Global Market Comments
October 14, 2013
Fiat Lux
Featured Trade:
(NOVEMBER 1 SAN FRANCISCO STRATEGY LUNCHEON),
(THE GOVERNMENT SHUTDOWN IS WORSE THAN YOU THINK),
(A SAD FAREWELL TO HELEN THOMAS)
Come join me for lunch at the Mad Hedge Fund Trader?s Global Strategy Update, which I will be conducting in San Francisco on Friday, November 1, 2013. An excellent meal will be followed by a wide-ranging discussion and an extended question and answer period.
I?ll be giving you my up to date view on stocks, bonds, currencies, commodities, precious metals, and real estate. And to keep you in suspense, I?ll be throwing a few surprises out there too. Tickets are available for $191.
I?ll be arriving at 11:00 and leaving late in case anyone wants to have a one on one discussion, or just sit around and chew the fat about the financial markets.
The lunch will be held at a private club in downtown San Francisco near Union Square that will be emailed with your purchase confirmation.
I look forward to meeting you, and thank you for supporting my research. To purchase tickets for the luncheons, please go to my online store.
I am rapidly coming to the depressing conclusion that the government shutdown, now in its 15th day, is going to have a far greater impact on the economy than most economists realize. When the markets figure this out, the result for share prices could be dire, putting my entire yearend bull case at risk.
My earlier forecast was that 0.5% of GPD growth would get shaved from this quarter and then get tacked on to the next quarter (click ?Say Goodbye to the Washington Discount?). Now I am starting to wonder if the entire affair could generate a net loss of business activity.
I have been dealing with the federal government for 45 years. It is vast and often invisible, impacting our lives in a million different ways. Losing it involves a lot more than just shutting down a few national monuments. The only way to discover its true size is to close it all down, and then see where the chips fall. Falling they are, big time.
I have been keeping a tally of the countless, unforeseen ways the shutdown is affecting us. I list below some of the highpoints:
*All real estate transactions have ceased. Escrow agents can?t close deals because they are unable to independently verify social security numbers. This accounts for about one third of our current economic growth. Expect the housing numbers to be horrific for the next several months.
*All federal refinancing of home loans has stopped, about 95% of all residences bought on credit. Only the 30% purchased through all cash deals can close, but only if they can resolve the social security number problem noted above.
*US companies are about to report better than expected Q3 results, which ended on September 30. But what of the guidance going forward? Will it be based on more of the same, or a return of the Great Recession? Beats me.
*San Francisco Bay is slowly filling up with ships from Asia. Without adequate numbers of customs officials, cargos can?t be landed, leading to the layoff of longshoremen and truckers. This will play havoc with our trade figures.
*The overnight money markets have started to seize up. JP Morgan and Fidelity have ceased buying all Treasury securities with October maturities to prevent their own money market funds from going into default. As a result, annualized yields on this paper have soared from 1 basis point to 30. The consequences of this are spreading to other markets by the day.
*Both the Chinese and Japanese governments, each own about $1 trillion of Treasury securities, have already warned the US not to delay interest payments. Without their participation the yields on the ten year Treasury bond could rise as much as 100 basis points, adding $150 billion a year to America?s debt service cost.
*Half of all Air Force pilots have been grounded because they can?t maintain their flight hours. I sure hope any of our enemies aren?t contemplating a surprise attack.
*Naval ships on both coasts have had missions delayed or cancelled. That leaves tens of thousands of sailors and Marines trapped ashore. You would think this would be good for local business, but it isn?t. They don?t have any money, since they are no longer getting paid.
*The great news is that your IRS audit this week has been cancelled. This is sure the cause government revenues to fall.
*There was a great emptying out of Yosemite National Park in California. Long caravans of senior citizens driving recreational vehicles, the only campers this time of year, were evicted from their views of Half Dome and El Capitan by park rangers. Harder hit are east coast federal parks and monuments that rely on the autumn leaves for most of their annual business. For many micro economies adjacent to government facilities the Great Recession has already returned.
