Below please find subscribers’ Q&A for the June 22 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA.
Q: Where would you recommend getting involved in Freeport-McMoRan Inc. (FCX) again?
A: We’ve just come off from $51 to $31, and $30 has been the support level for the last year and a half. The problem with (FCX) is that copper is a commodity, and if you think a recession is coming, the last thing in the world you want to own is a commodity. That’s because commodities don’t pay dividends, don’t pay interests, cost money to store, and thus should be avoided like the plague during recessions. Even if we don’t have a recession, the market will discount one anyway—remember the market has discounted twelve out of the last six recessions. This could be one of those non-recession recessions. So, $30 may hold; if it doesn’t, the two hundred day moving average is at $22. Long term, I'm looking for $100 with Freeport. You might want to buy half a position here, and then half if we break all the way down to $22 and discount the full recession. Long term I love it, short term it will have a lot of volatility—it’s already come off 40% in a couple of months.
Q: Will JP Morgan (JPM) and Goldman Sachs (GS) go up when interest rates are going up?
A: Yes. They’re going down now because of recession fears. When recession fears are no longer an issue, you can expect the entire financial sector to double over the next three years. The reason is that when you eliminate the recession fears, you eliminate default fears on the debts of big banks. And that knocks off a major credit issue for these companies, which in the meantime benefit enormously from high interest rates. They increase their profit margins on their loans. So definitely JP Morgan Chase (JPM), Bank of America (BAC), Citicorp (C), Morgan Stanley (MS), and Goldman Sachs (GS) are the plays there. And we’re probably pretty close to a bottom on the whole group.
Q: What about PayPal (PYPL)?
A: It’s down about 75% from its high. I think the smaller non-earning tech companies are going to take a long time to recover, probably years. But once they do recover, they will triple and quadruple. If you’re willing to tie up money for a long time for a bigger return, PayPal (PYPL), Square (SQ), and the other fintech stocks are going to be your cup of tea.
Q: Can you see a recession dragging into the next election?
A: I think not. The shocker is that the Republicans seem to be basing their entire campaign on inflation, and that could be a problem if inflation disappears by November, which it could very well do. A lot of things could eliminate inflation like a collapse of the oil market, which is happening right now, by the way. We’ve had a massive drop in oil prices—the end of the Ukraine war and good weather would also help with the food inflation. So those are all possibilities. My personal bet is that we get down to 4% by November, which is tolerable. And it’s 4% on the way to 2%. We could be down to 2% in two years—or at least that's what the Federal Reserve thinks. So be ready for surprises when it comes to the election. It’s five months off, and that's like 5,000 years in political terms.
Q: Why is the Fed funds rate 1.70% against an inflation rate of 8.6%?
A: Virtually everybody in the business thinks the inflation rate at 8.6% will be completely gone in a year. Recessions and even the fear of recessions cure inflation, even if we don’t actually get one. And that is in the process of happening now. You’re starting to see some big swings on the job market, collapsing oil prices, etc. So that kind of confirms that view.
Q: Why is the Fed funds rate so low now?
A: We have probably the most gradualist Fed in history. Jerome Powell likes to announce everything way in advance and do things slowly, and he’s continuing in that vein.
Q: I’m getting the Mad Hedge Technology Letter, which currently has no positions.
A: That’s true. Tech has been a horrible place to be. One of the jobs of the Mad Hedge Fund Trader is to not only get you into the good positions but to keep you away from the terrible ones, especially when they’re crashing, and that’s pretty much what the tech letter has been doing all year. We have done a lot of trades this year in tech, but they’ve been short-term trades on extremely oversold bounces. We’ve made money there, up 12% so far in 2022 with NASDAQ down 36%. And again, that is the job of the hedge fund.
Q: What will stop the ProShares UltraShort 20+ Year Treasury (TLT) short trade?
A: When the Fed skips an interest rate rise, and that could happen in September. We could still keep selling five-point rallies in the (TLT), but we’re reaching the end of the road.
Q: Why have a retirement fund if you’re never going to retire?
A: The tax advantages are tremendous, although, the IRS is forcing me to take social security now because they’re not increasing the amount anymore if you defer payments. I'm going to start getting my checks soon.
Q: I’m not getting the text alerts on my phone.
A: Contact Filomena at customer support at (347) 480-1034 and she will get you set up on that; that’s an easy fix.
Q: Should we buy energy? If so, gas or oil?
