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January 11 Biweekly Strategy Webinar Q&A

Below please find the subscribers’ Q&A for the January 11 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: In your trade alert you expected that the (TLT) might go up as much as 30% this year. But in your latest newsletter, you mentioned that the chaos in the US House of Representatives would greatly raise the risk of a default on US government debt by the summer and certainly cast a shadow over your 50% long bond position. Is it still a good idea to hold on to the (TLT) ETF over the next 2-6 months?

A: It is. The extremists who now control the House are not interested in governing or passing laws but gaining clicks, raising money, and increasing speaker’s fees. It may have converted (TLT) from a straight-up trade to a flat-line trade. We will still make the maximum profit on call spreads and LEAPS but with greater risk. But even chaos in the House can’t head off a recession, which the bond market seems intent on pricing in by going up. However, if you depend on government payments for any reason, be it Social Security, a government salary, a tax refund, or a payment for a contract, expect delays. The housing market also ceases because closings can’t take place during government shutdowns. Also, 30% of my bond longs expire in four trading days, and the remainder on February 17.

Q: Is it wise to sell the 2X ProShares Ultra Technology ETF (ROM) now or keep holding?

A: I think the (ROM), NASDAQ, and technology stocks in general may make several runs at the lows over the next six months but won’t fall much from here. A recession is priced in. Once we get through this, you’re looking at doubles and triples for the best names. So, the risk/reward overwhelmingly favors holding on to a one-year view.

Q: would you buy Tesla (TSLA) here?

A: I would start scaling in. The bad news is about to dry up, like Twitter, the recession, the pandemic in China, and Elon Musk selling shares. Then we face an onslaught of good news, like the new Mexico factory announcement, the Cybertruck launch, solid state batteries, and annual production hitting 2 million. At this level, the shares are priced in multiple worst-case scenarios. It is selling at 10X 2025 earnings, half the market multiple. At the end of the day, Tesla has an unassailable 14-year start over the rest of the industry and is the only company in the world that makes money on EVs. There’s an easy 10X here on two-year LEAPS.

Q: I’m in the Freeport McMoRan (FCX) January 25 2-year LEAP approaching the upper end of the 42/45 range. If it crosses 45, do we close the position?

A: Sell half, take your profit. If you’re in the LEAP, my guess is you probably have a 500% profit here in only 3 months, which is not bad. And then you keep the remaining half because you’re then playing with the house's money, and Freeport has a shot of going all the way to $100 a share by the 2025 expiration, and that will get you your full 1,000% return on the position. It’s always nice to be in a position where it’s impossible to lose money on a trade, and that certainly is where you are now with your (FCX) LEAP and everybody else in the FCX LEAP in October also.

Q: As a member of the Florida Retirement System, I’m curious how Blackrock (BLK) and other firms are dealing with the Santos’ plan for their portfolios.

A: Having a state governor manage your portfolio and make your sector and stock picks is an absolutely terrible idea. I can’t imagine a worse possible outcome for your retirement funds. Florida is not the only state doing this—Louisiana and Texas are doing it too. The goal is to drive money out of alternative energy and back into the oil industry, and obviously, this is being financed by the oil industry, which is pissed off over their low multiples. Suffice it to say it’s not a good idea to move out of one of the fastest-growing industries in the market and move into an industry that’s going to zero in 10 years. If that’s their investment strategy, I wish they’d stick to politics and leave investing for true professionals to do.

Q: What do you think about cannabis stocks?

A: I’m a better user of the product than the stock. How about that? How hard is it to grow weed? At the end of the day, these are just pure marketing companies, and that value added is low. Plus, they have huge competition from the black market still selling ½ to ⅓ below market prices because they’re tax-free; the local taxes on these cannabis sales are enormous.

Q: Would you recommend selling a bear market rally when the S&P goes to 405?

A: The (QQQ) would be the better short, something like the $310-320 vertical bear put spread for February to bring in some free money. That’s what I'm planning to do if we get up that high, which we may not.

Q: How do you take advantage of a low CBOE Volatility Index (VIX)?

A: You don’t; there’s nothing to do here with the (VIX) at $22. My trades this year were not volatility trades—because we did them with low volatility, they were pure directional trades betting that the longs would go up and the shorts would go down and they all worked.

Q: Will Rivian (RIVN) survive?

A: Yes, they have two years of cash flow in the bank, and they’re boosting production. However, a high-growth, non-earning stock like Rivian is just out of favor right now. Will they come back into favor? Yes, probably in a year or so, but in the meantime, people are much happier buying Microsoft (MSFT) at a discount than Rivian.

