Mad Hedge Bitcoin Letter
April 14, 2022
Fiat Lux
Featured Trade:
(GOING TO THE MOON WITH CRYPTO)
(GME), (AMC), (SAFEMOON)
Posts
One pocket of the asset world that has really taken off in the last few years are the meme assets.
Meme assets don’t just pertain to equities like GameStop (GME) and AMC (AMC).
Truth be told, these assets are incredibly speculative and it's frequent when stock prices don’t mesh nicely with the cash flow or PE multiple.
Crypto also has meme coins which can border on the edge of insanity to the edge of speculation.
These types of bets are for the strong-willed.
Enter SafeMoon.
Coined after the phrase that profits are “going to the moon”, yes, I kid you not, this meme coin has been drumming up quite a following on social media where many of these speculative ideas incubate.
What Is SafeMoon?
SafeMoon is a cryptocurrency token that launched in early 2021, using blockchain technology developed by Binance.
A feature unique to SafeMoon is that it charges a 10% fee whenever you sell the token, well, that was until an upgrade reduced this fee to 2%.
The high fee is explained as a fee that discourages selling, but I would argue that it creates more of a centralized feel to this meme coin and kills liquidity in a marginal coin.
Anybody knows that without ample liquidity, markets can dry up and become untradeable.
In fact, many retail traders I hear from refrain from going too deep into speculative crypto territory for fear that they won’t be able to fill an order upon exit.
For the developers of SafeMoon to force participants into high transaction fees screams scarcity mentality to me instead of focusing on creating a high-quality coin.
This ploy also breeds distrust in the incremental investor who won’t jump off the fence and into SafeMoon if they know they can’t cut losses easily.
SafeMoon takes the proceeds of all sales fees and gives 50% to current token holders in a distribution that is called a “reflection.” The other half of the fee goes into a liquidity pool that SafeMoon uses to maintain price stability.
Rerouting proceeds to existing coin holders are poor practice and a big red flag.
This practice, again, encourages the centralization of the coin which is in fact what many coin holders hate.
The structure is set up to reward only existing participants and clearly, the ones that gain the most are the founders and developers who have skin in the game from the start.
This doesn’t sound too fair to me.
I also noticed that since much of the SafeMoon community is based on social media platforms, members who decide to sell some of their coins are prone to harassment from other members of the social media groups.
Vilifying others for selling an asset is another large red flag.
In the world of buy low and sell high, sometimes traders must take profits, and to frame the selling of one SafeMoon coin as sabotaging the asset speaks volumes about who is involved in this.
I am not interested in being cyber stalked by an unruly SafeMoon mob and most others aren’t as well.
Such a poor mentality would in fact turn off many incremental buyers from pulling the trigger.
SafeMoon does not have any other special use case besides being a store of value. It doesn’t facilitate any automated contracts or decentralized applications, like Ethereum.
Another massive problem with SafeMoon is the challenge of simply investing in it.
Investors cannot buy SafeMoon with the US dollar or any other fiat currency.
The only way to pay for purchases of SafeMoon is with other cryptocurrencies.
To buy it, one must need to buy a coin on an exchange that supports SafeMoon, then use that other coin to buy into SafeMoon.
Ease of transaction is something SafeMoon glamorously fails at.
Another red flag is that no reputable exchanges like CoinBase and Kraken will touch the trading of SafeMoon. It’s also not available on apps like Robinhood or SoFi Invest.
There is no way I could in good faith recommend investing in something so abstract as SafeMoon. I get it that SafeMoon is trying to pour that pixie dust on themselves like Dogecoin, but I have unearthed too many negatives in this coin to ever even consider it aside for a good laugh.
It’s not surprising that the coin has crashed since its debut in 2021.
Mad Hedge Technology Letter
March 30, 2022
Fiat Lux
Featured Trade:
(HITTING THE LOTTERY WITH MEME MANIA)
(GME), (AMC), (HYMC)
Meme mania is back and warping the equity markets – many thought they were left for dead.
