Global Market Comments
June 2, 2020
Fiat Lux
Featured Trade:
(CYBERSECURITY IS ONLY JUST GETTING STARTED),
(PANW), (HACK), (FEYE), (CSCO), (FTNT), (JNPR), (CIBR)
Global Market Comments
June 1, 2020
Fiat Lux
Featured Trade:
(JOIN THE JUNE 4 TRADERS & INVESTORS SUMMIT),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE COUNTRY THAT IS FALLING APART),
(SPX), (INDU), (TLT), (TBT), (GLD),
(AAPL), (FB), (JPM), (BAC)
As much as I loved hosting my annual Mad Hedge Lake Tahoe Conferences, it looks like this year, it is not meant to be. I doubt guests are racing to get on airplanes anytime soon. The desire to sit shoulder to shoulder with your fellow investors has also probably waned as well, no matter how profitable they may be.
I am therefore hosting the Thursday, June 4 Mad Hedge Traders & Investors Summit.
The event will be bigger and better than the old analog bricks and mortar version. I will be hosting nine expert traders from all over the world speaking on the hour every hour starting from 9:00 am EDT.
Some of these speakers I have known for decades. Every trading style and asset class will be covered, including stocks, bonds commodities, foreign exchange, precious metals, energy, and real estate. It will be the best investment educational opportunity of the year.
I will also be offering $100,000 in prizes to attendees in the form of free subscriptions to my newsletters, as well as those of the other speakers.
I will be at Lake Tahoe, and you will be wishing you were here. As far as I know, human viruses can’t travel over the Internet….yet.
To register for the event and view the list of speakers and their topics, please click here.
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
Back Into Storage for Next Year
Global Market Comments
May 29, 2020
Fiat Lux
Featured Trade:
(JOIN THE JUNE 4 TRADERS & INVESTORS SUMMIT),
(THE CONTINUING DEATH OF RETAIL),
(AMZN), (WMT), (M), (JWN),
(TESTIMONIAL)
Global Market Comments
May 28, 2020
Fiat Lux
Featured Trade:
(THE IRS LETTER YOU SHOULD DREAD),
(PANW), (CSCO), (FEYE),
(CYBR), (CHKP), (HACK), (SNE)
Global Market Comments
May 27, 2020
Fiat Lux
Featured Trade:
(JOIN THE JUNE 4 TRADERS & INVESTORS SUMMIT),
(IT’S NOT YOU FATHER’S MARINE CORPS)
This being the week for Memorial Day, I think I will be forgiven for posting one more military piece.
Most Americans don’t know that the US Marine Corps is the oldest government institution in the United States. It was founded at Tun Tavern on Water Street in Philadelphia on November 10, 1775, nearly eight months before the establishment of the country itself on July 4, 1776.
Their original mission was to act as snipers from the top of ships’ masts against British ships, engage in hand-to-hand combat when boarding the enemy, and preventing mutinies by press-ganged crews. It was truly a different age.
Having been involved with the USMC for nearly 50 years in many forms, following in the footsteps of my father in WWII and my grandfather in WWI, I can tell you than many Marines have not strayed far from a bar since.
During the past 245 years, the Marine Corps has built a storied reputation as an elite force of shock troops which will fight anywhere at any time. They literally went into battle from the “shores of Montezuma to the shores of Tripoli”, according to the Marine Corps Hymn.
Over the past century, my own family has served at Belleau Wood, France, where the Germans gave them their nickname, the “Devil Dogs.” Dad was at Guadalcanal, Bougainville, Samoa, and New Zealand.
My own contribution included Cambodia, Guam, Japan, Thailand, Burma, Laos, Croatia, Serbia, Iraq, Kuwait, Saudi Arabia, and most recently, Guadalcanal. We have a family footlocker of war souvenirs to die for. Yes, three months ago I was digging out Japanese bullets fired at dad from his foxhole at the base of Hill 27 (click here for the link).
Now, for the first time in nearly three centuries, the Corps is undergoing radical change. Since 1990, it has been primarily engaged in desert warfare in the Middle East, far from its naval roots. Now that the US has largely withdrawn from this part of the world, it is remaking itself to meet future challenges. In short, it is going back to sea.
In 2018, the Pentagon engaged in a ground-up rethink of its mission. It concluded that “great power competition with China and Russia” would become its primary mission. The consequences are earth-shaking for both the USMC and the country as a whole.
The emergence of high-precision Chinese long-range missiles has rendered an American WWII style dominance of the Western Pacific by our ten aircraft carriers obsolete. These massive, majestic ships manned by 5,000 men each have become white elephants and liabilities in future warfare.