Q: Do you ever buy butterfly spreads?

A: No, four-legged trades run up a lot of commissions, are hard to execute because you have 4 spreads, and have lower returns. They are also lower risk and for people who have no idea what the market is going to do. I don’t need the lower risk trades because I know what markets are going to do.

Q: Do you suggest any Microsoft (MSFT) LEAPS?

A: Yes, go out two years with LEAPS and go out about 50% on your strike prices. A 50% move here in Microsoft in two years is a complete no-brainer.

Q: With weakness in retail, rising inventories, and high consumer debt, will consumers dip into savings?

A: Yes they will, but that will predominantly happen at the bottom half of the economy—the part of the economy that has minimal to no savings. The upper half seems to be doing well—the middle class and of course, the wealthy— and are not cutting back their spending at all, which is why this seems to be a recession that may not actually show up. So, what can I say? The rich are doing great and everyone else is doing less than great, and stocks are reflecting that. Nothing new here.

Q: Would you hold off on tech LEAPS for a bigger selloff, or closer to April?

A: If we do get another big selloff and challenge the October lows, I’ll be pumping out those LEAPS as fast as I can write them; except then, a two-year LEAPS will have an April of 2025 expiration.

Q: I just signed up. What are the advantages of LEAPS?

A: A possible 10x return in 2 years with very low risk. I would suggest going to my website, logging in, and doing a search for LEAPS. There will be a piece there on how to execute a LEAPS, and the Concierge members can also find that piece by logging into their website.

Q: Best and worst sectors?

A: First half, already mentioned them. We like commodities, healthcare, financials, and Berkshire Hathaway (BRK/B) in the first half and tech in the second half.

Q: Have we reached a low in cryptocurrencies?

A: Probably not, and I’ll tell you why I’ve given up on cryptos: I may not live long enough to see the bottom in crypto. It has Tokyo written all over it, and it took Tokyo 30 years to resume a bull market after it crashed in 1990. We’re still at the scandal stage where it turns out that the majority of these trading platforms were stealing money from customers. This is not a great inspiration for investing in that sector. When you have the best quality growth stocks down 80-90%; why bother with something that may not exist or may never recover in your lifetime? I’m out of the crypto business, but there are a wealth of crypto research sources still online and I’m sure they’d be more than happy to give you an opinion.

Q: Why have defense stocks like Raytheon (RTX) and Lockheed Martin (LMT) been weak recently?

A: A couple of reasons. #1 Just outright profit taking into the end of the year in one of the best-performing sectors. #2 The end of the war in Ukraine may not be that far off, and if that happens that could trigger a major round of selling in defense. We did get the three-day ceasefire over the Russian Orthodox New Year, that’s a possible hint, so that may be another reason.

Q: Political outlook on 2024?

A: It’s too early to make any calls, anything could happen; but if we get a repeat of the November election outcome, you could have Democrats retake control of both houses of congress—that’s where the betting money is going right now.

Q: Would you bottom fish in the United States Natural Gas Fund (UNG)?

A: No, I would not—I am avoiding energy like the plague. Remember the all-time low for natural gas is $0.95 per MM BTU, so we still could have a long way to go.

Q: Would you buy iShares China Large-Cap ETF (FXI) on a post-COVID breakout?

A: It looks like it’s already moved, so maybe kind of late on that. The problem is that in China, you don’t know what you are buying and the locals have a huge advantage in reading Beijing.

Q: What do you think about the Biden administration wanting to ban gas stoves?

A: That’s actually not a federal issue, it’s a state issue. California has already banned gas pipes for all new construction. It looks like New York will follow and that’s one-third of the US population. The goal is to replace them with electrical appliances which emit no carbon. I have a non-carbon house myself, I went down that path about 10 years ago, and it seems to be the only way to reduce carbon emissions—is to either price gasoline or oil out of the market, or to make it illegal, and they’re already making gasoline cars illegal, so gas and oil won’t be far behind. From 1900, we went from a hay powered economy to a gasoline-powered one in only 20 years so it should be doable.

Q: How can the push for all electric work well when we have so many shutdowns, much higher electricity cost, and cannot keep up with the demand already here?

A: Buy lots of copper for new local electric powerlines at the house level and buy lots of aluminum for the long-distance transmission lines. Global demand for both aluminum and copper has to triple to accommodate the grid buildout that is already planned. As far as hurricanes in Florida, there’s nothing you can do to stop those on a hundred-year view; I would move to higher ground, which is hard to do in Florida as the highest point in the state is only 345 feet and that’s a garbage dump.

