(AMD) Archives

March 3 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the March 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.

Q: Are SPACs here to stay?

A: Yes, but I think that in the next bear market, 80% of these SPACs (Special Purpose Acquisition Companies) will disappear, will deliver large losses, and will continue charging you enormous fees until then. It’s either that or they won’t invest their money at all and give it back, net of the fees. So, I’m avoiding the SPAC craze unless it's associated with a very specific investment play that I know well. The problem with SPACs is that they all come out expensive—there are no bargain basement SPACs on launch day. Me, being the eternal cheapskate that I am, always want to get a great bargain on everything. The time to buy these is actually in the next bear market, if they still exist, because then investors will be throwing their positions away at 10 or 20% discounts. That’s always what happens with specialized ETF, closed-end funds, and so on. They are roach motel investments; you can check-in, but you can never check out.

Q: What do you think of Elizabeth Warren's asset tax idea?

A: It’s idiotic. It would take years to figure out how much Jeff Bezos is worth. And even then, you probably couldn't come within ten billion dollars of a true number. We already pay asset taxes, our local county real estate taxes, and those are bad enough, delivering valuations that are miles from true market prices. There are many other ways to fix the tax system and get billionaires paying their fair share. There are only three things you really have to do: get rid of carried interest so hedge funds can’t operate tax-free, get rid of real estate loss carry forwards which allow the real estate industry to basically operate tax-free, and get rid of the oil depletion allowance, which has enabled the oil industry to operate tax-free for nearly 90 years. So those would be three easy ones to increase the fairness of the tax system without any immense restructuring of our accounting system.

Q: When will share buybacks start?

A: They’ve already started and have been happening all year. There are two ways the companies do this: they either have an outside accounting firm, buying religiously every day or at the end of every month or something like that, so they can’t be accused of insider trading; or they are in there buying on every dip. Certainly, all the big cash-heavy companies like Berkshire Hathaway (BRKB) or Apple (AAPL) were buying their shares like crazy last March and April because they were trading such enormous discounts. So that is another trillion dollars sitting under the market, waiting to come in on any dip, which is yet another reason that we are not going to see any major sell-offs this year—just the 5%-10% variety that I have been predicting.

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

A: Yes, Marc Benioff’s goal is to double sales in two years, and the stock is relatively cheap right now because they’ve had a couple of weak quarters and are still digesting some big acquisitions.

Q: Is CRISPR Therapeutics (CRSP) good buy?

A: Yes, I would be buying right here; it’s a good LEAP candidate because the stock could easily double from here. We’ve only scratched the surface on CRISPR technology being adopted and the potential growth in this company is enormous—I'm surprised they haven’t been taken over already.

Q: Will you start a letter for investing advisors on how to deal with the prolific numbers of Bitcoin?

A: There are already too many Bitcoin newsletters; there are literally hundreds of them and thousands of experts on Bitcoin now because there’s nothing to know and nothing to analyze. It’s all a belief system; there are no earnings, there are no dividends, and there is no interest. So, you purely have to invest in the belief that somebody else is going to take you out at a higher price. I think there is a big overhang of selling in that when they raise the number of Bitcoin, we’ll get another one of those 90% crashes that Bitcoin is prone to. So, go elsewhere for your Bitcoin advice; your choices are essentially unlimited now, and they are much cheaper than me. In fact, people are literally giving away Bitcoin advice for free, which means you’re getting what you’re paying for. I buy Bitcoin when they have a customer support telephone number.

Q: Zoom (ZM) has come down a lot after a big earnings report—do you like it?

A: Long term, yes. Short term, no. You want to avoid all the stay-at-home stocks because no one is staying at home anymore. However, there is a long-term story in Zoom once they find their bottom because even after we come out of the pandemic, we’re all still using Zoom. I have like five or ten Zoom meetings a day, and my kids go to school on Zoom all day long. They’re also bringing out new products like telephone servers. They’re also raising their prices—I happen to be one of Zoom’s largest customers. I’m paying $1,100/month now, and that’s rising at 10% a year.

