Global Market Comments
November 30, 2018
Fiat Lux
Featured Trade:
(NOVEMBER 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(VXX), (VIX), (GE), (ROKU), (AAPL),
(MSFT), (SQ), (XLK), (SPLS), (EWZ), (EEM)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader November 28 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.
Q: Is it time to get out of semiconductor stocks?
A: The time to get out is before it drops 60%, not afterwards. So, if you have semiconductor stocks, I would look for the next major rally to get out. I think we will get one of those rallies into December/January. We went negative on this sector in June, took all our profits, and didn’t go back in until last week.
Q: Is it time to buy semiconductor stocks?
A: No, that is the group you want to buy at the absolute bottom of the next recession which might be next year sometime. They lead on the downside, and they will lead on the upside as soon as they sniff a recovery in the economy.
Q: I held on to my position in Square (SQ). Should I sell now for a small profit?
A: Yes, in recessions, big companies prosper much more than small companies like Square; that’s why it had such a tremendous selloff; down 55% in six weeks. A small technology stock is not what you want to own in a recession. Big companies slow down, small ones die. At least that’s how conservative investors see it.
Q: What do you make of Fed comments this morning that asset prices are high?
A: I agree with them. They were certainly overpriced with a P/E multiple of 20 that we saw in September; they’re moderately priced now with a P/E multiple of 14.9. I think real estate markets are the overpriced assets that the Fed is talking about though, far more than the stock market, and markets like San Francisco, Seattle, and Vancouver are still way too high.
Q: What are your comments on Apple (AAPL)?
A: There’s an interesting thing going on here; you’ve just had a massive move out of hardware stocks like Apple, which basically makes phones and computers, into software stocks like Microsoft (MSFT), which is growing their cloud business like crazy. You may see this as a long-term industry trend, out of hardware stocks into software stocks. It’s all about the cloud now. The future is in software and that is where Apple is going to with services like the cloud, iTunes, streaming, and advertising, although they are doing it slowly.
Q: Will Trump be able to persuade Fed Chair Powell to stop hiking interest rates?
A: He will not, Powell is one of the few principled people in the government. He’s going to stick to his discipline, only look at the data, and that is going to require him to keep raising interest rates. One of the big black swans for 2019 may be that Trump fires Powell and gets a friendly rent-a-Fed chair in there who lowers interest rates on command. If Trump can hold on for nine months though, even Powell will see the economy’s in trouble and will have to respond accordingly by capping or even lowering interest rates.
Q: Why are you not stopping out of Roku (ROKU)?
A: We haven't yet approached our upper strike price on the December $30-$35 vertical bull call spread. That’s usually where I bail out; I like to give stocks plenty of room to do the right thing. Stocks have to breathe and I pick strike prices to compensate for that. Otherwise, you’d be stopping out of every trade immediately.
Q: Should we close the iPath S&P 500 VIX Short Term Futures ETN (VXX) trade or leave it open?
A: I’m looking for a bit more of a rally in stocks and a drop in the Volatility Index (VIX); then we’ll try to grab whatever additional couple of pennies we can get out of that.
Q: What do you think of Brazil (EWZ)?
A: Avoid emerging markets (EEM) as long as the U.S. is raising interest rates and the dollar is strong. Rising dollar means rising debt for emerging markets and less ability to service that debt, all bad for business.
Q: Morgan Stanley (MS) says “buy emerging markets”; are they nuts?
A: For the short term yes, for the multi-year long term they are a screaming buy. They are at historical lows in terms of valuation and already have a recession priced into them. But jumping in too soon could be painful.
Q: What are your expectations for the yield curve?
A: I expect all levels of the fixed income market to drop in price and rise in yield with the sharpest move in overnight rates. This eventually leads to a very steep inverted yield curve which causes recessions and bear markets.
Q: Thoughts on Master Limited Partnerships?
A: They could be relatively safe now that oil is at $50. There have been big selloffs recently. The yield on these are high and there is going to be big infrastructure building for energy going forward. I would say don’t put all your eggs in one basket and diversify your risk. In the Great Recession, many of these went bankrupt. I would look at the Alerian MLP (AMLP), which has fallen 15% in six weeks.
