(GS) Archives

The Market Outlook for the Week Ahead, or Taking a Break

When I ran the international equity trading desk at Morgan Stanley during the 1980s, there was always one guy I was trying to recruit and that was David Tepper at Goldman Sachs. Whenever we did a trade with David, we lost money.

If we sold David a stock it usually took off like a rocket. If we bought a stock from him it plummeted like a stone. Eventually, unable to lure David over with a monster salary, I had to ban trading with him as it was such a loser for us.

David never did get pried away from Goldman until he left to start his own firm, Appaloosa Management, after he was mistakenly passed over for partner two years in a row. After that, he racked up an annualized return of over 40%, near my own results.

But David was doing it with $20 billion in real money, while I was doing it with newsletters. In 2012, David received a $2.2 billion performance bonus from his fund, one of the largest in history. I bet the partners at Goldman are kicking themselves.

So, I thought it timely to check in with David, now the owner of the Carolina Panthers football team, to see what he thought about the market. The S&P 500, the Dow, Ten-year bond yields, and Bitcoin all simultaneously hit all-time highs last week, and we were long all of them.

David was phlegmatic at best. “There are times to make money and there are times to not lose money, and this is definitely time to make money.” However, nothing is cheap. There are no screaming buys here or screaming shorts. He did expect stocks to keep rising through the end of 2021.

Keep in mind that David is a trader just like me and rarely has a view beyond six months. His last 13F filing on June 30 showed that his five largest positions were T-Mobile (TMUS), Amazon (AMZN), Facebook (FB), Google (GOOG), and Uber (UBER). Uber was the only new buy.

David is not alone in his views.

Up 89.20% so far in 2021, I am sitting here dazed, shocked, and pinching myself. This has been far and away my best year in a 53-year career. I know a lot of you made a lot more. I stared down every correction this year, loaded the boat, and won.

It’s not always like this.

So I think we are in for a few weeks of profit-taking, sideways chop, and minimal action. I call this the “counting your money” time. Traders have visions of Ferraris dancing in their eyes. Then once we form a new base, it will become the springboard for a new yearend rally.

I don’t think stocks will fall enough to justify selling here. And you might miss the next bottom.

Until then, I’m thinking of taking up the banjo.

That brings me to the foremost question in your collective minds. Can I top an astonishing 100% profit this year? Only if we get another great entry point with a 5% correction.

I’m sure that when the financial history of our era is written something in the future, this will be known as the week that Bitcoin went mainstream. That was prompted by the SEC approval of the first futures ETF, the ProShares Bitcoin Futures ETF (BITO).

By giving this approval, which had been sought for years, unlocks $40 trillion worth of assets owned by 100 million shareholders managed under the Investment Company Act of 1940 to go into Bitcoin. The possibilities boggle the mind. The consensus year-end target for Bitcoin is now $100,000, or up 65%.

It’s not too late to subscribe at the founder's rate of $995 a year for the Mad Hedge Bitcoin Letter by clicking here. After that, the price goes up….a lot.

Morgan Stanley (MS) Announces Stellar Earnings, with profits at $3.71 billion, up 36.4%. Morgan Stanley Asset Management sucked in an amazing $300 billion so far in 2021, bringing their total assets to $4.5 trillion.

Goldman Sachs (GS) announces blockbuster earnings, and we are laughing all the way to the bank. Profits soared an eye popping 63% to $5.28 billion.

Existing Home Sales soar by 7% in September to a seasonally adjusted 6.29 million units. First time buyers accounted for only 28%, the lowest since 2015. A brief drop in interest rates is the reason. There are only 1.29 million homes for sale, only a 2.4 month supply.

Housing Starts fall by 1.6% in September. Higher materials and labor costs, rising land expenses, and soaring energy costs are the culprit. A pop in interest rates may mean that the slowdown could last through the winter.

