Global Market Comments
January 27, 2023
Fiat Lux
Featured Trade:
(JANUARY 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(RIVN), ($VIX), (SPX), (UUP), (NVDA), (TLT), (LLY), (AAPL), (RTX), (LMT), (USO), (OXY), (TSLA), (UNG), (MSFT)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the January 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: What do you think about LEAPS on Rivian (RIVN)?
A: Yes, I would do those, but a smaller position with closer strike prices. Go to the maximum maturity 2 years out and be conservative—bet on only a 50% rise in the stock. I’m sure it’ll double, but with the LEAPS you’ll have tremendous upside leverage, like 10 to 1, so don’t get greedy. Go for the 500% profit in 2 years rather than the 1,000%, because it is still a startup, and we need economic recovery for startups to get traction. If anything, Tesla (TSLA) will drag this stock back up as it dragged it down. They all move together.
Q: What’s the number of contracts on your $100,000 model portfolio?
A: Our model portfolio basically assumes we have 10 positions of $10,000 each totaling $100,000 in value. You can then change the number of contracts to suit your own private portfolio—take on as much or as little risk as you want. If you’re new. I recommend trading on paper first to make sure you can make money before you use the real thing.
Q: I’m new to this service. What’s the difference between the long-term portfolio and the short-term portfolio?
A: A long term portfolio is a buy-and-forget portfolio, with maybe a 5- or 10-year view. We only change it and make adjustments twice a year so we can average back into the new positions and take profits on the old ones. The main part of this service is usually front-month, and that’s where we take advantage of anomalies in the options market and market timing to make profits 95% of the time. And a big part of the short-term portfolio is cash; we often go 100% cash when there are no trades to be had. It’s actually more valuable knowing when not to trade than when to trade. If you have any more questions, just email customer support at support@madhedgefundtrader.com and we’ll address them individually.
Q: Is it time for a CBOE Volatility Index ($VIX) trade?
A: I hate trading ($VIX). I only do it from the short side; when you get down to these low levels it can flatline for several months, and the time decay eats you to death. I only do it from the short side, and then only the 5% of the time that we’re peaking in ($VIX). The big money is made on the short side, that’s how virtually the entire options trading industry trades this.
Q: Would you be loading up with LEAPS in February?
A: No, it’s the worst time to do LEAPS. You do LEAPS at long-term market bottoms like we had in October, and then we issued 12 different LEAPS. If you get a smaller pullback, there may be LEAPS opportunities, but only in sectors that are near all-time lows, like gold or silver. It depends on the industry and where we are in the market, but basically, you’re looking to do LEAPS at lows for the year because the leverage is so enormous, and so are the potential profits.
Q: Is the increasing good performance a result of your artificial intelligence? Learning from past mistakes?
A: Partly yes, and partly my own intelligence is improving. Believe it or not, when you go from year 54 to 55 in experience in the markets, you understand a lot more about the markets. Sometimes you just get lucky being on the right side of black swan events. Of course, knowing when the market is especially sensitive and prone to black swans is also a handy skill to have.
Q: Is it too late to get into Freeport McMoRan (FCX)?
A: Yes, I wouldn’t touch (FCX) until we get at least a $10 selloff, which we may get in February, so I think the long term target for (FCX) is $100. The stock has nearly doubled since the LEAPS went out in October from $25 a share to almost $50, so that train has left the station. Better off to wait for the next train or find another stock, there are a lot of them.
Q: Where do you park cash in the holding pattern?
A: Very professional hedge fund managers buy 90-day T-bills, because if you keep your cash in your brokerage account—their cash account—and they go bankrupt, it’ll take you 3 years to get your money back in a bankruptcy proceeding. If you own 90-day T-bills and your broker goes bankrupt, they’re required by law to just hand over the T-bills to you immediately. You take delivery of the T-bills, you park them at another brokerage house, and you keep them there. There is no loss of the use of funds.
Q: What about Long term US dollar (UUP)?
A: We go down for 10 years. Falling interest rates are poison for a currency; our rates are probably going to be falling for the next several years.
Q: Thoughts on Tesla (TSLA)?
A: Short term way overbought, we almost got up 60% from the low in weeks, but that’s Tesla, that’s just how it trades. It is the best performing major stock in the market this year. I wouldn’t be looking to go back into it until we drop back, give up half of that gain, get back down to about $135—then it would be a good options trade and a good LEAPS.
Q: Would you be taking profits in Nvidia (NVDA)?
A: I would take like half here and look to buy it back on the next dip because I think Nvidia’s got higher highs ahead of it.
Q: I can’t get a password for the website.
A: Please contact customer support on the homepage and they will set you up immediately. If not, you can call them at (347) 480-1034.
Q: Would you be selling long term positions?
A: No I would not, because if you sell a long term position they’re very hard to get back into; and I’m expecting $4,800 in the (SPX) by the end of the year. Everything goes up by the end of the year, even things you hate. So no, selling is what you did a year ago, now you’re basically looking for chances to get back in.
Q: Would you hold Tesla (TSLA) over this earnings report?
A: No, I sold my position yesterday, at 70% of its maximum potential profit. I don't need substantial selloff; I’m just going to go right back in again.
Q: Have you heard anything about Tesla silicon roof tiles tending to catch fire?
A: No I have not, but if your house got struck by lightning or if someone fired a bullet at it, that might do the trick. Otherwise, you need a huge input of energy to get silicon to catch on fire as it’s a pretty stable element. And if it was already happening on a large scale, you know the media would be absolutely all over it—the media loves to hate Tesla and loves to hate Elon Musk. That certainly would draw attention if it were happening; what's more likely is that fake news is spreading rumors that are not true. That's been a constant problem with Tesla from the very beginning.
Q: Would you open the occidental spread here today?
A: I would, but I would use strike prices $5 lower. I'd be doing the February $50-$55 vertical bull call spread to give yourself some extra protection, given that the general market itself is so high.
Q: Should I be shorting Apple (APPL) here?
A: No, but the smart thing to do is to sell the $160 calls because I don’t think we’ll get up to $160. You could take any extra premium income, and if you don’t get hit this month, keep doing it every month until you are hit, and then you can take in quite a lot of premium income by the time we get to new highs in Apple, possibly as much as $10 or $15. So, that would be a smart thing to do with Apple.
Q: What's your favorite in biotech and big pharma?
A: Eli Lilly (LLY), which just doesn't seem to let anybody in.
Q: If China were to shut down again, would it hurt the stock market?
A: Yes, but not much. The much bigger falls would be in Chinese stocks (which have already doubled since October) not ours.
Q: Thoughts on biotech?
A: Biotech is the new safety trade that will continue. Also, they’re having their secular ramp-up in technology and new drugs so that is also a good long-term bull call on biotech.
Q: What’s the dip in iShares 20+ Year Treasury Bond ETF (TLT)?
A: $4 points at a minimum, $5 is a nice one, $6 would be fantastic if you can get it.
Q: Could we get a trade-up in oil (USO)?
