Global Market Comments
December 6, 2021
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR DECEMBER 7-9) (MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TRIPLE VIRUS ATTACK),
(SPY), (TLT), (BAC), (GS), (JPM), (VIX)
A collection of the 27 best traders and managers in the world, or eight a day, each giving an educational webinar. Back-to-back one-hour presentations are followed by an interactive Q&A. It’s a smorgasbord of trading strategies, so pick the one that is right for you. Covering all stocks, bonds, commodities, foreign exchange, precious metals, and real estate. It’s the best look at 2022’s money-making opportunities you will get anywhere. To view the schedule and speakers, and to register NOW, click here.
Those who were bemoaning the lack of market volatility certainly had their wishes fulfilled last week and then some. Volatility attacked the $30 level remorselessly like a hoard of barbarians. But it didn’t close there.
We actually got three Omicrons last week, the virus kind, the Fed kind, and the jobs variety, with the November Nonfarm Payroll report coming in at a paltry 210,000. Yet, the Headline unemployment rate cratered to a new post-pandemic low, from 4.6% to 4.2%. Go figure.
The Fed’s move amounts to a sudden dramatic lean towards a hawkish stance. The word “transitory” has hopefully been banished from the Fed lexicon for good.
The final flush on Friday no doubt cleansed the market like a colonoscopy, vaporizing any bad positions from yearend reports. That’s why the reopening stocks like hotels, cruise lines, airlines, and casinos were sold down so hard and bounced back with equal vigor.
Last week’s violence cleared the way for the yearend rally to continue, with the final destination a close at the year’s top tic all-time high.
Of course, everyone knows interest rates are rising except the bond market, where prices seemed to magically levitate, keeping interest rates low. Rumors of hedge funds covering shorts to bury losses abound. This is the trade that everyone universally got wrong.
I think the incredible move on Friday was due to hedge funds stampeding to cover money-losing short positions ahead of embarrassing yearend reports.
From here on, trading should get easier as the smarter money departs for Hawaii, the Caribbean, Aspen, or in this case Lake Tahoe, where the pristine waters and ski slopes beckon. Volume and volatility should bleed out from here.
I’m sticking with my long tech, long financials, and short bond strategy until payday, which should be soon.
The Nonfarm Payroll Report Disappoints in November, coming in at 210,000. Over 600,000 was expected. The Headline Unemployment Rate fell to 4.2%, a new post pandemic low. There was a lot of confusing and contradictory data this month. Professional & Business Services added 90,000, Couriers & Messengers 26,800, and Leisure & Hospitality 23,000. But total Employment added 1.1 million. Government lost 25,000 jobs.
How Real is Omicron? On Friday, the market viewed it as a delta variant 2.0. I don’t think so. If anything, it shows how effective the global early response system has become to new variants. South Africa caught omicron with only a handful of cases and the borders started closing immediately. There is no indication that Omicron can’t be stopped by vaccination. It will only kill the anti-vaxers. It means we’re safer, not more at risk, and the economic recovery and the bull market should continue.
Oil Plunges Down 13% in a Day, breaking $70, as fears of a new variant-caused recession run rampant. It was a “sell everything” selloff.
Biden Says No Travel Restrictions or Lockdowns, in response to the new Covid Omicron variant. Therefore, no negative response for the stock market. It was worth a 350-point rally yesterday.
Pending Home Sales Soar by 7.5% in October. The Midwest showed the strongest sales, reflecting a mass migration to cheaper homes from the coasts.
ADP Comes in Red Hot at 534,000. Services dominated and Leisure & Hospitality picked up a massive 136,000. Large companies led the hiring binge. It augers well for the Friday Nonfarm Payroll Report.
More Taper Sooner was the bottom line on Powell’s comments last week. The Fed governor said in testimony in front of the Senate Banking Committee that inflation is no longer “transitory”, implying that hotter inflation numbers are to come. Yikes! Finally, a nod to reality! Stocks tanked 600 points on the comment. Bonds should crash but strangely are holding up. Watch this space. The news could give us a tradable bottom for all asset classes.
ISM Manufacturing Improves, from 60.8 to 61.1 in November. It’s more proof that the economy is expanding.
Weekly Jobless Claims Still Hot at 222,000, and continuing claims fell below 2 million, a new post-pandemic low. No recession here.
My Ten Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the pandemic-driven meltdown on Friday, my December month-to-date performance plunged to -4.58%. My 2021 year-to-date performance took a haircut to 72.18%. The Dow Average is up 13.00% so far in 2021.
I used the collapse in interest rates to add a 20% position in financial stocks, Goldman Sachs (GS), and Bank of America (BAC). I got hammered with my existing short in bonds, with the ten-year yield plunging to an eye-popping 1.37%.
