May 18 Biweekly Strategy Webinar Q&A
Below please find subscribersā Q&A for the May 18 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: When do you see the banks returning to glory?
A: When recession fears go away, which should happen this summer. A recession will either have come and gone, or we will have confirmation by the end of summer that there is no recession in sight for the next few years at least. This will likely trigger a monster rally in the banks, which could all jump 50% from here. Obviously, Warren Buffet is putting his money where his mouth is by loading up on Citibank (C) yesterday. This would take us to new all-time highs by the end of the year. So, again, use these down-1000-point days to go cherry-picking among the generals who have been executed. If thatās not mixing metaphors, I donāt know what is!
Q: Should I listen to CNBC?
A: No, do not listen to the talking heads on TV. They are on TV because they donāt know how to make money. If they did know how to make money, theyād be locked up in a dark basement somewhere like me, grinding out millions for their firms. In fact, watching TV is the perfect money destruction machine because on down days, they bring out the uber bears, and on up days they bring up the hyper bulls. They are trying to egg you to get you to do the exact opposite of what you should be doing. Theyāre not interested in you making money; theyāre interested in getting traffic on their websites and making money for themselves. CNBC can be highly dangerous to your financial health.
Q: Will we get stagflation?
A: No, because I think that once the year-on-year comparisons kick ināliterally in a month or twoāinflation will drop from the current 8.3% to down maybe 4% by the end of the year. That also is another factor in your monster second-half rally.
Q: Do you think the bounce in the market yesterday is the beginning of an upward trend or a dead cat bounce?
A: Definitely a dead cat bounce. I expect weāll keep chopping around in the current range for the next 3, 4, and 5 months, and then we catapult into a monster year-end rally. That is a typical bottoming-type process.
Q: Is the wisdom āGo away in Mayā still alive or is your best bet that this year may prove different and the market goes up in the latter part of the year?
A: Actually, you should have gone away in November. Thatās when all tech stocks peaked; only energy went up after that. If youād gone away in November and said ācome back in Augustā that would have been a good strategy because I think thatās when the year-end rally begins. If anything, May could be the bottom of the entire move.
Q: Is it time for LEAPS (Long Term Equity Anticipation Securities)?
A: Not yetāitās too soon for LEAPS territory. You only want to do LEAPS when you are on a sustained long-term uptrend in a stock. We are nowhere near sustained anything, we are still in a bottoming phase, and could be there for months. At the end of those months is when weāll be looking at LEAPS, where you can double your money every 6 months.
Q: Is it time to start nibbling on China stocks (FXI) now that COVID news is marginally better?
A: Iām going to avoid Chinese stocks because the American ones are so much better. You want to buy the quality at the discount, not the marginal, high-risk political footballs at a discount. And China will remain high-risk as long as they are abandoning capitalism. If you have to buy one Chinese stock, I would say Alibaba (BABA); you could get a double on that. But remember it is a high-risk tradeāif the Chinese government wants to roll Jack Ma up in a carpet and kidnap him to Western Chinese re-education camp, the stock will get slaughtered. And thatās been happening increasingly with the heads of major companies in the Middle Kingdom.
Q: When this current route comes to an end, should we look to enter the market with 50% margin on stocks like Tesla (TSLA)?
A: Itās never sensible to go to 50% margin because if the stocks drop 50%, you are completely wiped outāyouāve lost everything. Plus, coming back from a loss is one thing; coming back from zero is impossible. So, I would not recommend that. You might do a safe stock like Apple (APPL), with a 2% dividend, and then at least youāre getting a double dividend. You only do the 50% margin on the safest, high dividend stocks.
Q: Amazon (AMZN) is on its way down. What is your expectation for the $3200/$3400 vertical bull call spread in January 2023?
A: I think you could make money on that. It may not be the full amount of the spread, but youāll definitely get a big increase from current levels, because when we do get a second half rally, it will be tech-led, and Amazon has already had a horrific decline. What you might consider is rolling your strike down, taking the loss on the 3200/3400 and rolling down to like a $2,000/$2,200 in twice the size, and youāll make your money back that way.
Q: For those of us thinking about LEAPS, how should we start to buy inā20, 30, 50% right now?
A: Well, first of all, you only do them on down days like today, when the market is down 800, and you scale in. 20% now, 20% higher or lower, and 20% again higher or lower. But you really want to be saving cash for days like this because You want to feel smarter than everybody else, and they absolutely will hit any bid on a down day, and that's where your LEAPS fills are really excellent, is on a down day like this.
Q: Can the Fed avoid another policy mistake? Because it seems that not only are they heading for high inflation, but layoffs are coming as well, and even with that Iām sure they will perform a soft landing of sorts.
A: For sure, when you take massive amounts of stimulus out of the economy, as we have in the last year, that is recessionary. In fact, the US government is close to running a balance budget right now because Biden canāt get anything through Congress other than money for Ukraine. Good for Ukraine economy, not for ours. And yes, they can do a soft landing, but has it ever been done before? No. Though this is the Fed that just keeps on surprising, so who knows. In the meantime, I'm willing to trade the ranges, and that may be all you get to do for a while.
Q: Target (TGT) shares are down 25%, as they cited higher costs that will result in rising prices for their customers. Would you buy the dip?
A: No, I generally donāt like retailers anyway. Itās a business that operates on a 2% profit margin. I like 40 or 50% profit margin businessesāthose tend to be technology stocks.
Q: Would you buy retailers going into a recession?
A: No, thatās the worst thing in the world to own.
Q: Could Fluor Corp (FLR) be a Ukraine infrastructure stock?
A: Yes, once the war ends there will be a massive effort to rebuild Ukraine. Every company in the world will be involved, and Fluor and Bechtel will be the biggest, though Fluor is the only one where you can buy the stock. We already have the money to do this with all of the money that was seized from Russia. I predict discount sales on mega yachts.
Q: Why do you think all that money is going to Ukraine?
A: Because a weakened Russia is in the national interest of the United States, and itās better that their soldiers are doing the dying than ours. Iāve done the latter and definitely prefer the former, using the other country'sāsoldiers as cannon fodder.
Q: On down days like today, should I be putting on one-month trades like the June options?
A: Yes, because the minimizes your risk and cuts the cost of mistakes. Waiting for the second half of the year when we get a prolonged uptrend to look at LEAPSāthat is the correct way to do it.
Q: Over the next 12 months, do you think the S&P 500 will outperform Nasdaq?
A: Noāfor the next 3 months the S&P 500 will outperform NASDAQ. After that, NASDAQ will become an enormous outperformer for the rest of the decade. So, choose your entry points wisely.
Q: Do you think that housing is peaking out and will start to decline?
A: No, we still have a long-term structural shortage of 10 million homes in the US and I think we will flatline housing for years until we catch up with that shortfall.
Q: What are your thoughts on the Metaverse?
A: Too soon. Right now, the Metaverse involves spending onlyāno revenues. It could be years before you actually see any profits. So thatās why I'm avoiding Meta or Facebook (FB). But then, you could have made the same argument about the internet 25 years ago and semiconductors 50 years ago. If you waited long enough, however, you obviously made a fortune.
Q: China is hoarding 69% of their wheat reserves. Is this because they plan to invade Taiwan?
A: No, itās because thereās a global food crisis going on. Many countries, like India, have banned exports of food to protect themselves. People miss this about China: China will never have a war or invade anybody, because the second they do, their food supplies get cut off by us, who are the worldās largest producer of food. Plus, their trade would get shut off to pay for it, so they canāt buy it from somewhere else, and thatās done with us also. So, they need to be in our good graces in order to eat. That's the bottom line and thatās why Taiwan will never get invaded. Russiaās economy can operate independently for a while, but Chinaās canāt.
Q: Is the baby food shortage further evidence of a food crisis?
A: No, the baby formula crisis is being caused by a monopoly of three companies that control 100% of the baby food market; and the largest of these companies, accounting for a 40% market share of the baby food making, is producing baby food that is poisonous. That's why they got shut down. This has been going on for years, and for some reason, they got a free pass on regulation and inspections by the previous administration, which is ending now, and all of a sudden weāre finding out that 40% of the countryās baby food is contaminated and is being pulled off the market. So, it really has nothing to do with the global food crisis. Thatās more related to Climate changeāsurprise, surpriseāas itās not raining in the right places like California, the war in Ukraine, which removed 13% of the worldās calories practically overnight.
Q: Should I bet the farm here with the ARK Innovation Fund (ARKK)? I like Cathie Woodsā bet on innovation or five-year time horizon. Itās a great thing, donāt you think?
A: Not so great when you drop 70% in the last year. And it is a high-risk bet that of her ten largest holding companies, you only need one of them to work for the fund to bring in a decent return. Of course, you may have to write off nine other companies to do that. But yes, itās a great thing to own on the way up, not so great on the way down. I know some people who started scaling into ARK in November and came to regret it. I would wait on itāthis is your highest leverage technology play, and if you really want some punishment, thereās a hedge fund thatās bringing out a 2X long ARK fund in the next couple of months. Then itās basically option money youāre throwing out. If you want to put some money in that, you could get a 10x on the 2x ETF if youāre playing a recovery in ARK. So watch it; donāt touch it now because ARK is having another heart attack today, but something to consider if you like gambling.
Q: I am full up with a thousand shares of PayPal (PYPL). Itās now down 76%. What should I do?
A: I recommend you learn the art of stop losses. I stopped out of this thing last fall, and itās continued to go down virtually every day. Whenever you buy a new position, automatically enter into your spreadsheet your stop loss for that position. Because things can drop by 80 or 90% and you work too hard for your money to throw it away on these big losses.
Q: What do you think about Steve Wynn and Wynn Hotels?
A: Iād be buying down here down 62%; it was announced today that Steve Wynn has secretly been acting as an agent for the Chinese government where (WYNN) has a major part of its operations. Who knew? With all those high rollers being flown in on private jets from China, sitting at the tables in the closed rooms. So yes, this is a recovery play and it will do just as well as all other recovery plays, but remember itās a China recovery play. And I think, in any case, his ex-wife owns a big part of the company anyway. So I donāt think Steve Wynn is that closely connected with Wynn hotels because of past transgressions with the female staff.
Q: Is it time to scale into Freeport-McMoRan (FCX)?
A: Iād say yes. On a longer-term view, I expect (FCX) to go to $100. And for those who have the May $32/$35 call spread that expires on Friday, my bet is that you get the max profitābut you may not sleep before then.
Q: What do you have to say about a post-Putin scenario and impact on the market?
A: The day Putin dies of a heart attack, you can count on the market being up 10%, if that happens right nowāless if it happens at a later date. But it would be hugely bullish for the entire global stock market, and oil would also collapse, which is why I refuse to put on oil plays here. That is a risk. Putin can give up, have an accident, or get overthrown. When the Russian people see their standard of living decline by 90%, this is a country that has a long history of revolutions, putting their leaders in front of firing squads and throwing the bodies down wells. So, if I were Putin, I wouldn't be sleeping very well right now.
Q: What's the reason for air tickets (UAL), (ALK), (DAL) going up sharply?
A: 1. Shortage of airplanes 2. Soaring fuel costs 3. Labor shortages and strikes 4. It is all proof of an economy that is definitely NOT going into recession.Ā
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Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
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