Global Market Comments
February 18, 2022
Fiat Lux
Featured Trades:
(FEBRUARY 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (MSFT), (VIX), (ROM), (TSLA), (GOOGL), (TLT), (TBT), (IWM), (QQQ), (FCX)
Posts
Below please find subscribers’ Q&A for the February 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Is it a mistake to try to be nimble with the ProShares UltraShort 20+ Year Treasury ETF (TBT), or is it better just to hold it through the rest of the year?
A: You should do both; have a core long position which you keep through the end of the year, and you also have a second position that you trade. A good example is how I just took profits on the short iShares 20+ Year Treasury bond ETF (TLT) even though it had a month to run because we had 91.67% of the profit in hand. So, when you get way in the money and still have a lot of time duration left, there’s no point in continuing with these put spreads to catch the last 5 or 10% in the position. The risk/reward is no good.
Q: The iShares 20+ Year Treasury bond ETF (TLT) seems washed out.
A: There is a risk of that, which is why I went long the (TLT) $127-$130 March vertical bull call spread. I think even if we get down to $130, it will take us at least a month to get down that far. There will be several short-covering rallies along the way that we can run out the clock with, and I think even my 3/$127-$130 should expire at max profit.
Q: Should we buy puts or spreads?
A: When you get the CBOE Volatility Index (VIX) over 30, it’s only because you get a very sharp collapse in stocks, and there you’re looking at very deep in the money call spreads— 10-20% in the money can still make you $1,000 or $2,000 a month. And if you get extreme selloffs with (VIX) up to $40, then you’re really looking for long-term LEAPS, one-year call spreads on your favorite stocks, like Tesla (TSLA), NVIDIA (NVDA), and Microsoft (MSFT), and so on.
Q: Is it time to enter Tesla (TSLA) now?
A: I’m waiting for one more final selloff—if we get that, we could get back into the low 800s or even the 700s in Tesla. That's the figure I’m hanging on for, and that's where you get into Tesla LEAPS because Tesla is clearly expanding beyond just the electric car business. SpaceX is now worth $100 billion dollars, and the boring company could be worth just as much if they get more contracts for building underground mass transit. There is also Solar City to consider plus some other stuff they haven’t even announced yet.
Q: What are your thoughts on Google (GOOGL)?
A: The 20 to 1 split is in the price already. But any selloff and I would go back into there with call spreads because Google is a fantastic company and a legal monopoly which I love owning.
Q: What about the ProShares Ultra Technology ETF (ROM)?
A: Yes, I’m watching very closely. It had a huge dive in January, then made back nearly half its losses. So again, I'm waiting for another dip to go back into (ROM) with lots of leverage.
Q: Do we get Volatility Index (VIX) over $30 within 2 months?
A: Yes, I think we probably will. We’re pretty close to it now; we got up to $26 this morning. So yes, I’d be a buyer of that.
Q: Is a (TLT) $128-$131 call spread for March still ok?
A: Yes, I kind of like that. I don’t think we’ll get down below $131 in four weeks, and at the very least we’ll get one rally of several points, and that’ll be your chance to get out of that position.
Q: Is it too early for (TLT) LEAPS?
A: No, it’s too late for TLT LEAPS. You should have been doing put LEAPS in November, and everybody who did that got profits of nearly 100% on that position. I don’t see a call side LEAPS in TLT for at least 5 to 10 years when interest rates get up over 6% on 10 year US Treasury bonds. We are a long way from a (TLT) call LEAP.
Q: Are we at a Bitcoin bottom?
A: Possibly, 50/50 chance we go back and retest the lows. We’ll just have to see how Bitcoin behaves in a rising interest rates scenario because ever since Bitcoin was invented, interest rates have been falling. Rising rates are a new thing for Bitcoin and no one knows what that will look like.
Q: When will you update your long-term portfolio?
A: Soon; things have been kind of busy issuing 30 trade alerts a month.
Q: How high will the ProShares UltraShort 20+ Year Treasury bond fund (TBT) go?
A: Looking for $26 from current levels, so yes, much higher to go. And we have a double in three months on (TBT) at the $28 level.
Q: If one believes in the war in Ukraine happening soon, what companies or sectors do you invest in for the short term?
A: None; if we actually do get a war, everything gets absolutely slaughtered, and then you’re looking for the buy. And that will be buys in tech especially. I don’t think there’s going to be a war in Ukraine, but the only things that go up in a Ukraine war scenario are energy stocks (USO), oil companies, and so on.
Q: Do you like China EV stocks?
A: No, I don’t. I visited BYD Motors 15 years ago and they just don’t have the technology, the battery lengths are poor, and they tend to catch on fire. They have never been able to reach American quality standards on any of their cars, not only the EVs but also the conventional internal combustion engines as well..
Q: Which index will outperform in the second half, the Invesco QQQ Trust (QQQ) or iShares Russell 2000 ETF (IWM)?
A: I vote (QQQ). I think we have a technology-led bull market in the second half, and the Russel will be lagging.
