Global Market Comments
July 1, 2022
Fiat Lux
Featured Trade:
(HOW TO EXECUTE A MAD HEDGE TRADE ALERT)
Global Market Comments
June 30, 2022
Fiat Lux
Featured Trade:
(PLAYING THE SHORT SIDE WITH VERTICAL BEAR PUT SPREADS),
(TLT)
Global Market Comments
June 29, 2022
Fiat Lux
Featured Trade:
(HOW TO EXECUTE A VERTICAL BULL CALL SPREAD),
(AAPL)
Note to Readers: Over the next ten trading days, you will be receiving my options trading boot camp. That's because this week, I’ll be knocking off from my daily routine to dive into some deep research pieces.
Global Market Comments
June 28, 2022
Fiat Lux
Featured Trade:
(WELCOME TO THE WONDERFUL WORLD OF OPTIONS),
(WHAT IS AN OPTION? - THE BASICS)
Note to Readers: Over the next ten trading days, you will be receiving my options trading boot camp. That's because this week, I’ll be knocking off from my daily routine to dive into some deep research pieces.
Global Market Comments
June 27, 2022
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE RECESSION TRADE IS ON)
(MSFT), (NVDA), (TSLA), (BRKB), (TLT), (SPY)
Any doubts that financial markets are fully discounting a recession were completely smashed last week.
It isn’t just the economic data that are rolling over like the Bismarck. Oil plunged 19%, copper is off 22% from its top, and bond yields have collapsed an astonishing 46 bases points in only two weeks, from 3.48% to 3.02%, a cataclysmic move in the bond market.
Asset classes most sensitive to a recession, like industrial commodities, suffered the biggest falls. That’s because if commodities don’t get used immediately they have to be stored at great expense and a million barrels of oil don’t look very pleasant in your backyard.
How did the stock market respond? It loved it. Stocks delivered the first positive week in June. The Dow Average rallied a healthy 1,900 points off the bottom, some 6.41%.
So what gives? Why is every asset class in the world getting trashed while stocks rocket?
It's really very simple. Stocks love lower interest rates. Cut borrowing costs and equities catch a bid. Lower rates more and stocks should further appreciate.
It's not like we are out of the woods yet. We could get another interest rate spike as we move into the next Fed move on interest rates on July 27. That could take us to new lows in stocks, but not by much. Any declines from here will be limited and are worth buying, as I have been arguing for weeks.
Always focus on what is going to happen next for we are in the “what happens next business.”
While broker reports, research, and the news focus on what happened in the past, or rarely today, it is what happens next that determines the performance of your investment portfolio.
Live in the future and there are never any surprises, only rewards.
Powell Highlights the Fed’s Inflation Commitment, even though the principal drivers, OPEX+ and the Ukraine War, are completely out of his control, in testimony in front of congress. The next two 75 basis point rate rises are a sure thing. Number three won’t happen if a recession kicks in before then.
Oil Dives as Recession Fears Mount, off 20% in a week. Oil is the last thing you want to hold going into a recession, as storage fears are at record highs a few tankers are available for charter. Avoid all energy plays like the plague. Too many other better fish to fry.
American Airlines, United Airlines, and Delta are Cutting Routes, to deal with staff shortages. Small cities where no money is made, like Toledo, Islip, and Dubuque are the main targets. Reno lost much of its airline services in the last recession for the same reason.
A Real Estate Selloff is Going Global, the effect of rising interest rates worldwide. Auckland, New Zealand, Vancouver, Canada, and Sydney, Australia have suddenly seen homes go heavily offered as free money disappears. The US could be next. In Incline Village, NV homes priced under $1 million are seeing aggressive price cuts to sell, while those over $5 million are maintaining prices.
Electric Vehicles Could Reach a 33% Market Share by 2028 and 54% by 2035, says AlixPartners, a research firm. Automakers are going to have to invest $526 billion to meet this demand. EVs are becoming a dominant factor in the US economy. Keep buying (TSLA) on dips, which has a 12-year head start over everyone and has an 80% global EV market share. You just missed a chance to buy the shares at $635 last week.
