"It is necessary for us to learn from others' mistakes. You won't live long enough to make them all yourself," said Admiral Hyman G. Rickover, creator of America's first nuclear submarine fleet.
Global Market Comments
June 27, 2018
Fiat Lux
Featured Trade:
(FRIDAY, JULY 27, 2018, ZERMATT, SWITZERLAND GLOBAL STRATEGY SEMINAR)
(SHORT SELLING SCHOOL 101),
(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL),
(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE)
"Without new profits, the market can't go anywhere," said independent research consultant David Darst.
Global Market Comments
June 26, 2018
Fiat Lux
Featured Trade:
(MONDAY, JULY 16, 2018, PARIS, FRANCE, GLOBAL STRATEGY LUNCHEON),
(THE MAD HEDGE DICTIONARY OF TRADING SLANG),
(TESTIMONIAL)
Global Market Comments
June 25, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR IS THIS A 1999 REPLAY?),
(AAPL), (FB), (NFLX), (AMZN), (GE), (WBT),
(JOIN ME ON THE QUEEN MARY 2 FOR MY JULY 11, 2018 SEMINAR AT SEA),
(JUNE 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SQ), (PANW), (FEYE), (FB), (LRCX), (BABA), (MOMO), (IQ), (BIDU), (AMD), (MSFT), (EDIT), (NTLA), Bitcoin, (FXE), (SPY), (SPX)
Another week, another trade war.
The stock market did not take well the administration's escalation of international tensions by threatening to increase Chinese imports subject to punitive duties from $50 billion to $250 billion.
Today, it got much worse with our government now targeting French luxury goods, including wine, handbags, and Roquefort cheese.
Please! Anything but the Roquefort cheese!
In the meantime technicians are getting increasingly nervous about the market concentration. Take out the top-performing 15 stocks, such as big tech and Boeing (BA) and we are already in a bear market. Some 60% of S&P 500 stocks are below their 200-day moving averages and in solid downtrends.
One manager told me that a year from now we will be kicking ourselves for not selling, for all the signs to get out of Dodge were there.
In the meantime, I am hearing an alternative theory about technology stocks. The earnings growth is so prolific that they could continue to melt up for the rest of 2018. Indeed, Amazon (AMZN), Facebook (FB), Netflix (NFLX), and Salesforce (CRM) all hit new all-time highs this week.
Tech stocks are melting up because of blowout earnings expected in a month. After all, in this industry great quarters are followed by more great quarters.
By my calculation the shares prices of technology stocks have to double to bring their market capitalization of only 26% in line with their 50% share of the S&P 500 total earnings.
By the way, California now accounts for 19% of the U.S. population, 21% of U.S. GDP, but a staggering 35% of corporate profits, with two of four FANGs just spitting distance from my office.
Holy smokes! Are we seeing a replay of 1999, the notorious dot-com bubble top?
I hope not. Tech earnings multiples now average 25X compared to 100X back in the day. But this analysis does neatly fit in with my prediction that stocks top in the May-September 2019 time frame.
Last week also saw the shares of General Electric (GE) tossed on the ashcan of history, and the stock was taken out of the Dow Average, to be replaced by sedentary drug store Walgreens (WBA).
That's what a decade of lousy management gets you, which has vaporized a half trillion dollars of market capitalization since 2000. Back then, GE was the largest market cap company in the world, the equivalent of Apple (AAPL) today.
During this same time Apple created $900 billion in new market cap, the shares rocketing from $2.50 to $195. What a trade! Long Apple, short (GE) for 18 years.
As for Apple, it is unique among the FANGs in having the biggest exposure to China. It employs 1 million there, sells more iPhones in the Middle Kingdom than in the U.S., and is crucial to the company's long-term growth plans. The rest of the FANGs have virtually NO China exposure.
This realization caused me to stop out of my position in Apple shares for a loss during its $12 plunge off its all-time high at $195. That brought my 2018 year-to-date performance down to 24.91% and my 8 1/2 year return to 301.38%.
