Global Market Comments
January 26, 2024
Fiat Lux
Featured Trade:
(JANUARY 24 BIWEEKLY STRATEGY WEBINAR Q&A)
(TLT), (IWM), (SPY), (ALK), (FXI), (UAL), (BA), (NVDA), (UUP), (UNG), (MSFT), (GOOGL), (AMZN), (NVDA), (META), (CCI)
Posts
Below please find subscribers’ Q&A for the January 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Will you stop out of (TLT) if it breaches the $93 level?
A: Yes, and I'm actually hoping it will do that because that sets up some really great two-year LEAPS for the (TLT) going out long-term. It's trying to hold in here at the bottom. It's been in the $93 handle for several days now, so we'll just watch.
Q: There seems to be negativity all over the place, but markets continue upwards. What are the chances of a black swan this year, and what do you think it might be?
A: Well, there always is a possibility of a black swan. That's why we do risk control and risk management all the time because black swans are by definition unpredictable. The reason people are negative is that they don't own more stocks, and they keep going straight up, at least the tech ones do. Money managers always look dumber not owning a market that's going up than owning a market that's going down and losing money with everybody else. It's just the way investor psychology works.
Q: Do you expect small caps (IWM) to outperform the S&P 500 (SPY) this year?
A: Yes I do, but it'll be a second half of the year game. They really need the big drops in interest rates to get earnings moving.
Q: Would Boeing (BA) be good for a LEAPS?
A: Yes, it would, but I would go out to the maximum maturity, say two to two and a half years, and you may get a double on your money on that. Basically, there are only two airplane manufacturers in the world that have a monopoly (or a duopoly to be technically correct) and Boeing is one of them. So love them or hate them, you still have to buy their airplanes; look no further than Alaska Airlines (ALK) and United (UAL), which have had to cancel literally tens of thousands of flights because they don't have enough airplanes. They had to ground all their 737 maxes.
Q: With all the shooting going on in the Middle East, why isn't oil higher?
A: It's all about China (FXI). As long as China is in a recession which seems to be getting worse, oil demand falls. China is the world's largest importer of oil by a large margin. They're also taking all the natural gas that the US will produce, and that is a big drag on prices. That will end when China starts to recover, and we did get a major stimulus package out of the Chinese government this week.
Q: What about NVIDIA (NVDA)? It's gone up so much. I'm up 300% since my cost. Should I sell now and take profits or just run the long?
A: This whole group, which I now call the AI 5—Microsoft (MSFT), Google (GOOGL), Amazon (AMZN), NVIDIA (NVDA), and Meta (META) could drop 20% at any time and then go on to new highs, and that's exactly what happened in the fall. We had a 20% drop in everything and then it just shot off to the races. So as long as you can handle a 20% decline in these stocks, and if you're a long-term investor, then you should keep them. Because the risk is you'll take profits, generate a big tax bill, and then won't be able to get back in at the next low, and you'll end up missing the next $1,000 point move. If you're the trader of the century like me, you can do that. But for your average garden variety trading at-home investor, I would say keep what's winning—keep the AI 5.
Q: Thanks John, I got a double on your (UNG) LEAPS that you put out over Christmas. It's since given back much of the gains. Do you see another big rally in (UNG) this year?
A: Yes, that was a 2-year LEAPS I put out. It doubled in 2 weeks, and I do see a bigger recovery in the second half of the year once the Chinese economy starts to recover. Their marginal first choice for new energy supplies is American natural gas; it's not oil from the Middle East. They're trying to clean up their atmosphere as much as we are, so look for another big demand spike for (UNG) later in the year.
Q: Why has the dollar (UUP) been so strong?
A: Rising interest rates. Currencies are all about interest rates and where the next interest rate move is going to be. Money always pours into the currency that has the next rise in interest rates. That's been the US dollar for all of this year so far.
Q: Will the election have an effect on the market?
A: Absolutely not. Nobody cares about the election. If you're an election junkie, you may stay glued to your TV. I'm not interested myself. I don't expect any changes in the economy to take place this year, and that's all investors and money managers really care about—is how they will do by the end of this year. So you're better off watching sports on ESPN is all I can tell you. Oh yes, and this is supposed to be a record year for disinformation about elections and candidates. Another reason to not bother with the election this year. Go watch the Jack Reacher series. At least there you can keep track of the body count.
Q: Is it a good time to buy a home right now?
A: Yes, if you have cash. It is still too expensive to borrow money to buy a home with 30-year mortgages at 6.5% and 5/1 ARMs at 6% or even 5.5%, but if you have cash, it is a great time to buy a house because what is the next move? Interest rates go down. Suddenly everybody in the world can afford houses and they now want to buy your house. So very rapid price rises are coming for the housing market once the rates start to fall, which could be March, could be June, depending on how Jerome Powell feels that morning.
Q: With EV sales up 50% last year (TSLA), why has copper been so weak?
A: The old high price of copper was based on continuing 50% per year increases in EV sales for the indefinite future. In fact, we got a 50% increase last year and forecasts for 10% growth only this year, so that's a big part of it. Also, backing out the Chinese construction demand gives copper a huge hit. New construction in China is essentially at zero and will be at zero for quite some time because of the real estate crisis there. Some people in China are looking at prices on their homes down 80%, which sounds like a repeat of our 2008 financial crisis. So that is another major drag on copper.
Q: Is it a good time to “buy wrights”?
A: Absolutely yes. If you read today's newsletter, it tells you how to do a buy write, and you do “buy rights” on the most expensive stocks. For example, NVIDIA (NVDA) at $600 today—you can get $8 for the February $650 calls, which you sell short against your stock ownership at $600, or you can go out to March 15th and you can get $19 for the March $650 calls. That will reduce your average cost for the shares by $19, so actually (NVDA) is, in fact, one of the best stocks to do this in, because it has the highest implied volatility of any options, second to Tesla (TSLA), it turns out.
