Posts

June 14, 2019

Global Market Comments
June 14, 2019
Fiat Lux

Featured Trade:

(WEDNESDAY JUNE 26 BRISBANE, AUSTRALIA STRATEGY LUNCHEON)
(MAY 29 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (BYND), (AMZN), (GOOG), (AAPL), (CRM), (UT), (RTN), (DIS), (TLT), (HAL), (BABA), (BIDU), (SLV), (EEM)

June 12 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader June 12 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Do you think Tesla (TSLA) will survive?

A: Not only do I think it will survive, but it’ll go up 10 times from the current level. That’s why we urged people to buy the stock at $180. Tesla is so far ahead of the competition, it is incredible. They will sell 400,000 cars this year. The number two electric car competitor will sell only 25,000. They have a ten-year head start in the technology and they are increasing that lead every day. Battery costs will drop another 90% over the next decade eventually making these cars incredibly cheap. Increase sales by ten times and double profit margins and eventually, you get to a $1 trillion company.

Q: Beyond Meat (BYND)—the veggie burger stock—just crashed 25% after JP Morgan downgraded the stock. Are you a buyer here?

A: Absolutely not; veggie burgers are not my area of expertise. Although there will be a large long-term market here potentially worth $140 billion, short term, the profits in no way justify the current stock price which exists only for lack of anything else going on in the market. You don’t get rich buying stocks at 37 times company sales.

Q: Are you worried about antitrust fears destroying the Tech stocks?

A: No, it really comes down to a choice: would you rather American or Chinese companies dominate technology? If we break up all our big tech companies, the only large ones left will be Chinese. It’s in the national interest to keep these companies going. If you did break up any of the FANGS, you’d be creating a ton of value. Amazon (AMZN) is probably worth double if it were broken up into four different pieces. Amazon Web Services alone, their cloud business, will probably be worth $1 trillion as a stand-alone company in five years. The same is true with Apple (AAPL) or Google (GOOG). So, that’s not a big threat overhanging the market.

Q: Is it time to buy Salesforce (CRM)?

A: Yes, you want to be picking up any cloud company you can on any kind of sizeable selloff, and although this isn’t a sizeable selloff, Salesforce is the dominant player in cloud plays; you just want to keep buying this all day long. We get back into it every chance we can.

Q: Do you think the proposed merger of United Technologies (UT) and Raytheon (RTN) will lower the business quality of United Tech’s aerospace business?

A: No, these are almost perfectly complementary companies. One is strong in aerospace while the other is weak, and vice versa with defense. You mesh the two together, you get big economies of scale. The resulting layoffs from the merger will show an increase in overall profitability.

Q: I had the Disney (DIS) shares put to me at $114 a share; would you buy these?

A: Disney stock is going to go up ahead of the summer blockbuster season, so the puts are going to expire being worthless. Sell the puts you have and then go short even more to make back your money. Go naked short a small non-leveraged amount Disney $114 puts, and that should bring in a nice return in an otherwise dead market. Make sure you wait for another selloff in the market to do that.

Q: What role does global warming play in your bullish hypothesis for the 2020s?

A: If people start to actually address global warming, it will be hugely positive for the global economy. It would demand the creation of a plethora of industries around the world, such as solar and other alternative energy industries. When I originally made my “Golden Age” forecast years ago, it was based on the demographics, not global warming; but now that you mention it, any kind of increase in government spending is positive for the global economy, even if it’s borrowed. Spending to avert global warming could be the turbocharger.

Q: Why not go long in the United States Treasury Bond Fund (TLT) into the Fed interest rate cuts?

A: I would, but only on a larger pullback. The problem is that at a 2.06% ten-year Treasury yield, three of the next five quarter-point cuts are already priced into the market. Ideally, if you can get down to $126 in the (TLT), that would be a sweet spot. I have a feeling we’re not going to pull back that far—if you can pull back five points from the recent high at $133, that would be a good point at which to be long in the (TLT).

Q: Extreme weather is driving energy demand to its highest peak since 2010…is there a play here in some energy companies that I’m missing?

A: No, if we’re going into recession and there’s a global supply glut of oil, you don’t want to be anywhere near the energy space whatsoever; and the charts we just went through—Halliburton (HAL) and so on—amply demonstrate that fact. The only play here in oil is on the short side. When US production is in the process of ramping up from 5 million (2005) to $12.3 million (now), to 17 million barrels a day (by 2024) you don’t want to have any exposure to the price of oil whatsoever.

