ever the history buff, I booked myself into General Douglas MacArthur’s suite at the historic Manila Hotel. The last time I was there, I interviewed president Ferdinand Marcos and his lovely wife Imelda. After a lunch with my enthusiastic Philippine staff, I was on my way to the airport.
I took Malaysian Airlines to New Delhi, India which has lost two planes over the last five years and where the crew was definitely on edge. I asked why a second plane was lost somewhere over the South Indian Ocean and the universal response was that the pilot had gone insane. Security was so tight that they confiscated a bottle of Jamieson Irish Whiskey that I had just bought in duty free.
India turned out to be a dystopian nightmare. If global warming continues, this is your preview. With temperatures up to 120 degrees in 100% humidity, people here dying of heatstroke are by the hundreds. Elephants had to be hosed down to keep them alive. It was so hot you couldn’t stray from the air conditioning for more than an hour.
In Old Delhi, the kids were besieged by child beggars pawing them for food and there were mountains of trash everywhere. In the Taj Mahal, my older daughter passed out and we had to dump our remaining drinking water on her to bring her back to life. We spent the rest of the day sightseeing indoors at the most heavily air-conditioned shops. The handwoven Persian carpet should arrive any day now.
If global temperatures rise by just a few more degrees, you’re going to lose a billion people in India very soon.
On the way to Abu Dhabi, we flew directly over the tanker war at the Straights of Hormuz. It was too dusty to see any action there. We got a much better view of Sinai and the Red Sea, which, I told the kids, Moses parted 5,000 years ago (they’ve seen Charlton Heston in The Ten Commandments)
Upon landing at Cairo, Egypt’s military intelligence service immediately picked me up. Apparently, I was still in their system dating back to my coverage of Henry Kissinger’s shuttle diplomacy for The Economist in 1976. That was all a long time ago. Having two kids with me meant I was not there to cause trouble, so they were very friendly. They even gave us a free ride to the downtown Nile Hilton.
After India, Cairo and the Sahara Desert were downright pleasant, a dry and comfortable 100 degrees. We did the standard circuit, the pyramids and the Sphynx followed by a camel ride into the desert.
If you are the least bit claustrophobic, don’t even think about crawling into the center of the Great Pyramid on your hands and knees as we did. I was sore for two days. We spent the evening on a Nile dinner cruise, looking for alligators, entertained by an unusually talented belly dancer.
The next stage involved a one-day race to Greece, where we circled the Acropolis in all its glory, and then argued with a Greek taxi driver on how to get back to the airport. We ended up taking an efficient airport train, a remnant of the 2000 Athens Olympics. If impoverished and bankrupt, Athens has such great airport train, why doesn’t New York or San Francisco?
It was a quick hop across the Adriatic to Venice, Italy, where we caught an always exciting speed boat from the airport to our Airbnb near St. Mark’s Square. We ran through the ancient cathedral and the Palace of the Doges, admiring the massive canvases, the medieval weaponry, and the dungeon.
One of the high points of the trip was a performance of Vivaldi’s Four Seasons in the very church it was composed for. A ferocious thunderstorm hit, flooding the plaza outside and causing the lead violinist’s string to break, halting the concert (rapid humidity change I guess).
When we got home with soggy feet, the Carabinieri had cordoned off our block with police tape because a big chunk of the 400-year-old roof had fallen into the street. It taxed my Italian to the max to get into our apartment that night. The Airbnb host asked me not to mention this in my review (I didn’t).
The next day brought a circuitous trip to Budapest via Brussels. Budapest was a charm, a former capital of the Austria Hungarian Empire and the architecture to prove it. The last time I was there 51 years ago, the Russian Army was running the place and it was grim, oppressive, and dirty.
Today, it is a thriving hot spot for Europe’s young, with bars and night clubs everywhere. Dinners dropped from $150 in Venice to $30. We topped the night with a Danube dinner cruise with a folk dancing troupe. I’m told you can live there like a king for $1,000 a month.
The next morning we drew closer to our final destination to Zurich, Switzerland. A four-hour train ride brought us to my summer chalet in Zermatt and some much-needed rest. At the end of a long valley and lacking cars, Zermatt is one of those places where you can just give the kids 50 Swiss francs and tell them to get lost. I spent mornings hiking up from the valley floor and afternoons getting caught up on the markets and my writing.
There’s nothing like recharging my batteries in the clean mountain air of the Alps. The forecast was rain every day for two weeks, but it never showed. As a result, I ended up hiking ten miles a day to the point where my legs were made of lead by the end.
The only downer was watching helicopters pick up the bodies of two climbers who fell near the top of the Matterhorn. As temperatures rise rapidly, the ice holding the mountain together melts leading to a rising tide of fatal accidents.
I caught my last flight home from Milan. Anything for one more great dinner in Italy which I enjoyed in the Galleria. At the train station, I chatted with a troop of Italian Boy Scouts in blue uniforms headed for the Italian Alps. The city was packed with Chinese tour groups, and there was a one-month wait to buy tickets for Leonardo DaVinci’s The Last Supper. Another Airbnb made sure I stayed up all night listening to the city’s yellow trolleys trundle by.
