Global Market Comments
November 17, 2021
Fiat Lux
Featured Trade:
(HOW TO HANDLE THE FRIDAY, NOVEMBER 19 OPTIONS EXPIRATION),
(GS), (MS), (BAC), (TLT), (ROM), (BRKB)
Posts
Happy and newly enriched followers of the Mad Hedge Fund Trader Alert Service have the good fortune to own a record ten deep-in-the-money options positions that expire on Friday, November 19 at the stock market close in two days.
I have to admit that I traded like a Wildman this month, pedal to the metal, and 100% invested. This will take our 2021 year-to-date performance to over 100% for the first time in our 14-year history. I like to think that is the end result of my 53 years of investment in researching trading strategies.
Sometimes, overconfidence works.
It is therefore time to explain to the newbies how to best maximize their profits.
These involve the:
(GS) 11/$330-$350 call spread 10.00%
(GS) 11/$385-$395 call spread 10.00%
(MS) 11/$85-$90 call spread 10.00%
(MS) 11/$95-$98 call spread 10.00%
(BAC) 11/$37-$40 call spread 10.00%
(BAC) 11/$43-$46 call spread 10.00%
(TLT) 11/$150-$153 put spread 10.00%
(ROM) 11/$105-$110 call spread 10.00%
(BRKB) 11/$275-$280 call spread 10.00%
(BRKB) 11/$277.50-$282.50 call spread 10.00%
Provided that we don’t have another 2,000-point move down in the market in the next two days, these positions should expire at their maximum profit points.
So far, so good.
I’ll do the math for you on our deepest in-the-money position, the Goldman Sachs (GS) November 19 $330-$350 vertical bull call spread, which I almost certainly will run into expiration. Your profit can be calculated as follows:
Profit: $20.00 expiration value - $16.50 cost = $3.50 net profit
(6 contracts X 100 contracts per option X $3.50 profit per options)
= $2,100 or 17.65% in 24 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning November 22 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and make your broker find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday, November 19. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
You Can’t Do Enough Research
Global Market Comments
November 15, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or PROFITING FROM INFLATION),
($INDU), (TLT), (TBT), (MS), (GS), (BAC), (BRKB), (TSLA)
Worried about inflation?
I’m not. That’s because I know how to trade inflation, which we had in spades during the 1970s when it reached a horrific 18% rate. Those who figured out the game early made fortunes. Those who didn’t got killed.
And what is the best protection against inflation? You own stocks and homes, as much as you can get your hands on.
That’s because in an inflationary environment, companies can raise their prices faster than the inflation rate, which they have been doing since the summer. That’s why we have just seen the best earnings quarter in recent memory and all-time high stock indexes.
Homes do well because there are still 85 million millennials chasing a housing stock that is easily short ten million homes and are given free money to chase prices upward.
I asked a local real estate agent when home prices would slow down and she answered, “it might slow down on Christmas eve and Christmas day, and after that, it will take off again.”
I think home prices will continue to rise for another decade, but not at this year’s ballistic rate.
What about impending rising interest rate, you may ask? They will rise but not enough to hurt either stocks or homes. The pandemic vastly accelerated technology, which we all know is the greatest price destroyer of all time. So, inflation will go up, but from zero to 3%-4%, not the 18% of yore.
And yes, prices are rising for the working classes, those least able to pay them. But the same minimum wage workers are getting the biggest pay hikes in history, up to 100% in some cases, more than offsetting inflation.
And while stocks and homes see rising inflation, bonds don’t. My feeling is that the bond market will stumble across it in the dark some nights and prices will crash. Bonds will keep ignoring inflation until they can’t. The bond vigilantes will then return with a vengeance and are doing their stretching exercises as we speak.
One of the odder things about the past week is that each of the three announcements heralding sharply higher inflation trigger sharp moves up in bonds when they were supposed to go down. That worked until Thursday when the worst 30-year Treasury bond auction since 1990 prompted a $5.00 selloff.
Another bizarre development is that call options are trading at greater premiums than put options, an exceedingly rare event. That means that the consensus for stocks is now almost universally up.
It also means that the at-the-money long-dated LEAPS call option spreads I have been pelting my Concierge members with have become massively profitable. Six months out you can earn eye-popping 100% returns, and 200% in some of the more volatile names, like (ROM) and (MSTR).
The bottom line is that goldilocks is moving in for the long term and might advance to senior citizenship on this watch.
That works for me, so I’m going on a long hike.
