(CRSP) Archives

My Newly Updated Long-Term Portfolio

I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on July 21, 2020. 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, these are the investments you can make, and then not touch 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 below.

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”, then click on the “Long Term Portfolio” button.

Changes

I am cutting back my weighting in biotech from 25% to 20% because Celgene (CELG) was taken over by Bristol Myers (BMY) at a 110% profit compared to our original cost. We also earned a spectacular 145% gain on Crisper Therapeutics (CRSP). I’m keeping it because I believe it has more to run.

My 30% weighting in technology also gets pared back to 20% because virtually all of my names have doubled or more. These have been in a sideways correction for the past six months but are still an important part of any barbell portfolio. So, take out Facebook (FB) and PayPal (PYPL) and keep the rest.

I am increasing my weighting in banks from 10% to 20%. Interest rates are finally starting to rise, 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, add in Morgan Stanley (MS) and Goldman Sachs (GS), which will profit enormously from a continuing bull market in stocks.

Along the same vein, I am committing 10% of my portfolio to 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.

I am keeping my 10% international exposure in Chinese Internet giant Alibaba (BABA) and the iShares MSCI Emerging Market ETF (EEM). The Biden administration will most likely dial back the recent vociferous anti-Chinese stance, setting these names on fire.

I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). The Aussie has been the best performing currency against the US dollar and that should continue.

Australia will be a leveraged beneficiary of the synchronized global economic recovery, both through strong commodity prices and gold which has 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.

As for precious metals, I’m baling on my 10% holding in gold (GLD), which delivered a nice 20% gain in 2020. From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.

Yes, in this liquidity-driven global bull market, a 20% return is just not enough to keep my interest. Instead, I add 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.

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.

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.

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 400% or more in the coming decade. The America 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.

Stay healthy.

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

January 19, 2021

Diary, Newsletter, Summary

Global Market Comments
January 19, 2021
Fiat Lux

Featured Trade:

(WHY THERE’S ANOTHER DOUBLE IN CRISPR THERAPEUTICS)
(CRSP), (BLUE), (EDIT), (NVS), (GILD)

Why There’s Another Double in CRISPR Therapeutics

Diary, Newsletter

Occasionally, I discover a piece of research from one of my other Mad Hedge publications that is so important that I send it out to everyone immediately.

Recently, a piece from the Mad Hedge Biotech & Healthcare Letter is one of the instances. It makes the case and provides the numbers as to why Biotech & Healthcare will be one of two dominant sectors to follow for the next decade. It also is a key plank in my argument for a return of a new Golden Age and a second “Roaring Twenties.”

Here it is.

Biotech investors, take note: 2019 was a great year for the industry, but the best is yet to come.

In the final three months of 2019, the biotech sector grew by 32% -- notably outpacing the pharmaceutical industry, which only recorded a 9.5% gain.

However, the biotechnology sector is estimated to grow substantially in 2021 and reach over $775 billion in revenue by 2024 as more and more treatments for previously incurable diseases get discovered.

Looking at all the progress in the biotechnology space, this could even be the year we’d finally discover the cure to many life-threatening and debilitating conditions like cancer and Alzheimer’s disease.

With all these technological advancements, two revolutionary tools have been overhauling the entire biotechnology and healthcare industry from the ground up: precision medicine and CRISPR. Actually, the impressive growth of the biotechnology industry has been largely attributed to the excitement generated by the gene-editing sector.

While the majority of companies concentrating on the human genome are still in the research phase, the growth of this industry is undeniable.

Here’s tangible proof.

Just 20 years ago, reading all the DNA of a single person cost approximately $3 billion. Now, this price is down to only $1,000. In the future, this number will go even lower at $100. There are now gigantic factories in China sequencing DNA for companies like Ancestry.com and 23andMe.

This is just one example of how the biotechnology industry has grown by leaps and bounds. It’s also the reason behind the surge of CRISPR shares.

In effect, the specialists in this niche, including Crispr Therapeutics (CRSP), Bluebird Bio (BLUE), and Editas Medicine (EDIT), are amplifying their efforts.

Among the specialist companies, CRISPR Therapeutics is considered as one of the frontrunners -- if not the top stock. This is because compared to its rivals, which are still in preclinical phases of development, CRISPR Therapeutics already has two drugs going through Phase 1 trials: CTX001 and CTX110.

The promising results of the company’s research resulted in a 113% rise in shares last year, with the bulk of the surge starting in October. In fact, CRISPR Therapeutics’ performance had been so impressive that its market cap reached $3.4 billion.

CTX001 is created to target patients suffering from genetic blood disorders, specifically sickle-cell disease and transfusion-dependent beta-thalassemia.

Meanwhile, CTX110 is a CAR-T treatment. The process involves the extraction of immune cells from the patient. These are then retrained and later re-introduced to the human body.

CRISPR Therapeutics’ CAR-T treatment is anticipated to be offered at a cheaper price compared to the other CAR-T therapies.

Both Novartis (NVS) and Gilead Sciences (GILD) are pursuing the same treatment. However, the cost of the therapy from the latter two is expected to reach as much as $475,000 for every patient annually.

Apart from CTX001 and CTX110, CRISPR Therapeutics has two more immunology candidates, currently dubbed CTX120 and CTX130.

If both phase trials succeed, these will bring massive home runs for CRISPR Therapeutics, especially since the cancer immunology market is expected to reach $127 billion by 2026. Over the next 10 years, this niche is estimated to reach $25 trillion in sales.

Among the gene-editing treatments under development today, CRISPR is projected to grow tenfold in the number of applications and potentially curing 89% of disease-causing genetic variations by 2026.

Taking this pace into consideration, the valuation for this market is expected to grow from $551 million in 2017 to reach roughly $3.1 billion by 2023 and $6 billion by 2025.

Meanwhile, precision medicine as a whole is estimated to show a significant jump from $48.6 billion in 2018 to $84.6 billion by 2024. In 2028, this market is expected to rake in $216 billion.

Hence, further success with CTX001 and CTX110 along with additional treatments in the drug pipeline would all but guarantee that Crispr Therapeutics could beat the market again in 2021.

To subscribe to the Mad Hedge Biotech & Healthcare Letter for a bargain $1,500 a year, please click here.

December 31, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
December 31, 2020
Fiat Lux

FEATURED TRADE:

(MONOPOLY IS THE NAME OF THE GAME)
(VRTX), (CRSP), (ILMN), (BLUE)

Monopoly is the Name of the Game

Biotech Letter

No other industry has ever been watched as closely in 2020 as the healthcare and biotechnology sector, with drug developers placed under pressure to deliver COVID-19 treatments and vaccines within an unprecedented timeframe.

Despite all the attention and fanfare, the overall performance of the sector’s stocks remained underwhelming. However, 2021 promises to bring in better returns and bring back the industry to pre-pandemic performance.

For perspective, the S&P 500 Health Care Sector Index rose by 8% through mid-December compared to the 13% increase of the S&P 500.

The financial and health crises affected the performance of the subgroups in different ways. For example, the diagnostics subgroup jumped by 31% while the demand for clinical labs was up 18%.

Meanwhile, biotechnology stocks rose by 13%. In comparison, traditional pharmaceutical stocks and even hospitals only managed to record a measly 3% increase.

As for retail pharmacies, this subgroup sank by 18%.

Despite the underperformance of the industry, there are still companies that stood out this year and are poised to soar come 2021.

One of them is Vertex Pharmaceuticals (VRTX).

Vertex is possibly one of the most undervalued large-cap biotechnology stocks in the market today.

This company, which has $61.7 billion in market capitalization, has been continuously growing and transforming into the most dominant player in the cystic fibrosis (CF) space.

Truth be told, Vertex holds the monopoly on the approved drugs used to treat CF, namely, Trikafta, Kalydeco, Orkambi, and Symdeko.

With the recent approvals the company received, this momentum is expected to grow.

Vertex just won additional EU approval for its CF drug Kaftrio. This indicates another cash cow for the company as the drug, also known as Trikafta, already transformed itself into a megablockbuster in the US market.

Apart from its efforts to continuously dominate the CF sector, Vertex also has several moonshots that can eventually turn into major catalysts.

Among those is its partnership with CRISPR Therapeutics (CRSP).

The two biotechnology companies are developing a gene therapy, called CTX001, which can cure rare genetic blood diseases. Specifically, CTX001 is designed to cure beta-thalassemia and sickle cell disease.

Apart from its partnership with CRISPR Therapeutics, Vertex also acquired Semma Therapeutics in 2019 with the goal of coming up with a cure for Type 1 diabetes.

If things go as planned, a gene therapy for this genetic disease will advance to clinical testing by early 2021.

Another under the radar biotechnology stock set to soar in 2020 is Illumina (ILMN).

Illumina, with a market capitalization of $54.10 billion, is the leader in the genomics market.

Since the pandemic broke, the biotechnology sector’s leading manufacturer of hardware for genetic sequencing has been supplying testing kits for hospitals across the US.

Apart from Illumina, other companies in the genomics sectors include Vertex’s partner, CRISPR Therapeutics, which has a market capitalization of $4.48 billion, and bluebird bio (BLUE) with $4.03 billion.

In a nutshell, genomics refers to the analysis of the genetic information found in human cells. Companies working on this field aim to not only develop more accurate and efficient disease testing processes but also come up with more personalized treatments for a range of diseases including cancer.

Looking at Illumina’s profile and even taking into consideration the effects of the recession along with the competitive pressure to be expected soon enough, this biotechnology company is still set to deliver solid returns over the next 3 to 5 years.

Ever since its establishment, Illumina has been hailed as the leader in the gene-sequencing segment.

To date, the company holds almost 90% of the market.

Apart from that, the company has been an active participant in the move to lower the costs of gene-sequencing processes. In effect, Illumina managed to expand its customer reach.

Illumina’s participation in the 13-year Human Genome Project, which started at $3 billion per genome submitted for sequencing in 2003.

Nowadays, the cost has dropped to $800 for each genome, with Illumina eyeing to drop the price to $100 via its NovaSeq platform.

Based on the company’s performance in the past years, Illumina’s revenue is expected to climb higher annually in the next 5 years.

By 2021, the company is projected to report a 21.16% year over year growth in annual revenue to reach 4.23 billion.

Meanwhile, its 2022 annual revenue is estimated to hit $4.79 billion, showing off a 13.37% increase.

Despite the attention it has been receiving, Illumina remains a bargain buy.

This is because the company’s gene-sequencing projects have been moving along at a decent pace even before the COVID-19 crisis hit.

Given the company’s growth and future plans, Illumina is a no-brainer long-term investment. However, investors looking for quick returns might find the company’s pace a bit sluggish for their liking.

Among the biotechnology companies out there today, I think Vertex and Illumina stand out the most because both hold a monopoly in their respective fields.

Sure, there would be competition eventually but the combination of all their strengths and the strong potential of their pipeline put them in a league of their own.

Buy Before the Rally

Biotech Letter

Over the past month, COVID-19 vaccine developers like Pfizer (PFE), Moderna (MRNA), and AstraZeneca (AZN) have offered the world a bit of good news.

For the first time since the pandemic started, we have seen a light at the end of this crisis’ tunnel.

This time around next year, the economy should be close to its normal state.

Before we see the struggling financial market completely recover, you might want to consider buying shares of an under-the-radar COVID-19 vaccine developer that could be on its way to performing better in 2021: Merck (MRK).

Major healthcare and drug stocks rarely get this cheap relative to the S&P 500 in the last 15 years, Merck is a prime example of this once-in-a-blue-moon phenomenon.

Although it was slow to start and report on updates in its COVID-19 vaccine, Merck has been making strides in emerging as a major competitor against Gilead Sciences (GILD) when it comes to developing a COVID-19 drug.

To date, Merck landed a $356 million supply agreement with the US government to deliver 60,000 to 100,000 doses of its oral antiviral drug for COVID-19.

While vaccines are definitely valuable in helping prevent the spread of the virus, there is another important market that healthcare companies are targeting: the hospitalized COVID-19 patients.

With this recent announcement from Merck, it’s obvious that the company has its hands on both the vaccine market and the hospitalized patient group.

In terms of vaccine development, Merck may be behind Pfizer and Moderna but this New Jersey-based titan has one of the leading vaccine franchises in the industry.

The frontrunner in Merck’s vaccine franchise is its cervical cancer vaccine Gardasil, which is estimated to be worth half of its current market value of approximately $200 billion.

The company is also anticipated to record high single-digit earnings growth in the years to come, thanks to the 2021 spinoff of its Organon unit.

Following Pfizer and Mylan footsteps in the newly formed Viatris (VTRS), Organon will be used to unload the slower-growth products from Merck’s current portfolio.

With the purging of its product portfolio of the low-performing treatments comes the expansion of Merck’s R&D courtesy of its $2.75 acquisition of biotechnology startup VelosBio.

Thanks to this deal, Merck will gain access to VelosBio’s prized VLS-101, which is basically a miniature chemotherapy grenade that would disintegrate cancer cells.

This collaboration could turn out into another moneymaker for the company.

Merck is no stranger when it comes to picking winning oncology investments.

The last massive deal it completed was a $1.16 billion deal with AstraZeneca in 2017, with the two companies agreeing to milestone payments of up to $6.15 billion.

This partnership brought to life one of the highest-selling cancer drugs in the world today, Lynparza.

To date, Lynparza is not only used for prostate cancer but also gained expanded approval for breast and pancreatic cancer.

In the third quarter of 2020 alone, even with the pandemic still wreaking havoc everywhere, Merck’s share of profits for Lynparza jumped 59% year over year to reach $196 million—a number that is projected to continue to climb as the drug awaits more approvals from the EU.

Merck offers the most attractive upside case among the healthcare stocks today, with the company projected to report consistent revenue growth until at least 2025.

Moreover, this pharmaceutical company has a strong balance sheet, as seen in its recent acquisitions and potential partnerships still underway.

So far, Merck’s shares are down 12% this year to only $80, with the stock trading 13 times its projected earnings in 2021 at $6.29 per share.

This pharmaceutical giant has a stable dividend yield of 3.3%, which is double the S&P 500.

As the economy continues with its recovery, you can expect Merck to get stronger and the stock should rally sooner rather than later.

Hence, buying it before it completely bounces back could allow you to cash in some spectacular returns.

December 24, 2020

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
December 24, 2020
Fiat Lux

FEATURED TRADE:

(HOW VERTEX IS CURING THE INCURABLE)
(VRTX), (PTI), (GLPG), (CRSP)

How Vertex is Curing the Uncurable

Biotech Letter

Erratic. Unpredictable. Volatile. Take your pick of the descriptions used when it comes to biotechnology stocks. Each of these adjectives can be a fitting descriptor to the industry most of the time.

However, not all biotechnology companies fall under that category. Some are reasonably stable, offering steady and increasing profits.

Vertex Pharmaceuticals (VRTX) is one of those biotechnology stocks that you can simply buy and hold for over a decade without losing any sleep.

One of the key factors in Vertex’s success is its monopoly on the cystic fibrosis (CF) market.

CF is a rare and life-threatening genetic disease that affects a patient’s digestive system and lungs. To date, there is no cure for this condition that overshadows the lives of 68,000 individuals in the US and the EU. However, there are treatment options for it.

Vertex developed the first-ever FDA-approved drug, Kalydeco, for the condition. As expected, it gained the much-coveted head start that led to its dominance today.

Its closest rivals, Proteostasis Therapeutics (PTI) and Galapagos NV (GLPG), are years away from ever catching up to the Massachusetts-based biotechnology stalwart. Neither has an approved drug as of today.

Since the approval of Kalydeco in 2012, Vertex stock has been enjoying an upward trajectory. With the recent addition of another CF blockbuster, Trikafta, the company is anticipated to keep its momentum.

From the moment Trikafta was released to the market, Vertex’s revenue and bottom line showed impressive growth. The drug, which is a triple combination therapy, is projected to capture almost 90% of the CF market worldwide.

Needless to say, Vertex has made it in the shade for at least the next 5 years, thanks to its CF market dominance.

In its second quarter earnings report, Vertex showed a 62% jump in its revenue year over year to hit $1.52 billion. Its net income of $837 million demonstrated a whopping 213% increase compared to the same period in 2019.

As anticipated, the star of the show was Trikafta.

The drug raked in $918 million in the second quarter alone – an amount higher than the combined sales of all the drugs in Vertex’s product line and an impressive growth from the $420 million it contributed last year.

As Vertex’s bottom line grew, its margins showed substantial improvement as well. Its operating margin for the second quarter of 2020 is at 57% compared to 44% during the same quarter last year.

With Vertex’s key metrics topping expectations, the company changed its 2020 revenue guidance from $5.7 billion to $5.9 billion, showing off a noteworthy increase from the $4 billion in sales it reported in 2019.

Although its CF pipeline has a number of promising candidates, Vertex is also looking outside the market for additional avenues of growth.

One of the most promising and exciting partnerships it forged in the past decade is with gene-editing company CRISPR Therapeutics (CRSP).

Just looking at this collaboration makes it clear that Vertex is once again playing the long game.

What we know so far is that the two companies are working on a treatment, called CTX001, for rare genetic blood disorders sickle cell disease and transfusion-dependent beta-thalassemia.

They are also developing two potential treatments for alpha-1 antitrypsin deficiency (AATD), which is a rare genetic liver and lung disorder that is similar to CF.

Detractors might point out that Vertex is a pricey stock. However, this biotechnology company currently has $71.2 billion in market capitalization.

More notably, it has no debt and holds $5.5 billion in cash. That puts the true value of Vertex at roughly $65.7 billion.

I believe that the biotechnology company’s overall outlook more than does justice for its valuation.

Granted that it is trading at 11 times its revenue and 26 times its adjusted EPS, its consistent performance and promising future ensure that its investors will be getting more bang for their buck.

In a word, Vertex remains a first-rate biotechnology stock to buy.

December 11, 2020

Diary, Newsletter, Summary

Global Market Comments
December 11, 2020
Fiat Lux

FEATURED TRADE:

(DECEMBER 9 BIWEEKLY STRATEGY WEBINAR Q&A),
(GLD), (FXA), (FXE), (FXC), (UUP), (FXB), (ABNB), (DASH), (TAN), (TLT), (TBT), (NZD), (DKNG), (SNOW), (AAPL), (CRSP), (RTX), (NOC)

December 9 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the December 9 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV with my guest and co-host Bill Davis.

Q: Is gold (GLD) about ready to turn around from here?

A: The gold bottom will be easy to call, and that’s when the Bitcoin top happens. In fact, we have a double top risk going on in Bitcoin right now, and we had a little bit of a rally in gold this week as a result. So, longer term you need actual inflation to show up to get gold any higher, and we may actually get that in a year or two.

Q: The US dollar (UUP) has been weak against most currencies including the Canadian dollar (FXC), but Canada has the same problems as the US, but worse regarding debt and so on. So why is the Canadian dollar going up against the US dollar?

A: Because it’s not the US dollar. Canada also has an additional problem in that they export 3.7 million barrels a day of oil to the US and the dollar value have been in freefall this year. Canada has the most expensive oil in the world. So, taking that out of the picture, the Canadian dollar still would be negative, and for that reason I've been recommending the Australian dollar (FXA) as my first foreign currency pick, looking for 1:1 over the next three years. Of the batch, the Canadian dollar is probably going to be the weakest, Australian dollar the strongest, and the Euro (FXE) somewhere in the middle. I don’t want to touch the British pound (FXB) as long as this Brexit mess is going on.

Q: Would you buy the IPO’s Airbnb (ABNB) and Dash (DASH)?

A: No on Dash. The entries to new competitors are low. Airbnb on the other hand is now the largest hotel in the world, and it just depends on what price it comes out at. If it comes out at a stupid price, like 50% over the IPO, I wouldn’t bother; but if you can get close to the IPO price, I would probably buy it for the long term. I think you would have another double if we got close to the IPO price, so that is worth doing. They have been absolutely brilliant in their management and the way they handled the pandemic; they basically captured all the hotel business because if you rent an apartment all by yourself, the COVID risk is much lower than if you go into a Hilton or another hotel. They also made a big push on local travel which was successful. They gave up long-distance travel, and they’re now trying to get you to explore your own area; and that worked beyond all expectations. Even I have rented some Airbnb’s out in the local area like in Carmel, Monterey, Mendocino, and so on and I came back disease-free.

Q: If the United States Treasury Bond Fund (TLT) goes to a 1.00% yield, what would that translate to in the (TBT) (2x short treasury ETF)?

A: My guess is probably about $18, which has been upside resistance for a long time, but it depends on how long it takes to get there. You have about a 3% a year cost of carry on the TBT that you don’t have in Treasuries.

Q: Should we buy China stocks when the current administration is so negative on China?

A: Yes, that’s when you buy them—when the current administration is negative on China; because when you get an administration that’s less negative on China, the Chinese stocks will all rocket. There’s an easy 20-30% in most of the headline Chinese stocks from here sometime in 2021. And I'm looking to add more Chinese stocks. I currently have Alibaba (BABA), and that’s working well. I want to pick up some more.

Q: What about the New Zealand currency ETF (NZD)?

A: It pretty much moves in sync with the Australian dollar, but it’s usually a few cents cheaper and more volatile.

Q: Legalized sports betting seems to be on the upswing. Where do you see DraftKings (DKNG) going?

A: I think it goes up. I think there’s going to be a recovery in all kinds of entertainment type activities. Draft Kings got a huge market share from the pandemic which they will probably keep.

Q: Do we use spreads when playing (FXA)?

A: Yes, you can probably do something like a $70-$72 here one month out and make some decent money.

Q: How do you feel about Snowflake (SNOW)?

A: I wanted to get into this from day one, but it doubled on the IPO, and then it doubled again. It’s one of the only technology stocks Warren Buffet has bought in the last several years besides Apple (AAPL). So, it’s just too popular right now, it’s hotter than hot. They have a dominant market share in their big data platform, so it’s a great place to be but it’s really expensive now.

Q: Do your options trade alerts have any risk of assignment?

A: Yes, they do, but when you get an assignment it’s a gift, because they’re taking you out of your maximum profit point, weeks before the expiration. All you do is tell your broker to use your long position to cover your short position, and you will get the 100% profit right then and there. I say this because the brokers always tell you to do the wrong thing when you get an assignment, such as going into the market to close out each leg separately. That is a huge mistake, and only makes money for the brokers. For more details, log in and search for “assignments” at www.madhedgefundtrader.com

Q: Congratulations on your great performance; what could derail your bullish prediction?

A: Well, we’ve already had a pandemic so obviously that’s not it, and then you have to run by your usual reasons for an out-of-the-blue crash; let’s say Donald Trump doesn't leave the presidency. That would be worth a few thousand points of downside. So would a major war. We could have both; we could have a major war before a disrupted inauguration. The president has essentially unlimited ability to go to war at any time, so there aren’t too many negatives on the near-term horizon, which is why everyone is super bullish.

Q: What’s your opinion on the solar area, stocks like First Solar (FSLR) and the Invesco Solar ETF (TAN)?

A: I’m bullish. Even though they're over 300% since March, we’re about to enter the golden age of solar. Biden wants to install 500,000 solar panels next year and provide the subsidies to accomplish that. This all looks extremely positive for solar. In California, a lot of people will go solar, because getting an independent power supply protects you from the power shut-offs that happen every time the wind picks up, in which response to wildfire danger. We had ten days of statewide power blackouts this year.

Q: What are your thoughts on lithium?

A: I’m not a big believer in lithium because there is no short supply. The key to producing lithium is finding countries with no environmental controls whatsoever because it’s a very polluting and messy process to mine. Better to let other countries mine your lithium cheap, refine it, and then send it to you in finished form.

Q: Since you love CRISPR (CRSP) at $130, what about shorting naked puts? The premiums are really high.

A: I never advocate shorting naked puts. Occasionally, I will at extreme market bottoms like we had in March, but even then, I do it only on a 1 for 1 basis, meaning don’t use any leverage or margin. Never short any more puts than you’re willing to buy the stock lower down. People regularly see the easy money, sell short too many puts, and then get a market correction and a total wipeout of their capital. And they won't have to do that liquidation themselves; their broker will do it for them. They’ll do a forced liquidation of your account and then close it because they don't want to be left holding the bag on any excess losses. You won’t find out until afterwards. So, I would not recommend shorting naked puts for the normal investor. If you want to be clever, just buy an in-the-money call spread, something like a $110-$120 out a couple of months. That's probably a far better risk reward than shorting a naked put. By the way, I came close to wiping out Solomon Brothers 30 years ago because my hedge fund was short too many Nikkei Puts. In the end, I made a fortune, but only after a few sleepless nights (remember that Mark?).

Q: What do you think about defense stock right now?

A: I’m avoiding defense stock because I don’t see any big increases in defense spending in the future administration, and that would include Raytheon (RTX), Northrop Grumman (NOC), and some of the other big defense stocks.

SEE YOU ALL IN 2021!

Good Luck and Stay Healthy.

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

Tag Archive for: (CRSP)