Mad Hedge Technology Letter
March 9, 2022
Fiat Lux
Featured Trade:
(NICKEL MARKET BECOMES HELLISH)
(JJN), (TSLA), (GM), (F)
Posts
Nickel (JJN) is essential for EV batteries, and that spells trouble for certain industries as the price of nickel explodes to the upside.
Projections between 2020 and 2037 reveal that global manufacturing of batteries for EVs and other new energy applications will rise tenfold.
That’s not a typo!
Recently, volatility was so high on nickel that London Metal Exchange, prompted a trading halt.
The price of nickel increased by 250% which many traders blamed directly on the war between Russia and Ukraine.
Unintended consequences have put shivers through the global economic system and higher prices of various types of metals will mean consumers will have less discretionary incomes.
Russia is one of the largest producers of nickel in the world, with miner Norilsk Nickel the number one producer of top-grade nickel globally.
If the metal were added to the sanctions list, it could severely shrink volume to Western suppliers and manufacturers.
EV batteries are one of the highest costs in producing an EV.
The price rise in nickel means that it will cost car manufacturers an extra $3,000 to produce the same car.
Costs are going up around the entire process of making an EV and the pain will be felt with a final sticker price substantially higher than today.
It is plausible that in 2 years we could experience a massive shortage which could exacerbate an already dire supply situation as demand continues to rise.
EVs are getting more popular as the quality of EVs produces gets better with each iteration.
No doubt Tesla helped popularize this type of car.
With the next biggest source of nickel being lower-grade Indonesian supply, and new nickel mines years away from getting online, the only logical conclusion is to bake in lower productivity from Western auto companies.
Ford (F) is planning to make 2 million EVs annually by 2026, GM (GM) hopes to sell 1 million EVs by mid-decade and launch 30 new EV models, and Stellantis plans to sell 5 million EVs by the end of the decade, with 25 new EV models on the way.
These companies are all catching up to Tesla (TSLA).
This will poo poo the momentum of the EV car movement temporarily which many believed would go into overdrive this year.
Once the business model supporting the case to make EVs becomes untenable, large car companies could pull back from these models until supply chains moderate.
Car companies aren’t in the business of building cars that lose money and now the unit economics have been thrown into chaos.
Uncontrollable costs to source raw materials for industrial battery makers such as LG Energy Solution, Panasonic, and Contemporary Amperex Technology Co will be passed to the end-user.
It will also make negotiations tougher with EV makers such as Tesla and Volkswagen. And it isn’t just nickel: Prices of cobalt and aluminum, two other key battery metals are grouped into this price surge as well.
U.S. President Joe Biden's solution for lower oil prices was to go out and buy an EV instead of buying gas at the pump. Well, that solution just became more costly and is rising by the day.
This effectively pushes the green movement further back and the high price of oil taking center stage is ruffling a lot of feathers for the American consumer that will have severe implications at the polls this November.
These costs headaches will also be a drag on EV stocks like Tesla in the short term because they simply won’t be able to deliver the volume of cars they planned to produce.
Mad Hedge Technology Letter
January 3, 2022
Fiat Lux
Featured Trade:
(TESLA SETS THE TONE)
(TSLA), (F)
The 87% year-over-year increase in Tesla deliveries this past quarter really sets the tone for Tesla for rest of 2022.
They are picking up where they left off last year and Tesla’s stock price at the end of the year could be substantially higher than it is now.
It’s been a while since I’ve heard from the Tesla haters — and if you remember correctly, there were angry flocks of them up until just recently.
But that’s what overperformance will do to the naysayers, ironically. They’ve never been this quiet, and rightly so, after crushing delivery expectations by 12%
In the same quarter last year, they registered 180,000 deliveries, and the math is stunning with the company adding an extra nominal 128,000 this past quarter to 308,000 units at a time where supply chain shocks and semiconductor shortages are rocking the EV industry.
This leads me to believe that if Tesla can carve out stellar performance at the height of snarled supply chains, imagine what they can do when the world isn’t clogged up.
We must take it seriously when management predicts 50% gains in deliveries year over year for the foreseeable future and what I mean by that is — multiyear.
Ultimately, there is a strong correlation between accelerating Tesla deliveries and an appreciating Tesla stock price and readers shouldn’t overcomplicate things.
