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)
Tag Archive for: (GOOGL)
I always wondered who the enemy was. Now, I know.
Not only is Fed governor Jerome Powell responsible for the upcoming recession, I also heard he fixed the 1918 World Series where the Chicago White Sox deliberately lost.
And come to think of it, Jack the Ripper and D.B Cooper were never caught either. If Tweets are to be believed, the Fed now needs to seek guidance from the president before any subsequent policy decision.
It all reminds me of the last days of the Third Reich when Adolph Hitler was ordering into action divisions that no longer existed.
And I love all of it.
An 850 point top to bottom swan dive in the Dow Average vaporized all my short positions, which I had put on days ago for just this eventuality. It also allowed me to get back into Microsoft (MSFT) down $5, which I have been struggling to get back into for months.
My only miss of the month has been in Gold (GLD), whose move continues to be so parabolic that I haven’t been able to get you, or me, into it.
No doubt the administration will respond with another charm offensive, as this did this week, and ignite another ferocious short-covering rally.
The harsh truth is that confidence is eroding by the day. And the escalating talk of a recession can, in itself, cause a recession. So much depends on belief when share price earnings multiples are trading at a lofty 17X. But it is all looking increasingly like a little boy trying to head off a flood by holding his finger in a hole in a dike.
There’s no more waiting to see if the trade war escalates again on September 1. We already have the answer. It now appears we have instant escalation all the time with every Tweet. It’s not exactly what I want to bet my retirement fund on.
I have been getting questions as to why I have been adding long positions with the outlook so grim. For a start, these positions are all triply hedged.
I’m long a call against a short call with an identical maturity. I have low beta long positions hedged against high beta short positions. And finally, I don’t think we can break down below the 200-day moving average in the major indexes until the September 20 Fed meeting when they FAIL to cut interest rates again because the data isn’t there yet.
The net, net, net of all of this is that my portfolio can take a 1,000-point hit in the Dow Average and its no big deal.
And don’t forget. Ultra-low interest rates will put a higher floor under the market than we have seen in past selloffs.
I pray the insanity keeps up (did I hear a reference to the Messiah the other day?) because it is allowing me to ship out Trade Alerts as fast as I can write them.
Stocks rose briefly on German stimulus prospects. It's an idea imported from America, heavy borrowing and massive deficit spending to float the economy. It’s just what the world needs, more freshly printed money, like the last $17 trillion worked so well. It’s all confirmation that Europe is already in recession.
The US now has the world’s highest interest rates, at 3.60% for 30-year fixed-rate loans. Only the US offers loans of this duration, thanks to heavy government subsidies through Fannie Mae and Freddie Mac.
Floating rate loans in France are 1.39%, in Germany are 1.0%, Japan at 0.65%. In Denmark, banks will lend at a negative -0.50%. Yes, they will pay you to live in your house. But when you’re borrowing at -0.90% you can do that. Only China has higher interest rates, with an overnight at 4.60%. The irony runs deep.
Unsurprisingly, the Congressional Budget Office cut 0.3% off of its 2020 growth forecast and the US budget deficit will rise to a ruinous $1 trillion two years sooner than expected. Fading business investment and weakening consumer spending will be the problems. The trade war is also a drag. It’s funny how no one wants to spend in front of a recession.
“Mid Cycle Adjustment” is how the Fed described the last interest rates cut in minutes released on Wednesday. It makes further cuts less likely. So does a stock market trading 5% below all-time highs. They also mention the cut as an “insurance policy” not actually justified by the current economic data. Three weeks ago, the fed cut rates for the first time in a decade.
The Mad Hedge Trader Alert Service is posting its best month in two years. Some 22 of the last 23 round trips have been profitable, generating one of the biggest performance jumps in our 12-year history.
My Global Trading Dispatch has hit a new all-time high of 334.61% and my year-to-date shot up to +34.47%. My ten-year average annualized profit bobbed up to +34.62%.
I have coined a blockbuster 16.14% so far in August. All of you people who just subscribed in June and July are looking like geniuses. My staff and I have been working to the point of exhaustion, but it’s worth it if I can print these kinds of numbers.
As long as the Volatility Index (VIX) stays above $20, deep-in-the-money options spreads are offering free money. I am now 80% invested, 60% long big tech and 20% short, with 20% in cash. It rarely gets this easy.
