Last weekend, I had dinner with one of the oldest and best-performing technology managers in Silicon Valley. We met at a small out-of-the-way restaurant in Oakland near Jack London Square so no one would recognize us. It was blessed with a very wide sidewalk out front and plenty of patio tables.
The service was poor and the food indifferent, as are most dining experiences these days. I ordered via a QR code menu and paid with a touchless Square swipe.
I wanted to glean from my friend the names of the best tech stocks to own for the long term right now, the kind you can pick up and forget about for a decade or more, a “lose behind the radiator” portfolio.
To get this information, I had to promise the utmost confidentiality. If I mentioned his name, you would say “oh my gosh!”
Amazon (AMZN) is now his largest holding, the current leader in cloud computing. Only 5% of the world’s workload is on the cloud presently so we are still in the early innings of a hyper-growth phase there.
By the time you price in all the transportation, labor, and warehousing costs, Amazon breaks even with its online retail business at best. The mistake people make is only focusing on this lowest of margin businesses.
It’s everything else that’s so interesting. While its profitability is quite low compared to the other FANG stocks, Amazon has the best growth outlook. For a start, third-party products hosted on the Amazon site, most of what Amazon sells, offer hefty 30% margins.
Amazon Web Services (AWS) has grown from a money loser to a huge earner in just four years. It’s a productivity improvement machine for the world’s cloud infrastructure where they pass all cost increases on to the customer who, once in, buy more services.
Apple (AAPL) is his second holding. The company is in transition now justifying a massive increase in earnings multiples, from 9X to 25X. The iPhone has become an indispensable device for people around the world, and it is the services sold through the phone that are key.
The iPhone is really not a communications device but a selling device, be it for apps, storage, music, or third-party services. The cream on top is that Apple is at the very beginning of an enormous replacement cycle for its installed base of over one billion phones. Moving from upfront sales to a lifetime subscription model will also give it a boost.
Half of these are more than four years old, and positively geriatric in the tech world. More than half of these are outside the US. 5G has added a turbocharger.
Netflix (NFLX) is another favorite. The world is moving to “over the top” content delivery and Netflix is already spending twice as much on content as any other company in this area. This is why the company won an amazing 44 Emmys last year. This will become a much more profitable company as it grows its subscriber base and amortizes its content costs. Their cash flow is growing by leaps and bounds, which they can use to buy back stock or pay a dividend.
Generally speaking, there is no doubt that the pandemic has pulled forward some future technology demand with the stay-at-home trend. But these companies have delivered normal growth in a hard world.
5G has enabled better Internet coverage for everyone and increased the competitiveness of the telecom companies. Factory automation has been another big area for 5G, as it is reliable and secure, and can be integrated with artificial intelligence.
Transportation will benefit greatly. Connected self-driving cars will be a big deal, improving safety and the quality of life.
My friend is not as worried about government-threatened break-ups as regulation. There will be more restraints on what these companies can do going forward. Europe, which has no big tech companies of its own, views big American tech companies simply as a source of revenue through fines. Driving companies out of business through cutthroat competition is simply not something Europeans believe in.
Google (GOOG) is probably more subject to antitrust proceedings both in Europe and the US. The founders have both retired to pursue philanthropic activities, so you no longer have the old passion (“don’t be evil”).
Both Google and Meta (META) control 70% of the advertising market between them, which is inherently a slow-growing market, expanding at 5% a year at best. (META)’s growth has slowed dramatically, while it has reversed at (GOOG).
He is a big fan of (AMD), one of his biggest positions, which is undervalued relative to the other chip companies. They out-executed Intel (INTC) over the last five years and should pass it over the next five years.
He has raised value tech stocks from 15% to 30% of his portfolio. Apple used to be one of these. Semiconductor companies today also fall into this category. Samsung with 40% margins in its memory business is a good example. Selling for 10X earnings is ridiculously cheap. It is just a matter of time before semiconductors get rerated too.
He was an early owner of Tesla (TSLA) back in the nail-biting days when it was constantly running out of cash. Now they have the opposite problem, using their easy access to cash through new share issues as a weapon to fight off the other EV startups. Tesla is doing to Detroit what Apple did to the cell phone companies, redefining the car.
