Below please find subscribers Q&A for the Mad Hedge Fund Trader February 28 Global Strategy Webinar.

As usual, every asset class long and short was covered. You are certainly an inquisitive lot!

Q: Will we retest the 200-day moving average?

A: No, we won't. With the last test of the 200-day, we didn't even get to the 200-day, we just flirted with it. Moreover, there was a complete washout-not only from, all the short volatility players but, additionally, all the hot money in the market as well. So, I doubt we will get down to the 200-day again this year. Next year is likely, this year no.

Q: What is the next catalyst for a move up in the market?

A: Either a spectacular earnings report from a major company like Apple (and the next one is May 2), or news of the size of major share buybacks from companies like Google (GOOGL), Apple (AAPL), Microsoft (MSFT), Cisco (CSCO), etc. Some indication of news like that will draw more buyers back into the market.

Q: When will companies start buying back their shares?

A: They are buying them back every day. They're not allowed to buy back shares just before or just after earnings reports, but all of the Q4 earnings reports are done now, so we have a free run here for about two months where most companies are going to be automatically buying their own shares back daily. They're on auto-buy programs to dispel any risk of insider trading in their own shares. That's also why the largest share buyback companies had the largest moves in the last three weeks- Apple was certainly one of them, with the share up $31 in only two weeks.

Q: Should I look to emerging markets now? Is it a better value play than US equities?

A: Yes. I still expect emerging markets to outperform the US stock market by about a 2 to 1 margin. Buy the (EEM) on any dip.

Q: Do you think the infrastructure bill will get passed this year?

A: No, because it will require more deficit spending, and at a certain point the Republicans have to draw the line. We still have a large number of deficit hawks inside the Republican Party. If they do pass something, it will essentially be meaningless, (giving tax breaks for real estate developers or something of that sort). There will be no real impact on the economy or the stock market.

Q: What about LEAPS on NVIDIA (NVDA) and Lam Research (LRCX)?

A: That would have been a great thing to do on Feb 9. You don't want to do LEAPS - long term one-year option positions -??after stocks have just made 30% moves up, you do it before. You only do these at the very bottom of market moves. Because of their long duration, they can really get slaughtered when the stock goes against you.

Q: Is NVIDIA still going up to new highs?

A: Yes. My last bet was for a third double in the shares from $180 to $320, and we are already well on our way. The company is firing on all cylinders.

Q: Should I buy housing stocks?

A: They're still down from February...I would say yes. We see an extreme shortage in housing supply continuing for year, and enormous increases in new construction permits from the big home builders- like up 10% in a month; these are huge numbers. So, I'd have to think that the housing stocks like Lennar (LEN), Pulte Homes (PHM), and KB Homes (KBH) are going to come back big time.

Q: What is your TBT target?

A: I would say right around here I would be happy to take a short-term profit. You don't want to run the TBT for the long-term because it has a -6% per year negative cost of carry. It's a great short-term trading instrument, not a long-term hold. We now have a monster profit - it's just gone from $32 to $40, which is a 25% gain in three months. I'd take that and look for a better re-entry point later.

Q: If we missed the Currency Shares Japan Yen Trust (FXY) short position yesterday, should we go into it today?

A: Yes, but only use limit orders in the middle market. If you get done at your price: great. If not, walk away and just watch it. The fundamentals for the Japanese yen are as terrible as ever.

Q: If you had a choice between gold and Bitcoin, what would you take?

A: Bitcoin, never. It reliably brings us 70% corrections at any time without warning. Buy gold on the next dip. The bull market for the barbarous relic still lives, it's just getting a slow start.

Q: Is First Solar (FSLR) a buy even though it's not supported by the administration?

A: Yes. First Solar's business model is so strong they will be profitable no matter who's in office and whether there are subsidies or not. So, any dip on that is a green light. That's why the shares are up 200% in eight months. They are a back-door oil play. That said, there is some double top risk on the shares right here.

Q: Is Freeport McMoRan (FCX) a hold?

A: Yes, because copper will recover. Guess what electric cars buy tons of? We are moving to a copper-based transportation system. China's economy is also holding steady, which is another major factor supporting copper.

Q: Has your view on commodities changed over the last few months?

A: No, I still think commodities will outperform stocks this year- that view has not changed. You had a fantastic entry point two weeks ago. Look for higher highs now. Commodities are always big movers as we approach the end of an economic cycle.

With all that, I'll see you at the next Global Trading Strategy webinar on March 14 at 12:00 EST.

Good Luck and Good Trading!
John Thomas
CEO & Publisher
Diary of a Mad Hedge Fund Trader

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I have been reading Warren Buffet's annual letter to his Berkshire Hathaway (BRK/B) shareholders for 41 years.

During this time, I can't recall reading a single page that did not improve my own trading and investment skills. This years was no different.

Of course, it helps that Warren was a founding subscriber to my own daily newsletter, the Diary of a Mad Hedge Fund Trader.

A few years ago he bought a 5% stake in Bank of America (BAC) right at a multi decade bottom. He says he got the idea while reading a report in his bathtub.

What he omits in public is that it was MY Trade Alert to buy (BAC) call options issued the day before that he was reading.

And what a blockbuster year it has been!

Berkshire increased the share value by a stunning 23.0%. It added a gargantuan $65.3 billion in book value last year.

The market capitalization now stands at an impressive $525 billion.

The shares are not for small timers, as a single one now costs $317,840. Warren has never exercised a share split, viewing it as a needless Wall Street ploy to earn excess fees.

This compares to a 1965 per share market value of only $23.80, and is why the media are always going gaga over Warren Buffet.

If you're lazy and don't want to do the math, that works out to a compound annualized return of an eye popping 19.1%.

This is why guessing what Warren is going to do next has become a major cottage industry (Progressive Insurance anyone?).

Buffet is quick to point out that only $36 billion came from operations, the balance of $29 billion came as a gift from the US government in the form of the December package of tax cuts.

It truly shows the extent to which big business benefited from the bill, which is entirely dependent on borrowed funds.

Thanks to the extreme elevation of share prices 2017 was the first time in many years that Berkshire Hathaway did not make a major acquisition. It says a lot that the best investor in history can't find anything to buy in this market.

As a result, Berkshire is sitting on an eye-popping $116 billion in cash and US Treasury bills waiting for an opportunity, like another market crash.

Warren gave some insight to the cost to Berkshire of the three major hurricanes last year, as insurance is a mainstay of the company's strategy.

The tab came to $3 billion out of an industry wide total loss of $100 billion, putting the conglomerate's insurance operations at an operating loss for the first time in a decade. Buffet expects to make it back this year.

If Hurricane Irma had drifted only a few miles to the east, the industry loss would have doubled to a staggering $200 billion, and many insurance companies would have been pushed into bankruptcy.

I always thought that global warming would be terrible for property and casualty companies. It's not. Instead, it's great news.

The important thing about global warming is not that the temperature is getting hotter or colder. It's that the weather moves.

The end result is that those in parts of the world prone to storms, hurricanes, floods, fires, and other natural disaster pay much higher premiums. But the weather then shifts to other parts of the world that has no insurance coverage.

The higher income and fewer claims is a formula for printing money in Buffet's four major property and casualty insurance companies.

Sometime in the early 1970's, a friend of mine said I should take a look at a stock named Berkshire Hathaway (BRKA) run by a young stud named Warren Buffet.

I thought, "Why the hell should I invest in a company that makes sheets."

After all, the American textile industry was in the middle of a long trek toward extinction that began in the 1920's and was only briefly interrupted by the hyper prosperity of WWII.

The industry's travails were simply an outcome of ever rising US standards of living, which pushed wages, and therefore costs, up.

It turned out that Warren Buffet made a lot more than sheets. However, he is not a young stud anymore, just an old one, like me.

Since then, Warren's annual letter to investors has been an absolute "must read" for me when it is published every year.

It has been edited for the past half century by my friend, Carol Loomis, who just retired after a 60-year career with Fortune magazine. (I never wrote for them because their freelance rates were lousy).

Witty, insightful, and downright funny, I view it as a cross between a Harvard Business School seminar and a Berkeley antiestablishment demonstration.

You will find me lifting from it my "Quotes of the Day" for the daily newsletter over the next several issues. There are some real zingers.

I was kind of pissed when Warren bought BNSF in 2009 for a blockbuster $44 billion, as it was long my favorite trading vehicles for the sector. Since then, its book value has doubled.

Together with Berkshire Hathaway Energy (BHE), BNSF accounts for 33% of Berkshire's total after tax operating earnings.

Typical Warren.

Proving that humility is a crucial ingredient of long-term investment success, Warren devotes an early part of the letter to his fiasco at Dexter Shoe in 1993.

He bought the company for $434 million, which then promptly went bankrupt. Compounding the error, he paid for company not with cash, but with Berkshire Hathaway stock.

Today, that stock is worth in excess of $6 billion, which was paid out at the expense of other Berkshire shareholders.

Buffet opined at length on the Great American Economic Miracle, which he does every year.

Since 1776, America has amassed an unbelievable $90 trillion in wealth. There are 75 million owner occupied homes, 260 million cars, and talent filled universities by the hundreds.

Our unique system of free market capitalism has acted as an economic traffic cop, ably directing capital, brains, and labor to where it can be most efficiently used.

Warren then launched on an eloquent argument in favor of company share buy backs, now a hot topic among investors and in Washington.

Bottom line: Companies should always do it when they can get shares back at a discount to intrinsic or book value. Buffet does the same with Berkshire shares.

Warren clearly loves the insurance industry, which gives him the cash flow to make his many profitable investments.

And here is what I learned this year.

Another of Buffet's favorite companies is Clayton Homes, which accounts for 70% of new American homes priced under $150,000. Most of these are manufactured homes, or mobile homes to you and I.

Surprisingly, the real money in this business is in the subprime loans extended to customers.

What shocked many long time Buffet watchers was his sudden love affair with Apple (AAPL). After shunning the company for decades, he dove in with a major share purchase only in 2016.

In 2017, Warren invested more new capital in Apple (AAPL) than in any other company and it is now his second largest holding after Wells Fargo Bank (WFC).

Coca-Cola (KO), International Business Machines (IBM), and American Express (AXP) account for his next three top holdings.

I believe that Warren has partly been driven into Apple by the lack of other attractive investment alternatives eight years into a bull market.

He also deferred to his great grandkids, who seemed addicted to their Apple devices, indicating unshakable brand loyalty.

Warren ends his letter outlining the many events in store at the upcoming shareholders meeting on May 6 in Omaha, Nebraska, the "cradle of capitalism."

Guests can participate in a newsletter-throwing contest (one of Warren's and my first jobs), and get great deals on insurance (GEICO), and furniture (Nebraska Furniture Mart). Buyers of Brooks running shoes can join a 5k race the next day.

To learn more about the most amazing investor of our generation, and the two before, read "The Snowball" by Alice Schroeder.

As for me, I am way too busy to make it to Omaha. But I really look forward the next letter to shareholders.

Armchair historians will recall the beginning of WWII in 1939, where Germany, Britain, and France had declared war against each other, but no shots were fired for eight months.

It was called the Phony War. It ended when Germany invaded Belgium, and then France.

We have a Phony War of our own in the markets these days, being fought tooth and nail around the S&P 500 50-day moving average. Every assault is repulsed, every false breakout followed by a retreat.

Hyper bulls believe an upside breakout is imminent. Bears think we have to go back and retest the lows before proceeding. I am in the latter camp, but only see a weak retest at worst.

Volatility spikes are like cockroaches. There is never just one.

There is just too much money out there trying to get in. And now that earnings season is over, so is the "quiet period" and companies have free reign with which to buy back their own shares.

