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The Market Outlook for the Week Ahead, or a Dicey Landing

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

November 27, 2020

Diary, Newsletter, Summary

Global Market Comments
November 27, 2020
Fiat Lux

FEATURED TRADE:

(NOVEMBER 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (CRM), (CRSP), (CVS), (SQ), (CRSP), (LUV), (GLD). (SLV), (SPY), (TMO), (UUP), (TAN), (FXA), (FXE), (FXY), (FXB), (CYB)

November 25 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the November 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis.

Q: Is gold (GLD) still a hold?

A: Long term yes; short term no. Short term, cash is being drained out of gold in order to buy Bitcoin, just like silver. And once Bitcoin peaks, which could be today or tomorrow when it hits 20,000, then you could get a round of profit-taking and a nice little pop in gold. So, it's basically moving totally counter-cyclically to Bitcoin and the other cryptocurrencies right now.

(Note: since this webinar, Bitcoin has crashed by $3,000)

Q: A competitor of yours claims that asymptomatic transmission of COVID does not occur.

A: I would bet money that person does not have a medical degree. Asymptomatic transmission occurs in almost all diseases, so why COVID would be an exception is beyond me. I suggest that somebody is trying to sell newsletters at your expense with zero knowledge about the topic. Ask him to kiss a Covid victim. This is common in my industry where 99% of the people are crooks. This is also an example of the vast amounts of information that have been spread during an election year.

Q: Will you take a vaccine when it’s out or will you let others try it first?

A: Actually, by the time the public gets the vaccine, more than a million people will have already tried it, so I think it will be fairly safe. I am probably already the most vaccinated person on the planet; I've had flu shots every year for 40 years, so I will happily try it out. At my age, I have little to lose. And I would like to travel again, and that’s going to be a requirement for international travel. I am worried there could be long term side effects that we’ve seen with other drugs in the past, like all future children being born without arms and legs, which is what happened in the 1950s with Thalidomide.

Q: If the Senate flips to the Democrats, how do you see it affecting the market?

A: It doesn’t really affect the market overall; what it will do is affect sector reallocation. Solar, alternative energy and ESG companies do a lot better in A Democratic Senate, and energy oil companies do a lot worse. All you do is short the losers and buy the winners; it really makes no difference who wins. Most of the big conflicts over issues these days are social ones that don’t affect the market.

Q: Where do you see Tesla (TSLA) by the end of the year?

A: Well, this morning, it’s at an all-time high of $565. It looks like it wants to take a run at $600, and then we will be up 50% from where the news was announced that it was joining the S&P 500. That seems to me like a heck of a move on no real fundamental news. During this news, the market completely ignores a Model X recall and a Model Y pan from Consumer Reports. I would be inclined to take profits there or at least roll the strikes up on my options positions.

Q: What’s a good stock to play a commodity recovery?

A: You can’t do any better than Freeport-McMoRan (FCX), which I’ve been following for almost 50 years since I covered it for the Australian Financial Review newspapers.

Q: Will Salesforce (CRM) hold?

A: Yes, it’s just a matter of time before we break out to substantial new highs, and this is a stock that could double next year.

Q: What brokers do you suggest?

A: I would pick tastytrade. Click here for their site.

Q: Is CVS (CVS) a good buy?

A: I would say yes; a billion Covid-19 vaccine doses will need to be distributed next year. You can't do that without all the drug companies participating big time.

Q: Does Trump have a chance to win in his lawsuits?

A: It’s more likely that I will be elected the next Miss America; so, I wouldn’t place any bets on that. Some 30 consecutive Republican judges ruling against him does not augur well for his future.

Q: Would you buy any LEAPS here (Long Term Equity Participation Securities)?

A: Only in special one-off situations in the domestic stocks that haven’t moved in ten years. There are a lot of those out there now that I have been recommending. Those are all fertile territory for LEAPs, especially going out 2 years where you get the maximum bang for the buck and a 1,000% return. Don’t touch LEAPs in technology stocks here, and don’t touch Tesla in LEAPs.

Q: What’s your outlook on Southwest Air (LUV)?

