Mad Hedge Bitcoin Letter
October 26, 2021
Fiat Lux
Featured Trade:
(GLOBAL PENSION FUNDS NEXT IN LINE)
(BTC), (KTCU)
Once it rains — it pours.
South Korea’s public pension fund, the Korean Teachers’ Credit Union (KTCU), is the second largest fund in Korea.
They are planning to get into crypto in a big way.
They are considering investing in a pure Bitcoin (BTC) ETF or Bitcoin-linked ETFs in the first half of 2022.
I’m not going to touch on whether or not there is a moral high ground in terms of investing employees’ retirement. The sad fact is, the fixed income instruments these retirement funds usually go into aren’t working for them.
The definition of insanity is to repeat the same thing that doesn’t work repeatedly.
Looking at the landscape, the plethora of pitiful options leaves them the scarce choice to thrust pension fund capital into crypto.
These pension fund managers have performance targets like all of us and will be replaced if they don’t achieve certain yields.
I can say this certainly isn’t the status quo for the retirement fund community, but this does change the zeitgeist of how to look at alternative investments from here on out.
We are talking about one of the biggest funds periods in Korea investing in several Bitcoin ETF products, including those by South Korean asset management firm Mirae Asset Global Investments. The company launched two ETFs tracking the value of Bitcoin futures via its Canadian subsidiary, Horizons ETFs, in April 2021.
KTCU presides over $40.2 billion in assets under management.
The pension fund has allocated 40% of its investments in alternative assets, 10% domestic, and 9% international stocks.
Pension funds investing in the crypto and blockchain space obviously opens up a whole new chapter in the crypto story where the most conservative of funds are now considering one of the newest asset classes.
It might seem bizarre at first, but when you look at the numbers, it’s not.
The stigmas of crypto being too volatile and exotic still don’t muddy the general notion that this asset class could be considered the most attractive one in the world now.
The rules and regulations to govern the sector have yet to be settled, so pension funds might as well get into crypto before they are banned by the government.
Traditional caretakers of employees’ retirement funds have voted with their Korean won and I suspect this will start happening in other Asian countries as well.
Korea is often a trendsetter for many new habits in Asia, so expect Vietnam, Malaysia, and others to ponder about this move too.
Family offices led the charge into crypto funds several years ago, but we’ve seen increasing interest from pensions, and we are just supercharging that adoption level.
I believe there is growing sophistication and institutionalization of the digital asset ecosystem, combined with a strong macro narrative driven by response to the pandemic.
Risk adverse now means not investing in cryptocurrency.
In the last week, pension funds around the world have announced a fresh foray into crypto assets.
Last week, the Houston Firefighters’ Relief and Retirement Fund reportedly purchased $25 million in Bitcoin and Ether (ETH).
Canada’s Ontario Teachers’ Pension Plan Board participated in a $420-million funding round for major crypto exchange FTX.
This new channel of capital gives crypto a strong floor if there is a dip with many buyers chomping at the bit to enter into the crypto world.
It’s hard not to see Bitcoin around $100,000 next year with so many buyers in the queue.
“Quantitative easing is universal basic income for rich people.” – Said Portfolio Manager Travis Kling
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
October 26, 2021
Fiat Lux
Featured Trade:
(CHINA’S COMING DEMOGRAPHIC NIGHTMARE)
Mad Hedge Technology Letter
October 25, 2021
Fiat Lux
Featured Trade:
(HOW TO PLAY THE TECH EARNINGS SEASON)
(MSFT), (FB), (GOOGL), (AAPL), (SNAP)
The big guns of tech are coming up to the plate for earnings and they could use a strong showing as big tech’s narrative is on the ropes.
They are still the apex warriors of the stock market, and that position is hardly under threat, but there are whispers of a slowdown.
A recipe of high expectations mixed with cruddy forecasts could give us a dip to buy into.
This is what our portfolio would love to be gifted.
Don’t forget we have already seen some misses from tech companies like Snap (SNAP) which plunged 27% after warning that customers are cutting back on digital advertising spending.
The fallout sent other ad tech companies like Twitter and Google significantly lower.
This never used to happen to these companies and that’s important to point out because we just exited an era where ad tech companies could do no wrong.
Now it almost seems like they can’t do no right.
Readers got spoilt, earnings after earnings, these tech companies used to knock it out of the park and much of that high expectation is still leftover, perhaps a legacy concept from the bull market from 2008 to 2021.
These are the bellwether stocks of the broader market that have single-handedly put the rest of their market on their back and carried it higher.
Everyone wants to know if they can still hack it?
Technology companies in the S&P 500 Index are projected to report revenue growth of roughly 19% for the third quarter such as Alphabet at 38% growth, followed by Facebook at 37% and Apple (AAPL) at 31%.
I do believe that they will achieve these lofty estimates but they won’t overperform to the point where buyers line up in spades.
We aren’t in that type of environment now.