Q: Should I be rotating out of the Tech (XLK) stocks on rallies into more defensive stocks like Staples (SPLS)?
A: That’s half right. You should be rotating out of Tech stocks and rotating into cash which yields up to 2-3% these days. Nothing does well in a real bear market except cash. Defensive stocks still go down, just at a slower rate.
Q: Is General Electric (GE) good for the long term?
A: Yes, if anyone can turn around GE it’s the current management. That said, it could be a long-term slog—that’s why I had a long-term leap in this thing before it collapsed. It could turn around and still go up but these are throwaway, chapter eleven level type prices that we’re getting now. And now they are going to have to do a turnaround going into a recession.
Q: Do you see GE as good for a long-term trade?
A: Long term and trade don’t belong in the same sentence; but I’d say for a long-term investment at these levels, probably yes. It certainly is a bargain from $30 down to $7.40 in a year.
Q: Is this webinar archived?
A: A: Yes, they are always posted on the website within two hours of recording. Just go to www.madhedgefundtrader.com/, login and then hover your cursor over “MY ACCOUNT” click on “GLOBAL TRADING DISPATCH,” “Mad Hedge Technology Letter” or “Newsletter” depending on your membership then click on the Webinars button. The last ten years of webinars should show up, with the most recent one at the top.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
"The market has been expecting the Fed to raise interest rates at its next meeting for three years now. It's been right once. In December, it will be right for the second time," said Aaron Kline of the Brookings Institution.
Global Market Comments
November 29, 2018
Fiat Lux
Featured Trade:
(SHORT SELLING SCHOOL 101),
(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL),
(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE)
Global Market Comments
November 28, 2018
Fiat Lux
Featured Trade:
(WHAT I TOLD MY BIGGEST HEDGE FUND CLIENT)
(SPY), (AAPL), (AMZN), (MSFT)
Global Market Comments
November 27, 2018
Fiat Lux
Featured Trade:
(THE QUANTUM COMPUTER IN YOUR FUTURE),
(AMZN), (GOOG),
(THE WORST TRADE IN HISTORY), (AAPL)
Global Market Comments
November 26, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or ARE WE IN OR OUT?)
(FB), (AAPL), (AMZN), (NFLX),
(GOOG), (SPY), (TLT), (USO), (UNG), (ROM)
Are we already in a recession or still safely out of one?
That is the question painfully vexing investors after the stock market action of the past seven weeks.
There is no doubt that the economic data has suddenly started to worsen, setting off recession alarms everywhere.
October Durable Goods were down a shocking 4.4%. Weekly Jobless Claims hit 224,000, continuing a grind up to a 4 ½ month high. Is the employment miracle ending? Goldman Sachs says growth is to drop below 2% in 2019, well below Obama era levels. Maybe that’s what the stock market crash is trying to tell us?
The Washington political situation continues to erode confidence by the day. We have already lost real estate, autos, energy, semiconductors, retailers, utilities, and banks. But as long as tech held up, everything was alright.
Now it’s not alright.
The tech selloff we have just seen was far steeper and faster than we saw in the 2008-2009 crash. You have to go all the way back to the Dotcom Bust 18 years ago to see the kind of price action we have just witnessed. The closely watched ProShares Ultra Technology Fund (ROM) has cratered from $123 to $83 in a heartbeat, off 32.5%.
Which begs the question: Are we already ten months into a bear market? Or is this all one big fake-out and there is one more leg up to go before the fat lady sings?
I vote for the latter.
If this is a new bear market, then it is the first one in history with the lead sectors, technology, biotechnology, and health care, announcing new all-time profits going in.
So, either Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOG) are all about to announce big losses in coming quarters, which they aren’t, or the market is just plain wrong, which it is.
Which leads us to the next problem.
Markets can be wrong for quite a while which is why I cut my positions by half at the beginning of last week. To quote my old friend, John Maynard Keynes, “Markets can remain irrational longer than you can remain liquid,” who lists his entire fortune in the commodities markets during the Great Depression.
