Newsletter Archives

July 10 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the July 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village NV.

Q: Is the Fed waiting too long to cut interest rates?

A: Yes, they are. We are on a recession track if the Fed doesn’t move soon. In other words, the light at the end of the tunnel isn’t daylight—it’s an oncoming train. So, I think a September rate cut is a certainty. They want to see tomorrow’s data and make sure it’s cool. They need several months of really cool inflation data to justify the first rate cut and we probably are going to get that, so next update is tomorrow with the latest CPI number is crucial. Everybody’s sitting on their hands until then.

Q: When will NVIDIA (NVDA) hit a $4 trillion market valuation?

A: By the end of the year. We’re currently at $3.3 trillion, so another $700 billion is nothing for NVIDIA—you could do that in a day if you really wanted to. But give it until the end of the year, just to be conservative. The fact is, they have a global monopoly on the highest-priced product that everybody in the world has to buy or go out of business. It’s not a bad place to be—it’s kind of like where John D. Rockefeller was in the oil industry around 1900.

Q: What do you think about copper (COPX)? Should I maintain my longs?

A: Yes, all we need is further proof of falling interest rates and the entire commodities/precious metals sectors will take off like a rocket. So just sit with your positions. I put out a piece yesterday on copper. All that shines is not Copper, and it’s not dead it’s just resting, like the proverbial John Cleese parrot.

Q: Do you think a 10% stock market correction is likely before the election?

A: No, the most we’ve been able to get this year is 4% or 5% pullbacks, but not much more. We have a world with a cash glut that is underinvested in the face of a global monetary easing. Investors have been net sellers of stocks all of last year, so we were ripe for a meltup, which has, in fact, happened every day so far in July. So no, my S&P 500 target of 6,000 for the end of the year is starting to look too conservative given the moves that we’ve made lately. I’m very positive about that.

Q: Is the real estate market about to crash?

A: Well, the Florida housing collapse that is being driven by the insurance industry feeing that state. Insurance companies don’t like the hurricane risk going forward, which can cost tens of billions of dollars per event. Nobody there can get insurance anymore unless they pay outrageous amounts of money. Some people are only buying fire insurance to save money and skipping the storm insurance and rolling the dice, hoping the storms hit somewhere else in Florida. The fact is, you can’t get a home mortgage without insurance. Banks aren't willing to take the environmental risk of a house without insurance. No insurance means no bank loans, which means the market shrinks to a cash-only market. And there is a cash-only market in Florida, but it’s not at the $500,000 level, it’s more at the $50 million level. So that is a problem unique to Florida. Could it spread to other areas? Yes. Texas is having another energy crisis, as it has twice every year, ever since the power system was privatized there. No reserves for emergencies, no contingency, nothing that costs money basically. And then California definitely has a wildfire problem, although we’ve been getting off pretty light last year and this year. But the insurance companies don’t think like that. They are the classic 20/20 hindsight type companies.

Q: What’s the impact of the election on the market?

A: Zero. But it will defer buying until after the election. So if you have a 50/50 split on polls, uncertainty is at a maximum. People don’t like investing in uncertainty, they like sure things. After the election, you can expect a massive melt-up in the market no matter who wins because the uncertainty will be gone, and tech stocks will lead once again.

Q: What should I do with Nvidia (NVDA)?

A: I put out a report on this on Monday. You keep your long and write calls against them. And you can get quite a lot of money for just the August calls. I think the August $140 calls were selling for $3.50—they’re higher than that now, so you could even go out to August $145, and just keep doing that every month. If Nvidia takes off and you get taken out of your stock, you’re selling it essentially at $143.50. So that is an excellent trade—a lot of the big institutions are doing that now.

Q: Tesla's (TSLA) been on a big rally for the past month; do you expect it to continue?