A: I like it; it’s one of the healthiest domestic airlines most likely to come back.

Q: Are you going to update your long-term portfolio?

A: Yes, but I only update it twice a year and my next turn is on January 22. If you bought the last update on July 22, you made a fortune getting into Freeport McMoRan at $12 (it’s now $23), CRISPER Therapeutics at $80 (CRSP) (it’s now $110), and Square (SQ) at $110 (the current is $212). You can find it by logging into www.madhedgefundtrader.com, going to My Account, clicking on Global Trading Dispatch, on the drop-down menu, click on the Long-Term Portfolio tab and then clicking on the red tab for the Long-Term Portfolio. That lets you download an excel spreadsheet.

Q: Do you have any LEAPS to suggest now?

A: I only put out portfolios of LEAPS at giant market bottoms like we had in March. Then I put out lists and lists of LEAPS. At all-time highs, it’s not good LEAPS territory, except for specific names. So, if you want to get involved in that on a regular basis, I suggest you sign up for our Mad Hedge Concierge Service. There they are making millions of dollars a week right now.

Q: Where does the US dollar (UUP) go from here?

A: Straight down; the outlook for the buck couldn't be worse. I would be selling short the US dollar like crazy right now except that there are much better trades in US equities.

Q: Just to be clear, there’s no voter fraud?

A: There’s probably never been an election in US history without voter fraud on all sides; it’s just a question of who’s better at it. In the 1948 Texas Democratic Party runoff, back when the party owned Texas, Lyndon Johnson won by 87 votes out of 988,295 cast. It was later found that in five Hispanic-dominated counties that bordered Mexico, everyone had voted 100% for Johnson ….in alphabetical order. Johnson then took the seat with a 66% margin and went on to dominate the US Senate. I remember in the 1960 election, all the military absentee votes were sent flying around in circles over the Atlantic so Kennedy would win; that’s a story that’s been out there for a long time.

Q: You said stay away from other EVs except for Tesla?

A: A few have gone crazy this week, but that doesn’t mean they can actually make a car. So, you might get lucky on a quick trade on some of these, but long term, I don’t think any of the other non-Tesla EV companies are going to make it except for General Motors, which is plowing $27 billion into the sector. Even if (GM) may be able to put out a lot of cars, but they won’t be able to make very much money at it because they’re nowhere near the neighborhood of Tesla with the software where all the money is made.

Q: As the dollar gets weaker, will you expand your international stock picks?

A: Yes, we put out the first one in a long time, Ali Baba (BABA), on Monday, and we’ll be adding to that a bunch. I think the dollar could be weak for 5 or 10 years, a lot like it was in the 1970s.

Q: What’s your outlook for silver (SLV)?

A: Same as for gold (GLD). Quiet for the short term, double for the long term.

Q: Favorite names in biotech?

A: For that, you really need to subscribe to the biotech letter; we’re giving you two names a week there and all of them have done great. But another one might be Thermo Fisher (TMO), which seems to double every time I recommend it. It’s a great takeover target too.

Q: Is there any possibility of a 30% dip in the market (SPY) in 2021?

A: No, I don’t see more than a 10% dip in 2021. The tailwinds now are gale-force, generational, and will run for a decade.

Q: How do you sell the US dollar rally?

A: You buy all the ETFs that we cover in our foreign exchange sections. Those are the Australian dollar (FXA), the Euro (FXE), the Japanese Yen (FXY), the British pound (FXB), and the Chinese Yuan (CYB). Those are five ETFs that will do well on a weak dollar for the next several years.

Q: What about the Invesco Solar ETF TAN?

A: We have been recommending (TAN) for many years and it has done spectacularly well. I still love it long term, but it’s had one heck of a run; it’s up 300% from the March low. I think the entire country is about to have a solar explosion because the costs are now quite simply less than for oil. It’s an economic question. We are going to an all-Electric America.

Q: What do you think about LEAPS on gold?

A: It’s not really LEAPs territory yet, but on a two-year view, you’d have to do well on gold LEAPs.

Q: Is the Invesco DB US Dollar Index Bullish Fund (UUP) good to buy?

