Global Market Comments
January 25, 2021
Fiat LuxFeatured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE COMES THE SUPERHEATED ECONOMY),
(SPY), ($INDU), (TLT), (TBT), (TSLA)
Tag Archive for: (SPY)
The US economy is in the worst condition in a century. The U6 Unemployment rate stands at 20 million today. Main streets everywhere are boarded up. Millions of businesses have gone under. Some 4,500 people a day are dying from a dreaded virus.
All of this means that you should rush out and buy and stocks, as many as possible, with both hands, and by the bucket load. It’s time to take out that home equity loan and pour it into stocks, damn the torpedoes.
For things are about to get better for the US economy, a whole lot better, better beyond anyone’s wildest imagination, and for you individually.
Speaking to CEOs, fund managers, and hedge fund strategists, it is clear that most are wildly underestimating the strength of the 2021 recovery. People haven’t really added up all the stimulus and quantitative easing that is about the hit, which could reach $20 trillion. The total market value of US stock markets is only $51 trillion.
I hate to engage in some simplistic calculations here, but if you increase the amount of capital going into the economy by nearly 50% in two years, stocks just might go up by nearly 50% in two years. It’s no more complicated than that.
In fact, economic conditions are about to improve so fast that the Federal Reserve may have to break its promise about not raising interest rates for three years and instead start nudging them up by the end of 2021.
Needless to say, this is terrible news for the bond market (TLT), where I am lining up to go from a double to a triple short.
You are already starting to see other analysts ratchet up their overcautious yearend S&P 500 target. By November, they may reach my own outsized goal of 4,800, bringing in a total gain in stocks of 35%.
All of this explains why stocks just absolutely refuse to go down, even a little bit. Each one-day decline seems to be met with a wall of buying. The memo is out: you absolutely have to get into this market, whether you are an individual, hedge fund, institution, or outright bet the ranch gambler.
Of course, if you think I’m so bullish because I made 90% on my money since the April bottom, you’d be right.
Just keep your discipline and observe the basic rules of trading: 1) Don’t buy a position that is so big that it can’t handle a normal 10% correction, 2) Don’t accumulate a position that is so big that you can’t sleep at night, 3) No calling John Thomas in the middle of the night and asking “I have a 3X position in this and their trading down in Asia, what should I do?”
If you have to ask the question, your position is too big.
Biden’s economic plan boosts growth forecasts, according to Goldman Sachs. Prospects have jumped from 6.4% to 6.6%, the highest in a half-century, on the back of a massive Covid-19 package.
Treasury Secretary Janet Yellen says “GO BIG” or go home to the Senate Finance Committee. She was there to get confirmation and push for Biden’s $1.9 trillion stimulus package. Markets are underestimating the extent of the stimulus headed our way, which could reach $10 trillion in addition to another $10 trillion in quantitative easing. Buy dips.
Index Funds are getting trashed, substantially trailing the S&P 500, as single-story stocks dominate the market. It’s become a stock pickers market in the extreme, with no more obvious example that (TSLA), up 1,000% in 9 months. Small caps, IPOs, and cyclical are getting all the action, leaving the (SPX) in the dust.
Tesla delivered its first Chinese Model Y, which will add 250,000 units to sales in 2021. It’s all part of Elon’s quest to take over the global automobile market. He plans to boost sales from 500,000 last year to 20 million in a decade. If so, the stock today still looks cheap. But is the quality the same?
Tesla Q4 registrations soar by 63%, in California, its largest market. It’s due to the runaway success of the Model Y small SUV. The stock is taking a long-overdue rest with a sideways “time” correction. It’s still true that if you buy the stock, you get the car for free.
Weekly Jobless Claims are still sky-high at 900,000. It’s a decline on the week but still horrifically high. The stock market may be starting to notice, with stocks moving sideways for two weeks.