A: Yes, maybe $5 or $10 a barrel. But it’s just that, a trade. Long term, oil still goes to zero. Short term, China recovery gives a move up in oil and that's why we went long (OXY).
Q: You talk about California NatGas being dead, but California gets 51% of its electricity from natural gas, up from 48% in 2018.
A: Yes, but that counts all of the natural gas that gets brought in from other states. In fact, if you look at the longer-term trend over the last 20 years, coal has gone to zero, nuclear is going to zero, hydro has remained the same at about 10%. NatGas has been falling and green sources like wind and solar, have been rising quite substantially. And now, approximately 25% of all the homes in California get solar energy, or 8.4 million homes, and it is now illegal to put gas piping into any new construction. New York is doing the same. That means it will be illegal to do new natural gas installations in a third of the country. So, I think that points to lower natural gas consumption, and in fact, the 22-year target is to take it to zero, which might be optimistic but you never know. All they need is a smallish improvement in solar technology, and that 100% from green sources is doable by 2045, not only for California but for everybody. All energy plays are a trade only, not an investment.
Q: Any thoughts on the implications for the US and Germany providing tanks to Ukraine?
A: You can throw Poland in there, which is also contributing a tank division—so a total of 58 M1 Abrams tanks are going to Ukraine. By the way, I did command a Marine Corps tank battalion for two weeks on my reserve duty, so I know them really well inside and out. They are powered by a turbine engine, have a suspension as soft as a Cadillac, a laser targeting system accurate to three miles even for beginners, and fire recycled uranium shells that can cut through anything like a knife through butter. The answer is the war gets prolonged, and eventually forces Russia into a retreat or a negotiation. Even though the M1 is an ancient 47-year-old design, its track record against the Russian T72 is pretty lopsided. In the first Gulf War, the US destroyed 5,000 T72s and the US lost one M1 tank because he parked on a horizon, which you should never do with a tank. And every driver of a T72 knows that track record. So that explains why Russian tanks have been running out of gas, sugaring their gas tanks, sabotaging their diesel engines, and doing everything they can to avoid combat because of massive fatal design flaws in the T72. We only need to provide about 50 or 60 of the M1 tanks as a symbolic gesture to basically scare the entire Russian tank force away.
Q: Why do you think Elon kept selling Tesla? Did he think it would go lower?
A: Elon thinks the stock’s going to $10,000, but he needed up-front cash to build out six remaining Tesla factories, and for that, he needed about $40 billion, which is why he sold $40 billion worth of stocks last year when it was peaking. He also is sensitive to selling at tops; it’s better to sell stock in with Tesla at an all-time high than at an all-time low, so he clearly times the market to meet his own cash flows.
Q: What about military contractors?
A: I know Raytheon (RTX) and Lockheed Martin (LMT) have a two-year backlog in orders for javelin missiles and stingers, which are now 47-year-old technology that has to be redesigned from scratch. The US just placed an order for a 600% increase in artillery shells for the 155 mm howitzer. I thought we’d never use these again, which is why US stocks for ammunition got so low. But it looks like we have more or less a long term or even permanent customer in Ukraine for everything we can produce, in old Vietnam-era style technologies. How about that? I’m telling the military to give them everything we’ve got because everything we’ve got is obsolete.
Q: When should we buy Microsoft (MSFT)?
A: On the next 10% dip. It’s the quality stock in the US.
Q: Do you place an order to close the spread at profit as soon as you have filled in the trade?
A: You can do that, but it’s kind of a waste of time. Wait until we get close to the strikes; most of the big companies we deal in, you don't get overnight 10% or 20% moves, although it does happen occasionally.
Q: Natural Gas (UNG) prices are collapsing.
A: Correct, because the winter energy crisis in Europe never showed and spring is just around the corner.
Q: On the Tesla (TSLA) LEAPS, what about the January 2025 $600-$610 vertical bull call spread
A: That is way too far out of the money now. I would write that off and go back into it but do something like a January 2025 $180-$190. It has a much higher probability of going in the money, and still an extremely high return. It would be something like 500% if you get in down at these levels.
Q: How do you see Bitcoin short term/long term?
A: I think the loss of confidence in the asset has been so damaging that it may not come back in my lifetime. It could be another Tokyo situation where it takes 30 years to recover, or only recovers when the entire sector gets taken over by the big banks. So, I don’t see any merit in the crypto trade, probably forever. Once you lose confidence in the financial markets, it’s impossible to get it back. And it turns out that every one of these mainline trading platforms was stealing from the customers. No one ever comes back from that in the financial markets.
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 or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
At 29 Palms in my M1 Abrams Tank in 2000
Global Market Comments
January 13, 2023
Fiat Lux
Featured Trade:
(JANUARY 11 BIWEEKLY STRATEGY WEBINAR Q&A)
(ROM), (FCX), (QQQ), (VIX), (TSLA), (TLT), (MSFT), (RIVN), (VIX), (BRK/B), (RTX), (LMT), (FXI), (UNG), (GLD), (GDX), (SLV), (WPM)
Below please find the subscribers’ Q&A for the January 11 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: In your trade alert you expected that the (TLT) might go up as much as 30% this year. But in your latest newsletter, you mentioned that the chaos in the US House of Representatives would greatly raise the risk of a default on US government debt by the summer and certainly cast a shadow over your 50% long bond position. Is it still a good idea to hold on to the (TLT) ETF over the next 2-6 months?
A: It is. The extremists who now control the House are not interested in governing or passing laws but gaining clicks, raising money, and increasing speaker’s fees. It may have converted (TLT) from a straight-up trade to a flat-line trade. We will still make the maximum profit on call spreads and LEAPS but with greater risk. But even chaos in the House can’t head off a recession, which the bond market seems intent on pricing in by going up. However, if you depend on government payments for any reason, be it Social Security, a government salary, a tax refund, or a payment for a contract, expect delays. The housing market also ceases because closings can’t take place during government shutdowns. Also, 30% of my bond longs expire in four trading days, and the remainder on February 17.
Q: Is it wise to sell the 2X ProShares Ultra Technology ETF (ROM) now or keep holding?
A: I think the (ROM), NASDAQ, and technology stocks in general may make several runs at the lows over the next six months but won’t fall much from here. A recession is priced in. Once we get through this, you’re looking at doubles and triples for the best names. So, the risk/reward overwhelmingly favors holding on to a one-year view.
Q: would you buy Tesla (TSLA) here?
A: I would start scaling in. The bad news is about to dry up, like Twitter, the recession, the pandemic in China, and Elon Musk selling shares. Then we face an onslaught of good news, like the new Mexico factory announcement, the Cybertruck launch, solid state batteries, and annual production hitting 2 million. At this level, the shares are priced in multiple worst-case scenarios. It is selling at 10X 2025 earnings, half the market multiple. At the end of the day, Tesla has an unassailable 14-year start over the rest of the industry and is the only company in the world that makes money on EVs. There’s an easy 10X here on two-year LEAPS.
Q: I’m in the Freeport McMoRan (FCX) January 25 2-year LEAP approaching the upper end of the 42/45 range. If it crosses 45, do we close the position?
