Global Market Comments
November 24, 2021
Fiat Lux
Featured Trade:
(JOIN ME ON CUNARD’S MS QUEEN VICTORIA
FOR MY JULY 9, 2022 SEMINAR AT SEA)
Global Market Comments
November 23, 2021
Fiat Lux
Featured Trade:
(TRADING THE KENNEDY ASSASSINATION)
Global Market Comments
November 22, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WORST-CASE SCENARIO)
(BITO), (ETHE), (TLT), (TBT), (NVDA), (DE)
In the investment business, you’re only as good as your last trade. If that is the case, that makes me a pretty worthless person in the wake of a record four stop-losses at the November 19 option expiration.
Days before, the market closed with all ten of our positions profitable. But the pandemic lockdown in Austria on Friday morning shattered those plans. Fears of a new Covid wave and another mini-recession send bonds soaring and interest rates crashing. That trashed financial stocks, where I had a heavy exposure.
If you work in the business long enough, you see a black swan on an options expiration day every five or ten years. This was our turn. As a result, we traded a double-digit gain for November for a moderate loss. That still leaves us with a heroic 80% gain for 2021 and 15 consecutive profitable months.
There is nothing to do but pick yourself up, dust yourself off, and go on to the next trade. I wouldn’t be surprised to see all of the Friday losses reversed in the coming weeks. Banks are still outrageously profitable and the cheapest sector in the market. If you have a six-month to one-year view, the action on Friday changed nothing.
You live by the sword, you die by the sword.
There was a lot going on Friday than just another Covid wave. November option expirations used to be a snore. But this year, brokerage firms have stampeded so many retail investors into the options markets where they make the most money that they have become major events.
Some 70% of all options trading now takes place in securities with less than two weeks to expiration. In the meantime, professional traders limit their personal accounts to long term LEAPS which are the subject of the Mad Hedge Concierge Service. Instead of rolling the dice for a 10% profit in a month, you get a very safe 100% return in a year.
Of course, while financials were getting wrecked, falling interest rates were acting as a steroid for tech stocks. (MSFT) and Google (GOOG) hit new highs for the year. Concierge members in my (ROM) LEAPS were rolling in clover.
The barbell strategy wins again!
Infrastructure Bill is signed on Monday, injecting another $1.2 trillion into the economy today. This assured the economy will keep booming through 2024. The bond market hates it, down $6.00 in three days. It adds another 3% to GDP over the next five years. Keep selling (TLT) on rallies.
Bitcoin Forks for the first some since 2017, making it much more competitive with Ethereum. It enables the lead crypto to use defi and third party apps. Miner Marathon (MARA) is raising a $500 million bond issue to buy Bitcoin. Keep buying (BITO) and (ETHE) on dips.
US Retail Sales roar, up 1.7% in October compared to 0.8% in September, far more than expected. Receipts for all items are rising. Higher wages are immediately translating into increased spending.
Builder Sentiment jumps, up 3 points to 83, according to the National Association of Homebuilders. A decade-long structural shortage of housing is a huge tailwind. Good luck hiring a contractor right now. The Midwest and the south are the leaders in demand.
Dollar hits 16-Month High, on the strength of yesterday’s red hot Retail Sales. It means higher interest rates soon, which is great for the buck. Currencies with the fastest rising interest rates are always the strongest.
NVIDIA kills it, with revenues up 50% YOY and earnings up 60%. It’s well on the way to becoming the next trillion-dollar company. It’s another Mad Hedge 20 bagger. Buy (NVDA) on dips.
Biden may try an SPR Release to cap gasoline prices. There are 741 barrels in the Strategic Petroleum Reserve, enough for 21 days of US consumption. It’s sitting there costing money, essentially a government subsidiary for the energy industry. Why have it if the US is now a net energy exporter? The concern has been enough to drop oil prices by 10%.
Rents for single-family homes are up 10.2% YOY, and will continue to rise. Miami has the highest rent inflation in the country, and the highest-priced homes are seeing the fastest increases.
Weekly Jobless Claims drop to new post-pandemic low, to 268,000, just fractionally. There are 2 million continuing claims. The great resignation continues.
