Those of you counting on getting your old union assembly line job back in Detroit can forget it.
The eight-year forecast published by the Bureau of Labor Statistics shows that 4.19 million jobs will be gained in the U.S. in professional and business services, followed by 4 million health care and social assistance jobs, while 1.2 million will be lost in manufacturing.
This is great news for website designers, Internet entrepreneurs, registered nurses, and masseuses in California, but grim tidings for traditional metal bashers in the rust belt manufacturing states such as Michigan, Indiana, and Ohio.
I'm so old now that I am no longer asked for a driver's license to get into a nightclub. Instead, they ask for a carbon dating.
The real challenge for we aged career advisors is that probably half of these new service jobs haven't even been invented yet, and if they can be described, it is only in a cheesy science fiction paperback with a half-dressed blond on the front cover.
After all, who heard of a webmaster, a cell phone contract sales person, or a blogger 40 years ago?
Where are all these jobs going to? You guessed it, China, which by my calculation has imported 25 million jobs from the U.S. over the past decade.
You can also blame other lower waged, upstream manufacturing countries such as Vietnam, where the Middle Kingdom is increasingly subcontracting its own offshoring.
These forecasts may be optimistic because they assume that Americans can continue to claw their way up the value chain in the global economy, and not get stuck along the way, as the Japanese did in the 90s.
The U.S. desperately needs no less than 27 million new jobs to soak up natural population and immigration growth and get us back to a traditional 5% unemployment rate.
The only way that is going to happen is for America to invent something new and big, and fast.
Personal computers achieved this during the 80s, and the Internet did the trick in the 90s. The fact that we've done squat since 2000 but create a giant paper chase of subprime loans and derivatives explains why job growth since then has been zero, real wage growth has been negative, and American standards of living are falling.
While the current crop of politicians extol the virtues of education, the reality is that we are dumbing down our public education system. How do we invent the next "new" thing, while shrinking the University of California's budget by 25% two years in a row?
If my local high school can't afford new computers, how is it going to feed Silicon Valley with a computer literate workforce? The U.S. has a "Michael Jackson" economy. It's still living like a rock star but hasn't had a hit in 20 years.
China can have all the $20 a day jobs it wants. But if it accelerates its move up the value chain, as it clearly aspires to do, then America is in for even harder times.
I'll be hoping for the best but preparing for the worst. How do you say "unemployment check" in Mandarin?
Is This Your Future?
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Gold bugs, conspiracy theorists, and permabears had some unfamiliar company last year.
While traders, individuals, and ETFs have been unloading gold for the past five years, central banks have been steady buyers.
Who had the biggest appetite for the barbarous relic?
Russia, which has been accumulating the yellow metal to avoid economic sanctions imposed by the United States in the wake of its invasion of the Ukraine.
Hot on its heels was China, which has flipped to a large net importer of gold to meet insatiable demand from domestic investors. China appears to be buying about 20 metric tonnes a month of the barbarous relic.
It seems the Chinese stocks markets ($SSEC) were not the great trading opportunity that they were hyped to be, which plunged 30% during the first two months of 2016, and is now 60% off its all-time high.
That's a big deal in a country that has no social safety net.
Many Chinese now prefer to buy gold instead of stocks, which are now considered too risky for a personal nest egg.
They are facilitated by the ubiquitous precious metal coin stores, which have recently sprung up like mushrooms in every city.
Only a few years ago, private ownership of gold resulted in China having your organs harvested by the government.
Central bank sellers have been few and far between. Venezuela has dumped about half its reserve to head off a recurring liquidity crisis.
Middle Eastern sovereign wealth funds cashed in some chips to deal with the oil price crash.
Canada has also been selling for reasons unknown to us south of the border.
All of this poses a really interesting question. Gold fell for the four consecutive years that central banks were buying, and the rest of the world was selling.
What happens when the rest of the world flips to the buy side?
My guess is that it goes up, which is why I have issued long side Trade Alerts on gold this year.
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Buried deep in the bowels of the 2,000-page health care bill was a new requirement for gold dealers to file Form 1099s for all retail sales by individuals over $600.
Specifically, the measure can be found in section 9006 of the Patient Protection and Affordable Care Act of 2010.
For foreign readers unencumbered by such concerns, Internal Revenue Service Form 1099s are required to report miscellaneous income associated with services rendered by independent contractors and self-employed individuals.
The IRS has long despised the barbaric relic (GLD) as an ideal medium to make invisible large transactions. Don't you ever wonder what happened to $500, $1,000, $5,000, $10,000, and $100,000 bills of your youth?
The $100,000 bill was only used for reserve transfers among banks and was never seen by the public. The other high denomination bills were last printed in 1945 and withdrawn from circulation in 1969.
Although the Federal Reserve claims on its website that they were withdrawn because of lack of use, the word at the time was that they disappeared to clamp down on money laundering operations by the mafia.
