Global Market Comments
October 2, 2014
Fiat Lux
Featured Trade:
(INTRODUCING THE MAD HEDGE FUND TRADER TRAINING VIDEOS)
(BE CAREFUL WHO YOU SNITCH ON),
(THE LONG VIEW ON EMERGING MARKETS),
(EEM), (RSX), (EPHE), (PIN),
(TESTIMONIAL)
iShares MSCI Emerging Markets (EEM)
Market Vectors Russia ETF (RSX)
iShares MSCI Philippines (EPHE)
PowerShares India ETF (PIN)
Global Market Comments
October 1, 2014
Fiat Lux
Featured Trade:
(THE REAL ESTATE MARKET IN 2030), (XHB),
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT),
(A CONVERSATION WITH THE BOOTS ON THE GROUND)
SPDR S&P Homebuilders ETF (XHB)
A number of analysts, and even some of those in the real estate industry, thought that there would never be a recovery in residential real estate. Long time readers of this letter know too well that I went hugely negative on the sector in late 2005, when I unloaded all of my holdings.
However, I believe that ?forever? may be on the extreme side. Personally, I believe there will be great opportunities in real estate starting in 2030.
Let's back up for a second and review where the great bull market of 1950-2007 came from. That's when a mere 50 million members of the ?greatest generation?, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962. There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices.
When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because my dad was an ex-Marine. This is where our suburbs came from.
Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xer's who earn less than their parents, marking down prices as fast as they can.
As a result, the Federal Reserve thinks that 30% of American homeowners either have negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs. That comes to 42 million homes. Don't count on selling your house to your kids, especially if they are still living rent-free in the basement.
The good news is that the next bull market in housing starts in 8 years. That's when 85 million Millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer's. The next interest rate spike will probably knock another 25% off real estate prices. Think 1982 again.
Fannie Mae and Freddie Mac will be long gone, meaning that the 30-year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world.
With the US budget deficit problems persisting beyond the horizon, the home mortgage interest deduction is an endangered species, and its demise will chop another 10% off home values.
For you Millennials just graduating from college now, this is a best-case scenario. It gives you 8 years to save up the substantial down payment banks will require by then. People will, no doubt, tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers. That's what people told me when I bought my first New York coop in 1982 at one-tenth its current market price.
Just remember to sell by 2060, because that's when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, yet to be named generation, holding the bag, as your grandparents are now.
Time to Buy?
Global Market Comments
September 30, 2014
Fiat Lux
Featured Trade:
(THURSDAY OCTOBER 9 INCLINE VILLAGE, NEVADA STRATEGY LUNCHEON),
(WHY I?M DOUBLING UP MY SHORTS),
(SPY), ($INDU), (IWM), (HYG), (QQQ), (FXE),
(CHINA?S LONG AND WINDING ROAD),
(FSLR), (STPFQ), (YGE)
SPDR S&P 500 ETF (SPY)
Dow Jones Industrial Avrage ($INDU)
iShares Russell 2000 (IWM)
iShares iBoxx $ High Yield Corporate Bd (HYG)
PowerShares QQQ (QQQ)
CurrencyShares Euro ETF (FXE)
First Solar, Inc. (FSLR)
Suntech Power Holdings Co. Ltd. (STPFQ)
Yingli Green Energy Holding Co. Ltd. (YGE)
I don?t double up short positions very often. I am too old to lose all my money and go back to work as an entry-level analyst at Morgan Stanley. Besides, they probably wouldn?t have me back anyway. It is a different company than it was 30 years ago, a lot different.
However, the dead cat, short covering bounce we got off this morning?s Hong Kong dump does allow me to get back into the short side of the (SPY) one more time.
We managed to gain 20 (SPX) points, or 2 entire (SPY) handles from the Monday morning capitulation, puke on your shoes low. Except this time, we are a weekend closer to expiration, only 14 trading days until October 15.
And waiting all the way until Friday for the September nonfarm payroll buys us a free week.
Does anyone really care what?s going on in Hong Kong, China, or anywhere else in the world, for that matter? Not really. It appears only day traders do, and those of us who have family members there, like me.