Existing Home Sales soared to a 15-year high, up an amazing 22% YOY in December to a seasonally adjusted 6.76 million units. In the meantime, inventories hit all-time lows at only 1.9 months as they can’t build them fast enough. Sales of $1 million-plus homes are up an incredible 94%. The hottest markets were in Austin, TX, Tampa, FL, and Phoenix, AZ. New York was the worst, followed by San Francisco. The market is on fire and could continue for another decade. Pending tax breaks from the new tax bill will give homeownership another big push.
US Housing Starts jump 5.8%, to 1.7 Million units. Single-family homes are up 12% YOY, driven by the pandemic. Notice the enormous supply/demand gap which assures that home prices will keep rising for years. Rising mortgage interest rates so far have had no effect.
US Manufacturing PMI hits 14-Year high, according to Markit, their index jumping from 57.1 to 59.1. The performance would have been better if it weren’t for rampant parts shortages nationwide. It’s another argument for the long-term bull case.
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!
My Mad Hedge Global Trading Dispatch shot out of the gate with an immediate 7.25%so far in January. That is net of a 4% loss on a Tesla short which I added one day too soon. Given the great heights of the market, I have trimmed my book to just a long in Tesla and a Short in US Treasury bonds.
That brings my eleven-year total return to 430.30% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.80%. My trailing one-year return exploded to 74.44%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 90% since the March low.
The coming week will be a big one for big tech earnings.
We also need to keep an eye on the number of US Coronavirus cases at 25 million and deaths at 420,000, which you can find here. We are now running at a staggering 4,500 deaths a day.
When the market starts to focus on this, we may have a problem.
On Monday, January 25 at 9:30 AM EST, we get the Chicago Fed National Activity Index for December. Phillips (PSX) and Kimberly Clark (KMB) report.
On Tuesday, January 26 at 10:00 AM, we learned the new S&P Case Shiller National Home Price Index. Microsoft (MSFT), Johnson & Johnson (JNJ), and American Express (AMEX) report.
On Wednesday, January 27 at 10:00 AM, US Durable Goods for December are published. Apple (AAPL), Facebook (FB) and Tesla (TSLA) report.
On Thursday, January 28 at 9:30 AM, the first look at US GDP for Q4 is announced. McDonald’s (MCD), American Airlines (AA), and Visa (V) report.
On Friday, January 29 at 9:30 AM, US Personal Income and Spending for December is published. Ely Lilly (LLY) and Caterpillar (CAT) report. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I have never been big on the “meme” thing, but you have to love the one that has been circulating about Bernie Sanders. Suddenly, he showed up on every transit system in the country. Clearly, the country was dying for a laugh. I include several pictures below. Hopefully, I won’t end up like him someday.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 22, 2021
Fiat Lux
Featured Trade:
(JANUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (IWM), (SPY), (ROM), (BRK/A), (AMZN), NVDA), (MU), (AMD), (UNG), (USO), (SLV), (GLD), ($SOX), CHIX), (BIDU), (BABA), (NFLX), (CHIX), ($INDU), (SPY), (TLT)
Below please find subscribers’ Q&A for the January 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: What will a significant rise in long term bond yields (TLT) do to PE ratios in general, and high tech specifically?
A: Well, the key question here is: what is “significant”. Is “significant” a move in a 10-year from 120 to 150, which may be only months off? I don’t think that will have any impact whatsoever on the stock market. I think to really give us a good scare on interest rates, you need to get the 10-year up to 3.0%, and that might be two years off. We’re also going to be testing some new ground here: how high can bond interest rates go while the Fed keeps overnight rates at 25 basis points? They can go up more, but not enough to hurt the stock market. So, I think we essentially have a free run on stocks for two more years.
Q: What about the Shiller price earnings ratio?
A: Currently, it’s 34.5X and you want to completely ignore anything from Shiller on stock prices. He’s been bearish on stocks for 6 years now and ignoring him is the best thing you can do for your portfolio. If you had listed to him, you would have missed the last 15,000 Dow ($INDU) points. Someday, he’ll be right, but it may be when the market goes from 50,000 to 40,000, so again, I haven't found the Shiller price earnings ratio to be useful. It’s one of those academic things that looks great on paper but is terrible in practice.
