Newsletter Archives - Mad Hedge Fund Trader

Bonds Finally Break Two Year-Range

I love executing one day wonders.

Since we sold short the US Treasury bond market on Monday, it has plunged a stunning 3 points. Bond yields just performed a rare 10 basis point move up to 3.18%. You usually only see that during a major “RISK OFF” geopolitical event or financial crisis.

You could see all of the key support levels failing like a hot knife for butter. The next support for the United States Treasury Bond Fund (TLT) is now at $111, or some 2.5 points down from here, pointing to a 3.25% yield for the ten-year bond.

My yearend forecast of a ten-year yield of 3.25% and a one-year target of 4.0% is alive and well.

The break marks an important departure from a stubborn two-year trading range….to the downside.

As with major breaks there is not a single a data point that broke the camel’s back. It could have been the agreement to NAFTA 2.0 on Monday or the blistering hot ISM Services print at a 21-year high on Wednesday.

Rather, it has been a steady death by a thousand cuts spread over several points that did it. It was just a matter of time before a 4.2% GDP growth rate crushed the fixed income market.

If I had to point to one single thing that triggered this debacle, it would be Amazon’s (AMZN) decision to give a 25% raise to its 250,000 US employees to $15 an hour.

If Wal-Mart (WMT), McDonald’s (MCD), or Target (TGT) have to resort to the same, you could have a serious outbreak of inflation on 2019. Imagine that, a bidding war for minimum wage workers.

ALL of those costs will be passed on to us, which is highly inflationary, and bonds absolutely HATE inflation.

Other than giving us boasting rights, the bond market move carries several important messages for us.

Money is about to start transferring from borrowers to savers in a major way. You won’t hear about seniors unable to live off of their savings anymore, a common refrain of the past decade.

Cash is now offering a serious competitor to bond and equity investments. And the next recession and bear market have just been moved closer.

The rocketing US budget deficit is starting to bear its bitter fruit as the government is starting to crowd out private sector borrowers. The budget deficit should be running at a $1 trillion annualized rate by the end of this year.

All of you celebrating your windfall tax cuts are getting a sharp reminder that the money has been entirely borrowed, some 40% from foreign bond investors we have been attacking. It will have to be paid back some time.

Of course, we all knew this was coming. It is no accident that the most capital-intensive industries in the country, also the heaviest borrowers, have seen the worst stock performance of 2018 including real estate, REITS, steel, and autos. Their profit margins have all just been seriously chopped.

So, what to do about the bond market now that we have begun the next leg in a 30-year bear market? For a start, don’t sell. Rather, wait for the next rally back up to the old support level at $116. It should revisit the old support level at least once.

When it does, SELL WITH BOTH HANDS.

I Just Love That 25% Wage Hike

October 4, 2018 - Quote of the Day

Diary, Newsletter, Quote of the Day

“The biggest loss I ever suffered was not buying Amazon when I met Jeff Bezos in 1999,” said legendary value investor Ron Baron, when Amazon was trading at $15 a share.

October 3, 2018

Diary, Newsletter, Summary

Global Market Comments
October 3, 2018
Fiat Lux

Featured Trade:
(TAKING A LOOK AT GENERAL ELECTRIC LEAPS), (GE),
(TEN SURPRISES THAT WOULD DESTROY THIS MARKET),
(USO), (AMZN), (MCD), (WMT), (TGT)

Taking a Look at General Electric (GE) LEAPS

Diary, Newsletter

Long Term Equity Anticipation Securities, or LEAPS, are a great way to play the market when you expect a substantial move up in a security over a long period of time. Get these right and the returns over 18 months can amount to several hundred percent.

At market bottoms these are a dollar a dozen. At all-time highs they are as scarce as hen’s teeth. However, scouring all asset classes there are a few sweet ones to be had.

General Electric (GE) is a stock that has been taken out to the woodshed and beaten senseless. Management has made every possible mistake they could have over the past two decades.

During the 2000’s the company paid enormous premiums to get into the financial sector, thus causing the pros to dub it as the “hedge fund that made light bulbs.” They bailed out right at the market bottom after the 2008 crash for pennies on the dollar.

If it weren’t for Oracle of Omaha Warren Buffet’s generous move to buy their 10% yielding convertible bonds the company would have almost certainly gone under.

Another legacy dud dates back to former CEO Jack Welch’s entry into the insurance business. Although most of that business has been sold off, it still managed to lose $6.2 billion in the fourth quarter of 2017.

