Mad Hedge Technology Letter
September 16, 2024
Fiat Lux
Featured Trade:
(DOMINATING THE BATTERY MARKET IN EUROPE)
(CATL), (TSLA), (NKLA), (BYD)
Posts
In a sign of the times, the world’s most important EV battery maker is now a Chinese company that is dominating Europe.
It also shows how far Chinese technology has come in terms of value-added products in such a short time.
Europe and Tesla are falling asleep at the wheel and need to figure out how to combat the Chinese from taking over the EV and EV battery industry.
Contemporary Amperex Technology (CATL) is the name, and they plan to expand rapidly in Europe to avoid paying any tariffs on products coming from China.
Circumventing tariffs is the game, and the Chinese are very good at it.
CATL unveiled new technologies and products for heavy-duty vehicles and ships, including a battery with a 15-year and 2.8 million-kilometer lifespan.
The company is already partnering with several European manufacturers, including Daimler Truck Holding, Volkswagen Commercial Vehicles, and Volvo.
It’s involved in early-stage product design as well as research on the infrastructure needed for broader adoption of electrified commercial transport.
CATL is expanding its commercial-vehicle battery business in Europe as the continent moves to slash carbon emissions from trucks, buses, and ships.
It is definitely cheaper to use batteries exported from China, given the maturity of the supply chain there, but the company could ramp up production in Europe based on clients’ needs and other local production requirements.
It already has a plant in Germany, which kicked off production in 2022, and it’s building another in Hungary.
Much like the smartphone business, with every type of technology that the Chinese master, they solve the economies of scale problem and are able to manufacture these products for significantly less than their competitors.
This is why they can sell great driving EVs for $10,000 per vehicle.
Very few companies can compete with China on cost alone.
With inflation staying stubbornly higher and burning a hole in the consumer wallet, many strapped buyers are opting for Chinese substitutes instead of Tesla’s or German EVs.
This is a harbinger for things to come as many lucrative manufacturing jobs in Germany could be lost and replaced by a lower-paid Chinese EV job.
My guess is that BYD and CATL, both Chinese companies, are about to muscle out the competition in Europe before they go back to the drawing board to figure out how to do the same in the United States.
BYD has also signaled its strategy to get its cars into the US by building a factory in Mexico.
They plan to tell us publicly their Mexico strategy after the US election is over.
One area that is under consideration was around the city of Guadalajara. That region has emerged over the past decade as a technology hub sometimes described as Mexico’s Silicon Valley. BYD sent a delegation to the area in March.
I do believe the entire world, and not just the Global South, should start getting comfortable with driving Chinese EVs with Chinese-produced batteries.
Many are still are shocked that the Chinese were able to corner the EV market so quickly after Tesla’s first mover advantage kept them top dog for many years.
Although this would not be a reason to bet on the Chinese economy, it would be a good reason to stay out of Tesla shares and to even short companies like Rivian and other small firms such as Nikola.
Unfortunately, BYD and CATL are listed on an exchange in Shenzhen, China, so I would steer clear of that and focus on the knock-on effects on companies in more investable nations.
Global Market Comments
August 27, 2024
Fiat Lux
Featured Trade:
(WHY YOU MUST AVOID ALL EV PLAYS EXCEPT TESLA),
(TSLA), (GM), (F), (RIVN), (NKLA), (F-SRNQ)
Markets live on fads.
Once a certain investment theme takes hold, the imitators start coming out of the woodwork in droves.
In 1989, all of the largest Japanese banks stampeded issuing naked short put options on the Nikkei Average by the billions of dollars when the index was at an all-time high. The Nikkei then fell by 85% causing tens of billions worth of losses.
I remember signing the paperwork on a $3 billion deal for the Industrial Bank of Japan on behalf of Morgan Stanley. It’s been 35 years, and I’m still waiting for those investors to come after me.
Then there was the peak of the Dotcom Bubble in 2000 and no less than five online pet food delivery companies raised billions. (remember Webvan and those cute sock puppets?) Every one of them went under.
So, what has been one of the biggest fads of 2024?
That would be electric vehicles.
