Global Market Comments
September 13, 2021
Fiat Lux
Featured Trade:
(THE MAD HEDGE TRADERS & INVESTORS SUMMIT IS ON FOR SEPTEMBER 14-16),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or VENTURING INTO THE METAVERSE
(SPY), (TLT), (VIX),
Tag Archive for: ($VIX)
Watch out for the term “Metaverse.”
It refers to the virtual world where all things exist in a virtual world.
And here is the great thing about the metaverse. The real world can only grow at an analog rate and is finite. The virtual world can grow at an exponential, viral rate and is infinite.
Infinite markets with infinite customers? That is something that companies and share prices really like to hear about.
We’re getting a peek into the Metaverse right now with the movement of many companies to a virtual world triggered by the pandemic. With employees working at home, a headquarters at a PO Box in Montana to meet regulatory minimums, selling digital services to a digital market, these companies effectively exist only in terms of electrons and bytes.
But suddenly, costs have plunged by 40%, productivity has improved by 40%, and profits have increased tenfold. These are companies you want to own.
No wonder the stock market is going up almost every day. It’s because companies like this are worth more, a lot more overnight!
It's how Silicon Valley leaped from having 80 unicorns to 800 in the span of two years. The future is happening fast.
If you are an old fart who doesn’t want to bother with all this computer mumbo jumbo, invest a few minutes playing Facebook’s (FB) Oculus Rift with your grandkids. Then sit down and watch the 2018 science fiction/fantasy movie Ready Player One. There is a sequel in the works. The second sequel will be you and me.
We have now just suffered the worst trading week since February, with the (SPY) off by a mere $8.5, or 1.9%. We may have a shot at another long-awaited 5% correction this week. If we do, I’ll put half my cash in the market. I’ll put the rest in at a 10% correction.
I highly doubt that stocks will fall by more than that given the massive weight of liquidity in the financial system, even though it’s September. My $475 (SPY) target for end of 2021 still stands and I’m sticking to it. You’re going to have to pry my cold dead fingers off of my forecast.
The only question is which sectors will lead. My bet is on domestic recovery stocks like banks, brokers, hotels, casinos, airlines, cruise lines, and railroads. Delta peaked two weeks ago and is now falling precipitously, especially in the south.
That sets up a second post-Covid recovery trade with the same sector leading the first time.
The way the pandemic ends is that the US gets to 90% immunity, where Covid becomes an annual flu shot. California is already there with 80% of the population vaccinated and 10% getting the disease. Alabama may get there with 60% vaccinations and 30% getting sick. But in a year, the whole country will be at 90%.
Then, we can get on with the rest of our lives.
The August Nonfarm Payroll Report Bombs, coming in at only 235,000 versus an expected 720,000, a huge miss. The headline Unemployment Rate fell 0.2% to 5.2%, a new post-pandemic low. Mysteriously, both stocks and bonds hated it. Manufacturing was up 37,000, while Leisure & Hospitality was zero and Retail at -28,000. Education LOST -25,000 during the back-to-school season. Average Hourly Earnings rose an astonishing 0.6% MOM, or 4.3% YOY. The U6 long-term unemployment rate fell to 8.8%. Goodbye taper. A shortage of workers was to blame, but the economic data has been worsening for a while now. Delta is taking a bigger bite than we thought.
JOLTS comes in at a blockbuster 10.9 million in July, a new record high. This is the number of job openings in the private sector. Anyone who wants a job can get a job. Blame the education gap. The problem is that there is demand for 10.9 million website designers, computer programmers, and internet marketers, and an endless supply of waiters and other restaurant workers.
The Fed says growth downshifted during the summer, thanks to delta and a worker shortage according to the Beige Book release. We already knew that, and a five-point selloff in bonds is telling us that Covid is declining and growth is back on.
Europe tapers, cutting back monthly Eurobond purchases 160-170 billion a month. Governor Christine Lagarde believes any inflation is temporary and the time for emergency stimulus is over. Can the Fed be far behind?
Seven million lose Unemployment Benefits. This should make available more workers whose shortage have been a drag on the economy. Accelerating growth can only be good for stocks.
