Posts

September 18, 2019

Global Market Comments
September 18, 2019
Fiat Lux

Featured Trade:

(HOW TO HANDLE THE FRIDAY, SEPTEMBER 20 OPTIONS EXPIRATION),
(AMZN), (DIS), (FB), (MSFT), (VIX),
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT)

 

September 16, 2019

Global Market Comments
September 16, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or CHOPPY WEATHER AHEAD),
(SPY), (TLT), (FB), (GOOGL), (M), (C),
 (XOM), (NFLX), (DIS), (FXE), (FXI)

September 6, 2019

Global Market Comments
September 6, 2019
Fiat Lux

Featured Trade:

(SEPTEMBER 4 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (FXY), (FXB), (USO), (XLE), (TLT), (TBT),
(FB), (AMZN), (MSFT), (DIS), (WMT), (IWM), (TSLA), (ROKU), (UBER), (LYFT), (SLV), (SIL)

August 26, 2019

Global Market Comments
August 26, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TWEET THAT SANK A THOUSAND SHIPS),

(SPY), (TLT), (GOOGL), (FB), (DIS), MSFT), (WMT), (IWM)

August 12, 2019

Global Market Comments
August 12, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or
(CYB), (FXE), (TLT), (FXY), (COPX), (USO),
(GLD), (VIX), (FXB), (IWM0, (DIS), (CRB), (FB)
(A COW BASED ECONOMICS LESSON)

The Market Outlook for the Week Ahead

So, this is what the best trading week looks like.

Investors panicked. The hot money fled in droves. Predictions of escalating trade wars, recessions, and depressions abounded.

The bottom line for followers of the Mad Hedge Fund Trader? We picked up 4.4% on the week, as may make as much next week.

A number of trading nostrums were re-proven once again. That which can’t continue, won’t. When too many people gather on one side of the canoe, it will capsize. If you execute a trade and then throw up on your shoes, you know it will be a good one. I could go on and on.

The week also highlighted another trend. That is the market has become a one-trick pony. The focus of the market is overwhelmingly on technology, the only sector that can promise double digit growth for years to come. And it’s not just technology, but a handful of large cap companies. Investing has become a matter of technology on, or technology off.

This is always how bull markets end, be it the Nifty 50 of the early 1970s, Japanese stocks of the late 1980s, or the Dotcom Bubble of the 1990s.

It was a week that ran off fast forward every day.

China retaliated against the US in the trade war and stocks dove 900 points intraday. The Middle Kingdom imposed a total ban on all US agricultural imports and took the Yuan (CYB) down to a decade low to offset tariffs.

All financial markets and asset classes are now flashing recession and bear market warnings. The Mad Hedge Market Timing Index fell from 70 to 22, the steepest drop in recent memory. The US dollar dropped sharply against the Euro (FXE) and the Japanese yen (FXY). Oil (USO) went into free fall. Copper (COPX) collapsed to a new low for the year.

The New York Fed lowered its Q3 GDP growth to a lowly 1.56%, with the Atlanta Fed pegging 1.9%. Payrolls, orders, import/export prices, and trade are shrinking across the board, all accelerated by the ramp up in the trade war. Manufacturing and retailing are going down the toilet. Sow the wind, reap the whirlwind.

The German economy (EWG) is in free fall, as most analysts expect a negative -0.1% GDP figure for Q2. The fatherland is on the brink of a recession which will certainly spill into the US. That Mercedes Benz AMG S class you’ve been eyeing is about to go on sale. Great Britain (FXB) is already there, with a Brexit-induced negative -0.2% for the quarter.

Some 50% of S&P 500 dividends now yield more than US Treasury bonds. At some point, that makes equities a screaming “BUY” in this yield-starved world, but not quite yet. Is TINA (there is no alternative to stocks) dead, or is she just on vacation?

