Global Market Comments
August 27, 2021
Fiat Lux
Featured Trade:
(AUGUST 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(ROM), (EEM), (FXI), (DIS), (AMZN), (NFLX), (CHPT), (TLT), (TBT), (AAPL),
(GOOG), (WPM), (GOLD), (NEM), (GDX), (X), (SLV), (FCX), (BA), (HOOD), (USO)
Below please find subscribers’ Q&A for the August 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from The Atlantis Casino Hotel in Reno, NV.
Q: How does a 2X ProShares Ultra Technology ETF (ROM) February 2022 vertical bull call spread on the ROM look? Would you do $110-$115 or $115-$120?
A: I would do nothing here at $112.50 because we’ve just gone up 10 points in a week. I’d wait for some kind of pullback, even just $5 or $10 points, and then I would do the $110-$115. I’m leaning towards more conservative LEAPS these days—bets that the market goes sideways to up small rather than going ballistic, which it has done for the last 18 months. Think at-the-money strikes, not deep out-of-the-money on your LEAPS from here on for the rest of this economic cycle. The potential profits are still enormous. The only problem with (ROM) is that the longest maturities on the options are only six months.
Q: How do you recommend entering your long-term portfolio?
A: I would use the one-third rule: you put on ⅓ now, ⅓ higher or lower later on, and ⅓ higher or lower again. That way you get a good average price. Long term, everything goes up until we hit the next recession, which is probably several years off.
Q: I keep reading that the Delta variant is a market risk, but I don’t think that investors will look through this. Is Delta already priced into the shares?
A: Yes, what is not priced into the shares is the end of Delta, the end of the pandemic—and that will lead to my “everything” rally that I’ve been talking about for a month now. And we have already seen the beginning of that, especially with the price action this week. So yes, Delta in: dead market; Delta out: roaring market.
Q: Do you think there will eventually be a rotation into emerging markets (EEM), or has the virus battered these markets too much to even consider it?
A: Sometime in our future—not yet—the emerging markets will be our core holding. And the trigger for that will be the collapse of the dollar, which is hitting an interim high right now. When the greenback rolls over and dies, you can expect emerging markets, especially China, to take off like a rocket. That’s going to be our next big trade. I don't know if it will be this year or next year but it’s coming, so start doing your emerging market research now, and keep reading my newsletter.
Q: Is the coming tax hike a problem for the stock market?
A: No, I don’t think so. First off, I don’t think they’re going to do a tax bill this year; they don’t want anything to interfere with the 2022 election, so it may be next year’s business. Also, any new taxes are going to be overwhelmingly focused on billionaires, carried interest, offshoring, and large corporations. The middle class, people who make less than $400,000 a year, will not see any tax hike at all, possibly even getting some tax cuts via restored SALT deductions. So, I don't really see it affecting the stock market at all.
Q: What do you think about Chinese stocks (FXI)?
A: Long-term they’re okay, short term possibly more downside. Interestingly, the bigger risk may not be China itself and how the government is beating up its own tech companies, but the SEC. It has indicated they don’t really like these offshore vehicles that have been listed on the New York Stock Exchange, and they may move to ban them. I’m not rushing into China right now, only because there are just so many better opportunities in the US stock market for the time being. I may go back in the future—it’s a case where I’d rather buy them on the way up than trying to catch a falling knife on China right now.
Q: Do you expect any market impact from the Jackson Hole meeting?
A: Yes, whatever J Powell says, even if he says nothing, will have a market impact. And it will have a bigger impact on the bond market than it will on the stock market, which is down a full point this morning. So yes, but not yet. I imagine we’ll hear something very soon.
Q: September and October tend to be volatile; do you see us having a 5% or 10% pullback in those months?
A: I don’t see any more than 5%, with the hyper liquidity that we have in the system now. There just aren’t any events out there that could trigger a pullback of 10%—no geopolitical events, and the economy will be getting stronger, not worse. So yes, an “everything rally” doesn’t give you many long side entry points, so I just don’t see 10% happening.
Q: What about a Walt Disney (DIS) January 2022 $180-$220 LEAPS?
A: I would do the $180-$200. I think you can afford to be tighter on your spread there, take some more risk because I think it’s just going to go nuts to the upside once we get a drop in COVID cases. By the way, Disney parks are only operating at 70% capacity, so if you go back up to 100% that's a near 50% increase in profits for the company. And it’s not just Disney, but Netflix (NFLX), Amazon (AMZN), and everybody else that’s about to have the greatest number of blockbuster movies released of all time. They’re holding back their big-ticket movies for the end of the pandemic when people can go back into theaters. We’ll start seeing those movies come out in the last quarter of this year, and I’m particularly looking forward to the next James Bond movie, a man after my own heart.
