May 2023

May 30, 2023

(MAY 24, 2023 WEBINAR SUMMARY – BIG TECH MELT UP)

May 30, 2023

Hello everyone.

Lunches:
July 6, 2023, New York
July 13, 2023, Seminar at Sea (Aboard the Queen Mary)
July 19, 2023, London (walking distance from Piccadilly in a private military club)

Performance:
May – 2.70% MTD
64.24% so far this year
113.84% trailing one-year return.

Positions:
Short Strangle
Risk on (TSLA) 6/120-130 call spread (idea here is belief it won’t go below 130)
Risk off (TSLA) 6/210-220 put spread (idea here is belief it won’t go above 210)

Now 80% cash. 41-44 positions have made money.

Method to My Madness

The debt ceiling drama has frozen all markets. Lower volatility has managed to recover to $21.

Bond yields have jumped to 3.75%.

Markets are flashing red = reduce risk-taking.

Trading volumes are down.

Summer will be the time to buy.

Put precious metals and commodities at the top of the list.

If there is a default, there may be a 50% stock market correction.

The follow-up would be that it would get defaulted in days.

AI will take the DOW average from 36,000 to 240,000 over the next 10 years.
AI will automatically triple the value of any company now using it even though it may take years for the stock market to catch up. Of course, regular earnings growth will be a boost here also.

NVDA goes up seven times from here to well over $1000.
Mad Hedge recommended NVDA on a split adjusted basis around $20.

Global Economy – Rolling over.
CPI hits 4.9% YOY after the 0.40% report for April.
Leading economic indicators gave up 0.6% in April, to 107.5 (2016 is the baseline at 100) as rolling over economic data heightens recession risks.
Philadelphia Fed Manufacturing Index collapses, down from 20 to 10.5, approaching a three-year low.
Retail sales drop 0.4% in April.

Market Timing Index at high-risk territory.
Risk at 7 months high.
DO NOT BUY here.

Weekly Jobless claims are falling.

Stocks

There is a 1,000-point drop in the market waiting to happen. And that happens when the market rallies on a Biden McCarthy debt ceiling deal, which McCarthy’s own party then votes down.

Equity allocations are at 15-year lows, with massive amounts of cash in 90 days T-bills. Look for money to pour into stocks in the second half.

Insiders are loading the boat with regional bank shares.

First Solar rockets 26% on an easing of U.S. Treasury rules on what defines “Made in America.”

FANGS to rise 50% by year-end, says Fund Strat’s ultra-bull Tom Lee.

All charts on tech shares are looking the same.

In the following list of stocks two-year LEAPS are a possible play at these prices.

UPS United Parcel Service
CAT Caterpillar
FCX Freeport McMoran
DIS Disney
X United States Steel Corporation
UNP Union Pacific
AMGN Amgen
GS Goldman Sachs
MS Morgan Stanley
BAC Bank of America
SCHW Schwab
BLK Blackrock
BRKB Berkshire Hathaway -buy on any dips – it’s a long-term play.

Bonds
Waiting for a capitulation sell-off in the TLT which will be triggered by inaction in Washington.

When a deal is done, it will unleash a new onslaught of bond selling by Treasury – now limited by the old debt ceiling and lower lows on bonds.

Rising interest payments by Treasury = less money to pay other bills and earlier debt ceiling deadline.

If TLT hits $95 we will be issuing recommendations for call spreads and LEAPS.

Treasury to issue $700 billion in T-bills within weeks of a debt ceiling deal, pushing short-term yield ups. The question is with a TLT at a $100 handle, a 2023 low, how much is already in the price?

Keep buying 90-day T-bills, now pushing a 5.2% risk-free yield.

Junk Bond ETFs are great high-yield plays (JNK) and (HYG).

Buy SDS for protection against long-term positions.

Foreign Currencies
Expect the dollar to fade soon. Dollar sell-off will accelerate on any debt default. Any strength in the dollar will be temporary. New lows by end of 2023.
Buy FXE, FXY, FXB, and FXA on dips.