Fortunately, aggressive longs in Amazon, Salesforce, Microsoft, and the iShares Nasdaq Biotechnology ETF (IBB) still have me up +4.54% in June, my 12th consecutive positive month.
This coming week will be all about the May real estate and housing data, which we already know will be hotter than a pistol.
On Monday, June 25, at 10:00 AM, May New Home Sales are out.
On Tuesday, June 26, at 9:00 AM, the S&P CoreLogic Case-Shiller National Home Price Index for April is released. May Consumer Confidence is out at 10:00 AM.
On Wednesday, June 27, at 8:30 AM, May Durable Goods is published. May Pending Home Sales are out at 10:00 AM.
Thursday, June 28, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 3,000 last week to 218,000. Also announced is another read on US Q1 GDP. The last report came in at a moderate 2.2%.
On Friday, June 29, at 9:45 AM EST, we get the May Chicago Purchasing Managers Index. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.
As for me, I will be headed to Los Angeles for my one beach weekend this year. Got to keep those body surfing skills finely tuned, and I'll have a chance to work on my tan before going to sea for a week in July.
In California it's all about the tan.
Good Luck and Good Trading.
Below please find subscribers' Q&A for the Mad Hedge Fund Trader June 20 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: What are your thoughts on Square (SQ) as a credit spread or buyout proposition?
A: I love Square long term, and I think there's another double in it. They were a takeover target, but now the stock's getting so expensive it may not be worth it. So, Square is a buy. However, look for a summer sell-off to get into a new position.
Q: The FANGs feel a little bubbly here; will they pull back on a market dip?
A: Yes, my entire portfolio of FANG options is designed to expire on the July 20th expiration. In fact, I may even come out before then as we reach the maximum profit point on these option call spreads. Then look for a summer meltdown to get back in. The FANGs could double from here. If I am wrong they will just continue to go straight up.
Q: Palo Alto Networks (PANW) has a new CEO; are you concerned?
A: Absolutely not, I love Palo Alto networks, as well as the (FEYE) FireEye. It's just a question of getting in at the right price. It's one of the many ballistic stocks in Tech this year that we've been recommending for a long time. Hacking an online theft is never going to go out of style.
Q: Is it time to sell Facebook (FB)?
A: Yes, if you're a trader. No, if you're a long-term investor. There's another double in it. You're going to have natural profit taking on all of these Techs for the short-term, and possibly for the summer, because they've just had enormous runs. If you aren't in the FANGs this year, you basically don't have any performance because almost all of the rest of the market has gone down.
Q: What are your thoughts on Lam Research (LRCX)?
A: The whole chip sector has had two big sell-offs this year because of their China exposure and the trade wars. Expect more to come. China gets 80% of their chips from the U.S. This is normal at the end of a 10-year bull market. It's also normal when a sector transitions from highly cyclical to secular, which is what's happening in the chip sector. Twice the volatility gets you twice the returns.
Q: Would you stay away from Chinese stocks like Alibaba (BABA), Momo Inc.(MOMO), IQ (IQ), and Baidu (BIDU)?
A: I have stayed away because of the trade war fears, and it was the completely wrong thing to do, because they've gone up as much as our Tech stocks, except for the last week. So yes, I would be buying dips on these big Chinese Tech stocks, because they are drinking the same Kool Aid as our Techs, and it's working.
Q: I hear that short selling of volatility is coming back; is that a good thing?
A: Actually, it is a good thing, because it creates buyers on these dips when you had no short sellers left. The entire industry got wiped out in February creating $8 billion in losses. There was no one left to cover those shorts and support the market. Of course, the result was we got a lower low down here because of that. It's always better to have a two-way market to get a real price. Now professionals are sneaking back in on the short side, which is as it should be. This should never have been a retail product.