*Fishermen around the country are confined to port because the federal officials who monitor fishing quotas have been furloughed. The price of Dungeness crab in San Francisco is skyrocketing, as the short season could end by the time the government returns to work.
*For the first time in 200 years, the clock at the entrance to the Senate has stopped. The workers responsible for winding it were laid off.
After derisking my portfolio and chopping most of my positions last week, I felt like an idiot when markets then flew. Looks like I?ll be a dummy for only a day. With no resolution in sight this morning, the cash on my balance sheet is looking pretty damn good. That gives me more dry powder when we finally hit bottom. As I never tire of telling my readers, there is no law that says you always have to have a position.
The saddest thing is that this crisis is happening just as the economy was up shifting gears from mediocre to moderate growth. The Tea Party may end up strangling something in its crib. However, it will be not the size of the US government, but our nascent economic recovery.
Try selling that to the voters.
Global Market Comments
October 11, 2013
Fiat Lux
Featured Trade:
(JOIN THE INVEST LIKE A MONSTER SAN FRANCISCO TRADING CONFERENCE),
(APPLE IS READY TO EXPLODE), (AAPL), (CHL)
Apple Inc. (AAPL)
China Mobile Limited (CHL)
I am pleased to announce that I will be participating in the Invest like a Monster Trading Conference in San Francisco during October 25-26. The two-day event brings together experts from across the financial landscape that will improve your understanding of markets by a quantum leap and measurably boost your own personal trading performance.
Tickets are available for a bargain $399. If you buy the premium $499 package you will be invited to the Friday 6:00 pm VIP cocktail reception, where you will meet luminaries from the trading world, such as tradeMONSTRS?s Jon and Pete Najarian, Guy Adami, Jeff Mackey, and of course, myself, John Thomas, the Mad Hedge Fund Trader. All in all, it is great value for money, and I?ll personally throw in a ride on the City by the Bay?s storied cable cars for free.
Jon Najarian is the founder of optionMonster, which offers clients a series of custom crafted computer algorithms that give a crucial edge when trading the market. Called Heat Seeker ?, it monitors no less than 180,000 trades a second to give an early warning of large trades that are about to hit the stock, options, and futures markets.
To give you an idea of how much data this is, think of downloading the entire contents of the Library of Congress, about 20 terabytes of data, every 30 minutes. His firm maintains a 10 gigabyte per second conduit that transfers data at 6,000 times the speed of a T-1 line, the fastest such pipe in the civilian world. Jon?s team then distills this ocean of data on his website into the top movers of the day. ?As with the NFL,? says Jon, ?you can?t defend against speed.?
The system catches big hedge funds, pension funds, and mutual funds shifting large positions, giving subscribers a peak at the bullish or bearish tilt of the market. It also offers accurate predictions of imminent moves in single stock and index volatility.
Jon started his career as a linebacker for the Chicago Bears, and I can personally attest that he still has a handshake that?s like a steel vice grip. Maybe it was his brute strength that enabled him to work as a pit trader on the Chicago Board of Options Exchange for 22 years, where he was known by his floor call letters of ?DRJ.? He formed Mercury Trading in 1989 and then sold it to the mega hedge fund, Citadel, in 2004.
Jon developed his patented algorithms for Heat Seeker? with his brother Pete, another NFL player (Tampa Bay Buccaneers and the Minnesota Vikings), who like Jon, is a regular face in the financial media.
In order to register for the conference, please click here. There you will find the conference agenda, bios of the speakers, and a picture of my own ugly mug. I look forward to seeing you there.
Cling! Cling!
Jon Najarian
You have to be impressed how Apple shares have been trading during the Washington shutdown and the debt ceiling crisis. While other highflying technology stocks have crashed and burned, Apple has held like the Rock of Gibraltar. Is this presaging much better things to come?
After the bar was set extremely low in the run up to the iPhone 5s launch, there has been an onslaught of good news. The first weekend sales came in at a staggering 9 million units, nearly double analyst forecasts. That?s a lot of units to be wrong by.
