Global Market Comments
July 22, 2019
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR BRACE YOURSELF),
(SPY), (TLT), (FXA), (FCX), (MSFT),
Global Market Comments
July 22, 2019
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR BRACE YOURSELF),
(SPY), (TLT), (FXA), (FCX), (MSFT),
When you have constant jet log, you often have weird dreams. Take this morning, for example.
I dreamed that Fed governor Jay Powell invited me over to his house for breakfast. While he was cooking the bacon and eggs, Donald Trump started to call him every five minutes ordering him to lower interest rates. Jay got so distracted that the bacon caught fire, the house burned down, and we all died.
Fortunately it was only a dream. But like most dreams, parts of it were borrowed from true life.
Brace yourself, this could be the deadest, least interesting, most somnolescent week of the year. Thanks to all of those “out of office” messages we are getting with our daily newsletter mailings, I know that most of you will be out on vacation. Trading desks everywhere are now manned by “B” teams.
Then, the most important data release of the month doesn’t come out until Friday morning. It will be weak, but how weak? Q1 came in at a robust 3.1%. Q2 could be under 1%. The bigger unknown is how much of this widely trumpeted slowdown is already in the market?
Given the elevated levels of stock markets everywhere, most traders will rather be inclined to bet on which of two flies crawls up a wall faster. Such are the dog days of summer.
We here in Europe are bracing for the next ratchet up in climate change, where every temperature record is expected to be broken. It is forecast to hit 92 in London, 106 in Paris, and 94 in Berlin. Still, that’s a relief from India, where it was 120. Five more years of global warming and India will lose much of its population as it will become uninhabitable.
I shall have to confine my Alpine climbing to above 8,000 feet where hopefully it can reach the 70s. By the way, the air conditioning in Europe sucks, and the bars always run out of ice early.
While the Fed is expected by all to cut interest rates a quarter point next week, we have suddenly received a raft of strong economic data points hinting that it may do otherwise.
Inflation hit an 18-month high, with the CPI up a blistering 0.3% in June. That’s why bonds (TLT) took a sudden four-point hit. Soaring prices for apparel (the China trade war), used cars, rents, and healthcare costs led the charge. Is this the beginning of the end, or the end of the beginning?
The Empire State Factory Index hits a two-year high, leaping from -8.6 in June to 4.3 in July. No recession here, at least in New York.
Microsoft (MSFT) blew it away, with spectacular Q2 earnings growth, wiping out conservative analyst forecasts. Azure, the company’s cloud business, rose a spectacular 64%. Nothing like seeing your number one stock pick for 2019 take on all comers. Buy (MSFT) on every dip.
An early read on Q2 GDP came in at a sizzling 1.8%. Many forecasts were under 1%, thanks to the trade wars, soaring budget deficits, and fading tax revenues. That’s still well down from the 3.1% seen in Q1. It seems no one told Main Street, where retail sales and borrowing are on fire, according to JP Morgan’s Jamie Diamond.
US Retail Sales rose a hot 0.4% in June, raising prospects that the Fed may not cut interest rates after all. Stocks and bonds both got hit. Don’t panic yet, it’s only one number.
If the Fed only looks at the data above, it would delay a rate cut for another quarter. If they choose that option, the Dow Average would plunge 1,000 points in a week. The market-sensitive Fed knows this too.
However, the Fed has to be maintaining a laser-like focus on the Conference Board Index of Leading Economic Indicators, which lately have been rolling over like the Bismarck and always presage a recession. For your convenience, I have included a 60-year chart below with the recessions highlighted.
And there were a few soft spots in the numbers as well.
China growth slowed to 6.2%, a 27-year low. Never mind that the real rate is probably only 3%. The slowdown is clearly the outcome of the trade war. That’s what happens when you make war on your largest customer. Markets rallied because it was not worse.
Banks beat on earnings, but stocks yawned, coming off an “OK” quarter. It’s still the sector to avoid with a grim backdrop of sharply falling interest rates. They’re also getting their pants beat by fintech, from which there is no relief.
