Global Market Comments
November 9, 2020
Fiat Lux
FEATURED TRADE:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or THE ROARING TWENTIES HAVE JUST BEGUN),
(SPY), (TLT), (TSLA), (CAT), (JPM), (GOLD), (UNP), (UPS), (AMGN)
Tag Archive for: (UPS)
I have a prediction to make.
If you are unhappy about the election result, the world will still turn, the sun will rise in the east and set in the west, and the moon will continue to wax and wane every month.
There, I promise I won’t talk about politics for another four years unless it’s for the Official Incline Village, Nevada Bear Wrangler.
The plywood has started coming down from storefronts in San Francisco, no doubt stored away for another day. Mass celebrations have broken out everywhere.
It is now back to the serious business of making money.
That is easy for me to do because I have just enjoyed the most profitable week in the 13-year history of the Mad Hedge Fund Trader. From the Thursday low last week, our 2020 year-to-date performance has rocketed by an eye-popping 11.46%. This was a once-in-a-decade setup and I struck while the iron was hot.
For only the third time this year, I went 100% fully invested right before the election, and every position dutifully made money across all asset classes. Stocks (SPY) and gold (GLD) soared, while the US Treasury bond market (TLT) and the US dollar (UUP) crashed. On the stock side, everything went up like the true quantitative easing, liquidity-driven market that it is.
My fundamental call on the market came true. It made no difference who won the election, the mere fact that it is over is a major positive for stocks.
With such a historic move last week, the major indexes have pulled forward performance from the rest of 2020 and possibly a piece of 2021 as well. So, I expect to see sideways chop for the next seven weeks with a slight upward bias.
I don’t need to remind the veterans out there that this is the perfect environment for vertical bull call spreads. We may stay fully invested for a while and shoot for a record performance for 2020.
The chance of a market crash now is effectively zero. If for some reason we do get a 5% pullback, for Heaven’s sake please dive in with both hands. The Roaring Twenties and the next American Golden Age have only just begun. Globalization resumes its inevitable course.
The only thing that would trigger a selloff is an exponential growth of the pandemic, which with 122,000 cases and 1,200 deaths yesterday has already started. I have believed all along that the third peak in cases will be the final hyperbolic one, with deaths eventually topping the 1919 Spanish Flu peak of 650,000.
So far, the stock market has chosen to ignore these grim numbers, preferring instead to focus on vaccine hopes. There is effectively no government in Washington until January 21, 2021 so there is no one to step in and stop it. When the market does notice, the next buying opportunity of the decade may be at hand.
Stocks started expecting a Biden Win on Monday when they exploded right out of the gate. The Volatility Index (VIX) will plunge from $40 to $24 in a heartbeat. This was the biggest post-election rally in 100 years, with a 65% voter turnout not seen since women first got to vote in 1918. Buy dips in the (SPY).
The flip side is that massive spending will create monster deficits. Abuse from Trump has prompted the world’s largest buyer of US Treasury Bonds (TLT), China, to cut back their holdings from $1.24 trillion to $1 trillion. If China won’t buy our debt, who will? Sell short the (TLT) on rallies.
The Senate is another story. If the Republicans win, it will block most Biden programs and gridlock government for two years. Gridlocked government is normally good for stocks, except when you have a global pandemic and a Great Depression. No bold action is possible.
Expect slower economic growth as a result, fewer trading opportunities, and less asset appreciation. The Senate’s main job now is to make sure Biden fails. However, if Biden takes Georgia, we won’t know for sure until two Senate runoff elections take place there in January.
Jay Powell isn’t going anywhere, so interest rates are staying at near zero for three more years, according to yesterday’s press conference. Quantitative easing is still the name of the game.
Gold has turned, with the standard 100-day correction over. New highs beckon. The drivers are US interest rates remaining near zero for years, stockpiling by foreign central banks, and a recovering US economy. Notice also that the correlation between US stocks and gold this year has been 1:11. Gold is just another quantitative easing asset class these days. I’m starting to look at silver too, which usually has much more upside volatility.