Q: What about China’s FANGS—Alibaba (BABA) and Baidu (BIDU). What do you think of them?

A: I wanted to start buying these on extreme selloff days in anticipation of a trade deal that happens sometime next year. You actually did get rallies without a deal in these things showing that they have finally bottomed down. So yes, I want to be a player in the Chinese FANGS in expectation of a trade deal in the future sometime, but not soon.

Q: Silver (SLV) seems weaker than gold. What’s your view on this?

A: Silver is always the high beta play. It usually moves 1.5-2.5 times faster than gold, so not only do you get bigger rallies in silver, you get bigger selloffs also. The industrial case for silver basically disappeared when we went to digital cameras twenty years ago.

Q: Does this extended trade war mean the end for emerging markets (EEM)?

A: Yes, for the time being. Emerging markets are one of the biggest victims of trade wars. They are more dependent on trade than any of the major economies, so as long as we have a trade war that’s getting worse, we want to avoid emerging markets like the plague.

Q: We just got a huge rebound in the market out of dovish Fed comments. Is this delivering the way for a more dovish message for the rest of the year?

A: Yes, the market is discounting five interest rate cuts through next year; so far, the Fed has delivered none of them. If they delayed that cutting strategy at all, even for a month, it could lead to a 10% selloff in the stock market very quickly and that in and of itself will bring more Fed interest rate cuts. So, it is sort of a self-fulfilling prophecy. The bottom line is that we’re looking at an ultra-low interest rate world for the foreseeable future.

Good Luck and Good Trading.

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

 

 

 

 

 

 

May 8, 2019

Global Market Comments
May 8, 2019
Fiat Lux

SPECIAL GOLD ISSUE

Featured Trade:
(THE ULTRA BULL ARGUMENT FOR GOLD),
(GLD), (GDX), (ABX), (SLV), (PALL), (PPLT)
(TESTIMONIAL)

The Ultra Bull Argument for Gold

Gold has become the ugly duckling during this bull market for stocks and bonds. However, that is not going to last.

Gold will eventually come back in fashion and when it does, how high could it really go?

The question begs your rapt attention as the possibility of Britain leaving the EC has suddenly unleashed a plethora of new positive fundamentals for the yellow metal.

It turns out that gold is THE deflationary asset to own. Who knew?

I was an unmitigated bear on the price of gold after it peaked in 2011. In recent years, the world has been obsessed with yields, chasing them down to historic levels across all asset classes.

But now that much of the world already has or is about to have negative interest rates, a bizarre new kind of mathematics applies to gold ownership.

Gold’s problem used to be that it yielded absolutely nothing, cost you money to store, and carried hefty transactions costs. That asset class didn’t fit anywhere in a yield-obsessed universe.

Now we have a horse of a different color.

Europeans wishing to put money in a bank have to pay for the privilege to do so. Place €1 million on deposit on an overnight account, and you will have only 996,000 Euros in a year. You just lost 40 basis points on your -0.40% negative interest rate.

With gold, you still earn zero, an extravagant return in this upside down world. All of a sudden, zero is a win.

For the first time in human history, that gives you a 40 basis point yield advantage over Euros. Similar numbers now apply to Japanese yen deposits as well.

As a result, the numbers are so compelling that it has sparked a new gold fever among hedge funds and European and Japanese individuals alike.

Websites purveying investment grade coins and bars crashed multiple times last week, due to overwhelming demand (I occasionally have the same problem). Some retailers have run out of stock.

And last week, the fever went pandemic as silver rocketed 14.28%, and others like Platinum (PPLT) and Palladium (PALL) were also frenetically bid.

So I’ll take this opportunity to review a short history of the gold market (GLD) for the young and the uninformed.

Since it peaked in the summer of 2011, the barbarous relic was beaten like the proverbial red-headed stepchild, dragging silver (SLV) down with it. It faced a perfect storm.

Gold was traditionally sought after as an inflation hedge. But with economic growth weak, wages stagnant, and much work still being outsourced abroad, deflation became rampant.

The biggest buyers of gold in the world, the Indians, have seen their purchasing power drop by half, thanks to the collapse of the rupee against the US dollar. The government increased taxes on gold in order to staunch precious capital outflows.

You could also blame the China slowdown for declining interest in the yellow metal which is now in its fifth year of falling economic growth.

Chart gold against the Shanghai index and the similarity is striking until negative interest rates became widespread in 2016.