Existing Home Sales plunge 3.4% in May to 5.41 million units, Dow 8.6% YOY. Inventories fell slightly, with 1.16 million homes for sale. The median home price rose to a new all-time high of $407,600. Home sales priced under $250,000 are down 27% YOY. Mansions are still selling well nationally.
Industrial Production rises by a modest 0.2% in May. Their recession hasn’t hit here yet.
Bitcoin hit a $17,900 low Asian trading. Bitcoin crash is particularly compelling to watch as it has become a great risk indicator for all asset classes. Ignore it at your peril. It turns out that the wonder of 24/7 trading means it can go down a lot faster. I have no idea where the bottom is so don’t ask. This amount of fear is impossible to quantify.
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 peaking out soon, 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!
With some of the greatest market volatility in market history, my June month-to-date performance exploded to +9.99%.
My 2022 year-to-date performance ballooned to 51.86%, a new high. The Dow Average is down -13.22% 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 73.27%.
That brings my 14-year total return to 564.42%, some 2.56 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 44.85%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 87 million, up 300,000 in a week and deaths topping 1,016,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, June 27 at 8:30 AM, US Durable Goods for May are released.
On Tuesday, June 28 at 7:00 AM, the S&P Case Shiller National Home Price Index for April is out.
On Wednesday, June 29 at 7:00 AM, the final read of the US Q1 GDP is published.
On Thursday, June 30 at 8:30 AM, Weekly Jobless Claims are announced. We also get US personal Income & Spending.
On Friday, July 1 at 7:00 AM, the ISM Manufacturing PMI for June is disclosed. At 2:00 the Baker Hughes Oil Rig Count is out.
As for me, as this pandemic winds down, I am reminded of a previous one in which I played a role in ending.
After a 30-year effort, the World Health organization was on the verge of wiping out smallpox, a scourge that had been ravaging the human race since its beginning. I have seen Egyptian mummies at the Museum of Cairo that showed the scarring that is the telltale evidence of smallpox, which is fatal in 50% of cases.
By the early 1970s, the dreaded disease was almost gone but still remained in some of the most remote parts of the world. So, they offered a reward to anyone who could find live cases.
To join the American Bicentennial Mt. Everest Expedition in 1976, I took a bus to the eastern edge of Katmandu and started walking. That was the farthest roads went in those days. It was only 150 miles to basecamp and a climb of 14,000 feet.
Some 100 miles in, I was hiking through a remote village, which was a page out of the 14th century, back when families though buckets of sewage into the street. The trail was lined with mud brick two-story homes with wood shingle roofs, with the second story overhanging the first.
As I entered the town, every child ran to their windows to wave, as visitors were so rare. Every smiling face was covered with healing but still bleeding smallpox sores. I was immune, since I received my childhood vaccination, but I kept walking.
Two months later, I returned to Katmandu and wrote to the WHO headquarters in Geneva about the location of the outbreak. A year later I received a letter of thanks at my California address and a check for $100. They told me they had sent in a team to my valley in Nepal and vaccinated the entire population.
Some 15 years later, while on customer calls in Geneva for Morgan Stanley, I stopped by the WHO to visit a scientist I went the school with. It turned out I had become quite famous, as my smallpox cases in Nepal were the last ever discovered.
The WHO certified the world free of smallpox in 1980. The US stopped vaccinating children for smallpox in 1972, as the risks outweighed the reward.
Today, smallpox samples only exist at the CDC in Atlanta frozen in liquid nitrogen at minus 346 degrees Fahrenheit in a high-security level 5 biohazard storage facility. China and Russia probably have the same.
That’s because scientists fear that terrorists might dig up the bodies of some British sailors who were known to have died of smallpox in the 19th century and were buried on the north coast of Greenland, remaining frozen ever since. If you need a new smallpox vaccine, you have to start from somewhere.