Q: Are EV car charging companies like ChargePoint Holdings (CHPT) going to do as well as the car companies?
A: No. They’re low margin business, so it’s not a business model for me. I like high-profit margins, huge barriers to entry, and very wide moats, which pretty much characterizes everything I own. The big profits in EVs are going to be in the cars themselves. Charging the cars is a very capital-intensive, highly regulated, and low-margin business.
Q: Would a Fed taper cause a 10% pullback?
A: Absolutely not; in fact, I think a taper would make the market go up because Jay Powell has been talking it into the market all year. And that’s his goal, is to minimize the impact of a taper so when they finally do it, they say ho-hum and “okay you can take that risk out of the market.” That’s the way these things work.
Q: What is your yearend target for United States Treasury Bond Fund (TLT)?
A: $132. Call it bold, but I'm all about bold. I think the first stop will be at $144, then $138, then bombs away!
Q: What will it take for (TLT) to dip below $130?
A: Another year of hot economic growth, which Congress seems hell-bent on delivering us.
Q: What are your ProShares Ultra Short 20+ Year Treasury ETF (TBT) targets?
A: When we were at 1.76% on the 10-year bond, the (TBT) made it all the way back to 22 ½. Next year we go higher, probably to $25, maybe even $30.
Q: What’s your 10-year view on the (TBT)?
A: $200. That’s when you get interest rates back to 10% in 10 years on the 10-year bond. So yes, that’s a great long-term play.
Q: How long can we hold (TBT)?
A: As long as you want. Ten years would be a good time frame if you want to catch that $17 to $200 move. The (TBT) is an ETF, not an option, therefore it doesn’t expire.
Q: Are you working on an electrification stock list?
A: I am not, because it’s such a fragmented sector. It’s tough to really nail down specific stocks. I think it’s safe to say that the electric power grid is going to change beyond all recognition, but they won’t necessarily be in high margin companies, and I tend to prefer high-profit-margin, large-moat companies which nobody else can get into, like Apple (AAPL) or Google (GOOG).
Q: What about gas pipelines with high yields?
A: They have a high yield for a reason; because they’re very high risk. If you're going to a carbon-free economy, you don’t necessarily want to own pipelines whose main job is moving carbon; it’s another buggy whip-type industry I would avoid. I’ve seen people get wiped out by these things more times than I could count. If you remember Master Limited Partnerships, quite a few of them went bankrupt last year with the oil crash, so I would avoid that area. These tend to be very highly leveraged and poorly managed instruments.
Q: Best play on silver (SLV)?
A: Wheaton Precious Metals (WPM) is the highest leveraged silver play out there, and a great LEAPS candidate. Go out 2 years and triple your money.
Q: Geopolitical oil (USO) risks?
A: No, nobody cares about oil anymore—that’s why we’re giving up on Afghanistan. China is buying 80% of the Persian Gulf oil right now. We don’t really need it at all, so why have our military over there to protect China’s oil supply?
Q: What about Freeport McMoRan (FCX)?
A: I absolutely love it. Any big economic recovery can’t happen without copper, and you have a huge tailwind there from electric cars which need 200 pounds of copper each, as opposed to 20 pounds in conventional cars.
Q: I see AMC Entertainment Holdings (AMC) is up 20% today; should everyone be chasing this stock?
A: No, absolutely not. (AMC) and all the meme stocks aren’t investments, they’re gambling, and there are better ways to gamble.
Q: Should I buy the lumber dip?
A: Yes. I think the slowdown on housing is temporary because it will take 10 years for supply and demand in the housing market to come back into balance because of all the millennials entering the housing market for the first time. So, that would be a yes on lumber and all the other commodities out there that go into housing like copper, steel, and aluminum.
Q: Should I put money into Canadian Junior Gold Miners (GDX)?
A: No, I would rather go out and take a long nap first. These are just so high risk, and they often go bankrupt. The liquidity is terrible, and the dealing spreads are wide. I would stick with the bigger precious metal plays like Newmont Mining (NEM), Barrick Gold (GOLD), and Wheaton Precious Metals (WPM).
Q: Is Boeing (BA) a buy here?
A: Yes, we’re back at the bottom end of the trading range for the stock. It’s just a matter of time before they get things right, and the 737 Max orders are rolling in like crazy now that there’s an airplane shortage.
Q: What do you think about Robinhood (HOOD)?
A: I like it quite a lot; I got flushed out of my long position on Friday with a 10% down move. Of course, 90% of my stop losses end up expiring at their maximum profit points, but I have to do it to keep the volatility of the portfolio down. So yes, I’ll try to buy it again on the next dip. The trouble is it’s kind of a quasi-meme stock in its own right, hence the volatility; so I would say on the next 10% down day, you go into Robinhood, and I probably will too.
