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June 1 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the June 1 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: What are the 3 best stocks to own for the end of the year?

A: Apple (AAPL), Alphabet Inc. (GOOGL), and Microsoft (MSFT). Those you want to buy on meltdown days, kind of like today. Make sure you scale into these—so maybe buy 20% on every down-500-point Dow day. Eventually, you’ll end up with a pretty decent position at a market low in a stock that will double in 3-5 years.

Q: Why these three stocks?

A: Lots of reasons: They’re huge, they’re safe, two out of three pay dividends, Alphabet is about to split, and they have huge moats so nobody can get into their sectors. They have near monopolies in what they do, and they have immense cash on the balance sheet. These are the kind of stocks that portfolio managers dream about. And watch what rallied the hardest in the last dead cat bounce we had—it was these three names. That tells you that they will lead any long-term bull market in the future. These are the stocks that people want to own.

Q: What will bring your predicted second half-bull market in the stock market?

A: Inflation drops from 8% to 4%. That will happen for a couple of reasons. The year-on-year comparisons become highly favorable starting from next month when inflation started to take off a year ago. Inflation numbers are going to be climbing the wall of worry from here on out. That could get us down to 4% by the end of the year. The second reason is the Ukraine War either ends or becomes a stalemate and is no longer a factor in the global markets, and we’ve had time to replace all the Russian oil and Ukrainian wheat.

Q: Are banks positioned to benefit from the coming rally?

A: Absolutely. I think big tech and banks will be the top-performing stock sectors for the next five years because inflation will go away, recession fears will go expire, and credit quality will improve, but interest rates will remain 300 basis points higher than they were during the pandemic. Buy (JPM), (BAC), and (C) on dips.

Q: What will be the worst performing sector?

A: Energy—anything energy-related will get absolutely slaughtered, which is why I don't want to touch it with a ten-foot pole right now. That includes oil companies, exploration companies, E&P companies, and master limited partnerships, as well as coal and other natural gas stocks. So, if you’re long these names don’t forget to sit down when the music stops playing. You could get your head handed to you at the end.

Q: Can we make lower lows?

A: Yes, that’s entirely possible. Market moves are basically random when you get down to these levels— down more than 20%. And on all future downturns, I would be spending your cash going back into the market expecting a second half rally.

Q: What about green energy?

A: Unfortunately, green energy is very tied to old energy because $120 oil makes green companies much more competitive from a cost point of view. So, I’m not going to go piling into green companies right here, especially if I think oil is topping out in the near future. Buying green energy companies here is the same as buying oil at $120 a barrel.

Q: What is the best way to play the declining US dollar?

A: Buy the iShares MSCI Emerging Markets ETF (EEM). Also, the Aussie dollar (FXA) and the Canadian Dollar (FXC), which benefit tremendously from commodity prices, which will rise for another decade in a global economic recovery.

Q: Why will energy be the worst sector?

A: If you end the war in the Ukraine or you replace Russian oil, either by finding new sources of oil, getting other producers to increase production which they can do (including the US), or by accelerating the move to alternatives, then you move oil back to pre-invasion prices which were about $70 a barrel or $50 lower than they are here.

Q: Best way to hedge a falling market?

A: Do what I'm doing: keep a balanced portfolio of longs and shorts, that way you always have something that’s going up. And if you do it through the options, you have time decay working for you on both sides of the equation. If you want to go outright, buy outright puts on individual stocks because they had double the moves of the indexes. And go to my short selling school which you can find by going to my website at https://www.madhedgefundtrader.com. There’s actually 12 different ways to benefit from falling markets.

Q: How deep in the money can we go on our call spreads?

A: Wait for the Volatility Index (VIX) to go over $30, and then go 15-20% in the money. And yes, you only make 10, 15, or 20% on those positions in a month but then you put together ten of them and that adds up to quite a lot of money. You want to find the position that has the greatest probability of happening—i.e. something that’s 20% in the money. Do that when the market has just dropped 20%, which it already has, and then you have a position that has a minuscule chance of losing money.

Q: How much longer do you see this current bear market bounce lasting?

A: Until yesterday.

Q: What's your favorite commodity ETF?

A: My favorite commodity stock is Freeport McMoRan (FCX), the world’s largest copper producer. Rather than pay the extra management fees for an ETF, I prefer just to go straight to the source and buy (FCX).

Q: When do you think the Fed will pivot to dovish or neutral?

A: This summer. It’s just a question of whether it’s the July or the September meeting.

Q: When you say “buy on dips”, what does that mean? 1%, 3%, 5%?

A: Well in this market, a dip would be a retest of the previous lows which is going to be down 10% or 15% on the major positions in your portfolio. If you’re day trading, a dip is only 1%, so it really depends on your timeframe and your risk tolerance. That’s why I always tell people to scale by doing everything in incremental pieces—20%, 25%, and so on. You never know what the market’s actually going to do on a short-term basis. Randomness can’t be predicted.

Q: If you plan to enter a LEAPS on Apple, what strikes would you do?

A: Well, first of all, I want to see if Apple drops all the way to $125, which is a lot of people’s downside target. If it did, then I would do the $125/$135 call spread two years out, and that will probably double. And if it starts a long term up trend, then I’ll keep rolling up the strike prices. If, say, Apple goes to $125, you put your LEAPS on. If the stock rises to 150, then take profits on the $125/$135 and roll into the $150/$160. That’s how you can get like 1,000% returns like we got on Tesla (TESLA) a few years ago. You just keep rolling up your strike prices on every weak day and maintain your leverage.

Q: When do we bet the farms on Editas Medicine Inc. (EDIT) and Crispr (CRSP) Therapeutics?

A: Never. These are small, highly speculative companies which will make money someday, but if the someday is in five years and you’re betting the farm with a LEAPS, you lose the farm. It's going to take a long time for these smaller biotech stocks to come back. If you want to play biotech, go with the big ones like Amgen. It takes a long time to convert cutting-edge technology into profits. The big companies already have a stable of reliable money-making drugs on hand.

Q: Salesforce Inc. (CRM) is up big on earnings—what should I do with the stock?

A: Buy the dips. It’s still way, way below its all-time highs, so use the weekdays to accumulate Salesforce for the long term. It’s one of the best cloud plays out there.

Q: What do you think about NVIDIA Corporation (NVDA)?

A: I absolutely love it. It rallied 20% off the bottom. Use any other additional weak days like today to increase your position. This stock someday is worth $1,000, up from today’s $195.

Q: Do you like SPACS?

