Global Market Comments
March 21, 2025
Fiat Lux
Featured Trade:
(THE MAD HEDGE MARCH TRADERS & INVESTORS SUMMIT REPLAYS ARE UP)
(MARCH 19 BIWEEKLY STRATEGY WEBINAR Q&A),
(SH), (SDS), (COST), (PANW), (FTNT), (ZS), (MSFT), (GOOGL), (NVDA), (GLD), (AMZN), (BAIDU), (BABA), (LNG), (FXA), (FXE), (FXC), (FXB)
Below please find subscribers’ Q&A for the March 19 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: I tried to get into ProShares Short S&P500 (SH), it seems pretty illiquid. How did you get in?
A: Well, before I actually sent out the trade alert, I tested the liquidity of the SH seeing if you could get anything done. This is an easy thing to buy on up days in the market when others are taking profits. It is a really difficult thing to get into on down days in the market because you have so many long-only mutual funds trying to hedge their exposure through buying the (SH). We literally had just one up day at the beginning of the month, and I was able to increase my position tenfold and had no trouble getting my price on the LEAPS at $0.50. If you waited one day, you would have had to pay $0.60 for the same position, and that’s because the volatility explodes on this thing. If you look at the charts, the 1x short play has actually delivered enormous returns, as well as the 2x. It’s outperforming 2 to 1. So you have to buy when other people are selling, that’s the only way to get in and out of the (SH). Of course, I’m buying these things with the intention of running these to expiration.
Q: Is it time to sell US stocks?
A: Yes but only on the up days like today. Don’t sell into a pit, don’t sell into bottoms—wait for rally days like today. That's a good place to reduce risk and add some short positions like the ProShares Short S&P500 (SH) and the ProShares UltraShort S&P500 (SDS).
Q: How did you miss the rotation to Europe and China in emerging markets?
A: Very simple—if you ignore something for 15 years, it’s easy to miss a turn. I also missed the turn in Japan, which I ignored for 35 years. The real reason though is that I underestimated the extremity of this government, its economic policies, and the chaos it would create. I think almost everyone underestimated what the new government would actually do and how it would affect the stock market. If I knew ahead of time that the government would adopt recessionary policies, I would have done everything to get my money out of the US and into Europe and China, but this kind of unfolded with a shock a day, sometimes a shock an hour, and markets don’t like shocks and surprises, so they sold off. The more a stock had gone up in the last six months, the more it went down when the new government came into office.
Q: What are your downside targets for the market?
A: Now that we are in recession, I think any 5% rally off the recent low at 5500, you want to sell. The market could rally 3-5% off the bottom—that would be half of the recent loss. Then you’d want to get rid of more longs, cut your portfolio down to a few very high-quality positions, and add downside protection by buying the ProShares Short S&P500 (SH), the ProShares UltraShort S&P500 (SDS), doing buy rights on the calls and buying outright puts. That would be my recommendation. Eventually I see the S&P 500 falling to 5,000 by the summer, and if I’m wrong, it’s going down 30% to 4,500. That is a deep recession scenario, which we are on the track for unless the government suddenly reverses its draconian policies. This is the most extreme government in American history.
Q: Are you going to use the selloff to get into Costco (COST) after a 20% selloff?
A: Absolutely. I’ve been trying to get into Costco for years and it’s just always been too expensive. They keep increasing earnings every year —investors are willing to pay very high multiples for that. This time around, I am going to get into Costco because they are an absolutely outstanding company. By the way, my mentor at Morgan Stanley was a guy named Barton Biggs, who created the asset management division some 40 years ago. He was close friends with Sam Walton, the founder of Walmart, and Sam Walton was a huge admirer of Costco, which was just starting up then. I’m surprised they never took over the company, which is too big to take over now.
Q: What to buy at the bottom?
A: You want to buy what was leading right before we went into this collapse. Those are financials, and the highest quality profit making of the Mag7 which include Nvidia (NVDA), Amazon (AMZN), Alphabet (GOOGL), Meta (META), as well as cybersecurity stocks like Palo Alto Networks (PANW), Fortinet (FTNT), Zscaler (ZS) and so on.