Q: How are the wildfires around Tahoe?
A: They’re terrible and there are three of them. I did a hike two days ago there, and out of a parking lot with 100 spaces, I was the only one there. It’s the only time I’d ever seen Tahoe deserted in August. With visibility of 500 yards, it's just terrible. Fortunately, I was able to hike without coughing my guts out—it’s not so thick that you can’t breathe.
Q: What do you think of US Steel (X)?
A: I like it, I think the whole industrial commodity complex rallies like crazy going into the end of the year.
Q: As a new member, where is the best place to start? It’s just kind of like drinking from a fire hose.
A: Wait for the trade alerts; they only happen at sweet spots and you may have to wait a few days or weeks to get one since we only like to enter them at good points. That’s the best place to enter new positions for the first time. In the meantime, keep reading all the research, because when these trade alerts do come out, they’re not surprises because I’m pumping out research on them every day, across multiple fronts. Be patient— we are running a 93% success rate, but only because we take our time on entering good trades. The services that guarantee a trade alert every day lose money hand over fist.
Q: If they do delist Chinese stocks, will US investors be left holding the bag?
A: Yes, and that will be the only reason they don’t delist them, that they don’t want to wipe out all current US investors.
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 (whichever applies to you), then select WEBINARS and all the webinars from the last ten 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
August 19, 2021
Fiat Lux
Featured Trade:
(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CRSP), (FB), (PYPL), (GOOGL), (AAPL), (AMZN), (SQ), (JPM), (BAC), (MS), (GS), (BABA), (EEM), (FXA), (FCX), (GLD), (SLV), (TLT)
I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on February 2, 2021. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.
For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing and you don’t want to remain glued to a screen all day, these are the investments you can make. Then don’t touch them until you start drawing down your retirement funds at age 72.
For some of you, that is not for another 50 years. For others, it was yesterday.
There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.
Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red on the spreadsheet.
To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, the click on the “Long Term Portfolio” button, then “Download.”
Changes
Biotech
Pfizer (PFE) has nearly doubled in six months, while Crisper Therapeutics (CRSP) has almost halved. Since the pandemic, which Pfizer made fortunes on, is peaking and we are still at the dawn of the CRISPR gene editing revolution, the natural switch here is to take profits in (PFE) and double up on (CRSP).
Technology
I am maintaining my 20% in technology which are all close to all-time highs. I believe that Apple (AAPL), (Amazon (AMZN), Google (GOOGL), and Square (SQ) have a double or more over the next three years, so I am keeping all of them.
Banks
I am also keeping my weighting in banks at 20%. Interest rates are imminently going to rise, with a Fed taper just over the horizon, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, keep Morgan Stanley (MS), Goldman Sachs (GS), JP Morgan (JPM), and Bank of America, which will profit enormously from a continuing bull market in stocks. They are also a key part of my” barbell” portfolio.
International
China has been a disaster this year, with Alibaba (BABA) dropping by half, while emerging markets (EEM) have gone nowhere. I am keeping my positions because it makes no sense to sell down here. There is a limit to how much the Middle Kingdom will destroy its technology crown jewels. Emerging markets are a call option on a global synchronized recovery which will take place next year.
Bonds
Along the same vein, I am keeping 10% of my portfolio in a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis so go read Global Trading Dispatch. Eventually, massive over-issuance of bonds by the US government will destroy this entire sector.
Foreign Exchange
I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). Eventually, the US dollar will become toast and could be your next decade-long trade. The Aussie will be the best performing currency against the US dollar.
Australia will be a leveraged beneficiary of the synchronized global economic recovery through strong commodity prices which have already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.
Precious Metals
As for precious metals, I’m keeping my 0% holding in gold (GLD). From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.
I am keeping a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles. The arithmetic is simple. EV production will rocket from 700,000 in 2020 to 25 million in 2030 and each one needs two ounces of silver.
Energy
As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.
The Economy
My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade after this year’s superheated 7% performance.
When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 700% or more from 35,000 to 240,000 in the coming decade. The American coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.
You won’t believe what’s coming your way!
I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again. If I forget, please remind me.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 13, 2021
Fiat Lux9
(AUGUST 11 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (DIS), (FDX), (AMZN), (PAVE), (NUE), (X), (FCX), (AA), (AMD), (GLD), (SLV), (GDX), (WPM), (COIN)
Below please find subscribers’ Q&A for the August 11 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA.
Q: If we see a correction in stocks, what would you do?