IN FACT, THE GOAL WAS TO FLUSH OUT MONEY FROM THE REST OF US.
Dan Lungren, a republican from California's third congressional district, a rural gerrymander east of Sacramento that includes the gold bearing Sierras, has introduced legislation to repeal the requirement, claiming that it places an unaffordable burden on small business.
Even the IRS is doubtful that it can initially deal with the tidal wave of paper that the measure would create.
Currency trivia question of the day: Whose picture is engraved on the $10,000 bill? You guessed it, Salmon P. Chase, Abraham Lincoln's Secretary of the Treasury.
Ever Wonder Where The $10,000 Bill Went?
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I am constantly on the lookout for ten baggers, stocks that have the potential to rise tenfold over the long term.
Look at the great long-term track records compiled by the most outstanding money managers, and they always have a handful of these that account for the bulk of their outperformance, or alpha, as it is known in the industry.
I've found another live one for you.
Elon Musk's Space X is so forcefully pushing forward rocket technology that he is setting up one of the great investment opportunities of the century.
In the past decade his start-up has accomplished more breakthroughs in advanced rocket technology than seen in the last half century, since the golden age of the Apollo space program.
As a result, we are now on the threshold of another great leap forward into space. Musk's ultimate goal is to make mankind an "interplanetary species."
There is only one catch.
Space X is not yet a public company, being owned by a handful of fortunate insiders and venture capital firms. But you should get a shot at the brass ring someday.
The rocket launch and satellite industry is the biggest business you have never heard of, accounting for $200 billion a year in sales globally. This is probably because there are no pure stock market plays.
Only two major companies are public, Boeing (BA) and Lockheed Martin (LMT), and their rocket businesses are overwhelmed by other aerospace lines.
The high value-added product here is satellite design and construction, with rocket launches completing the job.
Once dominated by the U.S., the market for launches has long since been ceded to foreign competitors. The business is now captured by Europe (the Ariane 5), China (the Long March 5), and Russia (the Angara A5).
Until recently, American rocket makers were unable to compete because decades of generous government contracts enabled costs to spiral wildly out of control.
Whenever I move from the private to the governmental sphere, I am always horrified by the gross indifference to costs. This is the world of the $10,000 coffee maker and the $20,000 toilet seat.
Until 2010, there was only a single U.S. company building rockets, the United Launch Alliance (ULA), a joint venture of Boeing and Lockheed Martin. ULA builds the aging Delta IV and Atlas V rockets.
The vehicles are launched from Cape Canaveral, Florida, and Vandenberg Air Force Base in California, one of which I had the privilege to witness. They look like huge roman candles that just keep on going, until they disappear into the blackness of space.
Enter Space X.
Extreme entrepreneur Elon Musk has shown a keen interest in space travel throughout his life. The sale of his interest in PayPal, his invention, to Ebay (EBAY) in 2002 for $165 million, gave him the means to do something about it.
He then discovered Tom Mueller, a childhood rocket genius from remote Idaho who built the largest-ever amateur liquid fueled vehicle, with 13,000 pounds of thrust. Musk teamed up with Mueller to found Space X in 2002.
A decade of grinding hard work, bold experimentation, and heartrending testing ensued, made vastly more difficult by the 2008 Great Recession.
Space X's Falcon 9 first flew in June 2010, and successfully orbited earth. In December 2010, it launched the Dragon space capsule and recovered it at sea. It was the first private company ever to accomplish this feat.
Dragon successfully docked with the International Space Station (ISS) in May 2012. NASA has since provided $440 million to Space X for further Dragon development.
The result was the launch of the Dragon V2 (no doubt another historical reference) in May 2014, large enough to carry seven astronauts.
Space X conducted the first successful flight test of the new Dragon capsule on May 6 of this year.
Then Musk really upped his game by successfully pulling off the first ever landing of a booster rocket on a platform at sea in April 2016. This is crucial for his plan to dramatically cut the cost of space travel.
Commit all these names to memory. You are going to hear a lot about them.
Musk's spectacular success with Space X can be traced to several different innovations.
He has taken the Silicon Valley hyper-competitive ethos and financial model and applied it to the aerospace industry, the home of the bloated bureaucracy, the no-bid contract, and the agonizingly long-time frame.
For example, his initial avionics budget for the early Falcon 1 rocket was $10,000 and was spent on off-the-shelf consumer electronics. It turns out that their quality had improved so much in recent years that they met military standards.
But no one ever bothered to test them. The $10,000 wouldn't have covered the food at the design meetings at Boeing or Lockheed-Martin, which would have stretched over years.
Similarly, Musk sent out the specs for a third-party valve actuator no more complicated than a garage door opener, and a $120,000, one-year bid came back. He ended up building it in-house for $3,000. Musk now tries to build as many parts in-house as possible, giving it additional design and competitive advantages.
