Global Market Comments
March 5, 2021
Fiat Lux
Featured Trade:
(MARCH 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(BRKB), (CRM), (ZM), (AAPL), (AMD), (DIS), (CRSP),
(BRKB), (PLTR), (NVDA), (TLT), (TSLA), (GLD),
(SLV), (VSAT), (EUO), (GME)
Posts
Below please find subscribers’ Q&A for the March 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.
Q: Are SPACs here to stay?
A: Yes, but I think that in the next bear market, 80% of these SPACs (Special Purpose Acquisition Companies) will disappear, will deliver large losses, and will continue charging you enormous fees until then. It’s either that or they won’t invest their money at all and give it back, net of the fees. So, I’m avoiding the SPAC craze unless it's associated with a very specific investment play that I know well. The problem with SPACs is that they all come out expensive—there are no bargain basement SPACs on launch day. Me, being the eternal cheapskate that I am, always want to get a great bargain on everything. The time to buy these is actually in the next bear market, if they still exist, because then investors will be throwing their positions away at 10 or 20% discounts. That’s always what happens with specialized ETF, closed-end funds, and so on. They are roach motel investments; you can check-in, but you can never check out.
Q: What do you think of Elizabeth Warren's asset tax idea?
A: It’s idiotic. It would take years to figure out how much Jeff Bezos is worth. And even then, you probably couldn't come within ten billion dollars of a true number. We already pay asset taxes, our local county real estate taxes, and those are bad enough, delivering valuations that are miles from true market prices. There are many other ways to fix the tax system and get billionaires paying their fair share. There are only three things you really have to do: get rid of carried interest so hedge funds can’t operate tax-free, get rid of real estate loss carry forwards which allow the real estate industry to basically operate tax-free, and get rid of the oil depletion allowance, which has enabled the oil industry to operate tax-free for nearly 90 years. So those would be three easy ones to increase the fairness of the tax system without any immense restructuring of our accounting system.
Q: When will share buybacks start?
A: They’ve already started and have been happening all year. There are two ways the companies do this: they either have an outside accounting firm, buying religiously every day or at the end of every month or something like that, so they can’t be accused of insider trading; or they are in there buying on every dip. Certainly, all the big cash-heavy companies like Berkshire Hathaway (BRKB) or Apple (AAPL) were buying their shares like crazy last March and April because they were trading such enormous discounts. So that is another trillion dollars sitting under the market, waiting to come in on any dip, which is yet another reason that we are not going to see any major sell-offs this year—just the 5%-10% variety that I have been predicting.
Q: Is it time to buy Salesforce (CRM)?
A: Yes, Marc Benioff’s goal is to double sales in two years, and the stock is relatively cheap right now because they’ve had a couple of weak quarters and are still digesting some big acquisitions.
Q: Is CRISPR Therapeutics (CRSP) good buy?
A: Yes, I would be buying right here; it’s a good LEAP candidate because the stock could easily double from here. We’ve only scratched the surface on CRISPR technology being adopted and the potential growth in this company is enormous—I'm surprised they haven’t been taken over already.
Q: Will you start a letter for investing advisors on how to deal with the prolific numbers of Bitcoin?
A: There are already too many Bitcoin newsletters; there are literally hundreds of them and thousands of experts on Bitcoin now because there’s nothing to know and nothing to analyze. It’s all a belief system; there are no earnings, there are no dividends, and there is no interest. So, you purely have to invest in the belief that somebody else is going to take you out at a higher price. I think there is a big overhang of selling in that when they raise the number of Bitcoin, we’ll get another one of those 90% crashes that Bitcoin is prone to. So, go elsewhere for your Bitcoin advice; your choices are essentially unlimited now, and they are much cheaper than me. In fact, people are literally giving away Bitcoin advice for free, which means you’re getting what you’re paying for. I buy Bitcoin when they have a customer support telephone number.
Q: Zoom (ZM) has come down a lot after a big earnings report—do you like it?
A: Long term, yes. Short term, no. You want to avoid all the stay-at-home stocks because no one is staying at home anymore. However, there is a long-term story in Zoom once they find their bottom because even after we come out of the pandemic, we’re all still using Zoom. I have like five or ten Zoom meetings a day, and my kids go to school on Zoom all day long. They’re also bringing out new products like telephone servers. They’re also raising their prices—I happen to be one of Zoom’s largest customers. I’m paying $1,100/month now, and that’s rising at 10% a year.
Q: What would be the best LEAP for Salesforce (CRM)?
A: The rule of thumb is that you want to go 30% out of the money on your first strike. So, find a current stock price; your first strike is up 30%, and then your second strike is up 35%. And all you need to double your money on that is a bounce back to the highs for this year, which is not unrealistic. That’s the lay-up there with Salesforce. That’s the basic formula; Advanced Micro Devices (AMD), Walt Disney (DIS), Berkshire Hathaway (BRKB), Palantir (PLTR), and Nvidia (NVDA) are all good candidates for LEAPS.
Q: How often do you update the long-term stock portfolio?
A: Twice a year, and we just updated in January, which is posted on the website in your membership area. If you can't find it, just email customer support at support@madhedgefundtrader.com and they’ll tell you where to find it. And we only do this twice a year because there just aren't enough changes in the economy in six months to justify a more frequent update.
