The United States has long been the world leader in science and technology, but lately, they are falling asleep at the wheel.
At a psychological level, the feeling of threat has led to all sorts of unintended consequences, and it has been no accident we are seeing at a trade war.
The one key ingredient that has been missing is sustained investment in our research enterprise.
Without relentless investment into scientific and technological leadership, don’t expect any new breakthroughs, and the stagnation of US technology is evident in the evolution of a product that goes on sale to the consumer.
What happened to 5G? It’s been hyped for the past 3 years, but people have felt no need to upgrade for the spotty 5G that is available.
What happened to automated cars?
I thought by now, we would be able to get around with our flying cars.
What we do have are bigger iPads, faster iMacs, and the Microsoft Surface which is a tablet with an attachable keyboard.
I wouldn’t call that success.
But what the pandemic did was allow these big tech firms to get away without innovating, and I am not talking about the incremental innovation that makes a Model 3 Tesla 4% better than the prior iteration.
The hype of 10 years of digital transformation into one year has been profusely disseminated but misunderstood.
I can tell you that we didn’t experience 10 years of digital development pulled forward into 1 year.
That definitely was not the case over the past 15 months.
More accurately said, we had 10 years of expandable margin opportunities squeezed into one and the biggest beneficiary of this is the balance sheet of big tech.
What we did was give a reason for tech to not ditch this over-reliance on the smartphone which is going strong into its 13th year.
It was 2007 when Steve Jobs delivered us the iPhone and by 2008, many consumers were using it.
In 2021, the iPhone and variants still have a stranglehold on human life and the way business models are put together.
That won’t go away because of the pandemic and now these big tech behemoths have no reason to dip too far into capital expenditures.
Not only that, but they are also cutting back spend on office space and business travel too while sneakily reducing salaries of remote employees who move to cheaper cities.
In fact, the pandemic will elongate the smartphone dynasty, and any other meaningful tech has been put back on the backburner for the time being.
Then there are companies like Uber that are busy sorting out its decimated ride-sharing business before they can even dream about flying uber cars.
So, I am not surprised that the House Science Committee is taking up two bipartisan bills to try to push the agenda forward.
The need to act is best captured by two data points. First, as much as 85% of America’s long-term economic growth is due to advances in science and technology. There’s a direct connection between investment in research and development and job growth in the U.S.
Second, China increased public R&D by 56% between 2011 and 2016, but U.S. investment in the same period fell by 12% in absolute terms. China has likely surpassed the U.S. in total R&D spending and — through both investment and cyber theft — is working to overtake the U.S. as the global leader in science and technology.
America’s continued scientific leadership requires a comprehensive and strategic approach to research and development that provides long-term increased investment and stability across the research ecosystem. And it must focus on evolving technologies that are crucial to our national and economic security, like semiconductors and quantum sciences.
Now that the U.S. government has identified this issue as a national security issue, money will be thrown at the problem, but don’t expect anything to change tomorrow.
We are still a way off from forcing big tech to change their profit models and that will happen when they need to keep up with the next big thing.
There is no big next thing yet.
Until then, expect more incremental progress from your smartphone and Tesla.
It’s certainly not a bad situation to wield a smartphone that is 4% better each year or drive a Tesla that performs just a bit better as well.
Effectively, these enormous and profitable revenue models will stay in place and investors have no reason to worry about big tech moving forward.
This benefits the likes of Amazon, Tesla, Facebook, Google, Apple, and Netflix.
The only risk to U.S. tech is a threat that the U.S. government is absorbing themselves. What a great industry to be in.
Net-net, this is a great win for big tech and I don’t expect anything to drastically change, but get ready for a lot more digital ads in your daily consumption of digital content and more of the same products.
Lordstown Motors Inc. (RIDE), an EV startup that recently went public, lacks the money to build a debut pickup truck and might go out of business if funding dries up in the next 12 months.
