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December 14 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the December 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: Is it time to short the S&P 500 (SPY), or go into cash?

A: I vote for cash. Number 1. We’ve just had a tremendous run in the market. The 200-day moving average at $405 is proving to be massive resistance, and you could get a bunch of profit-taking in January on all the positions people bought up in October. They’ve made a ton of money on that, and they may be deferring to profit-taking, hoping for the Santa Clause rally to continue and to take advantage of all that time decay over the holidays—so, high risk. Risk-reward right now is terrible, so I don’t want to do anything. I’m 100% cash, and I’ll stay that way until the New Year unless something exceptional happens in the markets—you never know what might happen. And I watch markets 24/7, vacation or not because it's in my blood.

Q: What about Financials?

A: Wait until the next dip and then go for call spreads which deliver max profits in sideways markets. JP Morgan (JPM), Bank of America (BAC), Citigroup (C) and you might take a look at Wells Fargo (WFC) next time around, but they always seem to be getting into trouble.

Q: What do we do about interest rates here?

A: Look for the 10-year Treasury bond (TLT) yield to drop to about 2.50% in 2023, about the first half of 2023—maybe by June or so. We did just have a round of profit-taking, but we’re adding on dips.

Q: What do you think about the US sending patriot batteries to Ukraine?

A: The problem is the MIM-104 Patriot SAM system is kind of old—about 41 years old—and it’s been outrun by the new technologies developed by the Ukraine war. Also, 1,000 drones at $1,000 each would be cheaper than 1 patriot missile for $4 million. Sending swarms of hundreds of super cheap drone bombs to attack targets has only been developed over the past six months and you only need one to get through to destroy the target for which the patriot would be useless. Patriot is really designed to shoot down incoming Russian intercontinental ballistic missiles with nuclear warheads with one hour of notice and highly predictable trajectories. We used them a lot in the Gulf War in 1991, and we gave many to Israel which used them to great effect when defending big cities. But they were only firing against slow WWII German-style V2 rockets which Saddam Hussein literally copied off of Wikipedia. If you want to see how effective the new drone strategy is, watch competitive drone racing (https://www.youtube.com/watch?v=HNRiMgNnuVE ), or robot wars (http://www.robotwars.tv ), or any of these other online programs where you have drones controlled by humans doing exactly what I’m talking about. Also, 1,000 drones at $1,000 each would be cheaper than 1 patriot missile for $ million.

Q: What’s your Rivian (RIVN) target by the January options expiration?

A: I have no idea, but Elon Musk has had the impact of destroying not only Tesla but the entire EV sector, so Rivian is a great company clearly being dragged down by Tesla. But also, a joint venture to make trucks in Europe was also put on hold with Mercedes. And of course, nobody wants to spend money ahead of a recession. Buy (RIVN) two-year LEAPS.

Q: Why is the US buying Natural Gas (UNG) in Massachusetts from Russia when we have so much already in this country?

A: The US does not have a national natural gas pipeline system, so you can have excesses in Texas where it’s produced meet shortages in Massachusetts where it’s consumed. Somebody found a loophole to get Russian gas into the US using offshore shell companies which I’m sure will be closed instantly once that delivery is made. Suffice it to say that the sanctions on Russia are tightening, are having a deeper effect and forcing them to pull out of Ukraine sooner than we expect. That may be the pivotal black swan of 2023—that Russia gives up on Ukraine, which would be a huge positive for all markets.

Q: When will we be using nuclear fusion?

A: I have been following nuclear fusion for 50 years, ever since I worked at the Nuclear Test Site in Nevada—it’s long been the holy grail for alternative energy. I talked to the teams every once in a while, since they live next door. The positive developments we saw in England last week are a big breakthrough, but you’re looking for at least 30 years until we get functional economic nuclear fusion power plants. So, we only have to stay alive for 30 more years (and keep climate change from killing us all off in the meantime) before we get carbon-free energy in an unlimited supply. Having said that, from the time they developed a functional commercial nuclear powerplant using Uranium in 1957 from the initial use of the atomic bomb in 1945, was only 12 years and that had to be equally as daunting. So, I may be wrong, and there may be other breakthroughs coming our way, but you don’t control 150 million degrees easily—that's what’s necessary with fusion. The amounts of power input required are also staggering, like all the power that San Francisco uses in a day, just to produce marginal bits of electricity. And the deuterium fuel needed (H2, or heavy hydrogen) in large quantities would not exactly be cheap either. But in 30 years every city should get its own min sun to provide unlimited electricity. So there’s your science lecture of the day, from a long-term fusion follower. For a more detailed explanation please click here at https://www.energy.gov/science/doe-explainsnuclear-fusion-reactions

Q: Is Tesla (TSLA) a buy here?

A: Absolutely, for the long term, but I would not be amazed to see $110 print first. Number one, there’s a major short play going on here too building huge amounts of buying power, and Number two, we’re flushing out a lot of long-term profit takers for tax loss selling as we go with the year-end to offset 2022 losses in other stocks. Buying Tesla at 27X earnings multiple, and next year’s 19X multiple when it was at 100X just a year ago is kind of unbelievable. An onslaught of new Tesla positives will hit the market in 2023. The new Cybertruck comes out and there is a two-year waiting list out the gate and deposits in hand for 100,000 vehicles. The company is generating such enormous cash flows that it is like to carry out $10 billion in share buybacks, especially with the price this low. There are no real competitors on the horizon, except for a handful with minimal production at big losses outside of China.

