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 still have two positions left in my model trading portfolio that are deep in-the-money, and about to expire in 3 trading days. Those are the
(AMZN) 6/$160-$170 call spread
(SLV) $23-$25 call spread
That opens up a set of risks unique to these positions.
I call it the “Screw up risk.”
As long as the markets maintain current levels, this position will expire at its maximum profit value.
With the June 21 options expirations upon us, there is a heightened probability that your short position in the options may get called away.
Although the return for those calling away your options is very small, this is 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.
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 you that your call options have been assigned away.
I’ll use the example of the Amazon (AMZN) June 2024 $160-$170 in-the-money vertical Bull Call spread since so many of you have these.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 3 days before the June 21 expiration date.
In other words, what you bought for $9.30 on June 6 is now worth $10.00, giving you a near-instant profit of $840 or 9.68% in 11 trading days.
All have to do is call your broker and instruct them to “exercise your long position in your (AMZN) June 2024 $160 calls to close out your short position in the (AMZN) June 2024 $101 calls.”
You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission.
You also must do this the same day that you receive the exercise notice.
This is a perfectly hedged position. The name, the ticker symbol, the number of shares, and the number of contracts are all identical, so you have no exposure at all.
Call options are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (AMZN). 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 sell a long (AMZN) position after the close, and exercising his long (AMZN) put 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 that 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
June 17, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE THREE HORSE RACE) plus
(HITCHIKING TO ALASKA)
(AAPL), (MSFT), (NVDA), (TLT), (MCD), (VZ), (GLD), (NLY)
We have a three-horse race underway in the stock market right now between Apple (AAPL), Microsoft (MSFT), and NVIDIA (NVDA). One day, one is the largest company in the world, another day a different company noses ahead.
And here’s the really good news: this race has no end. Sure, (NVDA) has far and away the most momentum and it should hit my long-term target of $1,400 this year, giving it a market capitalization of $3.44 trillion. (MSFT) and (AAPL) will have to stretch to make another 20% gain by year-end.
Who will really end this three-year race? You will, as the benefits of AI, hyper-accelerating technology, and deflation rains down upon you and your retirement portfolio.
Here is the reality of the situation. The Magnificent Seven has really shrunk to the Magnificent One: NVIDIA. (NVDA) alone has accounted for 32% of S&P 500 gains this year. There are now 400 ETFs where (NVDA) is the biggest holding, largely through share price appreciation. These dislocations in the market are grand. This will end in tears….but not yet.
Dow 240,000 here we come!
After six months of grief, pain, and suffering last week, my (TLT) LEAPS finally went into the money last week.
Remember the (TLT)?
On January 18, I bought the United States Treasury Bond Fund (TLT) January 17, 2025, $95-98 at-the-money vertical Bull Call spread LEAPS at $1.25 or best. On Friday, they nudged up to $1.35. But I kept averaging down with the $93-$96’s and the $90-$93’s which are now at a max profit.
We lost six months on this trade thanks to a hyper-conservative which is eternally fighting the last battle. A 9.2% peak certainly put the fear of God in them and they persist in thinking a return to higher inflation rates is just around the corner.
Markets, however, have a different view. They are now discounting a 25-basis point cut in September followed by another in December. That will easily take the (TLT) up to $100. This is why we go long-dated on LEAPS. There is plenty of room for error….lots of room, even room for the Fed’s error. If you wait long enough, everything goes up.
With THIS Fed fighting it seems to pay off. That is what happened when Jay Powell waited a full year until raising rates for a super-heated economy. He now risks tipping the US into recession by lowering rates too slowly, when virtually all data points are softening. I guess that’s what happens when you have a Political Science major as Fed governor.
And here is what the Fed is missing. AI is destroying jobs at a staggering rate, not just minimum wage ones but low-end programming ones as well. That’s what the 300,000 job losses over the last two years in Silicon Valley have been all about.
It’s unbelievable the rate at which AI is replacing real people in jobs. If you want a good example of that, I had to call Verizon (VZ) yesterday to buy an international plan, and I never even talked to a human once. They listed three international plans in a calm, even, convincing male voice, and I picked one.
