Global Market Comments
April 1, 2021
Fiat Lux
Featured Trade:
(MARCH 31 BIWEEKLY STRATEGY WEBINAR Q&A),
(FB), (ZM), ($INDU), (X), (NUE), (WPM), (GLD), (SLV), (KMI), (TLT), (TBT), (BA), (SQ), (PYPL), (JNP), (CP), (UNP), (TSLA), (GS), (GM), (F)
Posts
Below please find subscribers’ Q&A for the March 31 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.
Q: Would you buy Facebook (FB) or Zoom (ZM) right here?
A: Well, Zoom was kind of a one-hit wonder; it went up 12 times on the pandemic as we moved to a Zoom economy, and while Zoom will permanently remain a part of our life, you’re not going to get that kind of growth in stock prices in the future. Facebook on the other hand is going to new highs, they just announced they’re laying a new fiber optic cable to Asia to handle a 70% increase in traffic there. So, for the longer term and buying here, I think you get a new high on Facebook soon; there's maybe another 20-30% move in Facebook this year.
Q: I can’t really chase these trades here, right?
A: Correct; if you wait any more than a day or 2 on executing a trade alert, you’re missing out on all of the market timing value we bring to the game. So that's why I include an entry price and the “don’t pay more than” price. And we never like to chase, except last year, when we did it almost all the time. But last year was a chase market, this year not so much.
Q: How are LEAP purchase notifications transmitted?
A: Those go out in the daily newsletter Global Trading Dispatch when I see a rare entry point for a LEAP, then we’ll send out a piece and notify everybody. But it’s very unusual to get those. Of course, a year ago we were sending out lists of LEAPS ten at a time when the Dow Average ($INDU) is at 18,000. But that is not now, you only wait for those once or twice a year. On huge selloffs to get into two-year-long options trades, and that is definitely not now. The only other place I've been looking out for LEAPS right now are really bombed out technology stocks begging for a rotation. Concierge members get more input on LEAPS and that is a $10,000 a year upgrade.
Q: What are your thoughts on silver (SLV) and long-term gold (GLD)?
A: I see silver going to $50 and eventually $100 in this economic cycle, but it's out of favor right now because of rising interest rates. So, once we hit 2.00% in the ten years, it’s not only off to the races for tech but also gold and silver. Watch that carefully because your entry point may be on the horizon. That makes Wheaton Precious Metals (WPM) a very attractive “BUY” right now.
Q: Are you going to trade the (TLT)?
A: Absolutely yes, but I’m kind of getting picky now that I’m up 42% on the year; and I only like to sell 5-point rallies, which we got for about 15 minutes last week. And I also only like to buy 5- or 10-point dips. Keep your trading discipline and you’ll make a ton of money in this market. Last year we made about 30% trading bonds on about 30 round trips.
Q: How much further upside is there for US Steel (X) and Nucor Corp. (NUE)?
A: More. There's no way you do infrastructure without using millions of tons of steel. And I kind of missed the bottom on US Steel because it had been a short for so long that it kind of dropped off the radar for me. I think we have gone from $4 to 27 since last year, but I think it goes higher. It turns out the US has been shutting down steel production for decades because it couldn't compete with China or Japan, and now all of a sudden, we need steel, and we don’t even make the right kind of steel to build bridges or subways anymore—that has to be imported. So, most of the steel industry here now is working for the car industry, which produces cold-rolled steel for the car body panels. Even that disappears fairly soon as that gets taken over by carbon fiber. So enough about steel, buy the dips on (X) and (NUE).
Q: What stocks should I consider for the infrastructure project?
A: Well, US Steel (X) and Nucor Corp (NUE) would be good choices; but really you can buy anything because the infrastructure package, the way it’s been designed, is to benefit the entire economy, not just the bridge and freeway part of it. Some of it is for charging stations and electric car subsidies. Other parts are for rural broadband, which is great for chip stocks. There is even money to cap abandoned oil wells to rope in Texas supporters. All of this is going to require a massive upgrade of the power grid, which will generate lots of blue-collar jobs. Really everybody benefits, which is how they get it through Congress. No Congressperson will want to vote against a new bridge or freeway for their district. That’s always the case in Washington, which is why it will take several months to get this through congress because so many thousands of deals need to be cut. I’ve been in Washington when they’ve done these things, and the amount of horse-trading that goes on is incredible.
Q: Is it a good thing that I’ve had the United States Treasury Bond Fund (TLT) LEAPS $125 puts for a long time.