The $1.2 Trillion Infrastructure Budget Passes, adding another 6% in GDP growth for the next two years. Construction detours are about to break out all over the country, and the domestic recovery play is on fire. Lost along the way was $550 million in social spending. No increase in corporate taxes sets up a perfect storm for stocks the next several months. Stay fully invested as I begged you to do weeks ago.
The US Reopens, provided you have two Covid shots and a test within the last three days. Got to keep those pesky diseased foreigners out! Hotels, airlines, casinos, and cruise lines took off like a scalded chimp, taking the indexes to new all-time highs. Buy (ALK) and (LUV) on dips.
The Bitcoin Rally Continues, with new all-time highs for both (BITO) and (ETHE). Concerns about the monetary health of the US are rising ahead of a major debt ceiling fight in Congress in December.
Inflation Soars with a Red Hot 6.2% CPI Print in October, the highest in 31 years. Energy, rent, and car costs led the gains. Bitcoin (BITO) and Ethereum (ETHE) jumped to new all-time highs in response. This is only going to get better. You can now count on a Fed interest rate hike in June.
The Disappearing Worker Trend Continues, with a record 4.4 million quitting in September. Workers are taking advantage of the labor shortage to switch jobs for higher wages. This will get worse before it gets better. Good luck trying to hire anyone.
US Consumer Sentiment Hits Ten-Year Low, down from 71.7 to 68.6 in October, according to the University of Michigan. Inflation at a 30-year high 6.2% is starting to hit consumers hard.
Elon Musk Tesla Sales Top $5.1 billion, to pay off Uncle Sam. That must be one hell of a tax bill. At this rate, the market is rapidly running out of the sole seller. Buy (TSLA) on dips.
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 massive +8.95% gain in October, followed by a decent 4.42% so far in November. My 2021 year-to-date performance moved to a new high of 92.97%. The Dow Average is up 18.00% so far in 2021.
After the recent ballistic move in the market, we got a week of consolidation which brought some generalized bitching, moaning, and wining.
I am continuing to run my longs in. Those include (MS), (GS), (BAC), (BRKB), and a short in the (TLT). The (TLT) short brought some hair-raising moments when we got a $3.00 spike up in the wake of the red hot 6.2% CPI release. I knew it was a complete BS move and successfully stared it down, watching it all reverse the next day. I don’t do this very often.
All positions are now approaching their maximum profit point and we have nothing left but time decay to capture. So, I am going to run these into the November 19 expiration in 4 trading days and capture all the accelerated time decay.
That brings my 12-year total return to 515.52%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 43.26%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 112.08%. 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 47 million and rising quickly and deaths topping 763,000, which you can find here.
The coming week will be all about the inflation numbers.
On Monday, November 15 at 9:00 AM, the New York Empire State Manufacturing Index for November is released. WeWork reports.
On Tuesday, November 16 at 8:30 AM, US Retail Sales for October are printed. Home Depot (HD) and Walmart (WMT) report.
On Wednesday, November 17 at 8:30 AM, the Housing Starts and Building Permits for October are published. NVIDIA (NVDA) and Cisco Systems (CSCO) report.
On Thursday, November 18 at 8:30 AM, Weekly Jobless Claims are announced. The Philadelphia Fed Manufacturing Index is printed. Macy's (M) and Alibaba (BABA) report.
On Friday, November 19 at 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, I am sitting in the Centurion Lounge in San Francisco Airport waiting for a United flight to Las Vegas where I have to speak at an investment conference. I have time to kill so I will reach back into the deep dark year of 1968 in Sweden.
My trip to Europe was supposed to limit me to staying with a family friend, Pat, in Brighton, England for the summer. His family lived in impoverished council housing.
I remember that you had to put a ten pence coin into the hot water heater for a shower, which inevitably ran out when you were fully soaped up. The trick was to insert another ten pence without getting soap in your eyes.
After a week there, we decided the gravel beach and the games arcade on Brighton Pier were pretty boring, so we decided to hitchhike to Paris.
Once there, Pat met a beautiful English girl named Sandy, and they both took off for some obscure Greek island, the ultimate destination if you lived in a cold, foggy country.
That left me stranded in Paris.
So, I hitchhiked to Sweden to meet up with a girl I had run into while she was studying English in Brighton. It was a long trip north of Stockholm, but I eventually made it.
When I finally arrived, I was met at the front door by her boyfriend, a 6’6” Swedish weightlifter. That night found me bedding down in a birch forest in my sleeping bag to ward off the mosquitoes which hovered in clouds.
