Global Market Comments
November 4, 2022
Fiat Lux
Featured Trade:
(NOVEMBER 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (LLY), (TSLA), (GOOG), (GOOGL), (JPM), (BAC), (C), (BRK), (V), (TQQQ), (CCJ), (BLK), (PHO), (GLD), (SLV), (UUP)
Tag Archive for: (GOOGL)
Below please find subscribers’ Q&A for the November 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: The country is running out of diesel fuel this month. Should I be stocking up on food?
A: No, any shortages of any fuel type are all deliberately engineered by the refiners to get higher fuel prices and will go away soon. I think there was a major effort to get energy prices up before the election. If that's the case, then look for a major decline after the election. The US has an energy glut. We are a net energy exporter. We’re supplying enormous amounts of natural gas to Europe right now, and natural gas is close to a one-year low. Shortages are not the problem, intentions are. And this is the problem with the whole energy industry, and the reason I'm not investing in it. Any moves up are short-term. And the industry's goal is to keep prices as high as possible for the next few years while demand goes to zero for their biggest selling products, like gasoline. I would be very wary about doing anything in the energy industry here, as you could get gigantic moves one way or the other with no warning.
Q Is the SPDR S&P 500 ETF (SPY) put spread, correct?
A: Yes, we had the November $400-$410 vertical bear put spread, which we just sold for a nice profit.
Q: I missed the LEAPS on J.P. Morgan (JPM) which has already doubled in value since last month, will we get another shot to buy?
A: Well you will get another shot to buy especially if another major selloff develops, but we’re not going down to the old October lows in the financial sector. I believe that a major long-term bull move has started in financials and other sectors, like healthcare. You won’t get the October lows, but you might get close to them.
Q: I’m waiting for a dip to get into Eli Lilly (LLY), but there are no dips.
A: Buy a little bit every day and you’ll get a nice average in a rising market. By the way, I just added Eli Lilly to my Mad Hedge long-term model portfolio, which you received on Thursday.
Q: Any thoughts about the conclusion of the Twitter deal and how it will affect tech and social media?
A: So far all of the indications are terrible. Advertisers have been canceling left and right, hate speech is up 500%, and Elon Musk personally responded to the Pelosi assassination attempt by trotting out a bunch of conspiracy theories for the sole purpose of raising traffic and not bringing light to the issue. All indications are bad, but I've been with Elon Musk on several startups in the last 25 years and they always look like they’re going bust in the beginning. It’s not even a public stock anymore and it shouldn’t be affecting Tesla (TSLA) prices either, which is still growing 50% a year, but it is.
Q: In terms of food commodities for 2023, where are prices headed?
A: Up. Not only do you have the war in Ukraine boosting wheat, soybean, and sunflower prices, but every year, global warming is going to take an increasing toll on the food supply. I know last summer when it hit 121 degrees in the Central Valley, huge amounts of crops were lost due to heat. They were literally cooked on the vine. We now have a tomato shortage and people can’t make pasta sauce because the tomatoes were all destroyed by the heat. That’s going to become an increasingly common issue in the future as temperatures rise as fast as they have been.
Q: Do I trade options in Alphabet (GOOG) or Alphabet (GOOGL)?
A: The one with the L is the holding company, the one without the L is the advertising company and the stock movements are really identical over the long term, so there really isn’t much differentiation there.
Q: Why can’t inflation be brought down by increasing the supply of all goods?
A: Because the companies won’t make them. The companies these days very carefully manage output to keep prices as high as possible. It’s not only the energy industry that does that but also all industries. So those in the manufacturing sector don’t have an interest in lowering their prices—they want high prices. If they see the prices fall, they will cut back supply.
Q: What do you think about growth plays?
A: As long as interest rates are rising, growth will lag and value will lead, and that has been clear as day for the last month. This is why we have an overwhelming value tilt to our model portfolio and our recent trade alerts. They’ve all been banks—JP Morgan (JPM), Bank of America (BAC), Citigroup (C), plus Berkshire Hathaway (BRK) and Visa (V) and virtually nothing in tech.
