Posts

July 30, 2019

Global Market Comments
July 30, 2019
Fiat Lux

Featured Trade:

(THE IDIOT’S GUIDE TO INVESTING),
(TSLA), (BYND), (JPM)
(THE SECRET FED PLAN TO BUY GOLD),
(GLD), (GDX), (PALL), (PPLT),

The Idiot’s Guide to Investing

My usual method of coping with nine hours of jet lag from Zermatt, Switzerland to San Francisco is to sit back, watch some golden oldies on the screen, and contemplate the state of the financial markets.

I just finished watching Von Ryan’s Express (1965), and Frank Sinatra got shot in the back. It was a timely movie for me to revisit because I rode the exact Italian Alpine rail lines used in the film only two days ago and recognized some of the precise scenery and rail junctions used by the filmmakers.

What would you do if I recommended an investment strategy that would cause your accountant to disown you, your inheritance-anticipating children to sue you, and your wife to file for divorce?

Chances are you would designate all my future mailings as SPAM, unfriend me on Facebook, and tear my card out of your Rolodex.

Well, here it is anyway. I’ll call it my “Ignore All Risk” portfolio. It’s really quite simple. This is all you have to do:

1) Buy stocks that have already gone up the most, boast the highest year-to-date performance, and have momentum overwhelmingly on their side. Only do what everyone else is doing. Go for the easy trade.

2) Buy stocks with the highest price earnings multiples. I’m talking mid-to-high double digits.

3) Lean towards stocks with the highest short interest, such as Tesla (TSLA) at 30% and Beyond Meat (BYND) at 20%.

4) Avoid all cryptocurrency bets, like Bitcoin. In fact, avoid all financials, period.

5) Ignore all valuations and fundamentals. Don’t waste a minute reading a single page of research, especially from an old-line legacy broker. Seeking Alpha, where none of the information is independently verified, is a far better source of information than JP Morgan (JPM).

6) Big institutions should allocate all of their assets only to their youngest traders and portfolio managers. Old farts, or anyone with any memory or experience whatsoever, should be completely ignored. A person who’s never seen a stock go down is now your best friend.

7) Oh, and there is one more thing. Go hugely overweight bonds over equities in the face of unprecedented and massive government borrowing at all-time low-interest rates.

Any professional manager pursuing an approach like this would surely get fired, lose all of their securities registrations and licenses, and get banned from the industry for life.

But there is one big offset to these career-ending consequences. They would also be the top-performing money manager of the year, beating the pants off of all competitors. Every investment they made this year worked.

They would be regarded as a trading genius on par with Paul Tudor Jones and Appaloosa’s David Tepper. If they invested their own money using this strategy, they would be so filthy rich they wouldn’t care what happened to themselves.

We are now in an environment where EVERY trade is crowded, the they in equities, fixed income, or foreign exchange. The metaphors coming to mind are legion. There are too many passengers on one side of the canoe. The lemmings are mindlessly stampeding towards a giant cliff. I could go on.

Of course, incredible excess liquidity is to blame. That is the only time both stocks AND bonds go up at the same time. The world’s central banks have been flooding the globe with cash for over a decade now. The end result has been to undervalue all assets classes, be they paper or hard. Cash is trash, especially in Japan and Europe where you have to PAY banks to take your money.

The fact is that shares with the fastest price appreciation over the past 12 months are trading at valuations that are almost 25% higher than normal.

I have traded and invested through all of this before; the Nifty Fifty of the early 1970s, the Great Japan Bubble of the 1980s, the Dotcom Bubble of the 1990s, and of course the 2007 bubble top. And there is one thing all of these market apexes have in common. They inflated a lot longer than anyone expected, sometime FOR YEARS!

You could be conservative, go into 100% cash, and just stay on the sidelines until mass group thinks, hysteria, and insanity leave the market. But that could be a very long time.

And after more than a half century in this business, there is one thing I know for sure. Traders who don’t trade, investors who don’t invest, and newsletters that don’t recommend all have one thing in common. THEY GET FIRED. Just because investing gets hard is no reason to quit the market.

The Japanese have a great expression for this: “When the fool is dancing, the greater fool is watching.” So, I’m going to start dancing away. What will it be? The cha cha, the limbo, or the Watusi?

Hmmmm. Let me see. Let me Google what everyone else is doing. While I’m at it, I think I’ll try to score some ticket to the 2020 Tokyo Olympic opening ceremony.

