Global Market Comments
June 22, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, OR THE FED RIDES AGAIN),
(TLT), (SPY), (TSLA), (IBB), (AMGN), (GILD), (ILMN)
The free Fed put was tested once again last week, and once again it held. It seems that the line in the sand is $300 for the (SPY), and if that doesn’t hold, $270 will do. At least, for a month.
How long this game will last is anyone’s guess. $14 trillion is a lot of money to throw at the problem. But then so are US Covid-19 deaths approaching 1,000 a day. Who knows what Jay Powell has up his sleeve? Probably quite a lot.
A large chunk of the US economy has gone missing and is never coming back, especially the portion represented by small companies. Whether stock investors will notice this will be the big bet for the remainder of 2020. My bet is they will if the spread of the epidemic can’t be stopped. I give it a 50/50 chance.
If the worst-case scenario happens, get ready to load the boat of LEAPS once again, for we have a Roaring Twenties and second American Golden Age ahead of us, if you can live to see it. We are one wonder drug discovery away from that starting tomorrow morning at 9:00 AM.
We got encouraging news last week with the commonplace steroid dexamethasone, which reduces deaths by 30%. Publishing the Mad Hedge Biotechnology & Health Care Letter, I can tell you there are hundreds more drugs like this under rapid development. Click here.
There is no doubt that biotech stocks (IBB) are breaking out to the upside. Take a look at the ten largest components of the iShares NASDAQ Biotechnology ETF and you’ll see they all have virtually the same chart (click here), stocks like Amgen (AMGN), Gilead Sciences (GILD), and Illumina (ILMN)
The trillions of dollars pouring into Covid-19 research is a big driver. In the meantime, past headaches have magically gone away, like the threat of a nationalization and drug price controls. No one feels like regulating drug companies in this environment. Almost all impediments to research have been tossed away. Relative to the rest of the superheated stock market, biotech shares are still cheap.
The Fed is to starting to buy individual bonds, in another unprecedented expansion of quantitative easing. They are clearly worried about exploding Corona cases, as I am. US Treasury bonds (TLT) dove two points on the news as this may represent a diversion of Fed buying from that market. Stocks soared 1,000 points.
The big message is more QE to come. Another election play? It is called “QE Infinity” for a reason. It’s a great level to trade against. I hope you loaded up on tech LEAPS at the bottom, as I begged you to do.
The Fed balance sheet soars, from $4 trillion to $7 trillion this year, says Fed governor Jay Powell. It is the fastest debt blow up in history. That’s $18,750 per taxpayer in four months. It could be $10 trillion by yearend. If you received less than this stimulus money, you got screwed. This always ends in stagflation….high inflation and slow growth, like we saw after the Vietnam War. Your grandkids are going to have to take side jobs driving for Uber to pay off this bill.
Reopening states see corona cases explode, tossing the “V” shaped economic recovery out the window. Some 25 states are seeing a rapid rise in new cases. Is this the second wave or an extension of the first? The green shoots have been squashed. Stocks won’t like it. The free pass is over.
Stocks pop on miracle steroid drug that reduces Covid-19 death rates. Dexamethasone is the drug in question, normally used for arthritis treatments. It’s just in time as Beijing is closing down schools again in the wake of a second wave.
A US dollar crash is a sure thing, says my old Morgan Stanley colleague, Steven Roach. I couldn’t agree more. Steve is expecting a 35% swan dive for Uncle Buck. A negative savings rate combined with a retreat from Globalization is a toxic combo. A 1970s type stagflation could ensue.
Weekly Jobless Claims are still sky-high, at 1.51 million, far above estimates. The Dow gave up 300 points at the opening, then quickly clawed it back. Walk down Main Street these days and they are still filled with empty storefronts. Many companies are simply running out of money, unable to wait for a recovery. In the meantime, Corona cases are hitting new records every day. Florida cases are off the charts. Things will get worse before they get better.
Retail Sales posted record pop, up 17.7% in May. You are going to see a lot of these record data points because we are coming off a near-zero base. It will actually take years to get to January business levels. I’m sorry, but the higher the free Fed put drives the stock market, the worse the long-term outlook for the economy is going to be.