A: Buy more stocks (SPY). All of our positions expire next week, and we go 100% into cash. I’m looking for just a 5% correction and then I’m just going to go piling in 100% invested with a barbell portfolio since everything is working now and some of the best tech stocks like Amazon have already had 10% corrections.
Q: Time for LEAPS again on Amazon (AMZN)?
A: Yes, but let Amazon have more time to bottom out. It may just be a “time” correction where it goes sideways for a month or two. The company is still growing at an incredible rate.
Q: What about FedEx (FDX) and Walt Disney (DIS) LEAPS?
A: Those LEAPS I would do, right here, right now. We’ve had our corrections already in those sectors and they’re ready to take off. It’s just a matter of time before these sectors come back into favor. These are both delta peaking plays.
Q: It seems that the US government is taking the stance that they can tax their way out of the fiscal hole; is this true?
A: No, they don’t need to tax their way out of the fiscal hole; deflation will wipe out all US government debt on a 30-year view, and this is what’s happened to not only all the government debt in US history but all government debts all over the world starting with France in the 1600s. By the time the government has to pay back its 30-year bonds, the purchasing power of that dollar will have fallen by 80% or 90%, meaning that essentially the bonds get deflated away to nothing. And this is why we have governments, so they can borrow that money now, spend it now to rescue the economy, and then they never have to pay it back in real dollars. This is why governments borrow. The investors who really have to pick up the bill for this are bond owners, who see the purchasing power of the bonds decline by 2%-3% a year.
Q: When do you see a correction, and what would you do?
A: It’s either going to be in the next couple of weeks or never. If we get one, I would load the boat again with more long positions. Of the five positions out of 100 I’ve lost money this year, four have been short positions, so you can see why we’re really trying to limit the short positions here.
Q: Visa (V) is going ex-dividend tomorrow—is there a risk of early assignment?
A: There is, but if you get an early assignment, just say thank you very much, Mr. Market, call your broker to tell them to exercise your long call position to cover your call short position, and you will get the maximum profit several days earlier than expiration. This happens sometimes as hedge funds try to get the quarterly dividend on the cheap, but you have to act fast, otherwise, you’ll end up with a short position in Visa on your hands, and most likely a margin call. Brokers are not allowed to automatically exercise longs to meet calls anymore. You have to call them and order them to exercise that long. So, pay attention going into quarterly option expirations.
Q: I don’t trust your COVID information any more than I trust the government line.
A: All of my Covid data comes from Johns Hopkins University and is interdependently collated from every country in the United States. If you have any complaints you can go to them. All I can say is there are 620,000 bodies in the country that died of something. Oh, and we had the lowest population growth last month in 50 years. I’ve had family members die from it so I believe that.
Q: If the Republicans win in 2022 and 2024, will the bull market continue?
A: Absolutely not. We get a new recession and another bear market. Everything that’s going well now reverses, the entire environmental infrastructure strategy goes down the toilet, and Covid makes a huge recovery. I would go with what’s working, and 6.5% economic growth now and a market going up 30% a year totally works for me. Of course, I would make another fortune on the short side.
Q: How should you play infrastructure?
A: There is an infrastructure ETF called the Global X Funds Infrastructure ETF (PAVE) that has already had a big move, up 176% in 17 months. Other than that you can just play your basic commodity stocks like US Steel (X), Nucor (NUE), and Freeport McMoRan (FCX).
Q: How long will the hot housing market continue?
A: Ten more years. That's how long it will take to digest the current 85 million strong millennial generation who are now buying first-time homes or upgrading what they’ve got. And remember, we’re still operating with half of the new home construction capacity that we had 15 years ago before the last financial crisis.
Q: What's your prognosis for semiconductors?
A: They just had a super-heated spike; I expect them to take a break. That's why I took profits on Advanced Micro Devices (AMD). We’ll find a new bottom, and then I want to buy back into it. It’s taking a break with the rest of technology right now, which is perfectly normal.
Q: Would you take this dip to add to mRNA and BioNTech?
A: I would say yes. This is an industry that’s on the eve of a biotech revolution—the cure of all human diseases. And these two companies with their mRNA technologies are in the best place to take advantage of that.
Q: Will there be a big spike down in August?
A: It looks like it’s not happening. Like I said, if it doesn’t happen in the next few weeks, it’s not going to happen. Excess liquidity is just driving all investment decisions. If it doesn’t go down now, what’s the reason for it to go down in October? I just see no negatives at all on the horizon except for another out-of-the-blue variant like a Lambda or an Epsilon variant.
Q: Does slow population growth include illegal immigration?