The rest is just fluff and readers need to zone it out.
Readers also get the added bonus that Tesla easily outperforms the S&P benched against any standard metric and they are in online brokerage Robinhood’s top stocks to buy based on the data from their own traders.
The delivery beats against consensus are also widening for Tesla who just in 2020 was only able to overdeliver unit deliveries by 3%, which is no small feat, but the under-promising and over-delivering is getting more impressive by the quarter which is the hallmark of a great company with over 10% beats versus consensus the norm today.
The average consensus for gross 2022 deliveries of about 1.4 million looks highly attainable if Tesla can keep up at this clip, which I have faith they can.
Fortifying their already enviable position is the success of the Shanghai Gigafactory, and the potential to sell 60,000 Tesla’s to Chinese customers this year.
Gazing into our 2022 crystal ball, the EV story and the narrative underpinning it look healthy and, more importantly, sustainable.
Over the past decade, the EV market has gone from a drip of EV choices to a full-out avalanche of options on the US market these days.
Recent surveys back up the concept of insatiable thirst for new EV buyers, and higher oil prices have added an extra turbocharger to EV demand.
A private survey showed that the percentage of U.S. adults who say they would consider purchasing an EV in the next 10 years has seen active growth over the course of 2021, as announcements of new models and new charging infrastructure add gloss to the already emerging industry.
One might surmise that this could be the year of an EV inflection point when it comes to getting bums in EV seats.
This could be the year where the numbers gap up and put gas-powered engines in the rear-view mirror.
The number of options in 2022 starts from roughly 62 models currently available to at least 100 later this year.
But U.S. consumers love to buy pickup trucks, crossovers, and SUVs, and their dramatic arrival on the EV market is one of the main reasons 2022 could be unprecedented for adoption.
The next big blockbuster launch — Ford (F) is beginning production on its F-150 Lightning pickup truck in Spring 2022, giving consumers the option of purchasing an electric version of the best-selling car in the country.
58% of Gen Z and 60% of Millennials have shown a willingness to dip into the future EV market, and by that purchase time, options will be everywhere.
The one true knock against Tesla is the lack of developing a Tesla pick-up truck. Their much-hyped “Cybertruck” has been delayed now over a year to the end of 2022 because of continuous bumps in the supply chain.
This could turn out to be another cash cow for Tesla, with potential Cybertruck revenues topping $400 million in 2023, potentially rising to about $7 billion by 2026.
The takeaway from the Cybertruck project is that Tesla is still in the early stages of its growth cycle, and will be expanding at a 50% rate while ingratiating its diehard audience with more products than they can handle.
Tesla products are backlogged to the hills, try inputting a new Tesla X for online purchase, and their official website spits out an estimated delivery date of January 2023.
That’s how great this product is, so don’t diminish it or its ever-higher stock price.
It’s high for a reason and will be higher in the future.
Global Market Comments
October 4, 2021
Fiat Lux
Featured Trade:
(THE MAD HEDGE SUMMIT VIDEOS ARE UP),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S SHOPPING TIME),
(MS), (GS), (JPM), (BLK), (BRKB), (C), (TLT), (F), (CRPT)
All indications are that we have a total nightmare of a Christmas coming up this year. Santa Claus and his elves can’t get any parts, and the reindeer are short of hay.
There are now a record 70 large container ships from China parked off the coast of Long Beach, CA and nobody to unload them. If they could be unloaded, there are no trucks to move the cargo or drivers to drive them. It turns out that stores don’t have enough staff to sell the products either.
You see this in share prices that are traditionally strong going into the holidays which have lately taken a pasting, like UPS (UPS) and FedEx (FDX).
Perhaps the US economy is losing up to a third of its total output due to parts and labor shortages. This will take at least a year to sort out.
Then there is the issue of 10 million missing workers. Are they afraid of dying of Covid? Or have they decided it’s time for a career change and that working for a minimum wage of $7.25 an hour is no longer worth it? This may take a decade to sort out.
Covid could be masking fundamental changes to the American economy and society which won’t become obvious until well into the 2030s.
Those of us who analyze these things can’t wait for the outcome. The global economy has just undergone more change than at any time since WWII. But what exactly happened we may not know for years.