There is no end to the China trade war in sight, as Trump once again threatened another round of tariff increases. It looks like the trade war will outlast the presidential election, since the Chinese have no interest in helping Trump get reelected. The puzzle is that the stock market could care less.
Trump’s war on technology expanded. First, Facebook (FB) got hit with a $5 fine over privacy concerns. Now Google (GOOGL) is to be investigated for treason for allegedly helping the Chinese military. In the meantime, Europe is going after Amazon (AMZN) on antitrust concerns. If the US isn’t going to dominate technology, who will. Sorry, but this keyboard doesn’t have Chinese characters.
June US Housing Starts fell 0.9%, while permits dove 6%. If builders won’t build in the face of record low interest rates, their outlook for the economy must be grim. Maybe the 36% YOY decline in buying from Chinese has something to do with it.
Oil popped on the US downing of an Iranian drone in the Straits of Hormuz, which I flew over myself only last week on my way to Abu Dhabi. Expect this tit for tat, “Phony War” to continue, making Texas tea (USO) untradeable. In the meantime, the International Energy Agency has cut oil demand forecasts, thanks to a slowing global economy.
My strategy of avoiding stocks and only investing in weak dollar plays like bonds (TLT), foreign exchange (FXA), and copper (FCX) has been performing 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 +17.78% and has earned a respectable 2.54% so far in July. Nothing like coming out of the blocks for an uncertain H2 on a hot streak.
My ten-year average annualized profit bobbed up to +33.12%. With the markets now in the process of peaking out for the short term, I am now 70% 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 44. It’s a Goldilocks level, not too hot and not too cold.
The coming week will be a fairly sedentary one on the data front after last week’s fireworks, except for one big bombshell on Friday.
On Monday, July 22, the Chicago Fed National Activity Index is published.
On Tuesday, July 23, we get a new Case Shiller National Home Price Index. June Existing Home Sales follow.
On Wednesday, July 24, June New Home Sales are released.
On Thursday, July 25 at 8:30 AM EST, the Weekly Jobless Claims are printed. So are June Durable Goods.
On Friday, July 26 at 8:30 AM EST, we get the most important release of the week, the advance release of US Q2 GDP. The numbers are expected to be weak, and anything above 1.8% will be a surprise, compared to 3.1% in Q1. Depending on the number, the market will either be up big, down big, or flat. I can already hear you saying “Thanks a lot.”
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I’ll be attending a fund raiser tonight for the Zermatt Community band held in the main square in front of St. Mauritius church. If you don’t ski, there isn’t much to do in the winter here but practice your flute, clarinet, French horn, or tuba.
We’ll be eating all the wurst, raclete, beer, and apple struddle we can. As an honorary citizen of Zermatt with the keys to the city, having visited here for 51 years, I get to attend for free.
Good luck and good trading.
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 19, 2019
(DON’T MISS THE JULY 24 GLOBAL STRATEGY WEBINAR)
(WHAT’S HAPPENED TO APPLE?), (AAPL)
(MSFT), (IBM), (CSCO), (SWCH)
No, this piece is not about the TV reality show that has a gruff lot of hopeful entrepreneurs blindly bidding for the contents of abandoned storage lockers.
With hyper-accelerating technology creating data at an exponential rate, it is getting far too big to physically store.
In 2018, over $80 billion was spent on data centers across the country, often in the remotest areas imaginable. Bend, OR, rural West Virginia, or dusty sun-baked Sparks, NV, yes, they’re all there.
And you know what the biggest headache for the management of many tech companies is today? A severe shortage of cost-effective data storage and the skyrocketing electric power bills to power them.
During my lifetime, storage has evolved from one-inch magnetic tape on huge reels to highly unreliable 5 ¼ inch floppy disks, then 3-inch discs, and later to compact discs.
The solid-state storage on silicon chips that hit the market six years ago was a dream, as it was cheap, highly portable, and lightning fast. Boot-up time shrank from minutes to seconds. The only problem was the heat and sitting on it when you forgot those ultra slim designs on the sofa.