Ten-year US Treasury bonds (TLT) hit 1.61%, down an incredible 50 basis point in three weeks. Zero rates are within range by next year. The problem is that if the US goes into the next recession at zero interest rates, there is no way to get out. A decades-long Japanese style Great Depression could ensue.

Bond giant PIMCO too says zero interest rates are coming to the US. Too bad they are six months late from my call. It’s all a matter of the US coming into line with the rest of the world. The global cash and profit glut has nowhere else to go but the US. Much of the buying is coming from abroad.

Gold (GLD) hit a six-year high, as a rolling stock market panics drive investors into “RISK OFF” trades and downside hedges. While high interest rates are the enemy of the barbarous relic, low rates are its best friend and negative rates are even better. We are rapidly approaching century lows on a global basis.

Do your Christmas shopping early this year, except do it at the jewelry store and for your portfolio. Above $1,500 an ounce gold is beating stocks this year and the old all-time high of $1,927 is in the cards.

As I expected, August is proving to be the best short selling opportunity of the year. Not only can we make money in falling markets, elevated volatility means we can get into long side plays at spectacularly low levels as well.

With the Volatility Index (VIX) over $20, it is almost impossible to lose money on option spreads. The trick was to get positions off while markets were falling so fast.

The week started out with a rude awakening, my short in the US Treasury Bond Fund rising 1 ½ points at the opening. I covered that for a tear-jerking 3.26% loss, my biggest of the year. But I also knew that making money had suddenly become like falling off a log.

I fortuitously covered all of my short positions in the S&P 500 (SPY) and the Russell 2000 (IWM) right when the Dow average was plumbing depths 2,000-2,200 points lower than the highs of only two weeks ago. Then I went aggressively long technology with very short dated August plays in Walt Disney (DIS), Salesforce (CRM), and Facebook (FB).

My Global Trading Dispatch has hit a new all-time high of 324.78% and my year-to-date shot up to +24.68%. My ten-year average annualized profit bobbed up to +33.60%. 

I coined a blockbuster 6.31% so far in August. In a mere three weeks I shot out 12 Trade Alerts, 11 of which made money, bringing in a 10% profit net of the one-bond loss. All of you people who just subscribed in June and July are looking like geniuses.

The coming week will be a snore on the data front. Believe it or not, it could be quiet.

On Monday, August 12 at 11:00 AM EST, the Consumer Inflation Expectations for July are released.

On Tuesday, August 13 at 8:30 AM US Core Inflation for July is published.

On Wednesday, August 14, at 10:30 the IEA Crude Oil Stocks are announced for the previous week.

On Thursday, August 15 at 8:30 AM EST, the Weekly Jobless Claims are printed. At 9:15 we learn July Industrial Production.

On Friday, August 16 at 8:30 AM, the July Housing Starts are out.

The Baker Hughes Rig Count follows at 2:00 PM.

As for me, I’ll be headed to the Land’s End Music Festival in San Francisco this weekend and listen to many of the local rock groups. Hopefully, I will be able to unwind from the stress and volatility of the week.

Good luck and good trading.

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

 

 

 

 

 

 

 

You Need Special Glasses to Understand This Market

August 9, 2019

Global Market Comments
August 9, 2019
Fiat Lux

Featured Trade:

(AUGUST 7 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (XLK), (GLD), (DIS), (TLT),
 (FXA), (FXY), (VIX), (VXX), (UNG), (USO)

August 7 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader August 7 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Are we headed for a worldwide depression with today’s crash and interest rates?

A: No, I think the interest rates are more of an anomaly unique to the bond market. There is a global cash glut all around the world and all that money is pouring into bonds—not for any kind of return, but as a parking place to avoid the next recession. The economic data is actually stronger than usual for pre-recession indicators. US interest rates going to zero is just a matter of coming in line with the rest of the world. Three to six months from now we may get our final bear market and recession indicators.

Q: Do you think the market has more downside?

A: Yes; if the 200-day moving average for the (SPY) doesn’t hold, then you’re really looking at a potential 20% correction, not the 8% correction we have seen so far.