China’s PMI is up for eight months, to 51.6%, better than expected. The world’s first post-pandemic economic keeps powering on. Anything over 50 is showing expansion.
The US ISM Nonmanufacturing Index hit a two-year high in October, down from 57.5 estimated to 57.5. That’s a two-year high.
The Nonfarm Payroll Report surprises at 638,000 for October, taking the headline Unemployment Rate down to a still recessionary 6.9%. Some 268,000 government jobs were lost, including 147,000 census workers. The rest came from teachers laid off by cash-starved local governments. Leisure & Hospitality jumped by 271,000. There are still 10 million fewer employed than when the pandemic started. The news crushed the bond market, where I’m short. Keep selling rallies in the (TLT).
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 Global Trading Dispatch exploded to another new all-time high last week.
The Friday prior to election week, I picked up new longs in the (SPY), (TSLA), and (CAT). Then on Monday, I bet the ranch, going 100% “RISK ON,” throwing the dice on a post-election melt-up and adding the (TLT), (JPM), (GOLD), (UNP), (UPS), and (AMGN).
It worked in spades.
That keeps our 2020 year-to-date performance at a blistering +44.16%, versus a LOSS of -.06% for the Dow Average. That takes my 11-year average annualized performance back to +36.82%. My 11-year total return stood at new all-time high at +401.96%. My trailing one-year return appreciated to +52.23%.
The coming week will be a sleeper compared to the previous one. We also need to keep an eye on the number of US Coronavirus cases and deaths, now over 10 million and approaching 240,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, November 9 at 12:00 PM EST, US Consumer Inflation Expectations for October are out.
On Tuesday, November 10 at 7:00 AM EST, we get the NFIB Business Optimism Index for October.
Wednesday, November 11 is Veterans Day and I’ll be leading the local parade. The stock market is still open.
On Thursday, November 12 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 9:30 AM EST, the US Inflation Rate for October is released.
On Friday, November 13, at 9:30 AM EST, the US PPI for October is printed. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, driving back from Lake Tahoe, I couldn’t help but sadly notice what a terrible wreck the country is in.
Stores everywhere are shuttered and schools are closed down. Many of my favorite businesses and restaurants are gone for good. Parts are unobtainable because someone in the supply chain either went out of business or died. You can’t go anywhere without being swathed in masks and hand sanitizer.
The new president has a big job ahead of him.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 5, 2020
Fiat Lux
FEATURED TRADE:
(A NOTE ON OPTIONS CALLED AWAY),
(SPY), (UNP), (TSLA), (CAT), (JPM), (GOLD), (UPS), (AMGN), (TLT)
Global Market Comments
October 12, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BACK TO THE NIFTY FIFTY),
(CAT), (JPM), (BAC), (NSC), (UNP), (V),
(MA), (FDX), (UPS), (IP), (AAPL), (TSLA)
My daughter needed a desk so she could go to high school from her bedroom. So, I drove around Northern Nevada to get the perfect piece, visiting Reno, Sparks, Carson City, and Minden. It is one of the most conservative parts of the country, probably 90% republican.
What I saw was amazing.
There were Biden/Harris signs everywhere. Yes, there will still some Trump signs, but they were in a definite minority. Four years ago, you only saw Trump signs. The rare Clinton/Kaine sign was full of bullet holes, torn down, or copiously marked with offensive graffiti.
I thought, hmm, there must be a trade here.
We seem to be on the verge of massive changes in the US economy. Get in front of them and you’ll make a fortune. Lag behind, and you’ll be seen driving an Uber cab.
Technology undoubtedly led the decade, bringing in a 30% annual return since 2009. Industrial and other domestic stocks brought in no more than 12%. The “Roaring Twenties” could bring the reverse.