A: No, I hate them and think they’re a rip-off. And a lot of them have become totally illiquid and untradable, so you have no choice but for them to shut down and return their money if they have any left. I’ve hated SPACS from day one and people are now getting their comeuppance on these.

Q: What do you think about the weakness in Coinbase Global Inc. (COIN) down here?

A: It’s just going down with all the other high-risk, speculative, meme stock type plays, which include all of the crypto plays like Bitcoin. I would avoid all of those. You want to buy quality at the discount now, and you want to buy the Cadillacs at Volkswagen prices and leave the speculative plays for the next generation, Gen Z, who are already highly interested in stocks.

Q: What is your favorite non-US country to invest in?

A: Australia, because you get a double play there on the currency, which should go up 30% from here, and they will benefit from a global commodity boom which continues for another ten years. They pretty much sell a lot of the major commodities like iron ore, wheat, sheep, and so on. It’s also a really nice country to visit. The only negative with Australia are the sharks.

Q: Biotech takeover targets?

A: Well (EDIT) and (CRSP) would be two of them. Things in the sector are so cheap that they are all potential takeover targets. M&A (Mergers and Acquisitions) will be a major play in the biotech sector for the foreseeable future.

Q: Should we sell short the defense industry here?

A: No, even if the war ends tomorrow, you might get some profit-taking, but the fact is that long term military spending is increasing permanently. The peace dividend now has to be paid back, and that is great for all the defense companies, so I would not be shorting them. If anything, I’d be buying on dips. Buy Lockheed Martin (LMT), Raytheon (RTX), who make the Javelin antitank missile for which there is now a two-year order backlog. You can also throw in General Dynamics (GD) for good measure which builds nuclear submarines and the Stryker armored vehicle.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 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

Keep Those Defense Plays

June 3, 2022/by Mad Hedge Fund Trader

May 23, 2022

Diary, Newsletter, Summary

Global Market Comments
May 23, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or ALL QUIET ON THE WESTERN FRONT)
(SPY), (TLT), (TBT), (GOOGL), (AAPL), (MSFT), (BRKB), (NVDA), (JPM), (BAC), (WFC), ($BTCUSD)

May 23, 2022/by Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or All Quiet on the Western Front

Diary, Newsletter

When I first joined Morgan Stanley in 1983, a number of my clients were old enough to have experienced the 1929 stock market crash and the Great Depression that followed.

One was Sir John Templeton, who confided in me over lunch at his antebellum-style mansion at Lyford Cay in the Bahamas, that his long career started with a lot of excitement, and then became incredibly boring for a decade.

It looks like we entered the incredibly boring phase on January 4, when the stock market began its current downtrend. Last week brought the longest weekly losing streak since 1923, some eight weeks so far.

The market is actually down a lot more than it looks, meaning that we are a lot closer to the bottom than you think. Some 87% of the S&P 500 is down more than 10% and 61% is down 20%. The damage is far worse with the NASDAQ, with some 93% of shares down 10%, and a gut-punching 73% down 20% or more.

While tech has already gone down a lot, some 32% so far this year, it is still trading at an 18% premium to the main market. Remember, in this business, timing is everything. If you invested in tech at the Dotcom peak in 1999, it took you 14 years to break even. Latecomers in this cycle could suffer a similar duration of pain and suffering.

And while these are the kind of moves that usually precede a recession, there is still an overwhelming amount of data that says it won’t happen. We here at Mad Hedge Fund Trader analyze, dissect, and examine data all day long.

I will once again repeat what my UCLA math professor told me a half-century ago. “Statistics are like a bikini bathing suit; what they reveal is fascinating, but what they conceal is essential.”

For a start, 3.6% unemployment rates are not what recessions are made of. Double-digit ones are. The next jobless rate print in June is likely to be down, not up. The country in fact is suffering its worst worker shortage in 80 years. There are currently 6 million more jobs than workers. And wages are rising, putting more money in the pockets of consumers.

Last month, airline ticket prices rose by 25%. Good luck trying to get a plane anywhere as all are full. Last winter, I bought a first-class round-trip ticket from San Francisco to London for $6,000. Today, the same ticket is $10,000. During recessions, planes fly empty, routes get cancelled, and staff laid off. Airlines also go bust and are not subject to the takeover wars we are seeing now.

Recessions also bring dramatic credit crises. Rising default rates force banks to retreat from lending, FICO scores tank, and debt markets dry up. It’s all quiet on the western front now, with all fixed income and liquidity indicators are solidly in the green. And while interest rates are higher, they are nowhere near the peaks seen during past recessions.

All this may explain that after the horrific market moves we have already seen but we may be only 4% from the final bottom in this bear move to an S&P 500 at $3,600, or 7% from an (SPX) of $3,500. That means it is time to start scaling into long-term positions now in the best quality names.

That’s why I have been aggressively piling on call spreads in technology that are 10%-20% in the money with only 19 days to expiration, making money hand over fist.

An interesting headline caught my attention last week. The Russians were stealing farm equipment from Ukraine on an epic scale. When they couldn’t steal it, such as when the electronics were disabled, they were destroying it.

That means the Russians didn’t invade Ukraine to get more beachfront territory on the Black Sea, although that is definitely a plus. They want to destroy a competitor’s agricultural production in order to raise the value of their own output.

Yes, this is the beginning of the Resource Wars that could continue for the rest of this century. Resource producers like the US, Russia, Canada, Australia, and Ukraine will be the big winners. Resource consumers like China, India, and the Middle East will be the big losers.

JP Morgan cuts US GDP Forecasts, with the second half marked down from 3% to 2.4% and 2023 from 2.1% to 1.5%. This means no recession, which requires two back-to-back negative quarters.

China’s Industrial Production collapses by 2.9%, and Retail Sales fell by a shocking 11.1%. The Shanghai shutdown is to blame. It means longer supply chain disruptions for longer and another drag on our own economy. If Tesla has a bad quarter, it will be because of a shortage of vehicles in China. So, will the end of Covid in China bring the bull market back in the US?

The US Budget Deficit is in free fall, putting our hefty bond shorts at risk. While Trump was president the national debt exploded by $4 trillion, a dream come true for bond shorts. Since Biden became president, the annual budget deficit has plunged from $3.1 trillion to $360 billion for the first seven months of fiscal 2022, and we could approach zero by yearend. An exploding economy has sent tax revenues soaring, and taxpayers still have to pay a gigantic bill for last year’s monster capital gains in the stock market. Biden has also been unable to get many spending bills through the Senate, where he lacks a clear majority.

