Global Market Comments
December 11, 2019
Fiat Lux
Featured Trade:
(WHAT TO BUY AT MARKET TOPS?),
(CAT), ($COPPER), (FCX), (BHP), (RIO),
(EUROPEAN STYLE HOMELAND SECURITY),
(TESTIMONIAL)
Tag Archive for: (FCX)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader December 4 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: How do you see the markets playing out in 2020?
A: Well, I’m looking at small single-digit positive returns with a lot of volatility. Much of this year’s performance—30% in the S&P 500 (SPY), up 56% for the Mad Hedge Fund Trader—has already been pulled forward from 2020, thanks to super low interest rates and massive deficit spending. So, the more money we make now, the less money we make next year.
Q: How deep will the next recession be?
A: I’m looking for two quarters of small negative numbers like -0.1% or -0.2%, and then it’s off to the races again. That’s when the Golden Age of the Next Roaring Twenties starts, which I have already written a book about (click here).
And it’s possible we may not even see any negative numbers on a quarterly basis; we may just get close to zero, threatening it without actually breaking it. Of course, you could still get a 20% correction in the overall stock market if they only THINK we are going into recession, which has happened many times in the last 10 years.
Q: Are you expecting a market crash?
A: No; I do expect a meaningful pullback but frankly, right now, I do not see the conditions in place for that. None of the traditional causes of recessions, high-interest rates or high oil prices, are evident yet. The biggest threat to the market right now is the 2020 presidential election. And we are at a 14-year high in stock valuations.
Q: How bad will it get for car makers, and will the Tesla (TSLA) plant in Germany affect sales for European cars?
A: European carmakers have already been badly affected by Tesla, with Tesla taking over practically the entire luxury end of the market—that’s why companies like Mercedes, Audi and BMW are doing so badly with their shares, and they’re so far behind it’s unlikely they’ll ever catch up. The Berlin factory, I believe, is a battery factory, and after that, there will be a vehicle production factory, probably somewhere in eastern Europe where the cost basis is much lower.
Q: Double Line Capital’s CEO Jeff Gundlach says the US will get crushed in the next recession? Do you agree with him?
A: Well, my first advice to you is never take stock advice from a bond trader. Jeff Gundlach makes these spectacular forecasts, but the timing can be terrible. He can be wrong for 9 months before they finally turn. So, you can go out of business trading off of Jeff Gundlach’s stock advice, though his bond advice is valuable.
Q: Do you have any good recommendations for dividend stocks?
A: Yes, look at the entire cellphone towers REIT sector. That will be a growth sector next year with 5G rolling out and they have very high dividend yields. We’re going to get a significant increase in the number of cell towers thanks to 5G, and there are REITs specifically dedicated to cellphone towers. An example is Crown Castle (CCI), which has a generous 3.45% dividend yield.
Q: Are we in the final stages of a blow-off top for the stock market?
A: Yes, but blow-off tops can continue for many months, so don’t rush to sell short. However, next time the VIX gets down to 11, start buying six-month call options on the Volatility Index (VIX) at the $20 strike price. Go far out in the calendar to minimize time decay and far out of the money on strike prices to maximize your bang per buck.
Q: Gold had a nice day on Monday—is this the start of a reversal from the selling pressure?
A: No, as long as the market is pushing to new highs, which it seems to be doing—you don’t want to be anywhere near gold; wait for a better opening lower down.
Q: Are you sending Trade Alerts out on the Mad Hedge Biotech & Healthcare letter?
A: Not in the form that we see in Global Trading Dispatch or the Mad Hedge Technology Letter. Essentially, everything we’ve put out so far has been a long term buy. Most people know nothing about these sectors and we’re trying to get them into buyable names. So far, we’ve issued “BUYS” for 20 different companies; all of them have gone straight up. So, it’s really more of a long term buy-in hold situation. Since we’re in the very early days of the boom in biotech and healthcare stocks, you don’t want to leave money on the table with short term trade alerts for call spreads when there is a double or triple in the stock at hand. We are doing call spreads in the main market where most stocks are already at all-time highs in order to limit our risk.
Q: Fidelity just said that 50% of baby boomers who manage their own portfolio should rebalance it. What do you think is the best way to optimize my portfolio, as a baby boomer born in 1954?
A: You should always rebalance every year, especially when you get enormous moves in single sectors. The interesting thing this year is that everything went up, so you may not need to rebalance that much. When I say rebalance, I’m referring to rebalancing your weightings of stocks vs bonds. If you’re over 50, you want to have roughly a 50/50 ratio on those. That would suggest pairing back some of your equity weightings, increasing your bond weighting because stocks (SPY) (30% total return) have risen a lot more than bonds (TLT) (19% total return) this year.