This tightwad, full speed ahead and damn the torpedoes philosophy overrides every part that goes into Space X rockets.
Amazingly, the company is using 3-D printers to make rocket parts instead of having each one custom made.
Machines guided by computers carve rocket engines out of a single block of Inconel nickel-chromium super alloy, foregoing the need for conventional welding, a frequent cause of engine failures.
Space X is using every launch to simultaneously test dozens of new parts on every flight, a huge cost saver that involves extra risks that NASA would never take. It also uses parts that are interchangeable of all its rocket types, another substantial cost saver.
Space X has effectively combined three nine-engine Falcon 9 rockets to create the 27 engine Falcon Heavy, the world's largest operational rocket. It has a load capacity of a staggering 53 metric tons, the same as a fully loaded Boeing 737 can carry. It has half the thrust of the gargantuan Saturn V moon rocket that last flew in 1973.
Musk is able to capture synergies among his three companies not available to any competitor. Space X gets the manufacturing efficiencies of a mass production carmaker.
Tesla Motors has access to the futuristic space age technology of a rocket maker. Solar City (SCTY) provides cheap solar energy to all of the above.
And herein lies the play.
As a result of all these efforts, Space X today can deliver what ULA does for 76% less money with vastly superior technology and capability. Specifically, its Falcon Heavy can deliver a 116,600-pound payload into low earth orbit for only $90 million, compared to the $380 million price tag for a ULA Delta IV 57, 156-pound launch.
In other words, Space X can deliver cargo to space for $772 a pound, compared to the $7,515 a pound UAL charges the U.S. government. That's a hell of a price advantage.
You would wonder when the free enterprise system is going to kick in and why Space X doesn't already own this market.
But selling rockets is not the same as shifting iPhones, laptops, watches, or cars. There is a large overlap with the national defense of every country involved.
Many of the satellite launches are military in nature and top secret. As the cargoes are so valuable, costing tens of millions of dollars each, reliability and long track records are big issues.
Enter the wonderful world of Washington, DC politics. UAL constructs its Delta IV rocket in Decatur, Alabama, the home state of Senator Richard Shelby, the powerful head of the Banking, Finance, and Urban Affairs Committee.
The first Delta rocket was launched in 1960, and much of its original ancient designs persist in the modern variants. It is a major job creator in the state.
Shelby has criticized President Obama's attempt to privatize and modernize the rocket business as "a faith-based initiative." ULA is a major contributor to Shelby's campaigns.
ULA has no rocket engine of its own. So, it buys engines from Russia, complete with blueprints, hardly a reliable supplier. Magically, the engines have so far been exempted from the economic and trade sanctions enforced by the U.S. against Russia for its invasion of the Ukraine.
ULA has since signed a contract with Amazon's Jeff Bezos-owned Blue Origin, which is also attempting to develop a private rocket business but is miles behind Space X.
Musk testified in front of Congress in 2014 about the viability of Space X rockets as a financially attractive, cost-saving option. His goal is to break the ULA monopoly and get the U.S. government to buy American. You wouldn't think this is such a tough job, but it is.
Musk has since sued the U.S. Air Force to open up the bidding.
He became a U.S. citizen in 2002 primarily to qualify for bidding on government rocket contracts, addressing national security concerns.
NASA did hold open bidding to build a space capsule to ferry astronauts to the International Space Station. Boeing won a $4.2 billion contract, while Space X received only $2.6 billion, despite superior technology and a lower price.
It is all part of a 50-year plan that Musk confidently outlined to a venture capital friend of mine two decades ago. So far, everything has played out as predicted.
The Holy Grail for the space industry has long been the building of reusable rockets, thought by many industry veterans to be impossible.
Imagine what the economics of the airline business would be if you threw away the airplane after every flight? It would cost $1 million for one person to fly from San Francisco to Los Angeles.
This is how the launch business has been conducted since the inception of the industry in the 1950s.
Space X is on the verge of accomplishing exactly that. It will do so by using its SuperDraco engines and thrusters to land rockets at a platform at sea. Then you just reload propellant and relaunch.
The concept has so far been successfully tested to an altitude of 1,000 meters (click here for the YouTube video.
Attempts to do this from a live launch have so far failed (click here for that video where they almost made it at and here), but Musk predicts a 50% chance of success in the next test this coming December.
Pull this off, and launch costs will plummet to pennies on the dollar. If Space X can chop payload costs to under $100, compared to ULA's $7,515, that is a savings that even Richard Shelby can't cover up.
Talk about disruptive innovation with a turbocharger!
The company is building its own spaceport in Brownsville, Texas, that will be able to launch multiple rockets a day.
