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Standby for the Coming Golden Age of Investment | Global Trading Dispatch

I believe that the global economy is setting up for a new Golden Age reminiscent of the one the United States enjoyed during the 1950’s, and which I still remember fondly.

This is not some pie in the sky prediction.

It simply assumes a continuation of existing trends in demographics, technology, politics, and economics. The implications for your investment portfolio will be huge.

What I call “intergenerational arbitrage” will be the principal impetus. The main reason that we are now enduring two “lost decades” of economic growth is that 80 million baby boomers are retiring to be followed by only 65 million “Gen Xer’s”.

When the majority of the population is in retirement mode, it means that there are fewer buyers of real estate, home appliances, and “RISK ON” assets like equities, and more buyers of assisted living facilities, health care, and “RISK OFF” assets like bonds.

The net result of this is slower economic growth, higher budget deficits, a weak currency, and registered investment advisors who have distilled their practices down to only municipal bond sales.
Fast forward six years when the reverse happens and the baby boomers are out of the economy, worried about whether their diapers get changed on time or if their favorite flavor of Ensure is in stock at the nursing home.

That is when you have 65 million Gen Xer’s being chased by 85 million of the “millennial” generation trying to buy their assets.

By then we will not have built new homes in appreciable numbers for 20 years and a severe scarcity of housing hits. Residential real estate prices will soar. Labor shortages will force wage hikes.

The middle-class standard of living will reverse a then 40-year decline. Annual GDP growth will return from the current subdued 2% rate to near the torrid 4% seen during the 1990’s.
The stock market rockets in this scenario.

Share prices may rise very gradually for the rest of the teens as long as tepid 2-3% growth persists.

A 5% annual gain takes the Dow to 26,000 by 2020.

After that, we could see the same fourfold return we saw during the Clinton administration, taking the Dow to 100,000 by 2030.

If I’m wrong, it will hit 200,000 instead.

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Emerging stock markets (EEM) with much higher growth rates do far better.

This is not just a demographic story. The next 20 years should bring a fundamental restructuring of our energy infrastructure as well.

The 100-year supply of natural gas (UNG) we have recently discovered through the new “fracking” technology will finally make it to end users, replacing coal (KOL) and oil (USO).

Fracking applied to oilfields is also unlocking vast new supplies.
Since 1995, the US Geological Survey estimate of recoverable reserves has ballooned from 150 million barrels to 8 billion. OPEC’s share of global reserves is collapsing.

This is all happening while automobile efficiencies are rapidly improving and the use of public transportation soars.

Mileage for the average US car has jumped from 23 to 24.7 miles per gallon in the last couple of years, and the administration is targeting 50 mpg by 2025. Total gasoline consumption is now at a five year low.

Alternative energy technologies will also contribute in an important way in states like California, accounting for 30% of total electric power generation by 2020.

I now have an all-electric garage, with a Nissan Leaf (NSANY) for local errands and a Tesla Model S-1 (TSLA) for longer trips, allowing me to disappear from the gasoline market completely. Millions will follow.

The net result of all of this is lower energy prices for everyone.
It will also flip the US from a net importer to an exporter of energy, with hugely positive implications for America’s balance of payments.

Eliminating our largest import and adding an important export is very dollar bullish for the long term.

That sets up a multiyear short for the world’s big energy consuming currencies, especially the Japanese yen (FXY) and the Euro (FXE). A strong greenback further reinforces the bull case for stocks.

Accelerating technology will bring another continuing positive. Of course, it’s great to have new toys to play with on the weekends, send out Facebook photos to the family, and edit your own home videos.

But at the enterprise level this is enabling speedy improvements in productivity that is filtering down to every business in the US, lower costs everywhere.

This is why corporate earnings have been outperforming the economy as a whole by a large margin.

Profit margins are at an all-time high.

Living near booming Silicon Valley, I can tell you that there are thousands of new technologies and business models that you have never heard of under development.

When the winners emerge, they will have a big cross-leveraged effect on economy.
New health care breakthroughs will make serious disease a thing of the past, which are also being spearheaded in the San Francisco Bay area.

This is because the Golden State thumbed its nose at the federal government ten years ago when the stem cell research ban was implemented.

It raised $3 billion through a bond issue to fund its own research, even though it couldn’t afford it.
I tell my kids they will never be afflicted by my maladies. When they get cancer in 20 years they will just go down to Wal-Mart and buy a bottle of cancer pills for $5, and it will be gone by Friday.