A: I expect it to take a break, but the long-term uptrend is now back for good, for lots of different reasons. The immediate headline reason was because the Chinese government allowed the buying of Teslas for the first time—they are made in China after all. Second, they had a good earnings beat, so this caused a massive short-covering rally. The shorts got crushed by Tesla once again, as they have been consistently doing for the last 15 years, really. I saw a number of cumulative losses on short positions on Tesla stock since inception: $100 billion. Most of those losses were incurred by oil companies trying to put Tesla out of business.

Q: What do you call a substantial dip?

A: It’s different for every stock—for some it’s 2%, for others like Tesla or Nvidia it’s 20%. It depends on the volatility of the stock; you just have to look at the charts and make your own call.

Q: What do you think for the next earnings season?

A: It’ll be great for technology stocks and not so great for domestics as their businesses cool off.

Q: Is there anything Europe and American EV producers can do to compete against the Chinese at these lower prices?

A: Yes: keep quality high, therefore profits high, therefore profit margins high. That was the Japanese strategy in the US from the 1980s onwards, and it was hugely successful. You can cede the money-losing part—the low-end part of the market, to the Chinese. The quality of the Chinese EVs is terrible, they start to fall apart after four years, and I learned this from several Chinese EV drivers in Ecuador where they have a substantial market share already. But at $15,000 plus the shipping, you don’t make a lot of money in EVs.

Q: Is it a good time to buy put LEAPS on the ProShares UltraShort 20+ Year Treasury (TBT)?

A: Yes, especially if you’re willing to do an at-the-money and bet that the interest rates stay here or lower for the next year. You’d probably get a 100% return on that, but why bother? Because on the TBT itself, you have a much wider trading spread than the (TLT), therefore the dealing costs are higher. You might as well just go and do the long (TLT) LEAP instead.

Q: Chipotle Mexican Grill (CMG) stock has been really successful for the last five years, but it just dropped 20%, should I get in?

A: It’s a very low-margin business—I avoid those. There’s not a lot of meat in the burrito business. It doesn’t have the key elements of success. (Not just Chipotle, but with the whole industry.) It's not like you’re designing 96 stock microprocessors.

Q: Are AI stocks overhyped at this point?

A: Absolutely yes, but they can stay overhyped for another three or four years, so I think we're just at the beginning of a very long-term run. And the people who have been involved so far are making the biggest money in their lives.

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

July 12, 2024 - Quote of the Day

Diary, Newsletter, Quote of the Day

“No matter who wins the election, we still have a lot of wood to chop. There is no way we continue to run huge deficits without a severe market consequence,” said my old friend and former client, Leon Cooperman, CEO of mega hedge fund Omega Advisors.

July 10, 2024

Diary, Newsletter, Summary

Global Market Comments
July 10, 2024
Fiat Lux

Featured Trade:

(DINNER WITH DAVID POGUE),
(TSLA)

Dinner with David Pogue

Diary, Newsletter

The last public event I attended before the pandemic hit was a dinner with David Pogue, the Science and Technology writer for the New York Times. It was a night well spent.

David believes that climate change is no longer an “if”, or a “maybe” but a certainty. The sooner we start adapting our lives to it, the better.

The bottom line is that a big piece of the world is about to become unhabitable by humans, possibly as much as the 20% around the equator. The loss of life could be huge.

Raise sea levels by 20 feet and you lose all the coastal cities of China, a large part of the US East Coast, and most of Florida. The US government will have to end flood insurance or go bankrupt. It is already tearing down oceanfront homes that have filed two or three federal claims. Private insurers have already gone this route.

Many species of fish, animals, and birds have been migrating north and south for decades. Indeed, tropical game fish, like mahi mahi, have been showing up along the California coast in recent years, to the delight of local fishermen.

There has been a massive migration of hummingbirds north to Oregon. Global warming could be halted in decades. But to return to pre-1970 levels would be a century-long project. Ironically, the Coronavirus started on that work right after we met, bringing the global economy to a grinding halt and dramatically shrinking the population. US lifespans shrank in 2020 for the first time in 100 years, by one full year.