The result of this epic mismanagement has been to wipe out over $1 trillion in market capitalization. The shares have plunged some 66%, from $32 to $11.

At the urging of major shareholders a long-suffering board ousted GE’s latest CEO, John Flannery, after only a year in the job and replaced him with former Danaher (DHR) CEO Lawrence Culp. The move may have finally put a bottom in the stock.

It’s obvious what GE has to do here. It needs to liquidate the remaining money losing assets that have been such a huge drain on cash flow.

It could also sell a few other successful business lines at big premiums that are money makers, just as jet engines or its Baker Hughes oil subsidiary. These days investors are paying up for almost everything.

I don’t know how long it will take Culp to work his magic. However, I bet the stock market will start to sniff out a turnaround sometime in the next year and a half.

The GE January 17, 2020 $15-$18 vertical bull call spread (called a LEAP because it has a maturity of more than one year) is currently priced at 55 cents.

If the shares make it back up to $18, the price it traded at in January, the LEAP would be worth $3.00, delivering you a gain of 345%. It makes a very low risk, high return set up for investors tired of paying new all-time highs for everything else.

Whatever happened to Jack Welch, who originally created this disaster? Jack retired a billionaire and is now giving lectures on corporate managements. Go figure.

I’ll try to come up with another interested LEAP idea tomorrow. I know you’re all starved for them.

October 3, 2018 - Quote of the Day

Diary, Newsletter, Quote of the Day

“Stock don’t stop on a dime when they reach the right valuation. I’m afraid this time, they’re going to overshoot,” said Karen Finerman of Metropolitan Capital Advisors.

October 2, 2018

Diary, Newsletter, Summary

Global Market Comments
October 2, 2018
Fiat Lux

Featured Trade:
(HOW FINTECH IS EATING THE BANKS LUNCH),
(BAC), (C), (WFC), (SQ), (PYPL),
(WCAGY), (FISV), (INTU), (BABA),
(WE’RE MAKING SOME CHANGES HERE AT MAD HEDGE FUND TRADER)

We’re Making Some Changes Here at Mad Hedge Fund Trader

Diary, Newsletter, Tech Letter

Given the ballistic growth of our business here at the Mad Hedge Fund Trader, you will soon be seeing some major improvements in the service.

You may have already noticed a substantial upgrade to our website. Further changes will be ongoing in the coming months promising better functionality and faster speeds. Some 10,000 pages of content is a lot to manage.

Mad Hedge Hot Tips started six weeks ago and have proven wildly successful. It enables us to have a more immediate and constant contact with our readers which has become crucial in this hyper accelerating fast forward world.

Our online customer support telephone number has changed. The new one is 347-480-1034. This is a high tech global online telephone number that operates 24 hours a day. If you can’t get through just leave a voicemail with the English lady with the posh accent. It will be transcribed instantly and emailed to us wherever we are.

Hey, what’s the point in publishing the Mad Hedge Technology Letter if you can’t use the new tech to spice up our own service?

Our mailing address has changed to a conveniently tax free domicile at:

John Thomas-Mad Hedge Fund Trader
Conifer Group LLC
PO Box 4470
Stateline, NV 89449
USA

If you want to mail me a bottle of The Glenlivet because you made so much money on you last Trade Alert, please feel free to do so.

Globalizing our production means there will be a slight delay in getting our daily content to you. Instead of 1:00 AM EST you should receive you letter by 9:00 AM EST, or 30 minutes before the New York Stock Exchange opens. Today is the exception.

Finally, it is with a heavy heart that I announce the retirement of Nancy at the end of the year, who has been diligently performing our customer support for the past six years. She is the one who has been instructing you on navigating the site, getting a new password, and dealing with the general ins and out of the Mad Hedge Fund Trader. I understand that a long cruise is in the offing.

Again, thanks for supporting our research and I look forward to meeting you at my next strategy luncheon or the Lake Tahoe conference in October.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

October 2, 2018 - Quote of the Day

Diary, Newsletter, Quote of the Day

“Only the mediocre are always at their best,” said the late American comedian Jonathan Winters.

October 1, 2018

Diary, Newsletter, Summary

Global Market Comments
October 1, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD,
or DON’T NOMINATE ME!),
(AMZN), (NVDA), (AAPL), (MSFT), (GLD), (ABX), (GOLD),
(JOIN US AT THE MAD HEDGE LAKE TAHOE, NEVADA,
CONFERENCE, OCTOBER 26-27, 2018)

The Market Outlook for the Week Ahead, or Don’t Nominate Me!