The coming week will be a snore on the data front. Believe it or not, it could be quiet, as we grind through the last week of the summer.
On Monday, August 26 at 8:30 AM, US Durable Goods for July are out.
On Tuesday, August 27 at 9:00 AM, we get a new S&P Case Shiller National Home Price Index for June
On Wednesday, August 28, at 10:30, we learn the EIA Crude Oil Stocks for the previous week.
On Thursday, August 29 at 8:30 AM, the Weekly Jobless Claims are printed. July Pending Home Sales are published at 10:00 AM.
On Friday, August 30 at 10:00 AM, the University of Michigan Consumer Sentiment is printed.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, it will be a busy weekend with volunteer work at the Alameda Food Bank due and CPR training at the local fire department. I feel like I am getting my Eagle Scout rank all over again.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Time to Bring in the Heavy Guns
Global Market Comments
August 22, 2019
Fiat Lux
Featured Trade:
(WHAT THE NEXT RECESSION WILL LOOK LIKE),
(FB), (AAPL), (NFLX), (GOOGL), (KSS), (VIX), (MS), (GS),
(TESTIMONIAL)
Global Market Comments
August 19, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT A ROLLER COASTER RIDE!),
(SPY), (TLT), (VIX), (VXX), (M),
(WMT), (FB), (AMZN), (GOOGL), (IWM)
I like roller coasters. The Giant Dipper at the Santa Cruz Boardwalk is tough to beat, the last operating wooden coaster in the United States. And I’ll always have fond memories of the Cyclone at Coney Island in New York.
I especially liked this week in the financial markets, which provided more profitable trading opportunities, both on the long and the short side, that any other week of the past decade.
Perhaps the highpoint was on Thursday when I was staring at my screens watching ten year US Treasury bond yields (TLT) bottom at a near historic 1.46%, and my own Mad Hedge Market Timing Index plunging to a lowly 19.
Impulsively, I covered the last of my short positions and started piling on longs in the FANGs. The next morning, the Dow Average opened up 300 points. But then, it’s easy to be bold and decisive when you’re up 30% on the year, compared to only 11% for the Dow Average.
And guess what? The best may be yet to come!
As long as the Volatility Index stays over $20, you will be able to print all the money you want with options spreads. I’m talking 10%-15% A MONTH!
All eyes are now on September 1 when the Chinese announce their own retaliation to our tariff increase. Will they target ag again? Or does the bond market (TLT) take the hit this time (the Chinese government owns $900 billion worth of our debt).
And now for the question that everyone is asking: How far will the stock market fall in this cycle. We have already plunged 10% from the highs on an intraday basis. Could we drop another 10% in this period of high anxiety? Certainly. However, I tend to think it will be less than that.
The initial market pop on Monday came when the new Chinese tariffs were delayed, from September 1 to December 15, on some items. Tell me who saw this one coming. The potential costs of the tariffs are hitting the US more than China. It was worth a 550-point rally in the Dow Average. In 50 years, I’ve never seen such blatant market manipulation.
Gold hit a new six-year high, with the collapse of the Argentine Peso a new factor. A poor election result drove the beleaguered currency down 15% in one day, a massive move.
Now you have to worry about what’s happening in China AND Argentina. For the first time in history, gold now has a positive yield versus the Europe and the Japanese Yen, which both offer negative interest rates.
Hong Kong is becoming a factor driving US markets down. If there is a repeat if the 1989 Tiananmen Square massacre where thousands died, global markets could collapse. The hit to growth will be more than it currently can stand in its present weakened state.
Inflation is taking off, with Core Consumer Inflation for July coming in at a red hot 0.3%, delivering the strongest two-month price burst since 2006. If it keeps up, you can kiss those future interest rate cuts goodbye.
Germany is in recession. That is the only conclusion possible when you see Q2 at -0.1% growth and the economy still in free fall. The ZEW’s figures regarding Germany yesterday were nothing short of horrific as the Economic Sentiment Index fell to -44. When you damage China’s economy, it puts the rest of the world into recession. The global economy has become so interlinked, it can’t become undone without another great recession.