Q: Do you see any opportunity in China financials with the change of administration, like the (CHIX)?
A: I always avoid financials in China because everyone knows they have massive, defaulted loans on their books that the government refuses to force them to recognize like we do here. So, it’s one of those things where they look good on paper, but you dig deeper and find out why they’re really so cheap. Better to go with the big online companies like Baidu (BIDU) and Alibaba (BABA).
Q: Is it too late to enter copper?
A: No, the high in the last cycle for Freeport McMoRan (FCX) was $50 dollars and I think we’re only in the mid $ ’20s now, so you could get another double. Remember, these commodity stocks have discounted recovery that hasn’t even started yet. Once you do get an actual recovery, you could get another enormous move and that's what could take the Dow to 120,000.
Q: Do you see the FANGs coming back to life with the earnings results?
A: I think it'll take more than just Netflix to do that. By the way, Netflix (NFLX) is starting to look like the Tesla of the media industry, so I’d get into Netflix on the next dip. You could get a surprise, out-of-nowhere double out of that anytime. But yes, FANGs will come to life. They've been in a correction for five months now, and we’ll see—it may be the end of the pandemic that causes these stocks to really take off. So that's why I'm running the barbell portfolio and buying the FANGs on weakness.
Q: Are you recommending LEAPS on gold (GLD) and silver (SLV)?
A: Absolutely yes, go out two years with your maturity, you might buy 120% out of the money. That's where you get your leverage on the LEAPS. Something like a (GLD) January 2023 $210-$220 in-the-money vertical bull call spread and generate a 500% profit by expiration.
Q: Do you foresee a cool off for semiconductors ($SOX) even though there's been recent news of shortages?
A: No, not really. There are so many people trying to get into these it’s incredible. And again, we may get a time correction where we sideline at the top and then break out again to the upside. This is classic in liquidity-driven markets, which is what we have in spades right now. Thanks to 5G, the number of chips in your everyday devices is about to increase tenfold, and it takes at least two years to build a new chip factory. So, keep buying (NVDA), (MU), and (AMD) on dips.
Q: Where are the best LEAPS prospects (Long Term Equity Participation Securities)?
A: That would have to be in technology—that's where the earnings growth is. If you go 20% out of the money on just about any big tech LEAPs two years out, to 2023 those will be worth 500% more at expiration.
Q: What about SPACs (Special Purpose Acquisition Company) now, as we’re getting up to five new SPACs a day?
A: My belief is that a SPAC is a vehicle that allows a manager to take out a 20% a year management fee instead of only 1%. And it's another aspect of the current mania we’re in that a lot of these SPACs are doubling on the first day—especially the electric vehicle-related SPACs. Also, a lot of these SPACs will never invest in anything, but just take the money and give it back to you in two years with no return when they can't find any good investments…. If you’re lucky. There's not a lot of bargains to be found out there by anyone, including SPAC managers.
Q: Does natural gas (UNG) fall into the same “avoid energy” narrative as oil?
A: Absolutely, yes. The only benefit of natural gas is it produces 50% less carbon dioxide than oil. However, you can't get gas without also getting oil (USO), as the two come out of the pipe at the same time; so I would avoid natural gas also. Gas and oil are also about to lose a large chunk, if not all, of their tax incentives, like the oil depletion allowance, which has basically allowed the entire oil industry to operate tax-free since the 1930s.
Q: What about hydrogen cars?
A: I don't really believe in the technology myself, and when you burn hydrogen, that also produces CO2. The problem with hydrogen is that it’s not a scalable technology. It’s like gasoline—you have to build stations all over the US to fuel the cars. Of course, it produces far less carbon than gas or natural gas, but it is hard to compete against electric power, which is scalable and there's already a massive electric grid in place.
Q: If you inherited $4 million today, would you cost average into (QQQ), (IWM), or (SPY)?
