Page 279 - Mad Hedge Fund Trader

August 14 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the August 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London, England

Q: Do you think we’ll still have another significant test of the lows for the year, or was that it last week? Stocks are rebounding huge this week.

A: They never really went down very much. The average drawdown IN THE S&P 500 (SPY) in any given year is 15%. We only got a 10% drawdown this month because there is still $8 trillion dollars in cash sitting under the market, which never got into stocks. All of this year it's been waiting for a pullback, so I was kind of surprised we even got 10%. I was forecasting maybe 6%. So could we get a new low? You never discount the possibility, but we really have to have another shocking data point to get down to a 15% correction. That is exactly what triggered this sell-off with the Nonfarm Payroll we got in early July. So give me another rotten Nonfarm Payroll report, and we could be back at last week's lows. Which is why I'm 100% cash. I want to have tons of dry powder, if and when that happens.

Q: We've seen a big increase in refi’s for homes in the last week. Is this going to be positive for the economy?

A: Absolutely yes, and that's why we're not going to have a recession. You get housing back into the economy which has been dead meat for almost 3 years now, and suddenly one quarter to one-third of the economy recovers. So that's what takes us into probably 3% economic growth for another year in 2025.

Q: What do you think of the Chipotle CEO (CMG) moving to take over Starbucks (SBUX)?

A: I think it's a very positive move. Starbucks was dead in the water. Their stores are old and dirty and products need refreshing. So if anyone needs a fresh view it's Starbucks, and the guy from Chipotle has a spectacular track record. Chipotle is probably one of the more successful fast-food companies out there. I usually don't ever play fast food—the margins are too low, but I certainly like to watch the fireworks when they happen.

Q: Should I be shorting airline stocks here like Delta Airlines (DAL), now that a recession risk is on the table?

A: Absolutely not. If anything, airlines are a buy here. They've had a major sell-off over the last 3 months for many different reasons, not the least of which was the software crash that they had a month ago. This is not shorting territory. That was 3 months ago for the airlines. Just because it's gone down a lot doesn't mean you now sell, it's the opposite. You should be buying airlines. I usually avoid airlines because they never have any idea if they're going to make money or not, so it's a very high-risk industry, and the margins are shrinking. Let me tell you, the airlines in Europe are absolutely packed. The fares are rock bottom and the service is terrible. Anybody who thinks the consolidation of the airline industry brought you great service has got to be out of their mind.

Q: Do you have any rules on when you stop loss?

A: The answer is very simple. If I do call spreads, whenever we break the nearest strike price, I'm out of there. That’s where the leverage works exponentially against you. Usually, you get a 1 or 2% loss when that happens, and you want to roll it into another trade as fast as you can and make the money back. Sometimes you have to do three trades to make up one loss because when you issue stop losses, everybody else is trying to get out of there at the same time. It's not a happy situation to be in, so we try to keep them to a minimum—but that is the rule of thumb. Keep your discipline. Hoping that it can recover your costs is the worst possible investment strategy out there. Hoping is not a winning strategy.

Q: Why don't you wait for the bottom?

A: Because nobody knows where the bottoms are. All you can do is scale. When you think things are oversold, when you think things are cheap, then you start buying things one at a time unless you get these giant meltdown days like we got on August 5th. So that's what I probably will be doing, is scaling in on the weak days on stocks that have the best fundamentals. That’s the only way to manage a portfolio.

Q: Is it a good time to buy REITs for income?

A: Absolutely. REITs are looking at major drops in interest rates coming. That will greatly reduce their overheads as they refi, and of course, the recovering economy is good for filling buildings. So I've been a very strong advocate of REITs the entire year, and they really have only started to pay off big time in the last month, and Crown Castle Inc (CCI) is my favorite REIT out there.

Q: I own Freeport McMoRan (FCX). Do you think China’s problems will make FCX a sell?

A: Not a sell, but a wait. China (FXI) is delaying any recovery in a bull market. If we get another move in (FCX) down to the thirties I would double up, because eventually American demand offsets Chinese weakness, and we’ll be back in a bull market on the metals. It's American demand that is delivering the long-term bull case for copper, not the return of Chinese construction demand, which led to the last bull market. So we really are changing horses as the main driver of the demand for copper. It still takes 200 pounds of copper to make an EV whose sales are growing globally.

Q: Is it time to buy (TLT) now?

A: No, the time to buy (TLT) was at the beginning of the year, seven months ago, three months ago, a month ago. Now we've just had a really big $12 point rally, and really almost $18 points off the bottom. I would wait for at least a 5-point drop-in (TLT) before we dive back into that. If you noticed, I haven't been doing any (TLT) trades lately because the move has been so extended. And in fact, if they only cut a quarter of a point in September, then you could get a selloff in (TLT), and that'll be your entry point there. You have to ditch your buy high, sell low mentality, which most people have.

