Global Market Comments
September 30, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or INTERESTING TIMES ARE UPON US)
(MO), (PM), (FXB), (SPY), ($INDU), (GS), (MTCH), (USO), (UUP)
Tag Archive for: (GS)
“May you live in interesting times.” The question is whether this old Chinese proverb is a blessing or a curse.
Our beleaguered lives have certainly been getting more interesting by the day, if not the hour. Trump has been withholding military aid from foreign leaders to fish for dirt on those who may run against him in 2020. The prospects of the Chinese trade negotiations seem to flip flop by the day.
Prospective IPOs for Saudi ARAMCO and WeWork have been stood up against a wall and shot. The Altria (MO) - Philip Morris (PM) merger went up in smoke. Brexit (FXB) has turned into a runaway roller coaster that has lost its brakes. And that was just last week!
All of this is happening with the major indices (SPY), ($INDU) mere inches away from all-time highs, with valuations at the high end of the decade-old band. A worse risk/reward for initiating new positions I can’t imagine. I think I’ll go take a long nap instead.
There are times to trade and there are times to engage in research and this is definitely time for the latter. That means when it is time to strike, you already have a list of short names on which to execute. The worst time to initiate research is when the Dow is down 1,000 points.
I believe the markets are gridlocked until we get a good look at Q3 corporate earnings. If they are as bad as the macro data is suggesting, markets will tank. If they aren’t, we may see a begrudging slow-motion grind up to new highs.
Our launch of the Mad Hedge Biotech and Healthcare Letter was a huge success. Let me tell you, we have some real blockbusters lined up in our newsletter queue. The Tuesday letter will have a link that will enable you to get in at the $997 a year founders’ price. Otherwise, you can find it in our store now for $1,500 a year. Please click here.
The WeWork IPO is on the Rocks, with the CEO soon to be fired for self-dealing. In any case, the company has minimal added value and will not survive the next recession when the bulk of its tenants walk. Don’t touch this one on pain of death, even down three quarters from its original valuation.
Watch out for October, says Goldman Sachs (GS), which will see a volatility (VIX) spike 25%. Shockingly poor Q3 corporate earnings results could be the trigger with almost every company negatively impacted by the trade war. This could set up our next entry point on the long side.
The Saudi ARAMCO IPO is on the skids in the wake of the mass drone attack. Terrorist attacks on your key infrastructure is not a great selling point for new shareholders. It just underlines the high-risk investing in the area. The world’s largest IPO may get cancelled.
A huge killing was made on the Thomas Cook affair. It looks like short sellers raked in $2.7 billion in profits on the collapse. Some 600,000 mostly British travelers were stranded or had future vacations cancelled.
Thomas Cook never figured out the Internet, were destroyed by the collapse of the pound triggered by Brexit and, horror upon horrors, bought an airline. It’s all great news for surviving European tour operators and discount airlines. Airfares are already rising.
The S&P Case Shiller ticked up in July, showing that the National Home Price Index rising 3.2%. It’s the first positive move in more than a year. It’s got to be super-low interest rates finally kicking in. But the real move up won’t start until SALT deductions come back in 18 months.
That went over like a lead balloon. From the moment Trump started speaking at the United Nations, stocks went into free fall, dropping 450 points from top to bottom. It’s trade war against everyone all the time with his withdrawal from globalization. Oh, and if you want to resist America’s incredible military might, we will crush you. It’s not what traders wanted to hear.
In the meantime, the impeachment moved forward, with younger Democrats forcing Pelosi’s hand. The Ukraine scandal, a Trump effort to have candidate Joe Biden arrested, was the stick that broke the camel’s back. Fortunately, the stock market could care less. Stocks rose 20% during the last impeachment in the 1990s.
US Consumer Confidence dove in September from 133 estimated down to 125.1 as trade war concerns take their toll. It’s one of the first September data points to come out and presages worse to come. News fatigue has to be a factor.
Bitcoin Crashed 15% to a new three-month low, hitting $7,944. Other cryptos fell 20%. All of the explanations were technical as they always are with this bogus asset class.
The Vaping Crisis demoed the Altria-Philip Morris merger. Suddenly, the crown jewels are toxic and about to be made illegal. The Juul CEO has resigned and the company may be about to go down the tubes. One of the largest mergers in history that would have created a $200 billion company has been tossed on the dustbin of history.
In a rare positive data point, New Homes Sales soared 7.1% in August to a 713,000 annualized rate. Median sales prices rise by 2.2% YOY to $328,400. Inventories drop from 5.9 to 5.5 months. The big numbers are happening in the south and west. Historically low-interest rates are kicking in big time.