Q: I don’t know how to execute spread trades in options so how do I take advantage of your service?
A: Every trade alert we send out has a link to a video that shows you exactly how to do the trade. I have to admit, I’m not as young as I was when I made the videos, but they’re still valid.
Q: Is the US housing market about to crash?
A: There is a shortage of 10 million houses in the US, with the Millennials trying to buy them. If you sell your house now, you may not be able to buy another one without your mortgage going from 2.75% to 7.75%—that tends to dissuade a lot of potential selling. We also have this massive demographic wave of 85 million millennials trying to buy homes from 65 million gen x-ers. That creates a shortage of 20 million right there. That's why rents are going up at a tremendous rate, and that's why house prices have barely fallen despite the highest interest rates in 20 years.
Q: If we get good news from the Fed, should we invest in 3X ETFs such as the ProShares UltraPro QQQ (TQQQ)?
A: No, I never invest in 3X ETFs, because they are structured to screw the investor for the benefit of the issuer. These reset at the close every day, so do 2 Xs and not more. If you're not making enough money on the 2Xs, maybe you should consider another line of business.
Q: Do you think BlackRock Corporate High Yield Fund (HYT) will show the pain of slights because of their green positioning?
A: No I don’t, if anything green investing is going to accelerate as the entire economy goes green. And you’ll notice even the oil companies in their advertising are trying to paint themselves as green. They are really wolves in sheep’s clothing. They’ll never be green, but they’ll pretend to be green to cover up the fact that they just doubled the cost of gasoline.
Q: Where do you find the yield on Blackrock?
A: Just go to Yahoo Finance, type in (BLK), and it will show the yield right there under the product description. That’s recalculated by algorithms constantly, depending on the price.
Q: Do you like Cameco (CCJ)?
A: Yes, for the long term. Nuclear reactors have been given an extra five years of life worldwide thanks to the Russian invasion of Ukraine. Even Japan is opening theirs.
Q: Should I short the US dollar (UUP) here?
A: The answer is definitely maybe. I would look for the dollar to try to take one more run at the highs. If that fails, we could be beginning a 10-year bear market in the dollar, and bull market in the Japanese yen, Australian dollar, British pound, and euro. This could be the next big trade.
Q: What is your outlook on Real Estate Investment Trusts (REITs) now?
A: I think it looks great. REITs are now commonly yielding 10%. The worst-case scenario on interest rates has been priced in—buying a REIT is essentially the same thing as buying a treasury bond, but with twice the leverage, because they have commercial credits and not government credits. We’ll be doing a lot more work on REITS. We also have tons of research on REITS from 12 years ago, the last time interest rates spiked. I'll go in and see who’s still around, and I'll be putting out some research on it.
Q: How do you see the price development of gold (GLD)?
A: Lower—the charts are saying overwhelmingly lower. Gold has no place in a rising interest rate world. At least silver (SLV) has solar panel demand.
Q: Do you have any fear of Korea going into IT?
A: Yes, they will always occupy the low end of mass manufacturing, and you can see that in the cellphone area; Samsung actually sells more phones than Apple, but they’re cheaper phones with lower-end lagging technology, and that’s the way it’s always going to be. They make practically no money on these.
Q: When can we get some more trade alerts?
A: We are dead in the middle of my market timing index, so it says do nothing. I’m looking for either a big move down or big move up to get back into the market. This is a terrible environment to chase trades when you're trading, so I'm going to wait for the market to come to me.
Q: What about water as an investment? The Invesco Water Resources ETF (PHO)?
A: Long term I like it. There’s a chronic shortage of fresh water developing all over the world, and we, by the way, need major upgrades of a lot of water systems in the US, as we saw in Jackson, MS, and Flint, MI.
Q: Will REITs perform as well as buying rental properties over the next 10 to 20 years?