Q: Why are international markets so disconnected from the U.S.? Many Asian markets are down heavily while the U.S. are up.
A: The U.S. stock market benefits from a rising dollar and rising interest rates, whereas international markets suffer. When you have weak currencies in the emerging markets, people sell their stocks to avoid the currency hit, and that takes the emerging markets down massively. A lot of emerging market companies have their debts denominated in U.S. dollars, so they get killed by a strong greenback. Also, the emerging markets make a lot of money selling goods into China, so when the Chinese economy gets attacked by the U.S. and growth slows, it has the byproduct of attacking all our other allies in Southeast Asia.
Q: Is it a good idea to sell everything for the summer and just de-risk for my portfolio?
A: That's what I'm doing. Summer trading is usually horrible, and now we're going into the summer at close to a high for the year, with a terrible political backdrop and possible economic growth peaking right here. So, yes, it's a good time to sit back, count your money, and maybe even spend some of it on a European vacation.
Q: When do you think the yield curve will invert?
A: In a year, and that is typically when you get a peaking of economic growth and the stock market.
Q: Is the Fed's faster-than-expected desire to raise rates good for equities, or will investors likely sell this news as quantitative tightening continues?
A: Short-term they will buy the market on rising rates, they always do at the early part of an interest rate rising cycle. They sell stocks when you get to the middle or the end of a rate rising cycle.
Q: Do you think large Tech stocks are expensive here?
A: No, I think the Large-Cap Tech stocks can potentially double here. It can take another year to year and a half to do it, and if they don't do it in this cycle they will certainly do it in the next one, after the next recession in the 2020s. So, long term you want to think FANG, FANG, FANG, TECH, TECH, TECH. You really shouldn't have anything else in the long term, except for maybe Biotech, where you can now get in at a multiyear low.
Q: Can I buy a chip company like Advanced Micro Devices (AMD), or should I buy a cloud company, like Microsoft (MSFT)?
A: I would go with the Cloud company. The innovation there is incredible. Cloud is growing like the Internet itself was growing on its own in 1995, and with chip stocks like (AMD), you're going to get much higher volatility, but more gain. So, pick your poison. But I would go with the Cloud plays.
Q: Can we watch the recorded version of this webinar later?
A: Yes, we post the webinar on our website a couple hours later, if you're a paid subscriber.
Q: What about the CRISPR stocks?
A: They are a screaming buy right now, buy Editas Medicine (EDIT) and Intellia Therapeutics (NTLA) on the dip. The paper that triggered the sell-off saying that CRISPR causes cancer is complete BS.
Q: Only 30 million in Bitcoin was stolen in South Korea so will that still have an impact?
A: Yes, but there have been countless other hacks this year and the total loss is well over $500 million. In addition, Bitcoin is now down 70% from its December top so not all is well in cryptocurrency land.
Q: Should we expect any Trade Alerts before August 8?
A: Yes, some of my best trades have been done while only vacation. I once sold short the Euro (FXE) from the back of a camel in Morocco. Another time, I bought the S&P 500 (SPY) while hanging from a cliff face on the Matterhorn. Both of those made good money.
Q: Will the S&P 500 reach new highs before the end of the year?
A: Yes, once you get the election out of the way, that removes a huge amount of uncertainty from the market. If we could end our trade war before then, I think you're looking at another 10-15% in gains from this level by the end of the year. That takes you to an (SPX) of 3,100 by the end of 2018, which was my January 1 prediction.
Q: What does all the heavy mergers and acquisition activity mean for the market?
A: It means fewer stocks are left to trade. Stock shortages leads to higher prices, always, so it is a big market positive this year
Good Luck and Good Trading.
John Thomas
CEO and Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
June 22, 2018
Fiat Lux
Featured Trade:
(WHY YOUR BEST PERFORMING ASSET CAN BE FOUND IN YOUR POCKET),
(WELCOME TO THE DEFLATIONARY CENTURY),
(TLT), (TBT), (TSLA), (NVDA),
(TESTIMONIAL)
What would you guess is the top performing asset class of the past three decades?
