Global Market Comments
March 7, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WAR CONTINUES),
(SPY), (TLT), (TBT), (TSLA), (BRKB)
Posts
With Hot heads and retaliation ruling everywhere, I think it is safe to say that the war in Ukraine will continue indefinitely and that things will get worse before it gets better.
Biden is threatening to ban Russian oil imports, boosting oil to $135 a barrel. That is a symbolic gesture as the US really doesn’t import oil from Russia and is independent. But if other countries ban imports, it is just a matter of time before the Russian economy completely collapses.
And there is a country that is able to replace one third of all the Russian oil supplies in a heartbeat, some four million barrels a day, and that is Iran. All they need is a quicky nuclear treaty to restore things back to the 2016 status quo.
Putin seems on track to threaten a nuclear war but launch a cyberwar. He has already threatened a nuclear war multiple times to no avail. Cyber is a much safer option.
What will target number one be? The US stock market and banking system. So be prepared for hairier $500 point down days, like we are getting today.
Keep cash positions high, existing positions hedged, only trade on the most extreme days, and you will be greatly rewarded for your discipline down the road.
I spent four hours walking around the Alameda Flea Market today. Every retired GI I spoke to said they were thinking of volunteering to go to Ukraine. Some 20,000 foreign volunteers have already joined the fight . Like me, everyone wants to get in one more “good” war in their lifetimes. If you want to volunteer, please click here at https://volunteerforukraine.org
Sorry, I have to keep the letter short today. The CIA is holding on line 2.
Nonfarm Payroll Blows it Away, up an eye-popping 678,000 in February. The Headline Unemployment rate fell to 3.8%. The U-6 discouraged worker unemployment rate came in at 7.2%. Amazingly, Average Hourly Earnings fell. Leisure and Hospitality gained 179,000, Professional & Business Services 95,000, Healthcare 94,000, and Construction 36,000, Lower waged workers return to the job in droves. It was a real Goldilocks report and makes a rise in interest rates a sure thing in 12 days.
Weekly Jobless Claims Drop to 215,000, maintaining a new downtrend. Nonfarm Productivity rose by 6.6%. Continuing Claims rose to 1.48 million.
Berkshire Hathaway (BRKB) Profits Soar as Warren Buffet boosts share buybacks to a record $27 billion. Q1 Operating Earnings of the massive conglomerate jumped by $7.3 billion, up 45% YOY. His widespread old economy industrial holdings are working great. Keep buying (BRKB) on dips.
ADP Private Payrolls Explode by 475,000 in February, trouncing analyst expectations. Small companies showed minor losses. It sets up a red-hot Nonfarm Payroll Report on Friday.
Powell Says Rate Hikes are Still On but may not occur as quickly as once thought. He made the comments during congressional testimony. The labor market is extremely tight, auguring for higher rates, while the Ukraine war has delivered a huge dollop of uncertainty. Bonds crashed an astounding $5 points on the news.
Biden’s State of the Union Address Triggers Monster Two-Day $1,200 point Rally. Greater certainty, strong leadership, and a positive attitude are just what investors were looking for. A big focus on the war in Ukraine gave it a boost. The virtual disappearance of the pandemic in a short month is also a big plus. It was the first in-person State of the Union in two years. Bulls loved it.
Switzerland Joins SWIFT Russian Boycott. It’s the first time in 400 years that the Swiss have taken a side. The move freezes maybe $200 billion worth of Putin’s personal bank accounts. The noose tightens. Next to come is Fastrack membership for Ukraine and war crime trials. Ouch.
Russia Raises Interest Rates to 20% since the central bank is frozen out of accessing reserves to support the currency. The Russian economy is being destroyed from within and without. The end result will be to take Russian per capita income from a pre-invasion $10,000 a year to a Soviet era $1,000. I wouldn’t be writing a life insurance policy on Putin right now. He might become accident-prone.
Tesla to Open Berlin Factory in March, taking the stock up $170, or 24% from last week’s low. $700 is a very impressive and tradable low. It will be worth $10,000 when solid state technology is mass-produced.
Bitcoin Jumps 12.5% on Massive Russian Buying, as the world rushes to dump the rogue country from the western financial system.
