Global Market Comments
March 22, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or ENTERING TERRA INCOGNITA),
(TLT), (TSLA), (JPM), (VIX), (QQQ), (IWM), (BAC), (C), (SPY)
Posts
During the Middle Ages, when explorers sought new lands and their rich treasures, large sections of their navigational charts were marked with the term “terra incognita.”
That meant what lays beyond was unknown and that they should enter only at their own risk. Often there was a picture of a dragon or a sea monster to mark the spot.
There was also often a warning that you might even sail off of the edge of the earth.
Financial markets have entered a “terra incognita” of their own recently.
Here is the big unknown: How high can ten-year US Treasury bond yields soar when the Federal Reserve is promising to keep overnight interest pegged at 25 basis points until 2024 in the face of essentially unlimited monetary and fiscal stimulus?
So far, the answer is: more.
That is a really big question because we’ve never really been here before.
In fact, some Cassandras from the right are even predicting such a policy will cause us to sail off of the edge of the earth. The modern-day equivalent of running into dragons is inviting runaway inflation.
I can tell you from my own vast, almost immeasurable navigational experience (I am licensed by the US government) that “terra incognita” does not invite inordinate risk-taking or betting of ranches by traders or investors. Instead, they tend to sit on their hands, work on their golf swing, or update their Facebook pages.
That is what the Volatility Index (VIX) last week is essentially screaming at us by touching the $19 handle for the first time in a year.
Almost everyone I know has made more money in the markets than at any time in their lives. That is what a near doubling of the stock market in a year gets you.
And the new wealth was not attained because their intelligence and market insight have suddenly doubled, although a strong case for such can be made for readers of Mad Hedge Fund Trader.
So I used the Friday, March 19 option expiration to go into a rare 100% cash position. I really have gotten away with too much lately.
Then feeling guilty, I slapped on a single long in Tesla (TSLA), that old reliable money-maker. It’s worked for me since it was $3.50 a share. After all, a gigantic green energy infrastructure bill is about to pass in Congress. What better to own than the world’s largest EV car maker.
And what a tear it has been.
After bringing in a ballistic 66.64% profit in 2020, I reeled in another 40.38% gain in the first 2 ½ months of 2021. I did this via 40 trades which generated 38 wins and only two losses. That’s a success rate of an incredible 95%. I have to pinch myself when I read these numbers.
I am concerned because numbers any higher than this will look fake. It’s a rule of thumb in the investment business that when managers claim a 100% success rate, they are either high-frequency traders back by super-fast mainframe computers or running a scam.
So, I have been advising clients to pare back their biggest positions that became massively overweight purely through capital appreciation. Financials come to mind. JP Morgan (JPM) up 81% in three months? Sounds like a Ponzi Scheme.
So let me give you some upside targets in the bond market. We doubled bottomed in 2012 and 2016 at a 1.37% yield in the ten-year Treasury bond yield. We have already surpassed that level like a hot knife through butter.
At the depths of the 2008-2009 Great Recession, rates bottomed at 2.0% yield, which now seems within easy reach. The lowest yield we saw after the 2003 Dotcom Crash was a 3.0%.
When the upside targets in interest rates in this cycle are the lows of the previous economic cycles, that augurs pretty well for the future of stock prices. That is the guaranteed outcome of the tidal wave of cash now sweeping the global financial system.
The permabears are warning that the “Roaring Twenties” have already happened. I argued that they are only just getting started and that the indexes have another 4X of upside in them over the rest of the decade. When the last “Roaring Twenties” occurred, you didn’t sell in 1921.
It also reminds me of the huge “rip your face off” rally we saw from March 2009 to 2010. A lot of market gurus said then that was the peak. They were wrong. Today, they are driving for Uber and Lyft.
So when a talking head warns you that higher interest rates will cause the stock market to crash, just turn off the boob tube and go back to practicing your golf swing.
The Mad Hedge Summit Videos are Up, from the March 9,10, and 11 confab. Listen to 27 speakers opine on the best strategies, tactics, and instruments to use in these volatile markets. The product discounts offered last week are still valid. Start, stop, and pause the videos at your leisure. Best of all, access to the videos is FREE. Access them all by clicking here at www.madhedge.com, click on CURRENT SUMMIT REPLAYS in the upper right-hand corner, and then choose the speaker of your choice.