Technology will continue to do OK. Ever falling prices and greater service is a tough business model to beat. But let’s face it, none of these things are cheap. Apple (AAPL) going from a 9X multiple to 45X?
Industrials could be playing a massive catch up game initiating a new supercycle as they did from 2000-2010 when tech lagged in the wake of the Dotcom Bust.
This switch is made easier by the fact that most big industrial companies are now de facto technology ones. They all now use advanced cloud software, sophisticated robots, and state of the art distribution systems. Caterpillar (CAT) even has a 290-ton dump truck that drives itself like a giant Tesla (TSLA)!
Many of these companies I have covered for nearly 50 years, when they last belonged to the Nifty Fifty. So, for me, it’s a matter of dusting off my old research, seeing who is left, and giving them a modern spin. The great thing about these stocks is that many pay decent dividends.
I’ll give you a short list of where to buy the dips.
Banks – JP Morgan (JPM), Bank of America (BAC)
Railroads – Norfolk Southern (NSC), Union Pacific (UNP)
Credit Cards – Visa (V), Master Card (MA)
Couriers – FedEx (FDX), UPS (UPS)
Consumer Discretionary – International Paper (IP)
Hmm, a market where everything goes up. I like it! Dow 120,000 here we come!
Trump ordered all Stimulus Negotiations to cease, and then changed his mind six hours later. Clearly, the president has given up on the election and wants the next administration to inherit a Great Depression. Or is this Covid-19 talking? It’s the perfect scorched earth strategy. Write off another 2 million small businesses. Down ticket republican candidates will be beaten like a red-headed stepchild. Stocks plunged 600, with airlines in free fall, then bounced 700.
Jay Powell REALLY wants a stimulus package, claiming the economy desperately needs fiscal help to maintain a recovery or face a prolonged depression. “The risks of overdoing it seem, for now, to be small,” the central bank chief told the National Association for Business Economics. Are his pleas falling on deaf ears in Washington? Trump just gave our Fed governor the middle finger salute.
Share Buybacks vaporized T\this year and will be miniscule next year, with companies whose earnings have been crushed by the pandemic not participating. The ban on bank share buybacks imposed by the Fed continues. This has been the largest portion of net stock buying for the past decade. The good news is that foreign investors stepped in as big buyers in 2020, taking the indexes to new highs.
Apple to announce new 5G iPhone this week. The release came a month late, thanks to the pandemic. Scheduled for October 13, the event is called “High Speed”. Apple’s biggest sales quarter in history has just begun. Buy dips in (AAPL).
The Election is Noise and its best to focus on the bull market that has just begun, says JP Morgan. Record fiscal stimulus and quantitative easing in the face of near-zero interest rates create a perfect storm in favor of equities. The best stock to own going into the October 13 Prime Day?
Weekly Jobless Claims edged down to 840,000, still missing 200,000 from California, due to an upgrading computer system. California stopped reporting data so they can rebuild the antiquated computer system of the Employment Development Department, which has been breaking down due to overwhelming demand. Some 26.5 million workers are now claiming unemployment benefits.
Banks are making record trading profits on the back of the US Treasury market where volume has exploded. Even though there has been little net movement in prices in six months, the two-way bets have been enormous. It helps to have a massive home refi boom, incredible QE, and a government that is printing new debt like there’s no tomorrow.
When we come out the other side of this, 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% 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.
My Global Trading Dispatch maintained a new all-time high last week by staying 100% in cash. I was just as grateful for having no positions on the up 600-point days as I was on the down 600-point days. Safe to say that I will be an increasingly more aggressive buyer on ever smaller dips.
That keeps our 2020 year-to-date performance at a blistering +35.46%, versus a gain of 0.5% for the Dow Average. That takes my eleven-year average annualized performance back to +36.14%. My 11-year total return stood at new all-time high of +391.37%. My trailing one-year return dropped to +44.26%.
The coming week will be a dull one on the data front. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, now at 210,000, which you can find here.