I started hitchhiking to Berlin, Germany the next day. I was picked up by Ronny Carlson in a beat-up white Volkswagen bug to make the all-night drive to Goteborg where I could catch the ferry to Denmark.
1968 was the year that Sweden switched from driving English style on the left to the right. There were signs every few miles with a big letter “H”, which stood for “hurger”, or right. The problem was that after 11:00 PM, everyone in the country was drunk and forgot what side of the road to drive on.
Two guys on a motorcycle driving at least 80 pulled out to pass a semi-truck on a curve and slammed head on to us, then were thrown under the wheels of the semi. The driver was killed instantly, and his passenger had both legs cut off at the knees.
As for me, our front left wheel was sheared off and we shot off the mountain road, rolled a few times, and was stopped by this enormous pine tree.
The motorcycle riders got the two spots in the only ambulance. A police car took me to a hospital in Goteborg and whenever we hit a bump in the road, bolts of pain shot across my chest and neck.
I woke up in the hospital the next day, with a compound fracture of my neck, a dislocated collar bone, and paralyzed from the waist down. The hospital called my mom after booking the call 16 hours in advance and told me I might never walk again. She later told me it was the worst day of her life.
Tall blonde Swedish nurses gave me sponge baths and delighted in teaching me to say Swedish swear words and then laughing uproariously when I made the attempt.
Sweden had a National Healthcare system then called Scandia, so it was all free.
Decades later, a Marine Corp post-traumatic stress psychiatrist told me that this is where I obtained my obsession with tall, blond women with foreign accents.
I thought everyone had that problem.
I ended up spending a month there. The TV was only in Swedish, and after an extensive search, they turned up only one book in English, Madame Bovary. I read it four times but still don’t get the ending.
The only problem was sleeping because I had to share my room with the guy who lost his legs in the accident. He screamed all night because they wouldn’t give him any morphine.
When I was released, Ronny picked me up and I ended up spending another week at his home, sailing off the Swedish west coast. Then I took off for Berlin to get a job since I was broke.
I ended up recovering completely. But to this day whenever I buy a new Brioni suit in Milan, they have to measure me twice because the numbers come out so odd. My bones never returned to their pre-accident position and my right arm is an inch longer than my left. The compound fracture still shows upon X-rays.
And I still have this obsession with tall, blond women with foreign accents.
Go figure.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Brighton 1968
Ronny Carlson in Sweden
Global Market Comments
November 1, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LET THE GAMES BEGIN!)
(MS), (GS), (BLK), (JPM), (BAC), (TLT), (TSLA), (AAPL), (MSFT), (GOOGL), (AMZN), (ROM)
Welcome to the first day of November, when the seasonals swing from negative to positive. The hard six months are over. The next six should be like shooting fish in a barrel.
At least that’s what happened in the past. The period from November 1 to May 31 has delivered the highest stock returns for the past 75 years.
So how do we play a hand that we have already been dealt full of aces and kings?
Load the boat with financials, like (MS), (GS), (BLK), (JPM), and (BAC). Notice that when we had the sharpest rise in interest rates in a year, financials barely moved when they should have crashed? That means they will soon start going up again.
You might have also observed that technology stock has been flat-lining when rising rates should have floored them. That means their torrid 20% earnings growth will keep floating their boats.
It gets better. We just learned that the GDP growth rate plunged in Q3 from a rip-roaring 6% rate to only 2%. What happens next? That 4% wasn’t lost, just deferred into 2022. The rip-roaring 6% growth rate returns. That’s why stocks are pushing up to new all-time highs right now.
So, buy the dips. We may have seen our last 5% correction of 2021. The only unknown is how markets will react to a Fed taper, which could come as early as Wednesday. But on the heels of that, we will get a $1.75 billion rescue package, the biggest in 50 years. One will cancel out the other, and then some.
Take a look at the ProShares Ultra Technology Fund (ROM), the 2X long ETF. I just analyzed its 30 largest holdings. Half are tech stocks that have been trash and are down 30% or more. The other half are at all-times highs, like Microsoft (MSFT) and Alphabet (GOOGL).
What happens next when the seasonals are a tailwind? The tech stocks that are down will rally because they are cheap, while the high stocks keep going because they are best of breed. I think (ROM) has $150 written all over it by March.
You’ve got to love Elon Musk, whose net worth is approaching $300 billion. When the pandemic broke, every automaker cancelled their chip orders for the rest of the year while Tesla took them all. Today, Detroit has millions of cars built but in storage because they are all missing chips. In the meantime, Tesla is snagging orders for 100,000 cars at a time.
