Below please find subscribers’ Q&A for the February 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: Is there a big difference between COVID-19 vaccines?
A: The best vaccine is the one you can get. It’s better than being dead. But there are important differences. The Pfizer (PFE) and Moderna (MRNA) vaccines are RNA vaccines, they’re very safe, and getting similar results. But the evidence shows that about 15% of Moderna recipients are coming down with flu-like symptoms on their second shot. Nobody knows why, as the two are almost biochemically identical. AstraZeneca is a killed virus type vaccine, which means if they have a manufacturing error, you end up giving the disease to people by accident, as with the original polio vaccine. So that's the less safe vaccine. So far, that one has only been used in Europe and Australia, as it is made in England. There isn’t enough data about the John & Johnson (JNJ) single-shot vaccine.
Q: Is Moderna (MRNA) a long term buy?
A: The trouble with all the vaccine plays is that we’re heading for a global vaccine glut in about 4 months when we’ll have something like 12 companies around the world making them. The rush for everyone to get a vaccination as soon as possible is leading to inevitable overproduction and falling stock prices. Moderna is already a 12 bagger for us. I’m not really looking to overstay my welcome, so to speak. Time to cash in and say, “Thank you very much, Mr. Market.” There will be another cycle down the road for (MRNA) as its technology is used to cure cancer, but not yet.
Q: Would you recommend a silver (SLV) LEAP?
A: Yes, silver was run up 35% for a day by the GameStop (GME) crowd and crashed the next day, which was to be expected because there are no short positions in silver. Everything was just hedged to look like there were short positions because the big banks had huge open short options positions that were public and hedges in the futures and silver bars that were private. The (GME) people only saw the public short positions. Long term, I would go for a $30-$32 vertical call spread expiring in 2023. Go out 2 years, and I think you could get silver at $50. So, a good LEAP might get you a 1000% return in two years. Those are the kinds of trades I like to do.
Q: What do you think of Amazon now that Jeff Bezos is retiring?
A: Buy the daylights out of it. That was the great unknown overhanging the stock for years, Jeff’s potential retirement. Now it's no longer unknown, you want to buy (AMZN). Even before the retirement, I was targeting $5,000 a share in two years. Now we have everybody under the sun raising their targets to $5,000 or more— we even had one upgrade today to $5,200. There are at least half a dozen businesses that Amazon can expand into, like healthcare, which will be multibillion-dollar earners. And then if you break it up because of antitrust, it doubles in value again, so that's a screaming buy here. We have flatlined for six months, so this could be a trigger for a long-term breakout.
Q: Is there anything else left after GameStop? Another short play?
A: Well, this was the worst short squeeze in 25 years, and everyone else covered their other shorts because they don't want to get wiped out like the one Melvin Capital. There were only around a dozen potential single-digit heavily shorted stocks out there, and those are mostly gone. So, the GameStop crowd will have to roll up their sleeves and do some hard work finding stocks the old fashion way—by doing research. I’m guessing that GameStop was a one-hit-wonder; we probably won’t be surprised again. At the same time, you should never underestimate the stupidity of other investors.
Q: What do you think of the cloud plays like Cloudera and Snowflake?
A: I love cloud plays and there will be more coming. The entire US economy is moving on to the cloud. But everyone else loves them too. Snowflake (SNOW) doubled on its first day, and Cloudera (CLDR) doubled over the last three months, so they're incredibly expensive and high risk. But you can't argue with their business models going forward—the cloud is here to stay.
Q: Would you buy LEAPS in financials?
A: Absolutely yes; go out two years for your maturity and 30% on your strike prices, you will get a ten bagger on the trade. If I’m wrong, it only goes to zero.
Q: Is US Steel (X) a buy?
A: Yes. They are being dragged up by the global commodity boom triggered by the global synchronized recovery. (X) took a hit today because they just priced a $700 million secondary share issue which the flippers dumped like a hot potato. If given the choice, I’d rather do a copper play with Freeport McMoRan (FCX) which is seeing much more buying from China. I bought it on Monday.
Q: Any chance you can include one-, three-, and five-year price targets?
A: No chance whatsoever. I’ve never heard of a fund manager that could do that and be right. Stocks are just too imprecise an instrument with all the emotion that’s involved. But for the better stocks, you can with confidence predict at least a double. And by the way, all my predictions for the last 13 years have been way, way on the low side, so I tend to be conservative. Like, remember when Amazon was at $10? I said it would go to $20. Boy was I right!
Q: How can you say the next four years will be good for the stock market?
A: Well, $10 trillion in fiscal stimulus, $10 trillion in QE; stocks tend to like that. Oh, and technology exponentially accelerating on all fronts and far more broadly than what we saw in the 1990s. Also, there is a certain person who is no longer president, so add about 10-20% on top of all stock valuations. Companies can finally do long term planning again, after being unable to do so for four years because policies were anti-trade, anti-business, and flip-flopping every other day. So yes, I think that's enough to make the next 4 four years good; and actually, I think the next 8 years could be good—I'm predicting Dow 120,000 by 2030, if you recall.
Q: When do you expect the next 5% correction if there is one? February is always very volatile.
A: With an unlimited liquidity market like we have, it is really tough to see negatives of any kind. What kind of negatives are out there? The pandemic doesn’t stop—that's the main one. There’s another one people aren't talking about: the reason we got all these vaccines so fast is they took all regulation and threw it out the window. What if one of these vaccines kill off a million people? That would be pretty negative for the market. Interest rates could rocket faster than expected. But I’m always short there so that would be a moneymaker. But these are pretty out there possibilities, and that is why the market is not backing off, and when it does, it only gives us 5%.
Q: Is the Fed stimulating the economy too much?
A: The bond market says no with a ten-year yield of 1.10%, and the bond market is always the ultimate arbiter of when the stimulus ends. That’s because the Fed can’t directly control bond market interest rates, only overnight rates. But when we get bonds up to, say, a 3% yield (which is probably 2 or 3 years off), that’s when we’re getting too much stimulus, and we’ll probably take our foot off the pedal way before then. I know Janet Yellen and she agrees with me on this point. She’ll be throttling back well before we see a 3% yield in the Treasury market.
Q: Do you manage other people’s money?
A: No, because it costs a million dollars in legal fees to set up even a small fund these days. When I set up my hedge fund 30 years ago, there were no regulatory costs because no one knew what a hedge fund was; they all thought they were doing something illegal, so they didn't have to register for anything. That’s why it’s changed now.
Q: What is your target on NVIDIA (NVDA), and will it split?
A: It’s an easy double, with a global chip shortage running rampant. They make the best graphics cards in the world, bar none. These big tech companies tend not to split until they get share prices into the thousands, which is what Apple (AAPL) and what Tesla (TSLA) did three or four times.
Q: If we get 3.25% in bonds, is that going to hurt gold?
A: Yes, and that’s one of the reasons I bailed on my gold positions a couple of weeks ago. It effectively turned into a bond long. A sharp rise in interest rates is bad for gold because we all know that gold yields to zero.
Q: What about Fireye (FEYE)?
A: Yes, we also love Fireye in addition to Palo Alto Networks (PANW) because there is a near-monopoly—there are only about six players in the entire cybersecurity industry and hacking is getting worse by the day. Look at the Solar Winds (SWI) fiasco and the national Russian hack there.
Q: What about copper as a recovery play?
A: Well, I voted with my feet on Monday when I bought a position in Freeport McMoRan, after it just sold off 15%. I think (FCX) could double at some point in the coming economic recovery. So, copper is an absolute winner, and when having to choose between copper and steel, I’ll pick copper all day long.
Q: What do you recommend for gold (GLD)?
A: Gold is a trading range for the time being. Buy the dips, sell the rallies; you won’t get more than about 10% or 15% range on that. And there are just better fish to fry right now, like financials, which benefit from rising interest rates as opposed to being punished. Bitcoin is stealing gold’s thunder and the markets keep creating more Bitcoins.
Q: Should high-frequency trading be banned?
A: I don’t think it should be. It does create liquidity; the effect on the market is wildly overexaggerated. They’re basically trading for pennies or tenths of pennies, so they do provide buying on selloffs and selling at huge price spikes. They do have a positive effect and they’re probably only taking about $10 or $20 billion in profit a year out of the market.
Q: Should I buy Wynn Resorts (WYNN) here?
A: Buy the dips for sure; this is a major recovery play. We here in Nevada are expecting an absolute tidal wave of people to hit the casinos once the pandemic ends, and (WYNN), (MGM), and (LVS) would be a great play in those areas.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
