“There’s no shortage of remarkable ideas, what’s missing is the will to execute them.” – Said American Author Seth Godin
Global Market Comments
June 23, 2022
Fiat Lux
Featured Trade:
(JUNE 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(PYPL), (JPM), (BAC), (C), (MS), (GS) (TLT), (TBT), (NASDAQ), (SNOW), (ZG), (FCX), (META), (JNK), (HYG), (ABNB)
Below please find subscribers’ Q&A for the June 22 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA.
Q: Where would you recommend getting involved in Freeport-McMoRan Inc. (FCX) again?
A: We’ve just come off from $51 to $31, and $30 has been the support level for the last year and a half. The problem with (FCX) is that copper is a commodity, and if you think a recession is coming, the last thing in the world you want to own is a commodity. That’s because commodities don’t pay dividends, don’t pay interests, cost money to store, and thus should be avoided like the plague during recessions. Even if we don’t have a recession, the market will discount one anyway—remember the market has discounted twelve out of the last six recessions. This could be one of those non-recession recessions. So, $30 may hold; if it doesn’t, the two hundred day moving average is at $22. Long term, I'm looking for $100 with Freeport. You might want to buy half a position here, and then half if we break all the way down to $22 and discount the full recession. Long term I love it, short term it will have a lot of volatility—it’s already come off 40% in a couple of months.
Q: Will JP Morgan (JPM) and Goldman Sachs (GS) go up when interest rates are going up?
A: Yes. They’re going down now because of recession fears. When recession fears are no longer an issue, you can expect the entire financial sector to double over the next three years. The reason is that when you eliminate the recession fears, you eliminate default fears on the debts of big banks. And that knocks off a major credit issue for these companies, which in the meantime benefit enormously from high interest rates. They increase their profit margins on their loans. So definitely JP Morgan Chase (JPM), Bank of America (BAC), Citicorp (C), Morgan Stanley (MS), and Goldman Sachs (GS) are the plays there. And we’re probably pretty close to a bottom on the whole group.
Q: What about PayPal (PYPL)?
A: It’s down about 75% from its high. I think the smaller non-earning tech companies are going to take a long time to recover, probably years. But once they do recover, they will triple and quadruple. If you’re willing to tie up money for a long time for a bigger return, PayPal (PYPL), Square (SQ), and the other fintech stocks are going to be your cup of tea.
Q: Can you see a recession dragging into the next election?
A: I think not. The shocker is that the Republicans seem to be basing their entire campaign on inflation, and that could be a problem if inflation disappears by November, which it could very well do. A lot of things could eliminate inflation like a collapse of the oil market, which is happening right now, by the way. We’ve had a massive drop in oil prices—the end of the Ukraine war and good weather would also help with the food inflation. So those are all possibilities. My personal bet is that we get down to 4% by November, which is tolerable. And it’s 4% on the way to 2%. We could be down to 2% in two years—or at least that's what the Federal Reserve thinks. So be ready for surprises when it comes to the election. It’s five months off, and that's like 5,000 years in political terms.
Q: Why is the Fed funds rate 1.70% against an inflation rate of 8.6%?
A: Virtually everybody in the business thinks the inflation rate at 8.6% will be completely gone in a year. Recessions and even the fear of recessions cure inflation, even if we don’t actually get one. And that is in the process of happening now. You’re starting to see some big swings on the job market, collapsing oil prices, etc. So that kind of confirms that view.
Q: Why is the Fed funds rate so low now?
A: We have probably the most gradualist Fed in history. Jerome Powell likes to announce everything way in advance and do things slowly, and he’s continuing in that vein.
Q: I’m getting the Mad Hedge Technology Letter, which currently has no positions.
A: That’s true. Tech has been a horrible place to be. One of the jobs of the Mad Hedge Fund Trader is to not only get you into the good positions but to keep you away from the terrible ones, especially when they’re crashing, and that’s pretty much what the tech letter has been doing all year. We have done a lot of trades this year in tech, but they’ve been short-term trades on extremely oversold bounces. We’ve made money there, up 12% so far in 2022 with NASDAQ down 36%. And again, that is the job of the hedge fund.
Q: What will stop the ProShares UltraShort 20+ Year Treasury (TLT) short trade?