The Hawthorne, CA, factory (where I charge my own Tesla S-1 when in LA) now has the capacity to build 20 rockets a year. This will eventually be ramped up to hundreds.
Space X is the only organization that offers a launch price list on its website, much as Amazon sells its books (click here for that link). The Falcon 9 will carry 28,930 pounds of cargo into low earth orbit for only $60.2 million. Sounds like a bargain to me.
Space X currently has $5 billion in contracts to fly over 50 missions for a variety of private and governmental entities, making the company cash flow positive. This includes a $1.6 billion NASA contract to supply the (ISS).
This no doubt includes an assortment of tax breaks, which Musk has proved adept at harvesting. Elon has been a quick learner with the ways of Washington.
Customers have included the Thai telecommunications firm, Rupert Murdock's Sky News Japan, an Israeli telecommunications group, and the U.S. Air Force.
So when do we mere mortals get to buy the stock? Musk estimates at 12 flights a year the company will earn a 10% return on capital, making it worth $4 billion to $5 billion.
The current exponential growth in broadband will lead to a similar growth in satellite orders, and therefore rocket launches. So, the commercial future of the company looks especially bright.
However, Musk is in no rush to go public. A permanent, viable, and sustainable colony on Mars has always been a fundamental goal of Space X. It would be a huge distraction for a publicly managed company. That makes it a tough sell to investors in the public markets.
You can well imagine that the next recession would bring cries from shareholders for cost cutting that would put the Mars program at the top of any list of projects to go on the chopping block. So, Musk prefers to wait until the Mars project is well established before entertaining an IPO.
Musk expects to launch a trip to Mars by 2025 and establish a colony that will eventually grow to 80,000. Tickets will be sold for $500,000.
There are other considerations. Many employee and early venture capital investors wish to realize their gains and move on. Public ownership would also give the company extra ammunition for cutting through Washington red tape. These factors point to an IPO that is earlier than later.
On the other hand, Musk may not care. The last net worth estimate I saw for him was $13 billion. If his three companies increase in value by 10 times over the next decade, as I expect, that would increase his wealth to $130 billion, making him the richest person in the world.
If an IPO does come, investors should jump in with both boots. While the value of the firm may already have increased tenfold by then, there may be another tenfold gain to come. Get on the Elon Musk train before it leaves the station.
To describe Musk as a larger than life figure would be something of an understatement. Musk is the person on which the fictional playboy/industrialist/technology genius, Tony Stark, in the Iron Man movies has been based.
In the recently released Tomorrowland Disney movie, a Tesla supercharging station features prominently. Elon takes all this in good humor, lending a Tesla roadster to the film producers.
Musk has said he wishes to die on Mars, but not on impact. Perhaps it would be the ideal retirement for him, say around 2045, when he will be 75.
To visit the Space X website, please click here. It offers very cool videos of rocket launches and a discussion with Elon Musk on the need for a Mars mission.
Catching a Dragon by the Tail
This Could Be the Stock Performance
Is Mars the Next Hot Retirement Spot?
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It seems like another day, another analyst downgrade for technology. The latest report came from Japan's Nihon Keizai Shimbun, which reported that Apple has asked parts suppliers throughout Asia to cut back parts shipments for its iPhones by 20%. Apple shares responded by falling by $5 to $190.
Granted, the global cell phone market has been flat for the past two years. What is new is that Apple has been extracting an ever-larger share of the global smart phone profit stream, now at a heady 92%, thanks to more expensive products with better functionality. That's what I'm focusing on.
We saw a similar downgrade for the chip sector days early, which cut $9 off the high beta play there, Micron technology (MU).
The bad news was enough to trigger a long overdue rotation from perennial leaders in technology toward laggard banks, retailers, materials, and consumer discretionary.
Remember, as long as no new net cash is coming into equities beyond share buybacks, the main indexes can't break out to new all-time highs. My 10-month range for the (SPY) lives!
It is normal to hear a rising tide of wailing from Cassandras decrying impending doom as we reach the end of an economic and stock market cycle. At nine years, this one is already the second longest in history. But we have six more years to run to top the market performance from 1949 to 1961.
Personally, I believe the current technology cycle has a minimum of one to two years to go, so there is more than ample time to make money in the sector.
Much media was focused last week on the G7 Meeting in Quebec City Canada, which appears to soon become the G6, ex the United States. Here we see the unfolding of another aspect of Trump's global strategy.
He wants to break up the American led post WWII order, which made us all wealthy and abandon Europe, Japan, and Australia as allies. This is what all the new trade wars against our friends are all about.
Instead, the NEW world order has us allied with Russia, Saudi Arabia, and a handful of Gulf sheikdoms. If carried out, it should shrink U.S. GDP growth by 1% to 2% a year, caused the mother of all stock market crashes, and greatly undermine the security of the United States.
