Global Market Comments
February 8, 2019
Fiat Lux
Featured Trade:
(FEBRUARY 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (FXA), (NVDA), (SPY), (IEUR),
(VIX), (UUP), (FXE), (AMD), (MU), (SOYB)
Global Market Comments
February 8, 2019
Fiat Lux
Featured Trade:
(FEBRUARY 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (FXA), (NVDA), (SPY), (IEUR),
(VIX), (UUP), (FXE), (AMD), (MU), (SOYB)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader February 6 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Why are you so convinced bonds (TLT) are going to drop in 2019?
A: I think the Fed will regain the confidence to start raising rates again in the second half. Wage inflation is starting to appear, especially at the minimum wage level in several states. That will crater the bond market as well as the stock market, just as we saw in the second half of 2018. We’re in unknown territory in the bond market; we’re issuing astronomical WWII levels of debt and it’s only a matter of time before the Federal government crowds out private sector borrowers. Even if the bond market sidelines during this time, we will still make the maximum profit in the kind of option bear put spreads I have been putting on.
Q: Why did the Aussie (FXA) go down when they suddenly flipped from rising to cutting interest rates?
A: Interest rate differentials are the principal driver of all foreign exchange rates. They always have been and always will be. Rising rates almost always lead to a stronger currency. And with the US Fed on pause for the foreseeable future, we think the Aussie will be stronger going into 2019.
Q: Do you see the 10-year US Treasury yield going back up to 3.25% this year?
A: Yes, it’ll probably happen in the second half of the year—once the Fed gets its mojo back and decides that high employment and inflation are the bigger threats to the economy.
Q: Has NVIDIA (NVDA) bottomed here?
A: Probably, but you don’t want to touch the semiconductor chip companies until the summer. That’s when all the industry insiders expect the industry to turn and start discounting rocketing earnings after the next recession.
Q: Are stocks expensive here (SPY)?
A: On a trailing basis no, on a forward basis definitely yes. The current price/earnings multiple for the market is 17 now against a 14-20 range in 2018. So, we are dead in the middle of that range now. That’s OK when earnings are rapidly rising as they did last year. But they are falling now and at an increasingly increasing pace.
Q: Do you think the administration used the shutdown to bring forth a recession? To kickstart the pro-economic platform for reelection in 2020?
A: The administration’s view is that the economy is the strongest it’s ever been with no chance of future recession and that they will win the election as a slam dunk. If you believe that, buy stocks; if you don’t, sell them.
Q: How bad do you think Europe (IEUR) will get and does that mean the dollar (UUP) could see parity with the Euro (FXE) soon?
A: Europe is bad but they’re not going to raise interest rates anymore. However, they’re not going to cut them either because they’re already at zero. You need rising rates to see a stronger currency and the fact that the U.S. stopped raising rates is an argument for the Euro to go higher.
Q: Are we about to settle into a fading Volatility Index (VIX) environment for the rest of the year?
A: No, we are not; the (VIX) has been fading for 6 weeks. We’re approaching a bottom with the (VIX) here at $15, and the next big move in will probably be to the upside. The market has gotten WAY too complacent.
Q: Which are the most worrisome signals you see in the U.S. economy right now?
A: Weak earnings and sales guidance from all U.S. companies going forward and the immense jump in jobless claims last week as well as the ever-exploding amounts of government debt. Did I mention the trade war with China and the next government shutdown? Traders have a lot on their plate right now.
Q: How far will Lam Research (LRCX) go?
A: We’ve just had a massive 46% move up, so I wouldn’t chase it up here. However, long term there is still an easy double in this stock. They’re tied in with the semiconductor companies; NVIDIA, Advanced Micron Devices (AMD) and Micron Technology (MU) all trade in a group and may take one more run at the lows. Short term it’s overbought, long term it’s a screaming buy.
Q: Will the ag crisis feed into the main economy?
A: It could. All ag storage in the country is full, so farmers are putting the new harvest under tarps where it is rotting away and then claiming on their insurance. If you add another harvest on top of that it will be a disaster of epic proportions. China is America’s largest ag customer. It took decades of investment to develop them a client, and they are never coming back in their previous size. The trust is gone. Bankruptcies are at a ten-year high and that could eventually take down some regional banks which in turn hurt the big banks. However, ag is only 2% of the US economy, so it won’t cause the next recession. It’s really more of a story of local suffering.
Q: If you give out stop and not filled at stop price, when and how do you adjust to exit?
A: I would quickly enter it and if you’re not done quickly move it down five cents. If you don’t get done, do it again. There is no way to know where the real market is in until you put in a real order. There are 11 different option exchanges online and they are changing prices every millisecond. Furthermore, spread trades can get one leg done on one exchange and the second leg done on another, so prices can be all over the place.
Q: What data goes into the Mad Hedge Market Timing Index and how do you use it to time the markets?
A: It uses a basket of 30 different indicators which constantly changes according to what generates the highest return in a 30 year backtest. It includes a lot of conventional data points, like moving averages and RSIs, along with some of our own internal proprietary ones. When we are getting a reading below 20, we are looking to buy. Any reading over 65 and we are looking to sell, and over 80 we will only go short. It works like a charm. It paid for my new Tesla! I hope this helps.
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)
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.
Global Market Comments
September 13, 2018
Fiat Lux
Featured Trade:
(EXPANDING MY “TRADE PEACE” PORTFOLIO),
(BABA), (BIDU), (TCTZF) (MU), (LRCX), (KLAC), (EEM),
(FXI), (EWZ), (SOYB), (CORN), (WEAT), (CAT), (DE),
(THE LEAGUE OF EXTRAORDINARY TRADERS)
Global Market Comments
August 20, 2018
Fiat Lux
Featured Trade:
(THE MARKET OUTLOOK FOR THE WEEK AHEAD, or
IS THE TRADE WAR ON OR OFF?),
(AAPL), (UUP), (EEM), (NFLX), (TSLA), (GOOGL), (SOYB),
(SOME SAGE ADVICE ABOUT ASSET ALLOCATION)
Global Market Comments
July 27, 2018
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE FRIDAY, AUGUST 3, 2018,
AMSTERDAM, THE NETHERLANDS GLOBAL STRATEGY DINNER),
(STOCKS TO BUY ON THE OUTBREAK OF TRADE PEACE),
(QQQ), (SPY), (SOYB), (CORN), (WEAT), (CAT),
(DE), (BA), (QCOM), (MU), (LRCX), (CRUS),
(ORIENT EXPRESS PART II, or REPORT FROM VENICE)
Global Market Comments
June 20, 2018
Fiat Lux
Featured Trade:
(ANNOUNCING THE MAD HEDGE LAKE TAHOE, NEVADA, CONFERENCE, OCTOBER 26-27, 2018),
(THE CHINA TRADE WAR TURNS HOT),
(GM), (AAPL), (SOYB), (WEAT), (CORN)
Global Market Comments
May 22, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE MAY 23 GLOBAL STRATEGY WEBINAR),
(CHINA'S BIG TRADE WIN),
(SPY), (TLT), (UUP), (USO), (GLD), (SOYB),
(HOW TO USE YOUR CELL PHONE ABROAD)
Global Market Comments
March 23, 2018
Fiat Lux
Featured Trade:
(DON'T MISS THE MARCH 28 GLOBAL STRATEGY WEBINAR),
(FRIDAY, APRIL 6, INCLINE VILLAGE, NEVADA, STRATEGY LUNCHEON)
(WHY US BONDS LOVE CHINESE TARIFFS),
(TLT), (TBT), (SOYB), (BA), (GM)
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