You no longer have to wear Birkenstocks, grow your hair long, and smoke pot to drive an electric car. They have become a major part of the American economy. According to Adam Jonas at Morgan Stanley, EVs account for 8% of the total car market today and will grow to 10% by 2025 and 25% by 2030.
I have been involved with Tesla (TSLA) since its earliest days way back in 2003. Then it was one rich man’s hobby, with technology that was a reach at best, and unlikely to ever see the light of day as a public company. There it remained for seven years.
Then Tesla brought out the Model S in 2010, which I snapped up as fast as I could, picking up chassis no. 125 at the Fremont factory. My signature is still on the wall there as are those for all of the first 125 buyers. Every time I pick up a new Tesla I check if it is still there.
If the Model S worked it had the potential to be a real car. If it didn’t, I would wind up with $100,000 worth of inert aluminum, steel, silicon, rubber, lithium, and copper with only scrap metal value.
The trials were then only just beginning for Musk. He faced nervous breakdowns, sleeping in factories, and SEC prosecutions. After a decade of abuse, suddenly everything clicked. Total Tesla production is now running at a 1.7 million vehicle annual rate. The shares leaped 180-fold to a split-adjusted $425 from their post-IPO low of $2.40. That move financed a lot of retirements among my readers.
I remember what Steve Jobs once told me; “Like many overnight successes, this one took decades to pull off.”
Suddenly, making electric cars looked easy. Raising money to finance them looked even easier.
The problem is that all the new EV entrants now have a hyper-aggressive Tesla to compete against. Tesla has already locked up long-term supplies of crucial commodities essential for EV production, like copper, lithium, and chromium for stainless steel.
It has a 66% market share. It was a lock on experienced EV engineering talent. It has a near monopoly with a 48,000-strong national charging network which Ford (F) had no choice but to sign up for.
The best competitors can hope for is to peel off experienced employees from Tesla at inflated salaries, and then get sued by Tesla.
Enter the hoards, which I list below, a roll call of the shameless:
Nikola Badger (NKLA) – Has a hydrogen fuel cell power source that hasn’t a hope in hell of ever becoming economic. As I never tire of explaining to investors, while electric power is digital and infinitely scalable, hydrogen is analog and isn’t. Maybe that’s why the stock has been a disaster. Too many unbelievable promises and no actual functioning model. Gravity was their only actual power source. It just announced a recall of its electric trucks because of a coolant leak in the battery that caused fires.
Fisker (F-SRNQ) – If at first, you don’t succeed, why not fail again? This VEHICLE had double the number of parts of a conventional international combustion engine. Its chief claim to fame was that it got a free factory from the government in Joe Biden’s home state and the fact that Justin Bieber drove one. More flailing at the wind. It recently went bankrupt….again.
Aspark Owl – A $3.2 niche supercar with an appeal to maybe three car-collecting Saudi princes.
Bollinger B1 – Is a $125,000 SUV expected from a Michigan startup with only a 200-mile range. Why not pay nearly double the cost of a Tesla Model X and get half the performance?
The Byton M-Byte – Is a $45,000 crossover car from a Chinese start-up. China has actually been building electric cars longer than Tesla, but they have a tendency to break down or catch on fire. Quality and safety problems have until now kept them out of the US, and probably always will.
Genesis Essentia – A Croatian-based start-up with a major investment from South Korea’s Hyundai. It will most likely never get off the drawing board. The last time Croatia built cars was for the Austria-Hungarian Empire during WWI.
Rivian R1T (RIVN) – A start-up with a reasonably priced truck and up to 400 miles of range that will only make it because they have a 100,000-unit order from the largest shareholder, Amazon (AMZN). It’s perfect for local deliveries. The cars are beautiful and there is a two-year waiting list for the $80,000 list price vehicles. (RIVN) is the only alternative EV maker that will probably make it.
By now, virtually every major car manufacturer has or is about to roll out its entry in the electric car race. I list them below, skipping those that are more than two years out over the horizon. Notice the profusion of the letter “e” in the names. In fact, there are an astonishing 527 EVs either on, or about to hit the market.
