(BA) Archives - Page 4 of 14 - Mad Hedge Fund Trader

Tag Archive for: (BA)

The Market Outlook for the Week Ahead, or The Top Five Technology Stocks of 2023

The year 2022 has been driven by rising interest rates, a strong dollar, a weak economy, a bear market in stocks.

A massive reversal is about to take place. 2023 will gain the benefit of gale force macroeconomic tailwinds for the right stocks.

So far this year, Mad Hedge earned an astounding 77.20% profit cashing in on this year’s trends. We could earn the same return taking advantage of next year’s trends.

If you want to ride along on my coattails next year, that is fine with me. But it requires you to take a leap of faith.

I refer you to the motto of Britain’s Special Air Service: “Qui audet adipiscitur,” or “Who dares wins.”

For it only makes sense that the worst stocks of 2022 will be the best performers of 2023.

I have no doubt that tech stocks will bottom out sometime in 2023. Those who get in early will build some of the largest fortunes of this century. Those who miss the boat will spend their retirement years working at Taco Bell.

The reasons are very simple.

*Ultra-high interest rates will force a mild recession in early 2023. Then suddenly, inflation will plummet. We know this has already started because the largest element in the inflation calculation is housing costs, which are in free fall.

*The Fed will panic and deliver 2023 the sharpest DECLINE in interest rates in American history.

*Plunging interest rates will bring a crash in the US dollar.

*Foreign currencies like the Euro (FXE), the Japanese Yen (FXY), and the Australian dollar (FXA) will soar.

*And guess who gets the bulk of their earnings from abroad, sometimes up to two-thirds? The technology industry.

Kaching!

If you think I’m out of my mind, just look at the top performers of the historic stock market rally last week.

All the interest rate-sensitive sectors caught on fire. Technology stocks took off like a scalded cat, with Cathie Woods’ Ark Innovation Fund (ARKK) up an astounding 14% in a single day.

Bank shares soared. Homebuilders (LEN), (KBH), (DHI) caught a strong bid for the first time in ages. Junk bonds went bid only. US Treasury Bonds had their best day in 20 years (TLT), while the greenback (UUP) had its worst.

The bottom line here is so clear that I’ll write it on a wall for you. Falling interest rates will be the primary driver of stock prices for 2023 and 2024.

Of course, there is a better way to play this than buying the first technology index you stumble across.

So, let me boil this strategy down to just five names, close your eyes, and buy them.

Rivian (RIVN) – ($34) - Rivian is widely believed to be the next Tesla (TSLA). Some 25% owned by its largest customer, Amazon (AMZN), Rivian produces three types of EVs: the R1T pickup truck, the R1S SUV, and Amazon's EDV (electric delivery van). Its R1 vehicles start at under $70,000 and can travel more than 300 miles on a single charge. To learn more about Rivian, please click here.

To say that Rivian is the hot car of the day would be a vast understatement. New cars are trading for double list on the grey market. Owners complain of getting mobbed with gawkers whenever they hit the beach or the ski slopes. The buzz has led to an outstanding order book of an impressive 98,000, or four years of current production. The obvious cool factor allows enormous pricing power.

And here is the key to buying Rivian at this time. At 25,000, it is right at the mass production point where Tesla shares went ballistic all those years ago. And it already has an 80% decline in the price, in the rear-view mirror.

In 2024, Rivian plans to open its second plant in Georgia. After it fully expands its Illinois plant, it expects its annual production capacity to reach 600,000 vehicles.

Inflation Reduction Act passed this summer greatly accelerated rollout of the entire EV industry, which created a $7,500 per vehicle tax credit on top of state benefits.

Yes, this company offers venture capital-type risks. But it offers venture capital-type returns as well, up 10X-50X from here.

Ark Innovation Fund (ARKK) – ($40) – Cathie Woods’ high-tech fund was the proverbial red-headed stepchild of this bear market. It fell a gut-punching 80% from the 2021 top until last week. Just to get back to its old high, likely over the next five years, it has to rise by 400%. Its largest holdings are a real rollcall of the severely abused, Tesla (TSLA), Roku (ROKU), Exact Sciences (EXAS), Intellia (INTL), and Teladoc Health (TDOC), which Woods actively trades. But they are also a valuable insight into the future, EVs, CRISPR technology, robotic surgery, and molecular diagnostics. To learn more about the Ark Innovation Fund, please click here.

ProShares Ultra Technology ETF (ROM) – ($27) – This is a 2X long technology ETF that gives you an extremely aggressive position across the tech sector. It has 19% of its holdings in Apple (AAPL), 16% in Microsoft (MSFT), 10% in Alphabet (GOOGL) and Google (GOOG), at 3.5% in NVIDIA (NVDA), and 120 other smaller names. (ROM) shares are down a breathtaking 67% just in the past year. To learn more about the (ROM), please click here.

Palo Alto Networks (PANW) - $165 – Hacking is one of the fastest-growing sectors in technology, it is recession-proof and immune to the economic cycle. As a result, spending on the defense against hacking is absolutely exploding. Palo Alto Networks, Inc. is an American multinational cybersecurity company with headquarters in Santa Clara, California. Its core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security. I have already earned a tenfold return over the past decade and expect to make another 10X in the coming years. You won’t find any dips in this stock as too many people are trying to get into it. To learn more about the Palo Alto Networks, please click here.

Salesforce (CRM) - $157 – The baby of tech genius Mark Benioff, this company is the dominant player in customer relationship management. If you want to do any business in the cloud, and almost all big companies do, you are up to your eyeballs in customer relationship management. Salesforce is the largest San Francisco-based cloud-oriented software company with virtually all of the Fortune 500 as its customer list. It provides customer relationship management software and applications focused on sales, customer service, marketing automation, analytics, and application development. Salesforce shares have been the target of a haymaker, down 55% in a year. To learn more about Salesforce, please click here.

You know what? I can do better than this.

I can create customized options LEAPS for you that will deliver a tenfold return on whatever performance these ultra-high beta stocks deliver. If the shares of one of my picks rise by 100%, you will make 1,000%.

This is an investment strategy that will enable you to retire early, real early. Tired of punching a time clock or logging into the next Zoom meeting on time?

Those will become a distant memory if you pursue my Mad Hedge Investment strategy for 2023.

As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.

That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.

My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.

It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +75.53%.

That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.

Bonds Clock Best Day in Years, taking the ten-year US Treasury bond fund up $3.64. All low interest rate plays had monster days. Junk bond ETFs (JNK) and (HYG) were up two points. 30-year fixed rate mortgages dropped 60 basis points to 6.60%, the biggest drop in history. Long bonds will be THE big trade of 2023.