Oil is Now Targeting $125 a Barrel from the current $103, especially if other countries join Canada in banning imports from Russia. Amazingly, natural gas is still passing through the Ukraine to Europe. My guess is that the Ukrainians are not attacking it in exchange for 1,000 Javelin missiles from Germany. Or they could be just waiting for spring when demand flags. Strategic Petroleum Reserve releases can make only a token contribution as best. Ironically, the war may move Europe faster towards alternatives.
Russia’s Debt Rating is Cut to Junk, and overnight interest rates in Russia have been boosted to 20%. JP Morgan expects the sanctions to shrink the Russian economy by 35%. If Ukraine can hold out for two weeks, they will last years as foreign food, supplies, and volunteers pour in. All roads going into Ukraine are still open. Ukraine has raised $54 million in crypto donations in a week. Once the shock is over, the war will be fully discounted by the financial markets. People forget that Ukraine fought a brutal guerilla war against the Germans during WWII and won, despite enormous casualties.
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 at zero, oil cheap, 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 near-record volatility fading fast, my February month-to-date performance rocketed to a blistering 11.09% in only four days. My 2022 year-to-date performance ended at 25.68%. The Dow Average is down -7.4% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
My only new trade this week was to use a $4.00 spike in the (TLT) to go from a double to a triple short in the bond market. That leaves me 50% invested and 50% in cash, waiting for the next capitulation selloff. So, I am 3X short the (TLT), 1X long the (TLT), and 1X long Tesla.
That brings my 13-year total return to 538.24%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.54%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at close to 80 million and rising quickly and deaths at 960,000, which you can find here.
On Monday, March 7 at 8:30 AM EST, Consumer Credit for January is printed.
On Tuesday, March 8 at 8:30 AM, the Balance of Trade is published.
On Wednesday, March 9 at 7:00 AM, The JOLTS private job openings for January is disclosed.
On Thursday, March 10 at 8:30 AM, Weekly Jobless Claims are published. We also get the big number of the week, the Consumer Price Index for February.
On Friday, March 11 at 7:00 AM, the University of Michigan Consumer Sentiment for March is out. At 2:00 PM, the Baker Hughes Oil Rig Count are out.
As for me, I was having lunch at the Paris France casino in Las Vegas at Mon Ami Gabi, one of the top ten grossing restaurants in the United States. My usual waiter, Pierre from Bordeaux, took care of me with his typical ebullient way, graciously letting me practice my rusty French.
As I finished an excellent, but calorie-packed breakfast (eggs Benedict, caramelized bacon, hash browns, and a café au lait), I noticed an elderly couple sitting at the table next to me. Easily in their 80s, they were dressed to the nines and out on the town.
I told them I wanted to be like them when I grew up.
Then I asked when they first went to Paris, expecting a date sometime after WWII. The gentleman responded, “Seven years ago”.
And what brought them to France?
“My father is buried there. He’s at the American Military Cemetery at Colleville-sur-Mer along with 9,386 other Americans. He died on Omaha Beach on D-Day. I went for the D-Day 70th anniversary.” He also mentioned that he never met his dad, as he was killed in action weeks after he was born.
I reeled with the possibilities. First, I mentioned that I participated in the 40-year D-Day anniversary with my uncle, Medal of Honor winner Mitchell Paige, and met with President Ronald Reagan.
We joined the RAF fly-past in my own private plane and flew low over the invasion beaches at 200 feet, spotting the remaining bunkers and floating pier. Pont du Hoc is a sight to behold from above, pockmarked with shell craters like the moon. When we landed at a nearby airport, I taxied over railroad tracks that were the launch site for the German V2 rockets.
D-Day was a close-run thing and was nearly lost. Only the determination of individual American soldiers saved the day. The US Navy helped too, bringing destroyers right to the shoreline to pummel the German defenses with their five-inch guns. Eventually battleships made sure that anything the Germans brought to with 20 miles of the coast was destroyed.
Then the gentleman noticed the gold Marine Corps pin on my lapel and volunteered that he had been with the Third Marine Division in Vietnam. I replied that my father had been with the Third Marine Division during WWII at Bougainville and Guadalcanal, and that I had been with the Third Marine Air Wing during Desert storm.
I also informed him that I had led an expedition to Guadalcanal two years ago looking for some of the 400 Marines still missing in action. We found 30 dog tags and sent them to the Marine Historical Division at Quantico, Virginia for tracing.