John Deere strike ends, with some of the best terms for workers in 40 years. It cost the company $2.5 billion. They get an immediate 10% raise and $7,500 bonus, larger out-year raises, and big performance bonuses. There is a lot of making up for 30 years of no real wage growth going on here. It points a loaded gun at the head of the “transitory” argument for inflation. Buy (DE) on dips.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With the disastrous November options expiration, my November month-to-date performance plunged to -7.73%. My 2021 year-to-date performance took a haircut to 80.82%. The Dow Average is up 16.34% so far in 2021.
My entire portfolio expired on Friday, and I am 100% in cash. Of our ten positions, six made money and four lost. In addition, subscribers to the Mad Hedge Technology letter had another five winners, as tech stocks are still on a tear.
That brings my 12-year total return to 503.37%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.24%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 96.56%. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 48 million and rising quickly and deaths topping 772,000, which you can find here at https://coronavirus.jhu.edu.
The coming week will be all about the inflation numbers.
On Monday, November 22 at 7:00 AM, Existing Homes Sales for October are released.
On Tuesday, November 23 at 6.45 AM, the Flash Manufacturing PMI is announced.
On Wednesday, November 24 at 5:30 AM, US Q3 GDP second estimate is published. At 7:00 AM we get New Home Sales for October. Minutes from the last Fed meeting are printed at 2:00 PM.
On Thursday, November 25 markets are closed for Thanksgiving Day.
On Friday, November 26 at 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, when I was shopping for a Norwegian Fiord cruise for next summer, each stop was familiar to me because a close friend had blown up bridges in every one of them.
During the 1970s at the height of the Cold War, my late wife Kyoko flew a monthly round trip from Moscow to Tokyo as a British Airways stewardess. As she was checking out of her Moscow hotel, someone rushed at her and threw a bundled typed manuscript that hit her in the chest.
Seconds later a half dozen KGB agents dog-piled on top of her. It turned out that a dissident was trying to get Kyoko to smuggle a banned book to the West and she was arrested as a co-conspirator and bundled away to Lubyanka Prison.
I learned of this when the senior KGB agent for Japan contacted me, who had attended my wedding the year before. He said he could get her released, but only if I turned over a top-secret CIA analysis of the Russian oil industry.
At a loss for what to do, I went to the US Embassy to meet with ambassador Mike Mansfield, who as The Economist correspondent in Tokyo I knew well. He said he couldn’t help me as Kyoko was a Japanese national, but he knew someone who could. Then in walked William Colby, head of the CIA.
Colby was a legend in intelligence circles. After leading the French resistance with the OSS, he was parachuted into Norway with orders to disable the railway system. Hiding in the mountains during the day, he led a team of Norwegian freedom fighters who laid waste to the entire rail system from Tromso all the way down to Oslo. He thus bottled up 300,000 German troops, preventing them from retreating home to defend themselves from an allied invasion.
During the Vietnam war, Colby became notorious for running the Phoenix assassination program.
I asked Colby what to do about the Soviet request. He replied, “give it to them.” Taken aback, I asked how. He replied, “I’ll give you a copy.” Mansfield was my witness so I could never be arrested for being a turncoat. Copy in hand, I turned it over to my KGB friend, and Kyoko was released the next day and put on the next flight out of the country. She never took a Moscow flight again.
I learned that the report predicted that the Russian oil industry, its largest source of foreign exchange, was on the verge of collapse. Only massive investment in modern western drilling technology could save it. This prompted Russia to sign deals with American oil service companies worth hundreds of millions of dollars.
Ten years later, I ran into Colby at a Washington event, and I reminded him of the incident. He confided in me “You know that report was completely fake, don’t you?” I was stunned. The goal was to drive the Soviet Union to the bargaining table to dial down the Cold War. I was the unwitting middleman. It worked. That was Bill, always playing the long game.