A: Yes. Good for you, you read my research. Remember, the (TLT) low in this economic cycle is probably around $80, so you probably want to keep rolling forward your position….and double up on any ten-point rally.
Q: Do you think we get a pop back up?
A: We do but from a lower level. I think any rallies in the bond market are going to be extremely limited until we hit the 2.00%, and then you’re going to get an absolute rip-your-face-off rally to clean out all the short term shorts. If you're running put LEAPS on the (TLT) I would hang on, it’s going to pay off big time eventually.
Q: If we see 3.00% on the 10-year this year, do you see the stock market crashing?
A: I don’t think we’ll hit 3.00% until well into next year, but when we do, that will be time for a good 10% stock market correction. Then everyone will look around again and say, “wow nothing happened,” and that will take the market to new highs again; that's usually the way it plays out. Remember, then year yields topped all the way up at 5.00% when the Dotcom Bubble topped in April 2020.
Q: Has the airline hospitality industry already priced in the reopening of travel?
A: No, I think they priced in the hope of a reopening, but that hasn’t actually happened yet, and on these giant recovery plays there are two legs: the “hope for it” leg, which has already happened, and then the actual “happening” leg which is still ahead of us. There you can get another double in these stocks. When they actually reopen international travel to Europe and Asia, which may not happen this year, the only reopening we’re going to see in the airline business is in North America. That means there is more to go in the stock price. Also coming back from the brink of death on their financial reports will be an additional positive.
Q: Do you think a corporate tax increase will drive companies out of the US again and raise the unemployment rate?
A: Absolutely not. First of all, more than half of the S&P 500 don’t even pay taxes, so they’re not going anywhere. Second, I think they will make these offshoring moves to tax-free domiciles like Ireland illegal and bring a lot of tax revenues back to the US. And third, all Biden is doing is returning the tax rate to where it was in 2017; and while the corporate tax rate was 35%, the stock market went up 400% during the Obama administration, if you recall. So stocks aren't really that sensitive to their tax rates, at least not in the last 50 years that I’ve been watching. I'm not worried at all. And Biden was up on the polls a year ago talking about a 28% tax rate; and since then, the stock market has nearly doubled. The word has been out for a year and priced in for a year, and I don't think anybody cares.
Q: What about quantum computers?
A: I’m following this very closely, it’s the next major generation for technology. Quantum computers will allow a trillion-fold improvement in computing power at zero cost. And when there's a stock play, I will do it; but unfortunately, it’s not (IBM), because we’re not at the money-making stage on these yet. We are still at the deep research stage. The big beneficiaries now are Alphabet (GOOGL), Microsoft (MSFT), and Amazon (AMZN).
Q: Is it time to buy Chinese stocks?
A: I would say yes. I would start dipping in here, especially on the quality names like Tencent (TME), Baidu (BIDU), and Alibaba (BABA), because they’ve just been trashed. A lot of the selloff was hedge fund-driven which has now gone bust, and I think relations with China improve under Biden.
Q: Your timing on Tesla (TSLA) has been impeccable; what do you look for in times of pivots?
A: Tesla trades like no other stock, I have actually lost money on a couple of Tesla trades. You have to wait for things to go to extremes, and then wait two more days. That seems to be the magic formula. On the first big selloff go take a long nap and when you wake up, the temptation to buy it will have gone away. It always goes up higher than you expect, and down lower than you expect. But because the implied volatilities go anywhere from 70% to 100%, you can go like 200 points out of the money on a 3-week view and still make good money every month. And that’s exactly what we’re going to do for the rest of the year, as long as the trading’s down here in the $500-$600 range.
Q: Is Editas Medicine (EDIT), a DNA editing stock, still good?
A: Buy both (EDIT) and Crisper (CRSP); they both look great down here with an easy double ahead. This is a great long-term investment play with gene editing about to dominate the medical field. If you want to learn more about (EDIT) and (CRSP) and many others like them, subscribe to the Mad Hedge Fund Biotech & Healthcare Letter because we cover this stuff multiple times a week (click here).
Q: Is the XME Metals ETF a buy?
A: I would say yes, but I'd wait for a bigger dip. It’s already gone up like 10X in a year, but the outlook for the economy looks fantastic. (XME) has to double from here just to get to the old 2008 high and we have A LOT more stimulus this time around.
Q: What about hydrogen?
