Global Market Comments
January 8, 2021
Fiat Lux
Featured Trade:
(JANUARY 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (SQM), (GLD), (SLV), (GOLD), (WPM), (TLT), (FCX), (IBB), (XOM), (UPS), (FDX), (ZM), (DOCU), (VZ), (T), (RTX), (UT), (NOC),
(FXE), (FXY), (FXA), (UUP)
Below please find subscribers’ Q&A for the January 6 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: Any thoughts on lithium now that Tesla (TSLA) is doing so well?
A: Lithium stocks like Sociedad Qimica Y Minera (SQM) have been hot because of their Tesla connection. The added value in lithium mining is minimal. It basically depends on the amount of toxic waste you’re allowed to dump to maintain profit margins—nowhere close to added value compared to Tesla. However, in a bubble, you can't underestimate the possibility that money will pour into any sector massively at any time, and the entire electric car sector has just exploded. Many of these ETFs or SPACs have gone up 10 times, so who knows how far that will go. Long term I expect Tesla to wildly outperform any lithium play you can find for me. I’m working on a new research piece that raises my long-term target from $2,500 to $10,000, or 12.5X from here, Tesla becomes a Dow stock, and Elon Musk becomes the richest man in the world.
Q: Won’t rising interest rates hurt gold (GLD)? Or are inflation and a weak dollar more important?
A: You nailed it. As long as the rate rise is slow and doesn't get above 1.25% or 1.50% on the ten-year, gold will continue to rally for fears of inflation. Also, if you get Bitcoin topping out at any time, you will have huge amounts of money pour out of Bitcoin into the precious metals. We saw that happen for a day on Monday. So that is your play on precious metals. Silver (SLV) will do even better.
Q: What are your thoughts on TIPS (Treasury Inflation Protected Securities) as a hedge?
A: TIPS has been a huge disappointment over the years because the rate of rise in inflation has been so slow that the TIPS really didn’t give you much of a profit opportunity. The time to own TIPS is when you think that a very large increase in inflation is imminent. That is when TIPS really takes off like a rocket, which is probably a couple of years off.
Q: Will Freeport McMoRan (FCX) continue to do well in this environment?
A: Absolutely, yes. We are in a secular decade-long commodity bull market. Any dip you get in Freeport you should buy. The last peak in the previous cycle ten years ago was $50, so there's another potential double in (FCX). I know people have been playing the LEAPS in the calendars since it was $4 a share in March and they have made absolute fortunes in the last 9 months.
Q: Is it a good time to take out a bear put debit spread in Tesla?
A: Actually, if you go way out of the money, something like a $1,000-$900 vertical bear put spread, with the 76% implied volatility in the options market one week out, you probably will make some pretty decent money. I bet you could get $1,500 from that. However, everyone who has gone to short Tesla has had their head handed to them. So, it's a high risk, high return trade. Good thought, and I will actually run the numbers on that. However, the last time I went short on Tesla, I got slaughtered.
Q: Any thoughts on why biotech (IBB) has been so volatile lately?
A: Fears about what the Biden government will do to regulate the healthcare and biotech industry is a negative; however, we’re entering a golden age for biotech invention and innovation which is extremely positive. I bet the positives outweigh the negatives in the long term.
Q: Oil is now over $50; is it a good time to buy Exxon Mobil (XOM)?
A: Absolutely not. It was a good time to buy when it was at $30 dollars and oil was at negative $37 in the futures market. Now is when you want to start thinking about shorting (XOM) because I think any rally in energy is short term in nature. If you’re a fast trader then you probably can make money going long and then short. But most of you aren't fast traders, you’re long-term investors, and I would avoid it. By the way, it’s actually now illegal for a large part of institutional America to touch energy stocks because of the ESG investing trend, and also because it’s the next American leather. It’s the next former Dow stock that’s about to completely disappear. I believe in the all-electric grid by 2030 and oil doesn't fit anywhere in that, unless they get into the windmill business or something.
Q: With Amazon buying 11 planes, should we be going short United Parcel Service (UPS) and FedEx (FDX)?
A: Absolutely not. The market is growing so fast as a result of an unprecedented economic recovery, it will grow enough to accommodate everyone. And we have already had huge performance in (UPS); we actually caught some of this in one of our trade alerts. So again, this is also a stay-at-home stock. These stocks benefited hugely when the entire US economy essentially went home to go to work.
Q: Should we keep our stay-at-home stocks like DocuSign (DOCU), Zoom (ZM), and UPS (UPS)?
A: They are way overdue for profit-taking and we will probably see some of that; but long term, staying at home is a permanent fixture of the US economy now. Up to 30% of the people who were sent to work at home are never coming back. They like it, and companies are cutting their salaries and increasing their profits. So, stay at home is overdone for the short term, but I think they’ll keep going long term. You do have Zoom up 10 times in a year from when we recommended it, it’s up 20 times from its bottom, DocuSign is up like 600%. So way overdone, in bubble-type territory for all of these things.
Q: Are telecom stocks like Verizon (VZ) and AT&T (T) safe here?
A: Actually they are; they will benefit from any increase in infrastructure spending. They do have the 5G trend as a massive tailwind, increasing the demand for their services. They’re moving into streaming, among other things, and they had very high dividends. AT&T has a monster 7% dividend, so if that's what you’re looking for, we’re kind of at the bottom of the range on (T), so I would get involved there.
Q: Should we sell all our defense stocks with the Biden administration capping the defense budget?
A: I probably would hold them for the long term—Biden won’t be president forever—but short term the action is just going to be elsewhere, and the stocks are already reflecting that. So, Raytheon (RTX), United Technologies (UT), and Northrop Grumman (NOC), all of those, you don’t really want to play here. Yes, they do have long term government contracts providing a guaranteed income stream, but the market is looking for more immediate profits, or profit growth like you have been getting in a lot of the domestic stocks. So, I expect a long sideways move in the defense sector for years. Time to become a pacifist.
Q: Is it safe to buy hotels like Marriott (MAR), Hyatt (H), and Hilton (HLT)?
A: Yes, unlike the airlines and cruise lines, which have massive amounts of debt, the hotels from a balance sheet point of view actually have come through this pretty well. I expect a decent recovery in the shares, probably a double. Remember you’re not going to see any return of business travel until at least 2022 or 2023, and that was the bread and butter for these big premium hotel chains. They will recover, but that will take a bit longer.
Q: How about online booking companies like Expedia (EXPE) and Booking Holdings Inc, owner of booking.com, Open Table, and Priceline (BKNG)?
A: Absolutely; these are all recovery stocks and being online companies, their overhead is minimal and easily adjustable. They essentially had to shut down when global travel stopped, but they don’t have massive debts like airlines and cruise lines. I actually have a research piece in the works telling you to buy the peripheral travel stocks like Expedia (EXPE), Booking Holdings (BKNG), Live Nation (LYV), Madison Square Garden (MSGE) and, indirectly, casinos (WYNN), (MGM) and Uber (UBER).
Q: What about Regeneron (REGN) long term?
A: They really need to invent a new drug to cure a new disease, or we have to cure COVID so all the non-COVID biotech stocks can get some attention. The problem for Regeneron is that when you cure a disease, you wipe out the market for that drug. That happened to Gilead Sciences (GILD) with hepatitis and it’s happening with Regeneron now with Remdesivir as the pandemic peaks out and goes away.
Q: What about Chinese stocks (FXI)?
A: Absolutely yes; I think China will outperform the US this year, especially now that the new Biden administration will no longer incite trade wars with China. And that is of course the biggest element of the emerging markets ETF (EEM).
Q: Will manufacturing jobs ever come back to the US?
A: Yes, when American workers are happy to work for $3/hour and dump unions, which is what they’re working for in China today. Better that America focuses on high added value creation like designing operating systems—new iPhones, computers, electric cars, and services like DocuSign, Zoom—new everything, and leave all the $3/hour work to the Chinese.
Q: What about long-term LEAPS?
A: The only thing I would do long term LEAPS in today would be gold (GOLD) and silver miners (WPM). They are just coming out of a 5-month correction and are looking to go to all-time highs.
Q: What about your long-term portfolio?
A: I should be doing my long-term portfolio update in 2 weeks, which is much deserved since we have had massive changes in the US economy and market since the last one 6 months ago.
Q: Do you have any suggestions for futures?
A: I suggest you go to your online broker and they will happily tell you how to do futures for free. We don’t do futures recommendations because only about 25% of our followers are in the futures market. What they do is take my trade alerts and use them for market timing in the futures market and these are the people who get 1,000% a year returns. Every year, we get several people who deliver those types of results.
Q: Will people go back to work in the office?
A: People mostly won’t go back to the office. The ones who do go back probably won't until the end of the summer, like August/September, when more than half the US population has the Covid-19 vaccination. By the way, getting a vaccine shot will become mandatory for working in an office, as it will in order to do anything going forward, including getting on any international flights.
Q: What is the best way to short the US dollar?
A: Buy the (FXE), the (FXY), the (FXA), or the (UUP) basket.
Q: Silver LEAP set up?
A: I would do something like a $32-$35 vertical bull call spread on options expiring in 2023, or as long as possible, and that increases the chance you’ll get a profit. You should be able to get a 500% profit on that LEAP if silver keeps going up.
Q: What about agricultural commodities?
A: Ah yes, I remember orange juice futures well, from Trading Places, where I also once made a killing myself. Something about frozen iguanas falling out of trees was the tip-off. We don’t cover the ags anymore, which I did for many years. They are basically going down 90% of the time because of the increasing profitability and efficiency of US farmers. Except for the rare weather disaster or an out of the blue crop disease, the ags are a loser’s game.
Q: Can we view these slides?
A: Yes, we load these up on the website within two hours. If you need help finding it just send an email or text to our ever loyal and faithful Filomena at support@madhedgefundtrader.com and she will direct you.
Q: Do you have concerns about Democrats regulating bitcoin?
A: Yes, I would say that is definitely a risk for Bitcoin. It is still a wild west right now and there are massive amounts of theft going on. It is a controlled market, with bitcoin miners able to increase the total number of points at any time on a whim.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 11, 2020
Fiat Lux
FEATURED TRADE:
(DECEMBER 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(GLD), (FXA), (FXE), (FXC), (UUP), (FXB), (ABNB), (DASH), (TAN), (TLT), (TBT), (NZD), (DKNG), (SNOW), (AAPL), (CRSP), (RTX), (NOC)
Below please find subscribers’ Q&A for the December 9 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV with my guest and co-host Bill Davis.
Q: Is gold (GLD) about ready to turn around from here?
A: The gold bottom will be easy to call, and that’s when the Bitcoin top happens. In fact, we have a double top risk going on in Bitcoin right now, and we had a little bit of a rally in gold this week as a result. So, longer term you need actual inflation to show up to get gold any higher, and we may actually get that in a year or two.
Q: The US dollar (UUP) has been weak against most currencies including the Canadian dollar (FXC), but Canada has the same problems as the US, but worse regarding debt and so on. So why is the Canadian dollar going up against the US dollar?
A: Because it’s not the US dollar. Canada also has an additional problem in that they export 3.7 million barrels a day of oil to the US and the dollar value have been in freefall this year. Canada has the most expensive oil in the world. So, taking that out of the picture, the Canadian dollar still would be negative, and for that reason I've been recommending the Australian dollar (FXA) as my first foreign currency pick, looking for 1:1 over the next three years. Of the batch, the Canadian dollar is probably going to be the weakest, Australian dollar the strongest, and the Euro (FXE) somewhere in the middle. I don’t want to touch the British pound (FXB) as long as this Brexit mess is going on.
Q: Would you buy the IPO’s Airbnb (ABNB) and Dash (DASH)?
A: No on Dash. The entries to new competitors are low. Airbnb on the other hand is now the largest hotel in the world, and it just depends on what price it comes out at. If it comes out at a stupid price, like 50% over the IPO, I wouldn’t bother; but if you can get close to the IPO price, I would probably buy it for the long term. I think you would have another double if we got close to the IPO price, so that is worth doing. They have been absolutely brilliant in their management and the way they handled the pandemic; they basically captured all the hotel business because if you rent an apartment all by yourself, the COVID risk is much lower than if you go into a Hilton or another hotel. They also made a big push on local travel which was successful. They gave up long-distance travel, and they’re now trying to get you to explore your own area; and that worked beyond all expectations. Even I have rented some Airbnb’s out in the local area like in Carmel, Monterey, Mendocino, and so on and I came back disease-free.
Q: If the United States Treasury Bond Fund (TLT) goes to a 1.00% yield, what would that translate to in the (TBT) (2x short treasury ETF)?
A: My guess is probably about $18, which has been upside resistance for a long time, but it depends on how long it takes to get there. You have about a 3% a year cost of carry on the TBT that you don’t have in Treasuries.
Q: Should we buy China stocks when the current administration is so negative on China?
A: Yes, that’s when you buy them—when the current administration is negative on China; because when you get an administration that’s less negative on China, the Chinese stocks will all rocket. There’s an easy 20-30% in most of the headline Chinese stocks from here sometime in 2021. And I'm looking to add more Chinese stocks. I currently have Alibaba (BABA), and that’s working well. I want to pick up some more.
Q: What about the New Zealand currency ETF (NZD)?
A: It pretty much moves in sync with the Australian dollar, but it’s usually a few cents cheaper and more volatile.
Q: Legalized sports betting seems to be on the upswing. Where do you see DraftKings (DKNG) going?
A: I think it goes up. I think there’s going to be a recovery in all kinds of entertainment type activities. Draft Kings got a huge market share from the pandemic which they will probably keep.
Q: Do we use spreads when playing (FXA)?
A: Yes, you can probably do something like a $70-$72 here one month out and make some decent money.
Q: How do you feel about Snowflake (SNOW)?
A: I wanted to get into this from day one, but it doubled on the IPO, and then it doubled again. It’s one of the only technology stocks Warren Buffet has bought in the last several years besides Apple (AAPL). So, it’s just too popular right now, it’s hotter than hot. They have a dominant market share in their big data platform, so it’s a great place to be but it’s really expensive now.
Q: Do your options trade alerts have any risk of assignment?
A: Yes, they do, but when you get an assignment it’s a gift, because they’re taking you out of your maximum profit point, weeks before the expiration. All you do is tell your broker to use your long position to cover your short position, and you will get the 100% profit right then and there. I say this because the brokers always tell you to do the wrong thing when you get an assignment, such as going into the market to close out each leg separately. That is a huge mistake, and only makes money for the brokers. For more details, log in and search for “assignments” at www.madhedgefundtrader.com
Q: Congratulations on your great performance; what could derail your bullish prediction?
A: Well, we’ve already had a pandemic so obviously that’s not it, and then you have to run by your usual reasons for an out-of-the-blue crash; let’s say Donald Trump doesn't leave the presidency. That would be worth a few thousand points of downside. So would a major war. We could have both; we could have a major war before a disrupted inauguration. The president has essentially unlimited ability to go to war at any time, so there aren’t too many negatives on the near-term horizon, which is why everyone is super bullish.
Q: What’s your opinion on the solar area, stocks like First Solar (FSLR) and the Invesco Solar ETF (TAN)?
A: I’m bullish. Even though they're over 300% since March, we’re about to enter the golden age of solar. Biden wants to install 500,000 solar panels next year and provide the subsidies to accomplish that. This all looks extremely positive for solar. In California, a lot of people will go solar, because getting an independent power supply protects you from the power shut-offs that happen every time the wind picks up, in which response to wildfire danger. We had ten days of statewide power blackouts this year.
Q: What are your thoughts on lithium?
A: I’m not a big believer in lithium because there is no short supply. The key to producing lithium is finding countries with no environmental controls whatsoever because it’s a very polluting and messy process to mine. Better to let other countries mine your lithium cheap, refine it, and then send it to you in finished form.
Q: Since you love CRISPR (CRSP) at $130, what about shorting naked puts? The premiums are really high.
A: I never advocate shorting naked puts. Occasionally, I will at extreme market bottoms like we had in March, but even then, I do it only on a 1 for 1 basis, meaning don’t use any leverage or margin. Never short any more puts than you’re willing to buy the stock lower down. People regularly see the easy money, sell short too many puts, and then get a market correction and a total wipeout of their capital. And they won't have to do that liquidation themselves; their broker will do it for them. They’ll do a forced liquidation of your account and then close it because they don't want to be left holding the bag on any excess losses. You won’t find out until afterwards. So, I would not recommend shorting naked puts for the normal investor. If you want to be clever, just buy an in-the-money call spread, something like a $110-$120 out a couple of months. That's probably a far better risk reward than shorting a naked put. By the way, I came close to wiping out Solomon Brothers 30 years ago because my hedge fund was short too many Nikkei Puts. In the end, I made a fortune, but only after a few sleepless nights (remember that Mark?).
Q: What do you think about defense stock right now?
A: I’m avoiding defense stock because I don’t see any big increases in defense spending in the future administration, and that would include Raytheon (RTX), Northrop Grumman (NOC), and some of the other big defense stocks.
SEE YOU ALL IN 2021!
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 30, 2020
Fiat Lux
Featured Trade:
(OCTOBER 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (VIX), (AMZN), (TSLA), (FEYE), (HACK), (PANW), (V), (TLT), (FXA), (FXC), (ZM), (DOCU), (RTX), (LMT), (NOC), (GD)
Below please find subscribers’ Q&A for the October 28 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Do you think if Trump contests the election, it will be bad for stocks?
A: Yes, count on that knocking another 10% off of stocks. The market has spent the last six months pricing in a Biden win. Take that away and you have to price that back out again, about 6,000 Dow Average points (INDU). We’ve already dropped 2,500 points so that leaves another 3,500 points of downside t0 go in the event of a Trump win.
Q: Will that result in a crash?
A: Yes. At least 1,000 points in the overnight session following.
Q: Do you think it’s going to happen?
A: No. According to the polls, Trump will lose by at least 15 million votes. While the polls missed the Electoral College result last time, they were dead on with the popular vote, with Hillary Clinton winning by 3 million votes. If the margin were only a few hundred or thousand votes in a single battleground state, Trump might win a court fight. But he can’t win if the margin is in ten states and tens of millions of votes. That is too much to fudge. That is how markets react: they hate surprises, and a second Trump win would be the surprise of the century.
Q: With all of the earnings positive, do you think markets will stay positive?
A: Earnings aren’t important right now. Everyone knew earnings would be great because we were coming off of hundred-year lows caused by the pandemic. So yes, we knew they’d be up 50%, 100%, 150%; that's not the surprise. The bigger issue is what the pandemic is going to do, and of course, only biochemists know that—most stock traders have no idea, which is reflected in these gigantic swings we’re seeing in the market both on the upside and the downside. As a biochemist, I can tell you that this is our final wave that's coming up and it could last several months. After that, we get a vaccine or herd immunity. When it's done, you have the bull market of a lifetime—up 400% in ten years from these levels. Dow 120,000 here we come!
Q: Do you see a tax selloff if Biden gets in? Should we get short?
A: Definitely; there will be a tax selloff. Past ones have only lasted a week or two and those were the last two weeks of December, so it really won’t be that bad. It’s not like it’s a surprise that Biden is ahead in the polls, because he has been for 6 months. Nor is it a surprise that he is going to raise taxes on the wealthy. I wouldn’t get short though. The short play was last week and the week before; and I did manage to get out three shorts but didn't want to get too big in front of an election. So those all worked. I'm out of all of them now, and now we’re looking only at long plays. And with the Volatility Index (VIX) over $40, you can go 20% or 30% in-the-money on these call spreads and still look to make 10%-20% profit on the position in a month.
Q: Isn’t the pandemic great for Amazon (AMZN)?
A: Yes, Amazon was taking over the world anyway, and forcing everyone to an online-only economy which couldn’t be better for them. A lot of this shifting is permanent and won’t be going back to the way it was before the pandemic with brick and mortar shops and malls. So yes, we love Amazon and I would buy on the dips. There’s a double from here.
Q: Do you have long term names I can buy to sit on?
A: Yes, we actually do have a long-term portfolio posted on the website. It would be listed under your subscription area once you log in—we rebalance that twice a year. And of course, we had a 10% holding in Tesla (TSLA) which went up ten times, so the performance of the long-term portfolio is through the roof. To find the long-term portfolio, please click here.
Q: Do you record this webinar?
A: Yes, we post it on the www.madhedgefundtrader.com site in two hours.
Q: Do you still like the Internet security stocks like FireEye (FEYE)?
A: Yes. Hacking is growing faster than the Internet itself. You should also look at Palo Alto Networks (PANW) and the ETF (HACK).
Q: Should we hold on to the Visa (V) spread hoping it will come back after the election drop?
A: Hope is not an investment strategy. I always stop out of positions when they hit a 2% loss. The only time I have 4% losses is when we get these gigantic gap moves overnight, which tend to happen once every one or two years. In this case, Visa got hit with a surprise antitrust suit from the Department of Justice that knocked $10 off of the stock. So no, I will not hold on to it in the hope that it does better; I will try to minimize my losses, get out, and get into the next winning position. Hope is what turns a 4% loss into a complete 10% write off.
Q: What’s your view on the Canadian dollar (FXC)?
A: I like it, but it’s not as good as the Australian dollar (FXA) because Canada has a major oil exposure, and actually the worst kind of oil exposure—tar sands in northern Alberta. The outlook for oil is poor and that will be a drag on the currency in the form of fewer exports. Buy the (FXA). No oil troubles here. Kangaroos are another story.
Q: Will you be looking to sell short on the United States Treasury Bond Fund (TLT)?
A: Yes, if we can just get a little bit higher. We’re looking at an economic recovery next year, so we’d expect the (TLT) to be lower by at least $20 points in 2021.
Q: Do you think the San Francisco and New York housing markets will return to what they were before with so many people are moving out of the city?
A: Yes, they will come back, I’ve been through many of these cycles in San Francisco over the past 50 years; it always comes back. Once the pandemic is over, people will say, “Oh my gosh, I can’t believe you can get a two-bedroom apartment in San Francisco for only $2 million.” That's probably another year or two off after a vaccine is in widespread distribution.
Q: Is real estate in a bubble?
A: Absolutely, but real estate bubbles can go on for a long time, like ten years. The bubble in Australia has been going on for 30 years. Ultimately, real estate prices are driven by the earnings power of the local economy which, in the case of San Francisco, is huge. This time around, we have a record large millennial generation looking for real estate. There are 85 million millennia buyers with only 65 million Gen X-er’s selling homes. So, we have to make up a shortfall of 20 million houses at some point. That’s why building permits are through the roof every month.
Q: Zoom (ZM) and DocuSign (DOCU) are the darling stocks of COVID 2020—what do you think about them at these high prices?
A: Very high risk. If you bought these a year ago when we first started covering them, good for you as they're up ten times. However, there are better fish to fry than chasing these big pandemic winners at all-time highs.
Q: If Biden wins, what happens to defense stocks like Raytheon Technology (RTX)?
A: They go down. It turns out a lot of the defense business is in very long term contracts that can’t be broken. They have to supply so many planes a year to the government for a decade or more. However, the sentiment on these sectors sours under democratic administrations because they are not initiating new weapons systems where the big money is made. Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD) all have the same problem. I grew up with these companies. They were the FANGs of their day.
Q: How does a Biden win affect Tesla (TSLA)?
A: Then $2,500 a share for Tesla looks cheap (it’s now at $410). Biden will do everything he can to slow climate change and accelerate alternative energy. Tesla is front and center on that. Under current law, car manufacturers are limited on the number of units they can sell to get the $7,500 tax break per vehicle. Tesla used up all their subsidies five years ago. My bet is that the limits will be eliminated and that leads to a huge surge in Tesla sales in the U.S., which is why the stock has gone up 10 times in the last year. Tesla has promised to drop their car price to $25,000 in three years. If you throw in $10,000 in federal and state tax subsidies you get the car for free. Then you can write off General Motors (GM) and Ford (F).
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 8, 2020
Fiat Lux
Featured Trade:
(TRADING THE BLUE WAVE STOCK MARKET),
(FB), (AAPL), (MSFT), (AMZN), (ADBE), (SQ), (PYPL), (CRM), (SGEN), (REGN), (ILMN) (FEYE), (PANW), (AMD), (MU), (NVDA), (TSLA), (LEN), (PHM), (KBH), (XOM), (CVX), (XOM), (RTN), (NOC), (LMT), (KOL), (X), (GE)
At this point, it is possible that the president may lose the November election.
He is 14 points behind Democratic candidate Joe Biden in the polls. The odds at the London betting polls have him losing by a similar amount. My old employer The Economist magazine in London gives him a 10% chance of winning using a mix of economic and polling data.
And this assumes the election is held today. The fact is that the president is digging himself into a deeper hole every day, taking the wrong side of every issue confronting the country today. He seems to be refighting the Civil War….and taking the Confederate side when even the State of Mississippi is taking its symbol off its flag.
So, what will the post-Trump world look like? Will taxes go through the roof? Will the market crash? Is it time to go 100% cash, change our names, and move to a country with no US extradition treaty?
I don’t think so. In fact, with stocks soaring to meteoric new highs every day, the market expects that a Biden administration will be great news for stocks, perhaps the best ever.
Taxes will certainly go up. Favorable tax treatment of the energy, real estate, and private equity funds will get axed. Carried interest will finally become history. Marginal tax rate on net income over $1 billion could get hiked to the Roosevelt levels of 80-90%.
Biden has already announced an increase in the corporate tax rate from 21% to 28%. That will cut earnings for the S&P 500 by $9 a share. But the stock market is not the economy, with S&P earnings only accounting for 10% of US GDP.
And the $9 companies lose in taxes they will make back and more from new government spending, which isn’t slowing down any time soon. Some 14,000 American bridges need to be rebuilt. The Interstate Highway System is a shambles. High-speed broadband needs to go rural. The electrification of the US needs to accelerate to accommodate the millions of electric cars headed our way.
I believe that eventually, 51 million Americans will lose their jobs as a result of the pandemic. Perhaps a third of those are never coming back because the future has been so accelerated. That will leave the broader U-6 Unemployment rate stuck in double digits for years, maybe for decades.
So, we’re going to need some kind of Roosevelt style programs like the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) who built much of the monolithic infrastructure that we all enjoy today.
At least 300,000 educated workers could immediately be put to work in contact tracing. Millions more could be employed in national infrastructure programs. One thing is certain. A new administration won’t stop massive government spending, it will simply redirect it.
And let's face it. A Biden win would bring a big expansion of Obamacare. With the best healthcare technology in the world, private industry has done the world’s worst job controlling the pandemic.
Countries with well-run national healthcare systems like Australia, New Zealand, Japan, and Singapore have almost wiped out the disease. This is why I am avoiding the healthcare sector for the foreseeable future.
Who are the big winners of all this? Big tech (FB), (AAPL), (MSFT), (AMZN), medium tech (ADBE), fintech (SQ), (PYPL), the cloud (CRM), and biotech (SGEN), (REGN), and (ILMN).
Cybersecurity will always be in demand (FEYE), (PANW). The global chip shortage will continue to worsen (AMD), (MU), (NVDA).
And Tesla (TSLA)? What can I say? It is already up nearly 100-fold from my initial $16.50 recommendation in 2010, and I’ve bought three Tesla’s (two S’s and an X).
Followers of the Mad Hedge Trade Alert service know that I am already long these names up the wazoo, and is why I am up 26% in 2020. It’s simply a matter of all pre-pandemic trends hyper-accelerating, which we were already tapped into.
If you have to add a purely domestic sector, a gigantic Millennial tailwind will keep homebuilders bubbling for years like (LEN), (PHM), and (KBH).
And while you won’t find me as a player here, retail will recover. The sector has not prospered during the current administration, thanks to a trade war with China and the pandemic.
And the losers? There is a classification of “Trump” stocks you don’t want to be anywhere near. Energy will do terribly (XOM), (CVX), (XOM), with Texas tea possibly revisiting negative numbers. If you take away the tax breaks, energy hasn’t really made money in decades.
Defense stocks (RTN), (NOC), (LMT) will take a big hit from budget cutbacks and fewer wars. Coal (KOL) will finally get shut down for good, probably sold to China in bankruptcy proceedings. Industrials will continue to lag (X), (GE), with no more free handouts from the government and no technology advantage.
So if Biden wins, you don’t need to slit your wrists, hang yourself from the showerhead, or cease investing completely. Just take your stock market winnings and go out and get drunk instead.
Global Market Comments
January 10, 2020
Fiat Lux
Featured Trade:
(FRIDAY, FEBRUARY 7 PERTH, AUSTRALIA STRATEGY LUNCHEON)
(JANUARY 8 BIWEEKLY STRATEGY WEBINAR Q&A),
(VIX), (VXX), (TSLA), (SIL), (SLV),
(WPM), (RTN), (NOC), (LMT), (BA), (EEM)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader January 8 Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: If the market is doing so well, why is the Fed flooding the market with liquidity?
A: It’s election year, so their primary focus is to get the president reelected and do everything they can to make sure that happens. If we continue at the current rate, the Fed will have zero ability to get us out of the next recession which will make it much deeper than it would be otherwise. Doing this level of borrowing and keeping interest rates near zero with the stock market going up 30% a year is insane, and we will be severely punished for it in the future.