The brief bid gold caught in 2015 over war fears in Syria, Ukraine, and then Iraq was worth an impressive $160 rise.

That is when the diplomats got involved and hostilities were at least delayed causing gold to roll over like the Bismarck.

In the meantime, the gold supply/demand balance was changing dramatically.

While no one was looking, the average price of gold production soared from $5 in 1920 to $1,300 today. Over the last 100 years, the price of producing gold has risen four times faster than the underlying metal.

It’s almost as if the gold mining industry is the only one in the world which sees real inflation since costs soared at a 15% annual rate for the past five years.

This is a function of what I call “peak gold.” They’re not making it anymore. Miners are increasingly being driven to higher risk, more expensive parts of the world to find the stuff.

You know those tires on heavy dump trucks? They now cost $200,000 each, and buyers face a three-year waiting list to buy one.

Barrack Gold (ABX) didn’t try to mine gold at 15,000 feet in the Andes, where freezing water is a major problem, because they like the fresh air.

What this means is that when the spot price of gold fell below the cost of production, miners will simply shout down their most marginal facilities, drying up supply. That has recently been happening on a large scale.

Barrick Gold, a client of the Mad Hedge Fund Trader, can still operate as older mines carry costs that go all the way down to $600 an ounce.

No one is going to want to supply the sparkly stuff at a loss. That should prevent gold from falling dramatically.

I am constantly barraged with emails from gold bugs whom passionately argue that their beloved metal is trading at a tiny fraction of its true value and that the barbaric relic is really worth $5,000, $10,000, or even $50,000 an ounce (GLD).

They claim the move in the yellow metal we are seeing now is only the beginning of a 30-fold rise in prices similar to what we saw from 1972 to 1979 when it leaped from $32 to $950.

So when the chart below popped up in my inbox showing the gold backing of the US monetary base, I felt obligated to pass it on to you to illustrate one of the intellectual arguments these people are using.

To match the gain seen since the 1936 monetary value peak of $35 an ounce, when the money supply was collapsing during the Great Depression, and the double top in 1979 when gold futures first tickled $950, this precious metal has to increase in value by 800% from the recent $1,050 low.  That would take our barbarous relic friend up to $8,400 an ounce.

To match the move from the $35/ounce, 1972 low to the $950/ounce, 1979 top in absolute dollar terms, we need to see another 27.14 times move to $28,497/ounce.

Have I gotten you interested yet?

I am long term bullish on gold, other precious metals, and virtually all commodities for that matter. But I am not that bullish. These figures make my own $2,300/ounce long-term prediction positively wimp-like by comparison.

The seven-year spike up in prices we saw in the seventies, which found me in a very long line in Johannesburg, South Africa to unload my own krugerands in 1979, was triggered by a number of one-off events that will never be repeated.

Some 40 years of unrequited demand was unleashed when Richard Nixon took the US off the gold standard and decriminalized private ownership in 1972. Inflation then peaked around 20%. Newly enriched sellers of oil had a strong historical affinity with gold.

South Africa, the world’s largest gold producer, was then a boycotted international pariah and teetering on the edge of disaster. We are nowhere near the same geopolitical neighborhood today, and hence, my more subdued forecast.

But then again, I could be wrong.

In the end, gold may have to wait for a return of inflation to resume its push to new highs. The previous bear market in gold lasted 18 years, from 1980 to 1998, so don’t hold your breath.

What should we look for? The surprise that your friends get out of the blue pay increase, the largest component of the inflation calculation.

This is happening now in technology, but nowhere else. When I visit open houses in my neighborhood in San Francisco, half the visitors are thirtysomethings wearing hoodies offering to pay cash.

It could be a long wait for real inflation, possibly into the mid-2020s, when shocking wage hikes spread elsewhere.

You may have noticed that I have been playing gold from the long side virtually every month since it bottomed in January. I’ll be back in there again given a good low risk, high return entry point.

You’ll be the first to know when that happens.

As for the many investment advisor readers who have stayed long gold all along to hedge their clients’ other risk assets, good for you.

You’re finally learning!

 

 

 

 

 

 

 

 

February 27, 2019

Global Market Comments
February 27, 2019
Fiat Lux

Featured Trade:

(WHY CHINA’S US TREASURY DUMP WILL CRUSH THE BOND MARKET),
(TLT), (TBT), ($TNX), (FCX), (FXE), (FXY), (FXA),
 (USO), (OXY), (ITB), (LEN), (HD), (GLD), (SLV), (CU),
(THE 13 NEW TRADING RULES FOR 2019)

Why China’s US Treasury Dump Will Crush the Bond Market

Years ago, if you asked traders what one event would destroy financial markets, the answer was always the same: China dumping its $1 trillion US treasury bond hoard.