Like I say, you gotta love Musk. Hey, Elon, call me! Why don’t you just buy the entire US coal industry and shut it down. It would only cost $5 billion, as market caps are so low. That would have more impact on the environment than another million Teslas. Worst affected would be China, where 70% of US coal now goes.
A continued major driver of the bull case for stocks is profit margins of historic proportions.
Q1 saw a 13% margin, Q2 13.5% and Q3 12.3%, and Q3 had to carry the dead weight of a delta impaired GDP growth rate of only 2.0%. Imagine what companies can do in Q4 when the growth rate is returning to a torrid 6% rate.
This has been one of my basic assumptions for the entire year and it seems it was I was alone in having it. This is where the 90% year-to-date performance comes from.
Inflation is Here to Stay, says top investing heavyweights, at least 4% through 2022. That means high inflation, higher financial shares, and higher Bitcoin prices. It’s going to take two years to unwind the mess at the ports that is driving prices.
Covid is Getting Knocked Out by a One-Two Punch, via a new round of booster shots and imminent childhood vaccinations. It could take new cases to zero in a year and give us a booming economy.
S&P Case Shiller is Still Rocketing, the National Home Price Index up 19.8% YOY in August. Phoenix (33.3%), San Diego (26.2%), and Tampa (25.9%) were the hot cities. This will continue for a decade but as a slower rate.
New Home Sales Pop, to 800,000. Annual median prices jump at an annual 18.7% to $408,000. The share of homes selling over $1 million increased from 5% to 9% in a year. It cost $500,000 to get a starter home in an Oakland slum these days. Homebuilders Sentiment Soars to 80. Buy (KBH), (PUL), and (LEN) on dips.
Bonds Melt Up, creating one of the best trade entry points of the year. A successful 30-year auction this week that took yields from 1.71% down to 1.52% in a heartbeat. It makes no sense. Buying bonds here is like buying oil in the full knowledge that someday it will go to zero. I am doubling my short position here. Look at the (TLT) December 2022 $150-$155 vertical bear put spread LEAPS which is offering a 14-month return of 54%. This is the month when the Fed has promised to begin the first of six interest rate hikes. Just buy it and forget about it.
Proof that the Roaring Twenties is Here. It’s demand that is spiking, the greatest ever seen, not supplies that are drying up in the supply chain issue. It should continue for a decade and the bull market in stocks that follows it. You heard it here first. Dow 240,000 here we come.
Apple Blows it in Q3, with millions of its phones lost at sea and no idea when unloads are possible, costing it $6 billion in sales. Revenues were up a ballistic 29% YOY. Buy (AAPL) on dips. I see $200 a year next year.
Amazon Craters, with both shrinking revenues and profits. Supply chain problems about with several billion of inventory trapped at sea off the coast of Long Beach. It plans to hire 275,000 to handle the Christmas rush. The stock hit a one year low. There is a time to buy (AMZN) on the dip, but not quite yet.
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 massive +8.95% gain in =October. My 2021 year-to-date performance maintained 88.55%. The Dow Average is up 17.06% so far in 2021.
After the recent ballistic move in the market, I am continuing to run my longs in Those include (MS), (GS), (BAC), and a short in the (TLT). All are approaching their maximum profit point and we have nothing left but time decay to capture. So, I am going to run these into the November 19 expiration in 14 trading days. It’s like have a rich uncle write you a check one a day.
That brings my 12-year total return to 511.10%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.90%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 120.60%. 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 46 million and rising quickly and deaths topping 746,000, which you can find here.
The coming week will be slow on the data front.
On Monday, November 1 at 7:00 AM, the ISM Manufacturing PMI for October is out. Avis (CAR) Reports.
On Tuesday, November 2 at 1:30 PM, the API Crude Oil Stocks are released. Pfizer (PFE) reports.
On Wednesday, November 3 at 7:30 AM, the Private Sector Payroll Report is published. Etsy (ETSY) reports. At 11:00 AM, the Federal Reserve interest rate decision is announced, followed by a press conference.
On Thursday, November 4 at 8:30 AM, Weekly Jobless Claims are announced. Airbnb reports (ABNB).
On Friday, November 5 at 8:30 AM, The October Nonfarm Payroll Report is released. DraftKings (DKNG) reports. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, I have been known to occasionally overreach myself, and a trip to the bottom of the Grand Canyon a few years ago was a classic example.