With tax cuts and repatriation, they now have more money than ever with which to buy back their own shares, and they are doing so with both hands.

We have a Phony War of another sort, that against stocks. The 13.3% intraday top to bottom move we saw in the Dow Average was totally bogus, as I expected.

The net result of all this is to leave the major stock indexes unchanged on the year. A zero return for two months of work! I heard wages were falling, but not that fast!

This month has been a harsh lesson in the uselessness of technical analysis. Not only did it fail to predict a top, it also missed the bottom by miles. If anything, technical services were urging you to sell at the bottom, as they always do.

Those like me who use fundamental research to drive decisions KNEW that share prices made no sense with a Dow at 23,000 given the robust state of the economy, especially technology ones.

That gave me, and therefore you, the confidence to load the boat with technology stocks at the bottom, to great effect.

It has been another eye-popping performance this week.

We saw the first failure of a US Treasury bond auction in yonks. The Treasury attempted to unload $258 billion in paper last week and there were few takers.

Foreign investors, who normally take half of Uncle Sam's bond issues, were virtually absent. The two-year Treasury bill saw a yield of 2.25%, a ten-year high.

It turns out that using tax cuts to starve government revenues, while dramatically increasing spending to achieve political goals, isn't such a great thing for bond owners.

As for me, I have covered the last of a dozen short positions in bonds that I have strapped on over the past seven months. Things were getting just too good. During this time, the ten-year US Treasury bond yield leapt from 2.03% to a 2.95% high on Thursday.

That's an increase of 45.32%. What happens when yields rise another 45.32%, and another 45.32% after that? What will be the impact on stock prices? I fear no good, not good.

This is what all stock traders and investors have in the back of their minds these days, if not the front.

I wish there was such a thing as a Cassandra Index. The more talking heads and newsletters decrying the end of the world, as we saw in droves on February 9, the better the risk reward for investing.

The Volatility Index (VIX) used to perform such a service, but it does no longer, overtaken by algos and extreme leverage.

So, why are the FANGS really going up? I bet you'd like to know, since if you have been following the Diary of a Mad Hedge Fund Trader you already have them coming out of your ears.

Not only have they outperformed every asset class by miles over the past two years. They bounced back like silly putty in the wake of the recent crash, some already to new all-time highs.

The concentration of the rally has been breathtaking. Some 48% of the rise in the S&P 500 this year has been accounted for by just three stocks; Amazon (AMZN) (27%), (Microsoft (MSFT) (13%), and Netflix (NFLX) (8%).

How about this theory? Technology is virtually the only sector of the economy that does NOT borrow money. Their profits and cash flows are so enormous that they can generate any money they need to finance future growth internally.

When they do borrow, such as seen with Apple's recent 30-year bond issue, it is really only to engage in financial engineering. Borrowing at 2% to buy 2% yielding stock back when your compensation is tied to stock performance?

How hard is that to figure out?

This coming week will be dominated by raft of new housing data, followed by an updated read on Q1 GDP.

On Monday, February 26 at 10:00 AM EST we kick off the week with February New Homes Sales.

On Tuesday, February 27 at 8:30 AM we learn February Durable Goods Orders. The S&P Corelogic Case Shiller Home Price Index is out at 9:00 AM EST, a three-month lagging indicator of residential real estate prices.

On Wednesday, February 28, at 8:30 AM EST, we get another read on Q1 GDP. February Pending Home Sales follow at 10:00 AM.

Thursday, March 1 leads with the Weekly Jobless Claims at 8:30 AM EST. The PMI Manufacturing Index comes next at 9:45 AM EST.

On Friday, March 2 at 1:00 PM we receive the Baker-Hughes Rig Count, which saw a small rise of three last week.

As for me, I shall spend the weekend pouring over reports from my technology, looking for the best place to strike during the next selloff.

What I am learning from my own Mad Hedge Technology Letter, which by the way has a perfect track record since inception, is nothing less than amazing.

Good luck and good trading!

I Occasionally Have Been Known to Toot My Own Horn