Global Market Comments
July 7, 2021
Fiat Lux
Featured Trade:
(JUNE 30 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (BRKB), (GOOG), (NVDA), (FB), (TSLA), (JPM), (BAC), (C), (GS), (MS), (NASD), ((X), (FCX), (AMZN), (MSFT), (AAPL), (FCX)
Below please find subscribers’ Q&A for the June 30 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.
Q: How long will the tech rally last (QQQ)?
A: Short term we are overheated, but long term it’s still a buy. I think tech will lead for the next several years. Look for the next 10% correction, load the boat again with at-the-money LEAPS, and you’ll get almost as rich as I am, because I've been doing that for years.
Q: What is driving tech? Why is it suffering when interest rates rise, and they have such big cash balances?
A: I agree with you; that makes absolutely no sense for tech to fall when rates rise. Big tech actually makes more money when interest rates go up, because they’re all sitting on cash balances of up to $250 billion, as is the case with Apple (AAPL). The answer is that the modeling that stock analysts use is highly sensitive to interest rates and affects companies the most with the highest growth rates. That would be big tech which is averaging about 40% of growth right now. Industrials are less affected because they are slower growers, if at all. This is strictly a modeling question; I think long-term the market figures this out. And in fact, the recent price action has been immune to interest rate moves.
Q: Are you worried about the Tesla (TSLA) recall?
A: No. In fact, they did the recall like they do all the recalls; it happens overnight when you’re asleep. The software upgrade does it all and you end up with a new car in the morning with a lot more functionality. That just means you have to figure out how to use your new car about once a month. But that’s how they did it, and the fact is that Tesla is so much farther ahead in technology than all of their Chinese competitors, that Chinese electric companies will never grow outside of China, whereas Tesla takes over the world.
Q: What LEAP would you buy on Tesla?
A: I would buy the June 2023 $750/$800 vertical bull call spread for $18, and as long as Tesla shares are over $800 in two years, that will be worth $50 dollars giving you a return of 177% profit. If that’s not enough profit for you in two years, you are in the wrong business and should consider becoming a rock singer, drug dealer, or Bitcoin miner—one of these other really high return alleged professions.
Q: What’s happening with mergers and acquisitions? As a stock driver do you expect it to speed up or slow down?
A: Well I expect M&A to slow down because prices are so high. And notice that Warren Buffet has done virtually nothing in a year because in his world nothing really got cheap, even at last year’s lows. He’s been buying his own shares instead in (BRKB). But you still have backdoor M&A as I call it, and that’s share buybacks, which are returning with a vengeance. Last week, all the banks in financials were allowed to start their own buybacks for the first time in a year and four months, so that makes all of them buys. And I'm talking about JP Morgan (JPM), Bank of America (BAC), Citibank (C), Goldman Sachs (GS), and Morgan Stanley (MS) (where they’re also doubling dividends). Corporate buybacks I expect to top the previous record of $1.2 trillion, which we set right before the pandemic.
Q: I have a number of tech mutual funds with heavy weighting in (AMZN), (FB), (MSFT), (GOOG), and (NVDA) for my basic portfolio which I bought on your advice. Should I be cute and sell for the waiting 10% pullback or maintain a buy and hold?
A: The answer 99% of the time is just hold. We think tech goes up for ten more years. With mutual funds and ETFs you have no expiration dates like you do with options. And if you’re one of these guys that sits in front of a screen 24 hours a day with 30 years of experience, you can sell now and buy them back cheaper. But most people don’t have the training or discipline to pull that off. And the retail individuals who try this actually end up buying high and selling lower. I would say if you’re happy with your ETF tech funds, just keep them.
Q: I don’t trade options spreads—how much am I killing my returns? I’m having trouble with options trading.