My prediction is that it won't last. The market risk is zero for the short term, but enormous for the long term. I am not alone in these predictions.
There was another new world order emerging this week, and that the addition of Twitter (TWTR) this week to the S&P 500, replacing old line chemical company Monsanto (MON). I have to confess that I totally missed the Twitter turnaround, which has rocked from $14 to $45 in a year.
Maybe meeting Twitter employees during my nightly hikes on Grizzly Peak and meeting despairing Twitter employees who went up there to commit suicide had something to do with it. This kind of experience kind of puts one off a stock for life.
As for the Mad Hedge Trade Alert Service we are having another blockbuster month. I caught the upside breakout by the lapels and shook it for all it was worth with aggressive long positions in Microsoft (MSFT), Amazon (AMZN), Salesforce (CRM), Apple (AAPL), and the Biotechnology Index (IBB).
The result was to take the performance of the Mad Hedge Trade Alert Service to yet another all-time high. Those who signed up at any time in the past 12 months have to be extremely happy.
After one trading day, my June return is +6.24%, my year-to-date return stands at a robust 26.75%, my trailing one-year returns have risen to 62.14%, and my eight-year profit sits at a 303.65% apex.
This coming week will be all about the big Fed decision on interest rates on Wednesday.
On Monday, June 11, no data of note is released.
On Tuesday, June 12, the Federal Open Market Committee Meeting begins. At 8:30 AM EST, the May Consumer Price Index is released, the most important indicator of inflation.
On Wednesday, June 13, at 7:00 AM, the MBA Mortgage Applications come out. At 2:00 PM EST, the Fed is expected to raise interest rates by 25 basis points. At 2:30 Fed Chair Jerome Powell holds a press conference.
Thursday, June 14, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 13,000 last week to 222,000. Also announced are May Retail Sales.
On Friday, June 15 at 9:15 AM EST, we get May Industrial Production. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.
As for me, I will be taking off on my 2018 Mad Hedge U.S. Road Show. See you at lunch.
Good Luck and Good Trading.
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There is in fact a logical mathematical path that gets us precisely there.
If there is one question I get asked more than any other as a 50-year market veteran, it is "When will stocks peak out?"
You can blame recent memory.
Those who followed my advice, bailed at the market 2008 top, and then heavily shorted bank shares laughed all the way to the bank.
Nonbelievers who didn't got slaughtered, questioning whether they'd ever touch another stock again.
We're about to replay that movie.
By now, the reasons behind the runaway bull market are familiar to all.
Even my gardener, cleaning lady, and shoeshine boy know by now.
They are also asking if they should be buying bitcoin, after it has made the move from $1 to $6,000.
So let me tell you how I get to such a precise top in the current move.
This time it WON'T be different.
The Fed will definitely trigger the next recession.
But it will be different in that the next recession will be prompted by a much lower interest rate spike than seen at past market tops.
Blame deflation.
We already know that stock markets accelerate their appreciation at the beginning of every tightening cycle.
So far, so good.
Assume that the Fed continues "normalizing" interest rates by raising 25 basis points a quarter for the next five quarters.
That takes the overnight Fed funds rate up to a 2.50% to 2.75% range by December 2018.
This will create an inverted yield curve whereby short-term rates are higher than the present 2.38% 10- year Treasury bond yield.
Bond yield will also rise and prices fall, but not by much.
There is just too much money around.
Over the past 100 years, inverted yield curves have had an average life of 14 months, within a range of nine to 19 months.
At first, rising interest rates INCREASE borrowing dramatically, as investors scramble to beat the move.
This enables them to make up for shrinking profit margins caused by higher rates by increasing size.
This is already happening in a major way.
When the return finally turns negative, they then dump EVERYTHING, causing interest rates to explode, igniting a recession.
That's when 10-year Treasury bonds spike to 4%, or even 5%.
This has a recession beginning 14 months after the December 15, 2018 Fed meeting, or February 2020.
Historically, stock markets peak exactly 7.2 months before a recession, so this takes us back to August 2019.
Back out three more months for a "Sell in May and go away" effect.
Bear markets usually begin on Mondays (remember the many Black Mondays of our careers?) because investors are prone to digest deteriorating market technicals and fundamentals over a weekend and then panic at the first opportunity.
I expected the Dow Average to plunge at least 400 points at the following that Monday opening.
Add all this together, and you arrive at my target market peak of Friday, May 10, 2019 at 4:00 PM EST. Look for a final spike into the close.
You may catch me gingerly stepping out of the market a few weeks or months before that.
As my late mentor Barton Biggs used to say, "Always leave the last 10% of a move for the next guy."
Remember also that once stocks start to go in reverse, liquidity will completely vaporize right when numerous risk protection algorithms simultaneously kick in.
So the bigger institutions will start scaling out of major positions well before then. This, by the way, helps set up the negative technicals that create the top.
