Global Market Comments
October 13, 2022
Fiat Lux
Featured Trade:
(BUY the JP Morgan (JPM) January 2025 $175-$180 out-of-the-money
vertical Bull Call spread LEAPS at $0.50 or best)
Opening Trade
10-13-2022
expiration date: January 17, 2025
Number of Contracts = 1 contract
JP Morgan Chase is now trading at a price earnings multiple of only 8X, lower than the worst days of the pandemic low and the 2009 crash low. In order words (JPM) is the cheapest that it has been this century.
The banking sector has been beaten like the proverbial red-headed stepchild this year. However, it should be at the core of any long-term LEAPS portfolio.
The best time to pick up this position will be during a market meltdown day when the (SPX) is trading under $3,500 and the Volatility Index is over $34.
If you are looking for a lottery ticket, then here is a lottery ticket.
While the chance of winning a real lottery is something like a million to one, this one is more like 2:1 in your favor. And the payoff is 12:1. That is the probability that JP Morgan shares will double over the next two years and four months.
(JPM) is the class act in the global banking sector, and CEO Jamie Diamond is the best CEO in the country. Not only that, with rocketing interest rates, we are just entering the golden age of the banking sector.
I believe that massive government borrowing and spending will drive US interest rates up through the roof. Banks love high interest rates because they vastly improve profit margins.
And here is the sweet spot. Fears of a recession increasing loan default rates have knocked $66, or 39% off the $170 high in (JPM) shares this year. We are now only $20 above the 2020 pandemic low. When recession fears fade in 2023, interest rates will still remain historically high and (JPM) profits and share price should rocket.
To learn more about the company, please visit their website at https://www.jpmorganchase.com.
I am therefore buying the JP Morgan (JPM) January 2025 $175-$180 out-of-the-money vertical Bull Call spread LEAPS at $0.50 or best.
Don’t pay more than $1.00 or you’ll be chasing on a risk/reward basis.
January 2025 is the longest expiration currently listed. Please note that these options are illiquid, and it may take some work to get in or out. Executing these trades is more an art than a science.
Let’s say the JP Morgan (JPM) January 2025 $175-$180 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $0.50-$1.50, which is typical. Enter an order for one contract at $0.50, another for $0.60, another for $0.70, and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.
Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious but getting screwed by overpaying for a position is even more tedious.
Look at the math below and you will see that a 73% rise in (JPM) shares will generate a 900% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 12:1 across the $175-$180 space.
(NVDA) doesn’t even have to get to a new all-time high to make the max profit. It only has to get back to $180, $10 higher than it traded last March.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it.
This is a bet that JP Morgan will not fall below $180 by the January 17, 2025 options expiration in 2 years and 3 months.
Here are the specific trades you need to execute this position:
Buy 1 January 2025 (JPM) $175 calls at………….………$3.00
Sell short 1 January 2025 (JPM) $180 calls at…………$2.50
Net Cost:………………………….………..………......….….....$0.50
Potential Profit: $5.00 - $0.50 = $4.50
(1 X 100 X $4.50) = $450 or 900% in 2 years and 3 months
If you are uncertain on how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
Global Market Comments
October 12, 2022
Fiat Lux
Featured Trade:
(I STILL HAVE AN OPENING FOR THE MAD HEDGE FUND TRADER CONCIERGE SERVICE)
I seem to have a recurring problem.
People make so much money from my concierge service that they retire early, and I never hear from them again.
September was particularly egregious because we went into the last crash with 100% cash and then nailed the bottom 100% fully invested.
That trade brought my 2022 year-to-date performance to +72.93%, a new high. The Dow Average is down -22% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +81.35%.
As a result, I still have one remaining Mad Hedge Concierge place open. I limit the service to only ten clients at any one time.
The goal is to provide high-net-worth individuals with the extra degree of assistance they may require in managing diversified portfolios. Tax, political, and economic issues will all be covered.
It is also the ideal service for the small and medium-sized hedge fund that lacks the resources to support their own in-house global strategist full time.
The service includes the following:
1) Emergency access to John Thomas 24/7 through his personal cell phone number so he can act as your investment 911.
2) A risk analysis of your own personal portfolio with the goal of focusing your investment in the highest return sectors for the long term.
3) A monthly phone call from John Thomas to update you on the current state of play in the global financial markets.
4) Personal meetings with John Thomas anywhere in the world once a year to continue our in-depth discussions, ever the pandemic ends.