Q: Which sector would you focus on for any dips?

A: Technology (XLK). If they lead the downturn, they’re going to lead the upturn too. It’s the only place where you have consistent earnings growth going out many years. You’re really all looking for an opportunity to go back into Tech, but the answer is a firm not yet.

Q: Would you buy gold (GLD), even up here?

A: Only if you can take some pain. We’re way overdue for a correction on essentially everything—stocks, bonds, gold, commodities—and when we get it, you can get a real snapback on all these prices. The time to enter gold trade was really a month ago before we took off, and I’ve been bullish on gold all year. So, I think you kind of missed the entry point for gold just like you missed the entry point for shorts on the stock market last week. You only want to be selling decent rallies now. You don’t want to be selling into a hole that makes the risk/reward no good.

Q: What can you say about the (FXA) (the Australian dollar)?

A: It’s holding up surprisingly well given the carnage seen in the rest of the financial markets. I want to stand aside until we get some stability, at which point I think (FXA) will pop up back to the $71 level. New Zealand cutting their rates by 50 basis points really came out of the blue and could eventually feed into a weaker Aussie.

Q: Do you think China (FXI) has no reason to make a trade deal until the US elections?

A: Absolutely not; and this puts a spotlight on the administration’s total inexperience in dealing with China. I could have told you on day one: there’s no way they’re going to settle. Pride is a major factor in China. They have long memories of the opium wars and all the abuses they received at the hands of the western powers and are highly sensitive to any kind of foreign abuse. If you want to get the opposite of a settlement, do exactly what Trump is doing. The administration’s policy has no chance of accomplishing anything. He’s willing to take a lot more pain in the stock market until he gets a deal and that’s bad for all of us.

Q: How does the extra 10% tariff affect the market?

A: Think of everything you’re buying for Christmas; the price goes up 10%. That’s the effect, and it completely wipes out any earnings the retail industry might have had. It’s only bad. We are suffering less harm than China in the trade war, but we are suffering, nonetheless.

Q: Do you think volatility will spike soon?

A: It may very well have already spiked. I don’t think we’ll get a spike as high as in past selloffs because there’s a big short volatility industry that has come back. Any moves more than $30, you have short sellers come in there very quickly to hammer things back down. Also (VIX) isn’t necessarily something you want to be buying after the stock market has already dropped 8%. That train has left the station.

Q: Would a weaker dollar benefit the US economy?

A: Yes; it makes our exports cheaper on the global market. However, if the rest of the world is weakening their currencies as well, it will have no effect. Also, the last time this kind of currency war was attempted was in the early 1930s, and the outcome was the Great Depression.

Q: Defensive stocks—the China story is getting uglier?

A: In this kind of market, I’ve never been a big fan of defensive stocks like utilities or healthcare because defensive stocks go down in bear markets, just at a slower rate than growth stocks because they never went up in the first place. The best defensive stock is cash.

Q: If US interest rates are going to zero, how about buying leaps on (TLT)?

A: Multi-year highs is just not leap buying territory. Multiyear lows are where you buy LEAPS, which are Long Term Equity Participation Certificates. They are basically long-dated 1-2-year call options on stocks that are rising over the long term. The better trade—when we get to zero interest rates and it becomes impossible for rates to go any lower—would be to do a reverse leap. If (TLT) goes up to $200, I would do something like a $150-$160 on the put side betting that sometime over the next 2 years, interest rates go back up again and bonds go down. Too late for LEAPS on bonds, too early for LEAPS on equities.

Q: Do you buy out of the money LEAPS?

A: Yes; that is where you get the triple-digit returns. For example, you can buy the Walt Disney (DIS) June 2021 $150-$160 vertical bull call spread today for $3.30. If we close over $160 by then the spread will be worth $10, up 203% from your cost. And you only need a rise of 25% from here to get that return. This is why I love LEAPS, but only at medium term market bottoms.

