Global Market Comments
January 13, 2023
Fiat Lux
Featured Trade:
(JANUARY 11 BIWEEKLY STRATEGY WEBINAR Q&A)
(ROM), (FCX), (QQQ), (VIX), (TSLA), (TLT), (MSFT), (RIVN), (VIX), (BRK/B), (RTX), (LMT), (FXI), (UNG), (GLD), (GDX), (SLV), (WPM)
Tag Archive for: (BRK/B)
Below please find the subscribers’ Q&A for the January 11 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: In your trade alert you expected that the (TLT) might go up as much as 30% this year. But in your latest newsletter, you mentioned that the chaos in the US House of Representatives would greatly raise the risk of a default on US government debt by the summer and certainly cast a shadow over your 50% long bond position. Is it still a good idea to hold on to the (TLT) ETF over the next 2-6 months?
A: It is. The extremists who now control the House are not interested in governing or passing laws but gaining clicks, raising money, and increasing speaker’s fees. It may have converted (TLT) from a straight-up trade to a flat-line trade. We will still make the maximum profit on call spreads and LEAPS but with greater risk. But even chaos in the House can’t head off a recession, which the bond market seems intent on pricing in by going up. However, if you depend on government payments for any reason, be it Social Security, a government salary, a tax refund, or a payment for a contract, expect delays. The housing market also ceases because closings can’t take place during government shutdowns. Also, 30% of my bond longs expire in four trading days, and the remainder on February 17.
Q: Is it wise to sell the 2X ProShares Ultra Technology ETF (ROM) now or keep holding?
A: I think the (ROM), NASDAQ, and technology stocks in general may make several runs at the lows over the next six months but won’t fall much from here. A recession is priced in. Once we get through this, you’re looking at doubles and triples for the best names. So, the risk/reward overwhelmingly favors holding on to a one-year view.
Q: would you buy Tesla (TSLA) here?
A: I would start scaling in. The bad news is about to dry up, like Twitter, the recession, the pandemic in China, and Elon Musk selling shares. Then we face an onslaught of good news, like the new Mexico factory announcement, the Cybertruck launch, solid state batteries, and annual production hitting 2 million. At this level, the shares are priced in multiple worst-case scenarios. It is selling at 10X 2025 earnings, half the market multiple. At the end of the day, Tesla has an unassailable 14-year start over the rest of the industry and is the only company in the world that makes money on EVs. There’s an easy 10X here on two-year LEAPS.
Q: I’m in the Freeport McMoRan (FCX) January 25 2-year LEAP approaching the upper end of the 42/45 range. If it crosses 45, do we close the position?
A: Sell half, take your profit. If you’re in the LEAP, my guess is you probably have a 500% profit here in only 3 months, which is not bad. And then you keep the remaining half because you’re then playing with the house's money, and Freeport has a shot of going all the way to $100 a share by the 2025 expiration, and that will get you your full 1,000% return on the position. It’s always nice to be in a position where it’s impossible to lose money on a trade, and that certainly is where you are now with your (FCX) LEAP and everybody else in the FCX LEAP in October also.
Q: As a member of the Florida Retirement System, I’m curious how Blackrock (BLK) and other firms are dealing with the Santos’ plan for their portfolios.
A: Having a state governor manage your portfolio and make your sector and stock picks is an absolutely terrible idea. I can’t imagine a worse possible outcome for your retirement funds. Florida is not the only state doing this—Louisiana and Texas are doing it too. The goal is to drive money out of alternative energy and back into the oil industry, and obviously, this is being financed by the oil industry, which is pissed off over their low multiples. Suffice it to say it’s not a good idea to move out of one of the fastest-growing industries in the market and move into an industry that’s going to zero in 10 years. If that’s their investment strategy, I wish they’d stick to politics and leave investing for true professionals to do.
Q: What do you think about cannabis stocks?
A: I’m a better user of the product than the stock. How about that? How hard is it to grow weed? At the end of the day, these are just pure marketing companies, and that value added is low. Plus, they have huge competition from the black market still selling ½ to ⅓ below market prices because they’re tax-free; the local taxes on these cannabis sales are enormous.