Amazon (AMZN) shares? Vintage cars? French collectible postage stamps?
I'll give you a hint: You may find one in your right pocket.
If you picked rare American coins, you would be right.
Stack's Bowers Galleries, a Santa Ana, CA-based firm dealing in rare coins (click here for the site), sold a United States penny in nearly mint condition dated 1793 for a staggering $940,000. And this was by no means a record.
That is a return of 94 million times.
If you think this is about kids cashing in on their collections you would be dead wrong.
Like everything else, I got into this game early.
I keep in a safety deposit box the first coins my Italian ancestors received upon landing in the Americas in 1903, which I inherited a few years ago. Today, they are worth a fortune.
I got into collecting defaulted Chinese and Russian bonds during the 1970s because a major London dealer was just down the street from my office at The Economist.
When I spotted one of the original bonds issued to finance the construction of the Golden Gate Bridge a few decades ago in a tourist gift shop, I knew I found collectors' gold. It hangs on my office wall today.
The early days of collecting were a dubious business at best, filled with fakes and charlatans.
Many of the early buyers were looking for a hedge against the default of the U.S. Treasury and the end of Western civilization, which always seemed imminent.
Then in 1986, the first independent appraisal firm opened for business in California, the Professional Coin Grading Service (PCGS).
It set common standards that provided the rare coin business some legitimacy, which drew in serious investment capital.
PCGS rates coins on a 1-to-70 scale, depending on strike, surface preservation, luster, coloration, and eye appeal.
Opinions among different coin graders and dealers can vary widely. An improvement of a single point in a coin's grade can triple its value.
(PCGS) did for coins what Gemological Institute of American (GIA) and the lesser-valued European Gemological Laboratory (EGL) did for diamond grading.
By the way, I happen to have a whole manila envelop full of these certificates. A bevy of former girlfriends still hold the actual diamonds.
PCGS has since been joined by another competitor, the Numismatic Guaranty Corporation (NGC) in Florida (sounds official, doesn't it).
Needless to say, the net effect of this newfound respectability has been higher prices - much higher prices.
The D. Brent Pogue Collection netted total sales of $106,720,432.25 over the course of five auction events held from 2015 to 2017.
It included a coin legendary among serious collectors, a Dexter specimen U.S. 1804 silver dollar, which brought in an eye-popping $3.3 million.
Today, the global coin trade is a $5 billion to $8 billion a year business, with Americans accounting for 85% of the trade.
Incredibly, you can still pick up Revolutionary War era currency for only a few hundred dollars.
After all, the Continental government was printing money as fast as it could to pay Washington's soldiers, while the British were counterfeiting just as rapidly to undermine its value.
As for Confederate money, it never appreciates. It seems that the South unsuccessfully tried to win the Civil War with printing presses. There is a lot out there.
Stack's Bowers regularly holds auctions around the world, including in New York, Denver, Baltimore, Hong Kong, and online.
If you are interested, you can bid as little as $5 for an 1878 Morgan Silver Dollar (I have a drawer full of them).
Or you might hold out for the 1877 Indian Head Penny for $4,400.
As with all illiquid asset classes, I would counsel caveat emptor, or "buyer beware."
Always get a PCGS or NGC certificate before investing serious money in the sector. Never deal with complete strangers or blindly buy online. Remember, as with real money, it's easy to counterfeit these certificates as well.
And like everything else these days, prices to me seem really high, just like my Amazon (AMZN) and Apple (AAPL) shares.
But if you live long enough, everything seems expensive, especially all those diamonds that decamped for greener pastures.
My husband wanted me to tell you that, as a retired Marine, he understands completely. The more you sweat in training the less you bleed in war. Gratefully for us you have done a lot of sweating over the years!
Cheryl,
Oregon
