Global Market Comments
July 23, 2018
Fiat Lux
Featured Trade:
(FRIDAY, AUGUST 3, 2018, AMSTERDAM, THE NETHERLANDS
GLOBAL STRATEGY DINNER),
(THE MARKET OUTLOOK FOR THE WEEK AHEAD,
or IT'S SUDDENLY BECOME CRYSTAL CLEAR),
(SPY), (TLT), (QQQ),
(AMZN), (MSFT), (MU), (LRCX),
(REPORT FROM THE ORIENT EXPRESS)
Maybe it's the calming influence of the sound of North Atlantic waves crashing against the hull outside my cabin door for a week. Maybe it was the absence of an Internet connection for seven days, which unplugged me from the 24/7 onslaught of confusing noise.
But suddenly, the outlook for financial markets for the rest of 2018 has suddenly become crystal clear.
I'll give you the one-liner: Nothing has changed.
Some nine years and four months into this bull market, and the sole consideration in share pricing is earnings. Everything else is a waste of time. That includes the Greece crisis, the European debt crisis that drove MF Global under, two presidential elections, the recent trade wars, even the daily disasters coming out of the White House.
Keep your eye focused on earnings and everything else will fade away into irrelevance. It that's simple.
As I predicted, the markets are stair-stepping their way northward ahead of each round of quarterly earnings reports.
And now that we know what to look at, the future looks pretty good.
The earnings story, led by big tech, is alive and well. After a torrid Q1, which saw corporate earnings grow by a heart palpitating 26%, we are looking for a robust 20% for Q2, 23% in Q3, and another 20% in Q4.
The sushi hits the fan when Q1 2019 earnings grow by a mere 5% YOY as the major elixir of tax cuts wear off, leaving us all with giant hangovers.
Amazon (AMZN), Netflix (NFLX), and Microsoft (MSFT), all Mad Hedge recommendations over the past year, account for 70% of the total market gains this year.
Look at the table below and you see there has only been ONE trade this year and that has been to buy technology stocks. Everything else, such as oil, the S&P 500 (SPY), the U.S. dollar (UUP) has been an also-ran, or an absolute disaster. And we nailed it. Some 80% of our Trade Alerts this year have been to buy technology stocks.
The gasoline poured on the fire by the huge corporate tax cuts are only now being felt by the real economy. Q2 GDP growth could run as hot as 4%. But there is a sneaking suspicion in the hedge fund industry that these represent peak earnings for the entire economic cycle.
Corporate stock buybacks hit a new all-time high in Q2, as companies repatriate cash hoards from abroad at extremely preferential tax rates to buy back their own shares.
Trade wars are certainly a worry. But retaliation is directed only at Trump supporting red states, which accounts for only a tiny share of U.S. corporate profits. Technology stocks, which account for half of all American profits, have largely been immune, except for the chip sector (MU), (LRCX), which has its own cyclical problems.
Yes, we know this will all end in tears. The yield curve will invert in a year, taking short-term interest rates higher than long-term ones, triggering a recession and a bear market. But the final year of a bull market is often the most profitable as prices go ballistic. You would be a fool to stay scared out of stocks by headline risk and an uncertain Twitter feed.
Yes, early leading indicators of a coming recession are popping up everywhere now. A stunning 12.3% drop in June Housing Starts has to be at the top of anyone's worry list, as rising home mortgage rates and disappearing tax deductions take their pound of flesh. It was the worst report in nine months.
The trade wars promise to leave the Detroit auto industry in substantially reduced form, or at least, the stock market believes so. And a 10-year U.S. treasury bond yield that has been absolutely nailed in a 2.80% to 2.90% range for three months is another classic marketing topping indicator.
I'll let you know when it is time to pull up stakes and head for higher ground. Just keep reading the Diary of a Mad Hedge Fund Trader.
As I have been at sea and out of the markets, my 2018 year-to-date performance remains unchanged at an eye-popping 24.82%, and my 8 1/2-year return sits at 301.29%. The Averaged Annualized Return stands at 35.10%. The more narrowly focused Mad Hedge Technology Fund Trade Alert performance is annualizing now at an impressive 38.69%.
This coming week will be a very boring week on the data front.
On Monday, July 23, there will be nothing of note to report.
On Tuesday, July 24 at 8:30 AM EST, the May Consumer Price Index is released, the most important indicator of inflation.