On Monday, October 12 at 8:30 AM EST, the government is closed for Columbus Day so there will be no data releases, even though the stock market is open.
On Tuesday, October 13 at 9:00 AM EST, the US Inflation Rate for September is out.
On Wednesday, October 14, at 8:30 AM EST, The Producer Price Index for September is released. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
On Thursday, October 15 at 8:30 AM EST, the Weekly Jobless Claims are announced. We also get the Empire State Manufacturing Index.
On Friday, October 16, at 8:30 AM EST, US Retail Sales are printed. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, I eventually found the perfect desk on Craigslist Reno. It was from the 1930s and had once occupied the office of the Metropolitan Life Insurance Company of New York, complete with two inkwells.
The company logo was prominently displayed in its wrought iron legs. When the Metropolitan modernized its offices in the 1950s, it sold off its furniture, which has been in circulation in the antique market ever since.
I told the seller, who had just moved from the east coast, of my amazing connection with the company. My Uncle Ed spent three years on a Navy destroyer in the Pacific during WWII. Enlistees in the 1940s were required to take out life insurance policies before they went off to war.
When Ed passed away a few years ago, I went through his papers and what did I find but a life policy from the Metropolitan Life Insurance Company for $1,000.
Ever the history buff, I called the company to find out if the policy was worth anything 70 years later. It turned out to have a cash value of $100,000, which they paid out immediately. I divided the money among my mom’s 20 grandchildren to pay for their college educations. Several now have PhDs. Got to love that compounding of interest.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Bring on the Roaring Twenties
Mad Hedge Biotech & Healthcare Letter
May 7, 2020
Fiat Lux
Featured Trade:
(HOW CVS IS BASKING IN THE CORONA SUNLIGHT)
(CVS), (UPS)
Including a brand-name business to your stock investing portfolio is a wise way to handle even the steepest downturn in the history of trading.
Despite these recent catastrophic losses, history also reminds us that bear markets present buying opportunities -- with two pretty self-explanatory caveats.
One is that investors must only shell out cash to buy into high-quality businesses. The second warning is that investors should be patient in waiting for their investments to make money in the long run.
Those checking out the healthcare sector now have the opportunity to add a large-cap stock and the biggest pharmacy chain operator in the country: CVS Health (CVS).
Most of us are familiar with CVS Health since it's a widely popular retail pharmacy. Actually, CVS fulfills 1 of every 4 retail pharmacy prescriptions in the US. That’s roughly 26.6% of the entire population.
Now, my primary reason for suggesting CVS is that it’s the go-to place for customers during and even in the absence of the COVID-19 pandemic.
In a regular buying climate, the company is set to rake in long-term gains, thanks to the daily essentials in its catalog ranging from toothpaste to lifesaving prescriptions.
During this ongoing health crisis, CVS proved to be even more valuable to consumers. In fact, the company is expected to explore a new market once the country returns to its normal state.
With the spectrum of services offered by the company, CVS manages to cater to practically all the needs expected from the healthcare system.
Apart from its retail pharmacies and clinics, it also has a dedicated senior pharmacy sector that takes care of over 1 million patients every year.
CVS serves more than 37 million in terms of traditional healthcare insurance offerings while its pharmacy benefit manager operation looks after roughly 105 million individuals -- that’s nearly a third of the country’s population.
It was in late 2018 when CVS made a meaningful transaction courtesy of the acquisition of health insurer Aetna. The deal, which amounted to approximately $70 billion, was hailed as a game-changer for the retail giant.
Although it can be unusual to regard an insurance company as a fast-growing business, the addition of Aetna played a key role in CVS’ organic growth rate. This acquisition is estimated to provide a boost in the company’s sales, with the full impact of the deal expected to be realized sometime between 2020 and 2021.
In terms of revenue growth, CVS saw a 32% growth from its 2018 earnings to reach a total of $256.7 billion in 2019. Realistically though, this may not be the typical growth pace for the company. The jump may be primarily due to the Aetna deal.
