Diary Archives

May 1 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader May 1 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Your old target for the (SPY) was $292.80; we’re clearly above that now. What’s your new target and how long will it take to get there?

A: My new target on the S&P 500 (SPY) is $296.80. You’re looking at $295 on the (SPY), so we’re almost there. However, we’re grinding up too slowly so I can’t give you an exact date.

Q: Will Fed governor Jay Powell give in to pressure from Trump who wants him to drop rates? Does he have any sway over the process?

A: Officially he has no sway, but every day Trump is tweeting: “I want QE back, I want a 1% rate cut.” And if that happened, the economy would completely blow up—an interest rate cut with the market at an all-time high and 3.25% GDP growth rate would be unprecedented, would deliver a short term gain and long term disaster.

Q: What do you think about the Uber (UBER) IPO?

A: I wouldn’t touch it with a 10-foot pole—they’ve been cutting valuations almost every day. At one point they were going to value the company at $120 billion dollars, now they’re at $90 billion and they may even lower it from there. The last car sharing IPO (LYFT) dropped 33% from its high. I would stay away from all of the IPOs once they’re listed. The rule is: only buy these things when they’re down 50%. Warren Buffet never buys IPOs, nor do I.

Q: What do you think about buying or selling Lyft?

A: I would wait a couple of months for Lyft to find its true price. Then you’ll have something to trade against.

Q: Do you think the bad news is over on Tesla (TSLA)? Is it time to buy? Or is it going bankrupt?

A: The whole world knew that the electric car subsidy would be cut in January, so what customers did was accelerate their orders in the 4th quarter, which took us all the way up to $380 in the shares, and then created a vacuum in the Q1 of this year. It reported the first quarter last week—they were disastrous orders, and the company is cutting back overhead as fast as possible as if it’s going into a recession, which it kind of is. The question is whether or not sales will bounce back in Q2 with the smaller subsidy. I happen to think they will. But we may not see 2018 Q4 sales levels again until 2019 Q4.

Q: Why has healthcare (XLV) been so awful this year?

A: There’s an election next year and both parties promise to beat up on the healthcare industry with drug control pricing and other forms of regulation. Of course, the current president promised free competition in drug prices; but then he moved to Washington DC and found the drug industry lobby, and nothing was ever heard again on that front. It’s a very high political risk sector, but there is some great value at these levels in the healthcare industry in the long term. I’m about to start the Mad Hedge Biotech and Health Care newsletter imminently.

Q: Should I buy the (TLT) $120-$123 call spread now?

A: That's a very aggressive trade, I would wait and go with strikes for in the money, and then only on a big dip. Don’t reach for a trade when the market is at an all-time high.

Q: Should I be shorting Tesla down here?

A: Absolutely not, your short trade was at $380, $350, $330 and $300. Down here, you run the risk of a surprise tweet from Elon Musk causing the stock to go $50 against you. Buy the way, he’s already announced that he’s buying $10 million worth of shares in his next capital raise.

Q: What do you think about CRISPR stocks long term, like Editas Medicine (EDIT), Sangamo Life Sciences (SGMO), and Cellectis (CLLS)?

A: These are probably the best bunch of 10 baggers long term. Short term they are afflicted with the same problems impacting all of healthcare—promises of regulation and price control on all of their products ahead of an election. So, hold for the long term; short term I’d only be buying the really big dips. Did I mention that I’m about to start the Mad Hedge Biotech and Health Care newsletter imminently?

Q: Is your May 10th market top forecast still good?

A: Well we’re getting kind of close to May 10th. I made this prediction based on an inverting yield curve two years ago. However, that target did not anticipate interest rates topping out for the 10-year US Treasury bond at 3.25%. Nor did it consider the Fed canceling all interest rate hikes for the year. Without the artificial stimulus, the market would certainly have already rolled over and died. That said, I still have a week to go.

Q: Should I be selling my long term holds in the FANGS, like Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT)?