They have come back in the past week as GameStop (GME) and AMC (AMC) shares have doubled.
The doubling isn’t just because of the extremely oversold nature of the stock market.
It’s not only that.
Even more critical, meme companies are finally embracing who they are – highly speculative in nature and presenting it as a positive to their investor base.
Management has gotten the memo and is pushing the boundaries yet again by stirring up the pot.
Readers with strong stomachs should only consider GME and AMC if they are willing to lose 100% of their principal because these stocks are in no way long-term buy and hold material.
Many traders have already gotten rich by catching parabolic moves, and management’s behavior signals there will be more to come from these highly volatile stocks.
Earlier this month AMC announced it was buying a stake in gold and silver miner Hycroft Mining Holding Corp (HYMC).
Acquiring a major stake in a tiny gold and silver miner that has been on shaky financial ground from a distance appears somewhat bizarre.
CEO Adam Aron is now starting to think more outside the box and traversing industries could play to their alternative audience.
Aron doesn’t need to play to institutional money since it was them that created high amounts of short interest in the stock.
Retail traders are the target audience and third-party external M&A announcements going forward where AMC can reach for the stars could whip up this base of investors.
They are taking over a highly dysfunctional miner with past management problems.
Now Aron views this company as an upstart minnow waiting for a turnaround story at a time when commodities are red hot.
It’s yet to be seen whether this type of move will impact the narrative of AMC but getting AMC out of the movie theatre business should be paramount.
Netflix has effectively killed the movie theatre business during covid and getting into commodities in a high inflationary environment is more sensible.
GME CEO Billionaire Ryan Cohen's investment company bought 100,000 shares of GameStop Corp taking Cohen's stake marginally higher to 11.9%, with the total number of shares owned at 9.1 million.
An oversized reason for the spiking shares is that there is still loads of short interest in these stocks.
Institutional money is still betting on big down moves and when the reverse happens, they must buy back the stock at higher prices to close positions which drives the stock even higher.
Cohen is also hoping to diversify GME’s business from a retail video game store.
He co-founded online pet products retailer Chewy and earlier this month said he now owns nearly 10% of Bed Bath & Beyond and wants the home goods retailer to explore alternatives including a full sale of the company.
He also plans to modernize GMEs business by building a NFT marketplace.
The management at these companies has realized that they can’t stand pat with the current businesses they overlook because they are outdated and lack sustainability.
The spiking stock price has offered them financial gunpowder to go after industries they never even thought about before as well as giving them more financial slack.
Upgrading their business model could go a long way to suppressing volatility in these stocks and making them into appealing long-term buy and hold companies.
They are a long way off from that today, but everyone needs to start somewhere.
Global Market Comments
December 15, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(LONG TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC),
(IMAX), (CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
Mad Hedge Technology Letter
July 14, 2021
Fiat Lux
Featured Trade:
(WHAT’S THE DEAL WITH MEME MANIA?)
(GME), (AMC), (WISH), (CLOV), (BB)
Although poor long-term investments, meme mania captured the imaginations of short-term traders with its wicked price action.
The counterculture drumbeat of taking down the institutions was then usurped by the meme management who issued shares after any sort of short squeeze.
Onlookers had to know the energy would not last and it is finally dying down.
Euphoric moments minted traders who benefited from unusual price spikes when institutions were caught off guard and had to buy the stock back at outrageous prices.
It appears as if this stage of meme mania is at the dying embers, and a sell the rally pattern has emerged in the past month just as big tech has accelerated its lead over everyone else.
For short-term traders, executing directional bearish bets is still on the table and for long-term buyers, you never should hold any of these following companies.
This type of smash and grab philosophy was just too risky for the Mad Hedge Technology portfolio and we avoided it like the plague.
I saw this more as a byproduct of too much liquidity in the system than anything else.
The stocks which skyrocketed were, in most cases, failed business models and only specific anomalies helped price action spin their way.
Since the volume has fallen off a cliff, the sell the rally would be the logical way to go for all the risk-takers who missed out on the meme mania phenomenon on the way up.