Q: How did you predict the S&P 500 so accurately last year? You got within a point, pretty amazing.
A: All I can say is 55 years of practice helps! And I am a bit of a contrarian person; so when everybody said the market was going to go down, I said, “How about new all-time highs?” But also the answer to all questions really is people are wildly underestimating the impact of technology and AI, which continues to surprise the upside and will keep doing so for the next decade. That is the driver of all asset prices everywhere right now, and people will figure that out in probably about 5 years.
Q: Crown Castle Inc. (CCI), is that a good one to watch, with renewed interest in REITS?
A: Absolutely yes, and it's also a great interest-rate play. It had a horrible selloff going into October and has since made back all of those losses. We actually had a LEAPS in (CCI), which is now making money.
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 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
Global Market Comments
May 20, 2022
Fiat Lux
Featured Trade:
(MAY 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(C), (FXI), (BABA), (TSLA), (AAPL), (AMZN), (TGT), (FLR), (QQQ),
(FB), (ARKK), (TSLA), (WYNN), (UAL), (ALK), (DAL)
Below please find subscribers’ Q&A for the May 18 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: When do you see the banks returning to glory?
A: When recession fears go away, which should happen this summer. A recession will either have come and gone, or we will have confirmation by the end of summer that there is no recession in sight for the next few years at least. This will likely trigger a monster rally in the banks, which could all jump 50% from here. Obviously, Warren Buffet is putting his money where his mouth is by loading up on Citibank (C) yesterday. This would take us to new all-time highs by the end of the year. So, again, use these down-1000-point days to go cherry-picking among the generals who have been executed. If that’s not mixing metaphors, I don’t know what is!
Q: Should I listen to CNBC?
A: No, do not listen to the talking heads on TV. They are on TV because they don’t know how to make money. If they did know how to make money, they’d be locked up in a dark basement somewhere like me, grinding out millions for their firms. In fact, watching TV is the perfect money destruction machine because on down days, they bring out the uber bears, and on up days they bring up the hyper bulls. They are trying to egg you to get you to do the exact opposite of what you should be doing. They’re not interested in you making money; they’re interested in getting traffic on their websites and making money for themselves. CNBC can be highly dangerous to your financial health.
Q: Will we get stagflation?
A: No, because I think that once the year-on-year comparisons kick in—literally in a month or two—inflation will drop from the current 8.3% to down maybe 4% by the end of the year. That also is another factor in your monster second-half rally.
Q: Do you think the bounce in the market yesterday is the beginning of an upward trend or a dead cat bounce?
A: Definitely a dead cat bounce. I expect we’ll keep chopping around in the current range for the next 3, 4, and 5 months, and then we catapult into a monster year-end rally. That is a typical bottoming-type process.
Q: Is the wisdom “Go away in May” still alive or is your best bet that this year may prove different and the market goes up in the latter part of the year?
A: Actually, you should have gone away in November. That’s when all tech stocks peaked; only energy went up after that. If you’d gone away in November and said “come back in August” that would have been a good strategy because I think that’s when the year-end rally begins. If anything, May could be the bottom of the entire move.
Q: Is it time for LEAPS (Long Term Equity Anticipation Securities)?
A: Not yet—it’s too soon for LEAPS territory. You only want to do LEAPS when you are on a sustained long-term uptrend in a stock. We are nowhere near sustained anything, we are still in a bottoming phase, and could be there for months. At the end of those months is when we’ll be looking at LEAPS, where you can double your money every 6 months.
Q: Is it time to start nibbling on China stocks (FXI) now that COVID news is marginally better?
A: I’m going to avoid Chinese stocks because the American ones are so much better. You want to buy the quality at the discount, not the marginal, high-risk political footballs at a discount. And China will remain high-risk as long as they are abandoning capitalism. If you have to buy one Chinese stock, I would say Alibaba (BABA); you could get a double on that. But remember it is a high-risk trade—if the Chinese government wants to roll Jack Ma up in a carpet and kidnap him to Western Chinese re-education camp, the stock will get slaughtered. And that’s been happening increasingly with the heads of major companies in the Middle Kingdom.
Q: When this current route comes to an end, should we look to enter the market with 50% margin on stocks like Tesla (TSLA)?
A: It’s never sensible to go to 50% margin because if the stocks drop 50%, you are completely wiped out—you’ve lost everything. Plus, coming back from a loss is one thing; coming back from zero is impossible. So, I would not recommend that. You might do a safe stock like Apple (APPL), with a 2% dividend, and then at least you’re getting a double dividend. You only do the 50% margin on the safest, high dividend stocks.
Q: Amazon (AMZN) is on its way down. What is your expectation for the $3200/$3400 vertical bull call spread in January 2023?
A: I think you could make money on that. It may not be the full amount of the spread, but you’ll definitely get a big increase from current levels, because when we do get a second half rally, it will be tech-led, and Amazon has already had a horrific decline. What you might consider is rolling your strike down, taking the loss on the 3200/3400 and rolling down to like a $2,000/$2,200 in twice the size, and you’ll make your money back that way.
Q: For those of us thinking about LEAPS, how should we start to buy in—20, 30, 50% right now?
A: Well, first of all, you only do them on down days like today, when the market is down 800, and you scale in. 20% now, 20% higher or lower, and 20% again higher or lower. But you really want to be saving cash for days like this because You want to feel smarter than everybody else, and they absolutely will hit any bid on a down day, and that's where your LEAPS fills are really excellent, is on a down day like this.
Q: Can the Fed avoid another policy mistake? Because it seems that not only are they heading for high inflation, but layoffs are coming as well, and even with that I’m sure they will perform a soft landing of sorts.
A: For sure, when you take massive amounts of stimulus out of the economy, as we have in the last year, that is recessionary. In fact, the US government is close to running a balance budget right now because Biden can’t get anything through Congress other than money for Ukraine. Good for Ukraine economy, not for ours. And yes, they can do a soft landing, but has it ever been done before? No. Though this is the Fed that just keeps on surprising, so who knows. In the meantime, I'm willing to trade the ranges, and that may be all you get to do for a while.