That brings my 12-year total return to 494.73%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 41.22% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 49 million and rising quickly and deaths topping 788,000, which you can find here.
The coming week will be all about the inflation numbers.
On Monday, December 6, nothing of note takes place as we move into the yearend slowdown.
On Tuesday, December 7 at 5:30 AM EST, the US Balance of Trade is released for October. We will remember Pearl Harbor Day when the US Navy lost 3,000 men.
On Wednesday, December 8 at 5:15 AM, the JOLTS Job Openings for October are published.
On Thursday, December 9 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, December 10 at 5:30 AM EST the US Inflation Rate for November is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, occasionally I tell close friends that I hitchhiked across the Sahara Desert alone when I was 16 and am met with looks that are amazed, befuddled, and disbelieving, but I actually did it in the summer of 1968.
I had spent two months hitchhiking from a hospital in Sweden all the way to my ancestral roots in Monreale, Sicily, the home of my Italian grandfather. My next goal was to visit my Uncle Charles, who was stationed at the Torreon Air Force base outside of Madrid, Spain.
I looked at my Michelin map of the Mediterranean and quickly realized that it would be much quicker to cut across North Africa than hitching all the way back up the length of Italy, cutting across the Cote d’Azur, where no one ever picked up hitchhikers, then all the way down to Madrid, where the people were too poor to own cars.
So one fine morning found me taking deck passage on a ferry from Palermo to Tunis. From here on, my memory is hazy and I remember only a few flashbacks.
Ever the historian, even at age 16, I made straight for the Carthaginian ruins where the Romans allegedly salted the earth to prevent any recovery of a country they had just wasted. Some 2,000 years later, it worked as there was nothing left but an endless sea of scattered rocks.
At night, I laid out my sleeping bag to catch some shut-eye. But at 2:00 AM, someone tried to bash my head in with a rock. I scared them off but haven’t had a decent night of sleep since.
The next day, I made for the spectacular Roman ruins at Leptus Magna on the Libyan coast. But Muamar Khadafi pulled off a coup d’état earlier and closed the border to all Americans. My visa obtained in Rome from King Idris was useless.
I used to opportunity to hitchhike over Kasserine Pass into Algeria, where my uncle served under General Patton in WWII. US forces suffered an ignominious defeat until General Patton took over the army 1n 1943. Some 25 years later, the scenery was still littered with blown-up tanks, destroyed trucks, and crashed Messerschmitt’s.
Approaching the coastal road, I started jumping trains headed west. While officially the Algerian Civil War ended in 1962, in fact, it was still going on in 1968. We passed derailed trains and smashed bridges. The cattle were starving. There was no food anywhere.
At night, Arab families invited me to stay over in their mud brick homes as I always traveled with a big American Flag on my pack. Their hospitality was endless, and they shared what little food they had.
As a train pulled into Algiers, a conductor caught me without a ticket. So, the railway police arrested me and on arrival took me to the central Algiers prison, not a very nice place. After the police left, the head of the prison took me to a back door, opened it, smiled, and said “si vou plais”. That was all the French I ever needed to know. I quickly disappeared into the Algiers souk.
As we approached the Moroccan border, I saw trains of camels 1,000 animals long, rhythmically swaying back and forth with their cargoes of spices from central Africa. These don’t exist anymore, replaced by modern trucks.
Out in the middle of nowhere, bullets started flying through the passenger cars splintering wood. I poked my Kodak Instamatic out the window in between volleys of shots and snapped a few pictures.
The train juddered to a halt and robbers boarded. They shook down the passengers, seizing whatever silver jewelry and bolts of cloth they could find.
When they came to me, they just laughed and moved on. As a ragged backpacker I had nothing of interest for them.
The train ended up in Marrakesh on the edge of the Sahara and the final destination of the camel trains. It was like visiting the Arabian nights. The main Jemaa el-Fna square was amazing, with masses of crafts for sale, magicians, snake charmers, and men breathing fire.
Next stop was Tangiers, site of the oldest foreign American embassy, which is now open to tourists. For 50 cents a night, you could sleep on a rooftop under the stars and pass the pipe with fellow travelers which contained something called hashish.
One more ferry ride and I was at the British naval base at the Rock of Gibraltar and then on a train for Madrid. I made it to the Torreon base main gate where a very surprised master sergeant picked up half-starved, rail-thin, filthy nephew and took me home. Later, Uncle Charles said I slept for three days straight. Since I had lice, Charles shaved my head when I was asleep. I fit right in with the other airmen.
I woke up with a fever, so Charles took me to the base clinic. They never figured out what I had. Maybe it was exhaustion, maybe it was prolonged starvation. Perhaps it was something African. Possibly, it was all one long dream.