They include the Porsche Taycan, Audi eTron, Jaguar I-Pace, Austin Mini Electric, Fiat 500e, Kia Niro EV, BMW i3, Chevy Bolt EV, Hyundai Kona Electric, and the Hyundai Ioniq Electric, Ford F-150 Electric, Ford Mustang Mach-E, and Nissan Ariya.
Not one of these comes even close to the price/performance and battery density of the Tesla cars. Tesla is a decade ahead of the competition and is accelerating its lead. At best, they will sell a few electric cars to those who are intensely loyal to their brands and lose money doing it.
In the meantime, Tesla hasn’t been sitting on its hands. Elon Musk plans to bring out a $25,000 model in two years that will bar entry to the field from any other competitor. It has its own $250,000 supercar, the Tesla Plaid, which will go zero to 60 MPH in 1.9 seconds and has a 600-mile range. The Tesla Cyber Truck at $60,000 has the specs to take on the enormous US pickup market. Did I mention that the company is on the verge of developing technology that will improve battery performance by a staggering 20-fold?
So Tesla is branching out to suck up every profit in every branch of the entire global auto industry.
And this is what most traders, especially the short sellers, got wrong about Tesla. The data is worth more than the car. The miles driven provide a springboard from which the company can offer very high value-added and profitable services, like autonomous driving. Not even Alphabet (GOOGL) can replicate this.
When I bought my first Tesla more than a decade ago, I knew I was betting on the company. The big risk was that General Motors (GM) would step in with their own cheap electric car and drive Tesla out of business.
In the end (GM) did that, but too little, too late. Its Chevy Bolt EV didn’t hit the market until the end of 2016. Today it offers a boring design, lacks autonomous driving, possesses only a 259-mile range for $36,620, and is subject to recall, thanks to recurring battery fires (click here for the link).
The quality is, well, Chevy quality. The company has already announced it will discontinue production.
Tesla is approaching 2 million. It’s too late to close the barn door after the horse has “bolted,” as GM is earning. Over the past decade, Tesla shares were up 180 times at the high. GM shares are nearly unchanged during the greatest bull market of all time.
It is competing against Teslas that are 20 years from the future, are fully autonomous, go to street-autonomous driving next year, and upgrade itself once or twice a month.
Make mine Tesla, please, which will soon become the world’s first trillion-dollar car company. Don’t waste your time or money on the others, either as a driver or investor.
I’ll Go with Tesla
Global Market Comments
April 23, 2024
Fiat Lux
Featured Trade:
(WHY MOST SPAC’S ARE A SCAM)
(DJT), (PSTH), (SPAK), (NKLA)
I have been watching with some amusement the trading of the Trump Media & Technology Group (DJT).
After the IPO was issued in 2023, it soared to $130, then collapsed to $15. It has just completed another round trip, plunging 50% over the last month. This is for a company that posted a horrific $58 million loss in 2023. In no way can that support a $5 billion market cap at the current $22 share price unless it’s the next AI stock we don’t know about. (DJT) has become the latest meme stock.
So many hedge funds have lined up to sell that the borrowing costs have skyrocketed to an incredible 550%. (DJT) has become the latest meme stock. The former president owns 60% of the shares. Accusations of insider trading and fraud are rife. If the former president loses the election, goes to jail, or dies as a result of his unhealthy lifestyle (he’s 50 pounds overweight) the shares become worthless. In other words, it’s a stock that no professional investor would touch with a ten-foot pole.
Every investment bubble creates its special instruments of self-destruction and this one is no different.
There were highly touted leveraged commodity and gold funds during the seventies, portfolio insurance during the eighties, money-losing tech companies with lots of “eyeballs” in the nineties, and subprime lending in the 2000s.
In this cycle, we have the Special Purpose Acquisition Companies, otherwise known as “SPACs.”
The goal of a SPAC is to raise money first on some generalized investment theme, and then merge with a target company to achieve those goals. This allows companies to go public while skipping most disclosure requirements.
SPACs have their advantages for some people. It enables start-up companies with no track record or earnings to go public faster without the costs and regulatory scrutiny of the burdensome public IPO process. Promoters promise to get investors into the next Amazon (AMZN) or Facebook FB) early.