Or go to McDonalds (MCD) where $500 machines are replacing $40,000 a year workers. This is going on everywhere at the same time at the fastest speed I have ever seen any new technology adopted. So buy stocks, that’s all I can say.
It is not just the (TLT) that is having a great month. The entire interest rate-sensitive sector has been on fire as well. My favorite cell phone tower REIT, Crown Castle International with its generous 6.28% dividend yield, has jumped 15%. Distressed lender Annaly Capital Management (NLY) with its spectacular 13.08% dividend, has appreciated by 11%.
So far in June, we are up +1.04%. My 2024 year-to-date performance is at +19.39%. The S&P 500 (SPY) is up +13.83% so far in 2024. My trailing one-year return reached +36.31%.
That brings my 16-year total return to +696.02%. My average annualized return has recovered to +51.56%.
As the market reaches higher and higher, I continue to pare back risk in my portfolio. I stopped out of my near-money gold position (GLD) at close to breakeven because we were getting too close to the nearest strike price.
Some 63 of my 70 round trips were profitable in 2023. Some 29 of 38 trades have been profitable so far in 2024, and several of those losses were really break-even.
Fed Leaves Rates Unchanged at 5.25%-5.5% but reduces the cuts by March from three to one, citing an inflation rate that remains elevated. The projections were very hawkish, and the markets sold off on the news.
CPI Comes in Cool, unchanged MOM and 3.4% YOY. The May Nonfarm Payroll Report out Friday was an anomaly. It’s game on once again.
Europe Imposes Stiff Tariff on Chinese EVs, up to 38.1%. Daimler Benz, BMW, and Fiat have to be protected or they will go out of business.
The Gold Rush Will Continue through 2024, as much of Asia is still accumulating the yellow metal. Asia lacks the stock market we here in the US enjoy. A global monetary easing is at hand.
Broadcom (AVGO) Announces a 10:1 Split, and the shares explode to the upside. Earnings were also great. I actually predicted this in my newsletter last week and again at my Wednesday morning biweekly strategy webinar. The split takes place on July 15. Split fever continues. Buy (AVGO) on dips.
Apple (AAPL) Soars to New All-Time High, over $200 a share for the first time. However, it is now only the third largest company in the world, losing first place to (NVDA) and (MSFT). Analysts piled up the benefits of pitching AI to one billion preexisting customers. Just don’t tell Elon Musk.
Dollar Hits One Month High, on soaring interest rates spinning out from the super-hot May Nonfarm Payroll Report. This may be your last chance to sell at the highs. Never own a currency with falling interest rates. Just look at the Japanese yen.
Stock Buybacks Hit $242 Billion in Q1, but a new 1% tax may slow down the activity. The tax was passed as part of the Inflation Reduction Act in 2022 and is retroactive to January 1, 2023. (AAPL), (DIS), (CVX), (META), (GS), (WFC), and (NVDA) were the big buyers.
Home Equity Hits All-Time High at $17 Trillion according to CoreLogic. About 60% of homeowners have a mortgage. Their equity equals the home’s value minus outstanding debt. Total home equity for U.S. homeowners with and without a mortgage is $34 trillion. That is a lot of cash that could potentially end up in the stock market.
Home Prices to Keep Rising says Redfin CEO. While experts are forecasting more homes will be available, they said the boost in supply is not enough to solve affordability issues for buyers. Interest rates are expected to come down, but not by enough to counteract high prices.
Elon Musk Wins his $56 Billion Pay Package after a shareholder vote where retail investors came to his rescue. Institutional investors like CalPERS were overwhelmingly against it. It didn’t help that Elon moved Tesla to Texas. State pension funds always show a heavy bias in favor of local companies. Luck for California teachers includes (NVDA), (AAPL), (GOOGL), and (SMCI). (TSLA) rose 4% on the news.
The Gold Rush Will Continue through 2024, as much of Asia is still accumulating the yellow metal. Asia lacks the stock market we here in the US enjoy. A global monetary easing is at hand.