A: You should be looking to short the UUP. It’s a long dollar basket which we think will do terribly.

Good Luck and Stay Healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

October 26, 2020

Diary, Newsletter, Summary

Global Market Comments
October 26, 2020
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or MIXED MESSAGES)
(SPY), (TLT), (UUP), (FCX)

The Market Outlook for the Week Ahead, or Mixed Messages

Diary, Newsletter, Research

It was definitely a week of mixed messages in the stock market.

Is Covid-19 going to disappear by itself shortly, or is it the worst thing since the black plague?

Are we going to get a $2 trillion stimulus package out of Washington, or not?

Are stocks too expensive, or still cheap?

We are being told the answers to these questions loud and clear, we just can’t hear them.

For this election looks to set all records on turnout. Every city in the country is seeing lines of voters snaking around the block waiting 2-8 hours. But which way are they voting? Are there hoards of hidden Biden voters coming out of the woodwork, or Trump ones? We won’t know the result for eight more days.

In the meantime, the markets bide their time.

Which raises one last question: how low can stocks fall over the next seven trading days?

In the meantime, some asset classes aren’t willing to sit on their hands any longer. Interest rates have started to rise, hitting a four-month high. This has knocked 15 points off of bond (TLT) prices. Yet, contrary to expectations, the US dollar is hugging a multiyear low (UUP), while commodity prices (FCX) soar.

All of this spell a record economic recovery in 2021. All that remains is for stock prices to play catch-up.

The word is that there is over $1 trillion sitting on the stock market ready to dive in the day after the election, possibly tacking on at least 10% to the major indexes by yearend. There could be one hell of a post-election celebration, no matter who wins.

Baby Boomers are unloading stocks to Gen Xers mostly, but Millennials as well. Of course, they have all the money, with a 53% ownership of all stocks, compared to 27% for Gen Xer’s and a mere 3% for Millennials. The Greatest Generation, born before 1946, have been shrinking their share ownership since 1990 and own only 17% of the total now. A coming jump in capital gains taxes will accelerate the process.

China’s Economy soared by 4.9%, in Q3 YOY with the pandemic in the rear-view mirror. First into the Coronavirus brings first out. Retail sales are through the roof and industrial production and business investment is accelerating.

Goldman Sachs says a Blue Wave will increase spending and boost the stock market. Total one-party control of the government eliminates the haggling that we are currently seeing in Washington and will deliver more Covid-19 aid faster. It should more than offset the ill effects of tax increases.

Beware of the coming Tax Loss Selling. A Biden win could unleash a torrent of selling as investors rush to beat an increase in the capital gains tax. That’s when you buy.

US Housing Permits blow the roof off at 1.553 million, up a staggering 22% YOY and a 13-year high. I wondered why I was suddenly getting a lot of flat tires on the freeway. They’re caused by nails and screws falling off the back up pickup trucks on the way to jobs. The long-term structural housing shortage continues. 30-year money at 2.75% makes a big difference.

Tesla generates a record profit for the fifth consecutive quarter in a row. The company is relying on its China factory to hit its 2020 target of 500,000 million units. Again, $397 million in regulatory credits drive earnings, payments from other carmakers who are lagging on electric car production. Gross margins rose 250 basis points to 23.5%. S&P 500 listing here we come! Next target $2,500!

Weekly Jobless Claims dropped to 787,000, better, but still horrible. California is finally reporting again.

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. Dow 120,000 here we come!

My Global Trading Dispatch hit 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 and a seller on bigger rallies. October has now reached to a welcome 1.89% profit.

That keeps our 2020 year-to-date performance at a blistering +36.29%, versus a LOSS of -0.57% for the Dow Average. That takes my eleven year average annualized performance back to +36.21%. My 11 year total return stood at new all-time high at +392.30%. My trailing one year return appreciated to +42.86%.

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 225,239, which you can find here.

On Monday, October 26 at 10:00 AM EST, New Home Sales are published. Ely Lilly (LLY) and Merck (MRK) report earnings.