5) Early releases of strategy letters and urgent trading information.
6) More detailed recommendations on LEAPS, or two-year call options on the best high-growth names.
7) Access to a dedicated Concierge website listing complete All LEAPS investment portfolios.
The cost for this highly personalized, bespoke service is $12,000 a year.
To best take advantage of my Mad Hedge Fund Trader Concierge Service, you should possess the following:
1) Be an existing subscriber of the Mad Hedge Fund Trader who is already well aware of our strengths and limitations.
2) Have a liquid net worth of over $250,000.
3) Possess a degree of knowledge and sophistication of financial markets. This is NOT for beginners.
To subscribe to Mad Hedge Fund Trader Concierge Service, please email Filomena at customer support at support@madhedgefundtrader.com. Please put “Concierge Candidate” in the subject line.
I look forward to hearing from you.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Dear Major Thomas,
Congratulations on your appointment.
I absolutely loved and was fascinated with the latest concierge information. I remember discussing this with you on the phone a month and a half ago and to watch it become reality and read what is happening is a level of involvement that normally I would not be party to.
Of course, it helps make BETTER commercial and personal decisions--- for which I am grateful and thankful.
It is so great that your expertise has been not just noticed and appreciated by the American government--- but that they are actually listening and acting–– Thank you from all of us
Rodney
Sydney, Australia
Global Market Comments
October 11, 2022
Fiat Lux
Featured Trade:
(DINNER WITH BEN BERNANKE)
You would never guess Dr. Ben Bernanke was once one of the most powerful men in the world, indeed in all of human history.
There he sat across the table from me in a popular San Francisco Italian restaurant wearing a poorly made grey suit and a cheap pair of shoes, with rubber soles.
Only the occasional interruption from an autograph seeker belied his true importance.
I managed to snare Ben for a couple of hours on his national book tour promoting his just released “The Courage to Act.” Out only days, it was already at the top of the New York Times Best Seller list.
Ben is a different guy now. For a start, you can now call him “Ben” instead of “Governor.”
Remember those carefully parsed, measured, and deliberate words he used to use to explain Federal Reserve monetary policy and his future intentions? That guy is long gone.
The new Ben is funny in a subtle but wickedly clever manner. He is also instructional, thoughtful, even professorial. At the end of the day, Ben Bernanke is now your favorite university faculty member.
Ben’s big revelation to me was that there were no potential triggers out there for another 2008-09 type financial crisis.
American banks have been recapitalized to the extent that they now have a stronger safety net with which to weather any future volatility. US banks are bigger and more profitable than ever.
The big global concern right now is with emerging markets, where trillions of dollars worth of US dollar-denominated debt have been borrowed, collateralized by depreciating local currencies.
Another worry is the perceived “Fed put,” which allowed investors to get complacent with their risk-taking, at least until 2021.
Bernanke believes that rising income inequality is the biggest structural problem we face. It means that not all are benefiting from an improving economy, a goal of Fed policy.
This has been unfolding for 40 years, and won’t be solved in a day, as several presidential candidates are promising.
As a result, the “Horatio Alger” effect, whereby the poorest can rise to success through brains, hard work, and thrift, is now much less likely to occur than in the past.
Bernanke himself is a perfect example of that phenomenon.
Ben and I spoke at length about the dark days of the 2008-2009 crash, and he remembered the daily emails I used to pepper his staff with proposing fixes or patches on an almost daily basis.
Regulation dating from the 1930s had become outmoded and was woefully out of touch with modern-day finance. It was far too lax in the run-up to the crisis.
For example, insurance giant AIG was monitored by the Office of Thrift Supervision, which was utterly clueless when it came to pricing mathematically complex derivatives.
Bernanke warned President Bush as early as 2005 that real estate prices were getting too high and that a crash was coming.
His predecessor, Alan Greenspan, had cautioned during the 1990s that Fannie Mae and Freddie Mac had a flawed business model that would eventually blow us and take down the financial system with it.
In the end, every major financial institution was tottering on the edge.
Bernanke had the benefit of completing his PhD thesis on the causes and mistakes of the Great Depression, once an arcane area of economic study.
Thanks to the laissez fair philosophy of the 1920s, the Fed let the money supply collapse, and one-third of all banks went under, some 8,000 in total. This froze the entire credit system.
Eight decades later, Ben therefore saw the answer to another looming depression in an inflated money supply, which we saw with QE 1, 2, 3, and 4.
