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The Market Outlook for the Week Ahead, or Lie Back and Think of England

If you have to ask what this classic phrase from Britain’s colonial past means, you are too young to know.

The stock market equivalent is that there is nothing to do. Just sit back and relax, watching the value of your stocks go up every day. Let the greatest monetary and fiscal stimulus work its inevitable magic.

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When I said last week that stocks might go up every day in April, I wasn’t kidding. NASDAQ (QQQ) has gone up every day this month except one. The S&P 500 has seen only two down days when it was virtually unchanged.

And the best may be yet to come.

The mere prospect of a $2.3 infrastructure trillion budget is enough to keep stocks powering upward for the foreseeable future. Biden may have to negotiate the total down to get it through congress and that may be the cause of the next correction…in about three months.

What really had the phones buzzing on Thursday was the bizarre move in the bond market. After seeing spectacularly positive data, the Weekly Jobless Claims plunging by 200,000 and Retail Sales coming in at a prolific 9.8%, bonds should have crashed.

Instead, the (TLT) jumped by $2.60. That took interest rate and inflation fears packing and sent the indexes soaring to all-time highs once again.

It’s proof yet again that inflation is the boogie man that will never show. Despite the incredible strength of the economy, any time anyone tries to raise prices, another company comes along with a better product or service at half the price. Such is the relentless tide of technology.

In the meantime, Goldilocks has moved in, unpacked her bags, gotten comfortable, and has settled in for the duration. I have been so aggressive in trading the market for the last six months it is wearing me out.

So, I took a rare Saturday off, weeding the garden, setting up a new computer, and generally fixing things that I haven’t had time to attend to since last year. I lived almost normally….for a day.

One of the best Earnings Seasons in history started last week, with 25% growth expected at 81% beating forecasts. JP Morgan (JPM) and Bank of America (BAC) kicks off on Wednesday, with the big kahuna, Apple (AAPL) reporting on April 28. Expect stocks to rally until then. It may give us the first hint of the massive stimulus on the economy to come. Q2 and Q3 will be the monster quarters.

Equity Funds pick up a half trillion dollars in five months, more than they attracted over the last 12 years. It’s all rocket fuel for the ongoing market melt-up. With the Volatility Index (VIX) at a one-year low at $17, the best may be yet to come. Equity investors are the most bullish in years.

Tesla is upgraded to $1,071 per share by research firm Canaccord Genuity. The company is transitioning from low-volume high-priced cars to high-volume low-priced cars, as seen in the 47% leaps in sales during Q1. The stationary battery business is booming, thanks to a new generation of technology. Tesla is developing an Apple-type brand value in the energy market, which is worth a big premium, which competitors can’t match. Tesla has brought a machine gun to a knife fight. Global chip shortages are a risk. The stock jumped $25 on the news.

Consumer Price Index comes in muted at 0.6% in April and 2.6% YOY. The market had been fearing worse, sparking another leg up in technology stocks. Much of the gain was from a jump in gasoline prices, which are now falling. Food prices are also rising.

JP Morgan pops on upside earnings surprise, with Q1 profits soaring from $2.9 billion a year ago to an eye-popping $14.5 billion. Revenues were up 14% to $33.1 billion. Loan demand is weakening because so many people are getting government money for free. Credit card debts are being paid down.

Retail Sales explode in March, up a staggering 9.8%. New spending at bars and restaurants was a major factor, and we haven’t even started yet! Stocks soar to new highs, and the bond market takes off like a scalded chimp, taking ten-year US Treasury yields below 1.57%. It confirms my thesis that when we see actual real numbers of an unprecedented recovery, we get another new leg in the bull market.

Weekly Jobless Claims collapse to 576,000, the lowest of 2021. That's down a massive 193,000 jobs from the previous week. Herd immunity is here! Keep getting those shots!

