Global Market Comments
October 21, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE FORK IN THE ROAD),
(SPY), (TLT), (WMT), (GM), (FXI), (NFLX)
Tag Archive for: (TLT)
I usually don’t pay attention to technical analysis. It is the last refuge of the inexperienced and the uneducated.
However, I don’t ignore it either.
And that sets of a quandary for investors today. For on the one hand, the economic data couldn’t be worse, pointing to a certain trade war-induced recession sometime in 2020.
On the other hand, look at the chart for the S&P 500 (SPY) below and you can see that stocks have been in a clear uptrend for 2 ½ months. Another few weeks, and we might see a breakout to new all-time highs. Or, we might get a false breakout driven by algorithms only and then collapse to new 2019 lows.
Welcome to my world.
While my recent track record may say otherwise, I actually don’t know what markets are going to do every day of every week. And when I don’t know what to do, I do nothing. That’s especially easy to do now with my Mad Hedge Market Timing Index at a dead on neutral position of 50.
Of course, the elevated level of share prices could be the result of ultra-low interest rates and a complete lack of viable alternatives. At 11.9% dividend yield, US stock are among the highest yielding financial instruments in the world. At this year’s 15% capital gain and they are especially compelling, particularly to the many foreigners earning negative interest rates.
In the meantime, I wait for the markets to tell me what to do. I’m basically looking for a higher high to sell into, or a lower low to buy.
The IMF Downgraded Global Growth, from 3.2% to 3% and trade gets the blame. At 2.5% growth, many major economies will be in recessions. Risks are to the downside. More than 90% of the Global Economy is Slowing. It's the worst forecast since 2008.
Bank earnings were mixed, with JP Morgan taking the lead with record revenues and credit card revenues the big winners. Goldman Sachs (GS) looks awful due to failing mergers and acquisitions. Wells Fargo is worse. Trading revenues are the drag.
Retail Sales dove off a surprising 0.3% in September when a 0.3% jump was expected. The individual shopper has been the sole support of the economy this year and when they bail the stock market will hate it.
A Brexit deal is finally on the table, but will Parliament vote for it? I doubt it. If they do, it will be a huge “RISK ON” development. This just could be like Trump announcing another China trade deal. If Brexit lives, Scotland will almost certainly vote to leave the United Kingdom and join Europe.
US Housing Starts fell in September from a 12-year high, down 9.4% to 1.256 million units. The mid-Atlantic gets the blame. Land and labor shortages are a problem.
The GM Strike (GM) is settled and the union probably will vote for it. The strike has definitely been a drag on the US economy. Part of the deal involved closing three old high cost US plants. It’s tough to vote against economic reality.
China’s Economy (FXI) slowed to a 6% growth rate as the trade war drags on business there. That’s a 30-year low. Export demand for US products is plunging. Almost every economic indicator is in decline. Not only is China one of America’s largest customers, it is also Europe’s. The data definitely put the kibosh on the week’s rally.
Netflix soared on an earnings beat, soaring 9%. It looks like it is too early to write off the inventor of movie streaming. I guess a 20-year head start still counts for something. But I am staying away anyway.
I hate to be boring, but my Mad Hedge Trader Alert Service has scored yet another new all-time high. In fact, I have hit new highs almost every day for the last three months. Worse yet, my thesaurus is running out of metaphors for “new high.”
My Global Trading Dispatch reached new pinnacle of +349.64% for the past ten years and my 2019 year-to-date accelerated to +49.50%. The notoriously volatile month of October stands at a blockbuster +12.08%. My ten-year average annualized profit clawed its way up to +35.56%. If I make any more than this, no one will believe it, a frequent problem during my hedge fund days.
Some 28 out of the last 29 trade alerts have made money, a success rate of a stunning 96.55%! Under promise and over deliver, that is the business I have been in all my life. It works. This is rapidly turning into the best year of the decade for me. It is all the result of me writing three newsletters a day, and doing research for 12.
With my Mad Hedge Market Timing Index sitting around the neutral 50 level, there was very little to do this week but take profits on existing positions. Nothing like watching the money roll in. It’s like having a rich uncle write you a check once a month.
All I am left with after the October 18 option expiration is 80% cash and short positions in Wal-Mart (WMT) and the S&P 500 (SPY).
The coming week is pretty non-eventful of the data front. Maybe the stock market will be non-eventful as well.
On Monday, October 21 at 2:00 PM, the US monthly Budget Statement for September comes out, most likely showing a horrific $200 billion deficit.
On Tuesday, October 22 at 10:00 AM, Existing Home Sales are out for September.