A: Sorry, I am just not a believer in hydrogen. You have to find someone else to be bullish on hydrogen because it’s not me. I've been following the technology for 50 years and all I can say is: go do an image Google for the name “Hindenburg” and tell me if you want to buy hydrogen. Electricity is exponentially scalable, but Hydrogen is analog and has to be moved around in trucks that can tip over and blow up at any time. Hydrogen batteries are nowhere near economic. We are now on the eve of solid-state lithium-ion batteries which improve battery densities 20X, dropping Tesla battery weights from 1,200 points to 60 pounds. So “NO” on hydrogen. Am I clear?
Q: Why do you do deep-in-the-money call and put spreads?
A: We do these because they make money whether the stock goes up down or sideways, we can do them on a monthly basis, we can do them on volatility spikes, and make double the money you normally do. The day-to-day volatility on these positions is very low, so people following a newsletter don’t get these huge selloffs and sell at bottoms, which is the number one source of retail investor losses. After 13 years of trade alerts, I have delivered a 40.30% average annualized return with a quarter of the market volatility. Most people will take that.
Q: Is ProShares Ultra Short 20 Year Plus Treasury ETF(TBT) still a play for the intermediate term?
A: I would say yes. If ten-year US Treasury bonds Yields soar from 1.75% to 5.00% the (TBT) should rise from $21 to $100 because it is a 2X short on bonds. That sounds like a win for me, as long as you can take short term pain.
Q: What is the timing to buy TLT LEAPS?
A: The answer was in January when we were in the $155-162 range for the (TLT). Down here I would be reluctant to do LEAPS on the TLT because we’ve already had a $25 point drop this year, and a drop of $48 from $180 high in a year. So LEAP territory was a year ago but now I wouldn’t be going for giant leveraged trades. That train has left the station. That ship has sailed. And I can’t think of a third Metaphone for being too late.
Q: Would you buy Kinder Morgan (KMI) here?
A: That’s an oil exploration infrastructure company. No, all the oil plays were a year ago, and even six months ago you could have bought them. But remember, in oil you’re assuming you can get in and out before it crashes again, it’s just a matter of time before it does. I can do that but most of you probably can’t, unless you sit in front of your screens all day. You’re betting against the long-term trend. It works if you’re a hedge fund trader, not so much if you are a long-term investor. Never bet against the long-term trend and you always have a tailwind behind you. All surprises work to your benefit.
Q: If you get a head and shoulders top on bitcoin, how far does it fall?
A: How about zero? 80% is the traditional selloff amount for Bitcoin. So, the thing is: if bitcoin falls you have to worry about all other investments that have attracted speculative interest, which is essentially everything these days. You also have to worry about Square (SQ), PayPal (PYPL), and Tesla (TSLA), which have started processing Bitcoin transactions. Bitcoin risk is spread all over the economy right now. Those who rode the bandwagon up will ride it back down.
Q: Is Boeing (BA) a long-term buy?
A: Yes, especially because the 737 Max is back up in the air and China is back in the market as a huge buyer of U.S. products after a four-year vacation. Airlines are on the verge of seeing a huge plane shortage.
Q: What about Ags?
A: We quit covering years ago because they’re in permanent long-term downtrends and very hard to play. US farmers are just too good at their jobs. Efficiencies have double or tripled in 60 years. Ag prices are in a secular 150-year bear market thanks to technology.
Q: Is this recorded to watch later?
A: Yes, it goes on our website in about two hours. For directions on where to find it, log in to your www.madhedgefundrader.com account, go to “My Account,” and it will be listed under there, as are all the recorded webinars of the last 12 years.
Q: Would you buy Canadian Pacific (CP) here, the railroad?
A: No, that news is in the price. Go buy the other ones—Union Pacific (UNP) especially.
Q: What are your thoughts on Bitcoin?
A: We don’t cover Bitcoin because I think the whole thing is a Ponzi scheme, but who am I to say. There is almost ten times more research and newsletters out there on Bitcoin as there is on stock trading right now. They seem to be growing like mushrooms after a spring storm. There are always a lot of exports out there at market tops, as we saw with gold in 2010 and tech stock in 2000.
Q: What do you think about Juniper Networks (JNP)?
A: It’s a Screaming “BUY” right here with a double ahead of it in two years. I’m just waiting for the tech rotation to get going. This is a long-term accumulate on dips and selloffs.
Q: Did the Archagos Investments hedge fund blow threaten systemic risk?