Its stock is overvalued now but will become much more profitable than people realize. They also are starting to extract services revenues from their cars, like Apple has. Tesla will grow revenues by 30%-50% a year for the next two or three years. They should sell several millions of the new small SUV Model Y. Most other companies bringing EVs will fall on their faces.
EVs are a big factor in climate change, even in China, the world’s biggest polluter. In Europe, they are legislating gasoline cars out of existence. If you can make money building cars in Fremont, CA, you can make a fortune building them in China.
Tech valuations are high, there is no doubt about it. But interest rates are much lower by comparison. The Fed is forcing people to buy stocks, enabling these companies to evolve even faster.
Tech stocks have a lot more things going for them than against them. The customers keep coming back for more.
Needless to say, the above stocks should make up your short list for LEAPS to buy at the coming market bottom.
https://www.madhedgefundtrader.com/wp-content/uploads/2020/09/oakland-fire-dept.png408608Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-02 10:02:162022-08-02 12:34:10An Insider’s Guide to the Next Decade of Tech Investment
(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-07-27 09:05:462022-07-27 15:51:44July 27, 2022
Not a day goes by without a reader asking me what is the next stock ten, hundred, or thousand bagger. After all, I nailed the 295X move in Tesla (TSLA) starting in 2010.
Can’t I do better?
Well actually, I can, which is the purpose of the Diary of a Mad Hedge Fund Trader. There are many potentially Google (GOOG), Amazon (AMZN) and Apple (AAPL) sized opportunities out there today. It’s just a matter of time they become public and investable.
One thing I will tell you today is that they will have some or all of the following gale force tailwinds below. These will turbocharge the value of everything you own now, as well as anything new you might pick up going forward.
The future is happening fast!
1)People are Getting Richer, as the middle-income population continues to rise worldwide. That means more customers for everything, and astronomically greater earnings for the companies inventing and selling them. Every day goods and services (finance, insurance, education, and entertainment) are being digitized and becoming fully demonetized, available to the rising billion on mobile devices. Thank the convergence of high-bandwidth and low-cost communication, ubiquitous AI on the cloud, growing access to AI-aided education, and AI-driven healthcare.
2) And they are Communicating with Each Other More. The deployment of both licensed and unlicensed 5G, plus the launch of a multitude of global satellite networks (Starlink, OneWeb, Viasat, etc.), allow for ubiquitous, low-cost communications for everyone, everywhere, all the time––not to mention the connection of trillions of devices. And today’s skyrocketing connectivity is bringing online an additional 3 billion individuals, driving tens of trillions of dollars into the global economy and into the pockets of shareholders. Thank the convergence of low-cost space launches (Space-X), hardware advancements, 5G networks, artificial intelligence, a new generation of materials science, and exponentially surging computing power.
3) Your Lifespan Will Increase by at Least Ten Years. A dozen game-changing biotech and pharmaceutical solutions (currently in Phase 1, 2, or 3 clinical trials) will reach consumers this decade as covered by the Mad Hedge Biotech & Healthcare Letter (click here for the link). Technologies include stem cell supply restoration, senolytic or age-related medicines, a new generation of Endo-Vaccines, GDF-11, and supplementation of NMD/NAD+, among several others. And as machine learning continues to mature, AI is set to unleash countless new drug candidates, ready for clinical trials. Thank the convergence of genome sequencing, CRISPR technologies (CRSP), AI, quantum computing, and cellular medicine.
4) More Capital for Everything Will Become Abundant. Over the past few years, humanity hit all-time highs in the global flow of seed capital, venture capital, and sovereign wealth fund investments. It is expected to continue its overall upward trajectory. Capital abundance leads to the funding and testing of "crazy" entrepreneurial ideas, which in turn accelerate innovation. Already, $300B in crowdfunding is anticipated by 2025, democratizing capital access for entrepreneurs worldwide. And even during a pandemic (2020), the world deployed more venture capital than ever before, handily beating out the last high-water mark in 2019. Thank global connectivity, dematerialization, demonetization, and democratization.