El Salvador launches Bitcoin as a national currency, creating a national wallet, and offering every citizen $30 to open an account. Most of the accounts will be accessed via cell phones. The central bank bought 400 bitcoins worth $20 million as part of the rollout. The country’s president is helping to sort out technical glitches. Is Bitcoin the next global currency? Bitcoin dropped 10% on the news.
Tesla to make its own whips in a dramatic response to a structural global chip shortage that could last years. The news was good for a $30 pop in the stock this morning. Tesla is already one of the world’s largest chip users, and their needs are expected to jump 50-fold in the next ten years. The move justifies a much larger premium for the stock. It’s all about training the neural network.
Will a Bitcoin ETF approval spike the Market? There are a dozen applications with SEC for the first US-approved crypto ETF. When approved, billions of new cash will pile into Bitcoin off the back of the new improved legitimacy. Buy before the IPO, it’s a classic trading strategy.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch is down 1.09% in September, thanks to a shortage of low-risk/high-return trading opportunities. My 2021 year-to-date performance soared to 77.48%. The Dow Average was up 13.10% so far in 2021.
That leaves me 60% in cash at 40% in short (TLT), and long (SPY) and (DIS). My last two positions expire in four trading days.
Although we have maxed out the profits with these two positions, I’ll keep them as there is nothing else to do. I’m keeping positions small as long as we are at extreme overbought conditions. The Volatility Index (VIX) now over $20 shows that an entry point may be near.
That brings my 12-year total return to 500.03%, some 2.00 times the S&P 500 (SPX) over the same period and a new all-time high. My 12-year average annualized return now stands at a new high of 42.85%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 115.05%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 41 million and rising quickly and deaths topping 670,000, which you can find here.
The coming week will be slow on the data front.
On Monday, September 13, at 12:00 noon, US Inflation Expectations are released.
On Tuesday, September 14, at 8:30 AM, US Core Inflation is published, now the second biggest number of the month.
On Wednesday, September 15 at 9:15, Industrial Production for July is disclosed. At 9:30 AM, we get the New York Empire State Manufacturing Index for September.
On Thursday, September 16 at 8:30 AM, Weekly Jobless Claims are announced. We also get Retail Sales for August.
On Friday, September 17 at 8:30 AM, we learn the University of Michigan Consumer Sentiment for September. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, one of the great shortcomings of San Francisco is that we only have a theater district with two venues and it is in the Tenderloin, the worst neighborhood in the city, an area beset with homeless, drug addicts, and prostitution.
I was walking to a parking lot after a show one evening when I passed a doorway. Three men were violently attacking a blond woman. Never one to miss a good fight, I dove in, knocking two unconscious in 15 seconds (thank you Higaona Sensei!). Unfortunately, number three jumped to my side, pulled a knife, and stabbed me.
The attacker and the woman ran off, leaving me bleeding in a doorway. I drove over the Golden Gate Bridge to Marin General Hospital, bleeding all over the front seat of my car, where they sewed me up nicely and put me on some strong drugs.
The doctor said, “You shouldn’t be doing this at your age.”
I responded that “good Samaritans are always rewarded, even if the work is its own reward.”
Fortunately, I still had my Motorola Flip Phone with me, so I called Singapore from my hospital bed for a market update. I liked what I saw and bought 100 futures contracts on Japan’s Nikkei 225. This was back in 1999 when anything you touched went straight up.
Then, I passed out.
An hour later, I woke up, called Singapore again and bought another 100 futures contracts, not remembering the earlier buy. This went on all night long.
The next morning, I was awoken by a call from my staff who excitedly told me that the overnight position sheets had just come in and I had made 40% on the day.
Was there some mistake?
Then I got a somewhat tense call from my broker. I had a margin call. I had also exceeded the exchange limits for a single contract and owned the equivalent of $200 million worth of Nikkei. I told them to sell everything I had at market and go 100% cash.
That was exactly what they wanted to hear.
That left me up 60% on the year and it was only May.
I then called all of the investors in my hedge fund. I told them the good news, that I wouldn’t be doing anymore trades for the fund until I received my performance bonus the following January and was taking off on a long vacation. With a 2%/20% payout in those days, that meant I was owed 14% of the underlying assets of the fund at a very elevated valuation.