 

 

 

 

June 14, 2019

Global Market Comments
June 14, 2019
Fiat Lux

Featured Trade:

(WEDNESDAY JUNE 26 BRISBANE, AUSTRALIA STRATEGY LUNCHEON)
(MAY 29 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (BYND), (AMZN), (GOOG), (AAPL), (CRM), (UT), (RTN), (DIS), (TLT), (HAL), (BABA), (BIDU), (SLV), (EEM)

June 12 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader June 12 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Do you think Tesla (TSLA) will survive?

A: Not only do I think it will survive, but it’ll go up 10 times from the current level. That’s why we urged people to buy the stock at $180. Tesla is so far ahead of the competition, it is incredible. They will sell 400,000 cars this year. The number two electric car competitor will sell only 25,000. They have a ten-year head start in the technology and they are increasing that lead every day. Battery costs will drop another 90% over the next decade eventually making these cars incredibly cheap. Increase sales by ten times and double profit margins and eventually, you get to a $1 trillion company.

Q: Beyond Meat (BYND)—the veggie burger stock—just crashed 25% after JP Morgan downgraded the stock. Are you a buyer here?

A: Absolutely not; veggie burgers are not my area of expertise. Although there will be a large long-term market here potentially worth $140 billion, short term, the profits in no way justify the current stock price which exists only for lack of anything else going on in the market. You don’t get rich buying stocks at 37 times company sales.

Q: Are you worried about antitrust fears destroying the Tech stocks?

A: No, it really comes down to a choice: would you rather American or Chinese companies dominate technology? If we break up all our big tech companies, the only large ones left will be Chinese. It’s in the national interest to keep these companies going. If you did break up any of the FANGS, you’d be creating a ton of value. Amazon (AMZN) is probably worth double if it were broken up into four different pieces. Amazon Web Services alone, their cloud business, will probably be worth $1 trillion as a stand-alone company in five years. The same is true with Apple (AAPL) or Google (GOOG). So, that’s not a big threat overhanging the market.

Q: Is it time to buy Salesforce (CRM)?

A: Yes, you want to be picking up any cloud company you can on any kind of sizeable selloff, and although this isn’t a sizeable selloff, Salesforce is the dominant player in cloud plays; you just want to keep buying this all day long. We get back into it every chance we can.

Q: Do you think the proposed merger of United Technologies (UT) and Raytheon (RTN) will lower the business quality of United Tech’s aerospace business?

A: No, these are almost perfectly complementary companies. One is strong in aerospace while the other is weak, and vice versa with defense. You mesh the two together, you get big economies of scale. The resulting layoffs from the merger will show an increase in overall profitability.

Q: I had the Disney (DIS) shares put to me at $114 a share; would you buy these?

A: Disney stock is going to go up ahead of the summer blockbuster season, so the puts are going to expire being worthless. Sell the puts you have and then go short even more to make back your money. Go naked short a small non-leveraged amount Disney $114 puts, and that should bring in a nice return in an otherwise dead market. Make sure you wait for another selloff in the market to do that.

Q: What role does global warming play in your bullish hypothesis for the 2020s?

A: If people start to actually address global warming, it will be hugely positive for the global economy. It would demand the creation of a plethora of industries around the world, such as solar and other alternative energy industries. When I originally made my “Golden Age” forecast years ago, it was based on the demographics, not global warming; but now that you mention it, any kind of increase in government spending is positive for the global economy, even if it’s borrowed. Spending to avert global warming could be the turbocharger.

Q: Why not go long in the United States Treasury Bond Fund (TLT) into the Fed interest rate cuts?

A: I would, but only on a larger pullback. The problem is that at a 2.06% ten-year Treasury yield, three of the next five quarter-point cuts are already priced into the market. Ideally, if you can get down to $126 in the (TLT), that would be a sweet spot. I have a feeling we’re not going to pull back that far—if you can pull back five points from the recent high at $133, that would be a good point at which to be long in the (TLT).

Q: Extreme weather is driving energy demand to its highest peak since 2010…is there a play here in some energy companies that I’m missing?

A: No, if we’re going into recession and there’s a global supply glut of oil, you don’t want to be anywhere near the energy space whatsoever; and the charts we just went through—Halliburton (HAL) and so on—amply demonstrate that fact. The only play here in oil is on the short side. When US production is in the process of ramping up from 5 million (2005) to $12.3 million (now), to 17 million barrels a day (by 2024) you don’t want to have any exposure to the price of oil whatsoever.

Q: What about China’s FANGS—Alibaba (BABA) and Baidu (BIDU). What do you think of them?

A: I wanted to start buying these on extreme selloff days in anticipation of a trade deal that happens sometime next year. You actually did get rallies without a deal in these things showing that they have finally bottomed down. So yes, I want to be a player in the Chinese FANGS in expectation of a trade deal in the future sometime, but not soon.