Here are the stocks involved.
Clover Health Investments, Corp. (CLOV) operates as a health insurer. It recently said it would be expanding insurance plans across nine states and more than 200 new counties in a bid to focus on underserved communities. The share price of the firm soared 8% after the announcement.
BlackBerry Limited (BB) provides intelligent security software and services to enterprises and governments worldwide. The company leverages artificial intelligence and machine learning to deliver solutions in the areas of cybersecurity, safety, and data privacy.
It is placed fourth a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
The company’s shares have returned 145% to investors in the past twelve months.
The company announced that the QNX software marketed by the firm was now installed in close to 200 million vehicles worldwide. This is an increase of 20 million compared to last year.
ContextLogic Inc. (WISH) is a California-based mobile ecommerce firm.
It is ranked third on a list of 10 Reddit’s WallStreetBets meme stocks hedge funds are piling into.
On July 6, the company announced that ContextLogic B.V, the Dutch arm of the business, had been granted a payment license for the European Union region. The share price of the firm jumped more than 5% after the announcement, which a company official said was the first step towards becoming a payment service provider in Europe.
GameStop (GME) rose from $4 to $325 and currently sits at $180.
The stock has continued to trend down from $320 after the latest short-squeeze and momentum is strongly biased towards the downside.
The retail company sells video games and has a terrible business model.
The last one is AMC Entertainment Holdings, Inc. (AMC) whose stock went from $2 to $60 and now is back down to $40.
AMC was a headliner disaster during the pandemic because movie theatres were closed and consumers were substituting their services for Netflix or other streaming services.
The Chinese property tycoon Wang Jianlian who bought into AMC before the pandemic was able to exit from his investment with a $675 million gain.
He acquired the company applying $1.9 billion of debt in 2012.
The Wanda Conglomerate was bailed out by the Reddit trading army after his vision of making AMC a “true global cinema operator” fizzled out big time.
The cinema chain reported a net loss of $4.6 billion for 2020, thus it’s stunning that Wang was able to spin such a disastrous investment for a tidy profit.
The AMC stake sale is the latest instance of Wanda offloading assets under pressure from Beijing, which wants Chinese to pare back its overseas holdings and debt.
The company was placed on a watch list by regulators in 2017 along with Anbang Group, Fosun Group, and HNA Group. These privately controlled Chinese conglomerates had accumulated some of the world’s largest debts after snapping up overseas trophy assets, often at premium prices, and were facing significant debt maturities.
Wang got lucky but the annual 2020 losses highlight the extent to how bad these business models are and how fortunate they were to have received a bailout from retail traders.
I believe these stocks are good for a short-term directional bearish bet with a controlled stop-loss strategy if things go sour fast.
None of these are worth owning, there are just too many other items on the menu that are tastier in a roaring U.S. economy.
From a wider-angle lens, the stock frenzy has fueled a record flow of money into the market from retail investors.
Only just last month, traders bought almost $28 billion of stocks and exchange-traded funds on a net basis, the largest amount in a single month since at least 2014.
This surely means that this new source of investment flows has gone into big tech with its huge surges higher.
At some point, capital will find itself in a different part of the equity market again and the Reddit army will be resuscitated basically because too many of them took profits and will be able to roll those profits into new positions.
Don’t get dragged into the mud looking for an easy buck.
Global Market Comments
June 18, 2021
Fiat Lux
Featured Trade:
(JUNE 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(MS), (XOM), (FXI), (MSFT), (AMZN), (FB), (GOOGL), FCX), (CAT),
(GLD), (DIS), (GME), (AMC), (UBER), (LYFT), (TLT), (VIX)
Below please find subscribers’ Q&A for the June 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.
Q: Does Copper (FCX) look like a buy now or wait for it to drop?