The FTC Slammed Match Group (MTCH), the owner of Tinder and OK Cupid, for security lapses and scamming their own customers. Apparently, that gorgeous six-foot blond who speaks six languages who want to meet me if I only subscribed doesn’t actually exist. Oh well.
Q2 GDP final read came in at 2.0% with no change from the last report. Coming quarters will almost certainly be worse as the chickens come home to roost from a global trade war. We may already be in a recession and not know it. Inventories are building at a tremendous rate. Certainly, Fortune 500 CEOs think so.
Tesla deliveries may hit new high in Q3, topping 100,000, according to last week’s leak. The stock is back in play. It looks like I am going to get a new entertainment package upgrade too.
The Mad Hedge Trader Alert Service has blasted through to yet another new all-time high. My Global Trading Dispatch reached new apex of 336.07% and my year-to-date accelerated to +39.47%. The tricky and volatile month of September closed out +3.08%. at My ten-year average annualized profit bobbed up to +34.53%.
Some 25 out of the last 27 trade alerts have made money, a success rate of 92.59%. Under-promise and over-deliver, that's the business I have been in all my life. It works.
I took profits in my short position in oil (USO) earlier in the week, capturing a 12% decline there. That gives me a rare 100% cash position. I’m itching to get back in, but conditions right now are terrible
The coming week is all about the September jobs reports. It seems like we just went through those.
On Monday, September 30 at 9:45 AM, the Chicago Purchasing Managers Index for September is out.
On Tuesday, October 1 at 10:00 AM, the US Construction Spending for August is published
On Wednesday, October 2, at 8:15 AM, we learn the ADP Private Employment Report is out for September.
On Thursday, October 3 at 8:30 AM, the Weekly Jobless Claims are printed. At 3:00 PM, we get US Vehicle Sales for September.
On Friday, October 4 at 8:30 AM, the September Nonfarm Payroll Report is announced. Last month was a big disappointment so this month could set a new trend.
The Baker Hughes Rig Count is released at 2:00 PM.
As for me, I’ll be camping out with 2,500 Boy Scouts at the Solano Fair Grounds to attend Advance Camp. That’s where scouts have the opportunity to earn any of 50 merit badges in a single day.
I will be teaching the Swimming Merit Badge class. The basic idea is that if you throw a scout in the pool and he doesn’t drown, he passes. Personally, I wanted to take the welding class. The bonus is that we get to ride nearby roller coasters at Six Flags for free.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 9, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SAVED BY A HURRICANE)
(FXB), (M), (XOM), (BAC), (FB), (AAPL),
(AMZN), (ROKU), (VIX), (GS), (MS),
This was the week when the stock market was saved by Hurricane Dorian.
Why a hurricane?
Because it gave President Trump something else to Tweet about beside China and Jay Powell. The White House went totally silent, at least on matters concerning the stock market. There, the focus instead turned on whether Trump predicted Dorian was going to hit Alabama (it didn’t).
Thank goodness for small favors.
Instead, investors got to hear about progress was purported to be made on the China trade talks with a possible October meeting.
It all reminds me of the 1968 Paris peace talks, which I visited, where I remember Ambassador Avril Harriman storming out of the Majestic Hotel with a very stern expression on his face. They had just spent a year arguing with the North Vietnamese over the shape of the table (they finally settled on an oval).
Brexit finally started lurching towards its inevitable demise. Hard Brexit failed in Parliament, a disaster for Prime Minister Boris Johnson, whose own party and even his own brother voted against him.
Elections will follow which will finally plunge a dagger through the heart of Britain’s attempt to leave the European Community. If this happens, it will be a huge positive for risk markets globally. This is the beginning of the end. Get ready to buy the pound (FXB).
The bad news? Don’t count on this happening again this week, unless we get another hurricane. When a stock market rally is led by sectors with the worst fundamentals, like retail (M), energy (XOM), and banks (BAC), you want to run a mile. It means the rally was driven by short-covering, we are now at a market high, and the short players have a ton of cash.
I have been pounded with questions all week if the bottom is in and if it’s time to load the boat with tech stocks yet again. I have to answer with a firm “Not yet!” We still have three weeks to go in September with plenty of time for more volatility.
If the Fed cuts interest rates by 25 basis points, the Dow average could crater by 1,000 points. If they don’t cut, which I give a 50/50 chance, it will be down by 2,000 points.
They will be encouraged to cut by an August Nonfarm Payroll Report that came in at a tepid 130,000. The headline Unemployment Rate remained unchanged at 3.7%, a 50-year low. Average Hourly Earnings were an inflationary 0.4%, or 3.2% YOY. June and July were revised down.