Homebuilder Confidence is off the charts, with Sales Expectations jumping 22 points to 68. It’s a positive perfect storm, with record-low 2.90% 30-year fixed rate mortgage, Fed buying of mortgage securities and a massive Millennial tailwind that I have been calling for years. A sudden Corona-driven urban flight is sending customers into the arms of suburban builders. Get into Lennar Homes (LEN), KB Homes (KBH), and Pulte Homes (PHM) on dips if you can.
Tesla (TSLA) to open the second US factory this year, somewhere in the southwest as demand overwhelms supply for electric vehicles, exacerbated by the two-month Corona shutdown. The tax break bidding war has already begun, with Texas and Oklahoma slugging it out. The factory comes with 5,000 jobs. Tesla got its first factory for free, giving stock to Toyota for $10 a share. It was the best investment Toyota ever made.
The Mad Hedge June 4 Traders & Investors Summit recording is up. For those who missed it, I have posted all 9:15 hours of recordings of every speaker. This is a collection of some of the best traders and investors I have stumbled across over the past five decades. To find it, please click here.
When we come out on the other side of this, 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 400% or more in the coming decade.
My Global Trading Dispatch performance nicely recouped the pasting we took last week, taking in a nice 7%, bringing June in at +1.21%. With the June options expiration, we managed to cash in on the accelerated time decay in seven positions for Global Trading Dispatch and another three for the Mad Hedge Technology Letter. My eleven-year performance stands at a new all-time high of 367.44%.
That takes my 2020 YTD return up to a more robust +11.53%. This compares to a loss for the Dow Average of -9.2%, up from -37% on March 23. My trailing one-year return popped back up to 51.92%. My eleven-year average annualized profit recovered to +34.99%.
The only numbers that count for the market are the number of US Coronavirus cases and deaths, which you can find here. On the economic front, some low-grade inflation numbers are published.
On Monday, June 22 at 11:00 AM EST, the May Existing Home Sales are out.
On Tuesday, June 23 at 11:00 AM EST, May New Home Sales are published.
On Wednesday, June 24, at 8:15 AM EST, the National Home Price Index is printed. At 10:30 AM EST, the EIA Cushing Crude Oil Stocks are published.
On Thursday, June 25 at 8:30 AM EST, Weekly Jobless Claims are announced. Also out it the final figure for Q1 GDP.
On Friday, June 26, at 10:00 AM EST, the Baker Hughes Rig Count is out. At 11:00, we get the University of Michigan Inflation Expectations.
As for me, I’ll spend the weekend modernizing my camping equipment, some pieces of which are WWII surplus, or are at least 50 years old. Since all of the Boy Scout summer camps for the year have been cancelled, such a Philmont and Catalina Island, I’m creating my own.
We’re going on a 50-mile hike around California’s High Sierra Desolation Wilderness, a part of Northern California my family has been fishing at for a hundred years.
We’ll be trekking on the Pacific Crest Trail featured in the film Wild. I’ll try to regale you with pictures on my return and wild fish stories.
It’s easier said than done, for there is a national camping boom going on. It can be difficult to get simple things, like maps, without an August delivery date. Some of my WWII stuff may have to suffice after all.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Wine Tasting is Just Not the Same
Global Market Comments
June 19, 2020
Fiat Lux
Featured Trade:
(JUNE 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (AAPL), (FXE), (FXA), (BA), (UAL), (AAPL), (MSFT), (BIIB), (PFE), (OXY), (SPCE), (WMT), (CSCO), (TGT)
Below please find subscribers’ Q&A for the June 17 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: What is the best way to buy long term LEAPS for unlimited profits?
A: There is no such thing as unlimited profits on LEAPS; they are specifically limited to about 500% or 1,000%. Most people will take that. The answer is to wait for crash day. That’s when you dive into LEAPS, or during very prolonged sell-offs like we had in February or March. That’s where you get the bang per buck. On a capitulation day, you can pick up these things for pennies.
Q: How do you explain that all the cities and states that had major COVID-19 outbreaks and deaths are controlled by Democrats?