When the stories came back, it turned out that many survivors were children now in their 80s who had never met their fathers because they were killed in action on Guadalcanal.
Small world.
I didn’t want to infringe any further on their morning out, so I excused myself. He said Semper Fi, the Marine Corps motto, thanked me for my service, and gave me a fist pump and a smile. I responded in kind and made my way home.
Oh and say “Hi” when you visit Mon Ami Gabi. Tell Pierre that John Thomas sent you and give him a big tip. It’s not easy for a Frenchman to cater to all these loud Americans.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Third Marine Air Wing
The American Military Cemetery at Colleville-Sur-Mer
Global Market Comments
March 4, 2022
Fiat Lux
Featured Trade:
(MARCH 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (TSLA), (FCX), (JPM), (BAC), (MS), (TLT),
(TBT),(BA), UPS (UPS), (CAT), (DIS), (DAL),
(GOLD), (VIX), (VXX), (CAT), (BA)
Below please find subscribers’ Q&A for the March 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Do you think Vladimir Putin will give up?
A: He will either be forced to give up, run out of resources/money, or he will suddenly have an accident. When the people see their standard of living go from a per capita income of $10,000/year today to $1,000—back to where it was during the old Soviet Union—his lifespan will suddenly become very limited.
Q: Would you be buying Invesco Trusts (QQQs) on dips?
A: I think we have a few more horrible days—sudden $500- or $1,000-point declines—but we’re putting in a bottom of sorts here. It may take a month or two to finalize, but the second buying opportunity of the decade is setting up; of course, the other one was two years ago at the pandemic low. So, do your research, make your stock picks now, and once we get another absolute blow-up to the downside, that is your time to go in.
Q: Materials have gone up astronomically, are they still a buy?
A: Yes, on dips. I wouldn't chase 10% or 20% one-week moves up here—there are too many other better trades to do.
Q: Is it time to go long aggressively in Europe?
A: No, because Europe is going to experience a far greater impact economically than the US, which will have virtually none. In fact, all the impacts on the US are positive except for higher energy prices. So, I think Europe will have a much longer recovery in the stock market than the US.
Q: Would you take a flier on a Russian ETF (RSX)?
A: No, most, if not all, of them are about to be delisted because they have been banned or the liquidity has completely disappeared. The (RSX) has just collapsed 85%, from $26 to $4. Virtually all of Russia is for sale, not only stocks, bonds, junk bonds, ETFs, but also joint ventures. ExxonMobil, Shell and BP are all dumping their ownership of Russian subsidiaries as we speak.
Q: Time for a Freeport-McMoRan (FCX) LEAP?
A: No, November was the time for an (FCX) LEAP—we’ve already had a massive run now, up 66% in five months, so wait for the next dip. The next LEAPS are probably going to be in technology stocks in a few months.
Q: My iShares 20 Plus Year Treasury Bond ETF (TLT) call $130 was assigned, What should I do?
A: Call your broker immediately and tell them to exercise your 127 to cover your short in the 130. They usually charge a few extra fees on that because they can get away with it, but you’ve just made the maximum profit on the position. If you haven’t been exercised yet, that 127/130 call spread will expire at max profit in 10 days.
Q: What if I get my short side called away on a position?
A: Use your long side calls to execute immediately to cover your short side. These call spreads are perfectly hedged positions, same name, same maturity, same size, just different strike prices. If your broker doesn’t hear from you at all, they will just exercise the short call and leave you long the long call, and that can lead to a margin call. So the second you get one of these calls, contact your broker immediately and get out of the position.
Q: Is it safe to put 100% of your money in Tesla (TSLA) for the long term?
A: Only if you can handle a 50% loss of your money at any time. Most people can't. It’s better to wait for Tesla to drop 50%, which it has almost done (it’s gotten down to $700), and then put in a large position. But you never bet all your money on one position under any circumstances. For example, what if Elon Musk died? What would Tesla’s stock do then? It would easily drop by half. So, I’ll leave the “bet the ranch trades” for the younger crowd, because they’re young enough to lose all their money, start all over again, and still earn enough for retirement. As for me, that is not the case, so I will pass on that trade. You should pas too.
Q: Do you foresee NASDAQ (QQQ) being up 5-10% or 10-20% by year-end?