Q: Is the demise of FTX the end of crypto?

A: I would say yes, which is why we stopped producing our Bitcoin newsletter. It could take 30 years for this thing to recover. It’s another Japanese stock market type situation, where it literally takes three decades to recover, and by then new technologies will far surpass it. The confidence in anything crypto has been totally destroyed by the FTX scandal—it’s the final nail in the coffin. And there are better things to do—I’d rather be buying NVIDIA (NVDA) or Tesla (TSLA) than crypto. There are too many great trades after a bear market.

Q: Is Blackrock (BLK) in trouble?

A: Not in a million years, and I’d be buying it on any dip. They’re an incredibly well-run company, buy on dips. They have one gated REIT which thei disclosed well in advance that is drawing all the adverse publicity. In bear markets, traders always believe the worst.

Q: Why would you not sell Nvidia (NVDA)?

A: Well, we dumped all our tech stocks in January, so we did sell there. But I try not to go against long-term trends, and the long-term trends for Nvidia is a double or triple from here since they are the 8-pound gorilla in the high-end chip business.

Q: Why is cybersecurity (PANW), (CRWD) so unloved in this environment?

A: They are over-owned. When everybody owns something, you can have the greatest story in the world and it doesn’t go up because you need new buyers for things to go up, and the Cybersecurity story is pretty well known. That’s why it won’t go down either, people are not selling because they believe in the long-term story of cyber security—and quite correctly so, and I might add at the bottom of the ranges.

Q: Isn’t Warren Buffet’s age a worry regarding Berkshire Hathaway (BRKB)?

A: No, the replacement management team that has been there for 20 years, is generating great results. Warren is basically just the front-end mouthpiece for Berkshire Hathaway, just like I’m the front-end mouthpiece for the Mad Hedge Fund Trader and isn't really involved in day-to-day decisions. That’s how Berkshire was able to step up its technology exposure during the teens. When he goes, the stock might drop 5% from algorithm and uninformed sales, but no more.

Q: What do you think of the iShares 20 Plus Year Treasury Bond ETF (TLT) versus the ProShares UltraShort 20+ Year Treasury (TBT)?

A: Avoid the (TBT) because it’s a 2x—you have extra management fees, and extra dealing costs—it’s better just to buy (TLT) on a 2x margin than it is shorting the (TBT) which is already a 2x. I’m looking for $120-$130 in the (TLT) by mid-2023, which is also a great LEAPS candidate.

Q: Is the market rethinking technology multiples here which are IBIDTA based?

A: It has already rethought the technology multiples because they have collapsed. They have dropped, in Tesla’s case 100X to 19X, which looks like a pretty serious piece of rethinking to me, so yes absolutely. Where is the final level? My theory always has been that when tech falls to a market multiple, which for the S&P 500 right now is 18.5X, that is your final bottom in tech multiples which means they may have more to go down. And what might really happen is you may have a situation where the market multiples start to rise again and get back up to the 20’s, tech falls, and they meet somewhere in the low 20s. That’s your final bottom for tech, and then you buy it to own for the next 10 years.

Q: When do you think the Fed will start lowering rates?

A: It will be a second-half affair. First of all, they have to raise rates by 50 basis points on Wednesday, then raise them again in February by 50 and again in March by 25, and then leave them alone for 3 months. Then we will have a recession, or dramatically lower inflation by then, or both. And then they’ll have room to start cutting, which sets a calendar of about June where they start several 75 basis point CUTS. Remember, markets discount things 6-9 months in advance, which is why we had that $20 rally in the (TLT) that started in February. There’s your calendar. So far, it’s working.

Q: Will you give a buy signal on Tesla (TSLA)?

A: More like a Hail Mary on Tesla, hoping that it’s the bottom. When you get these capitulation selloffs, which is what we’re getting on Tesla, there is absolutely no way of predicting where the final number is, because you’re dealing with human emotions here, which are totally unpredictable and are panicking. I’d rather wait, give the first 10% of the move to the next guy, and then play the new trend from there. But I think Tesla could be one of the top performers of 2023. Especially if you get down to like $110 or so, something unbelievable—you know, get Tesla to market multiple, that means it’s got to drop another $30 essentially, and in this environment, it could do that. It could keep going down every day for the rest of this year because a lot of these big reversals tend to happen at year ends. When you get the last Tesla bull out of there, that’s when it goes up. After that, it’s all short covering.

Q: Do you think it will be 50 or 75 basis points?

A: It’s a coin toss for whether it’s 50 or 75. Knowing Jay Powell as I do, I’d go for 50, but with harsh talk. I think he wants to shock us, wants to kill off this stock market rally, wants to kill off any hope you can get one more price rise through the system before we hit a recession. A 50 basis points would be a real shocker and, by the way, would also give us easily a 1000-point selloff, which we could then use to buy into for the new year.

Q: Could Tesla reach $600?

A: Yes, I think it could. Remember, the fundamental story for Tesla is still on track. They are still growing at a 40% rate, while the rest of Detroit is going nowhere. All of their leads are overwhelming, and the really telling aspect for the future of Tesla is that Apple gave up on its autonomous driving program. Every other car company in the world is going to come to the same decision, except for maybe Google. So yes, the bull case is absolutely there, you just have to wait for the current capitulation to flush out, and then it becomes a buy for years.

Q: Does the adoption of a digital currency impact the economy?

A: No, I think anything digital money is on hold for the foreseeable future as the FTX disaster unfolds.

Q: Do you like Salesforce (CRM)?

A: Yes, long-term. It’s also in a capitulation “catch a falling knife” stage. Wait for that to finish—better to buy it on the way up than on the way down is all I can say.

Q: Will there be any restrictions on copper mining (FCX)?

A: Not that I can think of—we’re looking at an enormous shortage of copper going forward and a future copper shock. Most of this is produced in emerging markets that have no environmental restrictions, which is why it happens there, like Chile. So yes, looking for new copper sources will be one of the big plays of this decade.

Q: Do you think the market will bottom in 2023?

A: Yes, if it hasn’t already.

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 12 years are there in all their glory.

Good Luck and Stay Healthy.

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

Peleliu in 1978 with a Japanese 8 Inch Gun

November 18, 2022

Diary, Newsletter, Summary

Global Market Comments
November 18, 2022
Fiat Lux

Featured Trade:
(NOVEMBER 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (JNK), (HYG) or (TLT), (UUP), (FXE), (FXC), (FXA), (ALB), (FCX), (PYPL), (FXI), (GLD), (CCJ), (BHP), (RCL)

November 16 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Research

Below please find subscribers’ Q&A for the November 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: What do you see Tesla (TSLA) moving to from here until next year?

A: Not much; I mean if you’re lucky, Tesla won’t move at all. The problem is Twitter is looking like a disaster of huge proportions—firing half the staff on day one? Never good for building a business. Tesla has also been tied to the rest of big tech, which has been in awful condition and may not see a continuous move upward until the Fed actually starts lowering interest rates in the second quarter of next year. Tesla could be dead money here for a while; eventually, a company growing at 50% a year will go up—especially when it’s just had a 50% decline in the share price. As to when that is, I don’t know, and asking me 15 more times will get you just the same answer.

Q: Should we start piling into iShares 20 Plus Year Treasury Bond ETF (TLT) longs now or wait?

A: You go now. Every day you waited meant paying one point more in TLT. I think the bottom is in; we have a 20-30 point move ahead of us. Everybody in the world is now trying to get into this trade, just like I spent all this year trying to get out of it. And if anything, November CPI could be a long term-term top in inflation, especially if we came in with another cold number. So, I would start scaling in now, even though we’re over $100 in the (TLT) today and I first recommended this around $95.

Q: If the Fed keeps raising interest rates, will the US Treasury market fall?

A: Probably not because the Fed only has control of overnight interest rates—the discount rate, the interbank rate—whereas the (TLT) is a 10-to-20-year maturity bond. No matter what short term rates do, the inversion will just keep getting bigger, but in fact, the bond market itself was yielding 4.46%, yielding 8% with junk, has bottomed and will probably start going up from here. So that is the difference between the Fed and what the actual market does.

Q: Do you prefer Junk (JNK), (HYG), or (TLT)?

A: I always go for the highest risk. Junk has about an 8% yield here compared to 3.75% for the TLT. By the way, if you want to do one trade and go to sleep, buy the junk on 2 to 1 margin, get your 16% yield next year, and just take a one-year vacation. That’s what some people do.

Q: When you say the dollar is going to go down what do you mean?

A: I mean the US dollar, while Canadian (FXC) and Australian dollars (FXA) will go up.

Q: What is the best time to buy US dollars?

A: Maybe in five years, as it could go down for five or 10 years from here, now that it’s going to imminently give up its yield advantage.

Q: What's the forecast for casinos?

A: I think casinos do better. Las Vegas was absolutely packed, you couldn’t get into the best hotels—people are spending money like crazy.

Q: What’s the best way to play (TLT)?

A: With a one-year LEAP. I put out the $95/$100 last week for my concierge members. Here, you probably want to do the $100/$105; that’ll still give you a one-year return of 100%.

Q: How do you short the dollar?

A: There are loads of short dollar ETFs out there, or you can just sell short the Invesco DB US Dollar Index Bullish Fund (UUP), which is the dollar basket, or buy the (FXA) or (FXE).

Q: Freeport McMoRan (FCX) just went from 25 to 38; is it time to take a profit and re-enter at a lower point?

A: Short term yes, long term no. My long-term target for (FCX) is $100 because of the exponential growth of copper demand caused by EV production going from 1.5 million to 20 million a year in the next 10 years. Each EV needs 200 pounds of copper, so by 2030, annual copper demand for EVs only will be 20 billion pounds. In 2021, the total annual global copper production was 46.2 billion pounds. In order words, global copper production has to double in eight years just to accommodate EV growth only.

Q: Do you think there’ll be a rail worker strike?

A: I have no idea, but it will be a disaster if there is. There’s your recession scenario.

Q: What strike prices do you like for a Tesla LEAP?

A: Anything above here really. You could be cautious and do something like a $200/$210 two years out—that has a double in it. Or you could be more adventurous and go for a 400% return with like a $250/$260 in two years. I’m almost sure that we’ll have a major recovery in Tesla within two years.

Q: What’s your opinion on PayPal (PYPL) and Albemarle (ALB)?

A: I’m trying to stay away from the fintech area, partly because it’s tech and partly because the banks are recapturing a lot of the business they were losing to fintech a couple of years ago by moving into fintech themselves. That is the story and we’re clearly seeing that in the share prices of both banks and PayPal. I like Albemarle because the demand for lithium going forward is almost exponential.

Q: What’s your thought on the Australian dollar (AUD)?

A: Buy it with both hands as it is going to parity. Australia is a great indirect play on trade with China (FXI), gold (GLD), uranium (CCJ), and iron ore (BHP). It’s a great play on the recovery of the global economy, which will start next year.

Q: What do you think about Royal Caribbean Cruises Ltd (RCL)?

A: Probably a buy but remember all the cruise lines will be impaired to some extent by the massive debts they had to take on to survive two years of shutdown with the pandemic. I took the Queen Victoria last July on their Norwegian Fjord cruise, and it had not been operated for two years. None of the staff had any idea what to do. I had to show them.

Q: Will big tech have a good second half?

A: Probably, but it’s going to be a slow first quarter, and I think if we start getting actual cuts in interest rates, then it’s going to be off to the races for tech and they’ll all go to all-time highs as they always do.

Q: How come you haven’t issued any trade alerts yet on the currencies?

A: Calling a five-year turnaround is a big job. Now that we have the turnaround in play, we’re in dip-buying mode. So, you will see these in the future. But I also have to look at what currency trades are offering compared to other trades in other asset classes. And for the last year or two, the big opportunities have all been in stocks. You had volatility constantly visiting the mid $30s, you didn’t get that in the currencies, and more money was to be made in stock trades than foreign currency trades. That is changing now; let's see if we have a sustainable trend and if we get a good entry point. There’s a lot that goes into these trade alerts that you don’t always get to see. We only get a 95% success rate by being very careful in sending out trade alerts and that means long periods of doing nothing when the risk/reward is mediocre at best, which is right now. The services that guarantee you a trade alert every day all lose money.

Q: What is the recommended minimum portfolio size to amortize the cost of the concierge service?

A: I tell people to have a half a million in assets because we want people who are financially sophisticated to understand what we’re telling them. That said, we do have people with as little as 100,000 in the concierge service and they usually make the money back on the first trade. This is a very sophisticated high-return, very active service. You get my personal cell phone number and all that, plus your own dedicated website, and specific concierge-only research. It’s a much higher level of service. It’s by application only and we currently have no places available for new concierge members. However, if you’re interested, we can put you on the waitlist so that when another millionaire retires, we can open up a space.

Q: Despite recent moves, the algo looks bearish. There are lots of mixed signals.

A: Yes, it does. And yes, that’s often the case when the market timing index hangs around 50.

Q: Do concierges go for short term moves?

A: No, concierges are looking for the big, long-term trades that they can just buy and forget about. That is where the big money is made. At least 90% of the people that try day trading lose money but make all the brokers rich.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or Technology Letter, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Stay Healthy,

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

November 17, 2022

Diary, Newsletter, Summary

Global Market Comments
November 17, 2022
Fiat Lux

Featured Trade:
(WATCH OUT FOR THE COMING COPPER SHOCK)
(FCX), ($COPPER)

Watch Out for the Coming Copper Shock

Diary, Newsletter, Research

You remember the two oil shocks, don’t you? The endless lines at gas stations, soaring prices, and paying close attention to OPEC’s every murmur?

Now we are about to get the 2020’s environmentally friendly, decarbonizing economy version: the copper shock.

For copper is about to become the new oil.

The causes of the coming supply crunch for the red metal are manifold.

If you take all of the commitments to green energy made by the Paris Climate Accord, which the US just reentered, they amount to demand for copper about three times current world production.

Oops, nobody thought of that.

Copper is needed in enormous quantitates to build millions of electric cars, solar panels, batteries, windmills, and long-distance transmission lines for a power grid that is going to have to triple in size. Lift a 50-pound rotor from a Tesla wheel as I have and most of the weight is in the copper.

You basically don’t have a green movement without copper.

In addition, existing copper miners seem utterly clueless about the coming shortage of their commodities. Capital spending has been deferred for decades and maintenance delayed.

New greenfield mines are scant and far between. Copper inventories are at a ten-year low. Mines were closed for months in 2020 thanks to a shortage of workers caused by the pandemic.

Copper is the last of the old-school commodities that are still actively traded. It takes 5-10 years at a minimum to bring new mines online. By the time potential sites are surveyed, permits obtained, heavy equipment moved on-site, rail lines laid, water supplies obtained, and bribes paid, it can be a very expensive proposition.

That’s why near-term prospects are only to be found in Chile, Peru, and South Africa, not your first choices when it comes to political stability.

Copper is the single best value-for-money conductor of electricity for which there are very few replacements. Aluminum melts and corrodes. And then there is silver (SLV), right below copper of the periodic chart, which gangster Al Capone used to wire his bulletproof 1928 Cadillac so electricity could move faster. Below silver is gold (GLD), a fine conductor of electricity but is somewhat cost-prohibitive.

As a result, base metal copper prices could more than quadruple from here to $15,000 a metric tonne or more. The last time the price was that high was in 1968, when the Vietnam War was in full swing, as the military needs a lot of copper to fight wars. The economy was then booming.

You can’t have a synchronized global economic recovery without a bull market in commodities, and the mother of all recoveries is now in play according to the latest economic data. Phoenix, AZ Freeport-based McMoRan (FCX) is one of the world’s largest producers of copper and a long-time Mad Hedge customer.

The stock has been on a tear for a month. (FCX) has soared from a 25 low in October to near $39 at the recent high. I believe this move will continue for years with a final target of $100. The old high for the stock in the last cycle was $50.

Short term, the demand for copper will be driven by Chinese real estate constructions, with all the Covid lockdowns now weak.

Long term it will be driven by EV production, which will soar from 1.5 million units this year to 20 million by 2030. Each EV required 200 pounds of copper.

I’ll let you do the math.

These Tesla Copper Rotors Weigh About 50 Pounds Each

Riding My Way to a Copper Killing

October 4, 2022

Diary, Newsletter, Summary

Global Market Comments
October 4, 2022
Fiat Lux

Featured Trade:

(BUY the Freeport McMoRan (FCX) January 2025 $42-$45
out-of-the-money vertical Bull Call spread LEAPS at $0.65 or best)
(FCX)

BUY the Freeport McMoRan (FCX) January 2025 $42-$45 out-of-the-money vertical Bull Call spread LEAPS at $0.65 or best

Diary, Newsletter, Research

Keep in mind that NVIDIA is one of the most volatile stocks in the market. You don’t have to buy it today. A big selloff would be ideal. But it should be at the core of any long-term LEAPS portfolio.

Trade Alert - (FCX) – BUY

BUY the Freeport McMoRan (FCX) January 2025 $42-$45 out-of-the-money vertical Bull Call spread LEAPS at $0.65 or best

Opening Trade

10-4-2022

expiration date: January 17, 2025

Number of Contracts = 1 contract

If you are looking for a lottery ticket, then here is a lottery ticket.

While the chance of winning a real lottery is something like a million to one, this one is more like 2:1 in your favor. And the payoff is 3.6:1. That is the probability that Tesla shares will rise by 82% over the next two years and four months.

You may not have noticed, but we have just entered the golden age of the electric vehicle, thanks to climate change and massive government support. Each EV will need 200 pounds of copper, and Freeport McMoRan is the world's largest copper producer. It is also the world’s largest producer of molybdenum and owns some of the world’s largest gold mines.

The company’s output will have to increase by at least 500% over the next eight years to accommodate projected copper demand. (FCX) has also been especially accommodating in that its shares have just dropped by 52% over the last 6 months.

To learn more about the company (and to order a car), please visit their website at https://www.fcx.com

I am therefore buying the Freeport McMoRan (FCX) January 2025 $42-$45 out-of-the-money vertical Bull Call spread LEAPS at $0.65 or best

Don’t pay more than $1.00 or you’ll be chasing on a risk/reward basis.

January 2025 is the longest expiration currently listed. If you want to get more aggressive with more leverage, use a pair of strike prices higher up. This will give you a larger number of contracts at a lower price.

Please note that these options are illiquid, and it may take some work to get in or out. Start at my price and work your way up until you get done. Executing these trades is more an art than a science.

Let’s say the Freeport McMoRan (FCX) January 2025 $42-$45 out-of-the-money vertical Bull Call spread LEAPS are showing a bid/offer spread of $0.50-$1.50. Enter an order for one contract at $0.50, another for $0.60, another for $0.70, and so on. Eventually, you will enter a price that gets filled immediately. That is the real price. Then enter an order for your full position at that real price.

Notice that the day-to-day volatility of LEAPS prices is miniscule since the time value is so great. This means that the day-to-day moves in your P&L will be small. It also means you can buy your position over the course of a month just entering new orders every day. I know this can be tedious, but getting screwed by overpaying for a position is even more tedious.

Look at the math below and you will see that an 82% rise in (FCX) shares will generate a 360% profit with this position, such is the wonder of LEAPS. That gives you an implied leverage of 3.6:1 across the $42-$45 space. In other words, the stock has to just get to where it was in June for you to make the maximum 360% profit on this trade.

Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. Just enter a limit order and work it until you find the real price.

This is a bet that Freeport McMoRan will close above $45 by the January 17, 2025 options expiration in 2 years and 4 months.

Here are the specific trades you need to execute this position:

Buy 1 January 2025 (FCX) $42 call at………….………$6.00

Sell short 1 January 2025 (FCX) $45 call at….………$5.35

Net Cost:………………………….………..…………....….....$0.65

Potential Profit: $3.00 - $0.65 = $2.35

(1 X 100 X $2.35) = $235 or 3.6X in 2 years and 4 months.

October 3, 2022

Diary, Newsletter, Summary

Global Market Comments
October 3, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or BET THE RANCH TIME IS APPROACHING),
(SPY), (VIX), (UUP), (TSLA), (RIVN), (USO), (TLT), (FCX), (SPY), (NVDA), (BRKB)

The Market Outlook for the Week Ahead, or Bet the Ranch Time is Approaching

Diary, Newsletter, Research

September is notorious as the worst month of the year for the market. Boy, did it deliver, down a gut busting 9.7%!

As for the Mad Hedge Fund Trader, September was one of the best trading months of my 54-year career. But then I knew what was coming.

So did you.

With some of the greatest market volatility in market history, my September month-to-date performance exploded to exactly +9.72%.

I used last week’s extreme volatility and move to a Volatility Index (VIX) of $34 to add longs in Freeport McMoRan (FCX), S&P 500 (SPY), NVIDIA (NVDA), and Berkshire Hathaway (BRKB). I added shorts in the (SPY) and the (TLT). That takes me to 70% long, 20% short, and 10% cash. I am holding back my cash for any kind of rally to sell into.

My 2022 year-to-date performance ballooned to +69.68%, a new high. The Dow Average is down -23.44% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky high +80.08%.

That brings my 14-year total return to +582.24%, some 3.03 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +45.45%, easily the highest in the industry.

It was in May of 2020 when 34 of my clients became millionaires through buying TESLA at precisely the right time…

Well, the stars have aligned once again!!!!

In my TESLA free report, I list 10 reasons I’d tell my grandmother to mortgage her house and go all in.

Go to MADHEDGERADIO.com and download my “Tesla takes over the world” free report…that’s

madhedgeradio.com.

At the end of the month, the market was down six days in a row. That has only happened 20 times since 1950.

However, bet the ranch time is approaching. It’s time to start scaling in in a small way into your favorite long term names where the value is the greatest.

The Fed has taken away the free put that the stock market has enjoyed for the last 13 years. Now, it’s the bond market that has the free put. Hint: always own the market where the Fed is giving you free, unlimited downside protection.

People often ask what I do for a living. I always answer, “Talking people out of selling stocks at the bottom.” Here is the cycle I see repeating endlessly. They tell me they are long term investors. Then the markets take a sudden dive, like to (SPX) $3,300, a geopolitical event takes place, and the TV networks only run nonstop Armageddon gurus. They sell everything.

Then the market turns sharply, and they helplessly watch stocks soar. When they get frustrated enough, they buy, usually near a market top.

Sell low, buy high, they are perfect money destruction machines. And they wonder why they never make money in the stock market!

If any of this sounds familiar you have a problem and need to read more Mad Hedge newsletters. The people who ignore me I never hear from again. Those who follow me stick with me for decades.

Don’t make the mistake here of only looking at real GDP growth which, in recessions, is always negative. Nominal GDP is growing like a bat out of hell, 12% in 2021 and 8% in 2022. That’s 20% in two years, nothing to be sneezed at.

The problem is that all economic data has been rendered useless by the pandemic, even for legitimate and accomplished Wall Street analysts. The US economy was put through a massive restructuring practically overnight, the long-term consequences of which nobody will understand for years. Typical is the recently released Consumer Price Index, which said that real estate prices are rocketing, when in fact they are crashing.

A lot of people have asked me about the comments from my old friend, hedge fund legend Paul Tudor Jones, that the Dow Average would show a zero return for the next decade.

For Paul to be right, technological innovation would have to completely cease for the next decade. Sitting here in the middle of Silicon Valley, I can tell you that is absolutely not happening. In fact, I’m seeing the opposite. Innovation is accelerating at an exponential rate. For goodness sakes, Apple just brought out a satellite phone with its iPhone 14 pro for a $100 upgrade!

Remember, Paul got famous, and rich, from the trades he did 40 years ago with me, not because of anything he did recently. Paul has in fact been bearish for at least five years.

Still, we have a long way to go on earnings multiples. The trailing S&P 500 market multiple is now at 19. The historic low is at 15. Current earnings are $245 per (SPX) share. The 3,000 target the bears are shouting from the rooftops assumes that a severe recession takes earnings down to $200 a share ($3,000/$200 = 15X).

I don’t think earnings will get that bad. Big chunks of the economy are still growing nicely. Companies are commanding premium prices for practically everything. There is no unemployment because the jobs market is booming.

That suggests to me a final low in this market of $3,000-$3,300. That means you can buy 15%-20% deep in-the-money vertical bull call spreads RIGHT HERE and make a killing, as Mad Hedge has done all year.

Let me plant a thought in your mind.

After easing for too long, then tightening for too long, what does the Fed do next? It eases for too long….again. You definitely want to be long stocks when that happens, which will probably start some time next year.

Let me give you one more data point. The (SPY) has been down 7% or more in September only seven times since 1950. In six of the Octobers that followed, the market was up 8% or more.

Sounds like it’s time to bet the ranch to me.

Capitulation Indicators are Starting to Flash. Cash levels at mutual funds are at all-time highs. The Bank of America Investors Survey shows the high number of managers expecting a recession since the 2020 pandemic low, the last great buying opportunity. Commercial hedgers are showing the largest short positions since 2020. And of course, my old favorite, the Volatility Index (VIX) hit $34.00 on Tuesday. The risks of NOT being invested are rising.

Bank of England Moves to Support a Crashing Pound (FXB), by flipping from a seller to a buyer in the long-dated bond market, thus dropping interest rates. The move is designed to offset the new Truss government’s plan to cut taxes and boost deficit spending. The BOE also indicated that interest rate hikes are coming. The bond vigilantes are back.

Here’s the Next Financial Crisis, massive unrealized losses in the bond market. The (TLT) alone has lost 43% in 2 ½ years. Apply that to a global $150 trillion bond market and it adds up to a lot of money. Anybody who used leverage is now gone. How many investors without swimsuits will be discovered when the tide goes out?

Will the Strong Dollar (UUP) Do the Fed’s Work, forestalling a 75-basis point rate rise? It will if the buck continues to appreciate at the current rate, up a record five cents against the British pound, taking it to a record low of $1.03. Such is the deflationary impact of weak foreign currencies, which are seriously eating into US multination earnings.

Weekly Jobless Claims Hit Five-Month Low at 195,000, far below expectations. If the Fed is waiting for the job market to roll over before it quits raising interest rates, it could be a long wait.

EV Sales to Hit New All-Time High in 2022, to 13% of global new vehicle sales, up from 9% last year. The IEA expects this figure to reach 50% by 2030. That works out to 6.6 million EVs in 2021, 9.5 million in 2022, and 36 million by 2030. Buy (TSLA), the world’s largest EV seller, and (RIVN), the fastest grower in percentage terms, on dips.

EVs Take 25% of China New Vehicle Sales, and Tesla’s Shanghai factory is a major participant. Tesla just double production there. Some 403,000 EVs were sold in China in May alone. China is also ramping up its own EV production, up 183% YOY. China is much more dependent on imported oil than other large nations, most of which goes to transportation. Global EV production is expected to soar from 8 to 60 million vehicles in five years and Tesla is the overwhelming leader. Buy (TSLA) on dips again.

Oil (USO) Hits New 2022 Low at $78 a Barrel, cheaper than pre–Ukraine War prices, thanks to exploding recession fears. Is Jay Powell the most effective weapon against Russia with his most rapid interest rate rises in history?

Consumer Sentiment Hits Record Low at 59.1 according to the University of Michigan. That’s worse than the pandemic low and the 2009 Great Recession low. It could be that politics has ruined this data source making everyone permanently negative about the future. Inflation at a 40-year high isn’t helping either, nor is the prospect of nuclear war.

Case Shiller Delivers a Shocking Fall, down from 18.7% to 16.1% in June. The other shoe is falling with the sharpest drop in this data series in history. Tampa was up (31.8%), Miami (31.7%), and Dallas (24.7%). Many more declines to come.

30-Year Fixed Rate Mortgage Hits 7.08%, up from 2.75% a year ago. You can kiss those retirement dreams goodbye. It has been the sharpest rise in mortgage rates in history. Real estate has just become an all-cash market. That screeching juddering sound you hear is the existing home market shutting down.

Pending Home Sales Drop, down 2.0% in August on a signed contract basis. Sales are down for the third month in a row and are off 24% YOY. Only the west gained. Mortgage interest rates are now at 20-year highs. Buyers catching recession fears are breaking contracts and walking away from deposits.

Stock Crash Wipes Out $9 Trillion in Personal Wealth, which is the fall in equity holdings and mutual funds as of the end of June. The drop has been from $42 to $33 trillion. The bad news: it’s still going down, putting a dent in consumer spending.

My Ten-Year View

When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil in a sharp downtrend and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

On Monday, October 3 at 8:30 AM, the ISM Manufacturing PMI for September is released.

On Tuesday, October 4 at 7:00 AM, the JOLTS Report for private job openings for September is out.

On Wednesday, October 5 at 7:00 AM, ADP Private Employment Report for September is published.

On Thursday, October 6 at 8:30 AM, Weekly Jobless Claims are announced.

On Friday, October at 8.30 AM, the Nonfarm Payroll Report for September is disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, while working for The Economist magazine in London, I was invited to interview some pretty amazing people: Margaret Thatcher, Ronald Reagan, Yasir Arafat, Zhou Enlai.

But one stands out as an all time favorite.

In 1982, I was working out of the magazine’s New York Bureau off on Third Avenue and 47^th Street, just seven blocks from my home on Sutton Place, when a surprise call came in from the editor in London, Andrew Knight. International calls were very expensive then, so it had to be important.

Did anyone in the company happen to have a US top secret clearance?

I answer that it just so happened that I did, a holdover from my days at the the Nuclear Test Site in Nevada. “What’s the deal,” I asked?

A person they had been pursuing for decades had just retired and finally agreed to an interview, but only with someone who had clearance. Who was it? He couldn’t say now. I was ordered to fly to Los Angeles and await further instructions.

Intrigued, I boarded the next flight to LA wondering what this was all about. What I remember about that flight is that sitting next to me in first class was the Hollywood director Oliver Stone, a Vietnam veteran who made the movie Platoon. When Stone learned I was from The Economist, he spent the entire six hours grilling me on every conspiracy theory under the sun, which I shot down one right after the other.

Once in LA, I checked into my favorite haunt, the Beverly Hills Hotel, requesting the suite that Marilyn Monroe used to live in. The call came in the middle of the night. Rent a four-wheel drive asap and head out to a remote ranch in the mountains 20 miles east of Santa Barbara. And who was I interviewing?

Kelly Johnson from Lockheed Aircraft (LMT).

Suddenly, everything became clear.

Kelly Johnson was a legend in the aviation community. He grew up on a farm in Michigan and obtained one of the first masters degrees in Aeronautical Engineering in 1933 at the University of Michigan.

He cold called Lockheed Aircraft in Los Angeles begging for a job, then on the verge of bankruptcy in the depths of the Great Depression. Lockheed hired him for $80 a month. What was one of his early projects? Assisting Amelia Earhart with customization of her Lockheed Electra for her coming around-the-world trip, from which she never returned.

Impressed with his performance, Lockheed assigned him to the company’s most secret project, the twin engine P-38 Lightning, the first American fighter to top 400 miles per hour. With counter rotating props, the plane was so advanced that it killed a quarter of the pilots who trained on it. But it allowed the US do dominate the air war in the Pacific early on.

Kelley’s next big job was the Lockheed Constellation (the “Connie” to us veterans), the plane that entered civil aviation after WWII. It was the first pressurized civilian plane that could fly over the weather and carried an astonishing 44 passengers. Howard Hughes bought 50 just off of the plans to found Trans World Airlines. Every airline eventually had to fly Connie’s or go out of business.

The Cold War was a golden age for Lockheed. Johnson created the famed “Skunkworks” at Edwards Air Force base in the Mojave Desert where America’s most secret aircraft were developed. He launched the C-130 Hercules, which I flew in Desert Storm, the F-104 Starfighter, and the high altitude U-2 spy plane.

The highlight of his career was the SR-71 Blackbird spy plane where every known technology was pushed to the limit. It could fly at Mach 3.0 at 100,000 feet. The Russians hated it because they couldn’t shoot it down. It was eventually put out of business by low earth satellites. The closest I ever got to the SR-71 was the National Air & Space Museum in Washington DC at Dulles airport where I spent an hour grilling a retired Blackbird pilot.

Johnson greeted me warmly and complimented me on my ability to find the place. I replied, “I’m an Eagle Scout.” He didn’t mind chatting as long as I accompanied him on his morning chores. No problem. We moved a herd of cattle from one field to another, milked a few cows, and fertilized the vegetables.

When I confessed to growing up on a ranch, he really opened up. It didn’t hurt that I was also an engineer and a scientist, so we spoke the same language. He proudly showed off his barn, probably the most technologically advanced one ever built. It looked like a Lockheed R&D lab with every imageable power tool. Clearly Kelley took work home on weekends.

Johnson recited one amazing story after the other. In 1943, the British had managed to construct two Whittle jet engines and asked Kelly to build the first jet fighter. The country that could build jet fighters first would win the war. It was the world’s most valuable machine.

Johnson clamped the engine down to a test bench and fired it up surrounded by fascinated engineers. The engine immediately sucked in a lab coat and blew up. Johnson got on the phone to England and said “Send the other one.”

The Royal Air Force placed their sole remaining jet engine on a plane which flew directly to Burbank airport. It arrived on a Sunday, so the scientist charged with the delivery took the day off and rode a taxi into Hollywood to sightsee.

There, the Los Angeles police arrested him for jaywalking. In the middle of WWII with no passport, no ID, a foreign accent, and no uniform, they hauled him straight off to jail.

It took two days for Lockheed to find him. Johnson eventually attached the jet engine to a P-51 Mustang, creating the P-80, and eventually the F-80 Shooting Star (Lockheed always uses astronomical names). Only four made it to England before the war ended. They were only allowed to fly over England because the Allies were afraid the Germans would shoot one down and gain the technology.

But the Germans did have one thing on their side. The Los Angeles Police Department delayed the development of America’s first jet fighter by two days.

Germany did eventually build 1,000 Messerschmitt Me 262 jet fighters, but too late. Over half were destroyed on the ground and the engines, made of steel and not the necessary titanium, only had a ten hour life.

That evening, I enjoyed a fabulous steak dinner from a freshly slaughtered steer before I made my way home. I even helped Kelly slaughter the animal, just like I used to do on our ranch in Montana. Steaks are always better when the meat is fresh and we picked the best cuts. I went back to the hotel and wrote a story for the ages.

It was never published.

One of the preconditions of the interview was to obtain prior clearance from the National Security Agency. They were horrified with what Johnson had told me. He had gotten so old he couldn’t remember what was declassified and what was still secret.

The NSC already knew me well from our previous encounters, but MI-6 showed up at The Economist office in London and seized all papers related to the interview. That certainly amused my editor.

Johnson died at age 80 in 1990. As for me, it was just another day in my unbelievable life.

Stay healthy,

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