“There is always more money than there are good ideas,” said my friend, venture capital investor Hubert Senters of Trade Thirsty.
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.
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.
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
Global Market Comments
May 25, 2023
Fiat Lux
Featured Trades:
(THEY’RE NOT MAKING AMERICANS ANYMORE)
CLICK HERE to download today's position sheet.
You can count on a bear market hitting sometime in 2038, one falling by at least 40%.
Worse, there is almost a guarantee that a financial crisis, severe real estate crash, and possibly another Great Depression will take place no later than 2058 that would take the major indexes down by 50% or more.
No, I have not taken to using an Ouija board, reading tea leaves, or examining animal entrails in order to predict the future.
I simply read the data just released from the National Center for Health Statistics, a subsidiary of the federal Centers for Disease Control and Prevention (click here for their link).
The government agency reported that the US birth rate fell to a new all-time low for the second year in a row, to 11 births per 1,000 women of childbearing age. A birth rate of 125 per 1,000 is necessary for a population to break even. The absolute number of births is 3,664,292, the lowest since 1987. In 2021, women had 37% fewer babies than in 2007.
These are the lowest number since WWII, when 17 million men were away in the military, a crucial part of the equation.
Babies grow up, at least most of them. In 20 years, they become consumers, earning wages, buying things, paying taxes, and generally contributing to economic growth.
In 45 years, they do so quite substantially, becoming the major drivers of the economy as “peak spenders”. When these numbers fall, recessions and bear markets occur with absolute certainty.
You have long heard me talk about the coming “Golden Age” of the 2020s. That’s when a two-decade-long demographic tailwind ensues because the number of “peak spenders’ in the economy starts to balloon to generational highs. The last time this happened was during the 1980s and in 19990’s stocks rose 20-fold.
Right now we are just coming out of two decades of demographic headwind, when the number of big spenders in the economy reached a low ebb. This was the cause of the Great Recession, the stock market crash, and the anemic 2% annual growth since then.
The reasons for the maternity ward slowdown are many. The great recession certainly blew a hole in the family plans of many Millennials. So did the pandemic. Falling incomes always lead to lower birth rates, with many Millennial couples delaying children by five years or more. Millennial mothers are now having children later than at any time in history.
Burgeoning student debt, which just topped $1.7 trillion is another. Many prospective mothers would rather get out from under substantial debt before they add to the population. So is a structural shortage of housing.
The rising education of women is another drag on childbearing and is a global trend. When spouses become serious wage earners, families inevitably shrink. Husbands would rather take the money and improve their lifestyles than have more kids to feed.
Women are also delaying having children to postpone the “pay gaps” that always kick in after they take maternity leave. Many are pegging income targets before they entertain starting families.
As a result of these trends, one in five children last year were born to women over the age of 35, a new high.
This is how Latin American moved from eight to two-child families in only one generation. The same is about to take place in Africa, where standards of living are rising rapidly, thanks to the eradication of several serious diseases.
The sharpest falls in the US have been with minorities. Since 2017, the birthrates for Hispanics has dropped by 27% from a very high level, African Americans 11%, whites 5%, and Asian 4%.
Europe has long had the same problem with plunging growth rates but only much worse. Historically the US has made up for the shortfall with immigration, but that is now falling thanks to the current administration's policies. Restricting immigration now is a guarantee of slowing economic growth in the future. It’s just a numbers game.
So watch that growth rate. When it starts to tick up again it’s time to buy….in about 20 years. I’ll be there to remind you of this newsletter.
As for me, I’ve been doing my part. I have five kids aged 17-36, and my life is only half over. Where did you say they keep the Pampers?
I'm Doing My Part
Global Market Comments
May 24, 2023
Fiat Lux
Featured Trades:
(JULY 19 LONDON STRATEGY LUNCHEON)
(TESTING TESLA’S SELF-DRIVING TECHNOLOGY),
(TSLA)
(TESTIMONIAL)
CLICK HERE to download today's position sheet.
I knew I was on the right track when the salesman told me that the customer who just preceded me for a Tesla Model X P100D SUV was the Golden Bay Warriors star basketball player, Steph Currie.
Well, if it’s good enough for Steph, then it’s good enough for me.
Last week, I received a call from Elon Musk’s office to test the company’s self-driving technology embedded in their new vehicles for readers of the Diary of a Mad Hedge Fund Trader.
I did, and prepare to have your mind blown!
I was driving at 80 MPH on CA-24, a windy eight-lane freeway that snakes its way through the East San Francisco Bay Area mountains. Suddenly the salesman reached over and flicked a lever on the left side of the driving column.
The car took over!
There it was, winding and turning along every curve, perfectly centered in the lane. As much as I hated to admit it, the car drove better than I ever could. It does especially well at night or in fog, a valuable asset for senior citizens whose night vision is fading fast.
All that was required was for me to touch the steering wheel every two minutes to prove that I was not sleeping.
The cars do especially well in rush hour driving, as it is adept at stop-and-go traffic. You can just sit there and work on your laptop, read a book, or watch a movie on the built-in 4G WIFI HD TV.
When we returned to the garage, the car really showed off. When we passed a parking space, another button was pushed, and we perfectly backed 90 degrees into a parking space, measuring and calculating all the way.
The range is 290 miles, which I can recharge at home at night from a standard 220-volt socket in my garage in seven hours. When driving to Lake Tahoe, I can stop halfway at get a full charge in 30 minutes. The new chargers operate at a blazing 450 miles per hour.
The chassis can rise as high as eight inches off the ground so it can function as a true SUV.
The “ludicrous mode,” a $10,000 option, takes you from 0 to 60 mph in 2.9. However, even a standard Tesla can accelerate so fast that it will make the average passenger carsick.
Here’s the buzz kill.
Tesla absolutely charges through the nose for extras.
The 22-inch wheels, the third row of seats to get you to seven passengers, the premium sound, the leather seats, and the self-driving software can run you $15,000.
A $750 tow hitch will accommodate a ski or back rack on the back. There is a $1,000 delivery charge, even if you pick it up at the Fremont factory.
It’s easy to see how you can jump from an $84,990 base price to a total cost of $162,500, including taxes, for the ultra-luxury Performance model, as I did.
My company will be purchasing the car under Section 179 of the International Revenue Code. The car qualifies because it weighs over 6,000 pounds and is therefore a truck under the new tax law.
This allows me to deduct the entire $162,500 cost of the vehicle upfront, plus the maintenance and insurance costs for the entire life of the car. However, I will have to maintain a mileage log as a hedge against any future IRS audits.
Ironically, Section 179 was enacted as a subsidy for consumer purchases of the eight miles-per-gallon Hummer, which was originally built by AM General and owned by General Motors (GM).
After several attempts to sell, the division failed, and production was permanently shut down. However, the tax subsidies live on for any like-designed vehicle.
It looks like I’ll have to buy two Teslas this year.
With 4 million Teslas now on the road, a few flaws have come through. The big one is “ghost braking”, where the car suddenly stops for no apparent reason. It appears that when a Tesla in, say, Florida turns right, the Tesla in California will see that car as immediately in front of it and slow down.
I’ve been telling Tesla this may be a byproduct of running the largest AI neural net ever built. Musk may be moving beyond the known physics of electrons without knowing about it. As long as you know about it, you just tap the brakes to turn off the self-driving, then turn it back on.
As for “drop dead’ curb appeal, nothing beats the Model X. Buy the stock on every 20% dip.
It’s another way of saying “buy the shares and you get the car for free.”
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Going to renew my membership today because you provide great ideas. I think you have a lot of integrity in your messages. We may not agree politically, but you have nailed many of the concepts you shepherd. I have become a fan and look forward to your writing every day.
Don,
Cleveland, Ohio
I'm Such a Saint!
"I know not with what weapons World War III will be fought, but World War IV will be fought with sticks and stones," said Nobel Prize winner Albert Einstein.