Single Family Rents are surging especially for the top end of the market. Nationally, rents rose 9.3% in August year over year, up from a 2.2% year-over-year increase in August 2020, according to CoreLogic. Buy homebuilders on dips like (KBH), (LEN), and (PHM)

If the Rescue Package passes in whatever size, it will trigger a massive new surge in risk prices, including stocks and Bitcoin. Don’t act surprised when it happens. $3.5 trillion, $1.5 trillion who cares? That’s a ton of money to be dumped into the economy ahead of the 2022 elections.

Tesla profits smash records in Q3, reporting a shocking $1.62 billion profit on $13.76 billion in revenues. A 30.5% profit margin blew people away. Imagine how much they’ll earn when they make 25 million cars a year in ten years. Buy (TSLA) on big dips.

Weekly Jobless Claims dive to 290,000, a new post-pandemic low. Delta is in fast retreat. A pre-pandemic normal level of 225,000 is coming within range.

Rising Interest rates are tagging the Real Estate Market, with the 30-year fixed rate hitting 3.23%. Refis are off 7% on the week. The Fed taper is looming large, especially if the 30-year hits 4.0%, which it should, taking affordability down.

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 heroic +9.60% gain so far in October. My 2021 year-to-date performance soared to 89.20%. The Dow Average is up 16.60% so far in 2021.

After the recent ballistic move in the market, I am continuing to run my longs and those include (MS), (GS), (BAC), and a short in the (TLT). All are approaching their maximum profit point and we have nothing left but time decay to capture. So, I am going to run these into the November 19 expiration in 14 trading days. It’s like having a rich uncle write you a check once a day.

That brings my 12-year total return to 512.75%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.75%, easily the highest in the industry.

My trailing one-year return popped back to positively eye-popping 120.15%. 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 approaching 46 million and rising quickly and deaths topping 736,000, which you can find here.

The coming week will be slow on the data front.

On Monday, October 25 at 8:30 AM, the Chicago Fed National Activity Index is out. Facebook (FB) earnings are released.

On Tuesday, October 26 at 10:00 AM, the S&P Case-Shiller National Home Price for August Index is released. Alphabet (GOOGL) and Microsoft (MSFT) earnings are out at 5:00 PM.

On Wednesday, October 27 at 7:30 AM, Durable Goods Orders for September are printed. McDonald’s (MCD) earnings are out.

On Thursday, October 28 at 8:30 AM, Weekly Jobless Claims are announced. The first read on Q3 GDP is announced. Apple (AAPL) and Amazon (AMZN) earnings are out.

On Friday, October 29 at 8:45 AM, the US Personal Income & Spending for September is published. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.

As for me, when I went to college in Los Angeles, the local rivalries between universities were intense.

UCLA and USC had a particularly intense rivalry, and I went to both. It was traditional to steal Tommy Trojan’s sword prior to each homecoming game and then paint the statue blue. USC had a mascot, a mixed breed dog called “Old Tire Biter.” Prior to one game, UCLA kidnapped the dog.

At halftime, the kidnappers appeared midfield, tied the dog to a helium-filled weather balloon, and let him waft away somewhere over the city. Enraged USC fans stormed the field only to find that the real dog was hidden in a nearby truck. The dog headed for the stratosphere was actually a stuffed one.

Of course, the greatest prank of all time was carried out by the California Institute of Technology in the 1961 Rose Bowl, which didn’t have a football team, on the Washington Huskies. Washington was famous for its elaborate card tricks, which spelled out team names and various corporate sponsors and images.

On the night before a game, imaginative mathematically-oriented Caltech students snuck into the stadium and changed the instructions on the back of each card packet sitting in the seats. When it came time to spell out an enormous “WASHINGTON”, “CALTECH: displayed instead. The incident was broadcast live on national TV ON NBC.

At Caltech, where I studied math, they are still talking about it today.

Stay healthy.

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

October 22, 2021

Diary, Newsletter, Summary

Global Market Comments
October 22, 2021
Fiat Lux

Featured Trade:

(OCTOBER 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(DIS), (TLT), (TBT), (FXI), (BABA), (BIDU), (JD), (USO), (JPM), (MS), (GS), (BITO), ($BTCUSD)

October 20 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the October 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from the safety of Silicon Valley.

Q: Why are stocks so high? Won’t inflation hurt companies?

