Global Market Comments
January 6, 2019
Fiat Lux
2020 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPX), (QQQQ), (XLF), (XLE), (XLY),
(TLT), (TBT), (JNK), (PHB), (HYG), (PCY), (MUB), (HCP)
(FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
(FCX), (VALE), (AMLP), (USO), (UNG),
(GLD), (GDX), (SLV), (ITB), (LEN), (KBH), (PHM)
Global Market Comments
December 20, 2019
Fiat Lux
Featured Trade:
(DECEMBER 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(BA), (CRSP), (BABA), (GLD), (PANW), (VIX), (VXX)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader December 18 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: What is the status of Boeing (BA) and when should I buy it?
A: Their 737 production was shut down because they literally ran out of space to park completed planes. They have something like 400 of them now sitting around on tarmacs all around northern Washington state. This is the worst-case scenario so it is a very tempting place to buy; I would do something like a February 2020 $250-$270 vertical bull call spread, make 10% in a month, and be conservative. If it weren’t year-end, and I didn’t already have my year in the bag, I would probably buy Boeing right here.
Q: Do you recommend CRISPR (CRSP) therapeutics as a buy?
A: Yes, but on a dip. I always hate buying stocks after they doubled. At some point in 2020, we will see correction in biotech stocks, and then you want to load the boat again. Here, I’m buying nothing.
Q: Is Palo Alto Networks (PANW) a buy at these levels?
A: Yes, it’s already had its correction—it’s one of the few stocks that are buyable at these levels. But I would do something like a call spread, which is limited risk. As far as a pairs trade with Palo Alto vs Nvidia…I would not touch that with a ten-foot pole, because you can’t know the internal nature of two companies like that well enough to buy one and sell short the other against it. You could really get destroyed on that pairs trade, so don’t make that mistake.
Q: Do you think the US dollar (UUP) will head higher or lower next year?
A: It will go a lot lower, as the chickens from all the government borrowing come home to roost. More borrowing brings a lower dollar, which brings lower everything in the US; all US dollar-denominated assets will get hurt, and this may be what eventually kills off the bull market in stocks. Start buying the Euro (FXE) on dips.
Q: What do you think about Boris Johnson winning the UK election?
A: It is a disaster and will lead to the end of Great Britain. Scotland will go independent, Northern Ireland will join the Republic of Ireland, and even Wales may break off and form its own country. So, England will be reduced to a tiny rump of a country with a much lower standard of living. It may take 10 years to happen, but that’s where it’s going.
Q: Does the recent positive housing data mean we aren’t having a recession in 2020?
A: Yes, in fact the market has been backing out of a 2020 recession for the last three months; and the leading sector in the recovery has been housing, caused partly by extremely low-interest rates but also partly by millions of new millennials pouring into the housing market for the first time. Finally, my basement is empty. That explains why the entry-level and middle level of the market are strong, and the high end is still decreasing in price.
Q: Back in August, the global economy looked to be stalling, yet it was a great time to buy stocks.
A: That is exactly when to buy stocks—when the economy is terrible. If you get used to buying on the bad news and selling on the good news you will do very well as a trader. Most people do the opposite—people were dumping stocks in August. And that of course was when we went with one of our rare 100% longs. By the way, this happens every August, which is why I take my vacations in July.
Q: Do you see a global slowdown during the melt-up?
A: Well, the economy is still slowing down. It never stopped slowing down—we’re probably looking at a 1.5% GDP this quarter. However, in liquidity-driven markets, you don’t look at fundamentals; you look at the amount of cash that is available to buy equities, that’s why you buy equities. That said, if we ever do get a real economic recovery, you might actually have stocks going down because a price-earnings multiple of 20X is not an ideal place to buy stocks.
Q: What do you prefer for a Volatility Index (VIX) trade?
A: An option on the iPath Series B S&P 500 VIX Short Term Futures ETN (VXX) is one. Go long dates, like a year, and deep out-of-the-money, like the $18 strike price, to minimize the hot from Time decay. If your (VIX) goes back up to $25 the (VXX) will soar to $27 and you will make a fortune.