A: Actually, over the long term, it’s the equity owners who make the most money. On an aggressive front month trading strategy in options, you’re only making 1% or 2% a month per position; whereas over time, the equities we’re picking are going up anywhere from 100% to 1,000% (295X for Tesla). I refer you to the Mad Hedge Hall of Fame list of ten baggers, of which we probably have over 30 now. The only people who would beat outright stock ownership are LEAPS players where you can regularly make 100% every 6 months if you have the right setup, the right timing, and so on. We’ve actually never lost money on LEAPS. Someone asked earlier whether I could tell you how to take profits on LEAPS, and the answer is no, you don’t have to do anything because they expire at max profit and you make a ton of money. So, LEAPS are the only area you’re missing out on. I recommend learning how to do LEAPS and I would be happy to teach you.
Q: When do you update your long-term portfolio?
A: Twice a year. I did it in January, so I guess I'm due for July.
Q: Is it time to buy LEAPS on Skyworks?
A: No, wait for a 10% correction. LEAPS are something you do at short term bottoms, not short-term tops; otherwise, it will cost you some money and you’ll miss the other 100% profit.
Q: I’m looking at ESG stocks (environmental, social & governance). Are they legit?
A: Yes, they attracted $2 trillion in asset allocations last year; however, a lot of them went ballistic discounting a Biden presidency, which happened, and they’re now up close to 400% year on year. I wouldn't chase them too much here, especially the ones that don’t have earnings yet. They became a mania at one point. So, I would wait for some decent pullback to get involved in any of the ESG plays.
Q: When will you deploy your cash?
A: I’m kind of waiting for my own market timing index to get back into the 20s, if we can get that; and we might sometime in July. But if we don’t, I’ll have to go back into the market in August, because then you’re front running very positive seasonals from October onwards, and August is usually our biggest month of the year.
Q: Is Amazon a good spot to load up on some more LEAPS, or should we wait?
A: The time to do this was when I sent out the LEAPS recommendation three weeks ago. Since then, we gave gained 25%. I would wait; don’t chase marginal trades ever, especially when you’re up 60% on the year—I would wait for a pullback, and I would run what you already own. Buy the pullbacks elsewhere, like in banks, financials, industrials, US steel (X), Freeport McMoRan (FCX), commodity plays, etc. Buy low, sell high; it’s a revolutionary new concept that I’ve invented.
Q: Why is oil (USO) at $74?
A: Global economic recovery. It’s a short-term move; eventually, we’re going back to zero in oil, but with the US growing at a 10% annual rate, the world's largest oil consumer, anything the US uses goes up. Any plays in oil will be short-term, and if you have things like NVIDIA going up 80% in two months, why the heck are you even looking in oil? Don’t make excuses to go into these really long-term downtrends—unless you work in the industry and I know a lot of you do.
Q: What is the NASDAQ (NASD) year-end target?
A: I’m looking at 18,000, or about 23% higher than here. That would give you a full-year return of about 39%.
Q: I'm a subscriber to Global Trading Dispatch, but don’t get trade alerts for LEAPS.
A: Well actually you do—three weeks ago I did send out a newsletter giving you 3 LEAPS in Amazon (AMZN), Microsoft (MSFT) and Apple (AAPL) and told you to buy all the LEAPS down there. Those are up anywhere from 10% to 30% since then. We do send those out occasionally to Global Trading Dispatch members just to show you what is doable. The way to get more constant LEAPS alerts is signing up for the Mad Hedge Concierge Service, which is by application only.
Q: Are you bullish on Bitcoin even though the Chinese government is against it?
A: Yes, but this is a pure technical play and I’m not really sure what I'm buying, so I'm only going to get in at my price which will be at $10,000 or $20,000. A big chunk of the mining industry literally moved over a weekend from China to the US or other unregulated domiciles like Kazakhstan. And how much confidence do you want to have on a monetary instrument based in Kazakhstan? Not much.
Q: What are the economic conditions that would trigger the expected 10% pullback?
A: There are none, because I expect the superheated growth in the economy to continue for two more years, and the only short-term pullbacks we’re getting are triggered by rises in interest rates. Interest rates will fluctuate, but just buy every dip and keep loading the boat on your equity longs and our favorite sectors and you will be glad that you heard of Mad Hedge Fund Trader.
Q: Is it worth looking at electric grid stocks?