He also helped engineer the $700 billion TARP that bailed out the 20 biggest banks, which he described as the “the most successful, but most hated government policy in history.”
When it was wound down, the US Treasury made an enormous $15.3 billion profit on the program by selling its big bank shares. Bank shareholders picked up the tab through the dilution of their ownership.
Part of the problem in selling the TARP, and later, president Obama’s 2009 $831 billion stimulus budget, was that while the crisis started in New York, Washington, it was slow to reach the hinterlands.
One Republican congressman in Iowa called local car dealers in his district and asked what the big deal was. Ben said, “Just wait,” and General Motors filed for bankruptcy months later.
I asked Ben who was his favorite president, as he was appointed by both George W. Bush and Barrack Obama. He confirmed that he liked working for the two men, but that Bush was the natural practical joker.
When Chairman of the Council of Economic Advisors, Bernanke was required to give a weekly briefing on the state of the economy. Once he committed the grievous sartorial error of wearing tan socks with his trademark grey suit.
Bush complained, stating that the White House had dress standards to maintain.
Bernanke answered that he thought the Bush administration was one of fiscal responsibility, and that he had bought a four-pack of the controversial socks at the Gap for only $10.
When Ben attended the next meeting a week later, he wore the required grey socks with his grey suit. He couldn’t help but notice that everyone else at the meeting was wearing tan socks with their navy suits, including the president.
When Bush met Bernanke to discuss his appointment as Chairman of the Federal Reserve in 2006, he asked if he had any political experience.
Bernanke replied that he had served two terms on the Montgomery County, Maryland Board of Education in rural South Carolina. Bush said, “that was fine.”
Bernanke is an extremely intelligent man. You can almost hear the wheels whirring when he is thinking.
I asked him my “gotcha” question.
Wasn’t quantitative easing just a means of bridging the demographic chasm of the 2010s, when 85 million baby boomers are retiring? Isn’t it just a way to pull growth forward from the 2020s?
He paused for a moment, and then changed the subject.
Finally, I had to ask if Bernanke ever got a chance to read The Diary of a Mad Hedge Fund Trader while Fed Chairman. He diplomatically responded that the “Fed takes great pains to take in all views.”
Touché.
To learn more about Ben Bernanke’s amazing “only in America” rise from obscurity, please click the following links for “Who Is Ben Bernanke,” and “Why Ben Bernanke Hates Me.”
To buy “The Courage to Act” at discount Amazon pricing, please click here.
Global Market Comments
October 10, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or EATING YOUR SEED CORN),
(SPY), (TLT), (PANW), BRKB), (JPM), (MS), (V),
(USO), (MU), (RIVN), (TWTR), (TSLA)
You know that 10% downside risk I talked about? In other words, you may have to eat a handful of your seed corn.
We may have to eat into some of that 10% this week. With the September Consumer Price Index out on Thursday, and the big bank earnings are out Friday, there is more than a little concern about the coming trading week.
That’s why all my remaining positions are structured to handle a 10% correction or more and still expire at their maximum profit point in nine trading days.
Even in the worst-case Armageddon scenario, which we are unlikely to get, the S&P 500 is likely to fall below 3,000, or 627.90 points or 17.25% from here.
That’s what you pay me for and that’s what you are getting.
I shot out of the gate with an impressive +3.25% gain so far in October. My 2022 year-to-date performance ballooned to +72.93%, a new high. The Dow Average is down -19.3% so far in 2022 or a gob-smacking -7,000 points. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +81.35%.
That brings my 14-year total return to +585.49%, some 3.03 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.62%, easily the highest in the industry.
It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
I used last week’s extreme volatility to rearrange positions, adding longs in Morgan Stanley (MS), JP Morgan (JPM), and Visa (V). That takes me to 80% long, 20% short, and 0% cash. I wisely rolled down the strikes on my Tesla position from $230-$240 to $200-$210. I covered one short in the S&P 500 (SPY). All of my options positions expire in only nine trading days.
I know that you’re probably getting boatloads of advice the sell all your stocks now, sell your house, and head for those generous 5% short term interest rates, and 8% in junk. Even I went 100% cash….in December last year. The problem is that these other gurus are giving you advice that is only a year late with perfect 20/20 hindsight.
To bail now, you risk giving up on the 100% gains in years to come. If I’m wrong, you lose 10%, if I’m right, you get a double or more. Sounds like a pretty good bet to me.