Q: Marijuana stock Tilray (TLRY) has just had a pitiful year going from $100 to $20 and missed earnings targets for 4 for straight quarters. Could this go to zero?
A: Yes; after all, how hard is it to grow a weed? I never bought the story on the whole marijuana sector, not only because they are not allowed to participate in the financial sector. It’s an all-cash business; you hear about people moving around suitcases full of $100 bills doing deals in Oakland and Denver. I believe anybody can do this. My real estate agent is quitting his business to go into cannabis farming. Additionally, they’re getting a lot of competition from the black market where everybody used to buy their marijuana because it’s tax-free. There’s about a 40% price difference between the tax-paying legal form of marijuana and the tax-free black market where people used to get their marijuana. There’s no great value added there. It’s not like they’re designing a 96 stack microprocessor.
Q: What do you think about Ali Baba (BABA), the Chinese internet giant?
A: I love it long term. Short term, it will be subject to trade war gyration; so use the big dips to buy into it because long term we come out of this.
Global Market Comments
December 2, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or 2020 IS ALREADY HAPPENING),
(TSLA), (X), (GE), (FCX), (SLB), (GOOGL), (MSFT), (GLD)
You know the melt-up that is going on in the stock market right now? That is your 2020 performance being pulled forward.
One thing I have noticed over the past half-century of trading is that when market participants agree on a direction, it gets accelerated. Once the traditional October selloff failed to show, it was pedal to the metal to achieve new all-time highs.
Traders have become so overconfident that they have already completed this year’s performance and are now working on next year's. They are in effect pulling performance forward from 2020.
This historic run is taking place in the face of year-on-year earnings growth that is zero. ALL of the 29% price appreciation in the S&P 500 (SPY) in 2019 has been due to multiple expansion, from 14 times earnings to 19 times, a 20-year high. Market multiples rising by 50% anytime is almost unprecedented in history. I can only recall that happening twice: in 1929 and 1999.
So, that leaves only two possibilities for 2020. Either the multiple rises to a new 20-year multiple high, say to 20, 21, or 22, or the stock market goes down.
With a trade war-induced global economic slowdown still unfolding, don’t expect any respite from a sudden earnings recovery. Enjoy 2019 because the more we go up now means the more we will go down in 2020.
Were you waiting for the euphoria to make a market top? This is it. Sharply rising markets in the face of sharply falling earnings can only end in tears.
Needless to say, risk in the stock market is very high right now.
Jay Powell gave the market another boost, promising to hit the Fed’s 2% inflation target, giving plenty of room for wage hikes. The last inflation reading was 1.7% YOY. He might as well have said Dow 29,000 by yearend. I wish it were always this easy.
Hong Kong stalled the rally with the passage of a pro-democracy support by congress, with sanctions. China is warning of “firm countermeasures.” That throws cold water on any trade deal for 2019. New all-time highs for stocks may have to take a vacation.
US Q3 GDP was revised up to 2.1%, an improvement of 0.2% from the last read. The trade war seems to be costing us 1% of growth a year or about one-third of the total. That’s why we’re getting such a strong stock market move on the possibility of a trade deal. No-deal means lookout below.
Durable Goods came in at 0.6% in October, a nine-month high and better than expected. What does this week’s spate of positive data means, the first in many months? Is the recession risk over? If so, how much is already in the price?
Stocks love a steepening yield curve, with long term interest rates rising faster than short term ones. It puts the recession talk on hold, if not in abeyance.
It’s time to go dumpster diving, as the upside breakout in the Russell 2000 demonstrated last week. So, it’s time to start looking at the forlorn and the ignored of this bull market, like US Steel (X), General Electric (GE), Freeport McMoRan (FCX), and Schlumberger (SLB). There are no fundamentals in any of these names, they’ve just been down for so long anything looks like up from here. The liquidity-driven bull market has to find some fresh meat to rotate into, even temporarily, or it will die.
S&P Case Shiller rose 3.2% in September, the third consecutive month of price increases. Only San Francisco is showing falling prices. Phoenix (6.0%), Charlotte (4.6%), and Tampa (4.5%) are showing the greatest prices rises. Only a shortage of inventory is preventing prices from rising faster, now at a record low of 3.9 months. The builders who went under ten years ago aren’t building anymore.
New Home Sales drop 0.7%, in October, but are still up a massive 31.6% YOY. Sales in the northeast and south plunged, while those in the Midwest and west rise. The seasonally adjusted annual rate is 733,000 units. The Median Home Price fell 3.6% to $316,700. A 30-year fixed-rate mortgage at 3.66% is a major factor.