Q: What’s better, copper or copper miners?
A: You always go for the miners like Freeport McMoRan (FCX)—they will outperform the physical metal by at least three or four to one, to the upside. That’s also true with gold miners and other derivative plays; the miners always outperform the metals.
Q: What is a bond vigilante?
A: That is a term we heard from the ‘70s and ‘80s when you would get enormous selling of bonds on even the slightest negative piece of economic data or inflation data. They called the bond traders the bond vigilantes because they just crushed the bond market for the slightest transgression on the inflation/economic front. And they are back, by the way, hugely punishing the market as we have seen ($20 points in two months is a lot of punishment) on even the slightest increase in inflation.
Q: Do you have a yearend price for Freeport McMoRan (FCX)?
A: Over $50—just rallied from $30 in September.
Q: Isn’t inflation wildly understated?
A: Yes, you can find individual items that are up 30 or 50%, but the inflation calculation is actually based on 105 different items, and some of them are going down in price. For example, you had an enormous increase in used car prices in December, but they actually went down last month. So, whenever you get a basket this big, eight groups of 80,000 items, you get smaller moves. As anyone will tell you who trades baskets of stocks against the individual stocks, the same mathematical effect happens in the calculation. And while it is being wildly understated now, it’ll be wildly overstated in a few months when we get back to the 3% level, which I am expecting.
Q: What is your TLT prediction after the next 3 or 4 interest rate hikes?
A: Remember, the interest rate hikes only affect the overnight rate. TLT is a 10 to 20-year basket of bonds, so they don’t trade one for one. We may reach a bottom by the end of the year in the (TLT) somewhere in the $120s, but it’s not going to 100 this year and it’s not going to zero like some people are predicting.
Q: The inflation measure is a joke.
A: Yes, it has always been a joke. Any collection of data among 330 million people is going to be inaccurate, late, and have huge lags—but you trade the data you have, not what you wish you had, and that is the real world. I've been trading economic data for 50 years and that is my conclusion.
Q: Martial Law was declared in Canada— is there anything to trade off of that news?
A: No; even a major international event only gets a stock market reaction of usually one day or two at the most. Whatever’s happening on a bridge in Canada, nobody here really cares.
Q: Are you doing a cruise?
A: Yes, I’m doing a Norwegian cruise. Just go to the lunches section on the madhedgefundtrader.com website, and you can still buy tickets. We would love to have you for lunch on the Queen Victoria, a Norwegian Fjord cruise. We’re coming up to payment time on the tickets.
Q: Will there be earnings disappointment in April?
A: Yes, the year-on-year comparisons are going to be difficult. That will be another problem for the market in the spring in addition to the Fed.
Q: What happens with the FOMC out today at 2:00?
A: It will show a heightened fear of inflation and a greater urgency to raise interest rates.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
1932 De Havilland Tiger Moth
Global Market Comments
February 4, 2022
Fiat Lux
Featured Trades:
(FEBRUARY 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(PYPL), (PLTR), (BRKB), (MS), (GOOGL), (ROM), (MSFT), (ABNB), (VXX), (X), (FCX), (BHP), (USO), (TSLA), (EDIT), (CRSP)
Below please find subscribers’ Q&A for the February 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Thoughts on Palantir Technologies Inc. (PLTR)?
A: Well, we got out of this last summer at $28 because the CEO said he didn’t care what the share price does, and when you say that, the market tends to trash your stock. But Palantir is also in a whole sector of small, non-money-making, expensive stocks that have just been absolutely slaughtered. And of course, PayPal (PYPL) takes the prize for that today, down 25% and 60% from the top. So, we’re giving up on that whole sector until proven otherwise. Until then, these things will just keep getting cheaper.
Q: Given the weakness in January, do you think we still have to wait until the second half of the year for a viable bottom?
A: Definitely, maybe. If things are going to happen, they are going to happen fast; we got the January selloff, but that’s nowhere near a major selloff of 20%. And the fact is, the economy is still great so that’s why this is a correction, not a bear market. At some point, you want to buy into this, but definitely not yet; I think we take another run at the lows again sometime this month. We just have to let all the shorts come out and take their profits so they can reestablish again.
Q: Why are bank stocks struggling?
A: A lot of the interest rate rises that we’re getting now were already discounted last year—banks had a great year last year—so they were front running that move, which is finally happening. To get more moves out of banks, you’re going to have to get more interest rate rises, which we will get eventually. We still like the banks long term, we still like financials of every description, but they are taking a break, especially on the “sell everything” index days. A lot of the recent selling was index selling—banks have a heavy weighting in the index, about 15%. So, they will go down, but they will also be the ones that come back the fastest. We’re seeing that in some of the financials already, like Berkshire Hathaway (BRKB) and Morgan Stanley (MS) which are both close to all-time highs now.
Q: What about the situation with Russia and Ukraine?
