"The greatest glory in living lies not in never falling, but in rising every time we fall." said the great American novelist, Earnest Hemingway.
Global Market Comments
April 5, 2024
Fiat Lux
Featured Trade:
(APRIL 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (TLT), (GOLD), (GLD), (WPM), (NVDA), (OXY), (XOM)
Below please find subscribers’ Q&A for the April 3 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Key West, Florida.
Q: What’s going on with gold (GLD)?
A: Well it’s simple; gold hasn’t moved in a year and people want to rotate out of big tech into something that hasn’t moved. Gold has a great long-term story if interest rates fall and if central banks continue to accumulate gold. We could go up quite a lot from here; my goal right now is 3,000/oz by the end of next year.
Q: Are ETFs or single stocks a better buy right now?
A: ETFs are baskets, tend to have high fees, and tend to move at half the rate of single stocks. Single stocks can go up a lot faster and have a lot more risk. So if I have a strong feeling about a particular asset class like gold or silver, I'll go ahead and buy single stock names directly like Barrick Gold (GOLD) and Wheaton Precious Metals (WPM) because I know I’ll get a multiple of the performance of a basket of gold companies.
Q: Ford Motor Co. (F) seems like a better play than Tesla (TSLA) this year. What is your opinion?
A: You’re absolutely wrong, Tesla is a fantastic buy down here, once the EV nuclear winter ends. Tesla could rise a multiple from here—Ford probably not so much. Notice also that GM saw sales fall by 1.5% in the first quarter of this year. Tesla just has the technology; Ford and GM don’t. The long-term outlook for the ICE companies is grim. They have millions invested in internal combustion engine factories, which very soon will be worth nothing more than scrap metal.
Q: Do you have a long-term target on the downside for Tesla (TSLA)?
A: Well I’m currently long the April $140-$150 vertical bull call debit spread that expires in 10 days. To get a price lower than $140, you need to get drastically worse news, which I don't think we’ll get. I think we’re bottoming out right around here; Tesla’s already down 62% from an all-time high. During the pandemic, it dropped 80%.
Q: What is the chance that inflation returns, and what happens if it does?
A: Interest rates rise, and the Fed postpones interest rate cuts even further. However, I don’t think that’s going to happen, because technology and artificial intelligence are having such a huge deflationary impact on the economy that any bad news about inflation will be short-term, and we are in a long-term trend going down.
Q: How does falling Fed QT affect interest rates?
A: It causes them to go down because it means the Fed is selling less of its bond holdings into the market. This means they’re taking less money out of the financial system, meaning liquidity is increasing, which is good for all risk assets. I think the stock market has noticed this by going up almost every day so far this year. So, just as quantitative easing was great for the economy and the stock market, the quantitative tightening was terrible, and the fact that they’re ending it is good for all risk assets.
Q: Where do you see the price rising for iShares 20+ Year Treasury Bond ETF (TLT)?
A: 110 by the end of the year, but we might have another $1.00 or $2.00 of downside first. If you get down to $90 or so, I’ll be knocking out the trade alerts to buy call spreads as fast as I can write them. But first let’s let (TLT) find its new level, and interest rates find their new high.
Q: What is a barbell?
A: A barbell is where we have overweight sections in two parts of the market; one is technology and one is domestic recovery plays. We have nothing in most sectors in between. That’s what we’ve been doing for years, and it works pretty well because you always have something that’s going up. That’s why it’s called a barbell.
Q: If you were doing a new LEAP on Wheaton Precious Metals (WPM), what would you do?
A: I would do an at-the-money, which at this point would be June 2025 $50-$53 verticals bull call spread LEAPS, and I would go out at least a year, probably a year and a half because we’ve just had a very big run in Wheaton Precious Metals—about 25%. LEAPS are things you do at market bottoms, not at market tops. A reversal can be very expensive—they can literally go to zero on you.
Q: What do you think will be the next asset class investors will rotate into after commodities?