The 2020 census was a big factor in August, where the US government hired 25,000 workers to prepare for next year. Without this, August would have come in at a weak 105,000 jobs.
Manufacturing hiring amounted to only 3,000, while Retail lost 11,000 jobs for the seventh consecutive monthly decline. The broader U-6 “discouraged worker” unemployment rate rose from 7.0% to 7.2%.
To demonstrate how much value you are gaining with this service, I generated the chart below. Since January 26, 2018 when the S&P 500 peaked, the total return has been zero, with a lot of heart-stopping volatility, including one 20% drawdown.
That has been the cost to the stock market of the trade war, which started only a few days later. The profit created by the Mad Hedge Fund Trader during the same period has been 58.97%.
You couldn’t even beat the Mad Hedge Fund Trader by pouring all your money into big technology stocks. Over the same time, Facebook (FB) fell 4.1%, Apple (AAPL) rose 21.7%, and Amazon (AMZN) by 22.2%.
The only way you could have topped my performance was to pour your life savings into Roku (ROKU), right when Amazon was about to put it out of business. Jeff Bezos partnered with Roku instead of delivering a 225% pop in the shares.
You might think such a performance is blown out of proportion, exaggerated, and fake. However, it is perfectly consistent with the numbers generated for the in-house trading books by senior traders at Goldman Sachs (GS) and Morgan Stanley (MS) where I come from.
In fact, during my day, if a trader earned less than 30% a year on his capital, he got fired or transferred over to covering retail accounts because the firm had so many better places to invest. They are also consistent with the performance of the top-end hedge managers, of which I used to be one.
Chinese Manufacturing Activity fell for four consecutive months taking the Purchasing Managers Index below a recessionary 50. If you wreck the economy of the world’s largest customer, the rest of the world goes into recession.
US Manufacturing hit a three-year low, the ISM Manufacturing PMI diving from an average 56.5 to 49.1 in August. Anything below 50 is a recession indicator. Hoping that China will bleed worse than us in a trade war is not a winning strategy. Stocks dove 300 points and the Volatility Index (VIX) shot up to $21 on the news. Avoid risk, as this is going to be a terrible month.
The prospect of a China meeting popped stocks 400 points, with an agreement to meet in October, citing progress on a phone call. Boy, I’m getting tired of this. When can we go back to looking at earnings, dividends, and book value?
The European Central Bank will almost certainly ease this week. It hasn’t worked for ten years so let’s try it again. They’re obviously not printing enough Euros. Overnight rates will fall from -0.4% to -0.6%. Some 30 billion euros a month will hit the economy in a new QE.
The Atlanta Fed downgraded the economy, cutting its Q3 GDP growth forecast from 2.0% to 1.5%. Expect a string of poor data points in the coming months as the delayed effect of an escalated trade war. However, the non-manufacturing service economy remains strong. That’s me, and probably you too.
The Mad Hedge Trader Alert Service has posted its best month in two years. Some 22 or the last 23 round trips, or 95.6%, 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 334.48% and my year-to-date shot up to +34.35%. My ten-year average annualized profit bobbed up to +34.30%.
Better yet, since July 31, we generated a 20% profit for the trade alert service while the gain in the Dow Average was absolutely zero!
I raked in an envious 16.01% 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 40% long big tech. It rarely gets this easy.
The coming week will be a snore, as it always is after the jobs data.
On Monday, September 9 at 11:00 AM, August Consumer Inflation Expectations are out.
On Tuesday, September 10 at 12:00 PM, the NFIB Business Optimism Index for August is released.
On Wednesday, September 11, at 8:30 AM, the US Producer Price Index is announced.
On Thursday, September 12 at 8:30 AM, the Weekly Jobless Claims are printed. At the same time, the US Inflation Rate is published.
On Friday, September 13 at 8:30 AM, the US Retails Sales are printed. The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I’ll be driving up to Lake Tahoe to make final preparations for the October 25-26 Mad Hedge Lake Tahoe Conference. A record number of black bears have been breaking into homes this summer and I just want to make sure my lakefront estate is OK.
It seems that Airbnb tenants have been leaving trails of cookies to their front doors and painting their refrigerators with peanut butter so they can get better selfies with their ursine neighbors.
Not a good idea.
I’ll be avoiding Interstate 80. A truck carrying 1,000 live chickens crashed there yesterday and the California Highway Patrol was last seen chasing them down the freeway.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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)
Mad Hedge Technology Letter
July 15, 2019
Fiat Lux
Featured Trade:
(HOW SOFTBANK IS TAKING OVER THE US VENTURE CAPITAL BUSINESS),
(SFTBY), (BABA), (GRUB), (WMT), (GM), (GS)
The man with the 300-year vision - Softbank’s Masayoshi Son.
He is the sole force exerting stultifying pressure on the venture capitalists of Silicon Valley.
What a ride it has been so far.
His $100 billion SoftBank Vision Fund has put the Sand Hill Road faithful in a tizzy – utterly revolutionizing an industry and showing who the true power resides with.
He has even gone so far as to double down on his exploits by claiming that he will raise additional $100 billion fund every few years and spend $50 billion per year.
This capital logically would flow into what he knows best – technology and the best technology money can buy.
Lately, Son said it best of the performance of the Vision Fund saying, “Results have actually been too good.”
So good that after this June, Son changed his schedule to spend 3% of his time on his telecom business down from 97% before June.
His telecommunications business in Japan has turned into a footnote.
It was just recently that Son’s tech investments eclipsed his legacy communications company.
Son vies to rinse and repeat this strategy to the horror of other venture capitalists.
The bottomless pit of capital he brings to the table predictably raises the prices for everyone in the tech investment world.
Son’s capital warfare strategy revolves around one main trope – Artificial Intelligence.
He also strictly selects industry leaders which have a high chance of dominating their field of expertise.
Geographically speaking, the fund has pinpointed America and China as the best sources of companies. India takes in the bronze medal.
His eyes have been squarely set on Silicon Valley for quite some time and his record speaks for himself scooping up stakes in power players such as Uber, WeWork, Slack, and GM (GM) Cruise.
Other stakes in Chinese firms he’s picked up are China’s Uber Didi Chuxing, China’s GrubHub (GRUB) Ele.me and the first digital insurer in China named Zhongan International costing him $500 million.
Other notable deals done are its sale of Flipkart to Walmart (WMT) for $4 billion giving SoftBank a $1.5 billion or 60% profit on the $2.5 billion position.
In 2016, the entire venture capitalist industry registered $75.3 billion in capital allocation according to the National Venture Capital Association.
This one company is rivalling that same spending power by itself.
Its smallest deal isn’t even small at $100 million, baffling the local players forcing them to scurry back to the drawing board.
The reverberation has been intense and far-reaching in Silicon Valley with former stalwarts such as Kleiner Perkins Caufield & Byers breaking up, outmaneuvered by this fresh newcomer with unlimited capital.
Let me remind you that it was once considered standard to cautiously wade into investment with several millions.
Venture capitalists would take stock of the progress and reassess if they wanted to delve in some more.
There was no bazooka strategy then.
SoftBank has promised boatloads of capital up front even overpaying in some cases in order to set the new market price.
Conveniently, Son stations himself nearby at a nine-acre estate in Woodside, California complete with an Italianate mansion he bought for $117.5 million in 2012.
It was one of the most expensive properties ever purchased in the state of California, even topping Hostess Brands owner Daren Metropoulos, who bought the Playboy Mansion from Hugh Hefner in 2016 for $100 million.
If you think Son is posh – he is not. He only fits himself out in the Japanese budget clothing brand Uniqlo. He just needed a comfortable place to stay and he hates hotels.
SoftBank hopes to cash in on its $4.4 billion investment in WeWork, an American office space-share company, proclaiming that WeWork would be his “next Alibaba.”
The company plans to shortly go public.
Son continued to say that WeWork is “something completely new that uses technology to build and network communities.”
Other additions to SoftBank’s dazzling array of unicorns is Bytedance, a start-up whose algorithms have fueled shot form video content app TikTok.
The deal values the company at $75 billion.
They have been able to insulate themselves from local industry giants Tencent and Alibaba.
Son has revealed that the Vision Fund’s annual rate of return has been 44%.
Cherry-picking off the top of the heap from the best artificial intelligence companies in the world is the secret recipe to outperforming your competitors.
At the same time, aggressively throwing money at these companies has effectively frozen out any resemblance of competition. Once the competition is frozen out, the value of these investments explodes, swiftly super-charged by rapidly expanding growth drivers.
How can you compete with a man who is willing to pay $300 million for a dog walking app?
This genius strategy has made the founder of SoftBank the most powerful businessman in the world.
Son owns the future and will have the largest say on how the world and economies evolve going forward.
Global Market Comments
June 4, 2019
Fiat Lux
Featured Trade:
(WEDNESDAY, JUNE 26 SYDNEY, AUSTRALIA STRATEGY LUNCHEON)
(TEN UGLY MESSAGES FROM THE BOND MARKET),
(TLT), (TBT), (USO), (GLD), (GS), (SPY)
Mad Hedge Technology Letter
March 25, 2019
Fiat Lux
Featured Trade:
(APPLE’S BIG PUSH INTO SERVICES)
(AAPL), (GS), (NFLX), (GOOGL), (ROKU)
The future of Apple (AAPL) has arrived.
Apple has endured a tumultuous last six months, but the company and the stock have turned the page on the back of the anticipation of the new Apple streaming service that Apple plans to introduce next week at an Apple event.
The company also recently announced a partnership with Goldman Sachs (GS) to launch an Apple-branded credit card.
In the deal, Goldman Sachs will pay Apple for each consumer credit card that is issued.
These new initiatives indicate that Apple is doing its utmost to wean itself from hardware sales.
Effectively, Apple's over-reliance on hardware sales was the reason for its catastrophic winter of 2018 when Apple shares fell off a cliff trending lower by almost 35%.
This new Apple is finally here to save the day and will demonstrate the high-quality of engineering the company possesses to roll out such a momentous service.
Frankly speaking, Apple needs this badly.
They were awkwardly wrong-footed when Chinese consumers in unison stopped buying iPhones destroying sales targets that heaped bad news onto a bad situation.
I never thought that Apple could pivot this quickly.
Apple's move into online streaming has huge ramifications to competing companies such as Roku (ROKU).
In 2018, I was an unmitigated bull on this streaming platform that aggregates online streaming channels such a Sling TV, Hulu, Netflix and charges digital advertisers to promote their products on the platform through digital ads.
I believe this trade is no more and Roku will be negatively impacted by Apple’s ambitious move into online streaming.
What we do know about the service is that channels such as Starz and HBO will be subscription-based channels that device owners will need to pay a monthly fee and Apple will collect an affiliate commission on these sales.
Apple needs to supplement its original content strategy with periphery deals because Apple just doesn’t have the volume to offer consumers a comprehensive streaming product like Netflix.
Only $1 billion on original content has been spent, and this content will be free for device owners who have Apple IDs.
Apple's original content budget is 1/9 of Netflix annual original content budget.
My guess is that Apple wants to take stock of the streaming product on a smaller scale, run the data analytics and make some tough strategic decisions before launching this service in a full-blown way.
It's easier to clean up a $1 billion mess than a $9 billion mess, but knowing Apple and its hallmarks of precise execution, I'd be shocked if they make a boondoggle out of this.
Transforming the company from a hardware to a software company will be the long-lasting legacy of Tim Cook.
The first stage of implementation will see Apple seeking for a mainstay show that can ingrain the service into the public's consciousness.
Netflix was a great example, showing that hit shows such as House of Cards can make or break an ecosystem and keep it extremely sticky ensuring viewers will stay inside a walled pay garden.
Apple hopes to convince traditional media giants such as the Wall Street Journal to place content on Apple's platform, but there has already been blowback from companies like the New York Times who referenced Netflix’s demolition of traditional video content as a crucial reason to avoid placing original content on big tech platforms.
Netflix understands how they blew up other media companies and don’t expect them to be on Apple’s streaming service.
They wouldn’t be caught dead on it.
Tim Cook will have to run this race without the wind of Netflix’s sails at their back.
Netflix has great content, and that content will never leave the Netflix platform come hell or high water.
Apple is just starting with a $1 billion content budget, but I believe that will mushroom between $4 to $5 billion next year, and double again in 2021 to take advantage of the positive network effect.
Apple has every incentive to manufacture original content if third-party original content is not willing to place content on Apple's platform due to fear of cannibalization or loss of control.
Ultimately, Apple is up against Netflix in the long run and Apple has a serious shot at competing because of the embedment of 1 billion users already inside of Apple's iOS ecosystem that can easily be converted into Apple streaming service customers.
If you haven't noticed lately, Silicon Valley's big tech companies are all migrating into service-related SaaS products with Alphabet (GOOGL) announcing a new gaming product that will bypass traditional consoles and operate through the Google Chrome browser.
Even Walmart (WMT) announced its own solution to gaming with a new cloud-based gaming service.
I envision Apple traversing into the gaming environment too and using this new streaming service as a fulcrum to launch this gaming product on Apple TV in the future.
The big just keep getting bigger and are nimble enough to go where internet users spend their time and money whether it's sports, gaming, or shopping.
Apple is no longer the iPhone company.
I have said numerous times that Apple's pivot to software was about a year too late.
The announcement next week would have been more conducive to supporting Apple’s stock price if it was announced the same time last year, but better late than never.
Moving forward, Apple shares should be a great buy and hold investment vehicle.
Expect many more cloud-based services under the umbrella of the Apple brand.
This is just the beginning.
