Global Market Comments
April 16, 2024
Fiat Lux
Featured Trade:
(MAY 3, 2024 QUITO, ECUADOR STRATEGY LUNCHEON)
(BIDDING FOR THE STARS)
(SPX), (INDU)
(TESTIMONIAL)
Posts
Global Market Comments
November 2, 2023
Fiat Lux
Featured Trade:
(THE SECOND AMERICAN INDUSTRIAL REVOLUTION),
(INDU), (SPY), (QQQ), (GLD), (DBA),
(TSLA), (GOOGL), (XLK), (IBB), (XLE)
(TESTIMONIAL)
Circulating among the country’s top global strategists this year, visiting their corner offices, camping out in their vacation villas, or cruising on their yachts, I am increasingly hearing about a new investment theme that will lead markets for the next 20 years:
The Second American Industrial Revolution.
It goes something like this.
You remember the first Industrial Revolution, don’t you? I remember it like it was yesterday.
It started in 1775 when a Scottish instrument maker named James Watt invented the modern steam engine. Originally employed for pumping water out of a deep Shropshire coalmine, within 32 years it was powering Robert Fulton’s first commercially successful steamship, the Clermont, up the Hudson River.
The first Industrial Revolution enabled a massive increase in standards of living, kept inflation near zero for a century, and allowed the planet’s population to soar from 1 billion to 7 billion. We are still reaping its immeasurable benefits.
The Second Industrial Revolution is centered on my own neighborhood of San Francisco. It seems like almost every garage in the city is now devoted to a start-up.
The cars have been flushed out onto the streets, making urban parking here a total nightmare. These are turbocharging the rate of technological advancement.
Successes go public rapidly and rake in billions of dollars for the founders overnight. Thirty-year-old billionaires wearing hoodies are becoming commonplace.
However, unlike with past winners, these newly minted titans of industry don’t lock their wealth up in mega mansions, private jets, or the Treasury bond market. They buy a Tesla Plaid for $150,000 with a great sound system and full street-to-street auto-pilot (TSLA), and then reinvest the rest of their windfall in a dozen other startups, seeking to repeat a winning formula.
Many do it.
Thus, the amount of capital available for new ideas is growing by leaps and bounds. As a result, the economy will benefit from the creation of more new technology in the next ten years than it has seen in the past 200.
Computing power is doubling every year. That means your iPhone will have a billion times more computing power in a decade. 3D printing is jumping from the hobby world into large-scale manufacturing. In fact, Elon Musk’s Space X is already making rocket engine parts on such machines.
Drones came out of nowhere and are now popping up everywhere.
It is not just new things that are being invented. Fantastic new ways to analyze and store data, known as “big data” are being created.
Unheard new means of social organization are appearing at breakneck, leading to a sharing economy. Much of the new economy is not about invention, but organization.
The Uber ride-sharing service created $50 billion in market capitalization in only five years and is poised to replace UPS, FedEx, and the US Postal Service with “same hour” intracity deliveries. Now they are offering “Uber Eats” in my neighborhood, which will deliver you anything you want to eat, hot, in ten minutes!
Airbnb is arranging accommodation for 1 million guests a month. They even had 189 German guests staying with Brazilians during the World Cup there. I bet those were interesting living rooms on the final day! (Germany won).
And you are going to spend a lot of Saturday nights at home, alone if you haven’t heard of Match.com, eHarmony.com, or Badoo.com.
“WOW” is becoming the most spoken word in the English language. I hear myself saying I every day.
Biotechnology (IBB), an also-ran for the past half-century, is sprinting to make up for lost time. The field has grown from a dozen scientists in my day 40 years ago, to several hundred thousand today.
The payoff will be the cure for every major disease, like cancer, Parkinson’s, heart disease, AIDS, and diabetes, within ten years. Some of the harder cases, such as arthritis, may take a little longer. Soon, we will be able to manipulate our own DNA, turning genes on and off at will. The weight loss drugs Wegovy and Ozempic promise to eliminate 75% of all self-inflicted illnesses.
The upshot will be the creation of a massive global market for these cures, generating immense profits. American firms will dominate this area, as well.