A: It’s all for show. This is a situation where both the US and Russia need a war, or threat of a war, because the leaders of both countries have flagging popularity. Wars solve those problems—that’s why we have so many of them by the United States. We’ve been at war essentially for most of the last 40 years, ever since Ronald Reagan came in.
Q: I didn’t exit my big tech positions before the crash, should I just hang onto them at this point?
A: The big ones—yes. The Apples (AAPL), the Googles (GOOGL), the Amazons (AMZN) —they’re only going to drop about 20% at the most, maybe 25%, and then they’ll go to new highs, probably before the end of the year. If you’re good enough to get out and get back in again on a 20% move, go for it. But most people can’t do that unless they’re glued to their screens all day long. So, if you have stock, keep the stock; if you have options, get out of the options, because there the time decay will wipe you out before a turnaround can happen. This is not an options environment, unless you’re playing on the short side in the front month, which is what we’re doing.
Q: When you send out the trade alerts, I have a hard time getting them executed. How do you advise?
A: Move the strike price, go out in maturity, and you can get our prices at slightly higher risk. Or, just leave it and, quite often, people’s limit orders get done at the end of the day when the algorithms have to dump their positions at the close because they’re not allowed to carry overnight positions. Also, even if you get half of my trade alerts, you’re doing pretty good—we’re running at a 23% rate in 6 weeks, or 200% annualized. And remember, when I send out a trade alert, you’re not the only one trying to get in there, so you can even go onto a similar security. If I recommend Alphabet (GOOGL), consider going over to Microsoft (MSFT), because they all tend to move together as a group.
Q: I am sitting on a 16% profit in the ProShares Ultra Technology (ROM), which you recommended. Should I take the money and run, and get back in at a lower price?
A: Yes, this is just a short covering rally in a longer-term correction, and you make the money on the volume. You win games by hitting lots of signals, not hanging on to a few home runs where people usually strike out.
Q: You said inflation will be short lived, so why would there be 9 interest rates after the initial 4?
A: It’s going to take us 8 interest rates just to get us back to the long-term average interest rate. Remember the last 2% is totally artificial and only happened because there was a financial crisis 13 years ago. So, to normalize rates you really need to get overnight rates back up to about 3.0%. And that means 12 interest rate hikes. If you don’t do that, you risk inflation going from controllable to uncontrollable, and that is the death of the Fed. So, that’s why I expect a lot more interest rate rises.
Q: Will the tension between Russia and the Ukraine affect the market?
A: No, it hasn’t so far and I don’t expect it to. Although, it’s hard to imagine going through all of this and not seeing a shot fired. When that one shot gets fired, then maybe you get a down-500-point day, which it then makes back the next day.
Q: Anything to do with Alphabet (GOOGL) announcing its 20 to one split?
A: No, it’s too late. We had a trade alert out on a Google 20 call spread which we actually took profits on this morning. So, nice win for the Mad Hedge Technology Letter there. There’s nothing to do with these splits, it’s not like they’re going to un-announce it, this isn’t a risk-arbitrage situation where there’s always an antitrust risk hovering over the deal that may crash it. This is pretty much a done deal and doesn’t even happen until July 1. People think bringing the share price from $3,000 down to $150 makes it available for a lot more potential retail buyers, which it does. It also makes call spreads on the options a lot cheaper too. When we put out these alerts, we can only do one or two contracts, even tying up $10,000—divide that by 20 and all of a sudden your cheapest Google call spread cost $500 instead of $10,000.
Q: Can you speak about the liquidity on your strikes? Sometimes we’re trading against strikes that have no open interest.
A: Whenever you put in an order for one strike, even if there’s nothing outstanding on that strike, algorithms will arbitrage against that strike—where your order is—against all the other strikes on the whole options chain. So, don’t worry if you have limited open interest or no open interest on our trade alerts. They will get done, and it may get done by some algorithm or some market maker taking more of another strike, that’s how these things get done. It’s all thanks to the magic of computers.
Q: Do you have thoughts about Freeport-McMoRan (FCX)? I have some profitable LEAP positions open.
A: It’ll go higher, keep them. And I like the whole commodity space, which means iron ore (BHP), copper, steel (X), etc.
Q: Would you trade Barclays iPath Series B S&P 500 VIX Short-Term Futures ETN (VXX) at this point?
A: No, because we’re dead in the middle of the recent range. That’s a horrible place to enter—you only enter (VXX) on extremes on the upsides and the downside.
Q: What should I do about Airbnb (ABNB) at this price? They’ve been profitable for 2-3 years, with revenues rising.
A: I think Airbnb is one of the best run companies in the world, and I expect their earnings to keep growing like crazy, especially once we get out of the pandemic. I am also a very frequent Airbnb user, having stayed in Airbnb’s in at least 10 countries, so I’m a big fan of them. The stock just got dragged down by the small tech bust but it will come back. This is a “throwing the baby out with the bathwater” situation.
Q: Are there any good LEAPS candidates now?
A: I’m not doing any LEAPS until we reach the final cataclysmic selloff of the correction. Otherwise, the time value will run against you enormously; I’d rather wait for better prices.