Q: Is crude oil (USO) going to $25 on a barrel global slowdown fears?

A: I think you need an actual recession to go down to $25; in the current environment, $42 is a nice target. The basic problem is global structural oversupply and falling demand, which is a classically unfortunate combination for prices. 

Q: When will interest rates go to zero?

A: Sooner than later, I would say. My original guess was sometime next year but at the rate we’re going, we could be there by the end of the year.

Q: Would you get involved in natural gas (UNG)?

A: Absolutely not; this is the high season for natural gas right now when summer air conditioner use creates peak demand. It certainly has been hot this summer, especially on a global basis, and if you can’t rally natural gas in this environment you never will. There is also a huge contango in (UNG) which most people can’t beat.

 

 

 

 

August 7, 2019

Mad Hedge Technology Letter
August 7, 2019
Fiat Lux

Featured Trade:

(CORD-CUTTING IS ACCELERATING)
(DIS), (T), (NFLX), (CMCSA)

Cord-Cutting is Accelerating

Cord-cutting is picking up steam – that is the last thing traditional media want to hear.

There are several foundational themes that this newsletter has glued onto readers’ foreheads.

The generational pivot to cloud-based media is one of them.

It’s easy to denominate this phenomenon down to Netflix (NFLX) but in 2019, this trend is so much more than Netflix.

E-marketer published a survey showing that cord-cutters will surpass 20% of all U.S. adults by the end of 2019.

The rapid demise of traditional television has been equally as mind-numbing with the 100.5 million subscribers in 2014 turning into 86.5 million subscribers today.

Comcast (CMCSA) has tried to buck the trend by homing in on fast broadband internet, but that strategy can only go so far.

Disney (DIS), WarnerMedia, and NBCUniversal Disney have really gotten their ducks in a row and are on the verge of launching their own unique streaming services.

Disney’s service entails a 3-segment strategy bringing in Hulu and ESPN Plus to the Disney fold.

The Disney service will revolve around family content at its core so don’t expect Game of Thrones lookalikes.  

WarnerMedia’s hopes to cash in on its HBO brand while peppering it with original series and programming from Warner Bros. and DC.

Disney will be able to lean on family brands of Marvel, Star Wars, and Pixar, and newly acquired National Geographic.

Marvel Cinematic Universe is a growth asset pumping out more than $22 billion at the box office across 23 movies.

Disney Plus will also have a solid collection of Disney films to play with, which could make it indispensable to parents and comes with no ads making it even more appealing to kids.

Disney will also deploy some mix of bundles to diversify its offerings and personalize services for viewers who do not want its entire lineup of content.

The soon-to-be HBO Max will implement HBO original content along with WarnerMedia brands like Warner Bros., DC Entertainment, TBS, TNT, and CNN.

HBO Max will have a treasure trove of old Warner Bros. movies and TV shows, like “Friends” and “The Fresh Prince of Bel Air,” that has played extremely well on Netflix.

HBO will get those titles back at the end of 2019.

HBO has also tied up with BBC Studios to stream “Doctor Who.”

“You should assume that HBO Max will have live elements,” said Randall Stephenson, chairman and CEO of AT&T, on the company’s second quarter conference call.

This roughly translates into HBO Max snapping up live sports and music events to complement scripted content.

This is something that Netflix has shied away from and live events are best monetized through live ads.

The last big label service to go into effect is NBC’s yet to be named streaming service.

NBCUniversal will have the luxury of offering their cable subscribers a chance to pivot to an in-house online streaming service making the move seamless.

At first, the 21 million US cable-TV subscribers will receive the streaming content for free.

Some of the assets that will trot out on the NBC platform are “The Office,” because NBC is removing it from Netflix for 2021.

As cord-cutters hasten their move to streaming, this trio of loaded content-creating firms will benefit as long as they maintain a high quality of content and the pipeline to please fidgety consumers.