Ten Year Bond Yields (TLT) soar to a 1.75%, setting financials on fire and demolishing tech (QQQ). We are rapidly approaching a 2.00% yield, which could trigger a huge round of profit-taking on bond shorts, a domestic stock selloff, and a tech rally. The next great rotation may be just ahead of us.
Oil (USO) dives 8% on fears of an imminent Saudi production increase and a worsening Covid-19 outlook in Europe. Are we next with all these early reopening’s? Gone 100% cash at the close with the March quadruple witching option expiration.
A Tax Hike is next on the menu. Corporate tax rates are returning from 21% to 28% for the small proportion of companies that actually PAY tax. Raising taxes on earnings of more than $400,000. Pass through entities to get a haircut. Increasing estate taxes. You better die soon if you want your kids to stay rich. Increase in capital gains taxes over $1 million. I want my SALT deduction back! The grand negotiation begins on who needs bridges, rail lines, and subway extensions. Hint: for some reason, there have been no new federal projects started in California for the past four years and all the existing ones were cut back.
Value Stocks (IWM) are beating growth ones, reversing a decade-long trend. The Russell Value Index is up 11% this year, while growth is unchanged. It’s a total flip from last year when growth was tech-led. This could continue for years, or until the tech becomes the new value stocks. Big winners include Boeing (BA), JP Morgan (JPM), and Morgan Stanley (MS), all Mad Hedge moneymakers.
Bitcoin tops 61,000. Nothing else to say but that because there are no fundamentals. It’s up 80% in 2021 and 540% YOY. But it is becoming a good risk-taking indicator thought, and right now it is shouting a loud and clear “Risk On.”
It’s going to be All About Stock Picking for the Rest of 2021, says Morgan Stanley strategist Mike Wilson. Dragging on the index from here on will be the prospects of rising rates, tax hikes, and inflation. Mike especially dislikes small caps (IWM) which have already had a terrific run, with a 19% YTD gain. Stock picking? Boy, did you come to the right place!
Fed to hold off on rates hikes through 2023, said Governor Jay Powell after the open Market Committee Meeting. Bonds rallied a full half-point on the news and then crashed again, taking yields to a new 1.70% high. It sees inflation reaching a positively stratospheric 2.0% sometime this year, after which it will die, so nothing to do here. This is what a 100% dovish FOMC gets you. Let the games begin!
New Housing Starts Collapse, from an expected +2.5% to -10.3%, as high lumber, land, labor, and interest rates take their toll. This will only drive new home prices high at a faster rate and the little remaining supply dries up. Millennials need some place to live.
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 400% to 120,000 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 120,000 here we come!
It’s amazing how well patience can help your performance. My Mad Hedge Global Trading Dispatch profit reached a super-hot 16.89% during the first half of March on the heels of a spectacular 13.28% profit in February.
It was a tough week in the market, so I held fire and ran my seven remaining profitable positions into the March 19 options expiration. I took advantage of a meltdown in Tesla (TSLA) shares to put on my only new position of the week with a very deep-in-the-money long. That leaves me with 90% cash and a barrel full of dry powder.
This is my fifth double-digit month in a row. My 2021 year-to-date performance soared to 40.38%. The Dow Average is up a miniscule 7.7% so far in 2021.
That brings my 11-year total return to 462.93%, some 2.12 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 41.14%.
My trailing one-year return exploded to 121.60%, the highest in the 13-year history of the Mad Hedge Fund Trader. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 29.8 million and deaths topping 542,000, which you can find here. Thankfully, death rates have slowed dramatically, but Obituaries are still the largest sector in the newspaper.
The coming week will be a boring one on the data front.
On Monday, March 22, at 9:00 AM, Existing Home Sales for February are released.
On Tuesday, March 23, at 9:00 AM, New Home Sales are published.
On Wednesday, March 24 at 8:30 AM, we learn US Durable Goods for February are printed.
On Thursday, March 25 at 8:30 AM, Weekly Jobless Claims are out. We also get the final read of US Q4 GDP.