China’s (FXI) GDP grew by a staggering record of 18.3% in Q1 at an annualized rate YOY. Strong industrial production and exports were the leaders. It presages a similar explosive growth rate for the US in Q2. We won’t know until the end of July. Having your largest customers breaking growth records is great for your business too. Buy everything on dips.

Hedge funds nailed the Bond Crash, selling short some $100 billion in paper since January. It will be more than enough to cover their losses in equity shorts.

When we come out the other side of pandemic, 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 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

My Mad Hedge Global Trading Dispatch profit reached 7.17% gain during the first half of April on the heels of a spectacular 20.60% profit in March.

It was a very busy week for trade alerts, with five positions expiring at their maximum profit points in (TSLA) and the (TLT). It’s been so long since I’ve had a loss, I forgot what they looked like.

I used a puzzling $2.60 spike in the (TLT) to add to my already substantial short position in bonds (TLT) with a distant May expiration. Ten-year US Treasury yields fell all the way to 1.51%.

My 2021 year-to-date performance soared to 51.26%. The Dow Average is up 12.9% so far in 2021.

That brings my 11-year total return to 473.81%, some 2.00 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 40.81%, the highest in the industry.

My trailing one-year return exploded to positively eye-popping 129.19%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives. Every time I think these numbers can’t be topped, they increase by another 10% during the following two weeks.

We need to keep an eye on the number of US Corona virus cases at 31.6 million and deaths topping 567,000, which you can find here.

The coming week will be dull on the data front.

On Monday, April 19 at 11:00 AM, earnings for (IBM), Coka-Cola (KO), and United Airlines (UAL) are released.

On Tuesday, April 20, at 4:30 PM, API Crude Stocks are published. We also get earnings for Johnson & John (JNJ) and Netflix (NFLX).

On Wednesday, April 21 at 1:00 PM, there is a big 20-year US Treasury bond auction. Chipotle (CMG) and Verizon (VZ) earnings are out.

On Thursday, April 22 at 8:30 AM, the Weekly Jobless Claims are printed. At 10:00 AM Existing Home Sales for March are announced. Snap (SNAP) and Intel (INTC) announce earnings.

On Friday, April 23 at 10:00 AM, we get the New Home Sales for March. American Express (AXP) and Honeywell (HON) release earnings. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, someone commented that I walk kind of funny the other day, and the memories flooded back.

In 1975, The Economist magazine in London heard rumors that a large part of the population was getting slaughtered in Cambodia. We expected this to happen after the fall of Vietnam, but not in the Land of the Khmers. So my editor, Peter Martin, sent me to check it out.

Hooking up with a right-wing guerrilla group financed by the CIA was the easy part. Humping 100 miles in 100-degree heat wasn’t.

We eventually came to a large village that was completely deserted. Then my guide said, “Over here.” He took me to a nearby cave containing the bodies of over 1,000 women, children, and old men that had been there for months.

I’ll never forget that smell.

With the evidence and plenty of pictures in hand, we started the trek back. Suddenly, there was a large explosion and the man 20 yards in front of me disappeared. He had stepped on a land mine. Then the machine-gun fire opened up. It was an ambush.

I picked up an M-16 to return fire, but it was bent, bloody, and unusable. I picked up a second rifle and fired until it was empty. Then everything suddenly went black.

I woke up days chained to a palm tree, covered in shrapnel wounds, a prisoner of the Khmer Rouge. Maggots infested my wounds, but I remembered from my Tropical Diseases class at UCLA that I should leave them alone because they only ate dead flesh and would prevent gang green. That class saved my life. Good thing I got an “A”.

I was given a bowl of rice a day to eat, which I had to gum because it was full of small pebbles and might break my teeth. Farmers loaded their crops with these so the greater weight could increase their income. I spent my time pulling shrapnel out of my legs with a crude pair of plyers.

Two weeks later, the American who set up the trip for me showed up with cases of claymore mines, rifles, ammunition, and antibiotics. My chains we cut and I began the long walk back to Thailand.

