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June 25, 2018

Global Market Comments
June 25, 2018
Fiat Lux

Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, OR IS THIS A 1999 REPLAY?),
(AAPL), (FB), (NFLX), (AMZN), (GE), (WBT),
(JOIN ME ON THE QUEEN MARY 2 FOR MY JULY 11, 2018 SEMINAR AT SEA),
(JUNE 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SQ), (PANW), (FEYE), (FB), (LRCX), (BABA), (MOMO), (IQ), (BIDU), (AMD), (MSFT), (EDIT), (NTLA), Bitcoin, (FXE), (SPY), (SPX)

May 1, 2018

Global Market Comments
May 1, 2018
Fiat Lux

Featured Trade:
(FRIDAY, JUNE 15, 2018, DENVER, CO, GLOBAL STRATEGY LUNCHEON)
(ANATOMY OF A GREAT TRADE)
(TLT), (TBT), (SPY), (GLD), (USO),
(CYBERSECURITY IS ONLY JUST GETTING STARTED),
(PANW), (HACK), (FEYE), (CSCO), (FTNT), (JNPR), (CIBR)

March 26, 2018

Global Market Comments
March 26, 2018
Fiat Lux

Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WEEK THAT WASHINGTON FINALLY MATTERED),
(THE IRS LETTER YOU SHOULD DREAD),
(PANW), (CSCO), (FEYE),
(CYBR), (CHKP), (HACK), (SNE)
(TESTIMONIAL)

My Briefing from the Joint Chiefs of Staff

I have always considered the US military to have one of the world?s greatest research organizations. The frustrating thing is that their ?clients? only consist of the President and a handful of three and four star generals.

So I thought that I would review my notes from a dinner I had with General James E. Cartwright, the former Vice Chairman of the Joint Chiefs of Staff, who is known as ?Hoss? to his close subordinates.

Meeting the tip of the spear in person was fascinating. The four star Marine pilot was the second highest ranking officer in the US armed forces and showed up in his drab green alpha suit, his naval aviator wings matching my own, and spit and polished shoes.

As he spoke, I was ticking off the stock, ETF and futures plays that would best capitalize on the long term trends he was outlining.

The cycle of warfare is now driven by Moore?s Law more than anything else (XLK), (CSCO) and (PANW). Peer nation states, like Russia, are no longer the main concern.

Historically, inertia has limited changes in defense budgets to 5%-10% a year, but in 2010 defense secretary Robert Gates pulled off a 30% realignment, thanks to a major management shakeup. We can only afford to spend on winning current conflicts, not potential future wars. No more exercises in the Fulda Gap.

The war on terrorism will continue for at least 4-8 more years. Afghanistan is a long haul that will depend more on cooperation from neighboring Iran and Pakistan. ?We?re not going to be able to kill our way or buy our way to success in Afghanistan,? said the general.? However, the 30,000-man surge there brought a dramatic improvement on the ground situation.

Iran is a big concern and the strategy there is to interfere with outside suppliers of nuclear technology in order to stretch out their weapons development until a regime change cancels the whole program.

Water (PHO), (CGW) is going to become a big defense issue, as the countries running out the fastest, like Pakistan and the Sahel, happen to be the least politically stable.

Cyber warfare is another weak point, as excellent protection of .mil sites cannot legally be extended to .gov and .com sites.?

We may have to lose a few private institutions in an attack to get congress to change the law and accept the legal concept of ?voluntarism.? General Cartwright said ?Anyone in business will tell you that they?re losing intellectual capital on a daily basis.??

The START negotiations have become complicated by the fact that for demographic reasons, Russia (RSX) will never be able to field a million man army again, so they need more tactical nukes to defend against the Chinese (FXI).? The Russians are trying to cut the cost of defending against the US, so they can spend more on defense against a far larger force from China.

I left the dinner with dozens of ideas percolating through my mind, which I will write about in future letters.