A: Sell half, take your profit. If you’re in the LEAP, my guess is you probably have a 500% profit here in only 3 months, which is not bad. And then you keep the remaining half because you’re then playing with the house's money, and Freeport has a shot of going all the way to $100 a share by the 2025 expiration, and that will get you your full 1,000% return on the position. It’s always nice to be in a position where it’s impossible to lose money on a trade, and that certainly is where you are now with your (FCX) LEAP and everybody else in the FCX LEAP in October also.
Q: As a member of the Florida Retirement System, I’m curious how Blackrock (BLK) and other firms are dealing with the Santos’ plan for their portfolios.
A: Having a state governor manage your portfolio and make your sector and stock picks is an absolutely terrible idea. I can’t imagine a worse possible outcome for your retirement funds. Florida is not the only state doing this—Louisiana and Texas are doing it too. The goal is to drive money out of alternative energy and back into the oil industry, and obviously, this is being financed by the oil industry, which is pissed off over their low multiples. Suffice it to say it’s not a good idea to move out of one of the fastest-growing industries in the market and move into an industry that’s going to zero in 10 years. If that’s their investment strategy, I wish they’d stick to politics and leave investing for true professionals to do.
Q: What do you think about cannabis stocks?
A: I’m a better user of the product than the stock. How about that? How hard is it to grow weed? At the end of the day, these are just pure marketing companies, and that value added is low. Plus, they have huge competition from the black market still selling ½ to ⅓ below market prices because they’re tax-free; the local taxes on these cannabis sales are enormous.
Q: Would you recommend selling a bear market rally when the S&P goes to 405?
A: The (QQQ) would be the better short, something like the $310-320 vertical bear put spread for February to bring in some free money. That’s what I'm planning to do if we get up that high, which we may not.
Q: How do you take advantage of a low CBOE Volatility Index (VIX)?
A: You don’t; there’s nothing to do here with the (VIX) at $22. My trades this year were not volatility trades—because we did them with low volatility, they were pure directional trades betting that the longs would go up and the shorts would go down and they all worked.
Q: Will Rivian (RIVN) survive?
A: Yes, they have two years of cash flow in the bank, and they’re boosting production. However, a high-growth, non-earning stock like Rivian is just out of favor right now. Will they come back into favor? Yes, probably in a year or so, but in the meantime, people are much happier buying Microsoft (MSFT) at a discount than Rivian.
Q: Do you ever buy butterfly spreads?
A: No, four-legged trades run up a lot of commissions, are hard to execute because you have 4 spreads, and have lower returns. They are also lower risk and for people who have no idea what the market is going to do. I don’t need the lower risk trades because I know what markets are going to do.
Q: Do you suggest any Microsoft (MSFT) LEAPS?
A: Yes, go out two years with LEAPS and go out about 50% on your strike prices. A 50% move here in Microsoft in two years is a complete no-brainer.
Q: With weakness in retail, rising inventories, and high consumer debt, will consumers dip into savings?
A: Yes they will, but that will predominantly happen at the bottom half of the economy—the part of the economy that has minimal to no savings. The upper half seems to be doing well—the middle class and of course, the wealthy— and are not cutting back their spending at all, which is why this seems to be a recession that may not actually show up. So, what can I say? The rich are doing great and everyone else is doing less than great, and stocks are reflecting that. Nothing new here.
Q: Would you hold off on tech LEAPS for a bigger selloff, or closer to April?
A: If we do get another big selloff and challenge the October lows, I’ll be pumping out those LEAPS as fast as I can write them; except then, a two-year LEAPS will have an April of 2025 expiration.
Q: I just signed up. What are the advantages of LEAPS?
A: A possible 10x return in 2 years with very low risk. I would suggest going to my website, logging in, and doing a search for LEAPS. There will be a piece there on how to execute a LEAPS, and the Concierge members can also find that piece by logging into their website.
Q: Best and worst sectors?
A: First half, already mentioned them. We like commodities, healthcare, financials, and Berkshire Hathaway (BRK/B) in the first half and tech in the second half.
Q: Have we reached a low in cryptocurrencies?
A: Probably not, and I’ll tell you why I’ve given up on cryptos: I may not live long enough to see the bottom in crypto. It has Tokyo written all over it, and it took Tokyo 30 years to resume a bull market after it crashed in 1990. We’re still at the scandal stage where it turns out that the majority of these trading platforms were stealing money from customers. This is not a great inspiration for investing in that sector. When you have the best quality growth stocks down 80-90%; why bother with something that may not exist or may never recover in your lifetime? I’m out of the crypto business, but there are a wealth of crypto research sources still online and I’m sure they’d be more than happy to give you an opinion.
Q: Why have defense stocks like Raytheon (RTX) and Lockheed Martin (LMT) been weak recently?
A: A couple of reasons. #1 Just outright profit taking into the end of the year in one of the best-performing sectors. #2 The end of the war in Ukraine may not be that far off, and if that happens that could trigger a major round of selling in defense. We did get the three-day ceasefire over the Russian Orthodox New Year, that’s a possible hint, so that may be another reason.
Q: Political outlook on 2024?
A: It’s too early to make any calls, anything could happen; but if we get a repeat of the November election outcome, you could have Democrats retake control of both houses of congress—that’s where the betting money is going right now.
Q: Would you bottom fish in the United States Natural Gas Fund (UNG)?
A: No, I would not—I am avoiding energy like the plague. Remember the all-time low for natural gas is $0.95 per MM BTU, so we still could have a long way to go.
Q: Would you buy iShares China Large-Cap ETF (FXI) on a post-COVID breakout?
A: It looks like it’s already moved, so maybe kind of late on that. The problem is that in China, you don’t know what you are buying and the locals have a huge advantage in reading Beijing.
Q: What do you think about the Biden administration wanting to ban gas stoves?
A: That’s actually not a federal issue, it’s a state issue. California has already banned gas pipes for all new construction. It looks like New York will follow and that’s one-third of the US population. The goal is to replace them with electrical appliances which emit no carbon. I have a non-carbon house myself, I went down that path about 10 years ago, and it seems to be the only way to reduce carbon emissions—is to either price gasoline or oil out of the market, or to make it illegal, and they’re already making gasoline cars illegal, so gas and oil won’t be far behind. From 1900, we went from a hay powered economy to a gasoline-powered one in only 20 years so it should be doable.
Q: How can the push for all electric work well when we have so many shutdowns, much higher electricity cost, and cannot keep up with the demand already here?
A: Buy lots of copper for new local electric powerlines at the house level and buy lots of aluminum for the long-distance transmission lines. Global demand for both aluminum and copper has to triple to accommodate the grid buildout that is already planned. As far as hurricanes in Florida, there’s nothing you can do to stop those on a hundred-year view; I would move to higher ground, which is hard to do in Florida as the highest point in the state is only 345 feet and that’s a garbage dump.
Q: Can I get a copy of all these slides?
A: Yes, we post the PowerPoint on the website at www.madhedgefundtrader.com usually two hours after the production.