A: Excellent question, and I promise to do more work on that. Yes, absolutely, because the grid has to triple in size in order to accommodate the move to a green economy and that means we have to build 200,000 miles of aluminum long-distance transmission lines. The copper going into a new car will jump from 20 pounds for the old internal combustion engines to 400 pounds. So that's why I say, Freeport McMoRan (FCX)—it’s not a question of if or when you get in; they are seeing a generational upgrade in demand for copper. Same is true for electric cars.
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, 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
There is at Least 100 Pounds of Copper in this One Rotor
“At the tail end of a momentum-driven melt-up, weird things start to happen,” said Chris Harvey, chief equity strategist at Wells Fargo.
Mad Hedge Biotech & Healthcare Letter
July 6, 2021
Fiat Lux
FEATURED TRADE:
(A PROMISING BIOTECH FOR RISK-TAKERS)
(AXSM), (AMGN), (MRK)
Biotechnology companies are known as the riskiest investments in the stock market. More often than not, they are small, cash-strapped, and with futures so closely tied up to the success or failure of a single clinical study.
For each Amgen (AMGN), which exploded from a market capitalization of less than $1 billion roughly 30 years ago to a whopping $137.15 billion today, there are thousands that fail and fall into obscurity.
However, when a biotech makes it big, the rewards can be transformative—and this speckle of hope is what makes this industry incredibly exciting and interesting.
Let’s take Axsome Therapeutics (AXSM) as an example.
This stock has been beaten down, but its pipeline programs still hold the potential to inflate the portfolios of its shareholders if their science proves to be successful.
Actually, things appear to be turning around for Axsome these days.
Focused on developing novel and innovative treatments for central nervous system disorders, Axsome’s stock price recently enjoyed a 13% climb thanks to the latest development on one of its pipeline candidates: AXS-14.
AXS-14, which is a fibromyalgia treatment, should be ready for submission by the fourth quarter of 2022.
Looking at the potential target market for this drug, its estimated peak sales are somewhere in the range between $500 million to $1 billion.
Another promising treatment in Axsome’s pipeline is its novel migraine medication, AXS-07, which showed great efficacy results in its Phase 3 trial.
In addition, 74% of patients who took AXS-07 experienced no pain progression from two to 24 hours since taking the medication, with almost 50% of them no longer needing rescue medication.
Given the remarkable results for AXS-07, Axsome plans to submit it for a new drug application in the first half of 2021. In fact, this candidate has shown better results than the current gold standard, Merck’s (MRK) Maxalt.
If approved, this migraine treatment can reach peak sales from half a billion to over $1 billion in the United States alone.
However, the most promising candidate in Axsome’s pipeline is its treatment for major depressive disorder (MDD), AXS-05, which recently received priority review from the US FDA.
If things go as planned, the company plans to submit it for review by August 22 this year.
This drug is also a frontrunner medication for Alzheimer’s Disease (AD) Agitation.
On top of these, its Phase 3 clinical trial of AXS-05 showed that it significantly improved the symptoms of people suffering from depression.
Beyond these conditions, Axsome is also looking into using AXS-05 as treatment for migraines, smoking cessation, and even migraines.
AXS-05 has a massive addressable market, with roughly one-third of the 17 million adults in the US suffering from MDD. This could mean peak sales for this indication alone at $4 billion.
While Axsome still has other promising treatments in its pipeline, these three late-stage candidates clearly indicate a very high ceiling.
All of them have the capacity to reach blockbuster status once approved.
At this point and looking at its recent earnings report, Axsome recorded a cash balance of $164 million. It also still has some money left from its $225 million loan, which means the company can still sufficiently fund its operations and continue with its research into at least 2024.
Considering the timeline it has for the three candidates in its pipeline, it’s reasonable to assume that it can generate sales before that date.
All in all, they could rake in a total of at least $8 billion in sales annually for Axsome—a lucrative leap considering that the company currently only has $2.62 billion in market capitalization.
Given its vast pipeline, host of successful trials thus far, and near-term catalysts, I say this clinical-stage biotech’s lowered prices offer a cautious buying opportunity for investors with a penchant for risks.