A: That’s like asking why you don’t get foot and mouth disease in New York City. The majority of US cities are Democratic, while the rural areas tend towards Republicans and the suburbs that flip back and forth. So, you will always get these big hotspots in cities where the population density is highest and there is a lot of crowding because that’s where the people are. Covid-19 is a disease that relies on within six-foot transmission. You are not going to get these big outbreaks in rural places because there are few people. Horse, cow, and pig diseases are another story. That is one reason the disease has become so politicized by the president.
Q: What is the time horizon for your picks?
A: It’s really a price function rather than a time horizon. Sometimes, a trade works in a day, other times it’s a month. I try to send out a large number of trade alerts because we have new subscribers coming in every day and the first thing they want is a trade alert. Occasionally, I’ll make 10% in a day and I take that immediately.
Q: I’m a new investor; trading in a pandemic is one thing, but what about other risks like volcanic eruptions, major solar flares, or global war? How do I prepare for one of three of these things in the next 25 years?
A: I’m actually worried about all three of those happening this year. If you lived through 1968, everything bad tends to happen in one year, and bad things tend to happen in threes. This is a year where we’re kind of making it up as we go along because there is no precedent. The playbook has been thrown out. Those who always relied on trading stocks and securities predictable ranges got wiped out.
Q: Beijing has quarantined its population again and canceled flights; is this going to cause the Chinese government to ramp up the blame game with the US?
A: Absolutely, the US is the number one Corona incubator in the world by far. We have 120,000 deaths—China had 4,000 deaths with four times the population. Many countries are blaming us for keeping this pandemic alive and spreading it further. But I don’t think foreign relations are a high priority right now with our current government. That said, it is easier for a dictatorship to control an epidemic than a democracy. In China, they were welding people’s doors shut who had the disease.
Q: Do you think taking away the $600 or $1200 stipend for the unemployed is going to crush the chances for many trying to get back to work?
A: It will. A lot of the stimulus measures only delay collapse by a couple of months. The PPP money was only for 2 months; I know a lot of companies are counting on that to stay in business. Some state unemployment benefits run out soon. Either you’re going to have to start forking up $3 trillion every other month, or you’re going to get another sharp downturn in the economy. Cities are bracing themselves for the worst eviction onslaught ever. Mass starvation among the poor is a possibility.
Q: Where do you place stops on vertical spreads?
A: Since vertical spreads don’t lend themselves to technical analysis, you have to draw a line in the sand—for me, it’s 2%. If I lose 2% of my total capital, or 20% on the total position, then I get the heck out of there and go look for another trade. That’s easy for me to do because I know that 90% of the time my next trade is a winner.
Q: Why did you sell your S&P 500 (SPY) July $330/$320 put spread at absolutely the worst moment?
A: The market broke my lower strike price, which is always a benchmark for getting out of a losing trade. When you go out-of-the-money on these spreads, the leverage works against you dramatically. This market isn’t lending itself to any kind of conventional historic analysis. The market went higher than it ever should have based on any kind of indicator you’re using. When the market delivers once in 100 year moves like we had off the March 23 bottom, you are going to be wrong. However, we immediately made the money back by putting on a (SPY) July $335/$340 put spread with a shorter maturity, and a (SPY) July $260-$$270 call spread. If you’re in this business, you’re going to take losses and be made to look like a perfect idiot, like I did twice last week.
Q: Who is getting involved down 10%?
A: I would say you’re getting both institutions and individuals involved down 10%. You keep hearing about $5 trillion in cash on the sidelines, and that’s how it’s coming to work. Plus, we have 13 million new day traders gambling away their stimulus checks.
Q: Why have you not put on a currency trade this year?
A: With the incredible volatility of the stock market, there were always better fish to fry. Currencies haven’t moved that much, and you want stocks that are dropping by 80% in two months and gapping up 200% the next two months. So, in terms of trading opportunities, currencies are number three on that list. Would you rather buy Apple (AAPL) for a 75% move, or the Euro (FXE) for a 6% move? My favorite has been the Aussie (FXA) and it has only gone up 20%.
Q: Do you issue trade alerts on LEAPS?
A: I don’t; most trade alerts are short term trades in the next month or two because we have to generate a large number of them. However, in February, March, and April, we started sending out lists of LEAPS. We sent out about 25 LEAPS recommendations. We did ten for Global Trading Dispatch (BA), (UAL), (DAL), ten for the Mad Hedge Technology Letter (AAPL), (MSFT), and five for the Mad Hedge Biotech & Health Care Letter (BIIB), (PFE). Even if you got just one or two of these, you got a massive impact on your performance because they did go up 500% to 1,000% in 2 months, which is normally the kind of return you see in two years. So, getting people to buy all those LEAPS was probably the greatest call in the 13-year history of this letter. I know subscribers who made many millions of dollars.
Q: I am new to trading; other than placing a trade, what do you recommend I get a handle on in the learning process?
A: We do have two services for sale. We have “Options for the Beginner,” and that I would highly recommend, and I’ll make sure that’s posted in the store. You can’t read or study enough. If you really want to go back to basics, read the 1948 edition of Graham and Dodd, where Warren Buffet got his education actually working for Benjamin Graham in the ’40s.
Q: Will Occidental Petroleum (OXY) go bankrupt?
A: No, they have the strongest balance sheet of any of the oil majors, so I would bet they would hang around for some time. They also have no offshore oil, which is the highest cost source of oil. But it’s going to be a volatile time for a while.
Q: Usually the selling is telling me to go away. With this market, the amount of money on the sidelines, is it going to be a stock picker’s market?
A: Yes, like I said the playbook is out the window. Normally, you get a month’s worth of trading in a month, now you get a month's worth in a day or two. So, we’re on fast forward, Corona is the principal driver of the market and no one knows what it’s going to do. The teens were a great index play. The coming Roaring Twenties will be a stock picker’s market because half of the companies will go out of business, while many will rise tenfold. You want to be in the latter, not the former. And index gets you the wheat AND the chaff.
Q: Will there be another opportunity to buy LEAPS?
A: Yes, especially if we get a second corona wave and it slaps the market down to new lows again. There’s a 50/50 chance of that happening. The rate of Corona cases is now increasing exponentially. We had 4,000 new cases in California yesterday.
Q: How do you see Main Street two years from now? Will the battered middle class ever recover?
They will if they move online. I think main street will be empty in two years. Only the largest companies are surviving because they have the cash reserve to do so. And they seem to be able to get government bailout money far better than the local nail salon or dry cleaner. Again, this was a trend that had been in place for decades but was greatly accelerated by the pandemic. I was in Napa, CA yesterday and half of the storefront shops had gone out of business.
Q: What are your thoughts on the spacecraft company Virgin Galactic (SPCE)?
A: Great for day traders, great for newbies, but not real investment material here. I don’t think the company will ever make money. It was just part of the temporary space had. Better to read about it in the papers and have a laugh than risk your own hard-earned money. Elon Musk’s Space X though is a completely different story.
Q: Which is the better buy now: Walmart (WMT), Costco (CSCO), or Target (TGT)?
A: I’d probably go for Target because they have been the fastest to move to the new online order and curb pickup universe. But Costco is also a great play.
Q: When should I buy Tesla?
A: On the next meltdown or down 30% from here, if and whenever we get that. It’s going to $2,500, then $5,000.
Q: With QE infinity, it doesn’t sound like we’ll get to LEAPS country. Do you agree?
A: No, I wouldn’t agree because at some point, the government might run out of money, the bond market won’t let them borrow anymore, and the money that gets approved doesn’t actually get spent because the works are so gummed up. Plus, Corona is in the driver's seat now. What if we’re wrong and we don’t get 250,000 cases by August, but 500,000 cases? 20 million? There are 100 things that could go wrong and get us back down to lows and only one that can go right and that is a Covid-19 vaccine. We’ve essentially been on nonstop QEs for the last 10 years already and the market has managed many 20% selloffs during that time. If we pursue a Japanese monetary policy, we will get a Japanese result, near-zero growth for 30 years.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mount Everest in 1976
Global Market Comments
June 18, 2020
Fiat Lux
Featured Trade:
(TESTING TESLA’S SELF DRIVING TECHNOLOGY),
(TSLA)
(TESTIMONIAL)
I knew I was on the right track when the salesman told me that the customer who just preceded me for a Tesla Model X 90D SUV was the Golden Bay Warriors star basketball player, Steph Currie.