India Bans Food Exports. Climate change is destroying its output with heat waves, while the Ukraine War has eliminated 13% of the world’s calories. This is a problem when you have 1.2 billion to feed. Expect food inflation to worsen.

Consumer Sentiment hits an 11-year low according to the University of Michigan, dipping from 64 to 59.1. Record gas prices and soaring inflation are the reasons, but spending remains strong off the super strong jobs market.

Homebuilder Sentiment hits a two-year low, down from 77 to 69 in May, according to the National Association of Homebuilders. Recession fears and soaring interest rates are the big reasons.

Building Permits dive in April by 3.2%, and single family permits were down 4.6%. The onslaught of bad news for housing continues. Avoid.

Target implodes on terrible earnings, taking the stock down 25%, the worst in 40 years. They finally got the inventory they wanted. Too bad consumers are too poor to buy it with $6.00 a gallon.

Commodities send Battery Costs soaring by 22%. Who knew you were going long copper, lithium, and chromium when you bought your Tesla? It’s a good thing you did. Now you can give the middle finger salute when you drive past gas stations.

Average Household now spending $5,000 a year on gasoline, which is $5,000 they’re not spending on anything else. Just ask Target (TGT) and Walmart (WMT).

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

With some of the greatest market volatility seen since 1987, my May month-to-date performance recovered to +4.79%.

My 2022 year-to-date performance exploded to 34.97%, a new high. The Dow Average is down -16.4% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 62.99%.

This week, I added new long positions in Visa (V) and Microsoft (MSFT) when the Volatility Index (VIX) was in the mid $30s. I also did a nice round trip on an Apple (AAPL) short which brought in $1,740. I also took profits on two longs in the (SPY) and two shorts in the (TLT). Overall, it was a great week!

That brings my 14-year total return to 547.53%, some 2.40 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 43.78%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 82.5 million, up 300,000 in a week and deaths topping 1,000,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, May 23 at 8:30 AM EST, the Chicago Fed National Activity Index for April is out.

On Tuesday, May 24 at 8:30 AM, New Home Sales for April are released.

On Wednesday, May 25 at 8:30 AM, Durable Goods for April are published.

On Thursday, May 26 at 8:30 AM, Weekly Jobless Claims are disclosed. The first look at Q2 GDP is printed.

On Friday, May 27 at 8:30 AM, Personal Income & Spending is out. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, one of my fondest memories takes me back to England in 1984 for the 40^th anniversary of the D-Day invasion of France. On June 6, 160,000 Americans stormed Utah and Omaha beaches, paving the way for the end of WWII.

My own Uncle Al was a participant and used to thrill me with his hair-raising D-Day experiences. When he passed away, I inherited the P-38 Walther he captured from a German officer that day.

The British government wanted to go all out to make this celebration a big one as this was expected to be the last when most veterans, now in their late fifties and sixties, were in reasonable health. President Ronald Reagan and prime minister Margaret Thatcher were to be the keynote speakers.

The Royal Air Force was planning a fly past of their entire fleet that started over Buckingham Palace, went on the to the debarkation ports at Southampton and Portsmouth, and then over the invasion beaches. It was to be led by a WWII Lancaster bomber, two Supermarine Spitfire, and two Hawker Hurricane fighters.

The only thing missing was American aircraft. The Naval and Military Club in London, where I am still a member, wondered if I would be willing to participate with my own US-registered twin-engine plane?

“Hell yes,” was my response.

Of course, the big concern was the weather, as it was in 1944. Our prayers were answered with a crystal clear day and a gentle westerly wind. The entire RAF was in the air, and I found myself the tail end Charlie following 175 planes. I was joined by my uncle, Medal of Honor winner Colonel Mitchell Paige.

We flew 500 feet right over the Palace. I could clearly see the Queen, a WWII veteran herself, Prince Philip, Lady Diana, and her family waving from the front balcony. Massive shoulder-to-shoulder crowds packed St. James Park in front.

As I passed over the coast, much of the Royal Navy were out letting their horns go full blast. Then it was southeast to the beaches. I flew over Pont du Hoc, which after 40 years still looked like a green moonscape, after a very heavy bombardment.

In one of the most courageous acts in American history, a company of Army Rangers battled their way up 100-foot sheer cliffs. After losing a third of their men, they discovered that the heavy guns they were supposed to disable turned out to be telephone poles. The real guns had been moved inland 400 yards.

We peeled off from the air armada and landed at Caen Aerodrome. Taxiing to my parking space, I drove over the rails for a German V2 launching pad. I took a car to the Normandy American Cemetery at Colleville-sur-Mer where Reagan and Thatcher were making their speeches in front of 9,400 neatly manicured graves.

There were thousands of veterans present from all the participating countries, some wearing period uniforms, most wearing ribbons. At one point, men from the 101^st Airborne Division parachuted overhead from vintage DC-3’s and landed near the cemetery.

Even though some men were in their sixties and seventies, they still made successful jumps, landing with big grins on their faces. The task was made far easier without the 100 pounds of gear they carried in 1944.

The 78th anniversary of the D-Day invasion is coming up shortly. I won’t be attending this time but will remember my own fine day there so many years ago.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Pont du Hoc

May 23, 2022/by Mad Hedge Fund Trader

May 16, 2022

Diary, Newsletter, Summary

Global Market Comments
May 16, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or SIFTING THROUGH THE WRECKAGE),
(SPY), (TLT), (TBT), (GOOGL), (AAPL), (MSFT), (BRKB), (NVDA), (JPM), (BAC), (WFC), ($BTCUSD)LA),

May 16, 2022/by Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or Sifting Through the Wreckage

Diary, Newsletter

I have many superpowers, but one of the most useful ones is picking market bottoms. It looks like another one is at hand.

The past week has been one of epic wreckage in the stock market. It’s as if Hurricanes Sandy and Katrina both hit at the same time and were followed by a good old California earthquake.

Your favorite share prices have gone from mildly irritating to disappointing to absolutely gobsmackingly awful in only five months.

As a result, some of the best buying opportunities of the decade are setting up, the kind that you will be able to will on to your grandchildren. This is when mortgages get paid off, college debt is retired, and retirements financed.

There are a couple of key measurements here to watch. When the number of stocks above their 200-day moving averages falls below 20%, it always signifies an important market bottom. At the Thursday low, we were at 15% for the (SPY) and 12% for NASDAQ. It’s just another technical indicator among the hundreds, but a useful one, nonetheless.