We spent a lot of time at Mad Hedge Fund Trader talking about future technologies. It will be a huge net job creator over time, but the disruptions to existing industries will be enormous. Steel workers don’t morph into computer programmers easily, although I’ve seen some of the younger ones do it with enthusiasm.

When I told him I was one of the first Tesla (TSLA) buyers 13 years ago and my name still stood on the factory wall, he reached out to shake my hand and say “Thank you.” He was shocked when I told him most commercial pilots can’t safely fly a plane without a functioning autopilot.

I met David on what was certainly the worst-timed book tour in the history of the soon-to-be published How to Pre- pare for Climate Change. There he offers highly practical advice on preparing for an era of extreme weather events, possible famines and floods, and other climate-caused chaos. Click here for the Amazon link.

The 60-year-old Ohio native has an unusual eclectic background not unlike my own. He graduated from Yale with a degree in music, summa cum laude. He went on to become an itinerant Broadway producer. It was probably his desire for a steady paycheck that drove him into writing, taking a 12-year job at Macworld magazine, of which I was a steady reader.

David published the first Mac for Dummies book in 1988. He went on to write six more of the original “Dummies” books, including those for iBooks, Opera, Classical Music, and Magic. He became the personal technology correspondent for the New York Times in 2000.

David has hosted the Nova TV series for PBS and programs for the Science and Discovery channels. A five-time Emmy winner for his stories on CBS Sunday Morning, Pogue has been at the forefront of new and emerging tech trends for decades. There you can hugely benefit from his annual Christmas technology gift tips.

To learn more about David Pogue, please visit his website at https://davidpogue.com .

July 10, 2024 - Quote of the Day

Diary, Newsletter, Quote of the Day

“We weren’t treated as humans. We weren’t even treated as robots. We were all just part of the data stream,” said one of 600,000 Amazon fulfillment center workers.

July 9, 2024

Diary, Newsletter, Summary

Global Market Comments
July 9, 2024
Fiat Lux

Featured Trade:

(ALL THAT GLITTERS IS NOW NOT COPPER)
(FCX), (COPX)

All That Glitters Is Now Not Copper

Diary, Newsletter

Those who followed recommendations to bet heavily in copper plays over the last two years have been handsomely rewarded. Since the move began, Freeport McMoRan (FCX), the top copper producer in the world, has more than doubled.

The logic was very simple. Booming EV sales and the needed tripling of the electrical grid assured that supplies would be challenged for years to come.

The closure of one of the world’s largest copper supplies in Panama last year after a court ruling further exacerbated supplies.

When Chinese speculators targeted copper it was really off to the races.

The red metal has been on a tear since February, picking up some 40%. Similarly, Freeport McMoRan (FCX), the top copper producer in the world, has risen by 55%, and (COPX) has jumped by 67%. That caused the long position on the London Metals Exchange to grow from around 5,300 contracts in January to a high of 71,900 contracts in mid-May

But copper has been sagging of late, ever since (FCX) hit an all-time high of $56 in May. Some of this might be due to normal profit-taking in an asset class that has had a tremendous run. As with many assets since October, things have been too good for too long.

But there may be larger factors at play.

For a start, the much hoped-for Chinese economic recovery never took place. Chinese constriction demand for copper is still at rock bottom, with home prices off 70% and bankruptcies rippling through the system.

And through my own research, I discovered that AT&T has begun scrapping its copper landline system in favor of far cheaper and more efficient fiber optic cable and cellular networks. If (T) were smart enough to take advantage of this, it could unleash as much as a year's supply of scrap copper on the market.

An effort by BHP to take over Anglo America, another big copper producer, fell apart.

If the Panama mine were to reopen in early 2025, that would tip the market from a shortage into a surplus.

Trend following Commodity Trading Advisors have flipped from bullish to bearish putting further pressure on the market.

As a result, the copper market has temporarily come into balance. This could last some months.

Eventually, the shortage will come to the fore once again as the long-term fundamentals are so overwhelming.

