Global Market Comments
December 3, 2021
Fiat Lux
Featured Trade:
(DECEMBER 1 BIWEEKLY STRATEGY WEBINAR Q&A),
(PYPL), (MA), (AXP), (SQ), (TLT), (TBT), (TSLA), (AAPL), (FB), (MSFT), (AA), (FCX), (BITO), (COPA.L)
Below please find subscribers’ Q&A for the December 1 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: What are your thoughts on Square (SQ)?
A: There is a whole range of FinTech companies including Square (SQ) and PayPal (PYPL), as well as Mastercard (MA), American Express (AXP), and Visa (V), which have been completely slaughtered in the last 3 months. The theme behind that selling is that Bitcoin, being a frictionless transaction system, will wipe out all existing fee taking financial services. You’re getting long-term investors selling because of that. And that’s why all of these sectors have sold in unison, so everything looks incredibly cheap now. I know a lot of people who are starting to pick up PayPal down here, so that is what's going on.
Q: How do you see iShares 20 Plus Year Treasury Bond (TLT) ETF moving forward?
A: It has to go down. Accelerated tapering with a new interest rate policy about to hit and 7% GDP growth against 6.2% inflation—this has been the toughest bond market of all time. I expect we start getting dramatic falls once people get the memo, but that hasn’t happened yet; and if anything, you could get strength at the end of the year as people throw in the towel on money-losing shorts to window dress their holdings for customers. I think that's why we had this monster ten-point rally in just a week—it’s people trying to get out of losing trades before year-end.
Q: Could Omicron trigger a recession?
A: No. This is entirely media hype. But algorithms are totally gullible to media hype. All they need to sell is the right word in a headline, like “Omicron.” When the virus first hit last year we had 0% immunity, and when Delta hit we had about 50% immunity. At 90% immunity, the virus will have ten times more difficulty stopping the economy. We now have so much testing, so many early warning systems, and so many better ways to treat the disease for people who already got it with the Pfizer pill and so on, that this is nowhere near the threat to the economy that it was even six months ago. So, buy any Omicron-inspired selloffs; that’s what I've been doing since Friday.
Q: What’s the relationship between high oil prices and the direction of Tesla (TSLA) stock?
A: They track pretty much one for one. High oil prices are great for Tesla, as they are for all-electric cars, because it makes switching to electric much more financially attractive. If you’re paying $5 per gallon at the pump as we are here in California, you have a much bigger incentive to switch to an electric car than it was when gasoline was $2. And that has historically been the case with all alternative forms of energy for the last 50 years; what would always kill alternative energy in the past was cheap oil—oil going down to $30 a barrel and gasoline at $2 a gallon. When it's that cheap, people don't want to pay a premium for electric. By the way, my energy cost is zero as I charge my cars at home with my solar panels. Even when I use public charging stations the energy cost is the same as paying 30 cents for a gallon of gas, which was the price when I was in high school.
Q: If volatility is about to explode, can we careen straight into a high-rate environment?
A: There is no quick connection between stock market volatility and interest rates. It would take dramatically higher interest rates to really hurt the stock market, and I'm talking 3% or 4% on a 10 year, not 1.48% which is what we have now. So, I don’t think interest rates rise high enough to offset the tremendous gains being made by technology and the enormous profits this is spinning off, and that is the fundamental case for a bull market that goes on for 10 more years.
Q: What is better to buy here, Apple (AAPL) or Microsoft (MSFT)?
A: Apple actually has been a laggard for the last six months, bumping up against that $150 level. Now that it has broken out to the upside, I’d be a buyer of Apple, but both are great names. I have heavy positions in both and am quite happy to run them.
Q: Is CRSPR Therapeutics (CRSP) worth a LEAP?
A: Yes, but I would go out 2 or 2.5 years to the maximum maturity, do an at-the-money like an $80-$90 LEAPS and then hope on a positive press announcement sometime in the next 2 years, and that should get you a 100% return.
Q: Thoughts on Facebook (FB)?
A: I’m avoiding Facebook because it just has too many balls in the air right now, changing their name, changing their business model—it’s not really clear what Meta is yet to most consumers, and I’d rather own Apple (AAPL) and Microsoft (MSFT).
Q: When is your autobiography being finished?
