Global Market Comments
November 22, 2024
Fiat Lux
Featured Trade:
(WEDNESDAY, JANUARY 22, 2025 ST AUGUSTINE FLORIDA STRATEGY LUNCHEON)
(NOVEMBER 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (TSLA), (TLT), (OXY), (SLB), (MSTR), (USO), (PLTR), (SMCI), (KRE), (SMR), (UUP)
Below, please find subscribers’ Q&A for the November 20 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: What are your stock recommendations for the end of the first quarter of 2025?
A: I say run with the winners. Dance with the girl who brought you to the dance. I think portfolio managers are going to be under tremendous pressure to buy winners and sell losers. And, of course, you all know the winners—they’re the stocks I have been recommending all year, like Nvidia (NVDA), Tesla (TSLA), and so on. And they're going to sell losers like energy to create the tax losses to offset their gains in the technology area. That could continue well into next year. Although, we’ve probably never entered a new administration with more uncertainty at any time in history, except maybe during the Civil War. I don’t think it will get as bad as that, but it could be bad.
Q: Is Putin bluffing about nuclear war?
A: Yes. First of all, Russia has 7,000 nuclear weapons, but only maybe 200 of those work. If he does use nuclear weapons, Ukraine will use its nuclear weapons in retaliation. During the Soviet Union, where did the Soviet Union make all their nuclear weapons? In Ukraine. That's where they had the scientists. They certainly have the Uranium—that's the hard part. You could literally put one together in days if you had the right expertise around. This will never go nuclear, and Putin has always been all about bluffing. There's a reason why the world's greatest chess masters are all Russian; it's all about the art of bluffing. So that doesn't worry me at all.
Q: Will Russia sacrifice a higher and higher percentage of its population in the war?
A: Yes, that is the military strategy: keep throwing bodies at your enemy until they run out of bullets.
Q: What is your prediction for 30-year US Treasury yields (TLT)?
A: They go higher. Higher for longer certainly includes the 30-year. The 30-year will be the most sensitive to long-term views of interest rates. If you get a return of inflation, which many people are predicting, the 30-year gets absolutely slaughtered. Adding a potential $10 trillion to the national debt, taking it to $45 trillion, is terrible for debt instruments everywhere.
Q: Should we be exiting the LEAPS that you put out on Occidental Petroleum (OXY) and Schlumberger (SLB)?
A: For Occidental, I would say maybe; it’s already at a low. The outlook for oil prices is poor, with massive new production coming on stream. Regarding Schlumberger, they make their money on the volume of oil production—that probably is going to be a big winner.
Q: What do you think interest rates will do as we go into the end of Powell's term in 18 months?
I have no idea. It just depends on how fast inflation returns. My guess is that we'll get an out-of-the-blue sharp uptick in inflation in the next couple of months, and when that happens, stocks will get slaughtered. People assume that inflation just keeps going up forever after that.
Q: Crude oil (USO) has been choppy at around $70 a barrel. Where do you see it going next year?
A: My immediate target is $60, and possibly lower than that. It just depends on how fast deregulation brings on new oil supplies, especially from the federal lands that have been promised to be opened up. As it turns out, the federal government owns most of the western United States—all the national forests and so on. If you open that up to drilling, it could bring huge supplies onto the market. That would be deflationary. It would be death for oil companies, but it would be a death for OPEC as well. Every cloud has a silver lining. OPEC has been a thorn in my side for the last 60 years.
Q: I'm tempted to buy stocks that are flying up, like Palantir (PLTR) and MicroStrategy (MSTR). What would be an experienced investor trade in these situations?
A: Don't touch them with a 10-foot pole. You buy stocks before they fly up, not afterwards. By the way, if anyone knows of an attorney who is an expert at recovering stolen Crypto, please contact me. I have several clients who've had their crypto accounts cleaned out. Oh, and by the way, the heads of every major crypto exchange have been put in jail in the last three years. Imagine if the heads of Goldman Sachs, Morgan Stanley Fidelity, and Vanguard were all put in jail for fraud and theft? How many stocks would you want to buy after that? Not a lot.
Q: Your recommendations for AI and chips?
A: I think you get a slowdown. In order to buy the new plays in banks, brokers, and money managers, you need to sell the old plays. Those are going to be technology stocks and AI stocks—AI itself will keep winning. They will keep advancing, but the stocks have become extremely expensive. And everyone is waiting to see how anti-technology the new administration will be. Some of the early appointments have been extremely anti-technology, promising to rein in big tech companies. If you rein in big tech companies, you rein in their stock prices, too. I am being very cautious here. The next spike up in Nvidia (NVDA) might be the one you want to sell.
Q: Do you think the uranium play will continue under the new administration?
A: Absolutely, yes. Restrain the Nuclear Regulatory Commission, and costs for the new nuclear starts up like (SMR) go way down.