What is this worth to the global economy? Oh, about $2 trillion a year, or 4% of GDP. Who is overwhelmingly in the driver’s seat on these innovations? The USA.

There is a political element to the new Golden Age as well. Gridlock in Washington can’t last forever. Eventually, one side or another will prevail with a clear majority.

This will allow the government to push through needed long-term structural reforms, the solution of which everyone agrees on now, but nobody wants to be blamed for.

That means raising the retirement age from 66 to 70 where it belongs, and means-testing recipients. Billionaires don’t need the maximum $30,156 annual supplement. Nor do I.

The ending of our foreign wars and the elimination of extravagant unneeded weapons systems cuts defense spending from $800 billion a year to $400 billion, or back to the 2000, pre-9/11 level. Guess what happens when we cut defense spending? So does everyone else.

I can tell you from personal experience that staying friendly with someone is far cheaper than blowing them up.

Pax Americana would ensue.

That means China will have to defend its own oil supply, instead of relying on us to do it for them. That’s why they have recently bought a second used aircraft carrier. The Middle East is now their headache.
The national debt then comes under control, and we don’t end up like Greece.

The long-awaited Treasury bond (TLT) crash never happens.

Fed governor Janet Yellen has already told us as much by indicating that the Federal Reserve will soon start to unwind its massive $3.9 trillion in bond holdings.

What have bond prices done?

Almost nothing.

The reality is that the global economy is already spinning off profits faster than it can find places to invest them, so the money ends up in bonds instead.

Sure, this is all very long-term, over the horizon stuff. You can expect the financial markets to start discounting a few years hence, even though the main drivers won’t kick in for another decade.

But some individual industries and companies will start to discount this rosy scenario now.

Perhaps this is what the nonstop rally in stocks since 2009 has been trying to tell us.

Dow Average 1900-2015

Another American Golden Age is Coming

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Nvidia Reports – Stock Rockets Again | Global Trading Dispatch

Last year, whenever anyone asked me for a stock most likely to double in 2017, I uniformly responded with the same name: NVIDIA (NVDA).

For me, it was a no-brainer.

The processor manufacturer occupied the nexus of the entire movement towards machine learning and artificial intelligence, and then was still relatively unknown.

I lied.

The stock didn’t double, it more than tripled, from $67 to a high of $219.

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These days, I am being asked the same question.

But this time, I’m going to be boring. Believe it or not, the name to double again in 2018 is (NVDA).

You would think I am MAD to be chasing the big winner of 2017.

But take a look at their blockbuster earnings announced last week first, which blew away the street’s most optimistic expectations.

Q3 revenue leapt 54% to just over $2.64 billion, and net profits of $1.33 a share, up 33% YOY, and 41.5% greater than expected.

Their gross operating margin is an eye popping 59.7%.

It is dominating in the fastest growing sectors of the technology space, including AI, virtual reality, and fast data processing.

Every automobile company is basing its self-driving technology on its XP computer.

And now there is a new game in town.

(NVDA) is a major beneficiary of the exponential growth of cryptocurrencies, whose need for processing power is growing voraciously.

At this point, the company has a huge installed base of users on which to build on.

Look at the spec sheets of anything you buy these days and you will find NVIDIA parts somewhere in the guts.

I bought my kids a Dell Alienware Area 51gaming PC to run the Oculus Rift virtual reality hardware for Christmas (they don’t read this letter on a daily basis). It came with a state of the art NVIDIA GeForce GTX 1080 graphics card.

I also happen to know that NVIDIA chips are lurking somewhere in my Tesla (TSLA) Model S-1 and Model X.

Most companies have only one or two artificial intelligence experts. NVIDIA has over 1,000.

While the stock is priced for perfection, it is continuing to deliver just that. The shares actually fell on the earnings announcement.

But let’s face it. The momentum of this stock has been unassailable.

However, the company is so far ahead of its competitors it is actually increasing its lead. Nobody has a chance of catching them.

The company is managing an industrywide migration of processing power from the CPU to the GPU. You have to use their architecture, or you will go out of business.

This is why every PC manufacturer, including Dell (DVMT) and Hewlett Packard (HPQ), are partnering with them. IBM (IBM) is using their chips in their high-end machines.

This is because (NVDA) is now first to market with everything important.

Nvidia’s dominance of the high-end GPU market is allowing it to soak up all of the spending that would normally have been at least somewhat split between itself and AMD.