A: I would go into the ProShares Ultra Technology ETF (ROM), which is double the (QQQ); and if you really want to be conservative, put half your money into (QQQ) or (ROM), and then half into Berkshire Hathaway (BRK/A), which is basically a call option on the industrial and recovery economy. I know plenty of smart people who are doing exactly that.
Q: Is it weird to see oil, as well as green energy stocks, moving up?
A: No, that's actually how it works. The higher oil and gas prices go, the more economical it is to switch over to green energy. So, they always move in sync with each other.
Q: I heard rumors that Amazon (AMZN) is likely to raise Prime’s annual fee by $10-20 a year in 2021. Will that be a catalyst for the stock to go higher?
A: Yes. For every $10 dollars per person in Prime revenue, Amazon makes $2 billion more in net profit. I would say that's a very strong argument for the stock going up and maybe what breaks it out of its current 6-month range. By the way, Amazon is wildly undervalued, and my long-term target is $5,000.
Q: Do you think that the spike in Apple (AAPL) MacBook purchases means that computers will overtake iPhones as the revenue driver for Apple in 2021, or is the phone business too big?
A: The phone business is too big, and 5G will cause iPhone sales to grow exponentially. Remember, the iPhones themselves are getting better. I just bought the 12G Pro, and the performance over the old phone is incredible. So yeah, iPhones get bigger and better, while laptops only grow to the extent that people need an actual laptop to work on in a fixed office. Is that a supercomputer in your pocket, or are you just glad to see me?
Q: Share buybacks dried up because of revenue headwinds; do you think they will come back in a massive wave, giving more life to equities?
A: Absolutely, yes. Banks, which have been banned from buybacks for the past year, are about to go back into the share buyback business. Netflix has also announced that they will go buy their shares for the first time in 10 years, and of course, Apple is still plodding away with about $100 or $200 million a year in share buybacks, so all of that accelerates. The only ones you won't see doing buybacks are airlines and Boeing (BA) because they have such a mountain of debt to crawl out from before they can get back into aggressive buybacks.
Q: Interest rates are at historic lows; the smartest thing we can do is act big.
A: That’s absolutely right; you want to go big now when we’re all suffering so we can go small later and run a balanced budget or even pay down national debt if the economy grows strong enough. The last person to do that was Bill Clinton, who paid down national debt in small quantities in ‘98 and ‘99.
Q: What do you think about General Motors (GM)?
A: They really seem to be making a big effort to get into electric cars. They said they're going to bring out 25 new electric car models by 2025, and the problem is that GM is your classic “hour late, dollar short” company; always behind the curve because they have this immense bureaucracy which operates as if it is stuck in a barrel of molasses. I don’t see them ever competing against Tesla (TSLA) because the whole business model there seems like it’s stuck in molasses, whereas Tesla is moving forward with new technology at warp speed. I think when Tesla brings out the solid-state battery, which could be in two years, they essentially wipe out the entire global car industry, and everybody will have to either make Tesla cars under license from Tesla—which they said they are happy to do—or go out of business. Having said that, you could get another double in (GM) before everyone figures out what the game is.
Q: Will you update the long-term portfolio?
A: Yes, I promise to update it next week, as long as you promise me that there won’t be another insurrection next week. It’s strictly a time issue. After last year being the most exhausting year in history, this year is proving to be even more exhausting!
Q: Do you see a February pullback?
A: Either a small pullback or a time correction sideways.
Q: Do you think the Zoom (ZM) selloff will continue, or is it done now that the pandemic is hopefully ending?
A: It’s natural for a tech stock to give up one third after a 10X move. It might sell off a little bit more, but like it or not, Zoom is here to stay; it’s now a permanent part of our lives. They’re trying to grow their business as fast as they can, they’re hiring like crazy, so they’re going to be a big factor in our lives. The stock will eventually reflect that.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 13, 2021
Fiat LuxFeatured Trade:
(MY RADICAL VIEW OF THE MARKETS),
(INDU), (SPY), (AAPL), (FB), (AMZN), (ROKU)
What if the consensus is wrong?