I have done this trip many times before. Hike down the Kaibab Trail, follow the Colorado River for two miles, and then climb 5,000 feet back up the Bright Angle Trail for a total day trip of 27 miles.
I started early, carrying 36 pounds of water for myself and a companion. Near the bottom, there was a National Park sign stating that “Being Tired is Not a Reason to Call 911.” But I wasn’t worried.
The scenery was magnificent, the colors were brilliant, and each 1,000 foot descent revealed a new geologic age. I began the long slog back to the south rim.
As the sun set, it was clear that we weren’t going to make to the top. I was passed by a couple who RAN the entire route who told me “better hurry up.” I realized that I had erred in calculating the sunset, it'staking place an hour earlier in Arizona than in California.
By 8:00 PM it was pitch dark, the trail had completely iced up, and it was 500 feet straight down over the side. I only had 500 feet to go but the batteries on my flashlight died. I resigned myself to spending the night on the cliff face in freezing temperatures.
Then I saw three flashlights in the distance. Some 30 minutes later, I was approached by three Austrian Boy Scouts in full dress uniform. I mentioned I was a Scoutmaster and they offered to help us up.
I grabbed the belt of the last one, my companion grabbed my belt, and they hauled us up in the darkness. We made it to the top and I said, “thank you”, giving them the international scout secret handshake.
It turned out that I wasn’t in great shape as I thought I was. In fact, I hadn’t done the hike since I was a scout myself 30 years earlier. I couldn’t walk for three days.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Happy Halloween!
Global Market Comments
October 25, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING A BREAK)
(MS), (GS), (BAC), (TLT), (TSLA), (AAPL), (AMZN), (GOOGL), (FB)
When I ran the international equity trading desk at Morgan Stanley during the 1980s, there was always one guy I was trying to recruit and that was David Tepper at Goldman Sachs. Whenever we did a trade with David, we lost money.
If we sold David a stock it usually took off like a rocket. If we bought a stock from him it plummeted like a stone. Eventually, unable to lure David over with a monster salary, I had to ban trading with him as it was such a loser for us.
David never did get pried away from Goldman until he left to start his own firm, Appaloosa Management, after he was mistakenly passed over for partner two years in a row. After that, he racked up an annualized return of over 40%, near my own results.
But David was doing it with $20 billion in real money, while I was doing it with newsletters. In 2012, David received a $2.2 billion performance bonus from his fund, one of the largest in history. I bet the partners at Goldman are kicking themselves.
So, I thought it timely to check in with David, now the owner of the Carolina Panthers football team, to see what he thought about the market. The S&P 500, the Dow, Ten-year bond yields, and Bitcoin all simultaneously hit all-time highs last week, and we were long all of them.
David was phlegmatic at best. “There are times to make money and there are times to not lose money, and this is definitely time to make money.” However, nothing is cheap. There are no screaming buys here or screaming shorts. He did expect stocks to keep rising through the end of 2021.
Keep in mind that David is a trader just like me and rarely has a view beyond six months. His last 13F filing on June 30 showed that his five largest positions were T-Mobile (TMUS), Amazon (AMZN), Facebook (FB), Google (GOOG), and Uber (UBER). Uber was the only new buy.
David is not alone in his views.
Up 89.20% so far in 2021, I am sitting here dazed, shocked, and pinching myself. This has been far and away my best year in a 53-year career. I know a lot of you made a lot more. I stared down every correction this year, loaded the boat, and won.
It’s not always like this.
So I think we are in for a few weeks of profit-taking, sideways chop, and minimal action. I call this the “counting your money” time. Traders have visions of Ferraris dancing in their eyes. Then once we form a new base, it will become the springboard for a new yearend rally.
I don’t think stocks will fall enough to justify selling here. And you might miss the next bottom.
Until then, I’m thinking of taking up the banjo.
That brings me to the foremost question in your collective minds. Can I top an astonishing 100% profit this year? Only if we get another great entry point with a 5% correction.
I’m sure that when the financial history of our era is written something in the future, this will be known as the week that Bitcoin went mainstream. That was prompted by the SEC approval of the first futures ETF, the ProShares Bitcoin Futures ETF (BITO).
By giving this approval, which had been sought for years, unlocks $40 trillion worth of assets owned by 100 million shareholders managed under the Investment Company Act of 1940 to go into Bitcoin. The possibilities boggle the mind. The consensus year-end target for Bitcoin is now $100,000, or up 65%.
It’s not too late to subscribe at the founder's rate of $995 a year for the Mad Hedge Bitcoin Letter by clicking here. After that, the price goes up….a lot.
