“Stock prices have reached what looks like a permanently high plateau,” said economist Irving Fisher….just before the 1929 stock market crash.
Global Market Comments
April 1, 2025
Fiat Lux
Featured Trade:
(REVISITING THE FIRST SILVER BUBBLE),
(SLV), (SLW)
"What is currently happening is that we have a lot of noise around what is uneconomic. When the economic stuff starts happening, like tax cuts, that will feed into real things, like cash flow and earnings," said Bill Miller, chairman of LMM Investments.
Global Market Comments
March 31, 2025
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or STAGFLATION IS ON!)
(COST), (BRK/B), (GS), (MS), (NVDA), (AMZN), (TLT), (GLD), (GM), (TSLA)
“Life is too short to hang out with people who aren’t resourceful,” said Jeff Bezos, the founder of Amazon.
Global Market Comments
March 27, 2025
Fiat Lux
Featured Trade:
(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)
One of the most fascinating things I learned when I first joined the equity trading desk at Morgan Stanley during the early 1980s was how to parallel trade.
A customer order would come in to buy a million shares of General Motors (GM), and what did the in-house proprietary trading book do immediately?
It loaded the boat with the shares of Ford Motors (F).
When I asked about this tactic, I was taken away to a quiet corner of the office and read the riot act.
“This is how you legally front-run a customer,” I was told.
Buy (GM) in front of a customer order, and you will find yourself in Sing Sing shortly.
Ford (F), Toyota (TM), Nissan (NSANY), Daimler Benz (DDAIF), BMW (BMWYY), and Volkswagen (VWAPY), were all fair game.
The logic here was very simple.
Perhaps the client completed an exhaustive piece of research concluding that (GM) earnings were about to rise.
Or maybe a client's old boy network picked up some valuable insider information.
(GM) doesn’t do business in isolation. It has thousands of parts suppliers for a start. While whatever is good for (GM) is good for America, it is GREAT for the auto industry.
So through buying (F) on the back of a (GM) might not only match the (GM) share performance, it might even exceed it.
This is known as a Primary Parallel Trade.
This understanding led me on a lifelong quest to understand Cross Asset Class Correlations, which continues to this day.
Whenever you buy one thing, you buy another related thing as well, which might do considerably better.
I eventually made friends with a senior trader at Salomon Brothers while they were attempting to recruit me to run their Japanese desk.
I asked if this kind of legal front-running happened on their desk.
“Absolutely,” he responded. But he then took Cross Asset Class Correlations to a whole new level for me.
Not only did Salomon’s buy (F) in that situation, they also bought palladium (PALL).
I was puzzled. Why palladium?
Because palladium is the principal metal used in catalytic converters, it removes toxic emissions from car exhaust and has been required for every U.S.-manufactured car since 1975.
Lots of car sales, which the (GM) buying implied, ALSO meant lots of palladium buying.
And here’s the sweetener.
Palladium trading is relatively illiquid.
So, if you catch a surge in the price of this white metal, you would earn a multiple of what you would make on your boring old parallel (F) trade.
This is known in the trade as a Secondary Parallel Trade.
A few months later, Morgan Stanley sent me to an investment conference to represent the firm.
I was having lunch with a trader at Goldman Sachs (GS) who would later become a famous hedge fund manager, and asked him about the (GM)-(F)-(PALL) trade.
He said I would be an IDIOT not to take advantage of such correlations. Then he one-upped me.
You can do a Tertiary Parallel Trade here by buying mining equipment companies such as Caterpillar (CAT), Cummins (CMI), and Komatsu (KMTUY).
Since this guy was one of the smartest traders I ever ran into, I asked him if there was such a thing as a Quaternary Parallel Trade.
He answered “Abso******lutely,” as was his way.
But the first thing he always did when searching for Quaternary Parallel Trades would be to buy the country ETF for the world’s largest supplier of the commodity in question.
In the case of palladium, that would be South Africa (EZA).
Since then, I have discovered hundreds of what I call Parallel Trading Chains and have been actively making money off of them. So have you, you just haven’t realized it yet.
I could go on and on.
If you ever become puzzled or confused about a trade alert I am sending out (Why on earth is he doing THAT?), there is often a parallel trade in play.
Do this for decades as I have and you learn that some parallel trades break down and die. The cross relationships no longer function.
The best example I can think of is the photography/silver connection. When the photography business was booming, silver prices rose smartly.
Digital photography wiped out this trade, and silver-based film development is still only used by a handful of professionals and hobbyists.