On Wednesday, July 25 at 7:00 AM, the MBA Mortgage Applications come out. At 2:00 PM EST the Fed is expected to raise interest rates by 25 basis points. At 2:30 Fed governor Jerome Powell holds a press conference.
Thursday, July 26, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 13,000 last week to 222,000. Also announced are May Retail Sales.
On Friday, July 27 at 9:15 AM EST we get May Industrial Production. Then the Baker Hughes Rig Count is announced at 1:00 PM EST.
As for me, I am going to attempt to think of more great thoughts this afternoon while hiking up to the Hornli Hut at 11,000 feet on the edge of the Matterhorn, a climb of about 5,000 feet out the front door of my chalet. I always seem to think of my best ideas while hiking uphill. The liter of Cardinal beer and a full plate of bratwurst with rosti potatoes will make it all worth it.
Good luck and good trading.
0
Mad Hedge Technology Letter
July 18, 2018
Fiat Lux
Featured Trade:
(IS NETFLIX DEAD?),
(NFLX), (AMZN), (FB), (TWTR), (DIS), (GOOGL), (QQQ)
Too far out over their skis.
For the first time in five quarters, Netflix (NFLX) was unable to eclipse the alpine level like expectations prognosticated by its own senior management.
Netflix and Amazon (AMZN) have been given luminary status at the Mad Hedge Technology Letter because the straight-line price action offers such agonizing entry points for investors, along with the best business growth models in the American economy.
Chasing this stock has usually worked out for the better, but leading up to the latest quarterly earnings report, Netflix started to scrunch up.
The firing squad loaded up its bullets and after Friday's close, shots were rained down on Netflix's parade as it failed to beat the only metric significant to Netflix investors - new subscribers.
The numbers were not even close.
Netflix fizzled out on its domestic subscriber's growth metric by 560,000, when 1.23 million new subscribers were expected.
International numbers succumbed to the inevitable, but less in percentage terms, failing to surpass the expected 5.11 million, only successfully adding 4.47 million new subscribers.
The 5.2 million adds out of the expected 6.3 million expected is the best news that has happened to Netflix in a long time if you are underinvested in this name.
Ravenous investors looking to jump on Netflix's bandwagon are licking their chops.
After-hours trading saw the stock tank, falling down the rabbit hole by almost 15%.
The stock had only recently been trading around an all-time high of $419. Fluffing their lines has given investors a much-awaited entry point into one of the creme de la creme growth stories in the vaunted tech sector.
Let's get a little more granular, shall we?
Even for high-flying tech stocks, the velocity of the price surges has put off many investors calling the stock "overbought."
Netflix shares were up 108% in 2018 before profit taking commenced before the earnings call. It was unusual to see Netflix intraday slide of 4%.
Investors smelled a rat.
It was only a matter of time before normal investors were finally given a chance to swiftly pile into this precious gem of a stock.
That time is now.
UBS analyst Eric Sheridan recently declared Netflix's growth story as "all priced in."
I don't buy it.
Yes, the shares got ahead of itself, but the Netflix narrative is still intact.
Over the earnings call, Netflix CEO Reed Hastings gushed about the current state of the company remarking that "fundamentals have never been stronger."
The bad news is that it missed on overzealous estimates; the good news is it added 5.2 million new subscribers.
Don't forget that in Q1 2018, Netflix beat total estimates by a herculean 920,000 subscribers, which is around what it missed by in Q2 2018.
The most recent quarter was overwhelmed by World Cup 2018 fever, with audiences migrating toward probably the most dramatic and exciting World Cup in history and the first to be streamed.
The most popular sporting event in the world gave Netflix a short-term kick in the cojones, delaying many new subscription sign-ups until after France lifted the trophy for the second time in its illustrious history.
The Twitter (TWTR) and Facebook (FB) numbers back up this thesis, experiencing explosive engagement and ad buying over the monthlong tournament boding well for their next earnings results.
Don't worry investors.
These eyeballs are just temporary.
The tournament offering a short-term bump to social media stocks clearly is just a one-off event that happens one summer out of every four.
Any recent profit taking will see the same investors eyeing a lower cost basis after this share dump.
Netflix won't be down for long.
Let's briefly review some of Netflix's cornerstone advantages:
The massive user migration from linear television to over-the-top content (OTT) led by cord-cutting millennials, responsible for a growing slice of domestic purchasing power.
