Global Market Comments
October 10, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or EATING YOUR SEED CORN),
(SPY), (TLT), (PANW), BRKB), (JPM), (MS), (V),
(USO), (MU), (RIVN), (TWTR), (TSLA)
Posts
You know that 10% downside risk I talked about? In other words, you may have to eat a handful of your seed corn.
We may have to eat into some of that 10% this week. With the September Consumer Price Index out on Thursday, and the big bank earnings are out Friday, there is more than a little concern about the coming trading week.
That’s why all my remaining positions are structured to handle a 10% correction or more and still expire at their maximum profit point in nine trading days.
Even in the worst-case Armageddon scenario, which we are unlikely to get, the S&P 500 is likely to fall below 3,000, or 627.90 points or 17.25% from here.
That’s what you pay me for and that’s what you are getting.
I shot out of the gate with an impressive +3.25% gain so far in October. My 2022 year-to-date performance ballooned to +72.93%, a new high. The Dow Average is down -19.3% so far in 2022 or a gob-smacking -7,000 points. 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 +81.35%.
That brings my 14-year total return to +585.49%, some 3.03 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.62%, easily the highest in the industry.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
I used last week’s extreme volatility to rearrange positions, adding longs in Morgan Stanley (MS), JP Morgan (JPM), and Visa (V). That takes me to 80% long, 20% short, and 0% cash. I wisely rolled down the strikes on my Tesla position from $230-$240 to $200-$210. I covered one short in the S&P 500 (SPY). All of my options positions expire in only nine trading days.
I know that you’re probably getting boatloads of advice the sell all your stocks now, sell your house, and head for those generous 5% short term interest rates, and 8% in junk. Even I went 100% cash….in December last year. The problem is that these other gurus are giving you advice that is only a year late with perfect 20/20 hindsight.
To bail now, you risk giving up on the 100% gains in years to come. If I’m wrong, you lose 10%, if I’m right, you get a double or more. Sounds like a pretty good bet to me.
People always want to know how I pick market bottoms, something I have been doing since the Dow Average was at a miniscule $753.
The lower the market is, the less aggressive the Fed is going to be
Every single input into the Consumer Price Index is now turning down sharply, especially rents and housing costs, meaning we can expect a blockbuster decline when the next report comes out on October 13
We now have two outsiders doing the Fed’s job for it, the British economy, which is clearly collapsing, and a strong US dollar that is rapidly shrinking the foreign revenues of our multinationals, like big tech.
Capitulation indicators, occasionally spotted here and there, are now coming in volleys, the Volatility Index at $35, the (VIX) curve inversion, the RSI below 30, the ten-year US Treasury yield hit 4.0% and then instantly backed off, the British pound plunged to $1.03, and we saw absolutely massive retail selling in September.
The froth is now out of all tech stocks.
All of this brings forward the last Fed hike in interest rates and the next bull market in stocks. If the last Fed rate hike is two months away on December 14, then the reasons to sell stocks are disappearing like the last sands in an hourglass.
In my mere half century in the market, every time the CPI starts to fall, stock market “V” bottoms and begins classic “rip your face off’ rallies as the shorts panic to cover. It happened in 1970, 1974, 1980, 1990, and 2009. It will happen again in 2022. The market will smell that inflation is done, the Fed is done, and volatility becomes a distant memory.
And I hate to be so obvious, but if you sell in May, what do you do in October? You buy with both hands. Just do it on the right day. That could get you a 10% to 20% move by yearend. The S&P 500 earnings multiple has collapsed by eight points in nine months and that is too far, too fast.
How do midterm years perform? October is the best month of the year followed by November. Of the entire 16-month presidential election cycle, the coming first quarter of 2023 is the best of the entire lot.
Nonfarm Payroll Falls Short at 263.000 in September. The headline unemployment rate matched a 2022 low at 3.5%. The long-term unemployment rate, the U-6 also matched this year’s low at 6.7%. The report keeps the Fed on its current interest raising schedule. Stocks, bonds, and gold sold off 500-points.
JOLTS Drops Sharply, from an expected 11.0 million to only 10.05 million. This is the job openings report from the Department of Labor. It’s one of the sharpest declines in history. The jobs market is finally starting to deteriorate, which is just what the Fed wanted. Factory Orders for August were unchanged.
OPEC+ Cuts Quotas by 2 million, and production by 1 million, in one of the largest reductions in history. It’s an effort to maintain oil prices at current prices in the face of falling demand from a global recession. The Arabs are not your friends. It’s also a slap in the face of the anti-oil posture, pro-climate posture of the Biden administration, which responded with a further release of 10 million barrels from the Strategic Petroleum Reserve. Energy stocks soar across the board. Don’t get caught standing when the music stops playing. Avoid (USO).
Why Did Russia Blow Up Their Own Pipeline? International analysts are puzzled by Putin’s latest hostile move. Is this a prelude to limited nuclear war in Ukraine? My view is that Putin expects to be deposed soon and wants to make it difficult for the next government to resume relations with Europe. Others argue that the true motivation is to enable Nordstream to file a $10 billion insurance claim. Good luck collecting on that one.
Advanced Micro Devices Bombs on weak PC sales and supply chain problems, taking the stock down 5% aftermarket. Profit margins were cut. The news could take the stock down to new lows, which didn’t really participate in this week’s monster rally. The rest of the tech sector sold off in sympathy.
Tesla Breaks Production Records in Q3, manufacturing 365,000 EVs and delivering 365,000, a record high. Sales prices have risen three times this year, while commodity costs have fallen dramatically, widening profit margins. This is the most volatile stock in the market, with one 52% correction so far this year, and another 23% correction in recent weeks. It’s the reason we just saw a “buy the rumor, sell the news” type correction that took us to the bottom of a three-month range.
Another factor is that now that big tech is rallying again, people are rotating out of Tesla, which held up well in Q3. Below here, long term Tesla bulls like my friend Ron Baron, Cathie Wood, and I start adding to big positions. With OPEC+ threatening a million barrel a day production cut, taking crude up 6%, oil alternative Tesla should be rising.
Elon Musk Pays Full Price for Twitter at $54.20 a share, completely caving on pending litigation. Wall Street consensus is that the company is worth $15 a share. It may be years before we learn what’s really going on here, leaving many scratching their heads, including me. Tesla (TSLA) plunged $15 on the news, killing off a nascent rally. The distraction of management time will be huge. Avoid (TWTR).