After Colby retired, he campaigned for nuclear disarmament and gun control. He died in a canoe accident in the lake near his Maryland home in 1996.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
November 19, 2021
Fiat Lux
Featured Trade:
(NOVEMBER 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(RIVN), (WMT), (BAC), (MS), (GS), (GLD), (SLV), (CRSP), (NVDA),
(BAC), (CAT), (DE), (PTON), (FXI), (TSLA), (CPER), (Z)
Below please find subscribers’ Q&A for the November 17 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: Even though your trading indicator is over 80, do you think that investors should be 100% long stocks using the barbell names?
A: Yes, in a hyper-liquidity type market like we have now, we can spend months in sell territory before the indexes finally rollover. That happened last year and it’s happening now. So, we can chop in this sort of 50-85 range probably well into next year before we get any sell signals. Selling apparently is something you just do anymore; if things go down, you just buy more. It’s basically the Bitcoin strategy these days.
Q: What do you think about Rivian's (RIVN) future?
A: Well, with Amazon behind them, it was guaranteed to be a success. However, we mere mortals won't be able to buy any cars until 2024, and they have yet to prove themselves on mass production. Moreover, the stock is ridiculously expensive—even more than Tesla was in its most expensive days. And it’s not offering any great value, just momentum so I don’t want to chase it right here. I knew it was going to blow up to the upside when the IPO hit because the EV sector is just so hot and EVs are taking over the global economy. I will watch from a distance unless we get a sudden 40% drawdown which used to happen with Tesla all the time in the early days.
Q: Are you worried about another COVID wave?
A: No, because any new virus that appears on the scene is now attacking a population that is 80-90% immune. Most people got immunity through shots, and the last 10% got immunity by getting the disease. So, it’s a much more difficult population for a new virus to infect, which means no more stock market problems resulting from the pandemic.
Q: Is investing in retail or Walmart (WMT) the best way to protect myself from inflation?
A: It’s actually quite a good way because Walmart has unlimited ability to raise prices, which goes straight through to the share price and increases profit margins. Their core blue-collar customers are now getting the biggest wage hikes in their lives, so disposable income is rocketing. And really, overall, the best way to protect yourself from inflation is to own your own home, which 62% of you do, and to own stocks, which 100% of the people in this webinar do. So, you are inflation-protected up the wazoo coming to Mad Hedge Fund Trader. Not to mention we buy inflation plays like banks here.
Q: Why are financials great, like Bank of America (BAC)?
A: Because the more their assets increase in value, the greater the management fees they get to collect. So, it’s a perfect double hockey stick increase in profits.
*Interest rates are rising
*Rising interest rates increase bank profit margins
*A recovering economy means default rates are collapsing
*Thanks to Dodd-Frank, banks are overcapitalized
*Banks shares are cheap relative to other stocks
*The bank sector has underperformed for a decade
*With rates rising value stocks like banks make the perfect rotation play out of technology stocks.
*Cryptocurrencies will create opportunities for the best-run banks.
Q: Do you think the market is in a state of irrational exuberance?
A: Yes. Warning: irrational exuberance could last for 5 years. That’s what happened when Alan Greenspan, the Fed governor in 1996, coined that phrase and tech stocks went straight up all the way up until 2000. We made fortunes off of it because what happens with irrational exuberance is that it becomes more irrational, and we’re seeing that today with a lot of these overdone stock prices.
Q: Should I hold cash or bonds if you had to choose one?
A: Cash. Bonds have a terrible risk/reward right now. You’re getting like a 1% coupon in the face of inflation that's at 6.2%. It’s like the worst mismatch in history. In fact, we made $8 points on our bond shorts just in the last week. So just keep selling those rallies, never own any bonds at all—I don’t care what your financial advisor tells you, these are worthless pieces of paper that are about to become certificates of confiscation like they did back in the 80s when we had high inflation.
Q: What’s your yearend target for Nvidia (NVDA)?
A: Up. It’s one of the best companies in the world. It’s the next trillion dollar company, but as for the exact day and time of when it hits these upside targets, I have no idea. We’ve been recommending Nvidia since it was $50, and it’s now approaching $400. So that’s another mad hedge 20 bagger setting up.
Q: What about CRISPR Therapeutics (CRSP)?