Bonds rates bottomed yesterday, at least for the short term, the intraday low for the ten-year US Treasury yield hitting 1.46%. Welcome to inversion land, where long term interest rates are below short-term ones. Confidence in the economy is melting like an Alaskan glacier. But with three more 25 basis point rate cuts to come, an eventual break below 1.0% is inevitable. Watch for stocks to remake half their recent losses.
Consumer Sentiment cratered in August from 97.0 estimated to 92.1. And that was before the stock market sold off. Consumer spending remains strong. The last time it was this strong was at the market top in 2008, the market top in 1999, and the market top in 1987.
July Housing Starts plunged 4.0%, to 1.191 million units as homebuilders move into recession mode. Not even record low-interest rates can get them to stick their necks out this time. Those that did last time got wiped out.
It’s been pedal to the metal all month with the Mad Hedge Trade Alert Service, with no less than 31 Trade Alerts going out so far. Some 18 or the last 19 round trips have been profitable, generating one of the biggest performance jumps in our 12-year history.
Since July 12, we have clocked a blistering 15.15% in profits or $15,150 for the model $100,000 trading portfolio.
My Global Trading Dispatch has hit a new all-time high of 330.65% and my year-to-date shot up to +30.51%. My ten-year average annualized profit bobbed up to +34.20%.
I have coined a blockbuster 12.18% so far in August. All of you people who just subscribed in June and July are looking like geniuses. My staff and I have been working to the point of exhaustion, but it’s worth it if I can print these kinds of numbers.
The coming week will be a snore on the data front. Believe it or not, it could be quiet.
On Monday, August 19, nothing of note is released.
On Tuesday, August 20 at 10:30 AM, we get API Crude Oil Stocks.
On Wednesday, August 21, at 10:00 the Existing Home Sales are published for July.
On Thursday, August 22 at 8:30 AM, the Weekly Jobless Claims are printed. The Jackson Hole conference of global central bankers and economists begins.
On Friday, August 23 at 8:30 AM the July New Home Sales are announced.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I will be attending the Pebble Beach Concourse d’Elegance vintage car show where I will be exhibiting my 1925 Rolls Royce Phantom I, the best car ever made.
I don’t mind the wooden brakes, but it’s too bad they didn’t make adjustable seats in those days to fit my 6’4” frame. However, its price appreciation has been better than Apple’s (AAPL) which I bought as a fixer upper in England during the 1980s for $20,000. My average cost on Apple is a split adjusted 25 cents.
My Rolls will be shown alongside James Bond’s 1964 Aston Martin which sold for $6.3 million, a 1939 Volkswagen Type 64 priced at more than $20 million, and a $13 million 1958 Ferrari 250 GT BBT.
And what am I doing next weekend? Taking the Boy Scouts to the Six Flags roller coaster farm in Vallejo.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
My Phantom I
1939 Volkswagen
1954 Ferrari
Mad Hedge Technology Letter
August 2, 2019
Fiat Lux
Featured Trade:
(THE GREAT LATIN AMERICAN INTERNET PLAY),
(MELI), (PYPL), (AMZN), (EBAY)
Mad Hedge Technology Letter
July 31, 2019
Fiat Lux
Featured Trade:
(TIME TO TAKE A BREAK WITH GOOGLE),
(GOOGL)
It’s time to take a breather.
That is after the 9% spike in Google shares.
The best way to describe results of late for Alphabet is a mixed bag for the company helmed by Sundar Pichai.
Things aren’t going bad but not great either.
I‘ll tell you why.
Alphabet undershot its top-line revenue by about $1.7 billion, a large miss that should disturb investors.
It’s definitely not the growth company it once was even though some elements of Alphabet are still growing profusely.
Nothing better epitomizes the state of Google’s ad cash cow with its cost-per-click on Google properties from Q2 2018 to Q2 2019 falling 11% showing that they are having a harder time charging customers for clicking their stuff.
But on the bright side, paid clicks on Google properties from Q2 2018 to Q2 2019 was up 28% demonstrating the attractiveness and stickiness of platforms such as YouTube and Google Search.
Two other bright spots were its in-house lineup of smartphones called the Pixel and cloud products, which helped this segment grow to $6.18 billion compared to $4.43 billion last year.
I am actually a huge fan of the Pixel lineup even though I go with an iPhone.
If I did own an Android, I’d choose the latest Pixel with the added bonus of the convenience of Google’s best in show software.
Google is coming out with their Pixel 4 later this fall.
Pichai has never dived into the finer numbers of the Google Cloud but he took the time to mention that its cloud division is now an $8 billion and growing business annually.
Alphabet plans to heavily hire an army of warm bodies tripling the cloud staff for their successful cloud unit which is poised to be a mainstay growth driver for Google.
Looking at the imminent future, there are a few bogies in the sky.
The Australian Competition and Consumer Commission is part of a growing chorus of domestic and international regulators looking to subdue Google’s big data businesses.
The best-case scenario is more fines in the billions of dollars and the worst case is shriveling access to certain lucrative end markets.
Alphabet has been hard hit by the trend of more stringent global data regulations, and this is just the beginning.
Facebook appears as if it's in a deeper quagmire with multiple regulatory commissions state side smelling blood in shark-infested waters.
There is part of the argument that these practices stem from Alphabet being too dominant and there is some truth in this.
They are literally gunning for the entire internet whether it be travel or eCommerce.
I would say from my experiences with Alphabet that they do push the threshold a tad bit far.
They probably do not need to preinstall YouTube and Google Chrome on Android Devices without the inability to delete them.
If you have tried to delete these apps from Android devices, you are stonewalled, but I do hold the view that users will naturally come to the conclusion these apps are utilities and would download them if not preinstalled in the first place.
Alphabet should be more comfortable in its expertise and leadership position.
After a rapid run-up in share appreciation, Alphabet is due for a short-term pullback which could materialize soon because of regulatory fears.
Traders should look at some short duration bear put spreads on Alphabet.
I am long-term bullish Alphabet.
Global Market Comments
July 29, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE BAD OMENS ARE THERE),
(INTC), (GOOGL), (AMZN), (JPM), (FXB),
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
The Omens are there.
I am normally a pretty positive guy.
But I was having a beer at Schwarzee at the base of the Matterhorn the other day, just having completed the climb up to the Hornli Hut at 10,758 feet. I carefully watched with my binoculars three helicopters circle the summit of the mountain, around the Solvay Hut.
These were not sightseeing tours. The pilots were taking great risks to retrieve bodies.
I learned at the Bergfuhrerverein Zermatt the next day that one of their men was taking up an American client to the summit. The man reached for a handhold and the rock broke loose, taking both men to their deaths. The Mountain Guide Service of Zermatt is a lot like the US Marine Corps. They always retrieve their dead.
It is an accident that could have happened to anyone. I have been over that route many times. If there was ever an omen of trouble to come, this was it.
The markets are sending out a few foreboding warnings of their own. Friday’s Q2 GDP report came in at a better than expected 2.1%, versus 3.1% in Q1.
Yet the Dow Average was up only a meager 51.47 points when it should have gained 500. It is an old market nostrum that if markets can’t rally on good news, you get the hell out of Dodge. Zermatt too.
It is the slowest US growth in two years. The trade war gets the blame, with falling exports offsetting healthy consumer spending. With the $1.5 trillion tax cut now spent, nothing is left but the debt. 2020 recession fears are running rampant, so paying all-time highs for stock prices is not a great idea.
You might be celebrating last week’s budget deal which heads off a September government shutdown. But it boosts the national debt from $22 to $24 trillion, or $72,000 per American. As with everything else with this administration, a short-term gain is achieved at a very high long-term cost.
Boris Johnson, the pro-Brexit activist, was named UK prime minister. It virtually guarantees a recession there and will act as an additional drag on the US economy. Global businesses will accelerate their departure from London to Paris and Berlin.
The end result may be a disunited kingdom, with Scotland declaring independence in order to stay in the EC, and Northern Ireland splitting off to create a united emerald island. The stock market there will crater and the pound (FXB) will go to parity against the greenback.
The European economy is already in a downward spiral, with German economic data flat on its back. GDP growth has shrunk from 2.0% to 0.7%. It seems we are not buying enough Mercedes, BMWs, and Volkswagens.
Yields on ten-year German bunds hit close to an all-time low at -0.39%. The Euro (FXE) is looking at a breakdown through parity. The country’s largest financial institution, Deutsche Bank, is about to go under. No one here wants to touch equities there. It’s all about finding more bonds.