5) Distribution is Becoming Vastly Easier. The combination of Augmented Reality (yielding Web 3.0, or the Spatial Web) and 5G networks (offering lighting fast 100Mb/s - 10Gb/s connection speeds) will transform how we live our everyday lives, impacting every industry from retail and advertising, to education and entertainment. Consumers will play, learn and shop throughout the day in a newly intelligent, virtually overlaid world. This is where technologies like SpatialWeb.net, Vatoms (new digital connections between products and customers), and Apple’s (AAPL) next-generation AR & VR headsets will shine. Thank hardware advancements, 5G networks, AI, materials science, and surging computing power.
(6) Everything is Getting Smarter: The price of specialized machine learning chips is dropping rapidly with a rise in global demand. Imagine a specialized $5 chip that enables AI for a toy, a shoe, a kitchen cabinet? Combined with the explosion of low-cost microscopic sensors and the deployment of high-bandwidth networks, we’re heading into a decade wherein every device becomes intelligent. Your child’s toy remembers her face and name. Your kid's drone safely and diligently follows and videos all the children at the birthday party. Appliances respond to voice commands and anticipate your needs. Thank AI, 5G networks, and more advanced sensors.
(7) Artificial Intelligence is Getting Smarter than We are. Artificial intelligence will reach human-level performance this decade (by 2030). Through the 2020s, AI algorithms and machine learning tools will be increasingly made open source, available on the cloud, allowing any individual with an internet connection to supplement their cognitive ability, augment their problem-solving capacity, and build new ventures at a fraction of the current cost. Thank global high-bandwidth connectivity, neural networks, and cloud computing. Every industry, spanning industrial design, healthcare, education, and entertainment, will be impacted.
(8) AI is Becoming a Service: The rise of “AI as a Service” (AIaaS) platforms will enable humans to partner with AI in every aspect of their work, at every level, in every industry. AI’s will become entrenched in everyday business operations, serving as cognitive collaborators to employees—supporting creative tasks, generating new ideas, and tackling previously unattainable innovations. In some fields, partnership with AI will even become a requirement. For example: in the future, making certain diagnoses without the consultation of AI may be deemed malpractice. And try trading stocks today without AI behind you. Thank increasingly intelligent AI, global high-bandwidth connectivity, neural networks, and cloud computing.
(9) Software Will Become an Integrated Part of Our Lives. As services like Alexa, Google Home, and Apple Homepod expand in functionality, such services will eventually travel beyond the home and become your cognitive prosthetic 24/7. Imagine a secure software shell that you give permission to listen to all your conversations, read your email, monitor your blood chemistry, etc. With access to such data, these AI-enabled software shells will learn your preferences, anticipate your needs and behavior, shop for you, monitor your health, and help you problem-solve in support of your mid- and long-term goals. Thank increasingly intelligent AI, neural networks, and cloud computing.
(10) EnergyWill Become Effectively Free when compared to today’s all-in costs. Continued advancements in solar, wind, geothermal, hydroelectric, small nuclear, and localized grids will drive humanity towards cheap, abundant, and ubiquitous renewable energy. The price per kilowatt-hour will drop below 1 cent per kilowatt-hour for renewables, just as storage drops below a mere 3 cents per kilowatt-hour, resulting in the elimination of fossil fuels globally. And as the world’s poorest countries are also the world’s sunniest, the democratization of both new and traditional storage technologies will grant energy abundance to those already bathed in sunlight. We are also on the cusp of many breakthroughs in fusion power at nearby Lawrence Livermore Labs as capital, new materials, and entrepreneurs pour in this arena. Thank materials science, hardware advancements, AI/algorithms, and improved battery technologies.
I just thought you’d like to know.
https://www.madhedgefundtrader.com/wp-content/uploads/2020/10/John-Thomas-bull-ride-2-e1602171157859.png516450Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-03-24 10:02:012022-03-24 17:07:36Ten Tech Trends Defining Your Future
Global Market Comments September 27, 2021 Fiat Lux
Featured Trade:
(THE MAD HEDGE SUMMIT VIDEOS ARE UP)
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE YEAREND RALLY HAS BEGUN),
(DIS), (TLT), (SPY), (GS), (JPM), (BLK), (MS), (BRKB), (GOOG)
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The calls started coming in as soon as the market closed.
More than a dozen subscribers called, emailed, and texted me on Thursday to say that they just had the best day in the market this year, and for some, their entire lives.