Q: When do you think real estate will come back?
A: It never left. We’ve had the hottest real estate market in history, with 20% annual gains in many cities in 2020. And that will continue, but not at the 20% rate, probably at a more sustainable 5% or 6% rate. Guess what the best inflation play in the world is? Real estate. If you’re worried about inflation, you want to run out and buy a house or two. The only thing that will really kill that market is a rise in 30-year fixed-rate mortgages to 5%, and that is years off. Or a rise in the ten-year treasury to 5% or 6%—that is several years off also. So, I think we’ve got a couple of good years of gains ahead of us. I at least want the market to stay hot until my kids get out of high school, and then I can sell my house and go live on some exotic tropical island with great broadband.
Q: When you’re doing LEAPS, do you just do the calls only or do you do these as spreads?
A: You can do both. Just do the math and see what works for you on a risk/reward basis. You can do a 30% out of the money call 2 years out and get anywhere from a 1,000% to a 10,000% return—people did get 10,000% returns buying deep out of the money LEAPS in Tesla (TSLA) a year ago (that’s where all the vintage bourbon is coming from). Or you can do it more conservatively and only make 500% in two years on Tesla spread. For example; do something like a Tesla January 2023 $900-$950 call spread. If Tesla shares rise to $950, that position is an easy quadruple. But do the numbers, figure out the cost today, what the expiration value is in two years, and there you go.
Q: Do you think overnight rates could go negative as some people predict?
A: Not for a long time. They will go negative at the next recession because we’re starting off such a low base—or when we get the next pandemic, which could be as early as next year. We could get another one at any time from a completely different virus, and it would generate the same stock market results that we got last time—down 40% in a month. We’re not out of the pandemic business, we’re just having a temporary break waiting for the next one to come along out of China or some other country, or even right here in the USA. So that may be a permanent aspect of investing in the future. It could be the price we pay having a global population that's at 7 billion heading to 9 billion.
Q: Expiration on LEAPS?
A: I always go out two years. The second year is almost free, that’s why. So why not go for the second year? It gives you twice as much time to be right, always useful.
Q: My two-year United States Treasury Bond Fund (TLT) $125 put LEAPS have turned very positive. Is this a good trade?
A: That is a good trade, which you should put on during the next (TLT) rally. If you think we’re going to $105 in 2 years, do something like a $127-$130 two-year put LEAP, and there's a nice four bagger right there.
Q: Your Amazon (AMZN) price target was recently listed at $3,500, below last year's high, but I’ve also seen a $5,000 forecast in two years. Are you sticking with that?
A: Yes, I think when you get a major recovery in the economy, Amazon will be one of the only pandemic plays that keeps on going. It’s just taking a rest here with the rest of big tech. The breakup value of Amazon is easily $5,000 a share or more. Plus, they’re still going gangbusters growing into new industries that they’ve barely touched so far, like pharmaceuticals, healthcare, and so on. So yes, I would definitely be a buyer of LEAPS, and you could do something like the January 2023 $3700-$4000 LEAP two years out and make a killing on that.
Q: Anything you can do in gold (GLD)?
A: Not really. Although gold and silver (SLV) have been a huge disappointment this year, I think this could be the beginning of a capitulation selloff in gold which will bring us a final bottom, but it may take another month or two to get there.
Q: How can I sell short the dollar?
A: You sell short the (UUP), or there are several 1X and 2X short ETFs in the currencies that you can do, like the ProShares Ultra Short Euro ETF (EUO). That is the way to do it.
Q: What is the best timing for buying LEAPS?
A: Buy at market bottoms. A year ago, I was sending out lists of 10 LEAPS at a time saying please buy all of these. You need both a short-term selloff in the stock, and then an upside target much higher than the current price so your LEAP expires at its maximum profit point. And if you’re in the right names, pretty much all the names that we talk about here, you will have 30%, if not 300% or 3,000% gains in them in the next two years.
Q: Do you think Tesla’s Starlink global satellite system will disrupt the cell tower industry?
A: Yes, that is the goal of Starlink—to wipe out all ground communication for WIFI and for cell phones. It may take them several years to do it, but if they do pull it off, then it just becomes a matter of pricing. The last Starlink pricing I looked at cost about $500 to set up, open the account, and get your dish installed. And the only flaw I see in the Starlink system is that the satellite dishes are tracking dishes, which means they lock onto satellites and then follow them as they pass overhead. Then when that signal leaves, it locks onto a new satellite; at any given time they’re locked onto four different satellites. That means moving parts, and you want to be careful of any industry that has moving parts—they wear out. That’s the great thing about software and online businesses; no moving parts, so they don’t wear out. And that’s also why Tesla has been a success; they eliminated the number of moving parts in cars by 80%. I’m waiting for Starlink to get working so I can use it, because I need Internet access 24 hours a day, even if all the local hubs are out because of a power outage. I’m now using something called Viasat (VSAT), which guarantees 100 megabyte/second service for $55 a month. It's not enough for me because I use a gigabyte service landline, but when that’s not available then I can go to satellite as a backup.
Q: Is there too much Fed liquidity in the market already? Why is the $1.9 trillion rescue package still positive for the market?