These companies have pricing power, and combined with underlying growth drivers, they generate high returns and reinvest in the business and perpetuate that strength.
The price action backs up my concerns with 85% of tech companies having beaten profit estimates, but the stocks have fallen an average of 2.4% the following day.
The lack of response means we are long in the tooth.
If this does become a “buy the rumor, sell the news” type of event, this will give us plenty of discounts to cherry-pick the next day.
The challenge of justifying their valuations means these companies aren’t getting their “free pass” that they used to pocket and manipulate.
They aren’t the darlings of the business world anymore — that title goes to cryptocurrency and bitcoin.
Facebook will tell us how badly Apple’s privacy changes are affecting its ad revenue model.
Consensus is looking for revenue growth of nearly 40% this quarter in Alphabet which in a normal year wouldn’t be that hard to beat but it’s a new normal now.
Ongoing monetization improvements in search advertising through product/AI-driven updates, along with greater-than-expected contributions from businesses like YouTube and Google Cloud can seem them meet their forecasts.
Microsoft (MSFT) expects revenue to grow around 20% in the quarter and we need to look out for if their cloud-computing business maintains strong demand.
Year-over-year comparisons get progressively tougher throughout the year which is an obstacle for MSFT’s durable growth portfolio of Azure/Security/Teams.
Apple could deliver great iPhone sales, but semiconductor shortages are a limiting factor, and the China risk is another big quagmire.
At what point will the Chinese Communist Party stop giving Apple such an easy go of it in China?
Regulatory uncertainty is an overhang — implications of the App Store ruling remain a wild variable.
Amazon is dealing with supply-chain challenges and labor shortages.
Last quarter, revenue missed expectations for the first time since 2018, and the company warned of the reverse of the pandemic-related tailwind for online retail.
Revenue is expected to grow a little more than 16%, the slowest pace since 2015.
The stock has been dead weight this year, which is unlike Amazon.
I do believe we will get a sprinkling of fairy dust that includes margin expansion, but some of these companies will experience a pullback and I will be waiting to aggressively take advantage of these deals.
“It is only when they go wrong that machines remind you how powerful they are.” – Said Australian Writer Clive James
Global Market Comments
October 25, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING A BREAK)
(MS), (GS), (BAC), (TLT), (TSLA), (AAPL), (AMZN), (GOOGL), (FB)
When I ran the international equity trading desk at Morgan Stanley during the 1980s, there was always one guy I was trying to recruit and that was David Tepper at Goldman Sachs. Whenever we did a trade with David, we lost money.
If we sold David a stock it usually took off like a rocket. If we bought a stock from him it plummeted like a stone. Eventually, unable to lure David over with a monster salary, I had to ban trading with him as it was such a loser for us.
David never did get pried away from Goldman until he left to start his own firm, Appaloosa Management, after he was mistakenly passed over for partner two years in a row. After that, he racked up an annualized return of over 40%, near my own results.
But David was doing it with $20 billion in real money, while I was doing it with newsletters. In 2012, David received a $2.2 billion performance bonus from his fund, one of the largest in history. I bet the partners at Goldman are kicking themselves.
So, I thought it timely to check in with David, now the owner of the Carolina Panthers football team, to see what he thought about the market. The S&P 500, the Dow, Ten-year bond yields, and Bitcoin all simultaneously hit all-time highs last week, and we were long all of them.
David was phlegmatic at best. “There are times to make money and there are times to not lose money, and this is definitely time to make money.” However, nothing is cheap. There are no screaming buys here or screaming shorts. He did expect stocks to keep rising through the end of 2021.
Keep in mind that David is a trader just like me and rarely has a view beyond six months. His last 13F filing on June 30 showed that his five largest positions were T-Mobile (TMUS), Amazon (AMZN), Facebook (FB), Google (GOOG), and Uber (UBER). Uber was the only new buy.
David is not alone in his views.
Up 89.20% so far in 2021, I am sitting here dazed, shocked, and pinching myself. This has been far and away my best year in a 53-year career. I know a lot of you made a lot more. I stared down every correction this year, loaded the boat, and won.
It’s not always like this.
So I think we are in for a few weeks of profit-taking, sideways chop, and minimal action. I call this the “counting your money” time. Traders have visions of Ferraris dancing in their eyes. Then once we form a new base, it will become the springboard for a new yearend rally.
I don’t think stocks will fall enough to justify selling here. And you might miss the next bottom.
Until then, I’m thinking of taking up the banjo.
That brings me to the foremost question in your collective minds. Can I top an astonishing 100% profit this year? Only if we get another great entry point with a 5% correction.
I’m sure that when the financial history of our era is written something in the future, this will be known as the week that Bitcoin went mainstream. That was prompted by the SEC approval of the first futures ETF, the ProShares Bitcoin Futures ETF (BITO).
