(BABA) Archives

January 20 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the January 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.

Q: What will a significant rise in long term bond yields (TLT) do to PE ratios in general, and high tech specifically?

A: Well, the key question here is: what is “significant”. Is “significant” a move in a 10-year from 120 to 150, which may be only months off? I don’t think that will have any impact whatsoever on the stock market. I think to really give us a good scare on interest rates, you need to get the 10-year up to 3.0%, and that might be two years off. We’re also going to be testing some new ground here: how high can bond interest rates go while the Fed keeps overnight rates at 25 basis points? They can go up more, but not enough to hurt the stock market. So, I think we essentially have a free run on stocks for two more years.

Q: What about the Shiller price earnings ratio?

A: Currently, it’s 34.5X and you want to completely ignore anything from Shiller on stock prices. He’s been bearish on stocks for 6 years now and ignoring him is the best thing you can do for your portfolio. If you had listed to him, you would have missed the last 15,000 Dow ($INDU) points. Someday, he’ll be right, but it may be when the market goes from 50,000 to 40,000, so again, I haven't found the Shiller price earnings ratio to be useful. It’s one of those academic things that looks great on paper but is terrible in practice.

Q: Do you see any opportunity in China financials with the change of administration, like the (CHIX)?

A: I always avoid financials in China because everyone knows they have massive, defaulted loans on their books that the government refuses to force them to recognize like we do here. So, it’s one of those things where they look good on paper, but you dig deeper and find out why they’re really so cheap. Better to go with the big online companies like Baidu (BIDU) and Alibaba (BABA).

Q: Is it too late to enter copper?

A: No, the high in the last cycle for Freeport McMoRan (FCX) was $50 dollars and I think we’re only in the mid $ ’20s now, so you could get another double. Remember, these commodity stocks have discounted recovery that hasn’t even started yet. Once you do get an actual recovery, you could get another enormous move and that's what could take the Dow to 120,000.

Q: Do you see the FANGs coming back to life with the earnings results?

A: I think it'll take more than just Netflix to do that. By the way, Netflix (NFLX) is starting to look like the Tesla of the media industry, so I’d get into Netflix on the next dip. You could get a surprise, out-of-nowhere double out of that anytime. But yes, FANGs will come to life. They've been in a correction for five months now, and we’ll see—it may be the end of the pandemic that causes these stocks to really take off. So that's why I'm running the barbell portfolio and buying the FANGs on weakness.

Q: Are you recommending LEAPS on gold (GLD) and silver (SLV)?

A: Absolutely yes, go out two years with your maturity, you might buy 120% out of the money. That's where you get your leverage on the LEAPS. Something like a (GLD) January 2023 $210-$220 in-the-money vertical bull call spread and generate a 500% profit by expiration.

Q: Do you foresee a cool off for semiconductors ($SOX) even though there's been recent news of shortages?

A: No, not really. There are so many people trying to get into these it’s incredible. And again, we may get a time correction where we sideline at the top and then break out again to the upside. This is classic in liquidity-driven markets, which is what we have in spades right now. Thanks to 5G, the number of chips in your everyday devices is about to increase tenfold, and it takes at least two years to build a new chip factory. So, keep buying (NVDA), (MU), and (AMD) on dips.

Q: Where are the best LEAPS prospects (Long Term Equity Participation Securities)?

A: That would have to be in technology—that's where the earnings growth is. If you go 20% out of the money on just about any big tech LEAPs two years out, to 2023 those will be worth 500% more at expiration.

Q: What about SPACs (Special Purpose Acquisition Company) now, as we’re getting up to five new SPACs a day?

A: My belief is that a SPAC is a vehicle that allows a manager to take out a 20% a year management fee instead of only 1%. And it's another aspect of the current mania we’re in that a lot of these SPACs are doubling on the first day—especially the electric vehicle-related SPACs. Also, a lot of these SPACs will never invest in anything, but just take the money and give it back to you in two years with no return when they can't find any good investments…. If you’re lucky. There's not a lot of bargains to be found out there by anyone, including SPAC managers.

Q: Does natural gas (UNG) fall into the same “avoid energy” narrative as oil?

A: Absolutely, yes. The only benefit of natural gas is it produces 50% less carbon dioxide than oil. However, you can't get gas without also getting oil (USO), as the two come out of the pipe at the same time; so I would avoid natural gas also. Gas and oil are also about to lose a large chunk, if not all, of their tax incentives, like the oil depletion allowance, which has basically allowed the entire oil industry to operate tax-free since the 1930s.

Q: What about hydrogen cars?

A: I don't really believe in the technology myself, and when you burn hydrogen, that also produces CO2. The problem with hydrogen is that it’s not a scalable technology. It’s like gasoline—you have to build stations all over the US to fuel the cars. Of course, it produces far less carbon than gas or natural gas, but it is hard to compete against electric power, which is scalable and there's already a massive electric grid in place.

Q: If you inherited $4 million today, would you cost average into (QQQ), (IWM), or (SPY)?

A: I would go into the ProShares Ultra Technology ETF (ROM), which is double the (QQQ); and if you really want to be conservative, put half your money into (QQQ) or (ROM), and then half into Berkshire Hathaway (BRK/A), which is basically a call option on the industrial and recovery economy. I know plenty of smart people who are doing exactly that.

Q: Is it weird to see oil, as well as green energy stocks, moving up?

A: No, that's actually how it works. The higher oil and gas prices go, the more economical it is to switch over to green energy. So, they always move in sync with each other.

Q: I heard rumors that Amazon (AMZN) is likely to raise Prime’s annual fee by $10-20 a year in 2021. Will that be a catalyst for the stock to go higher?

A: Yes. For every $10 dollars per person in Prime revenue, Amazon makes $2 billion more in net profit. I would say that's a very strong argument for the stock going up and maybe what breaks it out of its current 6-month range. By the way, Amazon is wildly undervalued, and my long-term target is $5,000.

Q: Do you think that the spike in Apple (AAPL) MacBook purchases means that computers will overtake iPhones as the revenue driver for Apple in 2021, or is the phone business too big?

A: The phone business is too big, and 5G will cause iPhone sales to grow exponentially. Remember, the iPhones themselves are getting better. I just bought the 12G Pro, and the performance over the old phone is incredible. So yeah, iPhones get bigger and better, while laptops only grow to the extent that people need an actual laptop to work on in a fixed office. Is that a supercomputer in your pocket, or are you just glad to see me?

Q: Share buybacks dried up because of revenue headwinds; do you think they will come back in a massive wave, giving more life to equities?

A: Absolutely, yes. Banks, which have been banned from buybacks for the past year, are about to go back into the share buyback business. Netflix has also announced that they will go buy their shares for the first time in 10 years, and of course, Apple is still plodding away with about $100 or $200 million a year in share buybacks, so all of that accelerates. The only ones you won't see doing buybacks are airlines and Boeing (BA) because they have such a mountain of debt to crawl out from before they can get back into aggressive buybacks.

Q: Interest rates are at historic lows; the smartest thing we can do is act big.

A: That’s absolutely right; you want to go big now when we’re all suffering so we can go small later and run a balanced budget or even pay down national debt if the economy grows strong enough. The last person to do that was Bill Clinton, who paid down national debt in small quantities in ‘98 and ‘99.

Q: What do you think about General Motors (GM)?

A: They really seem to be making a big effort to get into electric cars. They said they're going to bring out 25 new electric car models by 2025, and the problem is that GM is your classic “hour late, dollar short” company; always behind the curve because they have this immense bureaucracy which operates as if it is stuck in a barrel of molasses. I don’t see them ever competing against Tesla (TSLA) because the whole business model there seems like it’s stuck in molasses, whereas Tesla is moving forward with new technology at warp speed. I think when Tesla brings out the solid-state battery, which could be in two years, they essentially wipe out the entire global car industry, and everybody will have to either make Tesla cars under license from Tesla—which they said they are happy to do—or go out of business. Having said that, you could get another double in (GM) before everyone figures out what the game is.

Q: Will you update the long-term portfolio?

A: Yes, I promise to update it next week, as long as you promise me that there won’t be another insurrection next week. It’s strictly a time issue. After last year being the most exhausting year in history, this year is proving to be even more exhausting!

Q: Do you see a February pullback?

A: Either a small pullback or a time correction sideways.

Q: Do you think the Zoom (ZM) selloff will continue, or is it done now that the pandemic is hopefully ending?

A: It’s natural for a tech stock to give up one third after a 10X move. It might sell off a little bit more, but like it or not, Zoom is here to stay; it’s now a permanent part of our lives. They’re trying to grow their business as fast as they can, they’re hiring like crazy, so they’re going to be a big factor in our lives. The stock will eventually reflect that.

Good Luck and Stay Healthy.

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

December 15, 2020

Diary, Newsletter, Summary

Global Market Comments
December 15, 2020
Fiat Lux

FEATURED TRADE:

(A NOTE ON OPTIONS CALLED AWAY),
(TSLA), (TLT), (BABA), (JPM), (CAT)

December 14, 2020

Diary, Newsletter, Summary

Global Market Comments
December 14, 2020
Fiat Lux

FEATURED TRADE:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ASSET SHORTAGE),
(INDU), (PFE), (MRNA), (PTON), (DOCU), (ETSY), (CAT), (JPM), (BABA), (TSLA), (TLT), (ABNB), (DIS)

The Market Outlook for the Week Ahead, or The Great Asset Shortage

Diary, Newsletter, Summary

Markets are wonderful arbiters of the laws of supply and demand.

When there is a shortage of a particular security, Wall Street has a magical ability to manufacture more by running the printing presses to meet supply, or in the modern incarnation, open the spreadsheets.

Except for this time.

The amount of new cash created by global quantitative easing and the prolific saving habits of locked up Americans are creating more demand than even this efficient highly process can accommodate.

Which means that prices can only go up.

How long and how far is anyone’s guess. My target for the Dow Average is 120,000 in ten years, but even I don’t expect that to take place in a straight line. So, we are all sitting on our hands waiting for the next pullback to buy into, which may….or may not ever happen.

A lot of Dotcom Bubble memories are rising up from the dead. Analysts in 1999 made outlandish forecasts of stocks rising 50% in a year, which then took place in four days. That happened to Tesla (TSLA) last month and Airbnb (ABNB) last week.

In the meantime, the smartest traders, call them the oldest traders, are taking profits on the best years of their careers.

Of course, the short-term direction of the market will be determined by the January 5 Georgia Senate election, where the polls are in a dead heat. The last time this happened, during the presidential election, the Democrats won by a microscopic 15,000 vote margin.

If history repeats itself, the Biden administration will get an extra $6 trillion to play with to restore the shattered US economy. Think $2 trillion for infrastructure spending in all 50 states, $2 trillion for the rescue of bankrupt states and municipalities, $1 trillion for alternative energy and EV subsidies, and another $1 trillion in odds and ends. Needless to say, much of this will end up in the stock market.

I am getting a lot of questions these days regarding what will end this once-in-a-generation runaway bull market. The pandemic created this bull market by accelerating technology, business evolution, and corporate profitability by ten years. I bet a year ago, you weren’t spending your day on Zoom meetings, as I was.

The great irony is that the Pfizer (PFE) and Moderna (MRNA) vaccines may not only kill Covid-19 but the bull market as well. That’s because money will then come out of stocks and go back to the real economy.

That makes pandemic darlings like Peloton (PTON), DocuSign (DOCU), and Etsy (ETSY) especially risky. But then 6% growing GDPs were never what stock market crashes were made of, so any declines will be modest.

As for my own positions, I have a rare 100% long portfolio, mostly Tesla, but also the (TLT), (CAT), (JPM), and (BABA), 80% of which expires with the option expiration on Friday, December 18.

After that, I’ll take it easy with 10% short (TLT) and 10% long (TSLA) and wait for the market, or Georgians to tell me what to do.

A flood of money is to hit the stock market, says hedge fund legend Ray Dalio. The US is facing a perfect storm in favor of all risk assets. There is no reason why price earnings multiples for American stocks can’t reach 50X, double the current 25X. Buy what the central banks are buying. The funny thing is that I agree with Ray on everything. Buy risk on dips.

Stocks will keep soaring into 2021, says JP Morgan strategist Marko Kolanovik. The more risk the better. The Fed will keep interest rates low for at least another year, and ultra-low rates will force big institutions out of bonds and into stocks. Volatility (VIX) will decline. It all sounds like a great long stock/short bond trade to me. Hmmmmm.

Tesla completed a $5 Billion share issue, after a move to $650, up $142 from my November Mad Hedge BUY recommendation. The stock seems hell-bent on testing the Goldman Sachs $780 price recommendation before the December 18 S&P 500 entry. Elon Musk’s creation is now worth a staggering $608 billion. It’s the best recommendation in the 13-year history of the Mad Hedge Fund Trader.

San Francisco rents dive 35%, as tech workers flee to the suburbs. A lot of remote work is now permanent. Studio apartments are now a mere $2,100, and a one-bedroom can be had for $2,716. For a two-bedroom if you have to ask, you don’t need to know. Shocking!

Sales of million-dollar homes are soaring, as ultra-low interest rates persist and people spend much more time at home. So, bigger for your pod is better. Mortgages over $766,000 are up 57% YOY.

Jamie Diamond says he wouldn’t touch bonds with a ten-foot pole, and nor would I. A 91-basis point yield just doesn’t do it for the chairman of JP Morgan Chase (JPM), one of my recurring longs. Stocks are a much better choice, even if there is a bubble in progress. Keep selling every rally in fixed income, especially the (TLT).

Weekly Jobless Claims soar to 853,000, up a massive 153,000 from the previous week. To see this happen during the Christmas hiring season is heartbreaking. With 200,000 a day falling to Covid-19, I’m surprised it's not higher, which means it will be. This is what peaks look like. Washington has totally given up.

An $800 billion payday for the bay area. That is the amount of wealth created by just two companies, Tesla (TSLA) and Airbnb (ABNB), since March. And the great majority of shareholders live in the San Francisco Bay Area, including its venture capital and pension funds. No wonder home prices in the suburbs are up 20% YOY. The great irony is that (ABNB) received a massive government bailout only in March. I hope they repay the loans early.

Is Cuba the next big play? A Biden détente could lead to the emerging market investment opportunity of the decade with the $43 million Herzfeld Caribbean Basin Fund (CUBA). It just had its best month in 11 years (like many of us). With Fidel Castro long dead, what’s the point in continuing a 60-year-old cold war. A big market for American products and services beckons, not to mention the tourism and cruise opportunities. But can Biden afford to lose the Florida Cuban vote in the next election?

When we come out the other side of the 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 Global Trading Dispatch catapulted to another new all-time high. December is up 8.55%, taking my 2020 year-to-date up to a new high of 64.99%.

That brings my eleven-year total return to 420.90% or more than double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.26%. My trailing one-year return exploded to 66.30%, the highest in the 13-year history of the Mad Hedge Fund Trader.

The coming week will be a slow one on the data front. We also need to keep an eye on the number of US Coronavirus cases at 16 million and deaths 300,000, which you can find here.

When the market starts to focus on this, we may have a problem.

On Monday, December 14 at 12:00 PM EST, US Consumer Inflation Expectations for November are released.

On Tuesday, December 15 at 11:00 AM, the New York Empire State Manufacturing Index for December are published.

On Wednesday, December 16 at 8:00 AM, US Retail Sales for November are printed.

On Thursday, December 17 at 8:30 AM, the Weekly Jobless Claims are published. We also get November Housing Starts.

On Friday, December 18, at 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, I was stunned to learn that 84 million people are watching The Mandalorian, the latest Star Wars installment Disney (DIS) launched in its hugely successful streaming service a year ago.

It reminds me of when I first saw Star Wars in 1977. I was changing planes in Vancouver, Canada on the way to Tokyo and used a long layover to take a taxi to the nearest theater to catch a film I’d heard so much about.

I was amazed when I realized that the guy sitting in the next seat had memorized the entire script and was mouthing all the words. The only other time I have ever seen this happen was sitting on the benches at Shakespeare’s Globe Theater in London. At least then, they were reciting Romeo and Juliet.

Stay healthy.

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

December 7, 2020

Diary, Newsletter, Summary

Global Market Comments
December 7, 2020
Fiat Lux

FEATURED TRADE:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or A DICEY LANDING)
(SPY), (TLT), (AMZN), (TSLA), (CRM), (JPM), (CAT), (BABA),
(FCX), (GLD), (SLV), (UUP), (FXE), (FXA), (FXB), (FXY), (FXI), (EWZ), (THD), (EPU)

The Market Outlook for the Week Ahead, or a Dicey Landing

Diary, Free Research, Newsletter

Landing my 1932 de Havilland Tiger Moth biplane can be dicey.

For a start, it has no brakes. That means I can only land on grass fields and hope my tail skid catches before I run out of landing strip. If it doesn’t, the plane will hit the end, nose over, and dump a fractured gas tank on top of me. Bathing in 30 gallons of 100 octane gasoline with sparks flying is definitely NOT a good long term health plan.

The stock market is starting to remind me of landing that Tiger Moth. On Friday, all four main stock indexes closed at all-time highs for the first time since pre-pandemic January. A record $115 billion poured into equity mutual funds in November. This has all been the result of multiple expansion, not newfound earnings.

Yet, stocks seem hell-bent on closing out 2020 at the highs.

And there is a major factor that the market is completely ignoring. What if the Democrats win the Senate in Georgia?

If so, Biden will have the weaponry to go bold. The economy goes from zero stimulus to maybe $6 trillion raining down upon it over the next six months. That will go crazy, possibly picking up another 10%, or 3,000 Dow points on top of the post-election 4,000 points we have seen so far.

That is definitely NOT in the market.

The other big decade-long trend that is only just starting is the weak US dollar. Lower interest rates for longer were reaffirmed by the appointment of my former economics professor Janet Yellen as Treasury Secretary.

A feeble dollar brings us a fading bond market, as half the buyers are foreigners. A sickened greenback also provides the launching pad for all non-dollar assets to take off like a rocket, including commodities (FCX), precious metals (GLD), (SLV), Bitcoin, and the currencies (UUP), (FXE), (FXA), (FXB), (FXY), and emerging stock markets like China (FXI), Brazil (EWZ), Thailand (THD), and Peru (EPU).

All of this is happening in the face of a US economy that is clearly falling apart. Weekly jobless claims for November came in at 245,000, compared to a robust 638,000 in October, taking the headline unemployment rate down to 6.9%. The real U6 unemployment rate stands at an eye-popping 12.0%, or 20 million.

Some 10.7 million remain jobless, 900,000 higher than in February. Transportation and Warehousing were up 140,000, Professional & Business Services by 60,000, and Health Care 46,000. Retail was down 35,000 as stores shut down at a record pace.

OPEC cuts a deal, adding 500,000 barrels a day to the global supply. The hopes are that a synchronized global recovery can take additional supply. Texas tea finally busts through a month's long $44 cap, the highest since March. Avoid energy. I’d rather buy more Tesla, the anti-energy.

Black Friday was a disaster, with in-store shopping down 52%. Long lines and 25% capacity restrictions kept the crowds at bay. If you don’t have an online presence, you’re dead. In the meantime, online spending surged by 26%.

Amazon (AMZN) hires 437,000 in 2020, probably the greatest hiring binge since WWII, and is continuing at the incredible rate of 3,000 a week. That takes its global workforce to 1.2 million. Most are $12 an hour warehouse and delivery positions. The company has been far and away the biggest beneficiary of the pandemic as the world rushed to online commerce.

Tesla’s (TSLA) full self-driving software may be out in two weeks, instead of the earlier indicated two years. The current version only works on freeways. The full street to street version could be worth $8,000 a car in upgrades. Another reason to go gaga over Tesla stock.

Goldman Sachs raised Tesla target to $780, the Musk increased market share to a growing market. No threat from General Motors yet, just talk. Volkswagen is on the distant horizon. In the meantime, Tesla super bear Jim Chanos announced he is finally cutting back his position. He finally came to the stunning conclusion that Tesla is not being valued as a car company. Go figure. Short interest in Tesla has plunged from a peak of 35% in March to 6% today. It’s learning the hard way.

The U.S. manufacturing sector pauses, activity in the U.S. manufacturing sector barely ticked up in November as production and new orders cratered, data from a survey compiled by the Institute for Supply Management showed on Tuesday. The ISM Manufacturing Report on Business PMI for November stood at 57.5, slipping from 59.3 in October.

Salesforce (CRM) overpays for workplace app Slack, knocking its stock down 9%. This is worth a buy the dip trade in the short-term and this is still a great tech company which is why the Mad Hedge Tech Letter sent out a tech alert on Salesforce on the dip.

Weekly Jobless Claims dive, with Americans applying for unemployment benefits falling last week to 712,000 down from 787,000 the week before. The weakness is unsurprising as we head into seasonal Christmas hiring.

The end of the tunnel for Boeing (BA) as they bring to an end an awful 2020. Irish-based airline Ryanair Holdings placed a large order for a set of brand new Boeing 737 MAX aircraft, giving the plane maker a shot in the arm as the single-aisle jet comes off an unprecedented 20-month grounding.

Ryanair, Europe’s low-cost carrier, has 135 Boeing 737 MAX jets on order and options to bring the total to 200 or more. Hopefully, they won’t crash this time around. My fingers are crossed.

Dollar Hits 2-1/2 Year Low. With global economies recovering, the next big-money move will be out of the greenback and into the Euro (FXE), the Aussie (FXA), the Looney (FXC), the Japanese yen (FXY), the British pound (FXB), and Bitcoin. Keeping interest rates lower for longer will accelerate the downtrend.

When we come out the other side of this 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 Global Trading Dispatch catapulted to another new all-time high. December is up 5.34%, taking my 2020 year-to-date up to a new high of 61.78%.

That brings my eleven-year total return to 417.69% or double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.00%. My trailing one-year return exploded to 64.56%. I’m running out of superlatives, so there!

I managed to catch the 50%, two-week Tesla melt-up with a 5X long position, which is always nice for performance.

The coming week will be a slow one on the data front. We also need to keep an eye on the number of US Coronavirus cases at 14.5 million and deaths at 285,000, which you can find here.

When the market starts to focus on this, we may have a problem.

On Monday, December 7 at 4:00 PM EST, US Consumer Credit is out.

On Tuesday, December 8 at 11:00 AM, the NFIB Business Optimism Index is published.

On Wednesday, December 9 at 8:00 AM, MBA Mortgage Applications for the previous week are released.

On Thursday, December 10 at 8:30 AM, the Weekly Jobless Claims are published. At 9:30 AM, US Core Inflation is printed.

On Friday, November 11, at 9:30 AM EST, the US Producer Price Index is announced. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, at least there is one positive outcome from the pandemic. Boy Scout Christmas tree sales are absolutely through the roof! We took delivery of 1,300 trees from Oregon for our annual fundraiser expected to sell them in two weeks. We cleared out our entire inventory in a mere six days!

We sold trees as fast as we could load them. With the scouts tying the knots, only one fell onto the freeway on the way home. An “all hands on deck” call has gone out to shift the inventory.

It turns out that tree sales are booming nationally. The $2 billion a year market places 21 million trees annually at an average price of $8 and are important fundraisers for many non-profit organizations. It seems that people just want something to feel good about this year.

Governor Gavin Newsome’s order to go into a one-month lockdown Sunday night inspired the greatest sales effort I have ever seen, and I worked on a Morgan Stanley sales desk! We shifted the last tree hours before the deadline, which was full of mud with broken branches and had clearly been run over by a truck at a well-deserved 50% discount.

I can’t wait until next year!

Stay healthy.

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

November 30, 2020

Diary, Newsletter, Summary

Global Market Comments
November 30, 2020
Fiat Lux

FEATURED TRADE:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or SANTA COMES EARLY),
(SPY), (TLT), (TSLA), (JPM), (CAT), (BABA)

The Market Outlook for the Week Ahead, or Santa Comes Early

Diary, Newsletter

Everyone has been expecting a Santa Claus rally this year, but it looks like the jolly old man arrived early.

The holiday-shortened month was the best for stocks in 37 years. If you owned Tesla, like we did, it was even better. Elon Musk’s miracle creation shot up an incredible 60% this month.

At $600 a share, the company’s market capitalization expanded by an eye-popping $363 billion to $580 billion, the fastest wealth creation in history. The gain alone would rank it as the 55^th largest company in the S&P 500. Similarly, Elon himself earned $100 billion this year, or $17 million an hour, the speediest wealth accumulation since capitalism begin.

These are numbers for the ages.

It’s all proof that if you live long enough, you see everything. OK, all of you who thought the Dow would soar by 12,000 points, or 67% in eight months, please raise your hands. Yes, I didn’t think I’d see many.

Which all raises some concerns for me. But then I’m always concerned. That’s why I’m still alive. That’s why I still have two nickels to rub together. My Mad Hedge Market Timing Index shouting “EXTREME SELL” urges further caution.

Rising at this meteoric pace, the market is pulling forward a big chunk of gains from 2021. Make hay while the sun shines because we may suffer long periods of boredom next year, when the Volatility Index (VIX) drops down to $10 and stays there.

It all reminds me of the Plaza Accord in 1987, when Japan agreed to a doubling of the yen against the US dollar in exchange for continued access to the US car market.

We all knew this would eventually demolish the Japanese stock market, but not for a while. I remember at the time, an old Japanese folk expression became popular. “The fool may be dancing, but the greater fool is watching.” The Nikkei Average doubled in three years before it crashed. Portfolio managers who only watched were left to pull rickshaws for a living. (This was before Uber).

This is why I have been urging followers to realize their biggest profits, as in Tesla, so they have dry powder with which to buy the next inevitable dip. And you don’t want to be left pulling a rickshaw.

The US Treasury delivered a hit for stocks, as outgoing Secretary Mnuchin cancels all remaining stimulus programs, sucking $459 billion out of the economy. It has so far prompted a $740-point dive in the Dow Average and a $7 rally in the TLT. It’s the ultimate scorched earth strategy that will prolong the recession. Use this move to buy more stocks (SPY) and sell short more bonds (TLT).

Janet Yellen was appointed the new Treasury Secretary in the incoming Biden administration. My old Berkeley economic professor wins again. She is probably the most qualified secretary ever appointed and as academic and former Fed governor. It looks like I may serve as an informal consultant on financial and monetary affairs like I did last time. I drove by her house last week and the vans were already loading up. The markets love her, with the Dow up 500 points and hitting 30,000. Janet is the Queen of Ease and the Master of QE, running a hyper-accommodative policy for five years.

Money is pouring into Asia. First into the pandemic, China was first out. With the most draconian lockdown yet seen, the Middle Kingdom was able to cap total deaths at 4,000. The US is now losing that number of people every two days….with one fourth the population. As a result, China now has the world’s strongest economy, growing at a 6.6% annual rate. The incoming Biden administration will lead to a major improvement in trade relations, bringing us back to a return of globalization. All of this is hugely positive for China.

Tesla tops $580 billion in market cap with a ballistic 37% move since its S&P 500 listing was announced two weeks ago. Look like Elon is due for another $20 billion bonus. Mad Hedge went into this with an aggressive 40% long weighting, making it the best trade of 2020, if not the decade. Tesla is my next trillion-dollar company.

Bitcoin crashed, down nearly $4,000 in 24 hours, or almost 20%. As is always the case with an asset with no fundamentals, nobody knows why as the cryptocurrency tests $16,000, down from $20,000. Fears of increased US regulation may be a factor.

New Home Sales exploded, up 41% YOY to 999,000, and gaining 1.5% in October. It’s the hottest since 2006. Homes sold but still under construction are up 60% YOY. Inventories plunged to 3.5 months and prices are rising due to shortages of labor and materials. This is where inflation begins.

Weekly Jobless Claims leaped to 778,000. The Coronavirus is felling people in the labor force in large numbers. Workers are losing jobs, benefits, and health care just as the pandemic goes exponential.

When we come out the other side of the 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!

This has been the best week, month, and year in the 13-year history of the Mad Hedge Fund Trader, and the week was only three and a half days long!

My Global Trading Dispatch catapulted to another new all-time high. November is up 22.06%, taking my 2020 year-to-date up to a new high of 58.09%.

That brings my eleven-year total return to 414.00% or double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 37.63%. My trailing one-year return exploded to 64.91%. I’m running out of superlatives, so there!

I managed to catch the 50%, two-week Tesla melt-up with a rare quadruple long position, which is always nice for performance.

The coming week will be all about jobs. We also need to keep an eye on the number of US Coronavirus cases at 13 million and deaths 270,000, which you can find here.

When the market starts to focus on this, we may have a problem.

On Monday, November 30 at 11:00 AM EST, Pending Home Sales for October are released.

On Tuesday, December 1 at 11:00 AM, The ISM Manufacturing Index for November is out.

On Wednesday, December 2 at 9:15 AM, the ADP Private Employment Report is printed.

On Thursday, December 3 at 9:30 AM, the Weekly Jobless Claims are published.

On Friday, December 4 at 8:30 AM, the Nonfarm Payroll Report for November is called. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, it’s Christmas tree season for the Boy Scouts again, so I just spent the morning unloading 700 conifers from a semi-truck that just arrived from Corvallis, Oregon. The scouts sell them to raise money for camping trips for the upcoming year. Some of the trees were 12 feet high and two men had to struggle to get them in place.

Last week, I took the scouts to Hendy State Park in northern Mendocino county. We were the only ones camping among the 2,000 year old giant redwoods, but all the RV sites were full. I realized then that tens of thousands are riding out the pandemic and the Great Depression in the California State Park system, rotating locations every two weeks to keep from being kicked out. These are our modern-day “Hooverville’s.”

It’s a sign of the times.

Stay healthy.

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