While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
March 9, 2018
Fiat Lux
Featured Trade:
(HERE'S ANOTHER CHANCE TO MAKE YOUR EMERGING MARKET PLAY),
(EEM), (SPY), (PIN),
(TRADING DEVOID OF THE THOUGHT PROCESS),
(SPY), (QQQ), (IWM)
I have been pounding the table for years about a global synchronized recovery, and there is no better way to play it than emerging markets (EEM).
That play it not over.
After suffering volatility that was a multiple of what we saw here in the US during the February meltdown, Emerging markets ae getting ready for an upside move.
The fundamental case is there.
During a period of global growth, emerging nations see growth rates that are double or more those seen here in the US and Europe.
Emerging companies tend to be more highly leveraged than western competitors, giving an upside hockey stick effect on profit growth.
And much of the emerging world is tied to commodities, a legacy of the investments made in their countries by former colonial masters during the last century.
Commodity prices usually outperform those of stocks as we approach the tag ends of a prolonged economic cycle because additional supply can't be created with a printing press.
Emerging countries are also getting a strong tailwind from a weak US dollar, as it increasing the purchasing power of their earnings on the world stage.
Companies that financed their debt in US dollars, a common occurrence abroad, effectively see their loans paying themselves off.
With exploding US budget deficits and a ballooning national debt, a continuation of a weak dollar is a sure thing for the foreseeable future.
This has heralded a dramatic improvement in the credit quality of emerging companies.
Even the technical set up is looking attractive on the charts. You see a narrowing triangle formation to the right which should break out to the upside once the growth data comes in.
The is just a continuation of a trend that has been in place for years.
Since they bottomed at the beginning of 2016, the (EEM) has tacked on an impressive 100%. This is in sharp contrast to the S&P 500 (SPY), which has gained by only 63.42% during the same period. Owning technology was the only way you could beat emerging market returns.
China is the mainstay of emerging markets, with far and away the largest weighting in the (EEM). Last week, the government confirmed that it was targeting a 6.5% growth rate for 2018, the same that was achieved last year.
China only accounts for 3% of US steel imports, so the imposition of a punitive 25% tariff will have a minimal impact on the countries growth prospects.
However, don't look and emerging markets as a one-way bet. After a two-year bull run, it happens to be one of the most over owned sectors in the markets.
There are also major elections coming up in several emerging nations, like Brazil and Mexico. A backlash against Trumps nationalist, protectionist, "America First" policies are a sure thing. That would be market negative.
One way to sidestep this is to take a rifle shot at a single country that has no imminent election. India is the hedge fund community's favorite right now, which has the additional attraction that its steel and trade exposure to the US is minimal.
Take a look at the PowerShares India Portfolio ETF (PIN) if you are so inclined.
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Mad Hedge Technology Letter
March 9, 2018
Fiat Lux
Featured Trade:
(WHY CHINA IS DRIVING UP THE VALUE OF YOUR TECH STOCKS)
(QCOM), (AVGO), (AMD), (MSFT), (GOOGL), (AAPL), (INTC), (LSCC)
With every major index rolling around like a BB in a boxcar (SPY), (QQQ), (IWM), the day to day call has become almost impossible.
The Mad Hedge Market Timing Index is now showing “Extreme Fear” with a reading of 20, never a good time to initiate a new short.
What’s a trader to do here?
Invest purely on the basis of momentum?
That risks buying the top tick in the entire move and looking like a complete mug to your clients, your boss, your coworkers, and your wife.
Maybe it’s time to take a long cruise at let your performance flat line at an all-time high?
But then, mid-March is a little early to call it a year, even though you may be up double digits.
The exit of institutional money to trading in in-house dark pools, the concentration of trading into single sector exchange traded funds (ETF’s), and the departure of the traditional individual investor, are all exaggerating these moves.
It doesn’t help that stock markets are sitting just short of all-time highs.
You could run off and trade something else besides stocks. That’s easier said than done, as virtually all other asset classes have become untradeable.
Bonds (TLT) have just entered a new 30-year bear market.
Some commodities (COPX) are now trading at double their fall lows.
Precious metals (GLD), (SLV) seem to be hesitating here.
What’s a poor trader to do?
Take up the action in collectable Beanie Babies? Rare French postage stamps? Crypto-currencies? Rare vintage Madeira’s?
There are only two ways to deal with a market like this. Turn off the TV, cancel your newswire feeds, quit reading research, and just look at your screens.
Buy the low numbers and sell the high ones.