A: I would buy ⅓ now, ⅓ lower down, ⅓ lower down still. Worst case we get down to $30 in Freeport McMoRan (FCX) from $37 today. A new internal combustion engine requires 40 lbs. of copper for wiring, but new EVs require 200 lbs. per car, and the number of EV cars is about to go from 700,000 last year to 25 million in 10 years. So, you can do the math here. It's basically 24.3 million times 200 lbs., or 1.215 billion tons, and that's the annual increase in demand for copper over the next 10 years. There aren’t enough mines in the world to accommodate that, so the price has to go up. However, (FCX) has gone up 12 times from its 2020 low and was overdue for a major rest. So short term it's a sell, long term it's a double. That's why I put the LEAPS out on it.
Q: Lumber prices are dropping fast, should I bet the ranch that it’ll drop big?
A: No, I think the big drop has happened; we’re down 40% from the highs, the next move is probably up. And that is a commodity that will remain more or less permanently in short supply due to the structural impediments put into the lumber market by the Trump administration. They greatly increased import duties from Canada and all those Canadian mills shut down as a result. It’s going to take a long time to bring those back up to speed and get us the wood we need to build houses. Another interesting thing you’re seeing in the bay area for housing is people switching over to aluminum and steel for framing because it’s cheaper, and of course in an earthquake-prone fire zone, you’d much rather have steel or aluminum for framing than wood.
Q: I didn’t catch the (FCX) LEAP, can you reiterate?
A: With prices at today's level, you can buy the 35 calls in (FCX), sell short the 40 calls, and get nearly a 177% return by January 2022. That's an absolute screamer of a LEAPS.
Q: How do you see the working from home environment in the near future after Morgan Stanley (MS) asked everyone to return?
A: Well that’s just Morgan Stanley and that’s in New York. They have their own unique reasons to be in New York, mostly so they can meet and shake down all their customers in Manhattan—no offense to Morgan Stanley, but I used to work there. For the rest of the country, those in remote places already, a lot of companies prefer that people keep working from home because they are happier, more productive, and it’s cheaper. Who can beat that? That’s why a lot of these productivity gains from the pandemic are permanent.
Q: Is there a recording of the previous webinar?
A: Yes, all of the webinars for the last 13 years are on the website and can be accessed through your account.
Q: What makes Microsoft (MSFT) a perfect-looking chart?
A: Constant higher lows and higher highs. They also have a fabulous business which is trading relatively cheaply to the rest of tech and the rest of the main market. Of course, they were a huge pandemic winner with all the people rushing out to buy PCs and using Microsoft operating software. I expect those gains to improve. The new game now is the “wide moat” strategy, which is buying companies that have near monopolies and can’t be assailed by other companies trying to break into their businesses. The wide moat businesses are of course Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). That's the new investment philosophy; that's why money has been pouring back into the FANGs for a month now.
Q: Do you have any concerns about Facebook’s (FB) advertising ability, given the recent reduction of tracking capabilities of IOS 4.5 users?
A: Well first of all, IOS 4.5 users, the Apple operating system, are only 15% of the market in desktops and 24% of mobile phones. Second, every time one of these roadblocks appears, Facebook finds a way around it, and they end up taking in even more advertising revenue. That’s been the 15-year trend and I'm sticking to it.
Q: Is Caterpillar (CAT) a LEAP candidate right now?
A: Not yet, but we’re getting there. Like many of these domestic recovery plays, it is up 200% from the March lows where we recommended it. The best time to do LEAPS is after these big capitulation selloffs, and all we’ve really seen in most sectors this year is a slow grind down because there's just too much money sitting under the market trying to get into these stocks. Let’s see if (CAT) drops to the 50-day moving average at $185 and then ask me again.
Q: If you have the (FCX) LEAPS, should you keep them?
A: I would keep them since I'm looking for the stock to double from here over the next year. If you have the existing $45-$50 LEAPS, I would expect that to expire at its max profit point in January. But you may need to take a little pain in the interim until it turns.
Q: Should I bet the ranch on meme stocks like (AMC) and GameStop GME)?
A: Absolutely not, I’m amazed you haven't lost everything already.
