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The Market Outlook for the Week Ahead, or Wake Up Call

This was the week the stock traders learned there was such a thing as a bond market. They know this because it was bonds that completely demolished their stock trading books.

Suddenly, markets went from zero offered to zero bid. Many strategists labored under the erroneous assumption that ten-year US Treasury yields would never surpass 1.50% in 2021. Yet, here we are only in March and it’s already topped 1.61%. It’s become the one-way trade of the year.

The bond market seems to be discounting an imminent runaway inflation rate. But at a 1.4% annual figure, it's nowhere to be seen, not with 20 million unemployed and Main Streets everywhere looking like ghost towns.

I still believe that technology is evolving so fast, hyper-accelerated by the pandemic, that it will wipe out any return of inflation. I will not believe in inflation until I see the whites of its eyes, to paraphrase Colonel William Prescott at the Battle of Bunker Hill.

Of course, it is I who has been screaming from the rooftops about the coming crash of the bond markets, since March 20. Being short the bond market has been one of my most profitable trades of 2020 AND 2021. If I am annoyed by anything, it happened too fast, depriving me several more round trips a slower crash would have permitted.

When you have to own stocks, make them financials (JPM), (BAC), (C), which benefit from rising rates. Their loan rates are rocketing while their cost of money is fixed at the Fed overnight cost of funds at 0.25%. Trading volumes at the brokers (MS), (GS) are through the roof, especially for options traders.

It is all a perfect money-making machine. At least, the stock market thinks so.

I’ll tell you something that markets are not paying attention to at all, and it is the tremendous improvement in the pandemic. Since January 20, news cases have cratered from 250,000 a day to only 70,000, down 72%. The best-case scenario which markets discounted by near doubling in 11 months is happening.

With the addition of the Johnson & Johnson (JNJ) vaccine, some 700 million doses will be available by June. We could be back to normal by summer, at least in the parts of the country that don’t believe it is still a hoax.

This breathes life into the blockbuster 7.5% GDP growth scenarios now making the rounds. I think people have no idea how hot the economy is really going to get. Labor and materials shortages may be only three months off, but with no inflation.

So, what does all this mean for the markets? It all sets up the normal 5%-10% correction that I have been predicting. If you have two-year LEAPS on your favorite names, hang on to them. We are going much higher.

I went into the Monday selloff with a rare 100% cash position. The 20% I have now in commodities I picked up on puke out, throw up on your shoe capitulation days.

The barbell is still the winning strategy.

Domestic recovery stocks have been on fire for six months, with small banks up a ballistic 80%. Big tech has gone nowhere. But their earnings are still exploding, in effect, making them 20% cheaper over the same time period.

It’s just a matter of time before markets rotate back into tech and give domestic recovery a break. Think (AAPL), (FB), (AMZN), and (GOOGL). That is where the smart money is going right now.

The bond auction was a total disaster. The US Treasury offered $62 billion worth of seven-year US Treasury bonds, double the amount a year earlier. At a 1.95% yield and no one showed. Foreign participation was the worst in seven years. The bid-to-cover ratio was pitiful. Over issuance by the government crushing the market? Who knew? Imagine how high interest rates would be if the Fed wasn’t buying $120 billion a month of bonds?

The insanity is back, with GameStop (GME) doubling in the last 15 minutes of the month. Nobody knows why. It was why stocks tanked at the close on Thursday, scaring away real investors in real stocks. (GME) has become an indicator of all that’s wrong with the market.

Copper demand is rocketing, says Freeport McMoRan (FCX) CEO Richard Adkerson. That’s why he is opening three new US mines this year, adding 250 million pounds in annual output. Biden’s ambitious EV plans are the trigger. You can’t build an EV without a lot of the red metal. The world’s largest copper producer has become a major climate change and ESG play.

NVIDIA blows it away, with sales up a blockbuster 66%. Demand from gamers locked up at home was overwhelming. Purchases by bitcoin miners were through the roof. Even demand from the auto industry was up 16%, even though card sales aren’t. Too bad they picked the wrong day to announce, with the stock off 8.2%. (NVDA) is the one tech stock I would buy on dips.