Merger mania in drug land continues, with the Novartis takeover of The Medicines Co. for $9.7 billion. It wants to take on Amgen (AMGN), Regeneron (REGN), and Sanofi in the heart drug space. No wonder this is the top-performing sector since I launched the Mad Hedge Biotech and Healthcare Letter.
Tesla shattered, both windows and sales records with an incredible 250,000 cyber trucks sold in a week. It’s one of the largest consumer orders in history, second only to the Tesla Model 3 launch four years ago. I may get one myself to make the Lake Tahoe run on a single 500-mile charge. Keep buying (TSLA) on dips. It is the clearest ten bagger out there.
Who is the mystery gold (GLD) buyer? Someone made a massive bet in the options market that gold will rise above $4,000 an ounce in 18 months. It would take a 32% move just to get gold back to its old $1,927 high. If the trade war continues, we may get it.
This was a week for the Mad Hedge Trader Alert Service to burst upon new all-time highs. I know this sounds boring, but I made all the money long technology stocks. This is net a -2.16% loss on my short position in Tesla (TSLA). If I’d only held on two more days this would have been a big winner over the disappointment over the shocking Cyber truck design. My long positions have shrunk to my core (MSFT) and (GOOGL).
By the way, running out of positions at a market top is a good thing.
My Global Trading Dispatch performance held steady at +352.76% for the past ten years, pennies short of an all-time high. My 2019 year-to-date catapulted back up to +52.62%. We closed out November with a respectable +3.07% profit. My ten-year average annualized profit ground back up to +35.28%.
The coming week will be hot with the jobs data trifecta.
On Monday, December 2 at 8:00 AM, the ISM Manufacturing PMI for November is out.
On Tuesday, December 3 at 2:30 PM, the API Crude Oil Stocks are announced.
On Wednesday, December 4, at 6:15 AM, the private sector ADP Employment Report is published.
On Thursday, December 5 at 8:30 AM, the Weekly Jobless Claims are printed.
On Friday, December 6 at 8:30 AM, the November Nonfarm Payroll Report is released.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I am going to battle my way through the blizzards at Donner Pass this weekend to get back to the San Francisco Bay Area. There, I’ll be helping the local Boy Scout troop to set up their Christmas tree lot. The enterprise helps finance all the camping trips for the coming year.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 15, 2019
Fiat Lux
Featured Trade:
(NOVEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (TSLA), (FXI), (SPY), (AAPL), (M), (BA), (TLT)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader November 13 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Has the multiyear decline in commodities ended, such as for Freeport McMoRan (FCX)?
A: Yes, for the short term. However, we will almost certainly have another recession scare—or even election scare—sometime next year. That will cause a retest of the recent lows in commodities. The volatility will continue, but the long-term trend is up. The next recession will likely be so short that people will start discounting the recovery now. If you’re only looking for a 2-quarter recession and have a long-term view of your stocks, you probably want to use any kind of dips to buy now. A lot of the recent buying in Tesla (TESLA), by the way, has been of that nature.
Q: Will the US eventually drop all tariffs on Chinese imports (FXI), or do you see the US raising them?
A: I think eventually they will solve the trade war next year, right in front of the election—maybe June/July/August—so that Trump has something to run on. It’s too early to solve it now for political purposes. The whole trade war was essentially designed to depress the economy and then bring in Trump as the savior right before the election, and that has all tariffs disappearing sometime next year. By the way, some of the buying in the market now is discounting the end to the uncertainty of the trade war. So, either that or it ends when Trump leaves office—in either case, that’s 15 months off. Many big institutions think in timeframes much longer than that.
Q: Can the US consumer bring us through the holiday season to have equities (SPY) finish at all-time highs?
A: Yes, they can; I thought we might get a dip to trade off of in Oct/Nov, but we haven't gotten it. It’s looking more and more like a melt-up into year-end, even though it’s a slow-motion melt-up of 50 or 100 points a day.
Q: Will Apple (AAPL) keep going up every day forever?
A: No, don’t forget that Apple can have 40% pullbacks at any time without warning. Usually, they happen with new product launches. I would think we’re getting overextended here. If we somehow get a 10% or 20% pullback in Apple next year, I’d be jumping back into that for the product launch next September when we’ll likely hit $200, which has been my target for Apple for a very long time.
Q: Is it time to make a short term buy of beaten-down retail names like Macy’s (M)?