US Homes Sales Fall, down 1.7% month-over-month in May on a seasonally adjusted basis and dropped 2.9% from a year earlier. Median home sale price rose to a record high of $439,716, up 1.6% month-over-month and 5.1% year-over-year.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, June 17, the New York Empire State Manufacturing Index is released.
On Tuesday, June 18 at 7:00 AM EST, Retail Sales are published.
On Wednesday, June 19, the first-ever Juneteenth holiday where the stock market is closed. Juneteenth celebrates the date when the slaves in Texas were freed in 1866, the last to do so.
On Thursday, June 20 at 8:30 AM, the Weekly Jobless Claims are announced. We also get Building Permits.
On Friday, June 21 at 8:30 AM, the Existing Home Sales are announced.
At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, as I am about to embark on Cunard’s Queen Elisabeth from Vancouver Canada on the Mad Hedge Seminar at Sea, I thought I’d recall some memories from when I first visited there 54 years ago.
Upon graduation from high school in 1970, I received a plethora of scholarships, one of which was for the then astronomical sum of $300 in cash from the Arc Foundation, whoever they were.
By age 18, I had hitchhiked in every country in Europe and North Africa, more than 50. The frozen wasteland of the North and the Land of Jack London and the northern lights beckoned.
After all, it was only 4,000 miles away. How hard could it be? Besides, oil had just been discovered on the North Slope and there were stories of abundant high-paying jobs.
I started hitching to the Northwest, using my grandfather’s 1892 30-40 Krag & Jorgenson rifle to prop up my pack and keeping a Smith & Wesson .38 revolver in my coat pocket. Hitchhikers with firearms were common in those days and they always got rides. Drivers wanted the extra protection.
No trouble crossing the Canadian border either. I was just another hunter.
The Alcan Highway started in Dawson Creek, British Columbia, and was built by an all-black construction crew during the summer of 1942 to prevent the Japanese from invading Alaska. It had not yet been paved and was considered the great driving challenge in North America.
One 20-mile section of road was made out of coal, the only building material then available, and drivers turned black after transiting on a dusty day. I’ll never forget the scenery, vast mountains rising out of endless green forests, the color of the vegetation changing at every altitude.
The rain started almost immediately. The legendary size of the mosquitoes turned out to be true. Sometimes, it took a day to catch a ride. But the scenery was magnificent and pristine.
At one point a Grizzley bear approached me. I let loose a shot over his head at 100 yards and he just turned around and lumbered away. It was too beautiful to kill.
I passed through historic Dawson City in the Yukon, the terminus of the 1898 Gold Rush. There, abandoned steamboats lie rotting away on the banks, being reclaimed by nature. The movie theater was closed but years later was found to have hundreds of rare turn-of-the-century nitrate movie prints frozen in the basement, a true gold mine. Steven Spielberg paid for their restoration.
Eventually, I got a ride with a family returning to Anchorage hauling a big RV. I started out in the back of the truck in the rain, but when I came down with pneumonia, they were kind enough to let me move inside. Their kids sang “Raindrops keep falling on my head” the entire way, driving me nuts. In Anchorage they allowed me to camp out in their garage.
Once in Alaska, there were no jobs. The permits required to start the big pipeline project wouldn’t be granted for four more years. There were 10,000 unemployed.
The big event that year was the opening of the first McDonald’s in Alaska. To promote the event, the company said they would drop dollar bills from a helicopter. Thousands of homesick showed up and a riot broke out, causing the stand to burn down. It was rumored their burgers were made of much cheaper moose meat anyway.
I made it all the way to Fairbanks to catch my first sighting of the wispy green contrails of the northern lights, impressive indeed. Then began the long trip back.
I lucked out by catching an Alaska Airlines promotional truck headed for Seattle. That got me free ferry rides through the inside passage. The driver wanted the extra protection as well. The gaudy, polished cruise destinations of today were back then pretty rough ports inhabited by tough, deeply tanned commercial fishermen and loggers who were heavy drinkers and always short of money. Alcohol features large in the history of Alaska.
From Seattle, it was just a quick 24-hour hop down to LA. I still treasure this trip. The Alaska of 1970 no longer exists, as it is now overrun with summer tourists. It now has 27 McDonald’s stands.