On Wednesday, October 23 at 10:30 AM, EIA Energy Stocks are published.
On Thursday, October 24 at 8:30 AM, US Durable Goods are out. Weekly jobless claims are out at the same time.
On Friday, October 25 at 10:00 AM, the University of Michigan Consumer Sentiment is announced. The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I'll be driving up to Lake Tahoe to start organizing my October 25-26 conference, briefly stopping at Vacaville for breakfast at Mel’s Drive In and a top up charge for my Tesla Model X to make the climb over Donner Pass. First on the list is to unload there my five cases of vintage wine so it can adjust to the altitude.
Oh, and I haven’t had time for a haircut since I left for Australia four months ago. My kids are starting to call me a hippie.
The Mad Hedge Lake Tahoe Conference begins that night. Tickets are available by clicking here.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 4, 2019
Fiat Lux
Featured Trade:
(LAST CHANCE TO BUY THE NEW MAD HEDGE BIOTECH AND HEALTH CARE LETTER AT THE FOUNDERS PRICE)
(SEPTEMBER 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (VIX), (USO), (ROKU), (TLT), (BA), (INDU),
(GM), (FXI), (FB), (SCHW), (IWM), (AMTD)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 2 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Would you do the S&P 500 (SPY) bull call spread if you didn’t have time to enter the short leg yesterday?
A: I would, because once again, once the Volatility Index (VIX) gets over $20, picking these call spreads is like shooting fish in a barrel. I think the long position I put on the (SPY) this morning is so far in the money that you will be sufficiently safe on a 12-day and really a 2-week view. There is just too much cash on the sidelines and interest rates are too low to see a major December 2018 type crash from here.
Q: I could not come out of the United States Oil Fund (USO) short position—should I keep it to expiration?
A: Yes, at this point we’re so close to expiration and so far in the money that you’d need a 30% move in oil to lose money on this. So, run it into expiration and avoid the execution costs.
Q: How do you see TD Ameritrade (AMTD) short term?
A: Well, it was down approximately 25% yesterday, so I would buy some cheap calls and go way out of the money so as not to risk much capital—on the assumption that maybe next week into the China trade talks, we get some kind of rally in the market and see a dramatic rise. 25% does seem extreme for a one-day move just because one broker was cutting his commissions to zero. By the way, I have been predicting that rates would go to zero for something like 30 years; that’s one of the reasons I got out of the business in 1989.
Q: Would you consider buying Roku (ROKU) at the present level?
A: Down 1/3 from the top is very tempting; however, I’m not in a rush to buy anything here that doesn’t have a large hedge on it. What you might consider doing on Roku is something like a $60-$70 or $70-$80 long-dated call spread. That is hedged, and it’s also lower risk. Sure, it won’t make as much money as an outright call option but at least you won’t be catching a falling knife.
Q: Will we see a yearend rally in the stocks?
A: Probably, yes. I think this quarter will clear out all the nervous money for the short term, and once we find a true bottom, we might find a 5-10% rally by yearend—and I’m going to try to be positioned to catch just that.
Q: At which price level do you go 100% long position?
A: If we somehow get to last December lows, that’s where you add the 100% long position. And there is a chance, while unlikely, that we get down to about 22,000 in the Dow Average (INDU), and that’s where you bet the ranch. Coming down from 29,000 to 22,000, you’re essentially discounting an entire recession with that kind of pullback. But we’re going to try to trade this thing shorter term; the market has so far been rewarding us to do so.
Q: The United States Treasury Bond Fund (TLT) looks like it’s about to break out. How do you see buying for the November $145 calls targeting $148?
A: We are actually somewhat in the middle of the range for the (TLT), so it’s a bit late to chase. We did play from the long side from the high $130s and took a quick profit on that, but now is a little bit late to play on the long side. We go for the low-risk, high-return trades, and $145 is a bit of a high-risk trade at this point. I would look to sell the next spike in the (TLT) rather than buy the middle where we are now.
Q: Will Boeing (BA) get recertified this year?
A: Probably, yes—now that we have an actual pilot as the head of the FAA—and that will be a great play. But if the entire economy is falling into a recession, nothing is a good play and you want to go into cash if you can’t do shorts. That would give us a chance to buy Boeing back closer to the $320 level, which was the great entry point in August.
Q: Do you expect General Motors (GM) shares to bounce if they settle with the union on their strike?
A: Maybe for a day or two, but that’s it. The whole car industry is in recession already. The union picked the worst time to strike because GM has a very high 45-day inventory of unsold cars which they would love to get rid of.