Another one that helps is that on Friday, we also saw the first 90% advancing day since June 2020. All correlations went to one last week, meaning that all asset classes went down in unison.

That puts the bottom for the S&P 500 at $3,800 with an initial upside target of $4,200. We are way overdue for an 8%-12% relief rally. If I am wrong, we are only dropping another 200 points, or 5%.

Except that this time, it’s different.

At $3,600, down 25% from the January high, the market will have fully discounted a fairly severe recession that isn’t going to happen. Amazing as it may seem, some of the stocks having the biggest falls are still seeing earnings grow nicely. They are simply being sold because they are widely owned. That snares them in all of the algorithm-driven high-frequency trading that is going on.

I know I’ve said this a million times, but you use markets like this to buy Rolls Royces at Volkswagen prices. I’m talking about Alphabet (GOOGL), Microsoft (MSFT), and Apple (AAPL).

These companies are solid as the Rock of Gibraltar, with massive cash flows, huge cash balances, unassailable moats, and steady, if not spectacular earnings prospects. People have not suddenly abandoned Google as a search engine, Microsoft still has a near-monopoly in PC operating software, and Apple will sell more new and more expensive iPhones than ever.

The other baby that is being thrown out with the bathwater here are the banks. Recession fears have given these shares a haircut by a third by recession fears that damage the credit quality of their loan books.

What if there is no recession? Then the bear market in banks goes up in a puff of smoke. It helps that this time, there is no liquidity or capital crisis to be seen whatsoever. Add JP Morgan (JPM), Bank of America (BAC), and Wells Fargo (WFC) to your growing “BUY” lists.

Buying the best stocks with a recession already baked in the price? Sounds like a winner to me.

As for the smaller tech stocks, I’d take a pass, at least for now. Most of these companies, which never made any money, now have shares down 70% to 90% and are not coming back. They provided to be perfect money destruction machines. Never confuse “gone down a lot” with “cheap.” Take away the punch bowl and suddenly the party becomes very boring.

The Mad Hedge Market Timing Index certainly earned its weight in gold last week. We saw a multi-year low of 6 on Thursday and I was sending out trade alerts to “BUY” as fast as I could write them. A 1,200-point snap-back rally ensued, setting up a bottom that could last for weeks, if not forever.

The other great thing to come out of this selloff is that we learned what a fantastic leading indicator of risk-taking Bitcoin has become. While the S&P 500 plunged by 20%, Bitcoin absolutely cratered by 60%. We saw the correlation on both the upside and the downside.

Bitcoin is basically the (SPY) X 3. Ignore Bitcoin at your peril, even if you think the whole thing is a scam. And keep reading your Mad Hedge Bitcoin Letter.

Was this the grand finale? Big tech stocks like Apple (AAPL) and Microsoft (MSFT) stubbornly held their ranges for months, supporting the market as a whole. That ended last week on no news with the decisive breakdown of the key names. Apple has lost a staggering $350 billion in market cap in a week. Does this signal the final washout of this correction? It could. The Volatility Index (VIX) has ceased rising, and bonds have begun a short-covering countertrend rally.

Jay Powell warns of more 50-basis point rate rises if the economic conditions justify it. He also can’t guarantee a soft landing for the economy. Thanks for telling us precisely nothing. The comments were made on NPR Radio’s marketplace program and immediately tanked Dow futures by 100 points.

Core Inflation moderates slightly, down from 8.5% to 8.3% in April, sparking a stock market rally. That is 0.2% lower than last month’s 8.5% print, hence the bond rally. It was the first decline in the inflation rate in seven months. The probability of a peak in inflation is increasing.

Producer Price Index soars 11.0% YOY and 0.5% in April alone. It is a red-hot number showing that inflation is getting worse. The Producer Price Index (PPI) program measures the average change over time in the selling prices received by domestic producers for their output.

Goldman Sachs quit the SPAC Market, citing unmanageable liability. More likely, they don’t want to get stuck with illiquid longs on SPACS they brought to the market. I warned you this was a roach motel market; you can check in but you can never check out. I have to admit that I never believed in this asset class for two seconds, regarding it as nothing more than a license to steal money from investors.

Bitcoin drops below $28,000, taking the cryptocurrency down to more than half its November peak. It’s acting more like a small-cap tech stock every day, not the thing to be right now. With the Fed shrinking liquidity at a record rate, this is not a favorable backdrop either.

Another crypto bites the dust, as the free fall continues. Tether, a stablecoin tied to the US dollar, has fallen to 69% of its face value. It turns out that backing by the US government is more reliable than support from a PO Box in the Cayman Islands. Expect more to fail. Avoid crypto at all cost.

Ford to unload 8 million Rivian shares, once a lockup expires. Other pick institutional blocks are waiting in the wings. The EV truck is smoking hot on the road, but the shares have been dead as a doorknob, down 85% from the peak and 16% on the day. Avoid (RIVN) while the sector is death warmed over.

Biden mulling dropping Chinese Tariffs to make a dent in inflation. It might help a bit. It just depends on what we might get in return. Such a move wouldn’t exactly protect American workers, a top Biden priority. Relations with China are still fraught at best.

US Dollar blasts through to 20-year high, but a cooling inflation number on Wednesday may signal the top. Soaring interest rates, a strong economy, and a weak Europe and Japan are the drivers. There’s a short play here someday, but not yet.

Housing Supply improves for the first time in three years. Supply of mid-sized single-family loans takes the lead. Inventories are showing smallest declines in a year. Finally, the buyers get a break….now that prices are falling. Almost all new loans are 5/1 ARMS.

Air Ticket Prices are through the roof and were the biggest single factor keeping the CPI inflation figure sky-high yesterday. Buyers cite as reasons a long time since visiting relatives, desperation to get outdoors, and a rush to travel before the next Covid wave hits. It may be a one-time pop only, as used car prices were in previous months.

30-Year Fixed Rate Mortgages Top 5.5% in the fastest rate rise in history. The housing market is still hot, now fueled by exploding adjustable-rate mortgages 1.5% cheaper. Refi’s, however, have gone to zero.

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still historically cheap, oil peaking out soon, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

With some of the greatest market volatility seen since 1987, my May month-to-date performance recovered to +0.91%. Friday was up +5.12%, the biggest one-day gain in the 14-year history of the Mad Hedge Fund Trader.

My 2022 year-to-date performance exploded to 31.09%, a new high. The Dow Average is down -12.67% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 58.48%.