Q: What do you think of NuScale Power Corp (SMR)?
A: I love it. Again, deregulation is the name of the game—and if you lose a city by accident, tough luck. Let's just hope it happens somewhere else. It's only happened three times before… Three Mile Island, Chernobyl, and Fukushima.
Q: Super Micro Computer (SMCI), what do you think?
A: Don't touch it. There's never just one cockroach. Hiring a new auditor to find out how much money they misrepresented is not a great buy argument to buy the stock. I'm sorry. Very high risk if you get involved.
Q: If Nvidia (NVDA) announces great earnings but sells off anyway, what should I do?
A: Get rid of it and get rid of all your other technology stocks because this is the bellwether for all technology. Tech always comes back over the long term, but short term, they may continue going nowhere as they have done for the last six months, which correctly anticipated a Trump win. Trump is not a technology guy— he hates California. Any California-based company can't expect any favors except for Tesla.
Q: Is there any reason why you prefer in-the-money bull call spreads?
A: Well, there are lots of reasons. Number 1, it's a short volatility play. Number 2 it's a time decay play, which is why I only do front months because that's when the time decay is accelerated. Thirdly, it allows you to increase your exposure to the stock by tenfold, which brings in a much bigger profit when you're right. If you look at our trade alerts, we make 15% to 20% on every trade, and 200 trades a year adds up to a lot of money. You can see that with our 75% return for this year. And it's a great risk management tool; the day-to-day volatility of call spreads is low because you're long one call option short the other. So, the usual day-to-day implied volatility on the combination is only about 8% or 9%. The biggest problem with retail investors is the volatility scares them out of the market at market lows and scares them back in at market highs. So, call spread reduces the volatility and keeps people from doing that. The risk-reward is overwhelmingly in your favor if you have somebody like me with an 80% or 90% success rate making the calls on the stocks. And, of course, having done this for almost 60 years, nothing new ever happens in the stock market—you're just getting repetitions of old stuff. All I have to do is figure out is this the 1970s story, the 1980s story, the 1990s, the 2000s, 2010s story? I have to figure out which pattern is being repeated. People who have been in the market for one year, or even 10 years, don't have that luxury.
Q: I’m having trouble getting filled on your orders.
A: You put out a spread of orders. So if I put in an order to buy at $9.00, split your order up into five pieces: at $9.00, $9.10, $9.20, $9.30, $9.40; and one or all of those orders will get filled. Another hint is that algorithms often take my trade alerts to the maximum price. Don't pay more than that price immediately, but they have to be out by the end of the day, so if you just enter good-till-cancel orders, you have an excellent chance of getting filled by the end of the day or at the opening tomorrow.
Q: Should I purchase SPDR S&P Regional Banking ETF (KRE)?
A: I'd say yes. That probably is a good buy with deregulation, making all of these small banks takeover targets.
Q: What should we be looking for in the fear and greed index?
A: When we get to the high end, like in the 70s, start taking profits. When we get to the low end, like the 20s, start buying and adding LEAPS and more long-term leverage option plays.
Q: What are we looking for to go short?
A: Much higher highs and a bunch of other monetary and technical indicators flashing warning signals, which are too many to go into here. Suffice to say, we did make good money on the short side this year, a couple of times on Tesla (TSLA), including a pre-election short that we covered in Tesla, and we were short a whole bunch of technology stocks going into the July meltdown. So, you know, we do both the long side and the short side, but it's been a long play—11 months this year and a short play for a month.
Q: Is the euro going back up eventually, or does the dollar (UUP) rule?
A: Sorry, but as long as the US dollar has the highest interest rates in the developing world and the prospect of even higher rates in the future, it's going to be a dollar game for the next couple of years.
Q: Will a ceasefire in the Middle East affect the markets?
A: No. The U.S. interest in geopolitical data ends at the shores—all three of them. So if the war of the last couple of years doesn't change the market—and it's been an absolutely horrific war with enormous civilian casualties—why should the end of it affect markets?
Q: What stock market returns do you see for the next four years?
A: About half of what they were for the last four years, which will be about 90% by the time Biden leaves office. You're going to have much higher interest rates and much higher inflation, and while the new administration is very friendly for some industries, it is very hostile for others, and the net could be zero. So, enjoy the euphoria rally while it lasts.
Q: What about crypto?
A: Well, I did buy some crypto for myself at $6,000, and I'm now thinking of selling it at $96,000. Would I recommend it to a customer? Not on pain of death—not at this level. You missed the move. Wait for the next 95% decline, which is a certainty in the future. And, by the way, absolutely nobody in the industry can tell you when that is.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 8, 2024
Fiat Lux
Featured Trade:
(NOVEMBER 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(CCJ), (LMT), (VST), (RTX), (CCI), (GLD), (SLV), (TLT), (NVDA), (OXY), (FXA), (FXE), (FXB), (FXC)
Below, please find subscribers’ Q&A for the November 6 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, Nevada.