Gaming was the big revenue booster for Nvidia, which now accounts for 59% of sales.

Sales of Nvidia’s flagship product, the passively cooled 16GB Tesla P100 GPU, is being ravenously consumed by data centers around the country, and should double again in 2018.

And the company has just started to chip its new Volta-based Tesla V100 GPU, which offers a tenfold increase over previous generations.

Hold one of these dense, wicked fast processors in your hand and you posses nothing less than the future of western civilization.

Over the long term, the picture looks even better. It should continue with annual earnings growth of at least 20%-30% a year for the foreseeable future.

At a minimum, the shares have at least another double in them. If I’m wrong, they’ll only go up 50%.

Not a bad choice to have.

My only concern about Nvidia is that with a market capitalization of 128.5 billion, with one more double, the law of large numbers will kick in.

However, Apple had no trouble rising 50% off of a $600 market capitalization a year ago.

For those of you who did the trade at the beginning, or better yet, bought deep out of the money one year option LEAPS, well done!

 

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The Tax Bill Comes Due | Global Trading Dispatch

Finally, investors were reminded of the fact that stocks don’t rise in value every day like a sinecure.

We even witnessed a rare $250 point draw down in the Dow Average. In 2017, these have become as rare as hen’s teeth.

You can thank the Republican Party’s proposal to delay all corporate tax cuts to 2019 for that one.

The closely watched average has not seen a 3% correction in a torrid 370 days, a record.

In the meantime, concentration is increasing to perilous extremes, never a healthy development.

NVIDIA (NVDA), my top market pick for this year, is up 680% in 18 months, making it one of the largest stocks in the market, compared to 37.64% for the Dow Average.

By the way, I hope you have since deservedly fired all those newsletters who were bearish 18 months ago.

As good as 2017 has been, even IT will come to an end.

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After earnings, the tax reform bill being mooted by congress has become the sole driver of share prices.

That has made life miserable for strategists such as myself, as trial balloons are floated one day, only to be shot down the next.

For a start, the bill is misnamed as a tax cut, as almost everyone I know will pay higher taxes, and I’m talking acquaintances in all 50 states.

The bill would cost me $100,000 personally, as I own a lot of real estate. The hit promises to heavily influence my vote in the next election.

Vastly complicating matters is the fact that the House and the Senate bills are wildly conflicting on basic issues, meaning that reconciliation is going to be impossible.

In the end, it may be a lot of fuss over nothing.

The bill that makes it to the president’s desk for signing will be determined by the most liberal Republican member of the Senate, which at this point is either Maine’s Susan Collins and Alaska’s Lisa Murkowski.

And at this point Collins has confirmed that she won’t vote for ANY bill without public hearings, and certainly WON’T vote for the elimination of the estate (death) tax.

In the end, it may be the erstwhile voters of Alabama who decide the matter.

They vote for a new Senator on December 12, and due to unforeseen circumstances, the Democratic candidate has suddenly shot to a 46% to 42% lead.

However, the margin of error is 4.1%. So once again, we are forced to bet on an event where we have absolutely no idea of the outcome.

And you wanted to work in show business?

If this is all the bull market has to hang on, it could be in trouble.

It is this conclusion that prompted me to add my first short positions in stocks in many months.

In particular I sold the Russell 2000 (IWM), which actually has only 1,700 stocks left after mergers, bankruptcies, and private equity buyouts.

This is the index you love to hate in falling markets because of the fragility of smaller companies during times of economic uncertainty.

Of course my big trade of the week, if not the year, was my recommendation to buy the (TLT) March 2018 $123-$125 vertical bear put spread LEAP.

Two days later saw the sharpest bond market selloff of the year, nearly two full points.

Those who got in at the $0.80 Wednesday low saw an eye-popping 69.50% return on capital by the Friday close.

It’s another example of how the harder I work, the luckier I get.

Did Christmas come early for me?

I bought the exchange position limit maximum of 2,000 contracts with an average cost of $0.90, meaning that coined $50,000 in two days to cover my coming Christmas shopping bills (front row seats for Hamilton in Chicago, etc.).

Oops, looks like I am going to have to save some for a higher tax bill for 2018 as well.

The third quarter earnings are now winding down to a close, but we still have a few biggies in the coming week.

Troubled General Electric (GE), Wal-Mart (WMT), Home Depot (HD), and Bank of America (BAC) are all reporting.

On Monday, November 13, there is no economic data of any import.

On Tuesday, November 14 at 6:00 AM EST we get a new NFIB Small Business Optimism Index, which is based on a questionnaire of only 10 common business outlook questions.

On Wednesday, November 15, at 7:00 AM EST we obtain MBA Mortgage Applications, which should tail off, given the recent sharp rise in interest rates.

The weekly EIA Petroleum Status Report is out at 10:30 AM.

Thursday, November 16 at 8:30 AM EST we learn the Weekly Jobless Claims, which have been plumbing new 43 year lows.

On Friday, November 17 at 1:00 PM, we receive the Baker-Hughes Rig Count, which lately has been rolling over.

As for me, I’ll be personally trying to reinvigorate the economy of Napa Valley by engaging in some high end wine tasting.

The community lost the entire month of October, normally their busiest of the year, and they are trying to get locals to fill the gap left by out-of-state cancellations. Layoffs are now rampant.

I’ll also be helping relatives sift through the wreckage to salvage what few mementos they can.
Sounds like a tough sell to me.

The benefits gained through a doubling of the $4,505 personal exemption ($8,100 if you are married) don’t even come close to offsetting losses from missing $100,000 tax and mortgage interest deductions.

And where is the cut in capital gains taxes, long a Republican goal? Missing in Action.

If you make anything over $500,000 a year, you’re golden.

When the market figures out that these numbers don’t add up, the sushi will hit the fan.

Sell short the Russell 2000.

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Russell 2000 Set For A Short-Term Struggle

As much as you may think I have just gone MAD, I believe it is time to start dipping your toe in on the short side in the stock market. I want to elaborate on the finer points of the rationale for doing this trade. The new Republican plan floated yesterday to delay corporate tax cuts to 2019 has certainly put the cat among the pigeons with equity investors.

It has reminded them how high stocks have run, and how much now withering unrealized profits are sitting on their books.

The Russell 2000 is actually misnamed, as it now has only 1,700 stocks.

The rest have disappeared over the years through mergers, privatizations, or bankruptcies, and have not been replaced, as happens quarterly with the S&P 500 SPY).
For you and me this means that the (IWM) is more illiquid that the (SPY). When stock markets fall, the (IWM) falls about 1.5 times faster than the (SPY).

In other words, it’s a great short to have in a falling market.
I think stocks markets may be starting to either top out, or roll over here, at least for the short term.
That is especially true of the Russell 2000, which has not participated in the rally for the past month.

An approaching yearend is a big risk for the markets, as are overstretched valuations and prices.
The warning signs of a selloff are absolutely everywhere, but until now, have been ignored.
My Mad Hedge Fund Trader Market Timing Index has been living in overbought territory for the past two months. The normal life of a medium-term top is, guess what? Two months.

It shows that the normal life of a medium-term topping process is two months.

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When will that two months end?

About mid-December, two weeks before gigantic deferred tax selling hits the market in January.

Small cap stocks have other problems.

Since they lack the sources of internal finance that the big companies do, they are much more sensitive to the economic cycle.

That makes them much more dependent on a boost from tax cuts.

Large companies don’t pay taxes anyway, so there’s nothing in the tax package for them.

Small caps also are much more dependent in domestic sales than large ones.

They lack the financing and the sophistication to create elaborate offshore structure to minimize their tax bill.

So any developments that threaten to dilute or derail tax cuts will hit small companies much greater than big ones.

Another way to play this is to buy the ProShares Short Russell 2000 ETF (RWM), a bet that small cap stocks will fall.

If you are looking for other ways to hedge your portfolios you might consider the Trade Alert I also sent yesterday to buy gold (GLD).

Look at the chart below for the barbarous relic and you see that we have a sideways triangle formation setting up over the past month that will be a nice springboard for a sudden move upward.

All we need is one more threat to the tax cuts, which these days, seem to be coming out of the woodwork.

Listening to subscribers in all 50 states, I don’t know a single individual who is seeing the prospect of lower taxes as a result of the Republican plan.

It appears that those earning between $200,000 and $500,000 a year will bear the entire burden of the package, who make up the bulk of my readers.

What is the overwhelming party affiliation of this income group? Republican, who are in fact being asked to support a tax INCREASE. 

Sounds like a tough sell to me.

The benefits gained through a doubling of the $4,505 personal exemption ($8,100 if you are married) don’t even come close to offsetting losses from missing $100,000 tax and mortgage interest deductions.

And where is the cut in capital gains taxes, long a Republican goal? Missing in Action.

If you make anything over $500,000 a year, you’re golden.

When the market figures out that these numbers don’t add up, the sushi will hit the fan.

Sell short the Russell 2000.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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3 Black Swans That Could Jolt The Market

There are three black swans headed your way.

If any one of them alights it could wipe out all of your 2017 gains.

If two come in for a landing the damage could be far worse.

If it’s its three, you’re facing Armageddon.

And four….?

I recently received an email from a long-time reader complaining that he regretted following every negative comment I made over the last eight years.

All of them cost him money. He should have just stayed leveraged long and ignore my entreaties to buy gold or Volatility Index (VXX) calls.

I asked how much he was up, reflected these painful losses.

Answer: 732%.

So he’s complaining about the cost of fire insurance when his house didn’t burn down.

During the 1980’s, Morgan Stanley made several hundred million dollars trading Japanese stocks.

After a blockbuster first half of the decade, profits started to trail off.

So, the firm took all the senior traders off the desk who had grown cautious and replaced them with kids who had never seen a down market.

We made fortunes!

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I made enough money to retire and start my own hedge fund at the tender young age of 37.

Never mind that a couple were promoted to managing directors who then got fired when the worm turned a few years later.

Now reminds me of that time.

So it is timely to review what could bring the party to an end, ring the bell, and pee on our parade.

Did you know that half of the 30 Dow Average stocks are up more than a mind blowing 40% this year?

Here are four black swans potentially headed your way.

1) The Tax Cuts Fails to Show

The president tends to be long on promises, but short on delivery.

Today, Treasury Secretary Steven Mnuchin threatened that stocks would dive if the market didn’t get the tax cuts it was hoping for.

With only 20 working days left in 2017 for Congress, time is running short. Even the first quarter of 2018 will be a stretch.

What does pass is likely to be highly diluted and have no real impact on corporate earnings, especially the Fortune 500, which doesn’t pay taxes anyway.

No tax cut means you would give up the gains of the current tax driven rally that started in August, about 1,500 Dow points, or some 6.5%.

2) Special Investigator Robert Mueller Indicts Donald Trump

Multiple criminal investigations of the president have been going on for six months now and they are not continuing because of a lack of evidence.

More likely, they keep finding MORE evidence, but don’t want to indict until every “i” is dotted and “t” crossed, given the target.

Since my former Marine comrade-at-arms Mueller is running an incredibly tight ship, this one will come totally out of the blue.

An impeachment wouldn’t necessarily hurt the economy or the stock market. It didn’t last time, in 1975.

But it would bring things to a complete halt in congress, including the tax cuts. And then we have the congressional midterm elections.

Yikes!

3) 2018 Tax Loss Selling Kills the Market

This is the most likely black swan, as it requires a simple turning of a page.

What happens when all of the deferred 2017 tax loss selling pours into January, 2018?

If there is enough new equity reallocation for next year to offset it nothing happens.

If there isn’t, look out below.

I’m not saying that ANY of these black swans will actually occur. At this point it is all just one big “thought experiment.”

But if they do, cash will be the “better part of valor,” as Falstaff might have said in Shakespeare’s King Henry the Fourth, Part One.

 

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Switching From Growth To Value

All good things must come to an end.

For most of 2017, growth stocks far and away have been the outstanding performers in the US stock market.

Almost daily, I was delighted in sending you Trade Alerts to buy winners, like NVIDIA, Palo Alto Networks, Apple, Facebook, and Alphabet.

And so they delivered, in spades.

The reasons for their impressive gains were crystal clear.

Hyper accelerating technology, which I have been pounding the table for years, kicked into overdrive in 2017.

The believers were rewarded, as was evidenced by the blockbuster earnings announced by the tech leaders.

However, good things don’t last forever, and trees don’t grow to the sky.

There is in fact a good chance that market leaders will change in 2018.

A sea of change may be coming. Which group is about to take charge?

That would be value stocks.

How do you deal with an expensive market that has been running for nearly a decade?

Only buy cheap stuff.

Value stocks are easy to find.

Do any quantitative screen based on low price earnings multiples, low price to book value, and low price to cash flow, and you will find thousands of them.

This is what the big boys do.

There is another reason to refocus on value stocks, but it is more psychological than analytical.

We are now entering our ninth year in this bull market, one of the strongest in history.

Portfolio managers are very wary of paying high multiples at market tops, as many did at the summit of the Dotcom bubble in 2000 and in housing debt in 2008.

At least if they buy cheap share at market highs they have done an adequate job preserving explanations for their actions.

There is also some inherent built in safety in increasing weightings in companies that haven’t appreciated very much.

I probably don’t know you personally (although I call about 1,000 of you a year), but I bet you don’t have 100 in-house analysts at hand to help you sift through the wheat and the chaff.

So let me do the heavy lifting for you. I’ll distill down the value play to a handful of high quality, high probability sectors.

1) Industrials – Remember those, the decidedly unsexy, heavy metal bashing companies that you have been ignoring for years?

With US GDP now growing at a more robust 3%, suddenly this is a sector you want to own.

Protection from tailwinds and deregulation provide additional tailwinds.

What’s my favorite industrial?

The former hedge fund that made light bulbs, General Electric (GE).

They make really cool jet engines and diesel electric locomotives too.

And the shares have just been completely slaughtered, making them the worst performing Dow stock of 2017 by a large margin.

It has been punished enough.

My second pick in this sector would be US Steel (X).

Dogs of the Dow arise!

2) Consumer Discretionary – Finally, people are spending their gas savings, now that they realize it is more than a temporary windfall.

A housing market that is on fire is creating enormous demand for all the things owners stuff in their homes, both in new purchases and upgrades.

Low rates will keep the 30-year mortgage under 4% for longer. You already know my best name here, Home Depot (HD).

3) Financials – Look at the head and shoulders top now in place in the US Treasury market, and the first thing you want to do is rush out and buy bank stocks.

This steepening yield curve is where it really matters for banks, as it allows them to hugely expand their profit margins.

On top of that, bank valuations are at the bargain basement end of the market, with many still trading at below book value.

Go for Citibank (C), Bank of America (BAC), and Goldman Sachs (GS).

New leadership from low-priced sectors could give us the rocket fuel for a melt up in the indexes into 2018.

It could take us right to my final Dow target of 28,000 in 2019.

After months of derisking, both institutions and hedge funds are underweight stocks and shy of exposure.

As a result, the balance of this year has “chase” written all over it.

Keep your fingers crossed, but stranger things have happened.

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Who Was the Greatest Wealth Creator in History? | Global Trading Dispatch

Who’s been buttering your bread more than any other? Which publicly listed company has created the most wealth in history?

I’ll give you some hints.

The founder never took a bath, was a devout vegetarian, and dropped out of college after the first semester. The only class he finished was for calligraphy. And he was a first-class asshole.

Silicon Valley residents will immediately recognize this character as Steve Jobs, the co-founder of Apple (AAPL).

In 20 years, his firm created $1 trillion of wealth for his shareholders. As of today, his company has a market capitalization of $805 billion, making it the largest in the world.
Until this year, Exxon (XOM) held the top spot, creating $900 million in new wealth, although to be fair, it took 90 years to do it.

But with Apple shares up 50% in 2017, and Exxon down -8%, Steve’s creation was easily able to grab the top spot.

To be completely and historically accurate, most of the original seven sister oil companies are decedents of John D. Rockefeller’s Standard Oil Company.

Add the present value of these together, and Rockefeller is far and away the biggest money maker of all time. And he made most of this before income taxes were invented in 1913!

Reviewing the performance of other top performing companies, it is truly amazing how much wealth was created from a technology boom that started in the 1980’s.

Investors’ laser like focus on the FANG’s is well justified.

That’s why I often tell guests during my lectures around the world that if they really want to be lazy, just buy the ProShares Ultra Technology ETF (ROM) and forget everything else.
Another college dropout’s efforts, those of Bill Gates Microsoft (MSFT), produced an annualized return of 25% since 1986. That made him the third greatest wealth creator in history.

It also made him the world richest man, worth some $87 billion. He is thought to have single handedly created an additional 1,000 millionaires.
Facebook (FB) is the youngest on the list of top money makers, creating an annualized 34.5% return since it went public in 2012.

Alphabet (GOOG) is the second newest on the list, racking up a 24.9% annualized return since 2004.

Amazon (AMZN) is 14th on the list of all time wealth creators, has just entered its 20th year as a public company.