A: I do actually, because business is booming across tech land, and the money-making stocks are hardly going down and will just rocket once the rotation goes back into that sector.
Q: We could see an awful earnings sequence in April, which could put in the final bottom on this whole move.
A: That is right. We need one more good capitulation to get a final bottom in, and then we’re in LEAP territory on probably much of the market. We know we’re having a weak quarter from all the anecdotal data; those companies will produce weak earnings and the year-on-year comparisons are going to be terrible. A lot of companies will probably show down turns in earnings or losses for the quarter, that's all the stuff good bottoms are made out of.
Q: What should we make of the Russian threats of WWIII going Nuclear?
A: I think if Putin gave the order, the generals would ignore it and refuse to fire, because they know it would mean suicide for the entire country. Mutual Assured Destruction (MAD) is still in place, and it still works. And by the way, it hasn’t been in the media, but I happen to know that American nuclear submarines with their massive salvos of MIRVed missiles, have moved much closer to Russian waters. So, you're looking at a war that would be over in 15 minutes. I think that would also be another scenario in which they replace Putin: if he gives such an order. This has actually happened in the past; people without top secret clearance don’t know this but Boris Yeltsen actually gave an order to launch nuclear missiles in the early 90s when he got mad at the US about something. The generals ignored it, because he was drunk. And something else you may not know is that 95% of the Russian nuclear missiles don’t work—they don’t have the GDP to maintain 7,000 nuclear weapons at full readiness. Plutonium is one of the world’s most corrosive substances and very expensive to maintain. Only a wealthy country like the US could maintain that many weapons because it’s so expensive. So no, you don’t need to dig bomb shelters yet, I think this stays conventional.
Q: Banks like (JPM), (BAC), AND (MS) are at a low—are they a buy?
A: Yes, but not yet; wait for more shocks to the system, more panic selling, and then the banks are absolutely going to be a screaming buy because they are on a long-term trend on interest rates, strong economy, lowering defaults—all the reasons we’ve been buying them for the last year.
Q: Should I short bonds or should I buy Freeport up 60%?
A: Short bonds. Next.
Q: Should I buy Europe or should I short bonds?
A: Short bonds. That should be your benchmark for any trade you’re considering right now.
Q: How much and how quickly will we see a collapse in defense stocks?
A: Well, you may not see a collapse in defense stocks, because even if Russia withdraws from Ukraine, they still are a newly heightened threat to the West, and these increases in defense spending are permanent. That’s why the stocks have gone absolutely ballistic. Yeah sure, you may give up some of these monster gains we’ve had in the last week, but this is a dip-buying sector now after being ignored for a long time. So yes, even if Russia gives up, the world is going to be spending a lot more on defense, probably for the rest of our lives.
Q: Just to confirm, LEAP candidates are Boeing (BA), UPS (UPS), Caterpillar (CAT), Disney (DIS), Delta Airlines (DAL)?
A: I would say yes. You may want to hold off, see if there’s one more meltdown to go; or you can buy half now and half on either the next meltdown or the melt-up and get yourself a good average position. And when I say LEAPS, I mean going out at least a year on a call spread in options on all of these things.
Q: Is $143 short safe on the (TLT)?
A: Definitely, probably. In these conditions, you have to allow for one day, out of the blue, supers pikes of $3 like we got last week, or $5 trins week, only to be reversed the next day. The trouble is even if it reverses the next day, you’re still stopped out of your position. So again, the message is, don’t be greedy, don’t over-leverage, don’t go too close to the money. There’s a lot of money to be made here, but not if you blow all your profits on one super aggressive trade. And take it from someone who’s learned the hard way; you want to be semi-conservative in these wild trading conditions. If you do that, you will make some really good money when everyone else is getting their head handed to them.
Q: Would you go in the money or out of the money for Boeing (BA) and Caterpillar (CAT)?
A: It just depends on your risk tolerance. The best thing here is to do several options combinations and then figure out what the worst-case scenario is. If you can handle that worst-case scenario without stopping out, do those strikes. These LEAPS are great, unless you have to stop out, and then they will absolutely kill you. And usually, you only do these with sustained uptrends in place; we don’t have that yet which is why I’m saying, watch these LEAPS. Don’t necessarily execute now, or if you do, just do it in small pieces and leg in. That is the smart answer to that.