Q: What do we do in the market now in view of the Trump Victory?
The driving theme of the market has completely changed overnight. Falling interest rate plays are dead. The new theme is deregulation. The good news is that there are a lot of cheap deregulation plays out there, especially in financials. Deregulation is also a factor with (NVDA), where the government was lining up for an antitrust suit. New nuclear stocks like (CCJ) and (VST) also do well with a lighter regulatory touch.
Q: How will the defense industry perform under Trump?
A: Poorly. If we cease supplying Ukraine with weapons and withdraw from our international commitments, there’s no need for weapons at all. We’ll just have to be happy with the 50-year-old weapons that we have right now. And, of course, that's one of the reasons why Putin was such a big supporter of Trump. Avoid (LMT) and (RTX). Other stocks were already selling off as Trump rose in the polls.
Q: Will housing be a loser with the housing shortage?
A: Yes, it will, because you won’t find home buyers if they don’t have any money—if interest rates and mortgage payments are too high, those buyers are absent from the market. They can’t afford to step up to the current price levels and mortgage levels.
Q: Do you really think the Fed may not cut interest rates?
A: All of the announced Trump policies are highly inflationary, and one of the Fed’s primary missions is to control inflation. But, it comes down to: is the Fed going to look forward or look back? Historically, it is very much a “look back” organization, so they will probably wait on their higher interest rates. And that is what uncertainty is all about; all of a sudden, you go from very firm convictions of what’s going to happen next—what stocks to buy, what sectors to play—to “I don’t know!”. With a Harris win, at least you had some certainly. With Trump, we don’t know what he really wants to do, can do, or be allowed by the courts. It will take time to figure all this out.
Q: Why did none of these issues occur during Trump’s first term?
A: Well, virtually all of Trump’s first term, interest rates were at zero because the Fed was still doing quantitative easing, trying to recover from the ‘08 financial crisis, but also recovering from the pandemic. The amazing thing about the Biden administration is that the stock market did so well during the 5% interest rates that prevailed practically for his entire term.
Q: Do you have a “BUY” target for iShares 20+ Year Treasury Bond ETF (TLT) on the downside after the Trump win?
A: The answer is we are going to retest the low of the year, which is $82 in the TLT, and last time I checked, we were at $89.78—so down seven points. But again, we now have a lame-duck government, so no dramatic action with a split Congress. We basically have until January 20th, when the new government comes in, to find out what they will actually try to do. I think you'll find that the “campaign Trump” and the “in-office Trump” are two totally different people.
Q: Okay, what about the iShares 20+ Year Treasury Bond ETF (TLT) LEAPS position you put out two weeks ago? Should we sell or hold?
A: Well, if you want to be cautious, go cash—sell. But this is a LEAPS that has another 15 months to expiration, and there's a pretty decent chance we'll be going into recession sometime next year, especially if interest rates and inflation take off. That could make your LEAPS trade very attractive—it could drive interest rates down to 3.5%, which is virtually where they were in September. Since September, bonds have basically given up their entire rally for the year on the possibility of a Trump win. So, you know, would I put on that trade today? No. Will I put it on at $82, I probably will. We'll just have to see what the new world looks like.
Q: What's the direction for gold (GLD) and silver (SLV)?
A: Down. Those two plays were dependent on falling interest rates, which are now gone. Now that they're going back up again, it kind of trashes the entire gold-silver trade. So, at some point, gold will drop to a point where the flight to safety bid offsets the fear of rising interest rates. You still have a lot of Chinese savings in gold going on and central bank buying. That's where you get back in. Where that is is anybody's guess.
Q: Any thoughts on Crown Castle International (CCI)?
A: It is an interest-rate play. We did really well with CCI from April to September, when the 10-year treasury went from 4.5% to 3.5%. Run that movie in reverse, and it doesn't do very well. We've had a big sell-off on (CCI) this morning. So it's getting killed on the prospect of rising rates and inflation.
Q: Do smaller stocks do better under Trump?
A: No. Smaller stocks are much more dependent on interest rates than large stocks because they're very heavy borrowers at high rates. So, any rally there should be sold into.
Q: Should I bet the ranch on crypto here?
A: Absolutely not. $6,000 is where you should have bet the ranch on crypto, not at $75,000. Crypto is barely moving today, despite promises by Trump to completely deregulate the sector. So, no, I am definitely not a buyer of crypto here.
Q: What about the gold trade alert that I sent out yesterday?
A: That was on the assumption that Harris would win, and she didn't. If you want to be conservative, get out of the position now. We have five weeks to expiration on that position, so it really depends on where gold finds its bottom—it could hold up here or a little bit lower, and we'll still be at the max profit. If we go into free fall, I'm going to just stop out of the position and write that one off as me being too aggressive before the election when I had the perfect positions going into it, being long JP Morgan (JPM) and Nvidia (NVDA).
