You could almost hear the roof blow off the top of the New York Stock Exchange when they announced the October nonfarm payroll. At a mind blowing 271,000, it came in at double the low ball pessimistic estimates.
The headline unemployment rate dropped to 5.0%, a decade low. The 4% handle beckons next month.
Bonds (TLT), the Japanese yen (FXY), (YCS), the Euro (FXE), (EUO), oil (USO), and gold (GLD) crashed.
Banks stocks (KBE), the dollar (UUP) rocketed. Stocks were indifferent, as they already saw this move coming in October.
I have been observing these asset classes and their interrelationships for a half century, and every one is simultaneously pointing to the same conclusion. There is a gigantic ?RISK ON? move unfolding for the rest of 2015, and possibly for the next six months.
If you are one of the many new readers of the Diary of a Mad Hedge FundTrader who only recently just started reading this letter, you can now rush out and buy back all of those stocks you sold at the bottom in August because other newsletters told you to do so, like everyone else.
If you are one of my long-term subscribers, you already knew this was coming and positioned for it accordingly.
GOTTA LOVE THOSE SHORT BOND AND JAPANESE YEN POSITIONS!
There was really no place for the bears to hide in the October numbers.
YOY gains in wages were biggest since July, 2009. Private sector job growth was an eye-popping +268,000. The August and September payroll reports were revised up 12,000.
Business and professional services saw a +78,000 gain. Health care tacked on +45,000 jobs, while retail picked up +44,000. Mining lost -5,000 jobs, as usual.
The truly significant development with this data set was that the broader U-6 unemployment rate finally broke 10% for the first time in eight years, dropping to 9.8%.
The October number RULES OUT ANY CHANCE THAT THE FED WILL NOT RAISE RATES at the December 16-17 meeting.
Now that the economy is clearly strengthening, the global stock markets have stabilized, and a floor has been put under China, the path is clear for two such rate rises.
A new debate will now ensue. Will the Fed accelerate its tightening policy, moving beyond just two modest increases?
PERISH THE THOUGHT!
Here are the implications for your IRA, 401k, and pension fund.
*Stocks - sideways first, then higher. They already anticipated this figure with the heroic rise in October. *Bonds - Keep falling until the next recession, whenever that is. *Commodities - down first, then up big. *Foreign Currencies - fall for another few years. *Precious Metals - drop to new four year lows. *Volatility - stays low until the next ?Sell in May.? *The Ags - put in a bottom and then rise with El Ni?o. *Real Estate - keeps rising as buyers rush to beat bigger rate increases.
THERE IS A REALLY EXCITING POSSIBILITY NOW SETTING UP FOR THE YEAR END.
Originally I thought that a mid-December rate rise then would trigger a mini correction in the major stock indexes. Today?s nonfarm payroll eliminates that uncertainty, and the correction that went with it.
Instead, we are getting that mini correction now. It will only last several more days. After that, it is UP, UP, AND AWAY.
We could well ring out this year with the markets at the top tick of the year. Now that?s a thought!
Just thought you?d like to know.
https://www.madhedgefundtrader.com/wp-content/uploads/2015/11/nonfarm-payroll-e1446850270862.jpg188400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-11-09 01:08:262015-11-09 01:08:26The Blockbuster October Nonfarm Payroll and Your Portfolio
In view of the blockbuster October nonfarm payroll report, and the collapse of the bond market that followed, it is time to take a cold, steely eyed look, and the financials, especially Bank of America (BAC).
What did the stock do? It rocketed by 6.5%, along with the rest of the market, hitting four month high of $18.09. I hate it when that happens, being right on the fundamentals, and wrong on the market timing.
You are getting the reaction that the bang up Q3 earnings report should have delivered, just one week late. The shares appear to be taking a run at a new multi year high.
It was a stellar report, with earnings beating expectations handily on both the top and the bottom lines. Expenses are in free-fall, and the company?s cost of funds is plummeting, as lower cost deposit surge.
Analysts were blown away when they saw after tax profits come in at $4.5 billion, producing a diluted earnings per share of $0.37. The company returned a staggering $3 billion to shareholders in the form of dividends and an aggressive share buy back program.