A: No, it seems to be limited just to this one hedge fund and just to the people who lent to it. You can bet banks are paring back lending to the hedge fund industry like crazy right now to protect their earnings. I don’t think it gets to the systemic point, but this is the Long Term Capital Management for our generation. I was involved in the unwind of the last LTCM capital, which was 23 years ago. I was one of the handful of people who understood what these people were even doing. So, they had to bring me in on the unwind and huge fortunes were made on that blowup by a lot of different parties, one of which was Goldman Sachs (GS). I can tell you now that the statute of limitations has run out and now that it's unlikely I'll ever get a job there, but Goldman made a killing on long-term capital, for sure.
Q: Will Tesla benefit from the Biden infrastructure plan?
A: I would say Tesla is at the top of the list of companies the Biden administration wants to encourage. That means more charging stations and more roads, which you need to drive cars on, and bridges, and more tax subsidies for purchases of new electric cars. It’s good not just Tesla but everybody’s, now that GM (GM) and Ford (F) are finally starting to gear up big numbers of EVs of their own. By the way, I don't see any of the new startups ever posing a threat to Tesla. The only possible threats would be General Motors, Ford, and Volkswagen, which are all ten years behind.
Q: Would you put 10% of your retirement fund into cryptocurrencies?
A: Better to flush it down the toilet because there’s no commission on doing that.
Q: Is growing debt a threat to the economy? How much more can the government borrow?
A: It appears a lot more, because Biden has already indicated he’s going to spend ten trillion dollars this year, and the bond market is at a 1.70%—it’s incredibly low. I think as long as the Fed keeps overnight rates at near-zero and inflation doesn't go over 3%, that the amount the government can borrow is essentially unlimited, so why stop at $10 or $20 trillion? They will keep borrowing and keep stimulating until they see actual inflation, and I don’t think we will see that for years because inflation is being wiped out by technology improvements, as it has done for the last 40 years. The market is certainly saying we can borrow a lot more with no serious impact on the economy. But how much more nobody knows because we are in uncharted territory, or terra incognita.
To watch a replay of this webinar just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 5, 2021
Fiat Lux
Featured Trade:
(FEBRUARY 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(MRNA), (PFE), (JNJ), (AMZN), (SLV), (GME), (GLD), (CLDR), (SNOW), (NVDA), (X), (FCX),
(AAPL), (TSLA), (FEYE), (PANW), (SWI), (WYNN), (MGM), (LVS)
Below please find subscribers’ Q&A for the February 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: Is there a big difference between COVID-19 vaccines?
A: The best vaccine is the one you can get. It’s better than being dead. But there are important differences. The Pfizer (PFE) and Moderna (MRNA) vaccines are RNA vaccines, they’re very safe, and getting similar results. But the evidence shows that about 15% of Moderna recipients are coming down with flu-like symptoms on their second shot. Nobody knows why, as the two are almost biochemically identical. AstraZeneca is a killed virus type vaccine, which means if they have a manufacturing error, you end up giving the disease to people by accident, as with the original polio vaccine. So that's the less safe vaccine. So far, that one has only been used in Europe and Australia, as it is made in England. There isn’t enough data about the John & Johnson (JNJ) single-shot vaccine.
Q: Is Moderna (MRNA) a long term buy?
A: The trouble with all the vaccine plays is that we’re heading for a global vaccine glut in about 4 months when we’ll have something like 12 companies around the world making them. The rush for everyone to get a vaccination as soon as possible is leading to inevitable overproduction and falling stock prices. Moderna is already a 12 bagger for us. I’m not really looking to overstay my welcome, so to speak. Time to cash in and say, “Thank you very much, Mr. Market.” There will be another cycle down the road for (MRNA) as its technology is used to cure cancer, but not yet.
Q: Would you recommend a silver (SLV) LEAP?
A: Yes, silver was run up 35% for a day by the GameStop (GME) crowd and crashed the next day, which was to be expected because there are no short positions in silver. Everything was just hedged to look like there were short positions because the big banks had huge open short options positions that were public and hedges in the futures and silver bars that were private. The (GME) people only saw the public short positions. Long term, I would go for a $30-$32 vertical call spread expiring in 2023. Go out 2 years, and I think you could get silver at $50. So, a good LEAP might get you a 1000% return in two years. Those are the kinds of trades I like to do.
Q: What do you think of Amazon now that Jeff Bezos is retiring?
A: Buy the daylights out of it. That was the great unknown overhanging the stock for years, Jeff’s potential retirement. Now it's no longer unknown, you want to buy (AMZN). Even before the retirement, I was targeting $5,000 a share in two years. Now we have everybody under the sun raising their targets to $5,000 or more— we even had one upgrade today to $5,200. There are at least half a dozen businesses that Amazon can expand into, like healthcare, which will be multibillion-dollar earners. And then if you break it up because of antitrust, it doubles in value again, so that's a screaming buy here. We have flatlined for six months, so this could be a trigger for a long-term breakout.
Q: Is there anything else left after GameStop? Another short play?
A: Well, this was the worst short squeeze in 25 years, and everyone else covered their other shorts because they don't want to get wiped out like the one Melvin Capital. There were only around a dozen potential single-digit heavily shorted stocks out there, and those are mostly gone. So, the GameStop crowd will have to roll up their sleeves and do some hard work finding stocks the old fashion way—by doing research. I’m guessing that GameStop was a one-hit-wonder; we probably won’t be surprised again. At the same time, you should never underestimate the stupidity of other investors.
Q: What do you think of the cloud plays like Cloudera and Snowflake?
A: I love cloud plays and there will be more coming. The entire US economy is moving on to the cloud. But everyone else loves them too. Snowflake (SNOW) doubled on its first day, and Cloudera (CLDR) doubled over the last three months, so they're incredibly expensive and high risk. But you can't argue with their business models going forward—the cloud is here to stay.
Q: Would you buy LEAPS in financials?
A: Absolutely yes; go out two years for your maturity and 30% on your strike prices, you will get a ten bagger on the trade. If I’m wrong, it only goes to zero.
Q: Is US Steel (X) a buy?
A: Yes. They are being dragged up by the global commodity boom triggered by the global synchronized recovery. (X) took a hit today because they just priced a $700 million secondary share issue which the flippers dumped like a hot potato. If given the choice, I’d rather do a copper play with Freeport McMoRan (FCX) which is seeing much more buying from China. I bought it on Monday.
Q: Any chance you can include one-, three-, and five-year price targets?
A: No chance whatsoever. I’ve never heard of a fund manager that could do that and be right. Stocks are just too imprecise an instrument with all the emotion that’s involved. But for the better stocks, you can with confidence predict at least a double. And by the way, all my predictions for the last 13 years have been way, way on the low side, so I tend to be conservative. Like, remember when Amazon was at $10? I said it would go to $20. Boy was I right!
Q: How can you say the next four years will be good for the stock market?
A: Well, $10 trillion in fiscal stimulus, $10 trillion in QE; stocks tend to like that. Oh, and technology exponentially accelerating on all fronts and far more broadly than what we saw in the 1990s. Also, there is a certain person who is no longer president, so add about 10-20% on top of all stock valuations. Companies can finally do long term planning again, after being unable to do so for four years because policies were anti-trade, anti-business, and flip-flopping every other day. So yes, I think that's enough to make the next 4 four years good; and actually, I think the next 8 years could be good—I'm predicting Dow 120,000 by 2030, if you recall.
Q: When do you expect the next 5% correction if there is one? February is always very volatile.
A: With an unlimited liquidity market like we have, it is really tough to see negatives of any kind. What kind of negatives are out there? The pandemic doesn’t stop—that's the main one. There’s another one people aren't talking about: the reason we got all these vaccines so fast is they took all regulation and threw it out the window. What if one of these vaccines kill off a million people? That would be pretty negative for the market. Interest rates could rocket faster than expected. But I’m always short there so that would be a moneymaker. But these are pretty out there possibilities, and that is why the market is not backing off, and when it does, it only gives us 5%.
Q: Is the Fed stimulating the economy too much?
A: The bond market says no with a ten-year yield of 1.10%, and the bond market is always the ultimate arbiter of when the stimulus ends. That’s because the Fed can’t directly control bond market interest rates, only overnight rates. But when we get bonds up to, say, a 3% yield (which is probably 2 or 3 years off), that’s when we’re getting too much stimulus, and we’ll probably take our foot off the pedal way before then. I know Janet Yellen and she agrees with me on this point. She’ll be throttling back well before we see a 3% yield in the Treasury market.
Q: Do you manage other people’s money?
A: No, because it costs a million dollars in legal fees to set up even a small fund these days. When I set up my hedge fund 30 years ago, there were no regulatory costs because no one knew what a hedge fund was; they all thought they were doing something illegal, so they didn't have to register for anything. That’s why it’s changed now.
Q: What is your target on NVIDIA (NVDA), and will it split?
A: It’s an easy double, with a global chip shortage running rampant. They make the best graphics cards in the world, bar none. These big tech companies tend not to split until they get share prices into the thousands, which is what Apple (AAPL) and what Tesla (TSLA) did three or four times.
Q: If we get 3.25% in bonds, is that going to hurt gold?
A: Yes, and that’s one of the reasons I bailed on my gold positions a couple of weeks ago. It effectively turned into a bond long. A sharp rise in interest rates is bad for gold because we all know that gold yields to zero.
Q: What about Fireye (FEYE)?
A: Yes, we also love Fireye in addition to Palo Alto Networks (PANW) because there is a near-monopoly—there are only about six players in the entire cybersecurity industry and hacking is getting worse by the day. Look at the Solar Winds (SWI) fiasco and the national Russian hack there.
Q: What about copper as a recovery play?
A: Well, I voted with my feet on Monday when I bought a position in Freeport McMoRan, after it just sold off 15%. I think (FCX) could double at some point in the coming economic recovery. So, copper is an absolute winner, and when having to choose between copper and steel, I’ll pick copper all day long.
Q: What do you recommend for gold (GLD)?
A: Gold is a trading range for the time being. Buy the dips, sell the rallies; you won’t get more than about 10% or 15% range on that. And there are just better fish to fry right now, like financials, which benefit from rising interest rates as opposed to being punished. Bitcoin is stealing gold’s thunder and the markets keep creating more Bitcoins.
Q: Should high-frequency trading be banned?
A: I don’t think it should be. It does create liquidity; the effect on the market is wildly overexaggerated. They’re basically trading for pennies or tenths of pennies, so they do provide buying on selloffs and selling at huge price spikes. They do have a positive effect and they’re probably only taking about $10 or $20 billion in profit a year out of the market.
Q: Should I buy Wynn Resorts (WYNN) here?
A: Buy the dips for sure; this is a major recovery play. We here in Nevada are expecting an absolute tidal wave of people to hit the casinos once the pandemic ends, and (WYNN), (MGM), and (LVS) would be a great play in those areas.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 8, 2020
Fiat Lux
Featured Trade:
(TRADING THE BLUE WAVE STOCK MARKET),
(FB), (AAPL), (MSFT), (AMZN), (ADBE), (SQ), (PYPL), (CRM), (SGEN), (REGN), (ILMN) (FEYE), (PANW), (AMD), (MU), (NVDA), (TSLA), (LEN), (PHM), (KBH), (XOM), (CVX), (XOM), (RTN), (NOC), (LMT), (KOL), (X), (GE)
At this point, it is possible that the president may lose the November election.
He is 14 points behind Democratic candidate Joe Biden in the polls. The odds at the London betting polls have him losing by a similar amount. My old employer The Economist magazine in London gives him a 10% chance of winning using a mix of economic and polling data.
And this assumes the election is held today. The fact is that the president is digging himself into a deeper hole every day, taking the wrong side of every issue confronting the country today. He seems to be refighting the Civil War….and taking the Confederate side when even the State of Mississippi is taking its symbol off its flag.
So, what will the post-Trump world look like? Will taxes go through the roof? Will the market crash? Is it time to go 100% cash, change our names, and move to a country with no US extradition treaty?
I don’t think so. In fact, with stocks soaring to meteoric new highs every day, the market expects that a Biden administration will be great news for stocks, perhaps the best ever.
Taxes will certainly go up. Favorable tax treatment of the energy, real estate, and private equity funds will get axed. Carried interest will finally become history. Marginal tax rate on net income over $1 billion could get hiked to the Roosevelt levels of 80-90%.
Biden has already announced an increase in the corporate tax rate from 21% to 28%. That will cut earnings for the S&P 500 by $9 a share. But the stock market is not the economy, with S&P earnings only accounting for 10% of US GDP.
And the $9 companies lose in taxes they will make back and more from new government spending, which isn’t slowing down any time soon. Some 14,000 American bridges need to be rebuilt. The Interstate Highway System is a shambles. High-speed broadband needs to go rural. The electrification of the US needs to accelerate to accommodate the millions of electric cars headed our way.
I believe that eventually, 51 million Americans will lose their jobs as a result of the pandemic. Perhaps a third of those are never coming back because the future has been so accelerated. That will leave the broader U-6 Unemployment rate stuck in double digits for years, maybe for decades.
So, we’re going to need some kind of Roosevelt style programs like the Works Progress Administration (WPA) and the Civilian Conservation Corps (CCC) who built much of the monolithic infrastructure that we all enjoy today.
At least 300,000 educated workers could immediately be put to work in contact tracing. Millions more could be employed in national infrastructure programs. One thing is certain. A new administration won’t stop massive government spending, it will simply redirect it.
And let's face it. A Biden win would bring a big expansion of Obamacare. With the best healthcare technology in the world, private industry has done the world’s worst job controlling the pandemic.
Countries with well-run national healthcare systems like Australia, New Zealand, Japan, and Singapore have almost wiped out the disease. This is why I am avoiding the healthcare sector for the foreseeable future.
Who are the big winners of all this? Big tech (FB), (AAPL), (MSFT), (AMZN), medium tech (ADBE), fintech (SQ), (PYPL), the cloud (CRM), and biotech (SGEN), (REGN), and (ILMN).
Cybersecurity will always be in demand (FEYE), (PANW). The global chip shortage will continue to worsen (AMD), (MU), (NVDA).
And Tesla (TSLA)? What can I say? It is already up nearly 100-fold from my initial $16.50 recommendation in 2010, and I’ve bought three Tesla’s (two S’s and an X).
Followers of the Mad Hedge Trade Alert service know that I am already long these names up the wazoo, and is why I am up 26% in 2020. It’s simply a matter of all pre-pandemic trends hyper-accelerating, which we were already tapped into.
If you have to add a purely domestic sector, a gigantic Millennial tailwind will keep homebuilders bubbling for years like (LEN), (PHM), and (KBH).
And while you won’t find me as a player here, retail will recover. The sector has not prospered during the current administration, thanks to a trade war with China and the pandemic.
And the losers? There is a classification of “Trump” stocks you don’t want to be anywhere near. Energy will do terribly (XOM), (CVX), (XOM), with Texas tea possibly revisiting negative numbers. If you take away the tax breaks, energy hasn’t really made money in decades.
Defense stocks (RTN), (NOC), (LMT) will take a big hit from budget cutbacks and fewer wars. Coal (KOL) will finally get shut down for good, probably sold to China in bankruptcy proceedings. Industrials will continue to lag (X), (GE), with no more free handouts from the government and no technology advantage.
So if Biden wins, you don’t need to slit your wrists, hang yourself from the showerhead, or cease investing completely. Just take your stock market winnings and go out and get drunk instead.
US Steel has not shown signs of consolidating, so I am going to suggest you close the position.
At this point, I suggest you close the position and move on.
Sell X at the market, which is $9.40
Global Market Comments
December 2, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or 2020 IS ALREADY HAPPENING),
(TSLA), (X), (GE), (FCX), (SLB), (GOOGL), (MSFT), (GLD)
You know the melt-up that is going on in the stock market right now? That is your 2020 performance being pulled forward.
One thing I have noticed over the past half-century of trading is that when market participants agree on a direction, it gets accelerated. Once the traditional October selloff failed to show, it was pedal to the metal to achieve new all-time highs.
Traders have become so overconfident that they have already completed this year’s performance and are now working on next year's. They are in effect pulling performance forward from 2020.
This historic run is taking place in the face of year-on-year earnings growth that is zero. ALL of the 29% price appreciation in the S&P 500 (SPY) in 2019 has been due to multiple expansion, from 14 times earnings to 19 times, a 20-year high. Market multiples rising by 50% anytime is almost unprecedented in history. I can only recall that happening twice: in 1929 and 1999.
So, that leaves only two possibilities for 2020. Either the multiple rises to a new 20-year multiple high, say to 20, 21, or 22, or the stock market goes down.
With a trade war-induced global economic slowdown still unfolding, don’t expect any respite from a sudden earnings recovery. Enjoy 2019 because the more we go up now means the more we will go down in 2020.
Were you waiting for the euphoria to make a market top? This is it. Sharply rising markets in the face of sharply falling earnings can only end in tears.
Needless to say, risk in the stock market is very high right now.
Jay Powell gave the market another boost, promising to hit the Fed’s 2% inflation target, giving plenty of room for wage hikes. The last inflation reading was 1.7% YOY. He might as well have said Dow 29,000 by yearend. I wish it were always this easy.
Hong Kong stalled the rally with the passage of a pro-democracy support by congress, with sanctions. China is warning of “firm countermeasures.” That throws cold water on any trade deal for 2019. New all-time highs for stocks may have to take a vacation.
US Q3 GDP was revised up to 2.1%, an improvement of 0.2% from the last read. The trade war seems to be costing us 1% of growth a year or about one-third of the total. That’s why we’re getting such a strong stock market move on the possibility of a trade deal. No-deal means lookout below.
Durable Goods came in at 0.6% in October, a nine-month high and better than expected. What does this week’s spate of positive data means, the first in many months? Is the recession risk over? If so, how much is already in the price?
Stocks love a steepening yield curve, with long term interest rates rising faster than short term ones. It puts the recession talk on hold, if not in abeyance.
It’s time to go dumpster diving, as the upside breakout in the Russell 2000 demonstrated last week. So, it’s time to start looking at the forlorn and the ignored of this bull market, like US Steel (X), General Electric (GE), Freeport McMoRan (FCX), and Schlumberger (SLB). There are no fundamentals in any of these names, they’ve just been down for so long anything looks like up from here. The liquidity-driven bull market has to find some fresh meat to rotate into, even temporarily, or it will die.
S&P Case Shiller rose 3.2% in September, the third consecutive month of price increases. Only San Francisco is showing falling prices. Phoenix (6.0%), Charlotte (4.6%), and Tampa (4.5%) are showing the greatest prices rises. Only a shortage of inventory is preventing prices from rising faster, now at a record low of 3.9 months. The builders who went under ten years ago aren’t building anymore.
New Home Sales drop 0.7%, in October, but are still up a massive 31.6% YOY. Sales in the northeast and south plunged, while those in the Midwest and west rise. The seasonally adjusted annual rate is 733,000 units. The Median Home Price fell 3.6% to $316,700. A 30-year fixed-rate mortgage at 3.66% is a major factor.
Merger mania in drug land continues, with the Novartis takeover of The Medicines Co. for $9.7 billion. It wants to take on Amgen (AMGN), Regeneron (REGN), and Sanofi in the heart drug space. No wonder this is the top-performing sector since I launched the Mad Hedge Biotech and Healthcare Letter.
Tesla shattered, both windows and sales records with an incredible 250,000 cyber trucks sold in a week. It’s one of the largest consumer orders in history, second only to the Tesla Model 3 launch four years ago. I may get one myself to make the Lake Tahoe run on a single 500-mile charge. Keep buying (TSLA) on dips. It is the clearest ten bagger out there.
Who is the mystery gold (GLD) buyer? Someone made a massive bet in the options market that gold will rise above $4,000 an ounce in 18 months. It would take a 32% move just to get gold back to its old $1,927 high. If the trade war continues, we may get it.
This was a week for the Mad Hedge Trader Alert Service to burst upon new all-time highs. I know this sounds boring, but I made all the money long technology stocks. This is net a -2.16% loss on my short position in Tesla (TSLA). If I’d only held on two more days this would have been a big winner over the disappointment over the shocking Cyber truck design. My long positions have shrunk to my core (MSFT) and (GOOGL).
By the way, running out of positions at a market top is a good thing.
My Global Trading Dispatch performance held steady at +352.76% for the past ten years, pennies short of an all-time high. My 2019 year-to-date catapulted back up to +52.62%. We closed out November with a respectable +3.07% profit. My ten-year average annualized profit ground back up to +35.28%.
The coming week will be hot with the jobs data trifecta.
On Monday, December 2 at 8:00 AM, the ISM Manufacturing PMI for November is out.
On Tuesday, December 3 at 2:30 PM, the API Crude Oil Stocks are announced.
On Wednesday, December 4, at 6:15 AM, the private sector ADP Employment Report is published.
On Thursday, December 5 at 8:30 AM, the Weekly Jobless Claims are printed.
On Friday, December 6 at 8:30 AM, the November Nonfarm Payroll Report is released.
The Baker Hughes Rig Count follows at 2:00 PM.
As for me, I am going to battle my way through the blizzards at Donner Pass this weekend to get back to the San Francisco Bay Area. There, I’ll be helping the local Boy Scout troop to set up their Christmas tree lot. The enterprise helps finance all the camping trips for the coming year.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 14, 2019
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or UNICORNS AND CANDY CANE)
(AAPL), (FDX), (SPY), (IWM), (USO), (WMT), (AAPL), (GOOGL),
(X), (JPM), (WFC), (C), (BAC)