Q: Is the Occidental Petroleum (OXY) spread okay?
A: For energy, I would say yes, probably. But we'll have to see how sustainable this current rally is.
Q: So, wait on the currency plays, like (FXA), (FXE), (FXB), and (FXC)?
A: Absolutely, yes. It's another wait for the dust to settle trade.
Q: What will the price of crude oil do from here?
A: Probably go down more with large new supplies coming out of the U.S.
Q: Why are financial stocks up huge?
A: Deregulation. Financials are among the most regulated industries in the world. If you don't believe me, try running a hedge fund someday, where they're breathing down your neck every five seconds for audits, reports, and so on. They also win on the revenue side with restrictions coming off mergers and acquisitions with the end of antitrust enforcement.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 8, 2024
Fiat Lux
Featured Trade:
(OCCIDENTAL PETROLEUM LEAPS),
(OXY)
Trade Alert - (OXY) – BUY
BUY the Occidental Petroleum (OXY) January 2026 $60-$62.50 out-of-the-money vertical Bull Call spread LEAPS at $0.80 or best
Opening Trade
10-8-2024
expiration date: January 16, 2026
Number of Contracts = 1 contract
China certainly brought out a big bazooka with its massive stimulus package last week. If this one proves inadequate, they can bring out many more. China is no longer the poor country I knew 50 years ago. For a start, they own $869 billion worth of US Treasury bonds.
And what is the best leverage China plays out there?
Oil.
It just so happens that energy is virtually the only cheap sector in the stock market and the worst stock market performer of 2024.
Oil consumption in China amounted to 16.6 million barrels per day in 2023, up from 15 million barrels daily in the prior year. That is 17.2% of the 96.4 million barrels in global oil production last year. Between 1990 and 2023, figures increased by more than 14 million barrels per day, up from 1 million barrels a day.
It has been China’s lagging economy that has dragged down the price of West Texas Intermediate Crude by 31%, from $94 a barrel to $65. China has published GDP growth figures this year of 5%, but most who know China well believe the real figure is close to zero. Get China back in business, and we could revisit $94 in no time.
We have just seen a healthy 32% correction in the shares of California-based oil major Occidental Petroleum (OXY), and I am starting to salivate. Finally, I can put to work my 50-year relationship with the company (see research piece below).
If you don’t do options, buy the stock. My target for (OXY) in 2025 is $74, up 37%.
I am therefore buying the Occidental Petroleum (OXY) January 2026 $60-$62.50 out-of-the-money vertical Bull Call spread LEAPS at $0.80 or best.
DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
Simply enter your limit order, wait five minutes, and if you don’t get done, cancel your order and increase your bid by 5 cents with a second order.
This is a bet that Occidental Petroleum (OXY) will not fall below $62.50 by the January 16, 2026, option expiration in 15 months.
To learn more about the company, please visit their website at https://www.oxy.com
Don’t pay more than $1.20 or you’ll be chasing on a risk/reward basis.
Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
Let’s say the Occidental Petroleum (OXY) January 2026 $60-$62.50 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $0.50-$1.50. Enter an order for one contract at $0.50, another for $0.60, another for $0.70 and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then, enter an order for your full position at that real price.
Notice that the day-to-day volatility of LEAPS prices is minuscule, less than 10% since the time value is so great and you have a long position simultaneously offset by a short one.
This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month, just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Look at the math below, and you will see that a 15.74% rise in (OXY) shares will generate a 212% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 13.46:1. Across the $60-$62.50 space. LEAPS stands for Long-Term Equity Anticipation Securities.
(OXY) doesn’t even have to get to a new all-time high to make the max profit. It only has to get back to $62.50, where it traded in July.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.
Here are the specific trades you need to execute this position:
Buy 1 January 2026 (OXY) $60 calls at………….…....……$5.25
Sell short 1 January 2026 (OXY) $62.50 calls at…………$4.45
Net Cost:………………………….………..………….…...............$0.80
Potential Profit: $2.50 - $0.80 = $1.70
(1 X 100 X $1.70) = $170 or 212% in 15 months.
To see how to enter this trade in your online platform, please look at the order ticket below, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bull Call Debit Spread” by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep-in-the-money spread trades can be enormous.
Don’t execute the legs individually, or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
Take a Look at Occidental Petroleum (OXY)
There are a lot of belles at the ball, but you can’t dance with all of them.
While a student at UCLA in the early seventies, I took a World Politics course, which required me to pick a country, analyze its economy, and make recommendations for its economic development.
I chose Algeria, a country where I had spent the summer of 1968 caravanning among the Bedouins, crawling out of the desert starved, lice-ridden, and half-dead.