It looks like Armageddon is finally here.

Once again, the Chinese boycotted this week’s US Treasury bond auction.

With a no-show like this, you could be printing a 2.90% yield in a couple of weeks. It also helps a lot that the charts are outing in a major long term double top.

You may read the president’s punitive duties on Chinese solar panels as yet another attempt to crush California’s burgeoning solar installation industry. I took it for what it really was: a signal to double up my short in the US Treasury bond market.

For it looks like the Chinese finally got the memo. Exploding American deficits have become the number one driver of all asset classes, perhaps for the next decade.

Not only are American bonds about to fall dramatically in value, so is the US dollar (UUP) in which they are denominated. This creates a double negative hockey stick effect on their value for any foreign investor.

In fact, you can draw up an all assets class portfolio based on the assumption that the US government is now the new debt hog:

Stocks – buy inflation plays like Freeport McMoRan (FCX) and US Steel (X)
Emerging Markets – Buy asset producers like Chile (ECH)
Bonds – run a double short position in the (TLT)
Foreign Exchange – buy the Euro (FXE), Yen (FXY), and Aussie (FXA)
Commodities – Buy copper (CU) as an inflation hedge
Energy – another inflation beneficiary (USO), (OXY)
Precious Metals – entering a new bull market for gold (GLD) and silver (SLV)

Yes, all of sudden everything has become so simple, as if the fog has suddenly been lifted.

Focus on the US budget deficit which has soared from $450 billion a year ago to over $1 trillion today on its way to $2 trillion later this year, and every investment decision becomes a piece of cake.

This exponential growth of US government borrowing should take the US National Debt from $22 to $30 trillion over the next decade.

I have been dealing with the Chinese government for 45 years and have come to know them well. They never forget anything. They are still trying to get the West to atone for three Opium Wars that started 180 years ago.

Imagine how long it will take them to forget about washing machine duties?

By the way, if I look uncommonly thin in the photo below it’s because there was a famine raging in China during the Cultural Revolution in which 50 million died. You couldn’t find food to buy in the countryside for all the money in the world. This is when you find out that food has no substitutes. The Chinese government never owned up to it.

 

 

 

 

January 10, 2019

Global Market Comments
January 10, 2019
Fiat Lux

Featured Trade:

(JANUARY 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (UUP), (FXE), (FXY), (FXA), (AAPL), (GLD), (SLV), (FCX), (SOYB), (USO), (MU), (NVDA), (AMD), (TLT), (TBT), (BIIB), (TSLA)
(TESTIMONIAL)

January 9 Biweekly Strategy Webinar Q&A

Due to technical problems, I was unable to read your questions. However, I was able to get a print out after the fact.

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 9 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader.

Q: Is the bottom in for stocks?

A: It is for six months to a year. A price earnings multiple at 14X seems to be the line in the sand. The Christmas Eve massacre, which took us down to a (SPY) of $230, was the final capitulation bottom of the entire down move. We may try a few more retests of the lows on bad tweets or data points. But from here on, you’re trying to buy the dip. That’s why I cut my vacation short a week and issued eight emergency trade alerts, five for Global Trading Dispatch and three for the tech letter. By the way, I hope you appreciate those trade alerts because I had to call back staff from vacations in four different countries to get them done. But it was worth it. We’ve had the strongest start to a New Year in a decade, up 5.75%. We made back all our Q4 losses in two days!

Q: Is the strong dollar play (UUP) over? Is it time to start buying Euro (FXE) and Yen (FXE)?

A: Yes, it is. The Fed flipping from hawk to dove sounds the death knell for the dollar. With the expansion of the yield spread between the buck and other currencies stopped dead in its tracks, a massive short covering rally will drive the currencies higher. That’s why I bought the Euro on Monday for the first time in more than a year (FXE). The Japanese yen where the biggest shorts has already moved too far, up 8%. That’s where hedge fund typically finance positions because yen yields have been at zero forever.

Q: How about the Aussie (FXA)? Do we have a shot now?

A: I think so. But the bigger driver with Aussie is the trade war with China. That said, I believe that will get resolved soon too unless Trump wants to run for reelection during a recession. The Aussie also has relatively high-interest rates so it should soar.