The beginning of October is usually the scariest two weeks of the year. So a bet that the (SPY) doesn?t blast up to new all time highs during this period looks like a pretty good idea.
Buying the S&P 500 (SPY) October, 2014 $202-$205 vertical in-the-money bear put spread with the volatility index (VIX) just short of the $17 handle, the highest print in six months, is also getting us the best short term spread prices this year. It?s almost like the good old days.
If the prospect of executing this trade causes the hair on the back of your neck to stand up, take a look at the charts below.
The Russell 2000 (IWM) broke through to a new low this morning, proving that a solid, three-month downtrend in the small caps is still alive and well.
The chart looks even worse for the iShares iBoxx High Yield Corporate Bond ETF (HYG), which has become a very important lead security for traders to keep a laser like focus on.
NASDAQ (QQQ) and the Dow Jones Average ($INDU) are sitting bang on crucial support lines. Alibaba is still sucking all the oxygen out of the technology sector, with major institutions selling everything else to take instant 5% stakes in the new issue. This is great news for the sector for the long term, but not so great for the short term.
Finally, I asked my ace Mad Day Trader, Jim Parker, his thoughtful take here. He believes that short term, markets are oversold and due for a rallyette. He wouldn?t be shorting stocks here with My money! But is the (SPY) going to a new all time high in 14 trading days? Absolutely no way!
There is another factor to consider here. We have recently clocked substantial profits with our short positions in the Euro (FXE) and the Russell 2000 (IWM).
So we can afford the luxury of getting aggressive here when everyone else is running and hiding. We are essentially now playing with the house?s money. The only question is whether we will next post a larger gain, or a smaller one. That is a position of strength, and a great place to trade from.
So I think the net net of all of this is that best case, the risk markets all keep trending downward, worse case, they flat line sideways, at least for the next 14 trading days. Either way, it is a win-win for me. That makes the S&P 500 (SPY) October, 2014 $202-$205 in-the-money bear put spread a winner in my book.
You can buy this spread anywhere in a $2.60-$2.75 range and have a reasonable expectation of making money on this trade.
This is a rare instance where there is no outright stock or ETF equivalent to this trade. If you sell short the stock market here, such as through purchasing the ProShares Ultra Short S&P 500 ETF (SDS), we could rally all the way up to, but just short of the all time high, and you would get your head handed to you.
If this happens with the S&P 500 (SPY) October, 2014 $202-$205 in-the-money bear put spread, you make your maximum profit of 1.30% of your total portfolio. This is why I play in the options market. So non options players are better to stand aside on this trade and just watch it for educational purposes.
Global Market Comments
September 29, 2014
Fiat Lux
Featured Trade:
(FRIDAY OCTOBER 24 SAN FRANCISCO STRATEGY LUNCHEON),
(KEEP GILEAD SCIENCES ON YOUR RADAR),
(GILD, (XLV), (SPY),
(PLEASE USE MY FREE DATA BASE SEARCH),
(TESTIMONIAL)
Gilead Sciences Inc. (GILD)
Health Care Select Sector SPDR ETF (XLV)
SPDR S&P 500 ETF (SPY)
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, October 24, 2014. 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 $188.
As a special bonus this year, anyone who buys a ticket can bring a guest for free, provided that they are a trader or investor who may benefit from the services of the Mad Hedge Fund Trader. After purchase, just email Nancy at support@madhedgefundtrader.com?with your guest?s name and email address so we know who is coming.
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 exact location 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.
Global Market Comments
September 26, 2014
Fiat Lux
Featured Trade:
(HOLDER RETIREMENT COULD SEND BANK OF AMERICA FLYING),
(BAC), (XLF), (SPY), (BABA), (HYG),
(PETER F. DRUCKER ON MANAGEMENT),
(THANK GOODNESS I DON?T LIVE IN SWEDEN), (EWD)
Bank of America Corporation (BAC)
Financial Select Sector SPDR ETF (XLF)
SPDR S&P 500 ETF (SPY)
Alibaba Group Holding Limited (BABA)
iShares iBoxx $ High Yield Corporate Bd (HYG)
iShares MSCI Sweden (EWD)
Watching the market melt down today, I have been hurriedly compiling a shopping list of stocks to buy, and writing the Trade Alerts in advance for readers to execute.