A: Yes, rental properties should do very well, as long as you’re not buying any city that has rent control. I have some rental properties in SF and dealing with rent control is a total nightmare, you’re basically waiting for your tenants to die before you raise the rent. I don’t think they have that in Nevada. But in Las Vegas, you have the other issue that is water. I think the shortage of water will start to drag on real estate prices in Las Vegas.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on to www.madhedgefundtrader.com go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
It’s Been a Tough Market
Mad Hedge Technology Letter
October 31, 2022
Fiat Lux
Featured Trade:
(MAYBE NEXT GENERATION)
(JD), (BABA), (HUAWEI), (GOOGL), (TENCENT)
For all the China lovers out there who think buying Chinese tech after the dip is a good idea – I have bad news for you – it’s just a dead cat bounce.
Don’t be fooled into thinking just because Chinese tech stocks became cheap, it’s a good entry point into corporate China.
It’s not.
The truth is that this isn’t your father’s China.
The situation has dramatically changed in the last 10 days so much so that I will say with conviction to stay away from Chinese technology stocks perhaps forever, almost, like it’s the black plague.
The place is totally done after China’s Chairman Xi Jing Ping was “re-elected” for his 3rd successive five-year term as the authoritarian leader of the East Asian nation.
Investors have also listened to my advice as Chinese tech shares have been thrown out with the bath water from Hong Kong to mainland China.
Many investors want no more part of China Inc. which is ironic since this was the place they couldn’t get enough of just a few years ago.
Why have investors been so jittery anyway?
Essentially, Chairman Xi packed the Politburo standing committee, the core circle of power in the ruling Communist Party of China, with his friends, poker buddies, and allies.
It was only just recently when China was tightening the tech environment before with examples littered around the country such as putting the shackles on the founder of ecommerce firm Alibaba (BABA) Jack Ma.
The Chinese communist party blocked his IPO of Alibaba’s finance arm Ant Group resulting in mass shareholder losses.
The backdrop has only soured significantly since then.
Under Xi’s leadership, China has implemented a raft of policies that have tightened regulation on the tech sector in areas from data protection to governing the way in which algorithms can be used.
JD.com (JD), Alibaba, and Tencent laid off thousands of employees in April due to tightened regulations and a slowing economy.
What are the rest of the unintended consequences?
A stronger dollar and weaker Chinese yuan just for starters.
It’s no secret that China hoovers up as many dollars as it can find, but in the meantime, the Chinese yuan is under relentless pressure from its underperforming economy, poor government policies, and gargantuan federal debt load.
Tech innovation will drop off a cliff.
Before, Chinese tech innovation meant stealing ideas and IP from Americans, but it will be harder now that this is a bipartisan issue in the US Congress.
China will also slow down the rollout of new tech products simply because they can’t acquire the advanced chips they need to build their products.
Just look at Huawei that was once counted as one of the most popular smartphones in Europe. Nobody buys their phones anymore because Google-based apps are banned on Huawei phones.
Most chilling of all, Chinese tech workers won’t be incentivized to take any risk in an environment that will penalize them by who knows what at this point.
That means many of these firms will be playing it safe yet be pushed by boss, CEO, and the communist party to beat America in the tech race for global hegemony.
In short, America has won and China faces a stark future of mediocrity in the tech space. They churn out a high volume of tech employees but industry can only develop so far by copying. It’s impossible to out-copy oneself or others into the lead.
It’s getting so bad in China that even investor Ray Dalio has stopped cheerleading for the Mandarins.
Mad Hedge Bitcoin Letter
October 27, 2022
Fiat Lux
Featured Trade:
(SILVER LININGS)
(BTC), (GOOGL), (GENZ)
With all the Dr. Dooms out there and you know there are many – it might seem like a broken record.
With the barrage of criticism thrown at crypto lately, it almost seems as if there is no future for it, but I would not agree with that.
The future path of crypto is surrounded by silver linings that investors cannot ignore and I believe that is what we need to take away from 2022.
I found it interesting that in Google’s earnings report yesterday, they singled out crypto as an important source of advertising revenue.
