July 16, 2019

Global Market Comments
July 16, 2019
Fiat Lux

Featured Trade:

 (ADSK), (WDAY), (SNE), (NVDA), (MSFT),
(CORN), (WEAT), (SOYB), (DBA), (MOS)

The Biggest “Tell” in the Market Right Now

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.



Suddenly, it’s Getting Crowded in San Francisco

June 6, 2019

Global Market Comments
June 6, 2019
Fiat Lux

Featured Trade:

 (CYBR), (CHKP), (HACK), (SNE)


November 15, 2018

Global Market Comments
November 15, 2018
Fiat Lux

Featured Trade:
(ARE YOU IN THE 1%?), 
(SNE), (HMC)

September 28, 2018

Global Market Comments
September 28, 2018
Fiat Lux

Featured Trade:
(JPM), (SNE), (TLT), (ELD), (AMZN),

March 26, 2018

Global Market Comments
March 26, 2018
Fiat Lux

Featured Trade:

The Global Impact of the New Japanese IRA?s

Nearly two years ago, the Japanese government introduced the Individual Retirement Account for individual investors in Japan for the first time.

The move was part of Prime Minister Shinzo Abe?s multifaceted efforts to revive Japan?s economy, and could unleash as much as $690 billion in net buying into Japanese equities by 2018.

The move was inspired by American IRA?s, which were first introduced in 1981. After that, the Dow average soared by 25 times. It is amazing to what lengths people will go to avoid the taxman.

Starting October 1, 2013 individuals have been permitted to contribute up to ?1 million a year into Nippon Individual Savings Accounts (NISA) or some $8,000, while married couples can chip in ?2 million.

These funds are exempt from capital gains and dividend taxes for five years. At the same time, capital gains taxes will rise from 10% to 20%.

Thanks to a 22-year long bear market, only 7.9% of personal assets in Japan are currently invested in stocks, compared to 34% in the US. Individuals account for only 28% of the daily trading volume in Tokyo, while foreigners take up 63%. Still, that?s up from only 21% a year earlier.

Over the past 10 years, individuals sold a net $214 billion in equities, keeping their eyes firmly on the rear view mirror. Almost all of the funds were deposited into bank accounts yielding near zero.

Even 10 year Japanese Government Bonds are yielding only 0.41% as of today. That doesn?t buy you much sushi in your retirement.

Over the past three years, Japan has enjoyed having the world?s fastest growing industrialized economy. The latest data show that it is expanding at a white hot 3.5%, versus a far more modest 2% rate in the US, and only 0.5% in Europe.

Early indications are that the NISA?s are hugely popular. Japanese brokers have launched a massive advertising effort to promote the program, which promises to substantially boost their own earnings. Firms have had to lay on extra customer support staff to assist with online applications, where clueless investors have spent two decades in hiding. That certainly makes Japanese brokers, like Nomura (NMR), a buy. Another of my favorites is Sony (SNE).

To get some idea of the potential, take a look at how Merrill Lynch?s stock performed after 1981, which rose by many multiples. The bear market has lasted for so long that many applicants confess to investing in equities for the first time in their lives.

Since Shinzo Abe announced his candidacy for prime minister and his revolutionary economic and monetary program nearly four years ago, the Japanese stock market (DXJ) has soared by an amazing 176% in US dollar terms. The short Japanese yen 2X ETF (YCS) has similarly rocketed by a huge 232%.

Regular readers of the Mad Hedge Fund Trader have been mercilessly pounded to buy Japanese stocks and sell short the Japanese yen for the best of three years. I can almost hear ?Oh no, here comes another yen bashing piece!?

The need to bolster Japan?s retirement finances is overwhelming. It has the world?s oldest population, with some 26% of their 127.6 million over the age of 65.

The average life span in Japan is 82.6 years. That is a lot of people to support for a $6 trillion GDP. Thanks to plummeting fertility rates, the population is expected to decline to 106 million by 2055.

By yanking $690 billion out of the banks and moving out the risk spectrum, Abe?s new IRA?s provide additional means through which the economy can permanently return to health.

Higher stock prices will provide cheap equity financing for public companies, which can then reinvest in the domestic economy and create jobs.

I have written endlessly on the fundamental case for a strong Japanese stock market this year (to read my previous articles on yen, please click the following links: ??Rumblings in Tokyo?, ?New BOJ Governor Craters Yen??and ?New BOJ Governor Crushes the Yen?).

