Global Market Comments
February 20, 2018
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOING WHERE THE MONEY IS),
(SPY), (AAPL), (MU), (FB), (CRM), (AMZN), (T),
(THE REBIRTH OF THE MASTER LIMITED PARTNERSHIP),
(USO), (AMLP), (FPL), (MLPS), (MLPX)
Things have changed.
That is about the only conclusion one can reach after the three most violent weeks in stock market history.
The historic average length of time for a 10% correction is 64 days, or more than two months. This time we did it in nine.
However, we all learned important things from the experience.
For a start, if your financial advisor told you to sell all your stocks at the bottom fire them immediately. A lot did, because we could see it in the February 9 capitulation market volume. Selling lows and buying highs is certainly NOT the way to financial freedom and independence.
Also, we learned the value of the 200-day moving average. A whole bunch of Fibonacci support numbers kicked in right about the same place.
I have never been big on technical analysis, viewing it as the refuge of newbies and wanabees who can't figure out what else to do. They are the red meat for the algos.
However, I could see the S&P 500 (SPY) gunning for this number at $252, and sent you trade alerts to BUY as fast as I could write them as we approached it. But the 2,000 Dow rally that followed? That was the stuff of B-movies.
I was also willing to bet the ranch that technology would lead any recovery. This is the sector that every investor, from the day trading college student to the $100 billion hedge fund manager has been trying to get into at a decent price for years.
And tech delivered big time. It has been the most instant creation of market wealth in history, with my names of Apple (AAPL), Micron Technology (MU), Facebook (FB), Salesforce (CRM), and Amazon (AMZN) leading the charge.
And then to short the Volatility Index (VIX) at $39 and watch it halve in days? It boggles the mind.
Probably the smartest thing I have done in my 50-year trading career was to start the Mad Hedge Technology Letter on February 1.
The insights I am gaining with the additional research has not only substantially upped my game in technology, but all other asset classes as well. They're all connected.
Why technology, when more attractive opportunities beckoned with gold or Bitcoin newsletters?
To quote the famed bank robber, Willie Sutton, as to why he robbed banks, "It's where the money is."
By the way, you can still buy the Mad Hedge Technology Letter
at the inaugural price of only $2,000. The full $2,500 price kicks in on March 1. To learned more please click here. To get the discount price please email Nancy at customer support at support@madhedgefundtrader.com
One amazing concept that I have just stumbled across is that big tech has become the new defensive "safe play", replacing the high yield telecom stocks of old, like AT&T (T).
Apple is already the largest dividend payer in the United States in absolute dollar terms. It is returning a stunning 90% of its gargantuan free cash flow to shareholders, with some 72% going to share buybacks alone.
After a 17-year hiatus, Apple resumed its dividend five years ago (Steve Jobs hated the idea), and now stands at a 1.46% yield. The company has since boosted its dividend by 10% every April like clockwork.
We here at Mad Hedge Fund Trader made a heroic effort to help followers of our Trade Alert service cope with the most tumultuous market in history.
At the worst of the worst we were down only -8%, and fought tooth and nail to get back up to +5.5% by Friday. It was a performance for the ages. It is also a vindication of the trading strategy I have been pursuing for the last decade.
If you can survive this week, you can survive anything. You are totally bombproof.
We only got nicked at the end with a short position in Apple which we picked up two days too soon. But then how often does the world's largest company rise in value by 12% in four days, adding $125 billion in market capitalization?
How about once a lifetime.
We are now done with Q4 earnings season, so the dominant factor will be the Fed governors who will be speaking at public appearances every day of this shortened week. No doubt inflation will be a hot topic, a definite market negative.
On Monday, February 19, the markets were closed for Presidents Day.
On Tuesday, February 20 no data releases of note take place.
On Wednesday, February 21, at 10:00 AM EST, we get January Existing Home Sales. The FOMC minutes of the last Fed meeting on interest rates will be released at 2:00 PM.
Thursday, February 22 leads with the 10:00 EST release of the Index of Leading Economic Indicators, a read on ten data points giving a read on economic performance six months into the future.
On Friday, February 23 at 1:00 PM we receive the Baker-Hughes Rig Count, which saw no change last week.