The inherent advantages of a global over-the-top content (OTT) streaming model, applying massive scale with the cheap marginal cost of current technology.
The first-mover advantage that has allowed Netflix to have its own cake and eat it.
And the competition's laggardly response to Netflix eating its own cake.
Netflix CFO David Wells' take on the missed targets was "lumpiness" in the business and brushed it off like a bug crawling up your leg.
Hastings also chimed in about the increased competition shaping up and Disney (DIS), HBO, and other players finally getting their act together.
He mentioned there is room for multiple players in this industry, but they better not show up to the gunfight with a knife.
Netflix has been weaning itself from Disney's, Fox's and other third-party content for years, along with spending 50% more on marketing in 2018.
Ted Sarandos, chief content officer of Netflix, let it be known that 85% of new spending will be on original content in 2018.
Out of $8 billion earmarked for content in 2018, a colossal $6.8 billion is set to be splashed on in-house productions.
Compare this with the competition of Amazon, which plans to spend $4.5 billion on original content in 2018 and Hulu's plan to spend $2.5 billion in 2018.
Down the road, Netflix will have greater ability to finance its expensive content spend as it has flipped to a profit-making entity.
Amazon uses its AWS (Amazon Web Services) arm to fund its various subsidiaries.
The high level of quality content is reflected in the 40 Emmy nominations garnered by Netflix, in effect crushing stalwart HBO.
Netflix is aggressively courting Hollywood's A-list and poaching them in droves.
Proven content creators such as Ryan Murphy, Shonda Rhimes, Shawn Levy and Jenji Kohan are now on Netflix's payroll, and are a vital reason for the uptick in quality programming.
This successful harvest will result in added brand recognition and elevated prestige for current and future eyeballs.
Netflix will push out around 1,000 original programs in 2018. More than 90% of Netflix's subscribers habitually watch its vast portfolio of original programming.
The only way Netflix can be stopped is if it stops itself.
The pipeline is plush, and it is not all priced into the stock yet.
Next year could be the year India and Japan massage the bottom lines to greater effect, as Netflix double downs on the international arena.
Netflix's first original Indian series "Sacred Games" has been a winner, and its first original movie "Lust Stories" is creating a stir among avid Indian movie followers.
CEO Hastings has gone on record stating the "next 100 million" Netflix subscribers will derive from the land of Taj Mahal and chicken tikka masala.
Netflix has a lot of work to do to catch up with entrenched leaders Hotstar and Alphabet's (GOOGL) YouTube India.
About 800 million Indians have never been online before. The screaming potential India offers cannot be found elsewhere, especially with films historically, deeply embedded inside India's ancient culture.
Next month will see the release of "Ghoul," based on critically acclaimed work by authors Salman Rushdie and Aravind Adiga.
Slated for imminent release is also Mumbai Indians, a documentary about a top team in the locally obsessed Indian Premier League cricket tournament.
GBH Insights' internal research has found that Netflix is watched 10 hours per week in American households.
That number will inevitably grow as the quality of content goes from strength to strength for this first-rate company.
And how did Netflix's shock miss affect the Nasdaq (QQQ) on the next trading day?
It showed the resiliency and intestinal fortitude that has been a hallmark of the tech sector bull market.
The latest earnings result snafu is a surefire chance to finally have a little taste of Netflix. It will be back over $400 in no time.
________________________________________________________________________________________________
Quote of the Day
"If we continue to develop our technology without wisdom or prudence, our servant may prove to be our executioner," - said retired U.S. Army General Omar Bradley.
Mad Hedge Technology Letter
July 17, 2018
Fiat Lux
Featured Trade:
(THE PATH AHEAD),
(IBM), (AMZN), (FB), (MSFT), (NFLX), (QQQ), (AAPL), (DBX), (BLK)
The Red Sea has parted, and the path has opened up.
Technology has been a beacon of light providing comfort to the equity market, when a trade war could have purged the living daylights out of bullish investor sentiment.
If an increasingly hostile, tit-for-tat trade skirmish threatening overseas revenue can't bring tech equities to its knees, what can?
It seems the more bellicose the administration becomes, the higher technology stocks balloon.
Does this all add up?
The Nasdaq (QQQ) continues its processional march skyward. If you were a portfolio manager at the beginning of the year without technology exposure, then polish off the resume before it picks up too much dust.