I concluded that the North African country should immediately nationalize the oil industry and raise oil prices from $3/barrel to $10. I knew that Los Angeles-based Occidental Petroleum (OXY) was interested in exploring for oil there, so I sent my paper to the company for review.
They called the next day and invited me to their imposing downtown headquarters, then the tallest building in Los Angeles.
I was ushered into the office of Dr. Armand Hammer, one of the great independent oil moguls of the day, a larger-than-life figure who owned a spectacular impressionist art collection and who confidently displayed a priceless Fabergé egg on his desk. He said he was impressed with my paper and then spent two hours grilling me.
Why should oil prices go up? Who did I know there? What did I see? What was the state of their infrastructure? Roads? Bridges? Rail lines? Did I see any oil derricks? Did I see any Russians? I told him everything I knew, including the two weeks in an Algiers jail for taking pictures in the wrong places.
His parting advice was to never take my eye off the oil industry, as it is the driver of everything else. I have followed that advice ever since.
When I went back to UCLA, I told a CIA friend of mine that I had just spent the afternoon with the eminent doctor (Marsha, call me!). She told me that he had been a close advisor of Vladimir Lenin after the Russian Revolution, had been a double agent for the Soviets ever since, that the FBI had known this all along, and was currently funneling illegal campaign donations to President Richard Nixon.
Shocked, I kicked myself for going into an interview so ill-prepared and had missed a golden opportunity to ask some great questions. I never made that mistake again.
Some 50 years later, while trolling the markets for great buying opportunities set up by the recent China bazooka, I stumbled across (OXY) once more (click here for their site at http://www.oxy.com /). (OXY) has a minimal offshore presence, nothing in deep water, and huge operations in the Middle East and South America.
OXY’s horizontal multistage fracturing technology will enable it to dominate California shale. The company offers a respectable dividend of 1.65% and has a submarket earnings multiple of only 13.7 times. Need I say more?
Oh, and I got an A+ on the paper, and the following year, Algeria raised the price of oil to $12.
Lenin and Hammer
A Faberge Egg
Global Market Comments
October 7, 2024
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or GOLDILOCKS ON STEROIDS, plus A KERFFUFLE IN PARIS),
(SPY), (FXI), ($COMPQ), (CCJ), (SLB), (OXY), (TSLA),
(TLT), (DHI), (NEM), (GLD), (TSLA)
The 6,000 targets for the S&P 500 are starting to go mainstream.
That was my forecast on January 1, back when everyone said I was nuts. The inflation rate is 2.2%, GDP growth is 3.0%, and interest rates are falling sharply, on their way to 3.0% by next summer.
Goldilocks is back, but this time she’s on steroids.
Also helping is that we are in the midst of a global interest rate decline. The US, Europe, China, and Australia are all cutting interest rates at the same time. Japan is the sole exception, which is on the verge of raising rates from 0.25%. All of this has a compounding effect on the health of the global economy.
Long-term market veterans like myself are amazed, astounded, and astonished that here we are on October 7, and instead of testing new lows for the year, we are punching through to new all-time highs. It’s proof that if you live long enough, you see everything.
Some five seconds after Jay Powell cut interest rates by a shocking 0.50%, everyone in the world suddenly realized they had way too much cash and not enough stocks. This is the kind of market you get from that realization, one that doesn’t breathe, take a break, have a correction, nor let in outsiders.
Further confusing matters is that we are witnessing the most contentious presidential elections in history. One party is proclaiming how great the US economy is, while the other is claiming it is the worst ever.
Those who believed the former description are having a great year. Those who bought the latter are having an awful one, with many owning no stocks at all. Fortunately, election concerns will disappear in four weeks not to return for four years. This is hugely positive for stocks.
But as all steroid users eventually find out, they cause impotence, sterility, and cancer, so enjoy while it lasts. That may be a mid-2025 or 2026 event.
China (FXI) came back with a vengeance. A 25% rise in a stock market in a week is not to be taken lightly, although a lot of this was short covering. Pouring gasoline on the fire is a government promise to buy $1 billion worth of stocks.
The question bedeviling all investors is whether China is a one-hit wonder or is it reborn again. I know that if this stimulus package doesn’t work, they have the resources to follow up with many more. But there is a bigger problem.
Chinese stock markets have not exactly done well since Xi Jinping came into power in 2013. In fact, they are exactly unchanged. During the same period, the (SPY) was up 308%, and the NASDAQ ($COMPQ) was up 525%. Many investors, like my old friend hedge fund legend Paul Tudor Jones, don’t want to touch China until Xi vacates the scene.
