Global Market Comments
September 27, 2024
Fiat Lux
Featured Trade:
(THE MAD HEDGE SEPTEMBER 17-19 SUMMIT REPLAYS ARE UP),
(SEPTEMBER 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (NVDA), (GLD), (SLV), (AGQ), (URA), (X), (PGE), (FDX), (V), (CEG), (NEE), (CCJ), (FSLR), (TLT), (WMT), (FCX), (UBER), (LYFT), (FXB), (T)
Below please find subscribers’ Q&A for the September 25 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe Nevada.
Q: The iShares 20+ Year Treasury Bond ETF (TLT) is not advancing like I had hoped. I’m not sure why the interest rate cuts have not impacted the 20-year maturity—is it too far out?
A: It’s not an issue of maturity; the fact is that the market has been discounting falling interest rates for six months, all the way back to March. It’s a classic “buy the rumor, sell the news” scenario. (TLT) rose $20 off the low this year, and once the rate cut actually happened, all the news was in. That is why I actually went short the TLT a couple of days ago, and that trade immediately started making money. Here’s the real problem: Fed futures are discounting 250 basis points in rate cuts by June of next year. If you don’t think we’re going to get 250 basis points in rate cuts, which is two 50 basis point rate cuts and five 25 basis point rate cuts, then the market is overbought for the short term and we’re selling short. That’s exactly what I did.
Q: Is it too late to buy Tesla (TSLA) and Nvidia (NVDA)?
A: No, it’s not, I think Tesla could hit $300 this year, and Nvidia could revisit $140. However, the more you wait, the more pain you have to take along the way. Nvidia did drop 40% off its high at one point this year, and Tesla dropped 80% off its high. The price of coming in late is pain, so be ready to take that pain or, even worse, to stop out.
Q: What is your take on Japan’s attempt to take over US Steel (X)?
A: Well, it’s entirely political. They definitely picked the wrong year to take a run at US steel because it’s headquartered in Pittsburgh, Pennsylvania, and neither political party can win their election without winning Pennsylvania. Nippon Steel is now 3x larger than US Steel (I covered the company for ten years when I lived in Japan.) It’s the steel factor Jimmy Doolittle bombed in the Pearl Harbor movie. US Steel is using 140-year-old technology—Open Hearth Technology—which hasn’t been updated since the Great Depression. Nippon Steel, meanwhile, is promising to scrap all of that and bring the Steel Industry into the 21st Century. All great ideas for Nippon Steel and their shareholders, but not so great for Unions; all of these takeovers always result in massive layoffs of Union workers. So, that is the issue. That’s where a large part of the added value comes from.
Q: What are the chances that interest rates drop to zero?
A: Zero. I don’t think we’ll ever see 0% interest rates again because people now understand the massive damage that causes to the economy and to savers. So, on the next interest rate cycle, we’ll go down maybe to 2% if we get a recession, but probably not much more than that.
Q: Is it a good time to buy FedEx Corp (FDX)?
A: Yes, it probably is. If there was one rule of trading this year, you buy everything on top of these monster selloffs that are caused by weak guidance. We did it on Palo Alto Networks (PANW) earlier this year—people made a fortune on that. FedEx just did the same thing, so yes, I’m looking very carefully at FedEx calls, call spreads, and LEAPS two years out.
Q: I recently saw a recommendation to buy California Utility Company PG&E (PGE) because of recent revenue gains. Should I take a look?
A: Absolutely, you should. PG&E has gone bankrupt twice in the last 25 years, and the current new management seems to know what they’re doing. They borrowed $20 billion to underground all the long-distance power lines in the state so they won’t be liable for any of these gigantic wildfires that caused the last bankruptcy. Also, you kind of want to own utilities when interest rates are falling because utilities are among the biggest borrowers in the country.
Q: Is Global X Uranium ETF (URA) a good proxy for Cameco Corp (CCJ)?
A: Yes, another one is Consolidation Energy Corp. (CEG), but they’ve all had absolutely astronomical moves ever since the announcement came out that Microsoft was reopening the Three Mile Island nuclear power plant. So, wait for a dip, but the thing is just going up every day right now.
Q: Is it time to buy iShares 20+ Year Treasury Bond ETF (TLT) LEAPS?
A: No, LEAPS territory was last year or the beginning of this year when we were in the $80s (and we issued a ton of (TLT) LEAPS last year.) LEAPS are what you do at market bottoms, not at new all-time highs or two-year highs. Remember, if LEAPS don’t work, they can go to zero, and you want to avoid the zero outcome as much as possible.
Q: Should I look at Visa Inc (V)?
A: Yes, this is another one of those poor guidance situations leading to 20% selloffs. In Visa’s case, they’re being sued by the US government for antitrust because they own 47% of the credit card market. So, I would maybe wait a little bit more, let the market fully digest that, and then Visa’s probably a really strong buy because they’re still growing at 15% a year and minting money like crazy.