The Nasdaq has set all-time highs even after a brutal 700-point sell-off at the end of January.
Apple (AAPL), Microsoft (MSFT), Netflix (NFLX), and Amazon (AMZN) can take credit for 83% of the S&P 500's gains in 2018.
And that fearsome four does not even include Facebook (FB), which has left the shorts in the dust.
Each momentous sell-off has proved to be a golden buying opportunity, propelling tech stocks to higher highs and retracing to higher lows.
And now the path to tech profits is gaping wide, luring in the marginal investor after two highly bullish events for the tech world boding well for the rest of fiscal year 2018.
Xiaomi, one of China's precious unicorns, which sells upmarket smartphones, went public on the Hong Kong Hang Seng market last week.
The timing couldn't be poorer.
The rhetoric between the two global leaders reached fever pitch with the administration proposing $200 billion worth of tariffs levied on Chinese imports.
China reiterated its entrenched stance of not backing down, triggering a tense war of words between the two global powers.
The beginning of March saw the Shanghai stock market nosedive through any remnants of support levels.
The 50-day moving average, 100-day, and 200-day were smashed to bits and Shanghai kept trending lower.
The trade skirmish has had the reverse effect on Chinese equities compared to the Nasdaq's brilliance, and combined with the strong dollar, has seen emerging markets hammered like the Croatian soccer team in Moscow.
Xiaomi's IPO was priced in the range of HK$17 to $22, and when it opened up on the first day at HK$16.60, investors were holding their breath.
Take the recent IPO triumph of cloud company Dropbox (DBX), whose IPO was priced in the expected range of US$18 to $20. The first day of trading showed how much appetite there is for to- quality cloud companies, with Dropbox starting its trading day at US$29, 40% higher than the expected range.
Dropbox finished its first day at a lofty US$28.48, a nice 35% return in one trading day.
No doubt Xiaomi's shares were not expected to perform like Dropbox, but it held its own.
Astonishingly, this company did not even exist nine years ago and is now the fourth-largest smartphone manufacturer in the world, grossing $18 billion in revenue in 2017.
The unimaginable pace of development highlights the speed at which the Chinese economy and consumer zigs and zags.
Chinese retail sales were up a staggering 9% YOY for the month of June 2018. Its overall economy met its 6.7% target for the second quarter of 2018.
The price range settled for the IPO gave Xiaomi a valuation of $54 billion.
Instead of getting roiled, Xiaomi came through with flying colors posting a 26% gain after the first week of trading.
Poor price action could have given Beijing ammunition to cry foul, laying blame for the underperformance on the U.S. tariffs.
The healthy price action underscores there is still room for Chinese and American companies to flourish in 2018, albeit through a highly politicized environment.
Specifically, Apple comes through unscathed as a disastrous Xiaomi IPO could have resulted in negative local press stoking higher operational risks in greater China.
Apple is in the eye of the storm, but untouchable because it employs more than 4 million local Chinese employees throughout its expansive ecosystem and has been praised by Beijing as the model foreign company.
Apple earned $13 billion in revenue from China in Q2 2018, a 21% YOY increase.
Hounding Apple out of China will be the inflection point when tech investors know there is a serious problem going on and need to hit the eject button.
If this ever happens, The Mad Hedge Technology Letter will be the first to resort to risk off strategies.
BlackRock's (BLK) CEO Larry Fink let everyone know his piece saying, "the lack of breadth in the equity markets is troubling."
Investors cannot blame tech companies for executing their way to the top behind the tailwind of the biggest technological transformation in mankind.
And even in the tech industry, winners can turn into losers in a blink of an eye, such as legacy tech company IBM (IBM).
Someone better tell Fink that this is the beginning.
Amazon recorded 44% of total U.S. e-commerce sales in 2017, equaling 4% of total retail sales in the U.S.
This number is expected to breach 50% by the end of 2018.
The second piece of bullish tech news was lifting the ban on Chinese telecommunications company ZTE.
It is open for business again.
From a national security front, this is an unequivocal loss. However, it saved 75,000 Chinese jobs and gave a small victory to American regulators attempting to patrol the mischievous behemoth.
The U.S. Department of Commerce lifted the seven-year ban even after ZTE sold telecommunication products to North Korea and Iran.
ZTE was fined $1 billion, changed the senior management team, and put into place an American compliance team that will monitor its business for the next 10 years.
