Global Market Comments
November 17, 2023
Fiat Lux
Featured Trade:
(NOVEMBER 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (AMD), (SPY), (FXA), (WYNN), (MGM), (RCL), (CCL), (TSLA), (SCHW), (BLK), (JPM), (XHB), (TSLA), (FXI), (FCX)
Posts
Below please find subscribers’ Q&A for the November 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: I was a little surprised that you closed the (TLT) $79-$82 vertical bull call spread so early. Why not wait longer?
A: I took an 84% profit in only four trading days and skipped the last 16% which I would have had to wait another month to get. I was much better off putting on another position and making another 100%. In this kind of market, you want to take quick profits and then roll them into new positions as fast as you can. That’s where you make the big money, and that's what we’ve been doing. You have to strike when the iron is hot.
Q: November’s results are phenomenal!
A: Yes they are, 55 years of practice makes it easy.
Q: Thoughts on Advanced Micro Devices (AMD)?
A: It’s going higher. I think the whole semiconductor sector is the leading sector in the market; we have seen that with these gigantic 30-40% moves in the semis. That will continue, and then it will spread out to the rest of big tech (which it’s already done), and eventually, we get to the industrials and commodities in the second half of 2024 when the big economic growth returns. So that is the script for the coming year.
Q: Will the upcoming Fed interest rate cuts crash the dollar, and which emerging currency should I buy?
A: Yes and yes. It will crush the dollar–we could be entering a new decade of a falling U.S. dollar. The number one currency to buy is the Australian dollar (FXA). It has the most leverage for a global economic recovery. And you can see when we get to the currency section of today’s webinar that the currencies are already starting to move. Whatever currency has falling interest rates is always the weakest, and the U.S. dollar is about to become just that.
Q: What’s the deal with casino stocks lately like Wynn Resorts (WYNN) and MGM Resorts International (MGM)?
A: These companies took on massive amounts of debt during the pandemic to stay in business, so they are now highly sensitive to interest rates. If you look at the collapse of these stocks in the last four months, it is almost perfectly in sync with rising interest rates, and that’s why the stocks performed so poorly. By the way, the same is true for all the cruise companies like Royal Caribbean (RCL), and Carnival (CCL). The flip side of that is when interest rates start to go down these stocks do great, and they are falling interest rate plays, so you probably should be buying the casinos, the cruise lines, and the hotel stocks here because they are all suffering from massive debt loads, the cost of which is about to decline sharply.
Q: Should we roll up the expiration of LEAPS to 2026?
A: Probably not a bad idea, because we may get weakness in commodities for the next several months before we enter a massive new bull market. If you have the 2025, you’ll probably make money on that, but to be ultra-safe you could roll it forward to 2026. We know there’s a global copper shortage developing because of EVs, but right now EV sales are slow, so you don’t want to be piling onto the leverage plays on that too soon. That’s also why I am not in Tesla (TSLA) for the Moment.
Q: What will happen if the Fed cuts interest rates and there’s no recession? Won’t prices of everything from houses to butter go wild?
A: They won’t go wild, but they will go up at a 2% inflation rate, which is what the Fed wants. And house prices, which have been flat for the last year, will rise. And they may rise greater than the inflation rate of 2%; they may rise more like 5%. Falling interest rates mean falling mortgages; we’ve already seen mortgage rates drop from 8 to 7.4%. It's one of the sharpest drops in history, and more drops bring more first-time home buyers into the market. And don’t forget that the Fed could also raise interest rates down the road. If the economy gets too hot again, they may raise again, but I think we’ll see a lot of cuts first.
Q: Do you think financial stocks will go up or fall with potential rate decreases?
A: Banks always go up during falling interest rates because their cost of funds goes down and the default rate on their loans also goes down, so they get a hockey stick effect on earnings; that’s why you’re seeing such monster moves in stocks like JP Morgan (JPM) and the brokers (SCHW) as well as the money managers like BlackRock (BLK).
Q: Does the bull market keep going since unemployment still hasn’t made a dent, meaning consumers are fueling the rise in stocks?