A: I don’t know because I don't know how it ends, I'm still living it. So, I'll keep chipping away at it every week when I have time. In a couple of years maybe we’ll launch the biography of John Thomas pdf book on the website, and you can all have a fascinating read. I still have decades worth of pictures in photo albums to go through to remember all the things I've done so there's a lot more good stuff to come. A Hollywood writer is working on a movie script about my life. Next week is about crossing the Sahara Desert when I was 16.
Q: Is our electric grid capable of taking care of all of the oodles of electric vehicles about to plug in?
A: Absolutely not, the grid has to be tripled in size to handle all the EV’s coming our way, which means we need to build 200,000 miles of new long-distance transmission cables, which are all made out of aluminum. Oh, and by the way, the 25 million EVs coming our way each uses 200 pounds of copper—there's another trade hint, Freeport-McMoRan (FCX). And of course, Alcoa (AA) is the big play on aluminum.
Q: What do you think of the ProShares Bitcoin Strategy (BITO) ETF?
A: I actually like it because it's tracking quite nicely with the underlying Bitcoin, the slippage there or the contango is only about 4% a year. That is worth doing to get improved liquidity and security by buying through the BITO ETF. We still have Bitcoin on a “BUY” signal is see $100,000 next year. The new fork will make it move for competitive with Ethereum.
Q: Do you expect a 5% dip in tax loss selling at the end of the year, or is this overhyped?
A: It's way overhyped because who has losses? Nobody has any losses this year to lock in, unless you have a big holding in China, so I don't think there will be any tax loss selling this year. I think we will close the markets at all-time highs on the last day of the year, and whatever tax effects there will be minimal. Plus, if you wait another month till January you don't have to pay the taxes for 16 months—sounds like a good deal to me. The chances of any major increases in tax rates have been greatly reduced over the coming play.
Q: Is copper (COPA.L) an inflation play?
A: Absolutely, it's one of the best inflation plays out there. It was always a great inflation play even before the electric car industry existed; copper and all other hard assets are great inflation plays. Oh, and then do you think at 6.2% we have inflation already? I kind of think the answer is yes! 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
Mad Hedge Biotech and Healthcare Letter
December 2, 2021
Fiat Lux
Featured Trade:
(A REMARKABLE COVID-19 JUGGERNAUT)
(PFE), (BNTX), (MRNA), (JNJ), (AZN), (MYOV), (AKCA)
Unless you have been living under the rock in the past two years, you probably heard that Pfizer (PFE) is one of the frontrunners in the COVID-19 market.
Between its incredibly successful vaccine and its soon-to-be-approved antiviral treatments, this company has undoubtedly risen to meet—and even surpass—the expectations.
And while a juggernaut in the pharmaceutical and healthcare industry may not seem like your run-of-the-mill growth stock, Pfizer has been showing no signs of slowing down.
If anything, this vaccine leader is anticipated to deepen its lead and reward its investors with market-crushing returns.
Moreover, the foundation of a good growth stock is a great product.
Pfizer clearly has that with its COVID-19 vaccine, Comirnaty, which raked in $13 billion in sales in the third quarter of 2021 alone—and there are surely billions more to come in the next months.
The company actually projects roughly $36 billion from Comirnaty sales this year, which is $2.5 billion more than the initial guidance of $33.5 billion announced earlier, with opportunities appearing to be multiplying more rapidly than even the management anticipated.
For 2022, Pfizer projects $29 billion in sales from Comirnaty—a number that could still rise given the recent approval for vaccines for children over 5 years old and the authorization for booster shots for adults.
On top of the vaccine sales, Pfizer has yet to take into account the potential of its COVID-19 pill, which has at least 90 countries interested.
Actually, the Biden administration has already allocated $5.3 billion to buy 10 million doses in advance of the anticipated approval.
This antiviral pill, called Paxlovid, can serve as an excellent alternative for those who are still hesitant over the vaccine. Plus, it has an 89% effectiveness in reducing the risk of severe COVID-19.
Considering that COVID-19 doesn’t seem to be disappearing anytime soon, there’s no question that Pfizer has a wide runway for growth.
Here’s one example of how Pfizer has been leveraging its expertise and technology lately.
In November, the world was alarmed by the news of yet another COVID-19 variant called Omicron, which was discovered in South Africa.
Although not much is known about it yet, scientists think it’s an escape variant because of its ability to double mutations compared to the Delta variant.
More alarmingly, Omicron is considerably distinct from the original virus that was the basis for the existing COVID-19 vaccines.