Being an armchair business and financial historian, many runners up were major companies in my day, but generate snores among Millennials now.
Believe it or not, General Motors (GM) still ranks as the 8th greatest wealth creator of all time, even though it went bankrupt in 2008.

Ma Bell, or AT&T (T) ranks number 17th, but was merged out of existence in 2005. A regrouping of Bell System spinoffs possesses the (T) ticker symbol today.

Among its distant relatives are Comcast (CCV) and Verizon Communications (VZ).

Warren Buffet’s Berkshire Hathaway (BRKY) ranks 12th as an income generator, with an annualized return of only 11.94%.

Its performance is diluted by the low returns afforded by the textile business before Buffet took it over in 1962. Buffet’s returns since then have been double that.

Analyzing the vast expanse of data over the last 90 years proves that single stock picking is a mugs game.

Since 1926, only 4% of publicly traded stocks made ALL of the wealth generated by the stock market.

The other 96% either made no money to speak of, or went out of business.

This is why the Mad Hedge Fund Trader focuses on only 10%-20% of the market at any given time, the money making part.

In other words, you have a one in 25 chance of picking a winner.

A modest 30 companies accounted for 30% of this wealth, while 50 stocks accounted for 40%.

You can only conclude that stocks make terrible investments, not even coming close to beating the minimal returns of one month Treasury bills, a cash equivalent.

It also is a strong argument in favor of indexed investment in that through investing in all major companies you are guaranteed to grab the outsized winners.

That is unless you follow the Diary of a Mad Hedge Fund Trader, which picked Amazon, Apple, Facebook, Google, and Tesla right out of the gate.

If you want to learn more about the number crunching behind this piece, please visit the research of Hendrik Bessembinder at the W.P. Carey School of Business at Arizona State University.

 

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Trade Alert – (TLT) October 24, 2017 TAKE PROFITS

SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT)November, 2017 $129-$131 in-the-money vertical BEAR PUT spread at $1.99 or best

Closing Trade 

10-24-2017 

expiration date: November 17, 2017 

Portfolio weighting: 10% 

Number of Contracts = 56 contracts
 

Since I added this short position three trading days ago, bonds have suffered a pretty massive move down, hitting a two-month low. 

We have some seriously bond impacting moves right in front of us. 

Those would include the naming of a new Fed governor and the fact that risk assets globally are at generational valuation and momentous highs. 

The Nikkei stock average up 16 days in a row? 

I also have an imbedded instinct to automatically take a 10.55% profit that drops in my lap in only three trading days. 

The risk reward of continuing for 22 more trading days until the November 17 expiration are now longer favorable. 

I am therefore taking profits and selling my position in the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November, 2017 $129-$131 in-the-money vertical BEAR PUT spread. 

After equities, bonds have been my most profitable asset class in 2017. 

The value of dry powder going into the next price spike cannot be underestimated.


TRENDING NOW

SHOCKING: Federal Reserve #2 Resigns Because of…

What I’m about to show you could have a huge impact on your life.




The fundamental reasons for this trade, which has been writing me a check almost every month this year, are still there. 

1) The global synchronized recovery is accelerating. 

2) Fed governor Janet Yellen plans to start dropping on the bond market in the very near future $6 billion a month, or $200 million a day, worth of paper in her QE unwind. 

3) It is widely perceived that potential tax cuts will provide further stimulus for the US economy. 

All are HUGELY bond negative. 

That should take bonds down to new 2017 lows. What we could be seeing here is the setting up for the perfect head and shoulders top of the (TLT) for 2017. 

To lose money on this position the (TLT) would have to have risen above $129, and  yields would have to drop below 2.13%, which they absolutely wouldn’t ahead of a new deluge of bond selling from the Fed. 

If you didn’t do options and bought the ProShares Ultra Short 20+ Treasury Bond Fund (TBT), a bet that bonds will fall, keep it. It is going much higher. 

Here are the specific trades you need to execute this position: 

Sell 56 November, 2017 (TLT) $131 puts at………….………$8.15 
Buy to cover short 56 November, 2017 (TLT) $129 puts at…….$6.16 
Net Proceeds:…………………….…………..………….……..$1.99
 

Profit: $1.99 – $1.80 = $0.19 

(56 X 100 X $0.19) = $1,064 or 10.55% in 3 trading days.

 

To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.

Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this. 

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. 

The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. 

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile close to expiration. 

If you don’t get it done, don’t worry. There are another 250 Trade Alerts coming at you over the coming 12 months.

 

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