Google’s management acknowledged that the crypto “winter” has sullied digital ad revenue and was viewed before as a handsomely generating growth asset.
Google posted its worst revenue growth since 2013 and blaming it on the crypto underperformance is a sign that there could be a future place for crypto.
Financial firms advertise relentlessly on mainstream media channels and big media need those dollars.
Even more important than just the pure digital ad revenue that crypto generates is its audience base.
Let’s not upsell this thing, many got burnt and will never come back.
However, several surveys have highlighted Gen Z and Millennial fervent appetite for this exotic asset class.
Charles Schwab, an asset manager, published its latest survey, illustrating the preference for Bitcoin and Crypto investment by a substantial portion of Gen Z and Millennials.
According to the study, 46% of Gen Z and 45% of Millennials wish to invest in cryptocurrencies to aid their retirement plans.
Additionally, the survey found that 43% of Gen Z and 47% of Millennials have begun investing in crypto outside their 401K.
After the arbitrary lockdowns and hyperinflation over the past few years, younger people are beginning to question the traditional paths to retirement if not the whole US financial system.
Some are straight-up cynical about it as the stock market got clobbered in 2022.
Bonds haven’t done much better and this year could be one of the first years to experience a scenario in which bonds and stocks went down together.
So take the classic investment strategy of 60/40 allocation.
By holding 60% of your portfolio in stocks and 40% in bonds, the thinking goes, you get the best of both worlds: high growth potential from your riskier stocks and protection from your more conservative bonds.
In this new world with new rules, traditional nostrums are thrown out the window.
The same goes for cookie-cutter ETF index funds.
A reset is needed.
The truth is that building wealth is a lot harder in a world where stocks and bonds go down substantially because of the massive overprinting of dollars by the federal government.
There is no free lunch anymore and many upper middle class families thought they were in the free-and-clear on an easy gondola ride to retirement.
Yet, they have been dragged back into the rat race legs screaming as products and services are up anywhere from 8%-50% depending on where you live.
Yes, crypto is on life support, but don’t count it out as once the Fed pivots, Bitcoin will stage a relentless rally and I view the biggest enemy of crypto are the participants themselves.
Sadly, the percentage of American families needing to finance an evasive retirement life is inching up and the young and old shouldn’t write off crypto yet.
Mad Hedge Technology Letter
October 26, 2022
Fiat Lux
Featured Trade:
(THE SHINE HAS BEEN WIPED OFF FOR NOW)
(GOOGL)
Google – it’s not what it used to be.
The sacred Silicon Valley behemoth of technology is finally showing weakness.
Crazier things have happened.
In fact, Google recorded the lowest growth since 2013 and that goes well back when the US economy was picking up steam after the Great Recession.
Revenue growth slowed to 6% from 41% a year earlier as the company suffers from a continued downdraft in online ad spending.
The ramifications are quite large as it essentially means that in the short-term, the digital ad industry is impotent as we head straight for a 2023 recession.
I would say the most surprising part of the whole report was to see Google’s “growth” asset, YouTube, floundering at just 2% growth.
It’s still a $7 billion standalone business but to see that much of a decline was somewhat surprising.
Philipp Schindler, chief business officer for Google, said the company saw a pullback in spend on search ads from certain areas such as insurance, loans, mortgage, and cryptocurrencies.
The underperformance in numbers is yet another bad omen for ad tech companies and Snap was the canary of the coal mine when the stock dropped 28%.
Considering the disappointing tone of the industry now, it’s not shocking to see the CEO of Meta Mark Zuckerberg just ignore his entire Facebook business for the metaverse.
It’s that bad selling digital ads now.
Google’s earnings per share (EPS) dropped by 24% year over year highlighting the challenges of running a large tech company during times of high interest rates and high inflation.
It’s a recipe for underperformance and we are seeing it in every part of Google’s business.
Maybe one of the only bright spots was the Google Cloud surging by 38%.
The cloud is one of the few growth drivers still left at Google.
The problem I have with Google is one that I have with many other big Silicon Valley tech firms.