Diluting the penalty lowers the operational risk for American tech companies because it shows the administration is willing to reach compromises even if the compromise isn't perfect.
China is a lot less willing to ransack Micron and Intel's China revenues, if America allows China to save face and 75,000 local jobs.
This is a big deal for them and their employees.
America has a strong hand to play with against China because China still requires Uncle Sam's semiconductor components to build its future.
This hand is only effective if Chinese still thirst for American technology. As of today, America is higher on the technological food chain than China.
The move is also a model of what the U.S. Department of Commerce will do if Chinese companies run amok, which Chinese tech companies often do because of the lack of corporate governance and transparency.
These two recent China events empower the overall American tech sector, and the market will need a berserk shock to the tech ecosphere foundations to make it crumble.
As it stands, the tech sector is handling the trade war fine, and with expected blowout tech earnings right around the corner, short tech stocks at your own peril.
________________________________________________________________________________________________
Quote of the Day
"All of the biggest technological inventions created by man - the airplane, the automobile, the computer - says little about his intelligence, but speaks volumes about his laziness," - said author Mark Kennedy.
Global Market Comments
April 16, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WEEK THAT NOTHING HAPPENED),
(TLT), (GLD), (SPY), (QQQ), (USO), (UUP),
(VXX), (GOOGL), (JPM), (AAPL),
(HOW TO HANDLE THE FRIDAY, APRIL 20 OPTIONS EXPIRATION), (TLT), (VXX), (GOOGL), (JPM)
This was the week that American missiles were supposed to rain down upon war-torn Syria, embroiling Russia in the process. It didn't happen.
This was the week that the president was supposed to fire special prosecutor Robert Mueller, who with his personal lawyer is currently reading his private correspondence for the past decade with great interest. That didn't happen either.
It was also the week that China was supposed to raise the stakes in its trade war with the United States. Instead, President Xi offered a conciliatory speech, taking the high road.
What happens when you get a whole lot of nothing?
Stocks rally smartly, the S&P 500 (SPY) rising by 2.87% and the NASDAQ (QQQ) tacking on an impressive 3.45%. Several of the Mad Hedge long positions jumped by 10%.
And that pretty much sums up the state of the market today.
Get a quiet week and share prices will naturally rise, thanks to the power of that fastest earnings growth in history, stable interest rates, a falling dollar, and gargantuan share buybacks that are growing by the day.
With a price earnings multiple of only 16, shares are offering investors the best value in three years, and there is very little else to buy.
This is why I am running one of the most aggressive trading books in memory with a 70% long 30% short balance.
Something else unusual happened this week. I added my first short position of the year in the form of puts on the S&P 500 right at the Friday highs.
And, here is where I am sticking to my guns on my six-month range trade call. If you buy every dip and sell every rally in a market that is going nowhere, you will make a fortune over time.
Provided that the (SPY) stays between $250 and $277 that is exactly what followers of the Mad Hedge Fund Trader are going to do.
By the way, 3 1/2 months into 2018, the Dow Average is dead unchanged at 24,800.
Will next week be so quiet?
I doubt it, which is why I'm starting to hedge up my trading book for the first time in two years. Washington seems to be an endless font of chaos and volatility, and the pace of disruption is increasing.
The impending attack on Syria is shaping up to more than the one-hit wonder we saw last year. It's looking more like a prolonged air, sea, and ground campaign. When your policies are blowing up, nothing beats like bombing foreigners to distract attention.
Expect a 500-point dive in the Dow Average when this happens, followed by a rapid recovery. Gold (GLD) and oil prices (USO) will rocket. The firing of Robert Mueller is worth about 2,000 Dow points of downside.
Followers of the Mad Hedge Trade Alert Service continued to knock the cover off the ball.
I continued to use weakness to scale into long in the best technology companies Alphabet (GOOGL) and banks J.P. Morgan Chase (JPM), and Citigroup (C). A short position in the Volatility Index (VXX) is a nice thing to have during a dead week, which will expire shortly.
As hedges, I'm running a double short in the bond market (TLT) and a double long in gold (GLD). And then there is the aforementioned short position in the (SPY). I just marked to market my trading book and all 10 positions are in the money.
Finally, I took profits in my Apple (AAPL) long, which I bought at the absolute bottom during the February 9 meltdown. I expect the stock to hit a new all-time high in the next several weeks.
That brings April up to a +5.81% profit, my trailing one-year return to +50.23%, and my eight-year average performance to a new all-time high of 289.19%. This brings my annualized return up to 34.70%.
The coming week will be a slow one on the data front. However, there has been a noticeable slowing of the data across the board recently.
Is this a one-off weather-related event, or the beginning of something bigger? Is the trade war starting to decimate confidence and drag on the economy?
On Monday, April 16, at 8:30 AM, we get March Retail Sales. Bank of America (BAC) and Netflix (NFLX) report.
On Tuesday, April 17, at 8:30 AM EST, we receive March Housing Starts. Goldman Sachs (GS) and United Airlines (UAL) report.
On Wednesday, April 18, at 2:00 PM, the Fed Beige Book is released, giving an insider's view of our central bank's thinking on interest rates and the state of the economy. Morgan Stanley (MS) and American Express (AXP) report.
Thursday, April 19, leads with the Weekly Jobless Claims at 8:30 AM EST, which saw a fall of 9,000 last week. Blackstone (BX) and Nucor (NUE) report.
On Friday, April 20, at 10:00 AM EST, we get the Baker Hughes Rig Count at 1:00 PM EST. Last week brought an increase of 8. General Electric (GE) and Schlumberger (SLB) report.
As for me, I'll be heading into San Francisco's Japantown this weekend for the annual Northern California Cherry Blossom Festival. I'll be viewing the magnificent flowers, listening to the Taiko drums, eating sushi, and practicing my rusty Japanese.
Good Luck and Good Trading.
Global Market Comments
April 13, 2018
Fiat Lux
Featured Trade:
(ANNOUNCING THE MAD HEDGE LAKE TAHOE, NEVADA, CONFERENCE, OCTOBER 26-27, 2018),
(APRIL 11 GLOBAL STRATEGY WEBINAR Q&A),
(TLT), (TBT), (GOOGL), (MU), (LRCX), (NVDA) (IBM),
(GLD), (AMZN), (MSFT), (XOM), (SPY), (QQQ)
Below please find subscribers' Q&A for the Mad Hedge Fund Trader April Global Strategy Webinar with my guest co-host Bill Davis of the Mad Day Trader.
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: Many of your April positions are now profitable. Is there any reason to close out before expiration?
A: No one ever got fired for taking a profit. If you feel like you have enough in hand - like 50% of the maximum potential profit in the position, which we do have in more than half of our current positions - go ahead and take it.
I'll probably run all of our April expirations into expiration day because they are very deep in the money. Also, because of the higher volatility and because of higher implied volatility on individual stock options, you're being paid a lot more to run these into expiration than you ever have been before, so that is another benefit.
Of course, one good reason to take profits now is to roll into another position, and when we find them, that may be exactly what we do.
Q: What do you think will be the impact of the US hitting Syria with missiles?
A: Initially, probably a 3-, 4-, or 500-point drop, and then a very rapid recovery. While the Russians have threatened to shoot down our missiles, in actual fact they can't hit the broad side of a barn. When Russians fired their cruise missiles at Syrian targets, half of them landed in Iran.
At the end of the day, it doesn't really impact the US economy, but you will see a big move in gold, which we're already starting to see, and which is why we're long in gold - as a hedge against all our other positions against this kind of geopolitical event.
Q: Will 2018 be a bull market or a bear market?
A: We are still in a bull market, but we may see only half the returns of last year - in other words we'll get a 10% profit in stocks this year instead of a 20% profit, which means it has to rise 12% from here to hit that 10% up by year-end.
Q: What is your take on the ProShares Ultra Short 20+ Year Treasury Bond Fund (TBT)?
A: I am a big buyer here. I think that interest rates (TLT) are going to move down sharply for the rest of the year. The (TBT) here, in the mid $30s, is a great entry point - I would be buying it right now.
Q: How do you expect Google (GOOGL) to trade when the spread is so wide?
A: It will go up. Google is probably the best-quality technology company in the market, after Facebook (FB). We'll get some money moving out of Facebook into Google for exactly that reason; Google is Facebook without the political risk, the regulatory risk, and the security risks.
Q: Are any positions still a buy now?
A: All of them are buys now. But, do not chase the market on any conditions whatsoever. The market has an endless supply of sudden shocks coming out of Washington, which will give you that down-400-points-day. That is the day you jump in and buy. When you're buying on a 400-down-day, the risk reward is much better than buying on a 400-point up day.