Well, if it’s good enough for Steph, then it’s good enough for me.
Last week, I received a call from Elon Musk’s office to test the company’s self-driving technology embedded in their new vehicles for readers of the Diary of a Mad Hedge Fund Trader.
I did, and prepare to have your mind blown!
I was driving at 80 MPH on CA-24, a windy eight-lane freeway that snakes its way through the East San Francisco Bay Area mountains. Suddenly the salesman reached over a flicked a lever on the left side of the driving column.
The car took over!
There it was, winding and turning along every curve, perfectly centered in the lane. As much as I hated to admit it, the car drove better than I ever could. It does especially well at night or in fog, a valuable asset for senior citizens whose night vision is fading fast.
All that was required was for me to touch the steering wheel every two minutes to prove that I was not sleeping.
The cars do especially well in rush hour driving, as it is adept at stop and go traffic. You can just sit there and work on your laptop, read a book, or watch a movie on the built in 4G WIFI HD TV.
When we returned to the garage, the car really showed off. When we passed a parking space, another button was pushed, and we perfectly backed 90 degrees into a parking space, measuring and calculating all the way.
The range is 290 miles, which I can recharge at home at night from a standard 220-volt socket in my garage in seven hours. When driving to Lake Tahoe, I can stop half way at get a full charge in 30 minutes. The new chargers operate at a blazing 400 miles per hour.
The chassis can rise as high as eight inches off the ground so it can function as a true SUV.
The “ludicrous mode,” a $10,000 option, takes you from 0 to 60 mph in 2.9 seconds. However, even a standard Tesla can accelerate so fast that it will make the average passenger carsick.
Here’s the buzzkill.
Tesla absolutely charges through the nose for extras.
The 22-inch wheels, the third row of seats to get you to seven passengers, the premium sound, the leather seats, and the self-driving software can easily run you $30,000-$40,000.
A $750 tow hitch will accommodate a ski or back rack. There is a $1,000 delivery charge, even if you pick it up at the Fremont factory.
It’s easy to see how you can jump from an $84,990 base price to a total cost of $162,500, including taxes, for the ultra-luxury Performance model, as I did.
My company will be purchasing the car under Section 179 of the International Revenue Code. The car qualifies because it weighs over 6,000 pounds and is therefore a truck under the new tax law.
This allows me to deduct the entire $162,500 cost of the vehicle upfront, plus the maintenance and insurance costs for the entire life of the car. However, I will have to maintain a mileage log as a hedge against any future IRS audits.
Ironically, Section 179 was enacted as a subsidy for consumer purchases of the eight mile per gallon Hummer, which was originally built by AM General and owned by General Motors (GM).
After several attempts to sell, the division failed, production was permanently shut down. However, the tax subsidies live on for any like designed vehicle.
It looks like I’ll have to buy two Teslas this year.
As for “drop dead’ curb appeal, nothing beats the Model X. Buy the stock on every 20% dip. My original cost is $16.50 a share and it topped $1,000 last week.
It’s another way of saying “buy the shares and you get the car for free.”
Thanks for Your Subscription!
Global Market Comments
June 17, 2020
Fiat Lux
Featured Trade:
(THE SECRET FED PLAN TO BUY GOLD),
(GLD), (GDX), (PALL), (PPLT),
(TESTIMONIAL)
Thanks for all your help with my trading. Your service is very effective.
As you know, I went heavily into some LEAPS two days ago including United Airlines, (UAL), Delta Airlines (DAL), Wynn Resorts (WYNN), MGM Resorts International (MGM), and Simon Property Group (SPG) that have returned as much as a 25% ROI over that short period.
I know two days does not prove anything, but it is a great way to begin a trade.
Thanks again,
John
Seattle, WA
Berlin 1968
Global Market Comments
June 16, 2020
Fiat Lux
Featured Trade:
(THE IDIOT’S GUIDE TO INVESTING),
(TSLA), (BYND), (JPM)
(TESTIMONIAL)
Global Market Comments
June 15, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WAITING FOR MY SUGAR CUBE),
(SPY), (INDU), (UUP), (GLD), (TLT), (HTZ), (TSLA)