Q: What’s the probability that the CBOE Volatility Index (VIX) makes a new high in the next 2 weeks?
A: I give it 50/50.
Q: Call options on the VIX?
A: No, that’s one of the super high-risk trades I have to pass on.
Q: How low can the VIX go down this month?
A: High ten’s is probably a worst-case scenario.
Q: LEAPS on Barrick Gold Corporation (GOLD)?
A: No, that was a 3-month-ago trade. Now it’s too late, never consider a LEAP at an all-time high or close to it.
Q: Time to short oil?
A: Not yet. We have some spike top going on in oil. It’s impossible to find the top on this because, while bottoms are always measurable with PE multiples and such, tops are impossible to measure because then you’re trying to quantify human greed, which can’t be done. So yeah, I would stand by; it’s something you want to sell on the way down. This is the inverse of catching a falling knife.
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 ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 2, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(HOW TO BUY A SOLAR SYSTEM),
(SPWR), (TSLA)
Global Market Comments
February 28, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or FAREWELL THE PEACE DIVIDEND),
(SPY), (TLT), (TBT), (TSLA), (AAPL)
Remember that great bull market of the Dotcom Boom? Most investors believe it was the result of combining a new Internet, cheap PCs, and the Mosaic Application which made it all work together.
But to Wall Street types usually blind to geopolitics, there was another important factor: The peace dividend paid out by the end of the Cold War. The end result was 30 years of less defense spending, lower taxes, and higher profits for corporate America.
The numbers are pretty compelling. Since the Soviet Union collapsed in 1991, the Dow Average has risen from $2,875 to $34,000, a gain of 12 times. That averages out to an incredible 40% a year. Individual stocks like Monster Beverage (MNST), Tractor Supply (TSCO), and Altria (MO) appreciated a thousandfold or more.
So what happens if the Cold War resumes? Do we have to pay the money back?
In part, yes.
Not that you have to have to write a check anytime soon. But you will have to pay in the form of higher taxes for more defense spending, slower economic growth, fewer corporate profits, and a more modestly appreciating stock market. And that great multiplier of growth, globalization, just suffered a dagger through its heart.
While we have just seen one of the greatest short-covering rallies of all time, $1,800 points or 5.6% in two days, don’t think you’re back on Easy Street yet. A worst-case scenario full-scale Russian invasion of the Ukraine is in the price. So, it's back to focusing on runaway inflation and the certain multiple Fed interest rate hikes to fight it once again.
And guess what? Wars are inflationary. We are already seeing surges in the price of energy, wheat, and nonferrous metals.
So, I think I’ll stick to the short side for the time being. After all, it’s worked pretty well so far in 2022. You’ll still need to maintain some discipline here, only selling rallies.
If the US acts fast, there is an opportunity here for it to create a second War in Afghanistan for Russia. It’s certainly trying. As I write this, there are already long convoys of NATO trucks that carry ammunition and antitank missiles into the Ukraine. If you remember, it was its loss of the first one that led to the demise of the Soviet Union. I think Putin has bit off more than he expected.
For those who are maintaining core long-term portfolios, which are most of you, writing, or selling short front month out-of-the-money call options against your positions is a great idea. It will reduce your risk, lower your average cost, reduce your volatility, and bring in some extra income. Option volatilities are still high, so you can earn a pretty penny with such a strategy.
And if in case we return to happy days again, you will be taken out of your positions at higher prices with bigger profits and will think you have died and gone to Heaven.
What is the other smart trade here? If you have any energy exposure whatsoever this is a generational opportunity to get rid of it. The best-case golden scenario has happened. Even if oil goes to $125 short term, your energy stocks won’t go much higher from here.
If Russia and Saudi Arabia are trying to exit the energy business, maybe you should too.
There has been a lot of speculation about Putin’s timing of his invasion of the Ukraine. The winter, oil inventory shortages, and NATO’s half-century of underinvestment in defense were all factors.
But the most important one is being completely ignored. Putin has to unload his country’s energy resources before they become worthless, which I reckon will happen in about 20 years.
That means in two decades, some 70% of Russia’s total government revenues vaporize. The invasion of the Ukraine allows Putin to get rid of more energy faster at higher prices right now.
As my old friend, Dr. Armand Hammer used to say, “Everything boils down to oil.” (click here for the link).