A: It does, immigration both legal and illegal has been constant for decades and decades, it’s about a million people a year. But Americans are not reproducing like they used to, the birth rate hit a 50-year low last year because women did not want to go to the hospitals which were full of COVID patients. A lower population growth over the long term is very bad for economic growth. That is why Japan has essentially been in a nonstop recession for the last 32 years, because of their baby bust.
Q: Do you have political debt ceiling concerns?
A: No, these are always last-minute before midnight deals. I don't see this being any different, never underestimate the ability of Congress to spend more money, no matter who is in power.
Q: What do you think of oil in the short run?
A: Short term it may go sideways, we may even have a rally to new highs, but the long-term trade for oil is that it’s going out of business. EVs, mean you lose 50% of demand for oil in the next 10 years, and they will start discounting that now in the price of oil.
Q: Why is silver down so much?
A: It’s being dragged down by Gold (GLD), and silver (SLV) always moves twice as fast as gold.
Q: How are muni bonds going forward?
A: I don’t see them going much further. They had a massive rally, discounting an increase in taxes which hasn’t happened. So even if they do raise taxes which may be next year’s business, that is fully discounted in the Muni market already.
Q: What am I missing? You’ve been saying for months not to get involved with Bitcoin but then I heard you say you bought LEAPS.
A: No, I didn’t buy the LEAPS. I tried to buy the LEAPS but missed them and it ran away and they ended up tripling in two weeks. It’s just not like buying a normal stock. Once these things turn, they just start going up every day for weeks with no pullbacks whatsoever. This is valuation-free security with no dividend, interest, or earnings. It’s driven by pure supply and demand.
Q: What do you think of the precious metal miners like the Van Eck Vectors Gold Miners ETF (GDX)?
A: Let the current meltdown burn out and then go into long term LEAPS.
Q: What’s the best way to buy silver?
A: The best way is doing 2-year LEAPS on Wheaton Precious Metals (WPM) at current levels.
Q: What do you think about Coinbase (COIN)?
A: It’s definitely a candidate, but you want to get it on a down day. Coinbase is in the “selling shovels to the gold miners” business which is always a fantastic business model and we here in California know all about it. It’s just a question of when and where to get involved. It’s been gyrating this week because of their new burden of doing the tax reporting on all crypto buyers among their customers. That will definitely be a drag on the business.
Q: What's your short-term view on the big commodity plays like Freeport McMoRan (FCX), Alcoa Aluminum (AA), and US Steel (X)?
A: I would say they’re all going up. Maybe half the infrastructure bill has been discounted into the metals prices, but not all of it, therefore they have more to go to the upside.
Q: What are the best real estate buys?
A: There are none anywhere; maybe somewhere in eastern Europe, but still unlikely. It’s the best time ever now to rent. Buying here would be madness. And by the way, I predicted this property boom 10 years ago, if you go back in my research because 2021 was when the millennials would show up as massive buyers in the housing market, right when there was going to be a demographic shortage. That’s why I think the real estate boom goes on for another 10 years. But you won't see the gains that we’ve seen this year. You will maybe see 5% or 10% gains a year, definitely not 50% or 100% gains that we’ve just seen.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in here, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten 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
July 29, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (RSX), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)
Global Market Comments
April 1, 2021
Fiat Lux
Featured Trade:
(MARCH 31 BIWEEKLY STRATEGY WEBINAR Q&A),
(FB), (ZM), ($INDU), (X), (NUE), (WPM), (GLD), (SLV), (KMI), (TLT), (TBT), (BA), (SQ), (PYPL), (JNP), (CP), (UNP), (TSLA), (GS), (GM), (F)
Below please find subscribers’ Q&A for the March 31 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.
Q: Would you buy Facebook (FB) or Zoom (ZM) right here?
A: Well, Zoom was kind of a one-hit wonder; it went up 12 times on the pandemic as we moved to a Zoom economy, and while Zoom will permanently remain a part of our life, you’re not going to get that kind of growth in stock prices in the future. Facebook on the other hand is going to new highs, they just announced they’re laying a new fiber optic cable to Asia to handle a 70% increase in traffic there. So, for the longer term and buying here, I think you get a new high on Facebook soon; there's maybe another 20-30% move in Facebook this year.
Q: I can’t really chase these trades here, right?
A: Correct; if you wait any more than a day or 2 on executing a trade alert, you’re missing out on all of the market timing value we bring to the game. So that's why I include an entry price and the “don’t pay more than” price. And we never like to chase, except last year, when we did it almost all the time. But last year was a chase market, this year not so much.
Q: How are LEAP purchase notifications transmitted?