Of course, any number of black swans can move this timetable forward, which I have covered in previous letters (North Korea, impeachment, no tax cuts, etc.).
So I may be making necessary adjustments to my market top target date along the way.
And here's the scary part.
Stock markets could rise another 20% to 25% before they peak out. That takes the Dow Average to a neat 28,750.
So despite knowing the blowup day well in advance, you're still going to have to stay in the market, lest you lose all your clients.
After all, they don't pay fat fees for us to hide in a cave somewhere and sit on our hands.
So, you wanted to be in show business?
When a client asks you the favorite question of the day, he will be suitably impressed when you provide him with the above answer, as he should be.
In fact, he will probably give you more money to manage.
As he should do.
Remember that date, May 10, 2019 at 4:00 PM EST!
I have already marked it on my calendar.
Picking a Market Top is Simple Logic
https://www.madhedgefundtrader.com/wp-content/uploads/2018/06/Dart-board-story-2-image-2.jpg265400MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2018-06-07 01:07:262018-06-07 01:07:26Why the Stock Market Will Peak on May 10, 2019, at 4:00 PM EST
We knew the May Nonfarm Payroll Report was coming in hot when the president leaked the numbers ahead of time. He tweeted that he "Was looking forward to" the numbers hours before the official release.
Last month, when the report was weak, we heard nary a word from Twitter. Just add that to the ever-growing list of unpredictables we traders have to deal with on a daily basis.
As for myself, I was looking for robust numbers last Tuesday when I piled on an aggressive, highly leveraged short position in the bond market, right at the four months highs. When bonds collapsed my reward was a 62.50% profit in only three trading days.
In the blink of an eye, we have made back half of the drop in interest rates prompted by the Italian political crisis. Ten-year U.S. Treasury yields plunged from 3.12% all the way down to 2.75% and are now back up to 2.92%. Bonds have almost fallen three points in three days.
This trade instructs you on the merits of going outright long options instead of more conservative spreads when you expect a very sharp, rapid move in the immediate term.
The result was to take the performance of the Mad Hedge Trade Alert Service to yet another all-time high. Those who signed up at any time in the past 12 months have to be extremely happy.
After one trading day, my June return is +2.94%, my year-to-date return stands at a robust 23.31%, my trailing one-year return has risen to 59.20%, and my eight-year profit sits at a 299.78% apex.
The payroll report suggests that the nine-year economic expansion will easily growth to 10. Never mind that we are putting it all on an American Express card and that our kids are going to have to pick up the tab. For now, it's happy days.
That means my 2018 year-end forecast is alive and well for a (SPY) of 3,000. If earnings continue to grow at a 25% annual rate and you assume a modest 17.5 X, getting there is a chip shot. Next year is another story, when year-on-year growth rates fall to zero.
The jobs report came in at 223,000 versus the three-month average of 175,000, and the Headline Unemployment Rate dropped to 3.8%, a new decade low. Average Hourly Earnings rose to an inflationary 0.3%.
Retail gained 31,0000 jobs, Health Care 29,000, and Construction 25,000. Only Temporary Workers lost 7,800.
The broader U-6 "discouraged worker" unemployment rate fell to 7.6%, a 17-year low.
The major hallmark of the week was an upside breakout of technology. Microsoft (MSFT), Amazon (AMZN), Apple (AAPL), and Facebook (FB) all hit historic highs.
I don't know why tech is breaking out here. Maybe the market is discounting another round of blockbuster quarterly earnings that starts in two months. Possibly the tech growth rate is accelerating at the granular level.
Perhaps there is nothing else to buy. But for whatever reason, tech is going up and I want in. Tech is the secular growth story of our generation and will remain so for the foreseeable future.
The smartest that I have done this year is to start my Mad Hedge Technology Letter in February as it added 60 hours of research into tech companies into our research mix. As a result, the readers are swimming in profits.
This coming week is nearly clueless in terms of hard data releases.
On Monday, June 4, at 10:00 AM, we get May Factory Orders.
On Tuesday, June 5, May PMI Services is announced.
On Wednesday, June 6, at 7:00 AM, the MBA Mortgage Applications come out.
Thursday, June 7, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 11,000 last week from a 43-year low.
On Friday, June 8, at 8:30 AM EST, we get the Baker Hughes Rig Count at 1:00 PM EST, which rose by only 1 last week.
As for me, I will be glued to my TV watching the local Golden State Warriors trounce the Cleveland Cavaliers. That's providing they can overcome LeBron James, who seems to be a force of nature.
Good Luck and Good Trading.
New Highs!
https://www.madhedgefundtrader.com/wp-content/uploads/2018/06/Trailing-one-year-return-story-2-image-1.jpg489610MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2018-06-04 01:06:172018-06-04 01:06:17The Market Outlook for the Week Ahead, or New All-Time Highs and New All-Time Highs
The shares of FANGs are all about to double in value in the Silicon Valley if commercial real estate is any indication of the future growth rates.
