?I must study politics and war that my sons may have liberty to study mathematics and philosophy. My sons ought to study mathematics and philosophy, geography, natural history, naval architecture, navigation, commerce, and agriculture, in order to give their children a right to study painting, poetry, music, architecture, statuary, tapestry, and porcelain,? said John Adams, the second US president.
Global Market Comments
September 28, 2015
Fiat Lux
SPECIAL CRASH ISSUE
Featured Trade:
(HOW TO TRADE A CRASH),
(TEN STOCKS TO BUY AT THE BOTTOM),
(SPY), (QQQ), (IWM), (JNK)
SPDR S&P 500 ETF (SPY)
PowerShares QQQ Trust, Series 1 (QQQ)
iShares Russell 2000 (IWM)
SPDR Barclays High Yield Bond ETF (JNK)
Global Market Comments
September 25, 2015
Fiat Lux
ANOTHER SPECIAL CYBER WARFARE ISSUE
Featured Trade:
(FRIDAY, OCTOBER 30 SAN FRANCISCO STRATEGY LUNCHEON)
(CASHING IN ON CYBER SECURITY),
(PANW), (FEYE), (HACK)
Palo Alto Networks, Inc. (PANW)
FireEye, Inc. (FEYE)
PureFunds ISE Cyber Security ETF (HACK)
Who?s really reading Your email? I bet you?d like to know!
Another day, another hack attack.
Today we learned that 5.6 million fingerprint records kept by the Office of Personal Management were recently stolen.
This is the agency that functions as the US government?s human resources department, maintaining records on 21.5 million current and former employees.
The timing couldn?t be more inauspicious, as the announcement was made during a visit by Chinese President Xi Jinping, whose military was almost certainly the origin of the attack.
Great! Now the enemy has the fingerprints of every FBI and CIA agent!
There must be a way to make money out of this.
Wait! There is!
Palo Alto Networks (PANW) is a San Francisco Bay area cyber security company that offers companies and governments an innovative firewall platform solution for big, network wide security problems.
In the P&L sweet spot they are.
I know the company well, and have been recommending to my followers that they buy the shares for the past year, during which time it tripled.
What? You want me to buy a stock that has just tripled?
No, I have not just started smoking California's largest agricultural product (no, it?s not almonds or grapes).
By chance, I happened across a senior officer of the Palo Alto Networks at a dinner party last week. Prospects for the firm are booming, with sale growth running at a torrid 30% YOY rate.
Yet, (PANW) has only 10% market share of an industry that is currently exploding. This is an aggressive, extremely well managed $15 billion company that is about to become a $150 billion company.
Keeping in contact with the Joint Chiefs of Staff on a weekly basis, I am constantly concerned at how serious the cyber security threat has become, yet how little understood it is by the public.
You don?t have to go any further than the management of Sony (SNE), one of the world?s largest multinationals, which was almost wiped out last November by hackers from one of the poorest and most backward countries in the world.
Upset by the take down of their leader, Kim Jong-un, in a low budget comedy, The Interview, North Korean hackers were able to bring the firm to its knees.
They downloaded the entire contents of Sony?s hard drives, leaking the juicy parts to online journalists (Angelina Jolie?s pay, etc.), and then wiped them clean, destroying some 3,000 computers and 8000 servers. It was the hacking equivalent of a full-scale nuclear attack.
Sony had to revert to snail mail, couriers, and landline telephone calls to survive. They couldn?t even pay their employees. Some $6 billion in market capitalization was wiped out.
Now here is the scary part.
The FBI has confided in me that if the S&P 500 were subjected to a Sony level attack, 90% are unlikely to survive. And the Sony attack was actually a primitive, simplistic, low-level attack.
A lot of countries don?t like the United States for any number of reasons. Now they can do something about it. That is a problem. And a market.
Palo Alto maintains the world?s largest database of viruses and malware. That enabled it to trace the Sony attack to the Hermit Kingdom within hours.
It contained several lines of code that were identical to the ?Dark Soul? attack against South Korean banks in 2013, which incinerated 40,000 bank computers and caused $700 million worth of damages.
What the Sony attack revealed was a long history of massive under investment in cyber security by corporations and governments in the US, Europe, and Asia.
The potential future market for cyber security products and services is being wildly underestimated.
The great irony here is that the attack is not against systems, which are usually pretty secure. It is their human users that have become the problem.