Although the market was in a surplus for the first four months of the year, analysts say that will soon change. Copper demand is expected to exceed supply this year and a deficit of around 600,000 metric tons over the next three years is possible. Other forecasts see a shortfall approaching half a million metric tons in 2024 alone.

The bottom line here is that Mr. Copper is not dead, just resting. I’ll let you know when the wake-up call sounds.

July 9, 2024 - Quote of the Day

Diary, Newsletter, Quote of the Day

“There is a better chance that hockey is banned in Thunder Bay, Ontario, than the USA seeing a sustained 4% GDP growth rate when oil is above $100/barrel,” said Keith R. McCullough, CEO of Hedgeye Risk Management.

July 8, 2024

Diary, Newsletter, Summary

Global Market Comments
July 8, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD,
and NORTH TO ALASKA),
(NVDA)

The Market Outlook for the Week Ahead, and North to Alaska

Newsletter

Yes, I’m back from the Frozen Wasteland of The North.

Except it was anything but a wasteland. It was far more beautiful than I remember 57 years ago. In a world beset with accelerating change everywhere, Alaska is unchanged from the primordial age. It is a natural paradise blessed with spectacular scenery and filled with wild animals.

But more on that later.

Now on with the most important question of the day.

What to do about NVIDIA?

Those who heeded my advice to load up on the Silicon Valley graphics card maker are facing a dilemma. (NVDA) is now such an outsized share of the entire stock market, some 6% of the S&P 500. Even if you don’t own (NVDA) directly, if you are an index investor in the (SPX), it is still your largest holding.

If you sell NVIDIA and it doubles again, you look like an idiot. If you hold it and it drops by half, you look like a bigger idiot. Here is my five cents worth. It will do both in the coming years.

Fortunately, there is another solution. Sell short (NVDA) out-of-the-money calls against your existing long stock position. If the shares rise, you will think you died and went to heaven. If it falls, at least your cost basis falls by the amount of option premium you received.

I’ll give you an example.

Let’s say you still have 100 shares of (NVDA) that no one has talked you out of selling yet that you bought last October at a split-adjusted $40. You can sell short the August 16, 2024 $140 calls for $3.50 which expire in six weeks and pays you $350 in options premium. If NVIDIA fails to rise above $140 and they expire worthless, you get to keep $350 ($3.50 X 100 shares per option). This reduces your cost basis \by $3.50 to $36.50.

If the shares rise above $140, they will get called away and your upside breakeven point is now $143.50 ($140 + $3.50). You get to make an extra $18.50 in capital gain to get there from Friday’s $125 close.

It’s win, win, win.

The only downside is that shares called away are treated as a sale for tax purposes. Remember, you are being taxed on a much larger profit. You can always offset the gain by taking a loss in another stock, such as in the energy sector.

I just thought you’d like to know.

Silver has been a star performer as the top precious metal this year, up 30% at the highs, but has recently been faltering. A round of profit-taking has knocked the wind out of not just the white metal, but all precious metals. Most silver ETFs have seen outflows this year, while sales of silver Eagle coins from the US mint have dropped by half.

However, while financial demand for silver has been going down the toilet, industrial demand is still soaring. This is a new development in the history of silver.

The great mystery among long-time silver watchers like myself is that silver has gone up at all this year. High interest rates and inflation and a strong economy are not the usual backdrop for a bull market in silver.

But like so many other markets recently, it has irrevocably changed. Industrial demand is taking over. Silver is the world’s best conductor of electricity. Al Capone’s Duesenberg V12 was entirely wired with silver for this reason. And the fivefold demand in the size of the national electrical grid demanded by AI has put a new spotlight on the poor man’s gold.

In 2023 silver demand from the solar panel industry jumped by 64% and it is expected to rise by another 20% this year. In the meantime, supplies of silver from Companies like Wheaton Precious Metals (WPM) have fallen marginally. It's that old supply/demand thing. Never fight it.