A: Firstly, there is too much liquidity in the market; that is screamingly obvious. If you look at liquidity over the decades, we are just staggeringly high right now. M2 is growing at 26% against the normal rate of 5%-6%. What the stimulus package does is get money to the people who did not participate in the bull market from last year. Those are low-income people, cities, and municipalities that are broke and can’t pay teachers, firemen, and policemen. It also goes to individual states which were not invested in the stock market. It turns out that states that were invested in the stock market like California have money coming out of their ears right now. And it gets money to low wage workers with kids who are certainly struggling right now. So, it is rather efficiently designed to get the money to people who need it the most. There is still half the country that doesn't own any stocks or even have savings of any kind. One or two people might get it who don’t deserve it but try doing anything in a 330 million population country and have it be 100% efficient.
Q: Is inflation coming?
A: Only incrementally in tiny pieces, so not enough to affect the stock market probably for several years. I still believe technology is advancing so fast that it wipes out any effort to raise prices or increase wages, and that may be what the perennially high 730,000 weekly jobless claims is all about. Those jobs that might have been there a year ago have been replaced by machines, have been outsourced overseas, or the demand for the product no longer exists. So, as long as you have a 10% unemployment rate and a weekly jobless claim at 730, inflation is the last thing you need to worry about.
Q: Is there any way to cash in on Reddit’s Wall Street Bets action?
A: No, and I would bet the majority of people who are trading off of these emojis and Reddit posts are losing money. You only hear about these things after it’s too late to do anything about them. I don't think you’ll get any more $4 to $450 moves like you did with GameStop (GME) because in that one case only, there was a short interest of 160%, which should have been illegal. All the other high short interest stocks have already been hit, with short interests all the way down to 30%, so I think that ship has sailed. It has no real investing merit whatsoever.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
February 24, 2021
Fiat Lux
Featured Trade:
(LONG TERM ECONOMIC EFFECTS OF THE CORONA VIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX), (CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
The world will never be the same again.
Not only is the old world rapidly disappearing before our eyes, the new one is breaking down the front door with alarming speed. In short: the future is happening fast, very fast.
To a large extent, long-term economic trends already in place have been given a turbocharger. Quite simply, you just take out the people. Human contact of any kind will be minimized. I’ll tick off some of the more obvious changes.
All San Francisco Bay Area counties are still living under a “shelter in place” order. All schools have now been closed for a year. In March 2020 the local high school managed to get the first weekend of their annual musical “Titanic” done, but not the second.
All travel is banned except to gain essential necessities. Most bars and restaurants have been closed indefinitely, except for takeout. Some cities are issuing $1,000 fines for failure to wear a mask. The kids have turned into white, pasty zombies after staring at laptops for 12 months.
To say that we are merely fatigued from a yearlong quarantine would be a vast understatement. Climbing the walls is more like it.
As I write this, US Covid-19 deaths have topped a half million and cases have surpassed 28 million. China peaked at 4,000 deaths with four times our population. The difference was leadership issue. China welded the doors of Covid carriers shut. Here said it was a big nothing and would “magically” go away.
The magic didn’t work.
In the meantime, you better get used to your new life. You know that home office of yours you’ve been living in? It is now a permanent affair, as your employer figured out that they can make more money and earn a high stock multiple with you at home.
Besides, they didn’t like you anyway.
Many employees are never coming back, preferring to avoid horrendous commutes, lower costs, and yes, future pandemic viruses. GoToMeeting (LOGM) and Zoom (ZM) are now a permanent aspect of your life.
Commerce will change beyond all recognition. Did you do a lot of shopping on Amazon (AMZN) like I do? Now, you’re really going to pour it on.
Amazon hired a staggering 500,000 new distribution and delivery people in 2020 to handle the surge in business, the most by any organization since WWII. I can’t believe the stock is only at $3,200. It is worth double that, especially if they break up the company.
The epidemic really hammered the mall, where a fatal disease is only a sneeze away. Mall REITs are only just starting to crawl off the floor and may never again reach their old highs, no matter how much they promise to pay you in yield.
And how are you going to pay for that transaction? Guess what one of the most efficient transmitters of disease is? That would be US dollar bills. Something like 50% of all US paper money already tests positive for drugs, according to one Fed study.
Take paper money in change and you are not only getting contact from the salesclerk, but the last dozen people who handled the money. You are crazy now to take change and then not go swimming in Purell afterwards. Personally, I leave it all as a tip.
Contactless payments deal with this nicely (PYPL), (SQ), two of the top-performing stocks since April. People pay by swiping their iPhone wallet, or are simply scanned when they walk in the store, as with some Whole Foods shops owned by Amazon.
Conferences? A thing of the past. All of my public speaking events around the world have been cancelled. Webinars now rule. They offer lower conversion rates but include vastly cheaper costs as well. I can reach more viewers for $1,000 on Zoom than the Money Show could ever attract to the Las Vegas Mandalay Bay for $1 million.
At least I won’t have 18 hours of jet lag to deal with anymore. I’m sure Qantas will miss those first-class ticket purchases and I’ll miss the Champaign.
Entertainment is also morphing beyond all recognition. Streaming is now the order of the day. Disney+ (DIS) was probably the best-timed launch in business history, earning enough to cancel out most of the losses from the closure of the theme parks. Again, this has been a long time coming and the other major movie producers will soon follow suit.