Unfortunately, we are have become familiar with ?spoofing? emails where an innocuous email asks the user to ?click here? for an Adobe upgrade, a notice from Yahoo, or a request from PayPal to update your password.
Do so, and you invite lines of code that will eventually make it to your system administrator. Once they have his password, they can access or do anything.
Don?t think only dummies fall for this.
My friend, retired FBI chief Robert Mueller, had his personal account at the Bank of America cleaned out in a similar fashion. What was unusual in his case, they caught the transgressor, after a huge expenditure of bureau resources.
(Hint: if an incoming email appears the slightest bit suspicious, hover your mouse over the sender?s name, and the sending email address will appear. If it looks anything but belt and braces safe, don?t open it and mark it as SPAM. Especial watch for the last three letter of the address, which are always a tip off).
The FBI estimates that there are up to 10,000 hackers in the world with the capability of a Sony level attack, many operating from China, Russia, Eastern Europe, or other locations beyond the reach of US extradition treaties.
The global cyber war has been going on for about 15 years now, and the public hears very little of it.
In recent years, Iran attacked Saudi Arabia?s Aramco, destroying 30,000 computers, and briefly shutting down a portion of the country?s oil production.
A major attack was launched against the Venetian Hotel in Las Vegas, which is owned by prominent Israel supporter and major Republican Party contributor, Sheldon Adelson.
There is a happy ending to this piece. You don?t need to place your entire wealth into gold bricks and bury them in the backyard to keep it safe.
If North Korea is a bicycle in the hacking arms race, the US is the F-35 Lightening next generation stealth fighter.
We are winning the cyber war hands down, but you?d never know it. This is a war fought silently, online, and in dark shadows.
President Obama in fact authorized a measured counter attack on North Korea?s information infrastructure, which proved devastating. But it was only a pinprick relative to what we could have done.
Our real cyber weapons are reserved for an actual shooting war sometime in the future. That?s to prevent the enemy from learning our true capabilities and preparing for them.
Imagine a country trying to defend itself with snail mail, couriers, and landline telephone calls from an American assault. Think the Sony attack times 10,000. Nothing would work.
It couldn?t be done.
Congress has so far refused to fund a substantial increase in America?s cyber warfare arsenal, preferring instead to spend money on old heavy metal weapons systems, like aircraft carriers, tanks, and the above mentioned F-35.
It?s all about sucking money out of Washington to create local jobs in red states to win elections. A stepped up cyber program would focus money almost entirely in Silicon Valley.
Don?t want to do that!
This is how General George Armstrong Custer was sent to the Battle of the Little Big Horn with antiquated 16 year old Civil War trapdoor Springfield carbines, while the Sioux had state of the art Winchester ?yellow boy? repeaters.
And we know how that one turned out!
But don?t get mad. Get even. Take another look at Palo Alto Networks, FireEye (FEYE), and the Pure Funds ISE Cyber Security ETF (HACK).
Guess Who May Be Looking at Your Records
Global Market Comments
September 24, 2015
Fiat Lux
Featured Trade:
(FRIDAY, OCTOBER 23 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON),
(A VERY BRIGHT SPOT IN REAL ESTATE),
(A SHORT HISTORY OF HEDGE FUNDS)
?You can reduce discretionary spending down to zero and it won?t have much impact on our fiscal problems because it?s such a small proportion of the total,? said Ben Bernanke, chairman of the Federal Reserve.
Global Market Comments
September 23, 2015
Fiat Lux
Featured Trade:
(OCTOBER 12 PORTLAND, OREGON GLOBAL STRATEGY LUNCHEON),
(MAD HEDGE FUND TRADER HITS NEW ALL TIME HIGH),
(A DIFFERENT VIEW OF THE US)
Global Market Comments
September 22, 2015
Fiat Lux
Featured Trade:
(SEPTEMBER 23 GLOBAL STRATEGY WEBINAR)
(WILL THE MARKET CRASH IN OCTOBER?),
(SPY), (HD),
(SIGN UP NOW FOR TEXT MESSAGING OF TRADE ALERTS)
SPDR S&P 500 ETF (SPY)
The Home Depot, Inc. (HD)
I think the bull market has at least three more years to run, but I?ll tell you why later.
In the meantime, we have to survive October first.
That is easier said than done.
October has long earned a notorious reputation as a wealth confiscation month for both professional traders and long-term investors.