Finally, an 11-hour flight brought me back to the City by the Bay. Thanks to two sleeping pills of indeterminate origin, I went to sleep over England and woke up over Oregon preparing for a landing. It seems that somewhere along the way, I proposed marriage to the Arab woman sitting next to me, but I have no memory of that whatsoever. At least that’s what the head flight attendant thought.
My return home has me already planning next year’s trip. After Australia, should I fly up to Japan and catch the 2020 Tokyo Olympics and then go to Zermatt? Or, should I fly directly to South Africa for a safari and then make it to Switzerland? And I have to get home in time to join a 50-mile hike with the Boy Scouts in New Mexico.
What a great problem to have.
"Stone Age. Bronze Age. Iron Age. We define entire epics of humanity by the technology they use," said Netflix co-founder and CEO Reed Hastings.
Global Market Comments
August 1, 2019
Fiat Lux
SPECIAL EARLY RETIREMENT ISSUE
Featured Trade:
(HOW TO JOIN THE EARLY RETIREMENT STAMPEDE)
Global Market Comments
July 31, 2019
Fiat Lux
SPECIAL FIXED INCOME ISSUE
Featured Trade:
(ITALY’S BIG WAKE UP CALL),
(TLT), ($TNX), (TBT), (SPY), ($INDU), (FXE), (UUP), (USO),
(WELCOME TO THE DEFLATIONARY CENTURY),
(TLT), (TBT),
Those planning a European vacation this summer just received a big gift from Mario Draghi, the outgoing president of the European Central Bank. His promise to re-accelerate quantitative easing in Europe has sent the Euro crashing and the US dollar soaring.
Over the last two weeks, the Euro (FXE) has fallen by 2.5%. That $1,000 Florence hotel suite now costs only $975. Mille Gracie!
You can blame the political instability in the Home of Caesar, which has not had a functioning government since WWII. The big fear is that the extreme left would form a collation government with the extreme right that could lead to its departure from the European Community and the Euro. Think of it as Bernie Sanders joining Donald Trump!
In fact, Italy has had 62 different governments since WWII. They change administrations like I change luxury cars, about once a year. Welcome to European debt crisis part 27.
I can’t remember the last time markets cared about what happened in Europe. It was probably the first Greek debt crisis in 2011. As a result, German ten-year bunds have cratered from 0.60% to -0.40%. But they care today, big time.
Given the reaction of the global financial markets, you could have been forgiven for thinking that the world had just ended.
US Treasury Bond yields (TLT) saw their biggest plunge in years, off 120 basis points to 2.05%.
Even oil prices collapsed for an entirely separate set of reasons, the price of Texas Tea pared 20% since April on spreading global recession fears.
Saudi Arabia looks like it's about to abandon the wildly successful OPEC production quotas that have been boosting oil prices for the past year. Iran has withdrawn from the nuclear non-proliferation treaty, responding with an undeclared tanker war in the Persian Gulf, which I flew over myself only a few weeks ago. The geopolitical premium is back with a vengeance.
So if the Italian developments are a canard, why are we REALLY going down?
You’re not going to like the answer.
It turns out that rising inflation, interest rates, oil and commodity prices, the US dollar, US national debt, budget deficits, and stagnant wage growth are a TERRIBLE backdrop for risk in general and stocks specifically. And this is all happening with the major indexes at the top end of recent ranges.
In other words, it was an accident waiting to happen.
Traders are extremely nervous, global uncertainty is high, the seasonals are awful, and Washington is a ticking time bomb. If you were wondering why I was issuing so few Trade Alerts in July, these are the reasons.
This all confirms my expectation that markets could remain stuck in increasingly narrow trading ranges for the next six months until the presidential election begins in earnest.
Which is creating opportunities.
The global race towards zero interest has the US as the principal laggard. So you should keep buying every serious dip in the bond market.
Stocks are still wildly overvalued for the short term, so I’ll keep my low profile there. As for gold (GLD) and the currencies, I keep buying dips there as well.
So watch for those coming Trade Alerts. I’m not dead yet, just resting. The contest here is to make as much money as you can, not to see how many trades you can clock. That is a brokers' game, not yours.
Waiting for My Shot
"Everything is expensive now. Worries about the future can cause safe assets to become highly-priced...I call it the 'Titanic Effect.' When the Titanic was going down, people would pay a fortune for anything that floats. We may be in a Titanic situation now," said my buddy, Nobel Prize winner Robert Shiller.
Global Market Comments
July 30, 2019
Fiat Lux
Featured Trade:
(THE IDIOT’S GUIDE TO INVESTING),
(TSLA), (BYND), (JPM)
(THE SECRET FED PLAN TO BUY GOLD),
(GLD), (GDX), (PALL), (PPLT),
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