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Millionaire Investor, and Founder of the Modern Day Hedge Fund John Thomas Gives You The 5 More Important Things That Happened Today… AND WHAT TO DO ABOUT THEM!
I’ve seen my fair share of global crisis…and I’ve profited each and every time in one way or another!
Today we’re staring down the barrel of a trade war, crashing commodities, and a GLOBAL political system run amuck.
However I know what’s going to happen next…
I know because I’ve been through this, know my strategies, can read the markets, and spent years as a hedge fund manager where my whole job was to profit from global crisis.
There is no doubt that the “underground” economy is growing by leaps and bounds.
No, I’m not talking about violent crime, drug dealing, or prostitution.
Those are all largely driven by demographics, which right now, are at a low ebb.
I’m referring to the portion of the economy that the government can’t see, and therefore is not counted in its daily data releases.
This is a big problem.
Most investors rely on economic data to dictate their trading strategies.
When the data is strong, they aggressively buy stocks, assuming that a healthy economy will boost corporate profits.
When data is weak, we get the flip side, and investors bail on equities. They also sell commodities, precious metals, oil, and plow their spare cash into the bond market.
We are now more than half way through a decade that has delivered unrelentingly low annual GDP growth, around the 2%-2.5% level.
We all know the reasons. Retiring baby boomers, some 85 million of them, are a huge drag on the system, as they save, and don’t spend.
Generation X-ers do spend, but there are only 58 million of them. And many Millennials are still living in their parents’ basements—broke and unable to land paying jobs in this ultra cost conscious world.
But what if these numbers were wrong? What if the Feds were missing a big part of the picture?
I believe this is in fact what is happening.
I think the economy is now evolving so fast, thanks to the simultaneous hyper acceleration of multiple new technologies that the government is unable to keep up.
Further complicating matters is the fact that many new internet services are FREE, and therefore are invisible to government statisticians.
They are, in effect, reading from a playbook that is a decade or more old.
What if the economy was really growing at a 3-4% pace, but we just didn’t know it.
I’ll give you a good example.
The government’s Consumer Price Index is a basket of hundreds of different prices for the things we buy. But the Index rarely changes, while we do.
The figure the Index uses for Internet connections hasn’t changed in ten years.
Gee, do you think that the price of broadband has risen in a decade, with the 1,000-fold increase in speeds?
In the early 2,000’s you could barely watch a snippet of video on YouTube without your computer freezing up.
Now, I can download a two-hour movie in High Definition in just 30 seconds on my Comcast Xfinity 250 megabyte per second business line, and now they are offering me a 1 gigabyte service for a few more bucks a month.
And many people now watch movies on their iPhones. I see them in the rush hour traffic and on planes.
I’ll give you another example of the burgeoning black economy: Me.
My business shows up nowhere in the government economic data because it is entirely online. No bricks and mortar here!
Yet, I employ a dozen people, provide services to thousands of individuals, institutions, and governments in 140 countries, and take in millions of dollars in revenues in the process.
I pay a lot of American taxes too.
How many more ME’s are out there? I would bet millions.
If the government were understating the strength of the economy, what would the stock market look like?
It would keep going up every year like clockwork, as ever-rising profits feed into stronger share prices.
But multiples would never get very high (now at 20 times earnings) because no one believed in the rally, since the economic data was so weak.
That would leave them constantly underweight equities in a bull market.
Stocks would miraculously and eternally climb a wall of worry. Did I mention that the S$P 500 is at another all time high?
On the other hand, bonds would remain strong as well, and interest rates low, because so many individuals and corporations were plowing excess, unexpected profits into fixed income securities.
Structural deflation would also give them a big tailwind.
If any of this sounds familiar, please raise your hand.
I have been analyzing economic data for a half century, so I am used to government statistics being incorrect.
It was a particular problem in emerging economies, like Japan and China, which were just getting a handle on what comprised their economies for the first time.
But to make this claim about the United States government, which has been counting things for 225 years, is a bit like saying the emperor has no clothes.
Sure, there was always been a lag between the government numbers and reality.
In the old days they used horses to collect data, and during the Great Depression numbers were kept on 3” X 5” index cards filled out with fountain pens.