I used last week’s meltdown to cover shorts in the (SPY) and bonds (TLT) and to buy new longs in technology like (AAPL), (NVDA), and (BRKB). I would have sent out more trade alerts if I had more time and didn’t have Covid and a 102 degrees temperature.

That brings my 14-year total return to 543.65%, some 2.40 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 43.78%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 82.5 million, up 300,000 in a week, and deaths topping 1,000,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, May 16 at 8:30 AM EST, the New York Empire State Manufacturing Index is released.

On Tuesday, May 17 at 8:30 AM, Retail Sales for April are released.

On Wednesday, May 18 at 8:30 AM, Housing Starts and Building Permits for April are published.

On Thursday, May 19 at 8:30 AM, Weekly Jobless Claims are disclosed. Existing Home Sales for April are printed.

On Friday, May 20 at 8:30 AM, the Baker Hughes Oil Rig Count is out.

As for me, the 1980s found me heading the Japanese equity warrant trading department for Morgan Stanley in London, a unit which eventually produced 80% of the company’s equity division profits. It was like running a printing press for $100 bills.

My east end kids in their twenties were catapulted from earning $10,000 a year to a half million. After buying West End condos, the latest Ferrari or Jaguar, and picking up fashion model girlfriends, they ran out of ideas on how to spend the money.

Maybe it was time to upgrade from pints of Fosters at the local pub to fine French wines?

The problem was that no one knew what to buy. Bordeaux alone produced 5,000 labels, and Burgundy a further 7,000. France had 360 appellations in 11 major wine-growing regions. Worse yet, all the names were in French!

Following a firmwide search, it was decided that I should become the in-house wine connoisseur. After all, I was from a wine-growing region in California, spoke French, and was part-French. How could they lose?

As with everything I do, I intensively threw myself into research. It turns out that the insurance exchange, Lloyds of London, was suffering the first of its claims in its history. US asbestos-related insurance claims were exploding. Then, a giant offshore natural gas rig, Piper Alpha, blew up. Suddenly Lloyd’s syndicates were getting their first-ever cash calls.

These syndicates were sold to members as guaranteed risk-free cash flow. Suddenly many members had to come up with $250,000 each in months. No one was ready. How did many meet their cash calls? By selling off 100-year-old wine cellars through auctions at Sotheby’s in London.

Now let me tell you about the international wine auction business. Single cases of the first growth wines, like the 1983 Chateaux Laffite Rothchild, are traded on open markets like any other investment. They appreciate in value like bonds, about 5% a year. However, mixed cases filled with odds and ends from different wineries and different years, have no investment value and traded at enormous discounts.

I found my market!

In short order, I put together a syndicate of 20 new wine consumers and went to work.

To separate out the sheep from the goats, I relied on a wine guide that The Economist magazine included at the back of every wallet diary. As each auction catalog came out, I rated every bottle in the mixed cases coming for sale. I then showed up at the bi-monthly auctions and bought every case.

It wasn’t long before I became the largest buyer of wine at Sotheby’s, picking up 20 cases per auction. The higher the Japanese stock market rose, the more money the traders made, and the more they had to spend on better French wines.

It wasn’t long before Morgan Stanley became famed for being a firm of wine authorities. Our guys were getting invited to high-end dinners just so they could pick the wines, including me.

Sotheby’s took note, and set me up with their in-house wine expert, the famed Serena Sutcliffe. I became her favorite customer. Serena knew everyone in Bordeaux. Who is the most popular person in any wine-growing area? Not the one who makes the wine but the one who sells it.

It wasn’t long before Serena set me up with private tours of the top Bordeaux wineries. I’m talking about Laffite Rothchild, Haut-Brion, Yquem (once owned by US Treasury Secretary C. Douglas Dillon), Chateaux Margaux, and Pomerol. I then flew the two of us down to Bordeaux in my twin-engine Cessna 340 for the wine tasting opportunity of a lifetime. I came back full up, with about 10 cases per flight.

I was guided through ancient, spider web-filled, fungus-infused caves and invited to drink their prime stock. Let me tell you that the 1873 Laffite Rothchild is to die for but is bested by the 1848 Chateaux Yquem.

The stories I heard were incredible. During WWII, one winery dumped its entire stock in a nearby pond to keep the Germans from getting it. But the labels floated to the surface. After the war, they fished out the bottles. But they couldn’t identify them until they opened the bottles, where the vintage was printed on the cork. It was free fishing for years for the locals and there are probably a few bottles still in there.

In sommelier school, you have to taste 5,000 wines to graduate. They tell you up front that it will change your life. After my experience as the biggest wine buyer in London for five years, I can tell you this is true.

One of my treasured buys was a bottle of 1952 Laffite Rothchild, the year I was born. Then it was only 40 years old and went down well with a fine dinner of Beef Wellington. I had the bottle for years until a cleaning lady found it on a shelf after a party and put it in the recycling bin.

A few months ago, I was at the Marin French Antique Show browsing for hidden treasures. What did I find but an empty case of 1985 Romanee Conti, the greatest Burgundy of France. The vendor had no idea what he had. To him, it was just a wood box. I offered him $10. He said thanks. It now adorns a place of honor in my own wine cellar to remind me of this grand experience.

And if we ever meet for dinner, don’t bother with the wine list. I’ll be making the pick.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Fill Her Up with Bordeaux

May 16, 2022/by Mad Hedge Fund Trader

April 25, 2022

Diary, Newsletter, Summary

Global Market Comments
April 25, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE ESCALATOR UP AND THE WINDOW DOWN)
($INDU), (SPY), (TLT), (WFC), (JPM),
(TSLA), (TWTR), (FCX), (NFLX), (GLD)

April 25, 2022/by Mad Hedge Fund Trader

The Market Outlook for the Week Ahead, or The Escalator Up and the Window Down

Diary, Newsletter

On Friday, we saw the worst day in the market since October 2020. And it won’t be the last such meltdown day.

The big question for the market now is how far it can fall without actually having a recession. The answer is 20%, and we are down 8.6% so far.

The economy is as strong as ever and everyone that is predicting a recession is using outdated, useless models. If I have to wait nine months for the delivery of my sofa demand is still off the charts.

Spoiler Alert!

I have to do some math here to explain the current situation. So, don’t run down the street screaming with your hair on fire. Math is your friend, not your enemy.

With an average estimated $227.33 forecast earnings for the S&P 500, we are currently trading at a multiple of 19.29X ($4,386 divided by $227.33). At the November high, we were trading at 24X. At the 2009 Financial Crisis low, we saw 9.5X for a few nanoseconds. There’s our range, 9.5X to 24X.