Q: Target (TGT) shares are down 25%, as they cited higher costs that will result in rising prices for their customers. Would you buy the dip?
A: No, I generally don’t like retailers anyway. It’s a business that operates on a 2% profit margin. I like 40 or 50% profit margin businesses—those tend to be technology stocks.
Q: Would you buy retailers going into a recession?
A: No, that’s the worst thing in the world to own.
Q: Could Fluor Corp (FLR) be a Ukraine infrastructure stock?
A: Yes, once the war ends there will be a massive effort to rebuild Ukraine. Every company in the world will be involved, and Fluor and Bechtel will be the biggest, though Fluor is the only one where you can buy the stock. We already have the money to do this with all of the money that was seized from Russia. I predict discount sales on mega yachts.
Q: Why do you think all that money is going to Ukraine?
A: Because a weakened Russia is in the national interest of the United States, and it’s better that their soldiers are doing the dying than ours. I’ve done the latter and definitely prefer the former, using the other country's’soldiers as cannon fodder.
Q: On down days like today, should I be putting on one-month trades like the June options?
A: Yes, because the minimizes your risk and cuts the cost of mistakes. Waiting for the second half of the year when we get a prolonged uptrend to look at LEAPS—that is the correct way to do it.
Q: Over the next 12 months, do you think the S&P 500 will outperform Nasdaq?
A: No—for the next 3 months the S&P 500 will outperform NASDAQ. After that, NASDAQ will become an enormous outperformer for the rest of the decade. So, choose your entry points wisely.
Q: Do you think that housing is peaking out and will start to decline?
A: No, we still have a long-term structural shortage of 10 million homes in the US and I think we will flatline housing for years until we catch up with that shortfall.
Q: What are your thoughts on the Metaverse?
A: Too soon. Right now, the Metaverse involves spending only—no revenues. It could be years before you actually see any profits. So that’s why I'm avoiding Meta or Facebook (FB). But then, you could have made the same argument about the internet 25 years ago and semiconductors 50 years ago. If you waited long enough, however, you obviously made a fortune.
Q: China is hoarding 69% of their wheat reserves. Is this because they plan to invade Taiwan?
A: No, it’s because there’s a global food crisis going on. Many countries, like India, have banned exports of food to protect themselves. People miss this about China: China will never have a war or invade anybody, because the second they do, their food supplies get cut off by us, who are the world’s largest producer of food. Plus, their trade would get shut off to pay for it, so they can’t buy it from somewhere else, and that’s done with us also. So, they need to be in our good graces in order to eat. That's the bottom line and that’s why Taiwan will never get invaded. Russia’s economy can operate independently for a while, but China’s can’t.
Q: Is the baby food shortage further evidence of a food crisis?
A: No, the baby formula crisis is being caused by a monopoly of three companies that control 100% of the baby food market; and the largest of these companies, accounting for a 40% market share of the baby food making, is producing baby food that is poisonous. That's why they got shut down. This has been going on for years, and for some reason, they got a free pass on regulation and inspections by the previous administration, which is ending now, and all of a sudden we’re finding out that 40% of the country’s baby food is contaminated and is being pulled off the market. So, it really has nothing to do with the global food crisis. That’s more related to Climate change—surprise, surprise—as it’s not raining in the right places like California, the war in Ukraine, which removed 13% of the world’s calories practically overnight.
Q: Should I bet the farm here with the ARK Innovation Fund (ARKK)? I like Cathie Woods’ bet on innovation or five-year time horizon. It’s a great thing, don’t you think?
A: Not so great when you drop 70% in the last year. And it is a high-risk bet that of her ten largest holding companies, you only need one of them to work for the fund to bring in a decent return. Of course, you may have to write off nine other companies to do that. But yes, it’s a great thing to own on the way up, not so great on the way down. I know some people who started scaling into ARK in November and came to regret it. I would wait on it—this is your highest leverage technology play, and if you really want some punishment, there’s a hedge fund that’s bringing out a 2X long ARK fund in the next couple of months. Then it’s basically option money you’re throwing out. If you want to put some money in that, you could get a 10x on the 2x ETF if you’re playing a recovery in ARK. So watch it; don’t touch it now because ARK is having another heart attack today, but something to consider if you like gambling.
Q: I am full up with a thousand shares of PayPal (PYPL). It’s now down 76%. What should I do?
A: I recommend you learn the art of stop losses. I stopped out of this thing last fall, and it’s continued to go down virtually every day. Whenever you buy a new position, automatically enter into your spreadsheet your stop loss for that position. Because things can drop by 80 or 90% and you work too hard for your money to throw it away on these big losses.
Q: What do you think about Steve Wynn and Wynn Hotels?
A: I’d be buying down here down 62%; it was announced today that Steve Wynn has secretly been acting as an agent for the Chinese government where (WYNN) has a major part of its operations. Who knew? With all those high rollers being flown in on private jets from China, sitting at the tables in the closed rooms. So yes, this is a recovery play and it will do just as well as all other recovery plays, but remember it’s a China recovery play. And I think, in any case, his ex-wife owns a big part of the company anyway. So I don’t think Steve Wynn is that closely connected with Wynn hotels because of past transgressions with the female staff.
Q: Is it time to scale into Freeport-McMoRan (FCX)?
A: I’d say yes. On a longer-term view, I expect (FCX) to go to $100. And for those who have the May $32/$35 call spread that expires on Friday, my bet is that you get the max profit—but you may not sleep before then.
Q: What do you have to say about a post-Putin scenario and impact on the market?
A: The day Putin dies of a heart attack, you can count on the market being up 10%, if that happens right now—less if it happens at a later date. But it would be hugely bullish for the entire global stock market, and oil would also collapse, which is why I refuse to put on oil plays here. That is a risk. Putin can give up, have an accident, or get overthrown. When the Russian people see their standard of living decline by 90%, this is a country that has a long history of revolutions, putting their leaders in front of firing squads and throwing the bodies down wells. So, if I were Putin, I wouldn't be sleeping very well right now.