Q: Are you recommending buying precious metals right now (GLD), (GDX), (SLV), (and WPM) even after the upside breakout?
A: On upside breakouts, you buy the dips. A perfect dip would be a retest of the 200-day moving average. But we may not get that, since it seems to be everyone’s number-one choice right now. By the way, I haven’t been telling people to buy gold and LEAPS on all the gold plays since October—that’s where the big move has already been made.
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 or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
CLICK HERE to download today's position sheet.
With the Israeli Army in Jerusalem in 1979
Global Market Comments
December 16, 2022
Fiat Lux
Featured Trade:
(DECEMBER 14 BIWEEKLY STRATEGY WEBINAR Q&A),
(JPM), (BAC), (C), (WFC), (UNG), (RIVN), (SPY), (TLT), (TBT), (TSLA), (NVDA), (CRM), (FCX)
Below please find subscribers’ Q&A for the December 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: Is it time to short the S&P 500 (SPY), or go into cash?
A: I vote for cash. Number 1. We’ve just had a tremendous run in the market. The 200-day moving average at $405 is proving to be massive resistance, and you could get a bunch of profit-taking in January on all the positions people bought up in October. They’ve made a ton of money on that, and they may be deferring to profit-taking, hoping for the Santa Clause rally to continue and to take advantage of all that time decay over the holidays—so, high risk. Risk-reward right now is terrible, so I don’t want to do anything. I’m 100% cash, and I’ll stay that way until the New Year unless something exceptional happens in the markets—you never know what might happen. And I watch markets 24/7, vacation or not because it's in my blood.
Q: What about Financials?
A: Wait until the next dip and then go for call spreads which deliver max profits in sideways markets. JP Morgan (JPM), Bank of America (BAC), Citigroup (C) and you might take a look at Wells Fargo (WFC) next time around, but they always seem to be getting into trouble.
Q: What do we do about interest rates here?
A: Look for the 10-year Treasury bond (TLT) yield to drop to about 2.50% in 2023, about the first half of 2023—maybe by June or so. We did just have a round of profit-taking, but we’re adding on dips.
Q: What do you think about the US sending patriot batteries to Ukraine?
A: The problem is the MIM-104 Patriot SAM system is kind of old—about 41 years old—and it’s been outrun by the new technologies developed by the Ukraine war. Also, 1,000 drones at $1,000 each would be cheaper than 1 patriot missile for $4 million. Sending swarms of hundreds of super cheap drone bombs to attack targets has only been developed over the past six months and you only need one to get through to destroy the target for which the patriot would be useless. Patriot is really designed to shoot down incoming Russian intercontinental ballistic missiles with nuclear warheads with one hour of notice and highly predictable trajectories. We used them a lot in the Gulf War in 1991, and we gave many to Israel which used them to great effect when defending big cities. But they were only firing against slow WWII German-style V2 rockets which Saddam Hussein literally copied off of Wikipedia. If you want to see how effective the new drone strategy is, watch competitive drone racing (https://www.youtube.com/watch?v=HNRiMgNnuVE ), or robot wars (http://www.robotwars.tv ), or any of these other online programs where you have drones controlled by humans doing exactly what I’m talking about. Also, 1,000 drones at $1,000 each would be cheaper than 1 patriot missile for $ million.
Q: What’s your Rivian (RIVN) target by the January options expiration?
A: I have no idea, but Elon Musk has had the impact of destroying not only Tesla but the entire EV sector, so Rivian is a great company clearly being dragged down by Tesla. But also, a joint venture to make trucks in Europe was also put on hold with Mercedes. And of course, nobody wants to spend money ahead of a recession. Buy (RIVN) two-year LEAPS.
Q: Why is the US buying Natural Gas (UNG) in Massachusetts from Russia when we have so much already in this country?
A: The US does not have a national natural gas pipeline system, so you can have excesses in Texas where it’s produced meet shortages in Massachusetts where it’s consumed. Somebody found a loophole to get Russian gas into the US using offshore shell companies which I’m sure will be closed instantly once that delivery is made. Suffice it to say that the sanctions on Russia are tightening, are having a deeper effect and forcing them to pull out of Ukraine sooner than we expect. That may be the pivotal black swan of 2023—that Russia gives up on Ukraine, which would be a huge positive for all markets.
Q: When will we be using nuclear fusion?
A: I have been following nuclear fusion for 50 years, ever since I worked at the Nuclear Test Site in Nevada—it’s long been the holy grail for alternative energy. I talked to the teams every once in a while, since they live next door. The positive developments we saw in England last week are a big breakthrough, but you’re looking for at least 30 years until we get functional economic nuclear fusion power plants. So, we only have to stay alive for 30 more years (and keep climate change from killing us all off in the meantime) before we get carbon-free energy in an unlimited supply. Having said that, from the time they developed a functional commercial nuclear powerplant using Uranium in 1957 from the initial use of the atomic bomb in 1945, was only 12 years and that had to be equally as daunting. So, I may be wrong, and there may be other breakthroughs coming our way, but you don’t control 150 million degrees easily—that's what’s necessary with fusion. The amounts of power input required are also staggering, like all the power that San Francisco uses in a day, just to produce marginal bits of electricity. And the deuterium fuel needed (H2, or heavy hydrogen) in large quantities would not exactly be cheap either. But in 30 years every city should get its own min sun to provide unlimited electricity. So there’s your science lecture of the day, from a long-term fusion follower. For a more detailed explanation please click here at https://www.energy.gov/science/doe-explainsnuclear-fusion-reactions
Q: Is Tesla (TSLA) a buy here?
A: Absolutely, for the long term, but I would not be amazed to see $110 print first. Number one, there’s a major short play going on here too building huge amounts of buying power, and Number two, we’re flushing out a lot of long-term profit takers for tax loss selling as we go with the year-end to offset 2022 losses in other stocks. Buying Tesla at 27X earnings multiple, and next year’s 19X multiple when it was at 100X just a year ago is kind of unbelievable. An onslaught of new Tesla positives will hit the market in 2023. The new Cybertruck comes out and there is a two-year waiting list out the gate and deposits in hand for 100,000 vehicles. The company is generating such enormous cash flows that it is like to carry out $10 billion in share buybacks, especially with the price this low. There are no real competitors on the horizon, except for a handful with minimal production at big losses outside of China.
Q: Is the demise of FTX the end of crypto?
A: I would say yes, which is why we stopped producing our Bitcoin newsletter. It could take 30 years for this thing to recover. It’s another Japanese stock market type situation, where it literally takes three decades to recover, and by then new technologies will far surpass it. The confidence in anything crypto has been totally destroyed by the FTX scandal—it’s the final nail in the coffin. And there are better things to do—I’d rather be buying NVIDIA (NVDA) or Tesla (TSLA) than crypto. There are too many great trades after a bear market.
Q: Is Blackrock (BLK) in trouble?
A: Not in a million years, and I’d be buying it on any dip. They’re an incredibly well-run company, buy on dips. They have one gated REIT which thei disclosed well in advance that is drawing all the adverse publicity. In bear markets, traders always believe the worst.