It’s nice to learn your true value.

Back in Bangkok, I saw a doctor who attended to the 50 caliber bullet that grazed my right hip. It was too old to sew up so he decided to clean it instead. “This won’t hurt a bit,” he said as he poured in hydrogen peroxide and scrubbed it with a stiff plastic brush.

It was the greatest pain of my life. Tears rolled down my face.

But you know what? The Economist got their story and the world found out about the Great Cambodian Genocide, where 3 million died. There is a museum in Phnom Penh devoted to it today.

So, if you want to know why I walk funny, be prepared for a long story. I still set off metal detectors.

Stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Doing Research

April 16, 2021

Diary, Newsletter, Summary

Global Market Comments
April 16, 2021
Fiat Lux

Featured Trade:

(APRIL 14 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (JPM), (ROM), (AAPL), (MSFT), (FB) (CRSP), (TLT), (VIX), (DIS), (NVDA), (MU), (AMD), (AMAT) (PLTR), (WYNN), (MGM)

April 14 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

Below please find subscribers’ Q&A for the April 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA.

Q: How do you choose your buy areas?

A: It’s very simple; I read the Diary of a Mad Hedge Fund Trader. Beyond that, there are two main themes in the market right now: domestic recovery and tech; and I try to own both of those 50/50. It's impossible to know which one will be active and which one will be dead, and some of that rotation will happen on a day-by-day basis. As for single names, I tend to pick the ones I have been following the longest.

Q: In my 401k, should I continue placing my money in growth or move to something like emerging markets or value?

A: It depends on your age. The younger you are, the more aggressive you should be and the more tech stocks you should own. Because if you’re young, you still have time to earn the money back if you lose it. If you’re old like me, you basically only want to be in value stocks because if you lose all the money or we have a recession, there's not enough time to go earn the money back; you’re in spending mode. That is classic financial advisor advice.

Q: When you say “Buy on dips”, what percentage do you mean? 5% or 10%

A: It depends on the volatility of the stock. For highly volatile stocks, 10% is a piece of cake. Some of the more boring ones with lower volatility you may have to buy after only a 2% correction; a classic example of that is the banks, like JP Morgan (JPM).

Q: Even though you’re not a fan of cryptocurrency, what do you think of Coinbase?

A: It’ll come out vastly overvalued because of the IPO push. Eventually, it may fall to a lower level. And Coinbase isn’t necessarily a business model dependent on bitcoin; it is a business model based on other people believing in bitcoin, and as long as there’s enough of those creating two-way transactions, they will make money. But all of these things these days are coming out super hyped; and you never want to touch an IPO—wait for it to drop 50%, as I once did with Tesla (TSLA).

Q: Please explain the barbell portfolio.

A: The barbell works when you have half tech, half domestic recovery. That way you always have something going up, because the market tends to rotate back and forth between the two sectors. But over the long term everything goes up, and that is exactly what has been happening.

Q: Is the ProShares Ultra Technology Fund (ROM) an ETF?

A: Yes, it is an ETF issuer with $53 billion worth of funds based in Bethesda, MD. (ROM) is a 2x long technology ETF, and their largest holdings include all the biggest tech stocks like Apple (AAPL), Microsoft (MSFT), Facebook (FB), and so on.

Q: Will all this government spending affect the market?

A: Yes, it will make it go up. All we’re waiting to see now is how fast the government can spend the money.

Q: What is the target for ROM?

A: $150 this year, and a lot more on the bull call spread. The only shortcoming of (ROM) is you can only go out six months on the expiration. Even then, you have a good shot at making a 500% return on the farthest out of the money LEAPS, the November $130-$135 vertical bull call spread. That's because market makers just don’t want to take the risk being short technology two years out. It’s just too difficult to hedge.

Q: There have been many comments about hyperinflation around the corner. Will we be seeing hyperinflation?

A: No, the people who have been predicting hyperinflation have been predicting it for at least 20 years, and instead we got deflation, so don’t pay attention to those people. My view is that technology is accelerating so fast, thanks to the pandemic, that we will see either zero inflation or we will see deflation. That has been the pattern for the last 40 years and I like betting on 40-year trends.

Q: When we get called away on our short options, is it easier to close the trade than to exercise your option?

A: No, any action you take in the market costs money, costs commissions, costs dealing spreads. And it's much easier just to exercise the option if you have to cover your short, which is either free or will cost you $15.

Q: Are you worried about overspending?

A: No, the proof in that is we have a 1.53% ten-year US Treasury yield, and $20 trillion in QE and government spending is already known, it’s already baked in the price. So don’t listen to me, listen to Mr. Market; and it says we haven't come close to reaching the limit yet on borrowing. Look at the markets, they're the ones who have the knowledge.

Q: My Walt Disney (DIS) LEAPs are getting killed. I don't understand why my LEAPS go down even on green days for the stock.

A: The answer is that the Volatility Index (VIX) has been going down as well. Remember, if you’re long volatility through LEAPS, and volatility goes down, you take a hit. That said, we’re getting close to the lows of the year for volatility here, so any further stock gains and your LEAPS should really take off. And remember when you buy LEAPS, you’re doing multiple bets; one is that volatility stays high and goes higher, and one is that your stock is high and goes higher. If both those things don’t happen, and you can lose money.

Q: How do you best short the (TLT)?

A: If you can do the futures market, Treasury bonds are always your best short there because you have 10 to 1 leverage.

Q: How would you do a spread on Crisper Technology (CRSP)?

A: We have a recommendation in the Mad Hedge Biotech & Healthcare service to be long the two-year LEAP on Crisper, the $160-$170 vertical bull call spread.

Q: When do you see the largest dip this year?

A: Probably over the summer, but it likely won’t be over 10%. Too much cash in the market, too much government spending, too much QE. People will be in “buy the dips” mode for years.

Q: Is the SPAC mania running out of steam?

A: Yes, you can only get so many SPACS promising to buy the same theme at a discount. I think eventually, 80% of these SPACS go out of business or return the money to investors uninvested because they are promising to buy things at great bargains in one of the most expensive markets in history, which can’t be done.

Q: What do you think about Joe Biden’s attempt to tame the semiconductor chip shortage?

A: Most people don't know that all chips for military weapons systems are already made in the US by chip factories owned by the military. And the pandemic showed that a just-in-time model is high risk because all of a sudden when the planes stop flying, you couldn't get chips from China anymore. Instead, they had to come by ship which takes six weeks, or never. So a lot of companies are moving production back to the US anyway because it is a good risk control measure. And of course, doing that in the midst of the worst semiconductor shortage in history shows the importance of this. Even Tesla has had to delay their semi truck because of chip shortages. Keep buying NVIDIA (NVDA), Micron Technology (MU), Advanced Micro Devices (AMD), and Applied Materials (AMAT) on dips.

Q: Do you see a sell the news type of event for upcoming earnings?

A: Yes, but not by much. We got that in the first quarter, and stocks sold off a little bit after they announced great earnings, and then raced back up to new highs. You could get a repeat of that, as people are just sitting on monster profits these days and you can’t blame them for wanting to pull out a little bit of money to spend on their summer vacation.

Q: Has the stock market gotten complacent about COVID risk?

A: No, I would say COVID is actually disappearing. Some 100 million Americans have been vaccinated, 5 million more a day getting vaccinated, this thing does actually go away by June. So after that, you only have to worry about the anti-vaxxers infecting the rest of the population before they die.

Q: Do you see any imminent foreign policy disasters in Asia, the Middle East, or Europe that could derail the stock market?

A: I don’t, but then you never see these things coming. They always come out of the blue, they're always black swans, and for the last 40 years, they have been buying opportunities. So pray for a geopolitical disaster of some sort, take the 5-10% selloff and buy because at the end of the day, American stockholders really don't care what’s going on in the rest of the world. They do care, however, about increasing their positions in long-term bull markets. I don't worry about politics at all; I don’t say that lightly because it’s taking 50 years of my own geopolitical experience and throwing it down the toilet because nobody cares.

Q: Would you buy Coinbase?

A: Absolutely not, not even with your money. These things always come out overpriced. If you do want to get in, wait for the 50% selloff first.

Q: Is Canada a play on the dollar?

A: Absolutely yes. If they get a weaker dollar, it increases Canadian pricing power and is good for their economy. Canada is also a great commodities play.

Q: The IRS is using Palantir (PLTR) software to find US citizens avoiding taxes with Bitcoin.

A: Yes, absolutely they are. Anybody who thinks this is tax-free money is delusional. And this is one reason to buy Palantir; they’re involved in all sorts of these government black ops type things and we have a very strong buy recommendation on Palantir and their 2-year LEAPS.

Q: Are NFTs, or Non-Fundable Tokens, another Ponzi scheme?

A: Absolutely, if you want to pay millions of dollars for Paris Hilton’s music collection, go ahead; I'd rather buy more Tesla.

Q: When do you think you can go to Guadalcanal again?

A: Well, I’m kind of thinking next winter. Guadalcanal is one of the only places you can go and get more diseases than you can here in the US. Last year, I went there and picked up a bunch of dog tags from marines who died in the 1942 battle there, sent them back to Washington DC, and had them traced and returned to the families. And I happen to know where there are literally hundreds of more dog tags I can do this with. It’s not an easy place to visit and it’s very far away though. Watch out for malaria. My dad got it there.

Q: Walt Disney is already above the pre-pandemic price. Do you suggest any other hotel company name at this time?

A: Go with the Las Vegas casinos, Wynn (WYNN) and MGM (MGM) would be really good ones. Las Vegas is absolutely exploding right now, and we haven't seen that yet in the earnings yet, so buy Las Vegas for sure.

Q: Is the upcoming Roaring Twenties priced into the stock market already?

A: Absolutely not. You didn't want to sell the last Roaring Twenties in 1921 as it still had another eight years to go. You could easily have eight years on this bull market as well. We have historic amounts of money set up to spend, but none of it has been actually spent yet. That didn’t exist in 1921. I think that when they do start hitting the economy with that money, that we get multiple legs up in stock prices.

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

April 12, 2021

Diary, Newsletter, Summary

Global Market Comments
April 12, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, THE MELT UP IS ON!),
(SPX), (TLT), (DIS), (GM), (TM), (ZM),
(SQ), (PYPL), (JPM), (MSFT), (V)

The Market Outlook for the Week Ahead, or The Melt Up is On!

Diary, Newsletter

I have a new roommate.

Her name is Goldilocks. The neighbors have been sneaking peeks at her through the curtains at night and raising their eyebrows because she is slightly older than my kids, or about 50 years younger than me.

I have no complaints. Suddenly, the world looks a brighter place, I’m getting up earlier in the morning, and there is a definite spring in my step. My doctor asks me what I’ve been taking lately.

It helps a lot too that the value of my stock portfolio is going up every day.

I don’t know how long Goldilocks will stay. The longer the better as far as I am concerned. After all, I’m a widower twice over, so anyone and anything is fair game. But two or three months is reasonable and possibly until the end of 2021.

That’s the way it is with these May-December relationships, or so my billionaire friends tell me, who all sport trophy wives 30 years younger.

At my age, there are no long-term consequences to anything because there is no long-term. I don’t even buy green bananas.

I have been expecting exactly this month’s melt-up for months and have been positioning both you and me to take maximum advantage. I am making all my pension fund and 401k contributions early this year to get the money into the stock market as fast as possible.

So far so good.

More money piled into stocks over the past five months than over the previous 12 years. And this pace is set to continue. Those who sold a year ago are buying back. $2 trillion in savings enforced by the pandemic are also going into stocks. And after all, there is nothing else to buy.

If all this sounds great, it’s about to get a lot better. Europe and Asia are still missing in action, thanks to a slower vaccine rollout. When they rejoin the global economy in the fall, it will further throw gasoline on the fire. Exports will boom.

The money supply is growing at an astonishing 26% annual rate, thanks to QE forever and massive government spending. That’s the fastest rate on record. In ten years, a PhD will write a paper on how much of this ended up in the stock market. Today, I can tell you it is quite a lot.

In the meantime, make hay while the sun shines. What am I supposed to talk to about with Goldilocks at night anyway?

Do you suppose she trades stocks?

50 Years of Money Supply Growth is Going Vertical

A face-ripping rally is on for April, or so says Strategas founder Lee. A Volatility Index with a $17 handle is sending a very strong signal that you should be loading up on energy, industrials, consumer discretionary, and travel-related stocks. Avoid “stay at home” stocks like Covid-19, which are extremely overcrowded. I’m using dips to go 100% long.

It’s all about infrastructure, 24/7 for the next three months, or until the $2.3 trillion spending package is passed. It might have to take a haircut first. Biden has set a July 4 target to close thousands of deals and horse-trading. With the S&P 500 breaking out above $4,000 and the financial markets drowning in cash, the plan could be worth another 10% of market upside. Would your district like a new bridge? Maybe a freeway upgrade? The possibilities boggle the mind.

US Manufacturing hits a 37-year high in March, driven by massive new orders front-running the global economic recovery. The Institute for Supply Management publishes a closely followed index that leaped from 60.8 to 64.7. Buy before the $10 trillion hits the market.

US Services Industry hits record high, with the Institute of Supply Management Index soaring from 55.3 to 63.7 in March. The ending of Covid-19 restrictions was the major factor. Roaring Twenties here we come!

US Job Openings are red-hot, coming in at 7.4 million compared to an expected 7 million, according to the JOLTS report. It’s the best report in 15 months. It's a confirmation of the ballistic March Nonfarm Payroll report out on Friday.

US Auto Sales surge in Q1, shaking off the 2020 Great Recession. It’s a solid data point for the recovery, despite a global chip shortage. General Motors (GM) was up 4%, thanks to recovering Escalade sales, and strong demand is expected for the rest of 2021. Toyota (TM) was up 22% and Fiat Chrysler 5%. “Pent-up demand” is a term you’re going to hear a lot this year.

The Economic boom will run through 2023, says JP Morgan chairman Jamie Diamond, one of the best managers in the country. In his letter to shareholders, he says 10% of his workforce will work permanently from home. Zoom (ZM) is here to stay. Fintech is a serious threat to legacy banks, which is why we love Square (SQ) and PayPal (PYPL). Keep buying (JPM) on dips. Interest rates will rise for years, but not fast enough to kill the bull market.

IMF predicts 6.0% Global Growth for 2021, the highest in 40 years. China will grow at 8.4%. It’s a big improvement since their January prediction. The $1.9 trillion US Rescue is stimulating not just America’s economy, but that of the entire world. Expect a downgrade to the 3% handle in 2022, which is still the best in a decade.

Fed Minutes say Ultra Dove Policy to Continue, so say the minutes from the March meeting. Rates won’t be raised on forecasts, predictions, or crystal balls, but hard historic data. That’s another way of saying no rate hikes until you see the whites of inflation’s eyes. $120 billion of monthly bond buys will continue indefinitely. Bonds dropped $1.25 on the news. Sell all (TLT) rallies in serious size. It’s still THE trade of 2021.

Disneyland in LA to open April 30 after a one-year hiatus. It’s time to dust off those mouse ears. The last time the Mouse House was closed this long, antiwar protesters took to Tom Sawyer’s Island and raised the Vietcong flag (I was there). Some 10,000 cast members have been recalled. Only 15% capacity will be allowed to California residents only. The new Avengers Campus will open on June 4. The company is about to make back the 25% of revenues it lost last year, but with a much lower cost base. Buy (DIS) on dips.

Was that inflation? The Producer Price Index jumped by 1.0% in March compared to an expected 0.40%. It’s the second hot month in a row. Basically, the price of everything went up. The YOY rate is an astonishing 4.04% a near-decade high. If it looks like a duck and quacks like a duck….Stocks didn’t like it….for about 15 minutes.

When we come out the other side of pandemic, 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 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

My Mad Hedge Global Trading Dispatch profit reached 5.80% gain during the first nine days of April on the heels of a spectacular 20.60% profit in March.

It was a very busy week for trade alerts, with five new positions. Sensing an uncontrolled market melt-up for the entire month piled on aggressive long in Visa (V), JP Morgan (JPM), and Microsoft (MSFT). I also poured on a large short position in bonds (TLT) with a distant May expiration.

My now large Tesla (TSLA) long expires in 4 trading days. Half of my even larger short in the bond market (TLT) also expires then.

That leaves me 100% invested for the sixth time since last summer. Make hay while the sun shines.

My 2021 year-to-date performance soared to 49.89%. The Dow Average is up 11.60% so far in 2021.

That brings my 11-year total return to 472.44%, some 2.00 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 41.68%, the highest in the industry.

My trailing one-year return exploded to positively eye-popping 128.94%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives. Every time I think these numbers can’t be topped, that increases by another 10% during the following two weeks.

We need to keep an eye on the number of US Coronavirus cases at 30.6 million and deaths topping 563,000, which you can find here.

The coming week will be dull on the data front.

On Monday, April 12, at 11:00 AM, the US Consumer Inflation Expectations for March is released.

On Tuesday, April 13, at 8:30 AM, US Core Inflation for March is published.

On Wednesday, April 14 at 2:00 PM, the Federal Reserve Beige Book is out.

On Thursday, April 15 at 8:30 AM, the Weekly Jobless Claims are printed. We also learn US Retail Sales for March.

On Friday, April 16 at 8:30 AM, we get the Housing Starts for March. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, the whole Archegos blow-up reminds me that there are always a lot of con men out there willing to take your money. As PT Barnum once said, “There is a sucker born every minute.”

I’ll tell you about the closest call I have ever had with one of these guys.

In the early 2000s, I was heavily involved in developing a new, untried, untested, and even dubious natural gas extraction method called “fracking.” Only a tiny handful of wildcatters were even trying it.

Fracking involved sending dynamite down old, depleted wells, fracturing the rock 3,000 feet down, and then capturing the newly freed up natural gas. If successful, it meant that every depleted well in the country could be reopened to produce the same, or more gas than it ever had before. America’s gas reserves would have doubled overnight.

A Swiss banker friend introduced me to “Arnold” of Amarillo, Texas who claimed fracking success and was looking for new investors to expand his operations. I flew out to the Lone Star state to inspect his wells, which were flaring copious amount of natural gas.

Told him I would invest when the prospectus was available. But just to be sure, I hired a private detective, a retired FBI man, to check him out. After all, Texas is notorious for fleecing wannabe energy investors, especially those from California.

After six weeks, I heard nothing, so late on a Friday afternoon, I ordered $3 million sent to Arnold’s Amarillo bank from my offshore fund in Bermuda. Then I went out for a hike. Later that day, I checked my voice mail and there was an urgent message from my FBI friend:

“Don’t send the money!”

It turns out that Arnold had been convicted of check fraud back in the sixties and had been involved in a long series of scams ever since. But I had already sent the money!

I knew my fund administrator belonged to a certain golf club in Bermuda. So, I got up at 3:00 AM, called the club Starting Desk and managed to get him on the line. He said I had missed the 3:00 PM Fed wire deadline on Friday and the money would go out first thing Monday morning. I told him to be at the bank at 9:00 AM when the doors opened and stop the wire at all costs.

He succeeded, and that cost me a bottle of Dom Perignon Champaign, which fortunately in Bermuda is tax-free.

It turned out that Arnold’s operating well was actually a second-hand drilling rig he rented with a propane tank buried underneath that was flaring the gas. He refilled the tank every night to keep sucking in victims. My Swiss banker friend went bust because he put all his clients into the same project.

I ended up making a fortune in fracking anyway with much more reliable partners. No one had heard of it, so I bought old wells for pennies on the dollar and returned them to full production. Then gas prices soared from $2/MM BTU to $17. America’s gas reserves didn’t double, they went up ten times.

I sold my fracking business in 2007 for a huge profit to start the Diary of a Mad Hedge Fund Trader.

It is all a reminder that if it is too good to be true, it usually is.

Stay healthy.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

April 9, 2021

Diary, Newsletter, Summary

Global Market Comments
April 9, 2021
Fiat Lux

Featured Trade:

(HOW TO HANDLE THE FRIDAY, APRIL 16 OPTIONS EXPIRATION),
(TLT), (TSLA), (TSM)

How to Handle the Friday April 16 Options Expiration

Diary, Newsletter

Followers of the Mad Hedge Fund Trader Alert Services have the good fortune to own no less than SIX deep-in-the-money options positions, all of which are profitable. These expire in five trading days on Friday, April 16, and I just want to explain to the newbies how to best maximize their profits.

I will start sending out trade alerts with the closing P&Ls over two days starting on Thursday, April 15 so I don’t overwhelm your inbox with an overabundance of profits.

It was time to be aggressive. I was aggressive beyond the pale.

These involve the:

Global Trading Dispatch

2X (TSLA) 4/$450-$500 call spread 20%

2X (TLT) 4/$142-$145 put spread 20%

(TLT) 4/$127-$130 call spread. - 10%

Mad Hedge Technology Letter

(TSM) 4/ $111-$116 call spread 10%

Provided that we don’t have a huge selloff in the markets or monster rallies in bonds, all six of these positions will expire at their maximum profit point.

So far, so good.

I’ll do the math for you on the United States Treasury Bond Fund (TLT) April 16 $142-$145 vertical bear put spread, which I initiated on March 23, 2021 and will definitely run into expiration. (TLT) shares are currently trading at $137.73, some $4.27 lower than the $142.00 strike price.

Provided that the (TLT) doesn’t trade above $142.00 in five days, we will capture the maximum potential profit in the trade. That’s why I love limited risk put spreads. They pay you even when you are wrong on the direction of the stock. All of the money we made was due to time decay and the decline in volatility in (TLT) shares.

Your profit can be calculated as follows:

Profit: $3.00 expiration value - $2.60 cost = $0.40 net profit

(4 contracts X 100 contracts per option X $0.40 profit per options)

= $1,600 or 16% in 19 trading days.

Many of you have already emailed me asking what to do with these winning positions.

The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.

You don’t have to do anything.

Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning April 19 and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.

Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.

If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.

Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen when a security has only hours, or minutes until expiration on Friday, April 16. So, if you plan to exit, do so well before the final expiration at the Friday market close.

This is known in the trade as the “expiration risk.”

If for some reason your short position in your spread gets “called away,” don’t worry. Just call your broker and instruct them to exercise your long option position to cover your short option position. That gets you out of your position a few days early at your maximum profit point.

If your broker tells you to sell your remaining long and cover your short separately in the market, don’t. That makes money for your broker, but not you. Do what I say, and then fire your broker and close your account because they are giving you terrible advice. I’ve seen this happen many times among my followers.

One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.

I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.

I’m looking to cherry-pick my new positions going into the next month end.

Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.

Well done, and on to the next trade.

Ready to Put Out Any Fire

April 1, 2021

Diary, Newsletter, Summary

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)

March 31 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

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