Moore’s Law, which has storage doubling every 18 months while the cost halves, has proved faithful to the bitter end. The problem now is, the end is near as the size of an electron becoming too big to pass through a gate is increasingly becoming a limiting factor.
As of 2017, the world needed 44 gigabytes of storage per day. According to the International Data Corporation, that figure will explode to 460 billion gigabytes by 2025, in a mere seven years.
That’s when the global datasphere will reach 160 trillion gigabytes, or 160 zettabytes. It all sounds like something out of an Isaac Asimov science fiction novel.
You can double that figure again when Google’s Project Loon brings the planet’s 5 million residents currently missing from the Internet online.
In the meantime, companies are making fortunes on the build-out. Some $50 billion has to be spent this year just to keep even with burgeoning storage demand.
And guess what? Thanks to rocketing demand from electric cars and AI, memory grade silicon is expected to run out by 2040.
All I can say is “Better pray for DNA.”
Deoxyribonucleic acid has long been the Holy Grail for data storage. There is no reason why it shouldn’t work. After all, you and I are the product of the most dynamic data storage system known to man.
All of the information needed to replicate ourselves is found in 3 trillion base pairs occupying every single cell in the human body.
To give you some idea of the immense scalability of DNA, consider this. One exabyte of data storage using convention silicon would weigh 320 metric tonnes. The same amount of information in DNA would occupy five cubic centimeters weighing five grams, or 0.18 ounce!
And here is the big advantage of DNA. Conventional silicon permits only two programing choices, “0” or “1”. Even with just that, we have been able to achieve incredible gains in computing over the last 50 years.
DNA is made of four difference bases, adenine, cytosine, guanine, and thymine, which allow four squared possible combinations, or 16. The power demands are immeasurably small and it runs cool.
Also known as NAM, or nucleic acid memory, it has already burst out of the realm of science fiction. Microsoft Research (MSFT), the University of Washington, and (IBM) have all gotten it to work on a limited basis.
So far, retrieval is the biggest problem, something we ourselves do trillions of times a day every day without thinking about it.
DNA is organic, requires no silicon, and can replicate itself into infinity at zero cost. The information can last tens of thousands of years. Indeed, scientists were recently able to reconstruct the DNA from Neanderthals who lived in cave in Spain 27,000 years ago.
Yes, you can now clone your own Neanderthal. Gardening work maybe? Low-waged assembly line workers? Soldiers? Traders? I think I already know some. Look for that tell-tale supraorbital brow (click here for details).
But I diverge.
If you want to make money, like tomorrow, instead of in a decade, there are still a few possibilities on the storage front.
If you want to take a flyer on the ongoing data storage buildout, you might look at Las Vegas-based Switch (SWCH). The company IPO’d in October and has since seen its shares drop by 32%, which is normal for these small tech companies.
A much cleaner and safer play is Cisco Systems (CSCO), one of my favorite lagging old technology companies. After all, everyone needs Cisco routers on an industrial scale.
Mad Hedge Technology Letter
July 19, 2019
(AMZN), (MSFT), (GOOGL), (DOCU), (CRM), (ZS)
If you’ve been living under a rock the past few years, the cloud phenomenon hasn’t passed you by and you still have time to cash in.
You want to hitch your wagon to cloud-based investments in any way, shape or form.
Amazon leads the cloud industry it created.
It still maintains more than 30% of the cloud market. Microsoft would need to gain a lot of ground to even come close to this jewel of a business.
Amazon (AMZN) relies on AWS to underpin the rest of its businesses and that is why AWS contributes most of Amazon’s total operating income.
Total revenue for just the AWS division would operate as a healthy stand-alone tech company if need be.
The future is about the cloud.
These days, the average investor probably hears about the cloud a dozen times a day.
If you work in Silicon Valley, you can triple that figure.
So, before we get deep into the weeds with this letter on cloud services, cloud fundamentals, cloud plays, and cloud Trade Alerts, let’s get into the basics of what the cloud actually is.
Think of this as a cloud primer.
It’s important to understand the cloud, both its strengths and limitations.
Giant companies that have it figured out, such as Salesforce (CRM) and Zscaler (ZS), are some of the fastest growing companies in the world.