Morgan Stanley (MS) Announces Stellar Earnings, with profits at $3.71 billion, up 36.4%. Morgan Stanley Asset Management sucked in an amazing $300 billion so far in 2021, bringing their total assets to $4.5 trillion.
Goldman Sachs (GS) announces blockbuster earnings, and we are laughing all the way to the bank. Profits soared an eye popping 63% to $5.28 billion.
Existing Home Sales soar by 7% in September to a seasonally adjusted 6.29 million units. First time buyers accounted for only 28%, the lowest since 2015. A brief drop in interest rates is the reason. There are only 1.29 million homes for sale, only a 2.4 month supply.
Housing Starts fall by 1.6% in September. Higher materials and labor costs, rising land expenses, and soaring energy costs are the culprit. A pop in interest rates may mean that the slowdown could last through the winter.
Single Family Rents are surging especially for the top end of the market. Nationally, rents rose 9.3% in August year over year, up from a 2.2% year-over-year increase in August 2020, according to CoreLogic. Buy homebuilders on dips like (KBH), (LEN), and (PHM)
If the Rescue Package passes in whatever size, it will trigger a massive new surge in risk prices, including stocks and Bitcoin. Don’t act surprised when it happens. $3.5 trillion, $1.5 trillion who cares? That’s a ton of money to be dumped into the economy ahead of the 2022 elections.
Tesla profits smash records in Q3, reporting a shocking $1.62 billion profit on $13.76 billion in revenues. A 30.5% profit margin blew people away. Imagine how much they’ll earn when they make 25 million cars a year in ten years. Buy (TSLA) on big dips.
Weekly Jobless Claims dive to 290,000, a new post-pandemic low. Delta is in fast retreat. A pre-pandemic normal level of 225,000 is coming within range.
Rising Interest rates are tagging the Real Estate Market, with the 30-year fixed rate hitting 3.23%. Refis are off 7% on the week. The Fed taper is looming large, especially if the 30-year hits 4.0%, which it should, taking affordability down.
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 heroic +9.60% gain so far in October. My 2021 year-to-date performance soared to 89.20%. The Dow Average is up 16.60% so far in 2021.
After the recent ballistic move in the market, I am continuing to run my longs and those include (MS), (GS), (BAC), and a short in the (TLT). All are approaching their maximum profit point and we have nothing left but time decay to capture. So, I am going to run these into the November 19 expiration in 14 trading days. It’s like having a rich uncle write you a check once a day.
That brings my 12-year total return to 512.75%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.75%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 120.15%. 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 approaching 46 million and rising quickly and deaths topping 736,000, which you can find here.
The coming week will be slow on the data front.
On Monday, October 25 at 8:30 AM, the Chicago Fed National Activity Index is out. Facebook (FB) earnings are released.
On Tuesday, October 26 at 10:00 AM, the S&P Case-Shiller National Home Price for August Index is released. Alphabet (GOOGL) and Microsoft (MSFT) earnings are out at 5:00 PM.
On Wednesday, October 27 at 7:30 AM, Durable Goods Orders for September are printed. McDonald’s (MCD) earnings are out.
On Thursday, October 28 at 8:30 AM, Weekly Jobless Claims are announced. The first read on Q3 GDP is announced. Apple (AAPL) and Amazon (AMZN) earnings are out.
On Friday, October 29 at 8:45 AM, the US Personal Income & Spending for September is published. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, when I went to college in Los Angeles, the local rivalries between universities were intense.
UCLA and USC had a particularly intense rivalry, and I went to both. It was traditional to steal Tommy Trojan’s sword prior to each homecoming game and then paint the statue blue. USC had a mascot, a mixed breed dog called “Old Tire Biter.” Prior to one game, UCLA kidnapped the dog.
At halftime, the kidnappers appeared midfield, tied the dog to a helium-filled weather balloon, and let him waft away somewhere over the city. Enraged USC fans stormed the field only to find that the real dog was hidden in a nearby truck. The dog headed for the stratosphere was actually a stuffed one.
Of course, the greatest prank of all time was carried out by the California Institute of Technology in the 1961 Rose Bowl, which didn’t have a football team, on the Washington Huskies. Washington was famous for its elaborate card tricks, which spelled out team names and various corporate sponsors and images.
On the night before a game, imaginative mathematically-oriented Caltech students snuck into the stadium and changed the instructions on the back of each card packet sitting in the seats. When it came time to spell out an enormous “WASHINGTON”, “CALTECH: displayed instead. The incident was broadcast live on national TV ON NBC.