Every major business segment showed big year on year improvements, including consumer and business banking. Global wealth and investment management knocked the cover off the ball.
The sudden burst of market volatility gave a nice push in income to the global banking division.
Deposits from mobile banking jumped. Average deposits are up 4%. Subterranean interest rates kept income there flat.
Given the bank?s tremendous upside leverage, many analysts are now pegging the stock with a $30 handle.
There is another play here. (BAC) is highly geared to raising interest rates, which will enable them to lend money out at higher interest rates, increasing their spread. Think of it as long dated put option on the iShares Barclays 20+ Treasury Bond ETF (TLT).
That is not a bad position to have on board, given that we probably put in a multigenerational spike in bond prices last week.
Because of the bank?s long and well-publicized problems with regulators dating back to before the 2008 financial crisis, (BAC) became toxic waste for many portfolio mangers.
The end result of that has been to make the best-run banks in the industry also the cheapest.
I have a feeling that I will be visiting the trough here often, and generously.
Time to Visit the ATM Again
00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-11-09 01:07:342015-11-09 01:07:34Bank of America is Breaking Out All Over
Both the major stock and bond indexes are unchanged on the year, as of this week.
Those who left on January 1 to sail a yacht around the world, engage in a research project in Antarctica, or meditate at an Ashram in India, will return today and discover that 2015 effectively didn?t happen, at least as far as the financial markets are concerned.
Index funds are still showing negative numbers, as they have to atone for management, administration, and other hidden costs. Active managers are down even more.
And who is doing worst of all?
The Masters of the Universe, like hedge fund titan Bill Ackman, who is licking 19% performance wounds this year.
I heard that Citadel?s unfortunate hedge fund manager has moved to Brazil to look for all the money he lost there.
Watch out for those aging Nazis!
So, almost everyone in the financial advisory and portfolio management industry now have two months in which to make their 2015.
Since the industry effectively shuts down on December 18, you can really shrink that down by two weeks.
WELCOME TO YOUR SIX WEEK YEAR!
Unless, of course, you read the Diary of a Mad Hedge Fund Trader, and are up a blistering 39.23% this year. I know of many who have doubled their money since January following my timely advice.
Which brings us all the eternal question of ?NOW WHAT DO WE DO??
There is absolutely no doubt that we have entered the next leg of what could eventually be an 8-10 year bull market. The S&P 500 came within 1% of a new all time high last week. New peaks are to come shortly.
Having missed the absolute bottom in share prices in October, as almost everyone else on the planet did, I looked to other asset classes to add ?RISK ON? positions. That meant selling short the Treasury bond market (TLT), (TBT) and the Japanese yen (FXY), (YCS).
Every Trade Alert in these areas have proven profitable.
As for equities, I am not inclined to chase monster 20%-30% rallies. What I will do is buy them on a nice 5%-10% dip, or after a sideways digestion type move of several weeks. November is setting up to be just that kind of month.
Looking at the S&P 500, which has major support kicking in at the 200-day moving average at $204.79, just 2.52% down from here.
Here are ten reasons why I believe the bull market in shares is still alive and well:
1) Stocks are selling at only 18 X 2015 earnings, not exactly a bargain (it?s double the 2009 low). The October rally is telling us that there will be a major rebound in earnings next year, and that GDP growth could ratchet back up to 3%. Look no further than the technology, auto, and housing industry, the three largest legs of the economy, which are all on fire.
2) The $60 plunge in oil prices from the 2014 highs is still with us. So is the windfall tax cut on consumer spending. This could add a full 1% to US GDP growth in 2016, which has essentially come out of nowhere. However, consumers are, at last, spending their money now, not banking it.
3) The Christmas selling season is setting up to be a strong one, thanks to a friendly calendar and renewed consumer confidence. Good luck standing in line at Needless Mark Up, I mean Neiman Marcus.
4) The November 4 midterm elections are still a year off, but I already know who the winner is: Gridlock. No matter who wins the presidency, they are unlikely to also capture both houses of congress. Plan for another 5-9 years of gridlock, and no change in economic policies or tax law. By then, I?ll be dead and won?t care what happens.
