Posts

September 24, 2018

Global Market Comments
September 24, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S FED WEEK),
(SPY), (XLI), (XLV), (XLP), (XLY), (HD), (LOW), (GS), (MS), (TLT),
(UUP), (FXE), (FCX), (EEM), (VIX), (VXX), (UPS), (TGT)
(TEN TIPS FOR SURVIVING A DAY OFF WITH ME)

August 10, 2018

Global Market Comments
August 10, 2018
Fiat Lux

Featured Trade:
(AUGUST 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TBT), (PIN), (ISRG), (EDIT), (MU), (LRCX), (NVDA),
(FXE), (FXA), (FXY), (BOTZ), (VALE), (TSLA), (AMZN),
(THE DEATH OF THE CAR),
(GM), (F), (TSLA), (GOOG), (AAPL)

July 17, 2018

Global Market Comments
July 17, 2018
Fiat Lux

(WHERE THE ECONOMIST "BIG MAC" INDEX FINDS CURRENCY VALUE),
(FXF), (FXE), (FXA), (FXY), (CYB),
(CATCHING UP WITH DOWNTON ABBEY),
(TESTIMONIAL)

June 25, 2018

Global Market Comments
June 25, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR IS THIS A 1999 REPLAY?),
(AAPL), (FB), (NFLX), (AMZN), (GE), (WBT),
(JOIN ME ON THE QUEEN MARY 2 FOR MY JULY 11, 2018 SEMINAR AT SEA),
(JUNE 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SQ), (PANW), (FEYE), (FB), (LRCX), (BABA), (MOMO), (IQ), (BIDU), (AMD), (MSFT), (EDIT), (NTLA), Bitcoin, (FXE), (SPY), (SPX)

May 15, 2018

Global Market Comments
May 15, 2018
Fiat Lux

Featured Trade:
(FRIDAY, JUNE 15, 2018, DENVER, CO, GLOBAL STRATEGY LUNCHEON)
(GET READY FOR THE COMING GOLDEN AGE),
(SPY), (INDU), (FXE), (FXY), (UNG), (EEM), (USO),
(TLT), (NSANY), (TSLA)

March 22, 2018

Global Market Comments
March 22, 2018
Fiat Lux

Featured Trade:
(THE FED SIGNALS HALF SPEED AHEAD),
(TLT), (UUP), (FXE), (FXY), (FB),
(WHY YOU WILL LOSE YOUR JOB IN THE NEXT FIVE YEARS, AND WHAT TO DO ABOUT IT)

Where The Economist ?Big Mac? Index Finds Currency Value

My former employer, The Economist, once the ever tolerant editor of my flabby, disjointed, and juvenile prose (Thanks Peter and Marjorie), has released its ?Big Mac? index of international currency valuations.

Although initially launched by an imaginative journalist as a joke three decades ago, I have followed it religiously and found it an amazingly accurate predictor of future economic success.

The index counts the cost of McDonald?s (MCD) premium sandwich around the world, ranging from $7.20 in Norway to $1.78 in Argentina, and comes up with a measure of currency under and over valuation.

What are its conclusions today? The Swiss franc (FXF), the Brazilian real, and the Euro (FXE) are overvalued, while the Hong Kong dollar, the Chinese Yuan (CYB), and the Thai Baht are cheap.

I couldn?t agree more with many of these conclusions. It?s as if the august weekly publication was tapping The Diary of the Mad Hedge Fund Trader for ideas.

I am no longer the frequent consumer of Big Macs that I once was, as my metabolism has slowed to such an extent that in eating one, you might as well tape it to my ass. Better to use it as an economic forecasting tool, than a speedy lunch.

Buns for you buck

FXF
FXE
CYB

McDonalds - ChinaThe Big Mac in Yen is Definitely Not a Buy

Will ?Brexit? Cause the Next Recession?

Economists around the world have been scanning the horizon with their high powered Zeiss binoculars in search of the cause of the next global recession.

It has been a conundrum of the first order because a recession has NEVER taken place in the face of LOW interest rates and LOW oil prices.

However, we may have just found the trigger.

The possible impending departure of the United Kingdom from the European community has cataclysmic implications for economies everywhere.

We?ll know for sure when the referendum is held on June 23.

Yikes! I?ll be in England then!

The move is being driven by the same factors present in the American Republican Party presidential nomination race.

Working class Brits have lost jobs to a tidal wave of immigrants from the rest of the EC, whose common passports allow unfettered access to Old Blighty.

Take a weekend trip to London, and chances are that the desk clerk is from Poland, the porter is from Croatia, the waitress is from Italy, and the cleaning ladies are from Spain and Greece.

Actual Englishmen are to be found only in distant suburbs, or in unemployment offices.

The recent influx of immigrants from the Middle East has also placed a massive strain on the country?s social services resources.

Visit your local neighborhood National Health GP, and you will share the waiting room with foreign refugees missing arms or legs, or bearing near fatal combat injuries. It?s almost like visiting a wartime MASH unit.

Net net, the view is that EC membership is costing England jobs and money, probably in the billions of pounds per year.

As with the US, the populist view is at odds with the economic reality.

While the UK is a net contributor to the Brussels budget, that misses the point. It is greatly outweighed by the additional economic growth generated by EC membership.

Goods flow freely, duty free between all 23 member countries.

A manufacturer in Birmingham, Leeds, or Manchester doesn?t think twice about jumping on the Channel train to call on customers in Paris, Munich, or Copenhagen.

I often sit next to them during my summer continental travels and also get an update on whatever business they may be in.

A British departure would take nearly 20 years of business integration and dump it into the dustbin of history.

That would be a crushing loss for the British economy, which would lose much of the nearly ?200 billion pounds worth of exports it sent to the EC in 2015. These exports have grown at an impressive 3.6% a year for the past 15 years.

It would also deliver a fatal blow to the City of London, the financial center for all of Europe and one of its largest employers.

I can see the dominoes fall from here.

Europe would lose a similar amount of trade with the UK, taking a chunk out of GDP growth there.

A weak Europe brings a stumbling China, which relies on the continent as its largest customer (yes, even bigger than the US). And a wobbling China will certainly torpedo US exports, increasing volatility in our own financial markets.

In fact, the EC is the world?s largest economic entity. It is hard to see trouble there not spreading everywhere.

The turmoil is already easily visible in the foreign exchange markets. The British pound (FXB) has suffered a gut churning 10.5% nosedive over the past four months to a new ten year low. It has also smothered in the crib the recent rally in the Euro (FXE).

A newly resurgent dollar (UUP) is starting to once again cast a shadow over US multinational earnings.

It seems like the UK is determined to shrink to a smaller country, either by hook or crook.? Only last year, Scotland mounted a campaign to split off from the UK, an effort that eventually failed.

However, it is another one of those cases of being careful what you wish for.

How do you spell ?GLOBAL RECESSION??

Caveat Emptor

EU Trade

Level of Annual GDP

FXB

FXE
UUP

Man with BinocularsI Don't See Anything Yet

The Case for Europe

I have been to Greece many times over the past 45 years, and I?ll tell you that I just love the place. The beaches are perfect, the Ouzo wine enticing, and I?ll never say ?No? to a good moussaka.

However, I don?t let Greece dictate my investment strategy.

Greece, in fact, accounts for less than 2% of Europe?s GDP. It is not a storm in a teacup that is going on there, but a storm in a thimble. Greece is really just a full employment contract for financial journalists, who like to throw around big words like bankruptcy, default and contagion.

I have other things to worry about.

In fact, I am starting to come around to the belief that Europe is looking pretty good right here. Cisco (CSCO) CEO, John Chambers, announced that he was seeing the early signs of a turnaround.

Fiat CEO, Sergio Marchionne, the brilliant personal savior of Chrysler during the crash, thinks the beleaguered continent is about to recover from ?hell? to only ?purgatory.?

Only a devout Catholic could come up with such a characterization. But I love Sergio nevertheless because he generously helps me with my Italian pronunciation when we speak (aspirapolvere for vacuum cleaner, really?).

What are the two best performing stock markets since the big ?RISK ON? move started last Thursday? Greece (GREK) (+5%) and Russia (RSX) (+7.5%)!

And here is where I come in with my own 30,000 foot view.

The undisputed lesson of the past five years is that you always want to own stock markets that are about to receive an overdose of quantitative easing.

Since the US Federal Reserve launched their aggressive monetary policy, the S&P 500 (SPY) nearly tripled off the bottom.? Look how well US markets have performed since American QE ended 18 months ago.

Europe has only just barely started QE, and it could run for five more years. Corporations across the pond are about to be force-fed mountains of cash at negative interest rates, much like a goose being fattened for a fine dish of foie gras (only decriminalized in California last year).

Mind you, it could be another year before we get another dose of Euro QE, which is why I just bought the Euro (FXE) for a short-term trade.

A cheaper currency automatically reduces the prices of continental exports, making them more competitive in the international markets, and boosting their economies. Needless to say, this is all great new for stock markets.

Get Europe off the mat, and you can also add 10% to US share prices as well, as the global economy revives. The Euro drag dies and goes to heaven.

Buy the Wisdom Tree International Hedged Equity Fund ETF (HEDJ) down here on dips, which is long a basket of European stocks and short the Euro (FXE). This could be the big performer this year.

Praise the Lord and pass the foie gras!

 

HEDJ

 

GREK

 

RSX

 

Foie Gras

 

It?s all a Matter of Perspective in Greece

The Great American Rot is Ending

Those of a certain age can?t help but remember that things for the US went to hell in a hand basket after 1963.

That?s when President John F. Kennedy was assassinated, heralding decades of turmoil. Race riots exploded everywhere. The Vietnam War ramped up out of control, taking 60,000 lives, and destroying the nation?s finances. Nixon took the US off the gold standard.

When people complain about our challenges now, I laugh to my self and think this is nothing compared to that unfortunate decade.

Two oil shocks and hyper inflation followed. We reached a low point when Revolutionary Guards seized American hostages in Tehran in 1979.

We received a respite after 1982 with the rollback of a century?s worth of regulation during the Reagan years. But a borrowing binge sent the national debt soaring, from $1 trillion to $18 trillion. An 18-year bull market in stocks ensued. The United States share of global GDP continued to fade.

Basking in the decisive victories of WWII, the Greatest Generation saw their country account for 50% of global GDP, the largest in history, except, perhaps, for the Roman Empire. After that, our share of global business activity began a long steady decline. Today, we are hovering around 22%.

Hitch hiking around Europe in 1968 and 1969 with a backpack and a dog-eared copy of Europe on $5 a Day, I traded in a dollar for five French francs, four Deutschmarks, three Swiss francs, and 0.40 British pounds.

When I first landed in Japan in 1974, there were Y305 yen to the dollar. Even after a strong year, the greenback is still down by 75% against these currencies, except for sterling. How things have changed.

We now live in a world where the US suddenly has the strongest economy, currency and stock market in the world. Are these leading indicators of better things to come?

Is the Great American Rot finally ending? Is everything that has gone wrong with the United States over the past half century reversing?

The national finances are hinting as much. Over the last four years, the federal budget deficit has been shrinking at the fastest rate in history, from $1.4 trillion to only $483 million.

If the economy continues to grow at its present modest 2.5% rate, we should be in balance by 2018. Then the national debt, which will peak at around $18 trillion, will start to shrink for the first time in 20 years.

And since chronic deflation has crashed borrowing costs precipitously, the cost of maintaining this debt has dramatically declined.

A country with high economic growth, no inflation, generationally low energy costs, a strong currency, overwhelming technology superiority, a strong military and political stability is always a fantastic investment opportunity.

It certainly is compared to the highly deflationary, weak currency, technologically lagging major economies abroad.

You spend a lifetime looking for these as a researcher, and only come up with a handful. Perhaps this is what financial markets have been trying to tell us all along.

It certainly is what foreign investors have been telling us for years, who have been moving capital into the US as fast as they can (click here for ?The New Offshore Center: America?).

It gets even better. These ideal conditions are only the lead up to my roaring twenties scenario (click here for ?Get Ready for the Coming Golden Age?), when over saving, under consuming baby boomers enter a mass extinction, and a gale force demographic headwind veers to a tailwind.

That opens the way for the country to return to a consistent 4% GDP growth, with modest inflation and higher interest rates.

Which leads us all to the great screaming question of the moment: Why is the US stock market trading so poorly this year? If the long term prospects for companies are so great, why have shares suddenly started performing feebly?

Not only has it gone nowhere for three months, market volatility has doubled, making life for all of us dull, mean and brutish.

There are a few short-term answers to this conundrum.

There is no doubt that the Euro and the yen have fallen so sharply against the greenback that it is hurting the earnings of multinationals when translated back to dollars.

This has cut S&P 500 earnings forecasts for the year. And these days, everyone is a multinational, including the Diary of a Mad Hedge Fund Trader, where one third of our subscribers live abroad.

Another short-term factor is the complete collapse of the price of oil. Again, it happened so fast, and was so unexpected, that it too is having a sudden deleterious influence of broader S&P earnings.

Go no further than oil giant Chevron, which just announced a big drop in earnings and a massive cut in its capital spending budget for 2016.

The final nail in the Q4 coffin has been bank earnings, which all took big hits in trading revenues. Virtually all were taken short by the huge, one-way rally in bond prices in recent months and the collapse of interest rates.

This happens when panicky customers come in and lift the banks? inventories, and trading desks have to spend the rest of the day, week and month trying to get them back at a loss.

I have seen this happen too many times. This is why the industry always trades at such low multiples.

With no leadership from the biggest sectors of the market, financials and energy, and with the horsemen of technology and biotech vastly overbought, it doesn?t leave the nimble stock picker with too many choices.

The end result is a stock market that goes nowhere, but with a lot of volatility. Sound familiar?

Fortunately, there is a happy ending to this story. Eventually, all of the short-term factors will disappear. Oil prices and bond yields will go back up. The dollar will moderate. Corporate earnings growth will return to the 10% neighborhood. And stocks will reach new highs.

But it could take a while to digest all of this. This is a lot of red meat to take in all at one time. If the market grinds sideways in a 15% range all year, and then breaks out to the upside once again for a 5% annual gain, most investors would consider this a win.

Once again, index investors will beat the pants off of hedge fund managers, as they have for the past seven years.

In the meantime, I doubt the stock indexes will drop more than 6% % from here, with the (SPY) at $189, and we have already seen a 6% hair cut from last year?s peak.?

Knock a tenth off a 16.5 X forward earnings multiple with zero inflation, cheap energy, ultra low interest rates and hyper accelerating technology, and all of a sudden, stocks look pretty cheap again.

As the super sleuth, Sherlock Homes used to say, ?When you have eliminated the impossible, whatever remains, however improbable, must be the truth?.

SPY 2-5-16

TLT 2-5-16

USO 2-5-1
6

GOLD 2-65-16

FXE 2-5-16

Holmes & WatsonIt?s All Elementary