Global Market Comments
March 8, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT’S UP WITH TECH?),
(MSFT), (TSLA), (AAPL), (QQQ), (NVDA), (MU), (AMD), (BRKB), (ARRK), (ROM), (VIX), (FCX), (TLT), (BRKB), (TSLA), (JPM), (SPY), (QQQ), (SPX)
That great wellspring of personal wealth, technology stocks, has suddenly run dry.
The leading stock market sector for the past decade took some major hits last week. More stable stocks like Microsoft (MSFT) only shed 8%. Some of the highest beta stocks, like Tesla (TSLA), took a heart-palpitating 39% haircut in a mere two months.
Have tech stocks had it for good? Has the greatest investment miracle of all times ground to a halt? Is it time to panic and sell everything?
Fortunately, I have seen this happen many times before.
Technology is a sector that is prone to extremes. Most of the time it is a hero, but occasionally it is a goat. When too many short-term traders sit in one end of the canoe, we all end up in the drink.
This is one of those times.
Technology stocks undeniably need a periodic shaking out. You need to get rid of the day traders, the hot money, the excessively leveraged, and find out who has been swimming without a swimsuit. The sector rotates between being ridiculously cheap to wildly overvalued. We are currently suffering the latter.
During the past 12 years, Apple’s (AAPL) price earnings multiple has traded from 9X to 36X. It was a value play for the longest time, all the way up to 2016. Nobody believed in it. It is currently at a 33X multiple. While the stock has gone nowhere since August, its earnings have increased by more than 10%, and better is yet to come.
After trading tech stocks for more than 50 years, I can tell you one thing with certainty.
They always come back.
And this time, they are in position to come back sooner, faster, and bigger than ever before. Remember the Great Dotcom Bust of 2000-2003? It lasted two years and nine months and saw NASDAQ (QQQ) crater by 82%, from 5,000 to 1,000. This time, it’s only dropped by 13%, by 1,850 from 14,250 to 12,400.
I don’t see the selloff lasting much longer or lower, no more than another 5%-10% until September. For these are not your father’s technology stocks.
There are only three numbers you need to know. Technology now accounts for a mere 2% of the US workforce, but a massive 27% of stock market capitalization and 37% of total us company earnings. A sector with such an impressive earnings output won’t fall for very long, or very far.
The pandemic accelerated technological innovation tenfold. Companies now have mountains of cash with which to bring forward their futures.
This is no more true than for biotech stocks. The technologies used to create Covid-19 vaccines can be applied to cure all human diseases. And they now have mountains of cash to implement this.
So, I’ll be taking my time with tech stocks. But they are setting up the best long side entry point since the March 20, 2020 pandemic low.
The biggest call remaining for 2021 is when to take profits and sell domestic recovery value stocks and rotate back into tech. But if you are running the barbell strategy I have been harping about since the presidential election, the work is already being done for you.
Nonfarm Payroll comes in at a blockbuster 379,000 in February, far better than expected. It a preview of explosive numbers to comes as the US economy crawls out of the pandemic. That’s with a huge drag from terrible winter weather. The headline Unemployment rate is 6.2%. The U-6 “discouraged worker” rate is still a sky-high 11%, those who have been jobless more than six months. Leisure & Hospitality were up an incredible 355,000 and Retail was up 41,000. Government lost 86,000 jobs. We are still 12 million jobs short of the year-ago trend. See what employers are willing to do when they see $20 trillion about to hit the economy?
Will US GDP Growth hit 10% this year? That is the sky-high number that is being mooted by the Atlanta Fed for the first three months of 2021. The vaccine is working! They do tend to be high in the home of Gone with the Wind. This Yankee would be happy at 7.5% growth. Manufacturing just hit a three-year high as companies try to front-run imminent explosive growth. The only weak spot is employment, which is still at recessionary highs.
Herd Immunity is here or says the latest numbers from Johns Hopkins University. New cases have plunged from 250,000 to 46,000 in a month, the fastest disease rollback in human history. We may be seeing new science at work here, where mass vaccinations combine with mass infections to obliterate the pandemic practically overnight. If true, the Dow has another 8,000 points in it….this year. Buy everything on dips. The economic data is about to get superheated.