Energy and Commodities
The Oil Collapse is signaling a recession as is weakness in the other commodities, even lithium.

It has been the worse-performing asset class of 2023.

Buy (USO) on dips on an economic recovery play.

Look for UNG to triple in the next year.
FCX – a golden cross is setting up.

Precious Metals are resting for the moment.
Gold is headed for $3000 by 2024.
Drivers – soon to be falling interest rates and demise of crypto.
Silver is the better play with a higher beta.
Buy GOLD, GDX, SLV, SIL.

Real Estate
This sector is showing signs of life. A tidal wave of millennial buyers is under the market.
Some borrowers are moving to 40-year mortgages to lower monthly payments. New home sales hit 13 months high up 4.1% in April.
Median home prices are down 8.2% YOY.

CCI Crown Castle International 5.4% yield. It’s also a LEAPS candidate at this price.

Wishing you all a great week.

Cheers,

Jacquie

May 29, 2023

Diary, Newsletter, Summary

Global Market Comments
May 29, 2023
Fiat Lux

Special Memorial Day Issue

Featured Trades:

(A TRIBUTE TO A TRUE VETERAN)

CLICK HERE to download today's position sheet.

May 26, 2023

Jacque's Post

(WHAT IS A BUY WRITE AND HOW DO I USE IT)

May 26, 2023

Hello everyone,

Would you like your shares to start working for you? I’m talking about a trading strategy, where your shares pay you. And I‘m not just talking about those dividends you receive.

I’m talking about Buy Writes. Also called covered calls. The investors sell options over a stock held in a portfolio to generate cash and therefore guarantee a modest return from them. The option buyer gets the right to “call away” the fund’s shares if they hit or exceed agreed-upon prices.

So, for the beginner, a buy write is combination of positions where you buy a stock and sell short options on the same stock against the shares at a higher price, usually on a one-to-one basis.

“Writing” is another term for selling short in the options world because you are in effect entering into a binding contract. When you sell short an option you are paid the premium the buyer pays, and the cash sits in your brokerage account accruing interest.

If the stock rallies, remains the same price or rises just short of the strike price you sold short, you get to keep the entire premium.

Most buy writes take place in front-month options and the strike prices are 5 or 10% above the current share price. I’ll give you an example of a 2021 Apple position.

Let’s say you own 100 shares of Apple (AAPL) at $140. You can sell short one August 2021 $150 call for $1.47. You will receive the premium of $147.00 ($1.47 X 100 shares per option). Remember, one option contract is exercisable into 100 shares.

If Apple shares close under $150 at the August 20 option expiration you get to keep the entire premium. If Apple closes over $150 you automatically become short 100 Apple shares. Then you simply instruct your broker to cover your short in the shares with the 100 Apple shares you already have in your account.

Buy writes accomplish several things. Firstly, they reduce risk, pare back the volatility of your portfolio, and bring in extra income. In a nutshell, it will enhance the overall performance of your portfolio.

But how do you know when to pull the trigger on this strategy? If the market is going straight up, you don’t want to touch buy writes with a ten-foot pole as your stock will get called away and you will miss substantial upside.

It’s preferable to skip dividend-paying months, usually March, June, September, and December, to avoid your short option getting called away mid-month by a hedge fund trying to get the dividend on the cheap.

You don’t want to engage in buy writes in bear markets. Whatever you take in with option premium it will be more than offset by losses on your long stock position.

O.K. let’s say you are a very cautious kind of person. Instead of selling short the $150 strike you call sell the $155 strike for less money. Then your risk of a call away drops too.

You can also go much further out in your expiration date to bring in more money. If you go out to the January expiration you will take in more option premium.

Let’s say you are a particularly aggressive trader. You can double your buy write income by doubling your option short sales at the ratio of 2:1. However, if Apple closes above $150 by expiration day you will be naked short 100 shares of Apple.

