Global Market Comments
November 1, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or LET THE GAMES BEGIN!)
(MS), (GS), (BLK), (JPM), (BAC), (TLT), (TSLA), (AAPL), (MSFT), (GOOGL), (AMZN), (ROM)
Posts
Welcome to the first day of November, when the seasonals swing from negative to positive. The hard six months are over. The next six should be like shooting fish in a barrel.
At least that’s what happened in the past. The period from November 1 to May 31 has delivered the highest stock returns for the past 75 years.
So how do we play a hand that we have already been dealt full of aces and kings?
Load the boat with financials, like (MS), (GS), (BLK), (JPM), and (BAC). Notice that when we had the sharpest rise in interest rates in a year, financials barely moved when they should have crashed? That means they will soon start going up again.
You might have also observed that technology stock has been flat-lining when rising rates should have floored them. That means their torrid 20% earnings growth will keep floating their boats.
It gets better. We just learned that the GDP growth rate plunged in Q3 from a rip-roaring 6% rate to only 2%. What happens next? That 4% wasn’t lost, just deferred into 2022. The rip-roaring 6% growth rate returns. That’s why stocks are pushing up to new all-time highs right now.
So, buy the dips. We may have seen our last 5% correction of 2021. The only unknown is how markets will react to a Fed taper, which could come as early as Wednesday. But on the heels of that, we will get a $1.75 billion rescue package, the biggest in 50 years. One will cancel out the other, and then some.
Take a look at the ProShares Ultra Technology Fund (ROM), the 2X long ETF. I just analyzed its 30 largest holdings. Half are tech stocks that have been trash and are down 30% or more. The other half are at all-times highs, like Microsoft (MSFT) and Alphabet (GOOGL).
What happens next when the seasonals are a tailwind? The tech stocks that are down will rally because they are cheap, while the high stocks keep going because they are best of breed. I think (ROM) has $150 written all over it by March.
You’ve got to love Elon Musk, whose net worth is approaching $300 billion. When the pandemic broke, every automaker cancelled their chip orders for the rest of the year while Tesla took them all. Today, Detroit has millions of cars built but in storage because they are all missing chips. In the meantime, Tesla is snagging orders for 100,000 cars at a time.
Like I say, you gotta love Musk. Hey, Elon, call me! Why don’t you just buy the entire US coal industry and shut it down. It would only cost $5 billion, as market caps are so low. That would have more impact on the environment than another million Teslas. Worst affected would be China, where 70% of US coal now goes.
A continued major driver of the bull case for stocks is profit margins of historic proportions.
Q1 saw a 13% margin, Q2 13.5% and Q3 12.3%, and Q3 had to carry the dead weight of a delta impaired GDP growth rate of only 2.0%. Imagine what companies can do in Q4 when the growth rate is returning to a torrid 6% rate.
This has been one of my basic assumptions for the entire year and it seems it was I was alone in having it. This is where the 90% year-to-date performance comes from.
Inflation is Here to Stay, says top investing heavyweights, at least 4% through 2022. That means high inflation, higher financial shares, and higher Bitcoin prices. It’s going to take two years to unwind the mess at the ports that is driving prices.
Covid is Getting Knocked Out by a One-Two Punch, via a new round of booster shots and imminent childhood vaccinations. It could take new cases to zero in a year and give us a booming economy.
S&P Case Shiller is Still Rocketing, the National Home Price Index up 19.8% YOY in August. Phoenix (33.3%), San Diego (26.2%), and Tampa (25.9%) were the hot cities. This will continue for a decade but as a slower rate.
New Home Sales Pop, to 800,000. Annual median prices jump at an annual 18.7% to $408,000. The share of homes selling over $1 million increased from 5% to 9% in a year. It cost $500,000 to get a starter home in an Oakland slum these days. Homebuilders Sentiment Soars to 80. Buy (KBH), (PUL), and (LEN) on dips.