5) The final blow off top is in for the bond market. Expect my friend, Federal Reserve Governor Janet Yellen, to drive the final dagger through the heart of this monster with a 25 basis point rate hike at the next meeting on December 15-16. What a nice Christmas present that will be! A reversal would be very friendly for financials (BAC), (GS), which should provide new market leadership.
6) Mergers and acquisitions are continuing at a torrid pace, and are getting larger and larger. This is happening because companies see each other as cheap, not expensive, and usually happens at market bottoms. The quickest way to grow earnings in a hyper competitive world is to buy them, especially if you can obtain them at a zero cost of funds.
7) Those who aren?t merging are buying their own stock back with both hands, like Apple, at a staggering $1 trillion annualized rate. Such purchases will peak this month.
8) Volatility spikes like the ones we saw in August and September (VIX) also signal major market bottoms (see chart below). After briefly tickling $52.50 on the August 24 flash crash day, a two year high, we have made it all the way back to an unbelievable 12.5%.
9) A strong dollar demolished multinational earnings this year. While rising interest rates assure the bull market for the greenback will continue, it will be at nowhere near the rate that we saw this year. This is stock market positive.
10) Ever heard of ?Sell in May and Go Away?? Well, ?Buy in November and stay put until April? is also true. This is the first week of that cycle. October is usually the worst month of the year to sell and is not the path to untold riches.
The net net of all of this is that you can look for the S&P 500 to reach 2,300-2,400 by March, up 10%-15% from present levels.
Just thought you?d like to know.
Which One is the Democrat, and Which is the Republican?
00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-11-06 01:07:312015-11-06 01:07:31Welcome to the Six-Week Year
I remember that the highlight of my 1968 trip to Europe was always my visit to the nearest American Express (AXP) office to pick up my mail.
In those pre Internet and email days, it was the only way that a fresh faced 16 year old could stay in touch with a hand wringing family while traveling around the world.
They just wrote ?John Thomas, c/o American Express, Paris, France,? and the letters never failed to get through to me.
It was also a great place to meet other vagabonding Americans my age--of the female persuasion. At least they spoke English. Almost.
That was a very long time ago.
So I got to know well the American Express locations off the Spanish Steps in Rome, Saint Mark?s Square in Venice, Berlin?s Kurfurstendamm, and the Champs-Elysees in Paris.
I have a feeling that American Express is about to give me a warm and fuzzy feeling once again.
After being taken out to the woodshed and getting beaten senseless in the wake of getting fired by Costco, one of the biggest customers, the shares appear poised for a comeback.
We have a rare occasion where the highest quality stock in a sector with the best business model is selling cheaper than its cohorts for a series of temporary reasons.
Take a look at the charts for (AXP) and Visa (V) below, and one of the greatest pairs trades of all time may be setting up, whereby you want to buy for the former and sell short the latter against it.
At the very least, you should be taking your monster profits on Visa and rolling the money into American Express.
Since its inception in 1958, that flashy green (or platinum) piece of plastic has long been a status symbol, and owned the premium end of the credit card market.
As a result, it earns more fees and extends fewer loans than its competitors. The loans it does have enjoy a far lower default rate. There are now 107 million Amex cards in circulation, compared to only 55 million in 2001. Thank you 1%!
American Express cardholders run balances three times larger than the average Master Card holder. That?s what happens when you buy a Ferrari on your Amex card, as I once did (to get the frequent flier points).
Merchants pay very high fees, usually 5% of the purchase. That?s why many shun the card. (AXP) is currently running a credit card balance of $940 billion, versus $3.1 trillion for Visa (V).
Fees accounted for an impressive 57% of the company?s revenues, a far higher ratio than other credit card companies. Better yet, (AXP)?s fees are rising, while those of others are falling. Interest on balances brings in 15% and cardholder fees 8%.
(AXP) is expected to earn $5.8 billion in net income on $33.9 billion in revenues this year, up 9.4%. With the US economy recovering, growing by 2.6% this year and 3.0% plus in 2015, the company is in the sweet spot for capturing more profits.