Understand the cloud and you will readily identify its bottlenecks and bulges that can lead to extreme investment opportunities. And that’s where I come in.
Cloud storage refers to the online space where you can store data. It resides across multiple remote servers housed inside massive data centers all over the country, some as large as football fields, often in rural areas where land, labor, and electricity are cheap.
They are built using virtualization technology, which means that storage space spans across many different servers and multiple locations. If this sounds crazy, remember that the original Department of Defense packet-switching design was intended to make the system atomic bomb proof.
As a user, you can access any single server at any one time anywhere in the world. These servers are owned, maintained and operated by giant third-party companies such as Amazon, Microsoft, and Alphabet (GOOGL), which may or may not charge a fee for using them.
The most important features of cloud storage are:
1) It is a service provided by an external provider.
2) All data is stored outside your computer residing inside an in-house network.
3) A simple Internet connection will allow you to access your data at anytime from anywhere.
4) Because of all these features, sharing data with others is vastly easier, and you can even work with multiple people online at the same time, making it the perfect collaborative vehicle for our globalized world.
Once you start using the cloud to store a company’s data, the benefits are many.
Many companies, regardless of their size, prefer to store data inside in-house servers and data centers.
However, these require constant 24-hour-a-day maintenance, so the company has to employ a large in-house IT staff to manage them – a costly proposition.
Thanks to cloud storage, businesses can save costs on maintenance since their servers are now the headache of third-party providers.
Instead, they can focus resources on the core aspects of their business where they can add the most value without worrying about managing IT staff of prima donnas.
Today’s employees want to have a better work/life balance and this goal can be best achieved by letting them telecommute. Increasingly, workers are bending their jobs to fit their lifestyles, and that is certainly the case here at Mad Hedge Fund Trader.
How else can I send off a Trade Alert while hanging from the face of a Swiss Alp?
Cloud storage services such as Google Drive offer exactly this kind of flexibility for employees. According to a recent survey, 79% of respondents already work outside of their office some of the time, while another 60% would switch jobs if offered this flexibility.
With data stored online, it’s easy for employees to log into a cloud portal, work on the data they need to, and then log off when they’re done. This way a single project can be worked on by a global team, the work handed off from time zone to time zone until it’s done.
It also makes them work more efficiently, saving money for penny-pinching entrepreneurs.
Better Collaboration and Communication
In today’s business environment, it’s common practice for employees to collaborate and communicate with co-workers located around the world.
For example, they may have to work on the same client proposal together or provide feedback on training documents. Cloud-based tools from DocuSign, Dropbox, and Google Drive make collaboration and document management a piece of cake.
These products, which all offer free entry-level versions, allow users to access the latest versions of any document so they can stay on top of real-time changes which can help businesses to better manage workflow, regardless of geographical location.
Another important reason to move to the cloud is for better protection of your data, especially in the event of a natural disaster. Hurricane Sandy wreaked havoc on local data centers in New York City forcing many websites to shut down their operations for days.
The cloud simply routes traffic around problem areas as if, yes, they have just been destroyed by a nuclear attack.
It’s best to move data to the cloud to avoid such disruptions because there your data will be stored in multiple locations.
This redundancy makes it so that even if one area is affected, your operations don’t have to capitulate, and data remains accessible no matter what happens. It’s a system called deduplication.
The cloud can save businesses a lot of money.
By outsourcing data storage to cloud providers, businesses save on capital and maintenance costs, money that in turn can be used to expand the business. Setting up an in-house data center requires tens of thousands of dollars in investment, and that’s not to mention the maintenance costs it carries.
Plus, considering the security, reduced lag, up-time and controlled environments that providers such as Amazon’s AWS have, creating an in-house data center seems about as contemporary as a buggy whip, a corset, or a Model T.
Global Market Comments
July 16, 2019
(THE BIGGEST TELL IN THE MARKET RIGHT NOW),
(GOOGL), (FRC), (PINS), (WORK), (UBER),
(ADSK), (WDAY), (SNE), (NVDA), (MSFT),
(POPULATION BOMB ECHOES),
(CORN), (WEAT), (SOYB), (DBA), (MOS)
I am constantly looking for “tells” in the market, little nuggets of information that no one else notices, but gives me a huge trading advantage.