They said that’s great, have fun, by the way, how did you do it?
I answered, “Great drug selection.” No further questions were asked.
Then I launched on the mother of all spending sprees.
I flew to Germany and picked up a new Mercedes S600 V12 Sedan at the factory in Stuttgart for $160,000. I then immediately road-tested it on the Autobahn at 130 mph. I made it to Switzerland in only two hours. After all, my old car needed a new seat.
Next, I bought all new furniture for the entire house, each kid selecting their own unique style.
Then, I took the family to Las Vegas where we stayed in the “Rain Man Suite” at the Bellagio Hotel for $10,000 a night, where both the 1988 Rain Man and 2009 The Hangover were filmed.
I bought everyone in the family black wool Armani suits, plus a couple of Brioni’s for myself at $8,000 a pop. For good measure, I chartered a helicopter for a tour of the Grand Canyon the next day.
At the end of the year, I sold my hedge fund based on the incredible strength of my recent performance for an enormous premium. I then left the stock market to explore a new natural gas drilling technology I had heard about called “fracking.”
Four months later, the Dotcom Crash ensued in earnest.
I still have the scar on my right side, and it always itches just before it rains, which is now almost never. But it was worth it, every inch of it.
It’s all true, every word of it and I’ll swear to it on a stack of bibles.
Global Market Comments
September 7, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE “ENDLESS BID” MARKET),
(VIX), (SPY), (TLT)
I am usually hiking at Lake Tahoe this time of year, doing the deep research, hiking ten miles a day, and the stripping down to jump into the lake at the end.
This year, climate change had other ideas.
So I am visiting a childhood haunt in Newport Beach, CA, where my late uncle used to live. Remember him? He was the former CFO of Penn Central Railroad in 1970 who made a fortune buying puts just before the company went bankrupt. I guess that was allowed back then.
He lived next door to John Wayne, and we kids used to wave at him, astonished at his bald head. I still miss The Duke.
I am still typing one finger at a time, my left wrist in a brace and elbow in a huge bandage. I told the doctor I couldn’t get to Reno for him to take the stitches out because of the wildfires, so I would do it myself with a pocketknife with Jack Daniels as a sterilizer. He said, “Knock yourself out.”
Traders are so frustrated waiting for the normal summer correction they are starting to call “The Endless Bid Market.” That has left them underweight, trying to catch up, which is why we didn’t get a drop of more than 4% this summer.
Of course, they are also getting rich with what they already have, but they all want to get richer. Greed is trouncing fear big time. Forget about investing.
You can’t buy the dip anymore because there are no dips. You simply use new cash flows to add to your winners, the more they have gone up, the better.
That’s why large-cap tech stocks have been on an absolute tear, hitting new all-time highs. Of course, I am just as guilty as the rest, with a retirement fund loaded with big tech. Google (GOOG) is now my largest position, not through savvy stock selection but purely because of price appreciation.
Of course, it helps that the higher stocks go, the cheaper they get.
Earnings are melting up maintaining the same price-earnings multiple and stock prices are simply following suit. There is nothing overheated about it.
Company profit margins are soaring to record highs as companies make enormous productivity investments to deal with chronic labor shortages. If you live here in Silicon Valley, you see this happening around you every day.
If you don’t, stock valuations are fantasies coming from a faraway land, therefore the surprise at market strength.
Haven’t you noticed how hard it is to get a human on the phone outside of the Philippines, where workers feel rich when they are making $300 a month?
If anything, the market is still undervaluing stocks rather than overvaluing relative to their upside earnings potential.
An S&P 500 target of $500 is now my easy target for 2022.
Any credit crunch that could trigger a recession is years off, and one Fed governor away. A delta variant that won’t quit, or the upcoming Mu variant is another worry.
Consensus forecasts constantly lagging the market has the effect of leaving institutions and individuals under-invested and trying to get in, hence no real dips for almost a year.
Afghanistan proves the market could care less about any geopolitical surprise.
You heard it from me first. If the market can’t selloff over the next two weeks when poor seasonals start to fade away, the they wont for all of 2021.