A: Inflation hurts bonds (TLT), not companies, which is why we are short the bond market and have been short for most of this year. Inflation actually helps companies because it allows them to raise prices at a faster rate. The ability to raise prices is the best that it’s been in 45 years, and that is enabling them to either maintain or increase profit margins.

Q: Where is all this liquidity coming from to drive the stocks high after the Fed ends Quantitative easing?

A: In the last 20 years, the liquidity of the US has gone from 6% of GDP to 47% of GDP. That is an enormous increase, and most of that money has gone into stocks and real estate, which is why both have been on a tear for the last 11 years. And I expect that to continue; the Fed isn’t even hinting at taking liquidity out of the system until well into 2023. On top of that, you have corporate profit exploding from $2 trillion last year to $10 trillion this year, adding another $8 trillion to the system, and outpacing any Fed taper by a five to one margin. Corporations alone are using these profits to buy back more than $1 trillion of their own stock this year.

Q: I’m hearing so much about the supply chain problems these days. Is that just a short-term fixable problem or a long-term structural one?

A: Absolutely it’s short-term. This actually isn’t a pandemic-related problem but a private capital investment one. It’s being caused by the record growth of the US economy which is sucking in more imports than it has ever seen before. We’ve actually exceeded pre-pandemic levels of imports a while ago. Import infrastructure isn’t big enough to handle it. If it was there wouldn’t be enough truckers to handle it. We had a shortage of 50,000 truckers before the pandemic, now we’re short 100,000. Some of these guys are making up to $100,000 a year, not bad for a high school level education. Expect it to get worse before it gets better, but it will get better eventually. That is why Amazon is having trouble, because supply chain problems may bring a weak Christmas, which is the most profitable time of year for them. If we get any big selloff at Amazon for this reason, you want to buy that bottom because it’ll double again in 3 years.

Q: Walt Disney (DIS) has pretty much sideways the whole year around $70, is this going down or should I buy?

A: I would look to buy but I would buy an in-the-money LEAPS, like a $150-$170 one year out. Disney’s been hit with a lot of slowdowns lately, slowdowns with park reopening, movie releases, new streaming customers. But these are all temporary slowdowns and will pick up again next year. Disney is the classic reopening play, so you will get another bite at the apple with a second reopening. Maybe “bite of the mouse” is a better metaphor.

Q: Global growth is down because of China (FXI) with their PMI under 50; do you think they will drag down the entire global economy in 2022?

A: No, if we recover, their largest customer, they will recover too. Remember their pandemic cases are only a tiny fraction of what ours were, some 4,000 or so, and their economy is still export-driven. You can't have major port congestion in Los Angeles and a weak economy in China, those are just two ends of one chain. I would look for a recovery in China next year. As for the stocks, I don’t know because that’s an entirely political issue; Baidu (BIDU), (JD), and Alibaba (BABA) are still getting beaten like a redheaded stepchild. We don’t know when that’s going to end; it’s an unknown. So, stand aside on Chinese plays, especially when the stuff at home is so much better with all these financials and tech stocks to invest in.

Q: What do you think about meme stocks?

A: I think you should avoid them like the plague. When there are so many good quality stocks with long term uptrends, why bother dumpster diving? You’re better off buying a lottery ticket.

Q: Which US bank should I invest in?

A: If you want the gold standard, you buy JP Morgan (JPM) which just announced blowout earnings. If you want a broker, go for Morgan Stanley (MS), which also just announced blowout earnings last week. And I want you to make my monthly pension payment secure, as it comes from Morgan Stanley. Keep those checks coming!

Q: Are we headed to $150 oil (USO)?

A: No, what we’re seeing here is a short-term spike in prices due to supply chain problems, OPEC discipline, a booming economy, and Russia trying to squeeze Europe on energy supplies. I don’t see it continuing much per year as the stocks could be popping out, so avoid oil and energy plays. The solar plays, like (TAN), (FSLR), and (SPWR) on the other hand, all look like they have miles to go.