If you go broke during this always challenging month, you won?t have any money left to play the coming price rises.
Over the weekend, I did my usual scan of the 200 most important charts for the global financial markets. The technical picture that leapt out at me was nothing less than atrocious.
Failure to break the old support/new resistance level in the (SPY) at $203 means we now have to retest the August 24 lows at $186, or $182 in the intraday futures.
If $182 doesn?t hold, then we?re breaking to new lows, and entering a new bear market.
Every technical service I subscribe to was repeating the identical pattern. This is rare enough that when it does occur, I stand to attention.
Look out below!
This year, October will be particularly vexing.
The newly elevated level of volatility has scared the daylights out of a lot of stockholders.
Look no further than last Friday, September 18. Just when everyone thought it was safe to nibble on some new longs, the Dow Averaged came out of the blue and whacked them with a 300-point loss.
I don?t even recall the reason. But it is irrelevant. Traders were gun-shy. No one wanted to hold a position over the weekend, and risk that China would have a bad Monday (it did).
It get?s worse.
Congress is now threatening another shutdown. Be it over Planned Parenthood funding or the Iran Treaty, it makes no difference. Closed is closed.
This is exactly what the market doesn?t want to hear.
Then we have three more months of Fed torture to endure. Failure to move on September 17 means that uncertainty surrounding the first interest rate reversal in nine years has been given another fresh three months of life.
As if we didn?t have enough to worry about!
It all adds up to a nightmare for neophyte traders. No one has the slightest idea of what the market will do next. If they pretend to, they?re lying.
That is, unless you happen to have a half-century of trading experience, as I do. Then it?s a piece of cake.
Just hit the mute button on the TV and close your eyes. Then buy every big dip and sell every substantial rally. Don?t try to rationalize this in any way. This is trading and investment totally devoid of the thought process.
Overthinking your trades right now can be hazardous to your wealth. Just let your primordial brain stem take over for now.
And it works like a charm.
Just look at my trades of the last few days. When the market opened high, I bought the October (SPY) $204-$207 vertical bear put spread.
When it then dove 300 points I bought the Home Depot (HD) October $105-$110 vertical bull call spread as a hedge.
When the market popped 200 points on the following Monday morning opening (and 300 points if you count the overnight Asia low), I kicked out Home Depot for a nice little 6.2% one day profit.
I then rolled down and purchased the (SPY) October $203-$206 vertical bear put spread to double up my short exposure.
I ended up +0.91% on the day on my total portfolio, just 1.23% short of a new all time high, and ahead 37.14% so far in 2015.
I don?t normally trade this fast. But they?re running the movie on triple fast forward now. A month?s worth of price movement is occurring in a day.
Bob and weave, bob and weave. We have to trade the market we have, not the one we want.
While a technical breakdown is looming, and the fundamentals seem to be backing it up, I don?t think a real bear market will appear.
Historically, stock markets continue rising an average of 30 months after the first Federal Reserve interest rate hike. That hourglass won?t even get turned over until December, or maybe even not until 2016.
The longest data point on this chart is 73 months. That means the Fed inaction means THE BULL MARKET COULD HAVE ANOTHER SIX YEARS TO RUN!
Yikes!
Beyond the hysterical, oops, I mean the historical analogies, the economy is just too darn strong to grease the skids for a true bear market.
I had to call three restaurants to get a dinner reservation in San Francisco this weekend, and finally got one only because it was a dive. I can?t get a plumber to unblock my toilet because he is too busy. And these were the guys who were collecting unemployment checks only four years ago.
For more glorious detail on the current state of the economy, please click here for ?The Bear Market That Isn?t?.
The dreaded October effect traces back to the 19th century, when agriculture accounted for 50% of the US GDP. Right before crops were harvested in the fall, farmer outlays to pay for the inputs of seed, fertilizer, and labor were the greatest.
Yet, the crops hadn?t been sold yet, so farmer borrowing also hit a peak. The aggregate of all this hit the financial markets with an enormous cash call, which led to the inevitable crashes.
Once the trend was established, it became a self-fulfilling prophecy, even though agriculture presently accounts only for 2% of the American economy now.
It is traders that sweat October now, not farmers.
Back for a Replay?
?The Fed cannot permanently raise stock prices,? said James Bullard, president of the Federal Bank of St. Louis.
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