CGW
PHO
RSX
GOOGL
CSCO
General James Cartwright

The Ten Baggers in Cyber Security

The threat to America?s national security does not come from ISIS, Iran, Russia, or China. It is an online hack attack.

That is the view of General Keith B. Alexander, who recently retired as the head of US Cyber Command after a lifetime in the intelligence business, the country?s principal online warrior.

I discovered a long time ago that a retired general can be one of the most valuable sources of information about long term capital market trends. After a career spent exercising discretion and keeping opinions to themselves, the dam breaks.

Sometimes, I am amazed at what I can pick up. Of course, it helps that my own top-secret clearance is still valid.

So when the chance arose to secretly meet Alexander at an undisclosed location, I jumped at it.

The general argues that the US is the preeminent online target because we have so much to lose. A concentrated attack could simultaneously cripple all communications, power supply, and financial markets. Life, as we know it, would completely grind to a halt.

The greatest cyber attacks are yet to come.

The US has no shortage of enemies on this front. Vladimir Putin is attempting to reassemble the old Soviet Union. Iran is engaged in numerous adventures throughout the Middle East. China is expanding its empire at every opportunity.

Alexander knows what he is talking about.

He is a recently retired four-star general who served as Director of the National Security Agency (DIRNSA), Chief of the Central Security Service (CHCSS) and Commander of the United States Cyber Command.

He graduated from West Point, Class of 1974, along with three other future four-star generals, including former CIA chief, David Petraeus, and former Chairman of the Joint Chiefs of Staff, Martin Dempsey, whom I both know and have written about.

While head of Army Intelligence, he was in charge of 10,700 spies and eavesdroppers worldwide. He has three master?s degrees in business, physics, and systems technology.

A lightweight, he is not.

Alexander expressed his concern that ISIS was using Facebook (FB) to build a global terrorist network. Google (GOOG) has lost $10 billion in revenues to cyber attacks.

The government?s controversial collection of meta-data, now at risk from the republican controlled congress, was instrumental in preventing a plot to blow up the New York subway system in 2009.

Coordination between federal agencies is still a major problem. When the NSA discovered that CIA computers may have been compromised, they asked to take a look. They were refused.

Finally, pressure from the president opened the doors. The NSA discovered 1,500 Russian malware programs on agency mainframes and they scrubbed them in only 22 hours.

Big data programs on US computers in Iraq were instrumental in identifying, locating, and destroying much of the leadership of Al Qaida.

Ironically, the US military has broken up more hack attacks against European targets than US ones, thanks to their weaker defenses.

And here is the part that always blows my mind. Military men are often clueless about the market implications of their own far reaching conclusions.

That is where I step in.

It looks like the cyber security sector, one of the best market performers during the first half of? 2015, is about to take off like a rocket once again. There could be another 20-30% in it this year.

We are only one hack attack away from another blockbuster rally.

The near destruction of Sony (SNE) by North Korean hackers in 2014 has certainly put the fear of God into corporate America. Apparently, they have no sense of humor whatsoever north of the 38th parallel.

As a result, there is a generational upgrade in cyber security underway, with many potential targets boosting spending by multiples.

Alexander suggested that the world will probably never again see large-scale armies fielded by major industrial nations. Wars of the future will be fought online, as they have been silently and invisibly over the past 15 years.

All of those trillions of dollars spent on big ticket, heavy metal weapons systems are pure pork designed by politicians to buy voters in marginal swing states.

The money would be far better spent where it is most needed, on the cyber warfare front. Alexander is not alone in these views among America?s senior military leadership.

The problem is that when wars become cheaper, you fight more of them, as is the case with online combat.

You probably don?t know this, but during the Bush administration, the Chinese military downloaded the entire contents of the Pentagon?s mainframe computers at least seven times.

This was a neat trick because these computers were in stand alone, siloed, electromagnetically shielded facilities not connected to the Internet in any way.

