MHFTR

August 22 Biweekly Strategy Webinar Q&A

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Below please find subscribers’ Q&A for the Mad Hedge Fund Trader August 22 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: How do you think the trade talks will resolve?

A: There will be no resolution this next round of trade talks. China has sent only their most hawkish negotiators who believe that China has done nothing wrong, so don’t expect results any time soon.

Also, because of the arrests in Washington, China is more inclined to just wait out Donald Trump, whether that’s 6 months or 6 1/2 years. They believe they have the upper hand now, sensing weakness in Washington, and in any case, many of the American requests are ridiculous.

Trade talks will likely overhang the market for the rest of this year and you don’t want to go running back into those China Tech plays, like Alibaba (BABA) and Baidu (BIDU) too soon. However, they are offering fantastic value at these levels.

Q: Will the Washington political storm bring down the market?

A: No, it won’t. Even in the case of impeachment, all that will happen is the market will stall and go sideways for a while until it’s over. The market went straight up during the Clinton impeachment, but that was during the tail end of the Dotcom Boom.

Q: Is Alibaba oversold here at 177?

A: Absolutely, it is a great buy. There is a double in this stock over the long term. But, be prepared for more volatility until the trade wars end, especially with China, which could be quite some time.

Q: What would you do with the Volatility Index (VIX) now?

A: Buy at 11 and buy more at 10. It’s a great hedge against your existing long portfolio. It’s at $12 right now.

Q: Are the emerging markets (EEM) a place to be again right now or do you see more carnage?

A: I see more carnage. As long as the dollar is strong, U.S. interest rates are rising, and we have trade wars, the worst victims of all of that are emerging markets as you can see in the charts. Anything emerging market, whether you’re looking at the stocks, bonds or currency, has been a disaster.

Q: Is it time to go short or neutral in the S&P 500 (SPY)?

A: Keep a minimal long just so you have some participation if the slow-motion melt-up continues, but that is it. I’m keeping risks to a minimum now. I only really have one position to prove that I’m not dead or retired. If it were up to me I’d be 100% cash right now.

Q: Would you buy Bitcoin here around $6,500?

A: No, I would not. There still is a 50/50 chance that Bitcoin goes to zero. It’s looking more and more like a Ponzi scheme every day. If we do break the $6,000 level again, look for $4,000 very quickly. Overall, there are too many better fish to fry.

Q: Is it time to buy gold (GLD) and gold miners (GDX)?

A: No, as long as the U.S. is raising interest rates, you don’t want to go anywhere near the precious metals. No yield plays do well in the current environment, and gold is part of that.

Q: What do you think about Lithium?

A: Lithium has been dragged down all year, just like the rest of the commodities. You would think that with rising electric car production around the world, and with Tesla building a second Gigafactory in Nevada, there would be a high demand for Lithium.

But, it turns out Lithium is not that rare; it’s actually one of the most common elements in the world. What is rare is cheap labor and the lack of environmental controls in the processing.

However, it’s not a terrible idea to buy a position in Sociedad Química y Minera (SQM), the major Chilean Lithium producer, but only if you have a nice long-term view, like well into next year. (SQM) was an old favorite of mine during the last commodity boom, when we caught a few doubles. (Check our research data base).

Q: How can the U.S. debt be resolved? Or can we continue on indefinitely with this level of debt?

A: Actually, we can go on indefinitely with this level of debt; what we can’t do is keep adding a trillion dollars a year, which the current federal budget is guaranteed to deliver. At some point the government will crowd out private borrowers, including you and me, out of the market, which will eventually cause the next recession.

Q: Time to rotate out of stocks?

A: Not yet; all we have to do is rotate out of one kind of stock into another, i.e. out of technology and into consumer staple and value stocks. We will still get that performance, but remember we are 9.5 years into what is probably a 10-year bull market.

So, keep the positions small, rotate when the sector changes, and you’ll still make money. But, let's face it the S&P 500 isn’t 600 anymore, it’s 2,800 and the pickings are going to get a lot slimmer from here on out. Watch the movie but stay close to the exit to escape the coming flash fire.

Q: What kind of time frame does Amazon (AMZN) double?

A: The only question is whether it happens now or on the other side of the next recession. We can assume five years for sure.

Q: More upside to Home Depot (HD)?

A: Absolutely, yes. The high home prices lead to increases in home remodeling, and now that Orchard Hardware has gone out of business, all that business has gone to Home Depot. Home Depot just went over $204 a couple days ago.