That led to growing concerns over the effectiveness of the current vaccines in the face of a highly virulent variant.
Countries like the US, the UK, Canada, Singapore, and Australia have decided to impose travel restrictions on passengers arriving from Africa to curb another pandemic.
The news of this new variant alarmed the world so much that even the stock market experienced a downtrend, particularly in the travel and hospital sectors. This is devastating considering that international travels have only been recently reopened.
Amidst the panic over the Omicron variant, Pfizer and its vaccine partner BioNTech (BNTX) shared that they have been long prepared over the possibility of an “escape variant” emerging.
In fact, the two have taken action months before the news broke and worked to modify their mRNA vaccine to target the new variant, with their candidate ready to be shipped out within 100 days.
This is an impressive foresight on the side of Pfizer and BioNTech, especially in light of the fact that its competitors, Moderna (MRNA), Johnson & Johnson (JNJ), and AstraZeneca (AZN), are only about to investigate the efficacy of their vaccines against Omicron.
Meanwhile, Pfizer has 94 programs in its pipeline. Of these, 38 are enrolled in Phase 2 and 3 clinical trials.
It also has 6 mRNA projects with its German partner BioNTech for additional COVID-19 vaccines and an mRNA flu vaccine.
In terms of expanding its other segments, Pfizer has collaborations with several companies in numerous specializations.
These include the acquisition of Trillium Therapeutics (TRIL) and work with Myovant Sciences (MYOV) to expand its oncology segment, while its collaboration with Akcea Therapeutics (AKCA) targets its cardiovascular sector.
Overall, Pfizer has proven itself to be the safest COVID-19 stock in the market today. Moreover, the continuous expansion of its core business and its heavy focus on R&D all guarantee that it remains in a tremendous position even in a post-COVID world.
Mad Hedge Bitcoin Letter
December 2, 2021
Fiat Lux
Featured Trade:
(THE SKINNY ON IDENTIFYING CRYPTO SCAMS)
(BTC)
Awareness of safety is definitely a must with crypto — that’s not a shocker with it being a brand-new asset that many have a hard time contemplating.
It’s true that it’s a lot to wrap your head around.
Cryptocurrencies are speculative by nature. They lack traditional fundamentals, and a certain leap of faith is needed to invest in it.
It’s not easy for investors to analyze and assign a value to, and that’s where I come in to try to make sense of it.
Crypto markets are also less regulated in general, so it's easier to get ripped off.
Market manipulation is the intentional effort to artificially influence or interfere with asset prices.
Typically, scammers manipulate markets to tip the scales in order to accrue an unfair advantage.
Let’s go through the list of tricks that could be played on you.
Spoofing is done by placing fake buy or sell orders, which are canceled before they're filled.
Scammers use fake accounts and bots to place large trades, giving other investors the impression that demand is either increasing or decreasing.
Front-running is transacting based on knowledge of future transactions.
For instance, miners or node operators can have insight into pending trades. They could then leverage their inside access to make profitable trades ahead of major price swings.
It’s critical that investors migrate to voluminous, reputable, and transparent crypto exchanges and not try to get fancy with the middleman.
This makes a massive difference.
Another scheme is the pump and dump where fraudsters convince people to buy in, crypto schemers spread misleading information about minimally traded coins through social media.
They signal that a 10-fold increase in shares is imminent triggering hot new money then comes the dump.
As momentum builds, other investors cash in and drive the price up, while the schemers cash out and make a run for the exit.
Another deviant scheme is when crypto developers abandon a project but keep the funds raised from investors.
Bad actors can list a new token on a decentralized exchange, pair it with a legitimate cryptocurrency, and drum up interest on social media to lure in investors.
They often pay for known celebrities to pass it off as a legitimate asset.
The whitewashing of the asset fools a bunch.
Traditional hacking and theft targeting crypto wallets can be a digital or physical device.
These wallets have keys — both public and private. The former is a public address that allows crypto to be deposited into the wallet, similar to how routing and bank account numbers enable direct deposits.
The latter is like the password to an online banking platform. Whoever has access to that password can control the funds within the account.
Just as you wouldn't share your credit card number with a stranger, keep your private keys somewhere safe. Scammers can hack accounts and withdraw funds — and they'll employ various methods to get investors to reveal their private information.
Lastly, scammed via initial coin offering (ICO) is happening less and less as many cryptocurrencies do a better job establishing their credibility.