Q: You said in your Webinar that you can still get a 50% Return on the United States Treasury Bond Fund (TLT) LEAPS. Can you give me the specifics?

A: If you went a year out on Tuesday when I recorded this webinar, you could buy the (TLT) October 2022 $150-$150 vertical bear put spread for $3.40 for a maximum profit on expiration at $5.00 of $47%. That’s where you buy the $155 put and sell short the $150 put against it. Since then, bonds have fallen by $3.00, and it is now trading at $3.60 giving you a 39% return. Try to establish this position on the next (TLT) rally.

Q: What is your yearend target for Bitcoin?

A: Now that we have broken the old high at $66,000, we should be able to make it to $100,000 by January. The SEC approving that new ProShares Bitcoin Strategy ETF (BITO) ETF unlocks trillions of dollars which can now go into Bitcoin, those regulated by the Investment Company Act of 1940. Crypto is now the fastest-growing segment of the financial markets. It’s inflation that driving this, and the Fed is throwing fuel on the fire by taking no action in the face of a red hot 5.4% Consumer Price Index. Even if the Fed does taper, the action will be more than offset by the massive $8 trillion increase in corporate profits. Companies are not only buying their own stocks, they are also using these profits to buy Bitcoin. I see this as a Bitcoin node myself. Be sure to dollar cost average your position by putting in a little bit of money every day because Bitcoin is wildly volatile, up 140% since August 1. By the way, it’s not too late to subscribe to the Mad Hedge Bitcoin Letter, which we are taking down from the store on Monday for a major upgrade by clicking here. We are raising prices after that.

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 the paid service you are currently in (GLOBAL TRADING DISPATCH, TECH LETTER, or BITCOIN LETTER), then select 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

October 18, 2021

Diary, Newsletter, Summary

Global Market Comments
October 18, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GOOD NEWS IS HERE)
(GS), (MS), (JPM), (BAC), (C), (BLK), (TLT), (BRKB), (SPY)

The Market Outlook for the Week Ahead, or The Good News is Here

Diary, Newsletter, Research

Here’s the good news.

You know those pesky seasonals that have been a drag of the market for the past five months? You know, that sell in May and go away thing?

It’s about to end, vanish, and vaporize.

We are only ten trading days away from when seasonals turn hugely positive on November 1.

On top of that, the pandemic is rapidly receding, the economy reaccelerating, and workers are returning to the workforce. The action Biden took with the west coast ports should unlock the logjam there. It all sounds like a Goldilocks scenario.

The ports issue has nothing to do with the pandemic. The truth is that with 6% GDP growth, the US economy is growing faster than it has ever done before. That means we are buying a lot more stuff, more than our antiquated infrastructure can handle. Unlock the ports, and growth could accelerate even further.

Bitcoin has been on fire as well, doubling since August 1. The focus has been on the launch of the first crypto futures ETF, which may happen as early as today. All of the trade alerts we issued in this space have been total home runs. (Click here for our Bitcoin Letter).

As a result, Bitcoin is within striking range of hitting a new all-time high at $66,000. Break that, and we could see a melt-up straight to $100,000.

Want another reason to be bullish? The Millennial generation is about to inherit $68 trillion by 2030. Guess where that is going? Bitcoin and all other risk assets, as younger investors tend to be more aggressive.

So, what to do about all of this?

Keep doing more of what’s working. Buy financials and Bitcoin and sell short bonds. Wait for tech to bottom out at the next interest rate peak, then load the boat there once again.

Make as much money as you can now because 2022 could be a year of diminished expectations. Stocks might rise by only 15% compared to this year’s 30% torrid rate.

As for Bitcoin, that is a horse of a different color.

CPI Hits 5.4%, and was up 0.4% in September, a high for this cycle. This time, it was food and energy that took the lead. Used car prices, which went ballistic last month, showed a decline. Supply chain problems are wreaking havoc and those with inventory can charge whatever they want. The Fed thinks this is transitory, the bond market doesn’t. Sell rallies in the (TLT).

Weekly Jobless Claims Plunge to 293,000, a new post-pandemic low. With delta in retreat, higher wages are luring people back to work to deal with massive supply chain problems. This may be the beginning of the big drop in unemployment to pre-pandemic levels. Stocks will love it. Buy stocks on dips.

Big Banks Report Blowout Earnings and are firing on all cylinders. The best is yet to come. Interest rates are rising, default rates are falling, profit margins expanding, and the economy is growing at a record rate. Buy (JPM), BAC), and (C) on dips.

The Nonfarm Payroll Bombs in September, coming in at only 194,000. That follows a weak 235,000 in August. The headline Unemployment Rate dropped to a new post-pandemic low of 4.8%, down from a peak of 22%. It’s not a soggy economy that’s causing this, but a shortage of people to hire. Some 10 million workers have gone missing from the American economy, and many may never come back.

Bitcoin Soars to $61,000, a five-month high, putting the previous $66,000 high in range. With ten crypto ETFs waiting in the wings for SEC approval, a flood of money is about to hit the sector. Several countries are now considering the adoption of Bitcoin as a national currency after El Salvador’s move. Keep buying Bitcoin dips. Mad Hedge Bitcoin Letter followers are making a fortune.

Oil (USO) Tops $80, after OPEC limits production increases to 400,000 barrels a day, dragging on the stocks market. Prices are approaching levels that will restrain growth. Pandemic under-investment and distribution problems have triggered a short squeeze. There will be many spikes on the way to zero.

Fed Minutes Show Taper to Start in November, as discussed in the September meeting. They may start with $15 billion a month in fewer bond purchases. The inflation boogie man is getting bigger with the 5.4% print on Tuesday. Sell rallies in the (TLT)

JOLTS Comes in at 10.4 million indicating that the labor shortage is getting more severe. Millions are still staying home for fear of catching covid. There is also a massive skills disparity resulting from decades of under-investment in education.

IMF Cuts Global Growth Forecast to 5.9%. Supply chains, delta, inflation worries, and vaccine access are to blame.

US Dollar (UUP) Hits One-Year High on rising interest rates. This will continue for the foreseeable future. Stand aside from the (UUP) as this is a countertrend trade. We may be only 15 basis points away from an interim peak in rates at 1.76% for the ten-year.

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 heroic +8.91% gain so far in October. My 2021 year-to-date performance soared to 81.51%. The Dow Average was up 15.4% so far in 2021.

Figuring that we are either at, or close to a market bottom, and being a man of my convictions, I kept 90% invested in financial stocks all the wall until the October 15 options expirations. Those include (MS), (GS), (JPM), (BLK), (BRKB), (BAC), and (C).

The payday was big and more than covered earlier in the month stop-losses in (SPY) and (DIS). I quick trip by the Volatility Index (VIX) to $29, then back to $15 was a big help.

That brings my 12-year total return to 511.06%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 43.19%, easily the highest in the industry.

My trailing one-year return popped back to positively eye-popping 119.57%. 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 45 million and rising quickly and deaths topping 725,000, which you can find here.

The coming week will be slow on the data front.

On Monday, October 18 at 8:15 AM, Industrial Production for September is published. Johnson & Johnson (JNJ) reports.

On Tuesday, October 19 at 8:00 AM, the Housing Starts for September are released. Netflix (NFLX) reports.

On Wednesday, October 20 at 7:30 AM, Crude Oil Stocks are announced. Tesla (TSLA) and IMB (IBM) report.

On Thursday, October 21 at 8:30 AM, Weekly Jobless Claims are announced. At 10:00 AM, Existing Home Sales for September are printed. Alaska Air (ALK) and Southwest Air (LUV) report.

On Friday, October 22 at 8:45 AM, the US Markit Flash Manufacturing and Services PMI is out. American Express (AXP) reports. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.

As for me, I normally avoid the diplomatic circuit, as the few non-committal comments and soggy appetizers I get aren’t worth the investment of time.

But I jumped at the chance to celebrate the 70^th anniversary of the founding of the People’s Republic of China with San Francisco consul general Gao Zhansheng.

Happy Birthday, China!

When I casually mention that I survived the Cultural Revolution from 1968 to 1976 and interviewed major political figures like Premier Deng Xiaoping, who launched the Middle Kingdom into the modern era, and his predecessor, Zhou Enlai, modern-day Chinese are enthralled.

It’s like going to a Fourth of July party and letting drop that I palled around with Thomas Jefferson and Benjamin Franklin.

Five minutes into the great hall, and I ran into my old friend Wen. She started out her career with the Chinese Intelligence Service and had made the jump to the Foreign Ministry, as all their best people did. Wen was passing through town with a visiting trade mission.

When I was touring China in the seventies as the guest of the Bank of China, Wen was assigned as my guide and translator, and we kept in touch over the years. I was assigned a bodyguard who doubled as the driver of a tank-like Russian sedan, a Volga.

The Cultural Revolution was on, and while the major cities were safe, we ran the risk of running into a renegade band of xenophobic Red Guards, with potentially fatal consequences.

By the time Wen married, China had already adopted its one-child policy. As much as she wanted more children, she understood the government’s need to adopt such a drastic policy. Without it, the population today would be 1.6 billion, not 1.2 billion, and all of the money that went into buying capital goods would have been spent on food imports instead.

The country would have stagnated at its 1980 per capita income of $100/year. There would have been no Chinese economic miracle. She was very proud of her one son, who was a software engineer at Microsoft (MSFT) in Beijing.

I asked if she recalled our first trip together and a dark cloud came over her face. We were touring a section of Fuzhou in southern China when three policemen marched up. They started shouting at Wen that we were in a restricted section of the city where foreigners were not allowed. They started mercilessly beating her with clubs.

I was about to intercede when my late wife, Kyoko, let go with a blood-curdling tirade in Japanese that froze them in their tracks. I saw from the fear in their faces that she had ignited their wartime fear of Japanese authority and the dreaded Kempeitai, or secret police, and they beat a hasty retreat.

To this day, I’m not exactly sure what Kyoko said. We took Wen back to our hotel room and bandaged her up, putting ice on the giant goose egg on her head. When I left, I gave her my paperback copy of HG Well’s A Short History of the World, which she treasured, as the book was then banned in China.

Wen mentioned that she was approaching the mandatory retirement age of 60, and soon would be leaving the Foreign Service. I suggested she move to San Francisco, which offered a thriving Chinese community.

She laughed. No matter how much prices had fallen, she could never afford anything here on a Chinese civil servant’s salary.

I asked Wen if she still had the book I gave her nearly five decades ago. She said it had become a treasured family heirloom and was being passed down through the generations.

As she smiled, I notice the faint scar on her eyebrow from that unpleasantness so long ago.

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

Kyoko and I in Beijing in 1977

How to Handle the Friday, October 15 Options Expiration

Diary, Newsletter

Followers of the Mad Hedge Fund Trader alert service have the good fortune to own deep-in-the-money options positions that expire on Friday, October 15, and I just want to explain to the newbies how to best maximize their profits.

These involve the:

(SPY) 10/$410-$420 call spread 10.00%

(GS) 10/$320-$330 call spread 10.00%

(JPM) 10/$130-$140 call spread 10.00%

(BLK) 10/$770-$790 call spread 10.00%

(MS) 10/$85-$90 call spread 10.00%

(BRKB) 10/$255-$265 call spread 10.00%

(C) 10/$62-$65 call spread 10.00%

Provided that we don’t have another 2,000-point move down in the market this week, these positions should expire at their maximum profit points.

So far, so good.

I’ll do the math for you on our deepest in-the-money position, the Goldman Sachs (GS) October 15 $320-$330 vertical bull call spread, which I most certainly will run into expiration. Your profit can be calculated as follows:

Profit: $10.00 expiration value - $8.50 cost = $1.50 net profit

(11 contracts X 100 contracts per option X $1.50 profit per options)

= $1,650 or 17.65% in 24 trading days.

Many of you have already emailed me asking what to do with these winning positions.

The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.

You don’t have to do anything.

Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning, October 18 and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.

Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.

If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.

Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday, October 15. So, if you plan to exit, do so well before the final expiration at the Friday market close.

This is known in the trade as the “expiration risk.”

One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.

I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.

I’m looking to cherry-pick my new positions going into the next month-end.

Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.

Well done, and on to the next trade.

You Can’t Do Enough Research

October 11, 2021

Diary, Newsletter, Summary

Global Market Comments
October 11, 2021
Fiat Lux

Featured Trade:

(THE MAD HEDGE SUMMIT VIDEOS ARE UP),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HAPPY DAYS ARE HERE AGAIN),
(GS), (MS), (JPM), (BAC), (C), (BLK), (TLT), (BRKB), (SPY)

October 4, 2021

Diary, Newsletter, Summary

Global Market Comments
October 4, 2021
Fiat Lux

Featured Trade:

(THE MAD HEDGE SUMMIT VIDEOS ARE UP),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S SHOPPING TIME),
(MS), (GS), (JPM), (BLK), (BRKB), (C), (TLT), (F), (CRPT)

The Market Outlook for the Week Ahead, or It’s Shopping Time

Diary, Free Research, Newsletter

All indications are that we have a total nightmare of a Christmas coming up this year. Santa Claus and his elves can’t get any parts, and the reindeer are short of hay.

There are now a record 70 large container ships from China parked off the coast of Long Beach, CA and nobody to unload them. If they could be unloaded, there are no trucks to move the cargo or drivers to drive them. It turns out that stores don’t have enough staff to sell the products either.

You see this in share prices that are traditionally strong going into the holidays which have lately taken a pasting, like UPS (UPS) and FedEx (FDX).

Perhaps the US economy is losing up to a third of its total output due to parts and labor shortages. This will take at least a year to sort out.

Then there is the issue of 10 million missing workers. Are they afraid of dying of Covid? Or have they decided it’s time for a career change and that working for a minimum wage of $7.25 an hour is no longer worth it? This may take a decade to sort out.

Covid could be masking fundamental changes to the American economy and society which won’t become obvious until well into the 2030s.

Those of us who analyze these things can’t wait for the outcome. The global economy has just undergone more change than at any time since WWII. But what exactly happened we may not know for years.

Better to complete your Christmas shopping early this year or you may end up with a piece of coal in your stocking (where do I find coal in California?). And don’t forget to do some shopping for your retirement portfolio as well. Valuations are the best they have been in a year and this bull market in stocks has another nine years to run.

In the meantime, after dumping all of my technology stocks, I’ll be betting my entire persona net worth buying financial ones. These should lead the markets for the next six months, or until bond yields hit 2.0%, whichever comes first. Bonds now yield 1.46%.

With interest rates rising sharply, economic growth continuing at record levels, and default rates plunging, we are just entering a new golden age of banking.

Powell sees Inflation lasting higher for longer. It was enough to kill off a nascent rally in the bond market. The Dollar Store is about to become the $2 Store. Shortages from China are the reason.

Treasury Yields hit a three-month high. You can blame the coming taper, deal on a deficit-financed infrastructure bill, and drained Fed accounts against a coming massive supply of bonds. I’m already running a massive bond short. Keep selling rallies in the (TLT), or buy (TBT).

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.

Case Shiller shatters all records, rising an astronomical 18.7% in June, a new record. Home prices are now 41% higher than the last peak in 2006. Phoenix was up an eye-popping 29.3%, San Diego by 27.1%, and Seattle by 25.0%. What are they putting in the water in these cities? My belief is that the structural shortfall of housing continues for another decade.

New Home Sales jump by 1.5% in August to a seasonally adjusted 740,000 units. The south saw the biggest gains at 6.0%. Median New Home Prices jumped an amazing 20.1% to 390,000 YOY. The exodus from the city to the burbs continues unabated. Inventory is at 6.1 months.

Pending Home Sales rocket, in August by 8.1% on a signed contract basis compared to only 1.2% expected. That’s a seven-month high. The Midwest led the charge with a 10.4% gain. Rising inventories and continued low interest rates were a big help. The bidding wars are abating.

China Energy Shortage causes Apple and Tesla cutback and they are buying 70% of America’s coal production to meet the shortfall. Several key chip packaging and testing service providers supplying Intel, Nvidia, and Qualcomm also received notices to suspend production at their facilities in Jiangsu for several days. It’s Another Black Swan from the Middle Kingdom.

The First Trust Skybridge Crypto Industry & Digital Economy ETF (CRPT) launched on September 23. It will be kicked off by my longtime friend and Mad Hedge Summit speaker Anthony Scaramucci. Get on the crypto train before it leaves the station.

Ford (F) announced massive $11.4 Billion in US EV factories in Kentucky and Tennessee in partnership with South Korea’s SK Innovations, creating 11,000 jobs. It is one of the largest US industrial investments in recent memory. It is all part of a plan to completely reposition the company and invest $30 billion in EVs by 2025. A smart move, (F) finally read the writing on the wall.

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 modest +1.03% gain in September. That’s against a Dow Average that was down -5.65% for the month. My 2021 year-to-date performance soared to 80.30%. The Dow Average was up 12.18% so far in 2021.

Figuring that we are either at or close to a market bottom, and being a man of my convictions, I am 80% invested in financial stocks. Those include (MS), (GS), (JPM), (BLK), (BRKB), and (C). In for a penny, in for a pound. I am also 10% invested in the (SPY) and 10% long bonds (TLT).

I quick trip by the Volatility Index (VIX) to $29 and a rapid 45 basis point leap in ten-year US Treasury bond yields gave us the entry point for all of these positions.

That brings my 12-year total return to 502.85%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.49%, easily the highest in the industry.

My trailing one-year return popped back to positively eye-popping 112.44%. 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 44 million and rising quickly and deaths topping 701,000, which you can find here.

The coming week will be slow on the data front.

On Monday, October 4 at 10:00 AM, US Factory Orders for August are out.

On Tuesday, October 5 at 8:30 AM, the US Balance of Trade for August is announced.

On Wednesday, October 6 at 8:15 AM, we get the Challenger Private Jobs Report for September.

On Thursday, October 7 at 8:30 AM, Weekly Jobless Claims are announced.

On Friday, October 8 at 8:30 AM, we learn the September Nonfarm Payroll Report. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.

As for me, in my many travels around the world, I never hesitate to visit places of historical interest. The London grave of Carl Marx, the Paris grave of Jim Morrison, the bridge of the cruiser of the USS San Francisco, which took a direct hit from an 18-inch Japanese shell, you name it.

After attending one of my global strategy luncheons in Charleston, South Carolina, where the Civil War began with the Confederates firing on Fort Sumter in 1861, I looked for something to do. Fort Sumter was a full day trip and there wasn’t much to see anyway.

So I pulled out my trusty iPhone to get some ideas. It only took me a second to decide. I attended Sunday church services at the Mother Emanuel African Methodist Episcopal Church, where 15 people were gunned down by a deranged white nationalist in 2014.

The church was built in 1891 by freed slaves and their children. The congregation dates back earlier to 1791. It has every bit a handmade touch with fine Victorian stained-glass windows.

The ushers stopped me at the door for 20 minutes where they suspiciously eyed me. Then they invited me in and sat me down next to the only other white person there, a Jewish woman from New York.

It was a working-class congregation and polyester suites and print dresses were the order of the day. Everyone was polite, if not respectful, and I sang the hymns with the air of a book in the pew in front of me.

The gospel singing was incredible, if not angelic. When I left, an usher thanked me for supporting their cause. Very moving. I praised them for their strength and tossed a $100 bill into the basket.

Charleston is a big wedding destination now, with young couples pouring in from all over the South to tie the knot. Saturday night on Market Street saw at least a dozen bachelor and hen parties going bar to bar and getting wasted, the women falling off their platform shoes.

The United States still has a lot of healing to go to recover from the recent years of turmoil. I thought this was one small step.

Mother Emanuel African Methodist Episcopal Church

Punting in Cambridge

September 27, 2021

Diary, Newsletter, Summary

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)

Tag Archive for: (GS)