The group is gobbling up office space at such a prodigious rate that only a vast expansion of their business would justify these massive long-term commitments.
Commercial real estate commitments are one of the most valuable leading indicators of stock performance out there. They show what the companies themselves think are their future prospects.
Apparently, the stock market agrees with me. Technology is virtually the only group of shares moving to new all-time highs in these otherwise dismal trading conditions.
Just this month Facebook (FB) signed a lease for the entire brand new 43-story Park Tower in downtown San Francisco, and that's just to house its Instagram business.
Google (GOOGL) is leasing 39% of the office space in Mountain View, CA. It is currently in negotiations with the nearby city of San Jose to build a skyscraper occupying an entire city block that will house 10,000 tech workers. It also is building another 1 million square feet near an old prewar dirigible landing strip in Moffett Park.
Apple (AAPL) is hogging some 69% of the office space in Cupertino, CA. It is just now moving into its new massive spaceship-inspired headquarters, where 10,000 workers will slave away. The world's largest company is currently on the hunt for a second headquarters location.
Netflix is slowly gobbling up Los Gatos, CA. It was recently joined by the set top device company Roku (ROKU), which is growing by leaps and bounds.
Fruit canning was the original industry of Silicon Valley at the turn of the 20th century, taking advantage of the surrounding peach, plum, and apricot groves. When I was a kid after WWII, defense firms such as Lockheed (LMT) took over, creating thousands of high-paying engineering jobs.
It didn't hurt that Stanford University was spitting distance away, and the University of California was just on the other side of the bay. These two schools supplied the manpower to fuel the hypergrowth ahead.
To say the growth has caused local headaches would be an understatement in the extreme. The San Francisco Bay Area now sports the world's most expensive residential housing. The median San Francisco home price has skyrocketed to $1,334,000 and requires an annual income of $334,000 to support it.
Small businesses such as dry cleaners, nail salons, restaurants, and barber shops have been driven out by soaring rents. It's not uncommon now to go out to dinner only to find a "closed" sign on your favorite nightspot. Your personal assistant now has to travel miles just to get your suits pressed.
As for traffic, forget about it. Rush hour has ceased to exist. Freeways are now jammed a nonstop 12 hours a day in the worst neighborhoods.
Success has its price, and this was never truer than in Silicon Valley.
The New Apple HQ
Where Instagram Now Lives
https://www.madhedgefundtrader.com/wp-content/uploads/2018/05/APPLE-HQ-story-2-image-6-e1527804149789.jpg326580MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2018-06-01 01:07:092018-06-01 01:07:09Why Your FANG Stocks are About to Double in Value
Is gold your best performing asset for the next five years? Is it high-growth technology stocks? Energy stocks? Or maybe biotech shares?
How about French collectable postage stamps or vintage racing cars?
Nope, you're not even close. I'll give you a hint: You're probably sitting in it.
Yes, the best performing investment you will own for the next five years will most likely be the home you live in.
Psshaww you may say. Perhaps even balderdash! However, if you look at the crucial data that drives this long-ignored sector, my conclusions are unassailable.
If fact, you can pretty much count on your home to appreciate at a 3% to 4% annual rate until well into the next decade, and much more if you are fortunate enough to live on the red hot west coast.
Net out the copious tax breaks that still come with home ownership, and your take home will be even higher than that.
This beats the daylights out of stocks (SPY) (1.84% yield), 10-year Treasury bonds (TLT) (2.85%) and approaches junk bonds (HYG) (5.74%) in terms of the potential returns.
For a start, the Federal Reserve's go-slow policy on interest rate rises is hugely pro housing.
The conventional 30-year fixed home mortgage can now be had for a bargain 4.5%. And many finance their properties with the 5/1 ARMs that I have been recommending, which are currently going for only 3.25%.
Worried about what happens in five years when the interest rate is reset? Just refinance during the next recession, which will almost certainly happen well before then, and you'll probably get a lower rate than you can get now.
That is, assuming you still have a job.
The good news for those homeowners who rely on the floating rates of an adjustable rate mortgage is that this is not a low interest rate decade, but a low interest rate century.
Another positive is weekly jobless claims of 222,000 at 43-year low, and a decade low unemployment rate of 4.0%, meaning that a lot more people have the income with which to purchase homes, far more than only a couple of years ago.
Not only will this be a low interest rate century, it will be a low energy cost century as well. If solar energy costs continue their dramatic rate of improvement, around 50% every four years, it will nearly be free by 2030.
Not only will free energy provide a big underpinning under home values. It will also increase the value of suburban homes where commuting is a major factor.
It gets better.
You know that Millennial of yours who's been living in your basement since he graduated from college?