But today, the disconnect is greater than it ever has been, by a large margin, thanks to technology.
Is this unbelievable?
Yes, but you better get used to the unbelievable.
As for that bull market in stocks, it just might keep on going longer than anyone thinks.
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To make this offer utterly irresistible I will throw in a free copy of my best-selling book, Stocks to Buy for the Coming Roaring Twenties. Read it now before the companies I recommended double in value again!
—– Related —–
How to guarantee a comfortable retirement?
Grab this new book before the stocks researched EXPLODE…and you miss out!
Some call him the ‘founder of the modern day hedge fund’, and his prowess for picking stocks that fly under the radar is unprecedented.
In his brand new book and newsletter, you’ll get his latest explosive picks AND research that will give you the edge to make the trades that you’re truly seeking!
This is free, and includes free in-depth newsletter research.
Some call him the ‘founder of the modern day hedge fund’, and his prowess for picking stocks that fly under the radar is unprecedented.
In his brand new book and newsletter, you’ll get his latest explosive picks AND research that will give you the edge to make the trades that you’re truly seeking!
This is free, and includes free in-depth newsletter research.
Over the past 100 years, inverted yield curves have had an average life of 14 months, within a range of nine to 19 months.
At first, rising interest rates INCREASE borrowing dramatically, as investors scramble to beat the move.
This enables them to make up for shrinking profit margins caused by higher rates by increasing size.
This is already happening in a major way.
When the return finally turns negative, they then dump EVERYTHING, causing interest rates to explode, igniting a recession.
That’s when 10-year Treasury bonds spike to 4%, or even 5%.
This has a recession beginning 14 months after the December 15, 2018 Fed meeting, or February 2020.
Historically, stock markets peak exactly 7.2 months before a recession, so this takes us back to August 2019.
Back out three more months for a “Sell in May and go away” effect.
Bear markets usually begin on Mondays (remember the many Black Mondays of our careers?) because investors are prone to digest deteriorating market technicals and fundamentals over a weekend and then panic at the first opportunity.
I expected the Dow Average to plunge at least 400 points at the following that Monday opening.
Add all this together, and you arrive at my target market peak of Friday, May 10, 2019 at 4:00 PM EST. Look for a final spike into the close.
You may catch me gingerly stepping out of the market a few weeks or months before that.
As my late mentor Barton Biggs used to say, “Always leave the last 10% of a move for the next guy.”
Remember also that once stocks start to go in reverse, liquidity will completely vaporize right when numerous risk protection algorithms simultaneously kick in.
So the bigger institutions will start scaling out of major positions well before then. This, by the way, helps set up the negative technicals that create the top.
Of course, any number of black swans can move this timetable forward, which I have covered in previous letters (North Korea, impeachment, no tax cuts, etc.).
So I may be making necessary adjustments to my market top target date along the way.
And here’s the scary part.
Stock markets could rise another 20% to 25% before they peak out. That takes the Dow Average to a neat 28,750.
So despite knowing the blowup day well in advance, you’re still going to have to stay in the market, lest you lose all your clients.
After all, they don’t pay fat fees for us to hide in a cave somewhere and sit on our hands.
So, you wanted to be in show business?
When a client asks you the favorite question of the day, he will be suitably impressed when you provide him with the above answer, as he should be.
In fact, he will probably give you more money to manage.
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader June 6 Global Strategy Webinar .
As usual, every asset class long and short was covered. You are certainly an inquisitive lot, and keep those questions coming!
Q: What does the coming Kim Jong-Un summit with North Korea mean for the market?
A: It means absolutely nothing for the market. The entire North Korean threat has been wildly exaggerated as a distraction from the chaos in Washington. Whatever North Korea agrees to, we will not see any follow through; they won’t buy the Libyan model of denuclearizing North Korea for fear of their leader meeting the same end as Libya’s Khadafy (i.e. being hunted and shot in a storm drain.) North Korea will never give up its nuclear weapons.
Q: What do you do at market tops?