Energy is the third leg of the innovation powerhouse. Into this basket, you can throw in solar, wind, batteries, biodiesel, and even “new” nuclear (see NuScale (SMR)). The new Tesla Powerwall will be a game changer. Visionary, Elon Musk, is ramping up to make tens of millions of these things.
Use of existing carbon-based fuel sources, such as oil and natural gas, will become vastly more efficient. Fracking is unleashing unlimited new domestic supplies.
Welcome to “Saudi America.”
The government has ordered Detroit to boost vehicle mileage to an average of 55 miles per gallon by 2030. The big firms have all told me they plan to beat that deadline, not litigate it, a complete reversal of philosophy.
Coal will be burned in impoverished emerging markets only, before it disappears completely. Energy costs will drop to a fraction of today’s levels, further boosting corporate profits.
Coal will die, not because of some environmental panacea, but because it is too expensive to rip out of the ground and transport around the world, once you fully account for all its costs.
Years ago, I used to get two pitches for venture capital investments a quarter, if any. Now, I am getting two a day. I can understand only half of them (those that deal with energy and biotech, and some tech).
My friends at Google Venture Capital are getting inundated with 20 a day each! How they keep all of these stories straight is beyond me. I guess that’s why they work for Google (GOOGL).
The rate of change for technology, our economy, and for the financial markets will accelerate to more than exponential. It took 32 years to make the leap from steam engine-powered pumps to ships and was a result of a chance transatlantic trip by Robert Fulton to England, where he stumbled across a huffing and puffing steam engine.
Such a generational change is likely to occur in 32 minutes in today’s hyper-connected world, and much shorter if you work on antivirus software (or write the viruses themselves!). And don’t get me started on AI!
The demographic outlook is about to dramatically improve, flipping from a headwind to a tailwind in 2022. That’s when the population starts producing more big spending Gen Xers and fewer over-saving and underproducing baby boomers. This alone should be at least 1% a year to GDP growth.
China is disappearing as a drag on the US economy. During the nineties and the naughts, they probably sucked 25 million jobs out of the US.
With an “onshoring” trend now in full swing, the jobs ledger has swung in America’s favor. This is one reason that unemployment is steadily falling. Joblessness is becoming China’s problem, not ours.
The consequences for the financial markets will be nothing less than mind-boggling. The short answer is higher for everything. Skyrocketing earnings take equity markets to the moon. Multiples blast off through the top end of historic ranges. The US returns to a steady 5% a year GDP growth, which it clocked in the recent quarter.
What am I bid for the Dow Average (INDU), (SPY), (QQQ) in ten years? Did I hear 240,000, a seven-fold pop from today’s level? Or more?
Don’t think I have been smoking the local agricultural products from California in arriving at these numbers. That is only half the gain that I saw from 1982 to 2000, when the stock average also appreciated 17-fold, from 600 to 10,000.
They’re playing the same movie all over again. Except this time, it’s on triple fast forward.
There will also be commodities (DBA) and real estate booms. Even gold (GLD) gets bid up by emerging central banks bent in increasing their holdings to Western levels as well as falling interest rates.
I tell my kids to save their money, not to fritter it away day trading now because anything they buy in 2020 will increase in value tenfold by 2033. They’ll all look like geniuses like I did during the eighties.
What are my strategist friends doing about this forecast? They are throwing money into US stocks with both bands, especially in technology (XLK), biotech (IBB), and bonds (JNK).
This could go on for decades.
Just thought you’d like to know.
It’s Amazing What You Pick Up on These Things!
Global Market Comments
September 13, 2023
Fiat Lux
Featured Trade:
(SEPTEMBER 29 ZERMATT SWITZERLAND STRATEGY LUNCHEON)
(TRADING DEVOID OF THE THOUGHT PROCESS)
(SPY), (INDU), (TLT), (USO)
(ON EXECUTING TRADE ALERTS)
Global Market Comments
May 26, 2023
Fiat Lux
Featured Trades:
(MAY 24 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), ($INDU), (NVDA), (TSLA), (AMZN), (TLT), ($VIX), (CCI), (BABA)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the May 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Should I roll over my $55-$60 Freeport-McMoRan (FCX) 2024 LEAPS?
A: Yes, move it from the January 2024 expiration to January 2025—that gives you a full 18 months for the stock to recover from a recession (which it’s now discounting) and then double, which is where you make the really big money on our LEAPS.