On Tuesday, October 27 at 9:00 AM EST, the S&P Case Shiller Home Price Index for August is released. Microsoft (MSFT) and Pfizer (PFE) report earnings.

On Wednesday, October 28, at 2:00 PM EST, the EIA Cushing Crude Oil Stocks are out. Boeing (BA) and Visa (V) report earnings.

On Thursday, October 29 at 8:30 AM EST, the Weekly Jobless Claims are announced. At the same time, we get the first read on Q3 GDP. Alphabet (GOOGL) and Amazon (AMZN) report earnings.

On Friday, October 30, at 8:30 AM, Personal Income for September is printed. Exxon (XOM) reports earnings. At 2:00 PM we learn the Baker-Hughes Rig Count.

As for me, I’ll be charging up every electronic device I have as the San Francisco Bay Area is expected to suffer a complete power blackout for the next three days. PG&E is shutting off the juice because winds are expected to reach 70 miles per hour and it hasn’t raised in six months.

I won’t be affected because I am totally off the grid with my own solar and battery network. You can easily find me because mine will be the only house in the mountains with the lights on.

Stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

September 28, 2020

Diary, Newsletter, Summary

Global Market Comments
September 28, 2020
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or DID THE ELECTION OR COVID JUST HIT THE STOCK MARKET?),
(SPY), (TLT), (GLD), (TSLA), (UUP)

The Market Outlook for the Week Ahead, or Did the Election or Covid Just Hit the Stock Market?

Diary, Newsletter, Summary

Did the election finally hit the stock market? It could have been both or neither.

Certainly, the passing of Supreme Court Justice Ruth Bader Ginsberg was worth 1,000 points, and maybe more. It may open the door to a period in politics that is uncertain at best or become violent at worst.

But the Coronavirus is making a comeback too. The US topped 7 million cases and 200,000 deaths, more than any other country in the world. The president’s new pandemic advisor, Scott Atlas, seems to be advocating a “herd immunity” approach. If so, 53% of the population will get the disease causing a total of 3 million deaths. The pandemic will continue for years.

New cases are spiking in Europe. The UK, which was on the verge of ordering workers back to their offices is now going back to a total shutdown. That augers for a second big wave in the US as kids go back to school and universities reopen.

With the S&P 500 now down 1% on the year, 2020 basically never happened. We saw a whole lot of volatility with no net movement. It makes my own 34.50% profit this year look stellar by comparison.

With the twin challenges of Covid-19 and the election lower lows for the market beckon. The one-year charts show that a “head and shoulders” top is in place for the (SPY), so my downside target at the 200-day moving average stands. That would be 3,074 for the (SPX) and $84 for Apple (AAPL).

There is a chance that the Fed could intervene in the stock market one more time right before the election if the markets resume the cascading falls of the spring. If that happens, buyers will return in hoards. My view is that this is but another dip in a long-term bull market that started in 2009 and may run all the way to 2030. You especially want to load the boat with Apple again.

However, the mystery of why technology stocks are so expensive remains. Let me take another shot at this.

From a technology point of view, we have just completely skipped the 2020s and are already in 2030. A year ago, would you have ever imagined that all of the country’s children would now be going to school online or that you’d be sending your business suits to the Good Will?

Stock markets have yet to price in the 2030 level of technology and profit, so the stocks will keep going up. Maybe we are already at 2023 or 2025 prices. I’ll let you know when I find out.

Volatility rocketed last week, and stocks collapsed. Any chance of further Covid-19 economic stimulus this year has just been demolished. If you were worried about the presidential election eroding confidence in the market before, now you have to be positively suicidal.

Any doubts about traders going into cash before the election have been vaporized. A 4-4 Supreme Court now makes an election outcome uncertain, no matter what the actual vote. Price that into your dividend discount model!

US Corona Deaths topped 200,000, weighing heavily on the economy and the election. There is no sign that the death rate is slowing, possibly reaching 400,000 by yearend. I went out to dinner last weekend and one-third of all businesses were boarded up, with no sign of reopening, ever.