What if instead of being in the 12th year of a bull market, we are actually in the first year, which has another decade to run? It’s not only possible but also probable. Personally, I give it a greater than 90% chance.
There is a possibility that the bear market that everyone and his brother have been long predicting and that the talking heads assure you is imminent has already happened.
It took place during the first quarter of 2020 when the Dow Average plunged a heart-rending 40%. How could this be a bear market when historical ursine moves down lasted anywhere from six months to two years, not six weeks?
Blame it all on hyperactive algorithms, risk parity traders, Robin Hood traders, and hedge funds, which adjust portfolios with the speed of light. If this WAS a bear market and you blinked, then you missed it.
It certainly felt like a bear market at the time. Lead stocks like Amazon (AMZN), Apple (AAPL), Facebook (FB), and Alphabet (GOOGL) were all down close to 40% during the period. High beta stocks like Roku (ROKU), one of our favorites, were down 60% at the low. It has since risen by 600%.
It got so bad that I had to disconnect my phone at night to prevent nervous fellows from calling me all night.
In my experience, if it walks like a duck and quacks like a duck, then it is a bear. If true, then the implications for all of us are enormous.
If I’m right, then my 2030 target of a Dow Average of $120,000, an increase of 300% no longer looks like the mutterings of a mad man, nor the pie in the sky dreams of a permabull. It is in fact eminently doable, calling for a 15% annual gain until then, with dividends.
What have we done over the last 11 years? How about 13.08% annually with dividends reinvested for a total 313% gain.
For a start, from here on, we should be looking to buy every dip, not sell every rally. Institutional cash levels are way too high. Markets have gone up so fast, up 12,000 Dow points in eight months, that many slower investors were left on the sideline. Most waited for dips that never came.
It all brings into play my Golden Age scenario of the 2020s, a repeat of the Roaring Twenties, which I have been predicting for the last ten years. This calls for a generation of 85 million big spending Millennials to supercharge the economy. Anything you touch will turn to gold, as they did during the 1980s, the 1950s, and well, the 1920s. Making money will be like falling off a log.
If this is the case, you should be loading the boat with technology stocks, domestic recovery stocks, and biotech stocks at every opportunity. Although stocks look expensive now, they are still only at one fifth peak valuations of the 2000 market summit.
Let me put out another radical, out of consensus idea. It has become fashionable to take the current red-hot stock market as proof of a Trump handling of the economy.
I believe the opposite is true. I think stocks have traded at a 10%-20% discount to their true earnings potential for the past four years. Anti-business policies were announced and then reversed the next day. Companies were urged to reopen money-losing factories in the US. Capital investment plans were shelved.
Yes, the cut in corporate earnings was nice, but that only had value to the 50% of S&P 500 companies that actually pay taxes.
Now that Trump is gone, that burden and that discount are lifted from the shoulders of corporate America.
It makes economic sense. We will see an immediate end to our trade war with the world, which is currently costing us 1% a year in GDP growth. Take Trump out of the picture and our economy gets that 1% back immediately, leaping from 2% to 3% growth a year and more.
The last Roaring Twenties started with doubts and hand wringing similar to what we are seeing now. Everyone then was expecting a depression in the aftermath of WWI because big-time military spending was ending.
After a year of hesitation, massive reconstruction spending in Europe and a shift from military to consumer spending won out, leading to the beginning of the Jazz Age, flappers, and bathtub gin.
I know all this because my grandmother regaled me with these tales, an inveterate flapper herself, which she often demonstrated. This is the same grandmother who bought the land under the Bellagio Hotel in Las Vegas for $500 in 1945 and then sold it for $10 million in 1978.
And you wonder where I got my seed capital.
It all sets up another “Roaring Twenties” very nicely. You will all look like geniuses.
I just thought you’d like to know.