As for me, I am now part of the 34% of Americans who remain immune to the disease. I’m glad I could play my own small part in ending it.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
On Mt. Everest Smallpox Free in 1976
Global Market Comments
June 24, 2022
Fiat Lux
Featured Trade:
(TAKING OFF FOR THE 2022 MAD HEDGE WORLD TOUR)
By the time you read this, I will be on a Lockheed C5 A Galaxy escorting 100 Javelin missiles to RAF Lakenheath in England.
From there, I have no idea where the anti-tank missiles are headed. The largest plane in the US Air Force won’t offer the comfortable first class accommodations that I’m used to. But I can’t argue with the price: it’s free.
It was only weeks ago that I received an early morning phone call from a familiar number in Washington DC. At age 70, I was expecting to get a mandatory retirement and a “Job well done.”
Not for me.
Instead, I received a promotion to Major in the United States Marine Corps and was asked how soon could I get to North Atlantic Treaty Organization headquarters in Brussels, Belgium? I answered, “As soon as I get rid of this Covid thing.”
It turns out that suddenly, so many people now want to be America’s friends that we have a shortage of senior people on our side to meet them. So senior people like me all over the country are getting called up and pressed into duty.
Instead of fine dining in London and the best wurst and wines in Switzerland, I’m going to be eating army food for my summer vacation. At least it will be French army food. That has to be some kind of improvement.
I will be expounding on my global view to the top generals at NATO. I’ll outline the long-term consequences of the Ukraine War. I’ll also be meeting with individual NATO members as well as future potential ones.
I still hope to eventually end up at my chalet in Zermatt, Switzerland where I traditionally restart my year and have not visited in three years. Weather permitting, I will climb the 14,692-foot Matterhorn again. Is it seven times this year, or eight?
Otherwise, I’ll rejoin Zermatt Search and Rescue again visiting old friends and pulling lost Americans off of Alpine slopes. It seems I’m the only one up there who has a sense of humor.
I have worked the hardest in my life the past year, and it is time for a break. I have also put myself through the most grueling training regimen ever, hiking 2,000 miles in torrential rains and snowshoeing another 600, all with a 50-pound pack. Covid took a lot out of me.
Every year, it seems to get harder to keep the calendar at bay.
Getting out into the real world and soaking up new data and opinions is invaluable in shaping my own global view, and your performance benefits from it.
I will be traveling with my laptop and keeping touch with the markets. While 18th century Internet service is passable, the bandwidth can be snail-like. So, unless I see something extraordinary, I will cut back on new Trade Alerts.
After running up a 50% profit so far in 2022, I deserve a break. I am risking over trading. I need to spend some time alone on a mountaintop, communing with the spirits, attempting to discover the new long-term market trends through the mist.
While on the road, I will continue writing my newsletter, giving you my daily dose of market insight. I will also be re-running some of my favorite research pieces from the past when my travel schedule does not allow Internet access.
This is to expose my thousands of new subscribers to the golden oldies, and to remind the legacy readers who have since forgotten them.
I will be back in San Francisco in early August, glued to my screens once again for another year of toil in the salt mines. In the meantime, please feel free to email me.
Mad Hedge Technology Letter author Arthur Henry will be working straight through the summer. No rest for the wicked!
In the meantime, I shall be raising a glass to all of you at dinner, the loyal readers of The Diary of a Mad Hedge Fund Trader. Salute! Prost! Kampai, and Cheers! Thanks for making this letter a huge success!
If you want to take the opportunity to meet me in person, please find my strategy luncheon schedule below. To purchase tickets for the luncheons, please go to my online store and click on the country and city of your choice.
Wednesday, June 29, 12:00 PM London, England
Friday, July 22, 3:00 PM Zermatt, Switzerland
Thursday, July 28, 12:00 PM Venice Italy
I look forward to seeing you there, and thanks for supporting my research.
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader
Now Which One of These is for Belgium?
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
