Global Market Comments
August 17, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE AUGUST 22 GLOBAL STRATEGY WEBINAR),
(HAS THE VALUE OF YOUR HOME JUST PEAKED?),
(ITB), (PHM), (KBH), (LEN), (DHI), (NVR), (TOL),
(JOIN US AT THE MAD HEDGE LAKE TAHOE, NEVADA CONFERENCE, OCTOBER 26-27, 2018)
"It's not always the troops that storm the beaches who are the right ones to set up the government," said Steve Vassallo from Foundation Capital about the resignation of founder Travis Kalanick from Uber.
Global Market Comments
August 16, 2018
Fiat Lux
SPECIAL ARTIFICIAL INTELLIGENCE ISSUE
Featured Trade:
(NEW PLAYS IN ARTIFICIAL INTELLIGENCE),
(NVDA), (AMD), (ADI), (AMAT), (AVGO), (CRUS),
(CY), (INTC), (LRCX), (MU), (TSM)
Global Market Comments
August 15, 2018
Fiat Lux
Featured Trade:
(WHY BONDS CAN'T GO DOWN),
(TLT), (TBT), ($TNX), (TUR), (TSLA),
(HOW TO MAKE MORE MONEY THAN I DO),
(AMZN), (LRCX), (ABX), (AAPL), (TSLA), (NVDA)
By now, most of you have figured out that I love calling readers every day and milking them for ideas on how to improve my service.
Often, they think I am an imposter, a telephone salesman, a machine, or an algorithm. It's only after listening for a few seconds that they recognize my voice from the biweekly strategy webinars and realize that it's the real me.
I don't do this to get renewals, because everyone renews anyway. Where else do you get a 62% annual return with no serious drawdowns?
No, I do it because the information I pick up from subscribers is golden. Some of my best Trade Alerts are inspired by reader questions.
One of my favorite Einstein quotes is that "There are no stupid questions, only stupid answers."
In fact, I have discovered that a lot of subscribers are making much more money from my service than I do.
I'll tell you how they do it.
First, let me remind readers that every Trade Alert I send out includes recommendation for a call or put option spread, a single stock, or an ETF.
The trading performance charts that we published are based on the options spread positions only.
WARNING: What worked swimmingly over the past 10 years is no guarantee that it will work next year, but I thought you'd like to know anyway.
1) Raise the Strike Prices
Move the strike prices up by a dollar. So instead of buying the Barrick Gold (ABX) September $15-$16 deep in-the-money vertical bull call spread, you pick up the $16-$17 call spread instead.
Generally, you make a profit that is 50% greater on this higher spread than with the original recommendation. But you are also taking on higher risk.
When 90% or more of our Trade Alerts are successful this has been a pretty good bet to make.
2) Buy the Call Options Only
Instead of buying the call spread, you buy the call option only in half the size.
When it works, your upside is unlimited. When it doesn't, you just write off the total value of your investment.
This is a great approach when the stocks I recommend take off like a rocket and double or more, as have Apple (AAPL), Amazon, (AMZN), Tesla (TSLA), Lam Research (LRCX), and NVIDIA (NVDA).
Option spread buyers leave a lot of money on the table with this scenario, but get lower performance volatility.
I have observed that many of my Australia readers pursue this approach, as they are fighting a 14-hour time zone disadvantage with the New York Stock Exchange. Not many civilians want to trade at 4:00 AM no matter how much it pays.
The payoff is that they earn about double what I do trading the same stocks.
3) Buy a 2X or 3X Leveraged ETF
This is moving out even further off the risk curve.
Almost every one of the 101 S&P 500 sectors have listed for them 2X and 3X bull and bear ETF's. In theory, the best-case scenario for one of these funds is that they will rise three times as fast as the underlying basket.
In theory, I said.
By the time you take out management fees, tracking error, and execution costs, and wide spreads, you are more likely to get 2.5 times the basket appreciation, if not 2X.
I normally steer investors away from 3X funds. But 401k traders, who are not allowed to deal in stock options, swear by them.
4) Trade Futures
This is a favorite of foreign exchange, precious metals, and bond traders. A futures contract can deliver up to 100 times the performance of the underlying currency, metal, or Treasury bond.
Get a good entry point, run a tight stop loss, and the potential gains can be astronomical.