Nonfarm Payroll Report bombs, coming in at only 235,000 versus an expected 720,000, a huge miss. The headline Unemployment Rate fell 0.2% to 5.2% a new post-pandemic low. Mysteriously, both stocks and bonds hated it. Manufacturing was up 37,000, while Leisure & Hospitality was zero and Retail at -28,000. Education LOST -25,000 during the back-to-school season. Average Hourly Earnings rose an astonishing 0.6% MOM, or 4.3% YOY. The U6 long term unemployment rate fell to 8.8%. Goodbye taper. A shortage of workers was to blame, but the economic data has been worsening for a while now. Delta is taking a bigger bite than we thought.
Stocks hit new August highs the most in history, surpassing the 1929 record of 11 times. The only negative three-month period seen since 1929 are August, September, and October. Remember what happened in 1929? If that doesn’t scare the living daylights out of you, then nothing will. So, it seems we are in for some kind of correction, even if it’s just the 5% kind. Looks like the month end will be hot.
Bitcoin leads crypto, but Ethereum is catching up. Cardano has doubled in a month making it the number three crypto and Avalanche has tripled. Newly minted online broker Robinhood (HOOD) says 60% of its option trading is now in crypto. MicroStrategy’s (MSTR) Michael J. Saylor sees a 50-fold increase in Bitcoin to a total market value of $100 trillion. That is five times the US M3 money supply of $20 trillion. It’s become a financial system of "get crypto or go home."
Oil jumps on Hurricane IDA, with a sharp 8.9% rally. Some 91% of Gulf Production shut in, or 1.65 million barrels a day. Don’t expect it to continue. Sell into the rally on this future buggy whip industry.
SEC is cracking down on Market Gaming by multiple apps aimed at Millennials. It’s shopping for a new set of market rules aimed at regulating those who foster runaway volatility in single stocks like (AMC).
PayPal to enter stock trading, sending the stock up a ballistic $15 in two days. If they pull it off, it will open a huge new profit stream for them, possibly becoming another Robinhood (HOOD), cashing in on the retail trading boom. Earning: regulation costs a lot. Buy (PYPL) on dips.
S&P Case Shiller soars to new highs in June, the National Home Price Index jumping 18.6% YOY, breaking all records. Prices are now 41% higher than the bubble top in 2006. This is the sharpest gain in the 34-year history of the index. Prices in Phoenix leaped 29.6%, followed by San Diego at 27.1% and Seattle by 25.0%. Supply and demand will be seriously out of whack for years.
Pending Home Sales drop for the second straight month on a signed contract basis, down 1.8% in July. Summer slowdown, delta slowdown, or market top? However, supply and demand are still far out of balance.
Your next Apple purchase may be a satellite phone, bypassing local cell phone networks. A Chinese analyst made this prediction for the iPhone 13 out in 2022. The report says that the iPhone 13 includes a Qualcomm X60 baseband modem chip, which includes LEO satellite comms capabilities. If accurate, this means that the upcoming iPhone will have the hardware capability to act as a satellite phone. It certainly would upend the rush to build private satellite networks, like Viasat and Tesla’s Starlink. Enough investors believed the story to send the stock to a new all-time high. Buy (AAPL) on dips.
Air Travel is falling off, with airport security screening dropping to only 1.35 million, the lowest since May 11. Delta is taking its toll, but back to school is a factor as well.
Bond king Bill Gross says treasuries are trash. He sees ten-year yields hitting 2.00% sometime in 2022. The 77-year-old drove bond prices for a decade and also made a fortune collecting stamps. Sometimes Bill is early, but he is always right.
One billion Asians to join middle class by 2030 on top of the existing 3.75 billion today. That will create a vastly larger market for all online services, which the stock market seems to be telling us today. Indonesia, Pakistan, and Bangladesh are expected to see the largest increases. There is a lot of “hope” in this number, i.e., no more covid, no ward, and no depressions.
The next market correction won’t come until the Fed makes a mistake and that might be years off, says Wharton finance professor and long-term bull Jeremy Siegel. That will be when the Fed finds itself behind the inflation curve. Until then, the slow grind up continues. Stocks are the best defense against inflation.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a robust +9.31% gain in August. My 2021 year-to-date performance soared to 78.57%. The Dow Average was up 15.82% so far in 2021.
That leaves me 80% in cash at 20% in short (TLT) and long (SPY). Although we have maxed out the profits with these two positions, I’ll keep them as there is nothing else to do. I’m keeping positions small as long as we are at extreme overbought conditions. The “endless bid” market is not giving anyone entry points as long as the Volatility Index (VIX) remains at $16.
That brings my 12-year total return to 501.12%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.48%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 120.48%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 40 million and rising quickly and deaths topping 645,000, which you can find here.
The coming week will be slow on the data front.
On Monday, September 6 markets are closed for the US Labor Day.
On Tuesday, September 7, there are no special data releases. Everyone will be recovering from hurricanes in the south and east, wildfires in the west, and Covid everywhere.
On Wednesday, September 8 at 9:30 AM, we get API crude oil stocks.
On Thursday, September 9 at 8:30 AM, Weekly Jobless Claims are announced.
On Friday, September 10 at 8:30 AM, we learn the Producers Price Index for August. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, a few years ago, I was visited in London by an old friend who had once served on the British Army staff of General Bernard Law Montgomery, the hero of Alamein, who was known to his friend as “Monty” (he had no friends).
I asked if there was anything I could do for him and he said, “Actually, I haven’t had a dish of moules mariniere (steamed mussels in white wine sauce) on the Grand Square in Brussels for a while. I said, “No problem, let’s go.”
We drove my Mercedes 6.0 to an old Battle of Britain hanger (one-inch-thick bombproof steel doors) on the outskirts of London where I kept a twin-engine Cessna 340 with turbocharged engines with a maximum speed of 225 kts. We landed in Brussels in an hour.
We savored the mussels on the square, as good as ever, the national dish of Belgium. The autumn air was brisk, tourists gawked, we drank, and everyone had a good time.
I left my fried there talking to some Belgian beauty for an early return to England. I wanted to park my plane at the grass airfield in Salisbury in Wiltshire, home of the tallest cathedral in England, which I nearly took out several time. The problem was that the runway had no lights.
Unfortunately, I ran into an Atlantic headwind and was running late, so I skipped a refueling stop at Ostend. When My instruments showed I was right over the airfield, I saw nothing but black.
I did, however, remember the radio frequency of the pub at the end of the field which constantly kept a speaker on. I radioed the pub, “if anyone will roll up some newspapers set them on fire and line the runway, I will buy them a pint of beer.”
The entire pub emptied out and within secondss I had a perfectly lighted runway on both sides. Landing was a piece of cake.
When I taxied up to the pub, the starboard engine ran out of gas. I walked in and made good on my promise, even buying a second round for my rescuers. I then crawled back into my airplane and went to sleep, waking up the next day with the worst hangover ever.
My flying these days is much more sedentary. The FAA requires me to do three take offs and landings every three months to keep my license current, and I usually bring along my kids for this chore. On the last landing, I always shut off my engine and glide in.
I warn the kids and they always say, “No dad, don’t,” but I do it anyway. I tell them it’s the only way to practice engine failures.
As I said before, I crash better than anyone I know.
I think I’ll watch the John Wayne classic “The Searchers” one more time tonight.
US Corporate Profits Through End 2020
Global Market Comments
August 24, 2021
Fiat Lux
Featured Trade:
(A REFRESHER COURSE AT SHORT SELLING SCHOOL),
(SH), (SDS), (PSQ), (DOG), (RWM), (SPXU), (AAPL), (TSLA),
(VIX), (VXX), (IPO), (MTUM), (SPHB), (HDGE)
Global Market Comments
July 23, 2021
Fiat Lux
Featured Trade:
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT)
(AMZN), (DIS), (FB), (MSFT), (VIX)
Global Market Comments
July 20, 2021
Fiat Lux
Featured Trade:
(SHOPPING FOR FIRE INSURANCE IN A HURRICANE)
(VIX), (VXX), (XIV)
(THE ABCs OF THE VIX)
(VIX), (VXX), (SVXY)
Global Market Comments
June 18, 2021
Fiat Lux
Featured Trade:
(JUNE 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(MS), (XOM), (FXI), (MSFT), (AMZN), (FB), (GOOGL), FCX), (CAT),
(GLD), (DIS), (GME), (AMC), (UBER), (LYFT), (TLT), (VIX)
Below please find subscribers’ Q&A for the June 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.
Q: Does Copper (FCX) look like a buy now or wait for it to drop?
A: I would buy ⅓ now, ⅓ lower down, ⅓ lower down still. Worst case we get down to $30 in Freeport McMoRan (FCX) from $37 today. A new internal combustion engine requires 40 lbs. of copper for wiring, but new EVs require 200 lbs. per car, and the number of EV cars is about to go from 700,000 last year to 25 million in 10 years. So, you can do the math here. It's basically 24.3 million times 200 lbs., or 1.215 billion tons, and that's the annual increase in demand for copper over the next 10 years. There aren’t enough mines in the world to accommodate that, so the price has to go up. However, (FCX) has gone up 12 times from its 2020 low and was overdue for a major rest. So short term it's a sell, long term it's a double. That's why I put the LEAPS out on it.
Q: Lumber prices are dropping fast, should I bet the ranch that it’ll drop big?
A: No, I think the big drop has happened; we’re down 40% from the highs, the next move is probably up. And that is a commodity that will remain more or less permanently in short supply due to the structural impediments put into the lumber market by the Trump administration. They greatly increased import duties from Canada and all those Canadian mills shut down as a result. It’s going to take a long time to bring those back up to speed and get us the wood we need to build houses. Another interesting thing you’re seeing in the bay area for housing is people switching over to aluminum and steel for framing because it’s cheaper, and of course in an earthquake-prone fire zone, you’d much rather have steel or aluminum for framing than wood.
Q: I didn’t catch the (FCX) LEAP, can you reiterate?
A: With prices at today's level, you can buy the 35 calls in (FCX), sell short the 40 calls, and get nearly a 177% return by January 2022. That's an absolute screamer of a LEAPS.
Q: How do you see the working from home environment in the near future after Morgan Stanley (MS) asked everyone to return?
A: Well that’s just Morgan Stanley and that’s in New York. They have their own unique reasons to be in New York, mostly so they can meet and shake down all their customers in Manhattan—no offense to Morgan Stanley, but I used to work there. For the rest of the country, those in remote places already, a lot of companies prefer that people keep working from home because they are happier, more productive, and it’s cheaper. Who can beat that? That’s why a lot of these productivity gains from the pandemic are permanent.
Q: Is there a recording of the previous webinar?
A: Yes, all of the webinars for the last 13 years are on the website and can be accessed through your account.
Q: What makes Microsoft (MSFT) a perfect-looking chart?
A: Constant higher lows and higher highs. They also have a fabulous business which is trading relatively cheaply to the rest of tech and the rest of the main market. Of course, they were a huge pandemic winner with all the people rushing out to buy PCs and using Microsoft operating software. I expect those gains to improve. The new game now is the “wide moat” strategy, which is buying companies that have near monopolies and can’t be assailed by other companies trying to break into their businesses. The wide moat businesses are of course Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). That's the new investment philosophy; that's why money has been pouring back into the FANGs for a month now.
Q: Do you have any concerns about Facebook’s (FB) advertising ability, given the recent reduction of tracking capabilities of IOS 4.5 users?
A: Well first of all, IOS 4.5 users, the Apple operating system, are only 15% of the market in desktops and 24% of mobile phones. Second, every time one of these roadblocks appears, Facebook finds a way around it, and they end up taking in even more advertising revenue. That’s been the 15-year trend and I'm sticking to it.
Q: Is Caterpillar (CAT) a LEAP candidate right now?
A: Not yet, but we’re getting there. Like many of these domestic recovery plays, it is up 200% from the March lows where we recommended it. The best time to do LEAPS is after these big capitulation selloffs, and all we’ve really seen in most sectors this year is a slow grind down because there's just too much money sitting under the market trying to get into these stocks. Let’s see if (CAT) drops to the 50-day moving average at $185 and then ask me again.
Q: If you have the (FCX) LEAPS, should you keep them?
A: I would keep them since I'm looking for the stock to double from here over the next year. If you have the existing $45-$50 LEAPS, I would expect that to expire at its max profit point in January. But you may need to take a little pain in the interim until it turns.
Q: Should I bet the ranch on meme stocks like (AMC) and GameStop GME)?
A: Absolutely not, I’m amazed you haven't lost everything already.
Q: Do you think Exxon-Mobile (XOM) could rise 30% from here?
A: Yes, if we get a 30% rise in oil. We are in a medium-term countertrend rally in oil which will eventually burn out and take us to new lows. Trade against the trend at your own peril.
Q: Disneyland (DIS) in Paris is set to open. Is Disneyland a buy here?
A: Yes, we’re getting simultaneous openings of Disneyland’s worldwide. I’ve been to all of them. So yes, that will be a huge shot in the arm. Their streaming business is also going from strength to strength.
Q: How long will the China (FXI) slowdown last?
A: Not long, the slowdown now is a reaction to the superheated growth they had last year once their epidemic ended. We should get normalized growth in China at around 6% a year, and I expect China to rally once that happens.
Q: Have you changed your outlook on inflation, real or imagined?
A: I don’t think we’re going to have inflation; I buy the Fed's argument that any hot inflation numbers are temporary because we’re coming off of a one-on-one comparisons from when the economy was closed and the prices of many things went to zero. If you look at that inflation number, it had trouble written all over it. Some one third of the increase was from rental cars. One of the hottest components was used cars. You’re not going to get 100% year on year increases next year in rental or used cars.
Q: When you issue a trade alert, it’s always in the form of a call spread like the Microsoft (MSFT) $340-$370 vertical bull call spread. What are the pros and cons of doing this trade on the put side, like shorting a vertical bear put spread?
A: It’s six of one, half a dozen of the other. There are algorithms that arbitrage between the two positions that make sure that they’re never out of line by more than a few cents. I put out call spreads because they’re easier for beginners to understand. People get buying something and watching it go up. They don’t get borrowing something, selling it short, and buying it back cheaper.
Q: Will gold (GLD) prices go up?
A: Yes, when inflation goes up for real.
Q: What is the future of the gig economy? How will that affect Uber (UBER) and Lyft (LYFT)?
A: I like both, because they just got a big exemption from California on part time workers, and that is very positive for their business models.
Q: Do you think the government doesn’t want to cancel student debt because it will unleash inflation?
A: It’s the exact opposite. The government wants to forgive student debt because it will unleash inflation. If you add 10 million new consumers to the economy, that is very positive. As long as former students have tons of debt, horrible credit ratings, and are unable to buy homes or get credit cards, they are shut out of the economy. They can’t participate in the main economy by buying homes, shopping, or getting credit. The fact that the US has so many college grads is why businesses succeed here and fail in every other country. That should be encouraged.
Q: Where is the United States US Treasury Bond Fund (TLT) headed?
A: Short term up, long term down.
Q: Options premiums are not melting away much today; I hope they start decaying after the Fed announcement.
A: In these elevated volatility periods—believe it or not, the (VIX) is still elevated compared to its historic levels—they hang on all the way to the very last day, before expiration, before they really melt the time value on options. It really does pay to run these into expiration now. When the VIX was down at like $9-$10, that was not the case.
Q: I bought a short term expiration going long the (TLT) to hedge my position; was this smart?
A: Yes, but only if you are a professional short-term trader. If you are in front of your screen all day and are able to catch these short term moves in (TLT), that is smart. My experience is that most individual investors don’t have the experience to do that, don’t want to sit in front of a screen all day, and would rather be playing golf. Such hedging strategies end up costing them money. Also, remember that half of the moves these days are at the opening; they’re overnight gap openings and you can’t catch that intraday trading—it’s not possible. So over time, the people who take the most risk make the most money. And that means the people who don’t hedge make the most money. But you have to be able to take the pain to do that. So that’s my philosophy talk on risk taking.
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 Trade
Global Market Comments
May 24, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or IT'S ALL ABOUT THE NUMBERS),
(TLT), (SPY), (FCX), (QQQ), (VIX), (UUP), (AMAT), (CRM), (GOOG), (AMZN), (AAPL), (FB)