Diary, Newsletter, Research

I have a request for all of you readers. Please do not nominate me for justice of the Supreme Court.

I have no doubt that I could handle the legal load. A $17 copy of Litigation for Dummies from Amazon would take care of that.

I just don’t think I could get through the approval process. There isn’t a room on Capitol Hill big enough to house all the people who have issues with my high school background.

In 1968, I ran away from home, hitchhiked across the Sahara Desert, was captured by the Russian Army when they invaded Czechoslovakia, and had my front teeth knocked out by a flying cobblestone during a riot in Paris. I pray what went on in Sweden never sees the light of day.

So, I’m afraid you’ll have to look elsewhere to fill a seat in the highest court in the land. Good luck with that.

The most conspicuous market action of the week took place when several broker upgrades of major technology stocks. Amazon (AMZN) was targeted for $2,525, NVIDIA (NVDA) was valued at $400, and JP Morgan, always late to the game (it’s the second mouse that gets the cheese), predicted Apple (AAPL) would hit a lofty $270.

That would make Steve Jobs’ creation worth an eye-popping $1.3 trillion.

The Mad Hedge Market Timing Index dove down to a two-month low at 46. That was enough to prompt me to jump back into the market with a few cautious longs in Amazon and Microsoft (MSFT). The fourth quarter is now upon us and the chase for performance is on. Big, safe tech stocks could well rally well into 2019.

Facebook (FB) announced a major security breach affecting 50 million accounts and the shares tanked by $5. That prompted some to recommend a name change to “Faceplant.”

The economic data is definitely moving from universally strong to mixed, with auto and home sales falling off a cliff. Those are big chunks of the economy that are missing in action. If you’re looking for another reason to lose sleep, oil prices hit a four-year high, topping $80 in Europe.

The trade wars are taking specific bites out of sections of the economy, helping some and damaging others. Expect to pay a lot more for Christmas, and farmers are going to end up with a handful of rotten soybeans in their stockings.

Barrick Gold (ABX) took over Randgold (GOLD) to create the world’s largest gold company. Such activity usually marks long-term bottoms, which has me looking at call spreads in the barbarous relic once again.

With inflation just over the horizon and commodities in general coming out of a six-year bear market, that may not be such a bad idea. Copper (FCX) saw its biggest up day in two years.

The midterms are mercifully only 29 trading days away, and their removal opens the way for a major rally in stocks. It makes no difference who wins. The mere elimination of the uncertainty is worth at least 10% in stock appreciation over the next year.

At this point, the most likely outcome is a gridlocked Congress, with the Republicans holding only two of California’s 52 House seats. And stock markets absolutely LOVE a gridlocked Congress.

Also helping is that company share buybacks are booming, hitting $189 billion in Q2, up 60% YOY, the most in history. At this rate the stock market will completely disappear in 20 years.

On Wednesday, we got our long-expected 25 basis-point interest rate rise from the Federal Reserve. Three more Fed rate hikes are promised in 2019, after a coming December hike, which will take overnight rates up to 3.00% to 3.25%. Wealth is about to transfer from borrowers to savers in a major way.

The performance of the Mad Hedge Fund Trader Alert Service eked out a 0.81% return in the final days of September. My 2018 year-to-date performance has retreated to 27.82%, and my trailing one-year return stands at 35.84%.

My nine-year return appreciated to 304.29%. The average annualized return stands at 34.40%. I hope you all feel like you’re getting your money’s worth.

This coming week will bring the jobspalooza on the data front.

On Monday, October 1, at 9:45 AM, we learn the August PMI Manufacturing Survey.

On Tuesday, October 2, nothing of note takes place.

On Wednesday October 3 at 8:15 AM, the first of the big three jobs numbers is out with the ADP Employment Report of private sector hiring. At 10:00 AM, the August PMI Services is published.

Thursday, October 4 leads with the Weekly Jobless Claims at 8:30 AM EST, which rose 13,000 last week to 214,000. At 10:00 AM, September Factory Orders is released.

On Friday, October 5, at 8:30 AM, we learn the September Nonfarm Payroll Report. The Baker Hughes Rig Count is announced at 1:00 PM EST.

As for me, it’s fire season now, and that can only mean one thing: 1,000 goats have appeared in my front yard.

The country hires them every year to eat the wild grass on the hillside leading up to my house. Five days later there is no grass left, but a mountain of goat poop and a much lesser chance that a wildfire will burn down my house.

Ah, the pleasures of owning a home in California!

Good luck and good trading.

I Just Love That 25% Wage Hike

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