Every year we get a couple of followers who earn 1,000% profits using our market timing for entry and exit point, and they always do it through the futures markets. Yes, that is a 10X return.
This is also a much higher risk, but higher return strategy. Your broker will present greater disclosure requirements and need a higher clearance level.
But potentially retiring in a year is ample bait for many professionals to go through with this.
5) Read the Research
I know a lot of you only buy this service only for our industry beating Trade Alert service.
But my decade-long experience in watching readers succeed, or fail, in their executions is that the more research they read, the more money they make.
Don't try to skim though with a minimal effort.
It's really very simple. The more work you put into this, the more profit you take out.
Understanding fully what is happening in the markets, indeed the entire global economy, will give you the confidence you need to take on bigger positions and make A LOT more money.
There is no free lunch. There is no Holy Grail.
Having said all that, good luck and good trading.
Global Market Comments
August 14, 2018
Fiat Lux
Featured Trade:
(WHY BANKS HAVE PERFORMED SO BADLY THIS YEAR),
(JPM), (C), (GS), (SCHW), (WFC),
(HOW FREE ENERGY WILL POWER THE COMING ROARING TWENTIES),
(SPWR), (TSLA)
I went to the local branch of Wells Fargo Bank (WFC) yesterday, and I was appalled. The bank occupied the most expensive corner in town. It was staffed by a dozen people, all of whom spoke English as a second language.
Ask even the simplest question and they had to call a support center and wait 10 minutes on hold for the answer. It took an hour for me to open a checking account for one of my kids. The branch was in effect a glorified call center.
I thought, "This can't last." And it won't.
Banks were supposed to be the sector to own this year. They had everything going for them. The economy was booming, interest rates were rising, and regulations were falling like leaves in the fall.
Despite all these gale force fundamental tailwinds the banks have utterly failed to deliver. The gold standard J.P. Morgan is up only 8.46% on the year, while bad boy Citibank (C) is down 5.47%, and the vampire squid Goldman Sachs (GS) is off a gut-punching 10.27%. Where did the bull market go? Why have bank shares performed so miserably?
The obvious reason could be that the improved 2018 business environment was entirely discounted by the big moves we saw in 2017. Last year, banks were the shares to own with (JPM) shares up a robust 24.5%, while (C) catapulted by 29.3%.
It is possible that bank shares are acting like a very early canary in the coal mine, tweeting about an approaching recession. Loan growth has been near zero this year. That is not typical for a booming economy. It IS typical going into a recession.
When the fundamentals arrive as predicted but the stock fails to perform it can only mean one thing. The industry is undergoing a long-term structural change from which it may not recover. Yes, the bank industry may be the modern-day equivalent of the proverbial buggy whip maker just before Detroit took over the transportation business.
Managing a research service such as the Mad Hedge Technology Letter, it is easy to see how this is happening. Financial services are being disrupted on a hundred fronts, and the cumulative effect may be that it will no long exist.
This explains why this is the first bull market in history where there has been no new hiring by Wall Street. What happens when we go into a bear market? Employment will drop by half and those expensive national branch networks will disappear.
Financial services are still rife with endless fees, poor service, and uncompetitive returns. Online brokers such as Robin Hood (click here) will execute stock and option transactions for free. Now that overnight deposits actually pay a return they make their money on margin loans. They have no branch network but are still SIPC insured.
Legacy brokers such as Fidelity and Charles Schwab (SCHW) used to charge $25 a share to execute and are still charging $7.00 for full-service clients. And it's not as if their research has been so great to justify these high prices either. In a world that is getting Amazoned by the day, these high prices can't stand.
Regular online banking service also pay interest and are about to eat the big banks' lunch. Many now pay 1.75% overnight interest rates and offer free debit and credit cards, and checking accounts. Of course, none of these are household names yet, but they will be.
To win the long-term investment game you have to identify the industries of the future and run from the industries of the past. The legacy financial industry is increasingly looking like a story from the past.
Ho Hum. Another week, another financial crisis. And why did I rush back from the bucolic mountain pastures of Zermatt? To come back to the smoke-laden skies from the Northern California forest fires? It all must be an early sign of dementia.