A: Those go out in the daily newsletter Global Trading Dispatch when I see a rare entry point for a LEAP, then we’ll send out a piece and notify everybody. But it’s very unusual to get those. Of course, a year ago we were sending out lists of LEAPS ten at a time when the Dow Average ($INDU) is at 18,000. But that is not now, you only wait for those once or twice a year. On huge selloffs to get into two-year-long options trades, and that is definitely not now. The only other place I've been looking out for LEAPS right now are really bombed out technology stocks begging for a rotation. Concierge members get more input on LEAPS and that is a $10,000 a year upgrade.
Q: What are your thoughts on silver (SLV) and long-term gold (GLD)?
A: I see silver going to $50 and eventually $100 in this economic cycle, but it's out of favor right now because of rising interest rates. So, once we hit 2.00% in the ten years, it’s not only off to the races for tech but also gold and silver. Watch that carefully because your entry point may be on the horizon. That makes Wheaton Precious Metals (WPM) a very attractive “BUY” right now.
Q: Are you going to trade the (TLT)?
A: Absolutely yes, but I’m kind of getting picky now that I’m up 42% on the year; and I only like to sell 5-point rallies, which we got for about 15 minutes last week. And I also only like to buy 5- or 10-point dips. Keep your trading discipline and you’ll make a ton of money in this market. Last year we made about 30% trading bonds on about 30 round trips.
Q: How much further upside is there for US Steel (X) and Nucor Corp. (NUE)?
A: More. There's no way you do infrastructure without using millions of tons of steel. And I kind of missed the bottom on US Steel because it had been a short for so long that it kind of dropped off the radar for me. I think we have gone from $4 to 27 since last year, but I think it goes higher. It turns out the US has been shutting down steel production for decades because it couldn't compete with China or Japan, and now all of a sudden, we need steel, and we don’t even make the right kind of steel to build bridges or subways anymore—that has to be imported. So, most of the steel industry here now is working for the car industry, which produces cold-rolled steel for the car body panels. Even that disappears fairly soon as that gets taken over by carbon fiber. So enough about steel, buy the dips on (X) and (NUE).
Q: What stocks should I consider for the infrastructure project?
A: Well, US Steel (X) and Nucor Corp (NUE) would be good choices; but really you can buy anything because the infrastructure package, the way it’s been designed, is to benefit the entire economy, not just the bridge and freeway part of it. Some of it is for charging stations and electric car subsidies. Other parts are for rural broadband, which is great for chip stocks. There is even money to cap abandoned oil wells to rope in Texas supporters. All of this is going to require a massive upgrade of the power grid, which will generate lots of blue-collar jobs. Really everybody benefits, which is how they get it through Congress. No Congressperson will want to vote against a new bridge or freeway for their district. That’s always the case in Washington, which is why it will take several months to get this through congress because so many thousands of deals need to be cut. I’ve been in Washington when they’ve done these things, and the amount of horse-trading that goes on is incredible.
Q: Is it a good thing that I’ve had the United States Treasury Bond Fund (TLT) LEAPS $125 puts for a long time.
A: Yes. Good for you, you read my research. Remember, the (TLT) low in this economic cycle is probably around $80, so you probably want to keep rolling forward your position….and double up on any ten-point rally.
Q: Do you think we get a pop back up?
A: We do but from a lower level. I think any rallies in the bond market are going to be extremely limited until we hit the 2.00%, and then you’re going to get an absolute rip-your-face-off rally to clean out all the short term shorts. If you're running put LEAPS on the (TLT) I would hang on, it’s going to pay off big time eventually.
Q: If we see 3.00% on the 10-year this year, do you see the stock market crashing?
A: I don’t think we’ll hit 3.00% until well into next year, but when we do, that will be time for a good 10% stock market correction. Then everyone will look around again and say, “wow nothing happened,” and that will take the market to new highs again; that's usually the way it plays out. Remember, then year yields topped all the way up at 5.00% when the Dotcom Bubble topped in April 2020.
Q: Has the airline hospitality industry already priced in the reopening of travel?
A: No, I think they priced in the hope of a reopening, but that hasn’t actually happened yet, and on these giant recovery plays there are two legs: the “hope for it” leg, which has already happened, and then the actual “happening” leg which is still ahead of us. There you can get another double in these stocks. When they actually reopen international travel to Europe and Asia, which may not happen this year, the only reopening we’re going to see in the airline business is in North America. That means there is more to go in the stock price. Also coming back from the brink of death on their financial reports will be an additional positive.
Q: Do you think a corporate tax increase will drive companies out of the US again and raise the unemployment rate?