So, stocks are still historically expensive. They won’t start to approach cheap until we drop to 15X, a level we haven’t seen in nearly a decade. That is another 4.29 multiple points lower, or down 22.23%.

How do we get to cheap?

Since November, the S&P 500 has earned another $60, or 1.36X multiple points. We’ll probably pick up another $55, or 1.25X multiple points in Q2. That gets us halfway there.

The (SPX) is down 8.6% so far in 2022, or $414. If Q2 earnings come in as expected, then the (SPX) only has to fall by another 1.68X multiple points, or 8.72% to $4,004 to get to our 15X downside target.

I hasten to remind you that this was exactly 10% below my downside forecast of an H1 loss of 10% in my 2022 Annual Asset Class Review (click here)for the link.

The Ukraine War and the third oil shock, neither of which I, or anybody else, predicted, account for the second 10% loss.

How long will it take to reach these new, enhanced downside targets? My guess is by the summer.

And you wondered why I was still 100% in cash….until Thursday?

So what does the Federal Reserve make of all this? Even though they say they don’t care about the stock market, it really does, especially when it is crash-prone.

Some 2.50% in expected interest rate hikes are already discounted by the futures market. The market has already done the Fed’s work, and we were short all the way, via the (TLT). We will likely get aggressive half-point rate hikes through April to June, especially if inflation goes double-digit, which it might.

At that point, the Fed may be ahead of the curve. If we get the slightest backtrack in inflation, even just for one month, the Fed may well back off a bit on its tightening strategy and skip a meeting, igniting a monster stock market rally in the second half.

Poof! Your inflation fears have gone away.

Jay Powell Thrust a Dagger into the heart of the Stock Market, sending the Dow down 1,000. At this point, the only question is whether we get two back-to-back 50 basis point rate hikes coming, or two back-to-back 75 basis point rate hikes. 75 basis points is becoming the new 25 basis points.

TINA is dead (there is no alternative to stocks) with virtually all fixed income securities offering a 3.00% yield and junk bonds paying 6%. These kinds of yields have started sucking money out of stocks into bonds, which is why I am long bonds.

There is one other sparkly asset class that is worthy of attention here. Gold, the yellow metal, the barbarous relic (GLD), may have just entered a long-term structural bull market. By evicting Russia from the global financial system, we have driven it out of dollars and into gold and Bitcoin for good. Take a look at the Gold Miners ETF (GDX).

And Russia is not alone in pouring its revenues into gold, which can’t be seized by foreign governments, so is every other country that might be subject to future sanctions, like China. This adds up to a heck of a lot of new gold buying and could take the barbarous relic to my old long-term target of $3,000 an ounce.

Bonds Crash Again, with ten-year US Treasury bond yields topping 3.02% overnight, a three-year high. Those who took my advice to buy the (TBT) in November are now up 44%. The market is now oversold in the extreme and could rally $5-$10 at any time. This could happen right around the next Fed meeting on April 28.

Tesla Earnings Soar by 87% YOY, taking the stock up $90. Musk is still predicting that 50% YOY growth in sales will continue as far as the eye can see and could reach 2 million this year if they can get the lithium. There is a one-year wait for a Tesla now. With gasoline at $6.00 a gallon everyone who bought a Tesla in the last 12 years is looking like a genius. $10,000 a share here we come! Keep buying (TSLA) on dips, as I have been begging you do to for the last 12 years.

Netflix Gets Destroyed, on horrific earnings and falling subscribers. Disney and Amazon are clearly eating their lunch. Hedge fund manager Bill Ackman dumped his position with a $400 million loss. At this point, (NFLX) is a high risk, high return trade than may take years to play out, not my cup of tea.

Corn Hits Nine-Year High, above $8 a bushel. Russia’s invasion of Ukraine may take one-third of the global wheat supply off the market and cause Africa to starve. Who is the world’s largest food importer? China, which may be why the yuan has seen a rare selloff.

Weekly Jobless Claims Fall to 184,000, why the unemployed hit a 52-year low. No need for stimulus here. It’s clear that fear of interest rate rises is not scaring off companies from hiring. Fifty basis points here we come. The unemployment rate may hit an all-time low with the April report on May 6.

Twitter Adopts Poison Pill, to fight off Elon Musk’s takeover attempt. Musk’s offer is a generous 20% higher than the Friday close. If the poison pill is successful then Musk will dump his 9.9% holding, cratering the stock. The battle of the century is on! Incredibly, the stock is up today. (TWTR) holders should take the money and run.

Investor Optimism Hits 30-Year Low, according to the Association of Individual Investors. Now only 15.8% of investors are bullish, down 9% in a week. A lot of pros are starting to see this as a “BUY” signal.

World Bank Cuts Global Growth Outlook on Russian War, from 4.1% in January to 3.2%. This compares to 5.7% in 2021. Europe and central Asia are taking the big hits.

Natural Gas Hits 13-Year High, to $7.80 per MM BTU, up 100% YTD. American exports are rushing to fill the gap in Europe. With the war showing no end in sight, prices will go higher before they go lower.

Copper is Facing a Giant Short Squeeze, and the world rushes into alternative energy, says Freeport McMoRan (FCX) CEO Richard Adkerson. World copper output will have to triple just to accommodate Tesla’s long-term target of 20 million vehicles a year. Buy (FCX) on dips, like this one.

US Housing Starts Hit 15 Year High, up 0.3% in March to 1.79 million. Applications to build top 1.87 million. The US has a structural shortage of 10 million homes caused by the large number of small builders that went under during the financial crisis and never came back.

My Ten-Year View

My March month-to-date performance retreated to a modest 2.58%. My 2022 year-to-date performance ended at a chest-beating 29.28%. The Dow Average is down -6.8% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 71.86%.

On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding long positions in technology, banks, and biotech. I am currently in a rare 100% cash position awaiting the next ideal entry point.

That brings my 13-year total return to 541.94%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.54%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 80.6 million, up only 300,000 in a week, and deaths topping 988,000 and have only increased by 3,000 in the past week. Wow, we only lost the equivalent of eight Boeing 747 crashes in a week! Great news indeed. You can find the data here. Growth of the pandemic has virtually stopped, with new cases down 98% in two months.

The coming week is a big one for tech earnings.

On Monday, April 25 at 8:30 AM EST, the Chicago Fed National Activity Index for March is out. Activision Blizzard Reports (ATVI).

On Tuesday, April 26 at 8:30 AM, US Durable Goods for March are printed. At 9:00 AM the S&P Case Shiller National Price Index is announced. Alphabet (GOOGL) and Microsoft (MSFT) report.

