Posts

May 20, 2019

Global Market Comments
May 20, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR I’LL TAKE SOME OF THAT!)
(FXI), (CYB), (TSLA), (AAPL), (BA), (WMT), (TLT), (INTU), (GOOGL)

The Market Outlook for the Week Ahead, or I’ll Take Some of That!

Whatever the market is drinking right now, I’ll take some of that stuff. If you could bottle it and sell it, you’d be rich. Certainly, the Viagra business would go broke.

To see the Dow average only give up 7% in response to the worst trade war in a century is nothing less than stunning. To see it then make half of that back in the next four days is even more amazing. But then, that is the world we live in now.

When the stock market shrugs off the causes of the last great depression like it’s nothing, you have to reexamine the root causes of the bull market. It’s all about the Fed, the Fed, the Fed.

Our August central bank’s decision to cancel all interest rate rises for a year provided a major tailwind for share prices at the end of 2018. The ending of quantitative tightening six months early injected the steroids, some $50 billion in new cash for the economy per month.

We now have a free Fed put option on share prices. Even if we did enter another 4,500-point swan dive, most now believe that the Fed will counter with more interest rate cuts, thanks to extreme pressure from Washington. A high stock market is seen as crucial to winning the 2020 presidential election.

Furthermore, permabulls are poo-pooing the threat to the US economy the China (FXI) trade war presents. Some $500 billion in Chinese exports barely dent the $21.3 trillion US GDP. It’s not even a lot for China, amounting to 3.7% of their $13.4 trillion GDP, or so the argument goes.

Here’s the problem with that logic. The lack of a $5 part from China can ground the manufacture of $30 million aircraft when there are no domestic alternatives. Similarly, millions of small online businesses, mostly based in the Midwest, couldn’t survive a 25% price increase in the cost of their inventory.

As for the Chinese, while trade with us is only 3.7% of their economy, it most likely accounts for 90% of their profits. That’s why the Chinese yuan (CYB) has recently been in free fall in a desperate attempt to offset punitive tariffs with a substantially cheaper currency.

The market will figure out all of this eventually on a delayed basis and probably in a few months when slowing economic growth becomes undeniable. However, the answer for now is NOT YET!

Markets can be dumb, poor sighted, and mostly deaf animals. It takes them a while to see the obvious. One of the problems with seeing things before the rest of the world does, I can be early on trades, and that can translate into losing money. So, I have to be cautious here.

When that happens, I revert to an approach I call “Trading devoid of the thought process.” When prices are high, I sell. When they are low, I buy. All other information is noise. And I keep my size small and stop out of losers lightning fast. That’s how I managed to eke out a modest 0.63% profit so far this month, despite horrendous trading conditions.

You have to trade the market you have, not what it should be, or what you wish you had. It goes without saying that the Mad Hedge Market Timing Index become an incredibly valuable tool in such conditions.

It was a volatile week, to say the least.

China retaliated, raising tariffs on US goods, ratcheting up the trade war. US markets were crushed with the Dow average down 720 intraday and Chinese plays like Apple (AAPL) and Boeing (BA) especially hard hit.

China tariffs are to cost US households $500 each in rising import costs. Don’t point at me! I buy all American with my Tesla (TSLA).

The China tariffs delivered the largest tax increases in history, some $72 billion according to US Treasury figures. With Walmart (WMT) already issuing warnings on coming price hikes, we should sit up and take notice. It is a highly regressive tax hike, with the poorest hardest hit.

The Atlanta Fed already axed growth prospects for Q2, from 3.2% to 1.1%. This trade war is getting expensive. No wonder stocks have been in a swan dive.

US Retail Sales cratered in March while Industrial Production was off 0.5%. Why is the data suddenly turning recessionary? It isn’t even reflecting the escalated trade war yet.

European auto tariff delay boosted markets in one of the administration’s daily attempts to manipulate the stock market and guarantee support of Michigan, Wisconsin, and Pennsylvania during the next presidential election. All government decisions are now political all the time.

Weekly Jobless Claims plunged by 16,000 to 212,000. Have you noticed how dumb support staff have recently become? I have started asking workers how long they have been at their jobs and the average so far is three months. No one knows anything. This is what a full employment economy gets you.

Four oil tankers were attacked at the Saudi port of Fujairah, sending oil soaring. America’s “two war” strategy may be put to the test, with the US attacking Iran and North Korea simultaneously.

Bitcoin topped 8,000, on a massive “RISK OFF” trade, now double its December low. The cryptocurrency is clearly replacing gold as the fear trade.

