Stitch Fix and its updated prognosis from management predicts 2021 results to look something like sales growth of 20% to 25% and that’s pretty damn good considering the less-than-ideal backdrop that corporate America is facing.
Even though I am not a big clothes guy personally, this tech apparel company is delivering value to customers by sending individually picked clothing and accessories items for a one-time styling fee. Customers fill out a survey online about their style preferences. A professional stylist at the company picks five items to send to the customer.
Last year, e-commerce could do no wrong and many stocks in the industry performed sensationally even hitting triple-digit percentages.
Employment is having a tough time coming back, the latest data suggest a long road to recovery and the vaccine rollout has been a pitiful exercise in efficient logistics.
This all means that 2021 will be more or less another year of click and collect from the confines of your abode made possible by ever-improving digital portals.
One of the disastrous industries last year, among many, was apparel, especially brick-and-mortar clothing and department stores.
Shelter-at-home lifestyles didn’t necessarily encourage consumers to handpick expensive dresses and suits, but as the economy slowly trends favorably, it can’t really get much worse than 2020, Stitch Fix should be one of the few winners in apparel among many losers.
Cutting to the chase, retail sales for apparel and accessories ended 2020 down nearly 30% year over year and you couldn’t make up what happened last year if you tried.
Restaurants experienced a 20% drop in sales because consumers simply evaporated highlighting the plight of many foundational industries.
Remote jobs and a wave of fresh self-employment are transforming consumer behavior in this shopping category, and I would bet that apparel consumption will never come back in the form it once was pre-pandemic which is why the use case of Stitch Fix's data-driven shopping experience could never be stronger.
That’s not to say that Stitch Fix had a record year in 2020.
They certainly didn’t.
Stitch Fix still had a bucket of problems in 2020 with a 9% year-over-year revenue decline during its fiscal 2020 third quarter (the three months ended May 2, 2020).
But even with such poor performance, it still represented a massive outperformance relative to other competition and finding those silver linings can be the most important for forward guidance.
This sets up Stich Fix for a massive rebound as consumers got used to the new lifestyle and sales returned with a reported 10% year-over-year growth in the first quarter of fiscal 2021 (ended Oct. 31, 2020).
And throughout the pandemic, Stitch Fix has continued to grow its client base around 9% to 10%.
The forecasted sales growth of 20% to 25% represents a substantial acceleration suggesting that 2020 was a “one-off” even likely to never reoccur.
Their total active clients stood at 3.76 million as of Oct. 2020, up from 3.42 million a year ago, and the company will improve on this growth while retaining past clients.
E-commerce is here to stay as consumers become conditioned to purchasing items in this fashion and a game-changing reason why Stitch Fix's own outlook is so rosy.
Looking forward the company's growth strategy revolves around acquiring new customers and entering new markets like many tech stalwarts before them.
Longer-term, Stitch Fix's data and machine learning capabilities, which helped the company get to where it is today, could be a real competitive advantage if it decides to make a foray into new clothing categories and beyond.
One issue to be aware of is that Stitch Fix generally caters to a pretty specific clientele and its services are only targeting specific price points.
The lower end of that range is still higher than what thrifty consumers may choose to spend and might even be considered a luxury for many.
The lower income tier of America simply won’t be able to make this work in its current form, and margins would drop if Stitch Fix ever accommodated this consumer group.
Despite the convenience Stitch Fix offers, many consumers like the idea of hand-picking clothing and trying it on in stores, where they have the option to instantly swap in and out a size for a better fit.
Stitch Fix does its best to estimate sizing based on user inputs and algorithms, but people are sized in different odd shapes and sizing can still miss the mark.
I don’t think Stitch Fix’s popularity will start to wane if working from home becomes the status quo in 2021 and 2022 and the need for higher-end wardrobes begins to decline because the company will simply need to adapt and focus more on pajama or comfortable clothing if the environment forces them to do so.
Believe me, I have noticed the uptick in the preference for outdoor sweatpants as the crisis went from bad to worse.