At Caltech, where I studied math, they are still talking about it today.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 18, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GOOD NEWS IS HERE)
(GS), (MS), (JPM), (BAC), (C), (BLK), (TLT), (BRKB), (SPY)
Here’s the good news.
You know those pesky seasonals that have been a drag of the market for the past five months? You know, that sell in May and go away thing?
It’s about to end, vanish, and vaporize.
We are only ten trading days away from when seasonals turn hugely positive on November 1.
On top of that, the pandemic is rapidly receding, the economy reaccelerating, and workers are returning to the workforce. The action Biden took with the west coast ports should unlock the logjam there. It all sounds like a Goldilocks scenario.
The ports issue has nothing to do with the pandemic. The truth is that with 6% GDP growth, the US economy is growing faster than it has ever done before. That means we are buying a lot more stuff, more than our antiquated infrastructure can handle. Unlock the ports, and growth could accelerate even further.
Bitcoin has been on fire as well, doubling since August 1. The focus has been on the launch of the first crypto futures ETF, which may happen as early as today. All of the trade alerts we issued in this space have been total home runs. (Click here for our Bitcoin Letter).
As a result, Bitcoin is within striking range of hitting a new all-time high at $66,000. Break that, and we could see a melt-up straight to $100,000.
Want another reason to be bullish? The Millennial generation is about to inherit $68 trillion by 2030. Guess where that is going? Bitcoin and all other risk assets, as younger investors tend to be more aggressive.
So, what to do about all of this?
Keep doing more of what’s working. Buy financials and Bitcoin and sell short bonds. Wait for tech to bottom out at the next interest rate peak, then load the boat there once again.
Make as much money as you can now because 2022 could be a year of diminished expectations. Stocks might rise by only 15% compared to this year’s 30% torrid rate.
As for Bitcoin, that is a horse of a different color.
CPI Hits 5.4%, and was up 0.4% in September, a high for this cycle. This time, it was food and energy that took the lead. Used car prices, which went ballistic last month, showed a decline. Supply chain problems are wreaking havoc and those with inventory can charge whatever they want. The Fed thinks this is transitory, the bond market doesn’t. Sell rallies in the (TLT).
Weekly Jobless Claims Plunge to 293,000, a new post-pandemic low. With delta in retreat, higher wages are luring people back to work to deal with massive supply chain problems. This may be the beginning of the big drop in unemployment to pre-pandemic levels. Stocks will love it. Buy stocks on dips.
Big Banks Report Blowout Earnings and are firing on all cylinders. The best is yet to come. Interest rates are rising, default rates are falling, profit margins expanding, and the economy is growing at a record rate. Buy (JPM), BAC), and (C) on dips.
The Nonfarm Payroll Bombs in September, coming in at only 194,000. That follows a weak 235,000 in August. The headline Unemployment Rate dropped to a new post-pandemic low of 4.8%, down from a peak of 22%. It’s not a soggy economy that’s causing this, but a shortage of people to hire. Some 10 million workers have gone missing from the American economy, and many may never come back.
Bitcoin Soars to $61,000, a five-month high, putting the previous $66,000 high in range. With ten crypto ETFs waiting in the wings for SEC approval, a flood of money is about to hit the sector. Several countries are now considering the adoption of Bitcoin as a national currency after El Salvador’s move. Keep buying Bitcoin dips. Mad Hedge Bitcoin Letter followers are making a fortune.
Oil (USO) Tops $80, after OPEC limits production increases to 400,000 barrels a day, dragging on the stocks market. Prices are approaching levels that will restrain growth. Pandemic under-investment and distribution problems have triggered a short squeeze. There will be many spikes on the way to zero.
Fed Minutes Show Taper to Start in November, as discussed in the September meeting. They may start with $15 billion a month in fewer bond purchases. The inflation boogie man is getting bigger with the 5.4% print on Tuesday. Sell rallies in the (TLT)
JOLTS Comes in at 10.4 million indicating that the labor shortage is getting more severe. Millions are still staying home for fear of catching covid. There is also a massive skills disparity resulting from decades of under-investment in education.
IMF Cuts Global Growth Forecast to 5.9%. Supply chains, delta, inflation worries, and vaccine access are to blame.
US Dollar (UUP) Hits One-Year High on rising interest rates. This will continue for the foreseeable future. Stand aside from the (UUP) as this is a countertrend trade. We may be only 15 basis points away from an interim peak in rates at 1.76% for the ten-year.