Q: What's the reason for air tickets (UAL), (ALK), (DAL) going up sharply?
A: 1. Shortage of airplanes 2. Soaring fuel costs 3. Labor shortages and strikes 4. It is all proof of an economy that is definitely NOT going into recession.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
With Lieutenant Uhuru
Global Market Comments
October 8, 2021
Fiat Lux
Featured Trade:
(OCTOBER 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (TSLA), (BLK), (MS), (JPM), ($NATGAS), (UNG), (BIDU), (MRNA), (COIN), (ROM), ($BTCUSD), (ETHE), (FB), (DAL), (ALK), (LUV) (MSTR), (BLOK), (V), (NVDA), (SLV), (TLT), (TBT)
Below please find subscribers’ Q&A for the October 6 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: When will Freeport McMoRan (FCX) go up?
A: When the China real estate crisis ends, and they start buying copper again to build new apartment buildings.
Q: Do rising interest rates imply trouble for tech?
A: Yes, they do, but only for the short term. Long term, these things all double on a three-year view; and the next rise up in tech stocks will start when interest rates peak out, probably with 10-year yields at 1.76% or 2.00%. The great irony here is that all the big techs profit from higher rates because they have such enormous cash flows and balances. But that is just how markets work.
Q: I know you’ve been promoting Tesla (TSLA) for a very long time. What do you think about it here?
A: We’ve just gone from $550 to over $800. It actually has been one of the best performing stocks in the market for the past four months. Short term, you want to take profits; long term you want to hold it because it could go up 10 times from the current level. They just broke all their sales records and are the fastest growing car company in the US or Europe.
Q: If Blackrock (BLK) is reliant on interest rates, will the rise in interest rates hurt them?
A: No, it’s the opposite. Rising interest rates are positive for Blackrock because it improves the return on their investments, which they get a piece of; so rising interest rates mean more money and more fees. That's why I own it— it is a rising interest rate play, not a falling interest rate play.
Q: What do you think about Baidu (BIDU)?
A: Stay away from all China trades right now, it’s uninvestable. Not only do I not know what the Chinese are going to do next—they seem to be attacking a new industry every week—but the Chinese don’t even seem to know. This is all new to them; they had been embracing the capitalist model for the last 40 years and they now seem to be backtracking. There are better fish to fry, like Morgan Stanley (MS) and JP Morgan (JPM).
Q: Don’t you have a bear put spread on Baidu (BIDU)?
A: We did have a bear put spread on Baidu, but that's only a very short term, front month trade. It does look like it’s going to make money; but keep in mind those are high-risk trades.
Q: Could Natural Gas (UNG) trigger an economic crisis?
A: Not really. In the US, natgas is only a portion of our total energy needs, about 34%, and that’s mostly in the Midwest and California. The US has something like a 200-year supply with fracking. Plus, we’re on a price spike here—we’ve gone from $2 to $20/btu in Europe, entirely manipulated by Russia trying to get more money on their exports and more political control over Europe. So, it’s a short-term deal, and you can bet a lot of pros are out there shorting natgas like crazy right here. The real issue here is that no one wants to invest in carbon-based energy anymore and that is creating bottlenecks in the energy supply chain.
Q: How long will it take to provide EV infrastructure to mass gas station availability?
A: The EV infrastructure has in fact been in progress for 20 years, if you count the first generation of EV in the late 90s, which bombed. Tesla has been building power stations in the US for 10 years. They have 10,000 chargers now in 1,800 stations and their goal is 20,000 charging stations. In fact, most people already have the infrastructure for EV charging—you just charge them at home overnight, like I do. The only time I ever need a charge is when I go to Lake Tahoe. For gasoline engines, on the other hand, it took 20 years to build infrastructure from 1900 to 1920 to replace horses. Believe it or not, gasoline cars were the great environmental advance of the day, because it meant you could get rid of all the horses. New York City used to have 150,000 horses, and the city was constantly struggling through streets of two-foot-deep manure piles. So that was the big improvement. It only took 100 years to take the next step.
Q: The latest commodity with supply constraints I hear about is cotton. Is this all just a temporary thing and can we expect supply capacity to be back to normal next year? Is this just the failing of a just-in-time model that simply doesn’t work in the age of deglobalization?
A: We are losing possibly one third of our current economic growth due to part shortages, labor shortages, supply chain problems—those all go away next year, and that one third of economic growth just gets postponed into 2022 which means that the economic recovery is extended over a longer period of time, and so is the bull market in stocks, how about that! That’s why I’m loading the boat right here. It’s the first time I've been 100% invested since May.
Q: What do you think about the airlines here?
A: High risk, but high return play for the next year. Delta (DAL) is a play on business travel recovery. Alaska Airlines (ALK) and Southwest(LUV) are a play on a vacation travel return flying return, which has already started—we’re back to pre-pandemic TSA clearances at airports.
Q: Is Facebook (FB) a buy now?
A: No, I want to wait for the dust to settle before I go back in. I think it does recover and go to new highs eventually but will go to lower lows first. Regulation is certainly coming but we don’t know what.
Q: When will the chip shortage end?
A: Two years. My prediction is much longer than anybody else's because people are designing chips into new products like crazy. All predictions for the chip shortage to end in only a year don’t take that into account.
Q: When do we go into the (ROM) ProShares Ultra Technology long play?
A: When interest rates peak out sometime early next year. It’s probably a great entry point for tech; until then they go nowhere.
Q: Does the appetite for financials extend to Canada and their banks with higher dividends?
A: Yes, US and Canadian interest rates tend to move fairly closely so that rising rates here should be just as good for banks in Canada, and you might even be able to get them cheaper.
Q: Do you suggest we buy Altcoin?