So any further falls in in silver prices should be bought with both hands. If you’re lucky, you might get another 10% drop. And if I’ve really hooked you with this piece, buy the 2X long silver ETF (AGQ). It will be up huge by yearend.

So far in July, we are up +0%. My 2024 year-to-date performance is at +20.02%. The S&P 500 (SPY) is up +16.14% so far in 2024. My trailing one-year return reached +34.63%.

That brings my 16-year total return to +696.65%. My average annualized return has recovered to +51.29%.

As the market reaches higher and higher, I continue to pare back risk in my portfolio. I am currently in a very rare 100% cash position.

Some 63 of my 70 round trips were profitable in 2023. Some 29 of 38 trades have been profitable so far in 2024, and several of those losses were really break-even.

Nonfarm Payroll Report Comes up Short in June at 200,000. The Headline Unemployment Rate rose to 4.1% nearly a three-year high.

Price of Bitcoin Sputters, Bitcoin price tanks as traders worry over the likely dumping of tokens from defunct Japanese exchange Mt. Gox and further selling by leveraged players after the cryptocurrency's strong run.

Bezos Cashes Out, Founder and executive chair Jeff Bezos will sell almost $5 billion worth of shares in Amazon as his e-commerce company hits all-time highs.

Trade War Between China And The E.U. Heating Up, China will investigate European brandy imports after the E.U. slapped tariffs on Chinese-made electric vehicles. This will effectively make the price of goods a lot higher in the Old Continent.

US Venture Capitalists Flood into AI Investments, U.S. venture capital funding surged to $55.6 billion in the second quarter, marking the highest quarterly total in two years. The latest data represents a 47% jump from the $37.8 billion U.S. startups raised in the first quarter. Most of these investments will go into AI.

Volkswagen Will Not Produce Rivian Cars, Rivian announced that it has no plans to produce vehicles with Volkswagen after a media report said Rivian is in early talks with the German automaker to extend a recent partnership beyond software.

Inflation Inches Up, The core personal consumption expenditures price index increased just a seasonally adjusted 0.1% for the month and was up 2.6% from a year ago. This inflation number is called the PCE.

Google Buys Solar Power Firm Google will snap up Taiwan's New Green Power and could buy up to 300 megawatts of renewable energy from the BlackRock fund-owned firm to help cut its carbon emissions and those of suppliers.

EU set to charge Meta, the European Union is set to penalize Meta for breaking the bloc's landmark digital rules. Regulators are targeting Meta's "pay or consent" model. It’s illegal in Europe.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, July 8, the Consumer Inflation Expectations are released.

On Tuesday, July 9 at 7:00 AM EST, the NFIB Business Optimism Index is published.

On Wednesday, July 10, Mortgage Applications are out.

On Thursday, July 11 at 8:30 AM, the Weekly Jobless Claims are announced. We also get the Consumer Price Index.

On Friday, July 12 at 8:30 AM, the Producer Price Index is announced. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, it was with great fondness that I returned to Alaska for the first time in 57 years.

But instead of hitchhiking heavily armed with a high-powered rifle and a pistol, this time I embarked on Cunard’s Queen Elizabeth, one of the finest cruise ships afloat.

While before I battled Grizzley bears and torrential rainstorms, in 2024 I observed the ailments that beset old age. Here’s a knee replacement, there goes a new hip, sorry about the emphysema, and hello Mr. Arthritis.

To say that America’s 49^th state is enjoying boom times would be a vast understatement. Because of the Gaza War, every cruise line canceled their Middle Eastern tours and moved the ships to the Caribbean in winter and Alaska in the summer.

As a result, you have six gigantic ships disgorging 25,000 passengers and crew onto Juneau, a town of just 30,000. Try to imagine Times Square on New Year's Eve solely occupied by sober waddling obese 70-year-olds. Juneau only has dock space for five ships so one forlorn Celebrity ship had to use shuttles to ferry passengers ashore.