It may be that you won’t have enough cash in your account to meet the margin call for selling short 100 shares of Apple so you will have to buy the shares in the market immediately. Maybe you should leave that to the professionals.

Hang on. There’s another way to do this.

Instead of buying stock, you can establish your long position with another call option. These are called “vertical bull call debit spreads” and are a regular feature of the Mad Hedge Trade Alert Service. The “vertical” refers to strike prices lined up above each other. The “debit” means you must pay cash for the position instead of getting paid for it.

What about if there was a way to get into the position for free?

You could buy one call option and sell short two call options against it for no cost. The downside is that you go naked short if the share rises above the short strike prices, again triggering a margin call.

One strategy you must love is LEAPS (Long Term Equity Anticipation Securities). Go out with your expiration one to two years. Some investors are purely directional in their options. In other words, they buy a straight call, rather than doing a bull call spread. That’s OK. It’s up to you. I’m just giving you options (sorry for the play on words there).

Wishing you all a happy mid-week.

Cheers,

Jacquie

May 26, 2023

Tech Letter

Mad Hedge Technology Letter
May 26, 2023
Fiat Lux

Featured Trade:

(RIDE THE ELEVATOR UP WITH GENERATIVE AI)
(NVIDA), (FOMO), (APPL), (MSFT), (META), (GOOGL), (AMZN)

Ride the Elevator Up With Generative AI

Tech Letter

Part of these artificial intelligence executives going on record to sound out the problems with AI is mostly to protect themselves if this weird digital experiment goes disastrously wrong.

They have mostly said that AI going rogue is a real possibility and could end mankind.

Obviously, we hope that doesn’t happen.

Much of the tech market gains this year have been because of the technology surrounding AI.

Strip that out and the gains will look paltry.

A good example is Nvidia (NVDA) offering legendary guidance to the demand of their chips because of the need to install them in AI-based technology.

The AI narrative truly has legs – it will be the theme that defines 2023 in technology stocks.

The Big 7 tech stocks will possess explosive qualities to their stock precisely because of this thesis.

Then there is the fear of missing out (FOMO).

Every financial advisor is pitching AI as an investment of a lifetime – something that cannot be missed by their clients.

Therefore, I do expect meteoric legs up in shares of Nvidia, Apple, Microsoft, Tesla, Amazon, Facebook, and Google in 2023.

These 7 stocks dominate the tech market and the generative AI gains will mostly manifest themselves in these 7 tech firms.

Yet there are dangerous concerns that AI could also destroy these companies and the internet which we interface with, because the changes could erode the trust in platforms by populating fake photos like deep fakes.

In Washington speech, Brad Smith calls for steps to ensure people know when a photo or video is generated by AI.

Brad Smith, the president of Microsoft, has said that his biggest concern around artificial intelligence was deep fakes, realistic-looking but false content.

Smith called for steps to ensure that people know when a photo or video is real and when it is generated by AI, potentially for harmful purposes.

For weeks, lawmakers in Washington have struggled with what laws to pass to control AI even as companies large and small have raced to bring increasingly versatile AI to market.

Last week, Sam Altman, CEO of OpenAI, the startup behind ChatGPT, told a Senate panel in his first appearance before Congress that the use of AI interferes with election integrity is a “significant area of concern,” adding that it needs regulation.

Lawmakers need to ensure that safety brakes be put on AI used to control the electric grid, water supply and other critical infrastructure so that humans remain in control.

It’s hard to know what is fake and real these days. Fake photos of politicians getting attacked or fake videos of tigers roaming around freely in Times Square New York look weirdly authentic.

AI is getting so good that nobody knows what is real anymore.

I’m sure some of you saw the recent Tom Cruise deep fake where the fake Tom Cruise is telling the audience that he does a lot of “industrial clean up” along with his own stunts. Honestly, I could not tell it was fake, and most people wouldn’t. It caught me – hook, line, and sinker.