Morgan Stanley estimates that cardholder spending grows at 4.5 times the US GDP growth rate. That should cause (AXP)?s earnings to double, and the stock as well. An extra tailwind will be the company?s new strategy of moving down market to expand market share.
Despite all this good news, (AXP) shares are selling at a 13.4X multiple, a discount to its industry (21X), and the main market (18X). An ambitious share buy back program should put a floor under the stock.
Part of the discount can be explained by a Justice Department suit claiming that the company overcharges merchants. Amex correctly argues that, as the smallest of the major credit card companies, it has nowhere near monopoly pricing power.
It will be interesting to see how aggressively the government pursues its action, now that attorney general Eric Holder, has moved on to retirement.
You all know by now that I think financials are the place to be for years going forward because of imminently rising interest rates. But I?ll hold back on pulling the trigger on single name long side stocks plays until the carnage in the markets abate.
When I?m ready to shoot out a Trade Alert, you?ll be the first to know.
When I do, don't even think about putting it on your credit card.
Just Stopping By to Pick Up the Mail
https://www.madhedgefundtrader.com/wp-content/uploads/2014/10/John-Thomas-16-yrs-old.jpg349348Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-11-05 01:06:302015-11-05 01:06:30Keep American Express on Your Short List
It was the kind of dinner invitation I couldn?t turn down. What I learned was amazing.
I usually prefer to spend my evenings at home catching up on my research, calling customers, and plotting my next great Trade Alert.
So it takes a lot to get me out of my cozy digs, especially during an evening of rare torrential downpours.
Attending would be senior executives from Tesla (TSLA), General Motors (GM), and engineering professor from the University of California at Berkeley, and the California Air Resources Board.
With US car production blasting through 18 million annual units this week, a new all time high, I thought the topic was particularly timely. That, by the way, has been my target all year.
The dinner was hosted by a retired billionaire from Microsoft at the top of the Mark Hopkins Hotel in San Francisco.
The topic for discussion would be the very long-term future of the car industry. I get invited to these things because the guests want to know how their views would fit in within a long term global geopolitical/economic context, my own particular specialty.
I didn?t want to cramp anyone?s style, so I kept my notebook under the table and scribbled away blindly, and illegibly. There?s no particular story line here. I?ll just give you my random thoughts.
(GM) launched its second generation Chevy Volt last month, and the customer response has been fantastic. The company is building a new $400 million battery plant on the East Coast to help meet demand.
Some 60% of the buyers are coming from other auto makers. It is fast becoming the new face of Chevy, like the Corvette Stingray and Camaro of years past.
The future is in a 200-mile range $30,000 car, and the Volt is that car. Customers want to get away from oil and will only buy the products that do that, be they hybrids or all electric.
He also mentioned that GM is launching an electric bike next year, which is already widespread in Europe. Not a big needle mover there.
The Tesla guy then proceeded to jump all over him, saying the Volt was ?green washing? as usual, since it represents only a tiny fraction of the company?s sales. GM had a vested interest in promoting the internal combustion engine, in which it had made a century long investment. Its real focus can be seen in the giant new Suburban factory it was now building in Texas.
Mr. Tesla had driven from the south Bay with his S-1 entirely on autopilot. The hardware has already been pre installed in every S-1 produced since 2014, and all that is needed to make them self driving is to execute a wireless overnight software upgrade. Currently, only Tesla executives are beta testing the revolutionary autonomous system.
What is truly amazing is that each car will have a learning program unique to the vehicle. If it misses a hard turn the first time, it will remember that turn and then make it perfectly every time from then on.
The Tesla person said that once the new Gigafactory comes online in 2016, the company will be on schedule for a tenfold ramp up in car production by 2020.
The $35,000 Tesla 3 that will make this possible will be unveiled in coming months, which will be offered in two wheel and four wheel drive variations. That will take them from 50,000 units a year to 500,000.
I asked him if this means that if your wife suspects you of cheating, will your Tesla rat you out. He answered, ?Only if she is a coder.?
Then I wondered what would stop Tesla from selling your driving habits to marketers, who would then make special offers from stores you prefer. A previous Tesla experiment landed me a pair of Seven for All Mankind designer jeans for half off.
Tesla outsold every other luxury car of its class during the first half of 2015, including the Mercedes S class, the BMW Series 7, and the Audi 8. Among the US car industry, only Ford and Tesla have never filed for bankruptcy. Tesla is the first new car manufacturer to succeed since Chrysler made its debut in 1928.
I asked about the S-1 maximum single charge range achieved by a driver. An enthusiast in Norway managed to take one 800 miles on a flat track with no wind and perfect conditions. Wow! My drive from Lake Tahoe record of 400 miles doesn?t come close.
I also enquired about the Cambridge University battery breakthrough (click here for ?Battery Breakthrough Promises Big Dividends?).
He said he was aware of it, but that its takes a long time to get a technology from the bench to the marketplace. Just with their own in-house tinkering, Tesla is boosting battery ranges by 3-5% a year. The current S-1 gets a 290-mile range, compared to my three-year-old 255-mile range.
The Berkeley professor made some interesting observations about Millennials. He said that while 75% of baby boomers got drivers licenses at 16, and 70% of Generation Xer?s did so by then, only 55% of Millennials took to the road at that age. The rule of thumb for anything regarding Millennials is that they do everything late.
The gentleman from the Air Resources Board brought out some interesting facts. More than 80% of all cancer causing chemicals entering the atmosphere come from diesel engines, so a major effort will be made to cut back emissions from commercial trucks. Look for the electric fleet coming to a neighborhood near your. Goodbye Volkswagen!
Workplace charging of employee cars will be the next big growth area for charging stations.
Half of all greenhouse gases derive from the burning of oil. The biggest savings in greenhouse gas emissions will come from a clampdown on the refining industry. Think Koch Brothers.
I was amazed at his commitment to meet California?s goal of obtaining 50% of its energy from alternative sources by 2030. The oil industry, managed to exempt gasoline from the legislation, SB 350. But Governor Jerry Brown put it back in through an executive order.
The state is paying for the initial build out of hydrogen refueling stations for the new $57,500 Toyota Mirai. A single tank that will take the fuel cell vehicle 312 miles.
The state is making major investments in biofuel, planning to obtain 10% of the 50% target from this source.
During a slow moment, I asked a bleach blond trophy girlfriend sitting next to me of her interest in electric cars, expecting the worst. To my surprise, she said that last summer, she drove an electric bike from New York to Los Angeles, towing a trailer with a solar panel cut in half to provide power.
The southern route avoided the high mountain ranges. I noticed she seemed unusually tanned, and it wasn?t from a can.
I was humbled. For once, I knew less about electric cars than anyone else in the room.
After the dinner, I went up to the Tesla executive and told him ?Job well done.? I owned one of the oldest S-1?s, number 125 off the assembly line, and the clock had just turned 40,000, with no major problems.
I even tested their safety claims after a crash with a GM Silverado driven by a texting soccer mom (click herefor ?16 Facts and 6 Big Surprises I learned Tearing Apart My Tesla S-1? ).
Thank you Tesla! You saved my life!
Now, if only the stock will do the same! (click here for ?About That Tesla Recommendation? ).
Oops!
Fill Her Up With H2 Please
https://www.madhedgefundtrader.com/wp-content/uploads/2015/11/Toyota-Mirai-e1446587786889.jpg263400Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2015-11-04 01:06:592015-11-04 01:06:59What I Heard at Dinner Last Night
?If you want to learn the art of medicine, it is best to follow an army,? said Hippocrates, the ancient Greek physician.
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Featured Trade: (NOVEMBER 4 GLOBAL STRATEGY WEBINAR), (WHAT COULD DESTROY THIS MARKET?), (SPY), (TLT), (FXE), (USO)
SPDR S&P 500 ETF (SPY) iShares 20+ Year Treasury Bond (TLT) CurrencyShares Euro ETF (FXE) United States Oil (USO)
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