(GLD) Archives - Page 21 of 43 - Mad Hedge Fund Trader

Record-Breaking Inflows

When an investor like John Paulson buys gold and throws shade on Bitcoin, you know they know that bitcoin is in the process of disrupting gold and overtaking the store of value mantle.

And now, just last week, Bitcoin breached $50,000 for the second time in two weeks showing the resilience of a wild mongoose.

At what lengths will the old guard go to downplay this legitimate asset class?

Hedge fund manager John Paulson made $20 billion predicting the downfall of the US housing market in 2008.

So now he’s predicting cryptocurrencies will “go to zero” — just because he made hay in the financial crisis, will he look stupid if bitcoin goes to $100,000?

Talk is talk — nothing more than that.

“Cryptocurrencies, regardless of where they’re trading today, will eventually prove to be worthless. Once the exuberance wears off, or liquidity dries up, they will go to zero. I wouldn’t recommend anyone invest in cryptocurrencies.”

Bitcoin launched on January 3, 2009, he speaks like he has no idea about this, so does he mean the “exuberance” has been happening for the last 12 years and he’s still waiting for it to wear off?

Despite Paulson’s less than ideal stance on crypto, he said the short-term volatility of the digital asset makes it too risky for him to short, or place bets against.

Paulson continues to say, “Ultimately the price fluctuation has to do more with the relative supply of the coins.”

I would correct Paulson by noting that the supply situation is just only one of many drivers of higher bitcoin prices.

The more “experts” that chime in shouting down crypto assets, the worse they look, as new sets of millionaires and billionaires get minted daily.

Retail buyers are thirsting for percentage growth while bitcoin reigns supreme, it has relatively stable growth while there is exponential growth happening on Ethereum.

That’s what really hooks their eyeballs.

Paulson also neglects to say where retail traders can find yield in this world.

He might even recommend loss-making gold trades since he’s gotten it completely wrong the past year.

Paulson’s hard line against crypto stands in stark contrast to many of his hedge fund bros who have now embraced Bitcoin and shelved their relentless criticism of it.

The biggest takeaway from Paulson is that he is not willing to deploy capital against bitcoin, meaning he acknowledges that it can go up significantly from here and he is scared to lose money by shorting the asset.

I would not advocate holding this asset until death and even the early adopters trim their bitcoin positions on huge spikes — this is prudent risk management.

Readers need to remember that these “pros” like Warren Buffet and Paulson missed the boat on bitcoin, so they are incentivized to criticize the asset by delegitimizing its very existence.

This is a simple and garden variety manipulation tactic that is easy to call out.

Who knows…maybe in 10 years, all the crypto trillionaires will start to peddle out the reverse theory that stocks and fixed income are not assets as well!

I have seen crazier things in my life.

For some top trading shops, the volatility in the price of crypto is seen as a godsend in order to make a fortune from price arbitrage.

Steve Cohen’s Point72 Asset Management is working on launching crypto-focused trading funds. And Israel Englander’s Millennium Management has begun trading crypto derivatives. Traders like Paul Tudor Jones and Alan Howard have also taken stakes in cryptocurrencies.

Including Paulson, all of these traders made fortunes betting on other asset classes, therefore, it’s really not certain if they have spent more than two seconds looking into what crypto is about.

The recent data points are snowballing at the right time, such as Bitcoin IRA, an investment platform that aids retail investors in gaining crypto exposure in IRA retirement accounts.

This platform experienced “record-breaking inflows” of new accounts over the previous month.

Currently, Bitcoin IRA has close to 120,000 client accounts, with approximately $2 billion in assets on the platform.

The swell of retail investors opening new accounts — especially for tax-advantaged IRA accounts — is an indicator of how interested investors are as they use regulated markets to leverage bitcoin.

The median Bitcoin IRA account holder possesses 43% of their portfolio in bitcoin, 27% in Ethereum, and the remaining 30% in more remote cryptocurrencies.

The company will double its crypto offerings in the fall, and I can tell you that everyone I talk to, from brokers, market makers, and wealth management service providers, are doubling and tripling their cryptocurrency services this fall.