US Dollar has Worst Day in 20 Years, driven by plunging interest rates. Big tech, which gets a major share from overseas sales, rocketed. Apple alone was up $12. Cathy Wood’s Ark Innovation Fund (ARKK) was up an incredible 14%. It vindicates my view that tech will turn when interest rates and the dollar fall.

Oil Companies (USO) Book Record $200 Million Profit this year, using the Ukraine War to double your cost of gasoline. If we have a recession next year, or the war ends, energy share prices should be peaking around here. Even if they don’t, the risk-reward here is terrible. It means we will have to pay a much higher price to decarbonize the economy at a later date.

Wells Fargo Gets Hit with $1 Billion Fine for its many regulatory transgressions over the last decade. Looting of customer accounts with bogus fees has been a recurring problem. Use any selloffs to buy (WFC) on dips.

Berkshire Hathaway's 20% Profit Increase YOY and buys back another $1 billion worth of stock. However, they did take a $10 billion loss on stocks in Q3 during the market meltdown. Keep buying (BRKB) stock and LEAPS on dips.

$1.5 trillion in Homeowners Equity Lost Since May, thanks to interest rates at 20-year high and a shrinking money supply. Since July, the median home price has dropped by $11,560. The average borrower has lost $30,000 in equity. It’s not a great time to rent either as prices there are soaring. Residential housing could remain weak for another 12-24 months, compared to the six-year drawdown we had from 2006.

Boeing Orders Rise in October, but deliveries fall. The company is finally out of the penalty box, up 40% since October 1. Don’t buy (BA) up here.

The Red Wave Fails to Show, with control of congress still too close to call. Republican House control has shrunk from an expected 60 seats six months ago to maybe two today. Donald Trump threw the election for his party, picking unelectable extremist candidates and campaigning where he wasn’t wanted. A pro-life Supreme Court brought out millions of women voters across the country. If the Republicans can’t win with inflation at 8.7%, they are toast in 2024 when it drops back down to 2%.

Market Dives 646 Points on Democratic Win, with technology stocks taking the biggest hit. The red wave no-show was a black swan traders were not looking for. Energy was the worst performing sector because they aren’t getting the air cover they paid for with a red wave. The result was much as I expected, which is why I went into November 8 with a rare 100% cash position waiting to buy the next low. It turns out that rights are more important than prices.

Elon Musk Sells More Tesla Shares and Warns of a Twitter Bankruptcy, some $3.9 billion worth, bringing this year’s total to $36 billion. Musk is raising money to head off a bankruptcy of Twitter now that major advertisers are fleeing en masse. This certainly is a distress sale. If Musk was looking to build a real business, re-tweeting fringe conspiracy theories was the worst thing he could have done. Endorsing the Republican party will cost him half of his customers. Is this Musk’s Waterloo, or his Dien Bien Phu?

Facebook to Lay Off 11,000, about 13% of its total employees. Zuckerberg admits the error of pushing the company into the metaverse too far too fast. With the stock down 77%, there are not a lot of happy campers at One Hacker Way. Avoid (META) for now, but it may be a 2023 play when we get closer to a new final product.

FTX Becomes an Epic Bankruptcy, with $9.5 billion missing from its balance sheet, in one of the biggest blowups of the crypto age. Losses are expected to reach $50-$60 billion, with the bankruptcy of 130 affiliated companies. It is also a potential Dept of Justice target. All affiliated tokens and coins have gone to zero. So, placing your money with a fresh-faced kid in the Bahamas wearing baggy shorts and with no financial background was not such a great idea after all. It’s amazing how many serious people were sucked in on this one. At least Sam Bankman-Fried said he was sorry.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

On Monday, November 14 at 8:00 AM, the Consumer Inflation Expectations for October are released.

On Tuesday, November 15 at 8:30 AM, the Producer Price Index for October is released.

On Wednesday, November 16 at 8:30 AM, Retail Sales for October are published.

On Thursday, November 17 at 8:30 AM, Weekly Jobless Claims are announced. Housing Starts and Permits for October are also out.

On Friday, November 18 at 10:00 AM, the Housing Starts for October are printed. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.

When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to start with an easy one, Reading Merit Badge, where you only had to read four books and write one review.

I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness. Kent was one of these kids.

It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.

So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Welles were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.

It only took a week for me to blow through the first four books. In the end, I read hundreds to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).

Having listened to thousands of books on the subject, Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in math.

When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.

That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.

Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.

It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites. However, it is still used as beacon identifiers at US airfields.

Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.

I replied, “good point”.

Kent went on to get a PhD in Physics from UC Berkely, no mean accomplishment. He lobbied heavily for the creation of SETI, or the Search for Extra Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.

In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, Kent’s character is played by Matthew McConaughey. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today.

Out here in the west aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.

When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?

After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.

Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.

There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.

Watch this space.

Stay healthy,

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

September 6, 2022

Diary, Newsletter, Summary

Global Market Comments
September 6, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or WELCOME TO THE ROLLING RECESSION),
(AAPL), (NVDA), (TSLA), (USO), (BTC), (MSFT), (CRM), (V), (BA), (MSFT), (CRM), (DIS)

The Market Outlook for the Week Ahead, or Welcome to the Rolling Recession

Diary, Newsletter, Research

The airline business is booming but homebuilders are in utter despair. Hotel rooms are seeing extortionate 56% YOY price increases, while residential real estate brokers are falling flat on their faces.

It’s a recession that’s here, there, and nowhere.

Welcome to the rolling recession.

If you are lucky enough to work in a handful of in-demand industries, times have never been better. If you aren’t, then it’s Armageddon.

Look at single industries one at a time, as the media tends to do, business conditions are the worst since the Great Depression and pessimism is rampant. Look at Tesla, where there is a one-year wait to get a Model X, and there is either a modest recession on the menu, or simply slowing growth at worst.

Notice that a lot of commentators are using the word “normally”. News Flash: nothing has been normal with this economy for three years.

Which leaves us with dueling yearend forecasts for the S&P 500. It will either be at 3,900, where it is now, or 4,800. A market that is unchanged, worst case, and up 20% best case sounds like a pretty good bet to me. The prospects for individual stocks, like Tesla (TSLA), Microsoft (MSFT), or NVIDIA (NVDA) are even better, with a chance of 20% of downside or 200% of upside.

I’ll sit back and wait for the market to tell me what to do. In the meantime, I am very happy to be up 60% on the year and 90% in cash.

An interesting thing is happening to big-cap tech stocks these days. They are starting to command bigger premiums both in the main market and in other technology stocks as well.