A: No, I am a person who trades with the long-term trend at all times. Most people are not agile or smart enough to do counter-trend trades and make money, and the risk/reward is also terrible—you make a mistake, you get killed on those. I think this company’s having a going-out-of-business sale, unless we enter a major increase in economic growth in this country, which is nowhere in the cards. If anything, I’m looking for a sharp rally to sell into. Macy’s might want to test that 200-day moving average up there at $20 at some point; that would be a great selling place. But no, we don’t want to touch the retailers right here, and retailers have been very kind to us this year on the short side.
Q: Do you see the United States US Treasury Bond Fund (TLT) as a safe-haven buy at today’s prices, or are bonds overpriced?
A: I think we’re getting the safe-haven bid as a hedge against stocks selling off. Wildly overbought Mad Hedge Market Timing Indexes are also great places to buy bonds because when you finally get the correction in the stock market, money piles into bonds, and you want to be buying the (TLT) before it does that.
Q: Is Boeing (BA) a short for the next 6 months?
A: No, I think the short play on Boeing is over. If we do get another run down to $325, take it as a gift and load the boat. I think the next major move in Boeing is to $400. Buy the dips.
Q: Do you think the Fed will cut one more time before the year is over, or will they hold off?
A: They will hold off—Powell said as much in this morning’s speech. He really said that not only will there be no more cuts this year, but next year as well, because we are essentially eating our seed corn when it comes to the next recession if we do cut rate because that means there will be no tools with which to get out of the recession.
Q: Are you seeing stocks rising to the end of the year, into the first of next year? If so, will there be a pullback during November before a final rise?
A: Yes we are seeing stocks rise to the end of the year; and you would think we will see some kind of pullback, but we have so much liquidity chasing so few stocks now, any pullbacks may be limited.
Q: (TLT) is called the iShares Barclay 20+ year bond fund. In your trade alerts, you talk about 10-year yields. How are the 10-year yields linked to the (TLT)?
A: There isn't a liquid 10-year bond ETF. There are ETFs but they’re fairly illiquid, so I put everyone into the 20-year (TLT) purely for liquidity reasons.
Q: What about going outright long on the (TLT)?
A: That’s not a bad option; the only problem with outright longs is you make no money if we grind sideways for a while, whereas with the options trade, you get in all the time decay. And we only did the December's, which have about 27 days left in them in trading time.
Q: Tesla just announced it will open a Berlin factory—what does this mean for Tesla and the share providers?
A: Well, it creates the means by which Tesla can increase its production from 400,000 cars this year to 5,000,000 cars a year in 10 years. And it’s just one other factory; expect more to come. Interestingly, their first choice was actually Great Britain, but Brexit scared them out of there.
Q: Do you think Silicon Valley should be a judge on political advertising?
A: I think Silicon Valley should not allow publication of obviously false content which they do now. That’s something the mainstream media are not allowed to do or they will get fined by the Federal Communications Commission. That ban does not apply to social media companies like Facebook (FB) and Twitter (TWTR) but should be as they are vastly more powerful than conventional media. Without it, you'll continue to see massive amounts of false information put out on the Internet. I can see the fake info clearly, but most can’t. I saw a statistic yesterday saying that roughly 50% of all information you read on the internet is false.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 18, 2019
Fiat Lux
Featured Trade:
(OCTOBER 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (C), (GM), (IWM), ($RUT), (FB),
(INTC), (AA), (BBY), (M), (RTN), (FCX), GLD)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 16 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: How do you think the S&P 500 (SPX) will behave with the China trade negotiations going on?
A: Nobody really knows; no one has any advantage here and logic or rationality doesn’t seem to apply anymore. It suffices to say it will continue to be up and down, depending on the trade headline of the day. It’s what I call a “close your eyes and trade” market. If it’s down, buy it; if it’s, upsell it.
Q: How long can Trump keep kicking the can down the road?
A: Indefinitely, unless he wants to fold completely. It looks like he was bested in the latest round of negotiations because the Chinese agreed to buy $50 billion worth of food they were going to buy anyway in exchange for a tariff freeze. Of course, you really don’t get a trade deal unless you get a tariff roll back to where they were two years ago.
Q: Did I miss the update on the Citigroup (C) trade?
A: Yes, we came out of Citigroup a week ago for a small profit or a break-even. You should always check our website where we post our trading position sheet every day as a backstop to any trade alerts you’re getting by email. Occasionally emails just go completely missing, swallowed up by the ether. To find it go to www.madhedgefundtrader.com , log in, go to My Account, Global Trading Dispatch, then Current Positions. You can also find my newly updated long-term portfolio here.
Q: How much pain will General Motors (GM) incur from this standoff, and will they ever reach a compromise?
A: Yes, the union somewhat blew it in striking GM when they had incredibly high inventories which the company is desperate to get rid of ahead of a recession. If you wonder where all those great car deals are coming from, that's the reason. All of the car companies want to go into a recession with as little inventory as possible. It's not just GM, it’s everybody with the same problem.
Q: When does the New Daily Position Sheet get posted?
A: About every hour after the close each day. We need time to process our trades, update all the position sheets before getting it posted.
Q: What do you think about Bitcoin?
A: We hate it and don’t want to touch it. It’s unanalyzable, and only the insiders are making money.
Q: Are you predicting a repeat of Fall 2018 going into the end of this year to close at the lows?
A: No, I’m not. A year ago, we were looking at four interest rate increases to come. This year we’re looking at 1 or 2 more interest rate cuts. It’s nowhere near the situation we saw a year ago. The most we’re going to get is a 7% selloff rather than a 20% selloff and if anything, stocks will rise into the yearend then fall.
Q: Why are we trading the Russell 200 (IWM) instead of the ($RUT) Small Cap Index? We pay less commissions to brokers.
A: There's more liquidity in the (IWM). You have to remember that the combined buying power of the trade alert service is about $1 billion. And that’s harder to do with smaller illiquid ETFs like the ($RUT), especially the options.
Q: If this is a “Don’t fight the Fed” rally for investors, where else is there to go but stocks?
A: Nowhere. But it’s happening in the face of an oncoming recession, so it’s not exactly a great investment opportunity, just a trading one. 2009 was a great time not to fight the Fed.
Q: Do you want to buy Facebook (FB) even though there are so many threats of government scrutiny and antitrust breakups?
A: The anti-trust breakups are never going to happen; the government can't even define what Facebook does. There may be more requirements on disclosures, which means nothing because nobody really cares about disclosures—they just click the box and agree to anything. I was actually looking at this as a buy when we had the big selloff at the end of September and instead, I bought four other Tech stocks and (FB) had moved too far when we got around to it. I think there’s upside potential for Facebook, especially if we can move out of this current range.
Q: Would you sell short European banks? It seems like they’re cutting jobs right and left.
A: I always get this question after big market meltdowns. European banks have been underpricing risks for decades and now the chickens are coming home to roost. Some of these things are down 80-90% so it’s too late to sell short. The next financial crisis is going to be in Europe, not here.
Q: Is it time to short Best Buy (BBY) due to the China deal?
A: No, like Macys (M), Best Buy is heavily dependent on imports from China, and the stock has gotten so low it’s hard to short. And the problem for the whole market in general is all the best sectors to short are already destroyed, down 80-90%. There really is nothing left to short, now that all the bad sectors have been going down for nearly two years. There has been a massive bear market in large chunks of the market which no one has really noticed. So, that might be another reason the market is going up—that we’ve run out of things to short.
Q: Do you like Intel (INTC)?
A: Yes, for the long term. Short term it still could face some headwinds from the China negotiations, where they have a huge business.
Q: Would you buy American Airlines (AA) on the return of Boeing 737 MAX to the fleet?
A: Absolutely, yes. The big American buyers of those planes are really suffering from a shortage of planes. A return of the 737 MAX to the assembly line is great news for the entire industry.
Q: Do you like Raytheon (RTN)?
A: No, Trump has been the defense industry’s best friend. If he exits in the picture, defense will get slaughtered—it will be the first on the chopping block under a future democratic administration. And, if you’re doing nothing but retreating from your allies, you don't need weapons anyway.
Q: Will Freeport McMoRan (FCX) benefit from a trade war resolution?
A: Yes, the fact that it isn't moving now is an indication that a trade war resolution has not been reached. (FCX) has huge exposure to traditional metal bashing industries like they still have in China.
Q: Would you go long or short gold (GLD) here?
A: No, I'm waiting for a bigger dip. If you can get in close to the 200-day moving average at $129.50, that would be the sweet spot. Longer term I still like gold and it is a great recession hedge.
Good Luck and Good Trading!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Yes, I Still Like Gold
Global Market Comments
October 17, 2019
Fiat Lux
Featured Trade:
(UPDATING THE MAD HEDGE LONG TERM MODEL PORTFOLIO),
(USO), (XLV), (CI), (CELG), (BIIB), (AMGN), (CRSP), (IBM), (PYPL), (SQ), (JPM), (BAC), (EEM), (DXJ), (FCX), (GLD)
Global Market Comments
July 26, 2019
Fiat Lux
Featured Trade:
(JULY 24 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (VIX), (VXX), (UUP), (TLT), (EEM), (ELD), (CEW), (GLD),
(FXA), (FXE), (FXC), (FXY), (FXB), (AMZN),
(TESTING TESLA’S SELF DRIVING TECHNOLOGY),
(TSLA)