On Friday, March 26 at 8:30 AM, US Personal Income & Spending for February are released. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I have been doing a lot of high altitude winter mountain climbing lately, and with the warm spring weather, the risk of avalanches is ever present. It takes me back to the American Bicentennial Everest Expedition, which I joined in 1976.
It was led by my old friend, instructor, and climbing mentor Jim Whitaker, who pulled an ice ax out of my nose on Mt. Rainer in 1967 (you can still see the scar). Jim was the first American to summit the world’s highest mountain. I tried to break a high-speed fall and an ice ax kicked back and hit me square in the face. If I hadn’t been wearing goggles I would have been blinded.
I made it up to 22,000 feet on Everest, to Base Camp II without oxygen because there were only a limited number of canisters reserved for those planning to summit. At that altitude, you take two steps, and then break to catch your breath.
There is a surreal thing about that trip that I remember. One day, a block of ice the size of a skyscraper shifted on the Khumbu Ice Fall and out of the bottom popped a body. It was a man who went missing on the 1962 American expedition. Everyone recognized him as he hadn’t aged a day in 15 years, since he was frozen solid.
I boiled my drinking water, but at that altitude, water can’t get hot enough to purify it. So I walked 100 miles back to Katmandu with amoebic dysentery. By the time I got there, I’d lost 50 pounds, taking my weight to 120 pounds.
Jim was an Eagle Scout, the first full-time employee of Recreational Equipment Inc. (REI), and last climbed Everest when he was 61. Today, he is 92 and lives in Seattle, WA.
Jim reaffirms my belief that daily mountain climbing is a great life extension strategy, if not an aphrodisiac.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 15, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LISTEN TO THE (VIX),
(SPY), (IWM), (QQQ), (TLT), (VIX), (DAL), (BA), (ALK)
I decided to take a day off over the weekend and see what was happening in the real economy.
As I drove over the Bay Bridge, I spotted over 30 very large container ships from China loaded to the gills. They were diverted from Los Angeles where the delay to unload ships has extended to two months.
The San Francisco farmers market was jammed with a mask-wearing crowd. Standing in front of me in the line to buy lavender salt was former 49ers quarterback Joe Montana, who took his team to the Super Bowl four times. He was in great shape, looking at least 30 pounds lighter than in his heyday.
Leaving Half Moon Bay after picking up some driftwood for my garden, the traffic to get into town was at least an hour long.
It all underlies a theme for the economy and the markets that I have been expounding upon for the last year.
The Roaring Twenties have begun, the number of consumers and investors who believe this is increasing every day, and the impact on business and stocks is still being wildly underestimated.
You can see this in the Volatility Index (VIX), which has made a rare two roundtrips over the past month, and that means two possible things. Markets are undecided. When they make up their minds, they will either crash, or make a new leg up.
I vote for the latter.
I keep especially close attention on the (VIX) these days because it tells me when I can turn on or off my printing press for $100 bills. Anywhere over a (VIX) of $30 and I can strap on “free money” trades where the chances of losing money are virtually nil.
You can see this in my performance this year, where 40 roundtrips trade alerts in 11 weeks generated 38 wins and only two losses. That’s a success rate of an unprecedented 95%.
The indecision in the markets is obvious in the charts below. The large cap S&P 500 (SPX) and the small cap Russell 2000 (IWM) clawed their way to new highs last week, but the tech heavy NASDAQ (QQQ) made a feeble, halfhearted effort at best. Technology alone is being punished for rising interest rates as the ten-year US Treasury yield hit 1.62%.
This makes absolutely no sense as the larger tech companies are massive cash generators, run huge cash balances, and are enormous let lenders to the financial system. That means they make millions in interest payments from rising rates. What they are really being punished for is doubling from the pandemic low a year ago.
But never argue with Mr. Market.
Biden signs, with a record $1.8 trillion hitting the economy immediately. Money could start hitting your bank account this weekend if you are signed up for electronic payments with the IRS. Let the party begin! I already spent my money a long time ago. The Fed is forecasting a 10% GDP growth rate in Q2. Money is about to come raining down upon the economy….and the stock market. The big question is how much of this is already in the market. “Buy the rumor, sell the news”. Given the wild swings in the market, and multiple visits to a $32 (VIX), it’s clear that markets don’t know….yet.
