Mad Hedge Technology Letter
December 2, 2019
Fiat Lux
Featured Trade:
(THE DRONE WARS HAVE STARTED),
(DJI), (AMZN), (WMT), (UBER), (GOOGL), (FDX), (UPS)
Tag Archive for: (WMT)
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
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)
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 14, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or UNICORNS AND CANDY CANE)
(AAPL), (FDX), (SPY), (IWM), (USO), (WMT), (AAPL), (GOOGL),
(X), (JPM), (WFC), (C), (BAC)
I have to tell you that flip-flopping from extreme optimism to extreme pessimism and back is a trader’s dream come true. Volatility is our bread and butter.
Long term followers know that when volatility is low, I struggle to make 1% or 2% a month. When it is high, I make 10% to 20%, as I have for two of the last three months.
That is what the month of October has delivered so far.
To see how well this works, the S&P 500 is dead unchanged so far this month, while the Mad Hedge Fund Trader alert service is up a gangbuster 10% and we are now 70% in cash.
While the market is unchanged in two years, risk has been continuously rising. That's because year on year earnings growth has fallen from 26% to zero. That means with an unchanged index, stocks are 26% more expensive.
Entire chunks of the market have been in a bear market since 2017, including industrials, autos, energy, and retailers. US Steel (X), which the president’s tariffs were supposed to rescue, has crashed 80% since the beginning of 2018.
The great irony here is that while the Dow Average is just short of an all-time high, all of the good short positions have already been exhausted. In short, there is nothing to do.
So, the wise thing to do here is to use the 1,200-point rally since Thursday to raise cash you can put to work during the next round of disappointment, which always comes. If we do forge to new highs, they will be incremental ones at best. That’s when you let your passive indexing friends pick up the next bar tab, who unintentionally caught the move.
In the meantime, we will be bracing ourselves for the big bank earnings due out this week which are supposed to be dismal at best. JP Morgan (JPM), Wells Fargo (WFC), and Citigroup (C) are out on Tuesday and Bank of America (BAC) publishes on Wednesday.
That’s when we find out how much of this move has been about unicorns and candy canes, and how much is real.
Trump demoed his Own trade talks, creating a technology blacklist and banning US pension investment into the Middle Kingdom. He also hints he’ll take a small deal rather than a big one. Great for American farmers but leaves intellectual property and forced joint ventures on the table, throwing the California economy under the bus. I knew it would end this way. It’s very market negative. Without a trade deal, there is no way to avoid a US recession in 2020.
The Inverted Yield Curve is flashing “recession.” The three-month Treasury yield has been above the 10-year bond yield since May, and that always says a downturn is coming. The time to batten down the hatches is now.
US Producer Prices plunged in September, down 0.3%, the worst since January. It’s another recession indicator but also pushes the Fed to lower rates further.
Inflation was Zero in September, with the Consumer Price Index up 1.8% YOY. Slowing economy due to the trade war gets the blame, but I think that accelerating technology gets the bigger blame.
New Job Openings hit an 18-month low, down 123,000 to 7.05 million in August, as employers pull back in anticipation of the coming recession. Trade war gets the blame. The smart people don’t hire ahead of a recession.
FedEx (FDX) is dead money, says a Bernstein analyst, citing failing domestic and international sales. No pulling any punches, he said “The bull thesis has been shredded.” Not what you want to hear from this classic recession leading indicator. Nobody ships anything during a slowdown.
Loss of SALT Deductions cost you $1 trillion, or about 4% per home, according to an analysis by Standard & Poor’s. Quite simply, losing the ability to deduct state and local tax deductions creates a higher after-tax cost of carry that reduces your asset value. If you bought a home in 2017 you lost half of your equity almost immediately. The east and west coast were especially hard hit.
Fed to expand balance sheet to deal with the short-term repo funding crisis, which periodically has been driving overnight interest rates up to an incredible 5%. Massive government borrowing is starting to break the existing financial system. What they’re really doing is trying to head off to the next recession.