A: Yes, consumer spending is still doing well. People seem to be getting the money from somewhere and it seems to be rising wages. But I expect wage gains to drop by half; people will still get wage increases, but not the peak levels that the UAW got in their deal with Detroit. Is a Goldilocks economy that is setting up, and the economy keeps growing We never do get a recession, and all risk assets rise as a result. That is the outlook!
Q: Bullish on Berkshire Hathaway (BRK/B)?
A: I completely agree, it’s one of the best-run companies in the world. 93-year-old Warren Buffet and 99-year-old Charlie Munger have delivered double the performance of the S&P 500 over the last three years.
Q: When does the IPO market come back to life, and which industries will benefit the most?
A: AI and Technology will benefit the most. There are several AI companies in the wings waiting to go public, and they will be the first out the door with the highest multiples, and then the IPO business will broaden out from there.
Q: Will a worsening Chinese property market blow up the U.S. Stock rally or is it just a fake risk I shouldn’t worry about?
A: The Chinese (FXI) real estate market is detached from the global economy. There is no international implication, and it’s also typical of emerging markets to overbuild and then have a financial collapse. Nobody I know has suffered anything in China in a long time, and if anything, they’re liquidating what little they have left. It doesn’t affect us at all. It’s interesting reading about it in the newspapers, and that’s about it.
Q: What are some stocks we should consider day trading these days?
A: None. Most people who try day trading lose money doing it; some people pull it off but they have many years of experience. Algorithms from big brokers have essentially taken over the day trading business with high-frequency trading. You do better on a one-month view, which I do on my front-month options. Most 2023 Stock Gains Happened in only eight days, up some 14% since January 1, and only seven stocks accounted for most of the increase. If you are a day trader, you most likely missed all of this because most of the moves were on gap openings.
Q: Home builders (XHB) have just had a great run, is this an area too short?
A: “Short” is a term you need to remove from your language! You don’t want to short a big bull move like this. If anything, wait until May when the summer seasonals start to favor short positions, and it depends on how high the market runs up until then. Don’t ever think about shorting the very beginning of a new bull market in stocks–not for housing, not for anything! And the outlook for housing over the long term looks fantastic; there’s still an overwhelming supply and demand in favor of the home builders. Some 85 million new Millennials need to buy first-time homes.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
2023 Kherson Ukraine – Ha Ha Missed Me! It was a dud.
Global Market Comments
October 26, 2023
Fiat Lux
Featured Trade:
(LAST CHANCE TO ATTEND THE OCTOBER 31 MIAMI, FLORIDA STRATEGY LUNCHEON)
(THE REAL ESTATE MARKET IN 2030),
(XHB), (ITB), (LEN),
(INDUSTRIES YOU WILL NEVER HEAR FROM ME ABOUT)
A number of analysts, and even some of those in the real estate industry, think that there will never be a recovery in residential real estate. With 8.0% mortgage rates who can blame them.
Long time readers of this letter know too well that I went hugely negative on the sector in late 2005, when I unloaded all of my holdings.
However, I believe that “forever” may be on the extreme side. Personally, I believe there will be great opportunities in real estate that run all the way until 2030.
Let's back up for a second and review where the great bull market of 1950-2007 came from.
That's when a mere 50 million members of the “Greatest Generation”, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962.
There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices.
When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because my dad was an ex-Marine sergeant. This is where our suburbs came from.
Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xers who earn less than their parents, marking down prices as fast as they can.
As a result, the Federal Reserve thinks that 20% of American homeowners still have either negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs.
That comes to 30 million homes. Don't count on selling your house to your kids, especially if they are still living rent-free in the basement.
The good news is that the next bull market in housing has already started.
That's when 85 million Millennials have started competing to buy homes from only 65 million upwardly mobile Gen Xers. Add these two generations together, and you have a staggering 150 million buyers competing for the same housing at the same time!
Fannie Mae and Freddie Mac will soon be gone, meaning that the 30-year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable-rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world.
For you Millennials just graduating from college now, this is a best-case scenario. People will, no doubt, tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers.
That's what people told me when I bought my first New York coop in 1982 at one-tenth its current market price.
Just remember to sell by 2035 because that's when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, Generation Z homeowners, holding the bag, as your grandparents are now.
Time to Buy?
Global Market Comments
April 25, 2019
Fiat Lux
Featured Trade:
(2019 MAD HEDGE WORLD TOUR)
(THE REAL ESTATE MARKET IN 2030), (XHB)
A number of analysts, and even some of those in the real estate industry, thought that there would never be a recovery in residential real estate. Long time readers of this letter know too well that I went hugely negative on the sector in late 2005, when I unloaded all of my holdings.
However, I believe that ?forever? may be on the extreme side. Personally, I believe there will be great opportunities in real estate starting in 2030.
Let's back up for a second and review where the great bull market of 1950-2007 came from. That's when a mere 50 million members of the ?greatest generation?, those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962. There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices.
When my parents got married in 1948, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because my dad was an ex-Marine. This is where our suburbs came from.
Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xer's who earn less than their parents, marking down prices as fast as they can.
As a result, the Federal Reserve thinks that 30% of American homeowners either have negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs. That comes to 42 million homes. Don't count on selling your house to your kids, especially if they are still living rent-free in the basement.
The good news is that the next bull market in housing starts in 8 years. That's when 85 million Millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer's. The next interest rate spike will probably knock another 25% off real estate prices. Think 1982 again.
Fannie Mae and Freddie Mac will be long gone, meaning that the 30-year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world.
With the US budget deficit problems persisting beyond the horizon, the home mortgage interest deduction is an endangered species, and its demise will chop another 10% off home values.
For you Millennials just graduating from college now, this is a best-case scenario. It gives you 8 years to save up the substantial down payment banks will require by then. People will, no doubt, tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers. That's what people told me when I bought my first New York coop in 1982 at one-tenth its current market price.
Just remember to sell by 2060, because that's when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, yet to be named generation, holding the bag, as your grandparents are now.
Time to Buy?
A number of analysts, and even some of those in the real estate industry, are finally coming around to the depressing conclusion that there will never be a recovery in residential real estate. Long time readers of this letter know too well that I have been hugely negative on the sector since late 2005, when I unloaded all of my holdings. However, I believe that 'forever' may be on the extreme side. Personally, I believe there will be great opportunities in real estate starting in 2030.
Let's back up for a second and review where the great bull market of 1950-2007 came from. That's when a mere 50 million members of the 'greatest generation', those born from 1920 to 1945, were chased by 80 million baby boomers born from 1946-1962. There was a chronic shortage of housing, with the extra 30 million never hesitating to borrow more to pay higher prices. When my parents got married in 1949, they were only able to land a dingy apartment in a crummy Los Angeles neighborhood because he was an ex-Marine. This is where our suburbs came from.
Since 2005, the tables have turned. There are now 80 million baby boomers attempting to unload dwellings on 65 million generation Xer's who earn less than their parents, marking down prices as fast as they can. As a result, the Federal Reserve thinks that 35% of American homeowners either have negative equity, or less than 10% equity, which amounts to nearly zero after you take out sales commissions and closing costs. That comes to 42 million homes. Don't count on selling your house to your kids, especially if they are still living rent free in the basement.
The good news is that the next bull market in housing starts in 20 years. That's when 85 million Millennials, those born from 1988 to yesterday, start competing to buy homes from only 65 million gen Xer's. By then, house prices will be a lot cheaper than they are today in real terms. The next interest rate spike will probably knock another 25% off real estate prices. Think 1982 again.
Fannie Mae and Freddie Mac will be long gone, meaning that the 30 year conventional mortgage will cease to exist. All future home purchases will be financed with adjustable rate mortgages, forcing homebuyers to assume interest rate risk, as they already do in most of the developed world. With the US budget deficit problems persisting beyond the horizon, the home mortgage interest deduction is an endangered species, and its demise will chop another 10% off home values.
For you millennials just graduating from college now, this is a best case scenario. It gives you 15 years to save up the substantial down payment banks will require by then. You can then swoop in to cherry pick the best neighborhoods at the bottom of a 25-year bear market. People will no doubt tell you that you are crazy, that renting is the only safe thing to do, and that home ownership is for suckers. That's what people told me when I bought my first New York co-op in 1982 at one tenth its current market price.
Just remember to sell by 2060, because that's when the next intergenerational residential real estate collapse is expected to ensue. That will leave the next, yet to be named generation, holding the bag, as your grandparents are now.