Q: Why are you making your recession call when we have no evidence of that fact?
A: If you wait for proof of recession, that often is the market bottom. And that could be August of this year. You know, I talk to hundreds of businessmen around the world, and everyone is saying business is slowing. Companies stop making decisions. Customers stop buying. Everyone's afraid of the tariffs. Nobody knows what's going to happen next. Business confidence is terrible. That adds up to a recession, but data tends to move very slowly, so we won't see it in the data for months. If you're a stock trader, you don't have the luxury of waiting for confirmation of the data. By the time you get it, the move is over. But if you cut half of government spending or 12% of GDP, the recession outcome is guaranteed. It's not a speculation. That is the government's goal: to cause a recession, so they can have a recovery going into the next election to take credit for.
Q: If Alphabet (GOOGL) is broken up, what will happen to the company?
A: With all of these big tech breakups, the parts will be worth a lot more than the whole. The individual pieces can be sold off at much bigger premiums creating new companies with more stock liquidity. This is what happened with AT&T (T) in 1982. I participated in that, and the parts were worth more than the original AT&T was within two years. I expect that to happen to Alphabet, and I expect that to happen if Amazon (AMZN) is broken up— eventually, these companies become so big, they become too big to manage. And if the management sees they can get 100% premium on a spinoff, they'll take it so fast it makes your head spin.
Q: None of the 90% gain in stock prices during the Biden administration was a result of his policies.
A: That's absolutely correct. He stayed out of the way, which is the best thing that governments can do—get the hell out of the way. American capitalism on its own will innovate and create profits far faster than any other economic system in history. Biden did quite a good job of staying away.
Q: Why are credit spreads still okay to do in this environment?
A: Because the implied volatility on the options are so high, you can get insane amounts of money—in the money like 30% or 40% —and get trades done and have a 0% chance of taking a loss on that. Suddenly you're being paid double to take risks on these option trades. The classic example is the $88-$90 call spread in Nvidia (NVDA), which we have expiring on Friday, March 21. We never even got close to $90, but the implied volatility on the day we added that trade was a ridiculous 75%. So, it's almost impossible to lose money when you put on trades with implied volatility in the options of 75%.
Q: What's your long-term target on gold now that your last long-term target of 3,000 finally got hit?
A: Yes, we've been recommending gold (GLD) for seven years now. In that time, it's doubled: $1,500 to $3,000. I'm now looking for $5,000 in gold by 2030, in five years. I got a feeling that flight-to-safety plays are going to be very popular in the world going forward. And by the way, people who did look for Bitcoin to protect them in any downturns: Bitcoin actually went down three times faster than the S&P 500 in the last month.
Q: Will stocks rise if the Fed cuts interest rates?
A: No, they won't, because the only reason the Fed will cut interest rates is if inflation falls, and right now, inflation is about to see a big upturn as those import duties of 25% or 50% work their way through the system. A lot of companies are front-running price increases before they even pay the tariffs and try to carve out some extra margin for themselves in advance. On Wednesday, Jay Powell said he expects inflation to rise from 2.5% to 2.8% by yearend and this will prove to be a low number. That is his “president breathing down the back of his next” forecast.
Q: What are your favorite Chinese stocks?
A: Well, a lot of these leading stocks have already gone up 50% or more since the beginning of the year as capital flees the United States and goes abroad. But if you held a gun to my head and said you had to buy two, I would buy Baidu (BIDU), and I would buy Alibaba (BABA). Those would be my Chinese picks. Alibaba is the closest thing you get to an Amazon in China.
Q: Has the dollar hit its lows this year?
A: No. Risk of the next Fed rate move is an interest rate cut. That is going to hang over the dollar and the currency markets for the entire year. And I don't see any recovery in the dollar this year. In fact, it's easy to see much lower lows, and higher highs in the foreign currencies. Buy (FXA), (FXE), (FXC), and (FXB) on dips.