The Next Battle is over infrastructure, which the democrats want to have an environmental. “green” slant. Look for a big gas tax rise to pay for it. They may get what they want with Senate control. Look for a September target. The economy needs $2 trillion a year in new government spending to keep the stock market rising and it will probably happen.
Nonfarm Payroll comes in at a blockbuster 379,000 in February, far better than expected. It's a preview of explosive numbers to come as the US economy crawls out of the pandemic. That’s with a huge drag from terrible winter weather. The headline Unemployment Rate is 6.2%. The U-6 “discouraged worker” rate of still a sky high 11%, those who have been jobless more than six months. Leisure & Hospitality were up an incredible 355,000 and Retail was up 41,000. Government lost 86,000 jobs. See what employers are willing to do when they see $20 trillion about to hit the economy?
Weekly Jobless Claims dive to 712,000 has pandemic restrictions fall across the country, the lowest since November. However, ongoing claims still stand at an extremely high 4.1 million. Total US joblessness still stands at 18 million. Will the pandemic come back to haunt us from these early reopenings?
California Disneyland (DIS) to reopen April 1, lifting a very dark cloud and huge expenses off the company. Cases on the west coast have fallen so dramatically that the state feels it can get away with this. Maybe this is an effort to derail the recall movement against the government. Stock is up 2% in the after-market, which Mad Hedge followers are long. Time to dig out my mouse ears. Keep buying (DIS) on dips.
Oil (USO) soars 3% on an attack on Saudi oil facilities and a building US economic recovery. $69 a barrel is printed. This is setting up as a great short. High prices in a decarbonizing economy have no future. A (USO) $34-$36 put LEAP with a January 2023 maturity might make all the sense in the world here.
Boeing (BA) announced Fist Positive Deliveries, in 14 months, finally turning around the mess with the 737 MAX. United Airlines was the biggest buyer. The perfect storm is finally over. And Boeing is about to snag another giant order, this time from Southwest (LUV). This comes on the heels of similar big order from Alaska Air (ALK). Keep buying (BA) on dips. An upside breakout is imminent.
Consumer Price Index Comes in at 0.4%, and 0.1% ex food and energy. It’s still at a nonexistent level. Rising gasoline prices were a factor, but airline ticket prices remain at all-time lows. I’ll worry about inflation when I see the whites of its eyes. Commodity prices have doubled in a year but show nowhere in the inflation numbers. With a headline Unemployment Rate at 6.1% and a U-6 at 18 million, it's unlikely we’ll see wage any time soon, which is 70% of the inflation calculation.
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 400% to 120,000 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 120,000 here we come!
It’s amazing how well selling tops and buying bottoms can help your performance. My Mad Hedge Global Trading Dispatch profit reached a super-hot 16.32% during the first half March on the heels of a spectacular 13.28% profit in February. The Dow Average is up a miniscule 8.2% so far in 2021.
It was a total rip your face off rally in the markets last week, so I took off my hedged and covered shorts in the S&P 500 (SPY) and the NASDAQ (QQQ). That leaves me to run my seven remaining profitable positions into the March 19 options expiration.
I also had my hands full running the three-day Mad Hedge Traders & Investors Summit, introducing some 27 speakers to a global audience of 10,000. The speakers’ videos go up on Tuesday at www.madhedge.com.
This is my fifth double-digit month in a row. My 2021 year-to-date performance soared to 39.81. That brings my 11-year total return to 465.36%, some 2.12 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 41.09%. I am concerned because numbers any higher than this will look fake.
My trailing one-year return exploded to 122.6%, the highest in the 13-year history of the Mad Hedge Fund Trader. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 29.5 million and deaths topping 535,000, which you can find here. Thankfully, death rates have slowed dramatically, but Obituaries are still the largest sector in the newspaper.
The coming week will be a boring one on the data front.
On Monday, March 15, at 7:30 AM EST, the New York Empire State Manufacturing Index for March is released.
On Tuesday, March 16, at 8:30 AM, US Retail Sales for February are published.
On Wednesday, March 17 at 8:30 AM, we learn Housing Starts for February. At 2:00 PM we get the Federal Reserve interest rate decision and press conference.
On Thursday, March 18 at 8:30 AM, Weekly Jobless Claims are out. We also obtain the Philadelphia Fed Manufacturing Index.
