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June 12 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader June 12 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Do you think Tesla (TSLA) will survive?

A: Not only do I think it will survive, but it’ll go up 10 times from the current level. That’s why we urged people to buy the stock at $180. Tesla is so far ahead of the competition, it is incredible. They will sell 400,000 cars this year. The number two electric car competitor will sell only 25,000. They have a ten-year head start in the technology and they are increasing that lead every day. Battery costs will drop another 90% over the next decade eventually making these cars incredibly cheap. Increase sales by ten times and double profit margins and eventually, you get to a $1 trillion company.

Q: Beyond Meat (BYND)—the veggie burger stock—just crashed 25% after JP Morgan downgraded the stock. Are you a buyer here?

A: Absolutely not; veggie burgers are not my area of expertise. Although there will be a large long-term market here potentially worth $140 billion, short term, the profits in no way justify the current stock price which exists only for lack of anything else going on in the market. You don’t get rich buying stocks at 37 times company sales.

Q: Are you worried about antitrust fears destroying the Tech stocks?

A: No, it really comes down to a choice: would you rather American or Chinese companies dominate technology? If we break up all our big tech companies, the only large ones left will be Chinese. It’s in the national interest to keep these companies going. If you did break up any of the FANGS, you’d be creating a ton of value. Amazon (AMZN) is probably worth double if it were broken up into four different pieces. Amazon Web Services alone, their cloud business, will probably be worth $1 trillion as a stand-alone company in five years. The same is true with Apple (AAPL) or Google (GOOG). So, that’s not a big threat overhanging the market.

Q: Is it time to buy Salesforce (CRM)?

A: Yes, you want to be picking up any cloud company you can on any kind of sizeable selloff, and although this isn’t a sizeable selloff, Salesforce is the dominant player in cloud plays; you just want to keep buying this all day long. We get back into it every chance we can.

Q: Do you think the proposed merger of United Technologies (UT) and Raytheon (RTN) will lower the business quality of United Tech’s aerospace business?

A: No, these are almost perfectly complementary companies. One is strong in aerospace while the other is weak, and vice versa with defense. You mesh the two together, you get big economies of scale. The resulting layoffs from the merger will show an increase in overall profitability.

Q: I had the Disney (DIS) shares put to me at $114 a share; would you buy these?

A: Disney stock is going to go up ahead of the summer blockbuster season, so the puts are going to expire being worthless. Sell the puts you have and then go short even more to make back your money. Go naked short a small non-leveraged amount Disney $114 puts, and that should bring in a nice return in an otherwise dead market. Make sure you wait for another selloff in the market to do that.

Q: What role does global warming play in your bullish hypothesis for the 2020s?

A: If people start to actually address global warming, it will be hugely positive for the global economy. It would demand the creation of a plethora of industries around the world, such as solar and other alternative energy industries. When I originally made my “Golden Age” forecast years ago, it was based on the demographics, not global warming; but now that you mention it, any kind of increase in government spending is positive for the global economy, even if it’s borrowed. Spending to avert global warming could be the turbocharger.

Q: Why not go long in the United States Treasury Bond Fund (TLT) into the Fed interest rate cuts?

A: I would, but only on a larger pullback. The problem is that at a 2.06% ten-year Treasury yield, three of the next five quarter-point cuts are already priced into the market. Ideally, if you can get down to $126 in the (TLT), that would be a sweet spot. I have a feeling we’re not going to pull back that far—if you can pull back five points from the recent high at $133, that would be a good point at which to be long in the (TLT).

Q: Extreme weather is driving energy demand to its highest peak since 2010...is there a play here in some energy companies that I’m missing?

A: No, if we’re going into recession and there’s a global supply glut of oil, you don’t want to be anywhere near the energy space whatsoever; and the charts we just went through—Halliburton (HAL) and so on—amply demonstrate that fact. The only play here in oil is on the short side. When US production is in the process of ramping up from 5 million (2005) to $12.3 million (now), to 17 million barrels a day (by 2024) you don’t want to have any exposure to the price of oil whatsoever.

Q: What about China’s FANGS—Alibaba (BABA) and Baidu (BIDU). What do you think of them?

A: I wanted to start buying these on extreme selloff days in anticipation of a trade deal that happens sometime next year. You actually did get rallies without a deal in these things showing that they have finally bottomed down. So yes, I want to be a player in the Chinese FANGS in expectation of a trade deal in the future sometime, but not soon.

Q: Silver (SLV) seems weaker than gold. What’s your view on this?

A: Silver is always the high beta play. It usually moves 1.5-2.5 times faster than gold, so not only do you get bigger rallies in silver, you get bigger selloffs also. The industrial case for silver basically disappeared when we went to digital cameras twenty years ago.

Q: Does this extended trade war mean the end for emerging markets (EEM)?

A: Yes, for the time being. Emerging markets are one of the biggest victims of trade wars. They are more dependent on trade than any of the major economies, so as long as we have a trade war that’s getting worse, we want to avoid emerging markets like the plague.

Q: We just got a huge rebound in the market out of dovish Fed comments. Is this delivering the way for a more dovish message for the rest of the year?

A: Yes, the market is discounting five interest rate cuts through next year; so far, the Fed has delivered none of them. If they delayed that cutting strategy at all, even for a month, it could lead to a 10% selloff in the stock market very quickly and that in and of itself will bring more Fed interest rate cuts. So, it is sort of a self-fulfilling prophecy. The bottom line is that we’re looking at an ultra-low interest rate world for the foreseeable future.

Good Luck and Good Trading.

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

May 28, 2019

Tech Letter

Mad Hedge Technology Letter
May 28, 2019
Fiat Lux

Featured Trade:

(CHINA’S RARE EARTH WEAPON)
(TSLA), (AAPL), (LMT), (BAESY), (RTN)

China's Rare Earth Weapon

Tech Letter

There are many ways to describe the trade war the U.S. administration finds itself in.

Many experts have chimed in too categorizing it as a fight for technological supremacy.

There are many different ways to skin a cat.

I’ll tell you what is really going on.

Above all else, this logjam has more to do with a battle for resources, and more specifically, rare earth elements that power the devices, cars, and gadgets that many westerners have become accustomed to.

Let’s make no bones about it, Beijing has cornered the rare earth’s market spanning from assets in the Congo and the cobalt that is produced there to supply on their own turf forcing the U.S. to be reliant on China for about 85% of its rare earth supply.

In other words, the rare earth industry in China is a large industry that is important to Chinese internal economics.

Rare earths are a group of elements on the periodic table with similar properties.

The elements are also critical to national governments because they are used in the defense industry for top-secret weaponry.

Permanent magnets can be used for several applications including serving as essential components of weapon systems and high-performance aircraft such as drones.

China has touted their own state-owned companies to reach deep into this market and make it their own.

The results are visible to the entire world and China gaining a stranglehold on these valuable inputs will have lasting consequences.

Rare earth metals are made up of 17 elements — lanthanum, cerium, praseodymium, neodymium, promethium, samarium, europium, gadolinium, terbium, dysprosium, holmium, erbium, thulium, ytterbium, lutetium, scandium, and yttrium.

U.S. companies will need to start developing new supply channels in other markets and Australia could allow U.S. companies' lifelines in securing the orders they need to function as a company.

Military companies important to national security devour these types of precious metals and Raytheon Co (RTN), Lockheed Martin Corp (LMT) and BAE Systems (BAESY) all produce sophisticated missiles with these elements powering their guidance systems, and sensors.

These traded companies’ shares could be in for short-term turbulence if China decides to pull the rug out from underneath banning Chinese companies doing business with American companies, or by slapping on tariffs to respond to the tariffs on Chinese imports.

California's Mountain Pass mine is the sole US rare earth facility with a caveat.

The owner of the mine ships over 50,000 tons of rare earth concentrate for processing in China, meaning that it will be harder than first thought to strip China out of the process.

China and America are in the first stages of a massive decoupling.

Not only smartphone operating systems will be affected with Huawei announcing it will roll out its own in-house operating system after Google announced that they will pull its apps and use of the Android system off of Huawei’s phone, but almost anything of significant value from an Ivy league computer engineering degree to electric cars will be retrenched on each side.

This is terrible news for Tesla (TSLA), and they could be hit next by the Chinese communist party if they deem electric cars integral to national security because of the data and sensors that deliver precious information back to Silicon Valley.

Tesla is in the midst of building a Gigafactory in Shanghai and their growth strategy is solely focused on China.

China standing up to the U.S. is a blunt force way of saying that nobody will dictate to the Chinese their future prospects except themselves.

They feel after 35 years of economic super growth, they should be granted with the options of choosing their destiny.

Huawei will feel the repercussions of these detrimental policies with their European business a big question going forward.

Germany was always a large bullseye for the Chinese government and scooping up robotic centerpiece Kuka, was a smash and grab in broad daylight.

The sleeping giant of Germany has woken up and is on the offensive after allowing the Chinese unfettered access for a generation.

Risks are high in Germany and they could be the first industrial power to be gutted and left behind the woodshed by China Inc and the CCP.

The U.S. faces a conundrum in that the method in which aided China’s rise of forced technology transfers and IP theft can only be stopped if actively removed, meaning we are headed for a game of chicken with the other side hoping the other side blinks first.

The market fallout will be deep and wide-ranging with the most movement in technology companies that are leveraged to China meaning chip companies.

But then there are the tech companies who have deeply embedded interests in China such as Apple (AAPL) whose supply chain is in the eye of the storm with Foxconn.

The worst possible case is China banning the sales of precious earth metals to the U.S. forcing the U.S. to buy from a 3^rd party country which in turn would increase costs of American products.

This is what I would categorize as a hard landing and absolute decoupling.

The common denominator of this trade war is higher costs for the American consumer and mass layoffs in China – this is my base case.

However, I would argue that a rare earth's ban would not be as bad as initially thought because many consumers are tapped out with phones, tablets, and computers.

The elongated refresh cycle will not mean consumers will go without access to the internet and its services.

In terms of the stock market, this puts a wet towel on the positive momentum of early spring when the Nasdaq roared higher.

The Nasdaq could be stuck under 8,000 for the summer unless a rapprochement takes place which I would put at 30% for a structural détente and 65% for a kick the can down the road détente.

The ironic unintended consequence is the safe haven trade of buying treasuries has come back in vogue and could be a huge boon for the domestic real estate market.

This extends the bull market in properties at least another six months with lower rates allowing fresh buyers to take advantage of lower financing opportunities amid a bump in inventory.

The bull market absolutely needs the real estate market on-sides to perpetuate because of the fragile nature of this part of the late economic cycle.

I also believe that U.S. President Donald Trump will become even more brazen as stronger economic data stateside suggests he could pile on even more pressure on the Chinese communist party to coerce them into a big win that will aid him in his reelection efforts.

Let’s not forget that much of this has to do with the 2020 road back to the White House.

As it stands, corporate America has finally understood the message of moving their supply chain out of China which means mass layoffs for many Chinese particularly in the southern region around Guangzhou.

This is not a marketing charade, this trade war has teeth.

China’s Central Bank will be forced into dovish policy to help state-owned companies who many are akin to zombie companies and another relic of communism that has yet to be uprooted.

All this means debt, debt, and more debt piling up on the mainland and on American shores.

If you thought this was the time of austerity, then you are truly wrong.

The end game could be a Chinese yuan that drops like a heavy stone through the psychological threshold of $7 and on its way down to $7.50.

If this comes to pass, expect a 10% correction and a demonstrably strong U.S. dollar, Japanese yen, Swiss Franc, and a generational entry points into the equity market.

May 24, 2019

Diary, Newsletter, Summary

Global Market Comments
May 24, 2019
Fiat Lux

Featured Trade:
(MONDAY JULY 8 VENICE, ITALY GLOBAL STRATEGY LUNCHEON)
(FROM THE FRONT LINE OF THE TRADE WAR)
(SPY), (AAPL), (TLT)

From the Front Line of the Trade War

Diary, Newsletter

Poke your hand into a hornet's nest and you can count on an extreme reaction, a quite painful one.

As California is the growth engine for the entire US economy, accounting for 20% of US GDP, it is no surprise that it has become the primary target of Chinese retaliation in the new trade war.

The Golden State exported $28.5 billion worth of products to China in 2017, primarily electronic goods, with a host of agricultural products a close second.

In the most devious way possible, the Middle Kingdom targeted Trump supporters in the most liberal state in the country with laser-like focus. California exports 46% of its pistachios to China, followed by 35% of its exported plums, 20% of exported oranges, 12% of its almonds.

By comparison, California imported gargantuan $160.5 billion worth of goods from China last year, mostly electronics, clothing, toys, and other low-end consumer goods.

Some $16 billion of this was recycled back into the state via investment in real estate and technology companies.

Anecdotal evidence shows that figure could be dwarfed by the purchase of California homes by Chinese individuals looking for a safe place to hide their savings. Local brokers report that up to one-third of recent purchases have been by Chinese nations paying all cash.

The Chinese tried to spend more. Their money is thought to be behind Broadcom’s (AVGO) $105 billion bid for QUALCOMM (QCOM), which was turned down for national security reasons.

The next big chapter in the trade war will be over the theft of intellectual property, and that one will be ALL about the Golden State.

Also at risk is virtually Apple’s (AAPL) entire manufacturing base in China where more than one million workers at Foxconn assemble iPhones, Macs, iPads, and iPods. It took Apple 20 years to build this facility. It will take 20 more years to move it.

The Cupertino giant could get squeezed from both sides. The Chinese could interfere with its production facilities, or its phones could get slapped with an American import duty.

By comparison, in 2017 the US imported a total of $505.6 billion in goods from China and exported $130.4 billion. Against this imbalance, the US runs the largest surplus in services.

The last Chinese escalation will involve a 25% tariff on American pork and recycled aluminum. Who is the largest pork producer in the US? Iowa, with $4.2 billion worth, the location of an early presidential election primary.

Beyond that, Beijing has darkly hinted that is will continue to boycott new US Treasury bond auctions, as it has done for the past six months, or unload some of its massive $1.6 trillion in bond holdings.

Given the price action in the bond market today, with the United States Treasury Bond Fund (TLT) at a two-year high, I would say that the market doesn’t believe that for two seconds. The Chinese won’t cut off their nose to spite their face.

The administration is discovering to its great surprise that its base is overwhelming against a trade war. And as business slows down, it will become evident in the numbers as well.

The US was the big beneficiary of the global trading system. Why change the rules of a game we are winning?

Still, national pride dies hard.

How soon will the trade war end? Does China want to help Donald Trump get elected in 2020, or his opponent?

It looks like it is going to be a long slog.

May 20, 2019

Diary, Newsletter, Summary

Global Market Comments
May 20, 2019
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, OR I’LL TAKE SOME OF THAT!)
(FXI), (CYB), (TSLA), (AAPL), (BA), (WMT), (TLT), (INTU), (GOOGL)

The Market Outlook for the Week Ahead, or I’ll Take Some of That!

Diary, Newsletter, Research

Whatever the market is drinking right now, I’ll take some of that stuff. If you could bottle it and sell it, you’d be rich. Certainly, the Viagra business would go broke.

To see the Dow average only give up 7% in response to the worst trade war in a century is nothing less than stunning. To see it then make half of that back in the next four days is even more amazing. But then, that is the world we live in now.

When the stock market shrugs off the causes of the last great depression like it’s nothing, you have to reexamine the root causes of the bull market. It’s all about the Fed, the Fed, the Fed.

Our August central bank’s decision to cancel all interest rate rises for a year provided a major tailwind for share prices at the end of 2018. The ending of quantitative tightening six months early injected the steroids, some $50 billion in new cash for the economy per month.

We now have a free Fed put option on share prices. Even if we did enter another 4,500-point swan dive, most now believe that the Fed will counter with more interest rate cuts, thanks to extreme pressure from Washington. A high stock market is seen as crucial to winning the 2020 presidential election.

Furthermore, permabulls are poo-pooing the threat to the US economy the China (FXI) trade war presents. Some $500 billion in Chinese exports barely dent the $21.3 trillion US GDP. It’s not even a lot for China, amounting to 3.7% of their $13.4 trillion GDP, or so the argument goes.

Here’s the problem with that logic. The lack of a $5 part from China can ground the manufacture of $30 million aircraft when there are no domestic alternatives. Similarly, millions of small online businesses, mostly based in the Midwest, couldn’t survive a 25% price increase in the cost of their inventory.

As for the Chinese, while trade with us is only 3.7% of their economy, it most likely accounts for 90% of their profits. That’s why the Chinese yuan (CYB) has recently been in free fall in a desperate attempt to offset punitive tariffs with a substantially cheaper currency.

The market will figure out all of this eventually on a delayed basis and probably in a few months when slowing economic growth becomes undeniable. However, the answer for now is NOT YET!

Markets can be dumb, poor sighted, and mostly deaf animals. It takes them a while to see the obvious. One of the problems with seeing things before the rest of the world does, I can be early on trades, and that can translate into losing money. So, I have to be cautious here.

When that happens, I revert to an approach I call “Trading devoid of the thought process.” When prices are high, I sell. When they are low, I buy. All other information is noise. And I keep my size small and stop out of losers lightning fast. That’s how I managed to eke out a modest 0.63% profit so far this month, despite horrendous trading conditions.

You have to trade the market you have, not what it should be, or what you wish you had. It goes without saying that the Mad Hedge Market Timing Index become an incredibly valuable tool in such conditions.

It was a volatile week, to say the least.

China retaliated, raising tariffs on US goods, ratcheting up the trade war. US markets were crushed with the Dow average down 720 intraday and Chinese plays like Apple (AAPL) and Boeing (BA) especially hard hit.

China tariffs are to cost US households $500 each in rising import costs. Don’t point at me! I buy all American with my Tesla (TSLA).

The China tariffs delivered the largest tax increases in history, some $72 billion according to US Treasury figures. With Walmart (WMT) already issuing warnings on coming price hikes, we should sit up and take notice. It is a highly regressive tax hike, with the poorest hardest hit.

The Atlanta Fed already axed growth prospects for Q2, from 3.2% to 1.1%. This trade war is getting expensive. No wonder stocks have been in a swan dive.

US Retail Sales cratered in March while Industrial Production was off 0.5%. Why is the data suddenly turning recessionary? It isn’t even reflecting the escalated trade war yet.

European auto tariff delay boosted markets in one of the administration’s daily attempts to manipulate the stock market and guarantee support of Michigan, Wisconsin, and Pennsylvania during the next presidential election. All government decisions are now political all the time.

Weekly Jobless Claims plunged by 16,000 to 212,000. Have you noticed how dumb support staff have recently become? I have started asking workers how long they have been at their jobs and the average so far is three months. No one knows anything. This is what a full employment economy gets you.

Four oil tankers were attacked at the Saudi port of Fujairah, sending oil soaring. America’s “two war” strategy may be put to the test, with the US attacking Iran and North Korea simultaneously.

Bitcoin topped 8,000, on a massive “RISK OFF” trade, now double its December low. The cryptocurrency is clearly replacing gold as the fear trade.

The Mad Hedge Fund Trader managed to blast through to a new all-time high last week.

Global Trading Dispatch closed the week up 16.35% year to date and is up 0.63% so far in May. My trailing one-year rose to +20.19%. We jumped in and out of short positions in bonds (TLT) for a small profit, and our tech positions appreciated.

The Mad Hedge Technology Letter did OK, making some good money with a long position in Intuit (INTU) but stopping out for a small loss in Alphabet (GOOGL).

Some 10 out of 13 Mad Hedge Technology Letter round trips have been profitable this year.

My nine and a half year profit jumped to +316.49%. The average annualized return popped to +33.21%. With the markets incredibly and dangerously volatile, I am now 80% in cash with Global Trading Dispatch and 80% cash in the Mad Hedge Tech Letter.

I’ll wait until the markets retest the bottom end of the recent range before considering another long position.

The coming week will see only one report of any real importance, the Fed Minutes on Wednesday afternoon. Q1 earnings are almost done.

On Monday, May 20 at 8:30 AM, the April Chicago Fed National Activity Index is out.

On Tuesday, May 21, 10:00 AM EST, the April Existing Home Sales is released. Home Depot (HD) announces earnings.

On Wednesday, May 22 at 2:00 PM, the minutes of the last FOMC Meeting are published. Lowes (LOW) announces earnings.

On Thursday, May 16 at 23 AM, Weekly Jobless Claims are published. Intuit (INTU) announces earnings.

On Friday, May 24 at 8:30 AM, April Durable Goods is announced.

As for me, I’ll be taking a carload of Boy Scouts to volunteer at the Oakland Food Bank to help distribute food to the poor and the homeless. Despite living in the richest and highest paid urban area in the world, some 20% of the population now lives on handouts, including many public employees and members of the military. It truly is a have, or have-not economy.

Good luck and good trading.

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

May 17, 2019

Diary, Newsletter, Summary

Global Market Comments
May 17, 2019
Fiat Lux

Featured Trade:

(APRIL 15 BIWEEKLY STRATEGY WEBINAR Q&A),
(MSFT), (GOOGL), (AAPL), (LMT), (XLV), (EWG), (VIX), (VXX), (BA), (TSLA), (UBER), (LYFT), (ADBE),
(HOW TO HANDLE THE FRIDAY, MAY 17 OPTIONS EXPIRATION), (INTU),

May 15 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

Below please find subscribers’ Q&A for the Mad Hedge Fund Trader May 15 Global Strategy Webinar with my guest and co-host Bill Davis of the Mad Day Trader. Keep those questions coming!

Q: Where are we with Microsoft (MSFT)?

A: I think Microsoft is really trying to bottom here. It’s only giving up $8 from its recent high, that's why I went long yesterday, and you can be hyper-conservative and only do the June $110-$115 vertical bull call spread like I did. That will bring in a 13.68% profit in 28 trading days, which these days is pretty good. This morning would have been a great entry point for that spread if you couldn’t get it yesterday.

Q: How will tariffs affect Apple (AAPL) when they hit?

A: The price of your iPhone goes up $140—that calculation has already been done. All of Apple's iPhones are made in China, something like 220 million a year. There’s no way that can be moved, they need a million people for the production of these phones. It took them 20 years to build that facility and production capacity; it would take them 20 years to move it and it couldn't be done anywhere else in the world. So, that's why Apple led the charge on the downside and that's why it will lead the charge to the upside on any trade war resolution.

Q: How bad is the trade war going to get?

A: The market is betting now by only going down 1,400 Dow points it will be resolved on June 28^th in Osaka. If that doesn’t happen it could get a lot worse. It could get down to my down 2,250-point target, and if it continues much beyond that, then we’ll get the whole full 4,500 points and be back at December lows. After that, you’re really looking at a global recession, a global depression, and ultimately nearing 18,000 in Dow, the 2016 low.

Q: Will global trade wars force US Treasuries down to around 2.10% on the ten year?

A: Yes. Again, the question is how bad will it get? If we resolve the trade war in six weeks, treasuries will probably double bottom here at around a 2.33% yield. If we go beyond that, then 2.10% is a chip shot and we go into a real live recession. The truth is no one knows anything, and we really don’t have any influence over what happens.

Q: How will equities digest and increase in European tariffs for cars?

A: It would completely demolish the European economy—especially that of Germany (EWG) which has 50% of its economy dependent on exports (primarily cars) and mostly to the U.S. And if we wipe out our biggest customer, Europe, then that would spill over here very quickly. Anybody who sells to Europe—like all the big Tech companies—would get slaughtered in that situation.

Q: Is it time to buy the Volatility Index (VIX)?

A: It’s too late to buy (VIX) now. I don’t want to touch it until we get down to that $12-$13 handle again because the time decay on this is enormous. Time decay is more than 50% a year, so your timing has to be perfect with trading any (VIX) products, whether it’s the (VXX), the (VIX) futures, the (VIX) options, or so on. There are countless people shorting (VIX) here, and they will short it all the way down to $12 again.

Q: What should I do about Boeing at this point?

A: We went long, got out, took our profit and caught this rally up to $400 a share. Then (BA) gave it up and it broke down. It’s a really tempting long here. Along with Apple, Boeing has the largest value of exports to China of any company. They have orders for hundreds of airlines from China, so they are an easy target, especially if there is a ramp up in the intensity of the trade war. That said, something like a June $270-$300 vertical bull call spread is very tempting, especially with elevated volatility up here, so I’m watching that very closely. We’re looking for the recertification of the 737 MAX bounce which could happen in the next few weeks; if that does happen it should rally at least back up to 380.

Q: Are your moving averages simple or exponential?

A: I just use the simple. I find that the simpler a concept is, the more people can understand it, and the more people buy it; that’s why I always try to keep everything simple and leave the algorithms for the computers.

Q: What stocks are insulated from a US/China trade war?

A: None. When the whole market goes risk off, people sell everything. Remember that an overwhelming portion of the market is now indexed with passive investment funds, so they just go straight risk on/risk off. It makes no difference what the fundamentals are, it makes no difference who has a lot of Chinese business or a little—everyone gets hit and everyone will get boosted when the trade war ends. There is no place to hide except cash, which is why I went 100% cash going into this. People seem to forget that cash has option value and having a lot of cash going into one of these situations is actually worth a lot of money in terms of opportunities.

Q: Do you have any thoughts on Uber’s (UBER) bad performance?

A: Yes, the whole sector was wildly overvalued, but no one knew that until they brought it to market and found out the real supply and demand for the issue. The smartest company of the year has to be Lyft (LYFT), which got a nice valuation by doing their issue first and keeping it small. So, they kind of rained on Uber’s parade; at one point, Uber was down 25% from their IPO price. That’s awful.

Q: Is Trump forcing the Fed to drop rates with all this tariff threat?

A: Yes, and if you remember, Trump really ramped up the attacks on the Fed in December. And my bet is at the first sign the trade talks were in trouble, they wanted to lower rates to offset the hit to the U.S. economy. There was no economic reason to suddenly demand huge interest rate cuts last December other than a falling stock market. The tariffs amount to a $72 billion tax increase on the American consumer, felt mostly at the low end, and that is terrible for the economy in that it reduces purchasing power by exactly that much.

Q: Would you buy the dollar as a safe haven trade?

A: No, I would not. The dollar may actually go down some more, especially with the collapse in our interest rates and European interest rates bottoming at negative levels. The best thing in the world in a high-risk environment like this is cash—don’t try to get clever and buy something you think will outperform. You could be disappointed.

Q: Why is healthcare (XLV) behaving so badly?

A: You don’t want to get into political football ahead of an election. That said, they're already so cheap that any kind of recovery could very well take healthcare up big, especially on an individual company basis. This is a sector where individual stock selection is crucial.

Q: Would you buy deep in the money calls on PayPal (PYPL)?

A: Yes, I would. Wait for a down day. Today we’re up slightly, but if we have a weak afternoon and a weak opening tomorrow morning, that would be a good time to add more longs in technology. PayPal is absolutely at the top of the list, as are names like Adobe (ADBE) and Alphabet (GOOGL).

Q: Should I be buying LEAPS in this environment?

A: No; a LEAP is a one-year long term deep out-of-the-money call spread. That was a great December bottom trade. The people who bought leaps then made huge fortunes. We’re too high here to consider leaps for the main market unless it's for something that’s just been bombed out, like a Tesla (TSLA) or a Boeing (BA), where you had big drops—then I would look at LEAPS for the super decimated stocks. But the rest of the market is still too high for thinking about leaps. Wait a couple of months and we may get back to those December lows.

Q: What happened to your May 10th bear market call?

A: Actually, it’s kind of looking good. It’s looking in fact like the market topped on May 2nd. If saner heads prevail, the trade war will end (or at least we’ll get a fake agreement) and the market will go to a new high. If not, then that May 10th target forecast I made two years ago IS the final top.

Q: You’re saying today we’re at a bottom?

A: We’re at a bottom for a short-term trade with a June 21st target. That was the expiration date of the options spreads I did this week. Whether this is the final bottom in the whole down move for a longer term, no one has any idea, even if they try to say differently. This is totally dependent on political developments.

Q: What do you have to say about Lockheed Martin (LMT)?

A: This sector usually does well with a wartime background. Expect that to continue for the foreseeable future. But at a certain point, the defense stocks which have had fantastic runs under Trump will start to discount a democratic win in the next election. If that does happen, defense will get slaughtered. I would be using any future strength to sell out of the whole defense area. Peace could be fatal to this sector.