Oh, and Eastman Kodak (KODK) went bankrupt in 2012.
However, it seems that whenever one Parallel Trading Chain disappears, many more replace it.
You could build chains a mile long simply based on how well Apple (AAPL) or NVIDIA (NVDA) is doing.
And guess what? There is a new parallel trade in silver developing. Whenever someone builds a solar panel anywhere in the world, they use a small amount of silver for the wiring. Build several tens of millions of solar panels and that can add up to quite a lot of silver.
What goes around comes around.
Suffice it to say that parallel trading is an incredibly useful trading strategy.
Ignore it at your peril.
“Cheap is a dangerous word,” said technical analyst Carter Braxton Worth.
Global Market Comments
March 26, 2025
Fiat Lux
Featured Trade:
(WHY THE “UNDERGROUND” ECONOMY IS GROWING SO FAST)
There is no doubt that the “underground” economy is growing.
No, I’m not talking about violent crime, drug dealing, or prostitution.
Those are all largely driven by demographics, which right now are at a low ebb.
I’m referring to the portion of the economy that the government can’t see and therefore is not counted in its daily data releases.
This is a big problem.
Most investors rely on economic data to dictate their trading strategies.
When the data is strong, they aggressively buy stocks, assuming that a healthy economy will boost corporate profits.
When data is weak, we get the flip side, and investors bail on equities. They also sell commodities, precious metals, and oil, and plow their spare cash into the bond market.
We are now halfway through a decade that has delivered unrelentingly low annual GDP growth, around the 2% to 2.5% level.
We all know the reasons. Retiring baby boomers, some 85 million of them, are a huge drag on the system, as they save and don’t spend.
Generation X-ers do spend, but there are only 58 million of them. And many Millennials are still living in their parents’ basements—broke and unable to land paying jobs in this ultra-cost-conscious world.
But what if these numbers were wrong? What if the Feds were missing a big part of the picture?
I believe this is, in fact, what is happening.
I think the economy is now evolving so fast, thanks to the simultaneous hyper-acceleration of multiple new technologies that the government is unable to keep up.
Further complicating matters is the fact that many new Internet services are FREE, and therefore are invisible to government statisticians.
They are, in effect, reading from a playbook that is decades or more old.
What if the economy was really growing at a 3% to 4% pace, but we just didn’t know it?
I’ll give you a good example.
The government’s Consumer Price Index is a basket of hundreds of different prices for the things we buy. But the Index rarely changes, while we do.
The figure the Index uses for Internet connections hasn’t changed in 20 years.
Gee, do you think that the price of broadband has risen in a decade, with the 1,000-fold increase in speeds?
In the early 2000s, you could barely watch a snippet of video on YouTube without your computer freezing up.
Now, I can live stream a two-hour movie in High Definition on my Comcast Xfinity 1 terabyte per second business line. And many people now watch movies on their iPhones. I see them in rush-hour traffic and on planes.
I’ll give you another example of the burgeoning black economy: Me.
My business shows up nowhere in the government economic data because it is entirely online. No bricks and mortar here!
Yet, I employ 15 people, provide services to thousands of individuals, institutions, and governments in 140 countries, and take in millions of dollars in revenues in the process.
I pay a lot of American taxes, too.
How many more MEs are out there? I would bet millions.
If the government were understating the strength of the economy, what would the stock market look like?
It would keep going up every year like clockwork, as ever-rising profits feed into stronger share prices.
But multiples would never get very high (now at 20 times earnings) because no one believed in the rally, since the visible economic data was so weak.
That would leave them constantly underweight equities in a bull market.
Stocks would miraculously and eternally climb a wall of worry, as they did until February.
On the other hand, bonds would remain strong as well, and interest rates low, because so many individuals and corporations were plowing excess, unexpected profits into fixed-income securities.
Structural deflation would also give them a big tailwind.
If any of this sounds familiar, please raise your hand.
I have been analyzing economic data for a half-century, so I am used to government statistics being incorrect.
It was a particular problem in emerging economies, like Japan and China, which were just getting a handle on what comprised their economies for the first time.
But to make this claim about the United States government, which has been counting things for 240 years, is a bit like saying the emperor has no clothes.
Sure, there has always been a lag between the government numbers and reality.
In the old days, they used horses to collect data, and during the Great Depression, numbers were kept on 3” X 5” index cards filled out with fountain pens.
But today, the disconnect is greater than it ever has been, by a large margin, thanks to technology.
Is this unbelievable?
Yes, but you better get used to the unbelievable.
There May Be More Here Than Meets the Eye