Fed says business failures will continue at record pace, mostly occurring among small, unlisted local businesses. Biden’s $1.9 trillion rescue budget will come too late for many. Unemployment could stay chronically high for years, as the Weekly Jobless Claims are suggesting.

Housing starts fell in January, down 6.0% to 1.58 million units. A much smaller drop was expected. Rising land and lumber costs are cutting into the economics of new construction. Home prices are going to have to accelerate to suck in more supply. Housing Permits for new construction soared by 10.4% last month, so the future looks bright for builders.

Tesla (TSLA) crashed, down $180 in two days. We have just suffered a perfect storm of bad news about Tesla. Interest rates have been soaring, bad for all tech in the mind of the market. Competitor Lucid Motors announced a SPAC valued at $11 billion. And Elon Musk said Bitcoin looked “high” after investing $1.5 billion. Get ready to buy the dip, but not yet.

Quantitative easing to continue, says Fed governor Jay Powell, even if the economy improves. The $120 billion in bond-buying remains, even if the economy improves. He’s doing everything possible to create inflation.

Panic hits the crypto markets, dragging down technology equities with them. The two have been trading 1:1 for four months. Bitcoin suffered an eye-popping 25% plunge from $58,000 to 43,600. The tail is now wagging the dog. All risk-taking may have spiked with the Friday options expiration. Watch Bitcoin for a tech stock revival and vice versa. Stocks have earnings multiple support. Crypto doesn’t. I’ll buy Bitcoin when they post a customer support number.

Australian dollars soars as predicted, from $58 to $79 in 11 months. We could hit parity in 2022. The Aussie is basically a call option on a synchronized global economic recovery. End of the pandemic will also bring a resumption of massive Chinese investment in the Land Down Under. Keep buying the dips in (FXA).

Case-Shiller explodes to the upside, up 10.4% in December. It’s the hottest read in seven years for the National Home Price Index. Phoenix (14.4%), San Diego (13.0%), and Seattle (13.6%) were the strongest cities. The flight from the cities continues.

(TLT) breaks $138, surpassing my end 2021 target of a 1.50% ten-year US Treasury yield. So, I lied. My new yearend target is now $120, which would take ten-year yields to 2.00%. With a $1.9 trillion rescue budget about to kick in after the $900 billion that passed in December, the economy and demand for funds are about to rocket. Better hurry up and buy that house before mortgage rates rise out of reach.

Weekly Jobless Claims sink to 730,000. I can’t believe that 730,000 is now considered a good number, compared to 50,000 a year ago.

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

My Mad Hedge Global Trading Dispatch closed out with a 13.28% profit in February after a blockbuster 10.21% in January. The Dow Average is up a miniscule 1.1% so far in 2021.

This is my fourth double-digit month in a row. My 2021 year-to-date performance soared to 23.49%. After the February 19 option expiration, I am now 80% in cash, with longs in (XME) and (FCX).

That brings my 11-year total return to 446.04%, some 2.12 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 39.64%.

My trailing one-year return exploded to 93.48%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 103.31% since the March 20, 2020 low.

We need to keep an eye on the number of US Coronavirus cases at 28 million and deaths topping 510,000, which you can find here.

The coming week will be a boring one on the data front.

On Monday, March 1, at 10:00 AM EST, the ISM Manufacturing Index is out. Zoom (ZM) reports.

On Tuesday, March 2, at 9:00 AM, Total US Vehicle Sales for February are announced. Target (TGT) and Hewlett Packard (HPQ) report.

On Wednesday, March 3 at 8:15 AM, the ADP Private Employment Report is released. Snowflake (SNOW) reports.

On Thursday, March 4 at 9:30 AM, Weekly Jobless Claims are printed. Broadcom (AVG) and Costco (CSCO) report.

On Friday, March 5 at 8:30 AM, The February Nonfarm Payroll Report is announced. Big Lots (BIG) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, the deed is done, I got my first Covid-19 shot, pure Pfizer.

The Marine Corps failed to deliver, as only active duty are getting shots. Washoe County ran out. Incline Village said I couldn’t get a shot until July. My own doctor had no clue.

Then I got an automated call from the doctor who did my stem cell treatment on my knees five years ago. They belonged to a large group that had my birthday in their system and my number came up on the first day the under ’70s opened up.

Going there was a celebration. Everyone was thrilled to death to get their shot. It was like winning the lottery. Our little local hospital operated with machine-like efficiency, inoculating 1,300 a day. It was a straight drive in, dive out. It was an “all hands-on deck” effort, with everyone from the board directors to the billing clerks manning the needles. It took longer to buy a Big Mac than to get my shot.

To make sure I didn’t pass out, I was sent to a holding area, where a person was assigned to each car. I got the CEO and grilled him relentlessly on his business model for 30 minutes.

I haven’t felt this good since I got my polio vaccine sugar cube in 1955.

Stay healthy.

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

January 20 Infection Rate

March 3 Infection Rate

February 22, 2021

Diary, Newsletter, Summary

Global Market Comments
February 22, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or TIME FOR A BREAK)
(GME), (TLT), (FB), (AMZN), (AAPL), (XME), (FCX), (MS), (GS), (BLX), (KO), (AMD)

The Market Outlook for the Week Ahead, or Time for a Break

Diary, Newsletter

I know you’re not going to want to hear this. I might as well be trying to pull your teeth, lead you down a garden path, or sell you a high-priced annuity.

But there is nothing to do in the market right now. Nada, diddly squat, bupkis, and for all you Limey’s out there, bugger all.

For during the first six weeks of 2021, we have pretty much squeezed all there is out of the market.

Not only did we nail the timing and the direction, we also got the lead sectors, financials, brokers, chips, and short bonds (MS), (GS), (BLK), (AMD). We also chased the Volatility Index (VIX) down from $38 to a lowly $20, baying and protesting all the way.

That enabled us to extract a 28.29% profit so far in 2021, the best return in the 13-year history of the Mad Hedge Fund Trader. The only other time you see numbers this high is when Ponzi schemes get busted. And not a dollar of this was earned from the really marginal plays like Bitcoin, SPAC’s, GameStop (GME), or pot stocks.

If I feel like I did a year’s worth of work during the first seven weeks of 2021, it’s because I have, issuing 60 trade alerts since January 1.

However, bonds (TLT) are reaching the end of their current leg down. The 1.34% yield we saw on Friday is suspiciously close to the 1.36% yields we saw during the 2012 and 2017 market double bottom.

So, there may be some wood to chop around these, levels, possibly for weeks or months.

This is important because a collapsing bond market has been the principal driver of the winning trades of 2021, such as in banks, brokers, money managers, and other domestic recovery plays.

And when one side of the barbell goes dead, what do you do? You buy the other side. FANGs are just completing a six-month “time” correction where they have gone absolutely nowhere. So, Facebook (FB), Amazon (AMZN), and Apple (AAPL) may be getting ready for a roll.

One other sector that might keep running is the SPDR Mining & Metals ETF (XME), and Freeport McMoRan (FCX). That’s because it's not just us buying metals to front-run a recovery, it’s the entire world. What do you think a $2 trillion infrastructure budget will do to this area?

New lows for bonds, as the ten-year US Treasury yield hits 1.26%, up 38 basis points since January 1 and a one-year high. 1.50% here we come! Ever hear the expression “Don’t fight the Fed”? All financials are off to the races, where we were 60% long. Biden’s $1.9 trillion rescue package will be 100% borrowed and take total US borrowing to a back-breaking 55% of GDP. I hate to sound like a broken record but keep selling rallies in the (TLT), buy (JPM), (BAC), (GS), (MS), and (BRK/B) on dips.

Volatility index hit a one-year Low, which is what you’d expect at the dawn of a decade-long bull market in stocks. The (VIX) may flat line here for a while before the next out-of-the-blue spike.

The Nikkei Stock Average topped 30,000, for the first time in 31 years, Yes, it’s been a long haul. I was heavily short in the initial 1990 meltdown from 39,000 to 20,000 and many fortunes were made. The top marked the end of the Japanese company’s ability to copy their way into leadership. After that, rapidly advancing technology made copying too slow to compete in a global economy.

A midwest storm upended energy markets, with oil popping $8 to $67 and gas deliveries spiking from $4 to $999. It would have gone higher, but the software only provided for three digits. Electricity prices are all over the map. Some 4 million Texas customers are without power. Fracking has ground to a halt. Windfarms are frozen solid. If you are a net producer (as I am), you are in heaven. The turmoil is expected to be gone by the weekend. It’s another high price paid for ignoring global warming.

Weekly Jobless Claims soared, to 861,000, casting a dark cloud over the economic recovery. The news took a 300-point bite out of the Dow. Illinois and California saw the biggest gains. We are not out of the woods yet.

SpaceX was valued at $74 Billion, according to an $850 billion venture capital fundraising round this week. However, Elon Musk’s rocket company won’t go public until men are landed on Mars. The company is also the launching pad for its Starlink global WIFI project, which will cost at least $10 billion to build out. Blowing up rockets is not a good backdrop for an IPO.

Cash is still pouring off the sidelines, with equity mutual funds attracting some $7.8 billion last week. As long as this is the case, which could be for years, any market corrections will be limited. Strangely, bond funds are still pulling in money too, some $5.7 billion. It’s called a liquidity-driven market, silly!

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

My Mad Hedge Global Trading Dispatch earned an amazing 17.27% so far in February after a blockbuster 10.21% in January. The Dow Average is up a trifling 2.92% so far in 2021.

This is my fourth double-digit month in a row. My 2021 year-to-date performance soared to 27.28%. After the February 19 option expiration, I am now 80% in cash, with a single long in Tesla (TSLA) left.

That brings my 11-year total return to 450.03%, some 2.05 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an Everest-like new high of 40.30%.

My trailing one-year return exploded to 94.09%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 109.00% since the March 20, 2020 low.

We need to keep an eye on the number of US Coronavirus cases at 28 million and deaths approaching 500,000, which you can find here. We are now running at a heart breaking 3,000 deaths a day. But that is down 35% from the recent high.

The coming week will be a boring one on the data front.

On Monday, February 22, at 8:30 AM EST, the Chicago Fed National Activity Index is out. Zoon (ZM) reports.

On Tuesday, February 23 at 9:00 AM, the S&P Case-Shiller National Home Price Index for December is announced. Square (SQ) and Intuit (INTU) report.

On Wednesday, February 24 at 8:30 AM, New Home Sales for January are printed. NVIDIA (NVDA) reports.

On Thursday, February 25 at 9:30 AM, Weekly Jobless Claims are printed. US Durable Goods for January and Q4 GDP are out. Salesforce (CRM), (Moderna (MRNA), and Airbnb (ABNB) report.

On Friday, February 26 at 8:30 AM, US Personal Income and Spending are published. DraftKings (DKNG) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, if you want to see what it is like to work at Amazon, watch the movie Nomadland. It’s an artsy Francis McDormand film made with a $4 million budget about the end of life, which I caught over the weekend on Hulu.

It covers a contemporary trend in US society where retirees with no savings move into RVs and live off the grid, working occasionally to earn gas money. They raved about it in Europe.

If I don’t keep those trade alerts coming, that could be me in a couple of years.

Stay healthy.

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

February 11, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
February 11, 2021
Fiat Lux

FEATURED TRADE:

(WHEN TECHNOLOGY MEETS HEALTHCARE)
(TDOC), (FB), (AAPL), (AMZN), (NFLX), (GOOGL)

When Technology Meets Healthcare

Biotech Letter

The decision to invest in FAANG stocks—Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL)—is basically a no-brainer.

These are some of the most highly rated stocks to date, and these companies continue to grow in value.

In fact, they managed to soundly outperform the 16% returns of the S&P 500 in 2020, with the weakest stock in the list, Google’s Alphabet, climbing 31% while Apple rose by an impressive 81%.

Outside of FAANG, those who read my Mad Hedge Technology Letter know of the advantages of Software-as-as-a-Service (SaaS) and the growth of the companies behind it.

I’ve always been a fan of emerging innovations, and this is one of the reasons why I’m excited about the collaboration between technologies like SaaS to bolster age-old industries like the healthcare field.

It’s dubbed healthcare-as-a-service (HaaS).

So far, one promising stock comes to mind when it comes to HaaS: Teladoc Health (TDOC).

Teladoc is one of the companies that benefited massively from the COVID-19 lockdowns.

So far, this healthcare stock is up by over 40% year to date after skyrocketing 139% in 2020.

During the first nine months of 2020, it recorded a whopping 163% rise on virtual visits compared to the same period in 2019. Meanwhile, its revenue rose by 79%.

The convenient technology it offers, which allows patients to connect with physicians without physically visiting the doctors’ offices, allowed Teladoc to enjoy strong growth amid the pandemic.

However, Teladoc isn’t merely a reasonable investment during the COVID-19 pandemic.

The company has been quietly gaining traction in the past years.

In its 2015 to 2019 reports, Teladoc reported an impressive growth in its revenues at 78%, 59%, 89%, 79%, and 32%, respectively.

The telehealth market is projected to grow to nearly $560 billion by 2027—an estimate that’s over 9 times the $61.4 billion the industry was worth in 2019.

Needless to say, the growth in the telehealth industry is just beginning, and Teladoc is well-positioned to take advantage of the momentum.

In 2020, it has strengthened its position with its massive $18.5 billion merger with Livongo Health.

Given Livongo’s more specialized portfolio, which puts a premium on chronic care and diabetes, the newly combined companies can offer a more extensive scope of telehealth services.

By 2023, the combined Teladoc and Livongo is estimated to generate more than $3 billion in sales alone.

As for its 2021 plans, Teladoc welcomed the new year with a partnership with continuous glucose monitoring (CGM) systems manufacturer DexCom.

With this collaboration, the company would be able to offer its users “CGM-powered insights.”

In other words, patients would be able to conveniently see and monitor their own glucose levels.

While Teladoc clearly benefited from its partnerships with Livongo and DexCom, its core business continues to show strong growth.

In its third quarter earnings report, which was released days before its Livongo merger, it more than doubled its $138 million sales in 2019 to $288.8 million in 2020.

Meanwhile, the total number of its telehealth visits increased by a staggering 206% to reach 2.8 million.

With the addition of new services in its roster, Teladoc is presented with a considerable growth opportunity just by simply boosting the usage of its current clients.

To give you a better picture of how big this could get, the company recorded a total of 73 million members by the end of the third quarter last year.

Following the mergers and the new deal last January 2021, Teladoc is anticipating an additional 65 million clients.

Teladoc is one of the most exciting healthcare stocks out there today. Its move to combine technology and doctor’s visits make it a uniquely innovative and stand-out business in an age-old industry.

More importantly, it has shown that its growth is not solely reliant on the demands brought about by the COVID-19 pandemic. Instead, it has made key moves to fortify its market share.

teladoc

February 8, 2021

Tech Letter

Mad Hedge Technology Letter
February 8, 2021
Fiat Lux

Featured Trade:

(VENTURE CAPITALISTS SHARE THE CLUES TO THE TECH MARKET)
(NVDA), (OTCMKTS: SFTBY), (GOOGL), (BABA), (AMZN), (UBER), (FB)

Venture Capitalists Share Clues to the Tech Market

Tech Letter

To gain a glimpse into the current psyche of tech investing, we need to take a raw snapshot of the state of Softbank’s Vision Fund.

The Vision Fund is the brainchild of the Japanese telecom company’s founder Softbank Masayoshi Son and is the world’s largest technology-centric venture capital fund with over $100 billion in capital.

The torrent of bullish price action of late has meant that SoftBank recorded a record quarterly profit in its Vision Fund as a gangbusters’ stock market lifted the value of its portfolio companies.

However, the significant gains accrued in equity were also substantially offset by painful derivatives losses as Son attempted to parlay his winnings into leverage directional bets in the short-term.

The Vision Fund’s $8 billion profit in the December quarter is a stark change from the prior March when the pandemic was in full gear and the Fund booked major losses amid embarrassing flops like office space sharing company WeWork.

As 2020 came to a close, tech growth firms like Uber (UBER) stock exploded higher and DoorDash (DASH) gave the Vision Fund a nice payday going public at the end of the year in stellar fashion.

On the options trading front, things didn’t go so rosy.

SoftBank posted a 285.3 billion yen or $2.7 billion derivatives loss in the period.

I understand “hedging your bets” but for Son to create this massive loss undeniably has to infuriate deep-pocketed investors from Arab nations that have stuck with him through tumultuous events.

The staggering option losses was why the asset management arm registered a loss of 113.5 billion yen or $1.08 billion, up from losses of 85.2 billion yen in the previous three-month period.

Experiencing wonderful gains only to have the narrative wiped out because of high stakes option bets is perhaps a sign of the times as phenomena like the Gamestop (GME) have moved to the forefront indicating that players have access to too much liquidity at this point in the market cycle.

Some 15 companies have gone public from the Vision Fund so far, and Son does have a long list of busts and winners.

However, one might assume that he won’t hit on every company as he revealed that his Vision Fund 1 and Vision Fund 2 have invested in a total of 131 companies. In the case of DoorDash, SoftBank invested about $680 million for a stake now worth about $9 billion while its $7.7 billion investment in Uber is worth $11.3 billion.

There are still shining stars on the balance sheet.

Another six more portfolio companies are planning IPOs this year and bringing this volume model to the public markets is logical considering even zombie companies are getting funded out the wazoo at this point.

Tech is also still holding its perch as the darling of the market and Son is simply delivering to market what investors want which is growth tech and more of it.

Other issues on Softbank’s list are to sell off its interests in Alibaba, T-Mobile US Inc., and SoftBank Corp., the Japan telecommunications unit. SoftBank also announced a deal to sell its chip designer Arm to Nvidia (NVDA) for $40 billion.

On top of the risky growth companies, Softbank has also parked its capital in a who’s who of tech firms such as a $7.39 billion investment in Amazon.com (AMZN), $3.28 billion in Facebook (FB). and $1.38 billion in Alphabet or Google (GOOGL). The operation is managed by its asset management subsidiary SB Northstar, where Son personally holds a 33% stake.

Son labeled his options debacle as a “test-drive stage” hoping to play down the fact that he should have made a lot more with the massive ramp-up in tech demand in 2020.

It’s not all smooth for Son with the chaos at Alibaba (BABA), Son’s most exotic investment success to date and SoftBank’s largest asset, tanked 20% last quarter amid a Chinese government clampdown on Alibaba Founder Jack Ma.

This has to worry Son’s future tech investing prospects in China (P.R.C.).

SoftBank’s own sale of Arm to Nvidia (NVDA) is still making the rounds through the EU approval process. The United Kingdom and European Union are both preparing to launch probes into the deal.

All in all, a mixed bag for the Vision Fund where profits should have been higher and most of the damage was self-inflicted.

At some point, throwing massive amounts of capital to juice up tech growth firms will backfire, but the generous access to liquidity that Son has makes this strategy work while even affording him some massive failures.

In short, the Vision Fund should be many times more profitable and it’s a reminder that these leveraged bets aren’t going away which should mean enough liquidity out there to take the markets higher.

We should also be aware that the eventual “market mistake” could give us 10% tech corrections, which are no brainer buying opportunities if the same liquidity volume persists.

Then consider that many tech companies have done well in the recent earnings season and combine that with the eventual reestablishment of buybacks and the neutral observer must think that tech has more room to run in 2021.

February 2, 2021

Diary, Newsletter, Summary

Global Market Comments
February 2, 2021
Fiat Lux

Featured Trade:

(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CELG), (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

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 13, 2021

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January 13, 2021
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