A: The call spread is looking like a complete write-off; we missed the chance to sell it at $170, it’s now at $88. So, I’m just going to write that one-off. Next time a biotech of mine has a giant one-day spike, I am selling. What you might do though with Crisper is convert your call spread to straight outright calls; that increases your delta on the position from 10% to 40% so that way you only need to get a $20 move up in the stock price and you’ll get a break-even point on your long position. So, convert the spreads to longs—that’s a good way of getting out of failed spreads. You do not need a downside hedge anymore, and you’ll find those deep out of the money calls for pennies on the dollar. That is the smart thing to do, however, you have to put money into the position if you’re going to do that.
Q: Would you buy a LEAP in Tesla (TSLA) at this time?
A: No, it’s starting a multi-month topping out process, then it goes to sleep for 5 months. After it’s been asleep for 5 months then I go back and look at LEAPS. Remember, we had a 45% drawdown last year. I bet we get that again next year.
Q: Will inflation subside?
A: Probably in a year or so. A lot depends on how quickly we can break up the log jam at the ports, and how this infrastructure spending plays out. But if we do end the pandemic, a lot of people who were afraid of working because of the virus (that’s 5 or 10 million people) will come back and that will end at least wage inflation.
Q: When is the next Mad Hedge Fund Trader Summit?
A: December 7, 8, and 9; and we have 27 speakers lined up for you. We’ll start emailing probably next week about that.
Q: Are gold (GLD) and silver (SLV) getting close to a buy?
A: Maybe, unless Bitcoin comes and steals their thunder again. It has been the worst-performing asset this year. The only gold I have now is in my teeth.
Q: Morgan Stanley (MS) is tanking today, should I dump the call spread?
A: I’m going to see if we hold here and can close above our maximum strike price of $98 on Friday. But all of the financials are weak today, it’s nothing specific to Morgan Stanley. Let’s see if we get another bounce back to expiration.
Q: Where can I view all the current positions?
A: We have all of our positions in the trade alert service in your account file, and you should find a spreadsheet with all the current positions marked to market every day.
Q: What is the barbell strategy?
A: Half your money is in big tech and the other half is in financials and other domestic recovery plays. That way you always have something that’s going up.
Q: Is Elon Musk selling everything to avoid taxes from Nancy Pelosi?
A: Actually, he’s selling everything to avoid taxes from California governor Gavin Newsom—it’s the California taxes that he has to pay the bill on, and that’s why he has moved to Texas. As far as I know, you have to pay taxes no matter who is president.
Q: Will the price of oil hit $100?
A: I doubt it. How high can it go before it returns to zero?
Q: Is it time to buy a Caterpillar (CAT) LEAP?
A: We’re getting very close because guess what? We just got another $1.2 billion to spend on infrastructure. Not a single job happens here without a Caterpillar tractor or a tractor from Komatsu for John Deere (DE).
Q: Will small caps do well in 2022?
A: Yes, this is the point in the economic cycle where small caps start to outperform big caps. So, I'd be buying the iShares Russell 2000 ETF (IWM) on dips. That's because smaller, more leveraged companies do better in healthy economies than large ones.
Q: Is it too late to buy coal?
A: Yes, it’s up 10 times. The next big move for coal is going to be down.
Q: Peloton (PTON) is down 300%; should I buy here?
A: Turns out it’s just a clothes rack, after all, it isn't a software company. I didn’t like the Peloton story from the start—of course, I go outside and hike on real mountains rather than on machines, so I’m biased—but it has “busted story” written all over it, so don’t touch Peloton.
Q: Will spiking gasoline prices cause US local governments to finally invest in Subways and Trams like European cities, or is this something that will never happen?
A: This will never happen, except in green states like New York and California. A lot of the big transit systems were built when labor was 10 cents a day by poor Irish and Italian immigrants—those could never be built again, these massive 100-mile subway systems through solid rock. So if you want to ride decent public transportation, go to Europe. Unfortunately, that’s the path the United States never took, and to change that now would be incredibly expensive and time-consuming. They’re talking about building a second BART tunnel under the bay bridge; that’s a $20 billion, 20-year job, these are huge projects. And for the last five years, we’ve had no infrastructure spending at all, just lots of talk.
