I was awoken this morning by calls from Concierge members asking what to do when their Visa (V) options were assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
We have the good fortune to have five option call spreads that are deep in the money going into the February 16 option expiration. They include:
(MSFT) 2/$330-$340 call spread
(AMZN) 2/$130-$135 call spread
(V) 2/$240-$250 call spread
(PANW) 2/$260-$270 call spread
(CCJ) 2/$38-$41 call spread
In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.
Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the Visa (V) February 2024 $240-$250 in-the-money vertical BULL CALL debit spread.
For what the broker had done in effect allows you to get out of your call spread position at the maximum profit point 8 trading days before the February 16 expiration date. In other words, what you bought for $8.80 on January 10 is now $10.00!
All have to do is call your broker and instruct them to exercise your long position in your (V) February 2024 $240 calls to close out your short position in the (V) February 2024 $250 calls.
This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.
To say it another way, you bought the (V) at $240 and sold it at $250, paid $8.80 for the right to do so, so your profit is $1.20 or ($1.20 X 100 shares X 12 contracts) = $1,440. Not bad for a 26-day defined limited-risk play.
Sounds like a good trade to me.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (V) position after the close, and exercising his long February $240 call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.
Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates oodles of commission for the brokers but impoverishes you.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they did train 50 years ago.
Avarice could have been an explanation here but I think stupidity, poor training, and low wages are much more likely.
Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/11/Call-Options.png345522april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-02-08 09:02:412024-02-08 11:49:03A Note on Assigned Options, or Options Called Away
Inflation is dramatically falling, with Core PCE down to an amazing 2.6% YOY rate in December. At the same time, GDP growth came in at an incredible 3.3% in Q4 and 2.5% for all of 2023. The long-term average is 3.0%. It’s about as close to a Goldilocks scenario as we’ll ever get.
The problem arises when the economy gets TOO healthy right when the Fed is considering its first interest rate CUTS in four years. That could lead our nation’s central bank to postpone cuts or not to announce them at all.
That would suddenly put the three-month-old bull market on ice, perhaps indefinitely, which has given us one of the worst whipsaw markets I have ever seen. Sector leadership has changed three times so far in 2024. First, there was the AI 5, (MSFT), (META), (GOOGL), (AMZN), and (NVDA). Next came stocks that benefit the most from falling interest rates, financials, precious metals, base metals, industrials, bonds, and foreign currencies.
To say this would be a tough market to trade would be an understatement, evidenced by my multiple stop losses this month. The remedy for this is to shrink your portfolio, sit back, and wait for the market to tell you what to do. I have to say that with the Volatility Index ($VIX) camped out at the $12 handle, options are not offering a lot for you to chew on either.
If you are looking for any further proof that technology is accelerating far faster than we can understand, I shall recall for your edification my last weekend.
After my youngest went off to college, I had to get her headboard refinished because she spent two years in bed looking at her computer while enrolled in high school during COVID-19. She had completely worn the finish off but got all A’s.
So I went to Yelp to look for a furniture restoration business. I clicked on one restorer who had good reviews and lots of pictures, described the job, and included pictures. Within 60 seconds, I received not one bid for the job but four, as Yelp had put the job out for bid across its entire network. One offered to do the job the next day for $100.
Learning how easy it is to refinish furniture, I put a second job out for bid, a small beat-up desk which I picked up at an estate sale for $20. I learned that this was a 100-year-old Craftsman desk highly sought after by collectors worth $2,500. Absolutely, yes, it was worth the $750 cost of a total stripped-down restoration.
I’m thinking “poor furniture restorers”, but what they are losing in the price, they make up in volume. Their craft is in fact a dying one and they can charge whatever they want.
And now you know why I go to estate sales.
What kind of homework is my daughter getting these days? As a Computer Science major at the University of California, she was handed a box of calculators smashed with a hammer. Over a weekend, she was required to invent a tool that identified the good chips from the bad, write code to reprogram the chips, and then glue the good calculators back together.
By Sunday afternoon she had a box full of working but somewhat ugly calculators, thanks to my donation of Gorilla Glue. And this for a sophomore! Needless to say, I didn’t see much of my daughter last weekend, except when she came downstairs to do her laundry.
Next week, they have to fix cell phones.
Gulp! I doubt I could even get into the UC today, even though I graduated Magna Cum Laude 50 years ago. Such is life with college students.
Watch out! The future is happening fast!
So far in January, we are down -4.33%. My 2024 year-to-date performance is also at -4.33%.The S&P 500 (SPY) is up +1.14%so far in 2024. My trailing one-year return reached +54.54% versus +21.14%for the S&P 500.
That brings my 15-year total return to +672.30%. My average annualized return has retreated to +51.06%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining longs in (MSFT), (AMZN), (V), (PANW), and (CCJ).
US GDP Rocketed by 2.5% in 2023, cementing its position as the strongest major economy in the world. Q4 came in at a hot 3.3%. We’re going from soft landing to no landing at all. Unfortunately, the report also put our bond trade to sleep.
Inflation Falls, with the Core PCE index easing to 2.9% last month, the lowest since 2021. That’s in the face of consumer spending posting the biggest back-to-back increase in nearly a year. This is very positive for bond bulls. Buy (TLT) LEAPS on dips.
The Roaring Twenties are Back, says investment guru and old friend Ed Yardeni. He draws parallels with the runaway stock prices that followed the 1918 Spanish flu pandemic, which killed millions. Of course, you had a 10:1 margin during the twenties which made speculation much easier. Are same-day options any worse?
New Homes Sales Recover, on a falling interest rate push, up 8.0% to 664,000. Sales, however, can be volatile on a month-to-month basis. Sales increased 4.4% on a year-on-year basis in December.
Netflix Soars on Big Subscriber Beat, up 8.6% on an add of 13 million new subscribers. It moved solidly into more sports content with the World Wrestling Entertainment deal. Buy (NFLX) on dips, which clearly won the streaming wars. I can’t get enough of The Rock, who is a genuinely nice guy.
Microsoft Tops $3 Trillion Valuation, cementing its hold on the AI lead. (MSFT) has been a top Mad hedge holding for years which we are currently long. Buy (MSFT) on dips which may have another $100 in it this year.
Freeport McMoRan Kills it, with an earnings upside blowout, taking the stock up 5%. CEO Richard Adkerson, a long-time Mad Hedge subscriber, says any problems are short-term. Political problems in Chile and Peru are an issue, which generates 40% of the world’s copper. Electrification of the US economy will continue to be a driving theme.
Mortgage Rates Plunge to 8-Month Low. The average fixed-rate 30-year mortgage fell to 6.60% as of Thursday from 6.66% the week prior, Freddie Mac said in its weekly report on home loan borrowing costs. The next Golden Age of Housing is here.
China Markets Dive, on news that the central bank was forced into the currency markets to support the yuan. Stock markets didn’t like it a bit, down 2.7% on the day. Overseas funds have sold roughly $1.6 billion in Chinese equities so far this year, with investor confidence bruised by signs of a slowdown in the world's second-largest economy. Offshore yuan tomorrow-next forwards jumped to a more than two-month high of 4.25 points late on Monday, reflecting signs of tighter liquidity conditions. Avoid China (FXI) like some stale egg foo young.
“Oppenheimer” Sweeps the Oscars, with a record 13 nominations. It’s a movie where I knew half the characters in real life from my work at the Nuclear Test site in Nevada. It was another opportunity to discuss advanced nuclear physics over dinner with my kids. Click here for the full list. The winners will be announced on March 10.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, January 29, the Dallas Fed Manufacturing Index was announced.
On Tuesday, January 30 at 8:30 AM EST,the S&P Case Shiller National Home Price Index is released. We also get the JOLTS Job Openings Report.
On Wednesday, January 31 at 2:00 PM, the ADP Private Jobs Opening Report is published. The Federal Reserve announces its interest rate decision.
On Thursday, February 1 at 8:30 AM, the Weekly Jobless Claims are announced.
On Friday, February 2 at 2:30 PM, the December Nonfarm Payroll Report and Unemployment Rate is published. At 2:00 PM the Baker Hughes Rig Count is printed.
As for me, I received calls from six readers last week saying I remind them of Ernest Hemingway. This, no doubt, was the result of Ken Burns’ excellent documentary about the Nobel prize-winning writer on PBS last week.
It is no accident.
My grandfather drove for the Italian Red Cross on the Alpine front during WWI, where Hemingway got his start, so we had a connection right there.
Since I read Hemingway’s books in my mid-teens I decided I wanted to be him and became a war correspondent. In those days, you traveled by ship a lot, leaving ample time to finish off his complete work.
I visited his homes in Key West, Florida, and Ketchum, Idaho. His Cuban residence is high on my list, now that Castro is gone. His home in Cuba is on the menu.
I used to stay in the Hemingway Suite at the Ritz Hotel on Place Vendome in Paris where he lived during WWII. I had drinks at the Hemingway Bar downstairs where war correspondent Ernest shot a German colonel in the face at point-blank range. I still have the ashtrays.
Harry’s Bar in Venice, a Hemingway favorite, was a regular stopping-off point for me. I have those ashtrays too.
I even dated his granddaughter from his first wife, Hadley, the movie star Mariel Hemingway, before she got married, and when she was still being pursued by Robert de Niro and Woody Allen. Some genes skip generations and she was a dead ringer for her grandfather. She was the only Playboy centerfold I ever went out with. We still keep in touch.
So, I’ll spend the weekend watching Farewell to Arms….again, after I finish my writing.
Oh, and if you visit the Ritz Hotel today, you’ll find the ashtrays are now glued to the tables.
As for last summer, stayed in the Hemingway suite at the Hotel Post in Cortina d’Ampezzo Italy where he stayed in the 1950s to finish a book. Maybe some inspiration will rub off on me.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2024/01/John-thomas-typewriter.png11861124april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-01-29 09:02:312024-01-29 10:29:05The Market Outlook for the Week Ahead, or Too Much of a Good Thing?
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT WILL KILL THIS MARKET)
(MSFT), (BA), (AMZN), (DAL), (V), (PANW), (CCJ), (TLT), (NVDA), (META), (TSLA), (GOOGL)
What if Goldilocks decided to hang around for a while? I’ve always been in favor of a long-term relationship.
It could be weeks. It could be months.
Certainly, the widely predicted New Year selloff has failed to materialize.
Failure to fall after the first week of 2024 has delivered a rally almost as ferocious as the one that launched in October. (NVDIA) up 15% in a week? Good thing I have a double position. Cameco (CCJ) up 25%? The market action was so positive that it rushed me into a rare 100% fully invested portfolio.
Which all begs the question of what WILL eventually kill this market. After all, nothing goes up forever.
It's very simple.
If the coming Fed interest rate cuts become so certain that companies start aggressively investing for the recovery NOW, there could be a problem. The headline Unemployment Rate never falls, inflation reaccelerates, and even the idea of interest rate cuts gets pushed off until 2025. That would thrust a dagger through the heart of the current rally post haste, which has been interest rate-driven from day one.
If there’s anyone who will save our bacon from this dire scenario, it is the legion of dour analysts out there who are perpetually behind the curve with their ultra-conservative earnings forecasts. That is scaring companies from expanding too quickly and is why every announcement delivers an upside surprise. That alone could provide enough of a drag on the economy to keep the Goldilocks scenario on track.
Watch Out Above!
If that is the case, then the ten positions I added last week to achieve a rare 100% invested portfolio should do pretty well, which has a strong technology bent. In the AI-dominated world, data is king. Let’s see who owns the data.
Microsoft (MSFT) – knows every keystroke you have executed since you bought your first PC in 1990.
Google (GOOGL) – knows every search you have performed since 2005 plus every YouTube video you have watched, even the X-rated ones (oops!).
Tesla (TSLA) – knows every function your car has performed since 2010 and has 12 videos of where you have been (double oops!).
Meta (META)– knows every keystroke you have performed on your social media accounts.
If all of this sounds scary, it should be. But it also means that while these stocks may be expensive relative to 2023 earnings, they are still in the bargain basement regarding 2024 and 2025 earnings. Buy everything on dips. Investors are adding to what they already own because it’s been working big time, including me.
On a completely different topic, Uranium is going nuclear again. Yellow cake, the fuel used by nuclear power plants, has seen prices up 45% since May. Before the Ukraine war, Russia produced 50% of the world’s nuclear fuel. Now it is banned due to sanctions. The US has announced the creation of a nuclear fuel stockpile.
Congress is about to vote on a ban on Russian fuel. France just announced the addition of 14 large nuclear plants. Oh, and it’s green.
Uranium prices endured a long nuclear winter starting with the Three Mile Island accident in 1979, followed by Chernobyl in 1986, and Fukushima in 2011. That time is now over, thanks to more advanced reactor designs and better risk control.
I used to collect Czech uranium glass, which emits a very low level of gamma radiation and glows in the dark under ultraviolet light. Time to collect some of Canadian uranium miner Cameco (CCJ) also … again.
So far in January, we are up +6.19% with a 100% invested position. My 2024 year-to-date performance is also at +6.19%.The S&P 500 (SPY) is down -0.07%so far in 2024. My trailing one-year return reached +67.65% versus +37.82%for the S&P 500.
That brings my 15-year total return to +682.82%. My average annualized return has exploded to +52.19%,another new high.
Some 63 of my 70 trades last year were profitable in 2023.
I am going into 2024 with longs in (MSFT), (BA), (AMZN), (DAL), (V), (PANW), (CCJ), (TLT), and a double long in (NVDA).
FAA Grounds the Boeing 737 Max….Again, after a huge chunk of the fuselage fell off on a passenger flight which made an emergency landing in Portland. Dozens of the troubled aircraft were grounded. The move affects about 171 planes worldwide. The 737 Max is by far Boeing’s most popular aircraft and its biggest source of revenue. United Airlines is the biggest operator of the type followed by Alaska. Use any major dips to buy (BA) stock, which is facing a golden age.
NVIDIA Ramps Up its Graphics Cards. Nvidia is playing up its strength in consumer GPUs for so-called “local” AI that can run on a PC or laptop from home or an office. The new chip can be used to generate images on Adobe Photoshop’s Firefly generator to remove backgrounds in video calls, or even make games that use AI to generate dialogue. Buy (NVDA) on dips, as I did this last week.
Energy Prices Collapse Again, with Texas tea diving 4% to $70 on Saudi price cuts. This is despite steady buying from the US government for the SPR. The kingdom is moving to shortcut cheating by lesser OPEC members, as it usually does. If you throw good news in the market and it fails to go up, you sell it. Avoid (USO), (XOM), and (OXY).
Natural Gas Goes Ballistic, up 50% in three weeks. The 2026 $8-9 LEAPS I recommended over Christmas have already doubled. Expansion of export facilities to China is the reason, for accommodating more demand. BUY (UNG) on dips.
Mortgage Demand Soars by 10% in the first week of the year, and the next leg in the bull market for residential housing begins anew. Applications to refinance a home loan jumped 19% from the previous week and were 30% higher than the same week one year ago.
Consumer Price Index Flies, coming in at 0.3% for December instead of the anticipated 0.2%, a 3.4% annual rate. Fed rate cuts just got pushed back from March to June, where they belong. Used car and apparel prices get the blame. Car insurance was up a shocking 20% YOY. Go figure.
Bitcoin ETF’s SEC Approved, after a ten-year wait, potentially marking a market top. The SEC is still warning about market risks, even if the ETF sellers don’t. During the last crypto spike, there was an absence of cheap quality growth stocks. Now there is an abundance. Bitcoin prospered when we had a cash surplus and asset shortage. Now we have the opposite.
Global EV and Hybrid Sales Jump by 31% in 2023, compared to only 10% for internal combustion driven cars. Global sales of fully electric and plug-in hybrid vehicles (PHEVs) rose 31% in 2023, down from 60% growth in 2022, according to market research firm Rho Motion. For 2024, there are forecasts of global EV sales growth of between 25% and 30%. That’s really quite amazing given the weak 2023 global economy.
Microsoft Tops Apple, as the world’s most valuable publicly traded company, with a $3 trillion market cap. A huge lead in AI and a growing storage presence with Azure are the reasons. I’m long (MSFT) lower down.
US Budget Deficit Tops $500 Billion in Q1, starting October 1, 2023. But the frenetic price action, up a mind-blowing $19 in 2 ½ months proves the government isn’t borrowing too much money, it isn’t borrowing enough! There is a severe bond shortage in the marketplace. Never argue with Mr. Market as he is always right. Buy the (TLT) on dips, as I have.
Tesla to Halt Production in Germany, thanks to soaring shipping costs in the Red Sea. Tesla has been selling Berlin-made Model Ys to China via the Suez Canal. Shipping costs have doubled to $5,000 per container since October.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper-accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, January 15, markets are closed for Martin Luther King Day.
On Tuesday, January 16 at 8:30 AM EST,the New York Empire State Manufacturing Index will be released.
On Wednesday, January 17 at 2:00 PM, the Retail Sales are published.
On Thursday, January 18 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Building Permits for December.
On Friday, January 19 at 2:30 PM, the December University of Michigan Consumer Sentiment is published. At 2:00 PM, the Baker Hughes Rig Count is printed.
Uranium Glass
As for me, when you make millions of dollars for your clients, you get a lot of pretty interesting invitations. $5,000 cases of wine, lunches on superyachts, free tickets to the Olympics, and dates with movie stars (Hi, Cybil!).
So it was in that spirit that I made my way down to the beachside community of Oxnard, California just north of famed Malibu to meet long-term Mad Hedge follower, Richard Zeiler.
Richard is a man after my own heart, plowing his investment profits into vintage aircraft, specifically a 1929 Travel Air D-4-D.
At the height of the Roaring Twenties (which by the way we are now repeating), flappers danced the night away doing the Charleston and the bathtub gin flowed like water. Anything was possible, and the stock market soared.
In 1925, Clyde Cessna, Lloyd Stearman, and Walter Beech got together and founded the Travel Air Manufacturing Company in Wichita, Kansas. Their first order was to build ten biplanes to carry the US mail for $125,000.
The plane proved hugely successful, and Travel Air eventually manufactured 1,800 planes, making it the first large-scale general aviation plane built in the US. Then, in 1929, the stock market crashed, the Great Depression ensued, aircraft orders collapsed, and Travel Air disappeared in the waves of mergers and bankruptcies that followed.
A decade later, WWII broke out and Wichita produced the tens of thousands of the small planes used to train the pilots who won the war. They flew B-17 and B-25 bombers and P51 Mustangs, all of which I’ve flown myself. The name Travel Air was consigned to the history books.
Enter my friend Richard Zeiler. Richard started flying support missions during the Vietnam War and retired 20 years later as an Army Lieutenant Colonel. A successful investor, he was able to pursue his first love, restoring vintage aircraft.
Starting with a broken down 1929 Travel Air D4D wreck, he spent years begging, borrowing, and trading parts he found on the Internet and at air shows. Eventually, he bought 20 Travel Air airframes just to make one whole airplane, including the one used in the 1930 Academy Award-winning WWI movie “Hells Angels.”
By 2018, he returned it to pristine flying condition. The modernized plane has a 300 hp engine, carries 62 gallons of fuel, and can fly 550 miles in five hours, which is far longer than my own bladder range.
Richard then spent years attending air shows, producing movies, and even scattering the ashes of loved ones over the Pacific Ocean. He also made the 50-hour round trip to the annual air show in Oshkosh, Wisconsin. I have volunteered to copilot on a future trip.
Richard now claims over 5,000 hours flying tailwheel aircraft, probably more than anyone else in the world. Believe it or not, I am also one of the few living tailwheel-qualified pilots in the country left. Yes, antiques are flying antiques!
As for me, my flying career also goes back to the Vietnam era as well. As a war correspondent in Laos and Cambodia, I used to hold Swiss-made Pilatus Porter airplanes straight and level while my Air America pilot friend was looking for drop zones on the map, dodging bullets all the way.
I later obtained a proper British commercial pilot license over the bucolic English countryside, trained by a retired Battle of Britain Spitfire pilot. His favorite trick was to turn off the fuel and tell me that a German Messerschmidt had just shot out my engine and that I had to land immediately. He only turned the gas back on at 200 feet when my approach looked good. We did this more than 200 times.
By the time I moved back to the States and converted to a US commercial license, the FAA examiner was amazed at how well I could do emergency landings. Later, I added on additional licenses for instrument flying, night flying, and aerobatics.
Thanks to the largesse of Morgan Stanley during the 1980s, I had my own private twin-engine Cessna 421 in Europe for ten years at their expense where I clocked another 2,000 hours of flying time. That job had me landing on private golf courses so I could sell stocks to the Arab Prince owners. By 1990, I knew every landing strip in Europe and the Persian Gulf like the back of my hand.
So, when the first Gulf War broke out the following year, the US Marine Corps came calling at my London home. They asked if I wanted to serve my country and I answered, “Hell, yes!” So, they drafted me as a combat pilot to fly support missions in Saudi Arabia.
I only got shot down once and escaped with a crushed L5 disk. It turns out that I crash better than anyone else I know. That’s important because they don’t let you practice crashing in flight school. It’s too expensive.
My last few flying years have been more sedentary, flying as a volunteer spotter pilot in a Cessna-172 for Cal Fire during the state’s runaway wildfires. As long as you stay upwind, there’s no smoke. The problem is that these days, there is almost nowhere in California that isn’t smokey. By the way, there are 2,000 other pilots on the volunteer list.
Eventually, I flew over 50 prewar and vintage aircraft, everything from a 1932 De Havilland Tiger Moth to a Russian MiG 29 fighter.
It was a clear, balmy day when I was escorted to the Travel Air’s hanger at Oxnard Airport. I carefully prechecked the aircraft and rotated the prop to circulate oil through the engine before firing it up. That reduced the wear and tear on the moving parts.
As they teach you in flight school, better to be on the ground wishing you could fly than be in the air wishing you were on the ground!
I donned my leather flying helmet, plugged in my headphones, received a clearance from the tower, and was good to go. I put on max power and was airborne in less than 100 yards. How do you tell if a pilot is happy? He has engine oil all over his teeth. After all, these are open-cockpit planes.
I made for the Malibu coast and thought it would be fun to buzz the local surfers at wave top level. I got a lot of cheers in return from my fellow thrill seekers.
After a half hour of low flying over elegant sailboats and looking for whales, I flew over the cornfields and flower farms of remote Ventura County and returned to Oxnard. I haven’t flown in a biplane in a while and that second wing really put up some drag. So, I had to give a burst of power on short finals to make the numbers. A taxi back to the hangar and my work there was done.
There are old pilots and there are bold pilots, but there are no old, bold pilots. I can attest to that.
Richard’s goal is to establish a new Southern California aviation museum at Oxnard airport. He created a non-profit 501 (3)(c), the Travel Air Aircraft Company, Inc. to achieve that goal, which has a very responsible and well-known board of directors. He has already assembled three other 1929 and 1930 Travel Air biplanes as part of the display.
The museum’s goal is to provide education, job training, restoration, maintenance, sightseeing rides, film production, and special events. All donations are tax-deductible. To make a donation, please email the president of the museum, my friend Richard Conrad at rconrad6110@gmail.com
Who knows, you might even get a ride in a nearly 100-year-old aircraft as part of a donation.
To watch the video of my joyride, please click here.
Where I Go My Kids Go
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2024/01/Joh-Thomas-pilot.png8121080april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-01-16 09:02:062024-01-16 11:43:18The Market Outlook for the Week Ahead, or What Will Kill this Market
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LOOKING FOR BIG FOOT),
(NVDA), (VIX), (TLT), (TSLA), (XOM),
(OXY), (TSLA), (SPY), (MA), (V), (AXP)
On October 14, investors finally achieved the portfolios they long desired, not only individuals but institutional ones as well. They got rid of stocks and bonds that had been hobbling them all year and built their cash positions to decade highs.
What happened the next day?
Stocks and bonds went straight up for six weeks. Cash became trash.
For October 14 was the day that the stock market discounted the worst-case economic scenario for 2023, no matter how bad it may get. And it probably won’t get very bad. That’s barring a black swan-type event, like a brand-new global pandemic.
If you think your job can be frustrating, how about mine? If you run with the dumb crowd, the uninformed crowd, the loser crowd, you get your just desserts.
Fortunately, I saw these moves coming a mile off and loaded the boat. I’ve actually made more money on the parabolic move in bonds than some of the enormous moves in stocks. NVIDIA (NVDA) up 50%?
My performance in November has so far tacked on another robust +7.05%. My 2022 year-to-date performance ballooned to +82.42%, a spectacular new high. The S&P 500 (SPY) is down -16.85% 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 +94.61%.
That brings my 14-year total return to +594.98%, some 2.60 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.76%, easily the highest in the industry.
I am going into the month-end surge with a fairly aggressive 40% long, (TLT), (TSLA), 40% short (XOM), (OXY), (TSLA), (SPY), with 20% crash for a totally market-neutral position. We’ve just had a heck of a run, and prices could well stall not far from here for the short term. The post-election rally happened, as predicted in this space.
Like Big Foot, the Yeti, and the Loch Ness Monster, the Fed pivot may soon actually make an appearance. I’m talking months, not years. That’s when our August central bank flips from the most severe tightening of interest rates in history, to a neutral, or one can only pray, an easing stance. This is what the 15% rally in stocks over the last six weeks has been all about.
And here is another old-time worn market nostrum. If investors sense that something is going to happen, they discount it fast, very fast.
Of course, there will be several false starts, denied rumors, and false flags, as there always are. After all, this is my 11th bear market. These will create sudden panic attacks, market selloffs, and Volatility Index (VIX) runs to $30 which are the license to print money for the Mad Hedge Fund Trader. Wait for the market to tell you when to trade. Ignoring it can prove expensive.
As we say here in the west, go off the reservation and you can get a lot of arrows stuck in your back.
How is this even remotely possible with the money supply only at $21.4 trillion, down 2% YOY? That’s a buzz cut from the +30% rate from a year ago.
The answer is that the money is out there, just hiding in different unrecognizable forms. Much of the $4 trillion in pandemic stimulus payments have yet to be spent. Inflation has added $2 trillion in new corporate profits through higher sales prices. Similarly, there is also another $1.5 trillion in pay increases bubbling through the system, also inspired by inflation.
You see this is booming credit card spending, much to the joy of Master Card (MA), Visa (V), and American Express (AXP) and their share price surges we have recently seen.
As I keep telling my Concierge customers on the phone, there is no playbook anymore. All the old ones have been rendered useless by the pandemic. To succeed and make windfall profits like me, you basically have to make it up as you go along.
The Fed Favors the Slowing of Rate Hikes, making a December increase of only 50 basis points a sure thing, according to minutes released on Wednesday for the prior meeting. Housing especially is taking a big hit. All interest rate plays, like bonds, rallied strongly.
Equities See Monster Inflows, some $23 billion in 35 weeks according to the Bank of America (BAC) flow of funds survey. There have been huge cash flows out of Europe looking for a stronger dollar, fleeing WWIII, and collapsing home currencies. The big chase is on. Time to go short? I am. It could be a big bull trap.
Leading Economic Indicators Dive, off 0.8% in October, double the decline expected and the weakest since the pandemic low in April 2020. There has only been one positive number in this data series in 2022. You have to go back to the financial crisis to find numbers this bad.
S&P Global Manufacturing PMI Takes a Hit in November, down to 47.6 from an estimate of 50. Services fell from 48 to 46.1. It’s another coincident recession indicator.
Existing Home Sales Plunge 5.9% in October to an annualized rate of 4.43 million units. It is the slowest sales pace in 11 years. It's not as bad as expected but is still down a horrific 28.4% YOY. Inventory fell to just 1.22 million units, only a 3.3-month supply, supporting prices in a major way. In fact, prices are still rising, up 6.6% annually to $379,100. Housing accounts for about 20% of the US economy, so here is your recession threat right here.
New Home Sales Come in Hot at 632,000, a real shocker with the 30-year fixed at 7.4%. Low-ball seller financing incentives must be a factor where they buy down rates to lower levels. Free upgrades, like those cherry wood cabinets, bonus rooms, and marble kitchen counters, also help. Prices are still up 15% YOY and inventories rose to a once unbelievable 8.9 months.
OPEC Plus Considering a 500,000 Barrels a Day Increase at their coming December meeting, which Saudi Arabia vehemently denied. The comments came out just as West Texas intermediate was barreling in on a new nine-month low. Saudi Arabia can talk all they want, but it’s tough to beat a coming recession, which every other hard asset class and commodity is now confirming.
Disney Axes Chairman, dumping Bob Chapek and bringing back Bob Iger from retirement. Losing $1.5 billion on the Disney Plus streaming service and losing its special tax status from the State of Florida has its costs. (DIS) is also not a stock to buy if we are going into recession. Avoid (DIS), despite the 10% move today. Let’s first see if Iger can cut costs.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With the economy decarbonizing and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, November 28 at 8:00 AM EST, the Dallas Fed Manufacturing Index for November is out.
On Tuesday, November 29 at 8:30 AM, the S&P Case Shiller National Home Price Index is released.
On Wednesday, November 30 at 8:30 AM, the ADP Private Employment Report for November is published. We also get a number on Q3 US GDP.
On Thursday, December 1 at 8:30 AM, the Weekly Jobless Claims are announced. US Personal Income and Spending for October is also out.
On Friday, December 2 at 8:30 AM, the Nonfarm Payroll Report for November is disclosed. At 2:00, the Baker Hughes Oil Rig Count is out.
As for me, by the 1980s, my mother was getting on in years. Fluent in Russian, she managed the CIA’s academic journal library from Silicon Valley, putting everything on microfilm.
That meant managing a team that translated over 1,000 monthly publications on topics as obscure as Artic plankton, deep space phenomenon, and advanced mathematics. She often called me to ascertain the value of some of her findings.
But her arthritis was getting to her, and all those trips to Washington DC were wearing her out. So I offered Mom a job. Write the Thomas family history, no matter how long it took. She worked on it for the rest of her life.
Dad’s side of the family was easy. He was traced to a small village called Monreale above the Sicilian port city of Palermo famed for its Byzantine church. Employing a local priest, she traced birth and death certificates going all the way back to an orphanage in 1820. It is likely he was a direct illegitimate descendant of Lord Nelson of Trafalgar.
Grandpa fled to the United States when his brother joined the Mafia in 1915. The most interesting thing she learned was that his first job in New York was working for Orville Wright at Wright Aero Engines (click here). That explains my family’s century-long fascination with aviation.
Grandpa became a tailer gunner on a biplane in WWI. My dad was a tail gunner on a B-17 flying out of Guadalcanal in WWII. As for me, you’ve all heard of plenty of my own flying stories, and there are many more to come.
My Mom’s side of the family was an entirely different story.
Her ancestors first arrived to found Boston, Massachusetts in 1630 during the second Pilgrim wave on a ship called the Pied Cow, steered by a Captain Ashley (click here).
I am a direct descendant of two of the Pilgrims executed for witchcraft in the Salem Witch Trials of 1692, Sarah Good and Sarah Osborne, where children’s dreams were accepted as evidence (click here). They were later acquitted.
When the Revolutionary War broke out in 1776, the original Captain John Thomas, who I am named after, served as George Washington’s quartermaster at Valley Forge responsible for supplying food to the Continental Army during the winter.
By the time Mom completed her research, she discovered 17 ancestors who fought in the War for Independence and she became the West Coast head of the Daughters of the American Revolution. It seems the government still owes us money from that event.
Fast forward to 1820 with the sailing of the whaling ship Essex from Nantucket, Massachusetts, the basis for Herman Melville’s 1851 novel Moby Dick. Our ancestor, a young sailor named Owen Coffin signed on for the two-year voyage, and his name “Coffin” appears in Moby Dick seven times.
In the South Pacific 2,000 miles west of South America, they harpooned a gigantic sperm whale. Enraged, the whale turned around and rammed the ship, sinking it. The men escaped to whaleboats. And here is where they made the fatal navigational errors that are taught in many survival courses today.
Captain Pollard could easily have just ridden the westward currents where they would have ended up in the Marquesas’ Islands in a few weeks. But these islands were known to be inhabited by cannibals, which the crew greatly feared. They also might have landed in the Pitcairn islands, where the mutineers from Captain Bligh’s HMS Bounty still lived. So the boats rowed east, exhausting the men.
At day 88, the men were starving and on the edge of death, so they drew lots to see who should live. Owen Coffin drew the black lot and was immediately shot and devoured. The next day, the men were rescued by the HMS Indian within sight of the coast of Chile, and returned to Nantucket by the USS Constellation.
Another Thomas ancestor, Lawson Thomas, was on the second whaleboat that was never seen again and presumed lost at sea. For more details about this incredible story, please click here.
When Captain Pollard died in 1870, the neighbors discovered a vast cache of stockpiled food in the attic. He had never recovered from his extended starvation.
Mom eventually traced the family to a French weaver 1,000 years ago. Our name is mentioned in England’s Domesday Book, a listing of all the land ownership in the country published in 1086 (click here). Mom died in 2018 at the age of 88, a very well-educated person.
There are many more stories to tell about my family’s storied past, and I will in future chapters. This week, being Thanksgiving, I thought it appropriate to mention our Pilgrim connection.
I have learned over the years that most Americans have history-making swashbuckling ancestors, but few bother to look.
I did.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2022/11/USS-Essex.jpg10581375Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-11-28 09:02:402022-11-28 13:56:44The Market Outlook for the Week Ahead, or Looking for Big Foot
Below please find subscribers’ Q&A for the November 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: The country is running out of diesel fuel this month. Should I be stocking up on food?
A: No, any shortages of any fuel type are all deliberately engineered by the refiners to get higher fuel prices and will go away soon. I think there was a major effort to get energy prices up before the election. If that's the case, then look for a major decline after the election. The US has an energy glut. We are a net energy exporter. We’re supplying enormous amounts of natural gas to Europe right now, and natural gas is close to a one-year low. Shortages are not the problem, intentions are. And this is the problem with the whole energy industry, and the reason I'm not investing in it. Any moves up are short-term. And the industry's goal is to keep prices as high as possible for the next few years while demand goes to zero for their biggest selling products, like gasoline. I would be very wary about doing anything in the energy industry here, as you could get gigantic moves one way or the other with no warning.
Q Is the SPDR S&P 500 ETF (SPY) put spread, correct?
A: Yes, we had the November $400-$410 vertical bear put spread, which we just sold for a nice profit.
Q: I missed the LEAPS on J.P. Morgan (JPM) which has already doubled in value since last month, will we get another shot to buy?
A: Well you will get another shot to buy especially if another major selloff develops, but we’re not going down to the old October lows in the financial sector. I believe that a major long-term bull move has started in financials and other sectors, like healthcare. You won’t get the October lows, but you might get close to them.
Q: I’m waiting for a dip to get into Eli Lilly (LLY), but there are no dips.
A: Buy a little bit every day and you’ll get a nice average in a rising market. By the way, I just added Eli Lilly to my Mad Hedge long-term model portfolio, which you received on Thursday.
Q: Any thoughts about the conclusion of the Twitter deal and how it will affect tech and social media?
A: So far all of the indications are terrible. Advertisers have been canceling left and right, hate speech is up 500%, and Elon Musk personally responded to the Pelosi assassination attempt by trotting out a bunch of conspiracy theories for the sole purpose of raising traffic and not bringing light to the issue. All indications are bad, but I've been with Elon Musk on several startups in the last 25 years and they always look like they’re going bust in the beginning. It’s not even a public stock anymore and it shouldn’t be affecting Tesla (TSLA) prices either, which is still growing 50% a year, but it is.
Q: In terms of food commodities for 2023, where are prices headed?
A: Up. Not only do you have the war in Ukraine boosting wheat, soybean, and sunflower prices, but every year, global warming is going to take an increasing toll on the food supply. I know last summer when it hit 121 degrees in the Central Valley, huge amounts of crops were lost due to heat. They were literally cooked on the vine. We now have a tomato shortage and people can’t make pasta sauce because the tomatoes were all destroyed by the heat. That’s going to become an increasingly common issue in the future as temperatures rise as fast as they have been.
Q: Do I trade options in Alphabet (GOOG) or Alphabet (GOOGL)?
A: The one with the L is the holding company, the one without the L is the advertising company and the stock movements are really identical over the long term, so there really isn’t much differentiation there.
Q: Why can’t inflation be brought down by increasing the supply of all goods?
A: Because the companies won’t make them. The companies these days very carefully manage output to keep prices as high as possible. It’s not only the energy industry that does that but also all industries. So those in the manufacturing sector don’t have an interest in lowering their prices—they want high prices. If they see the prices fall, they will cut back supply.
Q: What do you think about growth plays?
A: As long as interest rates are rising, growth will lag and value will lead, and that has been clear as day for the last month. This is why we have an overwhelming value tilt to our model portfolio and our recent trade alerts. They’ve all been banks—JP Morgan (JPM), Bank of America (BAC), Citigroup (C), plus Berkshire Hathaway (BRK) and Visa (V) and virtually nothing in tech.
Q: I don’t know how to execute spread trades in options so how do I take advantage of your service?
A: Every trade alert we send out has a link to a video that shows you exactly how to do the trade. I have to admit, I’m not as young as I was when I made the videos, but they’re still valid.
Q: Is the US housing market about to crash?
A: There is a shortage of 10 million houses in the US, with the Millennials trying to buy them. If you sell your house now, you may not be able to buy another one without your mortgage going from 2.75% to 7.75%—that tends to dissuade a lot of potential selling. We also have this massive demographic wave of 85 million millennials trying to buy homes from 65 million gen x-ers. That creates a shortage of 20 million right there. That's why rents are going up at a tremendous rate, and that's why house prices have barely fallen despite the highest interest rates in 20 years.
Q: If we get good news from the Fed, should we invest in 3X ETFs such as the ProShares UltraPro QQQ (TQQQ)?
A: No, I never invest in 3X ETFs, because they are structured to screw the investor for the benefit of the issuer. These reset at the close every day, so do 2 Xs and not more. If you're not making enough money on the 2Xs, maybe you should consider another line of business.
Q: Do you think BlackRock Corporate High Yield Fund (HYT) will show the pain of slights because of their green positioning?
A: No I don’t, if anything green investing is going to accelerate as the entire economy goes green. And you’ll notice even the oil companies in their advertising are trying to paint themselves as green. They are really wolves in sheep’s clothing. They’ll never be green, but they’ll pretend to be green to cover up the fact that they just doubled the cost of gasoline.
Q: Where do you find the yield on Blackrock?
A: Just go to Yahoo Finance, type in (BLK), and it will show the yield right there under the product description. That’s recalculated by algorithms constantly, depending on the price.
Q: Do you like Cameco (CCJ)?
A: Yes, for the long term. Nuclear reactors have been given an extra five years of life worldwide thanks to the Russian invasion of Ukraine. Even Japan is opening theirs.
Q: Should I short the US dollar (UUP) here?
A: The answer is definitely maybe. I would look for the dollar to try to take one more run at the highs. If that fails, we could be beginning a 10-year bear market in the dollar, and bull market in the Japanese yen, Australian dollar, British pound, and euro. This could be the next big trade.
Q: What is your outlook on Real Estate Investment Trusts (REITs) now?
A: I think it looks great. REITs are now commonly yielding 10%. The worst-case scenario on interest rates has been priced in—buying a REIT is essentially the same thing as buying a treasury bond, but with twice the leverage, because they have commercial credits and not government credits. We’ll be doing a lot more work on REITS. We also have tons of research on REITS from 12 years ago, the last time interest rates spiked. I'll go in and see who’s still around, and I'll be putting out some research on it.
Q: How do you see the price development of gold (GLD)?
A: Lower—the charts are saying overwhelmingly lower. Gold has no place in a rising interest rate world. At least silver (SLV) has solar panel demand.
Q: Do you have any fear of Korea going into IT?
A: Yes, they will always occupy the low end of mass manufacturing, and you can see that in the cellphone area; Samsung actually sells more phones than Apple, but they’re cheaper phones with lower-end lagging technology, and that’s the way it’s always going to be. They make practically no money on these.
Q: When can we get some more trade alerts?
A: We are dead in the middle of my market timing index, so it says do nothing. I’m looking for either a big move down or big move up to get back into the market. This is a terrible environment to chase trades when you're trading, so I'm going to wait for the market to come to me.
Q: What about water as an investment? The Invesco Water Resources ETF (PHO)?
A: Long term I like it. There’s a chronic shortage of fresh water developing all over the world, and we, by the way, need major upgrades of a lot of water systems in the US, as we saw in Jackson, MS, and Flint, MI.
Q: Will REITs perform as well as buying rental properties over the next 10 to 20 years?
A: Yes, rental properties should do very well, as long as you’re not buying any city that has rent control. I have some rental properties in SF and dealing with rent control is a total nightmare, you’re basically waiting for your tenants to die before you raise the rent. I don’t think they have that in Nevada. But in Las Vegas, you have the other issue that is water. I think the shortage of water will start to drag on real estate prices in Las Vegas.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on 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
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 Trader2022-10-31 09:04:352022-10-31 11:46:20October 31, 2022
Legal Disclaimer
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.
We may request cookies to be set on your device. We use cookies to let us know when you visit our websites, how you interact with us, to enrich your user experience, and to customize your relationship with our website.
Click on the different category headings to find out more. You can also change some of your preferences. Note that blocking some types of cookies may impact your experience on our websites and the services we are able to offer.
Essential Website Cookies
These cookies are strictly necessary to provide you with services available through our website and to use some of its features.
Because these cookies are strictly necessary to deliver the website, refuseing them will have impact how our site functions. You always can block or delete cookies by changing your browser settings and force blocking all cookies on this website. But this will always prompt you to accept/refuse cookies when revisiting our site.
We fully respect if you want to refuse cookies but to avoid asking you again and again kindly allow us to store a cookie for that. You are free to opt out any time or opt in for other cookies to get a better experience. If you refuse cookies we will remove all set cookies in our domain.
We provide you with a list of stored cookies on your computer in our domain so you can check what we stored. Due to security reasons we are not able to show or modify cookies from other domains. You can check these in your browser security settings.
Google Analytics Cookies
These cookies collect information that is used either in aggregate form to help us understand how our website is being used or how effective our marketing campaigns are, or to help us customize our website and application for you in order to enhance your experience.
If you do not want that we track your visist to our site you can disable tracking in your browser here:
Other external services
We also use different external services like Google Webfonts, Google Maps, and external Video providers. Since these providers may collect personal data like your IP address we allow you to block them here. Please be aware that this might heavily reduce the functionality and appearance of our site. Changes will take effect once you reload the page.