A: For the long term, no. However, we know from December that these things can get hit with a 40% drawdown at any time. As long as you can handle that, they always bounce back.

Q: What will happen to Venezuela? Any trades?

A: The only related trades would be in the oil market (USO). If we get a coup d’ etat which installs a new pro-American president, which could be at any time, that could lead to a selloff in oil for a couple of days as 1 Million barrels of crude per day come back on the market, but probably no more than that.

Q: With current national debt and budget deficits, when will interest in gold kick in?

A: Very simple: when the stock market goes down, you want to buy gold. It’s the hedge that everyone will chase after, and inflation is just around the corner.

Q: Do you need me to place any Kentucky Derby bets?

A: Me being the cautious guy I am, I pick the horse with the best odds and then I bet him to show. That almost always works.

Q: What about pot stocks?

A: I’ve never liked them very much; after all, how hard is it to grow a weed? The barriers to entry are zero. All of these pot companies coming up now are not really pot stocks as much as they are marketing companies, so you’re buying their distribution capability primarily. That said, I’m having breakfast with the CEO of a major pot company next week, so I’ll be writing about that once I get the inside scoop.

Q: Will the Fed be the non-event?

A: Yes, as stated in the Mad Hedge Hot Tips this morning, it will be a non-event and the news is due out in about an hour.

Quote of the Day - March 3, 2019

Diary, Newsletter, Quote of the Day

"If money be not thy servant, it will be thy master. The covetous man cannot so properly be said to possess wealth, as that may be said to possess him," said Sir Francis Bacon, the 16^th century English scientist.

May 2, 2019

Diary, Newsletter, Summary

Global Market Comments
May 2, 2019
Fiat Lux

Featured Trade:

(HEADED FOR THE LAS VEGAS SKYBRIDGE SALT CONFERENCE),
(BRK/A), (EEM)
(NOTICE TO MILITARY SUBSCRIBERS),

Headed for the Las Vegas SALT Conference

Diary, Newsletter

I have packed up four Brioni suites, three pairs of alligator skin loafers, two pair of black socks, and my lucky rabbit’s foot.

Yes, I am headed to Las Vegas to attend the Skybridge SALT conference otherwise known as the Woodstock of hedge fund managers, during May 7-10.

It will be a long week. I’ll be getting up every morning at 5:00 AM to write Mad Hedge Hot Tips, posting my daily Global Trading Dispatch, keeping a close eye on the model trading portfolios for Global Trading Dispatch and the Mad Hedge Technology Letter, interviewing the high and the mighty, and partying until 2:00AM. If you accused me of not acting my age of 67 years, you’d be absolutely right. But then who want to be 67?

In the warm-up to the event, I managed to catch a few minutes on Skype with my old friend and fellow paisano, Anthony Scaramucci.

I asked Anthony Scaramucci, CEO and founder of Skybridge Capital, why we should attend his upcoming SALT conference point blank.

“It’s going to be exciting,” he said.

“How exciting?” I enquired.

“I’ve invited former White House chief of staff general John F. Kelley to be my keynote speaker.” General Kelley, another old friend from my Marine Corps. days, fired Anthony after only eight days on the job as Donald Trump’s Press Secretary.

“That’s pretty exciting,” I responded. “Humble too.”

This was the answer that convinced me to attend the May 7-10 SkyBridge Alternative asset management conference (SALT) at the Las Vegas Bellagio Hotel. You all know the Bellagio. That is the casino that was robbed in the iconic movie Oceans 11.

That is not all Scaramucci had to offer about the upcoming event, known to his friends since his college days as “The Mooch”.

Among the other headline speakers are former UN ambassador Nikki Haley, AOL Time Warner founder Steve Case, artificial intelligence guru Dr. Kai-fu Lee who I have written about earlier, and Carlyle Group cofounder David Rubenstein.

SALT will give seasoned investors to update themselves on the hundreds of alternative investment strategies now in play in the market, raise or allocate money, meet fascinating people, and just plain have fun. Some SkyBridge services accept client investments as little as $25,000. Their end of conference party is legendary.