On Wednesday, April 27 at 8:30 AM, the Pending Homes Sales for March are released. Qualcomm and Meta (FB) report.

On Thursday, April 28 at 8:30 AM, the Weekly Jobless Claims are printed. We also get the first look at Q1 GDP. Apple (AAPL), Amazon (AMZN) and Intel (INTC) report.

On Friday, April 29 at 8:30 AM, the Personal Income and Spending for March are disclosed.At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, when you are a guest of the KGB in Russia, you get treated like visiting royalty par excellence, no extravagance spared. That was the setup I walked into when I was sent by NASA to test fly the MiG 25 in 1993.

Far a start, I was met at Moscow’s Sheremetyevo Airport by Major Anastasia Ivanova, who was to be my escort and guide for the week. She had a magic key that would open any door in Russia and gave me a tour worthy of a visiting head of state.

Anastasia was drop-dead gorgeous. She topped 5’11” with light blonde hair, and was statuesque with chiseled high cheekbones and deep blue eyes. She could easily have taken a side job as a Playboy centerfold. But I could tell from her hands she was no stranger to martial arts and was not to be taken lightly. And wherever we went people immediately tensed up. They knew.

For a start, I was met on the tarmac by a black Volga limo. No need for customs or immigration here. Anastasia simply stamped my passport and welcomed me to Russia, whisking me off to the country’s top Intourist hotel.

The next morning, I was given a VIP tour of the Kremlin and its thousand-year history. I was shown a magnificent yellow silk 18^th century ball gown worn by Catherine the Great. I asked her if the story about the horse was true, and she grimaced and said yes.

In a side room were displayed the dress uniforms of Adolph Hitler. I asked what happened to the rest of him and she said he was buried under a parking lot in Magdeburg, East Germany.

Out front, I was taken to the head of the line to see Lenin’s Tomb, which looked like he was made of wax. I think he has since been buried. In front of the Kremlin Armory, I found the Tsar Cannon, a gigantic weapon meant to fire a one-ton ball.

There was only one decent restaurant in Moscow in those days and Anastasia took me out to dinner both nights. Suffice it to say that the Beluga caviar and Stolichnaya vodka were flowing hot and heavy. The service was excellent. We were never presented with a bill. I guess it just went on the company account.

After my day in the capital, I was whisked away 200 miles north to the top secret Zhukovky Airbase to fly the MiG 25. A week later, Anastasia was there in her limo to take me back to Moscow.

The next morning Anastasia was knocking on my door. “Get dressed,” she said. “There’s something you want to see.”

She drove me out to a construction site on the southwestern outskirts of the city. As Moscow was slowly westernizing, suburbs were springing up to accommodate a rising middle class. One section was taped off and surrounded by the Moscow Police. That’s where we headed.

While digging the foundation for a new home, the builders had broken into a bunker left from WWII. Moscow had grown to reach the front lines of the 1942 Battle of Moscow. In Berlin during the 1960s, I worked with a couple of survivors of this exact battle. I was handed a flashlight and we ventured inside.

There were at least 30 German bodies inside in full uniform, except that only the skeletons were left. They still wore their issued steel helmets, medals, belt buckles, and binoculars. There were also dozens of K-98 8 mm rifles, an abundance of live ammunition and potato mashers (hand grenades), and several MG-42’s (yes, I know my machines guns).

The air was dank and musty. My guess was that the bunker had taken a direct hit from a Soviet artillery shell and had remained buried ever since. As a cave in threatened, we got the hell out of there in a few minutes.

Then Anastasia continued with our planned day. Since it was Sunday, she took me to the Moscow Flea Market. Russia was suffering from hyperinflation at the time, and retirees on fixed incomes were selling whatever they had in order to eat.

Everything from the Russian military was for sale for practically nothing, including hats, uniforms, medals, and night vision glasses. I walked away with a pair of very high-powered long-range artillery binoculars for $5. I paused for a moment at an 18^th century German bible printed in archaic fraktur. But then Anastasia said I might get hung up by Russia’s antique export ban on my departure.

Anastasia and I kept in touch over the years. I sent him some pressed High Sierra wildflowers, which impressed her to no end. She said such a gesture wouldn’t even occur to a Russian man.

We gradually lost contact over the years, given all the turmoil in Russia that followed. But Anastasia left me with memories I will never forget. And I still have those binoculars to use at the Cal football games.

Stay Healthy,

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

April 25, 2022/by Mad Hedge Fund Trader

April 22, 2022

Diary, Newsletter, Summary

Global Market Comments
April 22, 2022
Fiat Lux

Featured Trade:

(APRIL 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPX), (TSLA), (TBT), (TLT), (BAC), (JPM), (MS),
(BABA), (TWTR), (PYPL), (SHOP), (DOCU),
(ZM), (PTON), (NFLX), (BRKB), (FCX), (CPER)

April 22, 2022/by Mad Hedge Fund Trader

April 20 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the April 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: Should I take profits on the ProShares UltraShort 20+ Year Treasury ETF (TBT), or will it go lower?

A: Well, you’ve just made a 45% profit in 4 months; no one ever gets fired for taking a profit. And yes, it will go lower, but I think we’re due for a 5 -10% rally in the (TBT) and we’re seeing some of that today.

Q: Do you think the bottom is in now for the S&P 500 Index (SPX)?

A: No, I think the 50 basis point rate hikes will put the fear of God into the market and prompt another round of profit-taking in stocks. So will another ramp up or expansion in the Ukraine War, and so could another spike in Covid cases. And interest rates are getting high enough, with a ten-year US Treasury (TLT) at 2.95% and junk at 6.00% that they will start to bleed off money from stocks.

So there are plenty of risks in this market that I don’t need to chase thousand point rallies that fail the following week.

Q: What would cause a rally in the iShares 20 Plus Year Treasury Bond ETF (TLT)?

A: Everyone in the world is short, for a start. And secondly, we’ve had a $36 point drop in the market in 4 ½ months—that is absolutely screaming for a short-covering rally. It would be typical of the market to get everybody in the world short one thing, and then ramp it right back up. You can bet hedge funds are just gunning for that trade. So those are two big reasons. Another big reason is getting a slowdown in the economy. Fear of interest rate rises and yield curve inversions are certainly going to scare people into thinking that.

Q: Where to buy Tesla (TSLA)?