And with runaway global warming the climate is starting to resemble that of California than the polar experience it once was. Permafrost frozen for thousands of years is melting, causing the buildings among them to sink back into the earth.
It was all part of life’s rich tapestry.
The Alcan Highway Midpoint
The Alaska-Yukon Border in 1970
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
June 14, 2024
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(JUNE 12 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (AVGO), (ARM), (GM), (TSLA), (SQM), (FMC), (ALB), (AAPL), ($VIX), (AMZN), (MO), (NFLX), (ABNB)
Hi John and Maddies,
Catching up on the most compelling view of the year, your June Mad Hedge Summit reviews. You sold yourself a bit short on the NVIDIA example. You gave (NVDA) a strong buy in October 2022. I might have missed the absolute bottom but was happy to get in at $150.
Approaching a ten bagger in two years.
Amazing.
Wishing you good health AND longevity.
Malcolm
Author’s note: I actually first recommended (NVDA) at a split adjusted 60 cents in 2016. It is up 214 times since then. Here is the link:
Below please find subscribers’ Q&A for the June 12 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: How will Nvidia (NVDA) trade post-split?
A: Well, it’ll probably keep going up, because I think the year-end target—the old $1400, which is now $140—is still good. And I have a whole bunch of LEAPS, which are post-split $40, $50, $60 in-the-money, and I’m just keeping those. It’s a good cash management tool to have. So, even $500 points in the money, you’re still looking at about 20% returns by the end of the year on a January LEAPS. If you can buy the January 2025 $70-$71 LEAPS for 83 cents that’s a 20.48% profit at expiration in six months. So if you want a safe, very high return, that is the best way to do it in the financial markets, is to go way in the money. LEAPS will still pay you a lot of money amazingly. This trade will disappear someday but it’s there now and I’m taking it. Screw 90-day T-bills—I’m going into $500 in-the-money LEAPs on Nvidia, which pays four times as much.
Q: Is Broadcom Inc (AVGO) the next Nvidia?
A: There is no next Nvidia—the next Nvidia is Nvidia. Buy Nvidia on a 20% decline, which I think we may get sometime this summer. That’s a dip you want to buy for a year-end run to $140. Also, Broadcom isn’t exactly undiscovered at this point. It has doubled since October, while Nvidia is up 4 times. So if the bargain in the market for you is double in six months, I’m not sure you should be in the market. That said, I put out a report on split candidates last week and (AVGO) is very high on the list.
Q: What’s the best way to trade split candidates?
A: I actually just wrote a newsletter about this last week. There are in fact 36 high-priced, good money-earning split candidates, and I listed them all. You can buy really any of those if you’re looking for a high-priced stock that is growing. And management has a huge incentive to do splits because it makes the stock go up faster, and they’re all paid in stock options. So that is another reason you go into these. The best way to trade splits is buying the candidates because the biggest move is on the announcement of the split—you usually get 10%, 15%, or even 20% returns on the announcement.
Q: How do you envision AI in 10 years?
A: Well, it’s unimaginable. I can tell you from experiencing a lot of these big technology changes—it’s always tremendously underestimated by the markets, and you can safely bet on that. It’ll go up a lot more than you realize. That’s what happened when we jumped from six track tapes to cassettes, Betamax to VHS, teletypes to faxes, and faxes to emails. I thought Steve Jobs was crazy when he introduced the iPhone. Nobody makes money in handsets. But he proved me wrong. That makes my $240,000 DOW by 2030 projection completely reasonable.
Q: What will inflation do for the rest of the year, and how will it affect stocks?
A: Inflation will go flat to down for the rest of the year. And that is being driven by artificial intelligence—the greatest deflationary product ever created in the history of the economy. It’s unbelievable the rate at which AI is replacing real people in jobs. If you want a good example of that, I had to call Verizon yesterday to buy an international plan, and I never even talked to a human. They listed out three international plans in a calm, even male voice, and I picked one. Or go to McDonald's where $500 machines are replacing $40,000 a year workers. This is going on everywhere at the same time at the fastest speed I have ever seen any new technology adopted. So buy stocks, that’s all I can say.
Q: What’s your opinion on Arm Holdings (ARM)?