The Fed September minutes came out, and traders seem to be expecting more rate cuts than the Fed is. Trade is still the overriding concern. The next meeting is October 29-30. It could all end in tears.
Apple (AAPL) raised iPhone 11 Production by 10%, to 8 million more units, according Asian parts suppliers. Great news for its $1,089 top priced product ahead of the Christmas rush. It turns out that an Apple app is helping Hong Kong protesters manage demonstrations. I’m keeping my long, letting the shares run to a new all-time high. Buy (AAPL) on the dips.
The Mad Hedge Trader Alert Service has blasted through to yet another new all-time high. My Global Trading Dispatch reached new apex of +347.48% and my year-to-date accelerated to +47.24%. The tricky and volatile month of October started out with a roar +9.82%. My ten-year average annualized profit bobbed up to +35.64%.
Some 26 out of the last 27 trade alerts have made money, a success rate of 94%! Underpromise and overdeliver, that's 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.
I used the recession fear-induced selloff after October 1 to pile on a large aggressive short-dated portfolio which I will run into expiration. I am 60% long with the (SPY), (IWM), (USO), (WMT), (AAPL), and (GOOGL). I am 10% short with one position in the (IWM) giving me a net risk position of 50% long. All of them are working.
The coming week is pretty non-eventful of the data front. Maybe the stock market will be non-eventful as well.
On Monday, October 14, nothing of note is published.
On Tuesday, October 15 at 8:30 AM, the New York Empire State Manufacturing Index is released. JP Morgan (JPM), Wells Fargo (WFC), and Citigroup (C) kick off the Q3 earnings season with reports.
On Wednesday, October 16, at 8:30 AM, we learn the September Retail Sales. Bank of America (BAC) and CSX Corp. (CSX) report.
On Thursday, October 17 at 8:30 AM, the Housing Starts for September are out. Morgan Stanley (MS) reports.
On Friday, October 18 at 8:30 AM, the Baker Hughes Rig Count is released at 2:00 PM. Schlumberger (SLB), American Express (AXP), and Coca-Cola (KO) report.
As for me, I’ll be going to Costco to restock the fridge after last week’s two-day voluntary power outage by PG&E. Expecting Armageddon, I finished off all the Jack Daniels and chocolate in the house. We managed to eat all of our frozen burritos, pork chops, steaks, and ice cream in a mere 48 hours. But that’s what happens when you have two teenagers.
Hopefully, it will rain soon for the first time in six months bringing these outages to an end.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 7, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WILL HE OR WON’T HE?)
(INDU), (USO), (TM), (SCHW), (AMTD), (ETFC), (SPY), (IWM), (USO), (WMT), (AAPL), (GOOGL), (SPY), (C)
Once again, the markets are playing out like a cheap Saturday afternoon matinee. We are sitting on the edge of our seats wondering if our hero will triumph or perish.
The same can be said about financial markets this week. Will a trade deal finally get inked and prompt the Dow Average to soar 2,000 points? Or will they fail once again, delivering a 2,000-point swan dive?
I vote for the latter, then the former.
Still, I saw this rally coming a mile off as the Trump put option kicked in big time. That's why I piled on an aggressive 60% long position right at last week’s low. Carpe Diem. Seize the Day. Only the bold are rewarded.
Or as Britain’s SAS would say, “Who dares, wins.”
It takes a lot of cajones to trade a market that hasn’t moved in two years, let alone take in a 55% profit during that time. But you didn’t hire me to sit on my hands, play scared, and catch up on my Shakespeare.
I think markets will eventually hit new all-time highs sometime this year. The game is to see how low you can get in before that happens without getting your head handed to you first.
Last week saw seriously dueling narratives. The economic data couldn’t be worse, pointing firmly towards a recession. But the administration went into full blown “jawbone” mode, talking up the rosy prospects of an imminent China trade deal at every turn.