Well, there is a big one out there right now. San Francisco commercial real estate prices are going through the roof, smashing new all-time records on a monthly, if not weekly, basis.
The message for you traders is loud and clear. You should be picking up the highest quality technology growth stocks on every dip for they all know some things that you don’t. Their businesses are about to triple, if not quadruple, over the coming decade.
Technology stocks, which now account for 26% of stock market capitalization, will make up more than half of the market within ten years, much of that through stock price appreciation. And they are all racing to lock up the office space with which to do that….now.
San Francisco office rents reached a record in June as the continued growth of tech — now turbocharged by nearly $100 billion in new capital raised in a series of initial public offerings — met a severe space crunch.
Asking rents rose to a staggering $84.16 per square foot annually for the newest and highest quality offices in the central business district and citywide asking rents for such spaces known as Class A are up over 9% from the prior year. The citywide office vacancy rate was 5.5% in June, down from 7.4% a year ago.
Demand shows no sign of stopping. Brokerage CBRE reported around 20 large tenants are seeking more space. Google and Facebook each want to lease as much as 1 million square feet in additional San Francisco office space — room for more than 6,500 employees.
Google (GOOGL) confirmed on Tuesday that it recently signed an office lease at the Ferry Building, its fifth expansion since 2018.
First Republic Bank (FRC) signed the biggest lease of the second quarter. It expanded by 265,000 square feet at 1 Front St. Financial firms and companies in other sectors continue to scrap with tech companies for space.
What’s the tech connection here? The bank’s expansion is fueled largely by the rise of tech. Its clients include wealthy tech employees, and it could benefit from the wave of local stock-market debuts — an example of how the booming tech sector also lifts the financial sector.
In addition, local Bay Area home prices could get a turbocharger by the fall when restrictions on stock sales expire for some companies that went public in the spring.
San Francisco companies that have gone public continue to grow by leaps and bounds. Pinterest (PINS), Slack (WORK), and Uber (UBER) also signed office leases this year with room for thousands of new employees.
Tech companies Autodesk (ADSK) and Glassdoor also signed deals at 50 Beale St. in the spring. In a sign of the city’s rapidly changing economy, old line construction firm Bechtel and Blue Shield, the legacy health insurer, are both moving out of 50 Beale St. Sensor maker Samsara, software firm Workday (WDAY), and Sony’s (SNE) PlayStation video game division also expanded.
Globally, San Francisco has the seventh-highest rents in prime buildings. It’s still behind financial powerhouses Hong Kong, London, New York, Beijing, Tokyo and New Delhi (San Francisco’s average office rents beat out New York.)
Downtown San Francisco’s office costs in top buildings, including service charges and taxes, are $130 per square foot, while Hong Kong’s Central district is the world’s highest at $322 per square foot.
Only a handful of new office projects are being built, and future supply is further constrained by San Francisco’s Proposition M which limits the amount of office space that can be approved each year. That is creating a steadily worsening structural shortage. Only two large office projects are under construction without tenant commitments.
Which tech stocks should you be picking up now? NVIDIA (NVDA) has recently suffered a major haircut, thanks to the trade war with China. Microsoft (MSFT) seems hellbent on making its way from $140 to $200 a share due to its massive expansion into the cloud.
Global Market Comments
July 11, 2019
(THE INSIDER’S VIEW ON THE FUTURE OF TECHNOLOGY),
(AMZN), (GOOG), (DELL), (MSFT), (EBAY),
(MY DATE WITH HITLER’S GIRLFRIEND)
Global Market Comments
June 21, 2019
(MONDAY, JULY 8 VENICE, ITALY STRATEGY LUNCHEON)
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS), (TLT)
(WHY TECHNICAL ANALYSIS DOESN’T WORK)
(FB), (AAPL), (AMZN), (GOOG), (MSFT), (VIX)