Q: What are the chances of a deal with China (FXI)?
A: Zero. How hard do the Chinese really want to work to get Trump reelected? My guess is not at all. We may get the announcement of a fake deal that resumes Chinese agricultural purchases, but no actual substance on intellectual property theft or changing any Chinese laws.
Q: Will they impeach Trump?
A: Impeach yes, convict no; and it’s going to take about 6 months, which will be a cloud hanging over the market. The market’s dropped about 1,000 points since the impeachment inquiry has started.
Q: What about the dollar?
A: I'm staying out of the dollar due to too many conflicting indicators and too much contra-historical action going on. The dollar seems high to me, but I’ve been wrong all year.
Q: E*Trade (ETFC) just announced free stock trading—what are your thoughts?
A: All online brokers now pretty much have to announce free trading in order to stay in business, otherwise you end up with the dumbest customers. It’s bad for the industry, but it’s good for you. The fact that all of these companies are moving to zero shows how meaningless your commissions became to them because so much more money was being made on selling your order flow to high frequency traders or selling your data to people like Facebook (FB).
Q: What’s your take on the Canadian dollar (FXC)?
A: It will go nowhere to weak, as long as the US is on a very slow interest rate-cutting program. The second Canada starts raising rates or we start cutting more aggressively is when you want to buy the Loonie.
Q: Fast fashion retailer Forever 21 went bankrupt—is it too late to short the mall stocks?
A: No but be very disciplined; only short the rallies. Last week would have been a good chance to get shorts off in malls and retailers. You really need to sell into rallies because the further these things go down, the more volatility increases as the prices go low. Obviously, a $1 move on a $30 stock is only 3% but a $1 move on a $10 stock is 10%. If you’re the wrong way on that, it can cost you a lot of money, even though the thing’s going to zero.
Q: Comments on defense stocks such as Raytheon (RTN)?
A: This is a highly political sector. If Trump gets reelected, expect an expansion of defense spending and overseas sales to Saudi Arabia, which would be good for defense. If he doesn’t get reelected, that would be bad for defense because it would get cut, and sales to places like Saudi Arabia would get cut off. I stay out of them myself because it’s essentially a political play and we’re very late in the cycle.
Q: Mark Zuckerberg says presidential candidate Elizabeth Warren’s proposal is an existential threat. Do you agree with him and her policies? Will they crash the economy?
A: They would be bad for the economy; however, I think it’s highly unlikely Warren gets elected. The country’s looking for a moderate president, not a radical one, and she does not fit that description. If you did break up the Tech companies, they’d be worth more individually than they are in these great monolithic companies.
Q: Does the Russell 2000 (IWM) call spread look in danger to you?
A: It’s a higher risk trade, however we are hedged with that short S&P 500, so we can hang onto the long (IWM) position hedging it with your short S&P 500 (SPY) trade reducing your risk.
Q: What do you have to say about shrinking buybacks?
A: It’s another recession indicator, for one thing. Corporate buybacks have been driving the stock market for the last 2 years at around a trillion dollars a year. They have suddenly started to decline. Why is that happening? Because companies think they can buy their stocks back at lower levels. If companies don't want to buy their stocks, you shouldn’t either.
Q: When is the time for Long Term Equity Anticipation Securities (LEAPS)?
A: We are not in LEAPS territory yet. Those are long term, more than one-year option plays. You really want to get those at the once-a-year horrendous selloffs like the ones in December and February. We’re not at that point yet, but when we get there, we’ll start pumping out trade alerts for LEAPS for tech stocks like crazy. Start doing your research and picking your names, start playing around with strikes, and then one day, the prices will be so out of whack it will be the perfect opportunity to go in and buy your LEAPS.
Q: Was it a Black Monday for brokerages when Charles Schwab (SCHW) cut their commission to zero?
A: Yes, but it’s been one of the most predicted Black Mondays in history.
Q: Will the Fed save the market?
A: I would think they have no ability to save the market because they really can’t cut interest rates any more than they already have. There really are no companies that need to borrow money right now, and any that does you don’t want to touch with a ten-foot pole. The economy is not starved for cash right now—we have a cash glut all over the world—therefore, lowering interest rates will have zero impact on the economy, but it does eliminate the most important tool in dealing with future recessions. You go into a recession with interest rates at zero, then you’re really looking at a great depression because there’s no way to get out of it. It’s the situation Europe and Japan have been in for years.