This was all against a Ukraine scandal that reeled wildly out of control by the day. Is there a country that Trump DIDN’T ask for assistance in his reelection campaign? Now we know why the president was at the United Nations last week.
The September Nonfarm Payroll Report came in at a weakish 136,000, with the Headline Unemployment rate at 3.5%, a new 50-year low.
Average hourly earnings fell. Apparently, it is easy to get a job but impossible to get a pay raise. July and August were revised up by 45,000 jobs.
Healthcare was up by 39,000 and Professional and Business Services 34,000. Manufacturing fell by 2,000 and retail by 11,0000. The U-6 “discouraged worker” long term unemployment rate is at 6.9%.
The US Manufacturing Purchasing Managers Index collapsed in August from 49.7 to 47.9, triggering a 400-point dive in the Dow average. This is the worst report since 2009. Manufacturing, some 11% of the US economy, is clearly in recession, thanks to the trade war-induced loss of foreign markets. A strong dollar that overprices our goods doesn’t help either.
The Services PMI Hit a three-year low, from 53.1 to 50.4, with almost all economic data points now shouting “recession.” The only question is whether it will be shallow or deep. I vote for the former.
Consumer Spending was flat in August. That’s a big problem since the average Joe is now the sole factor driving the economy. Everything else is pulling back. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, edged up 0.1% last month as an increase in outlays on recreational goods and motor vehicles was offset by a decrease in spending at restaurants and hotels.
The Transports, a classic leading sector for the market, have been delivering horrific price action this year giving up all of its gains relative to the S&P 500 since the 2009 crash.
Oil (USO) got crushed on recession fears, down a stunning 19.68% in three weeks. The global supply glut continues. Over production and fading demand is not a great formula for prices.
Toyota Auto Sales (TM) cratered by 16.5% in September, to 169,356 vehicles in another pre-recession indicator. It’s the worst month since January during a normally strong time of the year. The deals out there now are incredible.
Online Brokerage stocks were demolished on the Charles Schwab (SCHW) move to cut brokerage fees to zero. TD Ameritrade (AMTD) followed the next day and was spanked for 23%, and E*TRADE (ETFC) punched for 17. These are cataclysmic one0-day stock moves and signal the end of traditional stock brokerage.
The Mad Hedge Trader Alert Service has blasted through to yet another new all-time high. My Global Trading Dispatch reached new apex of 341.86% and my year-to-date accelerated to +41.72%. The tricky and volatile month of October started out with a roar +5.40%. My ten-year average annualized profit bobbed up to +35.06%.
Some 26 out of the last 27 trade alerts have made money, a success rate of 96.29%! Under promise and over deliver, that's the business I have been in all my life. It works.
I used the recession-induced selloff since October 1 to pile on a large aggressive short dated portfolio. I am 60% long with the (SPY), (IWM), (USO), (WMT), (AAPL), and (GOOGL). I am 20% short with positions in the (SPY) and (C), giving me a net risk position of 40% long.
The coming week is all about the September jobs reports. It seems like we just went through those.
On Monday, October 7 at 9:00 AM, the US Consumer Credit figures for August are out.
On Tuesday, October 8 at 6:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, October 9, at 2:00 PM, we learn the Fed FOMC Minutes from the September meeting.
On Thursday, October 10 at 8:30 AM, the US Inflation Rate is published. US-China trade talks may, or may not resume.
On Friday, October 11 at 8:30 AM, the University of Michigan Consumer Sentiment for October is announced.
The Baker Hughes Rig Count is released at 2:00 PM.
As for me, I’m still recovering from running a swimming merit badge class for 60 kids last weekend. Some who showed up couldn’t swim, while others arrived with no swim suits, prompting a quick foray into the lost and found.
One kid jumped in and went straight to the bottom, prompting an urgent rescue. Another was floundering after 15 yards. When I pulled him out and sent him to the dressing room, he started crying, saying his dad would be mad. I replied, “Your dad will be madder if you drown.”