SkyBridge is led by Co-Managing Partners Anthony Scaramucci and Raymond Nolte. Ray serves as the Firm’s Chief Investment Officer and Chairman of the Portfolio Allocation and Manager Selection Committees. Anthony focuses on strategic planning and marketing efforts.

While I had “The Mooch” on the phone, I managed to get him to give me his 30,000-foot view of the seminal events affecting markets today.

The proliferation of exchange traded funds and algorithms will end in tears. There are now more listed ETFs than listed stocks, over 3,500.

The normalizing of interest rates is unsustainable, which have been artificially low for ten years now. One rise too many and it will crash the market. The next quarter point rise could be the stick breaks the camel’s back (an appropriate metaphor for a desert investment conference).

However, rising rates are good for hedge funds as they present more trading opportunities and openings for relative outperformance, or “alpha.”

There has been a wholesale retreat of investment capital from the markets, at least $300 billion in recent years. The end result will be much high volatility when markets fall, as we all saw in the Q4 meltdown. Until this structural weakness has been obscured by ultra-low interest rates. The good news is that banks are now so over capitalized that they will not be at risk during the next financial crisis.

Ever the contrarian and iconoclast, Scaramucci currently has no positions in technology stocks. He believes the sector has run too far too fast after its meteoric 2 ½ year outperformance and is overdue for a rest. Earnings need to catch up with prices and multiples.

What is Anthony’s one favorite must buy stock today? Berkshire Hathaway (BRK/A) run by Oracle of Omaha Warren Buffet, which is almost a guarantee to outperform the market. Scaramucci has owned the shares in one form or another for over 25 years.

While emerging markets (EEM) are currently the flavor of the day, Anthony won’t touch them either. The accounting standards and lack of rule of law are way too lax for his own high investment standards.

SkyBridge is avoiding the 220 IPOs this year, which could total $700 billion. Many of these are overhyped with unproven business models and inexperienced management. The $100 billion in cash they actually take out of the market won’t be enough to crash it.

SkyBridge Capital is a global alternative investment firm with $9.2 billion in assets under management or advisement (as of January 31, 2019). The firm offers hedge fund investing solutions that address a wide range of market participants from individual investors to large institutions.

SkyBridge takes a high-conviction approach to alpha generation, expressed through a thematic and opportunistic investment style. The firm manages multi-strategy funds of hedge funds and customized separate account portfolios, and provides hedge fund advisory services. SkyBridge also produces a large annual conference in the U.S. and Asia known as the SkyBridge Alternatives Conference (SALT).

Finally, I asked Anthony if he were king of the world, what change would he make to the US today? “If I could wave a magic wand, I would reduce partisanship,” he replied. “It prevents us from being our best.” Will he ever go back into politics again? “Never say never,” he shot back wistfully.

With that, I promised to give him a hug the next time I see him in Vegas, which I have been visiting myself since 1955 during the rat pack days.

To learn more about SkyBridge please visit their website at http://www.skybridge.com

To obtain details about the upcoming May 7-10 SALT conference at the Bellagio Hotel in Las Vegas, please visit the website at https://www.salt.org. Better get a move on. Their discount pricing for the event ends on March 15. Institutional Investors are invited free of charge.

Notice to Military Subscribers

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To the dozens of subscribers in Afghanistan, Somalia, Iraq, Syria, and the surrounding ships at sea, thank you for your service!

I think it is very wise to use your free time to read my letter and learn about financial markets in preparation for an entry into the financial services when you muster out.

And if Donald Trump gets his way with a 10% rise in defense spending and a 30% cut in the State Department budget, it looks like there are going to be a lot more of you abroad to take advantage of my services.

Nobody is going to call you a baby killer and shun you, as they did when I returned from Southeast Asia four decades ago. In fact, employers have been given fantastic tax breaks and other incentives to hire you.