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more
Global Market Comments
July 6, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or ALL EYES ON THE FANGS)
(FB), (AAPL), (AMZN), (MSFT), (NFLX), (NVDA), (AMD), (MU)
If you are a believer in the FANGS (FB), (AAPL), (AMZN), (MSFT), (NFLX), with NVIDIA (NVDA) as an add-on, last week was definitely your week.
They rose every day, ending the week with a melt-up of epic proportions. After eight months in the penalty box, tech came back with a vengeance and is now two months into their comeback tour.
The icing on the cake was Facebook’s big win in the antitrust suit from the FTC. That suitably deep-sixes the issue not just for (FB) but all of big tech, possibly for years. The five stocks above now account for a hefty 22% of the S&P 500 (SPY).
The question now on everyone’s mind is what’s next for tech? 25%? 30% 50%? The answer is all of the above, but you have to give it some time, like years.
We are now in an overbought market where big tech has become the cheapest sector. In addition, the global chip shortage promises to get worse before it gets better, with some products seeing a 10X increase in a single generation.
Companies that can’t get the chips they want are resigning products around the chips they can get on the fly.
This has created enormous spillover demand for marginal suppliers like Advanced Micro Devices (AMD) and Micron Technology (MU). It has also accelerated the evolution of technology.
Companies that already have decade-long supply chains already set up, like Tesla, now have a big advantage. That’s why (TSLA) has managed a healthy 27% gain in six weeks.
The severity of the chip shortage is wildly estimated if you look at future design plans of the biggest industries. A tech rally lasting months, if not years, was a totally natural progression.
I’ll tell you who else is dropping the ball. Analysts and strategists are consistently underestimating the strength of the economic recovery and the torrid growth of earnings. They are lagging by about six months. That is why 80% of announcements have delivered upside surprises.
There are more surprises to come.
When markets peaked in April, an eye-popping 92% of shares were above their 50-day moving average. Now, we are only at 52%. That suggests we have another month of excitement before we get another short-term correction.
June Nonfarm Payroll Report comes in hot, up 850,000, an eye-popping 150,000 better than expected. The headline Unemployment Rate moved up slightly to 5.9%. Accommodation gained 269,000, and Food Services & Drinking Places were up 194,000. It was a true Goldilocks number for the stock market, but not the million some had hoped for. My 30% forecast for the Dow Average is looking good.
The Infrastructure Bill extends the hot economy well into 2023 and longer. Analysts better start upgrading now, who have been badly lagging behind the recovery. Tech stocks saw this six weeks ago and began their torrid rally. Buy everything on dips and stick with the barbell strategy to catch all of the rotations.
Rents will continue to go through the roof. Good thing you don’t live in Boise, ID, which is seeing the fastest rent increases in the county at 39% YOY. Of course, having the Micron Technology (MU) HQ there is a major push. Don’t expect any respite. With home prices soaring, rents will get dragged up as prospective buyers are priced out of the market.
Weekly Jobless Claims moderate further, 364,000 Americans filed new claims for unemployment benefits last week - lowest since pandemic. Still elevated from a typical pre-pandemic week when we would see about 210,000 claims.
Softbank’s capital flooding into Crypto, with Japan's SoftBank Group Corp has invested $200 million in Mercado Bitcoin, one of the largest cryptocurrency exchanges in Latin America signaling the start of the first phase of big institutional money hoping to take advantage of the digital currency craze.
Goldman Sachs is the top financial pick according to JP Morgan Chase. All cylinders are firing and we’ve just come off a fabulous 15% dip. A move to more sustainable revenue streams, like wealth management, is the reason, which Morgan Stanley did decades ago under my watch. I’m looking for $450 on dips. Buy (GS) on dips.
Morgan Stanley doubles its dividend, now that it has passed the Fed stress test and the tethers are off. It also announced a share buyback of $12 billion over the next year which may be increased. Buy (MS) on dips.
S&P Case Shiller National Home Price Index for April hits new high, up 14.6%, the biggest increase in 30 years. Phoenix leads at +22.3%, followed by San Diego at +21.6% and Seattle at +20.2%. The numbers run from incredible to unbelievable.