Rivian Raises 2025 Production Goal, from 20,000 to 25,000, after a better-than-expected 7,363 third quarter. Mass production is reaching the sweet spot for the next Tesla. The company is planning a $5 billion investment in non-union Georgia. Buy (RIVN) on dips, sell short puts and buy LEAPS.
Micron Technology to Invest $100 Billion in New York Plant. It’s all part of a retreat from China and paring war risk in Taiwan. Massive government subsidies from the Chips Act helped. Biden also expanded restrictions on the export of key semiconductor manufacturing equipment, America’s crown jewels. It means more expensive buy safer supplied chips for US industry. Buy (MU) on dips.
Hurricane Ian to Cost Insurers $63 Billion, and deaths, and the federal government may be on the hook for more. The storm double-dipped, cutting a wide swath across Florida and the Carolinas. Some 95% of the costs are carried by foreign insurers through the reinsurance market. There are too many billionaire mansions on the beach which are fully insured. This paves the way for major rate increases by insurance companies, which is why Warren Buffet loves the insurance business. Many thanks to the many foreign Mad Hedge subscribers who expressed sympathy over the storm losses.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil in a sharp downtrend 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, October 10, no data of note is released.
On Tuesday, October 11 at 7:00 AM, the 6:00 AM, the NFIB Business Optimism Index for September is released.
On Wednesday, October 12 at 8:30 AM, Producer Price Index for September is published. At 11:00 AM, the FOMC minutes from the last Fed meeting is released.
On Thursday, October 13 at 8:30 AM, Weekly Jobless Claims are announced. We also get the blockbuster Consumer Price Index.
On Friday, October 14 at 8.30 AM, US Retail Sales for September is disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, with the 35th anniversary of the October 19, 1987 crash coming up, when shares dove 22.6% in one day, I thought I’d part with a few memories.
I was in Paris visiting Morgan Stanley’s top banking clients, who then were making a major splash in Japanese equity warrants, my particular area of expertise.
When we walked into our last appointment, I casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow Average was down a record 300 points.
Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock.
A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found all Transatlantic lines jammed.
I never bought my stock, nor found out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport and flew my twin Cessna as fast as the turbocharged engines could take me back to London, breaking every known air traffic control rule.
By the time I got back, the Dow had closed down a staggering 512 points, taking the Dow average down to $1,738.74. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won.
We bid 10% below the final closing prices for the lot. Ten minutes later he called us back and told us we won the auction. How much did the others bid? He told us that we were the only ones who bid at all!
Then you heard that great sucking sound. Oops!
What has never been disclosed to the public is that after the close, Morgan Stanley received a margin call from the exchange for $100 million, as volatility had gone through the roof, as did every firm on Wall Street.
We ordered JP Morgan to send the money from our account immediately. Then they lost it! After some harsh words at the top, it was found. That’s when I discovered the wonderful world of Fed wire numbers.
The next morning, the Dow continued its plunge, but after an hour managed a U-turn, and launched on a monster rally that lasted for the rest of the year. We made $75 million on that one trade from Soros.
It was the worst investment decision I have seen in the markets in 53 years, executed by its most brilliant player. Go figure. Maybe it was George’s risk control discipline kicking in?
At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization, because Prime Minister Margaret Thatcher refused to postpone the issue, believing that the banks had already made too much money.
That gave Morgan Stanley’s equity division a break-even P&L for the month of October 1987, the worst in market history. Even now, I refuse to gas up at a BP station on the very rare occasions I am driving an internal combustion engine.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 7, 2022
Fiat Lux
Featured Trade:
(OCTOBER 5 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TSLA), (PLTR), (UUP), (ROM), (USO), (ARKK), (ROKU)
Below please find subscribers’ Q&A for the October 5 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: Is the final low in, or could we retest yet again (SPY)?
A: We could retest yet again, but it’s very important to notice that the marginal new lows are very small. The low we had on Friday, the last day of September and Q3, was only 800 points lower than the low we had in June—you had to work 4 months just to get a new low of only 800 points. So I think that's the way it's going to go. If we do get new lows, it’ll be incremental new lows—we’re not crashing to 3,000 or anything like that.
Q: What do you think Tesla (TSLA) will bottom at in the short term?
A: $200 or $210. The Tesla deal is a disaster for Elon Musk. It will amount to a huge diversion of management time; he’s going to be facing regulatory hurdles, and even though he said we’re going ahead for the deal, a lot of people still don’t believe it because the financing for the deal may have vaporized in the massive increase in interest rates that has occurred since February. So, there are still a lot of non-believers in this deal. I’d rather have him making solar panels, electric cars and launching rockets, not getting into the social media morass and taking over a broken company. The shareholders clearly don’t like it either, taking the shares down $30 in two days. By the way, if you look at the charts, you notice that people were front-running the Twitter deal by dumping Tesla stock the day before. So yes, it kind of peed on our Tesla parade for the short term; long term it keeps going up and the bad news is in the price.
Q: How do we get the concierge service?
A: Just contact customer support at support@madhedgefundtrader.com or call (347) 480-1034.
Q: Have you revised Tesla’s (TSLA) price target?
A: No, not the long-term ones, just the short-term ones.
Q: Is it possible that bonds are bottoming here, even if we expect further Fed rate rises?
A: Yes, the Fed only has control of overnight rates, and those are rising. In fact, overnight rates are now higher than 10-year rates, and could go much higher still—that's called inversion of the yield curve. We’re almost certainly getting another 150-basis point rise in overnight rates. 10-year bonds or 20-year bonds could well stay around this level, or maybe just a little bit lower. So yes, the bond short is gone. It worked great for us for 2.5 years, we caught a 43% decline in the TLT, but it’s game over. Time to find other trades, like buying stocks.
Q: Does Elon Musk have to sell more Tesla to buy more Twitter?
A: That is the big question being asked today because he already sold $16 billion worth of stock in Tesla to cover the Twitter purchase this year. With the debt markets having fundamentally changed in the last 6 months, the question is: does he have to raise more equity (i.e. sell more Tesla), or can he bring in other equity investors? Hopefully, if he does have to sell more Tesla, it’s not very much—it’s a $44 billion deal and he’s already put $16 billion into it, so maybe he raises another $6 billion to get up to a 50% control level, which the market can easily handle in a day or two. He’s handled all of his past Tesla share sales fairly easily, and he tends to do these at market tops when demand for the shares is overwhelming. Longer term, the much greater demand for selling Tesla shares will come from the equity raises he will need to do to build another six Tesla factories around the world. That could be anywhere from $400 billion to $800 billion, so that will be the much larger cash call, but those are years off at best.