In the process, they obtained the designs of all of our most advanced weapons systems, including our best nukes. What have they done with this top-secret information?

Absolutely nothing.

Like many in senior levels of the US military, the Chinese have concluded that these weapons are a useless waste of valuable resources. Far better value-for-money are more hackers, coders, and servers, which the Chinese have pursued with a vengeance.

You have seen this in the substantial tightening up of the Chinese Internet through the deployment of the Great Firewall, which blocks local access to most foreign websites.

Try sending an email to someone in the middle Kingdom with a Gmail address. It is almost impossible. This is why Google (GOOG) closed their offices there years ago.

As a member of the Joint Chiefs of Staff recently told me, ?The greatest threat to national defense is wasting money on national defense.?

Our nation?s military is clamoring for more money to take the cyber war to the enemy. Instead, they are effectively being given more horses, cavalry sabers, and cannon to fight it. No wonder they are eternally frustrated.

The implication is that I need to go out and buy Palo Alto Networks (PANW) once again, a company that I have been recommending since I started covering the industry a year ago. Since then, the shares have skyrocketed some 162%

Palo Alto Networks, Inc. is an American network security company based in Santa Clara, California just across the water from my Bay Area office.

The company?s core products are advanced firewalls designed to provide network security, visibility and granular control of network activity based on application, user, and content identification.

Palo Alto Networks competes in the unified threat management and network security industry against Cisco (CSCO), FireEye (FEYE), Fortinet (FTNT), Check Point (CHKP), Juniper Networks (JNPR), and Cyberoam, among others.

The really interesting thing about this industry is that there are no losers. That?s because companies are taking a layered approach to cyber security, parceling out contracts to many of the leading firms at once?looking to hedge their bets.

To say that top management has no idea what these products really do would be a huge understatement. Therefore, they buy all of them.

This makes a basket approach to the industry more feasible than usual. You can do this through buying the $435 million capitalized PureFunds ISE Cyber Security ETF (HACK), which boasts Cyberark Software (CYBR), Infoblox (BLOX), and FireEye (FEYE) as its three largest positions. (HACK) has been a hedge fund favorite since the Sony attack.

For more information about (HACK), please click here: http://www.pureetfs.com/etfs/hack.html.

If you ar
e looking for value plays in this area, you can forget about it. Neither (PANW) nor (FEYE) generate any net earnings. Much as with Tesla (TSLA), you are not betting on what the earnings are today, but what they might be worth in a decade, when the market is infinitely larger.

Think of them as faith based investments.

Could the shares today?s crop of cyber security companies rise tenfold from here? Absolutely! Actually, ten might be a low number. If nothing else, the entire industry has become prime takeover bait, offering potential instant profits.

Oh, and by the way, Alexander thinks that drone surveillance of US citizens is coming in the near future. Look out above!

PANWFEYEHACK

 

General Keith B. Alexander

US Cyber Command Emblem

Cyber Security is Only Just Getting Started

It looks like the cyber security sector is about to take off like a rocket once again. There could be another 25%-50% in it this year.

The near destruction of Sony (SNE) by North Korean hackers last November has certainly put the fear of God into corporate America. Apparently, they have no sense of humor whatsoever north of the 38th parallel.

As a result, there is a generational upgrade in cyber security underway, with many potential targets boosting spending by multiples.

It?s not often that I get a stock recommendation from an army general. That is exactly what happened the other day when I was speaking to a three star about the long-term implications of the Iran peace deal.

He argued persuasively that the world will probably never again see large-scale armies fielded by major industrial nations. Wars of the future will be fought online, as they have been, silently and invisibly, over the past 15 years.

All of those trillions of dollars spent on big ticket, heavy metal weapons systems are pure pork designed by politicians to buy voters in marginal swing states.

The money would be far better spent where it is most needed, on the cyber warfare front. Needless to say, my friend shall remain anonymous.

The problem is that when wars become cheaper, you fight more of them, as is the case with online combat.