A: Well, hopefully if you’re reading this letter you’re long up the wazoo, so you sell everything you have. Then, wait for a double top in the market (which is clear as day) and falling volume. You start looking at things like the ProShares Ultra Short S&P 500 ETF (SDS). That’s the -2X version (there’s the (SH), which is the -1X short S&P 500) and you just start buying outright puts on a lot of different things, particularly the overbought sectors of the market, which are generally pretty obvious. It’s also good to look for a stock that has made a new high and has negative money flow.
Q: Why are the banks doing so poorly?
A: I believe they fully discounted all of this year’s interest rate hikes last year when the stocks nearly doubled. We just talked about a technical setups; Goldman Sachs (GS), Bank of America (BAC), and other stocks had those bear setups. At this point, I believe they’re coming down to a place of support and probably getting a decent dead cat bounce. They’ve had their selloff, they had their run, and it was triggered by one of the best technical short setup patterns you’ll see.
—– Related —–
How to guarantee a comfortable retirement?
Grab this new book before the stocks researched EXPLODE…and you miss out!
Some call him the ‘founder of the modern day hedge fund’, and his prowess for picking stocks that fly under the radar is unprecedented.
In his brand new book and newsletter, you’ll get his latest explosive picks AND research that will give you the edge to make the trades that you’re truly seeking!
This is free, and includes free in-depth newsletter research.
Q: Would you buy financials here?
A: Absolutely not. It’s unclear why they’re doing so badly, but I would not buy it with anyone’s money. Their earnings growth is nowhere what you see with technology stocks.
Q: Is crude oil poised for the next leg up?
A: No, it’s not. The oil game may be over if they rush to overproduce once again. It’s clearly been artificially boosted to get the Saudi Aramco IPO done. After the end of the quota system, you can get oil back down to the $50’s easily. I don’t want to touch it here; if anything, I’m more inclined to buy it if we get down to the $50s’s, which would essentially be the February low.
Q: Is the U.S. dollar overbought here?
A: Yes. The dollar has had a great run all year, which is evident from the rising interest rates. It’s done a 10% move up in a fairly short time, which is a lot for the foreign exchange market. Its way overbought; you could easily get a round of profit taking in the dollar, either going into or right after the next Fed interest rate hike in two weeks. I’m staying away from the currencies. There are too many better fish to fry in the equities.
Q: Can you expect Tech to keep going up after this next run?
A: Yes, I expect us to break out to a new high and give back some ground in a retest of the old high. The old high will then hold and then I expect a sort of slow grind up. Tech could well go up for the rest of 2018.
Q: If the S&P 500 is in a trading range, would you sell any rally?
A: Yes, but I’m going to wait for the rally to come to me; I’m not going to reach for any marginal trades. When the (SPY) gets to $280, I’ll be looking very closely at the $285-$290 vertical bear put spread one or two months out. So, that peak should hold for the summer and you can make a good 25%-30% on that kind of spread.
A: Yes, the chart setup here is looking very positive, and it’s natural for people to rotate out of Tech to Biotech because the earnings growth is so dramatic. That’s why I sent out a Trade Alert to buy the NASDAQ Biotechnology ETF (IBB) yesterday. They have been unfairly held back by fears of drug pricing regulation, which has nothing to do with biotech, but it effects their share prices anyway. But so far, it has been all talk from Trump and no action. I think he’s busy with North Korea and the trade wars anyway.
Q: My custodian won’t let me sell short the United States Treasury Bond Fund (TLT) so I bought the ProShares Ultra Pro Short 20+ Treasury Fund (TTT). Is that alright?
A: You definitely want to be short the Treasury bonds market for the next several years going forward, so you have the right idea. If the ten-year US Treasury bond yield jumps from 2.95% today to 4% in a year as I expect that takes the (TLT) down from $119 to $97. If you can’t make money shorting bonds in that environment you should consider another line of work.
The problem with these 3X leveraged funds is that the cost of carry is very high. In the case of the (TTT) it is three times the 3.0% ten year bond coupon you are shorting plus a 1% management fee for a total of 10% a year. For that reason, the 3X funds are really only good for day trading. You run into a similar problem with the 2X (TBT). This is why I use non-leveraged put spreads or outright puts for this asset class.
Q: Why are we seeing strength in the Alerian master limited partnership (AMLP) when oil prices are falling, and interest rates are rising? Shouldn’t it be going the other way?