In any case, if you want to play China, the best risk-adjusted plays are not there but here in the US. Any US blue chip oil play (OXY) (SLB) would be a great choice, as China is the world’s largest oil consumer. Oil happens to be the cheapest and worst-performing sector in the stock market. And you don’t have to worry about a CEO getting rolled up in a carpet and disappearing for a few years, as has happened in the Middle Kingdom. At least here, you get all the US investor protections.
We closed out September with a blockbuster +10.28% profit. My 2024 year-to-date performance is at +44.97%. The S&P 500 (SPY) is up +19.92% so far in 2024. My trailing one-year return reached a nosebleed +62.77. That brings my 16-year total return to +721.60. My average annualized return has recovered to +52.32%.
With my Mad Hedge Market Timing Index at the 70 handles for the first time in five months, it was a good week to take profits. I sold longs in (CCJ) and (TSLA) and covered a short in (TLT). I stopped out of my long in (TLT) because of the blowout September Nonfarm Payroll Report on Friday.
This is what we’ve got left:
Risk On
(NEM) 10/$47-$50 call spread 10.00%
(TSLA) 10/$200-$210 call spread 10.00%
(DHI) 10/$165-$175 call spread 10.00%
Risk Off
NO POSITIONS 0.00%
Total Net Position 30.00%
Some 63 of my 70 round trips, or 90%, were profitable in 2023. Some 58 of 77 trades have been profitable so far in 2024, and several of those losses were really break evens. Some 16 out of the last 17 trade alerts were profitable. That is a success rate of +75.32%.
Try beating that anywhere.
September was Great, but October is Looking Tough, right on the doorstep of the November 5 election and the market waiting for another interest rate cut on November 6. I think I’ll run out the positions I have into the October 18 options expirations, then wait for the market to come to me. I am up too much this year to take on needless risk.
Nonfarm Payroll Report Comes in Hot, as US employers added 254,000 jobs in September, topping economists’ estimates. The payroll gain, the biggest advance since March, was led by leisure and health care. The headline Unemployment Rate fell to a three-month low of 4.1%.
Interactive Brokers Starts US Election Forecast Trading on the heels of a federal court ruling in their favor. The following Forecast Contracts on US election results will be available:
*Will Kamala Harris win the US Presidential Election in 2024?
*Will Donald Trump win the US Presidential Election in 2024?
Plus a dozen other election outcomes. The opening bids were 49% for Harris and 50% for Trump.
The port Strike is Settled with a 62% six-year settlement. The bananas were rotting. 54 container ships queued outside ports, risking shortages. The Strike cost the U.S. economy $5 billion/day. Shipping stocks tumble across Asia and Europe. Expect the US to move to full automation, where Europe went 30 years ago.
EC Imposes 45% Tariffs on Chinese EVs in a desperate bid to save the local car industry. The Commission, which oversees the bloc's trade policy, has said it would counter what it sees as unfair Chinese subsidies after a year-long anti-subsidy investigation, but it also said on Friday it would continue talks with Beijing. Expect the same to follow in the US.
A possible compromise could be to set minimum sales prices.
Hedge Funds Stampede into China on news that government agencies promised to pour $1 billion into local stock markets. Chinese equities saw the largest net buying ever from hedge funds last week, marking the most powerful weekly purchase on record, according to Goldman Sachs prime brokerage data.
Weekly Jobless Claims Climb to 225,000, not straying too far from a four-month low touched in the prior week. That is an increase from an upwardly-revised mark of 219,000 last week, data from the Labor Department showed on Thursday. Economists had anticipated 222,000.
Will This Crisis Take Gold to $3,000? Almost certainly, yes, given the way the barbarous relic traded yesterday. Buy all gold (GLD), plays on dips, the metal, ETFs, futures, and miners.
Tesla Bombs, with Q3 deliveries down flat, but the shares fell only 5%. Total deliveries came in at 462,890, while total production was 469,796. YOY Tesla is facing increased competitive pressure, especially in China, from companies like BYD and Geely, along with a new generation of automakers, including Li Auto and Nio.
US Car Makers Get Slaughtered, with Stellantis stock falling by double digits after the Jeep maker cut its 2024 financial guidance, citing deteriorating industry dynamics and Chinese competition. The warning, amid similarly negative news from other car makers, also dragged down shares of (F) and (GM). Avoid the auto industry except for (TSLA).
Nvidia Still has more to Run, so says Samantha McLemore, the founder and Chief Investment Officer of Patient Capital Management. Nvidia has been crushing every quarter for a year. CEOs want to make the decision to invest more [in AI] rather than getting caught behind. She doesn’t see the bull market ending soon. Current operating profit margins are 65%. Buy (NVDA) on dips.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy is decarbonizing, and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 600% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, October 7 at 8:30 AM EST, Used Car Prices are out
On Tuesday, October 8 at 6:00 AM, the NFIB Business Optimism Index is released.
On Wednesday, October 9 at 11:00 PM, the Fed Minutes from the last meeting is printed.