A: No, not unless you're a Bitcoin professional like a miner, who can differentiate between all the different Altcoins. You can buy up to 100 different Altcoins on the main exchanges like Coinbase (COIN). In the crypto business, there is safety and size; that means Bitcoin ($BTCUSD) and Ethereum (ETHE), which between them account for about three quarters of all the crypto ever issued. A Lot of the smaller ones have a risk of going to zero overnight, and that has already happened many times. So go with the size—they’re less volatile but they’ll still go up in a rising market. And you should subscribe to our bitcoin letter just to get the details on how that market works.
Q: Target for Bitcoin by Christmas?
A: My conservative target is $66,000, but if we really go nuts, we could go as high as $100,000. That’s the “laser eyes” target for a lot of the early investors.
Q: Suggestions for a Crypto ETF?
A: It’s not out yet but will be shortly. I think that Crypto will run like crazy in anticipation of the Bitcoin ETF that we don’t have yet.
Q: Should I buy Moderna (MRNA) on this dip at 320 down from 400, or is this a COVID revenue flash in the pan that won’t come back?
A: It’ll come back because they’re taking their COVID technology and applying it to all other human diseases including cancer, which is why we got in this thing two years ago. But we may have to find a lower low first. So I would wait on all the drug/biotech plays which right now are getting hammered with the demise of the delta virus.
Q: What’s your favorite ETF right now?
A: Probably the (TBT) Double Short Treasury ETF. I’m looking for it to go up another 30% from here to 24 or 25 by sometime next year.
Q: EVs have been hot this year; Lordstown Motors is down to only $5 from $27 and just got downgraded by an analyst to $2. Should I buy, or is this a dangerous strategy?
A: I would say highly dangerous. This company has been signaling that it’s on its way to bankruptcy essentially all year, so don’t confuse “gone down a lot” with being “cheap” because that’s how you buy stuff on the way to zero.
Q: What about Anthony Scaramucci’s ETF?
A: We will have Anthony Scaramucci as a guest in our December summit. And the ETF is a basket of stocks as diverse as MicroStrategy (MSTR), Blok (BLOK), Visa (V), and Nvidia (NVDA), so you will only get a fraction of the Bitcoin volatility. That means if Bitcoin goes up 100% you might get a 40% or 50% move in the actual ETF.
Q: Do you have a Bitcoin book coming out soon?
A: I do, it should be out by the end of this month. That’s The Mad Hedge Guide to Trading Bitcoin, and it will have all the research I’ve accumulated on trading Bitcoin in the past year.
Q: Why have you only issued one trade alert in Bitcoin?
A: You don’t get a lot of entry points for Bitcoin. You buy the periodic bottoms and then you run them. Dollar cost averaging is very useful here because there are no traditional valuation measures to use, like price earnings multiples or price to book. When it comes time to sell, we'll let you know, but there aren’t a lot of Bitcoin plays outside the Bitcoin exchanges.
Q: Thoughts on silver (SLV)?
A: It’s horribly out of favor now and will continue to be so as long as Bitcoin gets the spotlight. Also, there’s a China problem with the precious metals.
Q: There are 8 or 10 good public Bitcoin and Ethereum ETFs in Canada.
A: That’s true, if you’re allowed to trade in Canada.
Q: Can the US ban Bitcoin like China did?
A: No, if they did, it would just move offshore to the Cayman Islands or some other place outside the world of regulation.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on 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
Sightseeing in Laos in 1975
Global Market Comments
September 24, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(SEPTEMBER 22 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (TBT), (V), (AXP), (MA), (FSLR), (SPWR), (USO), (UNG), (PFE), (JNJ), (MRNA), (MS), (JPM), (FCX), (X), (FDX), (GLD), (UPS), (SLV), (AAPL), (VIX), (VXX), (UAL), (DAL), (ALK), (BRK/B), (BABA), (BITCOIN), (ETHEREUM), (YELL)
Below please find subscribers’ Q&A for the September 22 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: When’s the United States US Treasury bond fund (TLT) going to go down?
A: When J. Powell tapers, which will be either today or in 6 weeks. That's the time frame we’re looking at now, and people are positioning now for the taper—that's why financials are taking off like a rocket. Buy those financials and don't expect too much from your tech stocks for the next few months.
Q: What do you think of adding corporate or municipal bonds to my portfolio?
A: Don’t do that on pain of death please; you will lose money. Corporate bonds will get slaughtered the second interest rates turn because they have the most exposure from a credit point of view to any downgrades resulting from rising interest rates. Better to keep your money in cash than buy bonds here. It was a great idea 10 years ago, but a terrible idea today. Just buy cash or buy extremely deep-in-the-money LEAPS which will get you a 10-20% per year return.
Q: What are the chances that the government defaults?
A: Zero, because corporate profits this year will increase from $2 trillion to $10 trillion, spinning off massive tax revenues for the government. The deficit will come down substantially in the future as a result. Keep expecting upwards surprises in profits and taxable revenues. That may be why the (TLT) is staying so high.
Q: I need a customized LEAPS on a stock.
A: We do those for our concierge customers. If you’re interested, then email Filomena at customer support at support@madhedgefundtrader.com.
Q: What brand of shot did you get?
A: Pfizer (PFE).
Q: The Government is showing no sign of balancing a budget and the hole will only get deeper; what are your thoughts?
A: I agree, and that’s why I'm short the (TLT). All we need is a taper to really get some juice under that trade; we really don’t need that much. Ten-year US Treasury yields are now around 1.30% and we only need the yield to get up to about 1.70% for us to make a maximum profit on our positions. One taper hint and it could get us up to those levels.
Q: Why is Visa (V) dropping so much?
A: Fear of being replaced by Bitcoin. This is the big thing dragging all three credit card companies down, including American Express (AXP) and master Card (MA). That's why I have not added a Visa position among my financials in this go around.
Q: How can the Fed unwind their balance sheet and normalize interest rates to a historical average of 4-5%?