On Friday, March 19 at 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I was saddened to learn of the death of George Schultz, Treasury Secretary and Secretary of State under president Ronald Reagan. He was 101.
George graduated from Yale at the outbreak of WWII and immediately joined the US Marine Corps (Semper Fi) where he used his ample math background to become an anti-aircraft officer. He issued my dad’s unit the useful advice to always lead an attacking Zero fighter by four plane lengths to hit the engine with a machine gun. It’s simple ballistics.
After the war, he used the GI bill to get a PhD from MIT, and later worked for President Eisenhower. He then became the Dean of the Chicago Business School.
I first met George when The Economist magazine sent me to interview him in San Francisco as the CEO of Bechtel Corp, a major engineering and construction company in 1982. The following week, he was drafted by the incoming Reagan administration, where he stayed for eight years. We kept in touch ever since.
When the Soviet Union collapsed in 1991, Schultz as Secretary of State was instrumental in managing the event so that it stayed peaceful….and moved forward. I later flew to Berlin to watch the Russian Army pull its troops out of my former home.
In his later years, George was very active in the Marines Memorial Association where I got to know him very well, he often was wearing his full-dress blues looking as new as if they came out of the factory that day, bringing a fascinating series of military speakers.
As Schultz got older, he couldn’t remember what he knew was top-secret or classified, and what wasn’t. I benefited greatly from that, but kept my mouth shut. However, I learned some amazing things.
He was also very active in arms control and flew to Moscow as recently as 2019. In recent years, I help him to the podium, George grasping my arm and walking his slow shuffle.
George Schultz was a great example of the best leaders that American can produce. He will be missed.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 9, 2021
Fiat Lux
Featured Trade:
(ON EXECUTING MY TRADE ALERTS),
(TEN REASONS WHY STOCKS CAN’T SELL OFF BIG TIME),
(SPY), (INDU), ($COMPQ), (IWM), (TLT), (GME)
Global Market Comments
January 22, 2021
Fiat Lux
Featured Trade:
(JANUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (IWM), (SPY), (ROM), (BRK/A), (AMZN), NVDA), (MU), (AMD), (UNG), (USO), (SLV), (GLD), ($SOX), CHIX), (BIDU), (BABA), (NFLX), (CHIX), ($INDU), (SPY), (TLT)
Below please find subscribers’ Q&A for the January 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: What will a significant rise in long term bond yields (TLT) do to PE ratios in general, and high tech specifically?
A: Well, the key question here is: what is “significant”. Is “significant” a move in a 10-year from 120 to 150, which may be only months off? I don’t think that will have any impact whatsoever on the stock market. I think to really give us a good scare on interest rates, you need to get the 10-year up to 3.0%, and that might be two years off. We’re also going to be testing some new ground here: how high can bond interest rates go while the Fed keeps overnight rates at 25 basis points? They can go up more, but not enough to hurt the stock market. So, I think we essentially have a free run on stocks for two more years.
Q: What about the Shiller price earnings ratio?
A: Currently, it’s 34.5X and you want to completely ignore anything from Shiller on stock prices. He’s been bearish on stocks for 6 years now and ignoring him is the best thing you can do for your portfolio. If you had listed to him, you would have missed the last 15,000 Dow ($INDU) points. Someday, he’ll be right, but it may be when the market goes from 50,000 to 40,000, so again, I haven't found the Shiller price earnings ratio to be useful. It’s one of those academic things that looks great on paper but is terrible in practice.
Q: Do you see any opportunity in China financials with the change of administration, like the (CHIX)?
A: I always avoid financials in China because everyone knows they have massive, defaulted loans on their books that the government refuses to force them to recognize like we do here. So, it’s one of those things where they look good on paper, but you dig deeper and find out why they’re really so cheap. Better to go with the big online companies like Baidu (BIDU) and Alibaba (BABA).
Q: Is it too late to enter copper?
A: No, the high in the last cycle for Freeport McMoRan (FCX) was $50 dollars and I think we’re only in the mid $ ’20s now, so you could get another double. Remember, these commodity stocks have discounted recovery that hasn’t even started yet. Once you do get an actual recovery, you could get another enormous move and that's what could take the Dow to 120,000.
Q: Do you see the FANGs coming back to life with the earnings results?
A: I think it'll take more than just Netflix to do that. By the way, Netflix (NFLX) is starting to look like the Tesla of the media industry, so I’d get into Netflix on the next dip. You could get a surprise, out-of-nowhere double out of that anytime. But yes, FANGs will come to life. They've been in a correction for five months now, and we’ll see—it may be the end of the pandemic that causes these stocks to really take off. So that's why I'm running the barbell portfolio and buying the FANGs on weakness.
Q: Are you recommending LEAPS on gold (GLD) and silver (SLV)?
A: Absolutely yes, go out two years with your maturity, you might buy 120% out of the money. That's where you get your leverage on the LEAPS. Something like a (GLD) January 2023 $210-$220 in-the-money vertical bull call spread and generate a 500% profit by expiration.
Q: Do you foresee a cool off for semiconductors ($SOX) even though there's been recent news of shortages?
A: No, not really. There are so many people trying to get into these it’s incredible. And again, we may get a time correction where we sideline at the top and then break out again to the upside. This is classic in liquidity-driven markets, which is what we have in spades right now. Thanks to 5G, the number of chips in your everyday devices is about to increase tenfold, and it takes at least two years to build a new chip factory. So, keep buying (NVDA), (MU), and (AMD) on dips.
Q: Where are the best LEAPS prospects (Long Term Equity Participation Securities)?
A: That would have to be in technology—that's where the earnings growth is. If you go 20% out of the money on just about any big tech LEAPs two years out, to 2023 those will be worth 500% more at expiration.
Q: What about SPACs (Special Purpose Acquisition Company) now, as we’re getting up to five new SPACs a day?
A: My belief is that a SPAC is a vehicle that allows a manager to take out a 20% a year management fee instead of only 1%. And it's another aspect of the current mania we’re in that a lot of these SPACs are doubling on the first day—especially the electric vehicle-related SPACs. Also, a lot of these SPACs will never invest in anything, but just take the money and give it back to you in two years with no return when they can't find any good investments…. If you’re lucky. There's not a lot of bargains to be found out there by anyone, including SPAC managers.
Q: Does natural gas (UNG) fall into the same “avoid energy” narrative as oil?
A: Absolutely, yes. The only benefit of natural gas is it produces 50% less carbon dioxide than oil. However, you can't get gas without also getting oil (USO), as the two come out of the pipe at the same time; so I would avoid natural gas also. Gas and oil are also about to lose a large chunk, if not all, of their tax incentives, like the oil depletion allowance, which has basically allowed the entire oil industry to operate tax-free since the 1930s.
Q: What about hydrogen cars?
A: I don't really believe in the technology myself, and when you burn hydrogen, that also produces CO2. The problem with hydrogen is that it’s not a scalable technology. It’s like gasoline—you have to build stations all over the US to fuel the cars. Of course, it produces far less carbon than gas or natural gas, but it is hard to compete against electric power, which is scalable and there's already a massive electric grid in place.
Q: If you inherited $4 million today, would you cost average into (QQQ), (IWM), or (SPY)?
A: I would go into the ProShares Ultra Technology ETF (ROM), which is double the (QQQ); and if you really want to be conservative, put half your money into (QQQ) or (ROM), and then half into Berkshire Hathaway (BRK/A), which is basically a call option on the industrial and recovery economy. I know plenty of smart people who are doing exactly that.
Q: Is it weird to see oil, as well as green energy stocks, moving up?
A: No, that's actually how it works. The higher oil and gas prices go, the more economical it is to switch over to green energy. So, they always move in sync with each other.
Q: I heard rumors that Amazon (AMZN) is likely to raise Prime’s annual fee by $10-20 a year in 2021. Will that be a catalyst for the stock to go higher?
A: Yes. For every $10 dollars per person in Prime revenue, Amazon makes $2 billion more in net profit. I would say that's a very strong argument for the stock going up and maybe what breaks it out of its current 6-month range. By the way, Amazon is wildly undervalued, and my long-term target is $5,000.
Q: Do you think that the spike in Apple (AAPL) MacBook purchases means that computers will overtake iPhones as the revenue driver for Apple in 2021, or is the phone business too big?
A: The phone business is too big, and 5G will cause iPhone sales to grow exponentially. Remember, the iPhones themselves are getting better. I just bought the 12G Pro, and the performance over the old phone is incredible. So yeah, iPhones get bigger and better, while laptops only grow to the extent that people need an actual laptop to work on in a fixed office. Is that a supercomputer in your pocket, or are you just glad to see me?
Q: Share buybacks dried up because of revenue headwinds; do you think they will come back in a massive wave, giving more life to equities?
A: Absolutely, yes. Banks, which have been banned from buybacks for the past year, are about to go back into the share buyback business. Netflix has also announced that they will go buy their shares for the first time in 10 years, and of course, Apple is still plodding away with about $100 or $200 million a year in share buybacks, so all of that accelerates. The only ones you won't see doing buybacks are airlines and Boeing (BA) because they have such a mountain of debt to crawl out from before they can get back into aggressive buybacks.
Q: Interest rates are at historic lows; the smartest thing we can do is act big.
A: That’s absolutely right; you want to go big now when we’re all suffering so we can go small later and run a balanced budget or even pay down national debt if the economy grows strong enough. The last person to do that was Bill Clinton, who paid down national debt in small quantities in ‘98 and ‘99.
Q: What do you think about General Motors (GM)?
A: They really seem to be making a big effort to get into electric cars. They said they're going to bring out 25 new electric car models by 2025, and the problem is that GM is your classic “hour late, dollar short” company; always behind the curve because they have this immense bureaucracy which operates as if it is stuck in a barrel of molasses. I don’t see them ever competing against Tesla (TSLA) because the whole business model there seems like it’s stuck in molasses, whereas Tesla is moving forward with new technology at warp speed. I think when Tesla brings out the solid-state battery, which could be in two years, they essentially wipe out the entire global car industry, and everybody will have to either make Tesla cars under license from Tesla—which they said they are happy to do—or go out of business. Having said that, you could get another double in (GM) before everyone figures out what the game is.
Q: Will you update the long-term portfolio?
A: Yes, I promise to update it next week, as long as you promise me that there won’t be another insurrection next week. It’s strictly a time issue. After last year being the most exhausting year in history, this year is proving to be even more exhausting!
Q: Do you see a February pullback?
A: Either a small pullback or a time correction sideways.
Q: Do you think the Zoom (ZM) selloff will continue, or is it done now that the pandemic is hopefully ending?
A: It’s natural for a tech stock to give up one third after a 10X move. It might sell off a little bit more, but like it or not, Zoom is here to stay; it’s now a permanent part of our lives. They’re trying to grow their business as fast as they can, they’re hiring like crazy, so they’re going to be a big factor in our lives. The stock will eventually reflect that.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 18, 2019
Fiat Lux
Featured Trade:
(OCTOBER 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (C), (GM), (IWM), ($RUT), (FB),
(INTC), (AA), (BBY), (M), (RTN), (FCX), GLD)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 16 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: How do you think the S&P 500 (SPX) will behave with the China trade negotiations going on?
A: Nobody really knows; no one has any advantage here and logic or rationality doesn’t seem to apply anymore. It suffices to say it will continue to be up and down, depending on the trade headline of the day. It’s what I call a “close your eyes and trade” market. If it’s down, buy it; if it’s, upsell it.
Q: How long can Trump keep kicking the can down the road?
A: Indefinitely, unless he wants to fold completely. It looks like he was bested in the latest round of negotiations because the Chinese agreed to buy $50 billion worth of food they were going to buy anyway in exchange for a tariff freeze. Of course, you really don’t get a trade deal unless you get a tariff roll back to where they were two years ago.
Q: Did I miss the update on the Citigroup (C) trade?
A: Yes, we came out of Citigroup a week ago for a small profit or a break-even. You should always check our website where we post our trading position sheet every day as a backstop to any trade alerts you’re getting by email. Occasionally emails just go completely missing, swallowed up by the ether. To find it go to www.madhedgefundtrader.com , log in, go to My Account, Global Trading Dispatch, then Current Positions. You can also find my newly updated long-term portfolio here.
Q: How much pain will General Motors (GM) incur from this standoff, and will they ever reach a compromise?
A: Yes, the union somewhat blew it in striking GM when they had incredibly high inventories which the company is desperate to get rid of ahead of a recession. If you wonder where all those great car deals are coming from, that's the reason. All of the car companies want to go into a recession with as little inventory as possible. It's not just GM, it’s everybody with the same problem.
Q: When does the New Daily Position Sheet get posted?
A: About every hour after the close each day. We need time to process our trades, update all the position sheets before getting it posted.
Q: What do you think about Bitcoin?
A: We hate it and don’t want to touch it. It’s unanalyzable, and only the insiders are making money.
Q: Are you predicting a repeat of Fall 2018 going into the end of this year to close at the lows?
A: No, I’m not. A year ago, we were looking at four interest rate increases to come. This year we’re looking at 1 or 2 more interest rate cuts. It’s nowhere near the situation we saw a year ago. The most we’re going to get is a 7% selloff rather than a 20% selloff and if anything, stocks will rise into the yearend then fall.
Q: Why are we trading the Russell 200 (IWM) instead of the ($RUT) Small Cap Index? We pay less commissions to brokers.
A: There's more liquidity in the (IWM). You have to remember that the combined buying power of the trade alert service is about $1 billion. And that’s harder to do with smaller illiquid ETFs like the ($RUT), especially the options.
Q: If this is a “Don’t fight the Fed” rally for investors, where else is there to go but stocks?
A: Nowhere. But it’s happening in the face of an oncoming recession, so it’s not exactly a great investment opportunity, just a trading one. 2009 was a great time not to fight the Fed.
Q: Do you want to buy Facebook (FB) even though there are so many threats of government scrutiny and antitrust breakups?
A: The anti-trust breakups are never going to happen; the government can't even define what Facebook does. There may be more requirements on disclosures, which means nothing because nobody really cares about disclosures—they just click the box and agree to anything. I was actually looking at this as a buy when we had the big selloff at the end of September and instead, I bought four other Tech stocks and (FB) had moved too far when we got around to it. I think there’s upside potential for Facebook, especially if we can move out of this current range.
Q: Would you sell short European banks? It seems like they’re cutting jobs right and left.
A: I always get this question after big market meltdowns. European banks have been underpricing risks for decades and now the chickens are coming home to roost. Some of these things are down 80-90% so it’s too late to sell short. The next financial crisis is going to be in Europe, not here.
Q: Is it time to short Best Buy (BBY) due to the China deal?
A: No, like Macys (M), Best Buy is heavily dependent on imports from China, and the stock has gotten so low it’s hard to short. And the problem for the whole market in general is all the best sectors to short are already destroyed, down 80-90%. There really is nothing left to short, now that all the bad sectors have been going down for nearly two years. There has been a massive bear market in large chunks of the market which no one has really noticed. So, that might be another reason the market is going up—that we’ve run out of things to short.
Q: Do you like Intel (INTC)?
A: Yes, for the long term. Short term it still could face some headwinds from the China negotiations, where they have a huge business.
Q: Would you buy American Airlines (AA) on the return of Boeing 737 MAX to the fleet?
A: Absolutely, yes. The big American buyers of those planes are really suffering from a shortage of planes. A return of the 737 MAX to the assembly line is great news for the entire industry.
Q: Do you like Raytheon (RTN)?
A: No, Trump has been the defense industry’s best friend. If he exits in the picture, defense will get slaughtered—it will be the first on the chopping block under a future democratic administration. And, if you’re doing nothing but retreating from your allies, you don't need weapons anyway.
Q: Will Freeport McMoRan (FCX) benefit from a trade war resolution?
A: Yes, the fact that it isn't moving now is an indication that a trade war resolution has not been reached. (FCX) has huge exposure to traditional metal bashing industries like they still have in China.
Q: Would you go long or short gold (GLD) here?
A: No, I'm waiting for a bigger dip. If you can get in close to the 200-day moving average at $129.50, that would be the sweet spot. Longer term I still like gold and it is a great recession hedge.
Good Luck and Good Trading!
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Yes, I Still Like Gold
Global Market Comments
October 14, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or UNICORNS AND CANDY CANE)
(AAPL), (FDX), (SPY), (IWM), (USO), (WMT), (AAPL), (GOOGL),
(X), (JPM), (WFC), (C), (BAC)