As for me, I am trying to get rid of the tag ends of pneumonia I have been dealing with for the past month, the result of my January battle with the flu.
I think I'll head over to Squaw Valley and dive down a couple of double black diamond slopes. I hear that exercise helps clear the lungs.
Good luck and good trading!
Mad Hedge Technology Letter
February 20, 2018
Fiat Lux
Featured Trade:
(MASAYOSHI SON'S VISION TO TAKE OVER THE WORLD),
(SFTBY), (BABA), (NVDA)
The wild west of the data wars is spawning into an all-out, gun slinging shoot out with a winner takes all mentality.
This slug fest is reminiscent of the unregulated 19th century American oil barons whose clout and complete control of the supply of oil fueled the industrial revolution that drove America's economy to the top of the global food chain.
Yes, data has become the oil of the 21st century. It is the oxygen of the next leg of the Internet revolution.
And there is one man moving early to stake out the premium real estate of our futures: Softbank's Masayoshi Son. His $100 million Softbank Vision Fund is not only creating waves in Silicon Valley, but tidal waves.
Many countries, like Iran, Saudi Arabia, and Russia, still rely on petroleum for the lion's share of government revenues. Even though oil is still integral to the growth of the global economy, there is a new sheriff in town: big data.
Cut it up anyway you want, data is simply information, the "zeros" and "ones" that make up the digital world. The information that commands mouthwatering premiums these days can be unraveled by computers.
Computer deciphered data can show behavioral and consumer trends in stark daylight, helping companies ferret out business strategies are proving immensely powerful.
There is an exponential hockey stick effect going on here. As the quantity of data accumulates, the more valuable it becomes.
The types of data being collected are personal data, transactional data, web data, and sensor data used for IoT (Internet of Things) products.
Who is the major player vacuuming up this data?
Masayoshi Son, the CEO of Softbank (SFTBY), an ethnic Korean who grew up in a small village in Japan. He transferred to the San Francisco Peninsula Serramonte High School as an ambitious youth and graduated in 3 weeks.
Son ventured on to UC Berkeley majoring in economics and computer science. He is one of the most dynamic people in the World and has amassed personal wealth of around $25 billion.
A few of his brilliant pre-emptive strikes were seed investing in Yahoo, creating Yahoo Japan, and $20 million for a stake in Alibaba (BABA) in 1999. These investments increased more than 100-fold in value.
Son is on a mission to own or control assets that are the linchpin to global growth nourished by Artificial Intelligence in selective industries such as transportation, food, work, medicine, and finance.
The anchor that ties all these firms together is the massive hordes of data they harvest, which are central to directing how future automated robots and machines perform.
His goal envisions the construction of responsive robots that will emerge as the cash cow in 2045. The construction, utilization, and high performance of these machines will be the key to his vision.
Instead of splurging for premium human data, investors will be competing for the best performing robots and the data derived from them. Accurate human data will provide the springboard to the machine data these robots will generate.
After the first generation of robots endow us with their first batch of data, all human data will be irrelevant. Human information is the test case that robots are founded on.
Once the first cohort of robot data comes to market, the 2nd generations of robots will be derived off the 1st generation of robots. Humans will become irrelevant.
Once you marry the treasure trove of data with A.I., the results will enter the realm of today's science fiction. Imagine being the first CEO to bring functional robots to mass market and how valuable that first batch of robot data would represent.
In short, Son is positioning himself to organically engineer the highest-grade robots catalyzing the next gap up in global competition.
This year, Son is on a global treasure hunt to meld together the most precise "big data" he requires to build his robot squadron that will take over the world.
The fight these days is acquiring the oxygen to power these non-human contraptions. Without pure oxygen, i.e. massive amounts of data, engineers will create faulty robots that under-perform.
Looking at the amalgam of companies in which Son has invested, it is difficult to find any rhyme or reason. That is until you find the commonalty of big data.
Son invested $200 million in "Plenty" in July 2017, a company developing indoor farms. If indoor farm data is not diverse enough, then how about the $300 million he showered on San Francisco dog-walking app called "Wag".