Good Luck and Good Trading
John Thomas
CEO $ Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 2, 2019
Fiat Lux
Featured Trade:
(TEN MORE REASONS WHY BONDS WON’T CRASH),
(TLT), (TBT), (ELD), (MUB)
(COFFEE WITH RAY KURZWEIL), (GOOG)
I have never been one to run with the pack.
I’m the guy who eternally marches to a different drummer, not in the next town, but the other hemisphere.
I would never want to join a club that would lower its standards so far that it would invite me as a member. (Groucho Marx told me that just before he died).
On those rare times that I do join the lemmings, I am punished severely.
Like everyone and his brother, his fraternity mate, and his long-lost cousin, I thought bonds would fall this year and interest rates would rise.
After all, this is normally what you get in the eleventh year of an economic recovery. This is usually when corporate America starts to expand capacity and borrow money with both hands, driving rates up.
Of course, looking back with laser-sharp 20/20 hindsight, it is so clear why fixed income securities of every description have refused to crash.
I will give you 10 reasons why bonds won’t crash. In fact, they may not reach a 3% yield for decades.
1) The Federal Reserve is pushing on a string, attempting to force companies to increase hiring, keeping interest rates at artificially low levels.
My theory on why this isn’t working is that companies have become so efficient, thanks to hyper-accelerating technology, that they don’t need humans anymore. They also don’t need to add capacity.
2) The U.S. Treasury wants low rates to finance America’s massive $22.5 trillion and growing national debt. Move rates from 0% to 6% and you have an instant financial crisis, and maybe even a government debt default.
3) Constant tit-for-tat saber-rattling by the leaders of China and the United States has created a strong underlying flight to safety bid for Treasury bonds.
The choices for 10-year government bonds are Japan at -0.25%, Germany at -0.50%, and the U.S. at +1.62%. It all makes our bonds look like a screaming bargain.
4) This recovery has been led by consumer spending, not big-ticket capital spending.
5) The Fed’s policy of using asset price inflation to spur the economy has been wildly successful. But bonds are included in these assets, and they have benefited the most.
6) New rules imposed by Dodd-Frank force institutional investors to hold much larger amounts of bonds than in the past.
7) The concentration of wealth with the top 1% also generates more bond purchases. It seems that once you become a billionaire, you become ultra conservative and only invest in safe fixed-income products. The priority becomes “return of capital” rather than “return on capital.”
This is happening globally. For more on this, click here for “The 1% and the Bond Market.”
8) Inflation? Come again? What’s that? Commodity, energy, precious metal, and food prices are disappearing up their own exhaust pipes. Industrial revolutions produce deflationary centuries, and we have just entered the third one in history (after No. 1, steam, and No. 2, electricity).
9) The psychological effects of the 2008-2009 crash were so frightening that many investors will never recover. That means more bond buying and less buying of all other assets.
10) The daily chaos coming out of Washington and the extreme length of this bull market is forcing investors to hold more than the usual amount of bonds in their portfolios. Believe it or not, many individuals still adhere to the ancient wisdom of owning their age in bonds.
I can’t tell you how many investment advisors I know who have converted their practices to bond-only ones.
Call me an ornery, stubborn, stupid old man.
Hey, even a blind squirrel finds an acorn once a day.
Global Market Comments
September 27, 2019
Fiat Lux
Featured Trade:
(IF BONDS WON’T GO DOWN, STOCKS CAN’T EITHER),
($NIKK), (TLT), (TBT), ($TNX),
(TESTIMONIAL)
Global Market Comments
September 25, 2019
Fiat Lux
Featured Trade:
(I HAVE AN OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE),
(HOW THE RISK PARITY TRADERS ARE RUINING EVERYTHING!),
(VIX), (SPY), (TLT),
(TESTIMONIAL),
Global Market Comments
September 23, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GRIDLOCKED),
(MSFT), ($INDU), (SPY), (TLT), (GM)
Market’s are gridlocked.
Traders don’t want to chase the market at an all-time high on top of a 2,000-point rally. They don’t want to sell short either since a Tweet could come out at any time triggering a squeeze.
Will the trade war continue for another week or a year?
On top of all that, we have a president who attempts to manipulate the market more than any in history.
And here is the problem. While the major indexes remain dead unchanged over the past 18 months, earnings have been falling. That has made them more expensive than at any time over the past several years.
And this is in the face of an onslaught of negative economic data that continues to deteriorate by the day, all caused by the trade war.
So, as a result, there is nothing to do here. The market is too high to buy and too low to sell. Clients call me with trade ideas, and I tell them they are reaching. There is nothing worse than reaching for the marginal trade when there is really nothing to do.