A: I love it. There are very few serious companies in the chip area, and this is one of them.
Q: Do you expect gold mining stocks to continue upward?
A: Yes, but the better play here is the metal. Gold and silver aren't being held back by inflation while the miners are. Plus, the main buyers in the market now are the Chinese, and they don’t buy gold miners—they buy gold, silver, copper, platinum, and uranium outright.
Q: What about Tesla (TSLA) long-term? Kathy Woods's target is $2000 long-term.
A: I think Kathy Woods is right. But we have to get through the nuclear winter in the EV space first, where suddenly the market got saturated. I think Tesla is the only one who could come out of this alive by cutting costs and advancing technology, as they have always done. When I bought my first Tesla Model S1 in 2010, the battery cost $32,000. Now it’s $6,000, and you get a lot more range. Did (GM) offer an equivalent cost improvement with internal combustion engines? So, yes, never bet against Elon Musk—that’s a good 25-year lesson on my part, and should be for you too.
Q: Can you elaborate on the lithium trades?
A: I listed three names in my letter last week, (SQM), (FMC), (ALB), and the only thing you know for sure is that they’re cheap now. They could stay cheap for another six or 12 months. But when you get a turnaround in the global EV market and the manufacturers start screaming for more lithium, and all of the lithium stocks will double, or triple and they’ll do it fairly quickly. You can’t beat a market bottom for getting involved. Just look at my above (NVDA) trade. Not only would they be good stocks buy, but it would be a good LEAPS buy down here because then you could get 4 or 5 times your money on a small move.
Q: Can you suggest Amazon (AMZN) LEAPS?
A: January 2025 $195-200 just out of the money, should give you a return of about 120% over the next 6 months. That gets you the annual yearend run-up. And that’s my conservative position. My aggressive ones are all in Nvidia.
Q: Do you think zero-day options have permanently forced the Volatility Index ($VIX) to the $12 handle?
A: Yes, I do; it’s killed that market. Something like 40% of all the option traders on the CBOE were trading the ($VIX) from the short side. Shorting the ($VIX) now would be madness. That has to bring tough times for that whole industry. Trading call spreads at a $12 volatility, you’re better off buying the LEAPS because the LEAPS give you much bigger returns with much less risk. And a $12 ($VIX) means you’re getting your LEAPS at half the historic price. I’m just waiting for a new market low to start pumping out the LEAPS recommendations. All the more reason to sign up for the Mad Hedge Concierge Service to get an early read into the LEAPS recommendations. For more information on that, contact support at support@madhedgefundtrader.com
Q: What will happen to Apple (AAPL) after the 11% surge?
A: It goes to $250 by the end of the year. Now that it has the kiss of AI on it, people will pour into it.
Q: Why is value lagging?
A: Because AI is entirely a growth story, and you look at all the domestic value stocks, they’re going absolutely nowhere. Value has been in the dog house for years and I’m in no hurry to get in there.
Q: What is the best dividend stock I can invest in right now?
A: That’s an easy one. Altria (MO) has a 9% dividend—you can’t beat that. But you have to hold your nose when you buy this stock because they are in the cigarette business. However, their big growth now is in Asia ex-Japan where the government has a monopoly on tobacco, particularly China. Note that this is not an undiscovered idea; lots of people like a 9% dividend stock and (MO) has already gone up 20% this year, but I think there is still some money to be made here.
Q: How can we subscribe to get early LEAPS recommendations?
A: That would be the Concierge Service. Contact Filomena at customer support, and they will get you taken care of right away.
Q: What about the small nuclear plays?
A: I actually happen to know quite a lot about nuclear plant design, having worked for the Atomic Energy Commission in my youth, and the new designs address every major issue that held back nuclear power with the old 1950s designs. For example, building them underground and eliminated the need for these giant billion-dollar four-foot-thick reinforced concrete containment structures that dot the horizon. Not using pure Uranium alloys that can’t go supercritical is another great idea. So I like them. Are they good stock plays? Not right now. It takes a long time to introduce a new energy technology. Bill Gates is financing a new plant built by Terrapower in Wyoming, and it looks like a fantastic plant, but only Bill Gates could invest at this stage and expect to make money on it. He has very long-term money and you don’t. I would wait until you get a working model plant in the United States before going into these things, but potentially you’re looking at a 10 to 100 times return on your money if it works.