Holding fire until you saw the whites of their eyes worked. I used both visits to the (SPY) to $430 to load the boat with financial stocks, which then took off like a tribe of scalded chimps.
Mad Hedge made 5.6% on that day alone. One Concierge client reported a breathtaking $5.3 million profit after dumping a lot of his techs and piling into banks and brokers. Suffice it to say that I am very welcome in a well-to-do suburb of Seattle, Washington.
The washout was so dramatic and the recovery so rapid I think it is safe to say that our fall correction is over. We may get some small retracements and sideways chop from here. But the writing is on the wall. We are headed to new all-time highs in stocks by the end of 2022.
I received a lot of questions about how easily I was able to spot the bottom so easily. A Volatility Index (VIX) of $29 was a big help. So was the outflow of $34 billion from equity ETFs and mutual funds the previous week, the most in six months. And when the Mad Hedge Market Timing Index hits a rare low of 19, you don’t sit on your hands very long.
The $300 billion China Evergrande Group debt crisis gave us the crisis and the final flush we needed to establish a clear bottom.
Nothing else can stop this. New Covid cases are falling off a cliff, and childhood vaccinations out next month will accelerate this trend.
A massive infrastructure budget will pass in congress. It is almost irrelevant whether it’s a $3.5 trillion or $1.5 trillion. It will be more than can be spent in any reasonable amount of time.
In the meantime, the ultimate driver of share prices, the exponential growth of post covid corporate profits, continues unabated.
The wall of money keeps getting ever larger. The Fed reported that in Q2, Household Net Worth soared by $5.9 trillion is an incredible $141.7 trillion largely through the appreciation of stock and home prices. The Fed balance sheet has exploded from $4.1 trillion to $8.4 trillion in a mere 18 months.
This will continue for another decade. Keep piling on those leveraged long-term LEAPS. Flat is the new down.
Enjoy.
Four to six Interest RatesRises by 2024 which may start as early as 2024, says Fed governor Jay Powell. The taper could start in November. Bonds rose slightly on the news, but the writing is now definitely on the wall. The Fed now expects a stratospheric 5.9% GDP for 2021 and 3.8% for 2022. Sell all rallies in the (TLT) and buy all financial stocks.
Bonds Crash, down -$3.43 points after Jay Powell’s super bearish comments from Wednesday soak in. The 50-day moving average has been smashed and the next target is the 200-day at $1344.59. Watch the 50-day rollover from here on. My final target is a 1.76% yield on the ten-year US Treasury bond by January.
Back up the Truck, it’s time to load up on stocks on the back of yesterday’s 985-point swan dive. You especially want domestic recovery ones that benefit from rising interest rates, like banks, brokers, fund managers, commodities, and steel. The taper may be only weeks away and will drive stocks to new highs by yearend. You wanted a dip to buy, so buy the dip. Don’t expect much from technology stocks for a while.
China’s Largest Real Estate Developer Goes Bust, China Evergrande Group, with $300 billion in debt. The move smashed risk markets globally, opening the Dow Average down 650. Bitcoin plunged 10%. Is this China’s Lehman moment, or just another day at the office? It does take them another step back towards real communism.
China Bans Crypto, triggering a 7% plunge in Bitcoin. Financial systems the government can’t control are forbidden in the Forbidden City. It’s all part of a flight out of a restricted Yuan into unrestricted crypto by wealthy Chinese. China used to account for 99% of all Bitcoin mining and now it is at zero. The business will flock to the US, Canada, and any other country with cheap electricity. It’s a short-term negative for crypto but a long term positive. Buy Bitcoin and Ethereum on the dip.
Pfizer Boosters for over 65 were approved by the FDA for immediate distribution. Those younger will have to wait. It turns out that the Pfizer effectiveness drops from 99% to 66% in eight months. That puts older recipients, like me, at risk. Under 12 kids to come in October. See you at Costco! Buy (PFE) on dips.
Pandemic Tops 1918 US Death Toll at 675,000, although on a per capita basis we are still only a third of the Spanish Flu. We are not even close to this ending yet. We need vaccinations for kids and booster shots for all to be dome with this, getting national immunity up to 90%.
Housing Starts for August up 3.9% with apartment buildings the big driver. Single family homes fell. Building Permits are up 6.0% and are a 50% increase from the summer lows.
Existing Home Sales Drop, by 2% in August to 5.88 million units annualized according to a signed contract basis. Only 1.29 million homes are for sale, a 2.6-month supply, down 13% YOY. The Median Price rose to an eye-popping $356,700, up 14.9% YOY. Million-dollar homes are up 40% YOY.
Google (GOOG) Buys $2.1 Billion in New York Office Space, which is why I love this company. You can forget about those end of New York City stories. Always follow the money, where companies are putting their money, and you will find great stock. Or so the chairman of JP Morgan Bank taught me 40 years ago. Buy (GOOG) on dips.
Weekly Jobless Claims Pop to 351,000 last week, up 16,000. Leading Economic Indicators jump in August, coming in at 0.9%. March saw the high for the year at 1.3%. Getting a lot of noisy and conflicting economic data points this week as delta works its way through the system. My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
My Mad Hedge Global Trading Dispatch saw a robust +6.63% gain so far in September. My 2021 year-to-date performance soared to 85.20%. The Dow Average was up 13.60% so far in 2021. September 23 saw my biggest up day of the year, some 5.61%
I held fire until the Dow Average 1,000-point washout, then loaded the boat with financial stocks, writing the trade alerts as fast as I could. That leaves me 70% long financial stocks, 10% in cash, and 20% in short (TLT).
That brings my 12-year total return to 507.75%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.52%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 117.34%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 43 million and rising quickly and deaths topping 685,000, which you can find here.
The coming week will be slow on the data front.
On Monday, September 27 at 8:30 AM, Durable Goods are for August are reported.
On Tuesday, September 28 at 9:00 AM, The S&P Case Shiller National Home Price Index for July is published.
On Wednesday, September 29 at 10:00 AM, we get Pending Home Sales for August.
On Thursday, September 30 at 8:30 AM, Weekly Jobless Claims are announced. The final report of the Q2 US GDP is disclosed.
On Friday, October 1 at 8:30 AM, we learn Personal Income and Spending for August. The September Nonfarm Payroll Report is not out for another week due to the first day of the month rule. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
As for me, when I first met Andrew Knight, the editor of The Economist magazine in London 45 years ago, he almost fell off his feet. Andrew was well known in the financial community because his father was a famous WWII Battle of Britain Spitfire pilot from New Zealand.
At 34, he had just been appointed the second youngest editor in the magazine’s 150-year history. I had been reporting from Tokyo for years, filing two stories a week about Japanese banking, finance, and politics.
The Economist shared an office in Tokyo with the Financial Times, and to pay the rent, I had to file an additional two stories a week for them as well. That’s where I saw my first fax machine, which then was as large as a washing machine even though the actual electronics would fit in a notebook. It cost $5,000.
The Economist was the greatest calling card to the establishment one could ever have. Any president, prime minister, CEO, central banker, or war criminal were suddenly available for a one-hour chat about the important affairs of the world.
Some of my biggest catches? Presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George Bush, and Bill Clinton, China’s Zhou Enlai and Deng Xiaoping, Japan’s Emperor Hirohito, terrorist Yasir Arafat, and Teddy Roosevelt’s oldest daughter, Alice Roosevelt Longworth, the first woman to smoke cigarettes in the White House in 1805.
Andrew thought that the quality of my posts was so good that I had to be a retired banker at least 55 years old. We didn’t meet in person until I was invited to work the summer out of the magazine’s St. James Street office tower, just down the street from the palace of Prince Charles.
When he was introduced to a gangly 25-year-old instead, he thought it was a practical joke, which The Economist was famous for. As for me, I was impressed with Andrew’s ironed and creased blue jeans, an unheard-of concept in the Wild West.
The first unusual thing I noticed working in the office was that we were each handed a bottle of whisky, gin, and wine every Friday. That was to keep us in the office working and out of the pub next door, the former embassy of the Republic of Texas from pre-1845. There is still a big white star on the front door.
Andrew told me I had just saved the magazine.
After the first oil shock in 1972, a global recession ensued, and all magazine advertising was cancelled. But because of the shock, it was assumed that heavily oil-dependent Japan would go bankrupt. As a result, the country’s banks were forced to pay a ruinous 2% premium on all international borrowing. These were known as “Japan rates.”
To restore Japan’s reputation and credit rating, the government and the banks launched an advertising campaign unprecedented in modern times. At one point, Japan accounted for 80% of all business advertising worldwide. To attract these ads, the global media was screaming for more Japanese banking stories, and I was the only person in the world writing them.
Not only did I bail out The Economist, I ended up writing for over 50 business publications around the world in every English-speaking country. I was knocking out 60 stories a month, or about two a day. By 26, I became the highest-paid journalist in the Foreign Correspondents’ Club of Japan and a familiar figure in every bank head office in Tokyo.
The Economist was notorious for running practical jokes as real news every April Fool’s Day. In the late 1970s, an April 1 issue once did a full-page survey on a country off the west coast of India called San Serif.
It warned that if the West coast kept eroding, and the East coast continued silting up, the country would eventually run into India, creating serious geopolitical problems.
It wasn’t until someone figured out that the country, the prime minister, and every town on the map was named after a type font that the hoax was uncovered.
This was way back, in the pre-Microsoft Word era, when no one outside the London Typesetter’s Union knew what Times Roman, Calibri, or Mangal meant.
Andrew is now 82 and I haven’t seen him in yonks. My business editor, the brilliant Peter Martin, died of cancer in 2002 at a very young 54, and the magazine still awards an annual journalism scholarship in his name.
My boss at The Economist Intelligence Unit, which was modelled on Britain’s MI5 spy service, was Marjorie Deane, who was one of the first women to work in business journalism. She passed away in 2008 at 94. Today, her foundation awards an annual internship at the magazine.
When I stopped by the London office a few years ago, I asked if they still handed out the free alcohol on Fridays. A young writer ruefully told me, “No, they don’t do that anymore.”
Good Luck and Good Trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2021/09/john-thomas-economist-e1664802946349.png285500Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2021-09-27 09:02:112021-09-27 11:43:06The Market Outlook for the Week Ahead, or The Yearend Rally has Begun
Below please find subscribers’ Q&A for the August 25 Mad Hedge Fund TraderGlobal Strategy Webinar broadcast from The Atlantis Casino Hotel in Reno, NV.
Q: How does a 2X ProShares Ultra Technology ETF (ROM) February 2022 vertical bull call spread on the ROM look? Would you do $110-$115 or $115-$120?
A: I would do nothing here at $112.50 because we’ve just gone up 10 points in a week. I’d wait for some kind of pullback, even just $5 or $10 points, and then I would do the $110-$115. I’m leaning towards more conservative LEAPS these days—bets that the market goes sideways to up small rather than going ballistic, which it has done for the last 18 months. Think at-the-money strikes, not deep out-of-the-money on your LEAPS from here on for the rest of this economic cycle. The potential profits are still enormous. The only problem with (ROM) is that the longest maturities on the options are only six months.
Q: How do you recommend entering your long-term portfolio?
A: I would use the one-third rule: you put on ⅓ now, ⅓ higher or lower later on, and ⅓ higher or lower again. That way you get a good average price. Long term, everything goes up until we hit the next recession, which is probably several years off.
Q: I keep reading that the Delta variant is a market risk, but I don’t think that investors will look through this. Is Delta already priced into the shares?
A: Yes, what is not priced into the shares is the end of Delta, the end of the pandemic—and that will lead to my “everything” rally that I’ve been talking about for a month now. And we have already seen the beginning of that, especially with the price action this week. So yes, Delta in: dead market; Delta out: roaring market.
Q: Do you think there will eventually be a rotation into emerging markets (EEM), or has the virus battered these markets too much to even consider it?
A: Sometime in our future—not yet—the emerging markets will be our core holding. And the trigger for that will be the collapse of the dollar, which is hitting an interim high right now. When the greenback rolls over and dies, you can expect emerging markets, especially China, to take off like a rocket. That’s going to be our next big trade. I don't know if it will be this year or next year but it’s coming, so start doing your emerging market research now, and keep reading my newsletter.
Q: Is the coming tax hike a problem for the stock market?
A: No, I don’t think so. First off, I don’t think they’re going to do a tax bill this year; they don’t want anything to interfere with the 2022 election, so it may be next year’s business. Also, any new taxes are going to be overwhelmingly focused on billionaires, carried interest, offshoring, and large corporations. The middle class, people who make less than $400,000 a year, will not see any tax hike at all, possibly even getting some tax cuts via restored SALT deductions. So, I don't really see it affecting the stock market at all.
Q: What do you think about Chinese stocks (FXI)?
A: Long-term they’re okay, short term possibly more downside. Interestingly, the bigger risk may not be China itself and how the government is beating up its own tech companies, but the SEC. It has indicated they don’t really like these offshore vehicles that have been listed on the New York Stock Exchange, and they may move to ban them. I’m not rushing into China right now, only because there are just so many better opportunities in the US stock market for the time being. I may go back in the future—it’s a case where I’d rather buy them on the way up than trying to catch a falling knife on China right now.
Q: Do you expect any market impact from the Jackson Hole meeting?
A: Yes, whatever J Powell says, even if he says nothing, will have a market impact. And it will have a bigger impact on the bond market than it will on the stock market, which is down a full point this morning. So yes, but not yet. I imagine we’ll hear something very soon.
Q: September and October tend to be volatile; do you see us having a 5% or 10% pullback in those months?
A: I don’t see any more than 5%, with the hyper liquidity that we have in the system now. There just aren’t any events out there that could trigger a pullback of 10%—no geopolitical events, and the economy will be getting stronger, not worse. So yes, an “everything rally” doesn’t give you many long side entry points, so I just don’t see 10% happening.
Q: What about a Walt Disney (DIS) January 2022 $180-$220 LEAPS?
A: I would do the $180-$200. I think you can afford to be tighter on your spread there, take some more risk because I think it’s just going to go nuts to the upside once we get a drop in COVID cases. By the way, Disney parks are only operating at 70% capacity, so if you go back up to 100% that's a near 50% increase in profits for the company. And it’s not just Disney, but Netflix (NFLX), Amazon (AMZN), and everybody else that’s about to have the greatest number of blockbuster movies released of all time. They’re holding back their big-ticket movies for the end of the pandemic when people can go back into theaters. We’ll start seeing those movies come out in the last quarter of this year, and I’m particularly looking forward to the next James Bond movie, a man after my own heart.
Q: Are EV car charging companies like ChargePoint Holdings (CHPT) going to do as well as the car companies?
A: No. They’re low margin business, so it’s not a business model for me. I like high-profit margins, huge barriers to entry, and very wide moats, which pretty much characterizes everything I own. The big profits in EVs are going to be in the cars themselves. Charging the cars is a very capital-intensive, highly regulated, and low-margin business.
Q: Would a Fed taper cause a 10% pullback?
A: Absolutely not; in fact, I think a taper would make the market go up because Jay Powell has been talking it into the market all year. And that’s his goal, is to minimize the impact of a taper so when they finally do it, they say ho-hum and “okay you can take that risk out of the market.” That’s the way these things work.
Q: What is your yearend target for United States Treasury Bond Fund (TLT)?
A: $132. Call it bold, but I'm all about bold. I think the first stop will be at $144, then $138, then bombs away!
Q: What will it take for (TLT) to dip below $130?
A: Another year of hot economic growth, which Congress seems hell-bent on delivering us.
Q: What are your ProShares Ultra Short 20+ Year Treasury ETF (TBT) targets?
A: When we were at 1.76% on the 10-year bond, the (TBT) made it all the way back to 22 ½. Next year we go higher, probably to $25, maybe even $30.
Q: What’s your 10-year view on the (TBT)?
A: $200. That’s when you get interest rates back to 10% in 10 years on the 10-year bond. So yes, that’s a great long-term play.
Q: How long can we hold (TBT)?
A: As long as you want. Ten years would be a good time frame if you want to catch that $17 to $200 move. The (TBT) is an ETF, not an option, therefore it doesn’t expire.
Q: Are you working on an electrification stock list?
A: I am not, because it’s such a fragmented sector. It’s tough to really nail down specific stocks. I think it’s safe to say that the electric power grid is going to change beyond all recognition, but they won’t necessarily be in high margin companies, and I tend to prefer high-profit-margin, large-moat companies which nobody else can get into, like Apple (AAPL) or Google (GOOG).
Q: What about gas pipelines with high yields?
A: They have a high yield for a reason; because they’re very high risk. If you're going to a carbon-free economy, you don’t necessarily want to own pipelines whose main job is moving carbon; it’s another buggy whip-type industry I would avoid. I’ve seen people get wiped out by these things more times than I could count. If you remember Master Limited Partnerships, quite a few of them went bankrupt last year with the oil crash, so I would avoid that area. These tend to be very highly leveraged and poorly managed instruments.
Q: Best play on silver (SLV)?
A: Wheaton Precious Metals (WPM) is the highest leveraged silver play out there, and a great LEAPS candidate. Go out 2 years and triple your money.
Q: Geopolitical oil (USO) risks?
A: No, nobody cares about oil anymore—that’s why we’re giving up on Afghanistan. China is buying 80% of the Persian Gulf oil right now. We don’t really need it at all, so why have our military over there to protect China’s oil supply?
Q: What about Freeport McMoRan (FCX)?
A: I absolutely love it. Any big economic recovery can’t happen without copper, and you have a huge tailwind there from electric cars which need 200 pounds of copper each, as opposed to 20 pounds in conventional cars.
Q: I see AMC Entertainment Holdings (AMC) is up 20% today; should everyone be chasing this stock?
A: No, absolutely not. (AMC) and all the meme stocks aren’t investments, they’re gambling, and there are better ways to gamble.
Q: Should I buy the lumber dip?
A: Yes. I think the slowdown on housing is temporary because it will take 10 years for supply and demand in the housing market to come back into balance because of all the millennials entering the housing market for the first time. So, that would be a yes on lumber and all the other commodities out there that go into housing like copper, steel, and aluminum.
Q: Should I put money into Canadian Junior Gold Miners (GDX)?
A: No, I would rather go out and take a long nap first. These are just so high risk, and they often go bankrupt. The liquidity is terrible, and the dealing spreads are wide. I would stick with the bigger precious metal plays like Newmont Mining (NEM), Barrick Gold (GOLD), and Wheaton Precious Metals (WPM).
Q: Is Boeing (BA) a buy here?
A: Yes, we’re back at the bottom end of the trading range for the stock. It’s just a matter of time before they get things right, and the 737 Max orders are rolling in like crazy now that there’s an airplane shortage.
Q: What do you think about Robinhood (HOOD)?
A: I like it quite a lot; I got flushed out of my long position on Friday with a 10% down move. Of course, 90% of my stop losses end up expiring at their maximum profit points, but I have to do it to keep the volatility of the portfolio down. So yes, I’ll try to buy it again on the next dip. The trouble is it’s kind of a quasi-meme stock in its own right, hence the volatility; so I would say on the next 10% down day, you go into Robinhood, and I probably will too.
Q: How are the wildfires around Tahoe?
A: They’re terrible and there are three of them. I did a hike two days ago there, and out of a parking lot with 100 spaces, I was the only one there. It’s the only time I’d ever seen Tahoe deserted in August. With visibility of 500 yards, it's just terrible. Fortunately, I was able to hike without coughing my guts out—it’s not so thick that you can’t breathe.
Q: What do you think of US Steel (X)?
A: I like it, I think the whole industrial commodity complex rallies like crazy going into the end of the year.
Q: As a new member, where is the best place to start? It’s just kind of like drinking from a fire hose.
A: Wait for the trade alerts; they only happen at sweet spots and you may have to wait a few days or weeks to get one since we only like to enter them at good points. That’s the best place to enter new positions for the first time. In the meantime, keep reading all the research, because when these trade alerts do come out, they’re not surprises because I’m pumping out research on them every day, across multiple fronts. Be patient— we are running a 93% success rate, but only because we take our time on entering good trades. The services that guarantee a trade alert every day lose money hand over fist.
Q: If they do delist Chinese stocks, will US investors be left holding the bag?
A: Yes, and that will be the only reason they don’t delist them, that they don’t want to wipe out all current US investors.
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Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
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