This has led to a series of broker upgrades by Cantor Fitzgerald, Cowen & Co., Piper Jaffray, Sanford Bernstein, and most recently by Jeffries. Entrenched bears are slowly an inexorably turning into bulls. Targets range up to $780.
During the summer, when the shares were trading in the low $400?s, Apple emerged as the largest buyer of its own stock. Still, it only made a dent in the $60 billion the company has dedicated to the program.
Of course, corporate raider and green mailer Carl Icahn (he lived in my building in Manhattan and was always a bit of a jerk) wants Apple to buy $160 billion of its stock, about $36% of the total market capitalization. But with a position of only $2 billion, Carl doesn?t have enough skin in the game to get anything more than a free dinner from CEO Tim Cook. Still, the more Icahn bangs the drum about the value of Apple, the more money he sucks in. His blustering has probably added about $50 to the stock price. That works for me.
Like the Origin of the Universe and the 105-year long losing streak suffered by the Chicago Cubs baseball team, the cheapness of Apple shares is one of those mysteries that baffle investors. Sure, you?d expect some natural profit taking after the meteoric 15 year run in the shares, from $4 to $707. But 46% is a lot, and many would say too much.
The company earns an eye popping net profits of $3.5 million per business hour (click here for the most recent quarterly announcement). Some one-third of it capitalization, or $150 billion, sits in cash in European bank accounts. That works out to $165 of the current $490 share price. This brings the ex cash trailing price earnings multiple down to a subterranean 11.8 times, or a 25% discount to the 16X market multiple. The dividend yield of 2.5% still exceeds that of the ten year Treasury bond. This is absurdly cheap.
Anyone who makes their living looking at the numbers has been loading up on the stock for the past eight months. Even permabear and short seller, Jim Chanos, has been buying on the theory that both Apple and competitor Samsumg together have been demolishing the Wintel architecture.
I think there is something important going on here. Apple is bringing out the next generation iPad in two weeks. Product refreshes for the iMac, Macbook, and Airbook in coming months are already well known. Every time an announcement of an announcement is made, the stock spikes $10.
But the 800-pound gorilla in Apples earnings stream is the iPhone, which accounts for more than 70% of its profits. The wildly successful 5s and 5c launches will take total smart phone sales from around 36 million in Q3 to at least 56 million units in Q4. The analyst community is nowhere near these numbers, so they are substantially underestimating the profitability of the company.
Apple has already cracked the China market for cash buyers with the latest upgrade of its wireless operating system. The whale here is a deal with China Mobile (CHL) with its 740 million customers, which has been to subject to on again and off again negations for years. Still, Apple has already told its manufacturers to add China Mobile to its approved carrier list.
I think the stock is beginning to discount pending the launch of the iPhone 6, which is still a distant 11 months away. That will take the company another generation ahead, with an expansive six-inch screen and a blazing fast A8 processor, leaving competitors in the dust. The business is so big that my favorite airline, Virgin America, has initiated nonstop service from San Francisco to Austin. I?m told the plane is always full.
All of this leads me to believe that Apple will be a major mover in 2014. The chip shot is $600, and we get a real head of steam into the iPhone 6 rollout, we could match the old high at $707. You can buy the stock here with some conform. If you are hyper aggressive, try playing the weekly call options on the next breakout. The more cautious can settle for the Technology Select Sector SPDR ETF (XLK), or the ProShares Ultra Technology 2X leveraged ETF (ROM). Apple has major weightings in both of these ETF?s.
So Where is the Power Button On This Thing?
Global Market Comments
October 10, 2013
Fiat Lux
Featured Trade:
(THE BEST ETF?S OF 2013),
Guggenheim Solar ETF (TAN)
Market Vectors Solar Energy ETF (KWT)
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN)
Market Vectors Global Alternative Energy ETF (GEX)
The PowerShares Wilderhill Clean Energy Portfolio (PBW)
The First Trust ISE Global Wind Energy Index Fund (FAN)
The Market Vectors Biotech ETF (BBH)
The Global X Social Media Index ETF (SOCL)
The PowerShares Dynamic Biotechnology & Genome Portfolio (PBE)
The PowerShares Gold Dragon China Portfolio (PGJ)
(A NOTE ON THE TESLA FIRE), (TSLA)
Tesla Motors, Inc. (TSLA)
I?m sure you all spent the better part of last January explaining to your clients that they should be pouring all of their money into alternative energy, social media, and biotech ETF?s. What! You didn?t? You obviously failed to get the memo. Well, neither did I.