Global Market Comments
January 12, 2021
Fiat Lux
Featured Trade:
(MAD HEDGE 2020 PERFORMANCE ANALYSIS),
(SPY), (TLT), (TBT), (TSLA), (GLD),
(SLV), (V), (AAPL), (VIX), (VXX)
(TESTIMONIAL)
When a Marine combat pilot returns from a mission, he gets debriefed by an intelligence officer to glean whatever information can be obtained and lessons learned.
I know. I used to be one.
Big hedge funds do the same.
I know, I used to run one.
Even the best managers will follow home runs with some real clangors. Every loss is a learning experience. If it isn’t, investors will flee and you won’t last long in this business. McDonald’s beckons.
By subscribing to the Mad Hedge Fund Trader, you get to learn from my own half-century of mistakes, misplaced hubris, arrogance, overconfidence, and sheer stupidity.
So, let’s take a look at 2020.
It really was a perfect year for me during the most adverse conditions imaginable, a pandemic, Great Depression, and presidential election. I made good money in January, went net short when the pandemic hit in February, and played the big bounce in technology stocks that followed.
Right at the March crash bottom, I sent out lists of 25 two-year option LEAPS (Long Term Equity Participation Securities). Many of these were up ten times in months. I then used a Biden election win as a springboard for a big run with domestic recovery stocks and financials.
One client turned $3 million into $40 million last year. He owes me a dinner and my choice on the wine list. (Hmmmmm. Lafitte Rothschild 1952 Cabernet Sauvignon with a shot of Old Rip Van Winkle bourbon as a chaser?). I usually get a few of these every year.
See, that’s all you have to do to bring in a big year. Piece of cake. It’s like falling off a log. But then I’ve been practicing for 50 years.
In the end, I managed to bring in a net return of 66.5% for all of 2020. That compares to a net return for the Dow Average of 5.7%.
My equity trading in general brought in 71.94% in profits, with 216 trade alerts, and were far and away my top performing asset class. This was the best year for trading equities since the 1999 Dotcom bubble top.
Of course, the best single trade of the year was with Tesla (TSLA), with 18 trades bringing in a 10.55%. I dipped in and out during the 10-fold increase from the March low to yearend.
Readers were virtually buried with an onslaught of inside research about the disruptive electric car company. It’s still true if you buy the stock, you get the car for free, as I have done three times.
Some 26 trades in Apple (AAPL) brought in a net 5.94%. It did get stopped out a few times, hence the lower return.
The second most profitable asset class of the year was in the bond market, with 58 trades producing a 31.16% profit. Virtually all of these trades were on the short side.
I sold short the United States Treasury Bond Fund from $180 all the way down to $154. I called it my “rich uncle” trade of the year, writing me a check every month and sometimes several a month. This is the trade that keeps on giving in 2021. Eventually, I see the (TLT) falling all the way to $80.
I did OK with gold (GLD), making 4.88% with eight trades in the SPDR Gold Shares ETF. Gold rose steadily until August and then fell for the rest of the year. I picked up another 1.77% on two silver trades (SLV).
It was not all a bed of roses.
Easily my worst asset class of the year was with volatility, selling short the iPath Series B S&P 500 VIX Short Term Volatility ETN (VXX). I was dead right with the direction of the move, with the (VIX) falling from $80 to $20. But my timing was off, with time decay eating me up. I lost 7.29% on six trades.
Two trades in credit card processor Visa (V) cost me 4.37%. I had a nice profit in hand. Then right before expiration, rumors of antitrust action from the administration emerged, a spate of bad economic data was printed, and an expensive acquisition took place.
I call this getting snakebit when unpredictable events come out of the blue to force you out of positions. Visa shares later rose by an impressive 22% in two months.
I lost another 0.99% on my one oil trade of the year with the United States Oil Fund (USO), buying when Texas tea was at negative -$5.00 and stopping out at negative $15.00. Oil eventually fell to negative -$37.00.
Go figure.
I didn’t offer any foreign exchange trades in 2020. I got the collapse of the US dollar absolutely right, but the moves were so small and so slow they could compete with what was going on in equities and bonds.