Better to complete your Christmas shopping early this year or you may end up with a piece of coal in your stocking (where do I find coal in California?). And don’t forget to do some shopping for your retirement portfolio as well. Valuations are the best they have been in a year and this bull market in stocks has another nine years to run.
In the meantime, after dumping all of my technology stocks, I’ll be betting my entire persona net worth buying financial ones. These should lead the markets for the next six months, or until bond yields hit 2.0%, whichever comes first. Bonds now yield 1.46%.
With interest rates rising sharply, economic growth continuing at record levels, and default rates plunging, we are just entering a new golden age of banking.
Powell sees Inflation lasting higher for longer. It was enough to kill off a nascent rally in the bond market. The Dollar Store is about to become the $2 Store. Shortages from China are the reason.
Treasury Yields hit a three-month high. You can blame the coming taper, deal on a deficit-financed infrastructure bill, and drained Fed accounts against a coming massive supply of bonds. I’m already running a massive bond short. Keep selling rallies in the (TLT), or buy (TBT).
China bans Crypto, triggering a 7% plunge in Bitcoin. Financial systems the government can’t control are forbidden in the Forbidden City. It’s all part of a flight out of a restricted Yuan into unrestricted crypto by wealthy Chinese. China used to account for 99% of all Bitcoin mining and now it is at zero. The business will flock to the US, Canada, and any other country with cheap electricity. It’s a short-term negative for crypto but a long-term positive. Buy Bitcoin and Ethereum on the dip.
Case Shiller shatters all records, rising an astronomical 18.7% in June, a new record. Home prices are now 41% higher than the last peak in 2006. Phoenix was up an eye-popping 29.3%, San Diego by 27.1%, and Seattle by 25.0%. What are they putting in the water in these cities? My belief is that the structural shortfall of housing continues for another decade.
New Home Sales jump by 1.5% in August to a seasonally adjusted 740,000 units. The south saw the biggest gains at 6.0%. Median New Home Prices jumped an amazing 20.1% to 390,000 YOY. The exodus from the city to the burbs continues unabated. Inventory is at 6.1 months.
Pending Home Sales rocket, in August by 8.1% on a signed contract basis compared to only 1.2% expected. That’s a seven-month high. The Midwest led the charge with a 10.4% gain. Rising inventories and continued low interest rates were a big help. The bidding wars are abating.
China Energy Shortage causes Apple and Tesla cutback and they are buying 70% of America’s coal production to meet the shortfall. Several key chip packaging and testing service providers supplying Intel, Nvidia, and Qualcomm also received notices to suspend production at their facilities in Jiangsu for several days. It’s Another Black Swan from the Middle Kingdom.
The First Trust Skybridge Crypto Industry & Digital Economy ETF (CRPT) launched on September 23. It will be kicked off by my longtime friend and Mad Hedge Summit speaker Anthony Scaramucci. Get on the crypto train before it leaves the station.
Ford (F) announced massive $11.4 Billion in US EV factories in Kentucky and Tennessee in partnership with South Korea’s SK Innovations, creating 11,000 jobs. It is one of the largest US industrial investments in recent memory. It is all part of a plan to completely reposition the company and invest $30 billion in EVs by 2025. A smart move, (F) finally read the writing on the wall.
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 modest +1.03% gain in September. That’s against a Dow Average that was down -5.65% for the month. My 2021 year-to-date performance soared to 80.30%. The Dow Average was up 12.18% so far in 2021.
Figuring that we are either at or close to a market bottom, and being a man of my convictions, I am 80% invested in financial stocks. Those include (MS), (GS), (JPM), (BLK), (BRKB), and (C). In for a penny, in for a pound. I am also 10% invested in the (SPY) and 10% long bonds (TLT).
I quick trip by the Volatility Index (VIX) to $29 and a rapid 45 basis point leap in ten-year US Treasury bond yields gave us the entry point for all of these positions.
That brings my 12-year total return to 502.85%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.49%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 112.44%. 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 44 million and rising quickly and deaths topping 701,000, which you can find here.
The coming week will be slow on the data front.
On Monday, October 4 at 10:00 AM, US Factory Orders for August are out.
On Tuesday, October 5 at 8:30 AM, the US Balance of Trade for August is announced.
On Wednesday, October 6 at 8:15 AM, we get the Challenger Private Jobs Report for September.