That is because investors are willing to pay up for the “safest” stocks. In effect, they have become the new investment insurance policy. Look no further than Apple (AAPL) which, after a modest 14% decline earlier this year, managed a heroic 30% gain. Steve Jobs’ creation now boasts a hefty 28X earnings multiple. Remember when it was only 9X?

Remember, the stock sells off on major iPhone general launches like we are getting this week, so I’d be careful that my “insurance policy” doesn’t come back and bite me in the ass.

Nonfarm Payroll Report Drops to 315,000 in August, a big decline, and the Headline Unemployment Rate jumps to 3.7%. The Labor Force Participation Rate increased to 62.4%. The “discouraged worker” U-6 unemployment rate jumped to 7.0%. Manufacturing gained 22,000. Stocks loved it, but it makes a 75-basis point in September a sure thing.

Jeremy Grantham Says the Stock Super Bubble Has Yet to Burst, for the seventh consecutive year. If I listened to him, I’d be driving an Uber cab by now, commuting between side jobs at Mcdonald's and Taco Bell. Grantham sees stocks, bonds, commodities, real estate, precious metals, crypto, and collectible Beanie Babies as all overvalued. Even a broken clock is right twice a day unless you’re in the Marine Corps, which uses 24-hour clocks.

Where are the Biggest Buyers on the Dip? Microsoft (MSFT), Salesforce (CRM), and Disney (DIS), followed by Visa (V), and Boeing (BA). Analysts see 20% of upside for (MSFT), 32% for (CRM), and 21% for (DIS). Sure, some of these have already seen big moves. But the smart money is buying Cadillacs at Volkswagen prices, which I have been advocating all year. Take the Powell-induced meltdown as a gift.

The Money Supply is Collapsing, down for four consecutive months. M2 is now only up less than 1% YOY. This usually presages a sharp decline in the inflation rate. With a doubling up of Quantitative Tightening this month, we could get a real shocker of a falling inflation rate on September 13. Online job offers are fading fast and used cars have suddenly become available. This could put in this year’s final bottom for stocks.

California Heads for a Heat Emergency This Weekend, with temperatures of 115 expected. Owners are urged to fully charge their electric cars in advance and thermostats have been moved up to 78 as the electric power grid faces an onslaught of air conditioning demand. The Golden State’s sole remaining Diablo Canyon nuclear power plant has seen its life extended five years to 2030. This time, the state has a new million more storage batteries to help.

Oil (USO) Dives to New 2022 Low on spreading China lockdowns. Take the world’s largest consumer offline and it has a big impact. More lows to come.

NVIDIA (NVDA) Guides Down in the face of new US export restrictions to China. The move will cost them $400 million in revenue. These are on the company’s highest-end A100 and H100 chips which China can’t copy. (AMD) received a similar ban. It seems that China was using them for military AI purposes. The shares took a 9% dive on the news. Cathie Wood’s Ark (ARKK) Funds dove in and bought the lows.

Weekly Jobless Claims Plunge to 232,000, down from 250,000 the previous week for the third consecutive week. No recession in these numbers.

First Solar (FSLR) Increases Output by 70%, thanks to a major tax subsidy push from the Biden Climate Bill. The stock is now up 116% in six weeks. We have been following this company for a decade and regularly fly over its gigantic Nevada solar array. Buy (FSLR) on dips.

Home Prices Retreat in June to an 18% YOY gain, according to the Case Shiller National Home Price Index. That’s down from a 19.9% rate in May. Tampa (35%), Miami (33%), and Dallas (28.2%) showed the biggest gains. Blame the usual suspects.

Tesla (TSLA) Needs $400 Billion to expand its vehicle output to Musk’s 20 million units a year target. One problem: there is currently not enough commodity production in the world to do this. That sets up a bright future for every commodity play out there, except oil.

Bitcoin (BTC) is Headed Back to Cost, after breaking $20,000 on Friday. With the higher cost of electricity and mining bans, spreading the cost of making a new Bitcoin is now above $17,000. It doesn’t help that much of the new crypto infrastructure is falling to pieces.

My Ten-Year View

When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices and inflation now rapidly declining, and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

With a very troublesome flip-flopping market, my August performance still posted a decent +5.13%.

My 2022 year-to-date performance ballooned to +59.96%, a new high. The Dow Average is down -13.20% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +71.90%.

That brings my 14-year total return to +572.52%, some 2.60 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +44.90%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 94.7 million, up 300,000 in a week and deaths topping 1,047,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, September 5 markets are closed for Labor Day.

On Tuesday, September 6 at 7:00 AM, the ISM Non-Manufacturing PMI for August is out.

On Wednesday, September 7 at 11:00 AM, the Fed Beige Book for July is published.

On Thursday, September 8 at 8:30 AM, Weekly Jobless Claims are announced.

On Friday, September 9 at 2:00 the Baker Hughes Oil Rig Count is out.

As for me, the first thing I did when I received a big performance bonus from Morgan Stanley in London in 1988 was to run out and buy my own airplane.

By the early 1980s, I’d been flying for over a decade. But it was always in someone else’s plane: a friend’s, the government’s, a rental. And heaven help you if you broke it!

I researched the market endlessly, as I do with everything, and concluded that what I really needed was a six-passenger Cessna 340 pressurized twin turbo parked in Santa Barbara, CA. After all, the British pound had just enjoyed a surge again the US dollar so American planes were a bargain. It had a range of 1,448 miles and therefore was perfect for flying around Europe.

The sensible thing to do would have been to hire a professional ferry company to fly it across the pond. But what’s the fun in that? So, I decided to do it myself with a copilot I knew to keep me company. Even more challenging was that I only had three days to make the trip, as I had to be at my trading desk at Morgan Stanley on Monday morning.

The trip proved eventful from the first night. I was asleep in the back seat over Grand Junction, CO when I was suddenly awoken by the plane veering sharply left. My co-pilot had fallen asleep, running the port wing tanks dry and shutting down the engine. He used the emergency boost pump to get it restarted. I spent the rest of the night in the co-pilot’s seat trading airplane stories.

The stops at Kansas City, MO, Koshokton, OH, Bangor, ME proved uneventful. Then we refueled at Goose Bay, Labrador in Canada, held our breath and took off for our first Atlantic leg.

Flying the Atlantic in 1988 is not the same as it is today. There were no navigational aids and GPS was still top secret. There were only a handful of landing strips left over from the WWII summer ferry route, and Greenland was still littered with Mustang’s, B-17’s, B24’s, and DC-3’s. Many of these planes were later salvaged when they became immensely valuable. The weather was notorious. And a compass was useless, as we flew so close to the magnetic North Pole the needle would spin in circles.