They will be replaced by fast-moving commando-type companies of 50-150 Marines moving atoll to island and bottling up the Chinese Navy with high tech drones, rockets, and anti-ship missiles. The traditional 12-man rifle company platoon is gone. The costly carriers will be reduced to safer support roles thousands of miles at sea.
The implications for the USMC are far-reaching. General David H. Berger, the gentleman who sent me to Guadalcanal, has proposed cutting the Corps from 186,000 to 170,000 men. He will eliminate most artillery, all tanks, and cut the number of F-35 fighters by 30%. The new structure would be designed to work anywhere in the world at a moment’s notice. You can never predict the next crisis, so you have to prepared for all contingencies.
During my reserve days, I once commanded a Marine tank battalion on maneuvers. The indestructible M-1 Abrams tanks were powered by turbine engines, possessed a faultless laser sighting system, and drove like a Cadillac right of the assembly line over the cruelest desert terrain.
But at 50 tons each, they are hard to move around in a hurry. During Desert Shield and Desert Storm, we had to enlist a coal-fired WWII mothball fleet to get them to Saudi Arabia and even that took six months.
As for the 155 mm howitzer, they have been outmoded since WWII. All-weather Boeing AH64D Apache Longbow helicopters are far more mobile and effective and can refuel air to air. But every weapons system breeds its own constituency. Everyone agrees with me except artillerymen.
In the end, it will be politics that determines the future of the Marine Corps. Constancies fight bitterly to hold on to antiquated weapons system to preserve jobs. I remember that during Desert Storm, a Florida congressman fought tooth and nail to keep a massive Humvee contract even though with no armor, they were helpless against IEDs. Hundreds of Marines died as a result.
The same will be true for M1 tanks built in Ohio, the F-35 Lightning II manufactured in Texas, and nuclear-powered aircraft carriers in Virginia.
Notice these are all battleground states in this election. How you vote may determine where I next serve. So, vote carefully.
To participate in the discussion of our future national defense, please click here.
Semper Fidelis.
An Old Marine on Guadalcanal
Global Market Comments
May 26, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LOOKING FOR THE NEW AMERICA),
(FB), (AAPL), (NFLX), (GOOGL), (MSFT), (TSLA), (VIX)
We are getting some tantalizing tastes of the new America that will soon arise from the wreckage of the pandemic.
Companies are evolving their business models at an astonishing rate, digitizing what’s left and abandoning the rest, and taking a meat cleaver to costs.
The corporate America that makes it through to the other side of the Great Depression will earn far more money on far fewer sales. That has been the pattern of every recession for the past 100 years.
While the pandemic may take earnings down from $162 per S&P 500 share in 2019 to only $50 in 2020, it sets up a run at a staggering $500 a share during the coming Roaring Twenties and Golden Age. All surprises will be to the upside and anything you touch will make you look like a genius.
For example, Target’s online sales have exploded 153%, allowing customers to order their groceries online and pick them up at curbside. (TGT) pulled this off in a mere three weeks. Without a pandemic, it would have taken three years to implement such a radical idea, if ever.
Survival is a great motivator.
The (SPY) has been greatly exaggerating the public’s understanding of the stock market. Five FANGs and Tesla (TSLA) with 50%-200% moves off the bottom have made the index look irrationally strong.
The fact is that the majority who have shares have not even made a 50% retracement of this year’s losses. A lot of stocks, especially the reopening ones, are still crawling back of subterranean bottoms.
Investors now have the choice of chasing wildly expensive stocks that have already had spectacular runs, or cheap ones that will go bankrupt by the end of the year. It is a Hobson’s choice for the ages. I expect 10% of the S&P 500 to go under by the end of 2020.
I am spending a lot of time on the ground talking to businesses in California and Nevada and have come to two conclusions. They cannot fathom the true depth of the Depression we are now in and are greatly underestimating the length of time it may take to recover. We may not see the headline unemployment rate under 10% for years unless the government redefines the statistics, which they always do.
The S&P 500 is not the economy. It only employs 25% of America’s private sector labor force accounting for 20% of its total costs. Real estate accounts for another 15%. That leaves 35% of costs that can be completely eliminated or reengineered. This creates enormous share price upside possibilities.
The concentration of the market is the most extreme I have ever seen, with five stocks getting most of the action, (FB), (AAPL), (NFLX), (GOOGL), and (MSFT).