On Thursday, October 7 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, October 8 at 8:30 AM, we learn the September Nonfarm Payroll Report. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, in my many travels around the world, I never hesitate to visit places of historical interest. The London grave of Carl Marx, the Paris grave of Jim Morrison, the bridge of the cruiser of the USS San Francisco, which took a direct hit from an 18-inch Japanese shell, you name it.
After attending one of my global strategy luncheons in Charleston, South Carolina, where the Civil War began with the Confederates firing on Fort Sumter in 1861, I looked for something to do. Fort Sumter was a full day trip and there wasn’t much to see anyway.
So I pulled out my trusty iPhone to get some ideas. It only took me a second to decide. I attended Sunday church services at the Mother Emanuel African Methodist Episcopal Church, where 15 people were gunned down by a deranged white nationalist in 2014.
The church was built in 1891 by freed slaves and their children. The congregation dates back earlier to 1791. It has every bit a handmade touch with fine Victorian stained-glass windows.
The ushers stopped me at the door for 20 minutes where they suspiciously eyed me. Then they invited me in and sat me down next to the only other white person there, a Jewish woman from New York.
It was a working-class congregation and polyester suites and print dresses were the order of the day. Everyone was polite, if not respectful, and I sang the hymns with the air of a book in the pew in front of me.
The gospel singing was incredible, if not angelic. When I left, an usher thanked me for supporting their cause. Very moving. I praised them for their strength and tossed a $100 bill into the basket.
Charleston is a big wedding destination now, with young couples pouring in from all over the South to tie the knot. Saturday night on Market Street saw at least a dozen bachelor and hen parties going bar to bar and getting wasted, the women falling off their platform shoes.
The United States still has a lot of healing to go to recover from the recent years of turmoil. I thought this was one small step.
Mother Emanuel African Methodist Episcopal Church
Punting in Cambridge
Global Market Comments
July 29, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (RSX), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)
Global Market Comments
April 1, 2021
Fiat Lux
Featured Trade:
(MARCH 31 BIWEEKLY STRATEGY WEBINAR Q&A),
(FB), (ZM), ($INDU), (X), (NUE), (WPM), (GLD), (SLV), (KMI), (TLT), (TBT), (BA), (SQ), (PYPL), (JNP), (CP), (UNP), (TSLA), (GS), (GM), (F)
Below please find subscribers’ Q&A for the March 31 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.
Q: Would you buy Facebook (FB) or Zoom (ZM) right here?
A: Well, Zoom was kind of a one-hit wonder; it went up 12 times on the pandemic as we moved to a Zoom economy, and while Zoom will permanently remain a part of our life, you’re not going to get that kind of growth in stock prices in the future. Facebook on the other hand is going to new highs, they just announced they’re laying a new fiber optic cable to Asia to handle a 70% increase in traffic there. So, for the longer term and buying here, I think you get a new high on Facebook soon; there's maybe another 20-30% move in Facebook this year.
Q: I can’t really chase these trades here, right?
A: Correct; if you wait any more than a day or 2 on executing a trade alert, you’re missing out on all of the market timing value we bring to the game. So that's why I include an entry price and the “don’t pay more than” price. And we never like to chase, except last year, when we did it almost all the time. But last year was a chase market, this year not so much.
Q: How are LEAP purchase notifications transmitted?
A: Those go out in the daily newsletter Global Trading Dispatch when I see a rare entry point for a LEAP, then we’ll send out a piece and notify everybody. But it’s very unusual to get those. Of course, a year ago we were sending out lists of LEAPS ten at a time when the Dow Average ($INDU) is at 18,000. But that is not now, you only wait for those once or twice a year. On huge selloffs to get into two-year-long options trades, and that is definitely not now. The only other place I've been looking out for LEAPS right now are really bombed out technology stocks begging for a rotation. Concierge members get more input on LEAPS and that is a $10,000 a year upgrade.
Q: What are your thoughts on silver (SLV) and long-term gold (GLD)?
A: I see silver going to $50 and eventually $100 in this economic cycle, but it's out of favor right now because of rising interest rates. So, once we hit 2.00% in the ten years, it’s not only off to the races for tech but also gold and silver. Watch that carefully because your entry point may be on the horizon. That makes Wheaton Precious Metals (WPM) a very attractive “BUY” right now.
Q: Are you going to trade the (TLT)?