Q: Should I invest in Airbnb (ABNB) because of increased international travel?
A: Yes, we like Airbnb. Especially since they will get a push with the Paris Olympics next month. Not only does that get people to Paris, but it gets people to all of Europe because they usually add on additional trips to a visit to the Olympics.
Q: What would you do in Netflix (NFLX), and what strikes would you use?
A: I would do a LEAPS. Wait for a correction, at least 10%, preferably 20%, and then I would go at the money one year out and that would get you about 100% return. So, that’s the way to do that. This is not LEAPS territory right here —all-time highs are not LEAPS territory. You want to put on LEAPS when everyone else is throwing up on their shoes; the last time they did that was October 26.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on 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
You Only Need One Big Hit to Make a Great Year
“Volatility will be our traveling companion for a while,” said one strategist.
Global Market Comments
June 13, 2024
Fiat Lux
Featured Trade:
(THE TWO CENTURY DOLLAR SHORT)
(UUP)
Any trader will tell you the trend is your friend, and the overwhelming direction for the US dollar (UUP) for the last 242 years has been down.
Our first Treasury Secretary, Alexander Hamilton, found himself constantly embroiled in sex scandals. Take a ten-dollar bill out of your wallet and you’re looking at a world-class horn dog, a swordsman of the first order.
When he wasn’t fighting scandalous accusations in the press and the courts, he spent much of his six years in office orchestrating a rescue of our new currency, the US dollar.
Winning the Revolutionary War bankrupted the young United States, draining it of resources and leaving it with huge debts.
Hamilton settled many of these by giving creditors notes exchangeable for then-worthless Indian land west of the Appalachians.
As soon as the ink was dry on these promissory notes, they traded in the secondary market for as low as 25% of face value, beginning a centuries-long government tradition of stiffing its lenders, a practice that continues to this day.
My unfortunate ancestors took him up on his offer, the end result being that I am now writing this letter to you from California—and am part Cherokee, Delaware, and Sioux.
It all ended in tears for Hamilton, who, misjudging former Vice President Aaron Burr’s true intentions in a New Jersey duel, ended up with a bullet in his back that severed his spinal cord.
Since Bloomberg machines weren’t around in 1782, we have to rely on alternative valuation measures for the dollar then, like purchasing power parity, and the value of goods priced in gold.
A chart of this data shows an undeniable permanent downtrend, which greatly accelerated after 1933 when FDR banned private ownership of gold and devalued the dollar.
Today, going short the currency of the world’s largest borrower, running the greatest trade and current account deficits in history, with a diminishing long-term growth rate is a no-brainer.
But once it became every hedge fund trader’s free lunch, and positions became so lopsided against the buck, a reversal was inevitable.
We seem to be solidly in one of those periodic corrections, which began a few years ago and could continue for months, or even years more.
The euro has its own particular problems, with the cost of a generous social safety net sending EC budget deficits careening. Add to that the gargantuan cost of a burgeoning refugee crisis.
Use this strength in the greenback to scale into core long positions in the currencies of countries that are major commodity exporters, boast rising trade and current account surpluses, and possess small consuming populations.
I’m talking about the Canadian dollar (FXC), the Australian dollar (FXA), and the New Zealand dollar (BNZ), all of which will eventually hit parity with the greenback once again.
Think of these as emerging markets where they speak English, best played through the local currencies.
I’m sure that if Alexander Hamilton were alive today, he would counsel our modern Treasury Secretary to talk the dollar up but to do everything he could to undermine the buck behind the scenes, thus over time depreciating our national debt down to nothing through a stealth devaluation.
Given the Treasury’s performance so far regarding the dollar, I’d say they studied history well.
Hamilton must be smiling from the grave.
A 242 Year Chart of the US Dollar priced in Hard Goods
“Artificial Intelligence will be beneficial for us if it doesn’t kill us first, said Senator John Kennedy of Louisiana.