The Mad Hedge Fund Trader managed to blast through to a new all-time high last week.

Global Trading Dispatch closed the week up 16.35% year to date and is up 0.63% so far in May. My trailing one-year rose to +20.19%. We jumped in and out of short positions in bonds (TLT) for a small profit, and our tech positions appreciated.

The Mad Hedge Technology Letter did OK, making some good money with a long position in Intuit (INTU) but stopping out for a small loss in Alphabet (GOOGL).

Some 10 out of 13 Mad Hedge Technology Letter round trips have been profitable this year.
 
My nine and a half year profit jumped to +316.49%. The average annualized return popped to +33.21%. With the markets incredibly and dangerously volatile, I am now 80% in cash with Global Trading Dispatch and 80% cash in the Mad Hedge Tech Letter.

I’ll wait until the markets retest the bottom end of the recent range before considering another long position.

The coming week will see only one report of any real importance, the Fed Minutes on Wednesday afternoon. Q1 earnings are almost done.

On Monday, May 20 at 8:30 AM, the April Chicago Fed National Activity Index is out.

On Tuesday, May 21, 10:00 AM EST, the April Existing Home Sales is released. Home Depot (HD) announces earnings.

On Wednesday, May 22 at 2:00 PM, the minutes of the last FOMC Meeting are published. Lowes (LOW) announces earnings.

On Thursday, May 16 at 23 AM, Weekly Jobless Claims are published. Intuit (INTU) announces earnings.

On Friday, May 24 at 8:30 AM, April Durable Goods is announced.

As for me, I’ll be taking a carload of Boy Scouts to volunteer at the Oakland Food Bank to help distribute food to the poor and the homeless. Despite living in the richest and highest paid urban area in the world, some 20% of the population now lives on handouts, including many public employees and members of the military. It truly is a have, or have-not economy.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

May 17, 2019

Global Market Comments
May 17, 2019
Fiat Lux

Featured Trade:

(APRIL 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(MSFT), (GOOGL), (AAPL), (LMT), (XLV), (EWG), (VIX), (VXX), (BA), (TSLA), (UBER), (LYFT), (ADBE),

(HOW TO HANDLE THE FRIDAY, MAY 17 OPTIONS EXPIRATION), (INTU),

May 6, 2019

Global Market Comments
May 6, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR HERE’S ANOTHER BOMBSHELL),
(DIS), (QQQ), (AAPL), (INTU), (GOOGL), (LYFT), (UBER), (FCX))

April 29, 2019

Global Market Comments
April 29, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR ANOTHER LEG UP FOR THE MARKET),
(SPY), (TLT), (DIS), (INTU), (FCX), (MSFT),
 (QQQ), (CVX), (XOM), (OXY), (TSLA)

The Market Outlook for the Week Ahead, or Another Leg Up for the Market

This is one of those markets where you should have followed your mother’s advice and become a doctor.

I was shocked, amazed, and gobsmacked when the Q1 GDP came in at a red hot 3.2%. The economy had every reason to slow down during the first three months of 2019 with the government shutdown, trade war, and terrible winter. Many estimates were below 1%.

I took solace in the news by doing what I do best: I shot out four Trade Alerts within the hour.

Of course, the stock market knew this already, rising almost every day this year. Both the S&P 500 and the NASDAQ (QQQ) ground up to new all-time highs last week. The Dow Average will be the last to fall.

Did stock really just get another leg up, or this the greatest “Sell the news” of all time. Nevertheless, we have to trade the market we have, not the one we want or expect, so I quickly dove back in with new positions in both my portfolios.

One has to ask the question of how strong the economy really would have been without the above self-induced drags. 4%, 5%, yikes!

However, digging into the numbers, there is far less than meets the eye with the 3.2% figure. Exports accounted for a full 1% of this. That is unlikely to continue with Europe in free fall. A sharp growth in inventories generated another 0.7%, meaning companies making stuff that no one is buying. This is growth that has been pulled forward from future quarters.

Strip out these one-off anomalies and you get a core GDP that is growing at only 1.5%, lower than the previous quarter.

What is driving the recent rally is that corporate earnings are coming in stronger than expected. Back in December, analysts panicked and excessively cut forecasts.

With half of the companies already reporting, it now looks like the quarter will come in a couple of points higher than lower. That may be worth a rally of a few more percentage points higher for a few more weeks, but not much more than that.
 
So will the Fed raise rates now? A normal Fed certainly would in the face of such a hot GDP number. But nothing is normal anymore. The Fed canceled all four rate hikes for 2019 because the stock market was crashing. Now it’s booming. Does that put autumn rate hikes back on the table, or sooner?