People simply don’t have time to dress up in these conditions, but consumers still need to wear clothes every day unless I am totally missing something.
Stitch Fix, in its current iteration, won’t replace department stores because it is too big of a swath from a low-income group that needs to access these services, but as scale terms into a positive input for the company, they can start looking at lower-income tiers for a revenue grab.
As Stitch Fix focuses on higher-end business, the runway is still mind-numbingly long and the optionality they possess is the envy of others.
They have too many good problems to have.
Stitch Fix looks like the cutting-edge apparel company that brings an innovated technology-based model to a stale industry.
It’s working and the first-mover advantage really means something here.
I would wait for a pullback to the low $50s range from the current $56.50 as shares are a little over their own skis.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-01-11 11:02:442021-01-15 16:39:52Strike While the Iron is Hot with Clothes Tech
“Often you have to rely on intuition.” – Said Founder and Former CEO of Microsoft Bill Gates
https://www.madhedgefundtrader.com/wp-content/uploads/2021/01/bill-gates-jan11.png300312Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-01-11 11:00:422021-01-11 12:44:55January 11, 2021 - Quote of the Day
I drove into Reno to buy some used backpacks for my Boy Scout troop and parked my Tesla in a nice residential neighborhood. Out of nowhere, a man ran down the street at me screaming profanities, crowbar in hand.
He shouted that I was from Antifa and that I had hired people to invade the Capitol Building to make President Trump look bad.
I reached into my car for my own crowbar. Then the local residents interceded, separating us. The man turned around and walked away, fuming.
“Who the heck was that?” I asked.
“He has mental issues,” said a neighbor. “We’ve had many problems with him before.”
Another said “He’s a Trump supporter. He saw your Tesla and thought you were a liberal.”
Wow! Looks like the nation has a very long way to heal.
Last year, the US defense budget amounted to $622 billion. When the greatest threat to congress in the nation’s history presented itself, it was antique chairs piled against the door that provided the best defense. Maybe we should ditch some big-ticket nuclear missiles and buy more chairs.
Of course, once the insurrection started on Wednesday, I was inundated with international calls from investors asking if they should pull all their money out of the US. I answered “NO” and that it was in fact time to double down. Those who did made a killing.
Ask any professional money manager what his reaction to a coup d’état in Washington would be, their response definitely would NOT be to run out and buy a ton of Tesla (TSLA). Yet, that was exactly the perfect thing to do, the stock soaring an astonishing $135, or 18% in two days. I have many followers who did exactly that and they made millions.
All I can say is that if a market gets hit with an insurrection, and exploding pandemic, and a crashing economy and only goes down 400 points and then bounces back the next day, you want to buy the hell out of it.
I’m talking about going on margin and taking a second mortgage on your home and pouring it into stocks. You might even consider going to a loan shark and borrowing at 18% because you can easily make double that in the right stocks.
After the Biden win and the Georgia sweep, there is now more rocket fuel pouring into the stock market than ever. Call it the “Biden blank check”. Estimates of new spending and subsidies about to hit the market now go up to $10 trillion. Let me list some of them:
*$2 trillion in enforced savings by locked up American consumers.
*Credit card balances have collapsed to multi-year lows, making available hundreds of billions in spending power.
*Trillions of Money market balances sitting on the sidelines yielding zero
*$908 billion stimulus package passed in the closing days of 2020
*A further $2 trillion stimulus package to pass shortly, including $2,000 checks for all 150 million US taxpayers.
*Add another $2 trillion infrastructure budget
*$1 trillion in student loan forgiveness for 10 million borrowers at $10,000 each
*Enormous subsidies for any alternative energy companies and Tesla cars
*The return of the deductibility of $1 trillion worth of state and local real estate taxes (known as (SALT)).
MUCH OF THIS CASH MOUNTAIN IS GOING STRAIGHT INTO THE STOCK MARKET!
It all sets up a stock market that has the potential to have “extreme” moves to the upside, according to my friend, Fundstrat’s Tom Lee.
All you need to retire early is someone to point you in the right direction, into the right sectors and the right stocks. Actually, I happen to know just the right person who can do that and that would be me!
Storming of the Capital shut down markets. After the initial crash, markets flatlined as the entire country dropped what they were doing and glued themselves to a TV, their jaws hanging open. The Dow dove 400 points, bonds and the US dollar stabilized, Tesla and oil took big hits, and gold and silver took off. The electoral college vote has been suspended, gunfights broke out on the house floor, and several explosive devices placed. Trump incited his followers to attack the capitol and they did exactly that. Washington DC is now subject to a 6:00 PM curfew for two weeks. Is this the beginning of the 2024 presidential election? It’s the worst day in Washington since the British burned it in 1814.
Democrats took Georgia, giving them Senate control and a blank check on spending for at least two years. Trump clearly blew the election for his party. My 3X short in bonds soared as the market crashed. Banks rocketed on a 10-basis point leap in interest rates. Infrastructure plays went ballistic. The US dollar faded. Add another couple of percentage points of US GDP growth for 2021. Tesla Shorts posted biggest loss in history, setting on fire a staggering $38 billion in short positions. Many of these were financed by big oil looking to put Tesla out of business. The short interest in the stock has plunged from 37% to 5%. Did I mention that Tesla was the biggest Mad Hedge long of 2020? I’ve been buying it since it was a split-adjusted $3.30 a share in 2010 against a Friday close of $880, a gain of 290X. Elon Musk is now the richest man in the world and he’s only just getting started! Tesla met its 500,000-unit 2020 target, far in excess of analyst forecasts. Q4 came in at a surprise 180,570 units. The firm’s 2021 target is 1.1 million units. The market Cap is about to touch $1 trillion, more than all of the global car industry combined. The Model 3 is doing the heavy lifting. Model Y production in Shanghai is about to ramp up and Berlin is to follow. If Tesla can mass-produce their solid-state batteries, they’ll attain a global monopoly in the car industry with 25 million units a year and a share price of $10,000. A Saudi surprise production cut, a million barrels a day, sent oil over $50. But with demand that weak, how long can the rally last? The market is entering short-selling territory. I bet you didn’t use much gas today commuting from your bedroom to your home office. Use the rally to unload what energy you have left. Sell the (XLE) on rallies. Bitcoin topped $42,000, more than doubling in a month, and exceeded $1 trillion as an asset class. A Biden-run economy means more money creation which has to find a home. My friend’s pizza purchase for 8 Bitcoin a decade ago is now worth $320,000. I hope it was good! The Nonfarm Payroll came in at a loss of 140,000, giving more credence to the Q1 double-dip scenario and far worse than expected. The headline Unemployment Rate came in unchanged at 6.7%,Leisure & Hospitality lost a mind-blowing 498,000 and an incredible 3.9 million since January. Private Education lost 63,000 and Government 45,000. Professional & Business Services gained 161,000. The real U-6 Unemployment Rate is a very high 11.6%. The bond crash has only just begun, with the (TLT) down $8 on the week. The risk/reward is the worst of any financial asset anywhere. I am maintaining my triple short position. Massive government borrowing will be a death knell for fixed income investors.
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!
My Mad Hedge Global Trading Dispatch closed out a blockbuster 2020 with a blockbuster 10.20% in December, taking me up to an eye-popping 66.64% for the year. I’m up 81% since the March low. In 2021, I shot out of the gate with an immediate 5.93% profit for the first four trading days of the year.
That brings my eleven-year total return to 428.48% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.51%. My trailing one-year return exploded to 72.57%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 89% since the March low.
The coming week will be a slow one on the data front after last week's fireworks. We also need to keep an eye on the number of US Coronavirus cases at 22 million and deaths 370,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, January 11 at 11:00 AM EST, US Inflation Expectations are released, which will increasingly become an area of interest.
On Tuesday, January 12 at 4:30 PM, API Crude Inventories are published.
On Wednesday, January 13 at 8:30 AM, the US Inflation Rate for December is announced.
On Thursday, January 14 at 8:30 AM, the Weekly Jobless Claims are published. We also get November Housing Starts.
On Friday, December 15 at 8:30 AM, December Retail Sales are printed. Q4 earnings seasons starts, with JP Morgan Chase (JPM) and Wells Fargo (WFC) reporting. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, I’ll be taking my old Toyota Highlander down to the dealer in Reno. Squirrels moved into the engine and ate the wiring, knocking out the heater and the fan. All part of the cost of living in a mountain paradise. However, you have to share it with the critters.
I’ll also be investing in some pepper spray.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2021/01/Picture011121.png384218Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-01-11 10:02:302021-01-11 10:22:36The Market Outlook for the Week Ahead, or A Week for the History Books
“Getting rid of your great companies and adding to you bad companies is like cutting the flowers and watering the weeds,” said my former client and mentor, Magellan Fund’s Peter Lynch.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-01-11 10:00:212021-01-11 10:30:26January 11, 2021 - Quote of the Day
No matter what you throw at Facebook and Big Tech, they will get away with it.
The ability to hone narratives and control our communication channels means they can reroute anything remotely resembling a con and spin it into a pro.
As Facebook has encouraged misinformation to spread, including from US President Donald Trump, they come in when you least expect it to play both sides as they announced they will ban the President from Facebook.
An unruly mob of President Donald Trump's supporters stormed the Capitol to disrupt the election certification process and Facebook has finally banned the US President’s account.
Four people died — one was shot by police, and three died during medical emergencies.
Jake Angeli, a well-known QAnon influencer dubbed the "Q Shaman," seemed to be giving out orders in the Capitol sporting a Viking-like horned fur helmet and shirtless chest.
Google CEO Sundar Pichai called it the "antithesis of democracy" in an internal memo and Facebook removed a video of Trump spreading baseless claims of election fraud. The platform then blocked Trump from posting content for 24 hours.
Ironically enough, Facebook blocked employees from commenting on posts on its internal messaging boards discussing the ban showing how little employees can do in national crises.
Facebook employees also lashed out at Facebook’s lack of speed and aggressiveness in dealing with the situation.
I spoke to several employees at Facebook and they admit in unison that Facebook is an absolutely terrible place to work and executive intimidation is something workers must put up with because it is precisely the working culture in place when they walk in the door.
Even former Facebook security chief Alex Stamos chimed in saying Trump needed to be blackballed from Facebook and Twitter.
Zuckerberg did later send out a note that said, “peaceful transition of power is critical to the functioning of democracy, and we need our political leaders to lead by example and put the nation first.”
Zuckerberg doesn’t really need to say much but stay politically correct because he does most of his speaking with the action and non-action at the helm of the ship.
If you dig deeper, his flatform is utterly disgusting, and investors shouldn’t be surprised by the handling of this event.
Facebook’s handling of TikTok’s ads is one of many examples of its advertising system gone bonkers, and the company's ongoing prioritization of revenue over the safety of its 3 billion users, the public good, and the integrity of its own platform.
Middle-aged men using Facebook are fed a voracious stream of TikTok ads displaying skimpy teenage girls and even if they contact Facebook to stop it, Facebook won’t change a thing.
Besides the subliminal advertising in areas that could lead to predatory behavior, consumers are sold goods they never receive or are lured into financial scams; legitimate advertisers’ accounts or pages are hacked and used to peddle those nonexistent goods or scams; credit card numbers are stolen.
The one constant here is that Facebook doesn’t refund any of this malicious behavior and in fact, encourages it.
Facebook agreed to an implicit pact with scammers, hackers, and disinformation peddlers who use its platforms to rip off and manipulate people around the world.
Prioritizing revenue over the enforcement of policies is beginning to be the legacy of Big Tech.
The Facebook “moderators” are a small army of low-paid, unempowered contractors to manage a daily onslaught of ad moderation and policy enforcement decisions that often have far-reaching consequences for its users.
They are much more worried about losing their $15 per hour job than challenging the powerful overlords at Facebook.
And that’s not the beginning of it; Facebook's ad workers have at times been told to ignore suspicious behavior unless it “would result in financial losses for Facebook.”
Non-enforcement helped Facebook become the preferred platform of unscrupulous affiliate marketers and drop shippers that target people with financial scams, trick them into expensive subscriptions, or use false claims and trademark infringement.
Bought products often never arrive.
Facebook’s “best” practices constitute of looking the other way, even if an account is hacked, and only caring about business if credit chargebacks are threatened.
I have also been told by former Facebook employees that they are instructed to be “more lenient with accounts originating in Russia, Ukraine, and China.”
This episode truly shows why investors should still buy big tech.
They are unstoppable to such an extreme that most people can’t comprehend. Rules don’t apply to them.
And it’s not just Facebook, there are mounting headaches for all these CEOs that won’t affect the bottom line and in fact, offer these corporations a great chance to cut costs.
On January 4th, 2021, Google workers and contractors announced they were forming a union with the Communications Workers of America.
It’s the latest move in an ongoing fight between Google workers and management, and it could trigger a giant offshoring to cheap labor countries.
If most of America’s supply chain was offshored and never came back, then why can’t tech do it as well?
Why do they need to pay $150,000 to an employee in California when they can hire the same level of talent in Moldova for 20% of the cost?
That proves my point because whatever hurdles are set in front of big tech, they know how to maneuver around and avoid any deep carnage.
If investors know there will always be fix out there, even with the egregious behavior at Facebook, they won’t hesitate to pile into Big Tech.
Washington riots simply don’t matter, and markets took wind of it.
I am bullish the Big 5 of Apple, Facebook, Microsoft, Amazon, and Google.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-01-08 11:02:002021-01-10 21:38:39Unstoppable Facebook
“When we launch a product, we're already working on the next one. And possibly even the next, next one.” – Said CEO of Apple Tim Cook
https://www.madhedgefundtrader.com/wp-content/uploads/2018/10/Tim-Cook-Oct15.png433262Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-01-08 11:00:592021-01-08 11:41:27January 8, 2021 - Quote of the Day
Below please find subscribers’ Q&A for the January 6 Mad Hedge Fund TraderGlobal Strategy Webinar broadcast from Incline Village, NV.
Q: Any thoughts on lithium now that Tesla (TSLA) is doing so well?
A: Lithium stocks like Sociedad Qimica Y Minera (SQM) have been hot because of their Tesla connection. The added value in lithium mining is minimal. It basically depends on the amount of toxic waste you’re allowed to dump to maintain profit margins—nowhere close to added value compared to Tesla. However, in a bubble, you can't underestimate the possibility that money will pour into any sector massively at any time, and the entire electric car sector has just exploded. Many of these ETFs or SPACs have gone up 10 times, so who knows how far that will go. Long term I expect Tesla to wildly outperform any lithium play you can find for me. I’m working on a new research piece that raises my long-term target from $2,500 to $10,000, or 12.5X from here, Tesla becomes a Dow stock, and Elon Musk becomes the richest man in the world.
Q: Won’t rising interest rates hurt gold (GLD)? Or are inflation and a weak dollar more important?
A: You nailed it. As long as the rate rise is slow and doesn't get above 1.25% or 1.50% on the ten-year, gold will continue to rally for fears of inflation. Also, if you get Bitcoin topping out at any time, you will have huge amounts of money pour out of Bitcoin into the precious metals. We saw that happen for a day on Monday. So that is your play on precious metals. Silver (SLV) will do even better.
Q: What are your thoughts on TIPS (Treasury Inflation Protected Securities) as a hedge?
A: TIPS has been a huge disappointment over the years because the rate of rise in inflation has been so slow that the TIPS really didn’t give you much of a profit opportunity. The time to own TIPS is when you think that a very large increase in inflation is imminent. That is when TIPS really takes off like a rocket, which is probably a couple of years off.
Q: Will Freeport McMoRan (FCX) continue to do well in this environment?
A: Absolutely, yes. We are in a secular decade-long commodity bull market. Any dip you get in Freeport you should buy. The last peak in the previous cycle ten years ago was $50, so there's another potential double in (FCX). I know people have been playing the LEAPS in the calendars since it was $4 a share in March and they have made absolute fortunes in the last 9 months.
Q: Is it a good time to take out a bear put debit spread in Tesla?
A: Actually, if you go way out of the money, something like a $1,000-$900 vertical bear put spread, with the 76% implied volatility in the options market one week out, you probably will make some pretty decent money. I bet you could get $1,500 from that. However, everyone who has gone to short Tesla has had their head handed to them. So, it's a high risk, high return trade. Good thought, and I will actually run the numbers on that. However, the last time I went short on Tesla, I got slaughtered.
Q: Any thoughts on why biotech (IBB) has been so volatile lately?
A: Fears about what the Biden government will do to regulate the healthcare and biotech industry is a negative; however, we’re entering a golden age for biotech invention and innovation which is extremely positive. I bet the positives outweigh the negatives in the long term.
Q: Oil is now over $50; is it a good time to buy Exxon Mobil (XOM)?
A: Absolutely not. It was a good time to buy when it was at $30 dollars and oil was at negative $37 in the futures market. Now is when you want to start thinking about shorting (XOM) because I think any rally in energy is short term in nature. If you’re a fast trader then you probably can make money going long and then short. But most of you aren't fast traders, you’re long-term investors, and I would avoid it. By the way, it’s actually now illegal for a large part of institutional America to touch energy stocks because of the ESG investing trend, and also because it’s the next American leather. It’s the next former Dow stock that’s about to completely disappear. I believe in the all-electric grid by 2030 and oil doesn't fit anywhere in that, unless they get into the windmill business or something.
Q: With Amazon buying 11 planes, should we be going short United Parcel Service (UPS) and FedEx (FDX)?
A: Absolutely not. The market is growing so fast as a result of an unprecedented economic recovery, it will grow enough to accommodate everyone. And we have already had huge performance in (UPS); we actually caught some of this in one of our trade alerts. So again, this is also a stay-at-home stock. These stocks benefited hugely when the entire US economy essentially went home to go to work.
Q: Should we keep our stay-at-home stocks like DocuSign (DOCU), Zoom (ZM), and UPS (UPS)?
A: They are way overdue for profit-taking and we will probably see some of that; but long term, staying at home is a permanent fixture of the US economy now. Up to 30% of the people who were sent to work at home are never coming back. They like it, and companies are cutting their salaries and increasing their profits. So, stay at home is overdone for the short term, but I think they’ll keep going long term. You do have Zoom up 10 times in a year from when we recommended it, it’s up 20 times from its bottom, DocuSign is up like 600%. So way overdone, in bubble-type territory for all of these things.
Q: Are telecom stocks like Verizon (VZ) and AT&T (T) safe here?
A: Actually they are; they will benefit from any increase in infrastructure spending. They do have the 5G trend as a massive tailwind, increasing the demand for their services. They’re moving into streaming, among other things, and they had very high dividends. AT&T has a monster 7% dividend, so if that's what you’re looking for, we’re kind of at the bottom of the range on (T), so I would get involved there.
Q: Should we sell all our defense stocks with the Biden administration capping the defense budget?
A: I probably would hold them for the long term—Biden won’t be president forever—but short term the action is just going to be elsewhere, and the stocks are already reflecting that. So, Raytheon (RTX), United Technologies (UT), and Northrop Grumman (NOC), all of those, you don’t really want to play here. Yes, they do have long term government contracts providing a guaranteed income stream, but the market is looking for more immediate profits, or profit growth like you have been getting in a lot of the domestic stocks. So, I expect a long sideways move in the defense sector for years. Time to become a pacifist.
Q: Is it safe to buy hotels like Marriott (MAR), Hyatt (H), and Hilton (HLT)?
A: Yes, unlike the airlines and cruise lines, which have massive amounts of debt, the hotels from a balance sheet point of view actually have come through this pretty well. I expect a decent recovery in the shares, probably a double. Remember you’re not going to see any return of business travel until at least 2022 or 2023, and that was the bread and butter for these big premium hotel chains. They will recover, but that will take a bit longer.
Q: How about online booking companies like Expedia (EXPE) and Booking Holdings Inc, owner of booking.com, Open Table, and Priceline (BKNG)?
A: Absolutely; these are all recovery stocks and being online companies, their overhead is minimal and easily adjustable. They essentially had to shut down when global travel stopped, but they don’t have massive debts like airlines and cruise lines. I actually have a research piece in the works telling you to buy the peripheral travel stocks like Expedia (EXPE), Booking Holdings (BKNG), Live Nation (LYV), Madison Square Garden (MSGE) and, indirectly, casinos (WYNN), (MGM) and Uber (UBER).
Q: What about Regeneron (REGN) long term?
A: They really need to invent a new drug to cure a new disease, or we have to cure COVID so all the non-COVID biotech stocks can get some attention. The problem for Regeneron is that when you cure a disease, you wipe out the market for that drug. That happened to Gilead Sciences (GILD) with hepatitis and it’s happening with Regeneron now with Remdesivir as the pandemic peaks out and goes away.
Q: What about Chinese stocks (FXI)?
A: Absolutely yes; I think China will outperform the US this year, especially now that the new Biden administration will no longer incite trade wars with China. And that is of course the biggest element of the emerging markets ETF (EEM).
Q: Will manufacturing jobs ever come back to the US?
A: Yes, when American workers are happy to work for $3/hour and dump unions, which is what they’re working for in China today. Better that America focuses on high added value creation like designing operating systems—new iPhones, computers, electric cars, and services like DocuSign, Zoom—new everything, and leave all the $3/hour work to the Chinese.
Q: What about long-term LEAPS?
A: The only thing I would do long term LEAPS in today would be gold (GOLD) and silver miners (WPM). They are just coming out of a 5-month correction and are looking to go to all-time highs.
Q: What about your long-term portfolio?
A: I should be doing my long-term portfolio update in 2 weeks, which is much deserved since we have had massive changes in the US economy and market since the last one 6 months ago.
Q: Do you have any suggestions for futures?
A: I suggest you go to your online broker and they will happily tell you how to do futures for free. We don’t do futures recommendations because only about 25% of our followers are in the futures market. What they do is take my trade alerts and use them for market timing in the futures market and these are the people who get 1,000% a year returns. Every year, we get several people who deliver those types of results.
Q: Will people go back to work in the office?
A: People mostly won’t go back to the office. The ones who do go back probably won't until the end of the summer, like August/September, when more than half the US population has the Covid-19 vaccination. By the way, getting a vaccine shot will become mandatory for working in an office, as it will in order to do anything going forward, including getting on any international flights.
Q: What is the best way to short the US dollar?
A: Buy the (FXE), the (FXY), the (FXA), or the (UUP) basket.
Q: Silver LEAP set up?
A: I would do something like a $32-$35 vertical bull call spread on options expiring in 2023, or as long as possible, and that increases the chance you’ll get a profit. You should be able to get a 500% profit on that LEAP if silver keeps going up.
Q: What about agricultural commodities?
A: Ah yes, I remember orange juice futures well, from Trading Places, where I also once made a killing myself. Something about frozen iguanas falling out of trees was the tip-off. We don’t cover the ags anymore, which I did for many years. They are basically going down 90% of the time because of the increasing profitability and efficiency of US farmers. Except for the rare weather disaster or an out of the blue crop disease, the ags are a loser’s game.
Q: Can we view these slides?
A: Yes, we load these up on the website within two hours. If you need help finding it just send an email or text to our ever loyal and faithful Filomena at support@madhedgefundtrader.com and she will direct you.
Q: Do you have concerns about Democrats regulating bitcoin?
A: Yes, I would say that is definitely a risk for Bitcoin. It is still a wild west right now and there are massive amounts of theft going on. It is a controlled market, with bitcoin miners able to increase the total number of points at any time on a whim.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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