What you are seeing at Bitcoin IRA isn’t an anomaly.

It’s been in the price action that the gyrations of bitcoin have been smoother lately and we aren’t seeing 10% drawdowns in a day like we did before.

The longer the price action shows continuity, the more investors will feel comfortable placing large amounts into different coins as well as the bellwether bitcoin.

An avalanche of data points shows more efficacy, higher volume, and broad-based adoption as Bitcoin crested above $50,000.

Granted, it won’t be the last time that crypto is talked down, but the problem is every time these guys do it, they look out of touch by the day.

John Paulson made his fortune betting against subprime mortgages at the peak of the 2007 credit bubble and the evidence is out there that he simply doesn’t understand cryptocurrencies.

And that’s ok because, after his great call on subprime housing, he rapidly lost a large amount launching a gold fund in 2009.

Since that year, crypto has revealed itself as a better alternative to physical gold and Paulson simply doesn’t like that. Paulson is hellbent on making this gold trade work — it almost seems like it’s a fetish at this point.

People of that stature usually don’t like being wrong and throw money at the problem until the variables and price turn in their favor.

But honestly, sour grapes because missing the crypto boat won’t make the price of gold go up 10X, 100X, or 1000X, and that’s what crypto is about in the early innings of a 9-inning game.

August 19, 2021

Diary, Newsletter, Summary

Global Market Comments
August 19, 2021
Fiat Lux

Featured Trade:

(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CRSP), (FB), (PYPL), (GOOGL), (AAPL), (AMZN), (SQ), (JPM), (BAC), (MS), (GS), (BABA), (EEM), (FXA), (FCX), (GLD), (SLV), (TLT)

My Newly Updated Long-Term Portfolio

Diary, Newsletter, Research

I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on February 2, 2021. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.

For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing and you don’t want to remain glued to a screen all day, these are the investments you can make. Then don’t touch them until you start drawing down your retirement funds at age 72.

For some of you, that is not for another 50 years. For others, it was yesterday.

There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.

Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red on the spreadsheet.

To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, the click on the “Long Term Portfolio” button, then “Download.”

Changes

Biotech

Pfizer (PFE) has nearly doubled in six months, while Crisper Therapeutics (CRSP) has almost halved. Since the pandemic, which Pfizer made fortunes on, is peaking and we are still at the dawn of the CRISPR gene editing revolution, the natural switch here is to take profits in (PFE) and double up on (CRSP).

Technology

I am maintaining my 20% in technology which are all close to all-time highs. I believe that Apple (AAPL), (Amazon (AMZN), Google (GOOGL), and Square (SQ) have a double or more over the next three years, so I am keeping all of them.

Banks

I am also keeping my weighting in banks at 20%. Interest rates are imminently going to rise, with a Fed taper just over the horizon, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, keep Morgan Stanley (MS), Goldman Sachs (GS), JP Morgan (JPM), and Bank of America, which will profit enormously from a continuing bull market in stocks. They are also a key part of my” barbell” portfolio.

International

China has been a disaster this year, with Alibaba (BABA) dropping by half, while emerging markets (EEM) have gone nowhere. I am keeping my positions because it makes no sense to sell down here. There is a limit to how much the Middle Kingdom will destroy its technology crown jewels. Emerging markets are a call option on a global synchronized recovery which will take place next year.

Bonds

Along the same vein, I am keeping 10% of my portfolio in a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis so go read Global Trading Dispatch. Eventually, massive over-issuance of bonds by the US government will destroy this entire sector.

Foreign Exchange

I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). Eventually, the US dollar will become toast and could be your next decade-long trade. The Aussie will be the best performing currency against the US dollar.

Australia will be a leveraged beneficiary of the synchronized global economic recovery through strong commodity prices which have already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.

Precious Metals

As for precious metals, I’m keeping my 0% holding in gold (GLD). From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.

I am keeping a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles. The arithmetic is simple. EV production will rocket from 700,000 in 2020 to 25 million in 2030 and each one needs two ounces of silver.

Energy

As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.

The Economy

My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade after this year’s superheated 7% performance.

When we come out the other side of this, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 700% or more from 35,000 to 240,000 in the coming decade. The American coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.