Movie theaters, which have been closed for a year, may also never see their peak business again (CNK), (AMC), (IMAX). The theaters that survive will do so by only accumulating so much debt that they won’t be attractive investments for a decade.
The same is true for cruise lines (CCL), (RCL), (NCLH). But that won’t forestall dead cat bounces that are worth a double in the meantime, as they are coming off of such low levels. No vaccination, no cruise.
Exercise is changing overnight. All gyms and health clubs are now closed, so working out will become a solo exercise far away on a high mountain. I have already been doing this for 30 years, so a piece of cake here.
Friends with yoga classes are now doing them in the living room, streaming their instructors online. The economics of online yoga classes are so compelling, with hundreds attending online classes, that the old model may never come back.
If you are having trouble getting your kids to comply with social distancing requirements, have a family movie night and watch Gwyneth Paltrow and Cate Winslet die in Contagion. It has been applauded by scientists as the most accurate presentation of the kind of out-of-control pandemic which we may now be facing.
It is bone-chilling.
As for me, I have my stockpile of food and will be self-quarantining for the foreseeable future. I am at the top of five lists to get vaccinations, but so far all I have received is a ton of special offers from CVS (CVS), Rite Aid (RAD), and Walmart (WMT)
Stay healthy.
Global Market Comments
February 19, 2021
Fiat Lux
Featured Trade:
(FEBRUARY 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(USO), (XLE), (AMZN), (SPY), (RIOT), (T), (ZM), (ROKU), (TSLA), (NVDA) (TMQ) (TLRY), (ACB), (KO), (XLF), (AAPL) (REMX), (GLD), (SLV), (CPER)
Below please find subscribers’ Q&A for the February 17 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.
Q: Are we buying gold on dips?
A: Not yet. As long as you have a ballistic move in bitcoin going on, you don't want to touch gold. Eventually gold does get dragged up by the global bull market in commodities, but silver is more preferable since it moves up at twice the rate of gold in bull markets.
Q: Is it time to buy Amazon (AMZN) LEAPS?
A: Yes, I am looking for a move to $5,000 a share in Amazon with the onset of enormous GDP figures. Exploding consumer spending may be what breaks Amazon out of its current six-month range. I would do something like a two-year LEAP with the $3,600-$3,700 in Amazon. Be cautious and stay near the money. You should get like a 400% or 500% return on that LEAP at expiration, or sooner.
Q: What's your view on Tesla (TSLA)?
A: It looks tired—lower lows, lower highs. We’re in a short-term downtrend that could last several months. I’m holding off on buying Tesla until we find a bottom. I just have one $150 out-of-the-money call spread that expires in 20 days, and that’s it. We paired our position way back on Tesla. Wait for the market to come to you, if you can get Tesla under $700, that's a great time to buy LEAPS on Tesla.
Q: Are you still bearish on energy (XLE)?
A: Short term no, long term yes. You’re trying to catch a rally in a long-term bear market. Some people can do that, some people can’t. It’s the next buggy whip industry, the next American Leather, which completely vaporized.
Q: What about the calls for $100 oil (USO)?
A: Yes, after the markets went up $10 dollars in a day you always see calls for $100 oil. If the energy crisis in Texas shows us anything, it’s that we have to move away from oil as an energy source much faster than we thought because its distribution and production system freeze.
Q: Are you expecting a short-term correction (SPY)?
A: Yes but no more than 4%; there is still too much cash on the sidelines.
Q: Have airline leisure stocks run too far?
A: No, they are coming off of much lower lows so they can go to much higher highs. Almost all restrictions should be gone in six months—I’m trying to time my Australia trips and I think in six months may get to the point where, if you show proof of vaccination and submit to a 3 day test, they will let you into the country. But in six months you won’t be able to get an airline or hotel reservation.
Q: What about the AT&T (T) yield play and 5G play?
A: Yes, I still like AT&T and you should probably buy it about here. All these legacy telecom companies are going to have big moves once 5G accelerates allowing a vast expansion of streaming and other high-end services.
Q: Is CRISPR (CRSP) a good LEAP candidate?
A: Yes, and you can do something like the $200-$210 two years out because it’ll almost certainly get taken over before then.
Q: What’s a good LEAP for Tesla?
A: Wait for it to drop to $700 first and then buy something like the $900-$1000 two years out.
Q: What do you think of Apple?
A: Apple (AAPL) is taking a rest waiting for the 5G rollout to reaccelerate. Our target for Apple this year is $200.
Q: Do we sell in May and go away?
A: I would just go away and keep all your longs. The trouble is, trying to be ultra-smart and time all this stuff in a runaway bull market, you find it a lot harder to get in when you come back; you go “oh my gosh these things are up so much,” you don’t buy anything, and then it doubles. I’ve seen that a lot in the past, New York in 1971, Tokyo in 1987, Dotcom stocks in 1985, add US stocks in 2015.
Q: What do you think of Riot (RIOT) stock?
A: Wouldn't touch it with a ten-foot pole. If I didn’t want to buy bitcoin at $1, I'm not going to want to buy it at $51,000. Go elsewhere for your bitcoin advice, except you’ll hear the same thing: it will go up because it’s gone up. You should use it as a risk indicator. That’s essentially what all bitcoin analysts will tell you because there's nothing to analyze. There are no earnings, there's not even any physical presence anywhere to analyze, no customer support. If you can get seven 10 baggers like we did last year, with Zoom (ZM), Roku (ROKU), Tesla (TSLA), and Nvidia (NVDA) —why bother with cryptocurrencies?