As it stands, ride this generative AI to riches in the short-term, but be aware that this technology could blow up the internet or make the internet unusable because of security and trust reasons.

DEEPFAKES LOOK AND SOUND TOTALLY REAL IN 2023

Quote of the Day - May 26, 2023

Tech Letter

“It's better to be a pirate than to join the Navy.” – Said Co-Founder of Apple Steve Jobs

May 26, 2023

Diary, Newsletter, Summary

Global Market Comments
May 26, 2023
Fiat Lux

Featured Trades:

(MAY 24 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), ($INDU), (NVDA), (TSLA), (AMZN), (TLT), ($VIX), (CCI), (BABA)

CLICK HERE to download today's position sheet.

May 24 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

Below please find subscribers’ Q&A for the May 24 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.

Q: Should I roll over my $55-$60 Freeport-McMoRan (FCX) 2024 LEAPS?

A: Yes, move it from the January 2024 expiration to January 2025—that gives you a full 18 months for the stock to recover from a recession (which it’s now discounting) and then double, which is where you make the really big money on our LEAPS.

Q: What's your year-end price prediction for Freeport-McMoRan (FCX)?

A: $50, this year’s high.

Q: If there’s a default, do members of Congress get paid?

A: No, they don’t, no money is no money, the cupboard is bare. Nothing gets paid. And the Treasury will have to choose who gets paid last because when they run out of money there's no money to pay anybody, which then leads to a default and a 50% stock market correction.

Q: Why do you buy in-the-money bull call spreads instead of selling credit spreads?

A: They’re easier to understand for beginners. It’s easier for people to understand that if you buy something and it goes up, you make money. It’s harder for people to understand that if you sell short something and it goes down, you make money. And it’s basically six of one and half a dozen of the other in terms of profit. I get that question constantly and that is always going to be the answer.

Q: What do you think about artificial intelligence; how will it affect stock prices?

A: It’ll be what takes the Dow average ($INDU) from $32,000 to $240,000 over the next 10 years. What AI does is it automatically triples the value of any company using it, even though now it may take years for the stock market to catch up. On top of that, companies will have their regular earnings growth from their traditional businesses.

Q: How far will Nvidia (NVDA) stock go up?

A: Well the consensus between fund managers is it goes up 7 times from here, to well over 1,000. It's at 300 today, so it sounds like 2,100 is the final target, assuming we don't have any more recessions. And by the way, we did recommend NVDA on a split adjusted basis around $2, so NVDA has gone up 175 times already from our initial recommendation 7 years ago when it was just a gaming play. The (NVDA) January 2025 LEAPS I recommended on September 29 at 50 cents is now worth $6.25 and expires worth $10, up 20-fold!

Q: How can companies be selling AI prediction services for traders, as no one can predict the future?

A: Well that is accurate, no one person can predict the future. However, algorithms can take patterns in the past, project them in the future, and they're often accurate as long as a black swan doesn’t happen. AI is getting so sophisticated now—not only do we have index predictions which we’ve been using now for almost 10 years to great success, but Mad Hedge is now services with single stock recommendations. They will say in 30 days (AMZN) will be at $X, and they’re right 90% of the time. This is getting very advanced very quickly, and we are at the absolute cutting edge of this (and have been for a long time), and that’s why we’re getting such spectacular results—it's me plus my algorithm.

Q: Are money market funds at risk if the US defaults?

A: If the US defaults and stays defaulted, then yes. Nothing anywhere is safe except gold bricks under the bed. If the US does default, they’ll get defaulted probably in days. And that's what happened last time, 12 years ago. So, I don't expect the world to end.

Q: What is the best strategy for a long-term retirement account?

A: If you're already retired like over 70, I would go 100% into fixed income, and spread out your fixed income exposure to 10-year treasuries which is now yielding 3.75%, to junk which is yielding 8.5%. And you might throw in a couple high dividend stocks like (CCI). Over age 70 you basically are looking for a 100% income portfolio, because you’re too old to go back to work at Taco Bell if you lose all your money. And believe me, I’ve been to Taco Bell and seen the 70-year-olds working there who did lose all their money, so you don’t want to do that. Equities are for younger kids like me, who are going to live forever.

Q: What about iShares 20 Plus Year Treasury Bond ETF (TLT)?

A: We’re watching very closely. We will do LEAPS, but I’m waiting for a capitulation selloff triggered by inaction in Washington to get there. Also, when they do reach a deal, it unleashes a bunch of bond selling by the government. The US Treasury is going to have to sell 700 billion dollars’ worth of bonds immediately, because they’re behind on their bills, how about that? They’re not paying military contractors. So yes, the initial move of a debt deal could be down for bonds—that's the move I'm waiting for.

Q: Are you buying at the money’s or out of the moneys on LEAPS?

A: At the money if you’re a conservative old fogie like me, and out of the money like 20% or 30% where you get like a 400% return for younger people so they still will live long enough to earn back all the money if they lose it.

Q: What do you think the next move on CBOE Volatility Index ($VIX) is?

A: Up, and I think we could see VIX at $30 sometime in June or July when our 10% selloff happens.

Q: Would you buy the ProShares UltraShort S&P 500 (SDS) now for protection?

A: Yes, I’d be buying some as a hedge against your long-term positions.

Q: Do you prefer one or two year LEAPS?

A: Two years is the more conservative maturity because it gives you two years to go into recession and get back out. If you think there isn’t going to be a recession and we reaccelerate from here, then you only want to do one year. With Treasuries bonds, I’m inclined to do one year because I think once the rise in prices happens it’ll happen very quickly. If you’re not happy with a 100% return in a year maybe you should consider another line of business.

Q: Is the housing market going to crash because of 7% mortgage rates?

A: No, one third of all the buyers now are cash buyers, who are spending their savings and will refinance when mortgages get back to 3% or 4%. Until then, housing prices go sideways because there is a severe shortage of housing nationwide, which is getting worse.

Q: How do I get my wife used to regenerative braking in Tesla (TSLA)?

A: Just take your foot off the acceleration pedal; as the car slows down, each of the four wheels perform as generators and recharge the battery. That means when you drive from Lake Tahoe at 7,000 ft down to the Central Valley at sea level, your power consumption is zero. You’re getting a free ride because you’re gravity powered, the wheels are recharging the battery the whole time. All you have to do is take your foot off the acceleration and the regenerative braking kicks in instantly. Teslas only use actual use brake shoes when they slowdown from five miles an hour down to zero.

Q: Which level is more likely this year in oil: $50 a barrel or $100?

A: Well, if we do get the recession or something close to it, we’ll see the $50 first, and then we’ll see the $100 on the recovery. That is what’s going to happen.

Q: When is the economic recovery going to be this year?

A: In the 4th quarter, starting in October, and the stock market will start discounting that in July or August. That is my view.

Q: What’s a better investment: stocks or real estate?

A: It depends on the person. At this level, stocks will probably deliver bigger returns than real estate. But real estate allows you 5-1 leverage. If you have an 80% mortgage, and that’s more leverage than most people can get in the stock market. The other thing about homes is that you don’t get to see the price every day in the newspaper and then panic and sell at the bottom. That's the other great thing about houses.

Q: Will this recording be available?

A: Yes we post it in about two hours on the website. You can look at all the charts and the commentary then.

Q: How would you hedge a 100% equity portfolio?

A: I would buy deep out of the money puts on the S&P 500, maybe 10% out of the money on puts—something like a 360 put on the SPY with a 2 month maturity. That gets you through the summer, gets you through any debt crisis, and certainly will reduce the volatility of your portfolio.

Q: Would you be buying Alibaba (BABA) down here?

A: No, I don’t want to get involved in China in anything—too much political risk.

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 or TECHNOLOGY LETTER, 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

A Senior Citizen Teach Me the Computer at Taco Bell

May 25, 2023

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
May 25, 2023
Fiat Lux

Featured Trade:

(SLOW AND STEADY GROWTH IN HEALTHCARE)
(ABT), (MDT)

Slow and Steady Growth in Healthcare

Biotech Letter

In 2017, Abbott Laboratories (ABT) emerged as one of the prime examples of quality deserving a price.

Back then, Abbott was demonstrating solid organic growth, achieving success with new product approvals, and reaping the rewards of strategic acquisitions.

The company excelled at capital allocation and managed a diverse range of operations, successfully avoiding the conglomerate discount.

During that period, Abbott was also engaged in reshuffling its portfolio. It had recently completed the acquisition of Alere, shortly after sealing the deal for St. Jude Medical, a cardiovascular device manufacturer, in a substantial $30 billion transaction. These moves were partially offset by smaller divestments.

With the impact of the St. Jude deal evident in the 2017 results, Abbott was on track to achieve $28 billion in sales.

The medical device segment, bolstered by the St. Jude Medical acquisition, led the way with $10 billion in revenue.

Additionally, Abbott boasted a $7 billion nutrition business, a $5 billion diagnostics business, and a nearly equal-sized pharmaceutical business, forming a comprehensive and robust enterprise.

In 2022 alone, Abbott raked in $43.7 billion in sales, reaping a net income of $6.9 billion. The company's product offerings span an array of diagnostic tests, surgical tools, medical nutrition products, and even medical devices like glucose monitors.

With consistent demand for these essential goods year after year, Abbott has witnessed slow but steady growth as the healthcare sector expands. Over the past decade, its annual free cash flow (FCF) has averaged a commendable 11.5% growth, culminating in a remarkable $7.8 billion in FCF for 2022.

Now, Abbott is turning its sights into something else.

The company, eager to outpace its rivals in the leadless pacemaker race, is aiming for a groundbreaking achievement: FDA approval for a dual-chamber version of its innovative technology.

While Medtronic (MDT) took the lead in 2016, Abbott is now surging ahead and recently submitted its trial results to the FDA for approval.

Unlike traditional pacemakers, Abbott’s miniaturized leadless versions are implanted directly into the heart, emitting electrical pulses to maintain a steady rhythm.

Abbott's Aveir DR system, smaller than a AAA battery, is placed using a minimally invasive, catheter-based procedure.

What makes Abbott's technology truly unique is its dual-chamber approach. While existing leadless pacemakers are single-chambered, Abbott's Aveir DR system utilizes two pacemakers implanted in the right ventricle and right atrium. These pacemakers work harmoniously through Abbott's wireless implant-to-implant (i2i) technology, delivering synchronized stimulation beat by beat to the heart's specific sections.

Abbott's Aveir DR system has showcased remarkable success in the study, meeting all safety and efficacy endpoints.

With over 98% successful implants and a complication-free threshold reached after three months, the system has proven its safety.

On the efficacy front, more than 97% of participants achieved atrioventricular synchrony within the study period, indicating normal functioning of both upper and lower heart chambers.

Even as participants changed postures and walking speeds, the system maintained a synchrony rate of around 95%, ensuring consistent performance during everyday activities.

Abbott's relentless pursuit of a dual-chamber leadless pacemaker sets it apart in the industry, pushing the boundaries of cardiac technology and paving the way for an exciting future in pacemaker advancements.

Overall, Abbott stands out as a rock-solid investment, and part of its appeal lies in the indispensability of its products to many customers.

Think about it—without Abbott's stents, operating rooms would grind to a halt. That's the kind of recurring revenue that instills confidence in its stability and longevity.

Moreover, Abbott has built a reputation for consistently rewarding its shareholders.

Considering the company's robust growth in free cash flow, it's reasonable to expect that Abbott will continue its upward trajectory. This, coupled with its steady earnings growth, positions it as an exceptional long-term stock for any investor's portfolio.

abbott