If I am right about interest rates remaining flat or rising for the rest of the year, then financials have to be at the absolute top of such a list.
Bank of America (BAC) certainly was the chief whipping boy of the financial crisis. Since 2008, it has paid out more than $50 billion in fines and lawsuit settlements for every transgression under the sun.
After getting a bail out from the US Treasury, it was forced to cut its dividend payment to a token one cent. Do any Google search on the company and you are inundated with a flood of bad news.
All that is now ancient history. The entire banking industry is now moving into the sweet spot in the economic cycle. This is because rising interest rates mean that they will be able to charge more for loans, while their cost of funds (deposits and equity) remains low. These rising spreads fall straight to the bottom line.
Now with the bank?s Torturer-in-Chief, US Attorney General Eric Holder, announcing his retirement, the way is clear for better days ahead.
With the 30-year bull market in bonds now at an end, substantially higher rates in the near future are now included in virtually every economic forecast out there. Since the beginning of 2014 the ten-year Treasury yield has collapsed from 3.05% to as low as 2.32% at he end of August, pummeling bank shares.
What happens next? They go from 2.32% back up to 3.05%, possibly by yearend, then a lot more. Bank shares will ride on the back of this bull.
The jungle telegraph is now ringing with the prospect of a dividend hike by the company, currently at a lowly four cents. We may get the good news as soon as the next reporting period on October 14. The implications of such a move are broad.
If it pulls this off, it is only because of renewed confidence by the markets in the improved financial condition of the company. After several capital raises and the liquidation of the wreckage of the 2008 crash, US banks are now the healthiest in history, with balance sheets of bedrock stability.
Ahem, they are also too big to fail, again.
To get the dividend yield on the shares up to industry standard of 2.5%, the company really needs to raise its dividend to 42 cents. It certainly has the cash flow to do this. In 2013, (BAC) reported net income of $11.4 billion, more than four times to amount needed to cover such a payout.
Needless to say, this is all great news for the share price. The prospective return of increasing amounts of capital to shareholders should suck in new and wider classes of shareholders. It won?t be just about hedge fund punters anymore. Respectable, large and long term holding institutions will be in there as well.
Take a look at the charts below, and it is clear that such a move is underway. (BAC) broke out from the end of a classic triangle formation, which traditionally resolves itself to the upside. New post crash highs beckon.
You can find more dry powder in the chart for the Financials Select Sector SPDR ETF (XLF), which clearly rejected a complete breakdown at long-term trend support in early February.
Finally, take a gander at the chart for the S&P 500. New life from the financials will be the adrenaline shot this market needs to break it out of its current low volume sideways consolidation, taking it to new highs as well.
Finally, for those who are concerned that the bull market was killed off by last week?s massive Alibaba IPO (BABA), take a look at he chart below provided by my friends at Business Insider. Certainly, the collapse of the iShares iBoxx High Yield Corporate Bond ETF (HYG) has put the fear of God into traders.
The chart tracks long-lived bull markets in terms of their price earnings multiples. It shows that we have only reached half the length of the great 1987-2000 bull market. The implication is that this bull could live another five or more years.
This bull is not dead, it is just resting.
So far, the S&P 500 has declined by a feeble 2.8% off the $202 top. If we break the 50-day moving average here, we could make it down to the 200-day moving average at $1,880, a more substantial 7% pullback. Take that as a gift, and load the boat for the year-end rally.
I?ll send out the Trade Alert to buy (BAC) when I think the timing is ripe.
(XLF) Weekly
(XLF) Daily
Time to Visit the ATM Again
The Bull is Not Dead, It is RestingGlobal Market Comments
September 25, 2014
Fiat Lux
SPECIAL TESLA ISSUE
Featured Trade:
(PLUNGING BACK INTO TESLA),
(TSLA)
Tesla Motors, Inc. (TSLA)