Q: Do you see a cataclysmic selloff?
A: Yes, I do. Maybe in a few more weeks, and maybe next week if we get a really hot 8%+ inflation rate—that would really kill the market.
Q: What will tell you if inflation is ending or slowing labor?
A: Labor is 70% of the inflation calculation. So, when these huge pay awards slow down, that's when inflation slows down. By the way, a lot of pay increases that are happening now are catch-up from the last 40 years of no pay increases for American workers in real inflation adjusted terms. So, a lot of this is catch-up—once that’s done, you can forget about inflation. Also, the long-term pressure of technology on prices is downwards, so allow that to reignite deflation, and that will be your bigger issue over the long term.
Q: What should I do about Editas Medicine Inc (EDIT) or CRSPR Therapeutics AG (CRSP)?
A: Don’t touch the sector, it’s out of favor. Let this thing die a slow death. When they come up with profitable products, that’s when the sector recovers. So far, everything they have works in labs but there are no mass-produced Crispr products, they’re trying for mass production on sickle cell anemia and a couple of other things, but still very early days in CRSPR technology.
Q: When will this recording be posted?
A: In two hours, it will be posted on the website. Go to “My Account” and you’ll find the last 13 years of recorded webinars.
Q: What do you mean by “stand aside from Foreign Exchange”?
A: The volatility in the foreign exchange market is just so low compared to equities and bonds, it’s not worth trading right now. When you can trade everything in the world—foreign exchange is at the bottom of the list. If I see a good entry point, I’ll do a trade; but do I trade Tesla (TSLA) with a volatility of 100%, or foreign exchange with a volatility of 5%? Those are the choices.
Q: Should I do any short plays in oil (USO)?
A: Generally, you don’t want to short any commodity unless you're a professional; I say that having been short beef futures when Mad Cow Disease hit in 2003 and you had three limit-up days in a row in the futures market. That happens in the commodity areas—liquidity is so poor compared to stocks and bonds that if you get caught in one of these one-way moves, you can’t get out. So that is the risk; and I’ve known people who have gone bust trading oil both long and short, so this is for professionals only. With stocks you get vastly more data and information than you do in the commodity markets where industry insiders have a much bigger advantage.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Aga Sophia Mosque in Istanbul
Global Market Comments
February 3, 2022
Fiat Lux
Featured Trades:
(WATCH OUT FOR THE COMING COPPER SHOCK)
(FCX), ($COPPER)
Global Market Comments
January 24, 2022
Fiat Lux
Featured Trades:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or PARACHUTING WITHOUT A PARACHUTE),
(AAPL), (SPY), (MSFT), (TLT), (TBT), (TDOC), (NFLX), (DIS), (VALE), (FCX), (USO), (JPM), (WFC), (BAC), (TSLA), (AMZN), (NVDA)
It has been the worst New Year stock market opening in history.
After a two-day fake-out to the upside, stocks rolled over like the Bismarck and never looked up. NASDAQ did its best interpretation of flunking parachute school without a parachute, posting the worst month since 2008.
Markets can’t hold on to any rally longer than nanoseconds, and the last hour of the day has turned into one from hell.
What is even more confusing is that stocks are now trading like commodities, with massive one-way moves, while commodities, like oil (USO), copper( FCX), and iron ore (VALE) have resumed a steady grind up.
We had a lovefest going on here at Incline Village, Nevada for Technology and Bitcoin researcher Arthur Henry has been staying with me for the week to plot market strategy.
Once the market showed its hand, I sold short Microsoft (MSFT), which elicited torrents of complaints from readers. Then Arthur sold short Netflix (NFLX), inviting refund demands. Then I sold short Apple (AAPL), prompting accusations of high treason. Then Arthur sold short Teledoc (TDOC). There wasn’t a lot of talking, but frenetic writing and emailing instead.
Followers cried all the way to the bank.
In a mere two weeks, the price earnings multiple for the S&P 500 plunged from 22X to 20X. A lot of traders were only buying stock because they were going up. Take out the “up” and Houston we have a problem.
The entire streaming industry seems to have gone up in smoke and ex-growth practically overnight. Netflix (NFLX) delivered a gob smacking 29.5% swan dive in the wake of disappointing subscriber growth forecasts. Walt Disney (DIS), which ate the Netflix lunch, was dragged down 10% through guilt by association.
It is often said that the stock market has discounted 12 of the last six recessions. It is currently pricing in one of those non-recessions. What we are seeing is a sudden growth scare of the first order.
Despite last week’s carnage, stocks are still the most attractive asset class in the world, offering a potential 10% return in 2022. The problem is that they may make that 10% profit starting from 10% lower than here.
Despite all the red ink, big tech stocks are still on track to see a 30% earnings growth this year, and they account for a hefty 28% of the market.
Let’s look at Apple’s past declines for guidance on this meltdown.
Steve Jobs’ creation gave back 60% in the 2008 Great Recession, 34% during the 2015 growth scare, 48% during the great 2018 Christmas collapse, and 28% in the 2020 pandemic crash. So, the good news is that you won’t get killed by this selloff, you’ll just lose an arm and a leg. But they’ll grow back.
Remember, it’s always darkest just before it goes completely black. This correction is survivable, although it may not seem so at the moment.
It does vindicate my 2022 view that the first half will be about survival and that big money can be had in the second half.
So far, so good.
The Market is De-Grossing Big Time. That means cutting total market exposure and selling everything, regardless of stock or sector. The market is discounting a recession and bear market that isn’t going to happen, which occurs often. When it ends in a few weeks, interest rate sensitives, especially the banks, will bounce back hard, but tech won’t. Buy (JPM), (WFC), and (BAC) on bigger dips.
The Bond Collapse Goes Global, with German 10-year bunds going positive for the first time in three years, up 40 basis points in a month. Yes, inflation is finally hitting the Fatherland, home of post-WWI billion percent inflation. Eurozone inflation just topped 5%, well above its 2% target. British inflation hit a 30-year high. The move has lit a fire under all Euro currencies. Methinks the down move in (TLT) has more to go.
Fed to Raise Rates Eight Times, says Marathon Asset Management. That’s what will be needed to curb the current runaway inflation now at 7.0% and still rising. Personally, I think it will be 12 quarter-point increments to peak out at a 3 ¼% overnight rate. Any more and Powell might bring on a recession.
NASDAQ is Officially in Correction, down 10%, in the wake of poor performance this month. It’s the fourth one since the pandemic began two years ago. Tesla (TSLA), Amazon (AMZN), and NVIDIA (NVDA) have been leading the swan dive, all felled by rapidly rising interest rates. This could go on for months.
Weekly Jobless Claims Hit 286,000, a four-month high, as omicron sends workers fleeing home.
Goldman Sachs (GS) Gets Crushed, down 8%, on disappointing earnings. Tough market conditions are fading trading volumes while 2021 bonuses were through the roof. The move is particularly harsh in that buyers were flooding in right at support at the 200-day moving average.
China GDP (FXI) Grows 8.1% YOY but is rapidly slowing now, thanks to Omicron. China was first in and first out with the pandemic but is getting hit much harder in this round. That has prompted new mass lockdowns which will make out own supply chain problems worse for longer. In Chinese, “lockdown” means they weld your door shut, unlike here. Harsh, but it works.
Oil (USO) Hits Seven-Year High, as inventories hit a 21-year low. No new capital is entering the industry, crimping supplies as old fields play out. The threat of a Russian invasion of the Ukraine is prompting advance stockpiling. Russia is the world’s second-largest oil exporter.
Existing Homes Sales Hit a 15-Year High, at 6.12 million, the best since 2006. December fell 4.6%. Extreme inventory shortage is the issue, with only 910,000 homes for sale at the end of the year, an incredibly low 1.8-month supply. You can’t find anything on the market now, to buy or rent. The median price of a home sold in December was $358,000, a 15.8% gain YOY.
Bitcoin (BITO) Crashes, decisively breaking key support at $40,000. Non-yielding assets of every description are getting wiped. Bail on all crypto options plays asap.
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!
With the pandemic-driven meltdown on Friday, my January month-to-date performance bounced back hard to 5.05%. My 2022 year-to-date performance also ended at 5.05%. The Dow Average is down -6.12% so far in 2022.
Once stocks went into free fall, I piled on the short positions as fast as I could write the trade alerts, including in Microsoft (MSFT), Apple (AAPL), and a double short in the S&P 500 (SPY). I also increased my shorts in the bond market (TLT) to a triple position. When prices became the most extreme, when the Volatility Index (VIX) hit $30, I bought both (SPY) and (TLT).
If everything goes our way, we should be up 14.26% by the February 18 options expiration.
That brings my 12-year total return to 517.61%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.82% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 71 million and rising quickly and deaths topping 866,000, which you can find here.
On Monday, January 24 at 6:45 AM, The Market Composite Flash PMI for January is out. Haliburton (HAL) reports.
On Tuesday, January 25 at 6:00 AM, the S&P Case Shiller National Home Price Index for November is released. American Express (AXP) reports.
On Wednesday, January 26 at 7:00 AM, the New Home Sales for December are published. At 11:00 AM The Federal Reserve interest rate decision is announced. Tesla (TSLA), Boeing (BA), and Freeport McMoRan (FCX) report.
On Thursday, January 27 at 8:30 AM the Weekly Jobless Claims are disclosed. We also get the first look at US Q4 GDP. Alaska Air (ALK) and US Steel (X) report.
On Friday, January 28 at 5:30 AM EST US Personal Income & Spending is printed. Caterpillar (CAT) reports. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, when I drove up to visit my pharmacist in Incline Village, Nevada, I warned him in advance that I had a question he never heard before: How good is 80-year-old morphine?
He stood back and eyed me suspiciously. Then I explained in detail.