Q: What bond should I buy for a 6 to 10-year investment?

A: I’d buy junk bonds. Junk bonds have always been misnamed, or I would buy some of the high-yield plays like the BB loans (SLRN). With junk bonds, the actual default rate even in a recession, only gets to about 2%. So it certainly is worth having. I still think they're yielding 6 or 7% now, so that's where I would put my money. Or you can buy REITs which also have similarly high yields, like the (CCI), which is around 5% now. Risks in both these sectors are about to decline dramatically.

Q: Will there be an inflation spike next year?

A: No. Technology is accelerating so fast it's wiping out the prices of everything that's highly deflationary, and that pretty much has been the trend over the last 40 years. So don't expect that to change. The post-COVID inflationary spike was a one-time-only event, which then ended two years ago. We've gone from a 9% down to a 2.8% inflation rate; unless we get another COVID-induced inflation spike, there's no reason for inflation to return. Deflation is going to be the next game.

Q: What do you think of the UK economy now that you're in London?

A: Awful! Brexit was the worst thing that happened to England—that's why it was financed by the Russians. Brexit will have the effect of dropping both the economic growth rate and standards of living by half over the next 20 years. Expect England to beg their way back into Europe sometime in the future, although I may not live long enough to see it. There are no English people in London anymore. It's all foreigners. No one can afford it.

Q: Should I leap on Tesla (TSLA) where the current price is?

A: No. We’re waiting for the nuclear winter in EVs to end—no sign of it yet. And unfortunately, Elon Musk is scaring away buyers, especially in blue states, by palling around with Donald Trump, a well-known climate change denier. What's in that relationship? I have no idea. One of the first things Trump did was to dump subsidies for electric cars last time he was president. It's hard to tell who’s gone crazier, Trump or Musk.

Q: I have an empty portfolio, when should we expect your options trade to start coming in again?

A: As soon as I see a great sell-off or a great individual situation like we got a couple days ago with the Mad Hedge Technology Letter in Lam Research (LRCX). That's what we look for all day, every day of the year. There's no point in trading for the sake of trading, that only makes your broker rich, not you. There's no law that says you have to have a trade every day, and actually having cash isn't so bad these days. They're still paying 5% for 90-day T Bills. If you don’t know what T Bills are, look up 90-day T bills on my website.

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 Good Trading

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

Trade Alert - (LRCX) August 15, 2024 - TAKE PROFITS - SELL

Tech Alert

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline. Read more

August 15, 2024

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
August 15, 2024
Fiat Lux

Featured Trade:

(THE INCREDIBLE BULK)

(LLY), (NVO), (RHHBY), (AMGN), (PFE), (VKTX)

The Incredible Bulk

Biotech Letter

Well, slap me silly and call me a contrarian. A few years back, when Eli Lilly's (LLY) market cap was under $500 billion, everyone thought it was just another faceless pharma giant on the Street.

But holy molecule, Batman! Today, Lilly isn't just knocking on the door of the trillion-dollar club—it's about to blow it off its hinges. Let's dive into Lilly's Q2 2024 earnings, shall we?

Revenue? Up 36% year-on-year to $11.3 billion. Operating income? Nearly doubled to $3.72 billion. Net income? $2.97 billion, up 86%. EPS? $3.28 on a GAAP basis, or $3.92 if you like your numbers massaged.

Now, I've seen more bubbles pop than a kid with a roll of bubble wrap, but this isn't froth - this is rocket fuel.

Lilly's guidance for 2024 is now $45.4 billion - $46.6 billion in revenue. That's $3 billion more than they were projecting a few months ago. Talk about sandbagging.

No wonder Lilly's share price has shot up 18% in the past few days.

Next, let's take a look at what’s driving this growth: tirzepatide, which is marketed as Mounjaro for diabetes and Zepbound for obesity.

In Q2, Mounjaro raked in $3.1 billion, up from $1.8 billion in Q1. Zepbound, which only hit the market in November, brought in $1.24 billion, more than doubling its Q1 performance.

Combined, that's $4.34 billion in a single quarter from one molecule. To put that in perspective, that's more than some entire countries' GDPs.

But Lilly isn't a one-trick pony. Let's take a quick tour of their other divisions.

Oncology grew to $2.16 billion, up from $1.67 billion last year, largely thanks to breast cancer therapy Verzenio.

This drug could hit $5 billion in sales this year, putting it firmly in blockbuster territory. Not bad for a drug that doesn't even cure baldness.

Immunology saw Taltz and Olumiant bring in $825 million and $228 million, respectively.

With mirikizumab finally approved last October and lebrikizumab likely to overcome its manufacturing hiccups, this division could double in size by decade's end.

It's like watching a caterpillar turn into a butterfly, if butterflies were worth billions of dollars.