Q: What's your year-end price prediction for Freeport-McMoRan (FCX)?
A: $50, this year’s high.
Q: If there’s a default, do members of Congress get paid?
A: No, they don’t, no money is no money, the cupboard is bare. Nothing gets paid. And the Treasury will have to choose who gets paid last because when they run out of money there's no money to pay anybody, which then leads to a default and a 50% stock market correction.
Q: Why do you buy in-the-money bull call spreads instead of selling credit spreads?
A: They’re easier to understand for beginners. It’s easier for people to understand that if you buy something and it goes up, you make money. It’s harder for people to understand that if you sell short something and it goes down, you make money. And it’s basically six of one and half a dozen of the other in terms of profit. I get that question constantly and that is always going to be the answer.
Q: What do you think about artificial intelligence; how will it affect stock prices?
A: It’ll be what takes the Dow average ($INDU) from $32,000 to $240,000 over the next 10 years. What AI does is it automatically triples the value of any company using it, even though now it may take years for the stock market to catch up. On top of that, companies will have their regular earnings growth from their traditional businesses.
Q: How far will Nvidia (NVDA) stock go up?
A: Well the consensus between fund managers is it goes up 7 times from here, to well over 1,000. It's at 300 today, so it sounds like 2,100 is the final target, assuming we don't have any more recessions. And by the way, we did recommend NVDA on a split adjusted basis around $2, so NVDA has gone up 175 times already from our initial recommendation 7 years ago when it was just a gaming play. The (NVDA) January 2025 LEAPS I recommended on September 29 at 50 cents is now worth $6.25 and expires worth $10, up 20-fold!
Q: How can companies be selling AI prediction services for traders, as no one can predict the future?
A: Well that is accurate, no one person can predict the future. However, algorithms can take patterns in the past, project them in the future, and they're often accurate as long as a black swan doesn’t happen. AI is getting so sophisticated now—not only do we have index predictions which we’ve been using now for almost 10 years to great success, but Mad Hedge is now services with single stock recommendations. They will say in 30 days (AMZN) will be at $X, and they’re right 90% of the time. This is getting very advanced very quickly, and we are at the absolute cutting edge of this (and have been for a long time), and that’s why we’re getting such spectacular results—it's me plus my algorithm.
Q: Are money market funds at risk if the US defaults?
A: If the US defaults and stays defaulted, then yes. Nothing anywhere is safe except gold bricks under the bed. If the US does default, they’ll get defaulted probably in days. And that's what happened last time, 12 years ago. So, I don't expect the world to end.
Q: What is the best strategy for a long-term retirement account?
A: If you're already retired like over 70, I would go 100% into fixed income, and spread out your fixed income exposure to 10-year treasuries which is now yielding 3.75%, to junk which is yielding 8.5%. And you might throw in a couple high dividend stocks like (CCI). Over age 70 you basically are looking for a 100% income portfolio, because you’re too old to go back to work at Taco Bell if you lose all your money. And believe me, I’ve been to Taco Bell and seen the 70-year-olds working there who did lose all their money, so you don’t want to do that. Equities are for younger kids like me, who are going to live forever.
Q: What about iShares 20 Plus Year Treasury Bond ETF (TLT)?
A: We’re watching very closely. We will do LEAPS, but I’m waiting for a capitulation selloff triggered by inaction in Washington to get there. Also, when they do reach a deal, it unleashes a bunch of bond selling by the government. The US Treasury is going to have to sell 700 billion dollars’ worth of bonds immediately, because they’re behind on their bills, how about that? They’re not paying military contractors. So yes, the initial move of a debt deal could be down for bonds—that's the move I'm waiting for.
Q: Are you buying at the money’s or out of the moneys on LEAPS?
A: At the money if you’re a conservative old fogie like me, and out of the money like 20% or 30% where you get like a 400% return for younger people so they still will live long enough to earn back all the money if they lose it.
Q: What do you think the next move on CBOE Volatility Index ($VIX) is?
A: Up, and I think we could see VIX at $30 sometime in June or July when our 10% selloff happens.
Q: Would you buy the ProShares UltraShort S&P 500 (SDS) now for protection?
A: Yes, I’d be buying some as a hedge against your long-term positions.
Q: Do you prefer one or two year LEAPS?