A: Absolutely yes, but I’m kind of getting picky now that I’m up 42% on the year; and I only like to sell 5-point rallies, which we got for about 15 minutes last week. And I also only like to buy 5- or 10-point dips. Keep your trading discipline and you’ll make a ton of money in this market. Last year we made about 30% trading bonds on about 30 round trips.
Q: How much further upside is there for US Steel (X) and Nucor Corp. (NUE)?
A: More. There's no way you do infrastructure without using millions of tons of steel. And I kind of missed the bottom on US Steel because it had been a short for so long that it kind of dropped off the radar for me. I think we have gone from $4 to 27 since last year, but I think it goes higher. It turns out the US has been shutting down steel production for decades because it couldn't compete with China or Japan, and now all of a sudden, we need steel, and we don’t even make the right kind of steel to build bridges or subways anymore—that has to be imported. So, most of the steel industry here now is working for the car industry, which produces cold-rolled steel for the car body panels. Even that disappears fairly soon as that gets taken over by carbon fiber. So enough about steel, buy the dips on (X) and (NUE).
Q: What stocks should I consider for the infrastructure project?
A: Well, US Steel (X) and Nucor Corp (NUE) would be good choices; but really you can buy anything because the infrastructure package, the way it’s been designed, is to benefit the entire economy, not just the bridge and freeway part of it. Some of it is for charging stations and electric car subsidies. Other parts are for rural broadband, which is great for chip stocks. There is even money to cap abandoned oil wells to rope in Texas supporters. All of this is going to require a massive upgrade of the power grid, which will generate lots of blue-collar jobs. Really everybody benefits, which is how they get it through Congress. No Congressperson will want to vote against a new bridge or freeway for their district. That’s always the case in Washington, which is why it will take several months to get this through congress because so many thousands of deals need to be cut. I’ve been in Washington when they’ve done these things, and the amount of horse-trading that goes on is incredible.
Q: Is it a good thing that I’ve had the United States Treasury Bond Fund (TLT) LEAPS $125 puts for a long time.
A: Yes. Good for you, you read my research. Remember, the (TLT) low in this economic cycle is probably around $80, so you probably want to keep rolling forward your position….and double up on any ten-point rally.
Q: Do you think we get a pop back up?
A: We do but from a lower level. I think any rallies in the bond market are going to be extremely limited until we hit the 2.00%, and then you’re going to get an absolute rip-your-face-off rally to clean out all the short term shorts. If you're running put LEAPS on the (TLT) I would hang on, it’s going to pay off big time eventually.
Q: If we see 3.00% on the 10-year this year, do you see the stock market crashing?
A: I don’t think we’ll hit 3.00% until well into next year, but when we do, that will be time for a good 10% stock market correction. Then everyone will look around again and say, “wow nothing happened,” and that will take the market to new highs again; that's usually the way it plays out. Remember, then year yields topped all the way up at 5.00% when the Dotcom Bubble topped in April 2020.
Q: Has the airline hospitality industry already priced in the reopening of travel?
A: No, I think they priced in the hope of a reopening, but that hasn’t actually happened yet, and on these giant recovery plays there are two legs: the “hope for it” leg, which has already happened, and then the actual “happening” leg which is still ahead of us. There you can get another double in these stocks. When they actually reopen international travel to Europe and Asia, which may not happen this year, the only reopening we’re going to see in the airline business is in North America. That means there is more to go in the stock price. Also coming back from the brink of death on their financial reports will be an additional positive.
Q: Do you think a corporate tax increase will drive companies out of the US again and raise the unemployment rate?
A: Absolutely not. First of all, more than half of the S&P 500 don’t even pay taxes, so they’re not going anywhere. Second, I think they will make these offshoring moves to tax-free domiciles like Ireland illegal and bring a lot of tax revenues back to the US. And third, all Biden is doing is returning the tax rate to where it was in 2017; and while the corporate tax rate was 35%, the stock market went up 400% during the Obama administration, if you recall. So stocks aren't really that sensitive to their tax rates, at least not in the last 50 years that I’ve been watching. I'm not worried at all. And Biden was up on the polls a year ago talking about a 28% tax rate; and since then, the stock market has nearly doubled. The word has been out for a year and priced in for a year, and I don't think anybody cares.
Q: What about quantum computers?
A: I’m following this very closely, it’s the next major generation for technology. Quantum computers will allow a trillion-fold improvement in computing power at zero cost. And when there's a stock play, I will do it; but unfortunately, it’s not (IBM), because we’re not at the money-making stage on these yet. We are still at the deep research stage. The big beneficiaries now are Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN).
Q: Is it time to buy Chinese stocks?
A: I would say yes. I would start dipping in here, especially on the quality names like Tencent (TME), Baidu (BIDU), and Alibaba (BABA), because they’ve just been trashed. A lot of the selloff was hedge fund-driven which has now gone bust, and I think relations with China improve under Biden.
Q: Your timing on Tesla (TSLA) has been impeccable; what do you look for in times of pivots?
A: Tesla trades like no other stock, I have actually lost money on a couple of Tesla trades. You have to wait for things to go to extremes, and then wait two more days. That seems to be the magic formula. On the first big selloff go take a long nap and when you wake up, the temptation to buy it will have gone away. It always goes up higher than you expect, and down lower than you expect. But because the implied volatilities go anywhere from 70% to 100%, you can go like 200 points out of the money on a 3-week view and still make good money every month. And that’s exactly what we’re going to do for the rest of the year, as long as the trading’s down here in the $500-$600 range.
Q: Is Editas Medicine (EDIT), a DNA editing stock, still good?
A: Buy both (EDIT) and Crisper (CRSP); they both look great down here with an easy double ahead. This is a great long-term investment play with gene editing about to dominate the medical field. If you want to learn more about (EDIT) and (CRSP) and many others like them, subscribe to the Mad Hedge Fund Biotech & Healthcare Letter because we cover this stuff multiple times a week (click here).
Q: Is the XME Metals ETF a buy?
A: I would say yes, but I'd wait for a bigger dip. It’s already gone up like 10X in a year, but the outlook for the economy looks fantastic. (XME) has to double from here just to get to the old 2008 high and we have A LOT more stimulus this time around.
Q: What about hydrogen?
A: Sorry, I am just not a believer in hydrogen. You have to find someone else to be bullish on hydrogen because it’s not me. I've been following the technology for 50 years and all I can say is: go do an image Google for the name “Hindenburg” and tell me if you want to buy hydrogen. Electricity is exponentially scalable, but Hydrogen is analog and has to be moved around in trucks that can tip over and blow up at any time. Hydrogen batteries are nowhere near economic. We are now on the eve of solid-state lithium-ion batteries which improve battery densities 20X, dropping Tesla battery weights from 1,200 points to 60 pounds. So “NO” on hydrogen. Am I clear?
Q: Why do you do deep-in-the-money call and put spreads?
A: We do these because they make money whether the stock goes up down or sideways, we can do them on a monthly basis, we can do them on volatility spikes, and make double the money you normally do. The day-to-day volatility on these positions is very low, so people following a newsletter don’t get these huge selloffs and sell at bottoms, which is the number one source of retail investor losses. After 13 years of trade alerts, I have delivered a 40.30% average annualized return with a quarter of the market volatility. Most people will take that.
Q: Is ProShares Ultra Short 20 Year Plus Treasury ETF(TBT) still a play for the intermediate term?
A: I would say yes. If ten-year US Treasury bonds Yields soar from 1.75% to 5.00% the (TBT) should rise from $21 to $100 because it is a 2X short on bonds. That sounds like a win for me, as long as you can take short term pain.
Q: What is the timing to buy TLT LEAPS?
A: The answer was in January when we were in the $155-162 range for the (TLT). Down here I would be reluctant to do LEAPS on the TLT because we’ve already had a $25 point drop this year, and a drop of $48 from $180 high in a year. So LEAP territory was a year ago but now I wouldn’t be going for giant leveraged trades. That train has left the station. That ship has sailed. And I can’t think of a third Metaphone for being too late.
Q: Would you buy Kinder Morgan (KMI) here?
A: That’s an oil exploration infrastructure company. No, all the oil plays were a year ago, and even six months ago you could have bought them. But remember, in oil you’re assuming you can get in and out before it crashes again, it’s just a matter of time before it does. I can do that but most of you probably can’t, unless you sit in front of your screens all day. You’re betting against the long-term trend. It works if you’re a hedge fund trader, not so much if you are a long-term investor. Never bet against the long-term trend and you always have a tailwind behind you. All surprises work to your benefit.
Q: If you get a head and shoulders top on bitcoin, how far does it fall?
A: How about zero? 80% is the traditional selloff amount for Bitcoin. So, the thing is: if bitcoin falls you have to worry about all other investments that have attracted speculative interest, which is essentially everything these days. You also have to worry about Square (SQ), PayPal (PYPL), and Tesla (TSLA), which have started processing Bitcoin transactions. Bitcoin risk is spread all over the economy right now. Those who rode the bandwagon up will ride it back down.
Q: Is Boeing (BA) a long-term buy?
A: Yes, especially because the 737 Max is back up in the air and China is back in the market as a huge buyer of U.S. products after a four-year vacation. Airlines are on the verge of seeing a huge plane shortage.
Q: What about Ags?
A: We quit covering years ago because they’re in permanent long-term downtrends and very hard to play. US farmers are just too good at their jobs. Efficiencies have double or tripled in 60 years. Ag prices are in a secular 150-year bear market thanks to technology.
Q: Is this recorded to watch later?
A: Yes, it goes on our website in about two hours. For directions on where to find it, log in to your www.madhedgefundrader.com account, go to “My Account,” and it will be listed under there, as are all the recorded webinars of the last 12 years.
Q: Would you buy Canadian Pacific (CP) here, the railroad?
A: No, that news is in the price. Go buy the other ones—Union Pacific (UNP) especially.
Q: What are your thoughts on Bitcoin?
A: We don’t cover Bitcoin because I think the whole thing is a Ponzi scheme, but who am I to say. There is almost ten times more research and newsletters out there on Bitcoin as there is on stock trading right now. They seem to be growing like mushrooms after a spring storm. There are always a lot of exports out there at market tops, as we saw with gold in 2010 and tech stock in 2000.
Q: What do you think about Juniper Networks (JNP)?
A: It’s a Screaming “BUY” right here with a double ahead of it in two years. I’m just waiting for the tech rotation to get going. This is a long-term accumulate on dips and selloffs.
Q: Did the Archagos Investments hedge fund blow threaten systemic risk?
A: No, it seems to be limited just to this one hedge fund and just to the people who lent to it. You can bet banks are paring back lending to the hedge fund industry like crazy right now to protect their earnings. I don’t think it gets to the systemic point, but this is the Long Term Capital Management for our generation. I was involved in the unwind of the last LTCM capital, which was 23 years ago. I was one of the handful of people who understood what these people were even doing. So, they had to bring me in on the unwind and huge fortunes were made on that blowup by a lot of different parties, one of which was Goldman Sachs (GS). I can tell you now that the statute of limitations has run out and now that it's unlikely I'll ever get a job there, but Goldman made a killing on long-term capital, for sure.
Q: Will Tesla benefit from the Biden infrastructure plan?
A: I would say Tesla is at the top of the list of companies the Biden administration wants to encourage. That means more charging stations and more roads, which you need to drive cars on, and bridges, and more tax subsidies for purchases of new electric cars. It’s good not just Tesla but everybody’s, now that GM (GM) and Ford (F) are finally starting to gear up big numbers of EVs of their own. By the way, I don't see any of the new startups ever posing a threat to Tesla. The only possible threats would be General Motors, Ford, and Volkswagen, which are all ten years behind.
Q: Would you put 10% of your retirement fund into cryptocurrencies?
A: Better to flush it down the toilet because there’s no commission on doing that.
Q: Is growing debt a threat to the economy? How much more can the government borrow?
A: It appears a lot more, because Biden has already indicated he’s going to spend ten trillion dollars this year, and the bond market is at a 1.70%—it’s incredibly low. I think as long as the Fed keeps overnight rates at near-zero and inflation doesn't go over 3%, that the amount the government can borrow is essentially unlimited, so why stop at $10 or $20 trillion? They will keep borrowing and keep stimulating until they see actual inflation, and I don’t think we will see that for years because inflation is being wiped out by technology improvements, as it has done for the last 40 years. The market is certainly saying we can borrow a lot more with no serious impact on the economy. But how much more nobody knows because we are in uncharted territory, or terra incognita.
To watch a replay of this webinar 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
October 16, 2020
Fiat Lux
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