A: Quite easily: quit buying bonds. They’re still buying $120 billion/month worth. Technology has accelerated with the pandemic and we all know this is highly deflationary. I expect the next peak in interest rates to be only 3% or 3.5%, not the 6% we saw in the last peak in interest rates in the 2000s. So yeah, bonds are going to go down but not back to 2000’s level.
Q: Thoughts on the Johnson & Johnson (JNJ) shot?
A: No thank you. If you get to choose, Moderna (MRNA) is now producing the best immunity data on a year-to-date basis if you’re starting out from scratch. Some people are mixing, they start out with Pfizer and then get Moderna. They get a worse reaction because the Moderna initial reaction shot sees the Pfizer vaccine as a new virus, so you may get a small flu as a result of that.
Q: What is the put spread you’re recommending on the TLT?
A: The May 2022 $150-$155 vertical put spread. That is the sweet spot now on the short side on (TLT) LEAPS. You should earn a 115% profit in eight months on this trade if interest rates remain unchanged or fall.
Q: Do you expect the ProShares Ultra Short 20 year+ Treasury ETF (TBT) to make it to $20 this year?
A: Yes, I do; $16 to $20 isn’t that much of a move. Remember, the (TBT) is a two times short ETF.
Q: Are you recommending bank stocks?
A: Yes, Morgan Stanley (MS) and JP Morgan (JPM) are two of the best. They will lead the yearend rally starting from here.
Q: When do you expect the semiconductor shortage to end?
A: End of next year, or maybe even 2023, because what all the analysts keep underestimating is that the end of shortages is based on companies getting the chips they want today. The actual issue is that companies are designing billions of chips into their products at an exponential rate, and what they’ll need in a year from now is far higher than most people realize. The semiconductor shortage is much more structural than people realize—that's my theory. They don’t throw up a $2 billion fab overnight. So, this will keep going on for a while and be a drag on economic growth.
Q: Are you sure we won’t see $100 oil (USO)?
A: With oil, you're never sure about anything, although I highly doubt it. We’d have to have monster economic growth in China to get oil up to $100 a barrel. Right now, China is going the other way.
Q: What’s your view on the debt ceiling? Will it give us a good buying opportunity?
A: Probably not, our good buying opportunity was yesterday or Monday. These debt crises are always one minute before midnight solutions. They always get solved. Never underestimate the ability of Congressmen to spend money in their own district. So, I don’t think that would create a stock market crash like it might have done 20 years ago.
Q: What about Freeport McMoRan (FCX)?
A: It’s taking a dip here because of a possible real estate crash in China, and of course China is the world’s largest buyer of copper for apartment construction. I’m kind of taking a break here on Freeport McMoRan and US Steel (X) until we learn a little more about the China situation. They did move to start a bailout today. Let’s see if that continues.
Q: When will the airlines come back?
A: They’ll come back when business travel returns, which I think could be next year. If you eliminate the virus completely, these things double easily. That's the bet you’re making. Let’s see if the covid boosters work, the childhood shots work, and then you can take another look at Delta (DAL) and Alaska (ALK).
Q: If Bitcoin gains mass adoption, does that put banks out of business just like electric vehicles are making oil obsolete?
A: No, not if the banks go into the Bitcoin business. And the banks actually have the cash, resources, and infrastructure to take over the Bitcoin area once the technology matures. And the corollary to that is that the oil industry is that the majors have the infrastructure, the manpower, and the capital to take over the alternative energy business if they choose to do so and oil goes to zero, which it eventually will. The proof of that is the largest investor in all the Silicon Valley energy startups are Saudi Arabian venture capital funds. They’re huge investors in solar here. If Saudi Arabia has a lot of oil, they have even more solar. Believe me, I’ve been there.
Q: Will a lack of inventory and rising interest rates end the bidding wars on houses soon?
A: Only if you consider 10 years soon. That is how long it will take for the sizes of different generations to come into balance, the Millennials (85 million) versus the Gen Xers (45 million). That’s when the housing bubble will end, but that won’t be for another decade. We still have a structural shortage of new home construction (about 5 million units a year) because all the home builders who went bust in the financial crisis in 2008/2009 and never came back—all of that new construction is still missing. And the surviving ones haven’t increased production to meet that shortfall because they want to manage their risk. Eventually, they will and that probably will be the next top, but that’s really 2030 type business.
Q: What about Federal Express (FDX)?
A: Labor shortages. It's hitting (UPS), (FDX), the Post Office, and DHL too—all the couriers.
Q: When do you think gold (GLD) and silver (SLV) rise back to 2,000?
A: I am avoiding gold and silver as long as Bitcoin has buyers. The action in Bitcoin is 10x the movement you get in gold and that’s attracted all the speculative capital in the market, draining all interest from gold, which hit a new six-month low just last week.
Q: What’s your buy target for Apple (AAPL)?
A: I would say if you can get it at $135, that would be a gift. We did get close to $140 at the lows this week; that’s when you start nibbling, and then you double up again at $135. I doubt Apple is going down more than 10% in this cycle. There are too many people still trying to get into it. And they’re still the largest buyer of stock in the world. They only buy one stock, their own.
Q: I never got any IPath Series B S&P 500 VIX Short Term Futures ETN (VXX) alerts.
A: That's because we never sent any out. (VIX) has become an incredibly difficult game to play, accumulating positions for months and then trying to get out on a one-day spike that lasts a few minutes. The insiders have too much of a house advantage here, who only play from the short side. There are too many better fish to fry.
Q: What about the Apple electric vehicle?
A: I’ll believe it when I see it; I've been hearing about this for something like seven years. My guess is that Apple is more likely to supply consoles and parts to other EV makers and help them get into the game with software and so on. I think that will be Apple's role in all of this.
Q: How much has China Evergrande Group stock fallen?