A: None of the above—we are peaking now in energy. Almost the entire industry thinks we’re going to be down by half in a year, and more if the Ukraine war ends.
Q: Should we add to our ProShares UltraShort 20+ Year Treasury (TBT) position?
A: No. I think you’re going to get real resistance at the $30 level. $14 is where you should have been buying (TBT) last November when we were screaming at you to please do this in large size, and do it in LEAPS which give you lots of leverage. People who did that doubled their money in 7 months, including me.
Q: What do you think about Snowflake Inc. (SNOW)?
A: I love it, it’s a great database firm for the long term, also heavily involved in cybersecurity. The stock is down 70% in a year. But it is a small non-money-making tech company, so you may have to wait a long time to actually get performance. Another one of these “you may get a 10X on this but may have to wait years for the move to start,” like hundreds of other stocks in the same category.
Q: What do you think about Zillow Group Inc. (ZG)?
A: Don’t touch it with a ten-foot pole. It has been a real disaster of a stock, down 86% since November. If real estate prices are peaking or moving sideways (and certainly the number of transactions is declining) you don’t want to be anywhere near real estate, home builders, and housing—that whole area is just getting slaughtered. Zillow is definitely a slaughter-ee.
Q: Is it okay to roll a 2024 LEAP into 2025 on Freeport McMoRan (FCX)?
A: Yes that is a good idea. Even if we have a recession, it will be well and done by 2025, and we might even be up to our $100 price in (FCX) because I saw a report today saying that by 2028 EVs will be 33% of the total US car market. Every one of those EVs needs 200 lbs of copper, so you do the math.
Q: Is the price of oil declining because of lack of demand, or because investors are predicting a recession?
A: They are on in the same. It’s definitely recession fears that’s causing oil to peak out, and those will probably continue for a couple more months. By the way, gasoline isn’t just an oil supply problem; it’s also a refining problem because the Koch brothers have moved a big chunk of their refining to Mexico to avoid environmental controls, and as a result, we don’t have refineries in the US anymore. Many of them shut down here during the pandemic and then reopened in Mexico.
Q: Any thoughts about Japan’s currency in freefall, and is this the path of all currencies in the future?
A: Japan is in a unique situation because unlike any central bank in the world, the bank of Japan is continuing to buy bonds and flood the system with liquidity while everybody else in the world is tightening. That is crushing the Japanese currency, and they show no sign of stopping that any time soon. They seem unable to change monetary policy in Japan—it’s the same monetary policy they’ve had for 32 years: flooding the system with free money, which has worked so well. I know a lot of people who are short Yen; I missed it because I was busy with so many other better trades.
Q: Would you invest in California real estate right now, like in Palm Springs for an Airbnb rental?
A: No, you never want to buy real estate one month into a real estate correction, which could go on for a year or two (or until the Fed starts to lower interest rates again, which could be in a couple of years.) And Airbnb, particularly in towns like Palm Springs, is placing all kinds of restrictions on Airbnb to keep short term renters out of town due to a really bad habit of having wild parties, destroying the properties, shootings, and other stuff that happen on Airbnb’s. The same is true in Incline Village—they now have a 30-day minimum rental requirement to clamp down on the Airbnb business. And, by the way, Airbnb will completely change the character of a neighborhood. I’ve seen it happen in cities like Florence, Italy.
Q: When should I pull the trigger on Meta Platforms Inc. (META), formerly known as Facebook?
A: Probably not for a couple of years. The whole metaverse idea is something where profits are very far in the future.
Q: When is the next inflationary panic?
A: July 13. 8:30 am EST is when the next CPI number is released, and our entire portfolio (we now have 7 positions) expires 2 days later. How about that for timing?
Q: Do you own stock, or do mostly LEAPS?
A: I do mostly LEAPS because I like the 10 to 1 leverage, and I’m almost always right on the name picks. It’s like printing free money.
Q: Should we buy puts on oil?
A: That’s something we talked about 3 weeks ago, and I said to go for the $80 out of money puts. If you did, you easily doubled your money on those. Now, not so much. Don’t think about doing trades after they worked.
Q: What are your thoughts on Airbnb Inc. (ABNB) stock?
A: Love it for the long term, great company, incredibly well-managed, it’s become the world’s largest hotel, and it’s a great place to stay. You get a whole house for the price of a hotel room.
Q: What was the junk bond symbol?
A: There were two of them: (JNK) and (HYG). The yields on these are now up around 7%.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