CVS Health’s largest segment is still its pharmacy services division, which generated $141.5 billion in sales, recording a net income of $5.1 billion. Its retail sector raked in $86.6 billion while its healthcare benefits sector brought in $69.6 billion.
For 2020, CVS is anticipated to have a cash flow somewhere between $10.5 billion and $11 billion.
Although its business has been doing quite well despite the pandemic, with the company adding 50,000 positions just last March, CVS remains on the lookout for interesting business ventures.
One of its recent experiments is working with UPS (UPS) in the latter’s drone service called UPS Flight Forward. Basically, the two companies joined forces to fly prescription drugs to the customers in a Florida retirement community.
The “test” community is the biggest retirement community in the US called The Villages. This is located near Orlando, which is home to more than 135,000 residents.
This joint effort is anticipated to bolster the demand in nearby areas as well, with CVS and UPS eyeing the expansion of their operations in a month or so.
With almost 9,900 retail branches, 1,100 walk-in clinics across the country, and the addition of this new partnership with UPS, CVS has definitely earned its title as the “trust front door to healthcare.”
Pharmacies are not considered exciting businesses. Basically, these are convenience stores that just happen to offer prescription drugs as well.
Although that might be true, CVS Health is not your run-of-the-mill pharmacy. Truth be told, the chain’s terrifying efficiency is gradually replacing your doctor.
At the moment, CVS pays its shareholders $0.50 in dividends every quarter. While the payouts have not increased since 2017, the dividend still yields a decent 3.2% annually. It’s a respectable payout and one that’s not in any imminent danger despite the ongoing crisis.
Taking into consideration its valuation, CVS Health can be purchased for roughly over 7 times its Wall Street profit estimate for 2021.
No company of this caliber has been this cheap in the past decade.
Mad Hedge Technology Letter
December 2, 2019
Fiat Lux
Featured Trade:
(THE DRONE WARS HAVE STARTED),
(DJI), (AMZN), (WMT), (UBER), (GOOGL), (FDX), (UPS)
Drones whip by like mini whirling dervishes but are actually hardworking aerial robots that carry out surveillance and inspections for utilities, construction sites, airplanes, and trains from onboard cameras.
Drone delivery appears to be the next transportation bottleneck in the e-commerce wars as Amazon (AMZN) and Uber (UBER) pile capital investment into the technology.
In 2013, Founder and CEO of Amazon Jeff Bezos audaciously said that Amazon would have drone delivery operational by 2018.
But the Federal Aviation Administration (FAA) did not acquiesce to Bezos’s ambitious timeline.
Progress has been slow.
When it comes to consumer appetite, the demand for drones will be voracious but only if delivered in a way to add value to the customer experience.
The last thing the world needs is billions of unmanned drones polluting the sky and parked in the sky.
More than 60% of consumers would accept the delivery of dry goods through a drone delivery service, it contrasts to only 26% of fresh produce or meat.
Clearly, fresh foods are more complicated to deliver because of temperature requirements to accommodate the products, and more R&D will need to take place to find a solution.
“When we (Amazon) have a full drone fleet, you'll be able to order anything and get it in 30 minutes if you live near a hub that's serviced by drones," said Amazon’s CEO of Worldwide Consumer Jeff Wilke
Amazon has spent more than six years developing drones which may one day drop packages in backyards assuming regulators green light it.
Timely delivery is important but the diversity of products that can be delivered is just as important.
This is not a one-size-fits-all solution.
Amazon has already ravaged through more than $35 billion on shipping costs this year, more than double what it spent two years ago.
It is yet to be determined whether the four-wheeled delivery robots they are testing that roll on sidewalks will ultimately be slipped into the delivery process, but at least they are making headway and allocating new resources to it by announcing plans for a new facility outside Boston to design and build robots.
Major companies such as Alphabet (GOOGL), FedEx (FDX) and UPS (UPS) are all investing in drone delivery all hoping to be the ones to lead this industry in the future.