I never felt so needed in my life.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 6, 2019
Fiat Lux
Featured Trade:
(SEPTEMBER 4 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (FXY), (FXB), (USO), (XLE), (TLT), (TBT),
(FB), (AMZN), (MSFT), (DIS), (WMT), (IWM), (TSLA), (ROKU), (UBER), (LYFT), (SLV), (SIL)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader September 4 Global Strategy Webinar broadcast from Silicon Valley with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: If Trump figures out the trade war will lose him the election; will he stop it?
A: Yes, and that is a risk that hovers over all short positions in the market at all times these days because stocks will soar (INDU) when the trade war ends. We now have 18 months of share appreciation that has been frustrated or deferred by the dispute with China. The problem is that the US economy is already sliding into recession and it may already be too late to turn it around.
Q: Do you see the British pound (FXB) dropping more on the Brexit turmoil? Do you think the UK will stay in the EU?
A: If the UK ends Brexit through an election, then the pound should recover from $1.19 all the way back up to $1.65 where it was before Brexit happened four years ago. If that does happen, it will be one of the biggest trades of the year anywhere in the world, going long the British pound. This is how I always anticipated it would end. I was in England for the Brexit vote and I was convinced that if they held the election the next day, it would have lost. The only reason it won was because nobody thought it would— a lot like our own 2016 election. That brings Britain back into the EEC, saves Europe, and has a positive impact on markets globally. So, this is a big deal. Not to do so would be economic suicide for Britain, and I think wiser heads will prevail.
Q: Do you think it’s a good idea for Saudi ARAMCO to go public in Japan as reports suggest?
A: When the Arabs want to get out of the oil business (USO), (XLE), you want to also. That’s what the sale of ARAMCO is all about. They’re going to get a $1 trillion or more valuation, raising $100 billion in cash. And guess who the biggest investors in alternative energy in California are? It’s Saudi Arabia. They see no future in oil, nor should you. This is why we’ve been negative on the sector all year. By the way, bankruptcies by frackers in the U.S. are at an all-time high, another indicator that low oil prices can’t be tolerated by the US industry for long.
Q: Is it time to buy the ProShares Ultra Short 20 year Plus Treasury Bond Fund (TBT)?
A: No, not yet; I think we’re going to break 1.33% — the all-time low yield for the (TLT) will probably be somewhere just below 1.00%. We probably won’t go to absolute zero because we still have a growing economy. The countries that already have negative interest rates have shrinking economies or are already in recession, like Germany or Great Britain can justify zero rates.
Q: Are you going to run all your existing positions into expiration?
A: I’m going to try to—it’s only 12 days to expiration, and we get to keep the full profit if we do. As long as the market is dead in the middle here, there are no other positions to put on, no extreme low to buy into or extreme high to sell into. It’s a question of letting this sort of nowhere-trend play out, but also there's nothing else to buy, so there is no need to raise cash. So, we’re 60% invested now and we’re going to try running as many of those into expiration as we can. Looks like all the long technology positions are safe (FB), (AMZN), (MSFT), (DIS). The only thing we’re pressing here are the shorts in Walmart (WMT) and Russell 2000 (IWM).
Q: Do you think it’s a good idea for Tesla (TSLA) to build another Gigafactory in Shanghai, China during a trade war? Will this blow up in Elon’s face?
A: I don’t think so because the Chinese are desperate for the Tesla technology and they just gave Tesla an exemption on import duties on all parts that need to go there to build the cars. So, that’s a very positive development for Tesla and I believe the stock is up about $10 since that news came out.
Q: Will Roku (ROKU) ever pull back? Would you buy it up here?
A: No, we recommended this thing last year at $40; it’s now up to $165, and up here it’s just wildly overbought, in chase territory. Of course, the reason that’s happening is that the big concern last year was Amazon wiping out Roku, yet they ultimately ended up partnering with Roku, and that’s worth about a 400% gain in the stock. You know the second you get into this, it’s over. There are just too many better fish to fry in the technology area.
