Global Market Comments
August 11, 2014
Fiat Lux
Featured Trade:
(IS THE TURNAROUND AT HAND, AND TEN STOCKS TO BUY AT THE BOTTOM?), (SPX), (TLT),
(UNLOADING MORE EUROS), (FXE), (EUO),
(I?M BACK FROM EUROPE!)
S&P 500 Index (SPX)
iShares 20+ Year Treasury Bond (TLT)
CurrencyShares Euro ETF (FXE)
ProShares UltraShort Euro (EUO)
War threatens in the Ukraine. Iraq is blowing up. Rebels are turning our own, highly advanced weapons against us. Israel invades Gaza. Ebola virus has hit the US. Oh, and two hurricanes are hitting Hawaii for the first time in 22 years.
Should I panic and sell everything I own? Is it time to stockpile canned food, water and ammo? Is the world about to end?
I think not.
In fact the opposite is coming true. The best entry point for risk assets in a year is setting up. If you missed 2014 so far, here is a chance to do it all over again.
It is an old trading nostrum that you should buy when there is blood in the streets. I had a friend who reliably bought every coup d? etat in Thailand during the seventies and eighties, and he made a fortune, retiring to one of the country?s idyllic islands off the coast of Phuket. In fact, I think he bought the whole island.
Now we have blood in multiple streets in multiple places, thankfully, this time, it is not ours.
I had Mad Day Trader, Jim Parker, do some technical work for me. He tracked the S&P 500/30 year Treasury spread for the past 30 years and produced the charts below. This is an indicator of overboughtness of one market compared to another that reliably peaks every decade.
And guess what? It is peaking. This tells you that any mean reversion is about to unleash an onslaught of bond selling and stock buying.
There is a whole raft of other positive things going on. Several good stocks have double bottomed off of ?stupid cheap? levels, like IBM (IBM), Ebay (EBAY), General Motors (GM), Tupperware (TUP), and Yum Brands (YUM). Both the Russian ruble and stock market are bouncing hard today.
There is another fascinating thing happening in the oil markets. This is the first time in history where a new Middle Eastern war caused oil price to collapse instead of skyrocket. This is all a testament to the new American independence in energy.
Hint: this is great news for US stocks.
If you asked me a month ago what would be my dream scenario for the rest of the year, I would have said an 8% correction in August to load the boat for a big yearend rally. Heavens to Betsy and wholly moley, but that appears to be what we are getting.
It puts followers of my Trade Alert service in a particularly strong position. As of today, they are up 24% during 2014 in a market that is down -0.3%. Replay the year again, and that gets followers up 50% or more by the end of December.
Here is my own shopping list of what to buy when we hit the final bottom, which is probably only a few percent away:
Longs
JP Morgan (JPM)
Apple (AAPL)
Google (GOOG)
General Motors (GM)
Freeport McMoRan (FCX)
Corn (CORN)
Russell 2000 (IWM)
S&P 500 (SPY)
Shorts
Euro (FXE), (EUO)
Yen (FXE), (YCS)
No, Not This Time
The entire foreign exchange world has been on hold this week, waiting for ECB president Mario Draghi to announce a well-deserved cut in Euro (FXE), (EUO) interest rates.
The sanctions war with Russia is escalating by the day. Russia banned food imports from the US and Europe, a mere $1 billion trade hickey for us, but a $15 billion punch to the gut for the continentals. Some 350 McDonald franchises in Russia will be left with nothing to serve. Yikes!
Economists are paring expectations for European GDP growth for this year as fast as they can.
Italy announced a shocking dive in Q2 growth, and German data is deteriorating by the day, where some 300,000 jobs are dependent on trade with Russia.
The European bond market has certainly gotten the message. The yield on ten-year German bunds hit another all time low at a gob smacking 1.02%, while the return on two year paper fell below zero!
Throwing more fat on the Euro fire were the latest American weekly jobless claims, plunging by 14,000 to a new seven year low of 289,000. This augers for high US interest rates sooner, which is hugely dollar positive and Euro negative.
So given all this, Draghi?s announcement that there would be no interest rate cut whatsoever went over like a lead balloon. You would have expected the Euro to rocket a few cents on this news, thanks to the further yield support.
It didn?t, not even for a second.
Instead, another round of frustrated short sellers hit the market big time, who had been waiting for better prices at which to sell. I was one of those.
With the rapidly deteriorating fundamentals, selling short the Euro has become this year?s one way, ?free money? trade. It is a classic trading nostrum that if you throw good news on an asset and it fails to rally, you sell the hell out of it.
I will reiterate my long time targets for the beleaguered continental currency of $1.27, then $1.18, and possibly as low at $1.00. How quickly will we get to these low numbers?
Just ask Vladimir Putin.
Meet My New European Head Trader
Before I checked out of my hotel in Zermatt, Switzerland, I took the owner of my hotel out to dinner. I asked what he had learned after many years of hosting foreign guests. This is what he told me:
HEAVEN IS WHERE:
The police are British
The chefs are Italian
The mechanics are German
The lovers are French
And it is all organized by the Swiss
HELL IS WHERE:
The police are German
The chefs are British
The mechanics are French
The lovers are Swiss
And it is all organized by the Italians
Welcome Home!
Global Market Comments
August 8, 2014
Fiat Lux
Featured Trade:
(AUGUST 13 GLOBAL STRATEGY WEBINAR),
(ANNOUNCING THE MAD HEDGE FUND TRADER YOUTUBE VIDEO IN ISTANBUL)
(AN UPDATE ON THE TESLA FIRE), (TSLA)
Tesla Motors, Inc. (TSLA)
Come with me to visit one of the most lavish palaces ever built, complete with its own harem. Explore one of the boldest engineering works ever undertaken. Learn how to navigate your way around a Turkish bazaar. Admire some of the greatest wonders of the architectural world.
These are just a few of the enticements to be found in my personal video tour of Istanbul, Turkey.
One request I get more than any other, is to expand on my half-century of international travel, provide a business, economic, and historical backdrop, and place it in today?s global context.
Shake up such a cocktail of experience and knowledge, and more than a few trading and investment ideas spill over the top. If it?s funny, that helps too.
It seems that I am one of a tiny handful of people still alive in the world today who can do this.
This is not your normal travel show. Think of it as Lifestyles of the Rich and Famous meets The Economist and the History Channel, all couched in a language any trader will understand.
These are places of interest I have accumulated over five decades of living out of backpacks and suitcases. The goal is for you to learn from every single segment.
One of the great advantages of spending so long on the road is that I can chronicle the momentous changes that civilization has endured over the past half century. And sometimes, what hasn?t changed is much more impressive than what has.
I will be the sole producer of content for this show, grinding out entertainment and education as easy and cheaply as possible. Like everything else on the Internet, I am looking to achieve zero cost and infinite distribution.
So, all of the audio will be shot on my iPhone 5s. A running audio commentary will be provided via the Audio Memos app. Since the iPhone 5s is so sensitive, it picks up all the ambient sounds around me. I can only provide live audio when there is dead silence elsewhere.
Since the 19th century broadband found in many foreign hotels makes it difficult for me to email content back to the head office, segments are limited to a minute each. Each program will run from 15-30 minutes in length.
Full disclosure: None of the people involved in the production of this program have the slightest idea of what they are doing. They include the producers, editors, website designers, researchers, and of course, myself, the presenter, writer, and cameraman.
However, as with the inception of the Diary of a Mad Hedge Fund Trader seven years ago, we shall push ourselves down the learning curve at hyper speed, or we shall perish. In a few months, these shows should get pretty good, and might even make an appearance on a cable TV channel someday.
If you have any suggestions for how we might improve this service, or comments of any kind, positive or negative, please don?t hesitate to email me at support@madhedgefundtrader.com . Just put ?Video show? in the subject line and it will go straight to me.
You can?t beat the price. It?s free. The philosophy of this business has always been to charge people for the content that makes them money, like our market beating Trade Alert service, and give everything else for nothing.
So please come join me on my adventure in Istanbul by clicking here. Or just go to my home page at www.madhedgefundtrader.com and click on the ?MHFT VIDEO? menu tab.
Bon Voyage!
Once again, Tesla (TSLA) visionary, Elon Musk, surprised to the upside with his latest reports on earnings and production for his revolutionary vehicle.