Q: Do you think Exxon-Mobile (XOM) could rise 30% from here?
A: Yes, if we get a 30% rise in oil. We are in a medium-term countertrend rally in oil which will eventually burn out and take us to new lows. Trade against the trend at your own peril.
Q: Disneyland (DIS) in Paris is set to open. Is Disneyland a buy here?
A: Yes, we’re getting simultaneous openings of Disneyland’s worldwide. I’ve been to all of them. So yes, that will be a huge shot in the arm. Their streaming business is also going from strength to strength.
Q: How long will the China (FXI) slowdown last?
A: Not long, the slowdown now is a reaction to the superheated growth they had last year once their epidemic ended. We should get normalized growth in China at around 6% a year, and I expect China to rally once that happens.
Q: Have you changed your outlook on inflation, real or imagined?
A: I don’t think we’re going to have inflation; I buy the Fed's argument that any hot inflation numbers are temporary because we’re coming off of a one-on-one comparisons from when the economy was closed and the prices of many things went to zero. If you look at that inflation number, it had trouble written all over it. Some one third of the increase was from rental cars. One of the hottest components was used cars. You’re not going to get 100% year on year increases next year in rental or used cars.
Q: When you issue a trade alert, it’s always in the form of a call spread like the Microsoft (MSFT) $340-$370 vertical bull call spread. What are the pros and cons of doing this trade on the put side, like shorting a vertical bear put spread?
A: It’s six of one, half a dozen of the other. There are algorithms that arbitrage between the two positions that make sure that they’re never out of line by more than a few cents. I put out call spreads because they’re easier for beginners to understand. People get buying something and watching it go up. They don’t get borrowing something, selling it short, and buying it back cheaper.
Q: Will gold (GLD) prices go up?
A: Yes, when inflation goes up for real.
Q: What is the future of the gig economy? How will that affect Uber (UBER) and Lyft (LYFT)?
A: I like both, because they just got a big exemption from California on part time workers, and that is very positive for their business models.
Q: Do you think the government doesn’t want to cancel student debt because it will unleash inflation?
A: It’s the exact opposite. The government wants to forgive student debt because it will unleash inflation. If you add 10 million new consumers to the economy, that is very positive. As long as former students have tons of debt, horrible credit ratings, and are unable to buy homes or get credit cards, they are shut out of the economy. They can’t participate in the main economy by buying homes, shopping, or getting credit. The fact that the US has so many college grads is why businesses succeed here and fail in every other country. That should be encouraged.
Q: Where is the United States US Treasury Bond Fund (TLT) headed?
A: Short term up, long term down.
Q: Options premiums are not melting away much today; I hope they start decaying after the Fed announcement.
A: In these elevated volatility periods—believe it or not, the (VIX) is still elevated compared to its historic levels—they hang on all the way to the very last day, before expiration, before they really melt the time value on options. It really does pay to run these into expiration now. When the VIX was down at like $9-$10, that was not the case.
Q: I bought a short term expiration going long the (TLT) to hedge my position; was this smart?
A: Yes, but only if you are a professional short-term trader. If you are in front of your screen all day and are able to catch these short term moves in (TLT), that is smart. My experience is that most individual investors don’t have the experience to do that, don’t want to sit in front of a screen all day, and would rather be playing golf. Such hedging strategies end up costing them money. Also, remember that half of the moves these days are at the opening; they’re overnight gap openings and you can’t catch that intraday trading—it’s not possible. So over time, the people who take the most risk make the most money. And that means the people who don’t hedge make the most money. But you have to be able to take the pain to do that. So that’s my philosophy talk on risk taking.
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 Trade
Global Market Comments
May 28, 2021
Fiat Lux
Featured Trade:
(MAY 26 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (DIS), (AMZN), (FCX), (X), (PLTR), (FXE), (FXA), (TLT), (TBT), (AMC), (GME), (ZM), (DAL), (AXP), (LEN), (TOL), (KBH), (DOCO), (ZM), (TSLA), (NVDA), (ROM)