However, I played the weak dollar in other ways, with bullish calls in commodities and bearish ones in bonds. It always works.
Anyway, it’s a New Year and we work in the “You’re only as good as your last trade” business. 2021 looks better than ever, with a 5% profit straight out of the gate during the first five trading days.
It really is the perfect storm for equities, with $10 trillion about to hit the US economy, most of which will initially go into the stock market.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 7, 2020
Fiat Lux
FEATURED TRADE:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or A DICEY LANDING)
(SPY), (TLT), (AMZN), (TSLA), (CRM), (JPM), (CAT), (BABA),
(FCX), (GLD), (SLV), (UUP), (FXE), (FXA), (FXB), (FXY), (FXI), (EWZ), (THD), (EPU)
Landing my 1932 de Havilland Tiger Moth biplane can be dicey.
For a start, it has no brakes. That means I can only land on grass fields and hope my tail skid catches before I run out of landing strip. If it doesn’t, the plane will hit the end, nose over, and dump a fractured gas tank on top of me. Bathing in 30 gallons of 100 octane gasoline with sparks flying is definitely NOT a good long term health plan.
The stock market is starting to remind me of landing that Tiger Moth. On Friday, all four main stock indexes closed at all-time highs for the first time since pre-pandemic January. A record $115 billion poured into equity mutual funds in November. This has all been the result of multiple expansion, not newfound earnings.
Yet, stocks seem hell-bent on closing out 2020 at the highs.
And there is a major factor that the market is completely ignoring. What if the Democrats win the Senate in Georgia?
If so, Biden will have the weaponry to go bold. The economy goes from zero stimulus to maybe $6 trillion raining down upon it over the next six months. That will go crazy, possibly picking up another 10%, or 3,000 Dow points on top of the post-election 4,000 points we have seen so far.
That is definitely NOT in the market.
The other big decade-long trend that is only just starting is the weak US dollar. Lower interest rates for longer were reaffirmed by the appointment of my former economics professor Janet Yellen as Treasury Secretary.
A feeble dollar brings us a fading bond market, as half the buyers are foreigners. A sickened greenback also provides the launching pad for all non-dollar assets to take off like a rocket, including commodities (FCX), precious metals (GLD), (SLV), Bitcoin, and the currencies (UUP), (FXE), (FXA), (FXB), (FXY), and emerging stock markets like China (FXI), Brazil (EWZ), Thailand (THD), and Peru (EPU).
All of this is happening in the face of a US economy that is clearly falling apart. Weekly jobless claims for November came in at 245,000, compared to a robust 638,000 in October, taking the headline unemployment rate down to 6.9%. The real U6 unemployment rate stands at an eye-popping 12.0%, or 20 million.
Some 10.7 million remain jobless, 900,000 higher than in February. Transportation and Warehousing were up 140,000, Professional & Business Services by 60,000, and Health Care 46,000. Retail was down 35,000 as stores shut down at a record pace.
OPEC cuts a deal, adding 500,000 barrels a day to the global supply. The hopes are that a synchronized global recovery can take additional supply. Texas tea finally busts through a month's long $44 cap, the highest since March. Avoid energy. I’d rather buy more Tesla, the anti-energy.
Black Friday was a disaster, with in-store shopping down 52%. Long lines and 25% capacity restrictions kept the crowds at bay. If you don’t have an online presence, you’re dead. In the meantime, online spending surged by 26%.
Amazon (AMZN) hires 437,000 in 2020, probably the greatest hiring binge since WWII, and is continuing at the incredible rate of 3,000 a week. That takes its global workforce to 1.2 million. Most are $12 an hour warehouse and delivery positions. The company has been far and away the biggest beneficiary of the pandemic as the world rushed to online commerce.
Tesla’s (TSLA) full self-driving software may be out in two weeks, instead of the earlier indicated two years. The current version only works on freeways. The full street to street version could be worth $8,000 a car in upgrades. Another reason to go gaga over Tesla stock.