Warren Buffet’s Berkshire Hathaway blows it away, buying back a staggering $25 billion worth of his own stock in 2020, including $9 billion in the most recent quarter. It’s what I’m always looking for, buying quality at a discount. Warren pulled in $5 billion in profits during the last quarter of 2020, up 13.6% over a year earlier. Net earnings were up 23%. If Buffet, a long time Mad Hedge reader, is buying his stock, you should too. Buy (BRKB) on dips. It's also a great LEAP candidate as the best domestic recovery play out there.
Rising rates have yet to hurt Real Estate, as the structural shortage of housing is so severe. Historically speaking, interest rates are still very low, even though the ten-year yield has soared by 82% in two months. Cash is still pouring into REITs coming off the bottom. Home prices always see their fastest moves up at the beginning of a new rate cycle as everyone rushes to beat unaffordable mortgages.
The Chip Shortage worsens, with Tesla shutting down its Fremont factory for two days. The Texas deep freeze made matters much worse, where many US fabs are located, like Samsung, NXP Semiconductors, and Infineon Technologies. Buy (NVDA), (MU), and (AMD) on dips.
Jay Powell lays an egg at a Wall Street Journal conference. He said it would take some time to return to a normal economy. The speed of the interest rate rise was “notable.” We are unlikely to return to maximum employment in a year. We couldn’t have heard of more dovish speech. But all that traders heard was that inflation was set to return, but will be “temporary.” That was worth a 600-point dive in the stock market and a 5-basis point pop in bond yields. My 10% correction is finally here!
Here today, gone tomorrow. Cathie Wood was far and away the best fund manager of 2020. She, value investor Ron Baron, and I, were alone in the darkness four years ago saying that Tesla (TSLA) could rise 100-fold. Cathie’s flagship fund The Ark Innovation ETF (ARKK) rose a staggering 433% off the March 2020 bottom. Alas, it has since given up a gut-punching 30% since the February high, exactly when ten-year US Treasury bonds started to crash. Watch (ARKK) carefully. This is the one you want to own when rates stabilize. It’s like another (ROM).
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 400% to 120,000 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 120,000 here we come!
It’s amazing how well selling tops and buying bottoms can help your performance. My Mad Hedge Global Trading Dispatch reached a super-hot 11.61% during the first five days in March on the heels of a spectacular 13.28% profit in February. The Dow Average is up a miniscule 4.00% so far in 2021.
It was a week of frenetic trading, with the Volatility Index (VIX) all over the map. I took profits in Freeport McMoRan (FCX) and my short in US Treasury bonds (TLT) and buying Berkshire Hathaway (BRKB), Tesla (TSLA), JP Morgan (JPM). I opened new shorts in the S&P 500 (SPY) and the NASDAQ (QQQ).
This is my fifth double digit month in a row. My 2021 year-to-date performance soared to 35.10%. That brings my 11-year total return to 457.65%, some 2.12 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 40.68%.
My trailing one-year return exploded to 110.25%, the highest in the 13-year history of the Mad Hedge Fund Trader.
We need to keep an eye on the number of US Coronavirus cases at 29 million and deaths topping 525,000, which you can find here.
The coming week will be a boring one on the data front.
On Monday, March 8, at 11:00 AM EST, Consumer Inflation Expectations for February are out.
On Tuesday, March 9, at 7:00 AM, The NFIB Business Optimism Index for February is published.
On Wednesday, March 10 at 8:30 AM, the US Inflation Rate for February is printed.
On Thursday, March 11 at 8:30 AM, Weekly Jobless Claims are out.
On Friday, March 12 at 8:30 AM, the Producer Price Index for February is disclosed.
At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, it was with great sadness that I learned of the passing of my old friend, Sheikh Zaki Yamani, the great Saudi Oil Minister. Yamani was a true genius, a self-taught attorney, and one of the most brilliant men of his generation.
It was Yamani who triggered the first oil crisis in 1973, raising the price from $3 to $12 a barrel in a matter of weeks. Until then, cheap Saudi oil had been powering the global economy for decades.
During the crisis, I relentlessly pestered the Saudi embassy in London for an interview for The Economist magazine. Then, out of the blue, I received a call and was told to report to a nearby Royal Air Force base….and to bring my passport.
There on the tarmac was a brand-new Boeing 747 with “Kingdom of Saudi Arabia” emblazoned on the side in bold green lettering. Yamani was the sole passenger, and I was the other. He then gave me an interview that lasted the entire seven-hour flight to Riyadh. We covered every conceivable economic, business, and political subject. It led to me capturing one of the blockbuster scoops of the decade for The Economist.