Microsoft (MSFT) knocked it out of the park with great earnings and a massive 47% increase in cloud growth. The stock looks hell-bent to hit $140, and Mad Hedge followers who bought the stock close to $100 are making a killing. (MSFT) is now the third company to join the $1 trillion club.

And it’s not that the economy is without major weak spots. US Existing Home Sales dove in March by 5.9%, to an annualized 5.41 million units. Where is the falling mortgage rate boost here? Keep avoiding the sick man of the US economy. Car sales are also rolling over like the Bismarck, unless they’re electric.

Trump ended all Iran oil export waivers and the oil industry absolutely loved it with Texas tea soaring to new 2019 highs at $67 a barrel. Previously, the administration had been exempting eight major countries from the Iran sanctions. More disruption all the time. The US absolutely DOES NOT need an oil shock right now, unless you’re Exxon (XOM), Chevron (CVX), or Occidental Petroleum (OXY).

NASDAQ hit a new all-time high. Unfortunately, it’s all short covering and company share buybacks with no new money actually entering the market. How high is high? Tech would have to quadruple from here to hit the 2000 Dotcom Bubble top in valuation terms.

Tesla lost $700 million in Q1, and the stock collapsed to a new two-year low. It’s all because the EV subsidy dropped by half since January. Look for a profit rebound in quarters two and three. Capital raise anyone? Tesla junk bonds now yielding 8.51% if you’re looking for an income play. After a very long wait, a decent entry point is finally opening up on the long side.

The Mad Hedge Fund Trader blasted through to a new all-time high, up 16.02% year to date, as we took profits on the last of our technology long positions. I then added new long positions in (DIS), (FCX), and (INTU) on the hot GDP print, but only on a three-week view.

I had cut both Global Trading Dispatch and the Mad Hedge Technology Letter services down to 100% cash positions and waited for markets to tell us what to do next. And so they did.

I dove in with an extremely rare and opportunistic long in the bond market (TLT)  and grabbed a quickie 14.61% profit on only three days.

April is now positive +0.60%.  My 2019 year to date return gained to +16.02%, boosting my trailing one-year to +21.17%. 
 
My nine and a half year shot up to +316.16%. The average annualized return appreciated to +33.87%. I am now 80% in cash with Global Trading Dispatch and 90% cash in the Mad Hedge Tech Letter.

The coming week will see another jobs trifecta.

On Monday, April 29 at 10:00 AM, we get March Consumer Spending. Alphabet (GOOGL) and Western Digital (WDC) report.

On Tuesday, April 30, 10:00 AM EST, we obtain a new Case Shiller CoreLogic National Home Price Index. Apple (AAPL), MacDonald’s (MCD), and General Electric (GE) report.

On Wednesday, May 1 at 2:00 PM, we get an FOMC statement.
QUALCOMM (QCOM) and Square (SQ) report. The ADP Private Employment Report is released at 8:15 AM.

On Thursday, May 2 at 8:30 AM, the Weekly Jobless Claims are produced. Gilead Sciences (GILD) and Dow Chemical (DOW) report.

On Friday, May 3 at 8:30 AM, we get the April Nonfarm Payroll Report. Adidas reports, and Berkshire Hathaway (BRK/A) reports on Saturday.

As for me, to show you how low my life has sunk, I spent my only free time this weekend watching Avengers: Endgame. It has already become the top movie opening in history which is why I sent out another Trade Alert last week to buy Walt Disney (DIS).

I supposed that now we have all become the dumb extension to our computers, the only entertainment we should expect is computer-generated graphics with only human voice-overs.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

 

 

 

 

 

 

 

January 17, 2019

Mad Hedge Technology Letter
January 17, 2019
Fiat Lux

Featured Trade:

(WHY FINTECH IS EATING THE BANKS’ LUNCH),
(WFC), (JPM), (BAC), (C), (GS), (XLF), (PYPL), (SQ), (SPOT), (FINX), (INTU)

Why FinTech is Eating the Banks’ Lunch

Going into January 2018, the big banks were highlighted as the pocket of the equity market that would most likely benefit from a rising rate environment which in turn boosts net interest margins (NIM).

Fast forward a year and take a look at the charts of Bank of America (BAC), Citibank (C), JP Morgan (JPM), Goldman Sachs (GS), and Morgan Stanley (GS), and each one of these mainstay banking institutions are down between 10%-20% from January 2018.

Take a look at the Financial Select Sector SPDR ETF (XLF) that backs up my point.