I have but one request. No more subscriptions with .mil addresses, please. The Defense Department, the CIA, the NSA, Homeland Security, and the FBI do not look kindly on private newsletters entering the military network, even the investment kind.

If you think civilian spam filters are tough, watch out for the military kind! And no, I promise that there are no secret messages embedded with the stock tips. “BUY” really does mean “BUY.” “Sell” means “Sell” too.

If I did not know the higher ups at these agencies, as well as the Joints Chiefs of Staff, I might be bouncing off the walls in a cell at Guantanamo by now wearing an orange jumpsuit.

It also helps that many of the mid-level officers at these organizations have made a fortune with their meager government retirement funds following my advice. All I can say is that if the Baghdad Stock Exchange ever become liquid, I'm going to own it.

Where would you guess the greatest concentration of readers The Diary of a Mad Hedge Fund Trader is found? New York? Nope. London? Wrong. Chicago? Not even close.

Try a ten-mile radius centered on Langley, Virginia, by a large margin.

The funny thing is, half of the subscribing names coming in are Russian. I haven't quite figured that one out yet.

Did we hire the entire KGB at the end of the cold war? If we did, it was a great move. Those guys were good. That includes you, Yuri.

So, keep up the good work, and fight the good fight. But please, only subscribe to my letter with personal Gmail, Yahoo, or Hotmail addresses. That way my life can become a lot more boring.

Oh, and by the way, Langley, you're behind on your bill. Please pay up, pronto, and I don't want to hear whining about any damn budget cuts!

I Want My Mad Hedge Fund Trader!

May 1, 2019

Diary, Newsletter, Summary

Global Market Comments
May 1, 2019
Fiat Lux

Featured Trade:

(SUNDAY JUNE 30 MANILA PHILIPINNES STRATEGY LUNCHEON),
(WHY GLOBALIZATION WORKS)

April 30, 2019

Diary, Newsletter, Summary

Global Market Comments
April 30, 2019
Fiat Lux

Featured Trade:

(JUNE 21 AUCKLAND NEW ZEALAND STRATEGY LUNCHEON),
(WHY DOCTORS MAKE TERRIBLE TRADERS)

April 29, 2019

Diary, Newsletter, Summary

Global Market Comments
April 29, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR ANOTHER LEG UP FOR THE MARKET),
(SPY), (TLT), (DIS), (INTU), (FCX), (MSFT),
(QQQ), (CVX), (XOM), (OXY), (TSLA)

The Market Outlook for the Week Ahead, or Another Leg Up for the Market

Diary, Newsletter, Research

This is one of those markets where you should have followed your mother’s advice and become a doctor.

I was shocked, amazed, and gobsmacked when the Q1 GDP came in at a red hot 3.2%. The economy had every reason to slow down during the first three months of 2019 with the government shutdown, trade war, and terrible winter. Many estimates were below 1%.

I took solace in the news by doing what I do best: I shot out four Trade Alerts within the hour.

Of course, the stock market knew this already, rising almost every day this year. Both the S&P 500 and the NASDAQ (QQQ) ground up to new all-time highs last week. The Dow Average will be the last to fall.

Did stock really just get another leg up, or this the greatest “Sell the news” of all time. Nevertheless, we have to trade the market we have, not the one we want or expect, so I quickly dove back in with new positions in both my portfolios.

One has to ask the question of how strong the economy really would have been without the above self-induced drags. 4%, 5%, yikes!

However, digging into the numbers, there is far less than meets the eye with the 3.2% figure. Exports accounted for a full 1% of this. That is unlikely to continue with Europe in free fall. A sharp growth in inventories generated another 0.7%, meaning companies making stuff that no one is buying. This is growth that has been pulled forward from future quarters.

Strip out these one-off anomalies and you get a core GDP that is growing at only 1.5%, lower than the previous quarter.

What is driving the recent rally is that corporate earnings are coming in stronger than expected. Back in December, analysts panicked and excessively cut forecasts.