Q: Why would you not sell Nvidia (NVDA)?
A: Well, we dumped all our tech stocks in January, so we did sell there. But I try not to go against long-term trends, and the long-term trends for Nvidia is a double or triple from here since they are the 8-pound gorilla in the high-end chip business.
Q: Why is cybersecurity (PANW), (CRWD) so unloved in this environment?
A: They are over-owned. When everybody owns something, you can have the greatest story in the world and it doesn’t go up because you need new buyers for things to go up, and the Cybersecurity story is pretty well known. That’s why it won’t go down either, people are not selling because they believe in the long-term story of cyber security—and quite correctly so, and I might add at the bottom of the ranges.
Q: Isn’t Warren Buffet’s age a worry regarding Berkshire Hathaway (BRKB)?
A: No, the replacement management team that has been there for 20 years, is generating great results. Warren is basically just the front-end mouthpiece for Berkshire Hathaway, just like I’m the front-end mouthpiece for the Mad Hedge Fund Trader and isn't really involved in day-to-day decisions. That’s how Berkshire was able to step up its technology exposure during the teens. When he goes, the stock might drop 5% from algorithm and uninformed sales, but no more.
Q: What do you think of the iShares 20 Plus Year Treasury Bond ETF (TLT) versus the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Avoid the (TBT) because it’s a 2x—you have extra management fees, and extra dealing costs—it’s better just to buy (TLT) on a 2x margin than it is shorting the (TBT) which is already a 2x. I’m looking for $120-$130 in the (TLT) by mid-2023, which is also a great LEAPS candidate.
Q: Is the market rethinking technology multiples here which are IBIDTA based?
A: It has already rethought the technology multiples because they have collapsed. They have dropped, in Tesla’s case 100X to 19X, which looks like a pretty serious piece of rethinking to me, so yes absolutely. Where is the final level? My theory always has been that when tech falls to a market multiple, which for the S&P 500 right now is 18.5X, that is your final bottom in tech multiples which means they may have more to go down. And what might really happen is you may have a situation where the market multiples start to rise again and get back up to the 20’s, tech falls, and they meet somewhere in the low 20s. That’s your final bottom for tech, and then you buy it to own for the next 10 years.
Q: When do you think the Fed will start lowering rates?
A: It will be a second-half affair. First of all, they have to raise rates by 50 basis points on Wednesday, then raise them again in February by 50 and again in March by 25, and then leave them alone for 3 months. Then we will have a recession, or dramatically lower inflation by then, or both. And then they’ll have room to start cutting, which sets a calendar of about June where they start several 75 basis point CUTS. Remember, markets discount things 6-9 months in advance, which is why we had that $20 rally in the (TLT) that started in February. There’s your calendar. So far, it’s working.
Q: Will you give a buy signal on Tesla (TSLA)?
A: More like a Hail Mary on Tesla, hoping that it’s the bottom. When you get these capitulation selloffs, which is what we’re getting on Tesla, there is absolutely no way of predicting where the final number is, because you’re dealing with human emotions here, which are totally unpredictable and are panicking. I’d rather wait, give the first 10% of the move to the next guy, and then play the new trend from there. But I think Tesla could be one of the top performers of 2023. Especially if you get down to like $110 or so, something unbelievable—you know, get Tesla to market multiple, that means it’s got to drop another $30 essentially, and in this environment, it could do that. It could keep going down every day for the rest of this year because a lot of these big reversals tend to happen at year ends. When you get the last Tesla bull out of there, that’s when it goes up. After that, it’s all short covering.
Q: Do you think it will be 50 or 75 basis points?
A: It’s a coin toss for whether it’s 50 or 75. Knowing Jay Powell as I do, I’d go for 50, but with harsh talk. I think he wants to shock us, wants to kill off this stock market rally, wants to kill off any hope you can get one more price rise through the system before we hit a recession. A 50 basis points would be a real shocker and, by the way, would also give us easily a 1000-point selloff, which we could then use to buy into for the new year.
Q: Could Tesla reach $600?
A: Yes, I think it could. Remember, the fundamental story for Tesla is still on track. They are still growing at a 40% rate, while the rest of Detroit is going nowhere. All of their leads are overwhelming, and the really telling aspect for the future of Tesla is that Apple gave up on its autonomous driving program. Every other car company in the world is going to come to the same decision, except for maybe Google. So yes, the bull case is absolutely there, you just have to wait for the current capitulation to flush out, and then it becomes a buy for years.
Q: Does the adoption of a digital currency impact the economy?
A: No, I think anything digital money is on hold for the foreseeable future as the FTX disaster unfolds.
Q: Do you like Salesforce (CRM)?
A: Yes, long-term. It’s also in a capitulation “catch a falling knife” stage. Wait for that to finish—better to buy it on the way up than on the way down is all I can say.
Q: Will there be any restrictions on copper mining (FCX)?
A: Not that I can think of—we’re looking at an enormous shortage of copper going forward and a future copper shock. Most of this is produced in emerging markets that have no environmental restrictions, which is why it happens there, like Chile. So yes, looking for new copper sources will be one of the big plays of this decade.
Q: Do you think the market will bottom in 2023?
A: Yes, if it hasn’t already.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Peleliu in 1978 with a Japanese 8 Inch Gun
Global Market Comments
December 2, 2022
Fiat Lux
Featured Trade:
(NOVEMBER 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(AMD), ($INDU), (TLT), (RCL), (VIX), (RIVN), (TSLA), (NVDA), (SLV), (GOLD), (USO), (XOM), (ALB), (SQM), (FMC), (CCI)
Below please find subscribers’ Q&A for the November 30 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: You keep mentioning December 13th as a date of some significance. Is this just because the number 13 is unlucky?
A: December 13th at 8:30 AM EST is when we get the next inflation report, and we could well get another 1% drop. Prices are slowing down absolutely across the board except for rent, which is still going up. Gasoline has come down substantially since the election (big surprise), which is a big help, and that could ignite the next leg up in the bull market for this year. So, that is why December 13 is important. And we could well flatline, do nothing, and take profits on all our positions before that happens, because whatever it is you will get a big move one way or another (and maybe both) on December 13.
Q: I’m a new subscriber, and I am intrigued by your structuring of options spreads. Why do you do debit spreads instead of credit spreads?
A: It’s really six of one and a half dozen of the other—the net profit is pretty much the same for either one. However, debit spreads are easier to understand than credit spreads. We have a lot of beginners coming into this service as well as a lot of seasoned old pros. And it’s easier to understand the concept of buying something and watching it go up than shorting something and watching it go down. Now, doing the credit spreads—shorting the put spread—gives you a slight advantage in that it creates cash which you can then use to meet margin requirements. However, it’s only a small amount of cash—only the potential profit in that position. And guess what? All the big hedge funds actually kind of like easy-to-understand trade alerts also, so that’s why we do them.
Q: I have a lot of exposure in NVIDIA (NVDA), so is it worth trading out of it and coming back in at a lower rate?