A: Absolutely not. First of all, more than half of the S&P 500 don’t even pay taxes, so they’re not going anywhere. Second, I think they will make these offshoring moves to tax-free domiciles like Ireland illegal and bring a lot of tax revenues back to the US. And third, all Biden is doing is returning the tax rate to where it was in 2017; and while the corporate tax rate was 35%, the stock market went up 400% during the Obama administration, if you recall. So stocks aren't really that sensitive to their tax rates, at least not in the last 50 years that I’ve been watching. I'm not worried at all. And Biden was up on the polls a year ago talking about a 28% tax rate; and since then, the stock market has nearly doubled. The word has been out for a year and priced in for a year, and I don't think anybody cares.
Q: What about quantum computers?
A: I’m following this very closely, it’s the next major generation for technology. Quantum computers will allow a trillion-fold improvement in computing power at zero cost. And when there's a stock play, I will do it; but unfortunately, it’s not (IBM), because we’re not at the money-making stage on these yet. We are still at the deep research stage. The big beneficiaries now are Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN).
Q: Is it time to buy Chinese stocks?
A: I would say yes. I would start dipping in here, especially on the quality names like Tencent (TME), Baidu (BIDU), and Alibaba (BABA), because they’ve just been trashed. A lot of the selloff was hedge fund-driven which has now gone bust, and I think relations with China improve under Biden.
Q: Your timing on Tesla (TSLA) has been impeccable; what do you look for in times of pivots?
A: Tesla trades like no other stock, I have actually lost money on a couple of Tesla trades. You have to wait for things to go to extremes, and then wait two more days. That seems to be the magic formula. On the first big selloff go take a long nap and when you wake up, the temptation to buy it will have gone away. It always goes up higher than you expect, and down lower than you expect. But because the implied volatilities go anywhere from 70% to 100%, you can go like 200 points out of the money on a 3-week view and still make good money every month. And that’s exactly what we’re going to do for the rest of the year, as long as the trading’s down here in the $500-$600 range.
Q: Is Editas Medicine (EDIT), a DNA editing stock, still good?
A: Buy both (EDIT) and Crisper (CRSP); they both look great down here with an easy double ahead. This is a great long-term investment play with gene editing about to dominate the medical field. If you want to learn more about (EDIT) and (CRSP) and many others like them, subscribe to the Mad Hedge Fund Biotech & Healthcare Letter because we cover this stuff multiple times a week (click here).
Q: Is the XME Metals ETF a buy?
A: I would say yes, but I'd wait for a bigger dip. It’s already gone up like 10X in a year, but the outlook for the economy looks fantastic. (XME) has to double from here just to get to the old 2008 high and we have A LOT more stimulus this time around.
Q: What about hydrogen?
A: Sorry, I am just not a believer in hydrogen. You have to find someone else to be bullish on hydrogen because it’s not me. I've been following the technology for 50 years and all I can say is: go do an image Google for the name “Hindenburg” and tell me if you want to buy hydrogen. Electricity is exponentially scalable, but Hydrogen is analog and has to be moved around in trucks that can tip over and blow up at any time. Hydrogen batteries are nowhere near economic. We are now on the eve of solid-state lithium-ion batteries which improve battery densities 20X, dropping Tesla battery weights from 1,200 points to 60 pounds. So “NO” on hydrogen. Am I clear?
Q: Why do you do deep-in-the-money call and put spreads?
A: We do these because they make money whether the stock goes up down or sideways, we can do them on a monthly basis, we can do them on volatility spikes, and make double the money you normally do. The day-to-day volatility on these positions is very low, so people following a newsletter don’t get these huge selloffs and sell at bottoms, which is the number one source of retail investor losses. After 13 years of trade alerts, I have delivered a 40.30% average annualized return with a quarter of the market volatility. Most people will take that.
Q: Is ProShares Ultra Short 20 Year Plus Treasury ETF(TBT) still a play for the intermediate term?
A: I would say yes. If ten-year US Treasury bonds Yields soar from 1.75% to 5.00% the (TBT) should rise from $21 to $100 because it is a 2X short on bonds. That sounds like a win for me, as long as you can take short term pain.
Q: What is the timing to buy TLT LEAPS?
A: The answer was in January when we were in the $155-162 range for the (TLT). Down here I would be reluctant to do LEAPS on the TLT because we’ve already had a $25 point drop this year, and a drop of $48 from $180 high in a year. So LEAP territory was a year ago but now I wouldn’t be going for giant leveraged trades. That train has left the station. That ship has sailed. And I can’t think of a third Metaphone for being too late.
Q: Would you buy Kinder Morgan (KMI) here?
A: That’s an oil exploration infrastructure company. No, all the oil plays were a year ago, and even six months ago you could have bought them. But remember, in oil you’re assuming you can get in and out before it crashes again, it’s just a matter of time before it does. I can do that but most of you probably can’t, unless you sit in front of your screens all day. You’re betting against the long-term trend. It works if you’re a hedge fund trader, not so much if you are a long-term investor. Never bet against the long-term trend and you always have a tailwind behind you. All surprises work to your benefit.