Q: Silver (SLV) seems weaker than gold. What’s your view on this?

A: Silver is always the high beta play. It usually moves 1.5-2.5 times faster than gold, so not only do you get bigger rallies in silver, you get bigger selloffs also. The industrial case for silver basically disappeared when we went to digital cameras twenty years ago.

Q: Does this extended trade war mean the end for emerging markets (EEM)?

A: Yes, for the time being. Emerging markets are one of the biggest victims of trade wars. They are more dependent on trade than any of the major economies, so as long as we have a trade war that’s getting worse, we want to avoid emerging markets like the plague.

Q: We just got a huge rebound in the market out of dovish Fed comments. Is this delivering the way for a more dovish message for the rest of the year?

A: Yes, the market is discounting five interest rate cuts through next year; so far, the Fed has delivered none of them. If they delayed that cutting strategy at all, even for a month, it could lead to a 10% selloff in the stock market very quickly and that in and of itself will bring more Fed interest rate cuts. So, it is sort of a self-fulfilling prophecy. The bottom line is that we’re looking at an ultra-low interest rate world for the foreseeable future.

Good Luck and Good Trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

June 11, 2019

Global Market Comments
June 11, 2019
Fiat Lux

Featured Trade:

(BEYOND RATIONAL), (BYND)
(PLEASE USE MY FREE DATA BASE SEARCH)
(HOW TO AVOID PONZI SCHEMES)

Beyond Rational

A classic sign of a topping market is when it irrationally focuses on a small, insignificant stock, taking it up to incredible heights.

That is exactly what is going on with Beyond Meat (BYND), a manufacturer of vegetarian meat alternatives. The company’s claim to fame is that their hamburgers taste merely OK, instead of disgusting, as have all previous hamburger alternatives.

On the strength of this, the shares have risen a spectacular 660% since the initial public offering on May 4. It is far and away the top performing exchange-listed stock of 2019.

Certainly, the company founders have to feel like they were mugged by lead managers JP Morgan (JPM) and Credit Suisse. Pricing at $25 a share there was a ton of money left on the table. On the other hand, the shares they still own, thanks to the lock-up period, have gone up 6.6-fold in a month. It is a nice problem to have.

Never mind that the stuff is made up of Water, Pea Protein Isolate, Expeller-Pressed Canola Oil, Refined Coconut Oil, and Contains 2% or less of the following: Cellulose from Bamboo, Methylcellulose, Potato Starch, Natural Flavor, Maltodextrin, Yeast Extract, Salt, Sunflower Oil, Vegetable Glycerin, Dried Yeast, Gum Arabic, and Citrus Extract.

If you broke conventional beef down into its constituent chemical components, they would include a lot of toxic long-chain unsaturated fats and synthetic hormones, not exactly great for your long term health.

And laugh as you might at fake meat, the fact is there is a huge future for the alternative meat industry. The average American eats 200 pounds of meat a year, an all-time high, and consumption is rising. So far, alternatives account for less than 0.1% of that.

It takes six weeks to grow a conventional chicken. You can ferment the same exact protein cells in large scale bioreactors in only six days with no need for antibiotics. This makes possible enormous reductions in costs. Your next steak may not be grown on a ranch, it may be brewed.

The antibiotics fed cattle to maximize yields and profits is rendering conventional antibiotics useless. Modern pathogens are rapidly evolving to become resistant, if not immune. Within a decade. They may not be useful for treating human diseases at all.

There will also be enormous support from environmentalists for a move from the farm to the industrial lab. You know that quarter pounder with cheese you had for lunch? It required 500 gallons of fresh water to produce. No kidding.

Cattles are thought to be the source of 25% of the world’s carbon dioxide emissions. Conventional ranching also creates immense mountains of manure. I know, I used to shovel it.

Beyond Meat founder Ethan Brown says he commissioned the University of Michigan to study his inputs. They concluded that his alternative burgers produced 90% fewer greenhouse gases and used 93% less land than conventional ones.

Given the eye-popping performance of (BYND), there certainly is going to be a deluge of copycats and camp followers floating stock. Wall Street will feed the geese when they are quacking. (BYND) will not be the last artificial meat company you are invited to buy.

I think synthetic meat will find its main market in low-end fast food restaurants, like McDonald’s (MCD), Carl’s Jr., and Wendy’s (WEN), and in the poorer emerging markets where taste is not an option.

However, creating a high-end steak of the type found on Morton’s and Ruth Chris Steak House would be a stretch. There will always be demand for these, albeit at much higher prices.

Make mine medium rare.

What are Brown’s favorite alternative meat recipes? He loves a hamburger-based, spaghetti-based bolognaise, and his breakfast sausages are to die for.