Q: Can I get a copy of all these slides?

A: Yes, we post the PowerPoint on the website at www.madhedgefundtrader.com usually two hours after the production.

Q: Are you recommending buying precious metals right now (GLD), (GDX), (SLV), (and WPM) even after the upside breakout?

A: On upside breakouts, you buy the dips. A perfect dip would be a retest of the 200-day moving average. But we may not get that, since it seems to be everyone’s number-one choice right now. By the way, I haven’t been telling people to buy gold and LEAPS on all the gold plays since October—that’s where the big move has already been made.

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

CLICK HERE to download today's position sheet.

With the Israeli Army in Jerusalem in 1979

December 12, 2022

Diary, Newsletter, Summary

Global Market Comments
December 12, 2022
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW MARKETS WORK),
(SPY), (TLT), (TSLA), (GLD), (XOM), (OXY), (FXI), (JPM)

The Market Outlook for the Week Ahead, or How Markets Work

Diary, Newsletter, Research

Last week, I spoke about the “smart” market and the “dumb” market.

Looking across asset class behavior over the last couple of years, it’s become evident, there is another major driver.

Liquidity.

Hedge fund legend George Soros was an early investor in my hedge fund because he was looking for a pure Japan play. But I learned a lot more from him than he from me.

No shocker here: it’s all about the money.

Follow the flow of funds and you will always know where to invest. If you see a sustainable flow of money into equities, you want to own stocks. The same is true with bonds.

There is a corollary to this truism.

The simpler an idea, the more people will buy it. One can think of many one or two-word easy-to-understand investment themes that eventually led to bubbles: the Nifty Fifty, the Dotcom Boom, Fintech, Crypto Currencies, and oil companies.

Spot the new trend, get in early, and you make a fortune (like me and Soros). Join in the middle, and you do OK. Join the party at the end and it always ends in tears, as those who joined crypto a year ago learned at great expense.

If I could pass on a third Soros lesson to you, it would be this. Anything worth doing is worth doing big. This is why you have seen me frequently with a triple position in the bond market, or the double short I put on with oil companies two weeks ago, clearly just ahead of a meltdown.

Which brings me back to liquidity.

There are only two kinds of markets: liquidity in and liquidity out. Liquidity was obviously pouring into markets from 2009. This is why everything went up, including both stocks and bonds. That liquidity ended on January 4, 2022. Since then, liquidity has been pouring out at a torrential rate and everything has been going down.

So, what happened on October 14, 2022?

The hot money, hedge funds, and you and I started betting that a new liquidity in cycle will begin in 2023 and continue for five, or even ten years. This is why we have made so much money in the past two months.

Notice that liquidity out cycles are very short when compared with liquidity in cycles, one to two years versus five to ten years. That’s because populations expand creating more customers, technology advances creating more products and services, and economies get bigger.

When I first started investing in stocks, the U.S. population was only 189 million, the GDP was $637 billion, and if you wanted a computer, you had to buy an IBM 7090 for $3 million. Notice the difference with these figures today: $25 trillion for GDP, a population of 335 million, and $99 for a low-end Acer laptop, which has exponentially more computer power than the old IBM 7090.

What did the stock market do during this time? The Dow Average rocketed by 54 times, or 5,400%. And you wonder why I am so long term bullish on stocks. The people who are arguing that we will have a decade of stock market returns are out of their minds.

Which reminds me of an anecdote from my Morgan Stanley days, in my ancient, almost primordial past. In September 1982, I met with the Head of Investments at JP Morgan Bank (JPM), Mr. Carl Van Horn. I went there to convince him that we were on the eve of a major long term bull market and that he should be buying stocks, preferably from Morgan Stanley.

Every few minutes he said, “Excuse me” and left the room to return shortly. Years later, he confided in me that whenever he left, he placed an order to buy $100 million worth of stock for the bank’s many funds every time I made a point. That very day proved to be the end of a decade-long bear market and the beginning of an 18-year bull market that delivered a 20-fold increase in share prices.

But there is a simpler explanation. Liquidity in markets are a heck of a lot more fun than liquidity out ones, where your primary challenge is how to spend your newfound wealth.

I vote for the simpler explanation.

Yes, this is how markets work.

My performance in December has so far tacked on another robust +4.85%. My 2022 year-to-date performance ballooned to +88.53%, a spectacular new high. The S&P 500 (SPY) is down -17.0% 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 +92.92%.