DXJ 6-2-15

YCS 6-2-15

NMR 6-2-15

SNE 6-2-15


Girl - TickerSo How Does This Order App Work?

The Bull Case for Japanese Stocks

If you live long enough, you see everything.

After a 25-year hiatus, here I am finally back making money in the Japanese stock market once again.

Any sentient being couldn?t help but notice the specular results the Japanese stock market has produced so far in 2015.

The Nikkei Average is up a robust 11.7%, while the Wisdom Tree Japan Hedged Equity Fund (DXJ), which eliminates all of the underlying yen currency risk, has tacked on an impressive 13.2%. This compares to a US Dow average return for the same period of essentially zero.

So, is it too late to get in? Are we joining the tag ends of a party that is winding down? Or is the bull market just getting started?

To answer that question, you have to go to a 30 year chart for the Nikkei average which chronicles all of the violence, heartbreak and drama of the great Japanese stock market crash, and the budding recovery that has since ensued.

The bulls see a crucial triple bottom at ?7,500 that has spread out over ten years, from 2003 to 2013. The initial resistance for the bull market was at ?18,000. That level was decisively broken last week.

And as any long in the tooth technical analyst will tell you, the longer the base building, the longer the recovery.

It is no accident that this sea changing technical action is happening now. Last year rumors abounded that the Japanese government would mandate higher equity weighting by Japanese pension fund managers.

That is exactly what happened at the end of February. The government required pension fund managers to increase equity weightings from 8% to 25%, at the expense of their Japanese government bond holdings. I guess the 0.33% yield on the ten-year wasn?t exactly tickling their fancy.

To meet the new guidelines, managers have to buy $120 billion worth of stocks over the next two years.

That is a lot of stock.

Japanese pension fund managers are the world?s most conservative. Since they can no longer buy all the domestic bonds they want, they are investing in stocks that are essentially bond equivalents.

These include relatively high dividend yielding domestic defensive sectors, like pharmaceuticals, railroads, services, chemicals and foods. With the program only just starting, the Nikkei will be underpinned by local Japanese institutional buying, possibly for years. That eliminates your downside.

Enter the foreign investor. Gaijin mutual fund and hedge fund managers alike were net sellers of Japanese stock for all of 2014. They turned to net buyers only three weeks ago.

Guess what kind of stocks foreigners like to buy? The same kind they buy at home: technology stocks. Take a look at the charts below for Sony (SNE) and Canon (CAJ) and the breakouts there exactly match up with the timeline I described above.

Sony, in particular deserves special mention. Sony was the Apple of Japan during the 1980?s, and should have been the Apple of today. But the company lost its way after 1990, when the founder, my friend Akio Morita, passed away.

Succeeding management was dull, sluggish, and unimaginative. The world quit buying its top of the line stereo systems. As a result, its market capitalization plunged from $150 billion to only $10 billion.

The final indignity came when North Korean hackers almost wiped out the company last year when it released The Interview, a spoof on dictator Kim Jong-un.

These days, Sony is leading the resurgence of the Japanese stock market. Management modernized and westernized. It launched a range of new high tech products. It is selling at a dirt cheap 12X multiple. I also think it is safe to say that their hacking defenses are now state of the art.

It doesn?t hurt that when foreign investors think of buying Japan, picking up Sony is the first thing that comes to mind.

So the technicals and the supply/demand picture lines up, how about the fundamentals?

Go into Japan now, and you are betting that Prime Minister Shinzo Abe (I knew his dad), will succeed in his ?three arrows? plan for economic and financial reform. Insiders believe he can pull this off.

The December election gave him a continued mandate from the Japanese people. The Bank of Japan is also in his corner, implementing a monetary policy that is so aggressive that it was once thought unimaginable. Doubling the money supply in two years?

This is why the Japanese yen will continue to depreciate, which is also highly reflationary for the economy, and is the subject of my Trade Alert below to sell yen.

If all of this lines up, then the next target for the Nikkei is for it to add another ?10,000, up nearly 50% from here. Beyond that, the Japanese stock average is likely to take a run at its old 1989 high of ?39,000.

I remember the day it hit that level all too well.

The rock group Chicago was leading the charts with Look Away. The office at Morgan Stanley was packed with women wearing these big shoulder pads that made them look like football players. Huge sunglasses, neon colors and big hair were everywhere.

Like I said, if you live long enough, you see everything, even another Japanese bull market.

NIKK 3-18-15

DXJ 3-19-15

CAJ 3-19-15