Q: With so many big techs breaking down, how should we play the (ROM) (ProShares Ultra Technology ETF)?
A: From the long side is how you play it. But you really need these capitulation days, especially if you’re involved in 2X ETFs. There is a spectacular play setting up for the (ROM) because it’ll go from $24 (or whatever the final bottom is) to $100 in the next upcycle, so that is a great leverage play that you really want to get involved in.
Q: If I don’t have time to babysit my portfolio, am I better in LEAPS or physical stocks?
A: Well the LEAPS I’m putting out now have a 2 years 4 months expiration date, so you can literally just buy them and forget about them. On the other hand, if we don’t get an economic recovery in 2 years and 4 months, you’re better off buying stocks outright on 2:1 margin. You make less profit, but if we don’t get a recovery for 3, 4, 5 years, then you have no expiration problem with stocks, as opposed to with LEAPS. Now, there are ways to trade around your LEAPS, like financing the long and by shorting puts and getting in for zero, but that requires smaller positions because you have to maintain the margin for the short put side. So, if you want to play it safe, buy the stocks. You can even handle a lost decade with stocks, especially if their dividend pays. With LEAPS, you need a fairly immediate economic recovery, which we should get, especially if the Fed lowers interest rates next year, which it should.
Q: What is your view on the US dollar (UUP)?
A: The dollar seems close to peaking right around here. It will peak on the last day that the Fed raises interest rates, which could be on December 14th. In fact, they may not even wait until then. Depending on the inflation rate, they could only do a quarter or a half-point rate rise in December, thus giving the market their signal that way. Or not do it at all, and the sudden selloff that we had in the dollar, and the stabilization of bonds we had last week is telling you that’s on the table as a possibility. So, we saw really important moves for long-term trend considerations in the markets since last week.
Q: Time for Palantir (PLTR)?
A: No, because the CEO doesn’t give a damn about his stock, and the stock reacts accordingly. I gave up on Palantir for that reason.
Q: How do you see the Ukraine/Russia situation developing?
A: It drags on for another year, Russia keeps losing and throwing men into the meat grinder until Putin gets removed, which should happen next year at which point oil prices collapse. That may be why he blew up the Nordstream One pipeline, to tie the hands of a future Russian government.
Q: Is it safe to buy 30-day Treasury bills in November going into the next F1C meeting?
A: Yes, because they essentially have no risk—that’s basically a cash type investment. And if your broker goes bust you can just force them to hand over your Treasury bonds and not get tied up in any three-year bankruptcy proceeding. It’s an asset, not cash.
Q: Will it be time to buy LEAPS on the next market selloff?
A: Absolutely, yes.
Q: Do you believe Putin would use nukes?
A: No I don’t, because the radioactive cloud would fall back on him immediately. There are very few people who are both stock market experts and nuclear weapons experts; I happen to be one of those—probably the only one in the world in fact—because of my time spent with the atomic energy commission at the Nuclear Test Site in Nevada. The problem with bombing your next-door neighbor with nukes is that the nuclear fallout comes right back on you the next day. Most of Russia’s nukes don’t even work, they only have a handful that actually does, and if he does use one, I bet it would be a tiny one just to demonstrate that he has a working nuke—like just a one-megaton one as opposed to Hiroshima which was 20 kilotons. Or he could drop it in the Black Sea or do an above-ground test at their old nuclear test site that wouldn’t kill anyone, just to show that he has working nukes. I don’t think he will, because we would react in kind in twice the size.
Q: Time to buy ARK Innovation ETF (ARKK)?
A: You might start with a small starter position, just to get it into your portfolio so you remember to buy it on the next dip. Cathy Woods’s leverage in this fund is tremendous. You really want to own it at a market bottom, but picking the actual bottom is going to be tough. One way to achieve this is to just go out and buy Tesla—that way you don’t have to pay the management fee—or buy the top 5 holdings in ARK directly, which includes Roku (ROKU) among others. So yes, I’m watching it; I prefer buying things on the way up and missing the first 10% than to catch a falling knife, and boy has this thing been a falling knife this year.
Q: Do you like biotech here?
A: Absolutely; please subscribe to the Mad Hedge Biotech Letter for biotech recommendations plus LEAPS on biotech plays by clicking here.
Q: Energy is still the best sector now?
A: Yes, but for how long? You don’t want to be left standing when the music stops playing, and that is imminent in the oil industry. It will be illegal to sell gasoline cars in California after 2035, and gas makes up half the oil use in the US.
Q: Did you know that oil reserves (USO) are the lowest since 1984?
A: Yes, I think you may have read that in my newsletter, and that’s because of Biden’s efforts to reduce US gasoline prices through a million barrel per day release from the strategic petroleum reserves in Texas and Louisiana. If we are a net energy producer, why do we even have reserves? It’s an out-of-date holdover from the Cold War.
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
Tokyo 1975
Global Market Comments
October 3, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or BET THE RANCH TIME IS APPROACHING),
(SPY), (VIX), (UUP), (TSLA), (RIVN), (USO), (TLT), (FCX), (SPY), (NVDA), (BRKB)
September is notorious as the worst month of the year for the market. Boy, did it deliver, down a gut busting 9.7%!
As for the Mad Hedge Fund Trader, September was one of the best trading months of my 54-year career. But then I knew what was coming.
So did you.
With some of the greatest market volatility in market history, my September month-to-date performance exploded to exactly +9.72%.
I used last week’s extreme volatility and move to a Volatility Index (VIX) of $34 to add longs in Freeport McMoRan (FCX), S&P 500 (SPY), NVIDIA (NVDA), and Berkshire Hathaway (BRKB). I added shorts in the (SPY) and the (TLT). That takes me to 70% long, 20% short, and 10% cash. I am holding back my cash for any kind of rally to sell into.
My 2022 year-to-date performance ballooned to +69.68%, a new high. The Dow Average is down -23.44% 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 +80.08%.
That brings my 14-year total return to +582.24%, some 3.03 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.45%, easily the highest in the industry.
It was in May of 2020 when 34 of my clients became millionaires through buying TESLA at precisely the right time…
Well, the stars have aligned once again!!!!
In my TESLA free report, I list 10 reasons I’d tell my grandmother to mortgage her house and go all in.