The drone battles are taking place under the backdrop of military and political gamesmanship because drones have a large and legitimate role in military affairs.
Even though America’s e-commerce companies hope to take drones and nicely fit it into their delivery service, America is not even close to dominating.
One word – China.
The US-China Economic and Security Review Commission recommended that the US government promote advanced manufacturing and robotics technologies, monitor China’s advances, review bilateral investments and cooperation, and consider closely vetting proprietary academic research.
The Shenzhen, China-based drone company DJI Technology is the dominant worldwide market leader in the civilian drone industry, accounting for over 75% of the global drone market.
In 2017, the U.S. Army banned the military application of DJI drones because the Pentagon was worried that DJI would leak data to the Chinese government.
In 2018, the Defense Department banned the purchase of all commercial off-the-shelf unmanned aircraft system (UAS).
An amendment from Sen. Chris Murphy in the 2020 defense policy bill would ban all Chinese-made drones and Chinese-manufactured parts from military purpose.
DJI’s dramatic rise in the drone race has been nothing but breathtaking dwarfing Western competitors such as France’s Parrot.
They are cost-effective, making them the go-to product for individual consumers.
China has not only succeeded in pulling ahead in the drone wars, but are also pushing the envelope in areas like hypersonic weapons, artificial intelligence, and 5G.
The U.S. military has limited options now because of a generation of underinvestment and inactivity causing a dwindling of U.S. supply of the smallest class of unmanned aerial systems (UASs) that are needed for reconnaissance missions.
DJI has a near-monopoly for one of the most important pieces of technology moving forward.
“We don’t have much of a small UAS industrial base because DJI dumped so many low-price quadcopters on the market, and we then became dependent on them,” said Ellen Lord, the Pentagon’s chief weapons buyer. “We want to rebuild that capability,” she added.
China’s DJI was hit by the recent tariff tsunami levied by the U.S. administration and the drone maker has decided to pass on the cost to the consumer.
DJI has also been banned from bidding for any U.S. military contracts because the Trump administration has concerns that DJI is a national security threat.
DJI reacted to the move by commenting that they are “obviously false” and is “unsubstantiated speculation.”
The second tranche of tariffs, which is scheduled to go live on December 15th, will put an additional 15% tariff on virtually everything that comes to the United States from China, including laptops, smartphones, and drones.
The DJI Mavic Air, now costs $919 on Best Buy instead of $799. Similarly, the DJI Mavic 2 Pro which I have crowned as the best drone to buy in 2019 will cost $1,729, up from $1,499.
Apart from DJI, China has state money pouring into the sector with the most cutting-edge drone technology in the works called Tianyi quadcopter built by a subsidiary of a state aerospace corporation.
It is designed to carry out ground-level reconnaissance and hyper-targeted strikes in cities.
The unmanned aerial vehicles (UAV) are still in the works, but once ready, could be available on the international market as a cheap and versatile option widening the gulf between America’s military in drone technology.
The drone is designed to be controlled by soldiers on the ground, has an operational distance of 5km (3 miles) and has a vertical range of 6km.
It will be loaded with infrared and laser detectors to enable night surveillance operations and is armed with two 50mm rockets designed to strike from up to 1km.
Sadly, there are no quality drone plays on the American public markets that I can confidently recommend.
The seriousness of the lack of investment really appears in the weakness of U.S. military drone capabilities and on the consumer side of things, drones will be a supercharger input to revenue growth for the likes of Walmart (WMT), Amazon, and the e-commerce companies.
It might be time to wake up and support the creation of a national champion in this critical technology then spin off the commercial synergies in similar fashion to how the personal computer and the internet developed.
The longer we wait, the further we fall behind.
DJI Mavic Air for $919
Mad Hedge Technology Letter
May 30, 2019
Fiat Lux
Featured Trade:
(IS TARGET THE NEXT FANG?)
(TGT), (AMZN), (WMT)