You probably don?t know this, but during the Bush administration, the Chinese military downloaded the entire contents of the Pentagon?s mainframe computers at least seven times.

This was a neat trick because these computers were in stand alone, siloed, electromagnetically shielded facilities not connected to the Internet in any way.

In the process, they obtained the designs of all of out most advanced weapons systems, including our best nukes. What have they done with this top-secret information?

Absolutely nothing.

Like many in senior levels of the US military, the Chinese have concluded that these weapons are a useless waste of valuable resources. Far better value for money are more hackers, coders and servers, which the Chinese have pursued with a vengeance.

You have seen this in the substantial tightening up of the Chinese Internet through the deployment of the Great Firewall, which blocks local access to most foreign websites.

Try sending an email to someone in the middle Kingdom with a gmail address. It is almost impossible. This is why Google (GOOG) closed their offices there years ago.

I know about these things because several Chinese readers are complaining that they are unable to open my Trade Alerts, or access their foreign online brokerage accounts.

As a member of the Joint Chiefs of Staff recently told me, ?The greatest threat to national defense is wasting money on national defense.?

Although my brass-hatted friend didn?t mention the company by name, the implication is that I need to go out and buy Palo Alto Networks (PANW) right now.

Palo Alto Networks, Inc. is an American network security company based in Santa Clara, California just across the water from my Bay Area office. The company?s core products are advanced firewalls designed to provide network security, visibility and granular control of network activity based on application, user, and content identification.

Palo Alto Networks competes in the unified threat management and network security industry against Cisco (CSCO), FireEye (FEYE), Fortinet (FTNT), Check Point (CHKP), Juniper Networks (JNPR), and Cyberoam, among others.

The really interesting thing about this industry is that there are no real losers. That?s because companies are taking a layered approach to cyber security, parceling out contracts to many of the leading firms at once, looking to hedge their bets.

To say that top management has no idea what these products really do would be a huge understatement. Therefore, they buy all of them.

This makes a basket approach to the industry more feasible than usual. You can do this through buying the $435 million capitalized PureFunds ISE Cyber Security ETF (HACK), which boasts Cyberark Software (CYBR), Infoblox (BLOX) and FireEye (FEYE) as its three largest positions. (HACK) has been a hedge fund favorite since the Sony attack.

For more information about (HACK), please click here: http://www.pureetfs.com/etfs/hack.html.

And don?t forget to change your password.

PANW
FEYE
HACK

 

Hacker

 

PANW2

Cashing In On Cyber Security

Who?s really reading Your email? I bet you?d like to know!

Another day, another hack attack.

Today we learned that 5.6 million fingerprint records kept by the Office of Personal Management were recently stolen.

This is the agency that functions as the US government?s human resources department, maintaining records on 21.5 million current and former employees.

The timing couldn?t be more inauspicious, as the announcement was made during a visit by Chinese President Xi Jinping, whose military was almost certainly the origin of the attack.

Great! Now the enemy has the fingerprints of every FBI and CIA agent!

There must be a way to make money out of this.

Wait! There is!

Palo Alto Networks (PANW) is a San Francisco Bay area cyber security company that offers companies and governments an innovative firewall platform solution for big, network wide security problems.

In the P&L sweet spot they are.

I know the company well, and have been recommending to my followers that they buy the shares for the past year, during which time it tripled.

What? You want me to buy a stock that has just tripled?

No, I have not just started smoking California's largest agricultural product (no, it?s not almonds or grapes).

By chance, I happened across a senior officer of the Palo Alto Networks at a dinner party last week. Prospects for the firm are booming, with sale growth running at a torrid 30% YOY rate.

Yet, (PANW) has only 10% market share of an industry that is currently exploding. This is an aggressive, extremely well managed $15 billion company that is about to become a $150 billion company.

Keeping in contact with the Joint Chiefs of Staff on a weekly basis, I am constantly concerned at how serious the cyber security threat has become, yet how little understood it is by the public.

You don?t have to go any further than the management of Sony (SNE), one of the world?s largest multinationals, which was almost wiped out last November by hackers from one of the poorest and most backward countries in the world.

Upset by the take down of their leader, Kim Jong-un, in a low budget comedy, The Interview, North Korean hackers were able to bring the firm to its knees.

They downloaded the entire contents of Sony?s hard drives, leaking the juicy parts to online journalists (Angelina Jolie?s pay, etc.), and then wiped them clean, destroying some 3,000 computers and 8000 servers. It was the hacking equivalent of a full-scale nuclear attack.

Sony had to revert to snail mail, couriers, and landline telephone calls to survive. They couldn?t even pay their employees. Some $6 billion in market capitalization was wiped out.

Now here is the scary part.

The FBI has confided in me that if the S&P 500 were subjected to a Sony level attack, 90% are unlikely to survive. And the Sony attack was actually a primitive, simplistic, low-level attack.

A lot of countries don?t like the United States for any number of reasons. Now they can do something about it. That is a problem. And a market.

Palo Alto maintains the world?s largest database of viruses and malware. That enabled it to trace the Sony attack to the Hermit Kingdom within hours.

It contained several lines of code that were identical to the ?Dark Soul? attack against South Korean banks in 2013, which incinerated 40,000 bank computers and caused $700 million worth of damages.

What the Sony attack revealed was a long history of massive under investment in cyber security by corporations and governments in the US, Europe, and Asia.

The potential future market for cyber security products and services is being wildly underestimated.

The great irony here is that the attack is not against systems, which are usually pretty secure. It is their human users that have become the problem.

Unfortunately, we are have become familiar with ?spoofing? emails where an innocuous email asks the user to ?click here? for an Adobe upgrade, a notice from Yahoo, or a request from PayPal to update your password.

Do so, and you invite lines of code that will eventually make it to your system administrator. Once they have his password, they can access or do anything.

Don?t think only dummies fall for this.

My friend, retired FBI chief Robert Mueller, had his personal account at the Bank of America cleaned out in a similar fashion. What was unusual in his case, they caught the transgressor, after a huge expenditure of bureau resources.

(Hint: if an incoming email appears the slightest bit suspicious, hover your mouse over the sender?s name, and the sending email address will appear. If it looks anything but belt and braces safe, don?t open it and mark it as SPAM. Especial watch for the last three letter of the address, which are always a tip off).

The FBI estimates that there are up to 10,000 hackers in the world with the capability of a Sony level attack, many operating from China, Russia, Eastern Europe, or other locations beyond the reach of US extradition treaties.

The global cyber war has been going on for about 15 years now, and the public hears very little of it.

In recent years, Iran attacked Saudi Arabia?s Aramco, destroying 30,000 computers, and briefly shutting down a portion of the country?s oil production.

A major attack was launched against the Venetian Hotel in Las Vegas, which is owned by prominent Israel supporter and major Republican Party contributor, Sheldon Adelson.

There is a happy ending to this piece. You don?t need to place your entire wealth into gold bricks and bury them in the backyard to keep it safe.

If North Korea is a bicycle in the hacking arms race, the US is the F-35 Lightening next generation stealth fighter.

We are winning the cyber war hands down, but you?d never know it. This is a war fought silently, online, and in dark shadows.

President Obama in fact authorized a measured counter attack on North Korea?s information infrastructure, which proved devastating. But it was only a pinprick relative to what we could have done.

Our real cyber weapons are reserved for an actual shooting war sometime in the future. That?s to prevent the enemy from learning our true capabilities and preparing for them.

Imagine a country trying to defend itself with snail mail, couriers, and landline telephone calls from an American assault. Think the Sony attack times 10,000. Nothing would work.

It couldn?t be done.