To see this all happen in October was expected. After all, markets always crash in October. To see it continue well into November is nearly unprecedented when the strongest seasonals of the year kick in. This was the worst Thanksgiving week since 2011 when we were still a wet dog shaking off the after-effects of the great crash.
There are a lot of hopes hanging on the November 29 G-20 Summit to turn things around which could hatch a surprise China trade deal when the leaders of the two great countries meet. The Chinese stock market hit a one month high last week on hopes of a positive outcome. Do they know something we don’t?
There were multiple crises in the energy world. You always find out who’s been swimming without a swimsuit when the tide goes out. James Cordier certainly suffered an ebb tide of tsunami proportions when his hedge fund blew up taking natural gas (UNG) down 20% in a day.
Cordier got away with naked call option selling for years until he didn’t. All of his investors were completely wiped out. I have always told followers to avoid this strategy for years. It’s picking up pennies in front of a steamroller. Same for naked puts selling too.
The Bitcoin crash continued slipping to $4,200. I always thought that this was an asset class created out of thin air to absorb excess global liquidity. Remove that liquidity and Bitcoin goes back to being thin air, which it is in the process of doing.
Oil (USO) got crushed again, down an incredible 35.06% in six weeks, from $77 a barrel all the way down to $50 as recession fears run rampant. Panic dumping of wrong-footed hedge fund longs accelerated the slide. They all had expected oil to rocket to $100 a barrel in the wake of the demise of the Iran Nuclear Deal and the economic sanctions that followed.
Apparently, Saudi Arabia’s deal with the US now is that they can chop up all the journalists they want at the expense of a $27 a barrel drop in the price of oil. That will cut their oil revenues by a stunning $97 billion a year. That’s one expensive journalist!
Watch the price of Texas tea carefully because a bottom there might signal a bottom for everything including tech stocks. And I don’t see oil falling much from here.
As for performance, Thanksgiving came early this year, at least in terms of the skinning, gutting, and roasting of my numbers. If you do this long enough, it happens. Every now and then, markets instill you with a strong dose of humility and this is one of those time.
My year to date return dropped to +25.72%, and chopping my trailing one-year return stands at 31.71%. November so far stands at a discouraging -3.91%. And this is against a Dow Average that is down -2.01% so far in 2018.
My nine-year return withered to +302.19%. The average annualized return retraced to +33.57%.
The upcoming week has some important real estate data coming. However, all eyes will be upon the Friday G-20 announcement from Buenos Aires. Will the trade war with China end, or get worse before it gets better?
Monday, November 26 at 8:30 EST, the Chicago Fed National Activity Index is published.
On Tuesday, November 27 at 9:00 AM, the all-important CoreLogic Case-Shiller National Home Price Index is out. It will be interesting to see how fast it is falling.
On Wednesday, November 28 at 8:30 AM, Q3 GDP is updated. How fast is it shrinking?
At 10:30 AM the Energy Information Administration announces oil inventory figures with its Petroleum Status Report.
Thursday, November 29 at 8:30 we get Weekly Jobless Claims which have been on a four-month uptrend. At 10:00 AM, October Pending Home Sales are printed.
On Friday, November 30, at 9:45 AM, the week ends with a whimper with the Chicago Purchasing Managers Index.
The Baker-Hughes Rig Count follows at 1:00 PM. At some point, we will get an announcement from the G-20 Summit of advanced industrial nations.
As for me, I drove through the first blizzard of the year over Donner Pass to finally crystal clear skies of San Francisco. Long-awaited drenching rains had finally cleansed the skies. Every Tahoe hotel was packed with Californians fleeing the smokey skies.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Behind every broke Millennial is a baby boomer making a six-figure income who can’t open a .pdf file,” said the tech website Buzzfeed.
Global Market Comments
November 23, 2018
Fiat Lux
Featured Trade:
(SURVIVING THANKSGIVING)
(SPY), (TLT), (TBT), (GLD), (FXE), (FXY), (USO), (VIX), (VXX), (NVDA), (NFLX), (AMZN)