Go to MADHEDGERADIO.com and download my “Tesla takes over the world” free report…that’s
madhedgeradio.com.
At the end of the month, the market was down six days in a row. That has only happened 20 times since 1950.
However, bet the ranch time is approaching. It’s time to start scaling in in a small way into your favorite long term names where the value is the greatest.
The Fed has taken away the free put that the stock market has enjoyed for the last 13 years. Now, it’s the bond market that has the free put. Hint: always own the market where the Fed is giving you free, unlimited downside protection.
People often ask what I do for a living. I always answer, “Talking people out of selling stocks at the bottom.” Here is the cycle I see repeating endlessly. They tell me they are long term investors. Then the markets take a sudden dive, like to (SPX) $3,300, a geopolitical event takes place, and the TV networks only run nonstop Armageddon gurus. They sell everything.
Then the market turns sharply, and they helplessly watch stocks soar. When they get frustrated enough, they buy, usually near a market top.
Sell low, buy high, they are perfect money destruction machines. And they wonder why they never make money in the stock market!
If any of this sounds familiar you have a problem and need to read more Mad Hedge newsletters. The people who ignore me I never hear from again. Those who follow me stick with me for decades.
Don’t make the mistake here of only looking at real GDP growth which, in recessions, is always negative. Nominal GDP is growing like a bat out of hell, 12% in 2021 and 8% in 2022. That’s 20% in two years, nothing to be sneezed at.
The problem is that all economic data has been rendered useless by the pandemic, even for legitimate and accomplished Wall Street analysts. The US economy was put through a massive restructuring practically overnight, the long-term consequences of which nobody will understand for years. Typical is the recently released Consumer Price Index, which said that real estate prices are rocketing, when in fact they are crashing.
A lot of people have asked me about the comments from my old friend, hedge fund legend Paul Tudor Jones, that the Dow Average would show a zero return for the next decade.
For Paul to be right, technological innovation would have to completely cease for the next decade. Sitting here in the middle of Silicon Valley, I can tell you that is absolutely not happening. In fact, I’m seeing the opposite. Innovation is accelerating at an exponential rate. For goodness sakes, Apple just brought out a satellite phone with its iPhone 14 pro for a $100 upgrade!
Remember, Paul got famous, and rich, from the trades he did 40 years ago with me, not because of anything he did recently. Paul has in fact been bearish for at least five years.
Still, we have a long way to go on earnings multiples. The trailing S&P 500 market multiple is now at 19. The historic low is at 15. Current earnings are $245 per (SPX) share. The 3,000 target the bears are shouting from the rooftops assumes that a severe recession takes earnings down to $200 a share ($3,000/$200 = 15X).
I don’t think earnings will get that bad. Big chunks of the economy are still growing nicely. Companies are commanding premium prices for practically everything. There is no unemployment because the jobs market is booming.
That suggests to me a final low in this market of $3,000-$3,300. That means you can buy 15%-20% deep in-the-money vertical bull call spreads RIGHT HERE and make a killing, as Mad Hedge has done all year.
Let me plant a thought in your mind.
After easing for too long, then tightening for too long, what does the Fed do next? It eases for too long….again. You definitely want to be long stocks when that happens, which will probably start some time next year.
Let me give you one more data point. The (SPY) has been down 7% or more in September only seven times since 1950. In six of the Octobers that followed, the market was up 8% or more.
Sounds like it’s time to bet the ranch to me.
Capitulation Indicators are Starting to Flash. Cash levels at mutual funds are at all-time highs. The Bank of America Investors Survey shows the high number of managers expecting a recession since the 2020 pandemic low, the last great buying opportunity. Commercial hedgers are showing the largest short positions since 2020. And of course, my old favorite, the Volatility Index (VIX) hit $34.00 on Tuesday. The risks of NOT being invested are rising.
Bank of England Moves to Support a Crashing Pound (FXB), by flipping from a seller to a buyer in the long-dated bond market, thus dropping interest rates. The move is designed to offset the new Truss government’s plan to cut taxes and boost deficit spending. The BOE also indicated that interest rate hikes are coming. The bond vigilantes are back.
Here’s the Next Financial Crisis, massive unrealized losses in the bond market. The (TLT) alone has lost 43% in 2 ½ years. Apply that to a global $150 trillion bond market and it adds up to a lot of money. Anybody who used leverage is now gone. How many investors without swimsuits will be discovered when the tide goes out?
Will the Strong Dollar (UUP) Do the Fed’s Work, forestalling a 75-basis point rate rise? It will if the buck continues to appreciate at the current rate, up a record five cents against the British pound, taking it to a record low of $1.03. Such is the deflationary impact of weak foreign currencies, which are seriously eating into US multination earnings.
Weekly Jobless Claims Hit Five-Month Low at 195,000, far below expectations. If the Fed is waiting for the job market to roll over before it quits raising interest rates, it could be a long wait.
EV Sales to Hit New All-Time High in 2022, to 13% of global new vehicle sales, up from 9% last year. The IEA expects this figure to reach 50% by 2030. That works out to 6.6 million EVs in 2021, 9.5 million in 2022, and 36 million by 2030. Buy (TSLA), the world’s largest EV seller, and (RIVN), the fastest grower in percentage terms, on dips.
EVs Take 25% of China New Vehicle Sales, and Tesla’s Shanghai factory is a major participant. Tesla just double production there. Some 403,000 EVs were sold in China in May alone. China is also ramping up its own EV production, up 183% YOY. China is much more dependent on imported oil than other large nations, most of which goes to transportation. Global EV production is expected to soar from 8 to 60 million vehicles in five years and Tesla is the overwhelming leader. Buy (TSLA) on dips again.
Oil (USO) Hits New 2022 Low at $78 a Barrel, cheaper than pre–Ukraine War prices, thanks to exploding recession fears. Is Jay Powell the most effective weapon against Russia with his most rapid interest rate rises in history?
Consumer Sentiment Hits Record Low at 59.1 according to the University of Michigan. That’s worse than the pandemic low and the 2009 Great Recession low. It could be that politics has ruined this data source making everyone permanently negative about the future. Inflation at a 40-year high isn’t helping either, nor is the prospect of nuclear war.
Case Shiller Delivers a Shocking Fall, down from 18.7% to 16.1% in June. The other shoe is falling with the sharpest drop in this data series in history. Tampa was up (31.8%), Miami (31.7%), and Dallas (24.7%). Many more declines to come.
