Global Market Comments
September 13, 2024
Fiat Lux
Featured Trade:
(The Mad SEPTEMBER traders & Investors Summit is ON!)
(SEPTEMBER 13 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (UUP), (FXA), (FXE), (FXC), (FXB), (DJT), ($INDU), (JPM), (BRK), (TSLA), (NVDA), (IBM), (CCJ), (BRK/B)
Below please find subscribers’ Q&A for the September 11 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.
Q: Will the Fed cut by 50 basis points at their next meeting?
A: The probability of that happening actually dropped by about half with the warm CPI report this morning with core CPI at 0.3%. That may have pushed the Fed from a 50% basis point rate cut back down to only 25%. I think if we only get 25%, the market will sell off. So that’s Wednesday next week. Mark that on your calendars—the market may well be on hold until then.
Q: Is $50/barrel oil (USO) coming by the end of this year?
A: No, but I think $60 is in the works. And that may be the bottom of this cycle because after that we expect an economic recovery, greater demand for oil, and rising prices in 2025. Until then, overproduction both in the US and in the Middle East is knocking prices down.
Q: Will the US dollar (UUP) continue its terrible performance through the end of the year?
A: Yes, and in fact, it may be for the next 10 years that the US dollar is weak—certainly 5—so any rally or dips you get in the currencies (FXA), (FXE), (FXC), and (FXB) I’d be buying with both hands.
Q: Where are you hiding at the moment?
A: 90-day T-bills, which are yielding 4.97%. You can buy and sell them any time you want, and the interest is only payable when you sell them.
Q: Is September 18th the selloff?
A: It depends on how much we do before then. Obviously, we’re making good progress today with the Dow ($INDU) down 700 points, so we shall see. However, the market is flip-flopping every other day, making it untradable—you can’t get any position and hold on to it long enough to make money, so it’s better just to stay out. There’s no law that says you have to be in the market every day of the year, and this is a day not to be in the market for sure.
Q: How will the presidential debate reaction affect the market?
A: There’s only one stock you have to follow for that and that’s the (DJT) SPAC, and that’s Trump’s own personal ETF, and it is down 13% today to a new all-time low. I believe that’s well below its IPO price, so anyone who’s touched that stock is losing money unless they got out at the top. That is a good signal.
Q: JP Morgan (JPM) stock had a steep pullback to $200/share—is it a buy here?
A: No, but we’re getting close. If we can get (JPM) close to its 200-day moving average at $188 on high volatility, that would be a fantastic buy, because (JPM) will benefit enormously from falling interest rates, and it is the world's quality banking play.
Q: Is it too soon on Berkshire Hathaway (BRK) and Tesla (TSLA)?
A: Yes on both. It’s too soon for anything right now. I wouldn’t touch anything before the interest rate cut unless you have a really special situation, and there are some out there.
Q: Do you think Nvidia (NVDA) could test $90 again?
A: It could very easily; it got within $10 of that last week. So, it just depends on how bad the news is and how scared people get in September.
Q: Is the end of carry trade affecting the market?
A: No, we had a big deleveraging there. Although people are going back in again now, it’s not enough to hurt the market.
Q: I heard Putin is threatening over raw materials. What do we get from Russia, and what stocks or ETFs would be impacted?
A: We get nothing from Russia anymore. We used to get a lot of commodities and oil from them, and that has ceased. Russia has essentially exited the global economy because of the sanctions and the war in Ukraine, so they can’t really hurt anyone at this point.
Q: What about Russia doing an end-run around with direct trade? BRICS block is going to make the dollar even more worthless in the future.
A: I don’t buy that at all. I’ve been covering sanctions for 50 years; they always work, but they always take a long time. You could always do black market trade through the back door, but the volumes are way down, and the profits are much less because people only buy sanctioned goods at big discounts. The oil that China is buying from Russia is something like a 30% discount to the market. They execute a high cost of doing business, and nobody wants to be in sanctions if they can possibly do avoid. That said, when the war ends, the sanctions may end. That could be some time next year when Russia completely runs out of tanks and airplanes.
Q: Should I buy Nvidia (NVDA) call options now?
A: It's not just a matter of Nvidia. It's what the general market is doing, and tech is doing. And tech is not doing that well—even on the up days. So I would hold off a bit on Nvidia.
Q: Why is Warren Buffet (BRK/B) unloading so much of his equity portfolio?
A: He thinks the market is expensive, and he has thought it has been expensive for years and he's been unloading stocks for years. He has something like $250 billion in cash now so he can buy whole companies in the next recession. Whether he'll live long enough to see that recession is another question, but his replacement staff is already at work and running the fund, so Berkshire will continue running on autopilot even after he’s gone.
Q: Is IBM an AI play?