Yes, I know this sounds like the makeup of the Sierra Club Pension Fund, if such a thing exists. Take a look at the top performing non leveraged ETF?s in 2013 and you will see a list that is dominated by these peripheral sectors, many of which were close to bankruptcy only a year ago. Who knew? The explanations for success vary with each industry.
Alternative energy is the easy one to understand, which I have long regarded as a cheap call option on the price of oil. The rising price of Texas tea boosts the breakeven cost of alternatives, and it jumped from $86 last December to as high as $112.50 last month. This enabled many companies to move well into profitability for the first time. Costs have imploded, thanks to huge supply of solar cells coming out of China. The rocket fuel came when the administration imposed punitive duties on below cost Chinese exports.
As a result, solar energy is now cheaper than buying electric power from the local grid, especially in the Southwest, where the sun shines, with bills dropping below 8 cents per kWh. I have flown over the Southern California deserts in a small plane to inspect some of these plants and they are truly gargantuan, stretching on for square miles.
They are helped by a Golden State law requiring that 30% of all power be obtained from alternative sources by 2020. Some 30 other states have passed similar legislation, with an additional six providing voluntary guidelines. This is in addition to 67 foreign countries with such mandates.
Biotechnology is an easy sell, and is why the Health Care Sector (XLV) is one of my favorites to play in the wake of any settlement of the Washington shutdown. Obamacare is about to deliver 30 million new paying customers to the industry. Those who already have health insurance coverage are aging and getting sicker at an unprecedented rate. The obesity epidemic helps, the result of our national addiction to cheeseburgers.
The rate of technological development is accelerating far beyond anyone?s imagination, throwing off ever more big ticket, highly profitable products. Much of this is going on in the San Francisco Bay area within sight of my office. Some of these cures cost $100,000 a year, for life. And guess what? Consumers in increasingly wealthy emerging nations like to stay healthy as well.
The social media boom is the riskiest, and most speculative, of this list of great performers. You would think investors would be wary in the wake of the Facebook (FB) IPO debacle. In fact, CEO Mark Zuckerberg, engineered one of the greatest investors relations turnarounds in history, and the shares finally responded, more than doubling. It turns out that the company really does make money after all, lots of it.
Keep in mind that this year?s homeruns often become next year?s strikeouts, so I wouldn?t be chasing these up here.
TOP 10 ETF?S OF 2013
Guggenheim Solar ETF (TAN) +130.8%
Market Vectors Solar Energy ETF (KWT) +93.4%
First Trust NASDAQ Clean Edge Green Energy Index Fund (QCLN) +82.4%
Market Vectors Global Alternative Energy ETF (GEX) +66.8%
The PowerShares Wilderhill Clean Energy Portfolio (PBW) +62.5%
The First Trust ISE Global Wind Energy Index Fund (FAN) +55.7%
The Market Vectors Biotech ETF (BBH) +55.7%
The Global X Social Media Index ETF (SOCL) +57.3%
The PowerShares Dynamic Biotechnology & Genome Portfolio (PBE) +56.9%
The PowerShares Gold Dragon China Portfolio (PGJ) +57.2%
So Goes the Price of Alternative Energy
You can? keep a good stock down. That?s the obvious message on Tesla (TLSA) shares in the wake of the fire that consumed one of its $80,000 Model?s S-1?s on a Washington state road after it ran over the rear bumper of the truck it was following. The video was quickly plastered all over YouTube (click here to view).