Q: Do you see gold going to $3,000 next year?
A: Absolutely, yes, unless it goes to $3,000 this year, which raises a better question: what happens when gold hits $3,000? It goes to 4$,500, because Chinese savers have no other place to put their money except gold. The real estate has crashed and isn’t coming back, they don’t trust their own banks or currency—there really is nowhere else for them to put their own money. They don’t even buy gold miners, they just buy the gold metal and coins. So I think we could see much higher highs than gold, and I’m sticking to my longs.
Q: Will silver continue to lag?
A: No. In fact, in the last couple of weeks, silver has done a big catch-up that is happening because recession fears are going away. Even the soft-landing fears are starting to vaporize—we may have no landing at all. The economy may just keep going, and silver is far more sensitive to the economy than gold is; and that is all silver positive. When we get to the metals, you’ll see how much silver has actually caught up. Silver is probably the better buy here because it tends to outperform gold by two to one.
Q: Do you think the Japanese will cross 100 yen to the dollar in the near future?
A: No, but I think it may cross 100 to the dollar in two years. You’re looking at a permanently weak US dollar from now on. As long as we’re cutting interest rates faster than anyone else, our currency will be the weakest. Japan’s rates are at zero, so they’re not going to cut interest rates at all, which is why we've had this enormous move in the Japanese yen.
Q: Can you give me some good renewable energy stocks and reasons why they are good buys?
A: Well, my favorite renewables are the Canadian Uranium stock Cameco Corporation (CCJ), First Solar (FSLR), which has been the leading industrial-scale solar producer for a long time, and NextEra Energy (NEE), which is very heavily dependent on producing electric power from renewables and also have a 3% dividend.
Q: Why is the euro going up even though their economy is in such terrible shape?
A: Europe has much lower interest rates than the US, and therefore, much less ability to cut interest rates than the US; it is the interest rate cuts that are driving currencies down, and we are the world’s greatest interest rates cutter right now. So, that is why you’re getting outperformance of the euro (FXE).
Q: Financials have moved up over the last two weeks; what’s your take on year-end and beyond? Should I buy Goldman Sachs (GS), JP Morgan (JPM) and Morgan Stanley (MS)?
A: Yes on all three. They’re all big beneficiaries of falling interest rates, improving economies, declining default rates, and rising stock markets. So, you have a triple play on all three of those. I’d be buying the dips on all financials.
Q: When will the sell volatility come back?
A: When you get the Volatility Index ($VIX) over $30. That seems to be the sweet spot for selling volatility. We are now at $15.
Q: If the US sharply increases tariffs, what will be the impact on the economy?
A: It would basically amount to a 20% price increase on everything you buy—from clothes to electronic parts to everything else—and the stock market would crash. Probably 90% of the non-food items Walmart (WMT) sells is from China. That’s why they call it the Chinese embassy. Tariffs are a tremendous restraint of trade and never, ever work, except for targeted items like cars or solar panels. For instance, I am in favor of a 100% tariff on Chinese cars to keep them from demolishing our own car industry as they are currently doing in Europe.
Q: Do we expect commodities like copper (FCX) and foodstuffs to go up as rates are cut?
A: I do. They’re big beneficiaries of falling rates, but more importantly, they’re even bigger beneficiaries of a stimulated Chinese economy, and that’s why we see these monster moves over the last two days.
Q: If you had to invest in one rideshare company, would it be Lyft (LYFT) or Uber (UBER)?
A: Uber—they have far superior management, they’ll be the first into robo-taxis, and they are constantly evolving their model, with Lyft always struggling to catch up.
Q: How will antitrust regulation affect the Magnificent Seven?
A: The bottom line is it will double the value of the Magnificent Seven. If these companies are broken up, the individual parts are worth far more than the whole companies, and we saw this when we broke up AT&T (T) 50 years ago, and the resulting seven companies within a year had a combined market value that vastly exceeded the original AT&T. I actually participated in that deal when I was at Morgan Stanley (since I am 6’4” I was asked to carry the ballots from one floor to another). Expect the same to happen with the Magnificent Seven. They will be worth double or triple more.
Q: If China has a falling population, how will a stimulus program help?
A: Well, it will fill in for the 600 million consumers who were never born as a result of the one-child policy. Not many others are talking about this besides me, but the fact is that the current economic weakness comes entirely from the one-child policy, and there is no way out of that, so they are going to have to keep stimulating again and again, much like the US did through the pandemic.
Q: If you can buy gold and silver on the UK market in sterling, does that make more sense for a UK resident?
A: Yes, it does, since your home currency is in sterling. You will actually get a double play or a “hockey stick effect” because not only is gold going up against the US dollar, but sterling (FXB) is going up against the US dollar, so you’ll get a multiplied effect relative to the pound. We used to play this all day long in Europe in the 1970s and 1980s, back when you had individual currencies to trade and the euro hadn’t been invented yet.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Fishing in the High Sierras
Global Market Comments
September 15, 2023
Fiat Lux
Featured Trade:
(FRIDAY, OCTOBER 6 FRANKFURT, GERMANY STRATEGY DINNER)
(THERE ARE NO GURUS),
(THE PRICE TAG FOR CLEAN COAL),
(KOL), (UNG), (PGE), (BTU)
I wanted to get the low down on clean coal (KOL) to see how clean it really is, so I visited some friends at Lawrence Livermore National Laboratory in California.
The modern-day descendent of the Atomic Energy Commission, where I had a student job in the early seventies, the leading researcher on laser-induced nuclear fission, and the administrator of our atomic weapons stockpile, I figured they’d know.
Dirty coal currently supplies us with 35% of our electricity, and total electricity demand is expected to go up 30% by 2030. The industry is spewing out 32 billion tons of carbon dioxide (CO2) a year and the great majority of independent scientists out there believe that the global warming it is causing will lead us to an environmental disaster within decades.
Carbon Capture and Storage technology (CCS) locks up these emissions deep underground forever. The problem is that there is only one of these plants in operation in North Dakota, a legacy of the Carter administration, and new ones would cost $4 billion each.
The low estimate to replace the 250 existing coal plants in the US is $1 trillion, and this will produce electricity that costs 50% more than we now pay. In a gridlocked constrained congress, this is a big ticket that is highly unlikely to get picked up.
While we can build a wall to keep out illegal immigrants from Latin America, it won’t keep out CO2. This is a big problem as China is currently completing one new coal-fired plant a week.
In fact, the Middle Kingdom is rushing to perfect cheaper CCS technologies, not only for their own use but also to sell to us. The bottom line is coal can be cleaned but at a frightful price.
Coal once had a huge price advantage over other energy sources that disappeared when the price of natural gas (UNG) collapsed for $17 BTU to $2/MM BTU. Yesterday, gas closed at a feeble $2.70.
Cost savings aside, virtually every utility in the country would love to get out of the coal business because of the litigation it invites. Read the prospectus for new securities issued by any of them, and you will find a litany of lawsuits over diseases caused by Sulfur Dioxide (SO2), Nitrous Oxides (NO2), and a host of other asthma and cancer-causing pollutants.
Burning natural gas only emits carbon dioxide (CO2) (only half the amount that crude oil derived bunker fuel does) and water (H2O). Sorry, but my inner chemist is speaking.
California closed its last coal-fueled power plant a 20 years ago, switching to natural gas, accidentally creating a windfall for consumers. Much of the money saved was used to modernize the grid buy installing statewide smart meters which allow customers to both buy and sell electricity back to utilities generated from home solar installations and charged up 1,000-pound 100 kWh lithium-ion Tesla batteries.
These moved are expected to save our local Pacific Gas and Electric (PGE) the capital cost of building two new major generating plants. This is not your father’s utility.
Although it is unlikely that another coal fired power plant will ever be built in the US again, don’t expect coal giants like Peabody Energy (BTU) to disappear anytime soon. There is still a massive export business to China, as the Burlington Northern freight trains that rumble near my home testify (love that midnight whistle).
But don’t ever confuse a stock price that has gone down a lot with “cheap.” The shares of these companies could remain in the dumps for a long time, and possibly forever, creating a classic value trap. That is, until the Chinese buy them out for pennies on the dollar.
These are jobs I don’t mind exporting to China. They can have them.
When I checked the price of the old coal ETF (KOL) I discovered that it had ceased trading in 2020 after its asset under management fell from $908 million to just $35 million. At that level Van Eck was losing money running the fund. Most pension funds had banned investing in coal companies.
That alone tells you a lot right there.
Global Market Comments
November 1, 2019
Fiat Lux
Featured Trade:
(OCTOBER 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(SQ), (CCI), (SPG), (PGE), (BA), (MSFT), (GOOGL), (FB), (AAPL), (IBB), (XLV), (USO), (GM), (VNQ)
Below please find subscribers’ Q&A for the Mad Hedge Fund Trader October 30 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: Would you buy Square (SQ) around here?
A: I don’t want to buy anything around here—that’s why I’m 90% cash. Would I buy Square on a market selloff? Absolutely, it's one of our favorite fintech stocks for the long term. The fintech stocks are eating the lunch of the legacy banks at an accelerating rate.
Q: What's the best yield play currently, now that bonds have gone so high?
A: High-quality REITs—especially cell tower REITs. We’re going to get a significant increase in the number of cell towers, thanks to 5G, and there are REITs specifically dedicated to cell phone towers. An example is Crown Castle (CCI), which has a generous 3.45% dividend yield. The worst REITs are the mall-based like Simon Property Group (SPG).