A: Big technology. We’re going to be going back and forth between the two sectors probably for years. So, I think tech needs a time correction of several months, where commodities and precious metals and energy will run free, and eventually, they’ll get overbought and want to take a rest, and then everyone rotates back into big tech. In the meantime, big tech and AI are moving forward with their technology.
Q: Why has Carnival Corp (CCL) had such a terrible stock performance, even though they’re having record sales and full ships?
A: They have huge amounts of debt leftover from the pandemic, which they got both from the government and the private sector. If they hadn’t done that, they’d have gone bankrupt, and it’s going to take a long time to pay off all that debt, even though it was at interest rates that were quite low. Plus, if they have to refinance any of that, that can get expensive too because the old loans are at zero or 1%, and the new loans are going to be like 6%, 7%, or 8%. So that has been a drag on Carnival Cruise Lines.
Q: What is a time correction?
A: A time correction is when the stock goes sideways for a period of time without going anywhere because nobody wants to sell it, everyone is bullish, and they’re willing to wait for the next leg up in the bull market. In the meantime, money rotates into other stocks that are moving, like commodities, precious metals, and energy.
Q: Should we take profits off of Barrick Gold (GOLD) after the recent runup, or does it have some more room to go into the upside?
A: Only if you’re a short-term trader do you want to take advantage of the recent run-up in Barrick Gold. I, however, think the stock could go up another $10 or $20 by the end of the year. I am quite happy to hold on. In fact, on any dips or weak days, I am adding to my position, not looking to run it down.
Q: What do you expect for oil prices?
A: I think we go to the top of the multi-year $62-$95 range and I’m going to run my longs in (XOM) and (OXY) until then.
Q: What do you think of Ken Griffin’s criticism of the US national debt growing at such a fast pace?
A: I’ve been hearing about the national debt for my entire life, since I was 3 years old and my grandfather would lecture me about the national debt, back when it was a pittance compared to what it is now. The fact is, growing national debt seems to have zero impact on any risk asset whatsoever. Stocks are at all-time highs, real estate is at all-time highs and rising, and the dollar is at all-time highs when rising debt was supposed to crush the dollar. The actual fact is that 80% of all the national debt was run up by Republican presidents, so to see Republicans complain about rising debt, especially our most recent president who increased it by $10 trillion is somewhat ironic. The fact s that the national debt is the result of four big tax cuts for billionaires that took place under Kennedy (1960), Reagan (1984), Bush (2002), and Trump (2017), so it’s also ironic that billionaires like Griffin and Paul Tudor Jones are complaining the loudest. They all sound like Cassandras—warning that the sky is falling, but it never seems to happen. In the meantime, I would buy bonds, because they’re not worried about national debt either.
Q: Can Bitcoin go higher after the halving in April?
A: No, the halving is in the price. All of the Bitcoin marketers have been selling you Bitcoin based on that halving for a year now. So the actual halving is going to be a classic “buy the rumor, sell the news” type move.
Q: What do you consider a dip?
A: It’s different for every stock depending on its volatility. It could be 5% for a boring stock, or 20% for something like Nvidia (NVDA).
Q: Does commercial real estate present a systematic risk to the financial markets?
A: No, commercial real estate is only 5% of the loan portfolios of the big banks, and maybe 1% of that will go under. It’s just a normal year of losses for the banks. As for regional banks, they’re the ones that will get hit; they’ll have to do deals to get bought up by the big banks. This is why I think we’re in the process of going from 4,000 banks in the United States to only 6.
Q: Is $100/barrel for oil back in play?
A: No, but $95 is, which is why I went long ExxonMobil (XOM) and Occidental Petroleum (OXY). So, it’s kind of late to get involved here on this trade, but if you are long oil, I would keep it and squeeze the last bit of juice out of those lemons.
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 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
“When less experienced investors are panicking, seasoned investors see opportunities,” said legendary value investor Ron Baron.