A: It’s a really illiquid stock in China so we never got involved in it. I think it’s down more than half. Even the professional short-sellers like Jim Chanos and Kyle Bass, have been targeting that stock for 10 years are now screaming they’re vindicated. Of course, they lost fortunes in the meantime. So, I'll pass on that one.
Q: What about stop losses on LEAPS trades?
A: I don’t really run LEAPS portfolios or issue stop losses. The idea is to run these into expiration, and we’ve never had one expire out of the money, although I may break that record if TLT doesn’t turn around in the next three months.
Q: How would autonomous trucking impact rail transportation?
A: They’re two totally different things. Trucking companies like Yellow Corporation (YELL) carry smaller cargo for local deliveries or small long-distance deliveries. 7Some 70% of all railroad traffic is coal going to China, and the rest is bulk commodities like wood chips, iron ore, etc. Trucks don’t carry any of that, so they’re totally separate businesses. But, if we went totally autonomous on trucking, it would make all the main trucker companies massively profitable, as they get rid of their drivers. Right now, every trucking company in the US has a driver shortage.
Q: United Airlines (UAL) pilots are now ordered to get vaccinated.
A: I think within months to hold a job anywhere in the US, you will have to get vaccinated. They do not want you in the office without a vaccination. Jobs are not worth risking lives, and we hit 2,000 deaths again yesterday. The corporations are taking the lead, not the government. The exception will be the politically motivated companies, like the My Pillow Guy; I doubt they'll ever require vaccinations at My Pillow. And there are a few other companies such as Hobby Lobby that are also anti-vaxers. But all public transport companies, hospitals, etc., are going to say get vaccinated or get out—it’s very simple.
Q: Should I buy Berkshire (BRKB) here?
A: Yes, it’s a great entry point, even if you can't get my price. Go higher in the strikes or go farther out in maturity.
Q: Is copper metal (CPER) a buy here?
A: Probably long term, but short term will be subject to the whims of the Chinese real estate crisis if there is one.
Q: Won’t Natural Gas (UNG) outperform in the power grid since all EVs must be charged?
A: Not if the grid is 100% electric. Natural gas still has carbon in it, although only half as much as oil or gasoline. I think even natural gas eventually gets phased out because you can expect solar panels to improve by 80% over the next ten years. At that point, any other energy source won’t be able to compete—oil, natural gas, you name it. And that is why you don’t see any long-term money going into carbon energy sources.
Q: Iron ore has just gone from $200 to $100, why are you bullish?
A: Yes, Because it has just gone from $200 to $100. Eventually, China recovers, despite a short-term financial and housing crisis. Buy low, sell high—that’s my revolutionary new strategy.
Q: What are your thoughts on Bitcoin vs Ethereum?
A: I think Ethereum will outperform Bitcoin because it has a more modern technology. It’s only six years old, vs 12 years for Bitcoin. It’s also more efficient, using less energy in its production. In fact, we did get a double in Ethereum in August as opposed to only a 50% move in Bitcoin.
Q: Do you have any concerns on holding the financials through earnings in October?
A: No, I think the results will be fantastic, and I want to be long going into those.
Q: What does the current situation with China mean for Alibaba (BABA)?
A: Keep your stocks, you’ve already taken the hit—down 53%. The next surprise is that China quits beating up on capitalism and these things will all recover bigtime. However, any options you may have could expire before that happens. So, keep the stocks, get rid of the options, salvage whatever time value you can, and then wait for China to start doing the right thing.
Q: What are the best solar stocks?
A: First Solar (FSLR) and SunPower (SPWR), which have both done great.
Q: If bonds are a no-no, and governments are getting more indebted than ever, who will buy them?
A: Governments. The only buyers of bonds now are non-economic buyers. Those would be governments, central banks, and banks who are required by law to own certain amounts of bonds to meet regulatory capital requirements. No individual in their right mind is buying any bonds here at all, nor is any financial advisor recommending them.
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
August 30, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or THE HIGHER WE GO THE CHEAPER WE GET),
(JPM), (BAC), (C), (GS), (MS), (BLK), (FCX), (X),
(WYNN), (MGM), (ALK), (LUV), (HAL), (SLB), (TLT)
I am sitting here holed up in my office in San Francisco.
Lake Tahoe is being evacuated as the Caldor fire is only ten miles away and the winds are blowing towards it. The visibility there is no more than 500 yards. The ski resorts are pointing their snow cannons towards their buildings to ward off flames.
Conditions are not much better here in Fog City. We are under a “stay at home” order due to intense smoke and heat. Even here, the fire engines are patrolling by once an hour.
The Boy Scout trip got cancelled this weekend, so the girls are having a cooking competition, chocolate chip waffles versus a German chocolate cake.
To make matters worse, I have been typing with only one finger all week, thanks to the elbow surgery I had on Tuesday. Next time, I’ll think twice before taking down a 300-pound steer. When I told the doctor how I incurred this injury, he laughed. “At your age?”
Which leaves me to contemplate this squirrelly stock market of ours. I have always been a numbers guy. But the higher the indexes rise, the cheaper stocks get. That’s not supposed to happen, but that is the fact.
We started out 2021 with an S&P 500 price earnings multiple of 25X. Now, we are down to a lowly 21X and the (SPY) is 20% higher, rising from $360 to $450.25.
The analyst community, ever the lagging indicator that they are, had S&P forward earnings for 2022 all the way down to $175. They have been steadily climbing ever since and are now touching $200 a share.
This is what 20/20 hindsight gets you. That and $5 will get you a cup of coffee at Starbucks. It takes a madman like me to go out on a limb with high numbers and then be right.
So what follows an ever-cheaper market? A more expensive one. That means stocks will continue to my set-in-stone target of $475 for the (SPY) for yearend, and (SPY) earnings of over $200 per share.
It gets better.
(SPY) earnings should hit $300 a share by 2025 and $1,400 a share by 2030. That makes possible my (SPY) target of $1,800 and my Dow Average target of 240,000 in a decade.