Twelve IPOs to hit last week. This is in the wake of the Snowflake (SNOW) deal last week that tripled off its initial price talk. Apparently, there is an extreme shortage of high-growth large cap technology stocks and Silicon Valley is more than happy to meet that demand. Flooding the market like this ends up killing the goose that laid the golden eggs and is a common signal of market tops. Existing stock holdings have to be sold to buy new ones, taking markets south.

The economy slows as stimulus hopes fade as confirmed by last week’s economic data. US Consumer Sentiment dove in August, while Weekly Jobless Claims hover just below a Great Recessionary one million. The pandemic remains the dominant economic issue unless you live online.

The NASDAQ whale continues to sell, as Softbank (SFTBY) continues to unwind its massive technology long options positions. Last week, it was Adobe (ADBE), Salesforce (CRM), and Facebook (FB) that got hit. We won’t know if they made money on these for months, but they certainly put the final spike top in for the technology bubble.

The biggest debt increase in history occurred, with Federal government borrowing up an eye-popping 59% YOY. Sell every rally in the (TLT). It’s just a matter of time before a flood of new issuance destroys this market. We are sowing the seeds for the next financial crisis. The government was running record deficits BEFORE the pandemic even started.

Existing Home Sales soared in August, up 2.4% MOM to 6 million units, the hottest since 2006. Prices are up a huge 11.4% YOY. Homes over $1 million increased by 44% YOY as both work and school move home. Properties sit only 22 days on the market to sell, a record low.

Elon Musk promised a $25,000 car in three years, fully autonomous with long range and no maintenance for the life of the vehicle. The lifetime cost would be half of conventional gasoline-powered cars. That was the outcome of Battery Day in Fremont, CA, attended by hundreds of devotees safely enclosed in Teslas who honked instead of clap. It is all the result of dozens of revolutionary design and manufacturing improvements currently in the works, like moving from lithium to raw silicon for batteries. If so, General Motors (GM) and Ford (F) have had it.

A US dollar crash is imminent, says my old Morgan Stanley colleague Steven Roach. The double dip recession is here inviting even lower interest rates. The current account deficit soared to record highs in Q2. Buy the Aussie (FXA), Euro (FXE), and yen (FXY) on this dip.

Investors pull $25 billion from Equity funds last week as a new wave of nervousness hit the market. It’s the third largest weekly outflow in history. Everyone and his brother is trying to get out before the election. Pick your conspiracy theory as to what could go wrong.

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 stayed level at just short of an all-time high this week. I dumped my last two positions at the Monday morning opening as I could see the 1,000-point drop coming from a mile off, going to a rare 100% cash position.

The risk/reward in the market now is terrible. I believe we have to test the 200-day moving averages before it is safe to go back in with the indexes and single stocks.

That takes our 2020 year-to-date back up to a blistering 34.50%, versus a loss of 7.00% for the Dow Average. September stands at a nosebleed 7.95%. That takes my eleven-year average annualized performance back to 36.06%. My 11-year total return returned to another new all-time high at 390.41%. My trailing one-year return popped back up to 54.09%.

The coming week is a big one for jobs data. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, now at 203,000, which you can find here.

On Monday, September 28 at 10:30 AM EST, the Dallas Fed Manufacturing Index is released.

On Tuesday, September 29 at 9:00 AM EST, the S&P Case Shiller National Home Price Index for July is announced.

On Wednesday, September 30, at 8:15 AM EST, the ADP Private Employment Report is printed. At 8:30 AM EST, the final figure for US Q2 GDP is disclosed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
change.

On Thursday, October 1 at 8:30 AM EST, the Weekly Jobless Claims are announced.

On Friday, October 2 at 8:30 AM EST, the all-important September Nonfarm Payroll Report is out. At 2:00 PM The Bakers Hughes Rig Count is released.

As for me, we have another superheating of the climate in store this weekend, with San Francisco Bay Area temperatures expected to top 100 degrees. The fires are out now, but high winds are coming so PG&E is expected to cut off electric power once again.

I’ll be fine with my solar and battery back-up. The Tesla power management software knows in advance when this is going to happen and automatically goes into maximum storage mode. But just to be safe and to keep the trade alerts coming, I am charging up the car and every battery I own.

Stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

September 21, 2020

Diary, Newsletter, Summary

Global Market Comments
September 21, 2020
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE’S THE BLACK SWAN FOR 2020),
(SPY), (INDU), (TSLA), (JPM), (TLT), (C),
(V), (GLD), (AAPL), (AMZN), (UUP)

The Market Outlook for the Week Ahead, or Here’s the Black Swan for 2020

Diary, Newsletter, Summary

I had the pleasure of meeting Supreme Court Justice Ruth Bader Ginsberg only last year. She was funny, a great storyteller, and smart as a tack. If she disagreed with you, she pounced like a lion with a prescient one-liner.

She was also a goldmine of historical anecdotes about American history over the past 60 years, recalling incidents seen from her front-row seat as if they had happened yesterday.

She was also frail and rail-thin as if a faint breeze could knock her over at any time. Contracting cancer five times will do this to a person. Assistants helped her walk.

Her unexpected passing is now on the verge of creating a new financial crisis. Any chance of passing further stimulus in the US congress has just turned to ashes. The focus in Washington has turned entirely to the Supreme Court for the rest of 2020.

As a result, tens of thousands more small business will go under, millions of families will be thrown out on to the street, and the Great Depression will drag on. There is nothing left to spike the punch bowl with.

The Dow Average on Monday morning will open down 1,000 points, led by Tesla (TSLA) and the big technology stocks. US Treasury bonds (TLT) will rocket $5. The US dollar (UUP) will soar on a flight to safety bid.

Traders were already cutting positions and scaling back risk to duck the coming turmoil of the presidential election. We are also trying to front-run a yearend stock selloff prompted by a Biden rise in the capital gains tax from 21% to 40%.

That’s a bit of a moot point as 75% of stock ownership is owned by tax-exempt funds. The remaining 25% is most tied up in institutions that duck the tax by never selling or are embedded on corporate cross ownerships which never change.

Now we have uncertainty with a turbocharger, with gasoline poured in the air intake (pilot talk).

With Democrats refighting the battle of the Alamo, I doubt that Trump can ram through a third Supreme Court nomination. Remember how the last one went, for Brett Cavanaugh? Filibusters alone could delay proceeding by a month. These are NOT developments that make stocks go up.

If Trump succeeds, it may be a pyrrhic victory, costing Republicans at least five Senate seats, losing a majority, and increasing the margin of a presidential loss. If retired astronaut wins the Senate in Arizona on November 3, only two Republicans need to fold to make a Supreme Court nomination impossible.

It’s not like the stock market was in such great shape going into this, the biggest black swan of 2020. The market is being flooded with high priced initial public offerings, some 12 in the coming week alone. Apparently, there is an extreme shortage of high growth large-cap technology stocks and Silicon Valley is more than happy to meet that demand.

Cloud storage player Snowflake (SNOW) saw price talk at $70, an IPO of $120, and a first-day peak of $275. This created $70 billion in market value with the stroke of a key.

Of course, flooding the market like this ends up killing the goose thay laid the golden eggs and is a common signal of market tops. Existing stock holdings have to be sold to buy new ones, taking markets south.

We have already seen the 30-day and 50-day moving averages broken, and sights are clearing set on the 200-day. They would take us to a full top to bottom correction in the indexes of 20%. That would take the S&P 500 from $3,600 to $3,000, The Dow Average from $26,298 to $24,000, and Apple from $137 to $84.

If the Volatility Index (VIX) goes over $50, I’ll start sending out lists of very low risk, high return two-year options LEAPS like I did last time.

The Fed says no interest rate hike until 2023 and promises to heat up the economy even more than previously. The long-term average 2% inflation target I reaffirmed. Jay sees a net shrinkage of the US GDP this year ay 3.7%. Since governor Jay Powell promised to run the economy hot weeks ago, ten-year US treasury bonds have only eked out a paltry rise to 72 basis points.