People always want to know how I pick market bottoms, something I have been doing since the Dow Average was at a miniscule $753.
The lower the market is, the less aggressive the Fed is going to be
Every single input into the Consumer Price Index is now turning down sharply, especially rents and housing costs, meaning we can expect a blockbuster decline when the next report comes out on October 13
We now have two outsiders doing the Fed’s job for it, the British economy, which is clearly collapsing, and a strong US dollar that is rapidly shrinking the foreign revenues of our multinationals, like big tech.
Capitulation indicators, occasionally spotted here and there, are now coming in volleys, the Volatility Index at $35, the (VIX) curve inversion, the RSI below 30, the ten-year US Treasury yield hit 4.0% and then instantly backed off, the British pound plunged to $1.03, and we saw absolutely massive retail selling in September.
The froth is now out of all tech stocks.
All of this brings forward the last Fed hike in interest rates and the next bull market in stocks. If the last Fed rate hike is two months away on December 14, then the reasons to sell stocks are disappearing like the last sands in an hourglass.
In my mere half century in the market, every time the CPI starts to fall, stock market “V” bottoms and begins classic “rip your face off’ rallies as the shorts panic to cover. It happened in 1970, 1974, 1980, 1990, and 2009. It will happen again in 2022. The market will smell that inflation is done, the Fed is done, and volatility becomes a distant memory.
And I hate to be so obvious, but if you sell in May, what do you do in October? You buy with both hands. Just do it on the right day. That could get you a 10% to 20% move by yearend. The S&P 500 earnings multiple has collapsed by eight points in nine months and that is too far, too fast.
How do midterm years perform? October is the best month of the year followed by November. Of the entire 16-month presidential election cycle, the coming first quarter of 2023 is the best of the entire lot.
Nonfarm Payroll Falls Short at 263.000 in September. The headline unemployment rate matched a 2022 low at 3.5%. The long-term unemployment rate, the U-6 also matched this year’s low at 6.7%. The report keeps the Fed on its current interest raising schedule. Stocks, bonds, and gold sold off 500-points.
JOLTS Drops Sharply, from an expected 11.0 million to only 10.05 million. This is the job openings report from the Department of Labor. It’s one of the sharpest declines in history. The jobs market is finally starting to deteriorate, which is just what the Fed wanted. Factory Orders for August were unchanged.
OPEC+ Cuts Quotas by 2 million, and production by 1 million, in one of the largest reductions in history. It’s an effort to maintain oil prices at current prices in the face of falling demand from a global recession. The Arabs are not your friends. It’s also a slap in the face of the anti-oil posture, pro-climate posture of the Biden administration, which responded with a further release of 10 million barrels from the Strategic Petroleum Reserve. Energy stocks soar across the board. Don’t get caught standing when the music stops playing. Avoid (USO).
Why Did Russia Blow Up Their Own Pipeline? International analysts are puzzled by Putin’s latest hostile move. Is this a prelude to limited nuclear war in Ukraine? My view is that Putin expects to be deposed soon and wants to make it difficult for the next government to resume relations with Europe. Others argue that the true motivation is to enable Nordstream to file a $10 billion insurance claim. Good luck collecting on that one.
Advanced Micro Devices Bombs on weak PC sales and supply chain problems, taking the stock down 5% aftermarket. Profit margins were cut. The news could take the stock down to new lows, which didn’t really participate in this week’s monster rally. The rest of the tech sector sold off in sympathy.
Tesla Breaks Production Records in Q3, manufacturing 365,000 EVs and delivering 365,000, a record high. Sales prices have risen three times this year, while commodity costs have fallen dramatically, widening profit margins. This is the most volatile stock in the market, with one 52% correction so far this year, and another 23% correction in recent weeks. It’s the reason we just saw a “buy the rumor, sell the news” type correction that took us to the bottom of a three-month range.
Another factor is that now that big tech is rallying again, people are rotating out of Tesla, which held up well in Q3. Below here, long term Tesla bulls like my friend Ron Baron, Cathie Wood, and I start adding to big positions. With OPEC+ threatening a million barrel a day production cut, taking crude up 6%, oil alternative Tesla should be rising.
Elon Musk Pays Full Price for Twitter at $54.20 a share, completely caving on pending litigation. Wall Street consensus is that the company is worth $15 a share. It may be years before we learn what’s really going on here, leaving many scratching their heads, including me. Tesla (TSLA) plunged $15 on the news, killing off a nascent rally. The distraction of management time will be huge. Avoid (TWTR).