It is no more complicated than that.
Don’t confuse matters with the thought process. The markets are now so illogical you will only muddy the waters. A brilliant move in one hour may look like a disaster in the next.
The other method is to become boring. Just find the cheapest, low fee index fund you can find, like one of Vanguard’s, buy it, and stuff it under your mattress.
I’m pretty confident that it will be up 10% by the end of the year.
That means you will probably beat most hedge managers out there, as you would have done for the past nine consecutive years.
Try to earn more than 10% trading in these choppy markets, and you could end up losing 10%, or 100%.
As for me, I am going to stick with trading. At least I’ll be there when it turns easy again, which has to be soon, and I’ll make a hell of a lot more than 10%.
And was never very good at the “boring” thing.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
March 8, 2018
Fiat Lux
Featured Trade:
(SO, WHERE'S THE CRASH?),
(GS), (INTC), (CSCO), (VXX), (TLT),
(DON'T GET SCAMMED BY THE MUTUAL FUNDS)
When I heard that White House economic advisor and former Goldman Sachs (GS) CEO Gary Cohen resigned, I thought the Dow Average would crash 1,000 points.
Sure enough, the overnight futures markets was already reflecting down 450.
So, I spent last night writing up Trade Alerts to execute at the market opening. Laid out neatly on my desk in the proper order were alerts to BUY Intel (INTC), sell short US Treasury bonds (TLT), Buy Cisco Systems (CSCO), and sell short the IPath S&P 500 VIX Short-Term Futures ETN (VXX).
When the bell rang, the Dow instantly cratered 350 points and I got the (INTC) Alert off to the Mad Hedge Technology Letter subscribers. And that was it. The market turned around so fast that it was impossible to get anything else off.
So where's the crash?
Surely Gary Cohen has to be disappointed, who almost certainly believed the end of his government employment was worth 1,000 Dow points, instead of the paltry 350 points we saw.
What a come down.
The hard truth is that investors have been instilled with a Pavlovian reaction to buy stocks on any Washington inspired sell off because at the end of the day, they all amount to precisely nothing.
This has worked like a finely tuned Swiss watch, and will continue working, until it doesn't.
Here is the harsh reality.
At a 16X price earnings multiple at a Dow OF 23,800, and overnight rates at 1.50%, US stocks are still A SCREAMING BUY!
It doesn't get any easier than that. And here is another harsh reality. With earnings growing at a 15% annual rate, thanks to the tax cuts, the 23,800 PE multiple floor at 23,800 is rising by 3,570 points a year.
So this year's 23,800 16X multiple bottom becomes next year's 27,370 bottom. That means on any kind of pull back you buy with both hands. If it falls some more, you buy more. Period, end of story.
Normally, I dismiss purely academic valuation arguments out there. But the brutal fact is that there is still $50 trillion in cash sitting on the sidelines held by individuals, intuitions, mutual funds, hedge funds, and foreign investors trying to get into SOMETHING.
US technology stocks are their first choice by miles. That's why I started the new Mad Hedge Technology Letter five weeks ago, and it has been the smartest thing that I have done in a decade.
I expect this to remain the case until US interest rates rise too high, causing the yield curve to invert, eventually triggering a bear market and a recession. But I don't expect this scenario to unfold for another year.
Until then, make hay while the sun shines, and I'll try to get those Trade Alerts out a little faster. After all, I don't expect another major market meltdown until this afternoon, or tomorrow at the latest.
For new subscribers, and the old ones who have already forgotten, let me list below the ten reasons why there will be no stock market crash in 2018:
1) US stocks are still one of the highest yielding asset classes in the world
2) Oil prices are still less than half of where they were 5 years ago.
3) Stronger Japanese and European economies are enabling them to buy more of our exports.
4) While US interest rates are rising, they are doing so at a snail's pace.
5) Delayed US interest rate hikes will keep the US dollar cheaper for longer so more foreigners can buy our stuff.
6) Technology everywhere is hyper accelerating, sending profits through the roof.
7) Stock buy backs and M&A are shrinking the supply of equities.
8) Corporate earnings growth at the fastest in history, some 15% YOY.
9) The hurricanes created a big de facto infrastructure bill.
10) Trade war is more bark than bite.
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Mad Hedge Technology Letter
March 8, 2018
Fiat Lux
Featured Trade:
(THE CODER BOOM)
"Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost by corrections themselves," said the legendary Fidelity money manager, Peter Lynch, who once told me I was the dumbest broker he had ever met.