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November 3 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the November 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon

Valley.

Q: Have you considered buying Coinbase (COIN)?

A: Yes, we actually recommended it as part of our Bitcoin service in the early days back in July. It’s gone up 62% since then, right along with the Bitcoin move itself. So yeah, buy (COIN) on dips—and there will be dips because it will be at least triple the volatility of the main market. And be sure to dollar cost average.

Q: Do you think the breakout in small caps (IWM) will hold and, if so, should we focus on small-c growth?

A: Yes it will hold, but no I would focus on the big cap barbells, which will lead this rally for the next 6 months. And there you’re talking about the best of tech which is Google (GOOGL) and Microsoft (MSFT), and the best of financials which is Morgan Stanley (MS), Goldman Sachs (GS), and JP Morgan (JPM).

Q: Why not time the webinar for after the FOMC? What will be the market reaction?

A: Well, first of all, we already know what they’re going to say—it’s been heavily leaked in the last week. The market reaction will be initially a potential sharp down move that lasts a few minutes or hours, and then we start a grind up for the next two months. So that's why I wanted to be 80% leverage long going into this. Second, we have broadcast this webinar at the same time for the last 13 years and if we change the time we will lose half our customers.

Q: Why do you always do debit spreads?

A: They’re easier for beginners to understand. That’s the only reason. If you’re sophisticated enough to do a credit spread, the results will be the same but the liquidity will be slightly better, and you can also apply that credit to meet your margin requirements. We have a lot of basic beginners signing up for our service in addition to seasoned pros and I always encourage people to do what they're most comfortable with.

Q: Are you still comfortable with the Morgan Stanley (MS) and Berkshire Hathaway (BRKB) positions?

A: I expect both to go up 10-20% by March, so that’s pretty comfortable. By the way, if you have extremely deep in the money call spreads on Goldman Sachs or Morgan, consider taking profits on those and rolling your strikes up. If you have like the $360-$380 vertical bull call spread in Goldman Sachs, realize that gain and roll up to the $420-$430 March position in Goldman Sachs—that will give you another 100% profit by March. With the $360-$ 380s, you have like 97% of the profit already in the price, there’s no leverage left and no point in continuing, you can only go down.

Q: What should I do with my China position?

A: Sell all your positions in China, realize all the losses now so you can offset those with all the huge profits on all your other positions this year. There I’m talking about Ali Baba (BABA), Baidu (BIDU), and (JD), which have been absolutely hammered anywhere from down 50% to down 70%. And do it now before everyone else does it for the same reasons.

Q: Thoughts on Paypal (PYPL) lately?

A: The stock is out of favor as money is moving out of PayPal into newer fintech stocks. The move down is totally unjustified and screaming long term buy here, but for the short-term investors are going to raid the piggy bank, sell the PayPal, and go into the newer apps. This has been my biggest money-losing trade personally this year because PayPal long-term has a great story.

Q: Will earnings fall off next year due to prior year comparisons or supply chain?

A: No, if anything, earnings are accelerating because supply chain problems mean you can charge customers whatever you want and therefore increase margins, which is why the stock market is going up.

Q: Long term, what would your wrong strikes be?

A: I would say don’t get greedy. I’m doing the ProShares Ultra Technology (ROM) $120-$125 call spread for May expiration—the longest expiration they offer. That gives you about 100% return in 6 months; 100% is good enough for me because then I’ll do the same thing again in May and get another 100%. What’s 100% x 100%? It’s 400% because you’re reinvesting a much larger capital base the second time around. If a 100% profit in six months is not enough for you then you are in the wrong line of business.

Q: Do you think Ethereum (ETHE) has long-term potential upside?

A: Yes, is a 10X move enough? We just had a major new high in Ethereum because they made moves to limit the production of new Ethereum. Ethereum is the superior technology because its architecture avoids the code repeats that Bitcoin does and therefore only uses a third of the electricity to create. But Bitcoin is attracting the big institutional cash flows because they have an early mover advantage. By the way, how much electricity does crypto mining consume? The entire consumption of Washington state in a year, so it’s a big deal.

Q: What should I do about Crisper Therapeutics (CRSP)?

Crispr Therapeutics (CRSP) is my other disaster for this year because ignored the move up to $170—we’re now back into the $90’s again. So, I have 2023 LEAPS on that; I’m going to keep them, I’ve already suffered the damage, but the next time it goes up to $170 I’m selling! Once burned, twice forewarned. And part of the problem with the whole biotech sector is we are now in the back end of the pandemic and anything healthcare-related will get hit, except for the vaccine stocks like Pfizer (PFE) which are still making billions and billions of dollars.

Q: I bought Baidu (BIDU) and Alibaba (BABA) years ago at a much lower price and I'm still up quite a lot; what should I do?

A: If you have the big cushion, I would keep them and look for #1 recovery in the Chinese economy next year and #2 for the government to back off from their idiotic anticapitalism strategy because it’s costing them so much money.

Q: Is Robinhood (HOOD) a good LEAP candidate?

A: Only on a really big dip, and then you want to go out two years. With a stock that’s volatile as hell like Robinhood and could drop by half on no notice, so you only buy the big dips. It’s not a slowly grinding upward stock like Goldman Sachs (GS) and Morgan Stanley (MS) where you can add LEAPS now because you know it’s going to keep grinding up.

Q: How can Morgan Stanley go up when the chief strategist is bearish?

A: Their customers aren't listening to their chief strategist—they’re buying. And the volume of the stock, which is where Morgan Stanley makes money, is going through the roof, they’re making record profits there. And I've got Morgan Stanley stock coming out of my ears in LEAPS and so forth.

Q: What are 5 stocks you would buy right now?

A: Easy: Google (GOOGL), Microsoft (MSFT), Morgan Stanley (MS), Goldman Sachs (GS), and JP Morgan (JPM). Buy whatever is down that day. They’re all going up.

Q: Too late to buy Tesla (TSLA) calls?

A: Yes, it is. Tesla has a long history of 40% corrections; we had one that ended in May, and then it doubled (and then some). So yeah, too late to buy the calls here. Go back and read my research from May which said buy the stock and you get a car for free—and that worked again, except this time, you can get three free Tesla’s. A lot of subscribers have sent me pictures of their Teslas they got for free on my advice; I’m probably the largest salesman for Tesla for the last 10 years and all I got out of it was a free Powerwall (the red one)..

Q: How much higher do you think semiconductor companies will go?

A: Higher but it’s impossible to quantify. You’re getting very speculative short-term buying in there. So, I think it continues to the rest of the year, but with chips, you never know.

Q: Would you be buying Crispr Therapeutics (CRSP) at these levels?

A: Yes, but I would either just buy the stock and not be dependent on the calendar or buy a 2 ½ year LEAP and get an easy double on that.

Q: What about the currencies?

A: I don’t see much action in the currencies as long as the US is raising interest rates. I think the Euro (FXE), the Aussie (FXA), and the British pound (FXB) will be dead for the time being. Nobody wants to sell them but nobody wants to buy them either when you’re looking at a potential short term rise in the dollar from rising interest rates.

Q: What stable coins are the right answer for cryptocurrency?

A: The US dollar stable coin, but for price appreciation, you’re really looking at Bitcoin and Ethereum. Stable coins are stable, they don’t move; you want stuff that’s going to go up 5, 10, or 20 times over the next 10 years like Bitcoin (BITO) and Ethereum (ETHE). That is my crypto answer.

Q: What should I do about the iShares 20 Plus Year Treasury Bond ETF (TLT) $135-$140 put spread expiring in January?

A: If we get another run down to the $141 level that we saw last month, I would come out of all short treasury positions because you’re starting to run into time decay problems with the January expirations. And in case we remain in a range for some reason, I would be taking profits at the bottom end of the range. It was my mistake that I didn’t grab those profits when we hit $141 last time. So don’t let profits grow hair on them, they tend to disappear. We lost six months on this trade due to the delta virus and the mini-recession it brought us.

Q: Will there be accelerated tech selling in December because of the new tax rates?

A: What new tax rates? There has been no new tax bill passed and even if there were, I think people wouldn’t tax sell this year because the profits are enormous. They would rather do any selling in January at higher prices and then defer payment of those taxes by 18 months. I don’t think there will be any tax issues this year at all.

Q: What’s your return on solar power investments?

A: My break-even was four years because our local utility, PG&E, went bankrupt and the only way they're getting out of bankruptcy is raising electricity prices by 10% a year. It turns out that as a result of global warming, the panels have operated at a higher efficiency as well, so we’re getting a lot more power output than originally expected. Now I get free electricity for the remaining 20-year life of the panels which is great because with two Tesla’s and all-electric heating and air conditioning I use a lot of juice. My monthly bill is a sight to behold. I also power the 20 surrounding houses and for that PG&E pays me $1,800 a month.

Q: Do you see China (FXI) invading Taiwan as a potential threat to the market?

A: China will never invade Taiwan. They own many of the companies they're already in, they de facto control Taiwan government from a distance; they would not risk the international consequences of an actual invasion. And we have the US seventh fleet there to stop exactly that. So, they can make all the noise they want but nothing will come of it. I’ve been watching this for 50 years and nothing has ever happened.

Q: Would you buy ProShares Ultrashort 20+ Treasury ETF (TBT) here?

A: Absolutely, with both hands, all I can get.

Q: Can you recommend any water ETF opportunity?

A: Yes there is one I wrote a piece on last month. It’s the Claymore S&P Global Water Index ETF (CGW).

Q: How long can you hold the (TBT) before time decay hurts?

A: It doesn’t hurt, the cost of the TBT is two times the 10-year rate. So that would be 3%, plus 1% a year for management fees, and that’s your slippage on the TBT in a year right now—it’s 4%. Remember if you’re short the bond market, you have to pay the coupon when you’re short. Double the bond market and you have to pay double the coupon.

Q: Is the ProShares Bitcoin Strategy ETF (BITO) a good alternative to buying bitcoin?

A: I would say yes because I’ve been watching the tracking on that very carefully and it’s pretty damn close. Plus there’s a lot of liquidity there, so yeah, buy the (BITO) ETF on dips and dollar cost average.

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

November 4, 2021

Biotech Letter

Mad Hedge Biotech and Healthcare Letter
November 4, 2021
Fiat Lux

Featured Trade:

(A LONG-TERM STOCK FOR MONOPOLY AFICIONADOS)
(VRTX), (ABBV), (GLPG), (CRSP), (MRNA)

A Long-Term Stock for Monopoly Aficionados

Biotech Letter

Investors have a myriad of biotechnology stocks to choose from. However, most of these options are still in the developmental stage for their first blockbuster product that can hit at least $1 billion in sales annually.

Then, there are biotechnology companies like Vertex Pharmaceuticals (VRTX).

Vertex has a storied history of launching blockbuster names in the market for rare and hard-to-treat diseases.

Among the products in its portfolio, what stands out is Vertex’s work on cystic fibrosis (CF) treatments.

CF is an incurable genetic condition that can damage the lungs and the pancreas. So far, Vertex has four CF treatments available and holds 97% of the market share worldwide, valued at roughly $6.36 billion in 2020.

The company’s latest CF treatment, Trikafta, is already projected to generate roughly $5 billion in sales after only less than 2 years since its release.

Thus far, Vertex has reported an annualized sales run rate of $7.2 billion in its second-quarter earnings report for 2021. This number is expected to climb higher as the company increases its penetration rate in the CF market in the coming years.

Given its history and trajectory, Vertex is projected to generate $10 billion to $10.5 billion in sales for its CF franchise by 2024.

Considering the lucrative CF market’s potential, it no longer comes as a surprise that more and more competitors are entering the space. However, none can even be considered as a close second to Vertex.

AbbVie (ABBV) partnered with Galapagos (GLPG) to come up with a combination CF treatment a few years back, only to get stalled in Phase 2 trials.

It remains to be seen if AbbVie, which eventually acquired the entire CF line from Galapagos, will be able to develop a drug worthy of challenging Vertex’s dominance in the arena.

The driving force behind Vertex’s success is its operating model, which works overtime to exhaust all resources to protect its CF revenue.

Throughout the years, the company has been consistent in its efforts to keep developing innovative CF treatments and expanding its coverage to include more mutations.

In turn, these new drugs all but guarantee that Vertex enjoys a stable and secure cash flow for years.

For example, the IP protection for Trikafta will reach up to the late 2030s. If innovations on the drug are discovered, then this can very well extend into the 2040s.

Despite the overwhelming success of its CF franchise, Vertex knows not to rest all its eggs in one basket.

The company has been working on expanding its expertise. A telltale sign of this decision is its burgeoning partnership with CRISPR Therapeutics (CRSP).

So far, the two have created a promising gene-editing treatment, CTX001, which targets rare blood diseases and sickle cell disease.

Looking at their timeline, the therapy could be ready for regulatory review by 2023.

Other than CTX001, Vertex and CRISPR have been developing several mRNA-based treatments currently under Phase 2 trials.

Among them, the therapies generating the most excitement are the ones targeting pain and rare kidney diseases.

For acute pain treatments alone, the US market is already worth $4 billion. To this day, the non-opioid medication market remains an extremely attractive space.

Needless to say, a product offering an approved safety profile and high efficacy could easily grab the multi-billion sales potential.

Meanwhile, riding on the momentum of its mRNA programs, Vertex also partnered with Moderna (MRNA) to develop more therapies for rare and hard-to-treat diseases.

While its collaboration with Moderna has yet to reveal its prime candidates, there’s a strong possibility that one of them would be a gene therapy for CF.

CTX001’s addressable market is highly lucrative and still exclusive to hyper-specialized companies.

This top-priced orphan gene-editing treatment could rake in annual sales within the range of $3 billion and $4.5 billion. This estimate covers roughly 3,000 to 4,500 patients every year, with average individual spending of $1 million.

Although this price might sound too steep, keep in mind that CTX001 treats lifelong incurable diseases. Typically, patients spend an average of $200, 000 annually.

If successful, this treatment from Vertex and CRISPR could provide a one-and-done answer to the suffering of these patients, justifying the steep price tag.

Overall, I see Vertex as a stock selling a pretty reasonable price.

Considering its relatively young pipeline, though, this should be seen as a long-term investment—one that has been tested and proven to be successful at targeting multi-billion-dollar markets.

September 9, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
September 9, 2021
Fiat Lux

FEATURED TRADE:

(A STOCK FOR BARGAIN HUNTERS)
(SRPT), (MRNA), (BNTX), (FGEN), (ACAD), (RARE), (BLUE), (CRSP), (PFE)

A Stock for Bargain Hunters

Biotech Letter

Biotechnology stocks that have fallen by over half since 2021 started are strewn around in the market.

While the share prices of COVID-19 stocks, such as Moderna (MRNA) and BioNTech (BNTX), have skyrocketed, the others in the sector are not as fortunate.

The biotechnology segment has been filled with relative horror stories from previous favorites like FibroGen (FGEN), Acadia Pharmaceuticals (ACAD), and Ultragenyx Pharmaceutical (RARE).

Among the companies hit with disappointing news, the gene therapy sector, which has stocks like bluebird bio (BLUE) and CRISPR Therapeutics (CRSP), appears to be having a tougher time than most.

So, where does this situation leave investors? Where should we look for value?

One tactic that would help value investors take advantage of this abysmal situation is studying Wall Street analysts' moves.

Look at target prices they set for the stocks they cover and then choose the companies trading the farthest below the expected price points.

Among the biotechnology stocks struggling these days, one of the names that emerged as a truly promising investment is Sarepta Therapeutics (SRPT).

To say that Sarepta has been experiencing a disappointing year is an understatement. Shares of this company have gone on a 57% heart-stopping plunge since 2021 started.

In fact, this biotech’s nosedive is the third-worst in the midcap or larger stock sector based on the two key exchange-traded funds: iShares Biotechnology ETF (IBB) and SPDR S&P Biotech ETF (XBI).

Despite Sarepta’s abysmal performance, Wall Street still labels the stock a buy.

Sarepta’s decline started in early January when the trial results for its gene therapy for Duchenne muscular dystrophy (DMD) failed to impress investors.

However, the subsequent trial for the same gene therapy, dubbed as SRP-9001, is anticipated to yield better results.

Although the results are expected to be released by late 2022 or early 2023, holding the stock for now is estimated to deliver remarkable profits for patient investors.

At this point, Sarepta stock is trading at roughly $80 per share.

However, experts predict that the next results for SRP-9001 would push the shares to climb to over $200.

DMD, which is a rare degenerative condition characterized by gradual weakening of the muscles, affects about 16,840 people in the US.

So far, the US FDA has only approved a handful of treatments for DMD—three of which are RNA-based drugs developed by Sarepta.

Evidently, the company has a firm grasp of the condition and a proven track record of launching and marketing DMD-centered products.

More importantly, this makes Sarepta a dominant—if not the most dominant—force in the DMD market.

What makes their newest treatment, SRP-9001, different is that it works on DNA. Despite the extended timeline, Sarepta’s candidate remains the frontrunner in this endeavor.

Its closest threat is PF-06939926, an investigational drug from Pfizer (PFE) that uses the same technology as SRP-9001.

At the very least, this competitor is two years away from producing any tangible result.

By the time Pfizer reaches Phase 3, Sarepta’s SRP-9001 has already generated roughly $1 billion in sales.

Apart from the three approved drugs, Sarepta still has 34 drug development programs focused on two niches: RNA and AVV gene therapies. Among them, 7 are already in the clinical stage, including SRP-9001.

If successful, the company will reach $1 billion in revenues by 2023.

Another reason that makes Sarepta an attractive opportunity is its notably intact cash flow backbone—an achievement that’s worth pointing out considering its underwhelming SRP-9001 results.

The company also has an impressive history.

Sarepta has blossomed from its humble beginnings working as a contractor for the Department of Defense on the Ebola virus. Since then, it has developed its pipeline through acquisitions and launching effective treatments for rare diseases.

While Sarepta’s treatments are effective, they cannot cure DMD. They can only slow its progression.

This means continuous and life-long use among patients. For context, one treatment costs an average of $300,000 per patient annually.

Although it lost over 50% of its value, Sarepta still has enough capacity to rebound soon.

The factors that would help the company achieve this include the strong lineup of products generating solid and predictable revenues as well as its promising pipeline.

More importantly, its struggles with SRP-9001 don’t seem enough for the company to scrap the project altogether.

If anything, it proved that Sarepta can explore more potent treatments for DMD by looking into RNA technology—a path that the likes of Moderna and BioNTech have already found success in.

Overall, I think Sarepta still has a lot left in the tank. It operates in one of the most exciting sectors.

It’s worth bearing in mind that the biotech sector is ripe with innovation from companies with the ability to conjure up life-changing treatments—a value perceived as a crucial hallmark for massive gains.

Needless to say, Sarepta’s achievements in the DMD sector and its growth trajectory make it a shoo-in in this category.

sarepta

August 24, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
August 24, 2021
Fiat Lux

FEATURED TRADE:

A GENE EDITING PURE PLAY UP FOR GRABS
(MRNA), (EDIT), (CRSP), (NTLA), (VRTX), (REGN), (BMY),
(BLUE), (NVO), (GRTS), (INBX), (BEAM), (VERV), (SGMO)

A Gene Editing Pure Play Up for Grabs

Biotech Letter

Moderna (MRNA) is faced with a dilemma. And it’s a pretty good problem to face at this point.

The biotechnology company has a flourishing cash stockpile courtesy of the increasing demand for its COVID-19 vaccine, and it needs to find something to do with its overflowing cash.

As of the end of the second quarter, the company has already reported a cash position of over $12 billion—a figure that offers Moderna the flexibility to go on a bit of a shopping spree.

So far, Moderna has set its sights on expanding its internal R&D programs on top of the $1 billion share repurchase program approved by its board of directors.

However, the most exciting news is the company’s plans to potentially make acquisitions soon.

This is where Editas Medicine (EDIT) enters the picture.

Moderna has not been shy in declaring that it wants to add gene editing therapies to its growing pipeline along with nucleic acid technologies and mRNA.

While Moderna did not specifically mention Editas in its plans, the smaller biotechnology company looks to be the most promising candidate for acquisition, especially if the COVID-19 vaccine leader plans to jump right into the action in the gene editing space.

After all, there are only three companies in this segment with therapies under clinical testing: CRISPR Therapeutics (CRSP), Intellia Therapeutics (NTLA), and Editas.

CRISPR Therapeutics is practically joined at the hip with Vertex Pharmaceuticals (VRTX). Meanwhile, Intellia has a strong ongoing partnership with Regeneron (REGN).

That leaves Editas, which currently has no partner for its lead program, making it a prime buyout candidate for Moderna.

Editas is also the cheapest by far among all three clinical-stage biotech with $4.12 billion in market capitalization.

In comparison, CRISPR Therapeutics has a market cap of $8.93 billion, while Intellia has a market cap of $10.97 billion.

Moderna could find Editas’ lower market capitalization as an add-on, as it would allow the bigger biotech to not spend all its cash on the acquisition.

Moreover, Editas has another advantage.

While both CRISPR Therapeutics and Intellia only focus on CRISPR-Cas9, which is a way to locate and bind targeted genes, Editas has developed another option platform to do that.

Its alternative option, called Cas12, could boost the company’s capacity to develop gene editing treatments.

Simply put, its rivals only have one weapon in their arsenal, while Editas has come up with a dual-option CRISPR platform to double its chances of succeeding in gene therapy development.

If, for instance, Moderna does not acquire Editas, there are still a lot of options available for the bigger company.

One possibility is with Juno Therapeutics, which is part of Bristol-Myers Squibb (BMY), as the company is already collaborating with Editas on the development of genetically modified T-cells to come up with a powerful cancer therapy.

Meanwhile, if Editas’ pipeline and portfolio do not quite cut it with Moderna, another potential buyout candidate for this biotechnology giant is bluebird bio (BLUE).

While it’s not as advanced as CRISPR Therapeutics, Intellia, and Editas, bluebird bio has ongoing work with the likes of Bristol-Myers Squibb, Regeneron, Novo Nordisk (NVO), Gritstone Oncology (GRTS), and Inhibrx (INBX).

Other candidates that Moderna could take into consideration include Beam Therapeutics (BEAM), Verve Therapeutics (VERV), and Sangamo Therapeutics (SGMO).

Regardless of Moderna’s future decisions, its announcements that it plans to expand on the gene editing space could potentially spur other huge biopharmaceutical companies to explore their own business development agreements with up-and-coming biotechnology firms.

In fact, even if Moderna ends up not calling, there’s a big possibility that Editas could easily find others who will be interested in acquiring this pure play gene editing frontrunner.

editas

August 19, 2021

Diary, Newsletter, Summary

Global Market Comments
August 19, 2021
Fiat Lux

Featured Trade:

(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CRSP), (FB), (PYPL), (GOOGL), (AAPL), (AMZN), (SQ), (JPM), (BAC), (MS), (GS), (BABA), (EEM), (FXA), (FCX), (GLD), (SLV), (TLT)

My Newly Updated Long-Term Portfolio

Diary, Newsletter, Research

I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on February 2, 2021. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.

For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing and you don’t want to remain glued to a screen all day, these are the investments you can make. Then don’t touch them until you start drawing down your retirement funds at age 72.

For some of you, that is not for another 50 years. For others, it was yesterday.

There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.

Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red on the spreadsheet.

To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, the click on the “Long Term Portfolio” button, then “Download.”

Changes

Biotech

Pfizer (PFE) has nearly doubled in six months, while Crisper Therapeutics (CRSP) has almost halved. Since the pandemic, which Pfizer made fortunes on, is peaking and we are still at the dawn of the CRISPR gene editing revolution, the natural switch here is to take profits in (PFE) and double up on (CRSP).

Technology

I am maintaining my 20% in technology which are all close to all-time highs. I believe that Apple (AAPL), (Amazon (AMZN), Google (GOOGL), and Square (SQ) have a double or more over the next three years, so I am keeping all of them.

Banks

I am also keeping my weighting in banks at 20%. Interest rates are imminently going to rise, with a Fed taper just over the horizon, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, keep Morgan Stanley (MS), Goldman Sachs (GS), JP Morgan (JPM), and Bank of America, which will profit enormously from a continuing bull market in stocks. They are also a key part of my” barbell” portfolio.

International

China has been a disaster this year, with Alibaba (BABA) dropping by half, while emerging markets (EEM) have gone nowhere. I am keeping my positions because it makes no sense to sell down here. There is a limit to how much the Middle Kingdom will destroy its technology crown jewels. Emerging markets are a call option on a global synchronized recovery which will take place next year.

Bonds

Along the same vein, I am keeping 10% of my portfolio in a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis so go read Global Trading Dispatch. Eventually, massive over-issuance of bonds by the US government will destroy this entire sector.

Foreign Exchange

I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). Eventually, the US dollar will become toast and could be your next decade-long trade. The Aussie will be the best performing currency against the US dollar.

Australia will be a leveraged beneficiary of the synchronized global economic recovery through strong commodity prices which have already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.

Precious Metals

As for precious metals, I’m keeping my 0% holding in gold (GLD). From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.

I am keeping a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles. The arithmetic is simple. EV production will rocket from 700,000 in 2020 to 25 million in 2030 and each one needs two ounces of silver.

Energy

As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.

The Economy

My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade after this year’s superheated 7% performance.

When we come out the other side of this, 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 700% or more from 35,000 to 240,000 in the coming decade. The American coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.

You won’t believe what’s coming your way!

I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again. If I forget, please remind me.

Stay healthy.

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