And that was after a recent 10% move up at the turn of the calendar year.

As much as it pains me to say it, bloated American banks have been completely caught off-guard by the mesmerizing phenomenon that is FinTech.

Banking is the latest cohort of analog business to get torpedoes by the brash tech start-up culture.

This is another fitting example of what will happen when you fail to evolve and overstep your business capabilities allowing technology to move into the gaps of weakness.

Let me give you one example.

I was most recently in Tokyo, Japan and was out of cash in a country that cash is king.

Japan has gone a long way to promoting a cashless society, but some things like a classic sushi dinner outside the old Tsukiji Fish Market can’t always be paid by credit card.

I found an ATM to pull out a few hundred dollars’ worth of Japanese yen.

It was already bad enough that the December 2018 sell-off meant a huge rush into the safe haven currency of the Japanese Yen.

The Yen moved from 114 per $1 down to 107 in one month.

That was the beginning of the bad news.

I whipped out my Wells Fargo debit card to withdraw enough cash and the fees accrued were nonsensical.

Not only was I charged a $5 fixed fee for using a non-Wells Fargo ATM, but Wells Fargo also charged me 3% of the total amount of the transaction amount.

Then I was hit on the other side with the Japanese ATM slamming another $5 fixed fee on top of that for a non-Japanese ATM withdrawal.

For just a small withdrawal of a few hundred dollars, I was hit with a $20 fee just to receive my money in paper form.

Paper money is on their way to being artifacts.

This type of price gouging of banking fees is the next bastion of tech disruption and that is what the market is telling us with traditional banks getting hammered while a strong economy and record profits can’t entice investors to pour money into these stocks.

FinTech will do what most revolutionary technology does, create an enhanced user experience for cheaper prices to the consumers and wipe the greedy traditional competition that was laughing all the way to the bank.

The best example that most people can relate to on a daily basis is the transportation industry that was turned on its head by ride-sharing mavericks Uber and Lyft.

But don’t ask yellow cab drivers how they think about these tech companies.

Highlighting the strong aversion to traditional banking business is Slack, the workplace chat app, who will follow in the footsteps of online music streaming platform Spotify (SPOT) by going public this year without doing a traditional IPO.

What does this mean for the traditional banks?

Less revenue.

Slack will list directly and will set its own market for the sale of shares instead of leaning on an investment bank to stabilize the share price.

Recent tech IPOs such as Apptio, Nutanix and Twilio all paid 7% of the proceeds of their offering to the underwriting banks resulting in hundreds of millions of dollars in revenue.

Directly listings will cut that fee down to $10-20 million, a far cry from what was once status quo and a historical revenue generation machine for Wall Street.

This also layers nicely with my general theme of brokers of all types whether banking, transportation, or in the real estate market gradually be rooted out by technology.

In the world of pervasive technology and free information thanks to Google search, brokers have never before added less value than they do today.

Slowly but surely, this trend will systematically roam throughout the economic landscape culling new victims.

And then there are the actual FinTech companies who are vying to replace the traditional banks with leaner tech models saving money by avoiding costly brick and mortar branches that dot American suburbs.

PayPal (PYPL) has been around forever, but it is in the early stages of ramping up growth.

That doesn’t mean they have a weak balance sheet and their large embedded customer base approaching 250 million users has the network effect most smaller FinTech players lack.

PayPal is directly absorbing market share from the big banks as they have rolled out debit cards and other products that work well for millennials.

They are the owners of Venmo, the super-charged peer-to-peer payment app wildly popular amongst the youth.

Shares of PayPal’s have risen over 200% in the past 2 years and as you guessed, they don’t charge those ridiculous fees that banks do.

Wells Fargo and Bank of America charge a $12 monthly fee for balances that dip below $1,500 at the end of any business day.

Your account at PayPal can have a balance of 0 and there will never be any charge whatsoever.

Then there is the most innovative FinTech company Square who recently locked in a new lease at the Uptown Station in Downtown Oakland expanding their office space by 365,000 square feet for over 2,000 employees.

Square is led by one of the best tech CEOs in Silicon Valley Jack Dorsey.

Not only is the company madly innovative looking to pounce on any pocket of opportunity they observe, but they are extremely diversified in their offerings by selling point of sale (POS) systems and offering an online catering service called Caviar.

They also offer software for Square register for payroll services, large restaurants, analytics, location management, employee management, invoices, and Square capital that provides small loans to businesses and many more.

On average, each customer pays for 3.4 Square software services that are an incredible boon for their software-as-a-service (SaaS) portfolio.