On Thursday, October 10 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Consumer Price Index.
On Friday, October 11 at 8:30 AM EST, the Producer Price Index and the University of Michigan Consumer Price Index are announced. At 2:00 PM, the Baker Hughes Rig Count is printed.
As for me, dentists find my mouth fascinating as it is like a tour of the world. I have gold inlays from Japan, cheap ceramic fillings from Britain’s National Health, and loads of American silver amalgam, which are now going out of style because of their mercury content.
But my front teeth are the most interesting as they were knocked out in a riot in Paris in 1968.
France was on fire that year. Riots on the city’s South Bank near Sorbonne University were a daily occurrence. A dozen blue police buses packed with riot police were permanently parked in front of the Notre Dame Cathedral, ready for a rapid response across the river. They did not pull their punches.
President Charles de Gaulle was in hiding at a French air base in Germany. Many compared the chaos to the modern-day equivalent of the French Revolution.
So, of course, I had to go.
This was back when there were five French francs to the US dollar, and you could live on a loaf of bread, a hunk of cheese, and a bottle of wine for a dollar a day. I was 16 years old.
The Paris Metro cost one franc. To save money, I camped out every night in the Parc des Buttes Chaumont, which had nice bridges to sleep under. When it rained, I visited the Louvre, taking advantage of my free student access. I got to know every corner. The French are great at castles….and museums.
To wash, I would jump in the Seine River every once in a while. But in those days, not many people in France took baths anyway.
I joined a massive protest one night, which originally began over the right of men to visit the women’s dorms at night. Then the police attacked. Demonstrators came equipped with crowbars and shovels to dig up heavy cobblestones dating to the 17th century to throw at the police, who then threw them back.
I got hit squarely in the mouth with an airborne projectile. My front teeth went flying, and I never found them. I managed to get temporary crowns, which lasted me until I got home. I carry a scar across my mouth to this day.
I visited the Left Bank again just before the pandemic hit in 2019. The streets were all paved with asphalt to make the cobblestones underneath inaccessible. I showed my kids the bridges I used to sleep under, but they were unimpressed.
But when I showed them the Mona Lisa at the Louvre, she was as enigmatic as ever. The kids couldn’t understand what the fuss was all about.
Everyone should have at least one Paris in 1968 in their lifetime. I’ve had many and am richer for it.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
1968 in Paris
2019 in Paris on Top of the Eiffel Tower
Global Market Comments
May 31, 2024
Fiat Lux
Featured Trade:
(The Mad June traders & Investors Summit is ON!)
(MAY 29 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (AMZN), (META), (NFLX), (GLD), (SLV), (NVDA), (MSFT), (GOOG), (DELL), (MSFT), (TLT), (BRK/B), (PYPL), (BABA), (DD), (XOM), (OXY)
Below please find subscribers’ Q&A for the May 29 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Since Elon Musk is raising tons of money for his AI startup called xAI, will this impact Tesla’s (TSLA) stock price?
A: Yes, it's a very positive move for Tesla because anytime Elon Musk raises money anywhere in his network, it takes the need off of him to sell Tesla shares for cash. And I think his xAI will be the next trillion-dollar company, and SpaceX is in front of it as another trillion-dollar company. Those stocks, he can sell any time and raise a lot of money, but the other two are still private companies. We can't buy them yet unless we buy some of the public vehicles offered by venture capitalists like Ron Baron who has heavy positions in both Tesla and SpaceX. So, no direct plays yet on these companies, but no doubt when they become incredibly valuable, he'll take them all public and become the richest man in the world two or three times over. So yes, that is a positive.
Q: Where do you think (TLT) will be in the next few months?
A: In a narrow trading range. I think we're basically in a $86 to $91 trading range, and we'll go nowhere until we get clarification on Fed interest rate cuts. At the rate the economy is slowing, we may get one in September, and even if the Fed doesn't cut, the rest of the world will, including Japan, Europe, Great Britain, and so on. So we may get our interest rates dragged down here by foreign countries that all have much weaker economies than the US.
Q: Should I keep buying big tech stocks after Nvidia's (NVDA) blowout earnings?
A: Well, if you recall back in the ancient times of April, Nvidia had a 20% sell-off, and most of the tech stocks were down at least 10%. So, I would wait for the next 20% sell-off of Nvidia not only to buy Nvidia but all other big tech stocks as well, because it basically is a big tech story and will continue for the rest of the year like that. So we're really looking to buy dips among the big tech winners, and those would include Amazon (AMZN), Meta (META), Microsoft (MSFT), and so on.
Q: How long can the US economy go without a recession?