However, if you have the facility to trade futures, then options on the futures in the VIX is how most professionals will trade that.
Q: Should we be worried about the Repo crisis as we approach the end of the quarter?
A: Absolutely, you should be worried—the Fed might have to come through with another round of quantitative easing in order to prevent a surprise overnight pop in interest rates to 5%. That’s what happened last quarter; it could certainly happen again. The basic problem is that the structure of the US debt markets aren’t built to handle the volume of borrowing that’s coming through from the US government, so with debt at an all-time high, we’re kind of in new territory here in terms of whether or not markets can actually handle that amount of borrowing. Total government borrowing next year will probably be $1.75 trillion dollars.
Q: What do you make of gold (GLD) at these levels?
A: Cheap but getting cheaper. You want to buy it the day the stock market peaks out in Q1 2020.
Q: Are Chinese equities a buy after the phase one trade deal?
A: Yes, and Alibaba (BABA) is probably your first pick in the Chinese area. During the whole trade war, the Chinese took significant action to stimulate their economy in order to offset the drag on trade. That stimulus is still out there, so we could see a reacceleration in the economy now that the trade war is no longer worsening.
Global Market Comments
December 17, 2019
Fiat Lux
Featured Trade:
(WEDNESDAY, FEBRUARY 5 MELBOURNE, AUSTRALIA STRATEGY LUNCHEON)
(THE NEXT COMMODITY SUPER CYCLE HAS ALREADY STARTED)
(COPX), (GLD), (FCX), (BHP), (RIO), (SIL),
(PPLT), (PALL), (GOLD), (ECH), (EWZ), (IDX)
Global Market Comments
December 3, 2019
Fiat Lux
Featured Trade:
(WHY WATER WILL SOON BE WORTH MORE THAN OIL),
(CGW), (PHO), (FIW), (VE), (TTEK), (PNR), (BYND),
(WHY WARREN BUFFETT HATES GOLD),
(GLD), (GDX), (ABX), (GOLD),
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
October 31, 2019
Fiat Lux
Featured Trade:
(WELCOME TO THE LAND OF ZEROS),
(TLT), (VIX), (GLD), (SLV), (FXY),
(A NOTE ON OPTIONS CALLED AWAY), (BA)
(TESTIMONIAL)
Jay Powell really showed his hand today with the press conference following his 25-basis point interest rate cut.
The Fed’s medium-term target rate is now zero. Take a 1.75% inflation rate, subtract a 1.75% overnight rate and you end up with a real interest rate of zero. The fact that we have real economic growth also at zero (1.75% GDP – 1.75% inflation) makes this easier to understand.
That means there will be no more interest rate cuts by the Fed for at least six more months. All interest rate risks are to the downside. There is no chance whatsoever of the Fed raising rates in the foreseeable future with a growth rate of 1.75%. It will also take a substantial fall in the inflation rate to get rates any lower than here.
That may happen if the economy keeps sliding slowly into recession. Net net, this is a positive for all risk assets, but not by much.
I regard every Fed day as a free economics lesson from a renown professor. Over the decades, I have learned to read through the code words, hints, and winks of the eye. It appears that the thickness of the briefcase no longer matters as it did during Greenspan. No one carries around paper anymore during the digital age.
I then have to weed through the hours of commentary that follows by former Fed governors, analysts, and talking heads and figure out who is right or wrong.
In the meantime, the “Curse of the Fed” is not dead yet. The ferocious selloffs that followed the last two Fed rate cuts didn’t start until the day or two after. That’s what the bond market certainly thinks, which rallied hard, a full two points, after the announcement.
All of this provides a road map for traders for the coming months.
The Santa Claus rally will start after the next dip sometime in November. Buy the dip and ride it until yearend. The Mad Hedge Market Timing Index at 75, the bond market (TLT), the Volatility Index (VIX) and the prices of gold (GLD), silver (SLV), and the Japanese yen (FXY) are all shouting this should happen sometime soon.
I hope this helps.
John Thomas
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)