Q: What is "sell in May and go away?"
A: It means take profits in all your positions in May when markets start to face historical headwinds for six months and either A) Wait for another major crash in the market (at the very least we'll get another test of the bottom of the recent range), or B) Just stay away completely; go spend all the money you made in the first half of 2018.
Q: Paul Ryan (the Republican Speaker of the House) resigned today; is he setting up for a presidential run against Trump in 2020?
A: I would say yes. Paul Ryan has been on the short list of presidential candidates for a long time. And Ryan may also be looking to leave Washington before the new Robert Mueller situation gets really unpleasant.
Q: What reaction do you expect if Trump resigns or is impeached?
A: I have Watergate to look back to; the stock market sold off 45% going into the Nixon resignation. It's a different world now, and there were a lot more things going wrong with the US economy in 1975 than there are now, like oil shocks, Vietnam, race riots, and recessions.
I would expect to get a decline, much less than that - maybe only a couple 1,000 points (or 10% or so), and then a strong Snapback Rally after that. We, in effect, have been discounting a Trump impeachment ever since he got in office. Thus far, the market has ignored it; now it's ignoring it a lot less.
Q: Thoughts on Micron Technology (MU), Lam Research (LRCX), and Nvidia (NVDA)?
A: It's all the same story: a UBS analyst who had never covered the chip sector before initiated coverage and issued a negative report on Micron Technology, which triggered a 10% sell-off in Micron, and 5% drops in every other chip company.
He took down maybe 20 different stocks based on the argument that the historically volatile chip cycle is ending now, and prices will fall through the end of the year. I think UBS is completely wrong, that the chip cycle has another 6 to 12 months to go before prices weaken.
All the research we've done through the Mad Hedge Technology Letter shows that UBS is entirely off base and that prices still remain quite strong. The chip shortage still lives! That makes the entire chip sector a buy here.
Q: Can Trump bring an antitrust action against Amazon?
A: No, no chance whatsoever. It is all political bluff. If you look at any definition of antitrust, is the consumer being harmed by Amazon (AMZN)?
Absolutely not - if they're getting the lowest prices and they're getting products delivered to their door for free, the consumer is not being harmed by lower prices.
Second is market share; normally, antitrust cases are brought when market shares get up to 70 or 80%. That's what we had with Microsoft (MSFT) in the 1990s and IBM (IBM) in the 1980s. The largest share Amazon has in any single market is 4%, so no there is basis whatsoever.
By the way, no president has ever attacked a private company on a daily basis for personal reasons like this one. Thank the president for giving us a great entry point for a stock that has basically gone up every day for two years. It's a rare opportunity.
Q: How will the trade war end?
A: I think the model for the China trade war is the US steel tariffs, where we announced tariffs against the entire world, and then exempted 75% of the world, declaring victory. That's exactly what's going to happen with China: We'll announce massive tariffs, do nothing for a while, and then negotiate modest token tariffs within a few areas. The US will declare victory, and the stock market rallies 2,000 points. That's why I have been adding risk almost every day for the last two weeks.
Q: Would you be buying ExonMobil (XOM) here, hoping for an oil breakout?
A: No, I think it's much more likely that oil is peaking out here, especially given the slowing economic data and a huge onslaught in supply from US fracking. We're getting big increases now in fracking numbers - that is very bad for prices a couple of months out. The only reason oil is this high is because Iran-sponsored Houthi rebels have been firing missiles at Saudi Arabia, which are completely harmless. In the old days, this would have caused oil to spike $50.
Q: Would you be selling stock into the rally (SPY), (QQQ)?
A: Not yet. I think the market has more to go on the upside, but you can still expect a lot of inter-day volatility depending on what comes out of Washington.
Q: Do you ever use stops on your option spreads?
A: I use mental stops. They don't take stop losses on call spreads and put spreads, and if they did they would absolutely take you to the cleaners. These are positions you never want to execute on market orders, which is what stop losses do. You always want to be working the middle of the spread. So, I use my mental stop. And when we do send out stop loss trade alerts, that's exactly where they're coming from.
Q: Will the Middle East uncertainty raise the price of oil?
A: Yes, if the Cold War with Iran turns hot, you could expect oil to go up $10 or $20 dollars higher, fairly quickly, regardless of what the fundamentals are. It's tough to be blowing up oil supplies as a great push on oil prices. But that's a big "if."
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