Congress has so far refused to fund a substantial increase in America?s cyber warfare arsenal, preferring instead to spend money on old heavy metal weapons systems, like aircraft carriers, tanks, and the above mentioned F-35.

It?s all about sucking money out of Washington to create local jobs in red states to win elections. A stepped up cyber program would focus money almost entirely in Silicon Valley.

Don?t want to do that!

This is how General George Armstrong Custer was sent to the Battle of the Little Big Horn with antiquated 16 year old Civil War trapdoor Springfield carbines, while the Sioux had state of the art Winchester ?yellow boy? repeaters.

And we know how that one turned out!

But don?t get mad. Get even. Take another look at Palo Alto Networks, FireEye (FEYE), and the Pure Funds ISE Cyber Security ETF (HACK).

PANW 9-24-15

SNE 9-24-15

SPX 9-24-15

HACK 9-24-15

Kim Jong-unGuess Who May Be Looking at Your Records

How the Markets Will Play Out This Quarter

I think I have figured out the course of the global financial markets over the next few months.

We are currently transitioning from an economic data flow from Q1 that was very weak, to the second quarter, which will almost certainly deliver us a robust set of numbers. This is on the heels of a white hot Q1, 2014.

Hot, cold, hot; this is a trader?s dream come true, as it gives us the volatility we need to make a fortune, as we skillfully weave in and out of these gyrations.

That is, if you read the Diary of a Mad Hedge Fund Trader.

This is not a new thing. A weak Q1 has been a recurring event over the last 30 years. The anomaly has been so reliable that not a few traders have been able to earn a living from it. 🙂 Heaven help us if the government ever tries to fix it.

To further complicate matters, some markets see this, while others have yet to open their eyes.

The stock market (SPY), (QQQ), (IWM) agree with my view, probing new all time highs, while companies announce diabolical Q1 earnings (Twitter (TWTR)? Yikes!). So do commodities, like oil (USO) and copper (FCX), whose recent strength suggests we are on the doorstep of a great economic Golden Age.

However, the foreign exchange market (FXE), (FXY) doesn?t see it this way. They can only comprehend the last data point that just crossed the tape.

If it is weak, they assume the Federal Reserve won?t even think about raising interest rates until well into 2016. If it is healthy, they bet the Fed will jack up rates tomorrow.

You might assume this is ridiculous, and you?d be right. However, forex traders live in a world where interest rate differentials are the principal, and to many the only driver of foreign exchange rates.

One market is right, and one is wrong. Did I mention that this is also a license for we nimble traders to print money?

Of course, you can play both side of the fence, as I do. That?s how I was able to coin it with a long position in the euro (a weak economy trade) the same day my long US equity portfolio (a strong economy trade) was going through the roof.

Let me give you another iteration of these scenarios. Inside the dollar correction we are seeing a pronounced sector rotation among US stocks.

Traders are moving out of small caps (IWM) that sheltered then from a strong dollar into large caps (SPY). They are also taking profits in biotech and rolling it into financials (GS), cyber security (PANW) and solar (TAN).

Goldman Sachs (GS) gave us more rocket fuel for the bull case for of American stocks this morning. The sage investment bank, in which my Trade Alert Service currently maintains a profitable long position, says that corporations will return a mind blowing $1 trillion to investors in 2015.

Share buy back from companies should rise by 18%, while dividends should pop by 7%. It is all a continuation of a six-year trend.

Apple (AAPL) certainly kicked off this quarter?s cavalcade of higher payouts on Monday, when it added $50 billion to its own stock repurchase program and jacked up its dividend by 11%.

Markets could get even more interesting after next week, when some 80% of S&P 500 companies will have existed the ?black out? period when they are not allowed by SEC regulations to buy their own stock.

I say ?tally ho,? and ?tally ho? again.

SPY 4-29-15

FXE 4-29-15

FCX 4-29-15

WTIC 4-29-15

Fox HuntIt?s Tally Ho for the Stock Market