That’s what you get if you go for the “cheap” tech that offers some pipedream of fantasy managed by charlatans.
The company believes that its current level of cash and cash equivalents are not sufficient to complete the development of its electric vehicles and launch the Endurance pickup.
Investors should have seen this coming from a million miles away.
Lordstown went public through a SPAC and numerous have gone through upheaval as analysts critique their business practices.
Some, like Nikola Corp. (NKLA) and Velodyne Lidar Inc. (VLDR), have had their founders ousted.
Lordstown now has balance sheet problems.
In the filing, Lordstown said it has approximately $587 million in cash and an accumulated deficit of $259.7 million as of March 31, after reporting a first-quarter net loss of $125.2 million.
Going public gifted RIDE $675 million, but the company has burned through that quickly.
Let’s run down the list of red flags I have seen pop up at this supposed EV producer.
The company has no revenue and no sellable product, and they have most likely misled investors on both its demand and production capabilities.
The company has consistently pointed to its book of 100,000 pre-orders as proof of insatiable demand for its proposed EV truck.
Lordstown recently announced a 14,000-truck deal from E Squared Energy, supposedly representing $735 million in sales.
But E Squared is based out of a small residential apartment in Texas that doesn’t operate a vehicle fleet.
Another 1,000-truck, $52.5 million order comes from a 2-person startup that operates out of a Regus virtual office with a mailing address at a UPS Store.
Lordstown has thrived off the notion that the faster the pre-orders arrive, the greater investors’ confidence would be in the company and the faster funds would flow in and subsequently lift shares for long enough that management can cash out.
What management has failed to tell us is that these pre-orders are non-binding letters of intent, require $0 as a reservation payment, do not require an actual purchase.
Do I have other gripes about the company?
Yes.
Despite claims that battery packs would be manufactured in-house, the product is definitely not.
Former employees revealed that the company has completed none of its needed testing or validation, including cold-weather testing, durability testing, and Federal Motor Vehicle Safety Standards (FMVSS) testing required by the NHTSA.
Lordstown only went public in October 2020, but in that brief time, executives and directors have unloaded around $28 million in stock.
It seems awfully plausible that management is unloading stock because they think the company will ultimately fail and the stock will go to 0.
The pre-orders representing over $5 billion in future revenue couldn’t be further from the truth.
So basically this is an EV company out of the mold of Nikola that has no product but tout some marketing gimmicks as empirical evidence that should nudge investors to believe they are on the brink of full-out mass production.
It’s possible no company has ever done just on the basis of hyping up their non-binding, zero dollars down pre-orders and RIDE is still living off of these fumes.
Ultimately, the company isn’t even close to producing a car and any capital thrown at it is dead money that will disappear into a black hole.
It’s plausible that this is a sign of froth when marginal tech firms like RIDE can pull off their act for this long.
It almost makes sense as the market-altering retail army funnels capital to spin into meme trades and make a mockery of the real traders who try to treat this seriously let alone value investors.
I doubt that Reddit’s retail army will save RIDE since the word is out of their business practices.
It’s not too far-flung to consider that the same mysticism brought to the EV industry by Elon Musk is being deployed nefariously to excite the incremental investor that RIDE is about to strike it rich with the “next Tesla.”
The truth is that there is only one Tesla and there will be only one Tesla because they thread the needle through the hole popularizing the EV when there was no competition.
And now the conglomerates have closed that gap and are chasing after Tesla, meaning it’s impossible that there could even be another Tesla in 2021.
And by competition, I first mean GM, then the tier after that of Toyota, Ford, and European players who allowed Tesla to take the lead.
I would say that any reader mustn’t believe that charlatans masquerading as the “next Elon Musk” could be just as good as the real thing.
Take these words with a grain of salt.
Capital should not be considered in any of these unless there’s a real product and proof of product success.
And I am not even talking about accelerated earnings reports yet, or consistent outperformance, this is way off of that.