This was the first S-1 to catch fire since the production run started two years ago. That compares to the roughly 400 gasoline powered vehicles that catch fire on US roads nearly every day. If you really want to see how volatile gasoline is, try lighting a campfire with it some day. Even tossing lit matches in from a great distance, as I once did, you?ll be lucky to have your eyebrows left. I didn?t.
Tesla followed up quickly with an analysis and a letter with a complete explanation sent to all other S-1 drivers signed by none other than CEO Elon Musk. I have included the entire text below in italics.
What happened to the hapless driver of the burning S-1? He is eagerly awaiting delivery of another S-1 from the Fremont, California factory. It seems, he loves the car, and can?t wait to get back into one.
?Earlier this week, a Model?S traveling at highway speed struck a large metal object, causing significant damage to the vehicle. A curved section that fell off a semi-trailer was recovered from the roadway near where the accident occurred and, according to the road crew that was on the scene, appears to be the culprit. The geometry of the object caused a powerful lever action as it went under the car, punching upward and impaling the Model?S with a peak force on the order of 25 tons. Only a force of this magnitude would be strong enough to punch a 3 inch diameter hole through the quarter inch armor plate protecting the base of the vehicle.
The Model?S owner was nonetheless able to exit the highway as instructed by the onboard alert system, bring the car to a stop and depart the vehicle without injury. A fire caused by the impact began in the front battery module ? the battery pack has a total of 16 modules ? but was contained to the front section of the car by internal firewalls within the pack. Vents built into the battery pack directed the flames down towards the road and away from the vehicle.
When the fire department arrived, they observed standard procedure, which was to gain access to the source of the fire by puncturing holes in the top of the battery's protective metal plate and applying water. For the Model?S lithium-ion battery, it was correct to apply water (vs. dry chemical extinguisher), but not to puncture the metal firewall, as the newly created holes allowed the flames to then vent upwards into the front trunk section of the Model?S. Nonetheless, a combination of water followed by dry chemical extinguisher quickly brought the fire to an end.
It is important to note that the fire in the battery was contained to a small section near the front by the internal firewalls built into the pack structure. At no point did fire enter the passenger compartment.
Had a conventional gasoline car encountered the same object on the highway, the result could have been far worse. A typical gasoline car only has a thin metal sheet protecting the underbody, leaving it vulnerable to destruction of the fuel supply lines or fuel tank, which causes a pool of gasoline to form and often burn the entire car to the ground. In contrast, the combustion energy of our battery pack is only about 10% of the energy contained in a gasoline tank and is divided into 16 modules with firewalls in between. As a consequence, the effective combustion potential is only about 1% that of the fuel in a comparable gasoline sedan.
The nationwide driving statistics make this very clear: there are 150,000 car fires per year according to the National Fire Protection Association, and Americans drive about 3 trillion miles per year according to the Department of Transportation. That equates to 1 vehicle fire for every 20 million miles driven, compared to 1 fire in over 100 million miles for Tesla. This means you are 5 times more likely to experience a fire in a conventional gasoline car than a Tesla!
For consumers concerned about fire risk, there should be absolutely zero doubt that it is safer to power a car with a battery than a large tank of highly flammable liquid.?
?
Elon Musk
CEO,
Tesla Motors
S-1 Driver, Eyebrows Intact
Global Market Comments
October 9, 2013
Fiat Lux
Featured Trade:
(CUTTING BACK MY RISK),
(SPY), (FXY), (YCS), (DXJ), (AAPL), (NFLX), (HLF), (VIX),
(WHAT?S GOING ON WITH THE VOLATILITY INDEX?),
(VIX), (VXX)
SPDR S&P 500 (SPY)
CurrencyShares Japanese Yen Trust (FXY)
ProShares UltraShort Yen (YCS)
WisdomTree Japan Hedged Equity (DXJ)
Apple Inc. (AAPL)
Netflix, Inc. (NFLX)
Herbalife Ltd. (HLF)
VOLATILITY S&P 500 (^VIX)
iPath S&P 500 VIX ST Futures ETN (VXX)
Legal Disclaimer
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.