A: Two years is the more conservative maturity because it gives you two years to go into recession and get back out. If you think there isn’t going to be a recession and we reaccelerate from here, then you only want to do one year. With Treasuries bonds, I’m inclined to do one year because I think once the rise in prices happens it’ll happen very quickly. If you’re not happy with a 100% return in a year maybe you should consider another line of business.
Q: Is the housing market going to crash because of 7% mortgage rates?
A: No, one third of all the buyers now are cash buyers, who are spending their savings and will refinance when mortgages get back to 3% or 4%. Until then, housing prices go sideways because there is a severe shortage of housing nationwide, which is getting worse.
Q: How do I get my wife used to regenerative braking in Tesla (TSLA)?
A: Just take your foot off the acceleration pedal; as the car slows down, each of the four wheels perform as generators and recharge the battery. That means when you drive from Lake Tahoe at 7,000 ft down to the Central Valley at sea level, your power consumption is zero. You’re getting a free ride because you’re gravity powered, the wheels are recharging the battery the whole time. All you have to do is take your foot off the acceleration and the regenerative braking kicks in instantly. Teslas only use actual use brake shoes when they slowdown from five miles an hour down to zero.
Q: Which level is more likely this year in oil: $50 a barrel or $100?
A: Well, if we do get the recession or something close to it, we’ll see the $50 first, and then we’ll see the $100 on the recovery. That is what’s going to happen.
Q: When is the economic recovery going to be this year?
A: In the 4th quarter, starting in October, and the stock market will start discounting that in July or August. That is my view.
Q: What’s a better investment: stocks or real estate?
A: It depends on the person. At this level, stocks will probably deliver bigger returns than real estate. But real estate allows you 5-1 leverage. If you have an 80% mortgage, and that’s more leverage than most people can get in the stock market. The other thing about homes is that you don’t get to see the price every day in the newspaper and then panic and sell at the bottom. That's the other great thing about houses.
Q: Will this recording be available?
A: Yes we post it in about two hours on the website. You can look at all the charts and the commentary then.
Q: How would you hedge a 100% equity portfolio?
A: I would buy deep out of the money puts on the S&P 500, maybe 10% out of the money on puts—something like a 360 put on the SPY with a 2 month maturity. That gets you through the summer, gets you through any debt crisis, and certainly will reduce the volatility of your portfolio.
Q: Would you be buying Alibaba (BABA) down here?
A: No, I don’t want to get involved in China in anything—too much political risk.
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 or TECHNOLOGY LETTER, 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
A Senior Citizen Teach Me the Computer at Taco Bell
Global Market Comments
January 5, 2023
Fiat Lux
Featured Trades:
(TESTIMONIAL),
(THE DEATH OF PASSIVE INVESTING),
(SPY), (SPX), (INDU)
Passive investing, or piling all your money in major stock indexes like the S&P 500 (SPX) or the Dow Average (INDU), just got killed off by the bear market.
The days when you could just index and then go play golf for the rest of the day are gone for good.
Rest in Peace.
On a good day, your investments reliably underperformed the indexes, less management fees and hidden expenses. Even indexers have to work to earn a living.
That was fine as long as the indexes went up like clockwork, as they did almost every year for the last 12 years. Enter Covid-19. Many individual investors will instantly have heart attacks when they opened their annual pension fund and 401k statements.
I have to admit that I was getting pretty sick of index investing. People like me would slave over their computers all day long in some years barely beating the returns of those who never lifted a finger. That is now ancient history.
Look no further than my own performance year to date. Last year, I managed to clock an 86.62% gain, compared to a pitiful 18% for the Dow Average. 2023 could be another great year for me.
How will your index fund perform when US pandemic deaths hit over 1 million as reported by Johns Hopkins University?
The global pandemic is creating a brave new world on countless fronts, and management of your retirement funds is no different. Passive investing will be replaced by active investment whereby educated individuals pick winning stocks and judiciously avoid the awful ones.
The bad news is that you will have to work harder to oversee your nest egg. The good news is that you will make a lot more money. The difference between passive and active investment is now greater than at any time in history, and that chasm is set to increase.
While the bull market allowed all stocks to go up equally, the new one is totally different. There is about to be a huge differentiation between winners and losers like never seen before. The difference between the wheat and the chaff will be enormous.
Those who figure out the new game early will prosper mightily. Those who don’t will crash and burn.
I have been fighting a daily battle with some of my own subscribers, as they are arguing that the biggest gains will simply be made from buying the biggest losers.
I’m not buying that logic for a nanosecond. Many of the worst performers are never coming back to their former glory, such as airlines, cruise lines, hotels, movie theaters, restaurant chains, and casinos. Sure, they may have a brief dead cat bounce off the bottom for a trade. But the long-term outlook for these ill-fated industries is grim at best.
No, the future lies in buying Teslas and Rolls Royces at KIA prices. Come in today and these distressed levels and you may earn as much as 15% a year for the next decade.
You know the companies I am talking about, the ones I have been covering at great length in Global Trading Dispatch, The Mad Hedge Technology Letter, and the Mad Hedge Biotech & Healthcare Letter. If you are missing any of these publications, please feel free to pick them up at our store. Please note that all our prices are going up substantially soon.
This is going to lead to a very interesting future. Those who continue to index are looking at years of subpar performance. Those who go active and do it the right way are going to be looking pretty.
It’s going to be a fun decade. The Roaring Twenties have only just begun.
Good Luck and Good Trading,
John Thomas
Mad Hedge Fund Trader
Global Market Comments
December 2, 2022
Fiat Lux
Featured Trade:
(NOVEMBER 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(AMD), ($INDU), (TLT), (RCL), (VIX), (RIVN), (TSLA), (NVDA), (SLV), (GOLD), (USO), (XOM), (ALB), (SQM), (FMC), (CCI)
Below please find subscribers’ Q&A for the November 30 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: You keep mentioning December 13th as a date of some significance. Is this just because the number 13 is unlucky?
A: December 13th at 8:30 AM EST is when we get the next inflation report, and we could well get another 1% drop. Prices are slowing down absolutely across the board except for rent, which is still going up. Gasoline has come down substantially since the election (big surprise), which is a big help, and that could ignite the next leg up in the bull market for this year. So, that is why December 13 is important. And we could well flatline, do nothing, and take profits on all our positions before that happens, because whatever it is you will get a big move one way or another (and maybe both) on December 13.
Q: I’m a new subscriber, and I am intrigued by your structuring of options spreads. Why do you do debit spreads instead of credit spreads?
A: It’s really six of one and a half dozen of the other—the net profit is pretty much the same for either one. However, debit spreads are easier to understand than credit spreads. We have a lot of beginners coming into this service as well as a lot of seasoned old pros. And it’s easier to understand the concept of buying something and watching it go up than shorting something and watching it go down. Now, doing the credit spreads—shorting the put spread—gives you a slight advantage in that it creates cash which you can then use to meet margin requirements. However, it’s only a small amount of cash—only the potential profit in that position. And guess what? All the big hedge funds actually kind of like easy-to-understand trade alerts also, so that’s why we do them.
Q: I have a lot of exposure in NVIDIA (NVDA), so is it worth trading out of it and coming back in at a lower rate?
A: NVIDIA is one of the single most volatile stocks in the market—it’s just come up 50%. But it could well test the lower limits again because it is so volatile, and the chip industry itself is the most volatile business in the S&P 500. If your view is short-term, I would take profits now, and look to go back in next time we hit a low. If you’re long-term, don’t touch it, because NVIDIA will triple from here over the next 3 years. I should caution you that if you do try the short-term strategy, most people miss the bottom and end up paying more to get back into the stock; and that's the problem with all these highly volatility stocks like Tesla (TSLA), NVIDIA (NVDA) and Advanced Micro Devices (AMD) unless you’re a professional and you sit in front of a screen all day long.
Q: Would you buy now and step in to make it long-term?
A: I think we get a couple more runs at the lows myself. We won’t get to the old lows, but we may get close. Those are your big buying points for your favorite stocks and also for LEAPS. And I’m going to hold back on new LEAPS recommendations—we’ve done 12 in the last two months for the Concierge members, and maybe half of those went out to Global Trading Dispatch before they took off again. So, that would be my approach there.
Q: How much farther can the Fed raise interest rates until they reverse?