Q: What would be the best LEAP for Salesforce (CRM)?

A: The rule of thumb is that you want to go 30% out of the money on your first strike. So, find a current stock price; your first strike is up 30%, and then your second strike is up 35%. And all you need to double your money on that is a bounce back to the highs for this year, which is not unrealistic. That’s the lay-up there with Salesforce. That’s the basic formula; Advanced Micro Devices (AMD), Walt Disney (DIS), Berkshire Hathaway (BRKB), Palantir (PLTR), and Nvidia (NVDA) are all good candidates for LEAPS.

Q: How often do you update the long-term stock portfolio?

A: Twice a year, and we just updated in January, which is posted on the website in your membership area. If you can't find it, just email customer support at support@madhedgefundtrader.com and they’ll tell you where to find it. And we only do this twice a year because there just aren't enough changes in the economy in six months to justify a more frequent update.

Q: When do you think real estate will come back?

A: It never left. We’ve had the hottest real estate market in history, with 20% annual gains in many cities in 2020. And that will continue, but not at the 20% rate, probably at a more sustainable 5% or 6% rate. Guess what the best inflation play in the world is? Real estate. If you’re worried about inflation, you want to run out and buy a house or two. The only thing that will really kill that market is a rise in 30-year fixed-rate mortgages to 5%, and that is years off. Or a rise in the ten-year treasury to 5% or 6%—that is several years off also. So, I think we’ve got a couple of good years of gains ahead of us. I at least want the market to stay hot until my kids get out of high school, and then I can sell my house and go live on some exotic tropical island with great broadband.

Q: When you’re doing LEAPS, do you just do the calls only or do you do these as spreads?

A: You can do both. Just do the math and see what works for you on a risk/reward basis. You can do a 30% out of the money call 2 years out and get anywhere from a 1,000% to a 10,000% return—people did get 10,000% returns buying deep out of the money LEAPS in Tesla (TSLA) a year ago (that’s where all the vintage bourbon is coming from). Or you can do it more conservatively and only make 500% in two years on Tesla spread. For example; do something like a Tesla January 2023 $900-$950 call spread. If Tesla shares rise to $950, that position is an easy quadruple. But do the numbers, figure out the cost today, what the expiration value is in two years, and there you go.

Q: Do you think overnight rates could go negative as some people predict?

A: Not for a long time. They will go negative at the next recession because we’re starting off such a low base—or when we get the next pandemic, which could be as early as next year. We could get another one at any time from a completely different virus, and it would generate the same stock market results that we got last time—down 40% in a month. We’re not out of the pandemic business, we’re just having a temporary break waiting for the next one to come along out of China or some other country, or even right here in the USA. So that may be a permanent aspect of investing in the future. It could be the price we pay having a global population that's at 7 billion heading to 9 billion.

Q: Expiration on LEAPS?

A: I always go out two years. The second year is almost free, that’s why. So why not go for the second year? It gives you twice as much time to be right, always useful.

Q: My two-year United States Treasury Bond Fund (TLT) $125 put LEAPS have turned very positive. Is this a good trade?

A: That is a good trade, which you should put on during the next (TLT) rally. If you think we’re going to $105 in 2 years, do something like a $127-$130 two-year put LEAP, and there's a nice four bagger right there.

Q: Your Amazon (AMZN) price target was recently listed at $3,500, below last year's high, but I’ve also seen a $5,000 forecast in two years. Are you sticking with that?

A: Yes, I think when you get a major recovery in the economy, Amazon will be one of the only pandemic plays that keeps on going. It’s just taking a rest here with the rest of big tech. The breakup value of Amazon is easily $5,000 a share or more. Plus, they’re still going gangbusters growing into new industries that they’ve barely touched so far, like pharmaceuticals, healthcare, and so on. So yes, I would definitely be a buyer of LEAPS, and you could do something like the January 2023 $3700-$4000 LEAP two years out and make a killing on that.