Go downstairs and take a look. Chances are he probably moved out when you weren't looking, turning his prodigious gaming skills into a high-paying coding job.
What's more, he's now dating a girl. You know, the one with the nose ring, the streak of purple hair, and tattoos up and down both arms?
That leads to family formation. And you know what? The most important trend affecting the economy that no one knows about is that THE UNITED STATES IS ABOUT TO ENJOY ANOTHER BABY BOOM!
That's why new household formations are likely to jump from the current 1.2 to 1.5 million a year in the coming decade.
However, only 1 million homes a year are being built, thanks to the halving of construction capacity in the aftermath of the Great Recession. Subtract from that 250,000 houses a year that get demolished.
Does anyone hear the words "short squeeze"?
That means 85 million Millennials will be chasing the homes of only 65 million Gen Xer's. Here in the San Francisco Bay Area they are showing up at weekend open houses and paying cash for beautiful $3 million homes with great views, writing the check right on the spot.
Americans aren't the only ones buying homes. Some 8% of all the real estate sold in the U.S. in 2017 was to foreign investors, largely Chinese and Hispanics, according to the National Association of Realtors. That is an all-time high. They view U.S. real estate as a great asset protection strategy.
Are you convinced now? Are you ready to jump into the real estate boom and participate more than just through your residence?
Fortunate, there are a number of ways you can achieve this.
You can also go into traditional new homebuilders, such as KB Homes (KBH), Pulte Homes (PHM), and DH Horton (DHI). Another option is to take a basket approach by picking up the iShares U.S. Home Construction ETF (ITB).
See you at the next open house!
https://www.madhedgefundtrader.com/wp-content/uploads/2018/05/Open-house-story-3-image-5-e1527803775253.jpg199300MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2018-06-01 01:06:222018-06-01 01:06:22Here is Your Top-Performing Investment for the Next Five Years
Those planning a European vacation this summer just received a big gift from the people of Italy.
Since April, the Euro (FXE) has fallen by 10%. That $1,000 Florence hotel suite now costs only $900. Mille grazie!
You can blame the political instability on the Home of Caesar, which has not had a functioning government since March. The big fear is that the extreme left would form a coalition government with the extreme right that could lead to its departure from the European Community and the Euro. Think of it as Bernie Sanders joining Donald Trump!
In fact, Italy has had 61 different governments since WWII. It changes administrations like I change luxury cars, about once a year. Welcome to European debt crisis part 27.
I can't remember the last time markets cared about what happened in Europe. It was probably the first Greek debt crisis in 2011. This month, 10-year Italian bond yields have rocketed from 1% to 3%. But they care today, big time.
Given the reaction of the global financial markets, you could have been forgiven for thinking that the world had just ended.
U.S. Treasury Bond yields (TLT) saw their biggest plunge in years, off 15 basis points to 2.75%. The Dow Average ($INDU) collapsed by $500 to $24,250, with interest sensitive banks such J.P. Morgan Chase (JPM) and Bank of America (BAC) delivering the worst performance of the day.
Even oil prices collapsed for an entirely separate set of reasons - so far, the best performing commodity of 2018. The price of Texas Tea pared 10% in a week.
Saudi Arabia looks like it is about to abandon the wildly successful OPEC production quotas that have been boosting oil prices for the past year, and there are concerns that Iran will withdraw from the nuclear non-proliferation treaty. The geopolitical premium is back with a vengeance.
So, if the Italian developments are a canard why are we REALLY going down?
You're not going to like the answer.
It turns out that rising inflation, interest rates, oil and commodity prices, the U.S. dollar, U.S. national debt, budget deficits, and stagnant wage growth are a TERRIBLE backdrop for risk in general and stocks specifically. And this is all happening with the major indexes at the top end of recent ranges.
In other words, it was an accident waiting to happen.
Traders are extremely nervous, global uncertainty is high, the seasonals are awful, and Washington is s ticking time bomb. If you were wondering why I was issuing so few Trade Alerts in May these are the reasons.
This all confirms my expectation that markets will remain in increasingly narrow trading ranges for the next six months until the mid-term congressional elections.
Which is creating opportunities.
If you hated bonds at a 3.12% yield from two weeks ago, you absolutely have to despise them at 2.75% today. That's why I added outright bond put options today to my model trading portfolio.
Stocks are still wildly overvalued for the short term, so I'll keep my short position there. As for oil (USO), gold (GLD), and the currencies, I don't want to touch them here.
So watch for those coming Trade Alerts. I'm not dead yet, just resting.
Waiting for My Shot
https://www.madhedgefundtrader.com/wp-content/uploads/2018/05/JT-playing-pool-story-1-image-6-e1527632226975.jpg239300MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2018-05-30 01:07:092018-05-30 01:07:09Italy's Big Wake-Up Call
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