A: When the Fed skips an interest rate rise, and that could happen in September. We could still keep selling five-point rallies in the (TLT), but we’re reaching the end of the road.
Q: Why have a retirement fund if you’re never going to retire?
A: The tax advantages are tremendous, although, the IRS is forcing me to take social security now because they’re not increasing the amount anymore if you defer payments. I'm going to start getting my checks soon.
Q: I’m not getting the text alerts on my phone.
A: Contact Filomena at customer support at (347) 480-1034 and she will get you set up on that; that’s an easy fix.
Q: Should we buy energy? If so, gas or oil?
A: None of the above—we are peaking now in energy. Almost the entire industry thinks we’re going to be down by half in a year, and more if the Ukraine war ends.
Q: Should we add to our ProShares UltraShort 20+ Year Treasury (TBT) position?
A: No. I think you’re going to get real resistance at the $30 level. $14 is where you should have been buying (TBT) last November when we were screaming at you to please do this in large size, and do it in LEAPS which give you lots of leverage. People who did that doubled their money in 7 months, including me.
Q: What do you think about Snowflake Inc. (SNOW)?
A: I love it, it’s a great database firm for the long term, also heavily involved in cybersecurity. The stock is down 70% in a year. But it is a small non-money-making tech company, so you may have to wait a long time to actually get performance. Another one of these “you may get a 10X on this but may have to wait years for the move to start,” like hundreds of other stocks in the same category.
Q: What do you think about Zillow Group Inc. (ZG)?
A: Don’t touch it with a ten-foot pole. It has been a real disaster of a stock, down 86% since November. If real estate prices are peaking or moving sideways (and certainly the number of transactions is declining) you don’t want to be anywhere near real estate, home builders, and housing—that whole area is just getting slaughtered. Zillow is definitely a slaughter-ee.
Q: Is it okay to roll a 2024 LEAP into 2025 on Freeport McMoRan (FCX)?
A: Yes that is a good idea. Even if we have a recession, it will be well and done by 2025, and we might even be up to our $100 price in (FCX) because I saw a report today saying that by 2028 EVs will be 33% of the total US car market. Every one of those EVs needs 200 lbs of copper, so you do the math.
Q: Is the price of oil declining because of lack of demand, or because investors are predicting a recession?
A: They are on in the same. It’s definitely recession fears that’s causing oil to peak out, and those will probably continue for a couple more months. By the way, gasoline isn’t just an oil supply problem; it’s also a refining problem because the Koch brothers have moved a big chunk of their refining to Mexico to avoid environmental controls, and as a result, we don’t have refineries in the US anymore. Many of them shut down here during the pandemic and then reopened in Mexico.
Q: Any thoughts about Japan’s currency in freefall, and is this the path of all currencies in the future?
A: Japan is in a unique situation because unlike any central bank in the world, the bank of Japan is continuing to buy bonds and flood the system with liquidity while everybody else in the world is tightening. That is crushing the Japanese currency, and they show no sign of stopping that any time soon. They seem unable to change monetary policy in Japan—it’s the same monetary policy they’ve had for 32 years: flooding the system with free money, which has worked so well. I know a lot of people who are short Yen; I missed it because I was busy with so many other better trades.
Q: Would you invest in California real estate right now, like in Palm Springs for an Airbnb rental?
A: No, you never want to buy real estate one month into a real estate correction, which could go on for a year or two (or until the Fed starts to lower interest rates again, which could be in a couple of years.) And Airbnb, particularly in towns like Palm Springs, is placing all kinds of restrictions on Airbnb to keep short term renters out of town due to a really bad habit of having wild parties, destroying the properties, shootings, and other stuff that happen on Airbnb’s. The same is true in Incline Village—they now have a 30-day minimum rental requirement to clamp down on the Airbnb business. And, by the way, Airbnb will completely change the character of a neighborhood. I’ve seen it happen in cities like Florence, Italy.
Q: When should I pull the trigger on Meta Platforms Inc. (META), formerly known as Facebook?
A: Probably not for a couple of years. The whole metaverse idea is something where profits are very far in the future.
Q: When is the next inflationary panic?
A: July 13. 8:30 am EST is when the next CPI number is released, and our entire portfolio (we now have 7 positions) expires 2 days later. How about that for timing?
Q: Do you own stock, or do mostly LEAPS?
A: I do mostly LEAPS because I like the 10 to 1 leverage, and I’m almost always right on the name picks. It’s like printing free money.
Q: Should we buy puts on oil?
A: That’s something we talked about 3 weeks ago, and I said to go for the $80 out of money puts. If you did, you easily doubled your money on those. Now, not so much. Don’t think about doing trades after they worked.
Q: What are your thoughts on Airbnb Inc. (ABNB) stock?
A: Love it for the long term, great company, incredibly well-managed, it’s become the world’s largest hotel, and it’s a great place to stay. You get a whole house for the price of a hotel room.
Q: What was the junk bond symbol?
A: There were two of them: (JNK) and (HYG). The yields on these are now up around 7%.
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 12 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 Technology Letter
June 22, 2022
Fiat Lux
Featured Trade:
(EARNINGS REVISION IN THE PIPELINE)
(SARK), (ARKK), (AAPL), (UBER), (LYFT)
“We could have a couple of negative quarters” – uttered Federal Reserve Bank of Philadelphia President Patrick Harker.
We badly needed to hear that, because the jargon we’ve been offered so far from federal representatives has not been honest enough.
Ironically enough, saying the truth could offer relief to the Nasdaq index as pricing in a recession moves us along, but that doesn’t mean we are out of the woods yet.
Harker also said it is possible the U.S. economy might see a modest contraction in growth, but he expects the job market to remain strong.
Let me translate that for you.
Harker expects a soft recession, and he feels that it is increasingly priced into stocks.
However, the Nasdaq isn’t priced for a hard recession today, which could be the potential driving force for another dip in the index.
Adding some validation to a possible leg lower is that one of the biggest dip buyers out there, Blackrock (BLK), has said that it is not buying the dip in stocks, as valuations haven’t really improved.
Maybe they are targeting more single-family homes!
To get a real reversal of momentum, we will need not only big stocks like Apple to participate, but also the big buyers.
Don’t look at the Saudi’s either, they are busy earnings $2 billion a day selling oil.
From behind the scenes talks, there is still the hush hush feeling that positioning indicates that we are in for a sharp V-shaped rebound.
How do I know this?
Tech earnings still have a highly optimistic tinge to them, and lower inflation is built into earnings’ calculations.
Don’t forget that many garden-variety tech CFOs built low inflation into their 2nd half of the year revenue models.
Inflation, according to them, is supposed to subside triggering earnings’ beats around the pantheon of great tech companies.
This is what is supposed to happen if consensus plays out.
It rarely does.
Adding fuel to the fire is a proposed federal gas tax holiday by the current administration which is extraordinarily inflationary even if it does help marginal tech companies like Uber (UBER) and Lyft (LYFT) in the short run.
A tax holiday will destroy oil capacity by disincentivizing oil companies in capital investments.
Supply will also crash by encouraging gas hoarding by clever consumers and CEOs hellbent on taking advantage of this brief tax holiday.
The 800-pound gorilla in the room is clearly China.
Imagine if the Communists finally start to peel back their dystopian arbitrary lockdowns and what that will do for rampant inflation.
Pork prices will rise 25% and more importantly oil prices will revisit the peak we had from the on set of the military event East of Poland.
All of this matters for tech companies that consummate contracts for chips, parts, pay salaries to inflationary traumatized coders and build computers.
The conundrum here is that CFOs and CEOs might be guilty of being too positive in regard to the economic cycle.
Consensus estimates (IBES data by Refinitiv) still show very healthy levels of earnings growth. S&P 500 earnings per share for 2022 remain at +10.8%, but the expectations for 2023 continue to reflect a probably optimistic +8.1% growth, with revenues up 4%.
This is ridiculously overly optimistic and isn’t in tune to the realities on the ground.
It is highly plausible we will experience another bear market rally in tech only to be reminded by upcoming earnings’ revisions that there’s still multiple contractions that needs to be rammed down our throat.
Tech stocks will be the most volatile during this period and traders looking for the best bang for a buck should look at smaller positions but in higher beta names like Tuttle Capital Short Innovation ETF (SARK) for the post-bear market rally and ARK Innovation ETF (ARKK) for the current bear market rally.
It’ll be interesting to see if stocks like Apple (AAPL) can eclipse their previous bear market rally peak of $151.
Apple stands at $138, and I presume with these lower gas prices, it should eke out at least $145 before another acid test.
“If you really look closely, most overnight successes took a long time.” – Said Co-Founder and Former CEO of Apple Steve Jobs
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
June 22, 2022
Fiat Lux
Featured Trade:
(WHICH IS THE CHEAPEST US STATE?)
Everyone knows that California is the most expensive state in which to live in the country. During the pandemic, you could do something about it, thanks to Zoom (ZM), which allows you to work from any place, anytime.
That has given rise to one of the newest concepts in the jobs and real estate market known as “Interstate Arbitrage.”
It’s really very simple. Get an online job in an expensive state where you can work online but live in a bargain basement state. Your savings will explode beyond all imagination.
This is especially important to Millennials early on the savings curve who look at real estate prices on the coasts and blanche. A cozy two-bedroom in San Francisco’s posh Pacific Heights? How about $5,000 a month for rent alone!
Of course, we all know the highest paying states; California, New York, and Washington. These all have punitive state taxes on top of high-end federal taxes, like California’s 13% rate, with millionaire surcharges on top of this. Add it all up and state and federal taxes come to a backbreaking 52% a year.
On the other hand, some nine US states have no tax at all, including Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.
Mississippi has the cheapest housing in the US at 55% the cost of California housing, followed by Alabama, Arkansas, and West Virginia at 60%.
The best place to fix stuff is in Alabama, Mississippi, and Tennessee, which is 16.6% cheaper than California. Nevada is 10.5% cheaper to buy goods. The discount is less here thanks to the proliferation of large national retail chains.
Add it all up and the cheapest state to live in is Arkansas at a 27.7% discount to CA, followed by Alabama t 26.3% and West Virginia at 25.2%.
Companies have gotten wise to “Interstate Arbitrage” and are demanding part of the action in the form of big pay cuts for distant employees. They love the cut in overhead expenses and didn’t like those nerds in their offices so much anyway.
Employees are fighting back by not actually disclosing that they put down stakes in New Hampshire, Wyoming, or Nevada. Warning: Your iPhone can bust you at any time, recording your exact location 24/7.
It’s becoming a big issue as up to 30% of stay-at-home workers are never expected to come back to the office. It partly explains why shares of these mostly tech companies have been on such a meteoric tear for the past nine months.
If you like Interstate Arbitrage, you will absolutely love international career arbitrage. You can live like a prince in Budapest for $1,000 a month, and like a king in Monte Negro for $750, or Malaysia for $500.
Riga in Latvia has become a major European tech hub and even offers a technology visa for transplanted Americans. And their broadband is better than found in most US states.
I guess you can get used to eating grits, rooting for the Razorbacks, and enjoying the Apple blossom, the state flower of Arkansas. Chances are that the equity in your California home alone will allow you to purchase a much larger home in “The Natural State” for all cash.
I have to tread lightly here because I already have many subscribers in Arkansas, the birthplace of Bill Clinton.
But you get what you pay for. It’s a good rule of thumb that the less you pay in state taxes, the worse the education system. If your kids have already grown up, it’s not an issue, as long as you don’t mind talking to stupid people every day.
Of course, those who live in the Golden State say it is worth the price, with its balmy climate, diversity of recreation opportunists, fabulous beaches, majestic mountains, and incredible rate of innovation.
It’s much better to pay high taxes on a $10 million annual income, entirely possible at a big tech company than low taxes on a $50,000 job.
As for me, I think I’ll work a little harder and keep those incredible Pacific sunsets and fantastic Dungeness crabs, sourdough bread, and Anchor Steam Beer.
To find where your state ranks on a number of parameters, please visit the interactive map by clicking here.
It’s California for Me
Mad Hedge Biotech and Healthcare Letter
June 21, 2022
Fiat Lux
Featured Trade:
(A POTENTIAL ONE-STOP-SHOP IN THE CANCER MARKET)
(SEGN), (MRK), (PFE), (ABBV), (JNJ)