30-Year Fixed Rate Mortgage Hits 7.08%, up from 2.75% a year ago. You can kiss those retirement dreams goodbye. It has been the sharpest rise in mortgage rates in history. Real estate has just become an all-cash market. That screeching juddering sound you hear is the existing home market shutting down.
Pending Home Sales Drop, down 2.0% in August on a signed contract basis. Sales are down for the third month in a row and are off 24% YOY. Only the west gained. Mortgage interest rates are now at 20-year highs. Buyers catching recession fears are breaking contracts and walking away from deposits.
Stock Crash Wipes Out $9 Trillion in Personal Wealth, which is the fall in equity holdings and mutual funds as of the end of June. The drop has been from $42 to $33 trillion. The bad news: it’s still going down, putting a dent in consumer spending.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil in a sharp downtrend 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, October 3 at 8:30 AM, the ISM Manufacturing PMI for September is released.
On Tuesday, October 4 at 7:00 AM, the JOLTS Report for private job openings for September is out.
On Wednesday, October 5 at 7:00 AM, ADP Private Employment Report for September is published.
On Thursday, October 6 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, October at 8.30 AM, the Nonfarm Payroll Report for September is disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, while working for The Economist magazine in London, I was invited to interview some pretty amazing people: Margaret Thatcher, Ronald Reagan, Yasir Arafat, Zhou Enlai.
But one stands out as an all time favorite.
In 1982, I was working out of the magazine’s New York Bureau off on Third Avenue and 47th Street, just seven blocks from my home on Sutton Place, when a surprise call came in from the editor in London, Andrew Knight. International calls were very expensive then, so it had to be important.
Did anyone in the company happen to have a US top secret clearance?
I answer that it just so happened that I did, a holdover from my days at the the Nuclear Test Site in Nevada. “What’s the deal,” I asked?
A person they had been pursuing for decades had just retired and finally agreed to an interview, but only with someone who had clearance. Who was it? He couldn’t say now. I was ordered to fly to Los Angeles and await further instructions.
Intrigued, I boarded the next flight to LA wondering what this was all about. What I remember about that flight is that sitting next to me in first class was the Hollywood director Oliver Stone, a Vietnam veteran who made the movie Platoon. When Stone learned I was from The Economist, he spent the entire six hours grilling me on every conspiracy theory under the sun, which I shot down one right after the other.
Once in LA, I checked into my favorite haunt, the Beverly Hills Hotel, requesting the suite that Marilyn Monroe used to live in. The call came in the middle of the night. Rent a four-wheel drive asap and head out to a remote ranch in the mountains 20 miles east of Santa Barbara. And who was I interviewing?
Kelly Johnson from Lockheed Aircraft (LMT).
Suddenly, everything became clear.
Kelly Johnson was a legend in the aviation community. He grew up on a farm in Michigan and obtained one of the first masters degrees in Aeronautical Engineering in 1933 at the University of Michigan.
He cold called Lockheed Aircraft in Los Angeles begging for a job, then on the verge of bankruptcy in the depths of the Great Depression. Lockheed hired him for $80 a month. What was one of his early projects? Assisting Amelia Earhart with customization of her Lockheed Electra for her coming around-the-world trip, from which she never returned.
Impressed with his performance, Lockheed assigned him to the company’s most secret project, the twin engine P-38 Lightning, the first American fighter to top 400 miles per hour. With counter rotating props, the plane was so advanced that it killed a quarter of the pilots who trained on it. But it allowed the US do dominate the air war in the Pacific early on.
Kelley’s next big job was the Lockheed Constellation (the “Connie” to us veterans), the plane that entered civil aviation after WWII. It was the first pressurized civilian plane that could fly over the weather and carried an astonishing 44 passengers. Howard Hughes bought 50 just off of the plans to found Trans World Airlines. Every airline eventually had to fly Connie’s or go out of business.
The Cold War was a golden age for Lockheed. Johnson created the famed “Skunkworks” at Edwards Air Force base in the Mojave Desert where America’s most secret aircraft were developed. He launched the C-130 Hercules, which I flew in Desert Storm, the F-104 Starfighter, and the high altitude U-2 spy plane.
The highlight of his career was the SR-71 Blackbird spy plane where every known technology was pushed to the limit. It could fly at Mach 3.0 at 100,000 feet. The Russians hated it because they couldn’t shoot it down. It was eventually put out of business by low earth satellites. The closest I ever got to the SR-71 was the National Air & Space Museum in Washington DC at Dulles airport where I spent an hour grilling a retired Blackbird pilot.
Johnson greeted me warmly and complimented me on my ability to find the place. I replied, “I’m an Eagle Scout.” He didn’t mind chatting as long as I accompanied him on his morning chores. No problem. We moved a herd of cattle from one field to another, milked a few cows, and fertilized the vegetables.
When I confessed to growing up on a ranch, he really opened up. It didn’t hurt that I was also an engineer and a scientist, so we spoke the same language. He proudly showed off his barn, probably the most technologically advanced one ever built. It looked like a Lockheed R&D lab with every imageable power tool. Clearly Kelley took work home on weekends.
Johnson recited one amazing story after the other. In 1943, the British had managed to construct two Whittle jet engines and asked Kelly to build the first jet fighter. The country that could build jet fighters first would win the war. It was the world’s most valuable machine.
Johnson clamped the engine down to a test bench and fired it up surrounded by fascinated engineers. The engine immediately sucked in a lab coat and blew up. Johnson got on the phone to England and said “Send the other one.”
The Royal Air Force placed their sole remaining jet engine on a plane which flew directly to Burbank airport. It arrived on a Sunday, so the scientist charged with the delivery took the day off and rode a taxi into Hollywood to sightsee.
There, the Los Angeles police arrested him for jaywalking. In the middle of WWII with no passport, no ID, a foreign accent, and no uniform, they hauled him straight off to jail.
It took two days for Lockheed to find him. Johnson eventually attached the jet engine to a P-51 Mustang, creating the P-80, and eventually the F-80 Shooting Star (Lockheed always uses astronomical names). Only four made it to England before the war ended. They were only allowed to fly over England because the Allies were afraid the Germans would shoot one down and gain the technology.
But the Germans did have one thing on their side. The Los Angeles Police Department delayed the development of America’s first jet fighter by two days.
Germany did eventually build 1,000 Messerschmitt Me 262 jet fighters, but too late. Over half were destroyed on the ground and the engines, made of steel and not the necessary titanium, only had a ten hour life.