Easier said than done.
Some $162 billion was raised for SPACs in 2021 followed by a much more modest $15 billion in 2022 and $125 million in 2023. The largest has been hedge fund manager Bill Ackman’s Pershing Square Tontine Holdings Ltd. (PSTH) at $4 billion. There is even a SPAC for SPACs, the Defiance Gen SPAC Derived ETF (SPAK).
The performance of SPACs so far has been dismal. There have been 915 SPACs created since 2015. Only 93 managed to invest their funds in a target company and only 29 of those have produced a profit. This was during one of the greatest runaway bull markets of all time.
You would have done better to simply buy the cheapest Vanguard index funds or 90-day T-bills. In the meantime, the issuers of SPACs for the most part became wealthy.
The quality of the management who had stepped forward to run SPACs has been mixed at best, including Ackman himself, who recently ran two gargantuan money-losing years back to back. They include former House Speaker Paul Ryan and NBA Hall of Famer Shaquille O’Neil, not exactly known as financial wizards.
Then there’s Nikola (NKLA), an electric/hydrogen vehicle company that has promised to take on Elon Musk, unfazed by the complete lack of a functioning vehicle. These shares have cratered by 92% since their market peak among multiple fraud allegations aimed at the founder.
The risks and limitations of SPACs are legion. You are essentially betting on the good faith and judgment of a single individual unmoored by any filings with the SEC. There are no guarantees they can achieve anything. These disclosures to the government are there to protect you. Without them, you are swimming without a swimsuit.
The conflicts of interest are enormous. SPAC issuers get to buy the equivalent of call options on their funds at deep discounts prior to the issue. When issuers make fortunes overnight with little money upfront, you want to run a mile.
And here is the big problem with SPACs. They are essentially roach motel investments, easy to check in but impossible to check out. Liquidity going in is unlimited but coming out is nil. You can often only redeem your investment at a huge discount, or if another buyer is willing to take out at any price. That makes marks to market challenging at best.
Investors that buy SPACs are giving up all the protections of SEC protections for much higher risks and lower returns.
Suffice it to say that if PT Barnum were working in the financial markets, he’d be up to his eyeballs with SPAC offerings.
Personally, I’ll give them a pass. You should too.
The Problem is that it’s a Dummy
Mad Hedge Technology Letter
January 10, 2022
Fiat Lux
Featured Trade:
(THE EV DARKHORSE)
(LCID), (TSLA), (NKLA)
2022 could be the year that Lucid Motors (LCID) put a dent in the universe as one of the many EV upstarts hoping to eventually challenge Tesla (TSLA) one day on top of their lofty perch.
Realistically, many EV companies never get to the point of delivering cars, like fraudulent company Nikola (NKLA), but Lucid has started to roll out new cars to US customers.
Things move fast in the EV industry and Lucid has announced they are planning to start shipping cars in Europe sometime this year.
The stock exploded to the upside on the announcement.
Conceptually, the idea that Lucid is expanding fast, creating and looking to take advantage of the total addressable market in Europe only signals to investors they are doing all the right things in all the right places.
I believe there is loads of momentum in EV cars today, and their trajectory this year is impressive as we are seeing it in our news feeds.
I am not just talking about Tesla, but the mainstreaming of the product will help the next in line to build something competitive to Tesla and Tesla blazing an early trail has helped really legitimize the industry.
Sure, at the micro level, there are still teething pains with EVs, like waiting an hour for your Tesla X to charge at a supercharger.
The science behind it still needs to catch up to the point where someone can just get behind a wheel and drive coast to coast without crunching the logistics designed for the trip.
Germany will probably be the most important European market for Lucid, being a car-first society while the citizens harness high purchasing power.
Lucid also wants an expansive taste of Europe by expanding all over and that means places like Sweden and Switzerland.
The company is currently building its only model, the Air sedan, at its Arizona plant, yet the volume of cars is kept from the public view.
The firm pumped out a few hundred cars in 2021 but wants to ramp up to 20,000 by the end of 2022.
The vehicles it has delivered so far don’t have a full variety of active safety aids online, but they will be enabled via an over-the-air updated by the end of January.
Just like Tesla, Lucid will probably try to push its direct sales model in Europe as well. The manufacturer has already announced plans to set up nine Lucid Studios in the United States and major European cities are in the mix as well.
Lucid CEO Peter Rawlinson has already stated that the company also plans to roll out in the Middle East in 2022, with China following in 2023 so there’s a lot in the pipeline here, but it could be biting off more than they can chew.
If the “EV trade” catches fire this year which is certainly in the realm of possibilities, I see the stock doubling from $42 to over $80 per share.
Let’s not forget that the used car market is so hot that it costs almost as much as buying a new car.
Energy is higher across the board, so why not slap on some solar panels on the roof and drive an EV for free instead of indulging in expensive fossil fuels?
The Saudi Arabia's Public Investment Fund has previously stated that they will not be selling any of their Lucid Motors shares until beyond 2030, which is why they are planning to sell these EVs in the Middle East.
When the PIF gave Lucid Motors an investment of $1 billion in 2018, that deal was contingent on Lucid Motors building a plant in Saudi Arabia.
Lucid is projecting themselves to be a leader in solar, and by 2026 they estimate that they will make over $22 billion a year from their Renewable Energy division.
This EV company has a solid foundation, and if the cars stack up nicely against the Teslas of the world, then they really have the potential to uplift the stock price in 2022.
Reviews of its car have been generally good, with highlights like world-class efficiency, miraculous packaging, and amazing performance and comfort.
This could be the dark horse of EV’s in 2022 and I am looking out for a splashier Lucid EV model in the years ahead. I am bullish on Lucid Motors.
Global Market Comments
July 30, 2021
Fiat Lux
Featured Trade:
(JULY 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (CRSP), (TLT), (TBT), (BABA), (BIDU), (FXI), (RAD), (TSLA), (NASD), (NKLA), (NIO), (INTC), (MU), (NVDA), (AMD), (TSM), (VXX), (XVZ), (SVXY), (FCX), (ROM), (SPG)
July 28 Biweekly Strategy Webinar Q&A
Below please find subscribers’ Q&A for the July 28 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.
Q: What is your plan with the (SPY) $443-$448 and the $445/450 vertical bear put spreads?
A: I’m going to keep those until we hit the lower strike price on either one and then I’ll just stop out. If the market doesn’t go down in August, then we are going straight up for the rest of the year as the earnings power of big tech is now so overwhelming. Sorry, that’s my discipline and I’m sticking to it. Usually, what happens 90% of the time when we go through the strike, and then go back down again by expiration for a max profit. But the only way to guarantee that you'll keep your losses small is by stopping out of these things quickly. That’s easy to do when you know that 95% of the time the next trade alert you’ll get is a winner.
Q: Are you still expecting a 5% correction?
A: I am. I think once we get all these great earnings reports out of the way this week, we’re going to be in for a beating. I just don't see stocks going straight up all the way through August, so that’s another reason why I'm hanging on to my short positions in the S&P 500 (SPY).
Q: What’s the best way to play CRISPR Therapeutics (CRSP) right now?
A: That is with the $125-$130 vertical bull call spread LEAPS with any maturity in 2022. We had a run in (CRSP) from $100 up to $170 and I didn’t take the damn profit! And now we’ve gone all the way back down to $118 again. Welcome to the biotech space. You always take the ballistic moves. Someday I should read my own research and find out why I should be doing this. For those who missed (CRSP) the last time, we are one proprietary drug announcement, one joint venture announcement, or one more miracle cure away from another run to $170. So that will probably happen in the next year, you get the $125-$130 call spread, and you will double your money easily on that.
Q: I’m down 40% on the United States Treasury Bond Fund (TLT) January $130-$135 vertical bear put spread LEAPS. What would you do?
A: Number one, if you have any more cash I would double up. Number two, I would wait, because I would think that starting from the Fall, the Fed will start to taper; even if they do it just a little bit, that means we have a new trend, the end of the free lunch is upon us, and the (TLT) will drop from $150 down to $132 where it was in March so fast it will make your head spin. I'm hanging onto my own short position in (TLT). If you are new to the (TLT) space and you want some free money, put on the January 2020 $150-$155 vertical bear put spread now will generate about a 75% return by the January 21, 2022 options expiration. I just didn't figure on a 6.5% GDP growth rate generating a 1.1% bond yield, but that’s what we have. I'm sorry, it’s just not in the playbook. Historically, bonds yield exactly what the nominal GDP growth rate is; that means bonds should be yielding 6.50% now, instead of 1.1%. They will yield 6.5% in the future, but not right now. And that's the great thing about LEAPS—you have a whole year or 6 months for your thesis to play out and become right, so hang on to those bond shorts.
Q: Do you have any ideas about the target for Facebook (FB) by the end of the year?
A: I would say up about 20% from current levels. Not only from Facebook but all the other big tech FANGS too. Analysts are wildly underestimating the growth of these companies in the new post-pandemic world.
Q: Do you think the worst of the pandemic will be over by September?
A: Yes, we will be back on a downtrend by September at the latest and that will trigger the next leg up in the bull market. Delta with its great infectious and fatality rates is panicking people into getting shots. The US government is about to require vaccinations for all federal employees and that will get another 5 million vaccinated. Americans have the freedom to do whatever they want but they don’t have the freedom to kill their neighbors with fatal infections.
Q: What should I do with my China (BABA), (BIDU), (FXI) position? Should I be doubling down?
A: Not yet, and there’s no point in selling your positions now because you’ve already taken a big hit, and all the big names are down 50% from the February high. I wouldn't double down yet because you don’t know what's happening in China, nobody does, not even the Chinese. This is their way of addressing the concentration of the wealth in the top 1% as has happened here in the US as well. They’re targeting all the billionaire stocks and crushing them by restricting overseas flotations and so on, so it ends when it ends, and when that happens all the China stocks will double; but I have absolutely no idea when that's going to happen. That being said, I have been getting phone calls from hedge funds who aren’t in China asking if it's time to get in, so that's always an interesting precursor.
Q: What happened to the flu?
A: It got wiped out by all the Covid measures we took; all the mask-wearing, social distancing, all that stuff also eliminates transmission of flu viruses. Viruses are viruses, they’re all transmitted the same way, and we saw this in the Rite Aid (RAD) earnings and the 55% drop in its stock, which were down enormously because their sales of flu medicines went to zero, and that was a big part of their business. I didn’t get the flu last year either because I didn’t get Covid; I was extremely vigilant on defensive measures in the pandemic, all of which worked.
Q: Why would the Fed taper or do much of anything when Powell wants to be reappointed in February 2022?
A: I don’t think he is going to get reappointed when his four-year term is up in early 2022. His policies have been excellent, but never underestimate the desire of a president to have his own man in the office. I think Powell will go his way after doing an outstanding job, and they will appoint another hyper dove to the position when his job is up.
Q: What are your thoughts on the Chinese electric auto company Nio competing here in the U.S.?
A: They will never compete here in the U.S. China has actually been making electric cars longer than Tesla (TSLA) has but has never been able to get the quality up to U.S. standards. Look what happened to Nikola (NKLA) who’s founder was just indicted. Avoid (NIO) and all the other alternative startup electric car companies—they will never catch up with Tesla, and you will lose all your money. Can I be any clearer than that?
Q: You recently raised the ten-year price target up for the Dow Average from 120,000 to 240,000. What is Nasdaq's target 10 years out?
A: I would say they’re even higher. I think Nasdaq (NASD) could go up 10X in 10 years, from 14,000 to 140,000 because they are accounting for 50% of all earnings in the U.S. now, and that will increase going forward, so the stocks have to go ballistic.
Q: What do you think of Intel (INTC)?
A: I don’t like it. They had a huge rally when they fired their old CEO and brought in a new one. There was a lot of talk on reforming and restructuring the company and the stock rallied. Since then, the market has started insisting on performance which hasn’t happened yet so the stock gave up its gains. When it does happen, you’ll get a rally in the stock, not until then, and that could be years off. So I'd much rather own the companies that have wiped out Intel: (MU), (NVDA), (AMD), and (TSM).
Q: When you do recommend buying the Volatility Index (VIX), do you recommend buying the (VIX) or the (VXX)?
A: You can only buy the VIX in the futures market or through ETFs and ETNs, like the (VXX), the (XVZ), and the (SVXY), or options on these. I would be very careful in buying that because time decay is an absolute killer in that security, and that's why all the professionals only play it from the short side. That's also why these spikes in prices literally last only hours because you have professionals hammering (VIX). Somebody told me once that 50% of all the professional traders in the CME make their living shorting the (VIX) and the (VXX). So, if you think you’re better than the professionals, go for it. My guess is that you’re not and there are much better ways to make money like buying 6-to-12-month LEAPS on big tech stocks.
Q: Can the Delta variant get a bigger pullback?
A: Yes. I expect one in August, about 5%. But if Delta gets worse, the selloff gets worse. You saw what it did last year, down 40% in the (SPY) in only two months, so yes, it all depends on the Delta virus. I'm not really worrying about Delta, it's the next one, Epsilon or Lambda, which could be the real killer. That's when the fatality rate goes from 2% to 50%, and if you think I'm crazy, that's exactly what happened in 1919. Go read The Great Influenza book by John Barry that came out 20 years ago, which instantly became a best seller last year for some reason.
Q: Does the Matterhorn have enough flat space on the top to stand on it?
A: Actually, there is a 6’x6’ sort of level rock to stand on top of the Matterhorn. If you slip, it’s a 5000’ fall straight down on any side, and on a good weather day in the summer, there are 200 people climbing the Matterhorn. There's sometimes a one-hour line just to take your turn to get to the top to take your pictures, and then get down again to make space for the next person. So that's what it's like climbing the Matterhorn, it's kind of like climbing Mount Everest, but I still like to do it every year just to make sure I can do it, and one year I hope to win the prize for the oldest climber of the year to climb the Matterhorn. Every year this German guy beats me; he’s two years older than me.
Q: When will Freeport McMoRan (FCX) start going up? I have the 2023 LEAPS
A: Good thing you have the two-year LEAPS because that gives you two years for inflation to show its ugly face once again. You just have to be patient with these. I think we’ll get a rally in the Fall along with all the other interest rate plays like banks, industrials, money management companies, and so on. (FCX) will certainly participate in that. In the meantime, if we get all the way down to $30 in Freeport McMoRan, I would double up your position.
Q: Why is oil (USO) not a buy? Oil is the ultimate inflation hedge.
A: Yes, unless all of the cars in the United States become electric in the next 15 years, which they will, wiping out half of all demand from the largest oil consumer. The United States consumes about 20 million barrels of oil a day, half of that is for cars, and if you take that out of the demand picture you dump 10 million barrels a day on the market and oil goes back to negative numbers like we saw last year. Never do counter-trend trades unless you’re a professional in from of a screen 24 hours a day.
Q: Should I take profits on my ProShares Ultra Technology ETF (ROM) November $90-$95 vertical bull spread and then enter a new spread when tech sells off?
A: Absolutely! When you have that much leverage and you get these price spikes, you sell! The leverage on this position is 2X on the ETF and 10X on the options for a total of 20X! Well done, nice trade and nice profit, go out and buy yourself a new Tesla and wait for the next dip in tech, which may have already started, and which could power on for the rest of August.
Q: What’s the next move for REITs?
A: REITs came off of historic lows last year; a lot of people thought they were going to go bankrupt, and for companies like (SPG) it was a close-run thing. I would be inclined to take profits on REITs here. The next thing to happen is for interest rates to go up and REITs don’t do that great in a rising rate environment.
Q: When is the off-season in Incline Village?
A: It’s the Spring and the Fall, in between ski season and the summer season. That means there are four months a year here, May/June and September/October, where I’m the only one here and the parking lots are empty. There is no one on the trails, the weather is perfect, the leaves are changing colors, and the roads aren’t crowded, so that is the time to be here. It’s a mob scene in the winter and a worse mob scene in the summer!
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Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