You won’t believe what’s coming your way!

I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again. If I forget, please remind me.

Stay healthy.

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

August 13, 2021

Diary, Newsletter, Summary

Global Market Comments
August 13, 2021
Fiat Lux9

(AUGUST 11 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (DIS), (FDX), (AMZN), (PAVE), (NUE), (X), (FCX), (AA), (AMD), (GLD), (SLV), (GDX), (WPM), (COIN)

August 11 Biweekly Strategy Webinar Q&A

Diary, Newsletter, Summary

Below please find subscribers’ Q&A for the August 11 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley, CA.

Q: If we see a correction in stocks, what would you do?

A: Buy more stocks (SPY). All of our positions expire next week, and we go 100% into cash. I’m looking for just a 5% correction and then I’m just going to go piling in 100% invested with a barbell portfolio since everything is working now and some of the best tech stocks like Amazon have already had 10% corrections.

Q: Time for LEAPS again on Amazon (AMZN)?

A: Yes, but let Amazon have more time to bottom out. It may just be a “time” correction where it goes sideways for a month or two. The company is still growing at an incredible rate.

Q: What about FedEx (FDX) and Walt Disney (DIS) LEAPS?

A: Those LEAPS I would do, right here, right now. We’ve had our corrections already in those sectors and they’re ready to take off. It’s just a matter of time before these sectors come back into favor. These are both delta peaking plays.

Q: It seems that the US government is taking the stance that they can tax their way out of the fiscal hole; is this true?

A: No, they don’t need to tax their way out of the fiscal hole; deflation will wipe out all US government debt on a 30-year view, and this is what’s happened to not only all the government debt in US history but all government debts all over the world starting with France in the 1600s. By the time the government has to pay back its 30-year bonds, the purchasing power of that dollar will have fallen by 80% or 90%, meaning that essentially the bonds get deflated away to nothing. And this is why we have governments, so they can borrow that money now, spend it now to rescue the economy, and then they never have to pay it back in real dollars. This is why governments borrow. The investors who really have to pick up the bill for this are bond owners, who see the purchasing power of the bonds decline by 2%-3% a year.

Q: When do you see a correction, and what would you do?

A: It’s either going to be in the next couple of weeks or never. If we get one, I would load the boat again with more long positions. Of the five positions out of 100 I’ve lost money this year, four have been short positions, so you can see why we’re really trying to limit the short positions here.

Q: Visa (V) is going ex-dividend tomorrow—is there a risk of early assignment?

A: There is, but if you get an early assignment, just say thank you very much, Mr. Market, call your broker to tell them to exercise your long call position to cover your call short position, and you will get the maximum profit several days earlier than expiration. This happens sometimes as hedge funds try to get the quarterly dividend on the cheap, but you have to act fast, otherwise, you’ll end up with a short position in Visa on your hands, and most likely a margin call. Brokers are not allowed to automatically exercise longs to meet calls anymore. You have to call them and order them to exercise that long. So, pay attention going into quarterly option expirations.

Q: I don’t trust your COVID information any more than I trust the government line.

A: All of my Covid data comes from Johns Hopkins University and is interdependently collated from every country in the United States. If you have any complaints you can go to them. All I can say is there are 620,000 bodies in the country that died of something. Oh, and we had the lowest population growth last month in 50 years. I’ve had family members die from it so I believe that.

Q: If the Republicans win in 2022 and 2024, will the bull market continue?

A: Absolutely not. We get a new recession and another bear market. Everything that’s going well now reverses, the entire environmental infrastructure strategy goes down the toilet, and Covid makes a huge recovery. I would go with what’s working, and 6.5% economic growth now and a market going up 30% a year totally works for me. Of course, I would make another fortune on the short side.

Q: How should you play infrastructure?

A: There is an infrastructure ETF called the Global X Funds Infrastructure ETF (PAVE) that has already had a big move, up 176% in 17 months. Other than that you can just play your basic commodity stocks like US Steel (X), Nucor (NUE), and Freeport McMoRan (FCX).

Q: How long will the hot housing market continue?