There is a staggering $3.6 trillion in equity allocations sitting on the sidelines in cash. All those who got out at the March bottom are now desperately trying to get back in at the May top. Algorithms are making sure you get out cheap and get back expensive.
It will all end in tears.
One of the stunning developments of the crash has been the near doubling of retail stock trading. Options trading has increased even more. Millions of stimulus check recipients have poured their newfound wealth into the stock market instead of spending it on consumer goods, like they were supposed to.
This explains the over-concentration on the five FANG stocks, (FB), (AAPL), (NFLX), (GOOGL), and (MSFT), the greatest momentum stocks are out age, but in high speculative ones like Tesla (TSLA). The lowest cost online platforms like Tastytrade (click here) and Robin Hood (click here).
All of this is completely irrevocably changing the character of the stock market, perhaps permanently. This may also explain why the Volatility Index remains stuck above$26.
Fed Governor Jerome Powell said no recovery without vaccine, and that’s without a second wave. It could be a long wait. In the meantime, the Atlanta Fed said Q2 US GDP will be down -42%, the weakest quarter in American history. We find out mid-July.
Housing Starts collapsed by 30.2% in April, in the sharpest drop on record. But prices aren’t falling. There is still a massive bid under the market from still-employed millennials. Your home could be you best performing asset this year. The 30-year fixed rate mortgage at 3.0% is a big help.
Weekly Jobless Claims topped 2.4 million, taking the two-month total to a breathtaking 39 million. One out of four Americans is now unemployed, matching the Great Depression peak. US deaths just topped 98,000, 21 times China’s fatality rate where the disease originated and with four times our population. People will keep losing jobs until the death rate peaks, which could be many months, or years.
Leading Economic Indicators crashed by 4.4% for April, showing the economy is still in free fall. So, how much more stock do you want to buy here?
Up to 60% of mall tenants aren’t paying rent, with $7.4 billion skipped in April alone. See my earlier “Death of the Mall” piece. It’s another harsh example of the epidemic accelerating all existing trends.
The market is not reflecting the long-term damage to the economy, says my old buddy and Morgan Stanley colleague David Gerstenhaber. When the bailouts run out, the economy could go into free fall. It could take years to get below 10% unemployment rate again, as many of the layoffs and furloughs are permanent. Keep positions small. Anything could happen. I spent the 1987 crash with David.
Existing Home Sales cratered an incredible 17.8% in April to an annualized 4.88 million units, the largest one-month drop since 2010. Inventory dropped to an all-time low of only 1.7 million, down 19.7%, presenting a 4.1-month supply. Sellers failed to list and those who had a home took them off. Unbelievably, this pushed median home prices to a new all-time high of 286,000, up 7.4% YOY. The biggest sales fall in the west, where the US epidemic started.
China took over Hong Kong, suspending most civil liberties in response to Trump’s multiple attacks. And you know what? There is nothing we can do about it that hasn’t already been done. Talk about going into battle with no dry powder. I’m sure the US 7th Fleet will be out there soon to provoke an attack. Anything to distract attention from the 100,000 Americans who died from Covid-19 on Trump’s watch. As if markets didn’t already have enough to worry about.
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 had another fabulous week, up an awesome +4.97%, and blasting us up to a new eleven-year all-time high of 77%. It has been one of the most heroic performance comebacks of all time.
My aggressive short bond positions really delivered some nice profits, despite the fact the bond market went almost nowhere. That’s because time decay for the June 19 expiration is really starting to kick in. I also got away with a small long in the bond market for the second time in two weeks.
That takes my 2020 YTD return up to +10.86%. That compares to a loss for the Dow Average of -12.6%. My trailing one-year return exploded to 50.85%, nearly an all-time high. My eleven-year average annualized profit exploded to +35.21%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here at https://coronavirus.jhu.edu.
On Monday, May 25, I’ll be leading the neighborhood veterans parade for Memorial Day. Markets are closed.
On Tuesday, May 26 at 9:00 AM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, May 27, at 4:30 PM, weekly EIA Crude Oil Stocks are published.
On Thursday, May 28 at 8:30 AM, Weekly Jobless Claims are announced. We also get the second estimate for the Q1 GDP is printed. At 10:00 AM, April Pending Home Sales are announced.
On Friday, May 29, at 2:00 PM, the Baker Hughes Rig Count follows at 2:00 PM.
As for me, I will be hitting the town beaches at Lake Tahoe for the first time this spring, mask in hand, where waitresses serve you mixed drinks on order. Outdoors will be the only safe place this year.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