Q: Would you recommend selling a bear market rally when the S&P goes to 405?
A: The (QQQ) would be the better short, something like the $310-320 vertical bear put spread for February to bring in some free money. That’s what I'm planning to do if we get up that high, which we may not.
Q: How do you take advantage of a low CBOE Volatility Index (VIX)?
A: You don’t; there’s nothing to do here with the (VIX) at $22. My trades this year were not volatility trades—because we did them with low volatility, they were pure directional trades betting that the longs would go up and the shorts would go down and they all worked.
Q: Will Rivian (RIVN) survive?
A: Yes, they have two years of cash flow in the bank, and they’re boosting production. However, a high-growth, non-earning stock like Rivian is just out of favor right now. Will they come back into favor? Yes, probably in a year or so, but in the meantime, people are much happier buying Microsoft (MSFT) at a discount than Rivian.
Q: Do you ever buy butterfly spreads?
A: No, four-legged trades run up a lot of commissions, are hard to execute because you have 4 spreads, and have lower returns. They are also lower risk and for people who have no idea what the market is going to do. I don’t need the lower risk trades because I know what markets are going to do.
Q: Do you suggest any Microsoft (MSFT) LEAPS?
A: Yes, go out two years with LEAPS and go out about 50% on your strike prices. A 50% move here in Microsoft in two years is a complete no-brainer.
Q: With weakness in retail, rising inventories, and high consumer debt, will consumers dip into savings?
A: Yes they will, but that will predominantly happen at the bottom half of the economy—the part of the economy that has minimal to no savings. The upper half seems to be doing well—the middle class and of course, the wealthy— and are not cutting back their spending at all, which is why this seems to be a recession that may not actually show up. So, what can I say? The rich are doing great and everyone else is doing less than great, and stocks are reflecting that. Nothing new here.
Q: Would you hold off on tech LEAPS for a bigger selloff, or closer to April?
A: If we do get another big selloff and challenge the October lows, I’ll be pumping out those LEAPS as fast as I can write them; except then, a two-year LEAPS will have an April of 2025 expiration.
Q: I just signed up. What are the advantages of LEAPS?
A: A possible 10x return in 2 years with very low risk. I would suggest going to my website, logging in, and doing a search for LEAPS. There will be a piece there on how to execute a LEAPS, and the Concierge members can also find that piece by logging into their website.
Q: Best and worst sectors?
A: First half, already mentioned them. We like commodities, healthcare, financials, and Berkshire Hathaway (BRK/B) in the first half and tech in the second half.
Q: Have we reached a low in cryptocurrencies?
A: Probably not, and I’ll tell you why I’ve given up on cryptos: I may not live long enough to see the bottom in crypto. It has Tokyo written all over it, and it took Tokyo 30 years to resume a bull market after it crashed in 1990. We’re still at the scandal stage where it turns out that the majority of these trading platforms were stealing money from customers. This is not a great inspiration for investing in that sector. When you have the best quality growth stocks down 80-90%; why bother with something that may not exist or may never recover in your lifetime? I’m out of the crypto business, but there are a wealth of crypto research sources still online and I’m sure they’d be more than happy to give you an opinion.
Q: Why have defense stocks like Raytheon (RTX) and Lockheed Martin (LMT) been weak recently?
A: A couple of reasons. #1 Just outright profit taking into the end of the year in one of the best-performing sectors. #2 The end of the war in Ukraine may not be that far off, and if that happens that could trigger a major round of selling in defense. We did get the three-day ceasefire over the Russian Orthodox New Year, that’s a possible hint, so that may be another reason.
Q: Political outlook on 2024?
A: It’s too early to make any calls, anything could happen; but if we get a repeat of the November election outcome, you could have Democrats retake control of both houses of congress—that’s where the betting money is going right now.
Q: Would you bottom fish in the United States Natural Gas Fund (UNG)?
A: No, I would not—I am avoiding energy like the plague. Remember the all-time low for natural gas is $0.95 per MM BTU, so we still could have a long way to go.