What are markets getting right that analysts and bears are getting wrong?
The future has arrived.
The pandemic brought forward business models and profitability by a decade. Technology is hyper-accelerating on all fronts.
Cycles are temporary but adoption is permanent. We are never going back to the old pre-pandemic economy. As a result, stocks are now worth a lot more than they were only two years ago.
So what do we buy now? There is a second reopening trade at hand, the post-delta kind. That means buying banks (JPM), (BAC), (C), brokers (GS), (MS), money managers (BLK), commodities (FCX), (X), hotels (WYNN), (MGM), airlines (ALK), (LUV), and energy (HAL), (SLB).
And what do we avoid like the plague? Bonds (TLT), which offer only confiscatory yields in the face of rising inflation with gigantic negative interest rates.
As for technology stocks, they will go sideways to up small in the aftermath of their ballistic moves of the past three months.
You all know that I am a history buff and there are particular periods of history that are starting to disturb me.
In August, we saw ten new intraday highs for the S&P 500 (SPY). That has not happened since 1987. Remember what happened in 1987?
We have not seen 11 new highs in August since 1929. The only negative three months seen since 1929 are August, September, and October. Remember what happened in 1929?
If that doesn’t scare the living daylights out of you, then nothing will. So, it seems we are in for some kind of correction, even if it’s just the 5% kind.
As for me, I’m looking forward to 2030.
The “Everything” Rally is on, according to my friend, Strategas founder Tom Lee. You can see it in the recent strength of epicenter stocks like energy, hotels, airlines, and casinos. It could run into 2022.
The Taper is this year and interest rate rises are later, said Jay Powell at Jackson Hole last week. Markets will be jumpy, especially bonds. Fed governor Jay Powell’s every word was parsed for meaning. Dove all the way. The larger focus will be on the August Nonfarm Payroll report out this week.
Pfizer Covid vaccination gets full FDA approval, requiring millions more to get shots and bringing forward the end of the pandemic. All 5 million government employees will now get vaccinated, including the entire military. It’s the fastest drug approval in history. Some 37,000 new cases in one day. The stock market likes it. Take profits on (PFE)
Bitcoin tops $50,000 after breaking several key technical levels to the upside. Next stop is a double top at $66,000. It helps that Coinbase is buying $500 million worth of crypto for its own portfolio. Buy (COIN) on dips.
The US Dollar will crash in coming years, says Jeffry Gundlach and I think he is right. Emerging markets will become the next big play but not quite yet. Gold (GLD) will be a great hideout once it comes out of hibernation. China will soon return to outperforming the US. The dollars reserve currency status is at risk.
The lumber crash is saving $40,000 per home, says Toll Brothers (TOL) CEO, Doug Yearly. Last year, lumber prices surged from $300 per board foot to an insane $1,700, thanks to a Trump trade war with Canada and soaring demand. It all flows straight through the bottom line of the homebuilders which should rally from here. Buy (TOL) on dips.
China’s crackdown creates investment opportunities, says emerging investing legend Mark Mobius. He sees corporate governance improving over the long term. The gems are to be found among smaller companies not affected by Beijing’s hard-line. Mobius loves India too.
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!
My Mad Hedge Global Trading Dispatch saw a healthy +7.62% gain in August. My 2021 year-to-date performance appreciated to 76.83%. The Dow Average was up 15.87% so far in 2021.
That leaves me 80% in cash at 20% in short (TLT) and long (SPY). I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 12-year total return to 499.38%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.80%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 116.67%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 39 million and rising quickly and deaths topping 638,000, which you can find here.
The coming week will bring our monthly blockbuster jobs reports on the data front.
On Monday, August 30 at 11:00 AM, Pending Home Sales are published. Zoom (ZM) reports.
On Tuesday, August 31, at 10:00 AM, S&P Case Shiller National Home Price Index for June is released. CrowdStrike (CRWD) reports.
On Wednesday, September 1 at 10:45 AM, the ADP Private Employment report is disclosed.
On Thursday, September 2 at 8:30 AM, Weekly Jobless Claims are announced. DocuSign (DOCU) reports.
On Friday, September 3 at 8:30 AM, the all-important August Nonfarm Payroll report is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
Oh and the German chocolate cake won, but please don’t tell anyone.
As for me, given the losses in Afghanistan this week, I am reminded of my several attempts to get into this troubled country.
During the 1970s, Afghanistan was the place to go for hippies, adventurers, and world travelers, so of course, I made a beeline for straight for it.
It was the poorest country in the world, their only exports being heroin and the blue semiprecious stone lapis lazuli, and illegal export of lapis carried a death penalty.
Towns like Herat and Kandahar had colonies of westerners who spent their days high on hash and living life in the 14th century. The one cultural goal was to visit the giant 6th century stone Buddhas of Bamiyan 80 miles northwest of Kabul.
I made it as far as New Delhi in 1976 and was booked on the bus for Islamabad and Kabul ($25 one-way). Before I could leave, I was hit with amoebic dysentery.
Instead of Afghanistan, I flew to Sydney, Australia where I had friends and knew Medicare would take care of me for free. I spent two months in the Royal North Shore Hospital where I dropped 50 pounds, ending up at 125 pounds.
I tried to go to Afghanistan again in 2010 when I had a large number of followers of the Mad Hedge Fund Trader stationed there, thanks to the generous military high-speed broadband. The CIA waved me off, saying I wouldn’t last a day as I was such an obvious target.
So, alas, given the recent regime change, it looks like I’ll never make it to Afghanistan. I won’t live long enough to make it to the next regime change. It’s just one more concession I’ll have to make to my age. I’ll just have to content myself reading A One Thousand and One Nights at home instead. The Taliban blew up the stone Buddhas of Bamiyan in 2001.
In the meantime, I am on call for grief counseling for the Marine Corps for widows and survivors. Business has been thankfully slow for the last several years. But I’ll be staying close to the phone this weekend just in case.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
India in 1976
