You’ve all heard of the Fed Put which has put a floor under stock markets for the past decade, although it didn’t work so well this year.
Now, we have the Vaccine Put. Traders and investors have been more than willing to look through the pandemic to the other side, when multiple vaccines bring an end to the pandemic next summer.
That explains the ballistic $3,800 point rally in the Dow Average that launched in the run-up to the election. At 200,000 new cases and 2,000 deaths a day, we are losing the battle, but the cavalry is on the way and we can even hear the bugles.
That’s why I have recently been more aggressive in the market than usual, breaking all of my 13-year performance records. I don’t expect a market correction of more than 6% from here, or $1,800 Dow points. All of my current positions are geared to handle such a hit. After that, the market runs to new all-time highs.
We have ample reasons to see that 6% drawdown. While the pandemic rages, the president plays golf. Treasury Secretary Steven Mnuchin has moved to cancel the stimulus program in progress, despite vociferous Fed opposition. It was enough to prompt a $300 point selloff in the Dow and a near $2.00 spike in the bond market (TLT).
It is a scorched earth policy the Russians would be proud of. Trump is attempting to saddle Biden with a deeper depression and worse pandemic that will take longer to get out of. You and I will pay the price. In the meantime, there is a bull market in refrigerator trucks.
But if you believe that the Dow is headed for $120,000 in a decade as I do, why bother selling to avoid a mere $1,800 correction? You’d probably miss the bottom and the next leg up.
American Consumers are loaded with cash, after enduring a spending diet that is approaching a year. No business travel, no vacations, no shopping. Debt service ratios are also at decade lows, thanks to ultra-low interest rates. It all sets up a new American Golden Age starting in 2021.
Moderna announces 94.5% effective vaccine, triggering another monster rally in stocks for the second week in a row. The vaccine seems to block all of the most severe cases. Seniors may be able to get it by April. Mad Hedge Biotech Letter subscribers made a killing, getting into (MRNA) a year ago, pre-pandemic. Keep buying (MRNA) on dips. As for me, I’m running out of longs as they have all worked.
Mass tourism will return this summer after we all get our shots, says the CEO of Expedia, Peter Kern. The discount airline ticket reseller has been hanging on by its fingernails for the past nine months and just announced horrific earnings. Hint: this is not Rome’s first plague. A lot of travel businesses will get under, then resurface under new ownership. Summer booking is already picking up.
Tesla joins the S&P 500 and at a $480 billion market cap is the largest new entrant ever to do so. The stock was up a mind-blowing $108, or 27% on the news. This opens up new categories of institutional investors for Elon Musk’s dream come true, such as the $4.5 trillion in (SPX) index funds, which are now required by law to buy it. It gives the (SPX) more of a technology bent.
S&P finally got past the issue that most of the company’s profits come from ZEV, or green credits. Goldman Sachs figures that this will generate at least $9 billion of net buying of Tesla shares when there are no sellers. At this point, Tesla is the largest position of most Mad Hedge followers, primarily through capital appreciation.
Warren Buffet is pouring money into big pharma, and maybe you should too. It’s the cheapest sector in the market. AbbVie (ABBV), Bristol Myers (BMY), Merck (MRK), and Pfizer (PFE) were his biggest picks, according to regulatory filings, all names well known to the subscribers of the Mad Hedge Biotech & Healthcare Letter. It’s not all about Covid-19. Every major human disease will be cured in the next decade, spinning of billions in profits.
Homebuilders Sentiment Index breaks new record, at 90. The residential real estate market is on fire. After a great run, the homebuilders are still getting fabulous data. Builders are seeing supply shortages everywhere. Buy (LEN), (DHI), and (KBH) on dips. This trend has another decade to run.
Housing Starts rocket in October to a staggering 1.53 million, the highest since the last housing bubble top in 2007. Good luck finding something for sale. Which vacation destination resort is seeing the highest growth in sales? Good old Incline Village, NV, up 87% YOY. Many are buying homes after simply looking at zoom videos. Could housing be presaging what the entire economy is going to do in 2021? Buy everything on dips!
The Boeing 737 MAX flies again, with the beleaguered company regaining FAA certification after a 20-month break. It’s amazing this company is still alive after the grounding of its main product and thousands of order cancellations from the pandemic. Taking their debt from $9 billion up to an eye-popping $63 billion is what did it. American Airlines (AA) will be the first to take the troubled aircraft back to the skies. Buy (BA) on dips.
Global Debt to hit $227 trillion by end of 2020, thanks to the pandemic. Governments accounted for half of the increase. US Debt jumped from $71 in 2019 to $80 trillion. Sounds like a short to me! Sell (TLT) on every five-point rally.
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!
My Global Trading Dispatch exploded to another new all-time high last week. November is up 14.70%, taking my 2020 year-to-date up to a new high of 50.73%. That brings my eleven-year total return to 406.64% or double the S&P 500 over the same period. My 11-year average annualized return now stands at a new high of 37.24%. My trailing one-year return exploded to 58.48%.
It was a week of profit-taking on my November expiring positions and rolling forward to a new batch of December options. I managed to catch the Tesla melt-up with a double long position, which is always nice for performance.
My only hickey of the week was a short in the (SPY) which I was forced out of in the tag ends of this rally. Four days later, they expired at their maximum profit point.
The coming week will be a sleeper thanks to the national holiday. We also need to keep an eye on the number of US Coronavirus cases and deaths, now over 11.5 million and 250,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, November 23 at 9:30 AM EST, the Chicago Fed National Activity Index for October is released.
On Tuesday, November 24 at 10:00 AM EST, the S&P Case Shiller National Home Price Index for September is announced.
On Wednesday, November 25 at 9:30 AM EST, the Weekly Jobless Claims are announced a day early because of the holiday. The Q3 US GDP second estimate is printed at the same time.
On Thursday, November 26 Americans celebrate Thanksgiving Day. All markets are closed.
On Friday, November 27, no data points are released.
As for me, thanks to the pandemic I have been watching a lot more TV lately. I have started watching The Crown on Netflix, which is fascinating for me because I personally knew most of the royal family.
I’ll never forget the chief of protocol loudly calling out my name, “Captain John Thomas”, at the Buckingham Palace garden party where I met Queen Elisabeth and Lady Diana.
I also knew many of the postwar prime ministers, including the Iron Lady, Margaret Thatcher. She despised my macroeconomic press conference questions at a time when UK unemployment rate was a sky-high 14% and the pound was in free fall. Still, she toughed it out.
During the Falklands War, I was the Washington Bureau Chief for The Economist magazine. One day, an unusual message came through from London which I was asked to personally take to my old friend, CIA Director William J. Casey. It was a list of 10,000 military items which the British military needed delivered to the South Atlantic in 24 hours! And you know what? They did it!
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