That evening, I enjoyed a fabulous steak dinner from a freshly slaughtered steer before I made my way home. I even helped Kelly slaughter the animal, just like I used to do on our ranch in Montana. Steaks are always better when the meat is fresh and we picked the best cuts. I went back to the hotel and wrote a story for the ages.
It was never published.
One of the preconditions of the interview was to obtain prior clearance from the National Security Agency. They were horrified with what Johnson had told me. He had gotten so old he couldn’t remember what was declassified and what was still secret.
The NSC already knew me well from our previous encounters, but MI-6 showed up at The Economist office in London and seized all papers related to the interview. That certainly amused my editor.
Johnson died at age 80 in 1990. As for me, it was just another day in my unbelievable life.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
SR-71 Blackbird
My Former Employer
Global Market Comments
September 26, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW TO TRADE THE 4TH QUARTER)
(SPY), (TLT), (AAPL), (TSLA), (RIVN)
In a mere six months, the Federal Reserve has morphed from Dr. Jekyll into Mr. Hyde.
It has changed from the stock market’s best friend to its worst enemy. Not only has the punch bowl been taken away, but it has also been smashed on the floor in a thousand pieces. A regime change has taken place in risk.
Welcome to a hostile Fed, one that utterly hates the stock market and loves cash. In fact, it loves cash so much it has raised its bid for overnight money from nothing to 4.2% in only six months. It is the fastest rise in interest rates in history.
To say that conditions have changed for the stocks would be the understatement of the century. This makes stocks less valuable, especially anything connected with growth, like technology stocks, and big borrowers, such as cruise lines.
Which raises the important question of the day: How the HECK are we going to trade the stock market in Q4?
It was in September of 2020 when 34 of my clients became millionaires buying TESLA at precisely the right time…
Well, the stars have aligned once again!!!!
In my TESLA free report, I list 10 reasons I’d tell my grandmother to mortgage her house and go all in.
Go to madhedgeradio.com and download my “Tesla Takes Over the World” free report.
Let me give you the good news first.
Q4 is likely to establish the final low for the bear market in stocks for this cycle. I don’t buy the endless years of suffering or the “lost decade” theories. Technology is just evolving too fast. It really makes no difference whether that low is at (SPX) $3,600, $3,300, or even $3,000. The best entry point for stocks in a decade will soon be at hand.
Keep in mind that with an (SPX) at $3,000 the market will be down a horrific 37.5% in a year. That is a worst-case scenario. A collapse this rapid has not happened since 1929.
This is for an economy that has seen no financial stresses whatsoever, except in crypto. This time, there are no banks going under, brokers going bust, housing crashes, or other similar stresses that drove the (SPX) down 52% by 2009.
There is nowhere near the misallocation of capital and malinvestment that we saw 15 years ago. Down 37.5% sounds like a screaming bargain to me.
The early “tell” that we are approaching the end came on Friday when the Volatility Index (VIX) hit $32.31. With any luck, it could top $40 in the coming weeks. Friday, when the Dow Average was down 800 points, we saw the largest put option buying in market history.
At that point, it will be possible for me to construct positions for you that are mathematically impossible to lose money with and offer the upside potential return of 10:1.
Once a handful of other technical indicators kick in, we’re there. This is what you should be looking for:
The (VIX) tops $40
Volume spikes
Down stocks top up ones by 90:10
The put:call ratio hits 2:1
A big intraday reversal that closes higher, like down $100 for the (SPX), up $150
Technology stocks, the most volatile sector in the market, also deliver a major turnaround
We get a dramatically lower report for the Consumer Price Index (and the next one is out October 13)
The Mad Hedge Market Timing Index falls below 10
So, what to buy this time?
With the Midterm elections now only 43 days away on Tuesday, November 8, it’s time to contemplate the implications for your retirement portfolio. The play of the decade is setting up.
Let me give you the good news first.
Whoever wins, and at this point, it really could be anyone, markets will rally after the election and power on until the end of 2022, some 10%-20%. The mere fact that the election is over is a huge market positive.
That’s the easy part.
But what if the election was held today?
The polls are telling us that the Democrats could pick up 2-3 seats in the Senate. The House now looks like a 50/50 split. Control could literally hinge on a handful of battleground states.
Suburban housewives now appear to be the great deciders.
So, what happens if the Democrats keep control of both houses, and the status quo is maintained?
For a start, taxes will be going up a lot, especially for the wealthy. Carried interest might finally make the ultimate sacrifice after coming back from the dead countless times. SALT taxes might get a break, but it is not likely. Once the government gets its hands on a revenue stream, it is loath to give it up.
It’s spending where we will see some important changes. Think more of the last two years, but in larger amounts.
Support for the Ukraine War will continue. So far, the US is getting great value for money. To eliminate the major military threat to the US and Europe for only $50 billion is the deal of the century. I’d pay ten times that.
So far, the Ukrainians are doing all the dying and we only write the checks. I greatly prefer that to a Vietnam-style commitment that bleeds us white (and by the way, I did some of that bleeding). Believe me, I’m doing everything I can to help by advising the Joint Chiefs of Staff.
The real game changer will be an alternative energy bill much larger than the last $733 billion bill. The goal will be to accelerate the decarbonization of the US, and ultimately the global economy. Of course, the free market will drive this anyway. No major automaker will be building internal combustion engines after 2030. What the government can do is to make it happen fast.
A year ago, climate change was an “it might happen someday after I’m long gone” kind of possibility. After a summer of 116 degrees in California and 114 degrees in France, “someday” has become “Yikes, it’s happening now!”
The last bill was truly misnamed as the “Inflation Reduction Act.” It really should have been called the “Tesla Shareholder Enrichment Bill”. Virtually every aspect of the bill somehow impinges on Elon Musk’s creation positively, which has been an overwhelming market leader in national electrification, enhanced EV subsidies, mass construction of charging stations, solar panels, and power walls, and decarbonization.
Since I am a major shareholder in (TSLA) and have been since the shares traded at $2.35, that’s fine with me. That probably explains why the shares are in the process of engineering a major upside breakout well before the election.
It isn’t just Tesla that will cash in. There is a broadening new leadership developing for the market to replace my technology stocks. Call it the “decarbonization sector”.