The market isn’t buying it. It’s tough to beat ever hyper-accelerating technology that crushes prices. Still, I’ll keep selling short bond rallies because it’s just a matter of time before the government crushes the market with massive over-issuance. Sell every rally in the (TLT). The Fed put lives! Buy stocks on dips.

Election chaos is starting to price in, with the US dollar (UUP) getting an undeserved bid in a flight to safety trade and stock down 1,000 points from the week’s high. All sorts of Armageddon scenarios are making the rounds now and traders are pulling out of the market to protect hard-earned profits. For details watch the final season of House of Cards, where martial law is declared in Ohio to reverse an election outcome. No kidding!

Citigroup announced a surprise $900 million loss. I can’t wait for the excuse for this surprise, out-of-the-blue “operational error.' It’s most likely an expensive hack. It’s the kind of black swan that can hit you any time if you are a short-term trader. Long term investors should be buying the dip in (C).

China’s Retail Sales rise for the first time in 2020, up 0.5% in August. First into the pandemic, first out. Keeping Corona deaths to 4,000 was also a big help. It’s proof that economies CAN recover post-COVID-19. Buy China on dips (BABA), (BIDU). Stocks there will enjoy a huge post-election rally once the trade war winds down.

US Consumer Sentiment hits six-month high, up from a 75 estimate to 78.9. The University of Michigan report is proof that those who have money are spending it. Another green shoot. Didn’t help stocks today though.

Oil collapsed 15% on the dimming outlook for the global economy. Not even massive well shutdowns caused by this week’s hurricane could boost prices. Avoid all energy plays like the plague.

Morgan Stanley says the trading boom won’t last forever, says my former employer coming off of a record quarter. Too much of a good thing won’t last forever. Make hay while the sun shines.

The value rotation is on, with large scale selling of technology stocks and the chasing of banks and other recovery plays. It’s been a long time coming and could well persist until the end of the year. The option expiration at the close on Friday was exacerbating all moves, which is why I dumped my last two tech positions days prior. It’s too early to buy tech again on dips. Wait for a pre-election meltdown.

Copper hit a new four-year high as traders bet on an accelerating recovery in the global economy. My favorite, Freeport McMoRan, the world’s largest copper producer and a long time Mad Hedge subscriber is soaring, up 257% from the market lows. China, which is done with the Coronavirus and whose economy is recovering rapidly, has returned as a major buyer of the red metal. Keep buying (FCX) on dips.

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 clocked its third blockbuster week in a row. I cashed in on my winnings with longs in (JPM), (TLT), (V), (GLD), (AAPL), and (AMZN), rang the cash register with shorts in (TLT) and (SPY), and booked a small loss in a long in (C). This took my cash position from 0% to 80% and I am looking to go to 100% in the coming week. The risk/reward in the market now is terrible.

Notice that I am shifting my longs away from tech and toward domestic recovery plays.

That takes our 2020 year-to-date back up to a blistering 35.74%, versus -2.93% for the Dow Average. September stands at a nosebleed 9.19%. That takes my eleven-year average annualized performance back to 36.43%. My 11-year total return is back for another new all-time high at 392.12%. My trailing one-year return popped back up to 54.87%.

The coming week is a big one for housing data. The only numbers that really count for the market are the number of US Coronavirus cases and deaths, which you can find here.

On Monday, September 21 at 8:30 AM EST, the Chicago Fed National Activity Index is out.

On Tuesday, September 22 at 10:00 AM EST, Existing Home Sales for July are released.

On Wednesday, September 23 at 9:00 AM EST, the US Home Price Index for July is printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are out.
change.

On Thursday, September 24 at 8:30 AM EST, the Weekly Jobless Claims are announced. At 10:00 AM the all-important Existing Home Sales for July are published.

On Friday, September 25, at 8:30 AM EST, US Durable Goods Sales for August are disclosed. At 2:00 PM The Bakers Hughes Rig Count is released.

As for me, I’ll climb up on the roof this weekend and clean the ash from my 59 solar panels. The fallout from the nearby raging forest fires has been so extreme that it has cut my solar output by 25%.

It’s not just me. Over a million homes in California have the same problem, putting a serious dent in the state’s electricity production.

Stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader