Global Market Comments
June 6, 2022
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR JUNE 14-16)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or PUTIN’S DEAD END),
(VIX), (HYG), (JNK), (PTON), (W), (MSTR), (RDFN), (BYND), (F), (TSLA), (NVDA)
The current consensus for market strategists is that volatility will remain high.
Please pinch me because I think I died and went to heaven. For every time the Volatility Index (VIX) tops $30, I make another 10%-15% for my followers.
The bulk of market players are now obsessing whether we are entering a recession or not, as if their investment faith depended on it.
Recession, resmession.
As long as I can keep making a 65.40% trailing one-year return, while the Dow Average is off -4.2% during the same time period, I could care less what the economy is actually going to do.
After an impressive 380-point, 10% rally in the S&P 500, it now looks like the stock market is failing once again. Best case, we revisit this year’s low at 3,800. Worst case, we break to new lows at 3,600. The very worst case, we break below 3,500 and wish you had never heard of the stock market.
If you are a trader, there is a fantastic opportunity here to buy low, sell high, and retire early. If you are disciplined, you still have a ton of cash left over from the end of 2021 (I was 100% cash) and will be cherry-picking on the big down days.
It's really very simple. The longer you have been doing this, the easier it gets and the more money you will make. After 52 years of practice, I can do this in my sleep.
As the bear market worsens, we are seeing old asset classes return from the dead like the revived dinosaurs of Jurassic Park. Call convertible bonds are the velociraptors of the bunch.
Take the main junk bond ETF like the iShares iBoxx High Yield Corporate Bond Fund (HYG) and the SPDR Barclays High Yield Bond Fund (JNK), which have seen yields double from 3% to over 6% in only six months.
If you are willing to take on more risk, individual busted convertible bonds yield infinitely more. You know all the names. Peloton (PTON) converts are paying a 10.4% yield to maturity, Wayfair (W) 11.0%, MicroStrategy (MSTR) 13.1%, Redfin (RDFN) 14.5%, and Beyond Meat (BYND) 19.5%. Buy ten of these and even if one goes under, you still earn a decent double-digit return.
Having run a convertible bond trading desk for ten years, I can tell you that the risk/reward balance for many individuals with this investment class is just right.
As my summer military duty approaches, information about the Ukraine War is pouring into me. I will share with you what I can, what has been declassified for the war is still a major factor in your investment outcomes. I have been able to use my “top secret” status for 50 years,= to your benefit.
The amazing thing is that in this modern age, information goes from “top secret” to declassified in only a day. It is a new strategy used by the current administration that is working incredibly well. Information is more valuable shared than locked up.
I have been getting a lot of questions from readers as to why Vladimir Putin committed such a disastrous error by invading Ukraine as he is considered a smart guy. My initial response was that he surrounded himself with “yes” men who only told him what he wanted to hear, leading to terrible outcomes, which I have seen happen many times.
The costs of the war for Putin have so far been enormous; 50,000 casualties, 1,000 tanks, 1,300 armored vehicles, banishment from the western economy, the loss of $1 trillion in foreign held assets, and the decline of the national GDP from $1.5 trillion to $1 trillion.
The costs are about to substantially rise. The US is now sending over its most advanced artillery systems, the MRLS, or Multiple Rocket Launch System, which can hit any target within 300 miles with an accuracy of one meter. All you have to do is dial in the latitude and longitude of the target and it never misses. This one weapon will certainly bring the war to a stalemate and consign it to page three of the newspapers.
But after doing a ton more research, my view has evolved. Putin has in fact launched a Resource War against the entire rest of the world. The result has been to boost the price of practically everything Russia produces, including oil ($123 billion), refined petroleum products ($63 billion), iron & steel ($28 billion), coal ($17 billion), fertilizer ($13 billion), wood ($12 billion), wheat ($9 billion), aluminium ($8 billion), platinum, palladium, uranium.
There is also the inflation angle. While the US benefits from many of these high prices as well, they have raised the US inflation rate from 5% to 8.3%. That damages the election prospects of Biden and the Democrats. High inflation improves the election of prospects of a former president who Putin seems to vastly prefer for whatever reason.
After covering Russia for 50 years, flying their front-line fighters, springing a wife out of jail in Moscow, I can tell you that everything there is a chess game, and they play a very long game.
Nonfarm Payroll Report comes in at 390,000, better than expected. Leisure & Hospitality led the gains with 84,000, and Professional & Business Services by 75,000. Manufacturing fell to only 18,000, largely because of a shortage of workers. The Headline Unemployment Rate remained the same at 3.6%. Average hourly earnings rose by an inflationary 5.2% YOY. The U6 “discouraged worker” rate rose back to 7.1%.
Weekly Jobless Claims jump 19,000 to 200,000, a two-month high, according to the Department of Labor. Compensation for American workers has hit a 30-year high. New York showed the largest increase followed by Illinois.
OPEC+ raises oil output to meet surging energy demand caused by the Ukraine War. Up 648,000 barrels a month for July and August. They could easily do a lot more. The cartel is aiming for the pre-pandemic 10 million barrels a day. No dent in prices at the pump yet.
Hedge Funds were slaughtered in May, with the flagship Tiger Global Fund down a massive 14%. Gee, Mad Hedge Fund Trader was UP 11% in May and am up 44% on the year. Maybe there’s something in the water here at Lake Tahoe. Or, maybe it’s the “Mad” that is giving me my edge?
S&P Case Shiller National Home Price Index tops 20.6%, a new all-time high. Tampa (34.8%), Miami (32.4%), and Phoenix (32.0%) lead the gains. Incredible as it may seem, price rises are accelerating. But expect that to cool off once current prices start feeding into the index.
Home Listings soar, with homes for sale up 9% YOY as homeowners fear missing getting out at the top. New listings have doubled in a year, according to Redfin. Outrageous over-market bids have definitely ended in California. So far, no hint of price drops….yet.
A Ford (F) Electric Pickup can power your house for ten days, but only if you live in a tiny house. Ford is the first company to introduce bidirectional charging that lets your home run off the vehicle’s 1,300-pound lithium-ion battery. All you need is a $3,895 hardware upgrade from Sunrun. The range is 320 miles, not as much as the latest Tesla Model X (TSLA). Good luck getting one. Ford isn’t taking any new orders until it fills the 200,000 it already has. Expect Tesla to copy the move.
The Fed may overshoot on raising interest rates if Fed governor Christopher Waller has his way. That’s because going too tight may be necessary to break the back of inflation. That’s what happened in 1980, when Fed Funds hit 17%, and ten-year bond yields hit 15.84%. My first home mortgage interest rate for a coop in Manhattan back then was 17%.
China Covid Cases fade, prompting a big Bitcoin rally. This could be the impetus for a sudden global economic recovery that will deliver a big US stock market rally. Good thing I loaded the boat with tech stocks two weeks ago.
The Fed Minutes were not so horrible, downplaying the risk of a full 1% rate rise, triggering a 1,000-point rally in the Dow. With five up days in a row this is starting to look like THE bottom. Is this the light at the end of the tunnel?
NVIDIA (NVDA) rips, surprising to the upside on almost every front, sending the stock up $30, or 18.75%. Mad Hedge followers bought (NVDA) last week. This is one of the best run companies in the world. I expect the shares to rise from the current $178.51 to $1,000 in five years. Buy (NVDA) on dips.
Q1 GDP dives 1.5%, in its final read. It’s the worst quarter since the pandemic began during Q2 2022. Weekly Jobless Claims dropped 8,000 to 210,000.
My Ten-Year View
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 historically cheap, oil peaking out soon, and technology hyperaccelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 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 240,000 here we come!
With some of the greatest market volatility seen since 1987, my June month-to-date performance recovered to +2.49%.
My 2022 year-to-date performance exploded to 44.36%, a new all-time high. The Dow Average is down -9.37% 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 65.40%.
That brings my 14-year total return to 556.92%, some 2.37 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 43.97%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 84.7 million, up 300,000 in a week and deaths topping 1,000,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, June 6 is the 78th anniversary of the D-Day invasion of Normandy. All of the veterans I knew have long since passed. I’ll miss the memorial this year.
On Tuesday, June 7 at 8:30 AM, the US Balance of Trade for April is released.
On Wednesday, June 8 at 10:30 AM, US Crude Inventories are published.
On Thursday, June 9 at 8:30 AM, Weekly Jobless Claims are out.
On Friday, June 10 at 8:30 AM, the blockbuster US Core Inflation Rate is announced. More importantly, the new dinosaur movie, Jurassic World: Dominion, is released. At 2:00 the Baker Hughes Oil Rig Count are out.
As for me, this is not my first Russian invasion.
Early in the morning of August 20, 1968, I was dead asleep at my budget hotel off of Prague’s Wenceslas Square when I was suddenly awoken by a burst of machine gun fire. I looked out the window and found the square filled with T-54 Russian tanks, trucks, and troops.
The Soviet Union was not happy with the liberal, pro-western leaning of the Alexander Dubcek government so they invaded Czechoslovakia with 500,000 troops and overthrew the government.
I ran downstairs and joined a protest demonstration that was rapidly forming in front of Radio Prague trying to prevent the Russians from seizing the national broadcast radio station. At one point, I was interviewed by a reporter from the BBC carrying this hulking great tape recorder over his shoulder, as I was the only one who spoke English.
It seemed wise to hightail it out of the country, post haste, as it was just a matter of time before I would be arrested. The US ambassador to Czechoslovakia, Shirley Temple Black (yes, THE Shirley Temple), organized a train to get all of the Americans out of the country.
I heard about it too late and missed the train.
All borders with the west were closed and domestic trains shut down, so the only way to get out of the country was to hitch hike to Hungary where the border was still open.
This proved amazingly easy as I placed a small American flag on my backpack. I was in Bratislava just across the Danube from Austria in no time. I figured worst case, I could always swim it, as I had earned both, the Boy Scout Swimming, and Lifesaving merit badges.
Then I was picked up by a guy driving a 1949 Plymouth who loved Americans because he had a brother living in New York City. He insisted on taking me out to dinner. As we dined, he introduced me to an old Czech custom, drinking an entire bottle of vodka before an important event, like crossing an international border.
Being 16 years old, I was not used to this amount of high-octane 40 proof rocket fuel and I was shortly drunk out of my mind. After that, my memory is somewhat hazy.
My driver, also wildly drunk, raced up to the border and screeched to a halt. I staggered through Czech passport control which duly stamped my passport. I then lurched another 50 yards to Hungary, which amazingly let me in. Apparently, there is no restriction on entering the country drunk out of your mind. Such is Eastern Europe.
I walked another 100 yards into Hungary and started to feel woozy. So, I stumbled into a wheat field and passed out.
Sometime in the middle of the night, I felt someone kicking me. Two Hungarian border guards had discovered me. They demanded my documents. I said I had no idea what they were talking about. Finally, after their third demand, they loaded their machine guns, pointed them at my forehead, and demanded my documents for the third time.
I said, “Oh, you want my documents!”
I produced my passport, When they got to the page that showed my age they both started laughing.
They picked me and my backpack up and dragged me back to the road. While crossing some railroad tracks, they dropped me, and my knee hit a rail. But since I was numb, I didn’t feel a thing.
When we got to the road, I saw an endless stream of Russian army trucks pouring into Czechoslovakia. They flagged down one of them. I was grabbed by two Russian soldiers and hauled into the truck with my pack thrown on top of me. The truck made a U-turn and drove back into Hungary.
I contemplated my surroundings. There were 16 Russian Army soldiers in full battle dress holding AK-47s between their legs and two German Shepherds all looking at me quizzically. Then I suddenly felt the urge to throw up. As I assessed that this was a life and death situation, I made every effort to restrain myself.
We drove five miles into the country and then stopped at a small church. They carried me out of the truck and dumped me and my pack behind the building. Then they drove off.
The next morning, I woke up with the worst headache of my life. My knee bled throughout the night and hurt like hell. I still have the scar. Even so, in my enfeebled condition, I realized that I had just had one close call.
I hitch-hiked on to Budapest, then to Romania, where I heard that the beaches were filled with beautiful women. My Italian let me get by passably in the local language.
It all turned out to be true.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
One More Off to College
If You Don’t Like the Price, Don’t Use it
Mad Hedge Technology Letter
June 3, 2022
Fiat Lux
Featured Trade:
TECH RECESSION IS COMING)
(GOOGL), (MSFT), (AAPL), (TSLA)
The Nasdaq index isn’t pricing in a recession, but it absolutely should, as economic data streaming in shows cracks beneath the surface.
The Federal government finally went on record to admit the historically epic blunder they committed by categorizing inflation as “transitory,” with Treasury Secretary Janet Yellen acknowledging that she was “wrong.”
It's about time.
The colossal mismanagement of monetary policy by the Federal Reserve has had an extraordinary whiplash on tech shares and many have gotten burnt.
What we are experiencing now is high volatility that used to never exist in the stock market as an overleveraged system flooded by cheap money is now deleveraging.
Strong tech names like Google (GOOGL) and Microsoft (MSFT) have experienced 3% up or down days on just normal trading days with growth stocks like Tesla (TSLA) up or down 10% in just a day.
Retail traders are in over their head if they go at this alone and this is why the Mad Hedge Technology Letter is guiding you to safety.
Taking profits on the spikes and valleys is what we do best.
After months of strong consumer spending and supply-chain improvements, some of the country’s most outspoken corporate leaders have started to freak out.
Tech growth bellwether Tesla (TSLA) and their CEO Elon Musk just announced a 10% staff layoff, and that move could be the canary in the coal mine for the tech economy.
Musk clearly feels something isn’t right, and we could be approaching an economic cliff.
If that wasn’t the canary, then Microsoft's downgraded revenue expectations for next quarter’s earnings has to be as the strongest tech companies downgrade forecasts.
The probability of a recession has lurched higher, to around 50%, and this is all while the government preaches about how great the American consumer is doing.
Like many things about the US Federal government, don’t take what they say at face value because usually, the inverse is true.
The sense of doom has been especially evident in the banking sector, where Dimon told investors this week that they should be preparing for an economic “hurricane.”
State side is getting a little crusty, so then the international picture is a little rosier, right?
Wrong.
Apple is shifting its iPad production to Vietnam from China after China’s dystopian zero covid policy has effectively shut down the supply chain there.
The iPhone maker already produces some of its AirPods in Vietnam. The shift to move some iPad production to Vietnam may help it boost iPad revenue.
Ironically enough, as bad as the United States is doing now, the situation abroad is a lot worse.
Europe has completely capitulated to the military conflict and the German Producer Pricing Index has accelerated to 30%.
To make matters even worse, the European Central Bank still is maintaining a 0% net interest rate policy meaning there are Central Bank’s out there doing a lot worse job than the United States Federal Reserve.
Quite hard to believe this level of policy failure.
In short, this inflation problem hasn’t been solved at all and although it could come down a tick year-over-year, it still does nothing material to change the picture.
Even worse, a tech CEO has to be a complete fool to invest in growing capacity right now unless they have $10 billion of extra cash laying around which few companies have unless you’re Facebook, Google, Apple, Microsoft, or Tesla.
At the smaller and ground level, small tech and their balance sheets have been getting slaughtered and so has the American consumer.
Just because the American consumer goes from eating premium beef to chicken, doesn’t mean the consumer is strong.
Sooner or later, they will run out of things to substitute down from.
Same goes for smartphones, software programs, semiconductor chips, and cloud enterprise contracts.
We are in a substitute down phase and that doesn’t shout economic bullishness to me.
Maybe the American consumer can substitute driving a gas-powered car for riding a leg-powered bicycle, I wouldn’t put it past the current government to recommend this to the country.
In Europe, people have already been fed with the drive slower and dress warmer B.S. to cover up government mistakes.
Next, Europeans will need to endure the “eat less” policy come this summer and fall.
Global Market Comments
June 3, 2022
Fiat Lux
Featured Trade:
(JUNE 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(AAPL), (GOOGL), (MSFT), (JPM), (BAC), (C), (UUP), (FXA), (FXC), (EEM),
(VIX), (CRM), (AAPL), (TSLA), (COIN), (EDIT), (CRSP), (LMT), (RTX), (GD)
Below please find subscribers’ Q&A for the June 1 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: What are the 3 best stocks to own for the end of the year?
A: Apple (AAPL), Alphabet Inc. (GOOGL), and Microsoft (MSFT). Those you want to buy on meltdown days, kind of like today. Make sure you scale into these—so maybe buy 20% on every down-500-point Dow day. Eventually, you’ll end up with a pretty decent position at a market low in a stock that will double in 3-5 years.
Q: Why these three stocks?
A: Lots of reasons: They’re huge, they’re safe, two out of three pay dividends, Alphabet is about to split, and they have huge moats so nobody can get into their sectors. They have near monopolies in what they do, and they have immense cash on the balance sheet. These are the kind of stocks that portfolio managers dream about. And watch what rallied the hardest in the last dead cat bounce we had—it was these three names. That tells you that they will lead any long-term bull market in the future. These are the stocks that people want to own.
Q: What will bring your predicted second half-bull market in the stock market?
A: Inflation drops from 8% to 4%. That will happen for a couple of reasons. The year-on-year comparisons become highly favorable starting from next month when inflation started to take off a year ago. Inflation numbers are going to be climbing the wall of worry from here on out. That could get us down to 4% by the end of the year. The second reason is the Ukraine War either ends or becomes a stalemate and is no longer a factor in the global markets, and we’ve had time to replace all the Russian oil and Ukrainian wheat.
Q: Are banks positioned to benefit from the coming rally?
A: Absolutely. I think big tech and banks will be the top-performing stock sectors for the next five years because inflation will go away, recession fears will go expire, and credit quality will improve, but interest rates will remain 300 basis points higher than they were during the pandemic. Buy (JPM), (BAC), and (C) on dips.
Q: What will be the worst performing sector?
A: Energy—anything energy-related will get absolutely slaughtered, which is why I don't want to touch it with a ten-foot pole right now. That includes oil companies, exploration companies, E&P companies, and master limited partnerships, as well as coal and other natural gas stocks. So, if you’re long these names don’t forget to sit down when the music stops playing. You could get your head handed to you at the end.
Q: Can we make lower lows?
A: Yes, that’s entirely possible. Market moves are basically random when you get down to these levels— down more than 20%. And on all future downturns, I would be spending your cash going back into the market expecting a second half rally.
Q: What about green energy?
A: Unfortunately, green energy is very tied to old energy because $120 oil makes green companies much more competitive from a cost point of view. So, I’m not going to go piling into green companies right here, especially if I think oil is topping out in the near future. Buying green energy companies here is the same as buying oil at $120 a barrel.
Q: What is the best way to play the declining US dollar?
A: Buy the iShares MSCI Emerging Markets ETF (EEM). Also, the Aussie dollar (FXA) and the Canadian Dollar (FXC), which benefit tremendously from commodity prices, which will rise for another decade in a global economic recovery.
Q: Why will energy be the worst sector?
A: If you end the war in the Ukraine or you replace Russian oil, either by finding new sources of oil, getting other producers to increase production which they can do (including the US), or by accelerating the move to alternatives, then you move oil back to pre-invasion prices which were about $70 a barrel or $50 lower than they are here.
Q: Best way to hedge a falling market?
A: Do what I'm doing: keep a balanced portfolio of longs and shorts, that way you always have something that’s going up. And if you do it through the options, you have time decay working for you on both sides of the equation. If you want to go outright, buy outright puts on individual stocks because they had double the moves of the indexes. And go to my short selling school which you can find by going to my website at https://www.madhedgefundtrader.com. There’s actually 12 different ways to benefit from falling markets.
Q: How deep in the money can we go on our call spreads?
A: Wait for the Volatility Index (VIX) to go over $30, and then go 15-20% in the money. And yes, you only make 10, 15, or 20% on those positions in a month but then you put together ten of them and that adds up to quite a lot of money. You want to find the position that has the greatest probability of happening—i.e. something that’s 20% in the money. Do that when the market has just dropped 20%, which it already has, and then you have a position that has a minuscule chance of losing money.
Q: How much longer do you see this current bear market bounce lasting?
A: Until yesterday.
Q: What's your favorite commodity ETF?
A: My favorite commodity stock is Freeport McMoRan (FCX), the world’s largest copper producer. Rather than pay the extra management fees for an ETF, I prefer just to go straight to the source and buy (FCX).
Q: When do you think the Fed will pivot to dovish or neutral?
A: This summer. It’s just a question of whether it’s the July or the September meeting.
Q: When you say “buy on dips”, what does that mean? 1%, 3%, 5%?
A: Well in this market, a dip would be a retest of the previous lows which is going to be down 10% or 15% on the major positions in your portfolio. If you’re day trading, a dip is only 1%, so it really depends on your timeframe and your risk tolerance. That’s why I always tell people to scale by doing everything in incremental pieces—20%, 25%, and so on. You never know what the market’s actually going to do on a short-term basis. Randomness can’t be predicted.
Q: If you plan to enter a LEAPS on Apple, what strikes would you do?
A: Well, first of all, I want to see if Apple drops all the way to $125, which is a lot of people’s downside target. If it did, then I would do the $125/$135 call spread two years out, and that will probably double. And if it starts a long term up trend, then I’ll keep rolling up the strike prices. If, say, Apple goes to $125, you put your LEAPS on. If the stock rises to 150, then take profits on the $125/$135 and roll into the $150/$160. That’s how you can get like 1,000% returns like we got on Tesla (TESLA) a few years ago. You just keep rolling up your strike prices on every weak day and maintain your leverage.
Q: When do we bet the farms on Editas Medicine Inc. (EDIT) and Crispr (CRSP) Therapeutics?
A: Never. These are small, highly speculative companies which will make money someday, but if the someday is in five years and you’re betting the farm with a LEAPS, you lose the farm. It's going to take a long time for these smaller biotech stocks to come back. If you want to play biotech, go with the big ones like Amgen. It takes a long time to convert cutting-edge technology into profits. The big companies already have a stable of reliable money-making drugs on hand.
Q: Salesforce Inc. (CRM) is up big on earnings—what should I do with the stock?
A: Buy the dips. It’s still way, way below its all-time highs, so use the weekdays to accumulate Salesforce for the long term. It’s one of the best cloud plays out there.
Q: What do you think about NVIDIA Corporation (NVDA)?
A: I absolutely love it. It rallied 20% off the bottom. Use any other additional weak days like today to increase your position. This stock someday is worth $1,000, up from today’s $195.
Q: Do you like SPACS?
A: No, I hate them and think they’re a rip-off. And a lot of them have become totally illiquid and untradable, so you have no choice but for them to shut down and return their money if they have any left. I’ve hated SPACS from day one and people are now getting their comeuppance on these.
Q: What do you think about the weakness in Coinbase Global Inc. (COIN) down here?
A: It’s just going down with all the other high-risk, speculative, meme stock type plays, which include all of the crypto plays like Bitcoin. I would avoid all of those. You want to buy quality at the discount now, and you want to buy the Cadillacs at Volkswagen prices and leave the speculative plays for the next generation, Gen Z, who are already highly interested in stocks.
Q: What is your favorite non-US country to invest in?
A: Australia, because you get a double play there on the currency, which should go up 30% from here, and they will benefit from a global commodity boom which continues for another ten years. They pretty much sell a lot of the major commodities like iron ore, wheat, sheep, and so on. It’s also a really nice country to visit. The only negative with Australia are the sharks.
Q: Biotech takeover targets?
A: Well (EDIT) and (CRSP) would be two of them. Things in the sector are so cheap that they are all potential takeover targets. M&A (Mergers and Acquisitions) will be a major play in the biotech sector for the foreseeable future.
Q: Should we sell short the defense industry here?
A: No, even if the war ends tomorrow, you might get some profit-taking, but the fact is that long term military spending is increasing permanently. The peace dividend now has to be paid back, and that is great for all the defense companies, so I would not be shorting them. If anything, I’d be buying on dips. Buy Lockheed Martin (LMT), Raytheon (RTX), who make the Javelin antitank missile for which there is now a two-year order backlog. You can also throw in General Dynamics (GD) for good measure which builds nuclear submarines and the Stryker armored vehicle.
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
Keep Those Defense Plays
Global Market Comments
May 20, 2022
Fiat Lux
Featured Trade:
(MAY 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(C), (FXI), (BABA), (TSLA), (AAPL), (AMZN), (TGT), (FLR), (QQQ),
(FB), (ARKK), (TSLA), (WYNN), (UAL), (ALK), (DAL)
Below please find subscribers’ Q&A for the May 18 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: When do you see the banks returning to glory?
A: When recession fears go away, which should happen this summer. A recession will either have come and gone, or we will have confirmation by the end of summer that there is no recession in sight for the next few years at least. This will likely trigger a monster rally in the banks, which could all jump 50% from here. Obviously, Warren Buffet is putting his money where his mouth is by loading up on Citibank (C) yesterday. This would take us to new all-time highs by the end of the year. So, again, use these down-1000-point days to go cherry-picking among the generals who have been executed. If that’s not mixing metaphors, I don’t know what is!
Q: Should I listen to CNBC?
A: No, do not listen to the talking heads on TV. They are on TV because they don’t know how to make money. If they did know how to make money, they’d be locked up in a dark basement somewhere like me, grinding out millions for their firms. In fact, watching TV is the perfect money destruction machine because on down days, they bring out the uber bears, and on up days they bring up the hyper bulls. They are trying to egg you to get you to do the exact opposite of what you should be doing. They’re not interested in you making money; they’re interested in getting traffic on their websites and making money for themselves. CNBC can be highly dangerous to your financial health.
Q: Will we get stagflation?
A: No, because I think that once the year-on-year comparisons kick in—literally in a month or two—inflation will drop from the current 8.3% to down maybe 4% by the end of the year. That also is another factor in your monster second-half rally.
Q: Do you think the bounce in the market yesterday is the beginning of an upward trend or a dead cat bounce?
A: Definitely a dead cat bounce. I expect we’ll keep chopping around in the current range for the next 3, 4, and 5 months, and then we catapult into a monster year-end rally. That is a typical bottoming-type process.
Q: Is the wisdom “Go away in May” still alive or is your best bet that this year may prove different and the market goes up in the latter part of the year?
A: Actually, you should have gone away in November. That’s when all tech stocks peaked; only energy went up after that. If you’d gone away in November and said “come back in August” that would have been a good strategy because I think that’s when the year-end rally begins. If anything, May could be the bottom of the entire move.
Q: Is it time for LEAPS (Long Term Equity Anticipation Securities)?
A: Not yet—it’s too soon for LEAPS territory. You only want to do LEAPS when you are on a sustained long-term uptrend in a stock. We are nowhere near sustained anything, we are still in a bottoming phase, and could be there for months. At the end of those months is when we’ll be looking at LEAPS, where you can double your money every 6 months.
Q: Is it time to start nibbling on China stocks (FXI) now that COVID news is marginally better?
A: I’m going to avoid Chinese stocks because the American ones are so much better. You want to buy the quality at the discount, not the marginal, high-risk political footballs at a discount. And China will remain high-risk as long as they are abandoning capitalism. If you have to buy one Chinese stock, I would say Alibaba (BABA); you could get a double on that. But remember it is a high-risk trade—if the Chinese government wants to roll Jack Ma up in a carpet and kidnap him to Western Chinese re-education camp, the stock will get slaughtered. And that’s been happening increasingly with the heads of major companies in the Middle Kingdom.
Q: When this current route comes to an end, should we look to enter the market with 50% margin on stocks like Tesla (TSLA)?
A: It’s never sensible to go to 50% margin because if the stocks drop 50%, you are completely wiped out—you’ve lost everything. Plus, coming back from a loss is one thing; coming back from zero is impossible. So, I would not recommend that. You might do a safe stock like Apple (APPL), with a 2% dividend, and then at least you’re getting a double dividend. You only do the 50% margin on the safest, high dividend stocks.
Q: Amazon (AMZN) is on its way down. What is your expectation for the $3200/$3400 vertical bull call spread in January 2023?
A: I think you could make money on that. It may not be the full amount of the spread, but you’ll definitely get a big increase from current levels, because when we do get a second half rally, it will be tech-led, and Amazon has already had a horrific decline. What you might consider is rolling your strike down, taking the loss on the 3200/3400 and rolling down to like a $2,000/$2,200 in twice the size, and you’ll make your money back that way.
Q: For those of us thinking about LEAPS, how should we start to buy in—20, 30, 50% right now?
A: Well, first of all, you only do them on down days like today, when the market is down 800, and you scale in. 20% now, 20% higher or lower, and 20% again higher or lower. But you really want to be saving cash for days like this because You want to feel smarter than everybody else, and they absolutely will hit any bid on a down day, and that's where your LEAPS fills are really excellent, is on a down day like this.
Q: Can the Fed avoid another policy mistake? Because it seems that not only are they heading for high inflation, but layoffs are coming as well, and even with that I’m sure they will perform a soft landing of sorts.
A: For sure, when you take massive amounts of stimulus out of the economy, as we have in the last year, that is recessionary. In fact, the US government is close to running a balance budget right now because Biden can’t get anything through Congress other than money for Ukraine. Good for Ukraine economy, not for ours. And yes, they can do a soft landing, but has it ever been done before? No. Though this is the Fed that just keeps on surprising, so who knows. In the meantime, I'm willing to trade the ranges, and that may be all you get to do for a while.
Q: Target (TGT) shares are down 25%, as they cited higher costs that will result in rising prices for their customers. Would you buy the dip?
A: No, I generally don’t like retailers anyway. It’s a business that operates on a 2% profit margin. I like 40 or 50% profit margin businesses—those tend to be technology stocks.
Q: Would you buy retailers going into a recession?
A: No, that’s the worst thing in the world to own.
Q: Could Fluor Corp (FLR) be a Ukraine infrastructure stock?
A: Yes, once the war ends there will be a massive effort to rebuild Ukraine. Every company in the world will be involved, and Fluor and Bechtel will be the biggest, though Fluor is the only one where you can buy the stock. We already have the money to do this with all of the money that was seized from Russia. I predict discount sales on mega yachts.
Q: Why do you think all that money is going to Ukraine?
A: Because a weakened Russia is in the national interest of the United States, and it’s better that their soldiers are doing the dying than ours. I’ve done the latter and definitely prefer the former, using the other country's’soldiers as cannon fodder.
Q: On down days like today, should I be putting on one-month trades like the June options?
A: Yes, because the minimizes your risk and cuts the cost of mistakes. Waiting for the second half of the year when we get a prolonged uptrend to look at LEAPS—that is the correct way to do it.
Q: Over the next 12 months, do you think the S&P 500 will outperform Nasdaq?
A: No—for the next 3 months the S&P 500 will outperform NASDAQ. After that, NASDAQ will become an enormous outperformer for the rest of the decade. So, choose your entry points wisely.
Q: Do you think that housing is peaking out and will start to decline?
A: No, we still have a long-term structural shortage of 10 million homes in the US and I think we will flatline housing for years until we catch up with that shortfall.
Q: What are your thoughts on the Metaverse?
A: Too soon. Right now, the Metaverse involves spending only—no revenues. It could be years before you actually see any profits. So that’s why I'm avoiding Meta or Facebook (FB). But then, you could have made the same argument about the internet 25 years ago and semiconductors 50 years ago. If you waited long enough, however, you obviously made a fortune.
Q: China is hoarding 69% of their wheat reserves. Is this because they plan to invade Taiwan?
A: No, it’s because there’s a global food crisis going on. Many countries, like India, have banned exports of food to protect themselves. People miss this about China: China will never have a war or invade anybody, because the second they do, their food supplies get cut off by us, who are the world’s largest producer of food. Plus, their trade would get shut off to pay for it, so they can’t buy it from somewhere else, and that’s done with us also. So, they need to be in our good graces in order to eat. That's the bottom line and that’s why Taiwan will never get invaded. Russia’s economy can operate independently for a while, but China’s can’t.
Q: Is the baby food shortage further evidence of a food crisis?
A: No, the baby formula crisis is being caused by a monopoly of three companies that control 100% of the baby food market; and the largest of these companies, accounting for a 40% market share of the baby food making, is producing baby food that is poisonous. That's why they got shut down. This has been going on for years, and for some reason, they got a free pass on regulation and inspections by the previous administration, which is ending now, and all of a sudden we’re finding out that 40% of the country’s baby food is contaminated and is being pulled off the market. So, it really has nothing to do with the global food crisis. That’s more related to Climate change—surprise, surprise—as it’s not raining in the right places like California, the war in Ukraine, which removed 13% of the world’s calories practically overnight.
Q: Should I bet the farm here with the ARK Innovation Fund (ARKK)? I like Cathie Woods’ bet on innovation or five-year time horizon. It’s a great thing, don’t you think?
A: Not so great when you drop 70% in the last year. And it is a high-risk bet that of her ten largest holding companies, you only need one of them to work for the fund to bring in a decent return. Of course, you may have to write off nine other companies to do that. But yes, it’s a great thing to own on the way up, not so great on the way down. I know some people who started scaling into ARK in November and came to regret it. I would wait on it—this is your highest leverage technology play, and if you really want some punishment, there’s a hedge fund that’s bringing out a 2X long ARK fund in the next couple of months. Then it’s basically option money you’re throwing out. If you want to put some money in that, you could get a 10x on the 2x ETF if you’re playing a recovery in ARK. So watch it; don’t touch it now because ARK is having another heart attack today, but something to consider if you like gambling.
Q: I am full up with a thousand shares of PayPal (PYPL). It’s now down 76%. What should I do?
A: I recommend you learn the art of stop losses. I stopped out of this thing last fall, and it’s continued to go down virtually every day. Whenever you buy a new position, automatically enter into your spreadsheet your stop loss for that position. Because things can drop by 80 or 90% and you work too hard for your money to throw it away on these big losses.
Q: What do you think about Steve Wynn and Wynn Hotels?
A: I’d be buying down here down 62%; it was announced today that Steve Wynn has secretly been acting as an agent for the Chinese government where (WYNN) has a major part of its operations. Who knew? With all those high rollers being flown in on private jets from China, sitting at the tables in the closed rooms. So yes, this is a recovery play and it will do just as well as all other recovery plays, but remember it’s a China recovery play. And I think, in any case, his ex-wife owns a big part of the company anyway. So I don’t think Steve Wynn is that closely connected with Wynn hotels because of past transgressions with the female staff.
Q: Is it time to scale into Freeport-McMoRan (FCX)?
A: I’d say yes. On a longer-term view, I expect (FCX) to go to $100. And for those who have the May $32/$35 call spread that expires on Friday, my bet is that you get the max profit—but you may not sleep before then.
Q: What do you have to say about a post-Putin scenario and impact on the market?
A: The day Putin dies of a heart attack, you can count on the market being up 10%, if that happens right now—less if it happens at a later date. But it would be hugely bullish for the entire global stock market, and oil would also collapse, which is why I refuse to put on oil plays here. That is a risk. Putin can give up, have an accident, or get overthrown. When the Russian people see their standard of living decline by 90%, this is a country that has a long history of revolutions, putting their leaders in front of firing squads and throwing the bodies down wells. So, if I were Putin, I wouldn't be sleeping very well right now.
Q: What's the reason for air tickets (UAL), (ALK), (DAL) going up sharply?
A: 1. Shortage of airplanes 2. Soaring fuel costs 3. Labor shortages and strikes 4. It is all proof of an economy that is definitely NOT going into recession.
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
With Lieutenant Uhuru
Global Market Comments
May 13, 2022
Fiat Lux
Featured Trade:
(JULY 22 ZERMATT, SWITZERLAND STRATEGY SEMINAR)
(HOW TO GET A FREE TESLA), (TSLA),
(TESTIMONIAL)
I have assiduously instructed readers how to earn boatloads of money over the past 14 years.
Now I am going to teach you how to spend it wisely.
Tesla was once again at $680 a share at yesterday’s low and history has shown that it is time to pay attention.
How would you like to drive a vehicle whose technology is from ten years in the future, will be the envy of your neighbors, and leaves zero carbon footprint? It is also the fastest production car ever built. Sounds pretty good, doesn’t it?
I bet if I told you that the car was available for free, you’d be even more interested.
Here’s how it goes.
Buried in the tax bill signed into law in December 2017 is a provision for “bonus depreciation.” It allows companies the depreciation of the entire cost of a new car for business use over 5 years. All of this is tax deductible.
In addition, you get to deduct all of the annual interest on any loan taken out to purchase the vehicle. Also coming off the bottom line is any insurance and maintenance expenses which, in my experience, come to about $6,000 a year.
If you spend $125,000 for the new model, total deductions over a five-year period is about $155,000,
In five years, the car will have a residual value of $70,000, and the $85,000 in additional costs is covered by the tax breaks, taking the bottom-line after-tax cost of your new mid-life crisis to zero.
If all of this sounds impossible don’t worry. I’ve done it three times.
Now, here’s how to get a better deal.
Call Tesla and ask if they have any used 2022 showroom cars they want to get rid of before the new model year begins. In my case, I was able to find in Los Angeles a 2022 Model X P100 D SUV with just 800 miles on the odometer for a $25,000 discount to the $125,000 list price.
It was a total LA car, silver with black wheels and a black leather interior. They added on a $5,000 advanced navigation system and a $3,000 seven-seat configuration for free.
Tesla lists their used car inventory at https://www.tesla.com/inventory/used/ms. You may have to get a live Tesla salesman on the line to find the 2022 showroom cars.
For those of you who own your own companies or work through single-member LLCs, this is a no-brainer. If you work for a big company, it may be tougher to pull off. Talk to your accountant before you do anything.
This is exactly what I did which led me to pick up a brand-new Tesla during a torrential rainstorm. It was then that I truly learned what Elon Musk has recently referred to as “Logistics Hell.”
For a start, my car was supposed to be delivered to me at my lakefront estate in Incline Village, Nevada. But Tesla could only get it from Los Angeles to as far as the Fremont factory before the logistics system completely broke down. I agreed to pick it up at Fremont to cut a week off the delivery time and before the heavy snow hit.
When I arrived at the showroom, it was completely empty so I had to wait an hour. Out front were 100 parking spaces filled mostly with Tesla 3’s, and animated technicians showing new owners how to operate them. I was told that the parking lot is completely filled and then emptied out three times a day. (TSLA) is now producing 1,000 Tesla 3’s a day now.
When I finally got my turn, I discovered to my horror that the car was registered in the wrong name. When the Nevada Department of Motor Vehicles was told that the new registered owner was “Mad Hedge Fund Trader,” they were somewhat taken aback.
The tow hitch I ordered was missing so the tech pulled one from a back room. The same happened with the second set of keys which are very expensive. I had to Google the tire specs which required me to crawl under the car and get soaked to make sure they were all season because no one there knew.
In the end, I was sent off with my $125,000 car, a box of parts, and a vague promise that a mechanic would visit me someday and put it all together.
This was not the experience I had when I picked up my Tesla in 2010 and 2016 when I was treated like visiting royalty. But I love the car anyway.
Then it really got interesting!
What is the first thing a new Tesla owner wants to try out? The monstrous zero to 60 mph acceleration in 2.9 seconds. And they do this the second they drive out of the parking lot. So, I was treated to dozens of aspiring Indy 500 drivers with giant smiles on their faces zipping around on rain-slick roads. I felt like I was in a shooting gallery.
Thank goodness I brought an extra supply of airline airsick bags!
My 400 Bagger