But we did have NORAD, or America’s early warning system against a Russian missile attack.

The practice back then was to call a secret base somewhere in Northern Greenland called “Sob Story.” Why it was called that I can only guess, but I think it has something to do with a shortage of women. An Air Force technician would mark your position on the radar. Then you called him again two hours later and he gave you the heading you needed to get to Iceland. At no time did he tell you where HE was.

It was a pretty sketchy system, but it usually worked.

To keep from falling asleep, the solo pilots ferrying aircraft all chatted on frequency 123.45 MHz. Suddenly, we heard a mayday call. A female pilot had taken the backseat out of a Cessna 152 and put in a fuel bladder to make the transatlantic range. The problem was that the pump from the bladder to the main fuel tank didn’t work. With eight pilots chipping in ideas, she finally fixed it. But it was a hair-raising hour. There is no air-sea rescue in the Arctic Ocean.

I decided to play it safe and pick up extra fuel in Godthab, Greenland. Godthab has your worst nightmare of an approach, called a DME Arc. You fly a specific radial from the landing strip, keeping your distance constant. Then at an exact angle you turn sharply right and begin a descent. If you go one degree further, you crash into a 5,000-foot cliff. Needless to say, this place is fogged 365 days a year.

I executed the arc perfectly, keeping a threatening mountain on my left while landing. The clouds mercifully parted at 1,000 feet and I landed. When I climbed out of the plane to clear Danish customs (yes, it’s theirs), I noticed a metallic scraping sound. The runway was covered with aircraft parts. I looked around and there were at least a dozen crashed airplanes along the runway. I realized then that the weather here was so dire that pilots would rather crash their planes than attempt a second go.

When I took off from Godthab, I was low enough to see the many things that Greenland is famous for polar bears, walruses, and natives paddling in deerskin kayaks. It was all fascinating.

I called into Sob Story a second time for my heading, did some rapid calculations, and thought “damn”. We didn’t have enough fuel to make it to Iceland. The wind had shifted from a 70 MPH tailwind to a 70 MPH headwind, not unusual in Greenland. I slowed down the plane and configured it for maximum range.

I put out my own mayday call saying we might have to ditch, and Reykjavik Control said they would send out an orange bedecked Westland Super Lynch rescue helicopter to follow me in. I spotted it 50 miles out. I completed a five-hour flight and had 15 minutes of fuel left, kissing the ground after landing.

I went over to Air Sea rescue to thank them for a job well done and asked them what the survival rate for ditching in the North Atlantic was. They replied that even with a bright orange survival suit on, which I had, it was only about half.

Prestwick, Scotland was uneventful, just rain as usual. The hilarious thing about flying the full length of England was that when I reported my position in, the accents changed every 20 miles. I put the plane down at my home base of Leavesden and parked the Cessna next to a Mustang owned by a rock star.

I asked my pilot if ferrying planes across the Atlantic was also so exciting. He dryly answered “Yes.” He told me that in a normal year, about 10% of the planes go missing.

I raced home, changed clothes, and strode into Morgan Stanley’s office in my pin-stripped suit right on time. I didn’t say a word about what I just accomplished.

The word slowly leaked out and at lunch, the team gathered around to congratulate me and listen to some war stories.

Stay healthy,

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

Flying the Atlantic in 1988

Looking for a Place to Land in Greenland

Landing on a Postage Stamp in Godthab, Greenland

No Such a Great Landing

Flying Low Across Greenland

Gassing Up in Iceland

Almost Home at Prestwick

Back to London in 1988

August 15, 2022

Diary, Newsletter, Summary

Global Market Comments
August 15, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD,
or WHAT THE MARKET IS REALLY DISCOUNTING NOW),
(SPY), (TLT), (AAPL), (AXP), (KO), (XOM). (TBT), (SNOW), (NFLX), (ARKK), (ETHE),
(NLR), (CCR), CORN), (WEAT), (SOYB), (DBA), (UUP), (FXA), (FXC), (BA), (TSLA)

The Market Outlook for the Week Ahead, or What the Market is Really Discounting Now

Diary, Newsletter

After a half-century in the markets, I have noticed that it is the investors with the correct long-term views who make the biggest money. My favorite example is my friend, Warren Buffet, who doesn’t care if an investment turns good in five minutes or five years.

Buffet’s Berkshire Hathaway (BRKB) is the largest outside investor in Apple (AAPL). And guess what his cost has been? By the time you add up the compounded dividends he has collected since he started buying the stock in 2011, it's zero. The value today? $15.5 billion.

Buffet didn’t buy Apple for its hardware, iPhone, or iTunes. He bought it for the brand, which has improved astronomically. Look at Berkshire’s portfolio and it is packed with brands, like American Express (AXP), Coca-Cola (KO), and Exxon (XOM).

When did Buffet last buy Apple? In May when it hit $130.

That’s why Warren Buffet is Warren Buffet and you are you.

While the inflation news last week has been great and it is likely to get better, I believe that investors are missing the bigger, more important long-term picture.

The fact is that markets are now discounting an earlier than expected end to the Ukraine War, much earlier.

I get constant updates on the war from the Joint Chiefs of Staff, Britain’s Defense Committee, and NATO headquarters and I can tell you that the war has taken a dramatic turn in Ukraine’s favor just in the last two weeks.

Russian casualties have topped 80,000, nearly half the standing army. They have lost 2,200 of their 2,800 operational tanks. Some 120 front line aircraft have been destroyed. This week, Ukraine attacked the principal Russian air base in Crimea, leaving the smoking ruins of seven more aircraft there.

Russia is in effect fighting a modern digitized war with 50-year-old Cold War weapons and it isn’t working. Its generals have no experience fighting wars against determined opposition. Putin would do better listening to the retired generals on CNN for military advice.

America’s High HIMARS (the M142 High Mobility Artillery Rocket System) has become the Stinger missile of this war. The Lockheed Martin (LMT) factory in Camden, Arkansas that makes these missiles is running 24/7 on doubled orders.

The sanctions against Russia have been wildly successful. The Russian economy is utterly collapsing. What oil they are selling now is at half price. Aircraft are being cannibalized for parts to keep others flying. Much of the educated middle class has fled the country. Draft dodging is rampant.

What does all this mean for you and me?

The commodity price spike the war prompted has ended and most are now in steep downtrends. Gold (GLD), where the Russians were major buyers, has been flat as a pancake. This has put our inflation numbers into freefall. Interest rate fears peaked in June and are now in the rear-view mirror.