Q: If you get a head and shoulders top on bitcoin, how far does it fall?
A: How about zero? 80% is the traditional selloff amount for Bitcoin. So, the thing is: if bitcoin falls you have to worry about all other investments that have attracted speculative interest, which is essentially everything these days. You also have to worry about Square (SQ), PayPal (PYPL), and Tesla (TSLA), which have started processing Bitcoin transactions. Bitcoin risk is spread all over the economy right now. Those who rode the bandwagon up will ride it back down.
Q: Is Boeing (BA) a long-term buy?
A: Yes, especially because the 737 Max is back up in the air and China is back in the market as a huge buyer of U.S. products after a four-year vacation. Airlines are on the verge of seeing a huge plane shortage.
Q: What about Ags?
A: We quit covering years ago because they’re in permanent long-term downtrends and very hard to play. US farmers are just too good at their jobs. Efficiencies have double or tripled in 60 years. Ag prices are in a secular 150-year bear market thanks to technology.
Q: Is this recorded to watch later?
A: Yes, it goes on our website in about two hours. For directions on where to find it, log in to your www.madhedgefundrader.com account, go to “My Account,” and it will be listed under there, as are all the recorded webinars of the last 12 years.
Q: Would you buy Canadian Pacific (CP) here, the railroad?
A: No, that news is in the price. Go buy the other ones—Union Pacific (UNP) especially.
Q: What are your thoughts on Bitcoin?
A: We don’t cover Bitcoin because I think the whole thing is a Ponzi scheme, but who am I to say. There is almost ten times more research and newsletters out there on Bitcoin as there is on stock trading right now. They seem to be growing like mushrooms after a spring storm. There are always a lot of exports out there at market tops, as we saw with gold in 2010 and tech stock in 2000.
Q: What do you think about Juniper Networks (JNP)?
A: It’s a Screaming “BUY” right here with a double ahead of it in two years. I’m just waiting for the tech rotation to get going. This is a long-term accumulate on dips and selloffs.
Q: Did the Archagos Investments hedge fund blow threaten systemic risk?
A: No, it seems to be limited just to this one hedge fund and just to the people who lent to it. You can bet banks are paring back lending to the hedge fund industry like crazy right now to protect their earnings. I don’t think it gets to the systemic point, but this is the Long Term Capital Management for our generation. I was involved in the unwind of the last LTCM capital, which was 23 years ago. I was one of the handful of people who understood what these people were even doing. So, they had to bring me in on the unwind and huge fortunes were made on that blowup by a lot of different parties, one of which was Goldman Sachs (GS). I can tell you now that the statute of limitations has run out and now that it's unlikely I'll ever get a job there, but Goldman made a killing on long-term capital, for sure.
Q: Will Tesla benefit from the Biden infrastructure plan?
A: I would say Tesla is at the top of the list of companies the Biden administration wants to encourage. That means more charging stations and more roads, which you need to drive cars on, and bridges, and more tax subsidies for purchases of new electric cars. It’s good not just Tesla but everybody’s, now that GM (GM) and Ford (F) are finally starting to gear up big numbers of EVs of their own. By the way, I don't see any of the new startups ever posing a threat to Tesla. The only possible threats would be General Motors, Ford, and Volkswagen, which are all ten years behind.
Q: Would you put 10% of your retirement fund into cryptocurrencies?
A: Better to flush it down the toilet because there’s no commission on doing that.
Q: Is growing debt a threat to the economy? How much more can the government borrow?
A: It appears a lot more, because Biden has already indicated he’s going to spend ten trillion dollars this year, and the bond market is at a 1.70%—it’s incredibly low. I think as long as the Fed keeps overnight rates at near-zero and inflation doesn't go over 3%, that the amount the government can borrow is essentially unlimited, so why stop at $10 or $20 trillion? They will keep borrowing and keep stimulating until they see actual inflation, and I don’t think we will see that for years because inflation is being wiped out by technology improvements, as it has done for the last 40 years. The market is certainly saying we can borrow a lot more with no serious impact on the economy. But how much more nobody knows because we are in uncharted territory, or terra incognita.
To watch a replay of this webinar 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 ten 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
March 5, 2021
Fiat Lux
Featured Trade:
(MARCH 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(BRKB), (CRM), (ZM), (AAPL), (AMD), (DIS), (CRSP),
(BRKB), (PLTR), (NVDA), (TLT), (TSLA), (GLD),
(SLV), (VSAT), (EUO), (GME)