Afterwards, my uncle took for to the base commissary where I enjoyed my first cheeseburger, French fries, and chocolate shake in many months. It was the best meal of my life and the only cure I really needed.
I have pictures of all this which are sitting in a box somewhere in my basement. The Michelin map sits in a giant case of old, used maps that I have been collecting for 60 years.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Mediterranean in 1968
Global Market Comments
December 3, 2021
Fiat Lux
Featured Trade:
(DECEMBER 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(PYPL), (MA), (AXP), (SQ), (TLT), (TBT), (TSLA), (AAPL), (FB), (MSFT), (AA), (FCX), (BITO), (COPA.L)
Below please find subscribers’ Q&A for the December 1 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: What are your thoughts on Square (SQ)?
A: There is a whole range of FinTech companies including Square (SQ) and PayPal (PYPL), as well as Mastercard (MA), American Express (AXP), and Visa (V), which have been completely slaughtered in the last 3 months. The theme behind that selling is that Bitcoin, being a frictionless transaction system, will wipe out all existing fee taking financial services. You’re getting long-term investors selling because of that. And that’s why all of these sectors have sold in unison, so everything looks incredibly cheap now. I know a lot of people who are starting to pick up PayPal down here, so that is what's going on.
Q: How do you see iShares 20 Plus Year Treasury Bond (TLT) ETF moving forward?
A: It has to go down. Accelerated tapering with a new interest rate policy about to hit and 7% GDP growth against 6.2% inflation—this has been the toughest bond market of all time. I expect we start getting dramatic falls once people get the memo, but that hasn’t happened yet; and if anything, you could get strength at the end of the year as people throw in the towel on money-losing shorts to window dress their holdings for customers. I think that's why we had this monster ten-point rally in just a week—it’s people trying to get out of losing trades before year-end.
Q: Could Omicron trigger a recession?
A: No. This is entirely media hype. But algorithms are totally gullible to media hype. All they need to sell is the right word in a headline, like “Omicron.” When the virus first hit last year we had 0% immunity, and when Delta hit we had about 50% immunity. At 90% immunity, the virus will have ten times more difficulty stopping the economy. We now have so much testing, so many early warning systems, and so many better ways to treat the disease for people who already got it with the Pfizer pill and so on, that this is nowhere near the threat to the economy that it was even six months ago. So, buy any Omicron-inspired selloffs; that’s what I've been doing since Friday.
Q: What’s the relationship between high oil prices and the direction of Tesla (TSLA) stock?
A: They track pretty much one for one. High oil prices are great for Tesla, as they are for all-electric cars, because it makes switching to electric much more financially attractive. If you’re paying $5 per gallon at the pump as we are here in California, you have a much bigger incentive to switch to an electric car than it was when gasoline was $2. And that has historically been the case with all alternative forms of energy for the last 50 years; what would always kill alternative energy in the past was cheap oil—oil going down to $30 a barrel and gasoline at $2 a gallon. When it's that cheap, people don't want to pay a premium for electric. By the way, my energy cost is zero as I charge my cars at home with my solar panels. Even when I use public charging stations the energy cost is the same as paying 30 cents for a gallon of gas, which was the price when I was in high school.
Q: If volatility is about to explode, can we careen straight into a high-rate environment?
A: There is no quick connection between stock market volatility and interest rates. It would take dramatically higher interest rates to really hurt the stock market, and I'm talking 3% or 4% on a 10 year, not 1.48% which is what we have now. So, I don’t think interest rates rise high enough to offset the tremendous gains being made by technology and the enormous profits this is spinning off, and that is the fundamental case for a bull market that goes on for 10 more years.
Q: What is better to buy here, Apple (AAPL) or Microsoft (MSFT)?
A: Apple actually has been a laggard for the last six months, bumping up against that $150 level. Now that it has broken out to the upside, I’d be a buyer of Apple, but both are great names. I have heavy positions in both and am quite happy to run them.
Q: Is CRSPR Therapeutics (CRSP) worth a LEAP?
A: Yes, but I would go out 2 or 2.5 years to the maximum maturity, do an at-the-money like an $80-$90 LEAPS and then hope on a positive press announcement sometime in the next 2 years, and that should get you a 100% return.
Q: Thoughts on Facebook (FB)?
A: I’m avoiding Facebook because it just has too many balls in the air right now, changing their name, changing their business model—it’s not really clear what Meta is yet to most consumers, and I’d rather own Apple (AAPL) and Microsoft (MSFT).
Q: When is your autobiography being finished?