With half of the companies already reporting, it now looks like the quarter will come in a couple of points higher than lower. That may be worth a rally of a few more percentage points higher for a few more weeks, but not much more than that.

So will the Fed raise rates now? A normal Fed certainly would in the face of such a hot GDP number. But nothing is normal anymore. The Fed canceled all four rate hikes for 2019 because the stock market was crashing. Now it’s booming. Does that put autumn rate hikes back on the table, or sooner?

Microsoft (MSFT) knocked it out of the park with great earnings and a massive 47% increase in cloud growth. The stock looks hell-bent to hit $140, and Mad Hedge followers who bought the stock close to $100 are making a killing. (MSFT) is now the third company to join the $1 trillion club.

And it’s not that the economy is without major weak spots. US Existing Home Sales dove in March by 5.9%, to an annualized 5.41 million units. Where is the falling mortgage rate boost here? Keep avoiding the sick man of the US economy. Car sales are also rolling over like the Bismarck, unless they’re electric.

Trump ended all Iran oil export waivers and the oil industry absolutely loved it with Texas tea soaring to new 2019 highs at $67 a barrel. Previously, the administration had been exempting eight major countries from the Iran sanctions. More disruption all the time. The US absolutely DOES NOT need an oil shock right now, unless you’re Exxon (XOM), Chevron (CVX), or Occidental Petroleum (OXY).

NASDAQ hit a new all-time high. Unfortunately, it’s all short covering and company share buybacks with no new money actually entering the market. How high is high? Tech would have to quadruple from here to hit the 2000 Dotcom Bubble top in valuation terms.

Tesla lost $700 million in Q1, and the stock collapsed to a new two-year low. It’s all because the EV subsidy dropped by half since January. Look for a profit rebound in quarters two and three. Capital raise anyone? Tesla junk bonds now yielding 8.51% if you’re looking for an income play. After a very long wait, a decent entry point is finally opening up on the long side.

The Mad Hedge Fund Trader blasted through to a new all-time high, up 16.02% year to date, as we took profits on the last of our technology long positions. I then added new long positions in (DIS), (FCX), and (INTU) on the hot GDP print, but only on a three-week view.

I had cut both Global Trading Dispatch and the Mad Hedge Technology Letter services down to 100% cash positions and waited for markets to tell us what to do next. And so they did.

I dove in with an extremely rare and opportunistic long in the bond market (TLT) and grabbed a quickie 14.61% profit on only three days.

April is now positive +0.60%. My 2019 year to date return gained to +16.02%, boosting my trailing one-year to +21.17%.

My nine and a half year shot up to +316.16%. The average annualized return appreciated to +33.87%. I am now 80% in cash with Global Trading Dispatch and 90% cash in the Mad Hedge Tech Letter.

The coming week will see another jobs trifecta.

On Monday, April 29 at 10:00 AM, we get March Consumer Spending. Alphabet (GOOGL) and Western Digital (WDC) report.

On Tuesday, April 30, 10:00 AM EST, we obtain a new Case Shiller CoreLogic National Home Price Index. Apple (AAPL), MacDonald’s (MCD), and General Electric (GE) report.

On Wednesday, May 1 at 2:00 PM, we get an FOMC statement.
QUALCOMM (QCOM) and Square (SQ) report. The ADP Private Employment Report is released at 8:15 AM.

On Thursday, May 2 at 8:30 AM, the Weekly Jobless Claims are produced. Gilead Sciences (GILD) and Dow Chemical (DOW) report.

On Friday, May 3 at 8:30 AM, we get the April Nonfarm Payroll Report. Adidas reports, and Berkshire Hathaway (BRK/A) reports on Saturday.

As for me, to show you how low my life has sunk, I spent my only free time this weekend watching Avengers: Endgame. It has already become the top movie opening in history which is why I sent out another Trade Alert last week to buy Walt Disney (DIS).

I supposed that now we have all become the dumb extension to our computers, the only entertainment we should expect is computer-generated graphics with only human voice-overs.

Good luck and good trading.

John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader