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June 16 Biweekly Strategy Webinar Q&A

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

June 7, 2021

Tech Letter

Mad Hedge Technology Letter
June 7, 2021
Fiat Lux

Featured Trade:

(THE CIRCUSIFICATION OF TEHC STOCKS)
(TSLA), (GME), (RH), (BTC), (ETH)

The Circusification of Tech Stocks

Tech Letter

The younger U.S. generations went from almost not knowing what the stock market was to overnight dominance of it.

They now make the rules.

Millions of new brokerage accounts have been wielded since the start of the pandemic.

Trillions in value transferred from taxpayers and the Federal Reserve into brokerage accounts at Robinhood and Coinbase.

More dollar bills are funneled into these accounts with every paycheck.

The stock market and the generations above it are still trying to figure out what just happened.

Leverage is another thing this generation Googled and figured out how to harness too during the pandemic.

This generation is truly fearless, or they haven’t been trading long enough to understand what it feels like to lose all your money.

It doesn’t matter because the only thing that matters is what they pay attention to and what’s irrelevant.

If they choose to prop up a 10-word Elon Musk tweet into bulletproof trading strategies, how will you stop them?

If they want Gamestop (GME) to go from $17 before the pandemic to $270 today with even this morning trading in it up 10%, how do you stop something like this?

The answer is you can’t.

How do you convince newly minted investors that diversification makes sense when the first stock they ever bought, Tesla (TSLA), rose 800% while everything else barely moved?

Generations before what is going on now, investors held a series of adages near and dear to them.

Every generation puts its own spin on trading, but what we are witnessing today is that rules are not important anymore when the pace of technology changes every industry to the point that these industries are now unrecognizable.

The new rules mean there are no rules anymore and that’s the beauty or hideous side of investing now, whether you like it or not.

It used to be that “serious” investors religiously followed value investing, which was pioneered by Benjamin Graham and the U.S. emerged from the Great Depression, and his two seminal books were investment bibles.

1934’s Security Analysis and 1949’s The Intelligent Investor laid the groundwork for a generation of contrarian investors who eschewed macroeconomic trends and market patterns, and instead focused on a company’s fundamentals, looking for cheap stocks that they would hold for 20 or even 30 years.

Legends such as Irving Kahn, John Templeton, and Warren Buffett have made value investing synonymous with successful investing for decades.

Now these people who held up these books as bibles can’t understand markets.

They have seen bull and bear markets or all sorts, but nothing like this before.

We locked everyone in their homes for a year and gave them a virtual life to live on their screens.

Why should we be surprised if younger generations treat money and investments like tokens in a video game?

If you had opened your first brokerage account in the spring of 2020, you would most likely have opened it at Robinhood.

You downloaded an app, transferred $500 in from your couch, and pressed some buttons and looked at the screen with some digital numbers that said you had a nice profit.

With a Robinhood account, your first exposure to cryptocurrencies does not frame them as an unproven alternative to stocks. The two stand on equal footing.

This is radically different from the experience of the Gen X and boomer investors logging in through Schwab, Fidelity, or Vanguard to check their balances or download a statement.

What we are seeing is that a new generation is creating the new conventions of the investing landscape and views stocks and crypto coins as interchangeable with equal credibility.

Now every prominent news site is leading with crypto news more often than not and ad platforms like Twitter have said that crypto ads are their highest growth product.

This phenomenon is here to stay because the same will go for any young investor that opens up the incremental brokerage account to trade from their phone tomorrow and the next day after that.

These people are taking profits from Tesla and rolling them into trades like Dogecoin, Ethereum (ETH), and Bitcoin (BTC).

This behavior is starting to become normalized and positive liquidity event in alternative assets will spawn more volume trading in these very assets that were called as “toxic” and a “scam.”

The laughable thing is just one of the 48 U.S.-listed stocks in Berkshire Hathaway portfolio, consumer discretionary RH (RH), topped the price gains of Bitcoin over the past 12 months.

Therefore, don’t ask this generation about the annual average returns of the “safe” 60/40 stock-and-bond portfolios touted by planners and advisers.

Don’t ask this generation to read the Intelligent Investor because it’s outdated. Assets aren’t trading on fundamentals anymore and the Fed printing money like it's their job is fueling a massive tidal wave of new capital into crypto like it's not even funny.

It doesn’t make sense anymore to the Warren Buffets and Charles Munger.

When asked about Bitcoin directly at the Berkshire Hathaway's annual shareholders meeting earlier this month in Los Angeles, he said “I'm going to dodge that question.”

And now, it’s expanded into the exurbs to include blank-check companies, venture-backed startups, tradable bits of computer code, and investable software protocols.

Your father’s stock market is never coming back and the one from before the pandemic isn’t coming either.

The stock market is still one of the only games in town which makes it hard to avoid for any American who prioritizes wealth accumulation.

The pandemic leveled the playing field for crypto and they used that new oxygen to mint many new millionaires and billionaires who now harness capital that has the potential to be reinvested into the asset landscape.

If it’s turned into a 3-ring circus because of a fusional 1-off event, then better figure out how this new circus works earlier than later.

May 28, 2021

Diary, Newsletter, Summary

Global Market Comments
May 28, 2021
Fiat Lux

Featured Trade:

(MAY 26 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (DIS), (AMZN), (FCX), (X), (PLTR), (FXE), (FXA), (TLT), (TBT), (AMC), (GME), (ZM), (DAL), (AXP), (LEN), (TOL), (KBH), (DOCO), (ZM), (TSLA), (NVDA), (ROM)

May 26 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the May 26 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.

Q: Do you expect a longer pullback for the (SPY) through the summer and into the last quarter?

A: No, this market is chomping at the bit and go up and won’t do any more than a 5% correction. We’ve already tested this pullback twice. We could stay in this 5% range for a few more weeks or months, but no longer. If we make it to August before we take off to the upside, that would be a miracle. It seems to want to break out right now and if you look at the tech stocks charts you can see what I'm talking about.

Q: Why do day orders with spreads not good ‘til canceled (GTC)?

A: Actually, you can do good ‘til canceled on these spreads, it just depends on how your platform is set up. Good ‘til canceled won't hurt you—only if we get a sudden reversal on a stop out which has only happened four times this year.

Q: Disney (DIS) seems to be struggling to get back over $180; am I still safe with my January 2023 $250 LEAPS?

A: Yes, out to 2023 we’ll have two summers until those expire, so those look pretty good—that's a pretty aggressive trade, and I’m betting you’re looking at a 500% profit on those LEAPS. And by the way, I always urge people to go out long on these LEAPS, because the second year is almost free when you check the pricing. So, take the gift and that will also greatly reduce your risk. We could have a whole recession and recovery, and still have those LEAPS make it to $250 in Disney.

Q: Should I add to Freeport McMoRan (FCX)?

A: (FCX) I would not add—in fact, I would have a stop loss if we closed below $40 on (FCX) if you’re a short-term trader. There is a slowdown in the Chinese economy going on as well as a clampdown on commodity speculation. This has affected the whole base metal space, including steel and palladium. If you have the long-term LEAPS, keep them, because I think (FCX) doubles from here. The whole “green revolution story” is still good.

Q: Do you think the United States Treasury Bond Fund (TLT) is going up?

A: No, I think the (TLT) has been going down. I've been buying puts spreads like crazy, and I have a huge chunk of my own retirement fund in long-dated (TLT) LEAPS, so I am praying it will go down. We’ll talk about that when we get to the bond section.

Q: Prospects for U.S. Steel (X)?

A: It’s tied in with the whole rest of the base commodity complex—I think it is due for a rest after a terrific run, which is why I have such tight stop losses on Freeport McMoRan (FCX).

Q: Do you buy the “transitory” explanation for the hot inflation read two weeks ago that the Fed is handing out, or do you think inflation is bad and here to stay?

A: I go with the transitory argument because you’re getting a lot of one-time-only price rises off of the bottom a year ago when the economy completely shut down. Once those price rises work through the system, the inflation rate should go from 4.2% back down to 2% or so. So, I don't see inflation as a risk, which is why I think the stock markets can reach my 30% up target this year. You may get another hot month as the year-on-year comparisons are enormous. But betting on inflation is betting on the reversal of a 40-year trend, which usually doesn’t work out so well.

Q: On your spread trade alerts can we buy less than 25 contracts?

A: You can buy one contract. In fact, I recommend people start with one contract and test out where the real market is. Put a bid for one contract in the middle of the market, and if it doesn’t get done, raise your bid 5 cents, and eventually, your order gets done. Then you can add more if you want to. I always recommend this even for people who buy thousands of contracts, that they test the market with one contract order just to make sure the market is actually there.

Q: Can you recommend a LEAPS for Amazon (AMZN)?

A: The Amazon LEAPS spread is the January 2022 $3150-3300 vertical call debit spread going out 8 months.

Q: When you short the (TLT), how do you do it?

A: I do vertical bear put debit spreads. I buy a near-money put and sell short and an out-of-the-money put so I can reduce the cost, and therefore triple my size. This strategy triples the leverage on the most likely part of the stock move to take place, which is the at the money. For example, a great one to buy here would be a January 2021 (TLT) $135/140 vertical bear put debit spread where you’re buying the $140 and selling short the $135. The potential 8-month profit on this is around 100%. You’ll make far more money on that kind of trade than you ever would just buying puts outright. Some 80% of the time the single option trades expire worthless. You don’t want to become one of those worthless people.

Q: What’s your best idea for avoiding a U.S. Dollar drop?

A: Buy the Invesco Currency Shares Euro Trust (FXE) or buy the Invesco Currency Shares Australian Dollar Trust Trust (FXA), the Australian Dollar to hedge some of your US Dollar risk. The Australian dollar is basically a call option on a global economic recovery.

Q: I’m a new subscriber, but I don’t get all the recommendations that you mention.

A: Please email customer support at support@madhedgefundtrader.com , tell them you’re not getting trade alerts, and she'll set you up. We have to get you into a different app in order for you to get all those alerts.

Q: How about the ProShares UltraShort 20 Year Treasury ETF (TBT)—is that a bet on declining (TLT)?

A: Absolutely yes, that is a great bet and we’re at a great entry point right now on the (TBT) so that is something I would start scaling into today.

Q: Do you still like Palantir (PLTR)?

A: Yes, but the reason I haven't been pushing it is because the CEO says he could care less about the stock market, and when the CEO says that it tends to be a drag on the stock. Palantir has an easy double or triple on it on a three-year view though. However, small tech has been out of favor since February as it is overpriced.

Q: How far down can the (TLT) go in the next 30 days?

A: It could go down to $135 and maybe $132 on an extreme move, especially if we get another hot CPI read on June 10. However, if you hear the word “taper” from a Fed official, then you’re looking at high $120’s in days.

Q: With the TLT going up, why have you not sent out an alert to double up on put spreads?

A: I tend to be a bit of a perfectionist since I’m a scientist and an engineer, so I’m hanging on for an absolute top to prove itself and start on the way down. On the shorts, I like selling them on the way down, and buying my longs on the way up, because there are always surprises, there’s always the unknown, and heaven forbid, I might actually be wrong sometimes! So, I’m still waiting on this one. And we do already have one position that is fairly close to the money now, the June 2021 $141-144 vertical bear put debit spread, so I don't want to double up on that until we have a reversal in the intermediate term trend.

Q: I see GameStop (GME) is spiking again now up to $230—should I get in for a short-term profit?