Two years ago, I led an expedition to the South Pacific Solomon Island of Guadalcanal for the US Marine Corps Historical Division (click here for the link). My mission was to recover physical remains and dog tags from the missing-in-action there from the epic 1942 battle.
Between 1942 and 1944, nearly four hundred Marines vanished in the jungles, seas, and skies of Guadalcanal. They were the victims of enemy ambushes and friendly fire, hard fighting, malaria, dysentery, and poor planning.
They were buried in field graves, in cemeteries as unknowns, if not at all left out in the open where they fell. They were classified as “missing,” as “not recovered,” as “presumed dead.”
I managed to accomplish this by hiring an army of kids who knew where the most productive battlefields were, offering a reward of $10 a dog tag, a king's ransom in one of the poorest countries in the world. I recovered about 30 rusted, barely legible oval steel tags.
They also brought me unexploded Japanese hand grenades (please don’t drop), live mortar shells, lots of US 50 caliber and Japanese 7.7 mm Arisaka ammo, and the odd human jawbone, nationality undetermined.
I also chased down a lot of rumors.
There was said to be a fully intact Japanese zero fighter in flying condition hidden in a container at the port for sale to the highest bidder. No luck there.
There was also a just discovered intact B-17 Flying Fortress bomber that crash-landed on a mountain peak with a crew of 11. But that required a four-hour mosquito-infested jungle climb and I figured it wasn’t worth the malaria.
Then, one kid said he knows the location of a Japanese hospital. He led me down a steep, crumbling coral ravine, up a canyon and into a dark cave. And there it was, a Japanese field hospital untouched since the day it was abandoned in 1943.
The skeletons of Japanese soldiers in decayed but full uniform laid in cots where they died. There was a pile of skeletons in the back of the cave. Rusted bottles of Japanese drugs were strewn about, and yellowed glass sachets of morphine were scattered everywhere. I slowly backed out, fearing a cave-in.
It was creepy.
I sent my finds to the Marine Corps at Quantico, Virginia, who traced and returned them to the families. Often the survivors were the children or even grandchildren of the MIAs. What came back were stories of pain and loss that had finally reached closure after eight decades.
Wandering about the island, I often ran into Japanese groups with the same goals as mine. My Japanese is still fluent enough to carry on a decent friendly conversation with the grandchildren of their veterans. It turned out I knew far more about their loved ones than they. After all, it was our side that wrote the history. They were very grateful.
How many MIAs were they looking for? 30,000! Every year, they found hundreds of skeletons, cremated in a ceremony, one of which I was invited to. The ashes were returned to giant bronze urns at Yasakuni Ginja in Tokyo, the final resting place of hundreds of thousands of their own.
My pharmacist friend thought the morphine I discovered had lost half of its potency. Would he take it himself? No way!
As for me, I was a lucky one. My dad made it back from Guadalcanal, although the malaria and post-traumatic stress bothered him for years. And you never wanted to get in a fight with him….ever.
I can work here and make money in the stock market all day long. But my efforts on Guadalcanal were infinitely more rewarding. I’ll be going back as soon as the pandemic ends, now that I know where to look.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
True MIAs, the Ultimate Sacrifice
My Collection of Dog Tags and Morphine
My Army of Scavengers
Dad on Guadalcanal (lower right)
Global Market Comments
January 7, 2022
Fiat Lux
Featured Trades:
(JANUARY 5 BIWEEKLY STRATEGY WEBINAR Q&A),
(IWM), (RUA), (TSLA), (NVDA), (USO), (TBT), (ROM), (SDS), (ZM), (AAPL), (FCX), (HOOD), (BRKB)
Below please find subscribers’ Q&A for the January 5 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: What’s a good ETF to track the Russell 3,000 (RUA)?
A: I use the Russell 2,000 (IWM) which is really only about the Russell 1500 because 500 companies have been merged or gone bankrupt and they haven't adjusted the index yet. This is the year where value plays and small caps should do better, maybe even outperforming the S&P500. These are companies that do best in a strong economy.
Q: Should I focus on value dividends growth, or stick with the barbell?
A: I think you have to stick with the barbell if you’re a long-term investor. If you’re a short-term trader, try and catch the swings. Sell tech now, buy it back 10% lower. Keep financials; when they peak out you, dump them and go back into tech. It’ll be a trading year, but if a lot of you are just indexing the S&P500 or doubling up through a 2x ETF like the ProShares ultra S&P 500 (SSO), it may be the easiest way to go for this year.
Q: Will higher rates sabotage tech, particularly smaller companies?
A: They’ve already done so with PayPal (PYPL) down 44% in six months—I’d say that’s sabotaged. Same with Square (SQ) and a lot of the other smaller tech companies. So that has happened and will continue to happen a bit more, but we’re really getting into the extreme oversold levels on a lot of these companies.
Q: Should we cash out on the iShares 20 Plus Year Treasury Bond ETF (TLT) summer 150/155 put spread LEAPS?