At least I’ll have something to do in the coming week. I’ll be launching the Mad Hedge Biotech and Health Care Letter, the newest addition to our family of research services. In addition to technology, I expect Biotech and Health Care to be one of the top-performing sectors in the coming decade.
I have taken out a full-time researcher in the field who has been grinding out reports for me since January 1. The invitation to the webinar should reach you in a few days where I will explain why keeping up with this sector is so important.
There is no law that says you have to have a trade on every day of the year. Cash is beautiful. Better than that, cash has option value. It’s worth a fortune to have dry powder when markets meltdown or melt-up. You get to catch other investors’ trades when they are puking. That is the best time ever to make money.
When my four technology positions expired at their maximum profit point on Friday, I celebrated. I went down to a bankruptcy sale for an antique store in Berkeley and bought a vintage Champaign magnum bottle for $10.
The week was kicked off by mass drone strikes that took out Saudi oil production, axing 6 million barrels a day off the global market. Half of that will be back in a day. Oil prices spike $10, the largest one-day move in history. This is clearly the end result of the US unilaterally pulling out of the US Iran Nuclear Agreement and the economic sanctions that followed, thus inviting retaliation.
General Motors (GM) workers struck, with 48,000 hourly workers hitting the picket lines. The last strike in 1998, also at a market top, lasted for 54 days. Could be this the long-awaited inflationary run-up in wages? Expect many more strikes to come.
China’s economy slowed, with Industrial output up 4.4%, the slowest since 2002. Trade war impacts will keep hitting the economy for months to come. The bad news? Business is not responding to recent stimulus and, with 70% of the country’s oil originating in Saudi Arabia, they now have a bigger headache.
Recreational Vehicle sales are falling off a cliff, down 22% YOY, as consumer cut back discretionary spending. It’s another reliable pre-recession indicator.
Recession fears are the highest in a decade, according to the Bank of America Merrill Lynch fund manager survey. Some 38% of managers are making the bear call versus 34% in August. Only 7% of managers expect value to outperform growth over the next 12 months.
Some 53% of CFOs think we’ll be in a recession in a year, and 67% by end 2020. These are the highest pessimism numbers in a decade. Germany already in recession is the largest concern, followed by a slowing China. It’s all linked. We are all one global economy, like it or not.
Philly Fed plunged, from 16.8 to 12.0, indicating fading business confidence. The trade war universally gets the blame. Notice how nervous everyone is getting.
Apple got tagged with a $14 billion fine in another “not invented here” penalty issued by the Irish government. It’s another attack on American big tech. Apple says they followed Irish tax law to the letter.
The Fed cut a quarter but talks down future rate hikes. Buy the rumor, sell the news. Probably no rate cut for October, so December is the next time we get a swing at the piñata. This will have zero effect on the economy, but further punishes savers.
Microsoft (MSFT) announced a $40 billion share buyback and raises its dividend by 11%. It’s a huge positive for the company and the market in general. I’ll try to buy the Thursday opening if it doesn’t open up at a stupid price. Buy Seattle real estate….and more Microsoft. Bill Gates’ creation has bought back 25% of its shares over the past decade.
The Mad Hedge Trader Alert Service still doing well in this indecisive market. My Global Trading Dispatch reached a new all-time high of 336.07% and my year-to-date ground up to +35.83%. My ten-year average annualized profit bobbed up to +34.57%.
I took profits in my long bond position (TLT) earlier in the week, capturing a four-point rally there. I am left with my short position in oil (US), which needs a $9 a barrel move against it to lose money. That should be fine as long as there is not another attack on the Saudi oil fields.
It is interesting to note that this ramped up the implied volatilities on oil options going into the Friday close over fears of just such an event. We will get all that back at the Monday morning opening….as long as the weekend proves peaceful.
On Monday, September 23 at 8:30 AM, the Chicago Fed National Activity Index for August is out.
On Tuesday, September 24 at 9:00 AM, the S&P Case-Shiller National Home Price Index is updated, for July.
On Wednesday, September 25, at 8:30 AM, we learn August New Home Sales.
On Thursday, September 26 at 8:30 AM, the Weekly Jobless Claims are printed. We also obtain the final read for Q2 GDP.
On Friday, September 27 at 8:30 AM, the August Durable Goods is printed. The Baker Hughes Rig Count is released at 2:00 PM.
As for me, I’ll be doing a ten-mile backpack through Point Reyes National Seashore with a 60-pound pack and feasting on freeze-dried food in front of a campfire. Got to remain bootcamp-ready. You never know when Uncle Sam is going to come calling again.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