Goldman Sachs raised Tesla target to $780, the Musk increased market share to a growing market. No threat from General Motors yet, just talk. Volkswagen is on the distant horizon. In the meantime, Tesla super bear Jim Chanos announced he is finally cutting back his position. He finally came to the stunning conclusion that Tesla is not being valued as a car company. Go figure. Short interest in Tesla has plunged from a peak of 35% in March to 6% today. It’s learning the hard way.
The U.S. manufacturing sector pauses, activity in the U.S. manufacturing sector barely ticked up in November as production and new orders cratered, data from a survey compiled by the Institute for Supply Management showed on Tuesday. The ISM Manufacturing Report on Business PMI for November stood at 57.5, slipping from 59.3 in October.
Salesforce (CRM) overpays for workplace app Slack, knocking its stock down 9%. This is worth a buy the dip trade in the short-term and this is still a great tech company which is why the Mad Hedge Tech Letter sent out a tech alert on Salesforce on the dip.
Weekly Jobless Claims dive, with Americans applying for unemployment benefits falling last week to 712,000 down from 787,000 the week before. The weakness is unsurprising as we head into seasonal Christmas hiring.
The end of the tunnel for Boeing (BA) as they bring to an end an awful 2020. Irish-based airline Ryanair Holdings placed a large order for a set of brand new Boeing 737 MAX aircraft, giving the plane maker a shot in the arm as the single-aisle jet comes off an unprecedented 20-month grounding.
Ryanair, Europe’s low-cost carrier, has 135 Boeing 737 MAX jets on order and options to bring the total to 200 or more. Hopefully, they won’t crash this time around. My fingers are crossed.
Dollar Hits 2-1/2 Year Low. With global economies recovering, the next big-money move will be out of the greenback and into the Euro (FXE), the Aussie (FXA), the Looney (FXC), the Japanese yen (FXY), the British pound (FXB), and Bitcoin. Keeping interest rates lower for longer will accelerate the downtrend.
When we come out the other side of this pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!
My Global Trading Dispatch catapulted to another new all-time high. December is up 5.34%, taking my 2020 year-to-date up to a new high of 61.78%.
That brings my eleven-year total return to 417.69% or double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.00%. My trailing one-year return exploded to 64.56%. I’m running out of superlatives, so there!
I managed to catch the 50%, two-week Tesla melt-up with a 5X long position, which is always nice for performance.
The coming week will be a slow one on the data front. We also need to keep an eye on the number of US Coronavirus cases at 14.5 million and deaths at 285,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, December 7 at 4:00 PM EST, US Consumer Credit is out.
On Tuesday, December 8 at 11:00 AM, the NFIB Business Optimism Index is published.
On Wednesday, December 9 at 8:00 AM, MBA Mortgage Applications for the previous week are released.
On Thursday, December 10 at 8:30 AM, the Weekly Jobless Claims are published. At 9:30 AM, US Core Inflation is printed.
On Friday, November 11, at 9:30 AM EST, the US Producer Price Index is announced. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, at least there is one positive outcome from the pandemic. Boy Scout Christmas tree sales are absolutely through the roof! We took delivery of 1,300 trees from Oregon for our annual fundraiser expected to sell them in two weeks. We cleared out our entire inventory in a mere six days!
We sold trees as fast as we could load them. With the scouts tying the knots, only one fell onto the freeway on the way home. An “all hands on deck” call has gone out to shift the inventory.
It turns out that tree sales are booming nationally. The $2 billion a year market places 21 million trees annually at an average price of $8 and are important fundraisers for many non-profit organizations. It seems that people just want something to feel good about this year.
Governor Gavin Newsome’s order to go into a one-month lockdown Sunday night inspired the greatest sales effort I have ever seen, and I worked on a Morgan Stanley sales desk! We shifted the last tree hours before the deadline, which was full of mud with broken branches and had clearly been run over by a truck at a well-deserved 50% discount.
I can’t wait until next year!
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