The biggest holding in the Softbank Vision Fund is Uber. Uber is ubiquitously known as a ride sharing company that shuttles passengers from spot A to spot B.
Sweetening the deal was a substantial discount the Vison Fund received on a private placement of Uber shares. Uber is now worth about $70 billion and may someday become a FANG in its own right.
Supplementing this transaction is the custom online map app Mapbox, founded as a competitor to Google Maps. Some of Mapbox's partners include Snapchat, Lonely Planet, and The Weather Channel.
Vision Fund's second largest position is ARM Holdings, which is an English semiconductor chip company that has carved out a large segment of the Android and laptop market.
They produce simple CPU's (central processing units) and much more advanced GPU's (graphics processing units) that are placed in smartphones, TV's, tablets, and computers.
Son has shelled out $8.2 billion through the Softbank Vision Fund and the remaining 75% stake is owned by parent company Softbank Group. ARM is one of the shining beacons of European tech and Softbank has pegged its future to its success.
Unsurprisingly, Nvidia (NVDA) is the 3rd largest weighting and the $5 billion Softbank investment into Nvidia (NVDA) represents a 4.9% stake in the company. The Nvidia commitment is logical considering ARM licenses their chip designs to Nvidia.
As autonomous vehicles will be one of the first benefactors from the cross pollination between big data and automation, these investments completely justify Son's long-term vision.
Son has also snapped up other ride sharing entities such as Didi Chuxing in China, Ola in India, Grab in Southeast Asia, and "99" in Brazil.
Some 31% of the global population is without Internet connectivity. Thus, Son bought OneWeb, which pioneers low cost, high quality satellites striving to grant Internet access for the people still without access. This maneuver will surely see his net data load increase.
In many of the Mad Hedge Technology Letters, we often offer readers the creme de la creme of public stock symbols, but this time it is different.
First, the major holdings in the Softbank vision fund, aside from Nvidia, are privately held companies that do not trade on any stock market.
However, it is very important to watch what he buys, as it gives insights into the best performing and fastest growing sub-sectors of technology.
Or you could just buy Softbank itself, whose shares have doubled over the past two years.
Son won't just flip these companies for a 30% or 50% profit. Tenfold, or hundred-fold gains are the order of the day.
In reality, Son's ultimate goal is to leach out the future aggregate data spewing out from his underlying portfolio and cross-pollinate it with A.I. and automation to revolutionize the world.
This year is a period of jockeying with other venture capitalists to positions themselves accordingly for the next 30, 40 and 50 years.
Welcome to the future.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
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
February 16, 2018
Fiat Lux
Featured Trade:
(FEBRUARY 14 GLOBAL STRATEGY WEBINAR Q&A),
(VIX), (VXX), (FCX), (BAC), (GS), (JPM), (HEDJ), (SPG), (HEDJ),
(IT???S TIME TO PULL THOSE OLD INFLATION PLAYS OUT OF THE DRAWER),
(TIP), (TIPZ), (TIPX), (GLD), (SLV)
Q: How much more will interest rates rise and how will that affect equities?
A: We've essentially discounted all the negative effects of rising interest rates for the rest of the year with this correction, so I don't believe we'll have much interest rate impact from here. I'm looking for 3.25% on the 10 year by the end of this year - that's 10 1/2 months, so we're basically almost there.
In regard to how it will affect equities: It won't. We basically digested 150 basis points of interest rate rise ALREADY. Now, if we get another hot CPI in a month, all bets are off. Then the sushi will really hit the fan.
Q: Which sector will lead after this meltdown?
A: Technology, technology, technology. That's why I started a technology letter at the beginning of the month. I want to focus everyone's attention on the technology letter. It will overwhelmingly lead, not only this year, but for the next 20 years.
Q: Has the Volatility Index Bottomed?
A: Absolutely. We'll never see the $9 number again. We're now looking to find a new volatility range. Currently we are at a (VXX) of $41.65 and a (VIX) of $19.61. I expect we'll find a range-maybe $15-$25-?and we'll trade in that range for the rest of the year. With the entire short VIX industry wiped out you will never again return to those old low ranges.
Q: With volatility so high right now, is it better to buy naked calls instead of call spreads?
A: No it is not. Assume your range will be $15-$25 in the (VIX) you want to be buying the put spread at the top and the call spreads at the bottom; that way you don't get wiped out with time decay. If you go outright naked long calls or puts the time decay in these things will absolutely destroy you.
Q: Does this market shake-up change your end of year targets for the S&P 500?
A: The answer is yes. I know I upgraded them to a 20% increase this year. My original, beginning January forecast was for 10% correction, which we got, then a 20% rally to be up 10% on the year. That's a much more realistic forecast than the upgrade that followed. So yes, it does change. I'm still looking for 10% by the end of the year -we're essentially at 0% right now. We gave up all of the year's gains, and at the bottom we went all the way back to October/November prices.
Q: Will wage increases and higher inflation bring down companies who have high labor costs?
A: Yes, they will. Who are the highest labor cost companies in the United States? Walmart (WMT), Target (TBT) and McDonald's (MCD). And that may be why those share prices have recently been acting so poorly.
Q: Will housing stocks like Lennar (LEN) get crushed with the new interest rate narratives?
A: They've already been crushed, which you can see on the housing charts we'll be looking at. However, I expect them to recover; interest rates are rising but not enough yet to hurt the housing market. It will be a year or two before they get to that point.
Q: Which is better: Bank of America (BAC), Goldman Sachs (GS), or J.P. Morgan (JPM)?
A: J.P. Morgan is the better-quality company, but that is already discounted in the price. If you want to buy a laggard, I recommend Goldman Sachs, which should be making significant profits trading in these conditions and is much cheaper. Goldman can double from here, whereas (BAC) and (JPM) may only increase 50%. J.P. Morgan also held up at the 50-day, which is incredibly encouraging; that's a buy right here, right now. No need to wait for a dip on J.P. Morgan. If I had the funds, I'd be buying myself.
Q: Should I sell the (AEX)? (a Europe-wide ETF traded in Holland)
A: No. If the U.S. rallies to new all-time highs over the next several months, which it will, Europe will do exactly the same, but probably rise twice as much. So, if anything, I would be a buyer of Europe at these levels, including the (HEDJ), which hedges out your Euro currency risk.
Q: I still own the Apple 140/145's. Thoughts?
A: Keep them. I think there is just 0% chance Apple will ever return to $150 a share, at least not until the next real recession, which is 2 years off.
Q: Is it acceptable to enter a Trade Alert a few days after it was originally issued, if I can get the same price?
A: Yes. If you can get that Trade Alert at a good price- and often, you can- then take it.
Q: If the market can absorb interest rates grinding higher, what is the next red flag that will take the market down?
A: Even higher interest rates.
Q: Microsoft's (MSFT) cloud business grew 100% YOY- would you look at getting into these levels?
A: I would. In fact, if I could take an 11th position, it would be a long in Microsoft at these levels.
Q: Which part of the stock market should I avoid if interest rates are rising?
A: You want to avoid heavy borrowers; those include REITS (SPG) and Utility Stocks (XLU).
Q: Are commodities a buy since you have been telling us to stay away for years?
A: While the stock market may be going crazy, the global synchronized economic recovery continues, and that is a very pro-commodity move- when people move out of expensive stocks, what do they buy? Cheap commodities. Which have been in a 5-year bear market.
Q: How will the new Fed Governor Jerome Powell change from Yellen once he saw the huge sell-off on the first day of the job?
A: He won't change but he will be facing different challenges than Yellen did: the need to raise interest rates faster. Yellen was all about keeping interest rates low for as long as possible- that is now ancient history. It's all about how fast we raise rates from now on that impacts the market.
Q: Is it ok to keep my Freeport-McMoRan (FCX)?
A: Yes, it will rally back strong and this is a good entry point. Historically, going into silver is better than gold. Historically that has been true, but it's not happening this time. I would stay away.
Q: What do you think about commodities this year?
A: They will outperform stocks.
Mad Hedge Technology Letter
February 16, 2018
Fiat Lux
Featured Trade:
(HERE'S AN EASY WAY TO PLAY ARTIFICIAL INTELLIGENCE),
(BOTZ), (NVDA), (ISRG)