Rivian Raises 2025 Production Goal, from 20,000 to 25,000, after a better-than-expected 7,363 third quarter. Mass production is reaching the sweet spot for the next Tesla. The company is planning a $5 billion investment in non-union Georgia. Buy (RIVN) on dips, sell short puts and buy LEAPS.
Micron Technology to Invest $100 Billion in New York Plant. It’s all part of a retreat from China and paring war risk in Taiwan. Massive government subsidies from the Chips Act helped. Biden also expanded restrictions on the export of key semiconductor manufacturing equipment, America’s crown jewels. It means more expensive buy safer supplied chips for US industry. Buy (MU) on dips.
Hurricane Ian to Cost Insurers $63 Billion, and deaths, and the federal government may be on the hook for more. The storm double-dipped, cutting a wide swath across Florida and the Carolinas. Some 95% of the costs are carried by foreign insurers through the reinsurance market. There are too many billionaire mansions on the beach which are fully insured. This paves the way for major rate increases by insurance companies, which is why Warren Buffet loves the insurance business. Many thanks to the many foreign Mad Hedge subscribers who expressed sympathy over the storm losses.
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil in a sharp downtrend and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
On Monday, October 10, no data of note is released.
On Tuesday, October 11 at 7:00 AM, the 6:00 AM, the NFIB Business Optimism Index for September is released.
On Wednesday, October 12 at 8:30 AM, Producer Price Index for September is published. At 11:00 AM, the FOMC minutes from the last Fed meeting is released.
On Thursday, October 13 at 8:30 AM, Weekly Jobless Claims are announced. We also get the blockbuster Consumer Price Index.
On Friday, October 14 at 8.30 AM, US Retail Sales for September is disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, with the 35th anniversary of the October 19, 1987 crash coming up, when shares dove 22.6% in one day, I thought I’d part with a few memories.
I was in Paris visiting Morgan Stanley’s top banking clients, who then were making a major splash in Japanese equity warrants, my particular area of expertise.
When we walked into our last appointment, I casually asked how the market was doing (Paris is six hours ahead of New York). We were told the Dow Average was down a record 300 points.
Stunned, I immediately asked for a private conference room so I could call the equity trading desk in New York to buy some stock.
A woman answered the phone, and when I said I wanted to buy, she burst into tears and threw the handset down on the floor. Redialing found all Transatlantic lines jammed.
I never bought my stock, nor found out who picked up the phone. I grabbed a taxi to Charles de Gaulle airport and flew my twin Cessna as fast as the turbocharged engines could take me back to London, breaking every known air traffic control rule.
By the time I got back, the Dow had closed down a staggering 512 points, taking the Dow average down to $1,738.74. Then I learned that George Soros asked us to bid on a $250 million blind portfolio of US stocks after the close. He said he had also solicited bids from Goldman Sachs, Merrill Lynch, JP Morgan, and Solomon Brothers, and would call us back if we won.
We bid 10% below the final closing prices for the lot. Ten minutes later he called us back and told us we won the auction. How much did the others bid? He told us that we were the only ones who bid at all!
Then you heard that great sucking sound. Oops!
What has never been disclosed to the public is that after the close, Morgan Stanley received a margin call from the exchange for $100 million, as volatility had gone through the roof, as did every firm on Wall Street.
We ordered JP Morgan to send the money from our account immediately. Then they lost it! After some harsh words at the top, it was found. That’s when I discovered the wonderful world of Fed wire numbers.
The next morning, the Dow continued its plunge, but after an hour managed a U-turn, and launched on a monster rally that lasted for the rest of the year. We made $75 million on that one trade from Soros.
It was the worst investment decision I have seen in the markets in 53 years, executed by its most brilliant player. Go figure. Maybe it was George’s risk control discipline kicking in?
At the end of the month, we then took a $75 million hit on our share of the British Petroleum privatization, because Prime Minister Margaret Thatcher refused to postpone the issue, believing that the banks had already made too much money.
That gave Morgan Stanley’s equity division a break-even P&L for the month of October 1987, the worst in market history. Even now, I refuse to gas up at a BP station on the very rare occasions I am driving an internal combustion engine.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
“Owning a non-controlling portion of a wonderful business is more profitable, more enjoyable and far less work than struggling with 100% of a marginal enterprise,” said Oracle of Omaha Warren Buffet.