Without energy, Russia has little to offer the world but a few metals and a lot of unregulated hackers. You see the same motivation in Saudi Arabia’s massive investment in alternative energy in California. And yes, they really did try to buy all of Tesla three years ago (TSLA) before the shares rose fivefold.
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 at zero, oil cheap, 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 near-record volatility fading fast, my February month-to-date performance rocketed to a blistering 10.51%. It turned out to be a great month to play from the short side in size. My 2022 year-to-date performance ended at 25.10%. The Dow Average is down -6.1% so far in 2022. It is the great outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
I went into the Russian invasion with 90% cash, expecting trouble. I stopped out of a long in Apple (AAPL) in a day for a small loss. The next trade I added was another short in bonds, followed quickly by a new long in Tesla (TSLA) ($700 a share? Really?). Within hours the stock was up $100!
That brings my 13-year total return to 537.66%, some 2.00 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 43.89%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 79 million and rising quickly and deaths topping 950,000, which you can find here.
On Monday, February 28 at 8:00 AM EST, the president delivers the State of the Union Speech
On Tuesday, March 1 at 8:30 AM, the ISM Manufacturing Index for February is out.
On Wednesday, March 2 at 5:15 AM, the ADP Private Employment Index is released.
On Thursday, March 3 at 8:30 AM, Weekly Jobless Claims are published.
On Friday, March 4 at 8:30 AM, the February Nonfarm Payroll Report is Published. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, I’m not supposed to be alive right now. In fact, the betting in my extended family is that I would never make it past 30. But here I am 40 years after my “sell by” date and I’m having the last laugh.
There were times when it was a close-run thing. Breaking my neck in a 70 mile per hour head-on collision in Sweden in 1968 didn’t exactly help my odds. Nor did watching a land mine blow up the guy in front of me in Cambodia in 1975, showering me head to toe with shrapnel and bone fragments.
After crashing three airplanes in Italy, Austria, and France, the European Union Aviation Safety Agency certainly wishes I died at a much earlier age. So, no doubt did the tourists at the top of the Eifel Tower one day in 1987, who I just missed hitting by 100 feet (yes, I was the Black Baron).
When I was in high school, the same group of four boys met every day at recess. We were all in the same Boy Scout Troop and became lifelong friends. Since I had been to over 50 countries by the age of 16, I was considered the wild man of the bunch, the risk-taker, always willing to roll the dice. The rest lived vicariously through me. But I was also the lucky one.
For a start, I was not among the 22 from my school who died in Vietnam, 11 officers and 11 draftees. Their names are all on the Vietnam Memorial Wall in Washington DC. My work for the Atomic Energy Commission at the Nuclear Test Site gave me a lifetime draft exception on national security grounds.
But I went anyway, on my own dime, to see who was telling the truth. It turned out no one was.
The other three boys in my group played it safe, pursuing conventional careers and never took any risks.
David Wilson was the first to go. He managed a hotel in Park City, Utah for a national chain. When he was hiking in the Rocky Mountains one day, a storm blew in and he went over a cliff. They didn’t find his body for a week.
Paul Blaine went on to USC and law school. In his mid-fifties, he lost a crucial case and shot himself at his desk at his Newport Bay office. I later learned he had been fighting a lifetime battle against depression. We never knew.
Robert Sandiford spent his entire career working as a computer programmer for the city of Los Angeles. By the time he retired at 65, he was managing 40 people. He pursued his dream to buy a large RV, drive it to Alaska, and play his banjo in a series of blue grass festivals.
Robert was unfamiliar with driving such a large vehicle. Around midnight, he was driving north on Interstate 5 near Modesto, CA when he passed a semi. When he pulled back into the slow lane, he clipped the front of the truck on cruise control with a driver half asleep. The truck pierced a propane tank on the RV, blowing up both vehicles. Robert, his wife Elise, and the truck driver were all burned to death.
At least, this was the speculation by the California Highway Patrol. Robert and Elise went missing for months. We thought that maybe his RV had broken down somewhere on the Alaskan Highway and family members went there to look for him. It was only after the Los Angeles County Coroner discovered some dental records that we learned the truth.
When the bones were returned, the family had them cremated and we scattered the ashes in the Pacific Ocean off Catalina Island where we used to camp as scouts.