Q: Would you buy iShares China Large-Cap ETF (FXI) on a post-COVID breakout?
A: It looks like it’s already moved, so maybe kind of late on that. The problem is that in China, you don’t know what you are buying and the locals have a huge advantage in reading Beijing.
Q: What do you think about the Biden administration wanting to ban gas stoves?
A: That’s actually not a federal issue, it’s a state issue. California has already banned gas pipes for all new construction. It looks like New York will follow and that’s one-third of the US population. The goal is to replace them with electrical appliances which emit no carbon. I have a non-carbon house myself, I went down that path about 10 years ago, and it seems to be the only way to reduce carbon emissions—is to either price gasoline or oil out of the market, or to make it illegal, and they’re already making gasoline cars illegal, so gas and oil won’t be far behind. From 1900, we went from a hay powered economy to a gasoline-powered one in only 20 years so it should be doable.
Q: How can the push for all electric work well when we have so many shutdowns, much higher electricity cost, and cannot keep up with the demand already here?
A: Buy lots of copper for new local electric powerlines at the house level and buy lots of aluminum for the long-distance transmission lines. Global demand for both aluminum and copper has to triple to accommodate the grid buildout that is already planned. As far as hurricanes in Florida, there’s nothing you can do to stop those on a hundred-year view; I would move to higher ground, which is hard to do in Florida as the highest point in the state is only 345 feet and that’s a garbage dump.
Q: Can I get a copy of all these slides?
A: Yes, we post the PowerPoint on the website at www.madhedgefundtrader.com usually two hours after the production.
Q: Are you recommending buying precious metals right now (GLD), (GDX), (SLV), (and WPM) even after the upside breakout?
A: On upside breakouts, you buy the dips. A perfect dip would be a retest of the 200-day moving average. But we may not get that, since it seems to be everyone’s number-one choice right now. By the way, I haven’t been telling people to buy gold and LEAPS on all the gold plays since October—that’s where the big move has already been made.
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 or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
CLICK HERE to download today's position sheet.
With the Israeli Army in Jerusalem in 1979
Mad Hedge Bitcoin Letter
April 12, 2022
Fiat Lux
Featured Trade:
(PETER THIEL STICKS IT TO THE INSTITUTIONS)
(BTC), (PYPL), (BLK), (BRK-B)
Bitcoin has many doubters, something so novel usually does.
Most Baby boomers who have made it big really have no incentive to get rich again, that’s why many aren’t even inclined to listen to its Bitcoin’s pitch.
To most of the boomer success stories, their financial overperformance was underpinned by the US dollar.
The US dollar isn’t your father’s US dollars.
The destruction of purchasing power has roiled the US dollar and now it has become a target to topple.
Clues are there from Russia desiring to settle energy contracts in Russian Rubles.
Saudi Arabia is in talks to do deals with China in the Chinese yuan.
Unsurprisingly, it’s almost natural that successful Americans born during the peak of the US dollar stick to that as a secret sauce.
For the younger generations, the case is a lot more muddled as billionaire PayPal (PYPL) co-founder Peter Thiel shared his list of enemies stopping bitcoin from rising 100x Thursday while speaking at the Bitcoin 2022 conference in Miami, Florida.
The enemies are “a list of people who I think are stopping bitcoin,” he said. “There’s a lot of them, they tend to have nameless faceless bureaucrat perspectives, which is of course one of the ways they hide.” Thiel continued:
We are going to try to expose them and realize that this is sort of what we have to fight for bitcoin to go up 10x, 100x from here.
“The central banks are going bankrupt. We are at the end of the fiat money regime,” he said.
The first person on the list was Berkshire Hathaway (BRK-B) CEO, Warren Buffett. Thiel put up a picture of Buffett with two of his most famous quotes about bitcoin: “rat poison” and “I don’t own any and I never will.”
It’s fascinating to watch from afar, a war of great minds, and Peter Thiel and Warren Buffett are two heavyweights.
Thiel has had the propensity to behave riskier with his bets which is normal for early-stage tech investors.
He co-founded PayPal, was an early investor in Facebook, and has numerous connections to influential politicians.
Thiel wasn’t talking to the existing Bitcoin base which many are diehards.
He was talking to the incremental investor sitting on the fence.
I understand it’s a leap of faith to jump into a digital currency that produces no cash flow or income.
It’s hard to do mental gymnastics.
Thiel most likely came across as too zealous, painting the dilemma as a binary choice between Bitcoin or fiat currency.
The truth is that both of these can succeed in the future for two entirely different reasons.
They also attract different types of investors which is the beauty of investing.
The next picture he put up was of Blackrock (BLK) CEO Larry Fink, who has been quoted saying Bitcoin is an “index of money laundering” and who also presides over $9 trillion of managed money.
Ostensibly appearing as if this is a binary choice placing the biggest beneficiaries of the fiat monetary system in this generation is more of a dramatic effect if anything else.
The truth is that Blackrock’s Fink is starting to change his tune about Bitcoin and his firm Blackrock is looking into how they can make money for the clients using not only equity funds.
Many of these guys on Thiel’s list have fiduciary responsibilities to their shareholders and throwing $9 trillion at Bitcoin would violate any sort of risk control.
Instead of alienating institutional money, Thiel has chosen an undiplomatic way to call out the corporate money that hasn’t bought into Bitcoin like retail investors.
Bitcoin has stayed very much in the limelight in 2022 and it’s clear that as a $2 trillion industry, it’s not going away.
Ultimately, Bitcoin’s price action has been somewhat disappointing since its surge to $65,000 last year, but that doesn’t mean it is a failure.
Consolidating and digesting a giant gap up is natural.
The technical support at $38,000 has held up nicely, and Thiel’s call to action to take it back to $65,000 won’t move the needle in one day but alerts many billionaires that if they miss this ride up, it might be the biggest missed opportunity of a lifetime.
Mad Hedge Biotech and Healthcare Letter
February 3, 2022
Fiat Lux
Featured Trade:
(A ‘BORING’ BUSINESS RESISTING THE ‘AMAZON EFFECT’)
(CVS), (UNH), (ANTM), (TDOC), (AMZN), (BRK.A), (BRK.B), (JPM)
The healthcare market is under attack.
Amazon (AMZN) is invading the healthcare sector, wielding its far-reaching online presence and countless distribution warehouses to dominate the market.
Leveraging its ability to offer quick shipping to practically all locations, Amazon has transformed into a grab-anything-and-everything-possible business.
Now, it has set its sights on the healthcare and prescription sector. In fact, it has been attempting to infiltrate this segment since 2018 when it acquired PillPack.
The only limitation of that deal was that customers still had to get prescriptions from their doctors to avail of the PillPack service.
However, Amazon’s not the only one seeing the potential of this sector.
Following the difficulties it encountered in cornering the market, the e-commerce giant collaborated with fellow Wall Street titans Berkshire Hathaway (BRK.A) (BRK.B) and JPMorgan (JPM). Together, the three companies launched a service they called “Haven.”
Unfortunately, the venture eventually fell apart, and they canceled the deal altogether.
Despite that unfortunate end, Amazon refuses to back down on its vision. Recently, it decided to take another stab at the venture with a rebranding, giving birth to AmazonCare.
The goal is to offer assistance to customers in booking doctor appointments and receiving prescriptions online.
Undeniably, any business endeavor with Amazon’s backing will make waves in any industry. Nonetheless, this new venture could still be a tough sell.
For now, the company's strength is hoping to use the “Amazon effect” to sway members into signing up and using AmazonCare as well.
Surprisingly, Amazon finds itself facing an unlikely challenger in this pursuit: CVS (CVS).
Like Amazon, Berkshire, and JPMorgan, CVS has also recognized the potential of this market.
Unlike Amazon’s partners, CVS has decided to invest to become a frontrunner in terms of dominating the same sector and eventually taking advantage of this rapidly expanding total addressable market.
Instead of following the track of its fellow healthcare providers, such as UnitedHealth (UNH) and Anthem (ANTM), CVS has opted to change its angle of attack in the hopes of gaining more market share and reaping higher profits.
CVS is putting to good use its over 9,900 stores and distributions as means to establish better connections and rapport with customers.
After all, statistics indicate that approximately 80% of American citizens live less than 10 miles from a CVS branch.
This offers CVS a competitive advantage in terms of proximity to its customers. That is, it offers a unique convenience as it serves as the ever-present “corner stores” in practically every city.
Leveraging the locations, CVS has set up about 1,500 branches into “HealthHubs” by the end of 2021.
Basically, HealthHubs serve as emergency care clinics found inside CVS stores, providing customers with easy access to convenient and even cheaper after-hours health checkups.
Aside from this feature, a growing number of CVS stores are starting to get set up to be able to ship medicines or any other products ordered online, while other branches are being eyed as potential UPS drop-off points.
This setup will transform several branches into convenient “mini” distribution centers.
CVS has broken out of its “boring corner drugstore” image following its decision to target a more lucrative and massive healthcare sector.
It started the ball rolling when it acquired Aetna for $69 billion—a decision that so many investors disapproved of at that time.
Until recently, the market has largely ignored CVS because of the debt it incurred from the Aetna deal.
However, the tides had turned when investors finally realized that the drugstore giant had been efficiently and effectively executing a brilliant strategy all this time.
With Aetna under its wing, CVS has been granted access to a multitude of healthcare and managed care benefits availed by more than 23 million members. The sheer number of subscribers transformed the company into the third-biggest health insurer in the United States—next only to decades-long established providers Anthem and UnitedHealth.
Riding this momentum, CVS has been aggressive in revamping its image and expanding its services.
On top of its HealthHubs and Aetna advantages, CVS has recently paired up with Teladoc (TDOC) to leverage its virtual healthcare services to offer even more convenience to its customers.
This is another massive market since CVS already has roughly 35 million digital customers subscribed to its CVS app.
These users are all ordering products and other prescriptions from CVS. Integrating Teladoc’s services to the mix would be a surefire way of boosting its membership and adding a lucrative revenue stream.
Keep in mind that the global market for telehealth services is projected to expand somewhere between $300 billion to $700 billion by 2028—and that’s a conservative estimate.
CVS’ move to use Teladoc software is a positive indication of early technology adoption, positioning the drugstore chain at the forefront of a healthcare revolution.
Overall, CVS can only be described as a company striving to become a unique business that offers a range of products that no one else in the industry provides.
Although it’s improbable that it’ll sustain a monopoly in these services, CVS has been gradually transforming and growing into an almost unbeatable force in the industry by leveraging its strengths in an effective and logical method.
Moreover, it has evolved from a stodgy drugstore into an early tech adopter and a revolutionary business that can stand to challenge the likes of Amazon.
Mad Hedge Biotech and Healthcare Letter
January 6, 2022
Fiat Lux
Featured Trade:
(A WONDERFUL COMPANY AT A FAIR PRICE)
(ABBV), (BRK.B), (GILD), (AMGN), (PFE)
Another year, another set of challenges and opportunities for investors. How can you make sure that you’re starting the year right?
If you’re looking to dip your toe in the biotechnology and healthcare sector, it won’t hurt to look at what the experts, such as Warren Buffett, are doing.
With a 55-year track record of 21% in annual returns for its Berkshire (BRK.B) investors, I’d say the Oracle of Omaha definitely knows his craft.
One of his most famous pieces of advice is to buy “wonderful companies at fair prices,” and I think this pearl of wisdom perfectly fits Buffett’s favored high-yield aristocrat: AbbVie (ABBV).
More interestingly, AbbVie is currently undervalued primarily due to overblown fears of patent loss for its top-selling drug Humira in 2023 and another in 2026 for Imbruvica.
Admittedly, the anxiety of investors is not entirely unfounded.
After all, AbbVie must replenish roughly $20 billion worth of annual revenue from Humira alone in the following years as the drug loses its patents and faces declining sales.
Obviously, losing revenue from a primary growth driver could be a massive problem for any company.
It could even lead to stagnating numbers in the next couple of years — a situation that the likes of Gilead Sciences (GILD), despite its $90.58 market capitalization, have become all too familiar.
Nevertheless, AbbVie isn’t simply twiddling its thumbs, waiting for the inevitable patent loss to happen.
The company has been busy preparing for the Humira and Imbruvica patent cliffs. In fact, it has been working to diversify its portfolio steadily.
One of the steps it undertook was to leverage its cash flow and $238.35 billion market capitalization to boost its R&D.
This led to AbbVie holding one of the industry’s most robust pipelines to date.
Some of the most promising products in its portfolio are Humira successors Skyrizi and Rinvoq.
Together, these two treatments are estimated to generate more than $15 billion in sales by 2025.
And AbbVie isn’t done yet.
Following its wildly successful formula in Humira, AbbVie is also looking into expanding the indications for the drug’s successors.
So far, Rinvoq has been able to deliver on this promise. Recently, this Humira successor has received FDA approval as a second-line treatment for psoriatic arthritis.
With this second indication, more and more investors are starting to believe that AbbVie has yet another blockbuster in the making.
Let’s look at the market for Rinvoq’s latest indication.
In the US alone, there are approximately 1 million to 2 million patients of psoriatic arthritis. For simplicity’s sake, let’s just say that there are 1.5 million patients in the US.
Generally, the first-line of treatment typically fails for 20% of psoriatic arthritis patients. That leads to roughly 300,000 patients who would be in need of second-line treatment.
For the sake of accuracy, it’s vital to point out that there are already a number of psoriatic arthritis treatments available in the US, such as Otezla and Enbrel from Amgen (AMGN). Moreover, JAK inhibitors are still facing potential restrictions from the FDA, thanks to the issue with Pfizer (PFE).
So, we can conservatively say that AbbVie’s Rinvoq might only be able to capture an estimated 7% of the psoriatic arthritis market share.
This translates to approximately 21,000. The annual list price for Rinvoq is at $63,000.
Taking into consideration the negotiation tactics of health insurers for price adjustments, the drug might go down to an annual list price of $44,000 instead.
Based on these conservative assumptions, Rinvoq would rake in sales of over $900 million—falling only slightly below the $1 billion blockbuster mark.
While this only hits less than 2% of AbbVie’s anticipated $56.2 billion annual revenue, this trajectory is a massive success for Rinvoq.
Bear in mind that this Humira successor has been on track to generate over $1.5 billion in sales in 2021.
Hence, adding $900 million from its psoriatic arthritis indication would offer a whopping more than 60% jump in its annual revenue.
Considering its history and trajectory, AbbVie is expected to continue to outshine its rivals in the industry.
Actually, the growth consensus for this stock is at 4% to 6.5%.
While that does not sound very impressive, it’s important to remember that the long-term growth rate for the whole industry is only 4%.
That easily puts AbbVie ahead of at least 63% of its peers in terms of growth.
Aside from the fact that this blue-chip stock is an excellent way to enjoy a solid 4.3% yield these days, the company is proving to be effective in ensuring that it delivers market-beating returns in the long run.
Needless to say, AbbVie qualifies as a classic “wonderful company at a fair price.”
Global Market Comments
December 7, 2021
Fiat Lux
Featured Trade:
(GET READY TO TAKE A LEAP BACK INTO LEAPS),
(AAPL), (BRK/B)
(TESTIMONIAL)
Global Market Comments
September 24, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(SEPTEMBER 22 BIWEEKLY STRATEGY WEBINAR Q&A),
(TLT), (TBT), (V), (AXP), (MA), (FSLR), (SPWR), (USO), (UNG), (PFE), (JNJ), (MRNA), (MS), (JPM), (FCX), (X), (FDX), (GLD), (UPS), (SLV), (AAPL), (VIX), (VXX), (UAL), (DAL), (ALK), (BRK/B), (BABA), (BITCOIN), (ETHEREUM), (YELL)