A: We had a $1,200 all-time high at the end of last year, then sold off to $700—that was your ideal entry point, on that one day when the market was down $1,000 and they were throwing out Tesla stock like there was no tomorrow. We have since rallied back to the 1100s, so I'd say at this point, anything you could get under just above the $200-day moving average at $900 would be a gift because the sales are happening and they’re making tons of money. They’re so far ahead of the rest of the world on EV technology that no one will ever be able to catch up. A lot of the biggest companies like Ford (F) and (GM) are still unable to mass produce electric cars, even though they’re all talking about these wonderful models they're bringing out in 2024 and 2025. So, I think Tesla is just so far ahead in the market that no one will catch them. And the stock will have to reflect that by trading at a higher premium.

Q: I Bought the ProShares UltraShort 20+ Year Treasury ETF (TBT) at your advice at $14, it’s now at 425. Time to take the money and run?

A: Yes, so that you’re in position to rebuy the (TBT) at $22, or even $20.

Q: I bought some bank LEAPS such as Bank of America (BAC), JP Morgan (JPM), and Morgan Stanley (MS) just before earnings; they’re doing well so far.

A: That will definitely be one of my target sectors on any recovery; because the only reason the stock market recovers is because recession fears have been put away, and the only reason the banks have been going down is because of recession fears. Certainly, the yield curve inversion has been helping them lot, as are absolute higher interest rates. So yes, zero in on the banks, I’m holding back waiting for better entry points, but for those who are aggressive, there’s no problem with scaling in here.

Q: If Putin uses a tactical nuclear weapon in the Ukraine, what would be the outcome?

A: Well, I don't think he will, because you don’t want to use nukes on your neighbors because the wind tends to blow the radiation back into your own country. It also depends on when he does this; if Ukraine joins NATO, joins the EC, and NATO troops enter Ukraine, and then they use tactical nukes, France and England also have their own nuclear weapons. So, attacking a nuclear foe and risking bringing in the US, who could wipe out the whole country in minutes, would not be a good idea.

Q: Would you get into Chinese stocks here?

A: Not really; China seems to have changed its business model permanently by abandoning capitalism. The Mad Hedge Technology Letter is currently running a short position in Alibaba (BABA) which has proved highly successful. Although these things are stupidly cheap, they could get cheaper before they turn around. Also, there’s the threat of delisting on the stock exchanges facing them in a year or two, and the trade tensions which continue with China. China doesn’t seem friendly anymore or is interested in capitalism. You don't want to own stocks anywhere in that situation. And by the way, Russia has also banned all foreign stock listings. China could do the same—not good if you’re an owner of those stocks.

Q: How would you play Twitter (TWTR) now?

A: I think it’s a screaming short, myself. If the board doesn’t accept Elon’s offer, which seems to be the case with their poison pill adoption, there are no other buyers of Twitter; and Elon has already said he’s not going to pay up. So you take Elon Musk’s shareholding out of the picture, and you’re looking at about a 30% drop.

Q: Many of the biggest Covid beneficiaries are near or below their March 2020 lows, such as PayPal (PYPL), Shopify (SHOP), DocuSign (DOCU), Zoom (ZM), Peloton (PTON), Netflix (NFLX), etc. Are these buys soon or are there other new names joining them?

A: I think this will continue to be a laggard sector. I think any recovery will be led by big tech, and once big tech peaks out after a 6-month run, then you may get the smaller ones catching up—especially if they're still down 80% or 90%. So that’s a no-touch for me; too many better fish to fry.

Q: Do you think inflation is transitory or are we headed toward double digits over the long term?

A: The transitory argument got thrown out the window the day Russia invaded Ukraine; they are one of the world’s largest producers of both energy and wheat. So that definitely set those markets on fire and really could end up adding an extra 5% in our inflation numbers before we peak out. I think we will see the highs sometime this year, could be as low as 4% by the end of this year. But we may have a double-digit print before we top out, and that could be next month. So, if you’re looking for another reason for stocks to sell out, that would be a good one.

Q: If the EU could limit oil purchases from Russia, then the war would be over in a month since Russia has no borrowing power or reserves.

A: The problem is whether they actually could limit oil purchases, which they can’t do immediately. If you could limit them in a year or cut them down by like 80%, we could come up with the other 20%, that is possible. Then, the war would end and Russia would starve; but Russia may starve anyway. Even with all the rubles in the world, they can’t buy anything overseas. Basically, Russia makes nothing, they only sell commodities and use those proceeds to buy consumer goods from abroad, which have all been completely cut off. They’re in for an economic disaster no matter what happens, and they have no way of avoiding it.

Q: What are your thoughts on supply chain problems?

A: I actually think they’re getting better; I watch the number of ships at anchor in San Francisco Bay, and it’s actually down by about half over the last 3 months. People are slowly starting to get things that they ordered nine months ago, used car prices are starting to roll over…so yes, it’s going to be a very slow process. It took one week to shut down the global economy, it’ll take three years to get it fully reopened. And of course, that’s extended by the Ukraine War. Plus, as long as there are supply chain problems and huge prices being paid for parts and labor, you’re not going to have a recession, it’s impossible.

Q: What’s your outlook on tech stocks?

A: I see them bottoming in the current quarter, and then going on to new all-time highs in the second half.

Q: What about covered calls?

A: It’s a really good idea, allowing you to get long a stock here, and reduce your average cost every month by writing calls against your position until they eventually get called away. Not too long ago, I wrote a piece on covered calls, so I could rerun that again to get people familiar with the concept.

Q: If Warren Buffet retires, what happens to Berkshire Hathaway (BRKB) stock?

A: It drops about 5% one day, then goes on to new highs. The concept of a 90-year-old passing away in his sleep one night is not exactly revolutionary or new. Replacements for Buffet have been lined up for so long that now the replacements are retiring. I think that’s pretty much baked in the price.

Q: Any plans to update the long-term portfolio?

A: Yes it’s on my list.

Q: Too late to buy Freeport McMoRan (FCX)?

A: Yes I’m afraid so. We’ve had a near double since September when it started moving. However, I would hold it if you already own it and add on any substantial selloff. Freeport McMoRan announced fabulous earnings today, and the stock promptly sold off 9%. It was a classic “buy the rumor, sell the news” type move. This is despite the fact that the United States Copper Fund ETF (CPER), in which (FCX) is a major holding, is up on the day. Please remember that I told you earlier that each Tesla needs 200 pounds of copper, that Tesla sales could double to 2 million this year, and that they could sell 4 million if they could make them. It sounds like a bullish argument of me, of which (FCX) is the world’s largest producer.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 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