Global Market Comments
March 4, 2022
Fiat Lux
Featured Trade:
(MARCH 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (TSLA), (FCX), (JPM), (BAC), (MS), (TLT),
(TBT),(BA), UPS (UPS), (CAT), (DIS), (DAL),
(GOLD), (VIX), (VXX), (CAT), (BA)
Posts
Below please find subscribers’ Q&A for the March 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Do you think Vladimir Putin will give up?
A: He will either be forced to give up, run out of resources/money, or he will suddenly have an accident. When the people see their standard of living go from a per capita income of $10,000/year today to $1,000—back to where it was during the old Soviet Union—his lifespan will suddenly become very limited.
Q: Would you be buying Invesco Trusts (QQQs) on dips?
A: I think we have a few more horrible days—sudden $500- or $1,000-point declines—but we’re putting in a bottom of sorts here. It may take a month or two to finalize, but the second buying opportunity of the decade is setting up; of course, the other one was two years ago at the pandemic low. So, do your research, make your stock picks now, and once we get another absolute blow-up to the downside, that is your time to go in.
Q: Materials have gone up astronomically, are they still a buy?
A: Yes, on dips. I wouldn't chase 10% or 20% one-week moves up here—there are too many other better trades to do.
Q: Is it time to go long aggressively in Europe?
A: No, because Europe is going to experience a far greater impact economically than the US, which will have virtually none. In fact, all the impacts on the US are positive except for higher energy prices. So, I think Europe will have a much longer recovery in the stock market than the US.
Q: Would you take a flier on a Russian ETF (RSX)?
A: No, most, if not all, of them are about to be delisted because they have been banned or the liquidity has completely disappeared. The (RSX) has just collapsed 85%, from $26 to $4. Virtually all of Russia is for sale, not only stocks, bonds, junk bonds, ETFs, but also joint ventures. ExxonMobil, Shell and BP are all dumping their ownership of Russian subsidiaries as we speak.
Q: Time for a Freeport-McMoRan (FCX) LEAP?
A: No, November was the time for an (FCX) LEAP—we’ve already had a massive run now, up 66% in five months, so wait for the next dip. The next LEAPS are probably going to be in technology stocks in a few months.
Q: My iShares 20 Plus Year Treasury Bond ETF (TLT) call $130 was assigned, What should I do?
A: Call your broker immediately and tell them to exercise your 127 to cover your short in the 130. They usually charge a few extra fees on that because they can get away with it, but you’ve just made the maximum profit on the position. If you haven’t been exercised yet, that 127/130 call spread will expire at max profit in 10 days.
Q: What if I get my short side called away on a position?
A: Use your long side calls to execute immediately to cover your short side. These call spreads are perfectly hedged positions, same name, same maturity, same size, just different strike prices. If your broker doesn’t hear from you at all, they will just exercise the short call and leave you long the long call, and that can lead to a margin call. So the second you get one of these calls, contact your broker immediately and get out of the position.
Q: Is it safe to put 100% of your money in Tesla (TSLA) for the long term?
A: Only if you can handle a 50% loss of your money at any time. Most people can't. It’s better to wait for Tesla to drop 50%, which it has almost done (it’s gotten down to $700), and then put in a large position. But you never bet all your money on one position under any circumstances. For example, what if Elon Musk died? What would Tesla’s stock do then? It would easily drop by half. So, I’ll leave the “bet the ranch trades” for the younger crowd, because they’re young enough to lose all their money, start all over again, and still earn enough for retirement. As for me, that is not the case, so I will pass on that trade. You should pas too.
Q: Do you foresee NASDAQ (QQQ) being up 5-10% or 10-20% by year-end?
A: I do actually, because business is booming across tech land, and the money-making stocks are hardly going down and will just rocket once the rotation goes back into that sector.
Q: We could see an awful earnings sequence in April, which could put in the final bottom on this whole move.
A: That is right. We need one more good capitulation to get a final bottom in, and then we’re in LEAP territory on probably much of the market. We know we’re having a weak quarter from all the anecdotal data; those companies will produce weak earnings and the year-on-year comparisons are going to be terrible. A lot of companies will probably show down turns in earnings or losses for the quarter, that's all the stuff good bottoms are made out of.
Q: What should we make of the Russian threats of WWIII going Nuclear?
A: I think if Putin gave the order, the generals would ignore it and refuse to fire, because they know it would mean suicide for the entire country. Mutual Assured Destruction (MAD) is still in place, and it still works. And by the way, it hasn’t been in the media, but I happen to know that American nuclear submarines with their massive salvos of MIRVed missiles, have moved much closer to Russian waters. So, you're looking at a war that would be over in 15 minutes. I think that would also be another scenario in which they replace Putin: if he gives such an order. This has actually happened in the past; people without top secret clearance don’t know this but Boris Yeltsen actually gave an order to launch nuclear missiles in the early 90s when he got mad at the US about something. The generals ignored it, because he was drunk. And something else you may not know is that 95% of the Russian nuclear missiles don’t work—they don’t have the GDP to maintain 7,000 nuclear weapons at full readiness. Plutonium is one of the world’s most corrosive substances and very expensive to maintain. Only a wealthy country like the US could maintain that many weapons because it’s so expensive. So no, you don’t need to dig bomb shelters yet, I think this stays conventional.
Q: Banks like (JPM), (BAC), AND (MS) are at a low—are they a buy?
A: Yes, but not yet; wait for more shocks to the system, more panic selling, and then the banks are absolutely going to be a screaming buy because they are on a long-term trend on interest rates, strong economy, lowering defaults—all the reasons we’ve been buying them for the last year.
Q: Should I short bonds or should I buy Freeport up 60%?
A: Short bonds. Next.
Q: Should I buy Europe or should I short bonds?
A: Short bonds. That should be your benchmark for any trade you’re considering right now.
Q: How much and how quickly will we see a collapse in defense stocks?
A: Well, you may not see a collapse in defense stocks, because even if Russia withdraws from Ukraine, they still are a newly heightened threat to the West, and these increases in defense spending are permanent. That’s why the stocks have gone absolutely ballistic. Yeah sure, you may give up some of these monster gains we’ve had in the last week, but this is a dip-buying sector now after being ignored for a long time. So yes, even if Russia gives up, the world is going to be spending a lot more on defense, probably for the rest of our lives.
Q: Just to confirm, LEAP candidates are Boeing (BA), UPS (UPS), Caterpillar (CAT), Disney (DIS), Delta Airlines (DAL)?
A: I would say yes. You may want to hold off, see if there’s one more meltdown to go; or you can buy half now and half on either the next meltdown or the melt-up and get yourself a good average position. And when I say LEAPS, I mean going out at least a year on a call spread in options on all of these things.
Q: Is $143 short safe on the (TLT)?
A: Definitely, probably. In these conditions, you have to allow for one day, out of the blue, supers pikes of $3 like we got last week, or $5 trins week, only to be reversed the next day. The trouble is even if it reverses the next day, you’re still stopped out of your position. So again, the message is, don’t be greedy, don’t over-leverage, don’t go too close to the money. There’s a lot of money to be made here, but not if you blow all your profits on one super aggressive trade. And take it from someone who’s learned the hard way; you want to be semi-conservative in these wild trading conditions. If you do that, you will make some really good money when everyone else is getting their head handed to them.
Q: Would you go in the money or out of the money for Boeing (BA) and Caterpillar (CAT)?
A: It just depends on your risk tolerance. The best thing here is to do several options combinations and then figure out what the worst-case scenario is. If you can handle that worst-case scenario without stopping out, do those strikes. These LEAPS are great, unless you have to stop out, and then they will absolutely kill you. And usually, you only do these with sustained uptrends in place; we don’t have that yet which is why I’m saying, watch these LEAPS. Don’t necessarily execute now, or if you do, just do it in small pieces and leg in. That is the smart answer to that.
Q: What’s the probability that the CBOE Volatility Index (VIX) makes a new high in the next 2 weeks?
A: I give it 50/50.
Q: Call options on the VIX?
A: No, that’s one of the super high-risk trades I have to pass on.
Q: How low can the VIX go down this month?
A: High ten’s is probably a worst-case scenario.
Q: LEAPS on Barrick Gold Corporation (GOLD)?
A: No, that was a 3-month-ago trade. Now it’s too late, never consider a LEAP at an all-time high or close to it.
Q: Time to short oil?
A: Not yet. We have some spike top going on in oil. It’s impossible to find the top on this because, while bottoms are always measurable with PE multiples and such, tops are impossible to measure because then you’re trying to quantify human greed, which can’t be done. So yeah, I would stand by; it’s something you want to sell on the way down. This is the inverse of catching a falling knife.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
October 8, 2021
Fiat Lux
Featured Trade:
(OCTOBER 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(FCX), (TSLA), (BLK), (MS), (JPM), ($NATGAS), (UNG), (BIDU), (MRNA), (COIN), (ROM), ($BTCUSD), (ETHE), (FB), (DAL), (ALK), (LUV) (MSTR), (BLOK), (V), (NVDA), (SLV), (TLT), (TBT)
Below please find subscribers’ Q&A for the October 6 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: When will Freeport McMoRan (FCX) go up?
A: When the China real estate crisis ends, and they start buying copper again to build new apartment buildings.
Q: Do rising interest rates imply trouble for tech?
A: Yes, they do, but only for the short term. Long term, these things all double on a three-year view; and the next rise up in tech stocks will start when interest rates peak out, probably with 10-year yields at 1.76% or 2.00%. The great irony here is that all the big techs profit from higher rates because they have such enormous cash flows and balances. But that is just how markets work.
Q: I know you’ve been promoting Tesla (TSLA) for a very long time. What do you think about it here?
A: We’ve just gone from $550 to over $800. It actually has been one of the best performing stocks in the market for the past four months. Short term, you want to take profits; long term you want to hold it because it could go up 10 times from the current level. They just broke all their sales records and are the fastest growing car company in the US or Europe.
Q: If Blackrock (BLK) is reliant on interest rates, will the rise in interest rates hurt them?
A: No, it’s the opposite. Rising interest rates are positive for Blackrock because it improves the return on their investments, which they get a piece of; so rising interest rates mean more money and more fees. That's why I own it— it is a rising interest rate play, not a falling interest rate play.
Q: What do you think about Baidu (BIDU)?
A: Stay away from all China trades right now, it’s uninvestable. Not only do I not know what the Chinese are going to do next—they seem to be attacking a new industry every week—but the Chinese don’t even seem to know. This is all new to them; they had been embracing the capitalist model for the last 40 years and they now seem to be backtracking. There are better fish to fry, like Morgan Stanley (MS) and JP Morgan (JPM).
Q: Don’t you have a bear put spread on Baidu (BIDU)?
A: We did have a bear put spread on Baidu, but that's only a very short term, front month trade. It does look like it’s going to make money; but keep in mind those are high-risk trades.
Q: Could Natural Gas (UNG) trigger an economic crisis?
A: Not really. In the US, natgas is only a portion of our total energy needs, about 34%, and that’s mostly in the Midwest and California. The US has something like a 200-year supply with fracking. Plus, we’re on a price spike here—we’ve gone from $2 to $20/btu in Europe, entirely manipulated by Russia trying to get more money on their exports and more political control over Europe. So, it’s a short-term deal, and you can bet a lot of pros are out there shorting natgas like crazy right here. The real issue here is that no one wants to invest in carbon-based energy anymore and that is creating bottlenecks in the energy supply chain.
Q: How long will it take to provide EV infrastructure to mass gas station availability?
A: The EV infrastructure has in fact been in progress for 20 years, if you count the first generation of EV in the late 90s, which bombed. Tesla has been building power stations in the US for 10 years. They have 10,000 chargers now in 1,800 stations and their goal is 20,000 charging stations. In fact, most people already have the infrastructure for EV charging—you just charge them at home overnight, like I do. The only time I ever need a charge is when I go to Lake Tahoe. For gasoline engines, on the other hand, it took 20 years to build infrastructure from 1900 to 1920 to replace horses. Believe it or not, gasoline cars were the great environmental advance of the day, because it meant you could get rid of all the horses. New York City used to have 150,000 horses, and the city was constantly struggling through streets of two-foot-deep manure piles. So that was the big improvement. It only took 100 years to take the next step.
Q: The latest commodity with supply constraints I hear about is cotton. Is this all just a temporary thing and can we expect supply capacity to be back to normal next year? Is this just the failing of a just-in-time model that simply doesn’t work in the age of deglobalization?
A: We are losing possibly one third of our current economic growth due to part shortages, labor shortages, supply chain problems—those all go away next year, and that one third of economic growth just gets postponed into 2022 which means that the economic recovery is extended over a longer period of time, and so is the bull market in stocks, how about that! That’s why I’m loading the boat right here. It’s the first time I've been 100% invested since May.
Q: What do you think about the airlines here?
A: High risk, but high return play for the next year. Delta (DAL) is a play on business travel recovery. Alaska Airlines (ALK) and Southwest(LUV) are a play on a vacation travel return flying return, which has already started—we’re back to pre-pandemic TSA clearances at airports.
Q: Is Facebook (FB) a buy now?
A: No, I want to wait for the dust to settle before I go back in. I think it does recover and go to new highs eventually but will go to lower lows first. Regulation is certainly coming but we don’t know what.
Q: When will the chip shortage end?
A: Two years. My prediction is much longer than anybody else's because people are designing chips into new products like crazy. All predictions for the chip shortage to end in only a year don’t take that into account.
Q: When do we go into the (ROM) ProShares Ultra Technology long play?
A: When interest rates peak out sometime early next year. It’s probably a great entry point for tech; until then they go nowhere.
Q: Does the appetite for financials extend to Canada and their banks with higher dividends?
A: Yes, US and Canadian interest rates tend to move fairly closely so that rising rates here should be just as good for banks in Canada, and you might even be able to get them cheaper.
Q: Do you suggest we buy Altcoin?
A: No, not unless you're a Bitcoin professional like a miner, who can differentiate between all the different Altcoins. You can buy up to 100 different Altcoins on the main exchanges like Coinbase (COIN). In the crypto business, there is safety and size; that means Bitcoin ($BTCUSD) and Ethereum (ETHE), which between them account for about three quarters of all the crypto ever issued. A Lot of the smaller ones have a risk of going to zero overnight, and that has already happened many times. So go with the size—they’re less volatile but they’ll still go up in a rising market. And you should subscribe to our bitcoin letter just to get the details on how that market works.
Q: Target for Bitcoin by Christmas?
A: My conservative target is $66,000, but if we really go nuts, we could go as high as $100,000. That’s the “laser eyes” target for a lot of the early investors.
Q: Suggestions for a Crypto ETF?
A: It’s not out yet but will be shortly. I think that Crypto will run like crazy in anticipation of the Bitcoin ETF that we don’t have yet.
Q: Should I buy Moderna (MRNA) on this dip at 320 down from 400, or is this a COVID revenue flash in the pan that won’t come back?
A: It’ll come back because they’re taking their COVID technology and applying it to all other human diseases including cancer, which is why we got in this thing two years ago. But we may have to find a lower low first. So I would wait on all the drug/biotech plays which right now are getting hammered with the demise of the delta virus.
Q: What’s your favorite ETF right now?
A: Probably the (TBT) Double Short Treasury ETF. I’m looking for it to go up another 30% from here to 24 or 25 by sometime next year.
Q: EVs have been hot this year; Lordstown Motors is down to only $5 from $27 and just got downgraded by an analyst to $2. Should I buy, or is this a dangerous strategy?
A: I would say highly dangerous. This company has been signaling that it’s on its way to bankruptcy essentially all year, so don’t confuse “gone down a lot” with being “cheap” because that’s how you buy stuff on the way to zero.
Q: What about Anthony Scaramucci’s ETF?
A: We will have Anthony Scaramucci as a guest in our December summit. And the ETF is a basket of stocks as diverse as MicroStrategy (MSTR), Blok (BLOK), Visa (V), and Nvidia (NVDA), so you will only get a fraction of the Bitcoin volatility. That means if Bitcoin goes up 100% you might get a 40% or 50% move in the actual ETF.
Q: Do you have a Bitcoin book coming out soon?
A: I do, it should be out by the end of this month. That’s The Mad Hedge Guide to Trading Bitcoin, and it will have all the research I’ve accumulated on trading Bitcoin in the past year.
Q: Why have you only issued one trade alert in Bitcoin?
A: You don’t get a lot of entry points for Bitcoin. You buy the periodic bottoms and then you run them. Dollar cost averaging is very useful here because there are no traditional valuation measures to use, like price earnings multiples or price to book. When it comes time to sell, we'll let you know, but there aren’t a lot of Bitcoin plays outside the Bitcoin exchanges.
Q: Thoughts on silver (SLV)?
A: It’s horribly out of favor now and will continue to be so as long as Bitcoin gets the spotlight. Also, there’s a China problem with the precious metals.
Q: There are 8 or 10 good public Bitcoin and Ethereum ETFs in Canada.
A: That’s true, if you’re allowed to trade in Canada.
Q: Can the US ban Bitcoin like China did?
A: No, if they did, it would just move offshore to the Cayman Islands or some other place outside the world of regulation.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on 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
Sightseeing in Laos in 1975
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)
Below please find subscribers’ Q&A for the September 22 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.
Q: When’s the United States US Treasury bond fund (TLT) going to go down?
A: When J. Powell tapers, which will be either today or in 6 weeks. That's the time frame we’re looking at now, and people are positioning now for the taper—that's why financials are taking off like a rocket. Buy those financials and don't expect too much from your tech stocks for the next few months.
Q: What do you think of adding corporate or municipal bonds to my portfolio?
A: Don’t do that on pain of death please; you will lose money. Corporate bonds will get slaughtered the second interest rates turn because they have the most exposure from a credit point of view to any downgrades resulting from rising interest rates. Better to keep your money in cash than buy bonds here. It was a great idea 10 years ago, but a terrible idea today. Just buy cash or buy extremely deep-in-the-money LEAPS which will get you a 10-20% per year return.
Q: What are the chances that the government defaults?
A: Zero, because corporate profits this year will increase from $2 trillion to $10 trillion, spinning off massive tax revenues for the government. The deficit will come down substantially in the future as a result. Keep expecting upwards surprises in profits and taxable revenues. That may be why the (TLT) is staying so high.
Q: I need a customized LEAPS on a stock.
A: We do those for our concierge customers. If you’re interested, then email Filomena at customer support at support@madhedgefundtrader.com.
Q: What brand of shot did you get?
A: Pfizer (PFE).
Q: The Government is showing no sign of balancing a budget and the hole will only get deeper; what are your thoughts?
A: I agree, and that’s why I'm short the (TLT). All we need is a taper to really get some juice under that trade; we really don’t need that much. Ten-year US Treasury yields are now around 1.30% and we only need the yield to get up to about 1.70% for us to make a maximum profit on our positions. One taper hint and it could get us up to those levels.
Q: Why is Visa (V) dropping so much?
A: Fear of being replaced by Bitcoin. This is the big thing dragging all three credit card companies down, including American Express (AXP) and master Card (MA). That's why I have not added a Visa position among my financials in this go around.
Q: How can the Fed unwind their balance sheet and normalize interest rates to a historical average of 4-5%?
A: Quite easily: quit buying bonds. They’re still buying $120 billion/month worth. Technology has accelerated with the pandemic and we all know this is highly deflationary. I expect the next peak in interest rates to be only 3% or 3.5%, not the 6% we saw in the last peak in interest rates in the 2000s. So yeah, bonds are going to go down but not back to 2000’s level.
Q: Thoughts on the Johnson & Johnson (JNJ) shot?
A: No thank you. If you get to choose, Moderna (MRNA) is now producing the best immunity data on a year-to-date basis if you’re starting out from scratch. Some people are mixing, they start out with Pfizer and then get Moderna. They get a worse reaction because the Moderna initial reaction shot sees the Pfizer vaccine as a new virus, so you may get a small flu as a result of that.
Q: What is the put spread you’re recommending on the TLT?
A: The May 2022 $150-$155 vertical put spread. That is the sweet spot now on the short side on (TLT) LEAPS. You should earn a 115% profit in eight months on this trade if interest rates remain unchanged or fall.
Q: Do you expect the ProShares Ultra Short 20 year+ Treasury ETF (TBT) to make it to $20 this year?
A: Yes, I do; $16 to $20 isn’t that much of a move. Remember, the (TBT) is a two times short ETF.
Q: Are you recommending bank stocks?
A: Yes, Morgan Stanley (MS) and JP Morgan (JPM) are two of the best. They will lead the yearend rally starting from here.
Q: When do you expect the semiconductor shortage to end?
A: End of next year, or maybe even 2023, because what all the analysts keep underestimating is that the end of shortages is based on companies getting the chips they want today. The actual issue is that companies are designing billions of chips into their products at an exponential rate, and what they’ll need in a year from now is far higher than most people realize. The semiconductor shortage is much more structural than people realize—that's my theory. They don’t throw up a $2 billion fab overnight. So, this will keep going on for a while and be a drag on economic growth.
Q: Are you sure we won’t see $100 oil (USO)?
A: With oil, you're never sure about anything, although I highly doubt it. We’d have to have monster economic growth in China to get oil up to $100 a barrel. Right now, China is going the other way.
Q: What’s your view on the debt ceiling? Will it give us a good buying opportunity?
A: Probably not, our good buying opportunity was yesterday or Monday. These debt crises are always one minute before midnight solutions. They always get solved. Never underestimate the ability of Congressmen to spend money in their own district. So, I don’t think that would create a stock market crash like it might have done 20 years ago.
Q: What about Freeport McMoRan (FCX)?
A: It’s taking a dip here because of a possible real estate crash in China, and of course China is the world’s largest buyer of copper for apartment construction. I’m kind of taking a break here on Freeport McMoRan and US Steel (X) until we learn a little more about the China situation. They did move to start a bailout today. Let’s see if that continues.
Q: When will the airlines come back?
A: They’ll come back when business travel returns, which I think could be next year. If you eliminate the virus completely, these things double easily. That's the bet you’re making. Let’s see if the covid boosters work, the childhood shots work, and then you can take another look at Delta (DAL) and Alaska (ALK).
Q: If Bitcoin gains mass adoption, does that put banks out of business just like electric vehicles are making oil obsolete?
A: No, not if the banks go into the Bitcoin business. And the banks actually have the cash, resources, and infrastructure to take over the Bitcoin area once the technology matures. And the corollary to that is that the oil industry is that the majors have the infrastructure, the manpower, and the capital to take over the alternative energy business if they choose to do so and oil goes to zero, which it eventually will. The proof of that is the largest investor in all the Silicon Valley energy startups are Saudi Arabian venture capital funds. They’re huge investors in solar here. If Saudi Arabia has a lot of oil, they have even more solar. Believe me, I’ve been there.
Q: Will a lack of inventory and rising interest rates end the bidding wars on houses soon?
A: Only if you consider 10 years soon. That is how long it will take for the sizes of different generations to come into balance, the Millennials (85 million) versus the Gen Xers (45 million). That’s when the housing bubble will end, but that won’t be for another decade. We still have a structural shortage of new home construction (about 5 million units a year) because all the home builders who went bust in the financial crisis in 2008/2009 and never came back—all of that new construction is still missing. And the surviving ones haven’t increased production to meet that shortfall because they want to manage their risk. Eventually, they will and that probably will be the next top, but that’s really 2030 type business.
Q: What about Federal Express (FDX)?
A: Labor shortages. It's hitting (UPS), (FDX), the Post Office, and DHL too—all the couriers.
Q: When do you think gold (GLD) and silver (SLV) rise back to 2,000?
A: I am avoiding gold and silver as long as Bitcoin has buyers. The action in Bitcoin is 10x the movement you get in gold and that’s attracted all the speculative capital in the market, draining all interest from gold, which hit a new six-month low just last week.
Q: What’s your buy target for Apple (AAPL)?
A: I would say if you can get it at $135, that would be a gift. We did get close to $140 at the lows this week; that’s when you start nibbling, and then you double up again at $135. I doubt Apple is going down more than 10% in this cycle. There are too many people still trying to get into it. And they’re still the largest buyer of stock in the world. They only buy one stock, their own.
Q: I never got any IPath Series B S&P 500 VIX Short Term Futures ETN (VXX) alerts.
A: That's because we never sent any out. (VIX) has become an incredibly difficult game to play, accumulating positions for months and then trying to get out on a one-day spike that lasts a few minutes. The insiders have too much of a house advantage here, who only play from the short side. There are too many better fish to fry.
Q: What about the Apple electric vehicle?
A: I’ll believe it when I see it; I've been hearing about this for something like seven years. My guess is that Apple is more likely to supply consoles and parts to other EV makers and help them get into the game with software and so on. I think that will be Apple's role in all of this.
Q: How much has China Evergrande Group stock fallen?
A: It’s a really illiquid stock in China so we never got involved in it. I think it’s down more than half. Even the professional short-sellers like Jim Chanos and Kyle Bass, have been targeting that stock for 10 years are now screaming they’re vindicated. Of course, they lost fortunes in the meantime. So, I'll pass on that one.
Q: What about stop losses on LEAPS trades?
A: I don’t really run LEAPS portfolios or issue stop losses. The idea is to run these into expiration, and we’ve never had one expire out of the money, although I may break that record if TLT doesn’t turn around in the next three months.
Q: How would autonomous trucking impact rail transportation?
A: They’re two totally different things. Trucking companies like Yellow Corporation (YELL) carry smaller cargo for local deliveries or small long-distance deliveries. 7Some 70% of all railroad traffic is coal going to China, and the rest is bulk commodities like wood chips, iron ore, etc. Trucks don’t carry any of that, so they’re totally separate businesses. But, if we went totally autonomous on trucking, it would make all the main trucker companies massively profitable, as they get rid of their drivers. Right now, every trucking company in the US has a driver shortage.
Q: United Airlines (UAL) pilots are now ordered to get vaccinated.
A: I think within months to hold a job anywhere in the US, you will have to get vaccinated. They do not want you in the office without a vaccination. Jobs are not worth risking lives, and we hit 2,000 deaths again yesterday. The corporations are taking the lead, not the government. The exception will be the politically motivated companies, like the My Pillow Guy; I doubt they'll ever require vaccinations at My Pillow. And there are a few other companies such as Hobby Lobby that are also anti-vaxers. But all public transport companies, hospitals, etc., are going to say get vaccinated or get out—it’s very simple.
Q: Should I buy Berkshire (BRKB) here?
A: Yes, it’s a great entry point, even if you can't get my price. Go higher in the strikes or go farther out in maturity.
Q: Is copper metal (CPER) a buy here?
A: Probably long term, but short term will be subject to the whims of the Chinese real estate crisis if there is one.
Q: Won’t Natural Gas (UNG) outperform in the power grid since all EVs must be charged?
A: Not if the grid is 100% electric. Natural gas still has carbon in it, although only half as much as oil or gasoline. I think even natural gas eventually gets phased out because you can expect solar panels to improve by 80% over the next ten years. At that point, any other energy source won’t be able to compete—oil, natural gas, you name it. And that is why you don’t see any long-term money going into carbon energy sources.
Q: Iron ore has just gone from $200 to $100, why are you bullish?
A: Yes, Because it has just gone from $200 to $100. Eventually, China recovers, despite a short-term financial and housing crisis. Buy low, sell high—that’s my revolutionary new strategy.
Q: What are your thoughts on Bitcoin vs Ethereum?
A: I think Ethereum will outperform Bitcoin because it has a more modern technology. It’s only six years old, vs 12 years for Bitcoin. It’s also more efficient, using less energy in its production. In fact, we did get a double in Ethereum in August as opposed to only a 50% move in Bitcoin.
Q: Do you have any concerns on holding the financials through earnings in October?
A: No, I think the results will be fantastic, and I want to be long going into those.
Q: What does the current situation with China mean for Alibaba (BABA)?
A: Keep your stocks, you’ve already taken the hit—down 53%. The next surprise is that China quits beating up on capitalism and these things will all recover bigtime. However, any options you may have could expire before that happens. So, keep the stocks, get rid of the options, salvage whatever time value you can, and then wait for China to start doing the right thing.
Q: What are the best solar stocks?
A: First Solar (FSLR) and SunPower (SPWR), which have both done great.
Q: If bonds are a no-no, and governments are getting more indebted than ever, who will buy them?
A: Governments. The only buyers of bonds now are non-economic buyers. Those would be governments, central banks, and banks who are required by law to own certain amounts of bonds to meet regulatory capital requirements. No individual in their right mind is buying any bonds here at all, nor is any financial advisor recommending them.
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
Global Market Comments
August 6, 2021
Fiat Lux
Featured Trade:
(MAD HEDGE 2021 H1 TRADE ANALYSIS)
($INDU), (TLT), (GLD), (XME), (DAL), (FCX), (TSLA)
I finally managed to carve out a few hours to analyze my 2021 H1 trades, and what a year it’s been!
From January 1 to June 30, the Mad Hedge Fund Trader sent you 124 trade alerts completing 64 round trips in four asset classes. These generated a profit of 70.59% in six months, more than we made all of last year.
It is the most prolific performance since we launched Mad Hedge Fund Trader 14 years ago.
In my January 6 Mad Hedge Annual Asset Class Review (click here for the link--you must be logged in to the site), I predicted that the Dow Average ($INDU) would rise 30% for the end of the year. This proved immensely valuable.
That view enabled me to go maximum aggressive, full speed ahead, damn the torpedoes. It’s not that I was so certain that the stock market would go ballistic to the upside. But with the Federal Reserve pumping trillions of dollars of quantitative easing into the economy, record deficit spending, and the pandemic coming under control, I was certain that markets would not go down.
So, I looked into my bag of tricks and pulled out a strategy ideal for this scenario, the in-the-money vertical bull call debit spread (click here for the video on how to execute one of these). Such an approach allowed me to make a maximum profit even if the underlying security went up, sideways, or down small. It worked like a charm.
Here are by trades assorted by asset class:
Equities – 44.14%
Bonds – 24.12%
Commodities – 1.52%
Precious Metals – 0.81%
2021 was definitely the year of equities. In fact, the risk/reward for equities was so compelling that it was almost a waste of time to look at anything else. Equity trades accounted for 62.53% of my total profits.
I split my equity selections with my well-known “barbell strategy” with equal allocations split between big technology and domestic recovery stocks. That way, I always had positions that were going up.
Short positions in the bond market (I had only one long trade) accounted for another 34.17% of my performance. This was basically a first-quarter trade where I caught the collapsing bond market by both lapels and shook it for all it was worth, catching a dive from $162 to $132 in the United States Treasury Bond Fund (TLT). I mostly quit bond trading in March, not wanting to visit the trough too many times in an extremely oversold condition. That was a great call.
Commodities delivered another 2.15% of return with a single trade in the SPDR S&P Metals & Mining ETF (XME). I thought exploding economic growth would cause commodity prices to soar, and they did. But there were better plays to be had buying key stocks in the sector directly, such as Freeport McMoRan (FCX).
As an afterthought, I made another 1.15% in precious metals with two trades long gold. I thought gold would go up this year but so far, no luck. The gold (GLD) faded away when US Treasury bonds became the asset class of choice from March onward.
Of 64 round trips, I lost money on only four, giving me a success rate of 93.75%, far and away the best in the industry. One was a short in Tesla (TSLA) in the $800s. It later fell to $550. The next was a long in Tesla. I got stopped out when it fell below $600. That’s OK because I made a 10X return trading Tesla in 2020.
Welcome to show business.
The next hickey came from a long in Microsoft (MSFT) which I got stopped out of. It went straight up afterwards. Then I took a small hit in Delta Airlines (DAL) for the same reason. The higher the market goes, the faster I stop out as part of my risk control discipline.
All in all, it’s been one hell of a year. I cut back my trading dramatically in June and July partly because the market was so incredibly high, but also to give my loyal staff a rest. Imagine working double overtime for a year and a half! How about sending out 13 trade alerts out in one day!
We are now all refreshed and well-rested ready to take on all comers in H2. The harder I work, the luckier I get. It really is true.
As I tell my beginning traders, work in, money out.
To download the entire 2021 H1 trade history, please click here.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Capturing Peak Profits
Global Market Comments
May 28, 2021
Fiat Lux
Featured Trade:
(MAY 26 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (DIS), (AMZN), (FCX), (X), (PLTR), (FXE), (FXA), (TLT), (TBT), (AMC), (GME), (ZM), (DAL), (AXP), (LEN), (TOL), (KBH), (DOCO), (ZM), (TSLA), (NVDA), (ROM)
Below please find subscribers’ Q&A for the May 26 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.
Q: Do you expect a longer pullback for the (SPY) through the summer and into the last quarter?
A: No, this market is chomping at the bit and go up and won’t do any more than a 5% correction. We’ve already tested this pullback twice. We could stay in this 5% range for a few more weeks or months, but no longer. If we make it to August before we take off to the upside, that would be a miracle. It seems to want to break out right now and if you look at the tech stocks charts you can see what I'm talking about.
Q: Why do day orders with spreads not good ‘til canceled (GTC)?
A: Actually, you can do good ‘til canceled on these spreads, it just depends on how your platform is set up. Good ‘til canceled won't hurt you—only if we get a sudden reversal on a stop out which has only happened four times this year.
Q: Disney (DIS) seems to be struggling to get back over $180; am I still safe with my January 2023 $250 LEAPS?
A: Yes, out to 2023 we’ll have two summers until those expire, so those look pretty good—that's a pretty aggressive trade, and I’m betting you’re looking at a 500% profit on those LEAPS. And by the way, I always urge people to go out long on these LEAPS, because the second year is almost free when you check the pricing. So, take the gift and that will also greatly reduce your risk. We could have a whole recession and recovery, and still have those LEAPS make it to $250 in Disney.
Q: Should I add to Freeport McMoRan (FCX)?
A: (FCX) I would not add—in fact, I would have a stop loss if we closed below $40 on (FCX) if you’re a short-term trader. There is a slowdown in the Chinese economy going on as well as a clampdown on commodity speculation. This has affected the whole base metal space, including steel and palladium. If you have the long-term LEAPS, keep them, because I think (FCX) doubles from here. The whole “green revolution story” is still good.
Q: Do you think the United States Treasury Bond Fund (TLT) is going up?
A: No, I think the (TLT) has been going down. I've been buying puts spreads like crazy, and I have a huge chunk of my own retirement fund in long-dated (TLT) LEAPS, so I am praying it will go down. We’ll talk about that when we get to the bond section.
Q: Prospects for U.S. Steel (X)?
A: It’s tied in with the whole rest of the base commodity complex—I think it is due for a rest after a terrific run, which is why I have such tight stop losses on Freeport McMoRan (FCX).
Q: Do you buy the “transitory” explanation for the hot inflation read two weeks ago that the Fed is handing out, or do you think inflation is bad and here to stay?
A: I go with the transitory argument because you’re getting a lot of one-time-only price rises off of the bottom a year ago when the economy completely shut down. Once those price rises work through the system, the inflation rate should go from 4.2% back down to 2% or so. So, I don't see inflation as a risk, which is why I think the stock markets can reach my 30% up target this year. You may get another hot month as the year-on-year comparisons are enormous. But betting on inflation is betting on the reversal of a 40-year trend, which usually doesn’t work out so well.
Q: On your spread trade alerts can we buy less than 25 contracts?
A: You can buy one contract. In fact, I recommend people start with one contract and test out where the real market is. Put a bid for one contract in the middle of the market, and if it doesn’t get done, raise your bid 5 cents, and eventually, your order gets done. Then you can add more if you want to. I always recommend this even for people who buy thousands of contracts, that they test the market with one contract order just to make sure the market is actually there.
Q: Can you recommend a LEAPS for Amazon (AMZN)?
A: The Amazon LEAPS spread is the January 2022 $3150-3300 vertical call debit spread going out 8 months.
Q: When you short the (TLT), how do you do it?
A: I do vertical bear put debit spreads. I buy a near-money put and sell short and an out-of-the-money put so I can reduce the cost, and therefore triple my size. This strategy triples the leverage on the most likely part of the stock move to take place, which is the at the money. For example, a great one to buy here would be a January 2021 (TLT) $135/140 vertical bear put debit spread where you’re buying the $140 and selling short the $135. The potential 8-month profit on this is around 100%. You’ll make far more money on that kind of trade than you ever would just buying puts outright. Some 80% of the time the single option trades expire worthless. You don’t want to become one of those worthless people.
Q: What’s your best idea for avoiding a U.S. Dollar drop?
A: Buy the Invesco Currency Shares Euro Trust (FXE) or buy the Invesco Currency Shares Australian Dollar Trust Trust (FXA), the Australian Dollar to hedge some of your US Dollar risk. The Australian dollar is basically a call option on a global economic recovery.
Q: I’m a new subscriber, but I don’t get all the recommendations that you mention.
A: Please email customer support at support@madhedgefundtrader.com , tell them you’re not getting trade alerts, and she'll set you up. We have to get you into a different app in order for you to get all those alerts.
Q: How about the ProShares UltraShort 20 Year Treasury ETF (TBT)—is that a bet on declining (TLT)?
A: Absolutely yes, that is a great bet and we’re at a great entry point right now on the (TBT) so that is something I would start scaling into today.
Q: Do you still like Palantir (PLTR)?
A: Yes, but the reason I haven't been pushing it is because the CEO says he could care less about the stock market, and when the CEO says that it tends to be a drag on the stock. Palantir has an easy double or triple on it on a three-year view though. However, small tech has been out of favor since February as it is overpriced.
Q: How far down can the (TLT) go in the next 30 days?
A: It could go down to $135 and maybe $132 on an extreme move, especially if we get another hot CPI read on June 10. However, if you hear the word “taper” from a Fed official, then you’re looking at high $120’s in days.
Q: With the TLT going up, why have you not sent out an alert to double up on put spreads?
A: I tend to be a bit of a perfectionist since I’m a scientist and an engineer, so I’m hanging on for an absolute top to prove itself and start on the way down. On the shorts, I like selling them on the way down, and buying my longs on the way up, because there are always surprises, there’s always the unknown, and heaven forbid, I might actually be wrong sometimes! So, I’m still waiting on this one. And we do already have one position that is fairly close to the money now, the June 2021 $141-144 vertical bear put debit spread, so I don't want to double up on that until we have a reversal in the intermediate term trend.
Q: I see GameStop (GME) is spiking again now up to $230—should I get in for a short-term profit?
A: No. With these meme stocks, the trading is totally random. If anything, I would be selling short, but I would do it in a limited risk way by buying a put spread. However, the implied volatility in the options on these meme stocks are so high that it's almost impossible to make any money on options; you’re paying enormous amounts of money up front, so that's my opinion on GameStop and on AMC Entertainment Holdings (AMC), the other big meme stock.
Q: Will business travel come back after the world is vaccinated?
A: Absolutely. Companies don't want to send people on the road, but customers will demand it. All you need is one competitor to land an order because they visited the customer instead of doing a Zoom (ZM) meeting, and all of a sudden business travel will come roaring back. So that's why I was dabbling in Delta Airlines (DAL) and that's why I like American Express (AXP), where 8% of transactions are for first class airline tickets.
Q: As the work-from-home economy stops and workers go back to the office, do you see a 10% correction in the housing market?
A: Actually, in the housing market with real houses, I don't see prices dropping for years, because 30% of the people who went home to work are staying there for good—that the trend out of the cities into the hinterlands is a long-term trend that will continue for decades, now that Zoom has freed us of the obligations to commute and be near big cities. And of course, I’m a classic example of that; I've been working either in my basement in San Francisco or at Lake Tahoe for the last 14 years. Housing stocks on the other hand like Lennar (LEN), Toll Brothers (TOL) and KB Home (KBH) have had a tremendous run and are basically out of homes. Could they have a 10% correction at any time? Absolutely, yes.
Q: Should I avoid buying dips in last year's work-from-home stocks?
A: Yes I would. DocuSign (DOCO) and Zoom (ZM) are the two best ones because they were both up 12X from their lows, and I tend not to chase things that are up 12X unless they are a Tesla (TSLA) or an Nvidia (NVDA) or something like that. In the end, Tesla went up 295 times.
Q: Are you looking at the carbon credits market?
A: No, but I probably should. That market shut down last year. It’s alive again, and it looks like it's growing like crazy.
Q: What’s the ideal volatility for individual options? What do you use to compare?
A: Always look at the implied volatility of the option compared to the realized volatility of the underlying stock; and when the difference gets too big, you get ideal conditions for putting on call and put spreads, which take advantage of this. These are almost volatility neutral because you’re long on one batch of volatility and short on the other.
Q: Is it too late to get involved in the ProShares Ultra Technology ETF (ROM), the 2X long ETF in a spread?
A: The November 2021 $121-125 vertical bull call spread, the farthest expiration you can get for the (ROM), was kind of aggressive—I would go closer to the money. We’re right around mid $80s right now, so maybe do a January 2022 $95-100, and even that will get you something like a 400% gain by November.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH (or Tech Letter as the case may be), 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
Summit of Mount Rose at 10,778 feet with Lake Tahoe on the Right