A: No. With these meme stocks, the trading is totally random. If anything, I would be selling short, but I would do it in a limited risk way by buying a put spread. However, the implied volatility in the options on these meme stocks are so high that it's almost impossible to make any money on options; you’re paying enormous amounts of money up front, so that's my opinion on GameStop and on AMC Entertainment Holdings (AMC), the other big meme stock.

Q: Will business travel come back after the world is vaccinated?

A: Absolutely. Companies don't want to send people on the road, but customers will demand it. All you need is one competitor to land an order because they visited the customer instead of doing a Zoom (ZM) meeting, and all of a sudden business travel will come roaring back. So that's why I was dabbling in Delta Airlines (DAL) and that's why I like American Express (AXP), where 8% of transactions are for first class airline tickets.

Q: As the work-from-home economy stops and workers go back to the office, do you see a 10% correction in the housing market?

A: Actually, in the housing market with real houses, I don't see prices dropping for years, because 30% of the people who went home to work are staying there for good—that the trend out of the cities into the hinterlands is a long-term trend that will continue for decades, now that Zoom has freed us of the obligations to commute and be near big cities. And of course, I’m a classic example of that; I've been working either in my basement in San Francisco or at Lake Tahoe for the last 14 years. Housing stocks on the other hand like Lennar (LEN), Toll Brothers (TOL) and KB Home (KBH) have had a tremendous run and are basically out of homes. Could they have a 10% correction at any time? Absolutely, yes.

Q: Should I avoid buying dips in last year's work-from-home stocks?

A: Yes I would. DocuSign (DOCO) and Zoom (ZM) are the two best ones because they were both up 12X from their lows, and I tend not to chase things that are up 12X unless they are a Tesla (TSLA) or an Nvidia (NVDA) or something like that. In the end, Tesla went up 295 times.

Q: Are you looking at the carbon credits market?

A: No, but I probably should. That market shut down last year. It’s alive again, and it looks like it's growing like crazy.

Q: What’s the ideal volatility for individual options? What do you use to compare?

A: Always look at the implied volatility of the option compared to the realized volatility of the underlying stock; and when the difference gets too big, you get ideal conditions for putting on call and put spreads, which take advantage of this. These are almost volatility neutral because you’re long on one batch of volatility and short on the other.

Q: Is it too late to get involved in the ProShares Ultra Technology ETF (ROM), the 2X long ETF in a spread?

A: The November 2021 $121-125 vertical bull call spread, the farthest expiration you can get for the (ROM), was kind of aggressive—I would go closer to the money. We’re right around mid $80s right now, so maybe do a January 2022 $95-100, and even that will get you something like a 400% gain by November.

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

Good Luck and Stay Healthy.

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

Summit of Mount Rose at 10,778 feet with Lake Tahoe on the Right

March 5, 2021

Diary, Newsletter, Summary

Global Market Comments
March 5, 2021
Fiat Lux

Featured Trade:

(MARCH 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(BRKB), (CRM), (ZM), (AAPL), (AMD), (DIS), (CRSP),
(BRKB), (PLTR), (NVDA), (TLT), (TSLA), (GLD),
(SLV), (VSAT), (EUO), (GME)

March 3 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the March 3 Mad Hedge Fund Trader Global Strategy Webinar broadcast from frozen Incline Village, NV.

Q: Are SPACs here to stay?

A: Yes, but I think that in the next bear market, 80% of these SPACs (Special Purpose Acquisition Companies) will disappear, will deliver large losses, and will continue charging you enormous fees until then. It’s either that or they won’t invest their money at all and give it back, net of the fees. So, I’m avoiding the SPAC craze unless it's associated with a very specific investment play that I know well. The problem with SPACs is that they all come out expensive—there are no bargain basement SPACs on launch day. Me, being the eternal cheapskate that I am, always want to get a great bargain on everything. The time to buy these is actually in the next bear market, if they still exist, because then investors will be throwing their positions away at 10 or 20% discounts. That’s always what happens with specialized ETF, closed-end funds, and so on. They are roach motel investments; you can check-in, but you can never check out.

Q: What do you think of Elizabeth Warren's asset tax idea?

A: It’s idiotic. It would take years to figure out how much Jeff Bezos is worth. And even then, you probably couldn't come within ten billion dollars of a true number. We already pay asset taxes, our local county real estate taxes, and those are bad enough, delivering valuations that are miles from true market prices. There are many other ways to fix the tax system and get billionaires paying their fair share. There are only three things you really have to do: get rid of carried interest so hedge funds can’t operate tax-free, get rid of real estate loss carry forwards which allow the real estate industry to basically operate tax-free, and get rid of the oil depletion allowance, which has enabled the oil industry to operate tax-free for nearly 90 years. So those would be three easy ones to increase the fairness of the tax system without any immense restructuring of our accounting system.

Q: When will share buybacks start?

A: They’ve already started and have been happening all year. There are two ways the companies do this: they either have an outside accounting firm, buying religiously every day or at the end of every month or something like that, so they can’t be accused of insider trading; or they are in there buying on every dip. Certainly, all the big cash-heavy companies like Berkshire Hathaway (BRKB) or Apple (AAPL) were buying their shares like crazy last March and April because they were trading such enormous discounts. So that is another trillion dollars sitting under the market, waiting to come in on any dip, which is yet another reason that we are not going to see any major sell-offs this year—just the 5%-10% variety that I have been predicting.

Q: Is it time to buy Salesforce (CRM)?

A: Yes, Marc Benioff’s goal is to double sales in two years, and the stock is relatively cheap right now because they’ve had a couple of weak quarters and are still digesting some big acquisitions.

Q: Is CRISPR Therapeutics (CRSP) good buy?

A: Yes, I would be buying right here; it’s a good LEAP candidate because the stock could easily double from here. We’ve only scratched the surface on CRISPR technology being adopted and the potential growth in this company is enormous—I'm surprised they haven’t been taken over already.

Q: Will you start a letter for investing advisors on how to deal with the prolific numbers of Bitcoin?

A: There are already too many Bitcoin newsletters; there are literally hundreds of them and thousands of experts on Bitcoin now because there’s nothing to know and nothing to analyze. It’s all a belief system; there are no earnings, there are no dividends, and there is no interest. So, you purely have to invest in the belief that somebody else is going to take you out at a higher price. I think there is a big overhang of selling in that when they raise the number of Bitcoin, we’ll get another one of those 90% crashes that Bitcoin is prone to. So, go elsewhere for your Bitcoin advice; your choices are essentially unlimited now, and they are much cheaper than me. In fact, people are literally giving away Bitcoin advice for free, which means you’re getting what you’re paying for. I buy Bitcoin when they have a customer support telephone number.

Q: Zoom (ZM) has come down a lot after a big earnings report—do you like it?

A: Long term, yes. Short term, no. You want to avoid all the stay-at-home stocks because no one is staying at home anymore. However, there is a long-term story in Zoom once they find their bottom because even after we come out of the pandemic, we’re all still using Zoom. I have like five or ten Zoom meetings a day, and my kids go to school on Zoom all day long. They’re also bringing out new products like telephone servers. They’re also raising their prices—I happen to be one of Zoom’s largest customers. I’m paying $1,100/month now, and that’s rising at 10% a year.

Q: What would be the best LEAP for Salesforce (CRM)?

A: The rule of thumb is that you want to go 30% out of the money on your first strike. So, find a current stock price; your first strike is up 30%, and then your second strike is up 35%. And all you need to double your money on that is a bounce back to the highs for this year, which is not unrealistic. That’s the lay-up there with Salesforce. That’s the basic formula; Advanced Micro Devices (AMD), Walt Disney (DIS), Berkshire Hathaway (BRKB), Palantir (PLTR), and Nvidia (NVDA) are all good candidates for LEAPS.

Q: How often do you update the long-term stock portfolio?

A: Twice a year, and we just updated in January, which is posted on the website in your membership area. If you can't find it, just email customer support at support@madhedgefundtrader.com and they’ll tell you where to find it. And we only do this twice a year because there just aren't enough changes in the economy in six months to justify a more frequent update.

Q: When do you think real estate will come back?

A: It never left. We’ve had the hottest real estate market in history, with 20% annual gains in many cities in 2020. And that will continue, but not at the 20% rate, probably at a more sustainable 5% or 6% rate. Guess what the best inflation play in the world is? Real estate. If you’re worried about inflation, you want to run out and buy a house or two. The only thing that will really kill that market is a rise in 30-year fixed-rate mortgages to 5%, and that is years off. Or a rise in the ten-year treasury to 5% or 6%—that is several years off also. So, I think we’ve got a couple of good years of gains ahead of us. I at least want the market to stay hot until my kids get out of high school, and then I can sell my house and go live on some exotic tropical island with great broadband.

Q: When you’re doing LEAPS, do you just do the calls only or do you do these as spreads?

A: You can do both. Just do the math and see what works for you on a risk/reward basis. You can do a 30% out of the money call 2 years out and get anywhere from a 1,000% to a 10,000% return—people did get 10,000% returns buying deep out of the money LEAPS in Tesla (TSLA) a year ago (that’s where all the vintage bourbon is coming from). Or you can do it more conservatively and only make 500% in two years on Tesla spread. For example; do something like a Tesla January 2023 $900-$950 call spread. If Tesla shares rise to $950, that position is an easy quadruple. But do the numbers, figure out the cost today, what the expiration value is in two years, and there you go.

Q: Do you think overnight rates could go negative as some people predict?

A: Not for a long time. They will go negative at the next recession because we’re starting off such a low base—or when we get the next pandemic, which could be as early as next year. We could get another one at any time from a completely different virus, and it would generate the same stock market results that we got last time—down 40% in a month. We’re not out of the pandemic business, we’re just having a temporary break waiting for the next one to come along out of China or some other country, or even right here in the USA. So that may be a permanent aspect of investing in the future. It could be the price we pay having a global population that's at 7 billion heading to 9 billion.

Q: Expiration on LEAPS?

A: I always go out two years. The second year is almost free, that’s why. So why not go for the second year? It gives you twice as much time to be right, always useful.

Q: My two-year United States Treasury Bond Fund (TLT) $125 put LEAPS have turned very positive. Is this a good trade?

A: That is a good trade, which you should put on during the next (TLT) rally. If you think we’re going to $105 in 2 years, do something like a $127-$130 two-year put LEAP, and there's a nice four bagger right there.

Q: Your Amazon (AMZN) price target was recently listed at $3,500, below last year's high, but I’ve also seen a $5,000 forecast in two years. Are you sticking with that?

A: Yes, I think when you get a major recovery in the economy, Amazon will be one of the only pandemic plays that keeps on going. It’s just taking a rest here with the rest of big tech. The breakup value of Amazon is easily $5,000 a share or more. Plus, they’re still going gangbusters growing into new industries that they’ve barely touched so far, like pharmaceuticals, healthcare, and so on. So yes, I would definitely be a buyer of LEAPS, and you could do something like the January 2023 $3700-$4000 LEAP two years out and make a killing on that.

Q: Anything you can do in gold (GLD)?

A: Not really. Although gold and silver (SLV) have been a huge disappointment this year, I think this could be the beginning of a capitulation selloff in gold which will bring us a final bottom, but it may take another month or two to get there.

Q: How can I sell short the dollar?

A: You sell short the (UUP), or there are several 1X and 2X short ETFs in the currencies that you can do, like the ProShares Ultra Short Euro ETF (EUO). That is the way to do it.

Q: What is the best timing for buying LEAPS?

A: Buy at market bottoms. A year ago, I was sending out lists of 10 LEAPS at a time saying please buy all of these. You need both a short-term selloff in the stock, and then an upside target much higher than the current price so your LEAP expires at its maximum profit point. And if you’re in the right names, pretty much all the names that we talk about here, you will have 30%, if not 300% or 3,000% gains in them in the next two years.

Q: Do you think Tesla’s Starlink global satellite system will disrupt the cell tower industry?

A: Yes, that is the goal of Starlink—to wipe out all ground communication for WIFI and for cell phones. It may take them several years to do it, but if they do pull it off, then it just becomes a matter of pricing. The last Starlink pricing I looked at cost about $500 to set up, open the account, and get your dish installed. And the only flaw I see in the Starlink system is that the satellite dishes are tracking dishes, which means they lock onto satellites and then follow them as they pass overhead. Then when that signal leaves, it locks onto a new satellite; at any given time they’re locked onto four different satellites. That means moving parts, and you want to be careful of any industry that has moving parts—they wear out. That’s the great thing about software and online businesses; no moving parts, so they don’t wear out. And that’s also why Tesla has been a success; they eliminated the number of moving parts in cars by 80%. I’m waiting for Starlink to get working so I can use it, because I need Internet access 24 hours a day, even if all the local hubs are out because of a power outage. I’m now using something called Viasat (VSAT), which guarantees 100 megabyte/second service for $55 a month. It's not enough for me because I use a gigabyte service landline, but when that’s not available then I can go to satellite as a backup.

Q: Is there too much Fed liquidity in the market already? Why is the $1.9 trillion rescue package still positive for the market?

A: Firstly, there is too much liquidity in the market; that is screamingly obvious. If you look at liquidity over the decades, we are just staggeringly high right now. M2 is growing at 26% against the normal rate of 5%-6%. What the stimulus package does is get money to the people who did not participate in the bull market from last year. Those are low-income people, cities, and municipalities that are broke and can’t pay teachers, firemen, and policemen. It also goes to individual states which were not invested in the stock market. It turns out that states that were invested in the stock market like California have money coming out of their ears right now. And it gets money to low wage workers with kids who are certainly struggling right now. So, it is rather efficiently designed to get the money to people who need it the most. There is still half the country that doesn't own any stocks or even have savings of any kind. One or two people might get it who don’t deserve it but try doing anything in a 330 million population country and have it be 100% efficient.

Q: Is inflation coming?

A: Only incrementally in tiny pieces, so not enough to affect the stock market probably for several years. I still believe technology is advancing so fast that it wipes out any effort to raise prices or increase wages, and that may be what the perennially high 730,000 weekly jobless claims is all about. Those jobs that might have been there a year ago have been replaced by machines, have been outsourced overseas, or the demand for the product no longer exists. So, as long as you have a 10% unemployment rate and a weekly jobless claim at 730, inflation is the last thing you need to worry about.

Q: Is there any way to cash in on Reddit’s Wall Street Bets action?

A: No, and I would bet the majority of people who are trading off of these emojis and Reddit posts are losing money. You only hear about these things after it’s too late to do anything about them. I don't think you’ll get any more $4 to $450 moves like you did with GameStop (GME) because in that one case only, there was a short interest of 160%, which should have been illegal. All the other high short interest stocks have already been hit, with short interests all the way down to 30%, so I think that ship has sailed. It has no real investing merit whatsoever.

Good Luck and Stay Healthy.

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

February 25, 2021

Biotech Letter

Mad Hedge Biotech & Healthcare Letter
February 25, 2021
Fiat Lux

FEATURED TRADE:

(AN UNDER THE RADAR BIOPHARMA PLAY)
(ALNY), (PFE), (BNTX), (MRNA), (NVS), (GME), (BX)

An Under the Radar Biopharma Play

Biotech Letter

Financial markets have been incredibly volatile in the past months primarily due to the COVID-19 pandemic.

The situation was made even more unpredictable by the GameStop (GME) and bitcoin drama.

So it’s expected that investors are looking for guidance in this time of instability, and a good place to start is the Blackstone Group (BX).

Considering that the basic philosophy of this company is to “buy, fix, and sell,” it’s safe to say that Blackstone only puts its money, time, and effort in promising investments.

Around the time of the pandemic outbreak last year, Blackstone poured in roughly $2 billion investment in a biopharmaceutical company, Alnylam Pharmaceuticals (ALNY).

While Alnylam may be virtually unknown to the public, this is actually a promising company with an impressive backstory.

Founded in 2002, Alnylam is mainly known for its technology, RNAi or RNA interference.

This is a gene-silencing technique, which was discovered by Andrew Fire and Craig Mello back in 1998. The two won the Nobel Prize for it in 2006.

Even before the Nobel, Alnylam has already seen the potential of this technology and started developing it in the early 2000s.

For decades, this work had been underappreciated—up until the COVID-19 pandemic.

This is because the leading vaccine candidates right now, developed by Pfizer (PFE)-BioNTech (BNTX) and Moderna (MRNA), are both mRNA-based drugs.

Although the vaccine developers customized the technology, they still used the same delivery technique that Alnylam developed.

Clearly, there has been a lot of piggybacking on this discovery.

While Moderna, Pfizer, and BioNTech used the technology to create RNA-based drugs for the COVID-19 vaccines, Alnylam decided to utilize it to develop treatments for other diseases.

The first approval was hereditary transthyretin-mediated amyloidosis drug Onpattro, launched in 2018.

As of 2020, sales of this high-priced therapy reached roughly $300 million, ensuring that it was on pace with the company’s target.

Alnylam’s second approved treatment is ultra-rare genetic disease drug Givlaari, which hit the market early last year.

By the third quarter of 2020, sales of this acute hepatic porphyria drug climbed by $67 million despite the effects of the pandemic.

In the next decade, Givlaari is estimated to peak at $550 million annually.

By 2025, yearly sales for Givlaari and Onpattro are projected to hit roughly $1.5 billion in total.

Riding this momentum, Alnylam has been collaborating with Sanofi (SNY) to develop another rare disease drug, Vutrisiran. This could rival the company’s own Onpattro.

Aside from Vutsiriran, Alnylam and Sanofi are also working on a potential novel hemophilia treatment, Fitusiran.

The latest treatment to gain approval is rare kidney disorder drug Oxlumo, which is estimated to net Alnylam roughly $380,000 per patient annually.

While this may be a hefty price tag, it’s expected that insurance companies and governments will be the ones to ultimately shell out the money for these rare disease drugs.

Before 2021 ends, Alnylam is expected to gain FDA approval for another potential blockbuster drug, Inclisiran. This is a cholesterol-fighting treatment, which is a work in progress with Novartis (NVS).

Over the past decade, Blackstone has been quietly stashing multi-billion-dollar stakes in the life sciences.

In 2020 alone, the company poured roughly $16 billion into the industry. This is its largest investment theme for the entire year.

While this business has yet to make a dent on Blackstone’s $600 billion assets, the attention that the companies have been getting is worth noting—and a good place to start is Alnylam.

For a better context of its potential, Blackstone invested $3 billion in a dating app called Bumble (BMBL) back in 2018.

Fast forward to 2021, this company is now worth approximately $14 billion following its recent IPO.

With a market capitalization of roughly $15 billion and for a company that’s not anticipated to generate over $1 billion in annual revenue until 2022, Alnylam’s current price might be considered high by some investors.

Looking at its pipeline though, which is filled with potential blockbusters, and its track record that shows that the company definitely knows how to launch new drugs to the market, I believe Alnylam stock is worth considering right now.

alnylam