A: No, because you haven't even realized half of the profit in that yet since there is so much time value left in those options. As long as you stay below $150 in the (TLT), which I'm pretty sure we will, you will get your full 100% profit on that position. On the six month and one year positions, they don’t really move very much because they have so much time value in them. Once you get into the accelerated time decay, which is during the last 3 months before expiration, they catch like a house on fire. So, if you're willing to keep a safe long-term position, this thing will write you a check every day for the next six months or a year to expiration. I know we have absolutely everybody in these deep in the money TLT puts; some people even did $165-$170’s—you know, my widows and orphans crowd—and they are doing well, but not as much as if you’d had a front month.
Q: What scares you most for the next 12 months?
A: Another variant that is more fatal than either Delta or Omicron. Unlikely, but not impossible.
Q: Do you expect Freeport McMoRan (FCX) to break out to the upside?
A: I do, I did the numbers over the vacation for copper production to meet current forecast demands for electric vehicle production. Global copper has to increase 11 times, and that can’t be done, so prices are going to have to go up a lot. One of my concerns with these lofty EV projections (that even I make) is that there aren’t enough commodities in the world to make all these cars with the current infrastructure. And you’re not going to find a replacement for copper—it's just too perfect of an electrical conductor. So, that means higher prices to me—you increase demand 11 times on a stable supply, and it takes 10 years to bring a new copper mine online.
Q: Do you have any open trades?
A: No, and one reason is that I figured they would probably crash the market on the last trading day of the year, which they did. If I had positions, they would have crushed them on the last year and my performance. And all hedge fund traders do this; they try to go 100% cash at the end of the year to avoid these things. And whatever you lost on Friday you made back on Monday morning at the expense of last year's performance. But you have to wait 15 months to get paid on today's performance, and, that is the reason I do that. So, looking for higher highs to sell, lower lows to buy.
Q: Should I be buying NVIDIA (NVDA) and Tesla (TSLA) on the dip?
A: Absolutely yes, but Tesla's prone to 45% corrections—we had one last year and the year before—and Nvidia tends to have 25% corrections. So yes, NVIDIA could well be the stock of the decade, but you don’t want to buy it right now. It’s starting to lose steam already.
Q: Will ProShares Ultra Technology (ROM) be under pressure?
A: Keep your position small now, take some profits, look to buy on a bigger dip. If the big techs drop 10%, (ROM) will drop 20% and get you below $100.
Q: Do you offer trade alerts on small caps for short term traders?
A: No, because you can’t execute those trades. A lot of them are just so illiquid, you can’t even trade one share unless you want to pay a huge spread. Keep in mind, when I worked at Morgan Stanley (MS), I covered the Rockefeller Foundation, the Ford Foundation, George Soros, Paul Tudor Jones, the government of Abu Dhabi, California State Pension Fund, and a lot of other huge funds; and the last thing they’re interested in is short term trades for the small-cap stocks. So, I don't really know much about those, but they tend to change the names every year anyway. And it really is a beginner trader type area because the volatility is so enormous. You can get 10x moves one day going to zero the next. It is also an area full of scams, cons, and pump and dump schemes.
Q: What is your advice when it comes to the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Short term, take the profits—you just got a $14 point rally in your favor. Short term traders, take profits on bonds here, cover your shorts. Long term investors keep it, the cost of carry is only about 4% right now, not that high, so I would keep it for a great year-end move for 2.5% yields on the ten-year.
Q: I hate oil (USO) because it’s going to zero. Should I keep trading in it?
A: Very few are nimble enough to trade oil, it’s really an insider’s game. No new capital is moving into the oil industry and oil companies themselves won’t invest in their own businesses anymore.
Q: Would you put on a new position on the iShares 20 Plus Year Treasury Bond ETF (TLT) today?
A: No, you don’t sell short things after they move down $14 points. You put them on before that. If I were to do a short-term trade in (TLT) I would be a buyer, I’d maybe buy it for a countertrend rally of maybe $4 or $5 points.
Q: What should I do with my FCX 2023 LEAP?
A: There is enough time on it, so I would keep running it along as is—don’t get greedy. Keep the LEAPS you have and you should do well by it.
Q: Could the iShares 20 Plus Year Treasury Bond ETF (TLT) bottom out in the near term?
A: Yes, it could, on a short-term basis. $141 is the nine-month low for the (TLT), so a great place to take short term profits. (TLT) is right now at $142.56, so we’re approaching that $141 handle closely. Every technical trader on the market’s going to cover their shorts on the $141 or $142 handle, so just congratulate yourself going into this move short, and take the money and run. You take every $14 point move in your favor in the (TLT); and let it rally 5 points and then reestablish, that’s how you trade.
Q: Do you think there will be a delay in the first interest rate hike due to COVID?
A: Yes, Jay Powell is the ultra-dove—any excuse to delay rate hikes, he’ll do it. And the way you’ll know is he’ll delay the end of other things which you don’t see, like daily mortgage bond purchases, daily US Treasury purchases, and other backdoor forms of QE. We’ll know well in advance if he’s going to raise or not by March or even June. We watch this stuff every day, we talk to people at the Fed every week. And remember, the Treasury Secretary Janet Yellen is a good friend of mine, I get a good handle on these things; this is why 99% of my bond trades make money.