There are some instances where a premium is paid for potential, especially if it will shift the paradigm in the industry, but if it smells like a rat, the rat should prove he isn’t a rat and not vice-versa.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-06-11 13:02:122021-06-17 17:49:19Don't Fall Into the Lordstown Trap
Below please find subscribers’ Q&A for the May 26 Mad Hedge Fund TraderGlobal Strategy Webinar broadcast from Lake Tahoe, NV.
Q: Do you expect a longer pullback for the (SPY) through the summer and into the last quarter?
A: No, this market is chomping at the bit and go up and won’t do any more than a 5% correction. We’ve already tested this pullback twice. We could stay in this 5% range for a few more weeks or months, but no longer. If we make it to August before we take off to the upside, that would be a miracle. It seems to want to break out right now and if you look at the tech stocks charts you can see what I'm talking about.
Q: Why do day orders with spreads not good ‘til canceled (GTC)?
A: Actually, you can do good ‘til canceled on these spreads, it just depends on how your platform is set up. Good ‘til canceled won't hurt you—only if we get a sudden reversal on a stop out which has only happened four times this year.
Q: Disney (DIS) seems to be struggling to get back over $180; am I still safe with my January 2023 $250 LEAPS?
A: Yes, out to 2023 we’ll have two summers until those expire, so those look pretty good—that's a pretty aggressive trade, and I’m betting you’re looking at a 500% profit on those LEAPS. And by the way, I always urge people to go out long on these LEAPS, because the second year is almost free when you check the pricing. So, take the gift and that will also greatly reduce your risk. We could have a whole recession and recovery, and still have those LEAPS make it to $250 in Disney.
Q: Should I add to Freeport McMoRan (FCX)?
A: (FCX) I would not add—in fact, I would have a stop loss if we closed below $40 on (FCX) if you’re a short-term trader. There is a slowdown in the Chinese economy going on as well as a clampdown on commodity speculation. This has affected the whole base metal space, including steel and palladium. If you have the long-term LEAPS, keep them, because I think (FCX) doubles from here. The whole “green revolution story” is still good.
Q: Do you think the United States Treasury Bond Fund (TLT) is going up?
A: No, I think the (TLT) has been going down. I've been buying puts spreads like crazy, and I have a huge chunk of my own retirement fund in long-dated (TLT) LEAPS, so I am praying it will go down. We’ll talk about that when we get to the bond section.
Q: Prospects for U.S. Steel (X)?
A: It’s tied in with the whole rest of the base commodity complex—I think it is due for a rest after a terrific run, which is why I have such tight stop losses on Freeport McMoRan (FCX).
Q: Do you buy the “transitory” explanation for the hot inflation read two weeks ago that the Fed is handing out, or do you think inflation is bad and here to stay?
A: I go with the transitory argument because you’re getting a lot of one-time-only price rises off of the bottom a year ago when the economy completely shut down. Once those price rises work through the system, the inflation rate should go from 4.2% back down to 2% or so. So, I don't see inflation as a risk, which is why I think the stock markets can reach my 30% up target this year. You may get another hot month as the year-on-year comparisons are enormous. But betting on inflation is betting on the reversal of a 40-year trend, which usually doesn’t work out so well.
Q: On your spread trade alerts can we buy less than 25 contracts?
A: You can buy one contract. In fact, I recommend people start with one contract and test out where the real market is. Put a bid for one contract in the middle of the market, and if it doesn’t get done, raise your bid 5 cents, and eventually, your order gets done. Then you can add more if you want to. I always recommend this even for people who buy thousands of contracts, that they test the market with one contract order just to make sure the market is actually there.
Q: Can you recommend a LEAPS for Amazon (AMZN)?
A: The Amazon LEAPS spread is the January 2022 $3150-3300 vertical call debit spread going out 8 months.
Q: When you short the (TLT), how do you do it?
