Below please find subscribers’ Q&A for the December 15 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: With interest rates going up, would it make sense to short heavily indebted companies as a class?
A: Yes it does; those would be old-line industrials and auto companies with very heavy debts. Technology companies essentially have no debt unless they’re startups. So yeah, that’s a good idea; unless of course inflation is peaking right now, which it may be if you solve these supply chain problems, and it becomes evident that retailers overordered to beat the supply chain problems and now have a ton of excess inventory they can’t meet—then the inflation plays will crash. So, not a low-risk environment right now. No matter where you look, you’re screwed if you do, you’re screwed if you don't. So that is an issue to keep in mind.
Q: What do you think of Freeport McMoRan (FCX) short-term?
A: Short term, (FCX) only sees the Chinese (FXI) real estate crisis, which is getting worse before it gets better and could bring a complete halt to all known construction in China. The government is forcing the real estate companies there to run at losses in order to bring the bottom part of their society into the middle class with houses in third and fourth-tier cities. Long term, as annual electric car production goes from a million cars a year to 25 million cars a year and each car needs 200 lbs. of copper, we have to triple world production practically overnight to accommodate that. That can’t happen, therefore that means much higher prices. If you’re willing to take some pain, picking up freeport McMoRan in the low $30s has to be the trade of the century.
Q: Do you see a Christmas rally or a bigger correction?
A: Rally first. Once we get the Fed out of the way today, we could get our Christmas rally resumed and go to new highs by the end of the year. But, January is starting to look a little bit scary with all the unknowns going forward and massive long positions. January could be okay as hedge funds put positions back on in tech that they’re dumping right now. If they don’t show up…Houston, we might have a problem.
Q: Thoughts on the iShares 20 Plus Year Treasury Bond ETF (TLT) Dec 2022 $150-$155 vertical bear put spread?
A: Since I'm in low-risk mode, I would go up $5 or $10 points and not be greedy. Not being greedy is going to be one of the principal themes of 2022 therefore I’m recommending that people do the $160-$165 or even the $165-$170, which still gives you a 30% return in a year, and I think next year this will be seen as a fabulous return.
Q: What about the $100,000 target for Bitcoin (BITO) by the end of the year?
A: That’s off the table thanks to the Fed tightening and Omicron triggering a massive “RISK OFF” and flight to safety move. Non-yielding instruments tend not to do well during periods of rising interest rates, so gold along with crypto is getting crushed.
Q: What will happen in the case of a black swan event in early 2022, like Russia invading Ukraine?
A: Market impact for that would be a bad couple of days, a buying opportunity, and then you’d want to pile into stocks. Every geopolitical event that’s happened in the last 20 years has been a buying opportunity for stocks. Of course, I would feel bad for the Ukrainians, but it’s kind of like Florida seceding from the US, then the US invading Florida to take it back, and the rest of the world not really caring. Plus, it doesn’t help that their heavily nationalist post-coup government has some fascist tendencies. However, we could get global economic sanctions against Russia like an import/export embargo, which would hurt them and destroy their economy.
Q: Will the European natural gas shortage continue?
A: Yes because the Europeans are at the mercy of the Russians, who have all the gas and none of the economy. Therefore, they can export as much or as little as they want, depending on how much political control they’re trying to exert in Europe.
Q: Apple Inc. (AAPL) price target?
A: Well, my price target for next year was $200; we could hit that by the end of the year if we get a rally after the Fed meeting.
Q: 33% of the population is in collection status with personal debt, credit cards, etc—is that a harbinger of a 2008 crash?
A: No, it is a harbinger of excess liquidity, interest rates being too low, and lenders being too lax. However, we aren’t at the level where it could wipe out the entire economy like with defaulting on a third of all housing market debt in 2008.
Q: What should I do with my call spreads for Amazon.com, Inc. (AMZN)?
A: Well, November would have been a great sell. Down here, I’d be inclined to hold onto the spreads you have, looking for a yearend rally and a new year rally. But remember, with all these short-dated plays risk is rising, so keep that in mind.
Q: What do you think of AT&T Inc (T)?
A: The whole sector has just been treated horrifically; I don’t want to try to catch a falling knife here even though AT&T pays a 10% dividend.
Q: What about quad witching day?
A: Expect a battle by big hedge funds trying to push single stocks options just above or below strike prices. It’s totally unpredictable because of the rise of front-month trading, which is now 80% of all options trading with the participation of algorithms.
Q: Is the Alibaba Group Holding Limited (BABA) $230-$250 LEAP in June 2023 worth keeping?
A: I would say yes, I think the Chinese will come to their senses by then, and all the Chinese tech plays will double, but there’s no guarantee. That is still a high-risk trade.
Q: Does the US have an opportunity to export petroleum products?
A: The answer is yes, we are already a net energy exporter thanks to fracking. But, it is a multi-year infrastructure build-out to add foreign export destinations like Europe, which hasn’t bought our petroleum since WWII. Right now, almost all of our exports are going to Asia. No easy fixes here.
Q: Is Tesla Inc (TSLA) a buy at 935 down 300 in change?
A: Not yet; 45% seems to be the magic number for Tesla correction. We had one this year. And Elon Musk hasn’t quit selling yet, although I suspect he’ll end his selling by the end of the year because he’ll have met all his tax obligations for the year. He has to sell these options before they expire and are rendered useless. So that is what’s happening with Tesla, Elon Musk selling. And can you blame him? He almost worked himself to death making that company, time to spend some money and have a good time, like me.
Q: What if your Chinese company gets delisted?
A: Try to get out before it is delisted. Otherwise, the domicile moves to Hong Kong and you’ll have to sell equivalent shares there. I don’t know what the details of that are going to be, but the Chinese companies are trying to force companies to delist from the US and list in Hong Kong so they have complete control over what's going on. Also, I never liked these New York listings anyway because the disclosures were terrible, with Cayman Island PO Boxes and so on…
Q: Is the ProShares UltraShort 20+ Year Treasury (TBT) a good long-term position to hold?
A: It is to an extent—only if you expect any big moves up in interest rates, which I kind of am. This is because the cost of carry for (TBT) is quite high; you have to pay double the 10-year US Treasury rates, which is double 1.45% or about 2.90%, and then another management fee of 1%, so you have kind of a 4% a year headwind on that because of cost. Remember, if you’re short a bond, you’re short a coupon; if you’re double short a bond you’re short twice the coupon and you have to pay that and they take it out of the share price. But, if you’re expecting bonds to go down more than 4%, you’ll cover that and then some and I think bonds could drop 10-20% this year.
Q: What’s the difference between GBTC and BITO?
A: Nothing, both are Bitcoin plays that are tracking reasonably well. I prefer to go with the miners—the Bitcoin providers, that’s a selling-shovels-to-the-gold-miners play. They tend to have more volatility than the underlying Bitcoin, so that’s why I’m in (BLOK) and (MSTR) when I’m in it.
Q: What’s the best way to buy Crypto?
A: If you really want to buy Crypto directly, the really easy way is to go through one of the top crypto brokerage houses, and we’ve recommended several of those. Coinbase (COIN) is the one I’m in. It literally takes you five minutes to set up an account and you can instantly buy Bitcoin linked to your bank account.
Q: What are the fees like for Coinbase?
A: The fees at (COIN) are exorbitant only if you’re buying $10 worth of Bitcoin. If you’re buying like $1 million worth, they’re much, much smaller. But I recommend you start at $10 and work your way up as I did, and sooner or later you’ll be buying million-dollar chunks of Bitcoin which then double in three months, which happened to me this year.
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 ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