Q: Is the government shutdown starting to hurt the economy?

A: Yes, it is. Estimates on the damage the shutdown is doing range from 0.5% to 1% a week. That means at a minimum of 20-week shut down cuts 2019 GDP growth by 1%. If your assumption for growth this year is only 2%, that brings us perilously close to a recession. However, with the big stock market rally of the past week investors clearly believe the shutdown will be over in a week. Buy “Wall” stocks.

Q: What’s the biggest risk to the market now?

A: Companies announced great earnings in October and the stocks promptly collapsed. Q4 earnings start in a few weeks, except this time, the earnings will be smaller. The big one, Apple (AAPL) is reporting on January 29 and will be especially exciting since they already announced a major disappointment. If we get a repeat, you could get another meltdown in February just like we saw last year.

Q: Do you still like gold (GLD)?

A: I did in Q4 as a hedge for a collapsing stock market. Now that stocks are on fire again, I think gold and silver (SLV) will take a rest. You’re not going to get a serious move in gold until we see higher inflation and that is a while off.

Q: Is the bear market in commodities over?

A: I think so, with a flattening interest rate picture and a weakening dollar, the entire commodity complex is looking better. That includes copper (FCX), energy (USO), and the ags (SOYB). What do you buy in an expensive market? Cheap stuff, and all of these are at seven-year lows. I think people are ready to give paper assets a rest. All we need now for these to work is inflation. My cleaning lady just asked for a raise so there’s hope.

Q: The semiconductors have just had a good move. Is it time to get in?

A: You want to buy the semis, like Micron Technology (MU), NVIDIA (NVDA), and Advanced Micro Devices (AMD) when they’ve just had a BAD move. Market conditions have improved, but not to the extent you want to buy the most volatile stocks in the market. That said, if we get another crushing move in February you might dip your toe in with some semis on capitulation day. If you want to buy semis in this environment, you might have a gambling addiction.

Q: If the Fed has stopped raising rates, are you still bearish on the (TLT) and bullish on the (TBT)?

A: I think what governor Jay Powell’s dovish comments will do is put bonds in a six-month range, say 2.45%-3.0% in yield. All of my future bond alerts will trade around those levels. In the option world, we will be setting up a short strangle, betting that interest rates don’t move out of this range for a while. In that case, our two bond positions will be OK, with the nearest money one expiring in only seven trading days.

Q: Is it too late to get into biotech (BIIB)?

A: No, along with technology, biotech will be one of the two leading sectors in the entire market for the next ten years. However, me being an eternal cheapskate, I want to get in again on a decent dip. This is the industry that will cure cancer over the next decade and that will be worth a trillion dollars in profits.

Q: You’ve kept us out of Tesla (TSLA) for a couple of years. Is it time to go back in?

A: I think I would. If production can ramp up from 7,000 to 10,000 a week, the stock should do the same. The ten-year view for this stock is that it goes from today’s $330 to $2,500. That said, this is a notorious trading stock so it is very important to buy it on a dip. Wait for the next tweet from Elon Musk.

Q: If we enter a bear market in May 2019, what would be the appropriate long-term investments at that time?

A: Nothing beats cash, especially now that you are actually getting paid something decent. You can find cash equivalents now yielding all the way up to 4%. In a bear market, stocks either go down a lot, or a whole lot, so there is nothing worth keeping. The only reason to stay in is to avoid a monster tax bill (my cost on Apple is 25 cents) or you still work for the company.

 

 

 

 

 

January 9, 2019

Global Market Comments
January 9, 2019
Fiat Lux

2019 Annual Asset Class Review
A Global Vision

FOR PAID SUBSCRIBERS ONLY

Featured Trades:
(SPX), (QQQQ), (XLF), (XLE), (XLI), (XLY),
(TLT), (TBT), (JNK), (PHB), (HYG), (PCY), (MUB), (HCP)
(FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
(FCX), (VALE),

(DIG), (RIG), (USO), (UNG), (USO), (OXY),
(GLD), (GDX), (SLV),
(ITB), (LEN), (KBH), (PHM)

September 27, 2018

Global Market Comments
September 27, 2018
Fiat Lux

Featured Trade:
(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F),
(TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (RSX), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL),
(TUESDAY, OCTOBER 16, 2018, MIAMI, FL,
GLOBAL STRATEGY LUNCHEON)