A: I do vertical bear put debit spreads. I buy a near-money put and sell short and an out-of-the-money put so I can reduce the cost, and therefore triple my size. This strategy triples the leverage on the most likely part of the stock move to take place, which is the at the money. For example, a great one to buy here would be a January 2021 (TLT) $135/140 vertical bear put debit spread where you’re buying the $140 and selling short the $135. The potential 8-month profit on this is around 100%. You’ll make far more money on that kind of trade than you ever would just buying puts outright. Some 80% of the time the single option trades expire worthless. You don’t want to become one of those worthless people.
Q: What’s your best idea for avoiding a U.S. Dollar drop?
A: Buy the Invesco Currency Shares Euro Trust (FXE) or buy the Invesco Currency Shares Australian Dollar Trust Trust (FXA), the Australian Dollar to hedge some of your US Dollar risk. The Australian dollar is basically a call option on a global economic recovery.
Q: I’m a new subscriber, but I don’t get all the recommendations that you mention.
A: Please email customer support at support@madhedgefundtrader.com , tell them you’re not getting trade alerts, and she'll set you up. We have to get you into a different app in order for you to get all those alerts.
Q: How about the ProShares UltraShort 20 Year Treasury ETF (TBT)—is that a bet on declining (TLT)?
A: Absolutely yes, that is a great bet and we’re at a great entry point right now on the (TBT) so that is something I would start scaling into today.
Q: Do you still like Palantir (PLTR)?
A: Yes, but the reason I haven't been pushing it is because the CEO says he could care less about the stock market, and when the CEO says that it tends to be a drag on the stock. Palantir has an easy double or triple on it on a three-year view though. However, small tech has been out of favor since February as it is overpriced.
Q: How far down can the (TLT) go in the next 30 days?
A: It could go down to $135 and maybe $132 on an extreme move, especially if we get another hot CPI read on June 10. However, if you hear the word “taper” from a Fed official, then you’re looking at high $120’s in days.
Q: With the TLT going up, why have you not sent out an alert to double up on put spreads?
A: I tend to be a bit of a perfectionist since I’m a scientist and an engineer, so I’m hanging on for an absolute top to prove itself and start on the way down. On the shorts, I like selling them on the way down, and buying my longs on the way up, because there are always surprises, there’s always the unknown, and heaven forbid, I might actually be wrong sometimes! So, I’m still waiting on this one. And we do already have one position that is fairly close to the money now, the June 2021 $141-144 vertical bear put debit spread, so I don't want to double up on that until we have a reversal in the intermediate term trend.
Q: I see GameStop (GME) is spiking again now up to $230—should I get in for a short-term profit?
A: No. With these meme stocks, the trading is totally random. If anything, I would be selling short, but I would do it in a limited risk way by buying a put spread. However, the implied volatility in the options on these meme stocks are so high that it's almost impossible to make any money on options; you’re paying enormous amounts of money up front, so that's my opinion on GameStop and on AMC Entertainment Holdings (AMC), the other big meme stock.
Q: Will business travel come back after the world is vaccinated?
A: Absolutely. Companies don't want to send people on the road, but customers will demand it. All you need is one competitor to land an order because they visited the customer instead of doing a Zoom (ZM) meeting, and all of a sudden business travel will come roaring back. So that's why I was dabbling in Delta Airlines (DAL) and that's why I like American Express (AXP), where 8% of transactions are for first class airline tickets.
Q: As the work-from-home economy stops and workers go back to the office, do you see a 10% correction in the housing market?
A: Actually, in the housing market with real houses, I don't see prices dropping for years, because 30% of the people who went home to work are staying there for good—that the trend out of the cities into the hinterlands is a long-term trend that will continue for decades, now that Zoom has freed us of the obligations to commute and be near big cities. And of course, I’m a classic example of that; I've been working either in my basement in San Francisco or at Lake Tahoe for the last 14 years. Housing stocks on the other hand like Lennar (LEN), Toll Brothers (TOL) and KB Home (KBH) have had a tremendous run and are basically out of homes. Could they have a 10% correction at any time? Absolutely, yes.