Q: What happens if our existing Russell 2000 (IWM) September 2019 $153-$156 in-the-money vertical BEAR PUT spread Russell 2000 position closes between $156 and $153?
A: You lose money. You will get the Russell 2000 shares put to you, or sold to you at $153.00, which means you now own them, and you’ll get a big margin call from your broker for owning the extra shares. If ever it looks like we’re getting close to the strike price going into expiration, I come out precisely because of that risk. You don’t want random chance dictating whether you’re going to make money in your position or not going into expiration. If you’re worried about that, I would get out now and you can still come out with a nice profit. Or, you can always wait for another down day tomorrow.
Q: Is it time to get super aggressive shorting Lyft (LYFT) or Uber (UBER) when they openly admit that they won’t make a profit anytime in the near future?
A: The time to short Uber (UBER) and Lyft was at the IPO when the shares became available to sell. Down here I don’t really want to do very much. It’s late in the game and Uber’s down about one third from its IPO price. We begged people to stay away from this. It’s another example where they waited for the company to go ex-growth before it went public, but it didn’t leave anything for the public. It was a very badly mishandled IPO—it’s now at $31 against a $45 IPO price and was at a new all-time low just 2 days ago. You knew when they offered the drivers shares, the thing was in trouble. Sometime this will be a buy, but not yet. Go take a long nap first.
Q: Is the fact that rich people are hoarding cash a good indicator that a recession is approaching?
A: Yes, absolutely. Bonds yielding 1.45% is also an indication that the wealthy are hoarding cash from other investment and parking it in US treasury bonds. I went to the Pebble Beach Concourse d’ Elegance vintage car show a few weeks ago and all of the $10 million plus cars didn’t sell, only those priced below $100,000. That is always a good indicator that the wealthy are bailing ahead of a recession. If you can’t get a premium price for your vintage Ferrari, trouble is coming.
Q: Argentina just implemented currency controls; is this the start of a rolling currency crisis among emerging nations?
A: No, I believe the problems are unique to Argentina. They’ve adopted what is known as Modern Momentary Theory—i.e. borrowing and printing money like crazy. Unfortunately, this is unsustainable and results in a devalued currency, general instability, and the eventual hanging of their leaders from the nearest lamppost. This is exactly the same monetary policy that the Trump administration has been pursuing since he came into office. Eventually, it will lead to tears, ours, not his.
Q: Is the new all-electric Porsche Taycan a threat to Tesla?
A: No, it’s not. Their cheapest car is $150,000 and it gets one third less range than Tesla does. It’s really aimed at Porsche fanatics, and I doubt they will get outside their core market. In the meantime, Tesla has taken over the middle part of the electric market with the Model 3 at $37,000 a car. That’s where the money is, and Porsche will never get there.
Q: How will the US pull out of recession if the interest rates are at or below zero?
A: It won’t—that’s what a lot of economists are concerned about these days. With interest rates below zero, the Fed has lost its primary means to stimulate the economy. The only thing left to do is use creative means like feeding the economy with currency, which Europe has been doing for 10 years, and Japan for 30, with no results. That’s another reason to not allow rates to get back to zero—so we have tools to use when we go into a recession 12-24 months from now.
Q: What’s the best way to buy silver?
A: The ETF iShares Silver Trust (SLV) and, if you want to be aggressive, the silver miners with the Global X Silver Miners ETF (SIL).
Q: Have global central banks ruined the western economic system as we know it for future generations?
A: They may have—mostly by printing too much money in the last 10 years in order to get us out of recession. This hasn’t really worked for Europe or Japan, mind you, though who knows how much worse off they would be if they hadn’t. What it did do here is head off a Great Depression. If we go back to money printing in a big way, however, and it doesn’t work, we will not have prevented a Great Depression so much as pushed it back 10 or 15 years. That’s the great debate ongoing among economists, and it will eventually be settled by the marketplace.