By giving this approval, which had been sought for years, unlocks $40 trillion worth of assets owned by 100 million shareholders managed under the Investment Company Act of 1940 to go into Bitcoin. The possibilities boggle the mind. The consensus year-end target for Bitcoin is now $100,000, or up 65%.
It’s not too late to subscribe at the founder's rate of $995 a year for the Mad Hedge Bitcoin Letter by clicking here. After that, the price goes up….a lot.
Morgan Stanley (MS) Announces Stellar Earnings, with profits at $3.71 billion, up 36.4%. Morgan Stanley Asset Management sucked in an amazing $300 billion so far in 2021, bringing their total assets to $4.5 trillion.
Goldman Sachs (GS) announces blockbuster earnings, and we are laughing all the way to the bank. Profits soared an eye popping 63% to $5.28 billion.
Existing Home Sales soar by 7% in September to a seasonally adjusted 6.29 million units. First time buyers accounted for only 28%, the lowest since 2015. A brief drop in interest rates is the reason. There are only 1.29 million homes for sale, only a 2.4 month supply.
Housing Starts fall by 1.6% in September. Higher materials and labor costs, rising land expenses, and soaring energy costs are the culprit. A pop in interest rates may mean that the slowdown could last through the winter.
Single Family Rents are surging especially for the top end of the market. Nationally, rents rose 9.3% in August year over year, up from a 2.2% year-over-year increase in August 2020, according to CoreLogic. Buy homebuilders on dips like (KBH), (LEN), and (PHM)
If the Rescue Package passes in whatever size, it will trigger a massive new surge in risk prices, including stocks and Bitcoin. Don’t act surprised when it happens. $3.5 trillion, $1.5 trillion who cares? That’s a ton of money to be dumped into the economy ahead of the 2022 elections.
Tesla profits smash records in Q3, reporting a shocking $1.62 billion profit on $13.76 billion in revenues. A 30.5% profit margin blew people away. Imagine how much they’ll earn when they make 25 million cars a year in ten years. Buy (TSLA) on big dips.
Weekly Jobless Claims dive to 290,000, a new post-pandemic low. Delta is in fast retreat. A pre-pandemic normal level of 225,000 is coming within range.
Rising Interest rates are tagging the Real Estate Market, with the 30-year fixed rate hitting 3.23%. Refis are off 7% on the week. The Fed taper is looming large, especially if the 30-year hits 4.0%, which it should, taking affordability down.
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 800% to 240,000 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 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a heroic +9.60% gain so far in October. My 2021 year-to-date performance soared to 89.20%. The Dow Average is up 16.60% so far in 2021.
After the recent ballistic move in the market, I am continuing to run my longs and those include (MS), (GS), (BAC), and a short in the (TLT). All are approaching their maximum profit point and we have nothing left but time decay to capture. So, I am going to run these into the November 19 expiration in 14 trading days. It’s like having a rich uncle write you a check once a day.
That brings my 12-year total return to 512.75%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.75%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 120.15%. 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 approaching 46 million and rising quickly and deaths topping 736,000, which you can find here.
The coming week will be slow on the data front.
On Monday, October 25 at 8:30 AM, the Chicago Fed National Activity Index is out. Facebook (FB) earnings are released.
On Tuesday, October 26 at 10:00 AM, the S&P Case-Shiller National Home Price for August Index is released. Alphabet (GOOGL) and Microsoft (MSFT) earnings are out at 5:00 PM.
On Wednesday, October 27 at 7:30 AM, Durable Goods Orders for September are printed. McDonald’s (MCD) earnings are out.
On Thursday, October 28 at 8:30 AM, Weekly Jobless Claims are announced. The first read on Q3 GDP is announced. Apple (AAPL) and Amazon (AMZN) earnings are out.
On Friday, October 29 at 8:45 AM, the US Personal Income & Spending for September is published. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, when I went to college in Los Angeles, the local rivalries between universities were intense.
UCLA and USC had a particularly intense rivalry, and I went to both. It was traditional to steal Tommy Trojan’s sword prior to each homecoming game and then paint the statue blue. USC had a mascot, a mixed breed dog called “Old Tire Biter.” Prior to one game, UCLA kidnapped the dog.
At halftime, the kidnappers appeared midfield, tied the dog to a helium-filled weather balloon, and let him waft away somewhere over the city. Enraged USC fans stormed the field only to find that the real dog was hidden in a nearby truck. The dog headed for the stratosphere was actually a stuffed one.
Of course, the greatest prank of all time was carried out by the California Institute of Technology in the 1961 Rose Bowl, which didn’t have a football team, on the Washington Huskies. Washington was famous for its elaborate card tricks, which spelled out team names and various corporate sponsors and images.
On the night before a game, imaginative mathematically-oriented Caltech students snuck into the stadium and changed the instructions on the back of each card packet sitting in the seats. When it came time to spell out an enormous “WASHINGTON”, “CALTECH: displayed instead. The incident was broadcast live on national TV ON NBC.
At Caltech, where I studied math, they are still talking about it today.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