When Yamani debarked from the plane, I asked him “why me.” He said he saw a lot of me in himself and wanted to give me a good push along my career. The plane then turned around and flew me back to London. I was the only passenger on the plane.
When the pilot heard I’d recently been flying Pilatus Porters for Air America, he even let me fly it for a few minutes while he slept on the cockpit floor.
Yamani later became the head of OPEC. At one point, he was kidnapped by Carlos the Jackal and held for ransom, which the king readily paid.
And if you wonder where I acquired my deep knowledge of the oil and energy markets, this is where it started. Today, the Saudis are among the biggest investors in alternative energy in California.
We stayed in touch ever since.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 12, 2021
Fiat Lux
Featured Trade:
(MAD HEDGE 2020 PERFORMANCE ANALYSIS),
(SPY), (TLT), (TBT), (TSLA), (GLD),
(SLV), (V), (AAPL), (VIX), (VXX)
(TESTIMONIAL)
When a Marine combat pilot returns from a mission, he gets debriefed by an intelligence officer to glean whatever information can be obtained and lessons learned.
I know. I used to be one.
Big hedge funds do the same.
I know, I used to run one.
Even the best managers will follow home runs with some real clangors. Every loss is a learning experience. If it isn’t, investors will flee and you won’t last long in this business. McDonald’s beckons.
By subscribing to the Mad Hedge Fund Trader, you get to learn from my own half-century of mistakes, misplaced hubris, arrogance, overconfidence, and sheer stupidity.
So, let’s take a look at 2020.
It really was a perfect year for me during the most adverse conditions imaginable, a pandemic, Great Depression, and presidential election. I made good money in January, went net short when the pandemic hit in February, and played the big bounce in technology stocks that followed.
Right at the March crash bottom, I sent out lists of 25 two-year option LEAPS (Long Term Equity Participation Securities). Many of these were up ten times in months. I then used a Biden election win as a springboard for a big run with domestic recovery stocks and financials.
One client turned $3 million into $40 million last year. He owes me a dinner and my choice on the wine list. (Hmmmmm. Lafitte Rothschild 1952 Cabernet Sauvignon with a shot of Old Rip Van Winkle bourbon as a chaser?). I usually get a few of these every year.
See, that’s all you have to do to bring in a big year. Piece of cake. It’s like falling off a log. But then I’ve been practicing for 50 years.
In the end, I managed to bring in a net return of 66.5% for all of 2020. That compares to a net return for the Dow Average of 5.7%.
My equity trading in general brought in 71.94% in profits, with 216 trade alerts, and were far and away my top performing asset class. This was the best year for trading equities since the 1999 Dotcom bubble top.
Of course, the best single trade of the year was with Tesla (TSLA), with 18 trades bringing in a 10.55%. I dipped in and out during the 10-fold increase from the March low to yearend.
Readers were virtually buried with an onslaught of inside research about the disruptive electric car company. It’s still true if you buy the stock, you get the car for free, as I have done three times.
Some 26 trades in Apple (AAPL) brought in a net 5.94%. It did get stopped out a few times, hence the lower return.
The second most profitable asset class of the year was in the bond market, with 58 trades producing a 31.16% profit. Virtually all of these trades were on the short side.
I sold short the United States Treasury Bond Fund from $180 all the way down to $154. I called it my “rich uncle” trade of the year, writing me a check every month and sometimes several a month. This is the trade that keeps on giving in 2021. Eventually, I see the (TLT) falling all the way to $80.
I did OK with gold (GLD), making 4.88% with eight trades in the SPDR Gold Shares ETF. Gold rose steadily until August and then fell for the rest of the year. I picked up another 1.77% on two silver trades (SLV).
It was not all a bed of roses.
Easily my worst asset class of the year was with volatility, selling short the iPath Series B S&P 500 VIX Short Term Volatility ETN (VXX). I was dead right with the direction of the move, with the (VIX) falling from $80 to $20. But my timing was off, with time decay eating me up. I lost 7.29% on six trades.
Two trades in credit card processor Visa (V) cost me 4.37%. I had a nice profit in hand. Then right before expiration, rumors of antitrust action from the administration emerged, a spate of bad economic data was printed, and an expensive acquisition took place.