A: NVIDIA is one of the single most volatile stocks in the market—it’s just come up 50%. But it could well test the lower limits again because it is so volatile, and the chip industry itself is the most volatile business in the S&P 500. If your view is short-term, I would take profits now, and look to go back in next time we hit a low. If you’re long-term, don’t touch it, because NVIDIA will triple from here over the next 3 years. I should caution you that if you do try the short-term strategy, most people miss the bottom and end up paying more to get back into the stock; and that's the problem with all these highly volatility stocks like Tesla (TSLA), NVIDIA (NVDA) and Advanced Micro Devices (AMD) unless you’re a professional and you sit in front of a screen all day long.
Q: Would you buy now and step in to make it long-term?
A: I think we get a couple more runs at the lows myself. We won’t get to the old lows, but we may get close. Those are your big buying points for your favorite stocks and also for LEAPS. And I’m going to hold back on new LEAPS recommendations—we’ve done 12 in the last two months for the Concierge members, and maybe half of those went out to Global Trading Dispatch before they took off again. So, that would be my approach there.
Q: How much farther can the Fed raise interest rates until they reverse?
A: 1%-2%, unless they get taken over by the data—unless suddenly the economy starts to weaken so much that they panic and reverse like crazy. I think that's actually what’s going to happen, which is why we went hyper-aggressive in October on the long side, especially in bonds (TLT). You drop rates on the ten-year from 4.5% to 2.5% in six months—that’s an enormous move in the bond market. That is well worth running a triple long position in it; I think that’s what's going to happen. That’s where we will make out the first 30% in 2023.
Q: Should I short the cruise lines here, like Royal Caribbean (RCL)?
A: They do have their problems—they have massive debts they ran up to survive the pandemic when all the ships were mothballed, so it is an industry with its major issues. The stock has already doubled since the summer so I wouldn’t chase it up here. I’m not rushing to short anything here right now though unless it’s really liquid or has horrendous fundamentals like the oil industry, which everyone seems to love but I hate—right now the haters are winning for the short term, until December 16, which is all I care about.
Q: Is the diesel shortage going to affect farmers and all other industries like the chip?
A: As the economy slows down, you can expect shortages of everything to disappear, as well as all supply chain issues, which is a positive for the economy for the long term.
Q: What about the 2024 iShares 20 Plus Year Treasury Bond ETF (TLT) 95—is that not a trade?
A: That’s a one-year position with a 100% potential profit. That is worth running to expiration unless we get a huge 20-point move up in the next 3 months, which is possible, and then there won’t be anything left in the trade—you’ll have 95% of the profit in hand at which point you’ll want to sell it. So, with these one-year LEAPS or two-year LEAPS, run them one or two years unless the underlying suddenly goes up a lot, and then grab the money and run; that's what I always tell people to do. Because if you sell your position, they can’t take the money away from you with a market correction.
Q: Is the current US economy the best economy in the world?
A: It is. If you look at any other place in the world, it’s hard to find an economy that's in better shape, and it’s because we have the best management in the world and hyper-accelerating technology which everyone else begs and borrows. Or steals. People who are predicting zero return on stocks for 10 years are out of their minds. You don’t short the best economy in the world. If anything, technology is accelerating, and that will take the stock market with it in the next year or so.
Q: Do you see the Dow ($INDU) outperforming the other indexes until the Fed positive pivots?
A: Absolutely yes, because the S&P 500 (SPY) has a very heavy technology weighting and technology absolutely sucks right now. That would probably be a good 3-month trade—buy the Dow, and short the S&P 500 in equal amounts. Easy to do—you might pick up 10% on a market-neutral trade like that.
Q: Do you see a Christmas rally this year?
A: Actually, I do, but it won’t start until we get the next inflation report on December 13, at which point I'm going 100% cash. I’ve made enough money this year, and this is a problem I had when I ran my hedge fund: when you make too much money, nobody believes it, so there's really no point in making more than 50% or 60% a year because people think it’s fake. This is true in the newsletter business as well. Markets also have a nasty habit of completely reversing in January; this year, we had one up day in January, and then it was bombs away and we just piled on the shorts like crazy, so you have to wait for the market to first give you the fake move for the year, and then the real one after that. The best way to take advantage of that is to be 100% cash, and that’s why I usually do.
Q: What indicators do you see that give you the most confidence that inflation has peaked?
A: There's one big one, and that’s real estate. Real estate is absolutely in a recession right now and has the heaviest weighting of any individual industry in the inflation calculation. If anybody thinks house prices are going up, please send me an email and tell me where, because I’d love to know. The general feeling is they’re down 10-15% over the last six months. New homes are only being sold with massive buydowns in interest rates and free giveaways on upgrades. It is an industry that is essentially shut down, with interest rates having gone from 2.75% to 7.5% in a year, so there’s your deflation, but unfortunately, real estate is also the slowest to price in in the Fed’s inflation calculation, so we have to go through six months of torture until the Fed finally sees proof that inflation is falling. So, welcome to the stock market because it's just one of those factors. Just for fun, I got a quote on financing an investment property. The monthly payment would have been double for half the house that I already have.
Q: Are LEAPS a buy with the CBOE Volatility Index (VIX) this low?
A: No, you want to look at stocks first, and then the VIX; and with all the stocks sitting on top of 30-50% rises, it’s a horrible place to do LEAPS. LEAPS were an October play—we bought the bottom in a dozen LEAPS in October, and those were great trades, except for Tesla (TSLA) and Rivian (RIVN) which still have two years left to run. Up here, you’re basically waiting on a big selloff before you go into these one to two-year options positions.
Q: Why does Biden keep extending student loans? Will this catch up at some point?
A: He’s going to take it to the Supreme Court, and if he loses at the Supreme Court, which is likely, then he’ll probably give up on any loan extensions. At this point, the loan extensions on student loans are something like 2 or 2.5 years. The reason he’s doing this is to get 26 million people back into the economy. As long as you have giant student loan balances, you can’t get credit, you can’t get a credit card, you can’t buy a house, you can’t get a home loan. Bringing that many new people into the economy is a huge positive for not only them but for everyone else because it strengthens the economy. That has always been the logic behind forgiving student loans—and by the way, the United States is virtually the only country in the world that makes students pay back their loans after 30 or 40 years. The rest give college educations away either for free or give some interest-free break on repayments until they can get a salary-paying job.
Q: Does the budget deficit drop impact the stock market?
A: Yes, but it impacts the bond market first and in a much bigger way. That’s one of the reasons that bonds have rallied $13 points in six weeks because less government borrowing means lower interest rates—it’s just a matter of supply and demand. This has been the fastest deficit reduction since WWII, and markets will discount that.
Q: Will the US dollar (UUP) crash?
A: Yes, it will. You get rid of those high interest rates and all of a sudden nobody wants to own the US dollar, so we have great trades setting up here against everything, except maybe the Yuan where the lockdowns are a major drag.
Q: Is silver (SLV) a buy now?
A: No, it’s just had a big 10% move; I would wait for any kind of dip in silver and gold (GOLD) before you go into those trades. And when/if you do, there are better ways to do it.
Q: How is the Ukraine war going?