A: 1%-2%, unless they get taken over by the data—unless suddenly the economy starts to weaken so much that they panic and reverse like crazy. I think that's actually what’s going to happen, which is why we went hyper-aggressive in October on the long side, especially in bonds (TLT). You drop rates on the ten-year from 4.5% to 2.5% in six months—that’s an enormous move in the bond market. That is well worth running a triple long position in it; I think that’s what's going to happen. That’s where we will make out the first 30% in 2023.
Q: Should I short the cruise lines here, like Royal Caribbean (RCL)?
A: They do have their problems—they have massive debts they ran up to survive the pandemic when all the ships were mothballed, so it is an industry with its major issues. The stock has already doubled since the summer so I wouldn’t chase it up here. I’m not rushing to short anything here right now though unless it’s really liquid or has horrendous fundamentals like the oil industry, which everyone seems to love but I hate—right now the haters are winning for the short term, until December 16, which is all I care about.
Q: Is the diesel shortage going to affect farmers and all other industries like the chip?
A: As the economy slows down, you can expect shortages of everything to disappear, as well as all supply chain issues, which is a positive for the economy for the long term.
Q: What about the 2024 iShares 20 Plus Year Treasury Bond ETF (TLT) 95—is that not a trade?
A: That’s a one-year position with a 100% potential profit. That is worth running to expiration unless we get a huge 20-point move up in the next 3 months, which is possible, and then there won’t be anything left in the trade—you’ll have 95% of the profit in hand at which point you’ll want to sell it. So, with these one-year LEAPS or two-year LEAPS, run them one or two years unless the underlying suddenly goes up a lot, and then grab the money and run; that's what I always tell people to do. Because if you sell your position, they can’t take the money away from you with a market correction.
Q: Is the current US economy the best economy in the world?
A: It is. If you look at any other place in the world, it’s hard to find an economy that's in better shape, and it’s because we have the best management in the world and hyper-accelerating technology which everyone else begs and borrows. Or steals. People who are predicting zero return on stocks for 10 years are out of their minds. You don’t short the best economy in the world. If anything, technology is accelerating, and that will take the stock market with it in the next year or so.
Q: Do you see the Dow ($INDU) outperforming the other indexes until the Fed positive pivots?
A: Absolutely yes, because the S&P 500 (SPY) has a very heavy technology weighting and technology absolutely sucks right now. That would probably be a good 3-month trade—buy the Dow, and short the S&P 500 in equal amounts. Easy to do—you might pick up 10% on a market-neutral trade like that.
Q: Do you see a Christmas rally this year?
A: Actually, I do, but it won’t start until we get the next inflation report on December 13, at which point I'm going 100% cash. I’ve made enough money this year, and this is a problem I had when I ran my hedge fund: when you make too much money, nobody believes it, so there's really no point in making more than 50% or 60% a year because people think it’s fake. This is true in the newsletter business as well. Markets also have a nasty habit of completely reversing in January; this year, we had one up day in January, and then it was bombs away and we just piled on the shorts like crazy, so you have to wait for the market to first give you the fake move for the year, and then the real one after that. The best way to take advantage of that is to be 100% cash, and that’s why I usually do.
Q: What indicators do you see that give you the most confidence that inflation has peaked?
A: There's one big one, and that’s real estate. Real estate is absolutely in a recession right now and has the heaviest weighting of any individual industry in the inflation calculation. If anybody thinks house prices are going up, please send me an email and tell me where, because I’d love to know. The general feeling is they’re down 10-15% over the last six months. New homes are only being sold with massive buydowns in interest rates and free giveaways on upgrades. It is an industry that is essentially shut down, with interest rates having gone from 2.75% to 7.5% in a year, so there’s your deflation, but unfortunately, real estate is also the slowest to price in in the Fed’s inflation calculation, so we have to go through six months of torture until the Fed finally sees proof that inflation is falling. So, welcome to the stock market because it's just one of those factors. Just for fun, I got a quote on financing an investment property. The monthly payment would have been double for half the house that I already have.
Q: Are LEAPS a buy with the CBOE Volatility Index (VIX) this low?
A: No, you want to look at stocks first, and then the VIX; and with all the stocks sitting on top of 30-50% rises, it’s a horrible place to do LEAPS. LEAPS were an October play—we bought the bottom in a dozen LEAPS in October, and those were great trades, except for Tesla (TSLA) and Rivian (RIVN) which still have two years left to run. Up here, you’re basically waiting on a big selloff before you go into these one to two-year options positions.
Q: Why does Biden keep extending student loans? Will this catch up at some point?
A: He’s going to take it to the Supreme Court, and if he loses at the Supreme Court, which is likely, then he’ll probably give up on any loan extensions. At this point, the loan extensions on student loans are something like 2 or 2.5 years. The reason he’s doing this is to get 26 million people back into the economy. As long as you have giant student loan balances, you can’t get credit, you can’t get a credit card, you can’t buy a house, you can’t get a home loan. Bringing that many new people into the economy is a huge positive for not only them but for everyone else because it strengthens the economy. That has always been the logic behind forgiving student loans—and by the way, the United States is virtually the only country in the world that makes students pay back their loans after 30 or 40 years. The rest give college educations away either for free or give some interest-free break on repayments until they can get a salary-paying job.
Q: Does the budget deficit drop impact the stock market?
A: Yes, but it impacts the bond market first and in a much bigger way. That’s one of the reasons that bonds have rallied $13 points in six weeks because less government borrowing means lower interest rates—it’s just a matter of supply and demand. This has been the fastest deficit reduction since WWII, and markets will discount that.
Q: Will the US dollar (UUP) crash?
A: Yes, it will. You get rid of those high interest rates and all of a sudden nobody wants to own the US dollar, so we have great trades setting up here against everything, except maybe the Yuan where the lockdowns are a major drag.
Q: Is silver (SLV) a buy now?
A: No, it’s just had a big 10% move; I would wait for any kind of dip in silver and gold (GOLD) before you go into those trades. And when/if you do, there are better ways to do it.
Q: How is the Ukraine war going?
A: It’ll be over next year after Ukraine retakes Crimea, which they’ve already started to do. Russia is running out of ammunition, and so are we, by the way. However, the United States, as everybody learned in WWII, has an almost infinite ability to ramp up weapons production, whereas Russia does not. Russia is literally using up leftover ammunition from WWII, and when that’s gone, they’ve got nothing left, nor the ability to produce it in any sizable way. All good reasons to sell short oil companies ahead of a tsunami of Russian oil hitting the market. By the way, oil is now down for 2022.
Q: What's the number one short in oil (USO)?
A: The most expensive one, that would be Exxon Mobile (XOM).
Q: What’s going to happen to the markets in January?
A: After this Christmas rally peters out, I’m looking for profit-taking in January.
Q: When is a good time to buy debit spreads on oil?
A: Now. Look at every short play you can find out there; I just don’t see a massive spike up in oil prices ahead of a recession. And by the way, if the war in Ukraine ends and Russian oil comes back on the market, then you’re looking at oil easily below $50.
Q: What is the best way to invest in iShares Silver Trust (SLV) in the long term?
A: A two-year LEAP on the Silver (SLV) $25-$26 call spread—that gets you a 100%-200% return on that.
Q: Is lithium a good commodity trade?
A: Lithium will move in sync with the EV industry, which seems to have its own cycle of being popular and unpopular. We’re definitely in the unpopular phase right now. Long term demand for lithium will be increasing on literally hundreds of different fronts, so I would say yes, lithium is kind of the new copper. Look at Albemarle (ALB), Societe Chemica Y Minera de Chile (SQM), and FMC Corp. (FMC).
Q: If we do a LEAPS on Crown Castle Incorporated (CCI), you won’t get the dividend right?
A: No, you won’t, it’s a dividend-neutral trade because you’re long and short in a LEAPS. You have to buy the stock outright and become a registered shareholder to earn the dividend which, these days, is a hefty 4.50%. That said, if you’re looking for a high dividend stock-only play, buying the (CCI) down here is actually a great idea. For the stock-only players, this would be a really good one right now.
Q: Do you know people who are selling because of large capital gains?
A: The only people I know who are selling have giant tax bills to pay because of all the money they made trading options this year. I happen to know several thousand of those, as it turns out. So yes, I do know and that could affect the market in the next couple of weeks, which is why I went with the flatlined scenario for the next two weeks. Most tax-driven selling will be finished in the next two weeks, and after that, it kind of clears the decks for the markets to close on a high note at the end of the year.
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 or DISPATCH TECHNOLOGY LETTER as the case may be, then click on 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