A: Five years. The way our economic cycle works is after a long period of growth, companies get overconfident, over-invest, create excessive capacity in the markets for everything, and that leads to a crash and a recession, deflation, and lower interest rates. So even if we don't get major moves in the (TLT) upside now, you always will over the long term get interest rates going back to 2 or 3% for the 10-year so it’s a great long-term hold. That is the economic cycle—that's what creates bear markets and it’s known as “Boom and Bust”. Long may it live because that’s where we traders earn our crust of bread. But this time may be different. We may go longer than 5 years because AI is still in its infancy, still rolling out, and the number of companies making actual profits in AI will go from 3 to 300 over the next five years.
Q: I'm looking to buy gold in an investment account (GLD). Would you do that now, if so, what would you recommend?
A: I would recommend GLD (SPDR Gold Trust) because the metals are still outperforming the miners, miners being held back by the inflation rates unique to the mining industry, which are much higher than the 3.3% for the general economy. And if you want to add a little more spice to your portfolio, buy some silver (SLV) because it is rising at three times the rate of gold thanks to Chinese speculation. You might buy some copper while you're at it too—it's moving almost as fast as gold is.
Q: Which big tech firm is next to issue a dividend?
A: That's an easy answer, it's Netflix (NFLX). But there's a more important question out here— Which is the next tech stock to issue a stock split? And guess what the answer is? Netflix again, which needs to declare both a dividend and a stock split. It's at an all-time high, has a very high share price, and over time, stocks that split deliver double the performance of the S&P 500. So, the mere announcement will suck in a lot of new retail investors as we just saw with Nvidia (NVDA), where we got a $250 move on the split announcement. So, watch your splits, and in fact, I'm going to be devoting a major piece of next Monday's newsletter to splits and how to play them.
Q: Why has the stock market been so strong this year when interest rates are high?
A: The answer to that is AI. We are still in the very early days of AI, and as I mentioned earlier, only three companies are making money from AI right now. That's Nvidia (NVDA), Microsoft (MSFT), and Google (GOOG). That number will increase as AI moves down the food chain and everybody starts using it, including you and me. I view the AI development as similar to 1995 when all of a sudden we got Netscape, a navigator that made the Internet available to the public, Dell Computers (DELL), and Microsoft (MSFT) software all at once hitting the market and creating the online economy essentially from scratch. Something of that magnitude is what the stock market is discounting now. Think of it in terms of the revolutionary new technologies of 1995, which means we have another 5 or 6 years to go, and that's why the stock market is so strong.
Q: Should I invest in Berkshire Hathaway (BRK/B), or do you think their magic will run out soon?
A: I don't think their magic will ever run out. Of course, the day that Warren Buffett dies it'll be down 10%, but then you'll want to buy it with both hands because Warren has already replaced himself with a first-class management team who is carrying on his strategy. Any selloffs in Berkshire you get this summer, go in there and buy the calls, the call spreads, the stock, the LEAPS, and the kitchen sink. Still a great long-term BUY, and I see $500 either late this year or next year in (BRK/B).
Q: I'm a member of IM Academy.
A: Oh my gosh. I would let your membership expire, except you're probably on auto-renewal, and the only way to stop your subscription is to call your credit card company and ask them to block the billings. That is the problem with these predatory financial newsletters, they're impossible to get out of, even when they promise refunds anytime.
Q: Are there any Chinese stocks you like now?
A: No, but the highest quality stock in China is Alibaba (BABA). It's basically a combination of Amazon and PayPal in China, but you still have a very high political risk investing in anything in China. The currency is very weak, so better fish to fry is my opinion. And I tend to avoid countries suffering from demographic implosions.
Q: Should we buy (TLT) now or wait?
A: I would wait until we get some upside momentum going and we complete a few more downside tests.
Q: What's the best place to put cash in the summer?
A: The answer is always good old 90-day US Treasury bills. They are still paying 5.25%.
Q: What are your thoughts on PayPal (PYPL)?
A: I'm avoiding that sector because of over-competition crushing profit margins; that has been a problem for a couple of years now. Don't confuse “gone down a lot” with cheap.
Q: Which oil companies are the best to invest in right now?
A: You can buy Exxon Mobil (XOM) for the high dividend and the sheer size of the company. My second is Occidental Petroleum (OXY), because Warren Buffett owns 25% of the company, has shrunk the float, and that has a result in magnifying any moves up in the stock. Also, I somewhat admire Warren Buffett's stock-picking ability. And of course, I’ve been following the California company OXY since 1970, back when it was run by Armand Hammer, a friend of Vladimir Lenin, so my connections with the company go back a very long time.
Q: Do you like DuPont (DD) for the three-way split?
A: I do, but DuPont has a major problem looming with lawsuits over the PFAS chemicals—those are the forever chemicals which are all over the country, all over the food supply, and cause cancer. So that could be sort of like a Johnson & Johnson-type liability problem with the talcum powder. So again…why look for trouble? Buying a stock facing that kind of liability could be another tobacco situation.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader