Global Market Comments
January 8, 2021
Fiat Lux
Featured Trade:
(JANUARY 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (SQM), (GLD), (SLV), (GOLD), (WPM), (TLT), (FCX), (IBB), (XOM), (UPS), (FDX), (ZM), (DOCU), (VZ), (T), (RTX), (UT), (NOC),
(FXE), (FXY), (FXA), (UUP)
Global Market Comments
December 11, 2020
Fiat Lux
FEATURED TRADE:
(DECEMBER 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(GLD), (FXA), (FXE), (FXC), (UUP), (FXB), (ABNB), (DASH), (TAN), (TLT), (TBT), (NZD), (DKNG), (SNOW), (AAPL), (CRSP), (RTX), (NOC)
Below please find subscribers’ Q&A for the December 9 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV with my guest and co-host Bill Davis.
Q: Is gold (GLD) about ready to turn around from here?
A: The gold bottom will be easy to call, and that’s when the Bitcoin top happens. In fact, we have a double top risk going on in Bitcoin right now, and we had a little bit of a rally in gold this week as a result. So, longer term you need actual inflation to show up to get gold any higher, and we may actually get that in a year or two.
Q: The US dollar (UUP) has been weak against most currencies including the Canadian dollar (FXC), but Canada has the same problems as the US, but worse regarding debt and so on. So why is the Canadian dollar going up against the US dollar?
A: Because it’s not the US dollar. Canada also has an additional problem in that they export 3.7 million barrels a day of oil to the US and the dollar value have been in freefall this year. Canada has the most expensive oil in the world. So, taking that out of the picture, the Canadian dollar still would be negative, and for that reason I've been recommending the Australian dollar (FXA) as my first foreign currency pick, looking for 1:1 over the next three years. Of the batch, the Canadian dollar is probably going to be the weakest, Australian dollar the strongest, and the Euro (FXE) somewhere in the middle. I don’t want to touch the British pound (FXB) as long as this Brexit mess is going on.
Q: Would you buy the IPO’s Airbnb (ABNB) and Dash (DASH)?
A: No on Dash. The entries to new competitors are low. Airbnb on the other hand is now the largest hotel in the world, and it just depends on what price it comes out at. If it comes out at a stupid price, like 50% over the IPO, I wouldn’t bother; but if you can get close to the IPO price, I would probably buy it for the long term. I think you would have another double if we got close to the IPO price, so that is worth doing. They have been absolutely brilliant in their management and the way they handled the pandemic; they basically captured all the hotel business because if you rent an apartment all by yourself, the COVID risk is much lower than if you go into a Hilton or another hotel. They also made a big push on local travel which was successful. They gave up long-distance travel, and they’re now trying to get you to explore your own area; and that worked beyond all expectations. Even I have rented some Airbnb’s out in the local area like in Carmel, Monterey, Mendocino, and so on and I came back disease-free.
Q: If the United States Treasury Bond Fund (TLT) goes to a 1.00% yield, what would that translate to in the (TBT) (2x short treasury ETF)?
A: My guess is probably about $18, which has been upside resistance for a long time, but it depends on how long it takes to get there. You have about a 3% a year cost of carry on the TBT that you don’t have in Treasuries.
Q: Should we buy China stocks when the current administration is so negative on China?
A: Yes, that’s when you buy them—when the current administration is negative on China; because when you get an administration that’s less negative on China, the Chinese stocks will all rocket. There’s an easy 20-30% in most of the headline Chinese stocks from here sometime in 2021. And I'm looking to add more Chinese stocks. I currently have Alibaba (BABA), and that’s working well. I want to pick up some more.
Q: What about the New Zealand currency ETF (NZD)?
A: It pretty much moves in sync with the Australian dollar, but it’s usually a few cents cheaper and more volatile.
Q: Legalized sports betting seems to be on the upswing. Where do you see DraftKings (DKNG) going?
A: I think it goes up. I think there’s going to be a recovery in all kinds of entertainment type activities. Draft Kings got a huge market share from the pandemic which they will probably keep.
Q: Do we use spreads when playing (FXA)?
A: Yes, you can probably do something like a $70-$72 here one month out and make some decent money.
Q: How do you feel about Snowflake (SNOW)?
A: I wanted to get into this from day one, but it doubled on the IPO, and then it doubled again. It’s one of the only technology stocks Warren Buffet has bought in the last several years besides Apple (AAPL). So, it’s just too popular right now, it’s hotter than hot. They have a dominant market share in their big data platform, so it’s a great place to be but it’s really expensive now.
Q: Do your options trade alerts have any risk of assignment?
A: Yes, they do, but when you get an assignment it’s a gift, because they’re taking you out of your maximum profit point, weeks before the expiration. All you do is tell your broker to use your long position to cover your short position, and you will get the 100% profit right then and there. I say this because the brokers always tell you to do the wrong thing when you get an assignment, such as going into the market to close out each leg separately. That is a huge mistake, and only makes money for the brokers. For more details, log in and search for “assignments” at www.madhedgefundtrader.com
Q: Congratulations on your great performance; what could derail your bullish prediction?
A: Well, we’ve already had a pandemic so obviously that’s not it, and then you have to run by your usual reasons for an out-of-the-blue crash; let’s say Donald Trump doesn't leave the presidency. That would be worth a few thousand points of downside. So would a major war. We could have both; we could have a major war before a disrupted inauguration. The president has essentially unlimited ability to go to war at any time, so there aren’t too many negatives on the near-term horizon, which is why everyone is super bullish.
Q: What’s your opinion on the solar area, stocks like First Solar (FSLR) and the Invesco Solar ETF (TAN)?
A: I’m bullish. Even though they're over 300% since March, we’re about to enter the golden age of solar. Biden wants to install 500,000 solar panels next year and provide the subsidies to accomplish that. This all looks extremely positive for solar. In California, a lot of people will go solar, because getting an independent power supply protects you from the power shut-offs that happen every time the wind picks up, in which response to wildfire danger. We had ten days of statewide power blackouts this year.
Q: What are your thoughts on lithium?
A: I’m not a big believer in lithium because there is no short supply. The key to producing lithium is finding countries with no environmental controls whatsoever because it’s a very polluting and messy process to mine. Better to let other countries mine your lithium cheap, refine it, and then send it to you in finished form.
Q: Since you love CRISPR (CRSP) at $130, what about shorting naked puts? The premiums are really high.
A: I never advocate shorting naked puts. Occasionally, I will at extreme market bottoms like we had in March, but even then, I do it only on a 1 for 1 basis, meaning don’t use any leverage or margin. Never short any more puts than you’re willing to buy the stock lower down. People regularly see the easy money, sell short too many puts, and then get a market correction and a total wipeout of their capital. And they won't have to do that liquidation themselves; their broker will do it for them. They’ll do a forced liquidation of your account and then close it because they don't want to be left holding the bag on any excess losses. You won’t find out until afterwards. So, I would not recommend shorting naked puts for the normal investor. If you want to be clever, just buy an in-the-money call spread, something like a $110-$120 out a couple of months. That's probably a far better risk reward than shorting a naked put. By the way, I came close to wiping out Solomon Brothers 30 years ago because my hedge fund was short too many Nikkei Puts. In the end, I made a fortune, but only after a few sleepless nights (remember that Mark?).
Q: What do you think about defense stock right now?
A: I’m avoiding defense stock because I don’t see any big increases in defense spending in the future administration, and that would include Raytheon (RTX), Northrop Grumman (NOC), and some of the other big defense stocks.
SEE YOU ALL IN 2021!
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 30, 2020
Fiat Lux
Featured Trade:
(OCTOBER 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (VIX), (AMZN), (TSLA), (FEYE), (HACK), (PANW), (V), (TLT), (FXA), (FXC), (ZM), (DOCU), (RTX), (LMT), (NOC), (GD)
Below please find subscribers’ Q&A for the October 28 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Do you think if Trump contests the election, it will be bad for stocks?
A: Yes, count on that knocking another 10% off of stocks. The market has spent the last six months pricing in a Biden win. Take that away and you have to price that back out again, about 6,000 Dow Average points (INDU). We’ve already dropped 2,500 points so that leaves another 3,500 points of downside t0 go in the event of a Trump win.
Q: Will that result in a crash?
A: Yes. At least 1,000 points in the overnight session following.
Q: Do you think it’s going to happen?
A: No. According to the polls, Trump will lose by at least 15 million votes. While the polls missed the Electoral College result last time, they were dead on with the popular vote, with Hillary Clinton winning by 3 million votes. If the margin were only a few hundred or thousand votes in a single battleground state, Trump might win a court fight. But he can’t win if the margin is in ten states and tens of millions of votes. That is too much to fudge. That is how markets react: they hate surprises, and a second Trump win would be the surprise of the century.
Q: With all of the earnings positive, do you think markets will stay positive?
A: Earnings aren’t important right now. Everyone knew earnings would be great because we were coming off of hundred-year lows caused by the pandemic. So yes, we knew they’d be up 50%, 100%, 150%; that's not the surprise. The bigger issue is what the pandemic is going to do, and of course, only biochemists know that—most stock traders have no idea, which is reflected in these gigantic swings we’re seeing in the market both on the upside and the downside. As a biochemist, I can tell you that this is our final wave that's coming up and it could last several months. After that, we get a vaccine or herd immunity. When it's done, you have the bull market of a lifetime—up 400% in ten years from these levels. Dow 120,000 here we come!
Q: Do you see a tax selloff if Biden gets in? Should we get short?
A: Definitely; there will be a tax selloff. Past ones have only lasted a week or two and those were the last two weeks of December, so it really won’t be that bad. It’s not like it’s a surprise that Biden is ahead in the polls, because he has been for 6 months. Nor is it a surprise that he is going to raise taxes on the wealthy. I wouldn’t get short though. The short play was last week and the week before; and I did manage to get out three shorts but didn't want to get too big in front of an election. So those all worked. I'm out of all of them now, and now we’re looking only at long plays. And with the Volatility Index (VIX) over $40, you can go 20% or 30% in-the-money on these call spreads and still look to make 10%-20% profit on the position in a month.
Q: Isn’t the pandemic great for Amazon (AMZN)?
A: Yes, Amazon was taking over the world anyway, and forcing everyone to an online-only economy which couldn’t be better for them. A lot of this shifting is permanent and won’t be going back to the way it was before the pandemic with brick and mortar shops and malls. So yes, we love Amazon and I would buy on the dips. There’s a double from here.
Q: Do you have long term names I can buy to sit on?
A: Yes, we actually do have a long-term portfolio posted on the website. It would be listed under your subscription area once you log in—we rebalance that twice a year. And of course, we had a 10% holding in Tesla (TSLA) which went up ten times, so the performance of the long-term portfolio is through the roof. To find the long-term portfolio, please click here.
Q: Do you record this webinar?
A: Yes, we post it on the www.madhedgefundtrader.com site in two hours.
Q: Do you still like the Internet security stocks like FireEye (FEYE)?
A: Yes. Hacking is growing faster than the Internet itself. You should also look at Palo Alto Networks (PANW) and the ETF (HACK).
Q: Should we hold on to the Visa (V) spread hoping it will come back after the election drop?
A: Hope is not an investment strategy. I always stop out of positions when they hit a 2% loss. The only time I have 4% losses is when we get these gigantic gap moves overnight, which tend to happen once every one or two years. In this case, Visa got hit with a surprise antitrust suit from the Department of Justice that knocked $10 off of the stock. So no, I will not hold on to it in the hope that it does better; I will try to minimize my losses, get out, and get into the next winning position. Hope is what turns a 4% loss into a complete 10% write off.
Q: What’s your view on the Canadian dollar (FXC)?
A: I like it, but it’s not as good as the Australian dollar (FXA) because Canada has a major oil exposure, and actually the worst kind of oil exposure—tar sands in northern Alberta. The outlook for oil is poor and that will be a drag on the currency in the form of fewer exports. Buy the (FXA). No oil troubles here. Kangaroos are another story.
Q: Will you be looking to sell short on the United States Treasury Bond Fund (TLT)?
A: Yes, if we can just get a little bit higher. We’re looking at an economic recovery next year, so we’d expect the (TLT) to be lower by at least $20 points in 2021.
Q: Do you think the San Francisco and New York housing markets will return to what they were before with so many people are moving out of the city?
A: Yes, they will come back, I’ve been through many of these cycles in San Francisco over the past 50 years; it always comes back. Once the pandemic is over, people will say, “Oh my gosh, I can’t believe you can get a two-bedroom apartment in San Francisco for only $2 million.” That's probably another year or two off after a vaccine is in widespread distribution.
Q: Is real estate in a bubble?
A: Absolutely, but real estate bubbles can go on for a long time, like ten years. The bubble in Australia has been going on for 30 years. Ultimately, real estate prices are driven by the earnings power of the local economy which, in the case of San Francisco, is huge. This time around, we have a record large millennial generation looking for real estate. There are 85 million millennia buyers with only 65 million Gen X-er’s selling homes. So, we have to make up a shortfall of 20 million houses at some point. That’s why building permits are through the roof every month.
Q: Zoom (ZM) and DocuSign (DOCU) are the darling stocks of COVID 2020—what do you think about them at these high prices?
A: Very high risk. If you bought these a year ago when we first started covering them, good for you as they're up ten times. However, there are better fish to fry than chasing these big pandemic winners at all-time highs.
Q: If Biden wins, what happens to defense stocks like Raytheon Technology (RTX)?
A: They go down. It turns out a lot of the defense business is in very long term contracts that can’t be broken. They have to supply so many planes a year to the government for a decade or more. However, the sentiment on these sectors sours under democratic administrations because they are not initiating new weapons systems where the big money is made. Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD) all have the same problem. I grew up with these companies. They were the FANGs of their day.
Q: How does a Biden win affect Tesla (TSLA)?
A: Then $2,500 a share for Tesla looks cheap (it’s now at $410). Biden will do everything he can to slow climate change and accelerate alternative energy. Tesla is front and center on that. Under current law, car manufacturers are limited on the number of units they can sell to get the $7,500 tax break per vehicle. Tesla used up all their subsidies five years ago. My bet is that the limits will be eliminated and that leads to a huge surge in Tesla sales in the U.S., which is why the stock has gone up 10 times in the last year. Tesla has promised to drop their car price to $25,000 in three years. If you throw in $10,000 in federal and state tax subsidies you get the car for free. Then you can write off General Motors (GM) and Ford (F).
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