Q: PG&E (PGE) has just had a huge selloff of 50%. Should I buy it now or is it a potential zero?
A: I wouldn’t touch PG&E at all—They’re already in bankruptcy, and they are now accepting responsibility for starting another eight fires this week, including the big Kincaid fires. You could have the state government take over the company and wipe out all the shareholders— the liabilities are just growing by the second, so I would turn my attention elsewhere. Don’t reach for new ways to get in trouble.
Q: Regarding Boeing (BA), it looks like you caught the bottom on the last dip—should I buy it here or wait for another dip?
A: Wait for another dip. The company seems to have an endless supply of bad news. That said, if we visit $325 a share one more time, I would buy it again. We caught about a $10 dollar move in Boeing to the upside. Keep buying the dips. The bad news story on this is almost over.
Q: Do you think the earnings season will be better than expected? If so, which sectors do you think will outperform?
A: It’s always better than expected because they always downgrade right before earnings, so everything is a surprise to the upside. Some 80% of all stocks surprise to the upside every quarter. And what would I be buying on dips? Big Tech. Especially things like Apple (AAPL), Facebook (FB), Alphabet (GOOGL), and Microsoft (MSFT) —that is where the only reliable longer-term growth is in the economy. If you want to buy cheap companies on dips, go for Biotech (IBB) and Health Care (XLV), which have gone up almost every day since we launched the Biotech letter a month ago. To subscribe to the Mad Hedge Biotech and Healthcare Letter, please click here.
Q: What does it mean that the Chile APEC summit is cancelled? What is Trump going to do now for signing on the trade deal?
A: There may not be a trade deal. It's another postponement and could be another trigger for a long-overdue selloff in the market. We've basically been going up nonstop now for 2½ months, and almost everyone's market timing indicators are saying extreme overbought territory here, including ours.
Q: Will there be a replay of this webinar posted?
A: Yes, we always post these on the website a couple of hours after it airs. Some 95% of our viewers watch the recordings, especially those overseas in weird time zones like Australia and India. You need to be logged in to access it. Just go to www.madhedgefundtrader.com, log in, go to My Account, then Global Trading Dispatch, then click on the Webinars button. It’s there in all its glory.
Q: Does Invesco DB US Dollar Index Bullish Fund ETF (UUP) make sense (the dollar basket)?
A: No, I'm staying out of the currency market because there are no clear trends right now and there are much clearer trends in other asset classes, like stock and bonds.
Q: How do you see General Electric (GE)?
A: There are a lot of people shouting accounting fraud like Harry Markopolos, the whistleblower on Bernie Madoff. Sure, they had a good today, up a buck, but their problems are going to take a long time to fix. So, don't think of this as a trading vehicle, but rather a long-term investment vehicle.
Q: Could the Saudi Aramco IPO push the price of oil up?
A: You can bet they're going to do everything humanly possible to get the price of oil (USO) up and to get this IPO off their hands—that's why you shouldn't buy the IPO. The Saudis are desperate to get out of the oil business before prices go to zero and are pouring money into alternative energy and technology through Masayoshi Son’s Vision Fund. When you have the chief supplier of oil rigging the price, you don’t want to be anywhere near the distributor and that’s Saudi Aramco.
Q: What about selling the (SPG) (Simon Property) REIT?
A: It’s kind of too late to sell, but what you might think of doing is selling short just one deep out-of-the-money put, just to bring in a small amount of income. These things don’t crash, they grind down; so, it could be a good naked put shorting situation, but only on a very small scale. If you want to play REITs on the long side, look at the Vanguard Real Estate ETF (VNQ), which pays a handy 3.12% dividend. Guess what its largest holdings are? 5G cell tower REITs.
Q: Is General Motors (GM) a buy on the union detent?
A: Only for a trade, but not much; the auto industry is the last thing you want to buy into going into a recession, even just a growth recession.
Q: Have we topped out on Apple (AAPL) for the year at $250?
A: If we did, it’s probably just short term. Remember their 5G phone is coming out next September and I expect the stock to go to $300 dollars just off of that. Any dips in Apple won’t last more than a month or two.
Q: Could we get another leg up for the end of the year?
A: Yes, not much, maybe another 5% from here, and I wouldn't do that until we get another 5% drop in the market first which should happen sometime in November. If that happens, then you’ll have a shot at making another 10% by the end of the year, which is exactly what I plan on doing for myself. That would take our 2019 performance from 50% to 60%.
Q: Is the Fed’s printing infinite money going to lead to runaway inflation crashing the value of the dollar?
A: Yes, but it may take us a couple of years to get to that point. So far, no sign of inflation, except inflation of things you want to buy, like healthcare, a college education, and so on. For anything you want to sell, like your labor or service, the prices are collapsing. That’s the new inflation, the type that screws you the most.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