I have been rewarded for risk taking for my entire life, so I keep at it. Similarly, I have seen others punished for risk avoidance, as happened to all my friends. The same applies to my trading as well. The price of doing nothing is far greater than doing something, and being aggressive offers the greatest reward of all.
This summer, I am scheduled to fly an 80-year-old Supermarine Spitfire fighter aircraft over the white cliffs of Dover, of Battle of Britain fame. I am spending my evenings memorizing the 1940 operations manual just to be safe, as I always do with new aircraft.
A 70-year-old flying an 80-year-old plane, what could go wrong with that?
Oh, and I am learning the banjo too.
I’ll send you the videos.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
That’s a Heck of a Dividend
Global Market Comments
February 18, 2022
Fiat Lux
Featured Trades:
(FEBRUARY 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (MSFT), (VIX), (ROM), (TSLA), (GOOGL), (TLT), (TBT), (IWM), (QQQ), (FCX)
Below please find subscribers’ Q&A for the February 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Is it a mistake to try to be nimble with the ProShares UltraShort 20+ Year Treasury ETF (TBT), or is it better just to hold it through the rest of the year?
A: You should do both; have a core long position which you keep through the end of the year, and you also have a second position that you trade. A good example is how I just took profits on the short iShares 20+ Year Treasury bond ETF (TLT) even though it had a month to run because we had 91.67% of the profit in hand. So, when you get way in the money and still have a lot of time duration left, there’s no point in continuing with these put spreads to catch the last 5 or 10% in the position. The risk/reward is no good.
Q: The iShares 20+ Year Treasury bond ETF (TLT) seems washed out.
A: There is a risk of that, which is why I went long the (TLT) $127-$130 March vertical bull call spread. I think even if we get down to $130, it will take us at least a month to get down that far. There will be several short-covering rallies along the way that we can run out the clock with, and I think even my 3/$127-$130 should expire at max profit.
Q: Should we buy puts or spreads?
A: When you get the CBOE Volatility Index (VIX) over 30, it’s only because you get a very sharp collapse in stocks, and there you’re looking at very deep in the money call spreads— 10-20% in the money can still make you $1,000 or $2,000 a month. And if you get extreme selloffs with (VIX) up to $40, then you’re really looking for long-term LEAPS, one-year call spreads on your favorite stocks, like Tesla (TSLA), NVIDIA (NVDA), and Microsoft (MSFT), and so on.
Q: Is it time to enter Tesla (TSLA) now?
A: I’m waiting for one more final selloff—if we get that, we could get back into the low 800s or even the 700s in Tesla. That's the figure I’m hanging on for, and that's where you get into Tesla LEAPS because Tesla is clearly expanding beyond just the electric car business. SpaceX is now worth $100 billion dollars, and the boring company could be worth just as much if they get more contracts for building underground mass transit. There is also Solar City to consider plus some other stuff they haven’t even announced yet.
Q: What are your thoughts on Google (GOOGL)?
A: The 20 to 1 split is in the price already. But any selloff and I would go back into there with call spreads because Google is a fantastic company and a legal monopoly which I love owning.
Q: What about the ProShares Ultra Technology ETF (ROM)?
A: Yes, I’m watching very closely. It had a huge dive in January, then made back nearly half its losses. So again, I'm waiting for another dip to go back into (ROM) with lots of leverage.
Q: Do we get Volatility Index (VIX) over $30 within 2 months?
A: Yes, I think we probably will. We’re pretty close to it now; we got up to $26 this morning. So yes, I’d be a buyer of that.
Q: Is a (TLT) $128-$131 call spread for March still ok?
A: Yes, I kind of like that. I don’t think we’ll get down below $131 in four weeks, and at the very least we’ll get one rally of several points, and that’ll be your chance to get out of that position.
Q: Is it too early for (TLT) LEAPS?
A: No, it’s too late for TLT LEAPS. You should have been doing put LEAPS in November, and everybody who did that got profits of nearly 100% on that position. I don’t see a call side LEAPS in TLT for at least 5 to 10 years when interest rates get up over 6% on 10 year US Treasury bonds. We are a long way from a (TLT) call LEAP.
Q: Are we at a Bitcoin bottom?
A: Possibly, 50/50 chance we go back and retest the lows. We’ll just have to see how Bitcoin behaves in a rising interest rates scenario because ever since Bitcoin was invented, interest rates have been falling. Rising rates are a new thing for Bitcoin and no one knows what that will look like.
Q: When will you update your long-term portfolio?
A: Soon; things have been kind of busy issuing 30 trade alerts a month.
Q: How high will the ProShares UltraShort 20+ Year Treasury bond fund (TBT) go?
A: Looking for $26 from current levels, so yes, much higher to go. And we have a double in three months on (TBT) at the $28 level.
Q: If one believes in the war in Ukraine happening soon, what companies or sectors do you invest in for the short term?
A: None; if we actually do get a war, everything gets absolutely slaughtered, and then you’re looking for the buy. And that will be buys in tech especially. I don’t think there’s going to be a war in Ukraine, but the only things that go up in a Ukraine war scenario are energy stocks (USO), oil companies, and so on.
Q: Do you like China EV stocks?
A: No, I don’t. I visited BYD Motors 15 years ago and they just don’t have the technology, the battery lengths are poor, and they tend to catch on fire. They have never been able to reach American quality standards on any of their cars, not only the EVs but also the conventional internal combustion engines as well..
Q: Which index will outperform in the second half, the Invesco QQQ Trust (QQQ) or iShares Russell 2000 ETF (IWM)?
A: I vote (QQQ). I think we have a technology-led bull market in the second half, and the Russel will be lagging.
Q: What’s better, copper or copper miners?
A: You always go for the miners like Freeport McMoRan (FCX)—they will outperform the physical metal by at least three or four to one, to the upside. That’s also true with gold miners and other derivative plays; the miners always outperform the metals.
Q: What is a bond vigilante?
A: That is a term we heard from the ‘70s and ‘80s when you would get enormous selling of bonds on even the slightest negative piece of economic data or inflation data. They called the bond traders the bond vigilantes because they just crushed the bond market for the slightest transgression on the inflation/economic front. And they are back, by the way, hugely punishing the market as we have seen ($20 points in two months is a lot of punishment) on even the slightest increase in inflation.
Q: Do you have a yearend price for Freeport McMoRan (FCX)?
A: Over $50—just rallied from $30 in September.
Q: Isn’t inflation wildly understated?
A: Yes, you can find individual items that are up 30 or 50%, but the inflation calculation is actually based on 105 different items, and some of them are going down in price. For example, you had an enormous increase in used car prices in December, but they actually went down last month. So, whenever you get a basket this big, eight groups of 80,000 items, you get smaller moves. As anyone will tell you who trades baskets of stocks against the individual stocks, the same mathematical effect happens in the calculation. And while it is being wildly understated now, it’ll be wildly overstated in a few months when we get back to the 3% level, which I am expecting.
Q: What is your TLT prediction after the next 3 or 4 interest rate hikes?
A: Remember, the interest rate hikes only affect the overnight rate. TLT is a 10 to 20-year basket of bonds, so they don’t trade one for one. We may reach a bottom by the end of the year in the (TLT) somewhere in the $120s, but it’s not going to 100 this year and it’s not going to zero like some people are predicting.
Q: The inflation measure is a joke.
A: Yes, it has always been a joke. Any collection of data among 330 million people is going to be inaccurate, late, and have huge lags—but you trade the data you have, not what you wish you had, and that is the real world. I've been trading economic data for 50 years and that is my conclusion.
Q: Martial Law was declared in Canada— is there anything to trade off of that news?
A: No; even a major international event only gets a stock market reaction of usually one day or two at the most. Whatever’s happening on a bridge in Canada, nobody here really cares.
Q: Are you doing a cruise?
A: Yes, I’m doing a Norwegian cruise. Just go to the lunches section on the madhedgefundtrader.com website, and you can still buy tickets. We would love to have you for lunch on the Queen Victoria, a Norwegian Fjord cruise. We’re coming up to payment time on the tickets.
Q: Will there be earnings disappointment in April?
A: Yes, the year-on-year comparisons are going to be difficult. That will be another problem for the market in the spring in addition to the Fed.
Q: What happens with the FOMC out today at 2:00?
A: It will show a heightened fear of inflation and a greater urgency to raise interest rates.
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 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
1932 De Havilland Tiger Moth
Global Market Comments
February 15, 2022
Fiat Lux
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