Out of quarantine, into curfew.
Yes, we here at Incline Village, Nevada have received a “stay at home” order because we are in Washoe County, the same county as Reno, where police tear-gassed rioters assaulting a police station yesterday.
I now have the challenge of commuting between two cities that are curfewed, Oakland, CA and Incline Village, NV.
I wonder if this is turning into another 1968, but with a pandemic? That is when casualties peaked from the Vietnam War and there were national race riots and political assassinations.
I hope not.
I’m really getting into this pandemic thing. That’s because people tell me that I am better looking with a mask on. But then I’ve grown a long grey beard since I was locked up three months ago, so maybe less is better.
The great American talent for creativity, which I always knew was lurking under the surface, and exploded into the open.
High-end restaurants are now placing dressed up dummies at every other table to enforce social distancing rules. At one table, a man is on his knee proposing marriage to his girlfriend. At another, an older couple is arguing. Click here for a laugh.
An enterprising dad has captured 2 million YouTube views describing how to perform tasks only dads can do, like jump-starting a car and fixing toilets. If you need his help ask “Dad, How Do I” by clicking here.
Only in America.
In the meantime, the stock market had one of the best weeks of the year in the face of the worst economic data in history. The (SPY) broke the 200-day moving average to the upside as the newly unemployed topped a staggering 41 million. Buyers rotated into recovery stocks as Covid-19 deaths exceeded 100,000.
All of the super smart traders I know who went into cash or strapped on short positions at the end of January are doing the same now. When markets detach from reality, I detach myself from risk. Almost all of my positions are now very low risk, have extremely small deltas, and expire in 14 trading days. The risk/reward for stocks now is terrible. The Mad Hedge Trade Alert Service delivered a stunning 27% profit off the March bottom.
By the way, in 1968 when the country was last falling apart, the Dow Average rose by 4.3% as part of one long 20-year sideways move. Brokers were forced to drive taxi cabs. I went to Tokyo for better fish to fry, and then Cambodia, Laos, and Burma. I came back 20 years later with an ample collection of lead stuck in various parts of my body.
Pending Home Sales fell down 21.8%, in April, and off 33.8% YOY on a signed contract basis. These are the worst numbers since the data series started. The West was hardest hit, down 50%. No wonder I’ve seen so many real estate agents at the beach. We already know that a sharp rebound is underway as Millennials move to the burbs and flee Corona-infested cities. Home prices will be up this year.
Easy In, Easy Out. The Fed pumped $3 trillion into the economy, and exactly $3 trillion has gone into stocks since the March bottom. There is a 90% correlation between stock prices and the direction of the Fed balance sheet. Stimulus checks went straight into day trading accounts as soaring online stock and option volumes show. In the meantime, Q2 GDP estimates have fallen to the -40%-50% range. What happens when the Fed stops buying? The M2 Money Supply (remember that?) is growing at an 80% annual rate. Buy gold (GLD).
Weekly Jobless Claims came in at 2.4 million, meaning that 41 million, or one out of four Americans out of work. That’s worse than seen during the Great Depression. Recent surveys show employers will hire back only 80% of those laid off, meaning that the Unemployment rate could stay above 10% for years. The future is being pulled forward fast and that means far fewer brick and mortar jobs. Only the large and the digital will survive.
The Market Has Flipped, from chasing big tech to chasing reopening stocks. It’s the only place where value is left. Out with (AAPL) and (FB) and in with (JPM) and (BAC). If it lasts, we’re going to new highs.
The China Trade War heats up, with 33 new companies banned from doing business with the US. You can cut global growth forecasts even more as international trade accelerates its decline. Where was Trump when tens of thousands demonstrated for democracy last fall? Wasn’t China’s President Xi Jinping his friend who did a great job controlling Covid-19?
Stocks are the most overbought in 20 years, since the top of the Dotcom bubble. Risk is extreme for new longs. Almost all S&P 500 stocks are trading above 50-day moving average.
Monster market short could force a short squeeze, with trend following commodity trading advisors boasting the biggest bearish bets in five years. The 200-day moving average at (SPX) $2,999.72 could be a real make or break, only 45 points away. The falling Volatility Index (VIX) is priming the pump for a downside collapse.
New Home Sales were up a stunning 0.6% in April versus an expected -21.9% loss, totaling 623,000 units on a signed contract basis only. The premium is now on new, clean, virus-free homes where you don’t die from a model home. Median home prices plunged from $339,000 to $309,000, down 8% YOY. It’s clear that a lot of speculative buying took place at the market bottom.
US Mortgage Applications up for 6th week, surging 54% since April. My forecast that your home will be your best performing asset of 2020 is coming true. I’m hearing stories of bidding wars again. It’s tough to beat a huge Millennial tailwind and record low-interest rates.
When we come out on the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates at zero, oil at $0 a barrel, and many stocks down by three quarters, there will be no reason not to. The Dow Average will rise by 400% or more in the coming decade.
My Global Trading Dispatch performance was unchanged on the week, my downside hedges costing me money in a steadily rising, but wildly overbought market. We stand at an eleven year all-time high of 366.23%. It has been one of the most heroic performance comebacks of all time. We have gained an eye-popping 27.03% since the market bottom despite being hedged all the way up.
My aggressive short bond positions are still delivering some nice profits even though we only have 14 days to expiration, despite the fact the bond market went almost nowhere. That’s because time decay is really starting to kick in.
That takes my 2020 YTD return up to +10.32%. That compares to a loss for the Dow Average of -10.93%. My trailing one-year return exploded to 51.09%, nearly an all-time high. My eleven-year average annualized profit exploded to +34.87%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here.
On Monday, June 1 at 10:00 AM EST, The US Manufacturing PMI for May is published.
On Tuesday, June 2 at 10:30 AM EST, weekly EIA Crude Oil Stocks are released.
On Wednesday, June 3, at 8:15 AM EST, The ADP Private Employment Report is announced.
On Thursday, June 4 at 8:30 AM EST, Weekly Jobless Claims are announced. I’ll be busy all day with the Mad Hedge Traders & Investors Summit.
On Friday, June 5, at 8:30 AM EST, the May Nonfarm Payroll Report is out. It may be the worst on record.
The Baker Hughes Rig Count follows at 2:00 PM EST.
As for me, my original plan this summer was to take a one-week cruise in Tahiti, lead an expedition to excavate more dog tags from Marines missing in action on Guadalcanal, perform a one-week roadshow for clients in New Zealand and Australia, Fly to South Africa for a one-week safari with my kids, and then cool my heels climbing the Matterhorn and thinking great thoughts at my summer home in Zermatt, Switzerland.
This will be the first time in eight years I have not climbed the great mountain. Don’t worry, I have already emailed the Zermatt Mountain Rescue Service and told them I won’t be able to help out this year because the town is closed.
Covid-19 had other ideas.
Instead, I will be commuting back and forth between San Francisco and Lake Tahoe by Tesla Model X, writing four newsletters a day, issuing uncountable trade alerts, and then taking a daily ten-mile hike to the Tahoe Rim Trail with a 40-pound backpack. Safer and much cheaper.
There’s no rest for the wicked. There’s always next year.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