I call this getting snakebit when unpredictable events come out of the blue to force you out of positions. Visa shares later rose by an impressive 22% in two months.
I lost another 0.99% on my one oil trade of the year with the United States Oil Fund (USO), buying when Texas tea was at negative -$5.00 and stopping out at negative $15.00. Oil eventually fell to negative -$37.00.
Go figure.
I didn’t offer any foreign exchange trades in 2020. I got the collapse of the US dollar absolutely right, but the moves were so small and so slow they could compete with what was going on in equities and bonds.
However, I played the weak dollar in other ways, with bullish calls in commodities and bearish ones in bonds. It always works.
Anyway, it’s a New Year and we work in the “You’re only as good as your last trade” business. 2021 looks better than ever, with a 5% profit straight out of the gate during the first five trading days.
It really is the perfect storm for equities, with $10 trillion about to hit the US economy, most of which will initially go into the stock market.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 2, 2020
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE ELECTION IS HERE!)
(INDU), (SPY), (TLT), (CAT), (TSLA), (GOLD), (JPM), (VIX), (VXX)
That was a great lead into Halloween last week, where frightening share price movements scared the living daylights out of all of us. The Dow Average dove by 7.0% last week and is down 8.9% from the September 1 peak. It was the worst performance in seven months.
Of course, I saw it all coming a mile off, predicting a selloff going into the November 3 presidential election and a rally once the great uncertainty is removed. That’s why I have run several short positions over the past month, all of which proved successful, and am long flipping to the long side.
The next generational peak at 120,000 is now only 93,499 points away. Time to get moving.
Of course, technical analysts who were eternally bullish at the market top are now wringing their hands over the double top on the charts that even a two-year-old can spot. It’s only giving us a better entry point for longs that will carry us through to yearend.
The stock market has priced in a contested election. If that doesn’t happen, and the winning candidate takes the White House by a landslide, markets will have to immediately back out that dire scenario. Stocks could soar by 1,000 points immediately on the first whiff of a challenge0-proof victory margin.
This time, we have the luxury of trading against a line in the sand at a (SPY) of $310, the 200-day moving average. Look at the chart below and you’ll see that this was not only close to the highs in 2018 and 2019 and a recent bottom in 2020. As if driven by the force of gravity, the market seems strangely driven to the $310 level.
It’s almost impossible to lose money on call spreads bought at market bottoms when the Volatility Index (VIX) is over 40%, as it was on Thursday and Friday. It’s time to strike while the iron is hot, and other investors are jumping off of bridges.
I’ll be piling into domestic recovery stocks like banks, construction, couriers, railroads, and gold and selling short bonds and the US dollar.
The election has already taken place, as 85 million votes have been cast in early voting. Many states have already seen double their 2016 turnouts. We just don’t know the outcome yet. It’s likely that new Covid-19 infections could top 100,000 on election day.
I’ll be up all night on Tuesday watching the results come in and keeping a hawk-eye on the overnight futures trading in Asia, the only open markets. Watch for Florida and North Carolina to report first.
One of the great ironies of trading last week was that after delivering the best earnings performance in stock market history, we saw one of the worst share price performances.
That’s because all of the great stimulants for the economy in recent months, the prospect of a massive stimulus package, declining Covid-19 cases, and plunging interest rates, will take a three-month vacation while the United States changes governments.
We really do work in a “what have you done for me lately” industry.
It was all about tech earnings last week, with Amazon (AMZN), Alphabet (GOOGL), and Microsoft all reporting. We have to wait until next week for Apple (AAPL). They all knocked the cover off the ball. Only Apple (AAPL) disappointed on a 20% YOY sales drop.
It seems everyone was waiting for the iPhone 12. Stock was off $10. Sales in China also took a big hit. Expect a massive resurgence in Q4. iPhones are selling faster than Apple can make them. Buy (AAPL) on dips. The stock jumps 8%. Forget about the DOJ antitrust suit. Buy (GOOGL) on dips.
Crashing bond prices show that a recovery is imminent, with ten-year US Treasury yields ($TNX) jumping 20 basis points in a month to a four-month high. Buy (SPY) on dips and sell short (TLT) on rallies.
Existing Home Sales soared by 9.4% in September, up a staggering 20% YOY. Inventories fell to a record low 2.7 months. Median prices are up an astounding 14.8% YOY to $311,800. Zillow believes this madness will continue for at least another year. Sales were strongest in the Northeast, with most of the action in single-family homes. Homes over $1 million have doubled, and vacation homes are up 35%.
Q3 GDP exploded with a 33.1% rate, double the highest on record and in line with expectations. All cylinders are firing, except for the 20% of the economy that went bankrupt during the pandemic. The stock market fully discounted this on September 1 when stocks peaked. The US won’t recover its 2019 GDP until 2023. With Corona cases now soaring, are we about to go back into the penalty box?
Weekly Jobless Claims posted at 751,000, an improvement, but still near a record high. It’s the lowest report since pre-pandemic March 14. I think a lot of these losses are structural….and permanent.
The World’s Biggest ETF is bleeding funds, with the (SPY) losing $33 billion this year. Massive selling at market tops has been a major factor. Most of the selling was in February and March when the pandemic started, and the money never came back. It also belies the widespread shift into tech stocks this year. Out with the boring, in with the exciting. Dry powder for the coming Roaring Twenties?
When we come out the other side of the 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 400% to 120,000 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 120,000 here we come!
My Global Trading Dispatch hit another new all-time high last week. October closed out at a moderate 1.51% profit.
I took a big hit on a long in Visa (V), thanks to a surprise prosecution from the Department of Justice over their Plaid merger. I more than offset that with short positions in the (SPY) and (JPM). Then on Friday, I leaned into the close, picking up new longs in the (SPY), (TSLA), and (CAT) betting on a post-election rally.
That keeps our 2020 year-to-date performance at a blistering +36.03%, versus a LOSS of -7.5% for the Dow Average. That takes my 11-year average annualized performance back to +35.90%. My 11-year total return stood at a new all-time high at +391.94%. My trailing one-year return appreciated to +42.48%.
The coming week will be one of the most exciting in history as election results trickly out Tuesday night. As if we didn’t have enough to worry about, it is also jobs week. We also need to keep an eye on the number of US Coronavirus cases and deaths, now over 9 million and 232,000, which you can find here.
On Monday, November 2 at 8:00 PM EST, US Vehicle Sales for October are released. Alibaba (BABA) and Sanofi (SNY) report earnings.
On Tuesday, November 3, we get the US Presidential Election. Early results in Florida will start coming out at 7:30 PM EST. TV networks, makers of campaign tchotchke and bumper stickers, and talking heads will go into mourning. Coca-Cola (K) reports earnings.
On Wednesday, November 4 at 9:15 AM EST, the ADP Private Employment Report is out. QUALCOMM (QCOM) and Wynn Resorts (WYNN) report earnings.
On Thursday, November 5 at 8:30 AM EST, the Weekly Jobless Claims are announced.
On Friday, November 6 at 8:30 AM EST, the October Nonfarm Payroll Report is announced. Barrick Gold (GOLD) reports earnings. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, I went to San Francisco for dinner with an old friend last night and I couldn’t believe what I saw. Storefronts were boarded up, the streets vacant, with only the homeless ever present. The cable cars have quit running.
We ate outside at my favorite Italian restaurant Perbacco on Market Street where the heat lamp blasted away. The restaurant is owned by my transplanted Venetian friend Umberto Gibin. He was running it at 50% capacity with 25% of the staff just to break even.
I hope he makes it.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 30, 2020
Fiat Lux
Featured Trade:
(OCTOBER 28 BIWEEKLY STRATEGY WEBINAR Q&A),
(INDU), (VIX), (AMZN), (TSLA), (FEYE), (HACK), (PANW), (V), (TLT), (FXA), (FXC), (ZM), (DOCU), (RTX), (LMT), (NOC), (GD)
Below please find subscribers’ Q&A for the October 28 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!
Q: Do you think if Trump contests the election, it will be bad for stocks?
A: Yes, count on that knocking another 10% off of stocks. The market has spent the last six months pricing in a Biden win. Take that away and you have to price that back out again, about 6,000 Dow Average points (INDU). We’ve already dropped 2,500 points so that leaves another 3,500 points of downside t0 go in the event of a Trump win.
Q: Will that result in a crash?
A: Yes. At least 1,000 points in the overnight session following.
Q: Do you think it’s going to happen?
A: No. According to the polls, Trump will lose by at least 15 million votes. While the polls missed the Electoral College result last time, they were dead on with the popular vote, with Hillary Clinton winning by 3 million votes. If the margin were only a few hundred or thousand votes in a single battleground state, Trump might win a court fight. But he can’t win if the margin is in ten states and tens of millions of votes. That is too much to fudge. That is how markets react: they hate surprises, and a second Trump win would be the surprise of the century.
Q: With all of the earnings positive, do you think markets will stay positive?
A: Earnings aren’t important right now. Everyone knew earnings would be great because we were coming off of hundred-year lows caused by the pandemic. So yes, we knew they’d be up 50%, 100%, 150%; that's not the surprise. The bigger issue is what the pandemic is going to do, and of course, only biochemists know that—most stock traders have no idea, which is reflected in these gigantic swings we’re seeing in the market both on the upside and the downside. As a biochemist, I can tell you that this is our final wave that's coming up and it could last several months. After that, we get a vaccine or herd immunity. When it's done, you have the bull market of a lifetime—up 400% in ten years from these levels. Dow 120,000 here we come!
Q: Do you see a tax selloff if Biden gets in? Should we get short?
A: Definitely; there will be a tax selloff. Past ones have only lasted a week or two and those were the last two weeks of December, so it really won’t be that bad. It’s not like it’s a surprise that Biden is ahead in the polls, because he has been for 6 months. Nor is it a surprise that he is going to raise taxes on the wealthy. I wouldn’t get short though. The short play was last week and the week before; and I did manage to get out three shorts but didn't want to get too big in front of an election. So those all worked. I'm out of all of them now, and now we’re looking only at long plays. And with the Volatility Index (VIX) over $40, you can go 20% or 30% in-the-money on these call spreads and still look to make 10%-20% profit on the position in a month.
Q: Isn’t the pandemic great for Amazon (AMZN)?
A: Yes, Amazon was taking over the world anyway, and forcing everyone to an online-only economy which couldn’t be better for them. A lot of this shifting is permanent and won’t be going back to the way it was before the pandemic with brick and mortar shops and malls. So yes, we love Amazon and I would buy on the dips. There’s a double from here.
Q: Do you have long term names I can buy to sit on?
A: Yes, we actually do have a long-term portfolio posted on the website. It would be listed under your subscription area once you log in—we rebalance that twice a year. And of course, we had a 10% holding in Tesla (TSLA) which went up ten times, so the performance of the long-term portfolio is through the roof. To find the long-term portfolio, please click here.
Q: Do you record this webinar?
A: Yes, we post it on the www.madhedgefundtrader.com site in two hours.
Q: Do you still like the Internet security stocks like FireEye (FEYE)?
A: Yes. Hacking is growing faster than the Internet itself. You should also look at Palo Alto Networks (PANW) and the ETF (HACK).
Q: Should we hold on to the Visa (V) spread hoping it will come back after the election drop?
A: Hope is not an investment strategy. I always stop out of positions when they hit a 2% loss. The only time I have 4% losses is when we get these gigantic gap moves overnight, which tend to happen once every one or two years. In this case, Visa got hit with a surprise antitrust suit from the Department of Justice that knocked $10 off of the stock. So no, I will not hold on to it in the hope that it does better; I will try to minimize my losses, get out, and get into the next winning position. Hope is what turns a 4% loss into a complete 10% write off.
Q: What’s your view on the Canadian dollar (FXC)?
A: I like it, but it’s not as good as the Australian dollar (FXA) because Canada has a major oil exposure, and actually the worst kind of oil exposure—tar sands in northern Alberta. The outlook for oil is poor and that will be a drag on the currency in the form of fewer exports. Buy the (FXA). No oil troubles here. Kangaroos are another story.
Q: Will you be looking to sell short on the United States Treasury Bond Fund (TLT)?
A: Yes, if we can just get a little bit higher. We’re looking at an economic recovery next year, so we’d expect the (TLT) to be lower by at least $20 points in 2021.
Q: Do you think the San Francisco and New York housing markets will return to what they were before with so many people are moving out of the city?
A: Yes, they will come back, I’ve been through many of these cycles in San Francisco over the past 50 years; it always comes back. Once the pandemic is over, people will say, “Oh my gosh, I can’t believe you can get a two-bedroom apartment in San Francisco for only $2 million.” That's probably another year or two off after a vaccine is in widespread distribution.
Q: Is real estate in a bubble?
A: Absolutely, but real estate bubbles can go on for a long time, like ten years. The bubble in Australia has been going on for 30 years. Ultimately, real estate prices are driven by the earnings power of the local economy which, in the case of San Francisco, is huge. This time around, we have a record large millennial generation looking for real estate. There are 85 million millennia buyers with only 65 million Gen X-er’s selling homes. So, we have to make up a shortfall of 20 million houses at some point. That’s why building permits are through the roof every month.
Q: Zoom (ZM) and DocuSign (DOCU) are the darling stocks of COVID 2020—what do you think about them at these high prices?
A: Very high risk. If you bought these a year ago when we first started covering them, good for you as they're up ten times. However, there are better fish to fry than chasing these big pandemic winners at all-time highs.
Q: If Biden wins, what happens to defense stocks like Raytheon Technology (RTX)?
A: They go down. It turns out a lot of the defense business is in very long term contracts that can’t be broken. They have to supply so many planes a year to the government for a decade or more. However, the sentiment on these sectors sours under democratic administrations because they are not initiating new weapons systems where the big money is made. Lockheed Martin (LMT), Northrop Grumman (NOC), and General Dynamics (GD) all have the same problem. I grew up with these companies. They were the FANGs of their day.
Q: How does a Biden win affect Tesla (TSLA)?
A: Then $2,500 a share for Tesla looks cheap (it’s now at $410). Biden will do everything he can to slow climate change and accelerate alternative energy. Tesla is front and center on that. Under current law, car manufacturers are limited on the number of units they can sell to get the $7,500 tax break per vehicle. Tesla used up all their subsidies five years ago. My bet is that the limits will be eliminated and that leads to a huge surge in Tesla sales in the U.S., which is why the stock has gone up 10 times in the last year. Tesla has promised to drop their car price to $25,000 in three years. If you throw in $10,000 in federal and state tax subsidies you get the car for free. Then you can write off General Motors (GM) and Ford (F).
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 7, 2020
Fiat Lux
Featured Trade:
(THE ROARING TWENTIES HAVE JUST BEGUN),
(SPY), (TLT), (TBT), (VIX)
I just about fell out of my chair when the national election poll numbers were released over the weekend.
After remaining stuck at a 49% to 41% lead for the past year, Joe Biden picked up 5% to reach a commanding 54% to 39% lead. These are the most decisive polling numbers since the 1972 Nixon-McGovern contest, when the former carried 49 states in the Electoral College.
A blue wave is now a certainty, where the democratic party gains control of the White House and Congress for at least the next two years.
The enormous swing is no doubt a response to the president’s performance at last week’s debate, which most viewers found wanting. We now know that he was infected with Covid-19 at the time, which among its many symptoms include delusion and poor decision-making.
We don’t know Trump’s academic record because he has sued his alma mater to prevent their release. However, it is safe to say he failed his debate class. You never attack the moderator.
The change in the election outlook has enormous implications for investors. It puts to rest and chance of a Trump win or a contested election. Biden’s lead is now so enormous that it is impossible to overturn through legal challenges, widespread voter suppression, or disabling of the US Post Office.
Differences in vote counts in the hundreds, as we saw in Florida in 2000, are fertile ground for challenges, extended outcomes, and uncertainty. Differences in the tens or hundreds of thousands aren’t.
Don’t take my word for it, listen to Mr. Market. The near three-point plunge in the bond market (TLT) yesterday tells us that good times are coming, demand for new funds will be unprecedented, and interest rates will rise. 2021 could see an unprecedented 10% US GDP growth rate.
As a result, the stock market now has before it the task of backing out a lot of fear and uncertainty that was priced in. Translation: stocks go up.
Horrendous multi thousand-point plunges are now a thing of the past. It is now unlikely that the S&P 500 (SPY) will even fall back to the 200-day moving average at $308, a near certainty only a week ago.
It’s time for you to step up your aggressiveness in returning to risk in general and the stock market specifically. We are about to see another tidal wave of cash to move into technology stocks. Rapid rotation into domestic recovery stocks, banks, and small caps will also ensue.
Your next entry point on the long side will be next Monday after Trump returns to the hospital as his Covid-19 peaks. That is supposed to be what happens 7-10 days after an initial infection. That should be worth 500 or a thousand points of downside.
The Roaring Twenties have just begun, if they hadn’t already last March. My forecast of another 400% gain over the next decade on top of the existing one just received another dollop of credibility.
Oh yes, and don’t forget to vote.