Even neuroscience, which saw a dip to $339.5 million from $387.2 million last year, has a potential game-changer up its sleeve.

Donanemab, now approved as Kisunla for Alzheimer's, could bring in $5 billion annually.

Add in remternetug, another Alzheimer's therapy in the pipeline, and we could be looking at a $10 billion per year business by 2030.

That's a lot of people remembering where they left their keys.

Now, I know what you're thinking. "So, what’s the catch?" Well, you're not wrong to be skeptical. This is pharma, after all, and things can go south faster than a New Yorker fleeing to Florida for tax reasons.

The main risk? Competition. Every pharma company worth its salt is working on GLP-1 agonists.

Novo Nordisk (NVO) is already in the game with semaglutide (Wegovy and Ozempic), and others like Roche (RHHBY), Amgen (AMGN), and Pfizer (PFE) are nipping at Lilly's heels.

There's also the possibility of long-term side effects we haven't seen yet, or the risk that the healthcare system buckles under the weight of demand for these pricey drugs.

After all, we're talking about drugs that cost more per year than a decent used car.

But here's the thing: Lilly has a massive head start. They're not just leading the race – they're lapping the competition.

And they're not resting on their laurels either.

They've got orforglipron, an oral GLP-1 agonist, in Phase 3 trials. Then there's retatrutide, nicknamed "triple-G," which has shown even more impressive weight loss results than tirzepatide.

So, where does this leave us? Well, I expect Lilly to become the first trillion-dollar pharma company. Yes, you read that right. A trillion dollars.

Is their valuation justified? Based on current numbers, probably not.

But we're not betting on current numbers, we're betting on the future. And let me tell you, Lilly's future is dazzling.

Remember, just a few years ago, a $20 billion-a-year drug was considered the pinnacle of pharma success.

Tirzepatide could blow past that mark before the decade's out. And that's just one drug in Lilly's impressive arsenal.

Of course, there's always the risk that another company could swoop in with an even better GLP-1 agonist. My money's on Roche, Pfizer, or Viking (VKTX) if anyone's going to pull it off.

For now, though, Lilly's the thoroughbred in this race, and I wouldn't bet against them unless I suddenly developed a burning desire to live in a cardboard box.

That being said, predicting where this wild market is heading? That's like trying to catch lightning in a bottle while blindfolded and riding a unicycle.

But in the case of Lilly, I think even a blind squirrel could see this nut coming.

So, strap in because it’s going to be one hell of a ride, and this particular acorn might just grow into the mightiest oak on Wall Street. You wouldn’t want to miss out on the shade it'll provide in the years to come.

August 15, 2024

Diary, Newsletter, Summary

Global Market Comments
August 15, 2024
Fiat Lux

Featured Trade:

(TESTIMONIAL)
(ELECTIONS IN DAYS GONE PAST)

Testimonial

Diary, Newsletter, Testimonials

Hi John,

I made it to Cortina on my European vacation paid for entirely by my successful trades this year from the Mad Hedge Fund Trader.

Today, we hiked to Lago di Sorapis and I am now enjoying a Dolomiti on the veranda. I will depart tomorrow to continue through the Alps to avoid the heatwave in southern Italy.

Tonight, I will be searching for a few Bond girls….but haven’t seen any yet.

Best regards,
David

Elections in Days Gone Past

Diary, Newsletter

You may have noticed that the 2024 presidential election has reached a fever pitch, so it is time to fill you in on the deep background of this all-American practice.

I come from a background that is drowning in history. I am the end product of pilgrim stock who landed in Massachusetts in 1630. I am descended from two of the witches executed at the Salem Witch Trials, a connection to which friends attribute my marketing predicting prowess. We have traced ourselves back to 17 ancestors who fought in the Revolutionary War.

The original John Thomas served on George Washington’s staff at Valley Forge and was responsible for building log cabins for the troops. We sued the government to overturn a portion of Andrew Jackson’s 1830 Indian Removals Act and won. We still know the names of all the slaves we owned because the wills were registered with the county courthouse. We fought on both sides of the Civil War.

So I feel well qualified to comment on elections past. In the late 18^th century, only “men of property” were allowed to vote. You had to own 25 acres of land with a house, or 50 acres unimproved. Only about 5% of the population qualified. The great irony of the Tea Party movement, which wants to return the country back to our old ways, is that virtually none of them would have been permitted to vote back then.

The US was largely a rural agricultural country in those days. Voters often had to ride on horseback for days to vote at the county seat, frequently through frigid November snows. Some congressional seats were decided by the casting of a mere 10 or 20 votes.

Candidates greeted the hungry and exhausted travelers with feasts of venison on a spit and a concoction of dark rum, honey, and cloves, haranguing them with speeches while they ate.

Often, the candidates who put on the best spread and got the most voters drunk won the election. These frequently degenerated into drunken brawls, and more than one county courthouse was burned down. This led to laws mandating election “dry” days, which are still in force in many parts of the country today.

Look at the long lines snaking out of polling stations today, and citizens enduring eight-hour waits, I am reminded of how much the country has changed in 242 years.

But it is also clear how much it has remained the same.

Elections were Much Simpler in the Old Days

August 15, 2023 - Quote of the Day

Diary, Newsletter, Quote of the Day

“I used to tell lies. But I’ve given it up, because the field has become overrun with amateurs,” said the great American 19^th century humorist, Mark Twain.

TEXTBOOK DISRUPTION

Mad Hedge AI

(PSO), (IBM), (CHGG), (LPL), (NVDA), (AMZN)

What if textbooks could read you as well as you read them? That's the promise of AI-powered learning.

But what exactly does this AI-powered future look like?

First, forget those dusty, static tomes of your school days. Instead, get with the times and think of textbooks that learn with you, adjusting their content and pace to match your individual needs.

They'll pinpoint your strengths and weaknesses faster than a Wall Street analyst spotting a market trend, and deliver personalized lessons and feedback in real-time.

These digital marvels will assess a student's grasp of calculus quicker than you can say "derivative," serving up personalized content faster than a short-order cook on amphetamines.

We're talking real-time feedback, custom-tailored lessons, and engagement levels that'll make social media look boring.

For the class dunce, it's extra help. For the whiz kid, it's brain fuel.

Basically, using AI textbooks is like having a tutor that never sleeps, doesn't charge by the hour, and won't judge you for showing up in your pajamas.

And trust me, this isn't some pie-in-the-sky idea that only appeals to educators. In fact, it's already shaping up to be a multi-billion dollar goldmine for sharp-eyed investors.

Let's start with the big picture. The broader education technology (EdTech) market is on track to explode to a mind-boggling $404 billion by 2025.

We're not talking about a gentle uptick here. This is the kind of growth that makes the Gold Rush look like a garage sale.

Zoom in a bit, and you'll see the “AI in Education” market is estimated to grow at a jaw-dropping CAGR of 47% from 2021 to 2027, reaching $3.68 billion by 2023.

And the global textbook market? It's set to hit a cool $20.6 billion by 2026, growing at a steady 3.4% CAGR from 2021.

But here's the kicker: AI-powered textbooks are poised to disrupt this entire industry faster than you can say "digital transformation."

Don't just take my word for it, though. Look at what's already happening in the real world.

Carnegie Learning's MATHia uses AI to make math less painful than a root canal. DreamBox Learning adapts to students faster than a chameleon on a disco floor.

And Duolingo? They're making language learning more addictive than your favorite smartphone game.

Needless to say, AI isn’t just about cool tech toys anymore. It’s also reshaping how we learn.

Studies show these interactive, personalized experiences can boost student engagement by up to 60%.

And it's not just the tech nerds who are excited. A survey by EdWeek Research Center found that 66% of teachers believe AI can personalize learning for students.

When was the last time 66% of teachers agreed on anything?

Meanwhile, venture capitalists, those professional gamblers of the finance world, poured a record $16.1 billion into EdTech in 2020.

That's not just putting your money where your mouth is—it's stuffing your entire wallet down your throat and asking for seconds.

So, who are the players in this educational gold rush? Let's start with the old guard.

Pearson PLC (PSO) is using AI for everything from adaptive learning to automated grading. They’re looking to partner with IBM (IBM) and its Watson AI, creating a brain trust that would make Einstein look like a slack-jawed yokel.

Chegg (CHGG) is another one to watch. It uses AI to solve problems and catch plagiarists quicker than a frat house can empty a keg.

But it's not just the education-specific players making moves.

Tech giants are stepping into the classroom. LG Electronics (LPL) is expanding into the education sector faster than a teenager's excuse for missing homework.

NVIDIA (NVDA) is providing the raw computing power, Amazon (AMZN) is offering the cloud infrastructure, and IBM is bringing its AI expertise to the table.

It's like the Avengers of AI, but instead of saving the world, they're trying to make sure little Timmy finally grasps fractions.

And the future of edtech? It's so bright, you might need to wear shades in the classroom.

We're talking VR field trips to ancient Rome, AI tutors that make Socrates look like a slacker, and learning analytics that can predict academic success better than a helicopter parent.

I know that for some of us, passing notes was high-tech classroom communication. Obviously, everything we know about school has changed since then.

Now, AI is writing the whole textbook. I suggest you start studying this sector now, or risk being left back a grade in the school of profitable opportunities.

August 14, 2024

Tech Letter

Mad Hedge Technology Letter
August 14, 2024
Fiat Lux

Featured Trade:

(POSITIVE SIGNAL FOR THE TECH RALLY)
($COMPQ), ($TNX)