An accelerating recurring revenue stream is the holy grail of software business models and companies who execute this model like Microsoft (MSFT) and Salesforce (CRM) are at the apex of their industry.

The problem with trading this stock is that it is mind-numbingly volatile. Shares sold off 40% in the December 2018 meltdown, but before that, the shares doubled twice in the past two years.

Therefore, I do not promote trading Square short-term unless you have a highly resistant stomach for elevated volatility.

This is a buy and hold stock for the long-term.

And that was only just two companies that are busy redrawing the demarcation lines.

There are others that are following in the same direction as PayPal and Square based in Europe.

French startup Shine is a company building an alternative to traditional bank accounts for freelancers working in France.

First, download the app.

The company will guide you through the simple process — you need to take a photo of your ID and fill out a form.

It almost feels like signing up to a social network and not an app that will store your money.

You can send and receive money from your Shine account just like in any banking app.

After registering, you receive a debit card.

You can temporarily lock the card or disable some features in the app, such as ATM withdrawals and online payments.

Since all these companies are software thoroughbreds, improvement to the platform is swift making the products more efficient and attractive.

There are other European mobile banks that are at the head of the innovation curve namely Revolut and N26.

Revolut, in just 6 months, raised its valuation from $350 million to $1.7 billion in a dazzling display of growth.

Revolut’s core product is a payment card that celebrates low fees when spending abroad—but even more, the company has swiftly added more and more additional financial services, from insurance to cryptocurrency trading and current accounts.

Remember my little anecdote of being price-gouged in Tokyo by Wells Fargo, here would be the solution.

Order a Revolut debit card, the card will come in the mail for a small fee.

Customers then can link a simple checking account to the Revolut debit card ala PayPal.

Why do this?

Because a customer armed with a Revolut debit card linked to a bank account can use the card globally and not be charged any fees.

It would be the same as going down to your local Albertson’s and buying a six-pack, there are no international or hidden fees.

There are no foreign transaction fees and the exchange rate is always the mid-market rate and not some manipulated rate that rips you off.

Ironically enough, the premise behind founding this online bank was exactly that, the originators were tired of meandering around Europe and getting hammered in every which way by inflexible banks who could care less about the user experience.

Revolut’s founder, Nikolay Storonsky, has doubled down on the firm’s growth prospects by claiming to reach the goal of 100 million customers by 2023 and a succession of new features.

To say this business has been wildly popular in Europe is an understatement and the American version just came out and is ready to go.

Since December 2018, Revolut won a specialized banking license from the European Central Bank, facilitated by the Bank of Lithuania which allows them to accept deposits and offer consumer credit products.

N26, a German like-minded online bank, echo the same principles as Revolut and eclipsed them as the most valuable FinTech startup with a $2.7 Billion Valuation.

N26 will come to America sometime in the spring and already boast 2.3 million users.

They execute in five languages across 24 countries with 700 staff, most recently launching in the U.K. last October with a high-profile marketing blitz across the capital.

Most of their revenue is subscription-based paying homage to the time-tested recurring revenue theme that I have harped on since the inception of the Mad Hedge Technology Letter.

And possibly the best part of their growth is that the average age of their customer is 31 which could be the beginning of a beautiful financial relationship that lasts a lifetime.

N26’s basic current account is free, while “Black” and “Metal” cards include higher ATM withdrawal limits overseas and benefits such as travel insurance and WeWork membership for a monthly fee.

Sad to say but Bank of America, Wells Fargo, and the others just can’t compete with the velocity of the new offerings let alone the software-backed talent.

We are at an inflection point in the banking system and there will be carnage to the hills, may I even say another Lehman moment for one of these stale business models.

Online banking is here to stay, and the momentum is only picking up steam.

If you want to take the easy way out, then buy the Global X FinTech ETF (FINX) with an assortment of companies exposed to FinTech such as PayPal, Square, and Intuit (INTU).

The death of cash is sooner than you think.

This year is the year of FinTech and I’m not afraid to say it.

 

 

 

December 11, 2018

Global Market Comments
December 11, 2018
Fiat Lux

Featured Trade:

(JOHN THOMAS TV INTERVIEW Q&A)
(TLT), (FB), (USO), (GE), (PYPL), (SQ), (HD), (UUP), (FXE), (FXY)

December 10, 2018

Mad Hedge Technology Letter
December 10, 2018
Fiat Lux

Featured Trade:

(IT’S ALL ABOUT THE CLOUD)
(OKTA), (ZS), (DOCU), (INTU)