Q: What if I have the $135-$140 put spread in January?
A: Sell it now, take what you can, take the hit; because that’ll expire at zero unless we break down to new lows on the (TLT) in the next ten days or so. That's not a good bet, especially on top of a $14 point drop. Capture what you can on that one and keep the cash for a better entry point. That’s exactly what I did—I sold all my January positions yesterday no matter what they were, because when you get to two weeks to expiration the moves become random.
Q: Do you think inflation will last longer than expected?
A: No, I think it will last shorter than expected because I think at least half of the inflation rate, if not more, are caused by supply chain problems which will end within the next six months, and therefore lead to the over-order problem that I was talking about earlier.
Q: What’s your outlook on energy this year?
A: It could go higher. On the way to zero, you’re going to have several double, tripling’s, even 10x increases in the price of oil, like we saw in the last 18 months. We went from negative numbers to 80, and what happens is oil becomes more volatile as the supply becomes more variable, that's a natural function. But trading this is not for non-professionals.
Q: Since sector rotation is happening, do you think we should sell all tech positions?
A: Short term yes, long term no. Tech will still lead with earnings, and even if they have a bad five months coming, they have a terrific long-term view. For the last 30 years, every sale of tech has been a mistake, especially in Apple (AAPL). So if you’re a trader, yes, you should have been selling since November. If you’re a long-term investor, keep them all.
Q: Is the ProShares UltraShort S&P 500 (SDS) a good position to buy up when the market timing index goes into sell territory?
A: Yes it is, and that will probably work better this year than it did last year because narrow range volatile markets are much more technically oriented than straight-up markets or long term bull markets. Pay close attention to those markets, you could make a lot of money trading them.
Q: Do Teslas have good car heaters for climates up North in -25 or -30?
A: You plug them in. When it gets below zero you actually get a warning message on your Tesla app telling you to plug it in, and then the car heats itself off of the power input. Otherwise, if you get to below zero, the range on the car drops by half. If you have a 300-mile range car like I do and then you freeze it, it drops to like 150 miles. In Tahoe, I keep my car plugged in all the time when I'm not using it, just to keep it warm and friendly.
Q: Is Zoom (ZM) a good buy here?
A: No, I think they’re going to keep punishing these overpriced small cap techs like they have been. We’re a long way from value on small tech. That was a 2020 story.
Q: What about Berkshire Hathaway (BRKB)?
A: Berkshire Hathaway is doing a major breakout because they own financials up the wazoo and they’re all breaking out. And YOU should be long up the wazoo on these things because I’ve been recommending them for the last 4 months.
Q: What do you think of Robinhood (HOOD)?
A: Robinhood I like long term, but it is high risk, high volatility. It is down 78% from the IPO so it is busted. Kind of tempting down here, but again, all the non-earning overvalued stocks are getting their clocks cleaned right here; I'm not in a rush to get involved.
Q: When you enter a LEAP, is the straight call or call spread?
A: It’s a call spread. You finance the high cost of one-year options by selling short a call option against it further out of the money. And that way you can get enormous leverage for practically nothing, 10 or 20 times in some cases, depending on how you structure the strikes.
Q: Best stock to play Copper?
A: Freeport McMoRan (FCX). I’ve been recommending it since it was $4.00.
Q: Oil is the pain train until EVs actually take over.
A: That’s true, and they haven’t. EVs have about a 6% market share now of new car sales worldwide, but that could rapidly accelerate given all the subsidies that EVs are getting. Also, we have many future recessions to worry about, during which oil could easily drop 290% like it did last year. If you can hack that kind of volatility, go for it, but I find better things to do quite honestly. And I think my next oil trade will be a short, especially if we go over $100.
Q: What about Bitcoin?
A: It could go sideways in a range for a while. If we can’t hold the 200-day, we’re going back down to the high 30,000s, where we were at the start of the year—we could give up the entire year of 2021. Bitcoin also suffers from rising interest rates since they don’t yield anything.
Q: Is this recorded?
A: Yes, the webinar recording goes out in about 2 hours. Log into the madhedgefundtrader.com website and go to my account, where you’ll find it with all the different products you’ve purchased.
Q: I just closed out my (TLT) 150 put option for the biggest single trade profit in my life; I just made 20% of my annual salary alone today. Thank you, John!
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 5, 2022
Fiat Lux
2022 Annual Asset Class Review
A Global Vision
FOR PAID SUBSCRIBERS ONLY
Featured Trades:
(SPX), (QQQ), (XLF), (XLE), (XLY),
(TLT), (TBT), (JNK), (PHB), (HYG), (PCY), (MUB), (HCP)
(FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
(BHP), (FCX), (VALE), (AMLP), (USO), (UNG),
(GLD), (GDX), (SLV), (ITB), (LEN), (KBH), (PHM)