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 heroic +8.91% gain so far in October. My 2021 year-to-date performance soared to 81.51%. The Dow Average was up 15.4% so far in 2021.
Figuring that we are either at, or close to a market bottom, and being a man of my convictions, I kept 90% invested in financial stocks all the wall until the October 15 options expirations. Those include (MS), (GS), (JPM), (BLK), (BRKB), (BAC), and (C).
The payday was big and more than covered earlier in the month stop-losses in (SPY) and (DIS). I quick trip by the Volatility Index (VIX) to $29, then back to $15 was a big help.
That brings my 12-year total return to 511.06%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.19%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 119.57%. 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 45 million and rising quickly and deaths topping 725,000, which you can find here.
The coming week will be slow on the data front.
On Monday, October 18 at 8:15 AM, Industrial Production for September is published. Johnson & Johnson (JNJ) reports.
On Tuesday, October 19 at 8:00 AM, the Housing Starts for September are released. Netflix (NFLX) reports.
On Wednesday, October 20 at 7:30 AM, Crude Oil Stocks are announced. Tesla (TSLA) and IMB (IBM) report.
On Thursday, October 21 at 8:30 AM, Weekly Jobless Claims are announced. At 10:00 AM, Existing Home Sales for September are printed. Alaska Air (ALK) and Southwest Air (LUV) report.
On Friday, October 22 at 8:45 AM, the US Markit Flash Manufacturing and Services PMI is out. American Express (AXP) reports. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, I normally avoid the diplomatic circuit, as the few non-committal comments and soggy appetizers I get aren’t worth the investment of time.
But I jumped at the chance to celebrate the 70th anniversary of the founding of the People’s Republic of China with San Francisco consul general Gao Zhansheng.
Happy Birthday, China!
When I casually mention that I survived the Cultural Revolution from 1968 to 1976 and interviewed major political figures like Premier Deng Xiaoping, who launched the Middle Kingdom into the modern era, and his predecessor, Zhou Enlai, modern-day Chinese are enthralled.
It’s like going to a Fourth of July party and letting drop that I palled around with Thomas Jefferson and Benjamin Franklin.
Five minutes into the great hall, and I ran into my old friend Wen. She started out her career with the Chinese Intelligence Service and had made the jump to the Foreign Ministry, as all their best people did. Wen was passing through town with a visiting trade mission.
When I was touring China in the seventies as the guest of the Bank of China, Wen was assigned as my guide and translator, and we kept in touch over the years. I was assigned a bodyguard who doubled as the driver of a tank-like Russian sedan, a Volga.
The Cultural Revolution was on, and while the major cities were safe, we ran the risk of running into a renegade band of xenophobic Red Guards, with potentially fatal consequences.
By the time Wen married, China had already adopted its one-child policy. As much as she wanted more children, she understood the government’s need to adopt such a drastic policy. Without it, the population today would be 1.6 billion, not 1.2 billion, and all of the money that went into buying capital goods would have been spent on food imports instead.
The country would have stagnated at its 1980 per capita income of $100/year. There would have been no Chinese economic miracle. She was very proud of her one son, who was a software engineer at Microsoft (MSFT) in Beijing.
I asked if she recalled our first trip together and a dark cloud came over her face. We were touring a section of Fuzhou in southern China when three policemen marched up. They started shouting at Wen that we were in a restricted section of the city where foreigners were not allowed. They started mercilessly beating her with clubs.
I was about to intercede when my late wife, Kyoko, let go with a blood-curdling tirade in Japanese that froze them in their tracks. I saw from the fear in their faces that she had ignited their wartime fear of Japanese authority and the dreaded Kempeitai, or secret police, and they beat a hasty retreat.
To this day, I’m not exactly sure what Kyoko said. We took Wen back to our hotel room and bandaged her up, putting ice on the giant goose egg on her head. When I left, I gave her my paperback copy of HG Well’s A Short History of the World, which she treasured, as the book was then banned in China.
Wen mentioned that she was approaching the mandatory retirement age of 60, and soon would be leaving the Foreign Service. I suggested she move to San Francisco, which offered a thriving Chinese community.
She laughed. No matter how much prices had fallen, she could never afford anything here on a Chinese civil servant’s salary.
I asked Wen if she still had the book I gave her nearly five decades ago. She said it had become a treasured family heirloom and was being passed down through the generations.
As she smiled, I notice the faint scar on her eyebrow from that unpleasantness so long ago.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Kyoko and I in Beijing in 1977