Global Market Comments
April 4, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(FCX), (XOM), (OXY), (WPM), (TSLA)
Occasionally, I get a call from Concierge members asking what to do when their short position options are assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have SIX spreads that are deep in the money going into the APRIL 19 option expiration in 11 days. They include:
(FCX) 4/$37-$40 call spread
(XOM) 4/$100-$105 call spread
(OXY) 4/$59-$62 call spread
(WPM) 4/$39-$42 call spread
(TSLA) 4/$140-$150 call spread
(GLD) 4/$194-$197 call spread
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options position you have may get assigned or called away.
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 Freeport McMoRan (FCX) April 2024 $37-$40 in-the-money vertical BULL CALL debit 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 10 trading days before the April 19 expiration date. In other words, what you bought for $2.60 on March 4 is now $3.00!
All you have to do is call your broker and instruct them to exercise your long position in your (FCX) April 37 calls to close out your short position in the (FCX) April $40 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, 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 option contract is exercisable into 100 shares.
To say it another way, you bought the (FCX) at $37 and sold it at $40, paid $2.60 for the right to do so, so your profit is $0.40 cents, or ($0.40 X 100 shares X 40 contracts) = $1,600. Not bad for a 30-day defined limited-risk play.
Sounds like a good trade to me.
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 (FCX) position after the close, and exercising his long April $40 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 that may arrive at some twisted logic that the calls 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 make mistakes.
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. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.
Either that, or you can just sell your shares the following Monday and take on a ton of risk over the weekend. This generates a oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they really did train 50 years ago.
Avarice could have been an explanation here but I think stupidity, poor training, and low wages are much more likely.
Brokers have so many legal ways to steal money 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
April 2, 2024
Fiat Lux
SPECIAL PRECIOUS METALS ISSUE
Featured Trades:
(WHAT’S UP WITH GOLD?)
Have you ever held a basketball underwater in a swimming pool and let go? It flies to the upside and pops you in the nose. That is exactly what Gold is doing.
After the barbarous relic peaked at $2,080 in May 2023, it traded like an absolute pig, giving up 8.7% in a matter of weeks.
Gold actually perfectly timed the bottom in all risk assets on October 15, 2022, when the current bull market began.
Since then it has behaved like a paper asset, tracking the S&P 500 almost tick for tick, adding a quick 28%. Although it has trailed big tech (what hasn’t), it has handily beaten many other asset classes, such as bonds (TLT), the US dollar (UUP), commodities (CORN), and energy ($WTIC).
So, what’s up with gold?
The upward pressure on the barbarous relic is coming in from all directions.
The most important is that we have reached the end of the Fed tightening cycle. Interest rates are far and away the biggest driver of prices for the yellow metal and there is a rising consensus that the next big move is down, not up.
New bull arguments have also come to the fore. The war in Europe has prompted massive buying of all precious metals by panicky individuals, including silver (SLV), with a collapse of the US dollar imminent, also driven by lower US interest rates.
And how will Europe eventually end the crisis? With a Russian defeat, which will lead to a global economic boom and massive government spending. And while they are losing the war, both Russia and China are stockpiling gold to bypass trading sanctions. Exporting gold from China currently carries the death penalty.
How far will the gold get this time? The gold bugs say we’re going to break the old high and power on through to the inflation-adjusted high at $2,300. After that, we’re looking at $3,000 an ounce.
But there is a trade here in precious metals space for the nimble. My pick has been to buy lagging silver, which offers much more bang per buck if the sector starts to build a head of steam.
Here are the handy formulas to remember. Gold stocks (GOLD), (NEM) go up four times faster than the underlying metal because of their high leverage. Silver stocks go up twice as fast as gold and silver stocks rise four times faster than the underlying silver.
It all boils down to one conclusion: buying Wheaton Precious Metals (WPM) for subscribers are already long. (WPM) doesn’t actually own any silver mines but strips off royalty streams from third-party silver mine operators just like a REIT.
"The greatest show on earth is happening elsewhere. Southern trade is becoming turbocharged," said Stephen King, chief economist at HSBC, about the enormous new trading routes forming between Asia and Latin America, who calls the network the "Southern Silk Road"
Global Market Comments
March 29, 2024
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY),
(TLT), (FCX), (XOM), (OXY), (WPM), (TSLA) (FCX)