A: I don’t know because I don't know how it ends, I'm still living it. So, I'll keep chipping away at it every week when I have time. In a couple of years maybe we’ll launch the biography of John Thomas pdf book on the website, and you can all have a fascinating read. I still have decades worth of pictures in photo albums to go through to remember all the things I've done so there's a lot more good stuff to come. A Hollywood writer is working on a movie script about my life. Next week is about crossing the Sahara Desert when I was 16.
Q: Is our electric grid capable of taking care of all of the oodles of electric vehicles about to plug in?
A: Absolutely not, the grid has to be tripled in size to handle all the EV’s coming our way, which means we need to build 200,000 miles of new long-distance transmission cables, which are all made out of aluminum. Oh, and by the way, the 25 million EVs coming our way each uses 200 pounds of copper—there's another trade hint, Freeport-McMoRan (FCX). And of course, Alcoa (AA) is the big play on aluminum.
Q: What do you think of the ProShares Bitcoin Strategy (BITO) ETF?
A: I actually like it because it's tracking quite nicely with the underlying Bitcoin, the slippage there or the contango is only about 4% a year. That is worth doing to get improved liquidity and security by buying through the BITO ETF. We still have Bitcoin on a “BUY” signal is see $100,000 next year. The new fork will make it move for competitive with Ethereum.
Q: Do you expect a 5% dip in tax loss selling at the end of the year, or is this overhyped?
A: It's way overhyped because who has losses? Nobody has any losses this year to lock in, unless you have a big holding in China, so I don't think there will be any tax loss selling this year. I think we will close the markets at all-time highs on the last day of the year, and whatever tax effects there will be minimal. Plus, if you wait another month till January you don't have to pay the taxes for 16 months—sounds like a good deal to me. The chances of any major increases in tax rates have been greatly reduced over the coming play.
Q: Is copper (COPA.L) an inflation play?
A: Absolutely, it's one of the best inflation plays out there. It was always a great inflation play even before the electric car industry existed; copper and all other hard assets are great inflation plays. Oh, and then do you think at 6.2% we have inflation already? I kind of think the answer is yes! 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
Global Market Comments
December 2, 2021
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY)
(GS), (TLT)
Goldman Sachs (GS) shares went ex-dividend yesterday, December 1 for a $2.00 quarterly dividend.
Anyone who has the (GS) December 2021 $340-$360 vertical bull call debit spread could potentially have their short positions in the $360 calls called away, or exercised against them by hedge fund seeking to capture the dividend.
Although the return for such a move is very small, some 0.51%, making this highly unlikely, it is not impossible. So it’s important to know how to handle these events.
If exercised, brokers are required by law to email you immediately and I know all of this may sound confusing at first. But once you get the hang of it, this is the greatest way to make money since sliced bread.
I call it the “Screw up risk.”
If it happens, there is only one thing to do: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
Most of you have short option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling that your call options have been assigned away.
I’ll use the example of the Goldman (GS) $340-$360 in-the-money vertical BULL CALL spread.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 12 days before the December 17 expiration date. In other words, what you bought for $16.00 on November 30 is now worth $20.00, giving you a near-instant profit $2,400, or 25.00% in 2 trading days!
All have to do is call your broker and instruct them to “exercise your long position in your (GS) December 17 $340 calls to close out your short position in the (GS) November 17 $360 calls.”
You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission.
This is a perfectly hedged position, with both options having the same name and the same expiration date, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one options contract is exercisable into 100 shares.
Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (TLT). There are strategies out there that try to capture dividends the day before they are payable. Exercising an option is one way to do that.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (GS) position after the close, and exercising his long (GS) call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there which may arrive at some twisted logic that the puts need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to blow it by writing shoddy algorithms.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it.
There is a further annoying complication that leads to a lot of confusion. Lately, brokers have resorted to sending you warnings that exercises MIGHT happen to help mitigate their own legal liability.
They do this even when such an exercise has zero probability of happening, such as with a short call option in a LEAPS that has a year or more left until expiration. Just ignore these, or call your broker and ask them to explain.
This generates tons of commissions for the broker but is a terrible thing for the trader to do from a risk point of view, such as generating a loss by the time everything is closed and netted out.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. In fact, I think I’m the last one they really did train.
Avarice could have been an explanation here but I think stupidity and poor training and low wages are much more likely.
Brokers have so many ways to steal money legally that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
Global Market Comments
December 1, 2021
Fiat Lux
Featured Trade:
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS),
(TLT)
Global Market Comments
November 30, 2021
Fiat Lux
Featured Trade:
(NEW VIDEO UPDATE ON EXECUTING A VERTICAL BULL CALL DEBIT SPREAD),
(AAPL), (GS)
Global Market Comments
November 29, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or NOW IT’S THE OMICRON VARIANT)
(TSLA), (NVDA), (VIX), (SPX), (JPM)