It includes EVs like Tesla (TSLA) and Rivian (RIVN), commodity stocks like copper miner Freeport McMoRan (FCX), uranium stocks like Cameco (CCJ) and the Uranium ETF (URA), solar companies like First Solar (FSLR) and SunPower (SPWR), alternative utilities like NextEra Energy (NEE), the world’s largest generator of electricity from wind and the sun, and silver plays like the iShares Silver Trust (SLV) and Wheaton Precious Metals (WPM), essential for high-efficiency wiring.
I will be adding more names to this list as I find them. Watch your research inbox.
Of course, 43 days in the political world is a couple of lifetimes in the real world, so anything can happen. A boatload of October surprises is probably just around the corner.
As for me, I’m putting more of my money into Tesla.
It all raises a new risk that we haven’t dealt with before.
What if the US government can’t afford to pay its own debt? When the last financial crisis and recession began in 2007, the US national debt was only a paltry $9 trillion, or 60% of GDP. It has since risen to $30 trillion, or 140% of GDP. Holy smokes!
That was all well and good while interest rates were dropping from 7% to zero. What happens when rates go back up from zero to 7.0%? The cost of carry for the US Treasury more than doubles as well, taking a much bigger bite of government spending, more than it can afford.
Just thought you’d like to know.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil peaking out soon, 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!
With some of the greatest market volatility in market history, my September month-to-date performance maintained at +1.68%.
I used last week’s extreme volatility to add shorts in Apple (AAPL), the S&P 500 (SPY), and the United States US Treasury bond fund (TLT). That takes me to 30% long, 30% short, and 40% cash. I am holding back my cash for a truly cataclysmic market selloff.
My 2022 year-to-date performance ballooned to +61.64%, a new high. The Dow Average is down -18.48% 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 +72.06%.
That brings my 14-year total return to +574.20%, 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 +44.74%, easily the highest in the industry.
On Monday, September 26 at 8:30 AM, the Chicago Fed National Activity Index for August is released.
On Tuesday, September 26 at 7:00 AM, the Durable Goods Index for August is out. New Home Sales are also printed.
On Wednesday, September 28 at 7:00 AM, Pending Home Sales for August are published.
On Thursday, September 29 at 8:30 AM, Weekly Jobless Claims are announced. We also learn the final report for US Q2 GDP.
On Friday, September 30 at 7:00 AM, the Personal Income and Spending are disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, I’ve found a new series on Amazon Prime called 1883. It is definitely NOT PG rated, nor is it for the faint of heart. But it does remind me of my own cowboy days.
When General Custer was slaughtered during his last stand at the Little Big Horn in 1876 in Montana, my ancestors spotted a great buying opportunity. They used the ensuing panic to pick up 50,000 acres near the Wyoming border for ten cents an acre.
Growing up as the oldest of seven kids, my parents never missed an opportunity to farm me out with relatives. That’s how I ended up with my cousins near Broadus, Montana for the summer of 1966.
When I got off the Greyhound bus in nearby Sheridan, I went into a bar to call my uncle. The bartender asked his name and when I told him “Carlat”, he gave me a strange look.
It turned out that my uncle had killed someone in a gunfight in the street out front a few months earlier, which was later ruled self-defense. It was the last public gunfight seen in the state, and my uncle hasn’t been seen in town since.
I was later picked up in a beat-up Ford truck and driven for two hours down a dirt road to a log cabin. There was no electricity, just kerosene lanterns and a propane-powered refrigerator.
Welcome to the 19th century!
I was hired as a cowboy, lived in a bunk house with the rest of the ranch hands, and was paid the princely sum of a dollar an hour. I became popular by reading the other cowboys newspapers and their mail since they were all illiterate. Every three days we slaughtered a cow to feed everyone on the ranch. I ate steak for breakfast, lunch, and dinner.
On weekends, my cousins and I searched for Indian arrowheads on horseback, which we found by the shoe box full. Occasionally, we got lucky finding an old rusted Winchester or Colt revolver just lying out on the range, a remnant of the famous battle 90 years before. I carried my own six-shooter to help reduce the local rattlesnake population.
I really learned the meaning of work and developed callouses on my hands in no time. I had to rescue cows trapped in the mud (stick a burr under their tail and make them mad), round up lost ones, and sawed miles of fence posts. When it came time to artificially inseminate the cows with superior semen imported from Scotland, it was my job to hold them still. It was all heady stuff for a 15-year-old.
The highlight of the summer was participating in the Sheridan Rodeo. With my uncle being one of the largest cattle owners in the area, I had my pick of events. So, I ended up racing a chariot made from an old oil drum, team roping (I had to pull the cow down to the ground), and riding a brahman bull. I still have a scar on my left elbow from where a bull slashed me, the horn pigment clearly visible.
I hated to leave when I had to go home and back to school. But I did hear that the winters in Montana are pretty tough.
It was later discovered that the entire 50,000 acres were sitting on a giant coal seam 50 feet thick. You just knocked off the topsoil and backed up the truck. My cousins became millionaires. They built a modern four-bedroom house closer to town with every amenity, even a big screen TV. My cousin also built a massive vintage car collection.
During the 2000s, their well water was poisoned by a neighbor’s fracking for natural gas, and water had to be hauled in by truck at great expense. In the end, my cousin was killed when the engine of the classic car he was restoring fell on top of him when the rafter above him snapped.
It all gave me a window into a lifestyle that was then fading fast. It’s an experience I’ll never forget.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
September 23, 2022
Fiat Lux
Featured Trade:
(SEPTEMBER 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (INTC), (NVDA), (AMD), (MU) (TBT), (TLT), (AMGN),
(VIX), (CHPT), (TSLA), (GS), (BAC), (MS), (JPM), (USO), (TLT)
Below please find subscribers’ Q&A for the September 21 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: What would cause you to look for a lower bottom than $330 on the (SPY)?
A: Nuclear war with Russia would certainly do the trick—they’re now threatening to use tactical nuclear weapons in Ukraine—and higher-than-expected interest rates. If we get another 75 basis points after this one today, then I think you’re looking at new lows, but we won’t find that out until November 2. So, the market may just bounce along the bottom here for a while until it sees what the Fed is going to do, not on this rate hike but the next one after that. Other than that, a few dramatically worse earnings from corporations would also allow us to test a lower low.
Q: Is it time to nibble on Nvidia Corporation (NVDA)?
A: Nvidia is one of the most volatile stocks in the market. You don’t want to go into it until you’re absolutely sure the bottom is in. If that means you miss the first 10% of the following move up, that’s fine because when this thing moves, you get a double or triple out of it. I would wait for the indecision in the market to resolve itself before you get too aggressive on the most volatile stocks in the market. The same is true for the rest of the semiconductor sector.
Q: What does a final capitulation look like?
A: The Volatility Index (VIX) ever $40. We’ve had a high of VIX at $37 so far this year. If really get over $40, that would be a new high for the year. That would signal people that are throwing in the towel, giving up the market, selling everything—of course that is always the best time to buy.
Q: How do we get LEAPS guidance?
A: We send our LEAPS recommendations first to our concierge members—we only have a small number of those—and then after that, they go out to all subscribers to the Mad Hedge Global Trading Dispatch. Everyone gets exposure to the LEAPS. By the way, with LEAPS, you can take up to a month to execute a position. What I do is literally buy 1 contract a day, so I get a nice average over the period of a month when the market is most likely bottoming.
Q: Do you see Intel Corporation (INTC) as a good candidate for a Taiwan invasion hedge?
A: Well, first of all, China’s not going to invade Taiwan. I’ve been waiting for this for 70 years and it’s not going to happen. Also, Intel’s new management has yet to prove itself. You have a salesman running the company; I never like companies run by a salesman. I’d prefer to have an engineer run an engineering company. The court is still out on Intel and whether they can turn that company around or not; so, I would much rather buy the market leaders, Nvidia (NVDA), Advanced Micro Devices (AMD), and Micron Technology (MU) in the semiconductor space.
Q: You talked dollar/cost averaging before. Should we pause on averaging in?
A: No, that's why I say buy one contract a day and put it in order to buy at the bid side of the market. That way, any sudden swoosh down in the market and you’ll get filled. The spreads on these LEAPS are quite wide, so you want to try to buy as close to the middle or bottom end of the spread, and putting in single contract orders over a month, of course, will do that to you.
Q: Does that mean it’s time to sell the ProShares UltraShort 20+ year Treasury Yield (TBT)?
A: I would say yes; (TBT) hit $30.30 yesterday, which is a new multi-year high. I would be taking profits on that because on the next turnaround in bonds, you could get a very rapid move in (TBT) from $30 back down to $20. I’d rather have you keep that profit than try to squeeze the last dollar out of it. Remember, the (TBT) has a negative cost of carry now of 8% a year and that is a big nut to cover.
Q; Market outlook for mid-2023?
A: We could hit my $4,800 target by mid-2023; that is up 28% from here.
Q: Can we buy LEAPS on Amgen (AMGN)?
A: Absolutely yes, you can. Go for the highest listed strike prices on the call side with the longest possible maturity. I would do the January 17, 2025 $350-$360 vertical bull call spread which you can buy now for $1.00. That gives two years and four months to get a tenfold return. That’s enough time for a full-bore recession to happen and then a recovery where markets take off like a rocket. The call spread you bought for $1.00 becomes worth $10.00.
Q: Is there a long position on the beneficiary of government plans to build EV charging stations?
A: There is, but I'm not recommending EV charging stations because it’s a low value-added business. You buy electric power from the local utility, add 10 cents and resell it. The margins are small, the competition is heating up. There are much smarter ways to play EVs than the charging station. ChargePoint (CHPT) is certainly one of them, but it’s not a great investment idea. Look at how ChargePoint (CHPT) has performed over the last six months compared to Tesla (TSLA) and you see what I mean.
Q: Given the very poor investor sentiment, why don’t we get a testing of the lows and result in a (VIX) pop?
A: Absolutely yes—that is what everybody in the market is waiting for. And it could happen as soon as this afternoon. If it doesn’t happen this afternoon, allow for a little rally and then a meltdown on the next piece of bad news.
Q: I’m not able to get an email response from customer support.
A: Try emailing filomena@madhedgefundtrader.com. If that doesn’t work, you can try calling at (347) 480-1034. Filomena will always be happy to take care of you.
Q: What maturity of US Treasury securities would you buy now?
A: I would buy the 30-year. You’re getting close to a 4% yield on that—that is starting to look attractive to people who don’t want to work for a living picking stocks on a daily basis. We are about to see the rebirth of bond investing.
Q: What about banks?
A: Banks will be a screaming buy and a three-year double once recession fears end, which could be in a couple of months. We now have sharply rising interest rates, which banks love, but the bear market in stocks has killed off the IPO business, credit risk is rising, and of course, the Bitcoin business has gone to zero also. So, I would wait for fears of credit quality to end, and then you’ll get a double in the banks very quickly, and notice how they’re all flatlining at a bottom, they’re not actually going down anymore.
Q: Which banks are good choices?
A: Goldman Sachs (GS) and Bank of America (BAC) are two great ones, along with Morgan Stanley (MS) and JP Morgan (JPM).
Q: Do you think the market will bottom by the midterms?
A: I do, I think we will bottom a few weeks before the midterms, or the day after. Sometimes that’s the way it goes, and then it will be off like a rocket for the rest of the year. If we can do this from a much lower level in the SPYs, so much the better. Remember, the next Fed meeting is six days before the election. Yikes!
Q: If OPEC cuts production (USO), won’t the supply/demand cause oil prices to start rising again, increasing inflation and people’s prices at the pump?
A: Yes, but OPEC needs the money. Not necessarily Saudi Arabia, but all the other members of OPEC are starved for cash, and that is always how these shortages end. The smaller members cheat on quotas and bust the price. That's clearly what’s driven us down $50 since the February high, small member cheating. And that will continue. It is a cartel with some serious internal conflicts that will never resolve.
Q: Does it cost $17,000 to mine a Bitcoin?
A: It did four months ago. My guess is it’s more expensive now because of the higher cost of electricity around the world. We may even be up to $20,000 cost, which is why it tends to hang around the $20,000 level on the low side. Below that, miners lose money and the supply dries up, just like you see in the gold market.
Q: Do you have an opinion on Real Estate Investment Trusts (REIT)?
A: Yes; credit risk is rising, as are the yields. In a real estate recession, you start to get more defaults on REITS, but the yields on them are very high; so if you are going to play, buy a basket to spread your risk.
Q: Would you buy ProShares UltraShort 20+ year Treasury Yield (TLT) calls spreads now?
A: Yes, but I would go farther in the money, like the mid $90s, because I don’t think we’ll get that low in this cycle. I would also go out another month; instead of a one-month call spread in the mid $90s, I would do a two-month maturity. You could probably take in about $2,000 on a $10,000 position in the mid $90s.
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
Back at Lake Tahoe