Q: With the Volatility Index (VIX) near a 12-month low and the Mad Hedge Market Timing Index near an all-time high, is this a good time to put on LEAPs for the (VXX)?
A: Yes, in fact, a (VXX) LEAP (Long Term Equity Participation Security, or one-year-plus option spread), is the only LEAP I would put on right now. I get asked about LEAPs every day because returns on them are so huge, but I am holding back on a trade alert on a (VXX) leap because it seems like in January they really want to run this market high and run volatility down low. On the next move to a (VIX) in the $11 handle, you want to put out a one-year LEAP with a $16 strike. And that is essentially a guarantee that you will make money sometime in the coming year on a big down move in the stock market. (VXX) LEAPs are coming, just not yet.
Q: Do you think Iran is done with their attacks against the US or will there be more?
A: The belief there will be no more attacks is to call the end of a 40-year trend. There will be more attacks, and those are going to be your long side entry points. Every geopolitical crisis for the last 10 years has been a great entry point on the long side and the next one will be no different. Just hope you are not one of the victims.
Q: What would a war with Iran mean for the US economy and should I buy defense stocks?
A: You can take the Iraq war, which cost us about $4 trillion, and multiply that by three times to $12 trillion because Iran’s economy is three times the size of Iraq and has a much more sophisticated military. The Iranians are really in a good position because they know the US has no appetite for another Iraq, Afghanistan, or Vietnam. They just want us out of their neighborhood. As far as defense stocks, those really move on very long-term investments and production for government contracts. When you get an attack like this, you get a one-day pop of 5% and then they usually give it all back. So, I wouldn't be chasing defense stocks like Lockheed Martin (LMT), Northrop Grumman (NOC), and Raytheon (RTN) at these high levels—it’s a very high-risk trade.
Q: Will Boeing (BA) take heat from the Ukrainian crash in Tehran?
A: Yes. It’s down about $5, and you might even consider running the numbers on a February call spread. This may be the last chance to get into Boeing at those low levels. The 737 MAX will fly this year, their most important product.
Q: What’s your opinion on Thai Baht?
A: This really is the home here for opinion on all asset classes, large and small. The Thai Baht will rise. It’s a weak dollar play. Money is pouring into all the emerging currencies because of the massive overborrowing that’s going on in the U.S. Countries that overborrow and print money like crazy always debase their currencies over the long term. That makes emerging markets (EEM) a great buy, which are trading at half the valuation levels of US ones.
Q: U.S. hog farmers missed the opportunity of a lifetime last year because of African Swine Flu. Any thoughts on the price of pork and commodities for 2020?
A: They should do better now that we’re at least getting relief from an escalation of the trade war. However, I gave up covering agriculture because the American farmer is just too efficient; every year they just produce more and more crops with fewer and fewer inputs—it’s a loser’s game. They occasionally get bad weather and get a big price spike, but that Is totally unpredictable. I'm staying away from ag stocks. In terms of buying soybeans or Apple, or Google, or Amazon, I’ll take the tech stocks any day over ag’s. Plus, the insiders have a big advantage in ag’s.
Q: What is the ticker symbol for the Silver ETFs?
A: The Silver metal ETF is (SLV), Silver miners is (SIL), and the Silver Royalty Trust, Wheaton Precious Metals, is (WPM).
Q: Why has volatility been so minimal even with massive geopolitical risk going up?
A: Liquidity trumps all. This month, the fed is pumping a record $160 billion into the financial system, and all that money is going into stocks, making them go up and making volatility go down. Until that changes, this trend will continue.
Q: Apple just passed $300, is the next stop $400?
A: Yes, and we could get that this year in the run up to 5G in September. By the way, my average cost on my Apple shares split adjusted is 50 cents. I bought it in the late 1990s when the company was weeks away from bankruptcy.
Q: Any thoughts on Tesla (TSLA)?
A: Yes, go out and buy the car, not the stock. Wait for some kind of pullback. We have just had a fantastic run of good news kicking the stock from $180 up to $490. I think we will make it up to $550 on this run. But you don’t want to get involved unless you’re a day trader because now the risk is very high. The next big move for Tesla is going to be the announcement of a production factory in Berlin, where they will try to take on Mercedes, BMW, VW, and Audi on their home turf. Then, they will own Europe.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