A: How about more buyers than sellers? There are so many retirees out there desperate for yield they will take on inordinate amounts of risk to get it. With an 8.0%% dividend yield you always have an underlying bid for this ETF. That’s why we have been recommending this since April. An 8% dividend can cover up a lot of sins, even when interest rates are rising, and oil prices are falling. Also, the US is infrastructure constrained now that production is approaching 11 million barrels a day. That is great for the kind of energy projects (AMLP) finances.
Q: What’s the next support price for NVIDIA (NVDA)?
With the stock going straight up there is little need for support. Our 2018 target is $300. If you recall, we have been recommending this cutting-edge GPU manufacturer since $68 and people have made fortunes. Those who bought long dated deep out-of-the-money leaps $100 out made 1,000% on this Trade Alert 18 months ago. That said, the 200-day moving average at $213 looks rock solid.
1) The traditional financial advisor model is dying off
2) Banks are cutting commissions while adding costs
3) Banks are also scaling back product offering to reduce liability
4) Traditional brokers are fleeing banks to go independent
5) There’s no room for financial advice for poor people
About one-third of my readers are professional financial advisors who earn their crust of bread telling clients how to invest their retirement assets for a fixed fee.
They used to earn a share of the brokerage fees they generated. After stock commissions went to near zero, they started charging a flat 1.25% a year on the assets they oversaw.
So it is with some sadness that I have watched this troubled industry enter a long-term secular decline, which seems to be worsening by the day.
The final nail in the coffin may be the new regulations announced by the Department of Labor (DOL) at the end of the Obama administration that controls this business.
Brokers, insurance agents, and financial planners were already held to a standard of suitability by the government based on a client’s financial situation, tax status, investment objectives, risk tolerance, and time horizon.
The DOL proposed raising this bar to the level already required of Registered Investment Advisors, as spelled out by the Investment Company Act of 1940.
This would have required advisors to act only in the best interests of their clients, irrespective of all other factors, including the advisor’s compensation or conflicts of interest.
What this does is increase the costs, while also greatly expanding advisor liability. In fact, the cost of malpractice insurance has already started to rise. All in all, it makes the financial advisor industry a much less fun place to be.
As is always the case with new regulations, they were inspired by a tiny handful of bad actors.
Some miscreants steered clients into securities solely based on the commissions they earned, which could reach 8% or more, whether it made any investment sense or not. Some of the instruments they recommended were nothing more than blatant rip-offs.
The DOL thought that the new regulations would save consumers $15 billion a year in excess commissions.
Legal action by industry associations has put the DOL proposals in limbo. Unless it appeals, it is unlikely to become law. So, there will be a respite, at least until the next administration.
Knowing hundreds of financial advisors personally, I can tell you that virtually all are hardworking professionals who go the extra mile to safeguard customer assets, while earning incremental positive returns.
That is no easy task given the exponential speed with which the global economy is evolving. Yesterday’s “window and orphans” safe bets can transform overnight into today’s reckless adventure.
Look no further than coal, energy, and the auto industry. Once a mainstay of conservative portfolios, all of these sectors have, or came close to filing for bankruptcy.
Even my own local power utility, Pacific Gas and Electric Company (PG&E), filed for Chapter 11 in 2001 because it couldn’t game the electric power markets as well as Enron.
Some advisors even go the extent of scouring the Internet for a trade mentoring service that can ease their burden, such as the Diary of a Mad Hedge Fund Trader, to get their clients that extra edge.
—– Related —–
How to guarantee a comfortable retirement?
Grab this new book before the stocks researched EXPLODE…and you miss out!
Some call him the ‘founder of the modern day hedge fund’, and his prowess for picking stocks that fly under the radar is unprecedented.
In his brand new book and newsletter, you’ll get his latest explosive picks AND research that will give you the edge to make the trades that you’re truly seeking!
This is free, and includes free in-depth newsletter research.
Traditional financial managers have been under siege for decades.
Commissions have been cut, expenses increased, and mysterious “fees” have started showing up on customer statements.
Those who work for big firms, such as UBS, Morgan Stanley, Goldman Sachs, Merrill Lynch, and Charles Schwab, have seen health insurance coverage cut back and deductibles raised.