Q: Do you still like India (PIN)?

A: If you want to pick an emerging market to enter, that’s the one. It’s a Hedge Fund favorite and has the largest potential for growth.

Q: What about oil stocks (USO)?

A: You don’t want to touch them at all; they look terrible. Wait for Texas tea to fall to $60 at the very least.

Q: What would you do with Netflix (NFLX)?

A: I would probably start scaling into buy right here. If you held a gun to my head, the one trade I would do now would be a deep in the money call spread in Netflix, now that they’ve had their $100 drop. And I can’t wait to see how the final season of House of Cards ends!

Q: If yields are going up, why are utilities doing so well?

A: Yields are going down right now, for the short term. We’ve backed off from 3.05% all the way to 2.81%; that’s why you’re getting this rally in the yield plays, but I think it will be a very short-lived event.

Q: Do you see retail stocks remaining strong from now through Christmas?

A: I don’t see this as part of the Christmas move going on right now; I think it’s a rotation into laggard plays, and it’s also very stock specific. Stocks like Nordstrom (JWN) and Target (TGT) are doing well, for instance, while others are getting slaughtered. I would be careful with which stocks you get into.

Good luck and good trading
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

MHFTR

August 24, 2018 - Quote of the Day

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“The French have more fun in one year than the English do in 10,” said John Adams, America’s second president, and one-time ambassador to Paris and London.

 

MHFTR

August 23, 2018

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Global Market Comments
August 23, 2018
Fiat Lux

Featured Trade:
(WHY THE DOW IS GOING TO 120,000),
(X), (IBM), (GM), (MSFT), (INTC), (DELL),
($INDU), (NFLX), (AMZN), (AAPL), (GOOGL),
(THE MAD HEDGE CONCIERGE SERVICE HAS AN OPENING),
(TESTIMONIAL)

MHFTR

Why the Dow is Going to 120,000

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For years, I have been predicting that a new Golden Age was setting up for America, a repeat of the Roaring Twenties. The response I received was that I was a permabull, a nut job, or a conman simply trying to sell more newsletters.

Now some strategists are finally starting to agree with me. They too are recognizing that a ganging up of three generations of investment preferences will combine to drive markets higher during the 2020s, much higher.

How high are we talking? How about a Dow Average of 120,000 by 2030, up another 465% from here? That is a 20-fold gain from the March 2009 bottom.

It’s all about demographics, which are creating an epic structural shortage of stocks. I’m talking about the 80 million Baby Boomers, 65 million from Generation X, and now 85 million Millennials. Add the three generations together and you end up with a staggering 230 million investors chasing stocks, the most in history, perhaps by a factor of two.

Oh, and by the way, the number of shares out there to buy is actually shrinking, thanks to a record $1 trillion in corporate stock buybacks.

I’m not talking pie in the sky stuff here. Such ballistic moves have happened many times in history. And I am not talking about the 17th century tulip bubble. They have happened in my lifetime. From August 1982 until April 2000 the Dow Average rose, you guessed it, exactly 20 times, from 600 to 12,000, when the Dotcom bubble popped.

What have the Millennials been buying? I know many, like my kids, their friends, and the many new Millennials who have recently been subscribing to the Diary of a Mad Hedge Fund Trader. Yes, it seems you can learn new tricks from an old dog. But they are a different kind of investor.

Like all of us, they buy companies they know, work for, and are comfortable with. During my Dad’s generation that meant loading your portfolio with U.S. Steel (X), IBM (IBM), and General Motors (GM).

For my generation that meant buying Microsoft (MSFT), Intel (INTC), and Dell Computer (DELL).

For Millennials that means focusing on Netflix (NFLX), Amazon (AMZN), Apple (AAPL), and Alphabet (GOOGL).

That’s why these four stocks account for some 40% of this year’s 7% gain. Oh yes, and they bought a few Bitcoin along the way too, to their eternal grief.

There is one catch to this hyper-bullish scenario. Somewhere on the way to the next market apex at Dow 120,000 in 2030 we need to squeeze in a recession. That is increasingly becoming a topic of market discussion.

The consensus now is that an impending inverted yield curve will force a recession sometime between August 2019 to August 2020. Throwing fat on the fire will be a one-time only tax break and deficit spending that burns out sometime in 2019. These will be a major factor in U.S. corporate earnings growth dramatically slowing down from 26% today to 5% next year.

Bear markets in stocks historically precede recessions by an average of seven months so that puts the next peak in top prices taking place between February 2019 to February 2020.

When I get a better read on precise dates and market levels, you’ll be the first to know.

To read my full research piece on the topic please click here to read “Get Ready for the Coming Golden Age.” 

 

 

Dow 1982-2000 Up 20 Times in 18 Years

 

 

Dow 2009-Today Up 4.3 Times in 9 Years So Far

 

MHFTR

The Mad Hedge Concierge Service Has an Opening

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I am pleased to announce that I have a rare opening for the Mad Hedge Fund Trader Executive Concierge Service, a program that is aimed at our most valued clients.

This is the first time an opening has become available since the service was initiated in November.

The goal is to provide high net worth individuals with the extra degree of assistance they may require in managing diversified portfolios. Tax, political, and economic issues will all be covered.

The service comes at $10,000 a year.

It is also the ideal service for the small- and medium-sized hedge fund that lacks the resources to support their own in-house global strategist full time.

The service includes the following:

1) A risk analysis of your own personal portfolio with the goal of focusing your investment in the highest return sectors for the long term.

2) A monthly phone call from John Thomas to update you on the current state of play in the global financial markets.

3) Personal meetings with John Thomas anywhere in the world once a year to continue your in-depth discussions.

4) A subscription to all Mad Hedge Fund Trader products and services. The cost for this highly personalized, bespoke service is $10,000 a year.

5) Think of it as an investment 911. If you require an instant read on the markets or a possible business venture, you will always have my personal cell phone number.

To best take advantage of Mad Hedge Fund Trader Executive Service, you should possess the following:

1) Be an existing subscriber to the Mad Hedge Fund Trader PRO who is already well aware of our strengths and limitations.

2) Have a liquid net worth of more than $5 million.

3) Possess a degree of knowledge and sophistication of financial markets. This is NOT for beginners.

It is my intention to limit the number of Concierge subscribers to 10. When a black swan comes out of the blue, I have to be able to call all of you within the hour and tell you the immediate impact on your portfolio, as I did last night in the wake of the Washington convictions.

 

MHFTR

Testimonial

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A short note to thank John for great information and insight. Listening to John’s ideas is awesome, and I have committed to myself to keep following his research and trade ideas because the performance has been outstanding.

Regards

Dallas,
Melbourne, Australia

MHFTR

August 22, 2018

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Global Market Comments
August 22, 2018
Fiat Lux

Featured Trade:
(WHY DOCTOR COPPER IS WAVING A RED FLAG),
($COPPER), (FCX), (USO),
(HANGING OUT WITH THE WOZ),
 (AAPL)

MHFTR

Why Doctor Copper is Waving a Red Flag

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One of my responsibilities as a global strategist is to talk about how cheap stocks are at market bottoms, and how expensive they are at market tops. In all honesty I have to tell you that 9 ½ years into a bull market, we are now much closer to a top than a bottom.

If Dr. Copper has anything to say about it the global economy is already in a recession. Since the June peak, trade wars have taken the red metal down a gut-punching 22.7%. The world’s largest copper producer Freeport-McMoRan (FCX), a Carl Icahn favorite, is off an eye-popping 30.6% during the same period.

Should we be running around with our hair on fire?  Is it time to throw up on our shoes? I don’t think so…not yet anyway.

Dr. Copper achieved its vaunted status as a leading indicator of economic cycles for the simple reason that everyone uses copper. Building and construction took up 43% of the supply in 2017, followed by electronics (19%) and transportation equipment (17%).

China is far and away the world’s largest consumer of copper. In 2017, it bought 48% of total world output. However, red flags there are flying everywhere.

Back in the 2000s, when China was building a “Rome a Day,” demand for copper seemed limitless. Since then, Chinese construction has fallen to a low ebb as the greatest infrastructure build-out in history came to completion.

China has steadily moved from an export-oriented to a services-driven economy, further eroding the need for copper. I warned investors of this seven years ago. That is why the Mad Hedge Fund Trader has issued virtually NO commodities-based Trade Alerts since then.

Before the last financial crisis Chinese banks accepted copper ingots as collateral for business loans. That practice is now banned.

In the second quarter, nonperforming loans at Chinese banks notched their biggest rise in more than a decade, according to research from Capital Economics. Corporate bond defaults are on the rise, and earlier this week, official reports showed Chinese investment growth, which has long been a driver of the economy, fell to its lowest level since the late 1990s.

The pressure on the Chinese economy is beginning to take its toll in other places, too. China’s currency, the renminbi, has fallen more than 9% against the dollar in the past six months, and China’s CSI 300 index of blue chip stocks is off 19% this year.

The net effect of all of this has been to dilute the predictive power of copper. Copper may no longer deserve its PhD in economics, perhaps only a master’s degree or an associate of arts.

Copper is not alone in predicting imminent economic disaster. Oil (USO) has also been shouting the same. Texas tea has fallen by 15.8% since copper began its swan dive two months ago.

For sure, oil has been falling for its own reasons. Iran has sidestepped American sanctions by selling its oil directly to China, and there is nothing the U.S. can do about it. Every year, global GDP growth needs less oil to grow than before thanks to alternative energy sources and conservation.  A recent bout of OPEC quota cheating hasn’t helped either.

As any market strategist will tell you, falling copper and oil prices are not what sustainable bull markets in stocks are made of. I’m not saying a crash will happen tomorrow.

Personally, I believe that the bull market should spill into 2019. But when corporate earnings growth downshifts from 26% to 5% YOY, as it will in Q1 2019, watch out below!

 

 

 

 

 

 

 

The Big Trade War Victim

MHFTR

Hanging Out With the Woz

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I first spoke to Steve Wozniak via HAM radio when I was 12 years old and he was the 14-year-old president of the Homestead High School Radio Club in Cupertino, California.

With seven children, my dad was pretty stingy with allowance money. But when it came to electronic parts, I had an unlimited budget, as that is where he saw the future.

So, while other kids collected baseball cards, I stocked up on tubes, resistors, capacitors, and rheostats. This was back when you could buy WWII surplus parts from Radio Shack for pennies a pound.

Then the transistor came out, and building projects, like simple computers programmed with basic '1's' and '0's' suddenly became possible.

By junior high school, I had gained my radio license, learning Morse code at the required five words per minute, and a path opened that eventually led me to Woz.

Whenever I had a design problem, Woz always had a solution. He seemed to know everything about electronics.

I planned to attend De Anza College in the San Francisco Bay Area to collaborate with Woz, but then the State of California dropped a big fat scholarship to the University of Southern California in my lap, and we parted ways.

That's government for you. The state thought I was smarter than Woz. Ha!

The last thing he taught me was this really cool way to make long distance phone calls for free with something called a 'blue box.'

I later heard that Woz went to work for some kind of fruit company designing computers, which sounded stupid to me at the time, but Woz was always a guy who marched to a different drummer.

A decade later, I was an ambitious young vice president at Morgan Stanley, and ran into Woz again while escorting Steve Jobs around to big institutional investors hawking an Apple (AAPL) shares back when they were $1 on a split adjusted basis.

By then he had gained a lot of weight. He fascinated me with stories about how he had gone from scrounging around for a bootleg $12 chip, to making $100 million on the Apple IPO in just three years.

The phrase "only in America" has to come to mind.

We bought our planes at the same time, me a Cessna 340 twin, and he a Beechcraft Bonanza. When I heard he totaled his in a crash in Santa Cruz a few years later, I sent flowers to his hospital room, even though he was in a coma and wasn't expected to live.

In later years we moved into the same philanthropic circles at the San Francisco Ballet, the Computer Museum, and local art museums. To me, Woz always stood out at the social events as the only one who was not an inveterate social climber, the kind of which I tired of long ago.

That was vintage Woz. He just didn't care.

When I finally stumbled across his autobiography, iWoz, I grabbed it and devoured the pages in a couple of days.

The tome filled in the holes about what I knew about the man: the wives, the rock concerts, his universal remote-control idea, and the early days at Apple.

You also learn a lot about electronics and basic computer hardware and software design.

While there are a lot of fifth-grade science teachers who wish they were billionaires, there is only one billionaire who aspired to teach fifth-grade science. That is what Woz did for 10 years after he left Apple.

Despite the billions, Steve is still an all-right guy. With Apple stock having touched $218 last week he must be worth an unimaginable amount. He won’t tell anyone how much he still owns, and he doesn’t even have his own rocket program. To buy the book of his engaging and entertaining story, please click here at  click here.

Steve Wozniak

MHFTR

August 21, 2018

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Global Market Comments
August 21, 2018
Fiat Lux

Featured Trade:
(DON’T MISS THE AUGUST 22 GLOBAL STRATEGY WEBINAR),
(PROFITING FROM AMERICA’S DEMOGRAPHIC COLLAPSE)

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