Q: What are your thoughts on travel?
A: My take is that leisure travel is returning in mass but that the business travelers will shy away; and that will be true for this year but probably not next year. I think business travel will come back once it’s 100% safe and once all the companies are making money again and can afford travel.
Q: Is Trilogy Metals Inc. (TMQ) a good buy? It has Copper, Zinc, and some exposure to Gold and Silver.
A: Yes, it is a buy. Most commodity prices should double from these levels; and probably the smartest ones to buy are the ones that haven't moved yet—gold and silver, but silver especially. The world will come roaring back and it needs every possible metal it can get its hands on.
Q: What do you think of the cannabis stocks (TLRY), (ACB)?
A: That is one of several small bubbles in the markets that I don't want to touch at all. How hard is it to grow a weed? Barriers to entry are zero. Massive competition from the black market, as about 30% of the cannabis demand is still going to your local drug dealer who doesn’t have to pay taxes, whereas you get double taxed with a pot company—35% retail sales taxes and then taxes on the profits on top of that. So no thank you, Mary Jane.
Q: Do you think Warren Buffet is still the leading thought contributor to personal finance, or is he outdated?
A: Berkshire Hathaway is up 10% this year, and the Dow is up only 2.8%, so I would say he’s still pretty well in touch with the markets; and he has very heavy weightings in Coca Cola (KO), Financials (XLF), and Apple (AAPL), as well as some energy stocks. Good discipline and good strategy never go out of style.
Q: Is the Texas energy disaster going to set the US’ way on renewable energy faster?
A: Yes, it does force people to consider the move into alternative energy sources much faster, especially when the old energy sources go to zero and then have whole states lose their power sources. Look how the governor of Texas is blaming frozen windmills, which only account for 7% of the Texas energy supply. What a joke! I’ll lend him my hairdryer and they’ll work. Notice the propensity to immediately blame others for their own mistakes. That is terrible leadership. Texas is going to turn blue.
Q: Is climate change overhyped in the US stock market?
A: Absolutely yes, that’s why I haven’t been buying any of these. They tend to be smaller companies, and ever since Biden got the lead in the primaries and the polls last spring this whole sector, and ESG investing in general, has been on an absolute tear and is wildly expensive. I call these feel-good stocks; people buy them because they make them feel good but very few of these actually make real money. I prefer to stick to the real money plays of which there are more than enough around.
Q: Do you like rare earth such as the Van Eck Vectors Rare Earth/Strategic Metals ETF (REMX)?
A: I do like rare earths. You need them for practically anything electronic. China's been withholding supplies again, which they like to do from time to time just to rattle our cage because we need them for all our weapons systems. But this is also prone to bubbles, so be careful when you buy it that you’re not paying up too much. By the way, the (REMX) ETF was brought out at the absolute peak of the last rare earth bubble, which we covered extensively 11 years ago. We got people in at the very bottom of rare earth, and things went up ten times. Then we got everybody out and people said I was being bearish too soon, so I never got invited to conferences again. After that, it went down for eight straight years.
Q: Don’t you think frozen windmills and solar speak for more reliance on oil than less? Biden administration limits on oil will drive up prices.
A: You’re right on the second part; creating shortage of supply will cause price increases. But frozen windmills are a result of lack of capital investment and planning. It turns out all of the windmills in the northern part of the US have electric heaters, so they don’t freeze because it gets colder up there. They didn’t do that in Texas to save money, and now they have lost about 7% of the total Texas energy supply. So bad management was the issue there. Penny-wise and pound-foolish.
Q: Are commodities in general in play? What is the best ETF for commodities?
A: The trouble with commodities is there is no one big catch all commodity ETF. However, you can expect one soon; as things peak or have big runs, they tend to generate new ETFs like new children because the demand is there. In the commodities world, there are lots of individual 1x and 2x ETFs like the gold ETF (GLD), the silver (SLV), the copper (CPER), and so on. But there isn’t one good basket I’ve found. You can always create your own by buying small amounts of each of the leading companies, which is probably the best thing to do.
Q: What is the best property value right now?
A: That would be Mississippi; they have the lowest housing prices in the United States. Unfortunately, low cost of living, low tax states also have the worst education systems, which doesn’t matter of course if you don't have kids. In the end, you get what you pay for. It’s OK if you don’t mind dealing with stupid people every day, which I do. I can always tell when I’m dealing with customer support in the deep south because literacy falls off a cliff.
Q: Should we get a 10% correction soon?
A: Probably not; the last 10% correction needed a presidential election to scare the daylights out of you, and there's nothing like that on the horizon now. Maybe we’ll get another 5% correction on a game stop type incident, but there's just too many people trying to get into the stock market now. People who were selling last March/April are the same people who are buying now.
Q: Is there a bright future for hydrogen?
A: No, electricity is infinitely scalable, and hydrogen isn’t. It’s about as scalable as gasoline because you have to move it around in big tankers, keep it at 434.5 degrees Fahrenheit below zero, which is very expensive and has an unfortunate tendency to blow up. So, I never bought into the hydrogen thesis, except for local use of fleets where everyone gets all their hydrogen from a central facility.
Q: What will be the best performing sector in the next 1-3 months?
A: Your bond short and your financials. It’s the same trade. And it’s the one sector that no one asked about today.
Q: Do you think bitcoin is a bubble poised to pop at some point?
A: Yes, but who knows where that is; bubble tops are impossible to predict, especially when there are no valuation metrics. Bottoms can be measured with valuation metrics, but tops can’t because greed is an immeasurable quantity. However, it will certainly pop when they suddenly decide to increase the total outstanding number of bitcoins, which may seem unlikely now but is inevitable.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 8, 2021
Fiat Lux
Featured Trade:
(JANUARY 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (SQM), (GLD), (SLV), (GOLD), (WPM), (TLT), (FCX), (IBB), (XOM), (UPS), (FDX), (ZM), (DOCU), (VZ), (T), (RTX), (UT), (NOC),
(FXE), (FXY), (FXA), (UUP)
Below please find subscribers’ Q&A for the January 6 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: Any thoughts on lithium now that Tesla (TSLA) is doing so well?
A: Lithium stocks like Sociedad Qimica Y Minera (SQM) have been hot because of their Tesla connection. The added value in lithium mining is minimal. It basically depends on the amount of toxic waste you’re allowed to dump to maintain profit margins—nowhere close to added value compared to Tesla. However, in a bubble, you can't underestimate the possibility that money will pour into any sector massively at any time, and the entire electric car sector has just exploded. Many of these ETFs or SPACs have gone up 10 times, so who knows how far that will go. Long term I expect Tesla to wildly outperform any lithium play you can find for me. I’m working on a new research piece that raises my long-term target from $2,500 to $10,000, or 12.5X from here, Tesla becomes a Dow stock, and Elon Musk becomes the richest man in the world.
Q: Won’t rising interest rates hurt gold (GLD)? Or are inflation and a weak dollar more important?
A: You nailed it. As long as the rate rise is slow and doesn't get above 1.25% or 1.50% on the ten-year, gold will continue to rally for fears of inflation. Also, if you get Bitcoin topping out at any time, you will have huge amounts of money pour out of Bitcoin into the precious metals. We saw that happen for a day on Monday. So that is your play on precious metals. Silver (SLV) will do even better.
Q: What are your thoughts on TIPS (Treasury Inflation Protected Securities) as a hedge?
A: TIPS has been a huge disappointment over the years because the rate of rise in inflation has been so slow that the TIPS really didn’t give you much of a profit opportunity. The time to own TIPS is when you think that a very large increase in inflation is imminent. That is when TIPS really takes off like a rocket, which is probably a couple of years off.
Q: Will Freeport McMoRan (FCX) continue to do well in this environment?
A: Absolutely, yes. We are in a secular decade-long commodity bull market. Any dip you get in Freeport you should buy. The last peak in the previous cycle ten years ago was $50, so there's another potential double in (FCX). I know people have been playing the LEAPS in the calendars since it was $4 a share in March and they have made absolute fortunes in the last 9 months.
Q: Is it a good time to take out a bear put debit spread in Tesla?
A: Actually, if you go way out of the money, something like a $1,000-$900 vertical bear put spread, with the 76% implied volatility in the options market one week out, you probably will make some pretty decent money. I bet you could get $1,500 from that. However, everyone who has gone to short Tesla has had their head handed to them. So, it's a high risk, high return trade. Good thought, and I will actually run the numbers on that. However, the last time I went short on Tesla, I got slaughtered.
Q: Any thoughts on why biotech (IBB) has been so volatile lately?
A: Fears about what the Biden government will do to regulate the healthcare and biotech industry is a negative; however, we’re entering a golden age for biotech invention and innovation which is extremely positive. I bet the positives outweigh the negatives in the long term.
Q: Oil is now over $50; is it a good time to buy Exxon Mobil (XOM)?
A: Absolutely not. It was a good time to buy when it was at $30 dollars and oil was at negative $37 in the futures market. Now is when you want to start thinking about shorting (XOM) because I think any rally in energy is short term in nature. If you’re a fast trader then you probably can make money going long and then short. But most of you aren't fast traders, you’re long-term investors, and I would avoid it. By the way, it’s actually now illegal for a large part of institutional America to touch energy stocks because of the ESG investing trend, and also because it’s the next American leather. It’s the next former Dow stock that’s about to completely disappear. I believe in the all-electric grid by 2030 and oil doesn't fit anywhere in that, unless they get into the windmill business or something.
Q: With Amazon buying 11 planes, should we be going short United Parcel Service (UPS) and FedEx (FDX)?
A: Absolutely not. The market is growing so fast as a result of an unprecedented economic recovery, it will grow enough to accommodate everyone. And we have already had huge performance in (UPS); we actually caught some of this in one of our trade alerts. So again, this is also a stay-at-home stock. These stocks benefited hugely when the entire US economy essentially went home to go to work.
Q: Should we keep our stay-at-home stocks like DocuSign (DOCU), Zoom (ZM), and UPS (UPS)?
A: They are way overdue for profit-taking and we will probably see some of that; but long term, staying at home is a permanent fixture of the US economy now. Up to 30% of the people who were sent to work at home are never coming back. They like it, and companies are cutting their salaries and increasing their profits. So, stay at home is overdone for the short term, but I think they’ll keep going long term. You do have Zoom up 10 times in a year from when we recommended it, it’s up 20 times from its bottom, DocuSign is up like 600%. So way overdone, in bubble-type territory for all of these things.
Q: Are telecom stocks like Verizon (VZ) and AT&T (T) safe here?
A: Actually they are; they will benefit from any increase in infrastructure spending. They do have the 5G trend as a massive tailwind, increasing the demand for their services. They’re moving into streaming, among other things, and they had very high dividends. AT&T has a monster 7% dividend, so if that's what you’re looking for, we’re kind of at the bottom of the range on (T), so I would get involved there.
Q: Should we sell all our defense stocks with the Biden administration capping the defense budget?
A: I probably would hold them for the long term—Biden won’t be president forever—but short term the action is just going to be elsewhere, and the stocks are already reflecting that. So, Raytheon (RTX), United Technologies (UT), and Northrop Grumman (NOC), all of those, you don’t really want to play here. Yes, they do have long term government contracts providing a guaranteed income stream, but the market is looking for more immediate profits, or profit growth like you have been getting in a lot of the domestic stocks. So, I expect a long sideways move in the defense sector for years. Time to become a pacifist.
Q: Is it safe to buy hotels like Marriott (MAR), Hyatt (H), and Hilton (HLT)?
A: Yes, unlike the airlines and cruise lines, which have massive amounts of debt, the hotels from a balance sheet point of view actually have come through this pretty well. I expect a decent recovery in the shares, probably a double. Remember you’re not going to see any return of business travel until at least 2022 or 2023, and that was the bread and butter for these big premium hotel chains. They will recover, but that will take a bit longer.
Q: How about online booking companies like Expedia (EXPE) and Booking Holdings Inc, owner of booking.com, Open Table, and Priceline (BKNG)?
A: Absolutely; these are all recovery stocks and being online companies, their overhead is minimal and easily adjustable. They essentially had to shut down when global travel stopped, but they don’t have massive debts like airlines and cruise lines. I actually have a research piece in the works telling you to buy the peripheral travel stocks like Expedia (EXPE), Booking Holdings (BKNG), Live Nation (LYV), Madison Square Garden (MSGE) and, indirectly, casinos (WYNN), (MGM) and Uber (UBER).
Q: What about Regeneron (REGN) long term?
A: They really need to invent a new drug to cure a new disease, or we have to cure COVID so all the non-COVID biotech stocks can get some attention. The problem for Regeneron is that when you cure a disease, you wipe out the market for that drug. That happened to Gilead Sciences (GILD) with hepatitis and it’s happening with Regeneron now with Remdesivir as the pandemic peaks out and goes away.
Q: What about Chinese stocks (FXI)?
A: Absolutely yes; I think China will outperform the US this year, especially now that the new Biden administration will no longer incite trade wars with China. And that is of course the biggest element of the emerging markets ETF (EEM).
Q: Will manufacturing jobs ever come back to the US?
A: Yes, when American workers are happy to work for $3/hour and dump unions, which is what they’re working for in China today. Better that America focuses on high added value creation like designing operating systems—new iPhones, computers, electric cars, and services like DocuSign, Zoom—new everything, and leave all the $3/hour work to the Chinese.
Q: What about long-term LEAPS?
A: The only thing I would do long term LEAPS in today would be gold (GOLD) and silver miners (WPM). They are just coming out of a 5-month correction and are looking to go to all-time highs.
Q: What about your long-term portfolio?
A: I should be doing my long-term portfolio update in 2 weeks, which is much deserved since we have had massive changes in the US economy and market since the last one 6 months ago.
Q: Do you have any suggestions for futures?
A: I suggest you go to your online broker and they will happily tell you how to do futures for free. We don’t do futures recommendations because only about 25% of our followers are in the futures market. What they do is take my trade alerts and use them for market timing in the futures market and these are the people who get 1,000% a year returns. Every year, we get several people who deliver those types of results.
Q: Will people go back to work in the office?
A: People mostly won’t go back to the office. The ones who do go back probably won't until the end of the summer, like August/September, when more than half the US population has the Covid-19 vaccination. By the way, getting a vaccine shot will become mandatory for working in an office, as it will in order to do anything going forward, including getting on any international flights.
Q: What is the best way to short the US dollar?
A: Buy the (FXE), the (FXY), the (FXA), or the (UUP) basket.
Q: Silver LEAP set up?
A: I would do something like a $32-$35 vertical bull call spread on options expiring in 2023, or as long as possible, and that increases the chance you’ll get a profit. You should be able to get a 500% profit on that LEAP if silver keeps going up.
Q: What about agricultural commodities?
A: Ah yes, I remember orange juice futures well, from Trading Places, where I also once made a killing myself. Something about frozen iguanas falling out of trees was the tip-off. We don’t cover the ags anymore, which I did for many years. They are basically going down 90% of the time because of the increasing profitability and efficiency of US farmers. Except for the rare weather disaster or an out of the blue crop disease, the ags are a loser’s game.
Q: Can we view these slides?
A: Yes, we load these up on the website within two hours. If you need help finding it just send an email or text to our ever loyal and faithful Filomena at support@madhedgefundtrader.com and she will direct you.
Q: Do you have concerns about Democrats regulating bitcoin?
A: Yes, I would say that is definitely a risk for Bitcoin. It is still a wild west right now and there are massive amounts of theft going on. It is a controlled market, with bitcoin miners able to increase the total number of points at any time on a whim.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
December 18, 2020
Fiat Lux
Featured Trade:
(TECH IN 2021)
(ZM), (WORK), (NVDA), (AMD), (QCOM), (SQ), (PYPL), (INTU), (PANW), (OKTA), (CRWD), (SHOP), (MELI), (ETSY), (NOW), (AKAM), (TWLO)
The tech sector has been through a whirlwind in 2020, and if investors didn’t lose their shirt in March and sell at the bottom, many of them should have ended the year in the green.
My prediction at the end of 2019 that cybersecurity and health cloud companies would outperform came true.
What I didn’t get right was that almost every other tech company would double as well.
Saying that video conferencing Zoom (ZM) is the Tech Company of 2020 is not a revelation at this point, but it shows how quickly a hot software tool can come to the forefront of the tech ecosystem.
M&A was as hot as can be as many cash-heavy cloud firms try to keep pace with the Apples and Googles of the tech world like Salesforce’s purchase of workforce collaboration app Slack (WORK).
Not only has the cloud felt the huge tailwinds from the pandemic, but hardware companies like HP and Dell have been helped by the massive demand for devices since the whole world moved online in March.
What can we expect in 2021?
Although I don’t foresee many tech firms making 100% returns like in 2020, they are still the star QB on the team and are carrying the rest of the market on their back.
That won’t change and in fact, tech will need smaller companies to do more heavy lifting come 2021.
The only other sector to get through completely unscathed from the pandemic is housing, and unsurprisingly, it goes hand in hand with converted remote offices that wield the software that I talk about.
The world has essentially become silos of remote offices and we plug into the central system to do business with each other with this thing called the internet.
In 2021, this concept accelerates, and cloud companies could easily check in with 20%-30% return by 2022. The true “growth” cloud firms will see 40% returns if external factors stay favorable.
This year was the beginning of the end for many non-tech businesses and just because vaccines are rolling out across the U.S. doesn’t mean that everyone will ditch the masks and congregate in tight, indoor places.
There is nothing stopping tech from snatching more turf from the other sectors and the coast couldn’t be clearer minus the few dealing with anti-trust issues.
I can tell you with conviction that Facebook, Google, Apple, and Amazon have run out of time and meaningful regulation will rear its ugly head in 2021.
We are already seeing the EU try to ratchet up the tax coffers and lawsuits up the wazoo on Facebook are starting to mount.
Eventually, they will all be broken up which will spawn even more shareholder value.
Even Fed Chair Jerome Powell told us that he thinks stocks aren’t expensive based on how low rates have become.
That is the green light to throw new money at growth stocks unless the Fed signal otherwise.
As we head into the 5G world, I would not bet against the semiconductor trade and the likes of Nvidia (NVDA), AMD (AMD), Qualcomm (QCOM) should overperform in 2021.
Communication is the glue of society and communications-as-a-platform app Twilio (TWLO) will improve on its 2020 form along with cloud apps that make the internet more efficient and robust like Akamai (AKAM).
Workflow cloud app ServiceNow (NOW) is another one that will continue its success.
The uninterrupted shift to the cloud will not stop in 2021 and will be a strong growth driver for numerous tech companies next year.
I will not say this is a digital revolution, but as corporate executives realize they haven’t spent enough on the cloud in the lead-up to the pandemic and must now play catch-up in order to satisfy new demands in the business.
The most recent CIO survey was the thesis that cloud and digital adoption at 10% of enterprise and 15% of consumer spend entering 2020 would continue to accelerate post-pandemic and into 2021-2022.
A key dynamic playing out in the tech world over the next 12 to 18 months is the secular growth areas around cloud and cybersecurity that are seeing eye-popping demand trends.
Consumers will still be stuck at home, meaning e-commerce will still be big winners in 2021 such as Shopify (SHOP), Etsy (ETSY), and MercadoLibre (MELI).
The reliance on e-commerce will open the door for more tech companies to participate in the digital flow of transactions and the U.S. will finally catch up to the Chinese idea of paying through contactless instruments and not cards.
This highly benefits U.S. fintech companies like Square (SQ) and PayPal (PYPL). Intuit (INTU) and its accounting software is another niche player that will dominate.
Intuit most recently bought Credit Karma for $8.1 billion signaling deeper penetration into fintech.
Since we are all splurging online, we need cybersecurity to protect us and the likes of Palo Alto Networks (PANW), Okta (OKTA), and CrowdStrike Holdings, Inc. (CRWD).
The side effect of the accelerating shift to digital and cloud are troves of data that need to be stored, thus anything related to big data will also outperform.
Most of the information created (97%) has historically been stored, processed, or archived.
As new mountains of digital gold are created, we expect AI will have an increasingly critical role.
I believe that 2021 will finally see the integration of 5G technology ushering in another wave of digital migration and data generation that the world has never seen before and above are some of the tech companies that will make out well.
The average household is using 38x the amount of internet data they were using ten years ago and this is just the beginning.