The safety of custody with big firms has always been a myth. Remember, all of these guys would have gone under during the 2008-09 financial crash if they hadn’t been bailed out by the government. It will happen again.
The quality of the research has taken a nosedive, with sectors, such as small caps, no longer covered.
What remains offers nothing but waffle and indecision. Many analysts are afraid to commit to a real recommendation for fear of getting sued or worse, scaring away lucrative investment banking business.
And have you noticed that after Dodd-Frank, two thirds of a brokerage report are made up of disclosures?
Many advisors have in fact evolved over the decades from money managers to asset gatherers and relationship managers.
Their job is now to steer investors into “safe” funds managed by third parties that have to carry all of the liability for bad decisions (buying energy plays in 2014?).
The firms have effectively become toll takers, charging a commission for anything that moves.
They have become so risk averse that they have banned participation in anything exotic, such as options, option spreads, (VIX) trading, any 2X leveraged ETFs, or inverse ETFs of any kind. When dealing in esoterica is permitted, the commissions are doubled.
Even my own newsletter has to get compliance review before it is distributed to clients, often provided by third parties to smaller firms.
“Every year they try to chip away at something,” one beleaguered advisor confided to me with despair.
Big brokers often hype their own services with expensive advertising campaigns that unrealistically elevate client expectations.
Modern media doesn’t help either.
I can’t tell you how many times I have had to convince advisors not to dump all their stocks at a market bottom because of something they heard on TV, saw on the Internet, or read in a competing newsletter warning that financial Armageddon was imminent.
Customers are force fed the same misinformation. One of my main jobs is to provide advisors with the fodder they need to refute the many “end of the world” scenarios that seem to be in continuous circulation.
In fact, a sudden wave of such calls has proved to be a great “bottoming” indicator for me.
Personally, I don’t expect to see another major financial crisis until 2032 at the earliest, and by then, I’ll probably be dead.
Because of all of the above, about half of my financial advisor readers have confided in me a desire to go independent in the near future, if they are not already.
Sure, they won’t be ducking all these bullets. But at least they will have an independent business they can either sell at a future date or pass on to a succeeding generation.
Overheads are far easier to control when you own your own business, and the tax advantages can be substantial.
A secular trend away from nondiscretionary to discretionary account management is a decisive move in this direction.
There seems to be a great separating of the wheat from the chaff going on in the financial advisory industry.
Those who can stay ahead of the curve – both with the markets and their own business models – are soaking up all the assets. Those who can’t are unable to hold on to enough money to keep their businesses going.
Let’s face it, in the modern age every industry is being put through a meat grinder. Thanks to hyper-accelerating technology, business models are changing by the day.
Just be happy you’re not a doctor trying to figure out Obamacare.
Those individuals who can reinvent themselves quickly will succeed. Those who won’t will quickly be confined to the dustbin of history.
1) Markets will remain trapped in a narrow range for months
2) A 20% corporate growth rate, a 2% inflation rate, and a 0% stock market return
3) These are numbers you never would expect to see in the same sentence
4) The six months going into a midterm has produced a feeble 1.4% gain since 1896
5) Buy the small dips and sell the small rallies for the foreseeable future
If I had a dime for every trading nostrum I have heard over the past 50 years I would be as rich as Croesus by now. And here’s a whopper for you.
A 20% corporate growth rate, a 2% inflation rate, and a 0% stock market return: These are numbers you never would expect to see in the same sentence.
Yet, that is what we have at the close today, believe it or not.
And what’s worse, this condition could last for another five months. It is clear that something is going on here.
For the past six months, my trading has been wildly successful betting that the stock market would go nowhere until the November 6 midterm elections.
While we have covered an awful lot of ground during this time with a very wide 3,300-point range in the Dow Average (INDU), we have gone absolutely nowhere. As a result, the Mad Hedge Trade Alert Service stands with a 19.83% so far in 2018.
—– Related —–
How to guarantee a comfortable retirement?
Grab this new book before the stocks researched EXPLODE…and you miss out!
Some call him the ‘founder of the modern day hedge fund’, and his prowess for picking stocks that fly under the radar is unprecedented.
In his brand new book and newsletter, you’ll get his latest explosive picks AND research that will give you the edge to make the trades that you’re truly seeking!
This is free, and includes free in-depth newsletter research.
It turns out that trading around midterm congressional elections is far more successful than any other market traditions, like “Sell in May and go Away.” Call it the Midterm Effect.
Since the Dow Average was first created on May 26, 1896, the six months going into a midterm produced a feeble 1.4% gain, while the six months after hauled in a whopping 21.8% increase.
In fact, “Sell in May and go away” only works because of the enormous cyclicality of the Midterm Effect, which takes place only every four years. The other three years of that cycle are usually pretty wishy-washy or go the opposite way. Here we are in mid-May, and so far, the Midterm Effect looks pretty good.
The effect only works for midterm elections. It is much less predictive than the Presidential Election Cycle, another popular piece of folk wisdom.
The reason the Midterm Effect works so well is because of human psychology. Investors absolutely hate uncertainty. They are much more inclined to sit on their hands and do nothing ahead of a major market moving event even one 10 months away, when we entered the current range.
They would much rather pay a premium after an event for any securities they might buy rather than being wrong. Money managers tend to be a conservative lot, and this is how conservatism works.
The outcome of the election would have an enormous effect on corporate earnings. According to PredictIt, an online betting site, there is a 67% chance that the Democrats will take the House in November.
If that occurs, no major changes to the economy nor laws pass for at least two years. If that doesn’t occur, the president will have a free hand to pursue his existing policies unfettered. However, the election is not for another five months, and in politics that could be five lifetimes.
So range trading it is. Buy the small dips and sell the small rallies for the foreseeable future. Wake me up around Halloween.
Everyone who has been following me for the past decade (yes, there are quite a few of you), know that I am a fundamentalist first and a technician second.
Of course, you need to use both, as those who mistakenly leave one tool in the bag reliably underperform indexes.
The one-liner here is that I use fundamentals to identify broad, long-term, even epochal trends, and technicals for the short-term timing of my Trade Alerts.
Do both well, and you will prosper mightily.
—– Related —–
How to guarantee a comfortable retirement?
Grab this new book before the stocks researched EXPLODE…and you miss out!
Some call him the ‘founder of the modern day hedge fund’, and his prowess for picking stocks that fly under the radar is unprecedented.
In his brand new book and newsletter, you’ll get his latest explosive picks AND research that will give you the edge to make the trades that you’re truly seeking!
This is free, and includes free in-depth newsletter research.
Strategists often like to cloak themselves in the fundamental or technical mantels alone. But parse their words carefully, and the best fundamentalists talk about support and resistance levels, while the ace technicians refer to the latest economic data points.
The reality is that the best of the best are using both all the time. The differential titles have more to do with marketing purposes than anything else.
Having said all that, you better take a good, hard look at the chart below for the Shanghai Stock Exchange Composite Index ($SSEC). The 2016 low has held and the long-term uptrend lives.
My bet is that it resolves to the upside. All it would be doing then is coming in line with the rest of the global equity markets, including those of many emerging markets.
Since the last top, the earnings multiple of Chinese companies has plunged, from 35 times to a mere 15 times. This means that the 6.5% a year growing economy (China) is trading at a lower multiple than the 2.3% a year growing one (the U.S.). The big question among strategists since 2009 has been how far these valuations would diverge.
If I am right, then you can expect a rally of at least 25% in the Shanghai market soon, and more in peripheral markets, such as Hong Kong (EWH) and in single Chinese names. My bet is that it starts in August, when the current correction ends and we resume the year-end ramp-up.
You should place a laser-like focus on the Chinese Internet sector, so you won’t go wrong picking up some Baidu (BIDU) around $180, if you can get it (click here for my original recommendation to buy the stock at $12 nine years ago.)
If you are looking for further confirmation of the coming bull move in China across asset classes, please peruse the chart below for copper. The red metal has one of the closest correlations out there with the fate of the Middle Kingdom’s economy and stock markets. It appears to be breaking out of a major five-year downtrend as well.
The other nice thing about this scenario is that it provides more fodder for my expectation of another global bull market move in the fall, when you can expect major indexes to tack on another 10% by year-end.