A: (IBM) wants to think that it’s an AI play. They haven’t disclosed enough to the public to make the stock a real AI investment, so I would say it probably is, but we don’t know enough at this point, and there are probably too many other candidates to buy in the meantime.
Q: How do I invest in green energy stocks, and do you have any names for me?
A: Well here’s one right here and that’s the Canadian uranium producer Cameco (CCJ). There is a nuclear renaissance going on. China just announced an increase in their plants under construction from 100 to 115. You have the new modular technology ready to take off in the US, and it uses uranium alloys, or uranium aggregates, so it’s impossible for a plant to go supercritical. You also have other countries reactivating nuclear plants that have been closed, and California even delayed its Diablo Canyon shutdown by 5 years. So Nuclear is back in play, and we have an absolute bottom in the stock here and it just dropped 37%, in case you needed any more temptation. So this would be a very attractive alternative energy play for the long term right here.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
1942 Grumman Wildcat on Guadalcanal
Global Market Comments
April 23, 2024
Fiat Lux
Featured Trade:
(WHY MOST SPAC’S ARE A SCAM)
(DJT), (PSTH), (SPAK), (NKLA)
I have been watching with some amusement the trading of the Trump Media & Technology Group (DJT).
After the IPO was issued in 2023, it soared to $130, then collapsed to $15. It has just completed another round trip, plunging 50% over the last month. This is for a company that posted a horrific $58 million loss in 2023. In no way can that support a $5 billion market cap at the current $22 share price unless it’s the next AI stock we don’t know about. (DJT) has become the latest meme stock.
So many hedge funds have lined up to sell that the borrowing costs have skyrocketed to an incredible 550%. (DJT) has become the latest meme stock. The former president owns 60% of the shares. Accusations of insider trading and fraud are rife. If the former president loses the election, goes to jail, or dies as a result of his unhealthy lifestyle (he’s 50 pounds overweight) the shares become worthless. In other words, it’s a stock that no professional investor would touch with a ten-foot pole.
Every investment bubble creates its special instruments of self-destruction and this one is no different.
There were highly touted leveraged commodity and gold funds during the seventies, portfolio insurance during the eighties, money-losing tech companies with lots of “eyeballs” in the nineties, and subprime lending in the 2000s.
In this cycle, we have the Special Purpose Acquisition Companies, otherwise known as “SPACs.”
The goal of a SPAC is to raise money first on some generalized investment theme, and then merge with a target company to achieve those goals. This allows companies to go public while skipping most disclosure requirements.
SPACs have their advantages for some people. It enables start-up companies with no track record or earnings to go public faster without the costs and regulatory scrutiny of the burdensome public IPO process. Promoters promise to get investors into the next Amazon (AMZN) or Facebook FB) early.
Easier said than done.
Some $162 billion was raised for SPACs in 2021 followed by a much more modest $15 billion in 2022 and $125 million in 2023. The largest has been hedge fund manager Bill Ackman’s Pershing Square Tontine Holdings Ltd. (PSTH) at $4 billion. There is even a SPAC for SPACs, the Defiance Gen SPAC Derived ETF (SPAK).
The performance of SPACs so far has been dismal. There have been 915 SPACs created since 2015. Only 93 managed to invest their funds in a target company and only 29 of those have produced a profit. This was during one of the greatest runaway bull markets of all time.
You would have done better to simply buy the cheapest Vanguard index funds or 90-day T-bills. In the meantime, the issuers of SPACs for the most part became wealthy.
The quality of the management who had stepped forward to run SPACs has been mixed at best, including Ackman himself, who recently ran two gargantuan money-losing years back to back. They include former House Speaker Paul Ryan and NBA Hall of Famer Shaquille O’Neil, not exactly known as financial wizards.
Then there’s Nikola (NKLA), an electric/hydrogen vehicle company that has promised to take on Elon Musk, unfazed by the complete lack of a functioning vehicle. These shares have cratered by 92% since their market peak among multiple fraud allegations aimed at the founder.
The risks and limitations of SPACs are legion. You are essentially betting on the good faith and judgment of a single individual unmoored by any filings with the SEC. There are no guarantees they can achieve anything. These disclosures to the government are there to protect you. Without them, you are swimming without a swimsuit.
The conflicts of interest are enormous. SPAC issuers get to buy the equivalent of call options on their funds at deep discounts prior to the issue. When issuers make fortunes overnight with little money upfront, you want to run a mile.
And here is the big problem with SPACs. They are essentially roach motel investments, easy to check in but impossible to check out. Liquidity going in is unlimited but coming out is nil. You can often only redeem your investment at a huge discount, or if another buyer is willing to take out at any price. That makes marks to market challenging at best.
Investors that buy SPACs are giving up all the protections of SEC protections for much higher risks and lower returns.
Suffice it to say that if PT Barnum were working in the financial markets, he’d be up to his eyeballs with SPAC offerings.
Personally, I’ll give them a pass. You should too.