A: Ten more years. That's how long it will take to digest the current 85 million strong millennial generation who are now buying first-time homes or upgrading what they’ve got. And remember, we’re still operating with half of the new home construction capacity that we had 15 years ago before the last financial crisis.

Q: What's your prognosis for semiconductors?

A: They just had a super-heated spike; I expect them to take a break. That's why I took profits on Advanced Micro Devices (AMD). We’ll find a new bottom, and then I want to buy back into it. It’s taking a break with the rest of technology right now, which is perfectly normal.

Q: Would you take this dip to add to mRNA and BioNTech?

A: I would say yes. This is an industry that’s on the eve of a biotech revolution—the cure of all human diseases. And these two companies with their mRNA technologies are in the best place to take advantage of that.

Q: Will there be a big spike down in August?

A: It looks like it’s not happening. Like I said, if it doesn’t happen in the next few weeks, it’s not going to happen. Excess liquidity is just driving all investment decisions. If it doesn’t go down now, what’s the reason for it to go down in October? I just see no negatives at all on the horizon except for another out-of-the-blue variant like a Lambda or an Epsilon variant.

Q: Does slow population growth include illegal immigration?

A: It does, immigration both legal and illegal has been constant for decades and decades, it’s about a million people a year. But Americans are not reproducing like they used to, the birth rate hit a 50-year low last year because women did not want to go to the hospitals which were full of COVID patients. A lower population growth over the long term is very bad for economic growth. That is why Japan has essentially been in a nonstop recession for the last 32 years, because of their baby bust.

Q: Do you have political debt ceiling concerns?

A: No, these are always last-minute before midnight deals. I don't see this being any different, never underestimate the ability of Congress to spend more money, no matter who is in power.

Q: What do you think of oil in the short run?

A: Short term it may go sideways, we may even have a rally to new highs, but the long-term trade for oil is that it’s going out of business. EVs, mean you lose 50% of demand for oil in the next 10 years, and they will start discounting that now in the price of oil.

Q: Why is silver down so much?

A: It’s being dragged down by Gold (GLD), and silver (SLV) always moves twice as fast as gold.

Q: How are muni bonds going forward?

A: I don’t see them going much further. They had a massive rally, discounting an increase in taxes which hasn’t happened. So even if they do raise taxes which may be next year’s business, that is fully discounted in the Muni market already.

Q: What am I missing? You’ve been saying for months not to get involved with Bitcoin but then I heard you say you bought LEAPS.

A: No, I didn’t buy the LEAPS. I tried to buy the LEAPS but missed them and it ran away and they ended up tripling in two weeks. It’s just not like buying a normal stock. Once these things turn, they just start going up every day for weeks with no pullbacks whatsoever. This is valuation-free security with no dividend, interest, or earnings. It’s driven by pure supply and demand.

Q: What do you think of the precious metal miners like the Van Eck Vectors Gold Miners ETF (GDX)?

A: Let the current meltdown burn out and then go into long term LEAPS.

Q: What’s the best way to buy silver?

A: The best way is doing 2-year LEAPS on Wheaton Precious Metals (WPM) at current levels.

Q: What do you think about Coinbase (COIN)?

A: It’s definitely a candidate, but you want to get it on a down day. Coinbase is in the “selling shovels to the gold miners” business which is always a fantastic business model and we here in California know all about it. It’s just a question of when and where to get involved. It’s been gyrating this week because of their new burden of doing the tax reporting on all crypto buyers among their customers. That will definitely be a drag on the business.

Q: What's your short-term view on the big commodity plays like Freeport McMoRan (FCX), Alcoa Aluminum (AA), and US Steel (X)?

A: I would say they’re all going up. Maybe half the infrastructure bill has been discounted into the metals prices, but not all of it, therefore they have more to go to the upside.

Q: What are the best real estate buys?

A: There are none anywhere; maybe somewhere in eastern Europe, but still unlikely. It’s the best time ever now to rent. Buying here would be madness. And by the way, I predicted this property boom 10 years ago, if you go back in my research because 2021 was when the millennials would show up as massive buyers in the housing market, right when there was going to be a demographic shortage. That’s why I think the real estate boom goes on for another 10 years. But you won't see the gains that we’ve seen this year. You will maybe see 5% or 10% gains a year, definitely not 50% or 100% gains that we’ve just seen.

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

Good Luck and Stay Healthy.

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

August 6, 2021

Diary, Newsletter, Summary

Global Market Comments
August 6, 2021
Fiat Lux

Featured Trade:

(MAD HEDGE 2021 H1 TRADE ANALYSIS)
($INDU), (TLT), (GLD), (XME), (DAL), (FCX), (TSLA)

Mad Hedge 2021 H1 Trade Analysis

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I finally managed to carve out a few hours to analyze my 2021 H1 trades, and what a year it’s been!

From January 1 to June 30, the Mad Hedge Fund Trader sent you 124 trade alerts completing 64 round trips in four asset classes. These generated a profit of 70.59% in six months, more than we made all of last year.

It is the most prolific performance since we launched Mad Hedge Fund Trader 14 years ago.

In my January 6 Mad Hedge Annual Asset Class Review (click here for the link--you must be logged in to the site), I predicted that the Dow Average ($INDU) would rise 30% for the end of the year. This proved immensely valuable.

That view enabled me to go maximum aggressive, full speed ahead, damn the torpedoes. It’s not that I was so certain that the stock market would go ballistic to the upside. But with the Federal Reserve pumping trillions of dollars of quantitative easing into the economy, record deficit spending, and the pandemic coming under control, I was certain that markets would not go down.

So, I looked into my bag of tricks and pulled out a strategy ideal for this scenario, the in-the-money vertical bull call debit spread (click here for the video on how to execute one of these). Such an approach allowed me to make a maximum profit even if the underlying security went up, sideways, or down small. It worked like a charm.

Here are by trades assorted by asset class:

Equities – 44.14%
Bonds – 24.12%
Commodities – 1.52%
Precious Metals – 0.81%

2021 was definitely the year of equities. In fact, the risk/reward for equities was so compelling that it was almost a waste of time to look at anything else. Equity trades accounted for 62.53% of my total profits.

I split my equity selections with my well-known “barbell strategy” with equal allocations split between big technology and domestic recovery stocks. That way, I always had positions that were going up.

Short positions in the bond market (I had only one long trade) accounted for another 34.17% of my performance. This was basically a first-quarter trade where I caught the collapsing bond market by both lapels and shook it for all it was worth, catching a dive from $162 to $132 in the United States Treasury Bond Fund (TLT). I mostly quit bond trading in March, not wanting to visit the trough too many times in an extremely oversold condition. That was a great call.

Commodities delivered another 2.15% of return with a single trade in the SPDR S&P Metals & Mining ETF (XME). I thought exploding economic growth would cause commodity prices to soar, and they did. But there were better plays to be had buying key stocks in the sector directly, such as Freeport McMoRan (FCX).

As an afterthought, I made another 1.15% in precious metals with two trades long gold. I thought gold would go up this year but so far, no luck. The gold (GLD) faded away when US Treasury bonds became the asset class of choice from March onward.

Of 64 round trips, I lost money on only four, giving me a success rate of 93.75%, far and away the best in the industry. One was a short in Tesla (TSLA) in the $800s. It later fell to $550. The next was a long in Tesla. I got stopped out when it fell below $600. That’s OK because I made a 10X return trading Tesla in 2020.

Welcome to show business.

The next hickey came from a long in Microsoft (MSFT) which I got stopped out of. It went straight up afterwards. Then I took a small hit in Delta Airlines (DAL) for the same reason. The higher the market goes, the faster I stop out as part of my risk control discipline.

All in all, it’s been one hell of a year. I cut back my trading dramatically in June and July partly because the market was so incredibly high, but also to give my loyal staff a rest. Imagine working double overtime for a year and a half! How about sending out 13 trade alerts out in one day!

We are now all refreshed and well-rested ready to take on all comers in H2. The harder I work, the luckier I get. It really is true.

As I tell my beginning traders, work in, money out.

To download the entire 2021 H1 trade history, please click here.

Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader

Capturing Peak Profits

June 18, 2021

Diary, Newsletter, Summary

Global Market Comments
June 18, 2021
Fiat Lux

Featured Trade:

(JUNE 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(MS), (XOM), (FXI), (MSFT), (AMZN), (FB), (GOOGL), FCX), (CAT),
(GLD), (DIS), (GME), (AMC), (UBER), (LYFT), (TLT), (VIX)

June 16 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the June 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.

Q: Does Copper (FCX) look like a buy now or wait for it to drop?

A: I would buy ⅓ now, ⅓ lower down, ⅓ lower down still. Worst case we get down to $30 in Freeport McMoRan (FCX) from $37 today. A new internal combustion engine requires 40 lbs. of copper for wiring, but new EVs require 200 lbs. per car, and the number of EV cars is about to go from 700,000 last year to 25 million in 10 years. So, you can do the math here. It's basically 24.3 million times 200 lbs., or 1.215 billion tons, and that's the annual increase in demand for copper over the next 10 years. There aren’t enough mines in the world to accommodate that, so the price has to go up. However, (FCX) has gone up 12 times from its 2020 low and was overdue for a major rest. So short term it's a sell, long term it's a double. That's why I put the LEAPS out on it.

Q: Lumber prices are dropping fast, should I bet the ranch that it’ll drop big?

A: No, I think the big drop has happened; we’re down 40% from the highs, the next move is probably up. And that is a commodity that will remain more or less permanently in short supply due to the structural impediments put into the lumber market by the Trump administration. They greatly increased import duties from Canada and all those Canadian mills shut down as a result. It’s going to take a long time to bring those back up to speed and get us the wood we need to build houses. Another interesting thing you’re seeing in the bay area for housing is people switching over to aluminum and steel for framing because it’s cheaper, and of course in an earthquake-prone fire zone, you’d much rather have steel or aluminum for framing than wood.

Q: I didn’t catch the (FCX) LEAP, can you reiterate?

A: With prices at today's level, you can buy the 35 calls in (FCX), sell short the 40 calls, and get nearly a 177% return by January 2022. That's an absolute screamer of a LEAPS.

Q: How do you see the working from home environment in the near future after Morgan Stanley (MS) asked everyone to return?

A: Well that’s just Morgan Stanley and that’s in New York. They have their own unique reasons to be in New York, mostly so they can meet and shake down all their customers in Manhattan—no offense to Morgan Stanley, but I used to work there. For the rest of the country, those in remote places already, a lot of companies prefer that people keep working from home because they are happier, more productive, and it’s cheaper. Who can beat that? That’s why a lot of these productivity gains from the pandemic are permanent.

Q: Is there a recording of the previous webinar?

A: Yes, all of the webinars for the last 13 years are on the website and can be accessed through your account.

Q: What makes Microsoft (MSFT) a perfect-looking chart?

A: Constant higher lows and higher highs. They also have a fabulous business which is trading relatively cheaply to the rest of tech and the rest of the main market. Of course, they were a huge pandemic winner with all the people rushing out to buy PCs and using Microsoft operating software. I expect those gains to improve. The new game now is the “wide moat” strategy, which is buying companies that have near monopolies and can’t be assailed by other companies trying to break into their businesses. The wide moat businesses are of course Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). That's the new investment philosophy; that's why money has been pouring back into the FANGs for a month now.

Q: Do you have any concerns about Facebook’s (FB) advertising ability, given the recent reduction of tracking capabilities of IOS 4.5 users?

A: Well first of all, IOS 4.5 users, the Apple operating system, are only 15% of the market in desktops and 24% of mobile phones. Second, every time one of these roadblocks appears, Facebook finds a way around it, and they end up taking in even more advertising revenue. That’s been the 15-year trend and I'm sticking to it.

Q: Is Caterpillar (CAT) a LEAP candidate right now?

A: Not yet, but we’re getting there. Like many of these domestic recovery plays, it is up 200% from the March lows where we recommended it. The best time to do LEAPS is after these big capitulation selloffs, and all we’ve really seen in most sectors this year is a slow grind down because there's just too much money sitting under the market trying to get into these stocks. Let’s see if (CAT) drops to the 50-day moving average at $185 and then ask me again.

Q: If you have the (FCX) LEAPS, should you keep them?

A: I would keep them since I'm looking for the stock to double from here over the next year. If you have the existing $45-$50 LEAPS, I would expect that to expire at its max profit point in January. But you may need to take a little pain in the interim until it turns.

Q: Should I bet the ranch on meme stocks like (AMC) and GameStop GME)?

A: Absolutely not, I’m amazed you haven't lost everything already.

Q: Do you think Exxon-Mobile (XOM) could rise 30% from here?

A: Yes, if we get a 30% rise in oil. We are in a medium-term countertrend rally in oil which will eventually burn out and take us to new lows. Trade against the trend at your own peril.

Q: Disneyland (DIS) in Paris is set to open. Is Disneyland a buy here?

A: Yes, we’re getting simultaneous openings of Disneyland’s worldwide. I’ve been to all of them. So yes, that will be a huge shot in the arm. Their streaming business is also going from strength to strength.

Q: How long will the China (FXI) slowdown last?

A: Not long, the slowdown now is a reaction to the superheated growth they had last year once their epidemic ended. We should get normalized growth in China at around 6% a year, and I expect China to rally once that happens.

Q: Have you changed your outlook on inflation, real or imagined?

A: I don’t think we’re going to have inflation; I buy the Fed's argument that any hot inflation numbers are temporary because we’re coming off of a one-on-one comparisons from when the economy was closed and the prices of many things went to zero. If you look at that inflation number, it had trouble written all over it. Some one third of the increase was from rental cars. One of the hottest components was used cars. You’re not going to get 100% year on year increases next year in rental or used cars.

Q: When you issue a trade alert, it’s always in the form of a call spread like the Microsoft (MSFT) $340-$370 vertical bull call spread. What are the pros and cons of doing this trade on the put side, like shorting a vertical bear put spread?

A: It’s six of one, half a dozen of the other. There are algorithms that arbitrage between the two positions that make sure that they’re never out of line by more than a few cents. I put out call spreads because they’re easier for beginners to understand. People get buying something and watching it go up. They don’t get borrowing something, selling it short, and buying it back cheaper.

Q: Will gold (GLD) prices go up?

A: Yes, when inflation goes up for real.

Q: What is the future of the gig economy? How will that affect Uber (UBER) and Lyft (LYFT)?

A: I like both, because they just got a big exemption from California on part time workers, and that is very positive for their business models.

Q: Do you think the government doesn’t want to cancel student debt because it will unleash inflation?

A: It’s the exact opposite. The government wants to forgive student debt because it will unleash inflation. If you add 10 million new consumers to the economy, that is very positive. As long as former students have tons of debt, horrible credit ratings, and are unable to buy homes or get credit cards, they are shut out of the economy. They can’t participate in the main economy by buying homes, shopping, or getting credit. The fact that the US has so many college grads is why businesses succeed here and fail in every other country. That should be encouraged.

Q: Where is the United States US Treasury Bond Fund (TLT) headed?

A: Short term up, long term down.

Q: Options premiums are not melting away much today; I hope they start decaying after the Fed announcement.

A: In these elevated volatility periods—believe it or not, the (VIX) is still elevated compared to its historic levels—they hang on all the way to the very last day, before expiration, before they really melt the time value on options. It really does pay to run these into expiration now. When the VIX was down at like $9-$10, that was not the case.

Q: I bought a short term expiration going long the (TLT) to hedge my position; was this smart?

A: Yes, but only if you are a professional short-term trader. If you are in front of your screen all day and are able to catch these short term moves in (TLT), that is smart. My experience is that most individual investors don’t have the experience to do that, don’t want to sit in front of a screen all day, and would rather be playing golf. Such hedging strategies end up costing them money. Also, remember that half of the moves these days are at the opening; they’re overnight gap openings and you can’t catch that intraday trading—it’s not possible. So over time, the people who take the most risk make the most money. And that means the people who don’t hedge make the most money. But you have to be able to take the pain to do that. So that’s my philosophy talk on risk taking.

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

Good Luck and Stay Healthy

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

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