Q: How do you feel about natural gas?
A: I would not be a buyer here. I think we've had a terrific run off of extreme cold weather—believe me, we got some of that in Nevada too—and that is starting to fade now. This is historically when that gas starts to fade for the year. Long term, my view on gas is bullish because of increased exports to China. We have a very pro-energy administration here; that means taking off the export restraints on natural gas, which can only be good for the gas companies and the gas price. China has basically told us they'll take all the natural gas they can get from us because every shipload of gas they buy (LNG) means less coal they have to burn.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Good Trading
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 4, 2025
Fiat Lux
Featured Trade:
(A BUY WRITE PRIMER),
(AAPL), (AMZN), (GOOGL)
With both market technical and fundamentals going to hell in a handbasket, it’s time to take a refresher course on “Buy Writes.”
I have advised followers to dump the positions they are dating and only keep the ones they are married to. It’s worth enduring a 30% drawdown in a high-quality name to capture a 300% profit over the long term.
If you sell an Amazon (AMZN) or Alphabet (GOOGL) now, I guarantee you that you’re not going to be able to buy them back at the bottom. For a start, when these do bottom out, the universal advice is to sell them because the world is ending….again.
There is always a way to make money in the stock market. Get the direction right, and the rest is a piece of cake.
But what if the market is going nowhere, trapped in a range, with falling volatility? Yes, there is even a low risk, high return way to make money into this kind of market, a lot like the one we have now.
And that’s the way markets work. It’s like watching a bouncing ball, with each successive bounce shorter than the previous one. Thank Leonardo Fibonacci for this discovery (click here for details).
Which means a change in trading strategy is in order. The free lunch is over. It’s finally time to start working for your money.
When you’re trading off a decade low its pedal to the metal, full firewall forward, full speed ahead, damn the torpedoes. Your positions are so aggressive and leveraged that you can’t sleep at night.
Some four years into the bull market, not so much. It’s time to adjust your trades for a new type of market that continues to appreciate, but at a slower rate and not as much.
Enter the Buy Write.
A buy write is a combination of positions where you buy a stock and also sell short options on the same stock against the shares at a higher price, usually on a one-to-one basis.
“Writing” is another term for selling short in the options world because you are, in effect, entering into a binding contract. When you sell short option, you are paid the premium and the buyer pays, and the cash sits in your brokerage account, accruing interest.
If the stock rallies, remains the same price, or rises just short of the strike price you sold short, you get to keep the entire premium.
Most buy writes take place in front month options, and the strike prices are 5% or 10% above the current share price. I’ll give you an example.
Let’s say you own 100 shares of Apple (AAPL) at $140. You can sell short one August 2021 $150 call for $1.47. You will receive the premium of $147.00 ($1.47 X 100 shares per option). Remember, one option contract is exercisable into 100 shares.
As long as Apple shares close under $150 at the August 20 option expiration, you get to keep the entire premium. If Apple closes over $150, you automatically become short 100 Apple shares. Then, you simply instruct your broker to cover your short in the shares with the 100 Apple shares you already have in your account.
Buy writes accomplish several things. They reduce your risk, pare back the volatility of your portfolio, and bring in extra income. Do these write, and it will enhance the overall performance of your portfolio.
Knowing when to strap these babies on is key. If the market is going straight up, you don’t want to touch buy writes with a ten-foot pole as your stock will be called away, and you will miss substantial upside.
It’s preferable to skip dividend-paying months, usually March, June, September, and December, to avoid your short option getting called away mid-month by a hedge fund trying to get the dividend on the cheap.
You don’t want to engage in buy writes in bear markets. Whatever you take in with option premium, it will be more than offset by losses on your long stock position. You’re better off just dumping the stock instead.
Now comes the fun part. As usual, there are many ways to skin a cat.
Let’s say that you are a cautious sort. Instead of selling short the $150 strike, you can sell the $155 strike for less money. That would bring in $79 per option. But your risk of a call away drops, too.
You can also go much further out in your expiration date to bring in more money. If you go out to the January 18, 2022, expiration, you will take in a hefty $6.67 in option premium, or $667 per option. However, the likelihood of Apple rising above $150 and triggering a call away by then is far greater.
Let’s say you are a particularly aggressive trader. You can double your buy-write income by doubling your option short sales at the ratio of 2:1. However, if Apple closes above $150 by expiration day, you will be naked short 100 shares of Apple.
It is likely you won’t have enough cash in your account to meet the margin call for selling short 100 shares of Apple, so you will have to buy the shares in the market immediately. It is something better left to professionals.
How about if you are a hedge fund trader with a 24-hour trading desk, a good in-house research department, and serious risk control? Then you can entertain “at-the-money buy writes.”
In the case of Apple, you could buy shares and sell short the August 20 $140 calls against them for $4.45 and potentially take in $4.45 for each 100 Apple shares you own. Then, you make a decent profit if Apple remains unchanged or goes up less than $4.45.
That amounts to a $3.18% return in 34 trading days and annualizes out at 26%. In bull markets, hedge funds execute these all day long, but they have the infrastructure to manage the position. It’s better than a poke in the eye with a sharp stick.
There are other ways to set up buy wrights.
Instead of buying stock, you can establish your long position with another call option. These are called “vertical bull call debit spreads” and are a regular feature of the Mad Hedge Trade Alert Service. “The “vertical” refers to strike prices lined up above each other. The “debit” means you have to pay cash for the position instead of getting paid for it.
How about if you are a cheapskate and want to get into a position for free? Buy one call option and sell short two call options against it for no cost. The downside is that you go naked short if the strike rises above the short strike price, again triggering a margin call.
Here is my favorite, which I regularly execute in my own personal trading account. Buy long-term LEAPS (Long Term Equity Anticipation Securities) spreads like I recommended three weeks ago with the (AAPL) January 21 $120-$130 vertical bull call spread for $5.20.
On Friday, it closed at $7.21, up 38.65%.
This is a bet that one of the world’s fastest-growing companies will see its share unchanged or higher in seven months. In Q1, Apple’s earnings grew by an astonishing 35% to $23.6 billion. Sounds like a total no-brainer, right?
If I run this position all the way to expiration, and I probably will, the total return will be ($10.00 - $5.20 = $4.80), or ($4.80/$5.20 = 92.31%) by the January 21, 2022, option expiration. This particular expiration benefits from the year-end window dressing surge and the New Year asset allocation into equities.
Whenever we have a big up month in the market, I sell short front-month options against it. In this case, that is the August 20 $150 calls. This takes advantage of the accelerated time decay you get in the final month of the life of an option, while the time decay on your long-dated long position is minimal.
Keep in mind that the deltas on LEAPS are very low, usually around 10%, because they are so long-dated. That means your front month short should only be 10% of the number of shares owned through your LEAPS in order to stay delta-neutral. Otherwise, you might get hit with a margin call you can’t meet.
After doing this for 53 years, it is my experience that this is the best risk/reward options positions available in the market.
To make more than 92.31% in seven months, you have to take insane amounts of risk or engage in another profession, like becoming a rock star, drug dealer, or Bitcoin miner.
I’m sure you’d rather stick to options trading, so good luck with LEAPS.
Mad Hedge Technology Letter
February 10, 2025
Fiat Lux
Featured Trade:
(SILICON VALLEY GHOST CITY)
(AMZN), (GOOGL), (MSFT), (DEEPSEEK)
This AI infrastructure build-out is starting to smell more and more like the Chinese ghost city phenomenon.
Yeh, I said it.
It is starting to feel more like that type of “growth”, and that is not good for the future of tech stocks.
If the AI build-out becomes something trending closer to a Chinese ghost city, then we can expect a sharp pullback in tech stocks.
When that abrupt pullback will be is the hard question to answer, but each day we inch closer to that scenario.
There are 65 million empty homes in China that were built by developers and registered as “growth.” This type of parallel growth or paper growth can’t be ignored, and the concrete producers and wiring folks made large fortunes off that whole racket.
Sam Altman, head of OpenAI, is starting to seem more like one of these construction contractors selling 65 million appliances and calling it a success while the apartments are unused and investors get fleeced.
Wasteful spending by corporations swept into the dustbin of history. Looks more like it by the day.
When tech managers are asked about the specific numbers about what kind of revenue we can expect from the AI investment, they tell us to “spend now and ask questions later.”
That is a massive red flag, and I am calling out the whole movement now.
That being said, I bought the dip in mid-January on the Deepseek news, and I am riding that technical reversion to profits as it stands.
If there are no short-term pullbacks, we will end the month up over 15% YTD.
Meta (META), Microsoft (MSFT), Amazon (AMZN), and Google parent Alphabet (GOOGL) are expecting to spend a cumulative $325 billion in capital expenditures and investments in 2025, driven by a continued commitment to building out artificial intelligence infrastructure.
Taken together, this marks a 46% increase from the roughly $223 billion those companies reported spending in 2024.
The Chinese startup Deepseek rattled markets last week after it debuted open-source AI models competitive with OpenAI’s for a fraction of the price. Tech stocks sold off across the board as the model cast doubt on the rationale behind tech giants’ mammoth spending on artificial intelligence infrastructure.
But the DeepSeek surprise didn't seem to impact tech companies' big spending plans.
Amazon is by far the biggest spender on capital investments of the group, with its $78 billion for 2024 far eclipsing Microsoft's $56 billion and Alphabet's $53 billion.
Looking ahead, Amazon said in a post-earnings call Thursday evening that its spending of $26.3 billion in its most recent quarter is "reasonably representative" of its 2025 investment plans, suggesting investments will total roughly $105 billion this year.
Late last month, Meta confirmed that it would spend $60 billion-$65 billion in 2025, a massive bump from its prior guidance to investors of $38 billion-$40 billion in investment for the year.
Google said on Tuesday that it expects to spend $75 billion this year.
In the short-term, I expect earnings reports to be met with a selloff producing optimal buying opportunities.
These dips are bought by traders then take profits – rinse and repeat.
It’s not guaranteed that tech will go up in a straight line, so it’s better to use the volatility in your favor for some profits.
Mad Hedge Technology Letter
January 29, 2025
Fiat Lux
Featured Trade:
(DIGITAL MIGRATION HITS THE U.K.)
(SKY), (BBC), (TIKTOK), (GOOGL)
If you thought that the cord-cutting trend is just confined to the United States – it’s not.
It’s happening at breathtaking speed throughout the world.
The biggest English language media base after the United States is also experiencing a huge step forward in digital migration.
How do know that?
Take a look at their linear flagship media company Sky.
They are drowning financially and have taken the hacksaw out to cut in large chunks.
Sky is planning to cut about 2,000 jobs in the UK in 2025, as the media group moves towards more internet-based services. They fired 1,000 people last year. BBC is also going through a similar type of change.
It is understood a significant number will be engineers, as fewer people require satellite dishes to be installed at home.
Sky currently employs about 26,000 people in the UK.
Sky has been shifting its strategy since it was bought by the US media giant Comcast for more than £30bn in 2018.
The British broadcaster wants digital revenues - which accounted for 27% of its total last year - to pass 50% by 2030.
It comes as Sky News tries to reverse a slump in audience due to the plummeting content quality of legacy media stations.
This has forced many subscribers to ditch Sky and go with higher-quality content platforms and channels.
Sky is racking up losses which total in the 100’s of millions pounds PER YEAR, and the hard question of what is the point of paying these high-profile personalities and expensive international assignments when they just drive the audience away?
The same could be said about CNN’s decision to demote media activist Jim Acosta who was unceremoniously downgraded to CNNs worst time slot yesterday.
He resigned instead announcing his resignation on air and clearly couldn’t accept a lesser role at his company.
With the losses in revenue staggering, for some reason, US media giant Comcast guaranteed to maintain the funding commitments until 2028.
Then there is the intense question of whether there will be a Sky after 2028, because at that point, who will be left watching it?
Comcast has already taken an $8.6bn write-down on its investment in Sky.
Staff at Sky News are preparing to unionize in protest against pay and working conditions.
It is understood that a group of employees at the channel have held preliminary talks with the National Union of Journalists (NUJ) about joining the group.
Attempting to unionize will cause the acceleration of firings from legacy media, but it demonstrates the extreme level of desperation at these dinosaur channels.
The future of Sky News, which is led by veteran Murdoch executive David Rhodes, is likely to be on the agenda amid ongoing budget discussions between Sky and Comcast.
Part of the massive changes the world is grappling with is how this new digital media fits into how we live everyday life.
Instead of corporate entities giving us what they think is the “truth,” media has fractured off into individuals doing their own version of media.
Much of this new media is accessed for free on platforms that only require a free signup.
Is it almost impossible for corporate media to compete with free content, especially when corporate media is one of the lowest forms of quality content available to the public?
If X.com was still a private company, then that is the best social media stock available. TikTok is a private company owned by the Chinese. YouTube is one of the platforms I am talking about, but that is part of a bigger company in Google.
Mad Hedge Technology Letter
December 11, 2024
Fiat Lux
Featured Trade:
(OPTIMISTIC FUTURE FOR GOOGLE)
(GOOGL), (AAPL)
It isn’t a surprise that the Department of Justice is going after Google (GOOGL) to divest its Chrome browser following a ruling in August that the company holds a monopoly in the search market.
I don’t believe this will tank the cash cow business of Google Search, and let’s not forget the most likely outcome is that Chrome is retained as a division of Google.
At worst, if it does get divested, the appeal process takes many years.
Although I do believe it will become harder for Google Search to track and monitor user behavior without Google Chrome, this is by no means a deal breaker.
Plenty of traffic comes from completely different operating systems like Apple (AAPL) iOS that don’t employ the Chrome browser.
In fact, spinning out its browser would result in a massive windfall because the current setup hides the aggregate value and synergies within a larger corporation.
Once Google Chrome is spun out, animal spirits could take hold, and the value could skyrocket.
Google will naturally profit from this as well.
Chrome, which Google launched in 2008, provides the search giant with data it then uses for targeting ads. The DOJ said in a filing that forcing the company to get rid of Chrome would create a more equal playing field for search.
The DOJ said that Google will be prevented from entering into exclusionary agreements with third parties like Apple and Samsung. The department also said that Google be prohibited from giving its search service preference within its other products.
Search advertising accounted for $49.4 billion in revenue, representing three-quarters of total ad sales in the most recent period.
The DOJ’s request represents the agency’s most aggressive attempt to break up a tech company since its antitrust case against Microsoft, which reached a settlement in 2001.
In August, a federal judge ruled that Google holds a monopoly in the search market.
Also, the DOJ suggested limiting or prohibiting default agreements and “other revenue-sharing arrangements related to search and search-related products.”
The most likely outcome is that Google will be legally forced to do away with certain exclusive agreements, like its deal with Apple. I also don’t believe that Google will be forced to divest from the Android operating system, and the chances of that happening are almost zero.
Even without an exclusivity agreement, most Apple users use Google Chrome because it is still the most useful search engine.
Will that be the case in the future?
With AI changing business models left and right, it is hard to say, but in the interim, it is hard to believe that a lack of exclusivity agreement will cause any meaningful change to the bottom or top line in the next few years.
Breaking up parts of Google would result in a massive windfall for shareholders, strengthen the tech ecosystem, and make Google and its spinoff entities more competitive.
However, high-up executives are wary about voluntarily dumping revenue from the mothership because it hurts negotiating leverage when agreeing on future compensation, and that is what usually standalone corporate executives care about.
I believe spinning out some of these businesses, like Waymo, Google devices, Google Maps, and YouTube, would be great for America and give an opportunity for investors to jump into great tech companies before they skyrocket.