This is the crypto equivalent of an initial public offering (IPO) for a stock.
Through an ICO, companies can raise money to fund a crypto development, such as a token, app, or relevant service. In exchange for pledging funds, the investor receives an issuance of newly minted coins.
Similar to rug pull, ICO scams collect the funds of early investors only to abandon the project shortly after.
An easy way to recognize an ICO scam is to review the company's whitepaper. This document details the specifications behind the project, including strategy, goals, and market analysis.
If the company doesn't provide a whitepaper, that's a red flag.
Decentralized assets are not all unicorns and parabolic trading.
There is an ugly side of it devoid of standardized oversight and investors must stay on the lookout for these easily avoidable pitfalls.
Always double-check the broker, asset, and environment in which trading occurs. Never take anything for granted and err on the side of caution.
“[Bitcoin] is a remarkable cryptographic achievement… The ability to create something which is not duplicable in the digital world has enormous value…Lot’s of people will build businesses on top of that.”— Said Former CEO of Google Eric Schmidt
Global Market Comments
December 2, 2021
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY)
(GS), (TLT)
Goldman Sachs (GS) shares went ex-dividend yesterday, December 1 for a $2.00 quarterly dividend.
Anyone who has the (GS) December 2021 $340-$360 vertical bull call debit spread could potentially have their short positions in the $360 calls called away, or exercised against them by hedge fund seeking to capture the dividend.
Although the return for such a move is very small, some 0.51%, making this highly unlikely, it is not impossible. So it’s important to know how to handle these events.
If exercised, brokers are required by law to email you immediately and I know all of this may sound confusing at first. But once you get the hang of it, this is the greatest way to make money since sliced bread.
I call it the “Screw up risk.”
If it happens, there is only one thing to do: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.
Most of you have short option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.
The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.
You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.
Let’s say you get an email from your broker telling that your call options have been assigned away.
I’ll use the example of the Goldman (GS) $340-$360 in-the-money vertical BULL CALL spread.
For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 12 days before the December 17 expiration date. In other words, what you bought for $16.00 on November 30 is now worth $20.00, giving you a near-instant profit $2,400, or 25.00% in 2 trading days!
All have to do is call your broker and instruct them to “exercise your long position in your (GS) December 17 $340 calls to close out your short position in the (GS) November 17 $360 calls.”
You must do this in person. Brokers are not allowed to exercise options automatically, on their own, without your expressed permission.
This is a perfectly hedged position, with both options having the same name and the same expiration date, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.
Calls are a right to buy shares at a fixed price before a fixed date, and one options contract is exercisable into 100 shares.
Short positions usually only get called away for dividend-paying stocks or interest-paying ETFs like the (TLT). There are strategies out there that try to capture dividends the day before they are payable. Exercising an option is one way to do that.
Weird stuff like this happens in the run-up to options expirations like we have coming.
A call owner may need to buy a long (GS) position after the close, and exercising his long (GS) call is the only way to execute it.
Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.
There are thousands of algorithms out there which may arrive at some twisted logic that the puts need to be exercised.
Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.
And yes, options even get exercised by accident. There are still a few humans left in this market to blow it by writing shoddy algorithms.
And here’s another possible outcome in this process.
Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it.
There is a further annoying complication that leads to a lot of confusion. Lately, brokers have resorted to sending you warnings that exercises MIGHT happen to help mitigate their own legal liability.
They do this even when such an exercise has zero probability of happening, such as with a short call option in a LEAPS that has a year or more left until expiration. Just ignore these, or call your broker and ask them to explain.
This generates tons of commissions for the broker but is a terrible thing for the trader to do from a risk point of view, such as generating a loss by the time everything is closed and netted out.
There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. In fact, I think I’m the last one they really did train.
Avarice could have been an explanation here but I think stupidity and poor training and low wages are much more likely.
Brokers have so many ways to steal money legally that they don’t need to resort to the illegal kind.
This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.
Some may also send you a link to a video of what to do about all this.
If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.
Professionals do these things all day long and exercises become second nature, just another cost of doing business.
If you do this long enough, eventually you get hit. I bet you don’t.
Calling All Options!
Mad Hedge Technology Letter
December 1, 2021
Fiat Lux
Featured Trade:
(TAKE A REST FROM FINTECH)
(PYPL), (SQ), (BNPL), (AMZN), (TWTR), (AAPL)