Q: Anything you can do in gold (GLD)?

A: Not really. Although gold and silver (SLV) have been a huge disappointment this year, I think this could be the beginning of a capitulation selloff in gold which will bring us a final bottom, but it may take another month or two to get there.

Q: How can I sell short the dollar?

A: You sell short the (UUP), or there are several 1X and 2X short ETFs in the currencies that you can do, like the ProShares Ultra Short Euro ETF (EUO). That is the way to do it.

Q: What is the best timing for buying LEAPS?

A: Buy at market bottoms. A year ago, I was sending out lists of 10 LEAPS at a time saying please buy all of these. You need both a short-term selloff in the stock, and then an upside target much higher than the current price so your LEAP expires at its maximum profit point. And if you’re in the right names, pretty much all the names that we talk about here, you will have 30%, if not 300% or 3,000% gains in them in the next two years.

Q: Do you think Tesla’s Starlink global satellite system will disrupt the cell tower industry?

A: Yes, that is the goal of Starlink—to wipe out all ground communication for WIFI and for cell phones. It may take them several years to do it, but if they do pull it off, then it just becomes a matter of pricing. The last Starlink pricing I looked at cost about $500 to set up, open the account, and get your dish installed. And the only flaw I see in the Starlink system is that the satellite dishes are tracking dishes, which means they lock onto satellites and then follow them as they pass overhead. Then when that signal leaves, it locks onto a new satellite; at any given time they’re locked onto four different satellites. That means moving parts, and you want to be careful of any industry that has moving parts—they wear out. That’s the great thing about software and online businesses; no moving parts, so they don’t wear out. And that’s also why Tesla has been a success; they eliminated the number of moving parts in cars by 80%. I’m waiting for Starlink to get working so I can use it, because I need Internet access 24 hours a day, even if all the local hubs are out because of a power outage. I’m now using something called Viasat (VSAT), which guarantees 100 megabyte/second service for $55 a month. It's not enough for me because I use a gigabyte service landline, but when that’s not available then I can go to satellite as a backup.

Q: Is there too much Fed liquidity in the market already? Why is the $1.9 trillion rescue package still positive for the market?

A: Firstly, there is too much liquidity in the market; that is screamingly obvious. If you look at liquidity over the decades, we are just staggeringly high right now. M2 is growing at 26% against the normal rate of 5%-6%. What the stimulus package does is get money to the people who did not participate in the bull market from last year. Those are low-income people, cities, and municipalities that are broke and can’t pay teachers, firemen, and policemen. It also goes to individual states which were not invested in the stock market. It turns out that states that were invested in the stock market like California have money coming out of their ears right now. And it gets money to low wage workers with kids who are certainly struggling right now. So, it is rather efficiently designed to get the money to people who need it the most. There is still half the country that doesn't own any stocks or even have savings of any kind. One or two people might get it who don’t deserve it but try doing anything in a 330 million population country and have it be 100% efficient.

Q: Is inflation coming?

A: Only incrementally in tiny pieces, so not enough to affect the stock market probably for several years. I still believe technology is advancing so fast that it wipes out any effort to raise prices or increase wages, and that may be what the perennially high 730,000 weekly jobless claims is all about. Those jobs that might have been there a year ago have been replaced by machines, have been outsourced overseas, or the demand for the product no longer exists. So, as long as you have a 10% unemployment rate and a weekly jobless claim at 730, inflation is the last thing you need to worry about.

Q: Is there any way to cash in on Reddit’s Wall Street Bets action?

A: No, and I would bet the majority of people who are trading off of these emojis and Reddit posts are losing money. You only hear about these things after it’s too late to do anything about them. I don't think you’ll get any more $4 to $450 moves like you did with GameStop (GME) because in that one case only, there was a short interest of 160%, which should have been illegal. All the other high short interest stocks have already been hit, with short interests all the way down to 30%, so I think that ship has sailed. It has no real investing merit whatsoever.

Good Luck and Stay Healthy.

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

March 3, 2021

Tech Letter

Mad Hedge Technology Letter
March 3, 2021
Fiat Lux

Featured Trade:

(U.S. CHIP SHORTAGE IS REAL)
(WDC), (AMD), (MU)

U.S. Chip Shortage is Real

Tech Letter

Yes, the price is going up. And no, I am not talking about monthly grocery bills, but the price of semiconductor chips that help operate iPhones and will power autonomous driving vehicles.

The situation is so dire that US President Joe Biden signed an executive order calling for a supply chain review of semiconductors and IT technologies.

Yes, it’s that bad.

The drastic and imminent chip shortage is impacting a wide swath of tech firms we cover here at the Mad Hedge Technology Letter.

The order will also “facilitate needed investments to maintain America’s competitive edge and strengthen U.S. national security.”

Biden’s proactive decision to sign the executive order comes on the heels of several top U.S. semiconductor executives persuading US President Joe Biden earlier this month to resuscitate domestic chip manufacturing with “substantial funding” as part of the White House’s economic recovery and infrastructure plan.

In the fact sheet for the executive order, the White House said supply chains for semiconductors and advanced chip packaging technologies will be among four key areas where federal agencies will be directed to commence a 100-day review.

The White House acknowledged a massive underinvestment in semiconductor production that has caused manufacturing to shift abroad.

The critical issue was emphasized by U.S. semiconductor executives in a recent joint letter to Biden.

The US has leaned on foreign manufacturing for many products in the past 50 years, but semiconductor chips are the ones that could force US tech companies into a losing position and offer a pathway for Chinese tech firms to seize their chance as top dog.

The 100-day supply chain review will also look at critical minerals, including rare earths that are used for a variety of products, as well as large-capacity batteries and active pharmaceutical ingredients.

The shortages of chips and other components are a very real issue that can have a material impact on several adjacent industries, including bioinformatics companies and mechanical parts manufacturers that rely on simulation and modeling applications.

How does this affect chip companies?

Let’s take a look at one, Western Digital (WDC).

Shares are trading higher on signs of improving pricing in the flash-memory market.

I am short-term bullish on Western shares because a meaningful memory-chip price rise is in the cards for both flash NAND and DRAM.

A blast from the past Silicon Valley dinosaur that began as a disk-drive manufacturer, Western diversified into flash-memory products via its 2016 acquisition of SanDisk.

Encouraging NAND pricing also benefits Micron Technology (MU), which makes both NAND and DRAM chips.

The most important takeaway from my channel checks is that despite increased attempts by cloud and enterprise customers to lock in prices for second-half delivery, end contract numbers aren’t reflecting any good deals for the end buyer.

Manufacturers are convinced with their newfound pricing power and will wield it to full effect.

Expect significant price increases until the shortage is cured, and this could result in many end projects being shelved because of funding issues.

For semi chip firms, a bountiful harvest will make 2021 earnings report glisten in the form of meaningful expansion in margins, which have been under pressure since 2018.

My initial prediction is that prices will rise 5% to 10% from the fourth quarter—and that pricing for the second quarter is tracking up another 10% or more sequentially making it a 20% rise in less than half a year.

Memory manufacturers like Micron (MU), AMD (AMD), Samsung, and Western Digital (WDC) are in line to overperform in 2021.

February 22, 2021

Diary, Newsletter, Summary

Global Market Comments
February 22, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or TIME FOR A BREAK)
(GME), (TLT), (FB), (AMZN), (AAPL), (XME), (FCX), (MS), (GS), (BLX), (KO), (AMD)

The Market Outlook for the Week Ahead, or Time for a Break

Diary, Newsletter

I know you’re not going to want to hear this. I might as well be trying to pull your teeth, lead you down a garden path, or sell you a high-priced annuity.

But there is nothing to do in the market right now. Nada, diddly squat, bupkis, and for all you Limey’s out there, bugger all.

For during the first six weeks of 2021, we have pretty much squeezed all there is out of the market.

Not only did we nail the timing and the direction, we also got the lead sectors, financials, brokers, chips, and short bonds (MS), (GS), (BLK), (AMD). We also chased the Volatility Index (VIX) down from $38 to a lowly $20, baying and protesting all the way.

That enabled us to extract a 28.29% profit so far in 2021, the best return in the 13-year history of the Mad Hedge Fund Trader. The only other time you see numbers this high is when Ponzi schemes get busted. And not a dollar of this was earned from the really marginal plays like Bitcoin, SPAC’s, GameStop (GME), or pot stocks.

If I feel like I did a year’s worth of work during the first seven weeks of 2021, it’s because I have, issuing 60 trade alerts since January 1.

However, bonds (TLT) are reaching the end of their current leg down. The 1.34% yield we saw on Friday is suspiciously close to the 1.36% yields we saw during the 2012 and 2017 market double bottom.

So, there may be some wood to chop around these, levels, possibly for weeks or months.

This is important because a collapsing bond market has been the principal driver of the winning trades of 2021, such as in banks, brokers, money managers, and other domestic recovery plays.

And when one side of the barbell goes dead, what do you do? You buy the other side. FANGs are just completing a six-month “time” correction where they have gone absolutely nowhere. So, Facebook (FB), Amazon (AMZN), and Apple (AAPL) may be getting ready for a roll.

One other sector that might keep running is the SPDR Mining & Metals ETF (XME), and Freeport McMoRan (FCX). That’s because it's not just us buying metals to front-run a recovery, it’s the entire world. What do you think a $2 trillion infrastructure budget will do to this area?

New lows for bonds, as the ten-year US Treasury yield hits 1.26%, up 38 basis points since January 1 and a one-year high. 1.50% here we come! Ever hear the expression “Don’t fight the Fed”? All financials are off to the races, where we were 60% long. Biden’s $1.9 trillion rescue package will be 100% borrowed and take total US borrowing to a back-breaking 55% of GDP. I hate to sound like a broken record but keep selling rallies in the (TLT), buy (JPM), (BAC), (GS), (MS), and (BRK/B) on dips.

Volatility index hit a one-year Low, which is what you’d expect at the dawn of a decade-long bull market in stocks. The (VIX) may flat line here for a while before the next out-of-the-blue spike.

The Nikkei Stock Average topped 30,000, for the first time in 31 years, Yes, it’s been a long haul. I was heavily short in the initial 1990 meltdown from 39,000 to 20,000 and many fortunes were made. The top marked the end of the Japanese company’s ability to copy their way into leadership. After that, rapidly advancing technology made copying too slow to compete in a global economy.

A midwest storm upended energy markets, with oil popping $8 to $67 and gas deliveries spiking from $4 to $999. It would have gone higher, but the software only provided for three digits. Electricity prices are all over the map. Some 4 million Texas customers are without power. Fracking has ground to a halt. Windfarms are frozen solid. If you are a net producer (as I am), you are in heaven. The turmoil is expected to be gone by the weekend. It’s another high price paid for ignoring global warming.

Weekly Jobless Claims soared, to 861,000, casting a dark cloud over the economic recovery. The news took a 300-point bite out of the Dow. Illinois and California saw the biggest gains. We are not out of the woods yet.

SpaceX was valued at $74 Billion, according to an $850 billion venture capital fundraising round this week. However, Elon Musk’s rocket company won’t go public until men are landed on Mars. The company is also the launching pad for its Starlink global WIFI project, which will cost at least $10 billion to build out. Blowing up rockets is not a good backdrop for an IPO.

Cash is still pouring off the sidelines, with equity mutual funds attracting some $7.8 billion last week. As long as this is the case, which could be for years, any market corrections will be limited. Strangely, bond funds are still pulling in money too, some $5.7 billion. It’s called a liquidity-driven market, silly!

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 earned an amazing 17.27% so far in February after a blockbuster 10.21% in January. The Dow Average is up a trifling 2.92% so far in 2021.

This is my fourth double-digit month in a row. My 2021 year-to-date performance soared to 27.28%. After the February 19 option expiration, I am now 80% in cash, with a single long in Tesla (TSLA) left.

That brings my 11-year total return to 450.03%, some 2.05 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an Everest-like new high of 40.30%.

My trailing one-year return exploded to 94.09%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 109.00% since the March 20, 2020 low.

We need to keep an eye on the number of US Coronavirus cases at 28 million and deaths approaching 500,000, which you can find here. We are now running at a heart breaking 3,000 deaths a day. But that is down 35% from the recent high.

The coming week will be a boring one on the data front.

On Monday, February 22, at 8:30 AM EST, the Chicago Fed National Activity Index is out. Zoon (ZM) reports.

On Tuesday, February 23 at 9:00 AM, the S&P Case-Shiller National Home Price Index for December is announced. Square (SQ) and Intuit (INTU) report.

On Wednesday, February 24 at 8:30 AM, New Home Sales for January are printed. NVIDIA (NVDA) reports.

On Thursday, February 25 at 9:30 AM, Weekly Jobless Claims are printed. US Durable Goods for January and Q4 GDP are out. Salesforce (CRM), (Moderna (MRNA), and Airbnb (ABNB) report.

On Friday, February 26 at 8:30 AM, US Personal Income and Spending are published. DraftKings (DKNG) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, if you want to see what it is like to work at Amazon, watch the movie Nomadland. It’s an artsy Francis McDormand film made with a $4 million budget about the end of life, which I caught over the weekend on Hulu.

It covers a contemporary trend in US society where retirees with no savings move into RVs and live off the grid, working occasionally to earn gas money. They raved about it in Europe.

If I don’t keep those trade alerts coming, that could be me in a couple of years.

Stay healthy.

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

February 17, 2021

Diary, Newsletter, Summary

Global Market Comments
February 17, 2021
Fiat Lux

Featured Trade:

(HOW TO HANDLE THE FRIDAY, FEBRUARY 19 OPTIONS EXPIRATION),
(TSLA), (MS), (BA), (BLK), (GS), (AMD), (KO), (BAC), (NFLX), (AMZN), (AAPL), (INTU), (QCOM), (CRWD), (AZN), (GILD)

How to Handle the Friday, February 19 Options Expiration

Diary, Newsletter

Followers of the Mad Hedge Fund Trader Alert Services have the good fortune to own no less than 16 deep in-the-money options positions, all of which are profitable. All but one of these expire in two trading days on Friday, February 19, and I just want to explain to the newbies how to best maximize their profits.

It was time to be aggressive. I was aggressive beyond the pale.

These involve the:

Global Trading Dispatch

(TSLA) 2/$650-$700 call spread 20.00%
(TSLA) 3/$600-$650 call spread
(MS) 2/$55-$60 call spread 10.00%
(BA) 2/$150-$160 call spread 10.00%
(BLK) 2/$640-$660 call spread 10.00%
(GS) 2/$240-$260 call spread 10.00%
(AMD) 2/$75-$80 call spread 10.00%
(BAC) 2/$28-$30 call spread 10.00%
(KO) 2/$44-$47 call spread 10.00%

Mad Hedge Technology Letter

NFLX 2/ $510- $515 call spread 10.00%
AMZN 2/ $3,095- $3,100 call spread 10.00%
AAPL 2/ $126-$129 call spread 10.00%
INTU 2/ $340-$345 call spread 10.00%
QCOM 2/ $135-$140 call spread 10.00%

Mad Hedge Biotech & Healthcare Letter

(AZN) 2/$46.50-$49.50 call spread 10.00%
GILD 2/ $57-$60 call spread 10.00%

Provided that we don’t have a huge selloff in the markets or monster rallies in bonds, all 15 of these positions will expire at their maximum profit point.

So far, so good.

I’ll do the math for you on our oldest and least liquid position, the Tesla February 19 $650-$700 vertical bull call spread, which I initiated on January 25, 2021 and will definitely run into expiration. At the Friday high, Tesla shares were at a lowly $816, some $53 lower than the $869.70 that prevailed when I strapped on this trade.

Provided that Tesla doesn’t trade below $700 in two days, we will capture the maximum potential profit in the trade. That’s why I love call spreads. They pay you even when you are wrong on the direction of the stock. All of the money we made was due to time decay and the decline in volatility in Tesla stock.

Your profit can be calculated as follows:

Profit: $50.00 expiration value - $44.00 cost = $6.00 net profit

(4 contracts X 100 contracts per option X $6.00 profit per options)

= $2,400 or 20% in 18 trading days.

Many of you have already emailed me asking what to do with these winning positions.

The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.

You don’t have to do anything.

Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning February 22 and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.

Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.

If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.

Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when security has only hours, or minutes until expiration on Friday, February 19. So, if you plan to exit, do so well before the final expiration at the Friday market close.

This is known in the trade as the “expiration risk.”

If for some reason, your short position in your spread gets “called away,” don’t worry. Just call your broker and instruct them to exercise your long option position to cover your short option position. That gets you out of your position a few days early at your maximum profit point.

If your broker tells you to sell your remaining long and cover your short separately in the market, don’t. That makes money for your broker, but not you. Do what I say, and then fire your broker and close your account because they are giving you terrible advice. I’ve seen this happen many times among my followers.

One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.

I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.

I’m looking to cherry-pick my new positions going into the next month-end.

Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.

Well done, and on to the next trade.

February 16, 2021

Diary, Newsletter, Summary

Global Market Comments
February 16, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or A RETURN TO IRRATIONAL EXHUBERANCE)
(PLBY), (SPX), ($INDU), (NVDA), (AMD), (MU), (USO)

The Market Outlook for the Week Ahead, or A Return to Irrational Exuberance

Diary, Newsletter

Playboy is going public.

Its flagship magazine was wiped out by free internet porn last year after a storied 66-year run. During the 1970s, an invitation to a new club opening was the hottest ticket in town.

Of course, I bought the magazine only to read the articles.

Melania Trump as a centerfold? The business possibilities boggle the mind. Of course, it’s going public through a SPAC. Nobody else would touch this with a ten-foot pole. The ticker symbol will be (PLBY).

What this IPO does tell me is how overheated the markets are getting. In 1996, former Fed governor, saxophone player, and Ayn Rand acolyte, the gnomish Alan Greenspan warned the stock market of “irrational exuberance.” Since then, the Dow Average has risen by 5.2 times in 23 years, revisiting the 6,000 low once in 2009.

In fact, let me explain to you why stocks are so cheap.

At the 2000 Dotcom Bubble top, ten-year US Treasury yields stood at 6%. Stocks would have to rise five times more from today’s paltry 1.20% to reach the same relative valuation.

Dow 163,000 anyone?

Similarly, the big FANG stocks would have to triple in value to get us to the 100X price earnings multiple that prevailed in 2000. That gets us at least to Dow 94,500.

And this is what people don’t get about liquidity-driven bull markets. They go on far, far longer than anyone imagines possible. You had to be in Tokyo in 1989 to understand this.

If you’re really and truly worried about stocks, take a look at the chart below and how they reacted to the last catastrophic selloff that took place during 2007-2009.

After an initial, frenetic move, they rose by, you guessed it, 5.2 times.

The Global Chip Shortage is spreading beyond cars to phones and electronics. High prices beckon across the board. Could this be the black swan that heads off the recovery? It’s all a screaming BUY for (NVDA), (AMD), and (MU). I can’t believe these haven’t moved yet.

Biden created a Bull Market in Oil (USO) when he banned new leases on federal lands. The move took 3 million barrels a day off the market, taking a bite out of the 10 million barrels a day oversupply. And economic recovery should soak up the remaining 7 million barrels, 2021 forecasts for Texas tea are now reaching as high as $80.

Space X is taking pre-orders for Starlink, Elon Musk’s Global satellite WIFI network. Another industry disrupted. For a $99 deposit, you can access 500 megabytes a second, faster than available for most of the US. The goal is to launch 11,943 satellites by 2024. If it works, AT&T (T), Comcast (CMCSA), and Verizon (V) could be in big trouble. When you own your own rocket company, it’s easy to undercut the competition.

Weekly Jobless Claims are still weak, at 793,000, far higher than expected, but less than last week. Total jobless claims have it an unbelievable 20.44 million, just short of the 1930’s Great Depression high. Perhaps 20% of the country is living on government handouts.

The Pandemic Property Boom continues, posting the hottest numbers since 2005. The National Association of Realtors says the price of a single-family home rose by a staggering 14.9% in Q4. The Northeast was the leader at a 21% gain. The market keeps going from strength to strength.

Will the Dow double in a year? We only have 4,500 points to go for a 100% gain from the last March 20 low. We have already seen the sharpest gain in history, beginning when Biden took the lead in the primaries. Will passage of the $1.9 trillion rescue package take us over the finish line? And are we setting up for a “Buy the rumor, sell the news? We’ll know in a month. I bet you’ve just made more money in stocks than you’ve ever imagined possible. Take short-term profits in everything.

Bonds hit new lows, taking the ten-year US Treasury yield up to 1.20%. The Feds hit the markets for a massive $120 million in debt this week and buyers are obviously glutted. Keep selling those rallies in the (TLT). Maybe you should start selling dips, too. Use bond selloffs for your stock market timing. They’re about to become “certificates of confiscation” again.

No hint of rising rates soon, hints Fed governor Jay Powell. Recovery is the only goal, damn the inflation torpedoes.

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 earned an amazing 16.48% so far in February after a blockbuster 10.21% in January. The Dow Average is up a trifling 2.80% so far in 2021.

This is my fourth double-digit month in a row. My 2021 year-to-date performance soared to 26.69%. There are only four trading days left until the February 19 option expiration, when I automatically go into 80% cash. That’s convenient!

That brings my 11-year total return to 449.24%, some 2.04 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an Everest-like new high of 40.29%.

My trailing one-year return exploded to 90.96%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 108.63% since the March 20, 2020 low.

We need to keep an eye on the number of US Coronavirus cases at 27.7 million and deaths approaching 500,000, which you can find here. We are now running at a heartbreaking 3,000 deaths a day. But that is down 35% from the recent high.

The coming week will be a boring one on the data front.

On Monday, February 15, markets are closed for Presidents Day.

On Tuesday, February 16 at 8:30 AM EST, the NY Empire State Manufacturing Index is out. CVS (CVS) and Zoetis report.

On Wednesday, February 17 at 8:30 AM, US Retail Sales for January are published. At 2;00 PM, we learn the Fed Open Market Committee minutes from the last meeting. Shopify and Twilio report.

On Thursday, February 18 at 9:30 AM, Weekly Jobless Claims are printed. Barrick Gold (GOLD) and Roku (ROKU) report.

On Friday, February 19 at 10:00 AM, Existing Home Sales for January are released. We learn the Baker-Hughes Rig Count. As we have a three-day weekend following, option volatility should collapse. John Deere (DE) reports.

As for me, let me tell you what the last weeks of the great Japanese bull market were like at the end of 1989.

The big thing then was to eat sushi salted with flecks of pure gold. Any foreigner who could speak Japanese was worth hundreds of thousands of dollars a year.

The brokers would hire anyone. Kids went from running sandwich shops to trading desks at Morgan Stanley. Others upgraded from bicycles to Porsche Carrera’s and used to race on Tokyo’s abandoned freeway system in the middle of the night.

And you know what? Someone offered me a piece of gold-flecked sushi just the other day!

Stay healthy.

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

Stock Gains Since Greenspan’s “Irrational Exuberance” Comment

January 22, 2021

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Global Market Comments
January 22, 2021
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Stock Gains Since Greenspan’s “Irrational Exuberance” Comment