Soaring Chip Stocks took NASDAQ to new high. I have to admit I missed this one, not expecting a recovery until the China trade war ended. Chip prices are still falling, and volume is shrinking. We still love (AMD), (MU), and (NVDA) long term as obviously do current buyers.
Existing Home Sales fell off a cliff, down 1.7% in June to a seasonally adjusted 5.27 million units. Median Home Prices jumped 4.7% to $287,400. A shortage of entry-level units at decent prices get the blame. Ultra-low interest rates are having no impact.
JP Morgan (JPM) expects stocks to dive in Q3, driven by earnings downgrades for 2020. Who am I to argue with Jamie Diamond? Don’t lose what you made in H1 chasing rich stocks in H2. Everyone I know is bailing on the market and I am 100% cash going into this week’s Fed meeting up 18.33% year-to-date. I made 3.06% in July in only two weeks.
Alphabet (GOOGL) beat big time, sending the shares up 8% in aftermarket trading. Q2 revenues soared 19% YOY to an eye-popping $39.7 billion. It’s the biggest gain in the stock in four years, to $1,226. The laggard FANG finally catches up. The weak first quarter is now long forgotten.
Amazon (AMZN) delivered a rare miss, as heavy investment spending on more market share offset sales growth, taking the shares down 1%. Amazon Prime membership now tops 100 million. Q3 is also looking weak.
Intel (INTC) surged on chip stockpiling, taking the stock up 5% to $54.70. Customers in China stockpiled chips ahead of a worsening trade war. Q3 forecasts are looking even better. Sale of its 5G modem chip business to Apple is seen as a huge positive.
I've finally headed home, after a peripatetic six-week, 18-flight trip around the world meeting clients. I bailed on the continent just in time to escape a record heatwave, with Paris hitting 105 degrees and London 101, where it was so hot that people were passing out on the non-air conditioned underground.
Avoid energy stocks. The outcry over global warming is about to get very loud. I’ll write a more detailed report on the trip when I get a break in the market.
My strategy of avoiding stocks and only investing in weak dollar plays like bonds (TLT), foreign exchange (FXA), and copper (FCX) performed well. After spending a few weeks out of the market, it’s amazing how clear things become. The clouds lift and the fog disperses.
My Global Trading Dispatch has hit a new high for the year at +18.33% and has earned a robust 3.09% so far in July. Nothing like coming out of the blocks for an uncertain H2 on a hot streak. I’m inclined to stay in cash until the Fed interest rate decision on Wednesday.
My ten-year average annualized profit bobbed up to +33.23%. With the markets now in the process of peaking out for the short term, I am now 100% in cash with Global Trading Dispatch and 100% cash in the Mad Hedge Tech Letter. If there is one thing supporting the market now, it is the fact that my Mad Hedge Market Timing Index has pulled back to a neutral 60. It’s a Goldilocks level, not too hot and not too cold.
The coming week will be a big one on the data front, with one big bombshell on Wednesday and the Payroll data on Friday.
On Monday, July 29, the Dallas Fed Manufacturing Index is out.
On Tuesday, July 30, we get June Pending Home Sales. A new Case Shiller S&P National Home Price Index is published. Look for YOY gains to shrink.
On Wednesday, July 31, at 8:30 AM, learn the ADP Private Employment Report. At 2:00 PM, the Fed interest rate decision is released and an extended press conference follows. If they don’t cut rates, there will be hell to pay.
On Thursday, August 1 at 8:30 AM, the Weekly Jobless Claims are printed.
On Friday, August 2 at 8:30 AM, we get the July Nonfarm Payroll Report. Recent numbers have been hot so that is likely to continue.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, by the time you read this, I will have walked the 25 minutes from my Alpine chalet down to the Zermatt Bahnhoff, ridden the picturesque cog railway down to Brig, and picked up an express train through the 12-mile long Simplon Tunnel to Milan, Italy.
Then I’ll spend the rest of the weekend winging my way home to San Francisco in cramped conditions on Air Italy. Yes, I had to get a few more cappuccinos and a good Italian dinner before coming home.
Now, on with the task of doubling my performance by yearend.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