A: It’ll be over next year after Ukraine retakes Crimea, which they’ve already started to do. Russia is running out of ammunition, and so are we, by the way. However, the United States, as everybody learned in WWII, has an almost infinite ability to ramp up weapons production, whereas Russia does not. Russia is literally using up leftover ammunition from WWII, and when that’s gone, they’ve got nothing left, nor the ability to produce it in any sizable way. All good reasons to sell short oil companies ahead of a tsunami of Russian oil hitting the market. By the way, oil is now down for 2022.
Q: What's the number one short in oil (USO)?
A: The most expensive one, that would be Exxon Mobile (XOM).
Q: What’s going to happen to the markets in January?
A: After this Christmas rally peters out, I’m looking for profit-taking in January.
Q: When is a good time to buy debit spreads on oil?
A: Now. Look at every short play you can find out there; I just don’t see a massive spike up in oil prices ahead of a recession. And by the way, if the war in Ukraine ends and Russian oil comes back on the market, then you’re looking at oil easily below $50.
Q: What is the best way to invest in iShares Silver Trust (SLV) in the long term?
A: A two-year LEAP on the Silver (SLV) $25-$26 call spread—that gets you a 100%-200% return on that.
Q: Is lithium a good commodity trade?
A: Lithium will move in sync with the EV industry, which seems to have its own cycle of being popular and unpopular. We’re definitely in the unpopular phase right now. Long term demand for lithium will be increasing on literally hundreds of different fronts, so I would say yes, lithium is kind of the new copper. Look at Albemarle (ALB), Societe Chemica Y Minera de Chile (SQM), and FMC Corp. (FMC).
Q: If we do a LEAPS on Crown Castle Incorporated (CCI), you won’t get the dividend right?
A: No, you won’t, it’s a dividend-neutral trade because you’re long and short in a LEAPS. You have to buy the stock outright and become a registered shareholder to earn the dividend which, these days, is a hefty 4.50%. That said, if you’re looking for a high dividend stock-only play, buying the (CCI) down here is actually a great idea. For the stock-only players, this would be a really good one right now.
Q: Do you know people who are selling because of large capital gains?
A: The only people I know who are selling have giant tax bills to pay because of all the money they made trading options this year. I happen to know several thousand of those, as it turns out. So yes, I do know and that could affect the market in the next couple of weeks, which is why I went with the flatlined scenario for the next two weeks. Most tax-driven selling will be finished in the next two weeks, and after that, it kind of clears the decks for the markets to close on a high note at the end of the year.
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 or DISPATCH TECHNOLOGY LETTER as the case may be, 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
Global Market Comments
November 14, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE TOP FIVE TECHNOLOGY STOCKS OF 2023),
(RIVN), (ROM), (ARKK), (PANW), (CRM), (FXE), (FXY), (FXA), (LEN), (KBH), (DHI), (TLT), (UUP), (META), (TSLA), (BA), (JNK), (HYG), (BRKB), (USO)
The year 2022 has been driven by rising interest rates, a strong dollar, a weak economy, a bear market in stocks.
A massive reversal is about to take place. 2023 will gain the benefit of gale force macroeconomic tailwinds for the right stocks.
So far this year, Mad Hedge earned an astounding 77.20% profit cashing in on this year’s trends. We could earn the same return taking advantage of next year’s trends.
If you want to ride along on my coattails next year, that is fine with me. But it requires you to take a leap of faith.
I refer you to the motto of Britain’s Special Air Service: “Qui audet adipiscitur,” or “Who dares wins.”
For it only makes sense that the worst stocks of 2022 will be the best performers of 2023.
I have no doubt that tech stocks will bottom out sometime in 2023. Those who get in early will build some of the largest fortunes of this century. Those who miss the boat will spend their retirement years working at Taco Bell.
The reasons are very simple.
*Ultra-high interest rates will force a mild recession in early 2023. Then suddenly, inflation will plummet. We know this has already started because the largest element in the inflation calculation is housing costs, which are in free fall.
*The Fed will panic and deliver 2023 the sharpest DECLINE in interest rates in American history.
*Plunging interest rates will bring a crash in the US dollar.
*Foreign currencies like the Euro (FXE), the Japanese Yen (FXY), and the Australian dollar (FXA) will soar.
*And guess who gets the bulk of their earnings from abroad, sometimes up to two-thirds? The technology industry.
Kaching!
If you think I’m out of my mind, just look at the top performers of the historic stock market rally last week.
All the interest rate-sensitive sectors caught on fire. Technology stocks took off like a scalded cat, with Cathie Woods’ Ark Innovation Fund (ARKK) up an astounding 14% in a single day.
Bank shares soared. Homebuilders (LEN), (KBH), (DHI) caught a strong bid for the first time in ages. Junk bonds went bid only. US Treasury Bonds had their best day in 20 years (TLT), while the greenback (UUP) had its worst.
The bottom line here is so clear that I’ll write it on a wall for you. Falling interest rates will be the primary driver of stock prices for 2023 and 2024.
Of course, there is a better way to play this than buying the first technology index you stumble across.
So, let me boil this strategy down to just five names, close your eyes, and buy them.
Rivian (RIVN) – ($34) - Rivian is widely believed to be the next Tesla (TSLA). Some 25% owned by its largest customer, Amazon (AMZN), Rivian produces three types of EVs: the R1T pickup truck, the R1S SUV, and Amazon's EDV (electric delivery van). Its R1 vehicles start at under $70,000 and can travel more than 300 miles on a single charge. To learn more about Rivian, please click here.
To say that Rivian is the hot car of the day would be a vast understatement. New cars are trading for double list on the grey market. Owners complain of getting mobbed with gawkers whenever they hit the beach or the ski slopes. The buzz has led to an outstanding order book of an impressive 98,000, or four years of current production. The obvious cool factor allows enormous pricing power.
And here is the key to buying Rivian at this time. At 25,000, it is right at the mass production point where Tesla shares went ballistic all those years ago. And it already has an 80% decline in the price, in the rear-view mirror.
In 2024, Rivian plans to open its second plant in Georgia. After it fully expands its Illinois plant, it expects its annual production capacity to reach 600,000 vehicles.
Inflation Reduction Act passed this summer greatly accelerated rollout of the entire EV industry, which created a $7,500 per vehicle tax credit on top of state benefits.
Yes, this company offers venture capital-type risks. But it offers venture capital-type returns as well, up 10X-50X from here.
Ark Innovation Fund (ARKK) – ($40) – Cathie Woods’ high-tech fund was the proverbial red-headed stepchild of this bear market. It fell a gut-punching 80% from the 2021 top until last week. Just to get back to its old high, likely over the next five years, it has to rise by 400%. Its largest holdings are a real rollcall of the severely abused, Tesla (TSLA), Roku (ROKU), Exact Sciences (EXAS), Intellia (INTL), and Teladoc Health (TDOC), which Woods actively trades. But they are also a valuable insight into the future, EVs, CRISPR technology, robotic surgery, and molecular diagnostics. To learn more about the Ark Innovation Fund, please click here.
ProShares Ultra Technology ETF (ROM) – ($27) – This is a 2X long technology ETF that gives you an extremely aggressive position across the tech sector. It has 19% of its holdings in Apple (AAPL), 16% in Microsoft (MSFT), 10% in Alphabet (GOOGL) and Google (GOOG), at 3.5% in NVIDIA (NVDA), and 120 other smaller names. (ROM) shares are down a breathtaking 67% just in the past year. To learn more about the (ROM), please click here.
Palo Alto Networks (PANW) - $165 – Hacking is one of the fastest-growing sectors in technology, it is recession-proof and immune to the economic cycle. As a result, spending on the defense against hacking is absolutely exploding. Palo Alto Networks, Inc. is an American multinational cybersecurity company with headquarters in Santa Clara, California. Its core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security. I have already earned a tenfold return over the past decade and expect to make another 10X in the coming years. You won’t find any dips in this stock as too many people are trying to get into it. To learn more about the Palo Alto Networks, please click here.
Salesforce (CRM) - $157 – The baby of tech genius Mark Benioff, this company is the dominant player in customer relationship management. If you want to do any business in the cloud, and almost all big companies do, you are up to your eyeballs in customer relationship management. Salesforce is the largest San Francisco-based cloud-oriented software company with virtually all of the Fortune 500 as its customer list. It provides customer relationship management software and applications focused on sales, customer service, marketing automation, analytics, and application development. Salesforce shares have been the target of a haymaker, down 55% in a year. To learn more about Salesforce, please click here.
You know what? I can do better than this.
I can create customized options LEAPS for you that will deliver a tenfold return on whatever performance these ultra-high beta stocks deliver. If the shares of one of my picks rise by 100%, you will make 1,000%.
This is an investment strategy that will enable you to retire early, real early. Tired of punching a time clock or logging into the next Zoom meeting on time?
Those will become a distant memory if you pursue my Mad Hedge Investment strategy for 2023.
As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.
That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.
My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +75.53%.
That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.
Bonds Clock Best Day in Years, taking the ten-year US Treasury bond fund up $3.64. All low interest rate plays had monster days. Junk bond ETFs (JNK) and (HYG) were up two points. 30-year fixed rate mortgages dropped 60 basis points to 6.60%, the biggest drop in history. Long bonds will be THE big trade of 2023.
US Dollar has Worst Day in 20 Years, driven by plunging interest rates. Big tech, which gets a major share from overseas sales, rocketed. Apple alone was up $12. Cathy Wood’s Ark Innovation Fund (ARKK) was up an incredible 14%. It vindicates my view that tech will turn when interest rates and the dollar fall.
Oil Companies (USO) Book Record $200 Million Profit this year, using the Ukraine War to double your cost of gasoline. If we have a recession next year, or the war ends, energy share prices should be peaking around here. Even if they don’t, the risk-reward here is terrible. It means we will have to pay a much higher price to decarbonize the economy at a later date.
Wells Fargo Gets Hit with $1 Billion Fine for its many regulatory transgressions over the last decade. Looting of customer accounts with bogus fees has been a recurring problem. Use any selloffs to buy (WFC) on dips.
Berkshire Hathaway's 20% Profit Increase YOY and buys back another $1 billion worth of stock. However, they did take a $10 billion loss on stocks in Q3 during the market meltdown. Keep buying (BRKB) stock and LEAPS on dips.
$1.5 trillion in Homeowners Equity Lost Since May, thanks to interest rates at 20-year high and a shrinking money supply. Since July, the median home price has dropped by $11,560. The average borrower has lost $30,000 in equity. It’s not a great time to rent either as prices there are soaring. Residential housing could remain weak for another 12-24 months, compared to the six-year drawdown we had from 2006.
Boeing Orders Rise in October, but deliveries fall. The company is finally out of the penalty box, up 40% since October 1. Don’t buy (BA) up here.
The Red Wave Fails to Show, with control of congress still too close to call. Republican House control has shrunk from an expected 60 seats six months ago to maybe two today. Donald Trump threw the election for his party, picking unelectable extremist candidates and campaigning where he wasn’t wanted. A pro-life Supreme Court brought out millions of women voters across the country. If the Republicans can’t win with inflation at 8.7%, they are toast in 2024 when it drops back down to 2%.
Market Dives 646 Points on Democratic Win, with technology stocks taking the biggest hit. The red wave no-show was a black swan traders were not looking for. Energy was the worst performing sector because they aren’t getting the air cover they paid for with a red wave. The result was much as I expected, which is why I went into November 8 with a rare 100% cash position waiting to buy the next low. It turns out that rights are more important than prices.
Elon Musk Sells More Tesla Shares and Warns of a Twitter Bankruptcy, some $3.9 billion worth, bringing this year’s total to $36 billion. Musk is raising money to head off a bankruptcy of Twitter now that major advertisers are fleeing en masse. This certainly is a distress sale. If Musk was looking to build a real business, re-tweeting fringe conspiracy theories was the worst thing he could have done. Endorsing the Republican party will cost him half of his customers. Is this Musk’s Waterloo, or his Dien Bien Phu?
Facebook to Lay Off 11,000, about 13% of its total employees. Zuckerberg admits the error of pushing the company into the metaverse too far too fast. With the stock down 77%, there are not a lot of happy campers at One Hacker Way. Avoid (META) for now, but it may be a 2023 play when we get closer to a new final product.
FTX Becomes an Epic Bankruptcy, with $9.5 billion missing from its balance sheet, in one of the biggest blowups of the crypto age. Losses are expected to reach $50-$60 billion, with the bankruptcy of 130 affiliated companies. It is also a potential Dept of Justice target. All affiliated tokens and coins have gone to zero. So, placing your money with a fresh-faced kid in the Bahamas wearing baggy shorts and with no financial background was not such a great idea after all. It’s amazing how many serious people were sucked in on this one. At least Sam Bankman-Fried said he was sorry.
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. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, November 14 at 8:00 AM, the Consumer Inflation Expectations for October are released.
On Tuesday, November 15 at 8:30 AM, the Producer Price Index for October is released.
On Wednesday, November 16 at 8:30 AM, Retail Sales for October are published.
On Thursday, November 17 at 8:30 AM, Weekly Jobless Claims are announced. Housing Starts and Permits for October are also out.
On Friday, November 18 at 10:00 AM, the Housing Starts for October are printed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.
When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to start with an easy one, Reading Merit Badge, where you only had to read four books and write one review.
I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness. Kent was one of these kids.
It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.
So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Welles were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.
It only took a week for me to blow through the first four books. In the end, I read hundreds to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).
Having listened to thousands of books on the subject, Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in math.
When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.
That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.
Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.
It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites. However, it is still used as beacon identifiers at US airfields.
Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.
I replied, “good point”.
Kent went on to get a PhD in Physics from UC Berkely, no mean accomplishment. He lobbied heavily for the creation of SETI, or the Search for Extra Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.
In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, Kent’s character is played by Matthew McConaughey. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today.
Out here in the west aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.
When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?
After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.
Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.
There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.
Watch this space.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