Q: Should I avoid buying dips in last year's work-from-home stocks?
A: Yes I would. DocuSign (DOCO) and Zoom (ZM) are the two best ones because they were both up 12X from their lows, and I tend not to chase things that are up 12X unless they are a Tesla (TSLA) or an Nvidia (NVDA) or something like that. In the end, Tesla went up 295 times.
Q: Are you looking at the carbon credits market?
A: No, but I probably should. That market shut down last year. It’s alive again, and it looks like it's growing like crazy.
Q: What’s the ideal volatility for individual options? What do you use to compare?
A: Always look at the implied volatility of the option compared to the realized volatility of the underlying stock; and when the difference gets too big, you get ideal conditions for putting on call and put spreads, which take advantage of this. These are almost volatility neutral because you’re long on one batch of volatility and short on the other.
Q: Is it too late to get involved in the ProShares Ultra Technology ETF (ROM), the 2X long ETF in a spread?
A: The November 2021 $121-125 vertical bull call spread, the farthest expiration you can get for the (ROM), was kind of aggressive—I would go closer to the money. We’re right around mid $80s right now, so maybe do a January 2022 $95-100, and even that will get you something like a 400% gain by November.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH (or Tech Letter as the case may be), 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
Summit of Mount Rose at 10,778 feet with Lake Tahoe on the Right
High multiple tech stocks often overshoot on the way up and overshoot on the way down.
This is predominately driven by uncontrolled momentum as investors and traders resort to margin to borrow money and add leverage to positions and trends that seem to be working at the time.
Since the start of the year, technology has had to come to grips with a sudden rerating of valuations.
For example, a bellwether stock for the future success of tech, Tesla (TSLA) has corrected 20% year-to-date after more than 700% move up in 2020.
Reliable big-cap tech has been more steadfast in 2021 such as the likes of Apple (AAPL) who have only experienced a less than 2% year-to-date decline in shares.
The biggest winner so far of big-cap tech has to be Alphabet (GOOGL) whose shares have risen around 25% since the beginning of the year.
Even with sky-high expectations, Google is hitting it out of the ballpark and then some.
Simply meeting or doing a nudge over expectations this past earnings season has proved not enough for underlying shares to surge on the results meaning we are fully priced.
Naturally, the more speculative business has felt the worst of the carnage with SPACs down half from their peaks and “artisanal” tech down 30%-50%.
This doesn’t mean tech is over.
Hardly so – It’s just resting.
But readers and investors will need to traverse through a period of multiple contraction and consolidation as high-priced tech stocks are re-rated lower until we reach appetizing multiples.
Simply put, we got ahead of ourselves and there is only so much leverage that can be taken out to chase the rainbows and feed off the momentum.
Microsoft (MSFT) has been another stout stock that is up around 12% year-to-date and a great place to hide out during the consolidation phase.
The cause of the rerating derives specifically from upper management guiding down future revenue and profitability targets.
I have read countless earnings reports that describe a comprehensive dilemma in which the overall structure of the company couldn’t be healthier yet beating prior years’ Covid performance is impossible on a year-to-year basis.
Readers need to understand this year is still priced as a Covid year, but tech companies won’t nearly do as well because the conditions that engulfed Covid like work-from-home and the absence of a vaccine are not here anymore.
There is a health solution in the U.S. and in parts of Europe there are partial solutions and certainly, no lockdown as the Chief of the CDC signals masks are not needed for the vaccinated in public.
The tech market needs to readjust its expectations that will hand off to more of a normalized metric environment and that will happen naturally as we move closer to 2022 and into it.
On a calculation basis, comparing data from 2022 and 2021 will strip out the volatility from the 2020 and 2021 comparisons.
Remember that management uses the prior year as reference points for performance and that phenomenon is now hurting the appearance of relative outperformance.
A top executive at a fintech company had this to say, “The pandemic has accelerated a digital wave of change across almost every industry by three to five years, unleashing a profound and permanent structural transformation.”
I’ll take a 5-year digital transformation in one year if the second year is a time that is needed for earnings’ expectations to consolidate for half a year or so.
I would take that deal anytime if it was my company.
The data also suggests how breathtaking companies like Google and Microsoft are if their future guidance is immune to any expectation.
They are beating whatever consensus is in a Covid year or not.
Take a look at some of the darlings of tech in the height of pandemic like Teladoc (TDOC), and shares are off around 33% year-to-date and even went through a 40% drop from mid-February to the beginning of March.
Avoid those now!
Even if it's not related to cloud software stocks, the dearth of semiconductor chips is beginning to cause pain in every nook and cranny of the global economy catalyzing many firms to delay or even cancel production let alone roll out new models.
This adds to the global malaise of a supply chain that many managements describe as “topsy-turvy.”
Not only is the bottleneck happening as we speak, but it appears as though it could last at least 2 or more years.
When the Fed talks about “transitory” inflationary pressures, at least as it relates to tech, I am not sure what they are smoking.
There has been no concrete data in which they have offered to suggest that it will be transitory unless they have a different definition of transitory from mine.
The accumulation effect of these pressures is why the tech-heavy Taiwan stock market, FTSE TWSE Taiwan 50 Index, comprised of tech stalwarts like Taiwan Semiconductor Manufacturing (TSM) and Hon Hai Precision Industry, declined over 2% today after losing over 8% last week.
Ultimately, investors are moving to higher ground and seeking predictable profitability and raw size over elevated growth rates and loss-making EPS figures.
When the goalposts move, we must move with them and that is what has happened.
Tech investors are more conservative than last year and until the goalposts widen a bit as I expect as we move into Q3 and Q4, we need to be aware of the new rules of the game or who gets penalized for them.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-05-17 11:02:502021-05-25 02:20:07Multiple Contradiction
Below please find subscribers’ Q&A for the May 12 Mad Hedge Fund TraderGlobal Strategy Webinar broadcast from Lake Tahoe, NV.
Q: Is it too risky to run a double position on the US Treasury Bond Fund (TLT)?
A: Absolutely not, if anything it’s now risky enough. You need to be running triple and quadruple short positions in the (TLT) and skipping all the other marginal trades out there.
Q: Where do I find the put LEAPS recommendations?
A: If you did not get the put LEAP recommendation as part of your regular Global Trading Dispatch service, just log in to the www.madhedgefundtrader.com website and do a search on put LEAPS. Our concierge members get many more LEAPS recommendations, and they get them earlier. I happen to have an opening now, provided you can afford $10,000 a year for the service.
Q: With the inflation numbers coming at 4.2% YOY, how does that affect our strategy?
A: It kills techs, gets them too much lower levels that are much more attractive, and you make a fortune on all of your US Treasury (TLT) shorts. That's the main goal of our strategy right now. In other words, it’s great news.
Q: Would you sell technology stocks here and wait for a bounce?
A: No, ideally you would have hedged last week, buying Invesco QQQ Trust NASDAQ (QQQ) and TLT put spreads, and that hedged all your losses in your technology portfolio. The next move is to take profits on your (QQQ) and bond (TLT) shorts and then go unhedged on your tech longs. This is how hedge funds are executing their barbell strategies.
Q: Is the (TLT) $130-$135 vertical bear put spread okay for September, or should I pay more for January?
A: I would go to January because, as you noticed, this market could enter a long sideways period that goes on for months, like we just had. If you have a September and we go into another one of those sideways moves, you’re going to be wishing you did January. You don’t have to pay much more for January, only a few cents and even then, you’re looking at a 100% return.
Q: Is Tesla (TSLA) under $600 a good buy?
A: It's even a better buy at $545, which is the double bottom low of the last selloff; so, I would wait for that. And then I would essentially not do the stock, but a $450 call spread to reduce your risk even further.
Q: I just entered the Freeport McMoRan (FCX) LEAPS today. Should I average in a lower price?
A: Absolutely yes, I don't think it drops much from here since everyone expects it to double. And if you have the 8- or 20-month LEAPS, the day-to-day price move isn’t very big, given how much the stock is moving. That's the great thing about LEAPS—it reduces the volatility of your portfolio because you have such enormous time value in these long-dated LEAPS. It's really good to have a couple of these in your portfolio, just to act as a sort of sea anchor to reduce volatility; and of course, the (TLT) and (FCX) are two of the best trades out there.
Q: Would you roll a losing position?
A: I do that maybe once a year, in extraordinary circumstances. I would rather take a short-term loss on Microsoft (MSFT) and if it drops $10 more, then I go back into the position. You never know when you get one of these huge selloffs and you can take the full 10% hit on these call spreads. Remember these are highly leveraged positions; they are leverage ten to one or more. When the stock moves even a little bit against you, you don't want leverage whatsoever. Better to get out of a small hole now than a much bigger hole later. But that's just me after 52 years of trading.
Q: The hedge fund legend Stanley Druckenmiller said the current Fed monetary policy puts the US dollar at risk of losing its reserve currency status. What do you think about this?
A: I’m totally in line with him on being short the dollar and short treasuries, but I don't think the dollar will lose reserve status in my lifetime. What would they replace it with? Anything you look at has far more problems with liquidity and stability than the US dollar. I literally have been asked this many times a year for the last 50 years, ever since the US went off the gold standard in 1972. The strongest reserve currency in the world has the strongest military, and as long as that’s true, the US dollar will not lose its reserve status. That has been true since the Roman Empire. In fact, you still find Roman coins floating around.
Q: When do we stop out of Delta (DAL)?
A: When we break 43. Very simple. You break your first strike price at $43.00 and you are out of there, losing about $800 on the position, which is our hard and fast stop loss rule. Never let emotion into the equation. Stop losses should be automatic and mechanical.
Q: What do you think of Nordstrom (JWN)?
A: I think they were close to bankruptcy, but I'm looking at the higher end retailers to make a recovery. While the bricks and mortar were shut down, they did develop pretty big online businesses. That's true for Macy’s (M), Kohls (KSS) and a lot of the other businesses that survived the pandemic.
Q: Is Mastercard (MA) better than Visa (V)?
A: All three credit card companies are more or less six of one and half a dozen of the other. So, buy all three if you’re not sure. American Express (AXP) has more exposure to business travel, so if you’re looking for a business travel recovery, that's the one you want to own.
Q: Is it too late to get into (TLT) LEAPS today?
A: I think it is kind of late for the short term. We have dropped $5.00 since I put this thing out on Friday, and I would rather let it wait and fall two more points and then rally five points and then put more on. You should sell the next rally peak, wherever that is, even if we start from $130. You can even do in the money LEAPS, like a $135-$140 (TLT) going out to January—the profit on that is still well over 50%. So even today returns are very high on that position.
Q: Would you buy more Palantir (PLTR) on the recent dip?
A: Yes, but only if you have a long-term view. The CEO said he could care less about the stock price, and when CEOs say that, the stock sells off huge. If the CEO doesn't care about the stock, then nobody else does either. I think their business model is interesting for the long term and I think eventually some kind of tech rally will take it back up. That is not now.
Q: Is First Solar (FSLR) a buy?
A: We’re getting into buy territory. They had a monster 4X rally off the bottom last year. But the entire green sector got wildly overbought by February and was then dragged down with the rest of the tech selloff. I think solar is going to have a major long-term bull market. Look to buy for the long term. It’s not in call spread or LEAP territory for me yet, but it will be. Another good one to buy is SunPower (SPWR).
Q: Do you have several different subscriptions? How do I find out about them?
A: Yes, go to the www.madhedgefundtrader.com store. We have services that go from free all the way up to $10,000 a year. Just pick one that suits your level of experience, risk tolerance, and the amount of capital you have to work with.
Q: How do I get trade alerts?
A: Email customer support at support@madhedgefundtrader.com , send them your cell number and they will set you up with the trade alert service which goes straight to your phone.
Q: How do existing subscribers get a price break on your other subscriptions?
A: You make so much money trading from your existing service, that you never have to ask a price on anything again. JP Morgan once said that “If you have to ask the price of a yacht you don’t need to know.
Q: I’m doing extremely well in the Invesco Currency Shares Australian Dollar Trust (FXA) that you recommended a year ago.
A: Yes, you and everyone else who believed my story. Australia is a call option on a global economic recovery with all its commodity exports like iron ore and natural gas. My target is $100 in two years.
Q: Should I buy the US dollar (UUP) or wait for another down move?
A: I wouldn't touch it with a 10-foot pole. I think the move down in the dollar is a 10-year event that we’re one year into. By the way, currencies do go down for decades at a time because it will take that long to cut back our borrowing and start paying back some of the principle. That is a long way off.
Q: If Bitcoin drops do tech stocks drop as well?
A: I don't think there's that much of a correlation between Bitcoin and tech stocks. Tech stocks have major valuation support about 10% down and for sure 20% down. That gets you a price-earnings multiple for the big tech stocks of only 18X, which was the low in the 2008 crash and the 2000 Dotcom crash. So major historical support at an 18X multiple Bitcoin has no technical or fundamental support whatsoever because there are no fundamentals, there are only charts.
Q: Do you think Chinese carmakers like Nio (NIO) and Xpeng Inc. (XPEV) will ever catch up with Tesla?
A: No, never. China has never been able to reach the safety standards necessary to export cars to the US. They've been making electric cars in China longer than Tesla has. I was visiting electric car factories in China around 2007-2008, and they just can’t get the quality up. In the meantime, Tesla is moving ahead at warp speed, so I don't see a risk to them.
Q: I have a big position in Clorox (CLX) that I’ve made a lot of money on; should I sell it?
A: Yes, you’ll never get more reasons to buy Clorox at a great price than in a pandemic. There's actually a shortage of Clorox right now. So yes, take profits on (CLX).
Q: Would you buy Kathy Wood’s Ark Innovation ETF (ARKK) right here today?
A: No, I think we have more interest rate rallies to go and more tech selloffs to go. I would wait and buy it with ten-year US Treasury yields at 2.00%. I would rather be buying this on the way up and averaging up, than buying on the way down and averaging down.
Q: How will stocks be affected at 2.00% yields in the ten-year?
A: I think what happens is we run up 2.00%, bonds collapse, and then it stops. And when it stops and starts to pull back from 2.00%, then you get a new rally in the stock market, especially in technology stocks.
Q: Is it a good idea to hold 30-year US treasury bonds?
A: It's a terrible idea. I would be selling short US Treasury bonds up the wazoo—especially the 30 year which has the greatest price sensitivity to a move up in interest rates.
Q: Should we buy put LEAPS on oil (USO) and energy (XLE)?
A: Yes but not yet; as long as you have a red hot economy in the short term, you don’t want to be shorting anything in energy. Next year, however, may be a different story. The economic growth rate will start to slow down, oil demand starts to slow down, and the rate of replacement of gasoline cars by EV’s accelerate with all the new production. So that's next year’s trade, not this year’s trade, but it’s a good idea.
Q: When the Volatility Index (VIX) hits $30, what would be your first choices to pick up?
A: I would go for all the domestic recovery, interest rate, and industrial plays that have been working so well this year. They will continue to lead the market until we get a major reversal down in interest rates.
Q: When do I buy semiconductor stocks (SOX)?
A: When the rest of tech bottoms out and starts its way back up. It’s better to average up than average down.
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
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
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