As is always the case, markets have seen these developments and correctly ascertained their consequences far before we humans did (except for maybe me). It has been no surprise that they have been tracking the Russian defeat day by day and have been on an absolute tear since June 15.

Even small techs suffering 18-month bear markets have now begun major recoveries, with companies like Snowflake (SNOW), up 50%, Netflix (NFLX), up 39%, and Cathie Wood’s Innovation Fund (ARKK) up 57%. Even crypto has returned from the grave, with Ethereum (ETHE) up an eye-popping 105%.

But don’t go gaga over stocks just yet.

The Fed ramps up quantitative tightening in September to $95 billion a month and will deliver another interest rate hike. That's why I am running a double short in the bond market (TLT), (TBT) once again.

We also have the midterms to worry about which, with recent developments, promise to be more contentious than ever. Look for another round of tiring new election fraud claims.

That’s great because these events will give us good entry points lower down for trade alerts, not the short-term top we are looking at right now.

It helps that with ten-year US Treasury yields at 2.80%, it has an effective price earning multiple of 37, while stocks growing earnings at 10% a year boast a price earnings multiple of only 16. That sets up a massive, long stock/short bond trade which Mad Hedge will be pushing well on into 2023.

And you know what?

The smart guys I know in the hedge fund community are starting to model for the next Fed interest rate CUT. Markets will love it and discount this far in advance.

If you want to get on the train with me before it leaves the station, just keep reading this newsletter.

Yes, markets are now being driven by rate cuts and peace prospects, not rate rises and war!

Your retirement fund will love it.

I just thought you’d like to know.

CPI Dives to 8.5%, down 0.6% in July. The peak is in, and stocks rallied 500. Look for another drop in August, with gasoline prices falling daily. The 800-pound gorilla in the room has exited.

The Producer Price Index Dives 0.5%, confirming last week’s weak CPI number. And many core prices are indicating that we will get another drop when the August numbers are reported in September. It was worth another 300-point rally in the Dow Average, which is getting seriously overbought.

Consumer Inflation Expectations dive to 6.2% for the coming year and only 3.2% for three years. according to a New York Fed Survey. Expectations for food costs saw the largest decline. The CPI is out on Wednesday. No doubt a media onslaught over a coming recession has a lot to do with it.

Elon Musk Sells $6.9 billion worth of Tesla (TSLA) Stock, explaining the $100 drop in the shares last week. Ostensibly, this is to pay for Twitter if he loses his court case. Musk clearing took advantage of a 60% rise in (TSLA) to head off distress sales in the future. Musk also opened the door to share buy backs in the future. Buy (TSLA) on dips.

85,000 IRS Agents are Headed Your Way, but only if the government can hire them and only if you are a billionaire or a profitable large oil company. The rest of us will be ignored by this unpublicized portion of the Biden inflation bill.

US Dollar (UUP) Takes a Hit on CPI Report, which effectively showed that the US saw deflation in July. The greenback is pulling back the 20-year highs which gave you the cheapest European vacation in your lives. The prospect of interest rates rising at a slower pace is dollar negative. Buy (FXA) and (FXC) on dips.

Boeing (BA) Delivered its First 787 Dreamliner in a year, after long-awaited regulatory approval. The monster 30% rise in the shares off the June low predicted as much. A global aircraft shortage helps. Airbus is going to have to start earnings its money again. Keep buying (BA) on dips.

Weekly Jobless Claims Pop 12,000 to 262,000, a new high for the year. It’s not at concerning levels yet but is definitely headed in the wrong direction. Maybe it’s just a summer slowdown? Maybe not.

Shipping Container Charges are Plunging Everywhere, except in the US, which currently has the world’s strongest economy. It’s a sign that global supply chain problems are easing. But the US leads the world in demurrage, or delays, with New York the worst, followed by Long Beach.

Import Prices are Plunging, thanks to a super strong dollar, taking more pressure off of inflation. They fell 1.4% in July according to the Department of Labor. Easing supply chain problems are helping. Biden has had the run of the table for months now

My Ten-Year View

When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices now rapidly declining, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

My August performance climbed to +2.14%. My 2022 year-to-date performance ballooned to +56.97%, a new high. The Dow Average is down -7.0% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 74.76%.

That brings my 14-year total return to 569.53%, some 2.56 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 44.96%, easily the highest in the industry.

We need to keep an eye on the number of US Coronavirus cases at 93 million, up 300,000 in a week and deaths topping 1,037,000 and have only increased by 2,000 in the past week. You can find the data here.

On Monday, August 15 at 8:30 AM EDT, the New York Empire State Manufacturing Index for August is released.

On Tuesday, August 16 at 8:30 AM, the Housing Starts for July are out.

On Wednesday, August 17 at 8:30 AM, Retail Sales for July are published. At 11:00 AM the Fed Minutes from the last meeting are printed.

On Thursday, August 18 at 8:30 AM, Weekly Jobless Claims are announced. Existing Home Sales for July are announced.

On Friday, August 19 at 2:00 the Baker Hughes Oil Rig Count is out.

As for me, while we’re all waiting for the dog days of August to end, it is time to reminisce about my old friend George Schultz who passed away last year at the age of 101.

My friend was having a hard time finding someone to attend a reception who was knowledgeable about financial markets, White House intrigue, international politics, and nuclear weapons.

I asked who was coming. She said Reagan’s Treasury Secretary George Shultz. I said I’d be there wearing my darkest suit, cleanest shirt, and would be on my best behavior, to boot.

It was a rare opportunity to grill a high-level official on a range of top-secret issues that I would have killed for during my days as a journalist for The Economist magazine. I guess arms control is not exactly a hot button issue these days.

I moved in for the kill.

I have known George Shultz for decades, back when he was the CEO of the San Francisco-based heavy engineering company, Bechtel Corp in the 1970s.

I saluted him as “Captain Schultz”, his WWII Marine Corp rank, which has been our inside joke for years. Now that I am a major, I guess I outrank him.

Since the Marine Corps didn’t know what to do with a PhD in economics from MIT, they put him in charge of an anti-aircraft unit in the South Pacific, as he was already familiar with ballistics, trajectories, and apogees.

I asked him why Reagan was so obsessed with Nicaragua, and if he really believed that if we didn’t fight them there, would we be fighting them in the streets of Los Angeles as the then-president claimed.

He replied that the socialist regime had granted the Soviets bases for listening posts that would be used to monitor US West Coast military movements in exchange for free arms supplies. Closing those bases was the true motivation for the entire Nicaragua policy.

To his credit, George was the only senior official to threaten resignation when he learned of the Iran-contra scandal.

I asked his reaction when he met Soviet premier Mikhail Gorbachev in Reykjavik in 1986 when he proposed total nuclear disarmament.

Shultz said he knew the breakthrough was coming because the KGB analyzed a Reagan speech in which he had made just such a proposal.

Reagan had in fact pursued this as a lifetime goal, wanting to return the world to the pre nuclear age he knew in the 1930s, although he never mentioned this in any election campaign. Reagan didn’t mention a lot of things.

As a result of the Reykjavik Treaty, the number of nuclear warheads in the world has dropped from 70,000 to under 10,000. The Soviets then sold their excess plutonium to the US, which has generated 20% of the total US electric power generation for two decades.

Shultz argued that nuclear weapons were not all they were cracked up to be. Despite the US being armed to the teeth, they did nothing to stop the invasions of Korea, Hungary, Vietnam, Afghanistan, and Kuwait.

Schultz told me that the world has been far closer to an accidental Armageddon than people realize.

Twice during his term as Secretary of State, he was awoken in the middle of the night by officers at the NORAD early warning system in Colorado to be told that there were 200 nuclear missiles inbound from the Soviet Union.

He was given five minutes to recommend to the president to launch a counterstrike. Four minutes later, they called back to tell him that there were no missiles, that it was just a computer glitch projecting ghost images on a screen.

When the US bombed Belgrade in 1989, Russian president Boris Yeltsin, in a drunken rage, ordered a full-scale nuclear alert, which would have triggered an immediate American counter-response. Fortunately, his generals ignored him.

I told Schultz that I doubted Iran had the depth of engineering talent needed to run a full-scale nuclear program of any substance.

He said that aid from North Korea and past contributions from the AQ Khan network in Pakistan had helped them address this shortfall.

Ever in search of the profitable trade, I asked Schultz if there was an opportunity in nuclear plays, like the Market Vectors Uranium and Nuclear Energy ETF (NLR) and Cameco Corp. (CCR), that have been severely beaten down by the Fukushima nuclear disaster.

He said there definitely was. In fact, he was personally going to lead efforts to restart the moribund US nuclear industry. The key here is to promote 5^th generation technology that uses small, modular designs, and alternative low-risk fuels like thorium.

Schultz believed that the most likely nuclear war will occur between India and Pakistan. Islamic terrorists are planning another attack on Mumbai. This time, India will retaliate by invading Pakistan. The Pakistanis plan on wiping out this army by dropping an atomic bomb on their own territory, not expecting retaliation in kind.

But India will escalate and go nuclear too. Over 100 million would die from the initial exchange. But when you add in unforeseen factors, like the broader environmental effects and crop failures (CORN), (WEAT), (SOYB), (DBA), that number could rise to 1-2 billion. This could happen as early as 2023.

Schultz argued that further arms control talks with the Russians could be tough. They value these weapons more than we do because that’s all they have left.

Schultz delivered a stunner in telling me that Warren Buffet had contributed $50 million of his own money to enhance security at nuclear power plants in emerging markets.

I hadn’t heard that.

As the event ended, I returned to Secretary Shultz to grill him some more about the details of the Reykjavik conference held some 36 years ago.

He responded with incredible detail about names, numbers, and negotiating postures. I then asked him how old he was. He said he was 100.

I responded, “I want to be like you when I grow up”.

He answered that I was “a promising young man.” I took that as encouragement in the extreme.

Stay healthy,

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

We’re Getting Pretty High

March 25, 2022

Diary, Newsletter, Summary

Global Market Comments
March 25, 2022
Fiat Lux

Featured Trade:

(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(MARCH 23 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (TSLA), (BA), (DEER), (CAT),
(AAPL), (SLV), (FCX), (TLT), (TBT)

March 23 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the March 23 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: What is the best way to keep your money in cash?

A: That’s quite a complicated answer. If you leave cash in your brokerage account, they will give you nothing. If you move it to your bank account they will, again, give you nothing. But, if you keep the money in your brokerage account and then buy 2-year US Treasury bills, those are yielding 2.2% right now, and will probably be yielding over 3% in two years, so we’re actually being paid for cash for the first time in over ten years. And, as long as it’s in your brokerage account, you can then sell those Treasury bonds when you’re ready to go back into the market and buy your stock, same day, without having to perform any complicated wire transfers, which take a week to clear. Also, if your broker goes bankrupt and you hold Treasury bills, they are required by law to give you the Treasury bills. If you have your cash in a brokerage cash account, you lose all of it or at least the part above the SIPC-insured $250,000 per account. And believe me, I learned that the hard way when Bearings went bankrupt in the 1990s. People who had the Bearings securities lost everything, people who owned Treasury bills got their cashback in weeks.

Q: Is the pain over for growth stocks?

A: Probably yes, for the smaller ones; but they may flatline for a long time until a real earnings story returns for them. As for the banks, I think the pain is over and now it’s a question of just when we can get back in.

Q: Why did you initiate shorts on the Invesco QQQ Trust Series (QQQ) and SPDR S&P 500 ETF Trust (SPY) this week, instead of continuing with the iShares 20 Plus Year Treasury Bond ETF (TLT) shorts?

A: We are down 27 points in 10 weeks on the (TLT); that is the most in history. And every other country in the world is seeing the same thing. That is not shorting territory—you should have been shorting above $150 in the (TLT) when I was falling down on my knees and begging you to do so. Now it’s too late. If we get a 5-point rally, which we could get any time, that’s another story. It is so oversold that a bounce of some sort is inevitable. I’d rather be in cash going into that.

Q: Do you think Tesla (TSLA) has put in a bottom, or do you still see more downside? Is it time to buy?

A: The time to buy is not when it is up 50% in 3 weeks, which it has just done. The time to buy is when I sent out the last trade alert to buy it at $700. This was a complete layup as a long three weeks ago because I knew the German production was coming onstream very shortly; and that opens up a whole new continent, right when energy prices are going through the roof—the best-case scenario for Tesla. And the same is happening in the US—it’s a one-year wait now to get a new Model X in the US. In fact, I can sell my existing model X for the same price I paid for it 3 years ago, if I were happy to wait another year to get a replacement car.

Q: Will the Boeing (BA) crash in China damage the short-term prospects? And as a pilot, what do you think actually happened?

A: Boeing has been beat-up for so long that a mere crash in one of its safest planes isn’t going to do much. It could have been a maintenance issue in China, but the fact that there was no “mayday” call means only two or three possibilities. One is a bomb, which would explain there being no mayday call—the pilots were already dead when it went into freefall. Number two would be a complete structural failure, which is hard to believe because I’ve been flying Boeings my entire life, and these things are made out of steel girders—you can’t break them. And number three is a pilot suicide—there have been a couple of those over the years. The Malaysia flight that disappeared over the south Indian Ocean was almost certainly a pilot suicide, and there was another one in Germany and another in Japan about 20 years ago. So, if they come up with no answer, that's the answer. It’s not a Boeing issue, whatever it is.

Q: Is John Deer (DEER) or Caterpillar (CAT) a better trade right now?

A: It’s kind of six of one, half a dozen of the other. Caterpillar I’ve been following for 50 years, so I’m kind of partial to CAT, and Caterpillar has a much bigger international presence, but that could be a negative these days in a deglobalizing world.

Q: Apple (AAPL) has really caught fire past $170. Should I chase it here or wait until it’s too overbought?

A: I never liked chasing. Even a small dip, like we’re having today, is worth getting into. So always buy on the dips.

Q: Is Silver (SLV) still a good long-term play?

A: Yes, because we do expect EV production to ramp up as fast as they can possibly do it. Too bad the American companies don’t know how to make electric cars—they just haven’t been able to get their volumes up because of production problems that Tesla solved 12 years ago. So, long term, I think it will do better, but right now the risk-on move is definitely negative for the precious metals.

Q: How low will the iShares 20 Plus Year Treasury Bond ETF (TLT) go in April before the next Fed meeting?

A: I think we’re bottoming for the short term right around here. That’s why I had on that $127-$130 call spread in the (TLT) that I got stopped out of. And I may well end up being right, but with these call spreads, once you break your upper strike, the math goes against you dramatically. You go from like a 1-1 risk profile to like a 10-1 against you. So, you have to get out of those things when you break your upper strike, otherwise, you risk writing off the entire position with 100% loss. As long as Jay Powell keeps talking about successive half-point rate cuts, we will get lower lows, and my 2023 target for the TLT is $105, or about $20.00 points below here.

Q: Do you think we retest the bottoms?

A: Absolutely, yes; it just depends on where the test is successful—with a double bottom or with a retrace of half the recent moves. Keep in mind that stocks go up 80% of the time over the last 120 years, and that includes the Great Depression when they hardly went up at all for 10 years, so selling short is a professional’s game, and I wouldn’t attempt it unless you had somebody like me helping you. You're betting against the long-term trend with every short position. That said, if you’re quick you can make decent money. Most of the money we’ve made this year has been in short positions, both in stocks and in bonds.

Q: Where can we find this webinar?

A: The recording for this webinar will be posted on the website in about two hours. Just log into your account and you’ll find them all listed.

Q: When should I sell my tradable ProShares UltraShort 20+ Year Treasury ETF (TBT)?

A: You don’t have an options expiration to worry about, so I would just keep in until we hit $105 in the (TLT). If you do want to trade, I’d take a little bit off here and then try to re-buy it a couple of points lower, maybe 10% lower.

Q: What do you think of a Freeport McMoRan (FCX) $55-$60 vertical bull call spread?

A: The market has had such a massive move, that I’m reluctant to do out of the money call spreads from here unless we get a major dip. So, don’t reach for the marginal trade—that’s where you get your head handed to you.

Q: Will yield curve inversions matter this time and foretell a recession?

A: I think no, because corporate earnings are still growing, and by the summer, we probably will have a yield curve inversion.

Q: There seems to be some huge breakthrough in battery technology where batteries could be recharged within four minutes. I believe it’s the Chinese who have the tech, if so how will that impact on Tesla?

A: Every day of the year someone presents Tesla with a revolutionary new battery technology. It either doesn’t work, can’t be mass-produced, or is wildly uneconomical. So, I’ll confine my bet that Tesla will be able to eventually mass produce solid state batteries and get their 95% cost reduction that way.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.

Good Luck and Stay Healthy.

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

March 4, 2022

Diary, Newsletter, Summary

Global Market Comments
March 4, 2022
Fiat Lux

Featured Trade:

(MARCH 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (TSLA), (FCX), (JPM), (BAC), (MS), (TLT),
(TBT),(BA), UPS (UPS), (CAT), (DIS), (DAL),
(GOLD), (VIX), (VXX), (CAT), (BA)

March 2 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the March 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.

Q: Do you think Vladimir Putin will give up?

A: He will either be forced to give up, run out of resources/money, or he will suddenly have an accident. When the people see their standard of living go from a per capita income of $10,000/year today to $1,000—back to where it was during the old Soviet Union—his lifespan will suddenly become very limited.

Q: Would you be buying Invesco Trusts (QQQs) on dips?

A: I think we have a few more horrible days—sudden $500- or $1,000-point declines—but we’re putting in a bottom of sorts here. It may take a month or two to finalize, but the second buying opportunity of the decade is setting up; of course, the other one was two years ago at the pandemic low. So, do your research, make your stock picks now, and once we get another absolute blow-up to the downside, that is your time to go in.

Q: Materials have gone up astronomically, are they still a buy?

A: Yes, on dips. I wouldn't chase 10% or 20% one-week moves up here—there are too many other better trades to do.

Q: Is it time to go long aggressively in Europe?

A: No, because Europe is going to experience a far greater impact economically than the US, which will have virtually none. In fact, all the impacts on the US are positive except for higher energy prices. So, I think Europe will have a much longer recovery in the stock market than the US.

Q: Would you take a flier on a Russian ETF (RSX)?

A: No, most, if not all, of them are about to be delisted because they have been banned or the liquidity has completely disappeared. The (RSX) has just collapsed 85%, from $26 to $4. Virtually all of Russia is for sale, not only stocks, bonds, junk bonds, ETFs, but also joint ventures. ExxonMobil, Shell and BP are all dumping their ownership of Russian subsidiaries as we speak.

Q: Time for a Freeport-McMoRan (FCX) LEAP?

A: No, November was the time for an (FCX) LEAP—we’ve already had a massive run now, up 66% in five months, so wait for the next dip. The next LEAPS are probably going to be in technology stocks in a few months.

Q: My iShares 20 Plus Year Treasury Bond ETF (TLT) call $130 was assigned, What should I do?

A: Call your broker immediately and tell them to exercise your 127 to cover your short in the 130. They usually charge a few extra fees on that because they can get away with it, but you’ve just made the maximum profit on the position. If you haven’t been exercised yet, that 127/130 call spread will expire at max profit in 10 days.

Q: What if I get my short side called away on a position?

A: Use your long side calls to execute immediately to cover your short side. These call spreads are perfectly hedged positions, same name, same maturity, same size, just different strike prices. If your broker doesn’t hear from you at all, they will just exercise the short call and leave you long the long call, and that can lead to a margin call. So the second you get one of these calls, contact your broker immediately and get out of the position.

Q: Is it safe to put 100% of your money in Tesla (TSLA) for the long term?

A: Only if you can handle a 50% loss of your money at any time. Most people can't. It’s better to wait for Tesla to drop 50%, which it has almost done (it’s gotten down to $700), and then put in a large position. But you never bet all your money on one position under any circumstances. For example, what if Elon Musk died? What would Tesla’s stock do then? It would easily drop by half. So, I’ll leave the “bet the ranch trades” for the younger crowd, because they’re young enough to lose all their money, start all over again, and still earn enough for retirement. As for me, that is not the case, so I will pass on that trade. You should pas too.

Q: Do you foresee NASDAQ (QQQ) being up 5-10% or 10-20% by year-end?

A: I do actually, because business is booming across tech land, and the money-making stocks are hardly going down and will just rocket once the rotation goes back into that sector.

Q: We could see an awful earnings sequence in April, which could put in the final bottom on this whole move.

A: That is right. We need one more good capitulation to get a final bottom in, and then we’re in LEAP territory on probably much of the market. We know we’re having a weak quarter from all the anecdotal data; those companies will produce weak earnings and the year-on-year comparisons are going to be terrible. A lot of companies will probably show down turns in earnings or losses for the quarter, that's all the stuff good bottoms are made out of.

Q: What should we make of the Russian threats of WWIII going Nuclear?

A: I think if Putin gave the order, the generals would ignore it and refuse to fire, because they know it would mean suicide for the entire country. Mutual Assured Destruction (MAD) is still in place, and it still works. And by the way, it hasn’t been in the media, but I happen to know that American nuclear submarines with their massive salvos of MIRVed missiles, have moved much closer to Russian waters. So, you're looking at a war that would be over in 15 minutes. I think that would also be another scenario in which they replace Putin: if he gives such an order. This has actually happened in the past; people without top secret clearance don’t know this but Boris Yeltsen actually gave an order to launch nuclear missiles in the early 90s when he got mad at the US about something. The generals ignored it, because he was drunk. And something else you may not know is that 95% of the Russian nuclear missiles don’t work—they don’t have the GDP to maintain 7,000 nuclear weapons at full readiness. Plutonium is one of the world’s most corrosive substances and very expensive to maintain. Only a wealthy country like the US could maintain that many weapons because it’s so expensive. So no, you don’t need to dig bomb shelters yet, I think this stays conventional.

Q: Banks like (JPM), (BAC), AND (MS) are at a low—are they a buy?

A: Yes, but not yet; wait for more shocks to the system, more panic selling, and then the banks are absolutely going to be a screaming buy because they are on a long-term trend on interest rates, strong economy, lowering defaults—all the reasons we’ve been buying them for the last year.

Q: Should I short bonds or should I buy Freeport up 60%?

A: Short bonds. Next.

Q: Should I buy Europe or should I short bonds?

A: Short bonds. That should be your benchmark for any trade you’re considering right now.

Q: How much and how quickly will we see a collapse in defense stocks?

A: Well, you may not see a collapse in defense stocks, because even if Russia withdraws from Ukraine, they still are a newly heightened threat to the West, and these increases in defense spending are permanent. That’s why the stocks have gone absolutely ballistic. Yeah sure, you may give up some of these monster gains we’ve had in the last week, but this is a dip-buying sector now after being ignored for a long time. So yes, even if Russia gives up, the world is going to be spending a lot more on defense, probably for the rest of our lives.

Q: Just to confirm, LEAP candidates are Boeing (BA), UPS (UPS), Caterpillar (CAT), Disney (DIS), Delta Airlines (DAL)?

A: I would say yes. You may want to hold off, see if there’s one more meltdown to go; or you can buy half now and half on either the next meltdown or the melt-up and get yourself a good average position. And when I say LEAPS, I mean going out at least a year on a call spread in options on all of these things.

Q: Is $143 short safe on the (TLT)?

A: Definitely, probably. In these conditions, you have to allow for one day, out of the blue, supers pikes of $3 like we got last week, or $5 trins week, only to be reversed the next day. The trouble is even if it reverses the next day, you’re still stopped out of your position. So again, the message is, don’t be greedy, don’t over-leverage, don’t go too close to the money. There’s a lot of money to be made here, but not if you blow all your profits on one super aggressive trade. And take it from someone who’s learned the hard way; you want to be semi-conservative in these wild trading conditions. If you do that, you will make some really good money when everyone else is getting their head handed to them.

Q: Would you go in the money or out of the money for Boeing (BA) and Caterpillar (CAT)?

A: It just depends on your risk tolerance. The best thing here is to do several options combinations and then figure out what the worst-case scenario is. If you can handle that worst-case scenario without stopping out, do those strikes. These LEAPS are great, unless you have to stop out, and then they will absolutely kill you. And usually, you only do these with sustained uptrends in place; we don’t have that yet which is why I’m saying, watch these LEAPS. Don’t necessarily execute now, or if you do, just do it in small pieces and leg in. That is the smart answer to that.

Q: What’s the probability that the CBOE Volatility Index (VIX) makes a new high in the next 2 weeks?

A: I give it 50/50.

Q: Call options on the VIX?

A: No, that’s one of the super high-risk trades I have to pass on.

Q: How low can the VIX go down this month?

A: High ten’s is probably a worst-case scenario.

Q: LEAPS on Barrick Gold Corporation (GOLD)?

A: No, that was a 3-month-ago trade. Now it’s too late, never consider a LEAP at an all-time high or close to it.

Q: Time to short oil?

A: Not yet. We have some spike top going on in oil. It’s impossible to find the top on this because, while bottoms are always measurable with PE multiples and such, tops are impossible to measure because then you’re trying to quantify human greed, which can’t be done. So yeah, I would stand by; it’s something you want to sell on the way down. This is the inverse of catching a falling knife.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.

Good Luck and Stay Healthy.

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

August 27, 2021

Diary, Newsletter, Summary

Global Market Comments
August 27, 2021
Fiat Lux

Featured Trade:

(AUGUST 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(ROM), (EEM), (FXI), (DIS), (AMZN), (NFLX), (CHPT), (TLT), (TBT), (AAPL),
(GOOG), (WPM), (GOLD), (NEM), (GDX), (X), (SLV), (FCX), (BA), (HOOD), (USO)