CRISPR Therapeutics goes through the roof, up 12% at the highs, on successful drug trials by Intellia Therapeutics (NTLA) and Regeneron (REGN). The Mad Hedge Biotech Letter core holding provided the gene-editing technology behind the 45% gain in (NTLA) today. It enabled the 85% elimination of a rare inherited fatal liver disease, transthyretin amyloidosis. Say that fast three times. Buy (CRSP) on dips. With Editas, there are only three small companies that have a monopoly here.
Facebook wins antitrust action, a federal judge dismissing an FTC action against the company. The move set the entire tech sector on fire. It looks like all of NASDAQ is going to much higher highs. I bet you had a great day. The court found that (FB) did not enjoy a monopoly which might have forced them to sell off Instagram and WhatsApp.
My Ten-Year View
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 Mad Hedge Global Trading Dispatch profit reached 0.71% gain so far in June on the heels of a spectacular 8.13% profit in May. That leaves me 100% in cash.
My 2021 year-to-date performance appreciated to 68.60%. The Dow Average is up 13.7% so far in 2021.
I spent the week sitting in 100% cash, waiting for a better entry point on the long side. Up this much this year, there is no reason to reach for the marginal trade, then maybe instead of the certainty. I’ll leave that for the Millennials.
That brings my 11-year total return to 491.15%, some 2.00 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 42.40%, easily the highest in the industry.
My trailing one-year return exploded to positively eye-popping 112.59%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 33.7 million and deaths topping 606,000, which you can find here.
The coming week will be a weak one on the data front.
On Monday, July 5, markets are closed for the US Independence Day celebration.
On Tuesday, July 6 at 10:00 AM, the ISM Non-Manufacturing Index for June is released.
On Wednesday, July 7 at 10:00 AM, the Federal Open Market Committee Meeting from the last meeting are published.
On Thursday, July 8 at 8:30 AM, the Weekly Jobless Claims are published.
On Friday, July 9 at 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, with all the hiking I have been doing during the pandemic, I have been listening to a lot of WWII audio books lately. That reminds me of an old friendship I had with Toshiro Mifune, then the most movie famous star in Japan.
Mifune was drafted into the Japanese army during WWII where he served as an aerial reconnaissance photographer. After the war, that led him to work as a cameraman at Toho Productions, then the largest movie company in Japan.
A friend submitted his photo with an application for a casting call without his knowledge, and Toshiro, a good-looking guy, was one of 48 picked out of 4,000. He then met the legendary director, Akia Kurosawa, and the two launched the golden age of Japanese cinema in the late 1940s.
In just a couple of years, they produced blockbuster classic films like the Seven Samurai, Rashomon, and Throne of Blood, all of which are now required viewing by every American film school, and where Mifune demonstrated his impressive skills with a sword he picked up in the army.
I met Toshiro late in his career when he was cast as Admiral Isoroku Yamamoto for the 1976 Universal movie Midway. The problem was that Mifune couldn’t speak a word of English. I was brought in to bring Toshiro up to par in a crash course held at his west Tokyo mansion every afternoon seven days a week. We became good friends.
After a heroic effort, Mifune’s English was still awful, so the producers brought in a voice actor to dub Mifune’s part in Midway. That was Paul Frees, who provided the voice for the Disneyland’s Haunted House and Pirates of the Caribbean rides, as well as the cartoon Boris Badenov. His voice is still attached to those rides today, and I recognize it every time I take the kids.
Midway was a huge success and Mifune’s next big role was to play Commander Mitamura in Stephen Spielberg’s 1941. He followed that up with a role as Toranaga in James Clavell’s 1980 miniseries, Shogun, another old friend. (Clavell is a story for another day). My tutoring skills came back into demand once again, with better results.
Mifune died in 1997 at 77 and I miss him still.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
July 4, 2021
Fiat Lux
SPECIAL FOURTH OF JULY ISSUE
Featured Trade:
(COULD YOU QUALIFY TO BECOME A U.S. CITIZEN?)