Musk, who also founded groundbreaking Space X and Solar City (SCTY), expanded on his plans to manufacture in China and expand sales in Europe, where 220 volts is already standard.
The first ever left hand drive Model S-1 was just delivered in London to E.L. James, author of Fifty Shades of Grey, a fictional tome that is racy in its own right (worst book I ever read).
You can? keep a good stock down, which is now spitting distance from an all time high. That was the obvious message on Tesla (TLSA) shares in the wake of last year?s fire that consumed one of its $80,000 Model 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). Tesla quickly delivered a new car to the grateful owner within a week.
This was the first S-1 to catch fire since the production run started two years ago. There have been two others since. Compare that 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 in matches in from a great distance, as I once did, you?ll be lucky to have your eyebrows left. I didn?t.
To make amends, Tesla is installing titanium armor plating on the bottom of every S-1 for free. They did mine this week, and gave me new a new Tesla as a loaner!
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. He doesn?t leave much to the imagination.
If only all car manufacturers behaved like this!
?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
Tesla Traffic Jam
It amazes me how quickly amnesia sets in,? said Stephen Crawford, former co-president of Morgan Stanley, about the willingness of hedge funds to re-leverage positions in these conditions.
Global Market Comments
August 7, 2014
Fiat Lux
Featured Trade:
(WHY I?M COVERING MY STOCK SHORTS),
(SPY), (SPX), (HYG), (TBT), (TLT),
(AN AFTERNOON SURPISE IN SWITZERLAND)
SPDR S&P 500 (SPY)
S&P 500 Index (SPX)
iShares iBoxx $ High Yield Corporate Bd (HYG)
ProShares UltraShort 20+ Year Treasury (TBT)
iShares 20+ Year Treasury Bond (TLT)
I?ll take the home run, thank you very much. Ten handles in the (SPY) on the downside in ten days totally works for me. We have milked this trade for all it?s worth, so it?s hasta la vista baby! Thank you Vladimir Putin!
This is not a bad place to de-risk on the short side in stocks. Take a look at the charts below, and you will see a convergence of 100 day and 200 day support levels across several asset classes.
Check out the rock solid support level in the (SPY) at $191, and all of a sudden, buying back shorts here at $191.50 looks like a stroke of brilliance.
It is also interesting to see the suddenly despised junk bond ETF (HYG) hold at the 200 day moving average. Stocks and junk bond price movements are very highly correlated. It makes sense that after showing the most bubbleicious price action, high yield corporate debt led the change on the downside.
By the way, this could also mean that Treasury bonds are about to take a big dump off this morning?s 2.43% yield for the ten year, which is why I?m hanging on to all my short positions there.
We could still see more pain in risk assets. My favorite downside target in the (SPY) is the 200 day moving average at $186. That would give us a top to bottom correction of 6.5% in this cycle, in line with the pullback we saw earlier this year.
That?s where you want to load the boat one more time. When the BSD?s come back from their summer vacations in the Hamptons, Cannes or Portofino, they are going to quickly realize that stocks have been falling, while earnings have been rising.
That means they are going to be cheaper than they have been at any time in 2014. In a world where there is little else to buy, that is a big deal.
We have just entered a period when the seasonals strongly favor investment in equities. That sets up a yearend rally in the indexes that will not be as big as the melt up we saw in 2013, but will be just as welcome. My 2014 (SPY) target of $210, or $2,100 in the (SPX), may not be so Mad after all.
Yes, I know that geopolitics is still a factor. But it looks like both sides in the Gaza conflict have depleted their stockpiles of stupidity for the time being, so things are about to go quiet there.
Vladimir Putin is also likely to back down in the Ukraine because of that throbbing he is increasingly feeling in his pocketbook. The growing leverage and rising costs in the Russian oil industry mean that the recent $11, or 10%, drop in the price of crude cuts Russia?s revenues by 25%. The recession this will eventually bring could be bad enough to lose a future election.
In the end, that is what this is really all about.
I am already starting to draw up short lists to buy on the next turnaround. I?ll shoot out the Trade Alerts when I think the time is right.
Jim Parker! Get your ass back from Rome, per favore! The gelato can?t be that good!
Thank You Mr. Putin