That brings my 14-year total return to +601.09%, some 2.73 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +46.23%, easily the highest in the industry.

I took profits in my oil shorts in (XOM), (OXY), (SPY), and (TSLA). I am keeping one long in (TSLA), with 90% cash for a 10% long position.

Producer Prices Come in High, up 0.3% in November, driven by rising prices for services. It sets up an exciting CPI for Tuesday morning.

Emerging Markets Saw Massive Inflows in November, some $37.4 billion, the most since June 2021. Chinese technology stocks were two big beneficiaries, down 80%-90% from their highs. This could be one of the big 2023 performers if the US dollar and interest rates continue to fall. Buy (EEM) on dips.

Oil is in Free Fall, with 57 fully loaded Russian tankers about to hit the market. Nobody wants it ahead of a recession. All mad hedge short plays in energy are coming home. When will the US start refilling the Strategic Petroleum Reserve?

Turkey Blocks Russian Oil at the Straights of Bosporus, checking insurance papers, which are often turning out to be bogus. Insurance Russian tankers are now illegal in western countries. Many of these tankers are ancient, recently diverted from the scrapyard and in desperate need of liability insurance. Oil spills are expensive to clean up. Just ask any Californian.

Tesla Cuts Production in China, some 20% at its Shanghai Gigafactory for its Model Y SUV, or so the rumor goes. The short sellers are back! These are the kind of rumors you always hear at market bottoms.

US Unemployment to Peak at 5.5% in Q3 of 2023, according to a survey from the University of Chicago Business School. A tiny handful expects a higher 7.0% rate. Some 85% of economists polled expect a recession next year. After that, the Fed will take interest rates down dramatically to bring unemployment back down. No room for a soft landing here.

Home Mortgage Demand Plunges in another indicator of a sick housing market, which is 20% of the US economy. New applications are down a stunning 86% YOY despite a dive in the 30-year rate to 6.41%, but nobody is selling. Refis are now nonexistent.

Gold Continues on a Tear, hitting new multi-month highs. With interest rates certain to plummet in 2023 as the Fed reacts to a recession, Gold could be one of the big trades for next year. Buy (GLD), (GDX), and (GOLD) on dips.

Services PMI Hits New Low for 2022 at a recessionary 46.2. Nothing but ashes in this Christmas stocking. It didn’t help bonds, which sold off two points yesterday.

Demand Collapse Hits China (FXI), with US manufacturing there down 40% and many factories closing early for the New Year. Container traffic from the Middle Kingdom is down 21% over the past three months, astounding ahead of Christmas.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old. Dow 240,000 here we come!

On Monday, December 12 at 8:00 AM, the Consumer Inflation Expectations for November is published.

On Tuesday, December 13 at 8:30 AM EST, the Core Inflation Rate for November is out

On Wednesday, December 14 at 11:00 AM EST, the Federal Reserve Interest rates decision is announced. The Press Conference follows at 11:30.

On Thursday, December 15 at 8:30 AM EST, the Weekly Jobless Claims are announced. Retail Sales for November are printed.

On Friday, December 16 at 8:30 AM EST, the S&P Global Composite Flash PMI for December is disclosed. At 2:00 PM, the Baker Hughes Oil Rig Count is out.

As for me, in 1978, the former Continental Airlines was looking to promote its Air Micronesia subsidiary, so they hired me to write a series of magazine articles about their incredibly distant, remote, and unknown destinations.

This was the only place in the world where jet engines landed on packed coral runways, which had the effect of reducing engines lives by half. Many had not been visited by Westerners since they were invaded, first by the Japanese, then by the Americans, during WWII.

That’s what brought me to Tarawa Atoll in the Gilbert Islands, and island group some 2,500 miles southwest of Hawaii in the middle of the Pacific Ocean. Tarawa is legendary in the US Marine Corps because it is the location of one of the worst military disasters in American history.

In 1942, the US began a two-pronged strategy to defeat Japan. One assault started at Guadalcanal, expanded to New Guinea and Bougainville, and moved on to Peleliu and the Philippines.

The second began at Tarawa, and carried on to Guam, Saipan, and Iwo Jima. Both attacks converged on Okinawa, the climactic battle of the war. It was crucial that the invasion of Tarawa succeed, the first step in the Mid-Pacific campaign.

US intelligence managed to find an Australian planter who had purchased coconuts from the Japanese on Tarawa before the war. He warned of treacherous tides and coral reefs that extended 600 yards out to sea.

The Navy completely ignored his advice and in November 1943 sent in the Second Marine Division at low tide. Their landing craft quickly became hung up on the reefs and the men had to wade ashore 600 yards in shoulder-high water facing withering machine gun fire. Heavy guns from our battleships saved the day but casualties were heavy.

The Marines lost 1,000 men over three days, while 4,800 Japanese who vowed to keep it at all costs, fought to the last man.

Some 35 years later, it was with a sense of foreboding that I was the only passenger to debark from the plane. I headed for the landing beaches.

The entire island seemed to be deserted, only inhabited by ghosts, which I proceeded to inspect alone. The rusted remains of the destroyed Marine landing craft were still there with their twin V-12 engines, black and white name plates from “General Motors Detroit Michigan” still plainly legible.

Particularly impressive was the 8-inch Vickers canon the Japanese had purchased from England, broken in half by direct hits from US Navy fire. Other artillery bore Russian markings, prizes from the 1905 Russo-Japanese War transported from China.

There were no war graves, but if you kicked at the sand human bones quickly came to the surface, most likely Japanese. There was a skull fragment here, some finger bones there, it was all very chilling. The bigger Japanese bunkers were simply bulldozed shut by the Marines. The Japanese are still in there. I was later told that if you go over the area with a metal detector it goes wild.

I spend a day picking up the odd shell casings and other war relics. Then I gave thanks that I was born in my generation. This was one tough fight.

For all the history buffs out there, one Marine named Eddie Albert fought in the battle who, before the war, played “The Tin Man” in the Wizard of Oz. Tarawa proved an expensive learning experience for the Marine Corps, which later made many opposed landings in the Pacific far more efficiently and with far fewer casualties. And they paid much attention to the tides and reefs, developing Underwater Demolition Teams, which later evolved into the Navy Seals.

The true cost of Tarawa was kept secret for many years, lest it speak ill of our war planners, and was only disclosed just before my trip. That is unless you were there. Tarawa veterans were still in the Marine Corps when I got involved during the Vietnam War and I heard all the stories.

As much as the public loved my articles, Continental Airlines didn’t make it and was taken over by United Airlines (UAL) in 2008 as part of the Great Recession airline consolidation.

Tarawa is still visited today by volunteer civilian searchers looking for soldiers missing in action. Using modern DNA technology, they are able to match up a few MIAs with surviving family members every year. I did the same in Guadalcanal.

As much as I love walking in the footsteps of history, sometimes the emotional price is high, especially if you knew people who were there.

Stay healthy,

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

Tarawa November 1943

Broken Japanese Cannon

Armstrong 8-Inch Cannon 1900

US Landing Craft on the Killer Reef

How to Get to Tarawa

Roving Foreign Correspondent on Tarawa in 1978

Second Marine Division WWII Patch

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

August 29, 2022

Tech Letter

Mad Hedge Technology Letter
August 29, 2022
Fiat Lux

Featured Trade:

(RING THE ALARM)
(FXI)

Ring the Alarm

Tech Letter

The backlash has been fierce, and this is just the beginning as Chinese tech companies decouple from the West and hard pivots to Russia.

My good friend, the Founder of Huawei Ren Zhengfei is at the forefront of Chinese tech and can feel this bullwhip effect the most because of his access to critical macroeconomic data at his fingertips.

China isn’t the roaring economic miracle it once was.

This time it's different.

At some point, building ghost cities leading to snazzy accounting tricks ends in a collapse like a house of cards.

Unproductive capital frittered to waste is actually coming back to haunt the Chinese tech sector.

The Chinese tech sector for decades was the bellwether for global economic growth as its tech giants like Alibaba and Tencent went from producing pitiful products to challenging the US for tech supremacy.

When Ren talks, we listen.

In a leaked memo, Ren confided to Huawei staff “the chill will be felt by everyone” and the company must focus on profit over cashflow and expansion if it is to survive the next three years, indicating further job cuts and divestments.

“The next decade will be a very painful historical period, as the global economy continues to decline.”

Instantaneously, revenue targets and margin expectations were pulled back.

The deep-seated panic within the highest levels of Chinese tech is a warning to the rest of the world.

When China sneezes, the rest of the world catches a virus, no sarcasm intended.

Ren’s talking points was rounded out by “we must make survival the most important guideline.”

If I read between the Hangzhou tea leaves, this most likely means massive job cuts in some of the best tech companies.

The likes of Baidu, Huawei, and Tencent have been trigger-happy cutting jobs as if it’s almost fun.

I can also surmise that his comments will lead to raising the price of existing Huawei products and avoiding big investments into new ideas.

Huawei has found the road to riches rocky as hell as nobody outside of China is willing to buy their smartphone now that Google’s array of apps is banned from Huawei’s operating system.

That means Westerners like me will not be able to use Gmail, Google Maps, Google search, Google Chrome, and Google Cloud.

Going from economic juggernaut to panic mode, “survival” is a huge fall from grace for the Chinese and its best company Huawei.

The country might not even be able to fake the annual pageantry of reaching its annual economic growth target which this year is 5.5%.

It’s that bad in the country that Mao and collectivization built.

Ren’s memo went viral on Chinese social media, shared and discussed by more than 100 million users which freaked out the population considering it's almost taboo to lose face in this biggest Asian nation.

China’s government this week announced a further $146bn in stimulus funding to possibly promote the building of more ghost cities that they can report as economic “growth.”

Youth unemployment reached an all-time high of 19.9% in July which could represent a bad omen to the future of Chinese workers.

It’s looking quite bleak in Asia, and this could be the precursor to the recession felt in the West that is on pace to hit sometime in 2023.

A global recession would decrease the aggregate revenue for American tech companies, meaning as the pie shrinks, there is less to eat.

huwaei

May 20, 2022

Diary, Newsletter, Summary

Global Market Comments
May 20, 2022
Fiat Lux

Featured Trade:

(MAY 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(C), (FXI), (BABA), (TSLA), (AAPL), (AMZN), (TGT), (FLR), (QQQ),
(FB), (ARKK), (TSLA), (WYNN), (UAL), (ALK), (DAL)

May 18 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the May 18 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: When do you see the banks returning to glory?

A: When recession fears go away, which should happen this summer. A recession will either have come and gone, or we will have confirmation by the end of summer that there is no recession in sight for the next few years at least. This will likely trigger a monster rally in the banks, which could all jump 50% from here. Obviously, Warren Buffet is putting his money where his mouth is by loading up on Citibank (C) yesterday. This would take us to new all-time highs by the end of the year. So, again, use these down-1000-point days to go cherry-picking among the generals who have been executed. If that’s not mixing metaphors, I don’t know what is!

Q: Should I listen to CNBC?

A: No, do not listen to the talking heads on TV. They are on TV because they don’t know how to make money. If they did know how to make money, they’d be locked up in a dark basement somewhere like me, grinding out millions for their firms. In fact, watching TV is the perfect money destruction machine because on down days, they bring out the uber bears, and on up days they bring up the hyper bulls. They are trying to egg you to get you to do the exact opposite of what you should be doing. They’re not interested in you making money; they’re interested in getting traffic on their websites and making money for themselves. CNBC can be highly dangerous to your financial health.

Q: Will we get stagflation?

A: No, because I think that once the year-on-year comparisons kick in—literally in a month or two—inflation will drop from the current 8.3% to down maybe 4% by the end of the year. That also is another factor in your monster second-half rally.

Q: Do you think the bounce in the market yesterday is the beginning of an upward trend or a dead cat bounce?

A: Definitely a dead cat bounce. I expect we’ll keep chopping around in the current range for the next 3, 4, and 5 months, and then we catapult into a monster year-end rally. That is a typical bottoming-type process.

Q: Is the wisdom “Go away in May” still alive or is your best bet that this year may prove different and the market goes up in the latter part of the year?

A: Actually, you should have gone away in November. That’s when all tech stocks peaked; only energy went up after that. If you’d gone away in November and said “come back in August” that would have been a good strategy because I think that’s when the year-end rally begins. If anything, May could be the bottom of the entire move.

Q: Is it time for LEAPS (Long Term Equity Anticipation Securities)?

A: Not yet—it’s too soon for LEAPS territory. You only want to do LEAPS when you are on a sustained long-term uptrend in a stock. We are nowhere near sustained anything, we are still in a bottoming phase, and could be there for months. At the end of those months is when we’ll be looking at LEAPS, where you can double your money every 6 months.

Q: Is it time to start nibbling on China stocks (FXI) now that COVID news is marginally better?

A: I’m going to avoid Chinese stocks because the American ones are so much better. You want to buy the quality at the discount, not the marginal, high-risk political footballs at a discount. And China will remain high-risk as long as they are abandoning capitalism. If you have to buy one Chinese stock, I would say Alibaba (BABA); you could get a double on that. But remember it is a high-risk trade—if the Chinese government wants to roll Jack Ma up in a carpet and kidnap him to Western Chinese re-education camp, the stock will get slaughtered. And that’s been happening increasingly with the heads of major companies in the Middle Kingdom.

Q: When this current route comes to an end, should we look to enter the market with 50% margin on stocks like Tesla (TSLA)?

A: It’s never sensible to go to 50% margin because if the stocks drop 50%, you are completely wiped out—you’ve lost everything. Plus, coming back from a loss is one thing; coming back from zero is impossible. So, I would not recommend that. You might do a safe stock like Apple (APPL), with a 2% dividend, and then at least you’re getting a double dividend. You only do the 50% margin on the safest, high dividend stocks.

Q: Amazon (AMZN) is on its way down. What is your expectation for the $3200/$3400 vertical bull call spread in January 2023?

A: I think you could make money on that. It may not be the full amount of the spread, but you’ll definitely get a big increase from current levels, because when we do get a second half rally, it will be tech-led, and Amazon has already had a horrific decline. What you might consider is rolling your strike down, taking the loss on the 3200/3400 and rolling down to like a $2,000/$2,200 in twice the size, and you’ll make your money back that way.

Q: For those of us thinking about LEAPS, how should we start to buy in—20, 30, 50% right now?

A: Well, first of all, you only do them on down days like today, when the market is down 800, and you scale in. 20% now, 20% higher or lower, and 20% again higher or lower. But you really want to be saving cash for days like this because You want to feel smarter than everybody else, and they absolutely will hit any bid on a down day, and that's where your LEAPS fills are really excellent, is on a down day like this.

Q: Can the Fed avoid another policy mistake? Because it seems that not only are they heading for high inflation, but layoffs are coming as well, and even with that I’m sure they will perform a soft landing of sorts.

A: For sure, when you take massive amounts of stimulus out of the economy, as we have in the last year, that is recessionary. In fact, the US government is close to running a balance budget right now because Biden can’t get anything through Congress other than money for Ukraine. Good for Ukraine economy, not for ours. And yes, they can do a soft landing, but has it ever been done before? No. Though this is the Fed that just keeps on surprising, so who knows. In the meantime, I'm willing to trade the ranges, and that may be all you get to do for a while.

Q: Target (TGT) shares are down 25%, as they cited higher costs that will result in rising prices for their customers. Would you buy the dip?

A: No, I generally don’t like retailers anyway. It’s a business that operates on a 2% profit margin. I like 40 or 50% profit margin businesses—those tend to be technology stocks.

Q: Would you buy retailers going into a recession?

A: No, that’s the worst thing in the world to own.

Q: Could Fluor Corp (FLR) be a Ukraine infrastructure stock?

A: Yes, once the war ends there will be a massive effort to rebuild Ukraine. Every company in the world will be involved, and Fluor and Bechtel will be the biggest, though Fluor is the only one where you can buy the stock. We already have the money to do this with all of the money that was seized from Russia. I predict discount sales on mega yachts.

Q: Why do you think all that money is going to Ukraine?

A: Because a weakened Russia is in the national interest of the United States, and it’s better that their soldiers are doing the dying than ours. I’ve done the latter and definitely prefer the former, using the other country's’soldiers as cannon fodder.

Q: On down days like today, should I be putting on one-month trades like the June options?

A: Yes, because the minimizes your risk and cuts the cost of mistakes. Waiting for the second half of the year when we get a prolonged uptrend to look at LEAPS—that is the correct way to do it.

Q: Over the next 12 months, do you think the S&P 500 will outperform Nasdaq?

A: No—for the next 3 months the S&P 500 will outperform NASDAQ. After that, NASDAQ will become an enormous outperformer for the rest of the decade. So, choose your entry points wisely.

Q: Do you think that housing is peaking out and will start to decline?

A: No, we still have a long-term structural shortage of 10 million homes in the US and I think we will flatline housing for years until we catch up with that shortfall.

Q: What are your thoughts on the Metaverse?

A: Too soon. Right now, the Metaverse involves spending only—no revenues. It could be years before you actually see any profits. So that’s why I'm avoiding Meta or Facebook (FB). But then, you could have made the same argument about the internet 25 years ago and semiconductors 50 years ago. If you waited long enough, however, you obviously made a fortune.

Q: China is hoarding 69% of their wheat reserves. Is this because they plan to invade Taiwan?

A: No, it’s because there’s a global food crisis going on. Many countries, like India, have banned exports of food to protect themselves. People miss this about China: China will never have a war or invade anybody, because the second they do, their food supplies get cut off by us, who are the world’s largest producer of food. Plus, their trade would get shut off to pay for it, so they can’t buy it from somewhere else, and that’s done with us also. So, they need to be in our good graces in order to eat. That's the bottom line and that’s why Taiwan will never get invaded. Russia’s economy can operate independently for a while, but China’s can’t.

Q: Is the baby food shortage further evidence of a food crisis?

A: No, the baby formula crisis is being caused by a monopoly of three companies that control 100% of the baby food market; and the largest of these companies, accounting for a 40% market share of the baby food making, is producing baby food that is poisonous. That's why they got shut down. This has been going on for years, and for some reason, they got a free pass on regulation and inspections by the previous administration, which is ending now, and all of a sudden we’re finding out that 40% of the country’s baby food is contaminated and is being pulled off the market. So, it really has nothing to do with the global food crisis. That’s more related to Climate change—surprise, surprise—as it’s not raining in the right places like California, the war in Ukraine, which removed 13% of the world’s calories practically overnight.

Q: Should I bet the farm here with the ARK Innovation Fund (ARKK)? I like Cathie Woods’ bet on innovation or five-year time horizon. It’s a great thing, don’t you think?

A: Not so great when you drop 70% in the last year. And it is a high-risk bet that of her ten largest holding companies, you only need one of them to work for the fund to bring in a decent return. Of course, you may have to write off nine other companies to do that. But yes, it’s a great thing to own on the way up, not so great on the way down. I know some people who started scaling into ARK in November and came to regret it. I would wait on it—this is your highest leverage technology play, and if you really want some punishment, there’s a hedge fund that’s bringing out a 2X long ARK fund in the next couple of months. Then it’s basically option money you’re throwing out. If you want to put some money in that, you could get a 10x on the 2x ETF if you’re playing a recovery in ARK. So watch it; don’t touch it now because ARK is having another heart attack today, but something to consider if you like gambling.

Q: I am full up with a thousand shares of PayPal (PYPL). It’s now down 76%. What should I do?

A: I recommend you learn the art of stop losses. I stopped out of this thing last fall, and it’s continued to go down virtually every day. Whenever you buy a new position, automatically enter into your spreadsheet your stop loss for that position. Because things can drop by 80 or 90% and you work too hard for your money to throw it away on these big losses.

Q: What do you think about Steve Wynn and Wynn Hotels?

A: I’d be buying down here down 62%; it was announced today that Steve Wynn has secretly been acting as an agent for the Chinese government where (WYNN) has a major part of its operations. Who knew? With all those high rollers being flown in on private jets from China, sitting at the tables in the closed rooms. So yes, this is a recovery play and it will do just as well as all other recovery plays, but remember it’s a China recovery play. And I think, in any case, his ex-wife owns a big part of the company anyway. So I don’t think Steve Wynn is that closely connected with Wynn hotels because of past transgressions with the female staff.

Q: Is it time to scale into Freeport-McMoRan (FCX)?

A: I’d say yes. On a longer-term view, I expect (FCX) to go to $100. And for those who have the May $32/$35 call spread that expires on Friday, my bet is that you get the max profit—but you may not sleep before then.

Q: What do you have to say about a post-Putin scenario and impact on the market?

A: The day Putin dies of a heart attack, you can count on the market being up 10%, if that happens right now—less if it happens at a later date. But it would be hugely bullish for the entire global stock market, and oil would also collapse, which is why I refuse to put on oil plays here. That is a risk. Putin can give up, have an accident, or get overthrown. When the Russian people see their standard of living decline by 90%, this is a country that has a long history of revolutions, putting their leaders in front of firing squads and throwing the bodies down wells. So, if I were Putin, I wouldn't be sleeping very well right now.

Q: What's the reason for air tickets (UAL), (ALK), (DAL) going up sharply?

A: 1. Shortage of airplanes 2. Soaring fuel costs 3. Labor shortages and strikes 4. It is all proof of an economy that is definitely NOT going into recession.

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

With Lieutenant Uhuru

November 19, 2021

Diary, Newsletter, Summary

Global Market Comments
November 19, 2021
Fiat Lux

Featured Trade:

(NOVEMBER 17 BIWEEKLY STRATEGY WEBINAR Q&A),
(RIVN), (WMT), (BAC), (MS), (GS), (GLD), (SLV), (CRSP), (NVDA),
(BAC), (CAT), (DE), (PTON), (FXI), (TSLA), (CPER), (Z)