They have become stagnated and too corporate.
They aren’t the leaders of innovation they once were and have pretty much juiced out the cash cow business they possess whether it be Apple’s iPhone or Google’s search engine or Meta’s Facebook.
The Silicon Valley bros aren’t immune from the rough times.
Long term, it’s hard to see Google becoming the growth engine they once were – a firm that consistently expanded 30% each quarter.
In fact, what I see clearer now than before is the cannibalization of Silicon Valley.
These big firms are starting to behave in a way an investor can understand as a scarcity mindset.
When the pie is perceived as shrinking, companies will step on their toes to get that extra piece of the pie.
Many of these moves illustrate this new entrenched mentality whether it be Apple’s sensitivity to others using the Apple store or the inability to offer stock-based compensation to new employees.
And that’s if a company is still hiring, last time I checked, many tech firms have either frozen hiring or are deleting big swaths of employees.
The new acquirer of Twitter also plans to fire 75% of Twitter’s staff on Day 1 removing the Chief Diversity Officer and many of the frothy positions that don’t add much value.
Big tech needs a reset and this is just more confirmation that restructuring is needed badly.
Bitcoin prices were volatile Thursday after a terrible CPI number.
The result means that a .75% rise in interest rates is 100% priced into the markets.
There was some fleeting hope that the US Central Bank wouldn’t have to raise it a full .75%, but those ideas were dashed as inflation has gone from terrible to abysmal in the United States.
Let me remind readers that the US Central Bank employs over 10,000 Ivy League-trained economists earning well over $150,000, yet they are following up a full-blown policy error with more questionable decisions.
The longer the Fed allows hyperinflation to gut the health of the US economy, it could be argued that we might be living in an America with only rich and poor people in the future.
How does this affect cryptocurrency?
In one word – devastating.
Crytpo is reliant on low rates to fuel overperformance.
High liquidity is necessary too.
However, we are diverging from those two pillars at an accelerating rate causing Bitcoin prices to falter.
Crypto like physical gold needs rates to be low to represent an attractive investment because of its speculative nature.
Even more pulsating, there is now the slight chance of a full 1% rise in the Fed Funds rates at the November 2nd meeting.
So what did the price of Bitcoin upon hearing this news?
Naturally, Bitcoin slid much lower by 4% initially to around $18,000 but rebounded later in the middle to a small loss as traders sniffed out that the .75% rate rise has been priced into the market.
Cryptocurrencies had been trading mostly sideways since the end of August, with bitcoin hovering within $19,000.
That’s been a key level and a clear move lower could lead to new lows below those hit in June when bitcoin fell below $17,800 and ether fell under $900.
Clearly, there is a lot to worry about for readers who are heavy crypto traders.
The accelerating nature of sustained high inflation means that the US economy is highly susceptible to additional higher inflation that could smack us in winter.
My guess is that the upcoming high inflation data will show up in the form of elevated utility bills, particularly in natural gas.
The sabotage of pipelines and cutting off Ukrainian energy through strategic demolition of infrastructure means that US natural gas might be allocated to the Ukraine market instead of Europe.
Removing energy from the global market just means higher energy prices for the rest of us. OPEC reducing oil supply was also another negative event for Bitcoin.
The negative events are just piling on top of each other at this point.
I just don’t see how Bitcoin sustains itself above $20,000 per coin in the short-term.
If it does surpass $20,000 per coin because of a bear market rally, traders will take profits yet again, rinse and repeat.
Although equity markets are rallying through the day, this was yet another reminder of the strategic failure of this alternative asset that offered so much hope.
Crypto has turned into nothing more than an ultra-speculative asset that when in a time of tight liquidity goes on life support.
It is indeed a poor store of value and it has failed almost every acid test badly.
Sell any rally over $20,000 because it won’t last there long.
Mad Hedge Bitcoin Letter
October 11, 2022
Fiat Lux
Featured Trade:
(KOWTOWS TO THE INSTITUTIONS)
(BTC), (ETH), (COIN), (GOOGL)