Q: Would Tesla (TSLA) remains stable if something happened to Elon Musk?
A: Probably not; that would be a nice opportunity for another 45% correction. But if that happened, it would also be a great opportunity for another Tesla LEAPS. My long-term target for the stock is $10,000. Elon actually spends almost no time with Tesla now, it’s basically on autopilot. All his time is going into SpaceX now, which he has a lot more fun with, and which is actually still a private company, so he isn’t restricted with comments about space like he is with comments about Tesla. When you're the richest man in the world you pretty much get to do anything you want as long as you're not subject to regulation by the SEC.
Q: How realistic is it that holiday gatherings will trigger a huge wave of COVID in the United States forcing another lockdown and the Fed to delay a rise in interest rates?
A: I would say there’s a 0% chance of that happening. As I explained earlier, with 90% immunity in much of the country, viruses have a much harder time attacking the population with a new variant. The pandemic is in the process of leaving the stock market, and all I can say is good riddance.
Q: What about the Biden meeting with President Xi and Chinese stocks (FXI)?
A: It’s actually a very positive development; this could be the beginning of the end of the cold war with China and China’s war on capitalism. If that’s true, Chinese stocks are the bargain of the century. However, we’ve had several false green lights already this year, and with stuff like Microsoft (MSFT) rocketing the way it is, I’d rather go for the low-risk high-return trades over the high-risk, high return trades.
Q: What’s your opinion of Zillow (Z)?
A: I actually kind of like it long term, despite their recent disaster and exit from the home-flipping business.
Q: Do you like copper (CPER) for the long term?
A: Yes, because every electric car needs 200 lbs. of copper, and if you’re going from a million units a year to 25 million units a year, that’s a heck of a lot of copper—like three times the total world production right now.
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 ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
An Old Fashioned Peloton (a Mountain)
Global Market Comments
November 18, 2021
Fiat Lux
Featured Trade:
(A NEW THEORY OF EQUITIES)
Global Market Comments
November 17, 2021
Fiat Lux
Featured Trade:
(HOW TO HANDLE THE FRIDAY, NOVEMBER 19 OPTIONS EXPIRATION),
(GS), (MS), (BAC), (TLT), (ROM), (BRKB)
Happy and newly enriched followers of the Mad Hedge Fund Trader Alert Service have the good fortune to own a record ten deep-in-the-money options positions that expire on Friday, November 19 at the stock market close in two days.
I have to admit that I traded like a Wildman this month, pedal to the metal, and 100% invested. This will take our 2021 year-to-date performance to over 100% for the first time in our 14-year history. I like to think that is the end result of my 53 years of investment in researching trading strategies.
Sometimes, overconfidence works.
It is therefore time to explain to the newbies how to best maximize their profits.
These involve the:
(GS) 11/$330-$350 call spread 10.00%
(GS) 11/$385-$395 call spread 10.00%
(MS) 11/$85-$90 call spread 10.00%
(MS) 11/$95-$98 call spread 10.00%
(BAC) 11/$37-$40 call spread 10.00%
(BAC) 11/$43-$46 call spread 10.00%
(TLT) 11/$150-$153 put spread 10.00%
(ROM) 11/$105-$110 call spread 10.00%
(BRKB) 11/$275-$280 call spread 10.00%
(BRKB) 11/$277.50-$282.50 call spread 10.00%
Provided that we don’t have another 2,000-point move down in the market in the next two days, these positions should expire at their maximum profit points.
So far, so good.
I’ll do the math for you on our deepest in-the-money position, the Goldman Sachs (GS) November 19 $330-$350 vertical bull call spread, which I almost certainly will run into expiration. Your profit can be calculated as follows:
Profit: $20.00 expiration value - $16.50 cost = $3.50 net profit
(6 contracts X 100 contracts per option X $3.50 profit per options)
= $2,100 or 17.65% in 24 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning November 22 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and make your broker find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday, November 19. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
You Can’t Do Enough Research
Global Market Comments
November 16, 2021
Fiat Lux
Featured Trade:
(A NOTE ON OPTIONS CALLED AWAY)
(GS), (TLT)