Bonds Melt Up, creating one of the best trade entry points of the year. A successful 30-year auction this week that took yields from 1.71% down to 1.52% in a heartbeat. It makes no sense. Buying bonds here is like buying oil in the full knowledge that someday it will go to zero. I am doubling my short position here. Look at the (TLT) December 2022 $150-$155 vertical bear put spread LEAPS which is offering a 14-month return of 54%. This is the month when the Fed has promised to begin the first of six interest rate hikes. Just buy it and forget about it.
Proof that the Roaring Twenties is Here. It’s demand that is spiking, the greatest ever seen, not supplies that are drying up in the supply chain issue. It should continue for a decade and the bull market in stocks that follows it. You heard it here first. Dow 240,000 here we come.
Apple Blows it in Q3, with millions of its phones lost at sea and no idea when unloads are possible, costing it $6 billion in sales. Revenues were up a ballistic 29% YOY. Buy (AAPL) on dips. I see $200 a year next year.
Amazon Craters, with both shrinking revenues and profits. Supply chain problems about with several billion of inventory trapped at sea off the coast of Long Beach. It plans to hire 275,000 to handle the Christmas rush. The stock hit a one year low. There is a time to buy (AMZN) on the dip, but not quite yet.
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 massive +8.95% gain in =October. My 2021 year-to-date performance maintained 88.55%. The Dow Average is up 17.06% so far in 2021.
After the recent ballistic move in the market, I am continuing to run my longs in 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 have a rich uncle write you a check one a day.
That brings my 12-year total return to 511.10%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.90%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 120.60%. 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 46 million and rising quickly and deaths topping 746,000, which you can find here.
The coming week will be slow on the data front.
On Monday, November 1 at 7:00 AM, the ISM Manufacturing PMI for October is out. Avis (CAR) Reports.
On Tuesday, November 2 at 1:30 PM, the API Crude Oil Stocks are released. Pfizer (PFE) reports.
On Wednesday, November 3 at 7:30 AM, the Private Sector Payroll Report is published. Etsy (ETSY) reports. At 11:00 AM, the Federal Reserve interest rate decision is announced, followed by a press conference.
On Thursday, November 4 at 8:30 AM, Weekly Jobless Claims are announced. Airbnb reports (ABNB).
On Friday, November 5 at 8:30 AM, The October Nonfarm Payroll Report is released. DraftKings (DKNG) reports. At 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, I have been known to occasionally overreach myself, and a trip to the bottom of the Grand Canyon a few years ago was a classic example.
I have done this trip many times before. Hike down the Kaibab Trail, follow the Colorado River for two miles, and then climb 5,000 feet back up the Bright Angle Trail for a total day trip of 27 miles.
I started early, carrying 36 pounds of water for myself and a companion. Near the bottom, there was a National Park sign stating that “Being Tired is Not a Reason to Call 911.” But I wasn’t worried.
The scenery was magnificent, the colors were brilliant, and each 1,000 foot descent revealed a new geologic age. I began the long slog back to the south rim.
As the sun set, it was clear that we weren’t going to make to the top. I was passed by a couple who RAN the entire route who told me “better hurry up.” I realized that I had erred in calculating the sunset, it'staking place an hour earlier in Arizona than in California.
By 8:00 PM it was pitch dark, the trail had completely iced up, and it was 500 feet straight down over the side. I only had 500 feet to go but the batteries on my flashlight died. I resigned myself to spending the night on the cliff face in freezing temperatures.
Then I saw three flashlights in the distance. Some 30 minutes later, I was approached by three Austrian Boy Scouts in full dress uniform. I mentioned I was a Scoutmaster and they offered to help us up.
I grabbed the belt of the last one, my companion grabbed my belt, and they hauled us up in the darkness. We made it to the top and I said, “thank you”, giving them the international scout secret handshake.
It turned out that I wasn’t in great shape as I thought I was. In fact, I hadn’t done the hike since I was a scout myself 30 years earlier. I couldn’t walk for three days.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Happy Halloween!
Global Market Comments
October 25, 2021
Fiat Lux
Featured Trade:
(TESTIMONIAL),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or TAKING A BREAK)
(MS), (GS), (BAC), (TLT), (TSLA), (AAPL), (AMZN), (GOOGL), (FB)
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
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)
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
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)
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 70th 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
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
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)