Welcome to the T-shirt-based economy.

Franklin Street was lined door to door with souvenir shops hawking every kind of local knick-knack. Maybe 99% of the souvenirs were made in China. There were no less than 25 jewelry stores. And if you ever had a desire for salmon or king crab for lunch, this is your place.

It has also collapsed cruise prices. The cheapest inside cabin with no windows on my ten-day cruise cost $799 with all the food included. That’s cheaper than staying at the Motel 6 and eating at Taco Bell every day. Cruising is now far and away the cheapest form of vacation travel today.

The demands on the local economy were so great that most shore excursions were sold out. In any case, mushing with sled dogs didn’t really appeal to me, nor did whale watching or sea kayaking with the orcas.

I would have done the fly fishing in a heartbeat, but it was the first to sell out. The Great American Eagle Experience offered only one sorry example which was missing half a wing after getting hit by a car.

As with every large corporation in America today, Cunard is doing everything it can to squeeze every penny of profit out of their business. Recently added were branded Cunard red and white wine, gin, whiskey, and vermouth. Oh, and the penuriously underpaid staff are now billed $1,000 for room and board, which includes a tiny cabin below the waterline with no porthole.

And many of the locals are here only temporarily. Freshly graduated college students come up from the lower 48 to work as drivers, guides, cooks, and dishwashers to handle the summer surge. Many take two or three jobs and bank enough to buy houses back home.

They live in RVs, tents, and abandoned buses. That’s no fun when it rains every day, and you have hungry raiding bears looking for dinner every night.

The population drops by half in September when the cruise ships depart for warmer climes. What do the remaining residents do for the ensuing eight months? Hunt, fish, fix things around the house, watch movies, keep the town bars in business, work on art projects, and dream about next summer. Juneau only gets three hours of sun around the winter solstice.

At one point, fed up with the melee downtown, I took a city bus 20 miles just to enjoy Alaska in its pristine natural state. It was clear that the Inside Passage received massive amounts of rain, over 120 inches a year, and 100 feet of snow. The forest was so thick that you couldn’t walk through it and the ground was covered in moss.

You would think this would make cruise line stocks a screaming buy, and in fact, it has. Carnival Corporation (CCL), the largest, owning nine cruise lines, carried a staggering 12 million passengers last year.

Royal Caribbean Cruises (RCL) has jumped by 35%, Carnival by 40%, and Norwegian Cruise Line Holdings (NCLH) by 20%. Viking Holdings (VIK) only went public in April and was met with a warm reception, tacking on 27% since then.

It's not so much the booming Alaska business that is driving share prices. Remember, these are discount offerings at the expense of higher-margin Middle Eastern business. It has more to do with the expectation of falling interest rates. All the cruise lines took on massive debt to keep from going under during Covid and a Fed interest rate cut will be a shot in the arm for these heavily indebted companies.

At the farthest north point of the trip, some 60 degrees north latitude, I enjoyed the famed Midnight sun. It was fully bright until 10:30 PM and never became completely dark. That explains the legendary size of Alaska’s summer vegetables. When I was in Fairbanks at 70 degrees, the sun came in for a landing, then took off again, never dipping below the horizon. There the Northern Lights were awesome.

The ship hosted two formal nights, a “Fire and Ice” perfect for my white dinner jacket and a “Venetian Masquerade Ball” with masks that had black written all over it. Cunard has been dialing back the formal nights over the years. Perhaps they’re just catering to the US market, or maybe society is just becoming more casual.

Many ship activities are oriented around selling you junk, like “The Excitement of Investing in Tanzanite” and “The Fine Art of Collecting Watercolors” which I learned to pass on a long time ago as blatant rip-offs.

Of course, no cruise is complete without a singles night. I put on my cleanest shirt and pressed jeans and was introduced to a dozen white-haired wealthy widows all in the 70s and 80s. No luck this time.

Maybe next year.

All in all, it was the perfect rest from this year’s tempestuous markets….until the next cruise.