Trump's foreign policy now seems crystal clear; to destroy the economies of all our allies. That's what he accomplished with NATO member Turkey today by doubling tariffs, triggering an instant 20% devaluation of the Turkish Lira. Turkey has been at war with Russia for 600 years.
Most Turkish companies have their debts in U.S. dollars or Euros (FXE), so you can write them off. That puts European banks at risk of another crisis, which could quickly turn global in nature. The flip side of this move was to take the U.S. dollar (UUP) to a new high for the year, thus crushing our own exporters even further.
Did our stock market care? Well. Actually yes, taking the Dow Average down 300 points. Will it care more than today? Probably not. All we are seeing is profit taking in some of the most overbought high fliers.
That is, unless, you are a soybean farmer, who saw prices collapse yet again. I watch bean prices closely these days, as it is an indicator of the market's expectation of intensifying trade wars.
After four decades of efforts to develop the Chinese markets, those efforts are going up in flames. And that business is not coming back now that the U.S. has proved itself an unreliable partner. As anyone in business will tell you, you only get to offend a customer once.
Markets generally believe that the U.S. trade war against the rest of the world is nothing more than a negotiating ploy. If that is not the case and they go on and on, you can move up the next recession and bear market by a year, like to tomorrow.
Perhaps the most important news of the week was the July Consumer Price Index leaping to 2.9%, a decade high. This is on the heels of the 2.7% pop in Average Hourly Earnings that came with the July Nonfarm Payroll Report.
Yes, ladies and gentlemen, this is called inflation. And while bonds normally get destroyed by such a data point, fixed income markets instead decided to focus on the strong U.S. dollar.
That was enough to entice me to sell short the U.S. Treasury bonds (TLT) for the first time in three months. With the Fed raising interest rates on September 25 by 25 basis points, what could go wrong?
Tesla (TSLA) sucked a lot of the air out of the room this week with its mooted buyout at $420 a share. I think it will happen. There is a global capital glut right now, with trillions of dollars of capital looking for a home. Ownership of Tesla would be a great hedge for Saudi Arabia against falling oil prices, which already owns 4% of the company. And guess who the world's largest per capita buyer of Tesla's is? Norway, which has a $1 trillion sovereign wealth fund of its own. The proposed $82 billion price tag for Tesla would look like pennies on the dollar.
Tip toeing back into the market with two cautious positions has boosted my August performance to 1.32%. My 2018 year-to-date performance has clawed its way up to 26.14% and my nine-year return appreciated to 302.61%. The Averaged Annualized Return stands at 34.91%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 32.24%.
This coming week will be a very boring week on the data front.
On Monday, August 13, there will be nothing of note to report. It will just be another boring summer day.
On Tuesday, August 14, at 6:00 AM EST, we get the weekly NFIB Small Business Optimism Report.
On Wednesday, August 15, at 9:15 AM, we learn July Industrial Production.
Thursday, August 16, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 13,000 last week to 222,000. Also announced are July Housing Starts. At 4:30 PM, we learn the July Money Supply, which we might have to start paying attention to, now that inflation is on the rise.
On Friday, August 17, at 10:00 AM EST, we get Leading Economic Indicators. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.
As for me, I will be stuck indoors this weekend and the government has warned me not to go outside unless absolutely necessary because the air quality is so bad. Maybe I can sneak out to Costco at some point to replenish my empty refrigerator.
Good luck and good trading.
Global Market Comments
August 10, 2018
Fiat Lux
Featured Trade:
(AUGUST 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TBT), (PIN), (ISRG), (EDIT), (MU), (LRCX), (NVDA),
(FXE), (FXA), (FXY), (BOTZ), (VALE), (TSLA), (AMZN),
(THE DEATH OF THE CAR),
(GM), (F), (TSLA), (GOOG), (AAPL)
Below please find subscribers' Q&A for the Mad Hedge Fund Trader August 8 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 should I do about my (SPY) $290-295 put spread?
A: That is fairly close to the money, so it is a high-risk trade. If you feel like carrying a lot of risk, keep it. If you want to sleep better at night, I would get out on the next dip. The market has 100 reasons to go down and two to go up, the possible end of trade wars and continuing excess global liquidity, and the market is focusing on the two for now.
Q: What are your thoughts on the ProShares Ultra Short Treasury Bond Fund (TBT)?
A: Short term, it's a sell. Long term it's a buy. It's possible we could get a breakout in the bond market here, at the 3% yield level. If that happens, you could get another five points quickly in the TBT. J.P. Morgan's Jamie Diamond thinks we could hit a 5% yield in a year. I think that's high but we are definitely headed in that direction.
Q: What are your thoughts on the India ETF (PIN)?
A: It goes higher. It's been the best-performing emerging market, and a major hedge fund long for the last five years. The basic story is that India is the next China. Indicia is the next big infrastructure build-out. Once India gets regulatory issues out of the way, look for more continued performance.
Q: What are your thoughts on Intuitive Surgical (ISRG)?
A: Intuitive is a kind of microcosm in the market right now. It's trading well above a significant support level, which happens to be $508. I don't typically like Intuitive Surgical stock because the options are very inefficient, and therefore very pricey. I think, at this point, there is a bigger possibility of it breaking down than continuing to head higher. In other words, it's overbought. Buy long term, the sector has a giant tailwind behind it with 80 million retiring baby boomers.
Q: What are your thoughts on the entire chip sector, including Micron (MU), Lam Research (LRCX) and NVIDIA (NVDA)?
A: NVIDIA is the top of the value chain in the entire sector, and it looks like it wants to break to a new high. My target is $300 by the end of the year, from the current $240s. I think the same will happen with Lam Research (LRCX), which just had a massive rally. All three of these have major China businesses; China buys 80% of its chips from the U.S. You can do these in order in the value chain; the lowest value-added company is Micron, followed by Lam Research, followed by NVIDIA, and the performance reflects all of that. So, I think until we get out of the trade wars, Micron will be mired down here. Once it ends, look for it to get a very sharp upside move. Lam is already starting to make its move and so is NVIDIA. Long term, Lam and NVIDIA have doubles in them, so it's not a bad place to buy right here.
Q: You once recommended the Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ) which is now down 10%, one of your few misses. Keep or sell?
A: Keep. It's had the same correction as the rest of Technology. All corrections in Technology are short term in nature--the long-term bull story is still there. (BOTZ) is a huge play on artificial intelligence and automation, so that is going to be with us for a long time, it's just enduring a temporary short-term correction right now, and I would keep it.
Q: What do you have to say about the CRISPR stocks like Editas Medicine Inc. (EDIT)?
A: The whole sector got slammed by a single report that said CRISPR causes cancer, which is complete nonsense. So, I would use this sell-off to increase your current positions. I certainly wouldn't be selling down here.
Q: What could soften the strong dollar?
A: Only one thing: a recession in the U.S. and an end to the interest-raising cycle, which is at least a year off, maybe two. Keep buying the U.S. dollar and selling the currencies (FXE), (FXY), (FXA) until then.
Q: What are your thoughts on Baidu and Alibaba?
A: I thought China tech would get dragged down by the trade wars, but they behaved just as well as our tech companies, so I'd be buying them on dips here. Again, if we do win the trade wars, these Chinese tech companies could rocket. The fundamental stories for all of them is fantastic anyway, so it's a good long-term hold.
Q: Have you looked at Companhia Vale do Rio Doce (VALE)? (A major iron ore producer)
A: No, I've kind of ignored commodities all this year, because it's such a terrible place to be. If we had a red-hot economy, globally you would want to own commodities, but as long as the recovery now is limited to only the U.S., it's not enough to keep the commodity space going. So, I would take your profits up here.
Q: With Tesla (TSLA) up $100 in two weeks should I sell?
A: Absolute. If the $420 buyout goes through you have $40 of upside. If it doesn't, you have $140 of downside. It's a risk/reward that drives like a Ford Pinto.
Q: How long will it take global QE (quantitative easing) to unwind?
A: At least 10 years. While we ended our QE four years ago, Europe and Japan are still continuing theirs. That's why stocks keep going up and bonds won't go down. There is too much cash in the world to sell anything.
Q: Apple (AAPL)won the race to be the first $1 trillion company. Who will win the race to be the first $2 trillion company?
A: No doubt it is will be Amazon (AMZN). It has a half dozen major sectors that are growing gangbusters, like Amazon Web Services. Food and health care are big targets going forward. They could also buy one of the big ticket selling companies to get into that business, like Ticketmaster.
Good Luck and Good trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
