Global Market Comments
January 22, 2021
Fiat Lux
Featured Trade:
(JANUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (IWM), (SPY), (ROM), (BRK/A), (AMZN), NVDA), (MU), (AMD), (UNG), (USO), (SLV), (GLD), ($SOX), CHIX), (BIDU), (BABA), (NFLX), (CHIX), ($INDU), (SPY), (TLT)
Below please find subscribers’ Q&A for the January 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: What will a significant rise in long term bond yields (TLT) do to PE ratios in general, and high tech specifically?
A: Well, the key question here is: what is “significant”. Is “significant” a move in a 10-year from 120 to 150, which may be only months off? I don’t think that will have any impact whatsoever on the stock market. I think to really give us a good scare on interest rates, you need to get the 10-year up to 3.0%, and that might be two years off. We’re also going to be testing some new ground here: how high can bond interest rates go while the Fed keeps overnight rates at 25 basis points? They can go up more, but not enough to hurt the stock market. So, I think we essentially have a free run on stocks for two more years.
Q: What about the Shiller price earnings ratio?
A: Currently, it’s 34.5X and you want to completely ignore anything from Shiller on stock prices. He’s been bearish on stocks for 6 years now and ignoring him is the best thing you can do for your portfolio. If you had listed to him, you would have missed the last 15,000 Dow ($INDU) points. Someday, he’ll be right, but it may be when the market goes from 50,000 to 40,000, so again, I haven't found the Shiller price earnings ratio to be useful. It’s one of those academic things that looks great on paper but is terrible in practice.
Q: Do you see any opportunity in China financials with the change of administration, like the (CHIX)?
A: I always avoid financials in China because everyone knows they have massive, defaulted loans on their books that the government refuses to force them to recognize like we do here. So, it’s one of those things where they look good on paper, but you dig deeper and find out why they’re really so cheap. Better to go with the big online companies like Baidu (BIDU) and Alibaba (BABA).
Q: Is it too late to enter copper?
A: No, the high in the last cycle for Freeport McMoRan (FCX) was $50 dollars and I think we’re only in the mid $ ’20s now, so you could get another double. Remember, these commodity stocks have discounted recovery that hasn’t even started yet. Once you do get an actual recovery, you could get another enormous move and that's what could take the Dow to 120,000.
Q: Do you see the FANGs coming back to life with the earnings results?
A: I think it'll take more than just Netflix to do that. By the way, Netflix (NFLX) is starting to look like the Tesla of the media industry, so I’d get into Netflix on the next dip. You could get a surprise, out-of-nowhere double out of that anytime. But yes, FANGs will come to life. They've been in a correction for five months now, and we’ll see—it may be the end of the pandemic that causes these stocks to really take off. So that's why I'm running the barbell portfolio and buying the FANGs on weakness.
Q: Are you recommending LEAPS on gold (GLD) and silver (SLV)?
A: Absolutely yes, go out two years with your maturity, you might buy 120% out of the money. That's where you get your leverage on the LEAPS. Something like a (GLD) January 2023 $210-$220 in-the-money vertical bull call spread and generate a 500% profit by expiration.
Q: Do you foresee a cool off for semiconductors ($SOX) even though there's been recent news of shortages?
A: No, not really. There are so many people trying to get into these it’s incredible. And again, we may get a time correction where we sideline at the top and then break out again to the upside. This is classic in liquidity-driven markets, which is what we have in spades right now. Thanks to 5G, the number of chips in your everyday devices is about to increase tenfold, and it takes at least two years to build a new chip factory. So, keep buying (NVDA), (MU), and (AMD) on dips.
Q: Where are the best LEAPS prospects (Long Term Equity Participation Securities)?
A: That would have to be in technology—that's where the earnings growth is. If you go 20% out of the money on just about any big tech LEAPs two years out, to 2023 those will be worth 500% more at expiration.
Q: What about SPACs (Special Purpose Acquisition Company) now, as we’re getting up to five new SPACs a day?
A: My belief is that a SPAC is a vehicle that allows a manager to take out a 20% a year management fee instead of only 1%. And it's another aspect of the current mania we’re in that a lot of these SPACs are doubling on the first day—especially the electric vehicle-related SPACs. Also, a lot of these SPACs will never invest in anything, but just take the money and give it back to you in two years with no return when they can't find any good investments…. If you’re lucky. There's not a lot of bargains to be found out there by anyone, including SPAC managers.
Q: Does natural gas (UNG) fall into the same “avoid energy” narrative as oil?
A: Absolutely, yes. The only benefit of natural gas is it produces 50% less carbon dioxide than oil. However, you can't get gas without also getting oil (USO), as the two come out of the pipe at the same time; so I would avoid natural gas also. Gas and oil are also about to lose a large chunk, if not all, of their tax incentives, like the oil depletion allowance, which has basically allowed the entire oil industry to operate tax-free since the 1930s.
Q: What about hydrogen cars?
A: I don't really believe in the technology myself, and when you burn hydrogen, that also produces CO2. The problem with hydrogen is that it’s not a scalable technology. It’s like gasoline—you have to build stations all over the US to fuel the cars. Of course, it produces far less carbon than gas or natural gas, but it is hard to compete against electric power, which is scalable and there's already a massive electric grid in place.
Q: If you inherited $4 million today, would you cost average into (QQQ), (IWM), or (SPY)?
A: I would go into the ProShares Ultra Technology ETF (ROM), which is double the (QQQ); and if you really want to be conservative, put half your money into (QQQ) or (ROM), and then half into Berkshire Hathaway (BRK/A), which is basically a call option on the industrial and recovery economy. I know plenty of smart people who are doing exactly that.
Q: Is it weird to see oil, as well as green energy stocks, moving up?
A: No, that's actually how it works. The higher oil and gas prices go, the more economical it is to switch over to green energy. So, they always move in sync with each other.
Q: I heard rumors that Amazon (AMZN) is likely to raise Prime’s annual fee by $10-20 a year in 2021. Will that be a catalyst for the stock to go higher?
A: Yes. For every $10 dollars per person in Prime revenue, Amazon makes $2 billion more in net profit. I would say that's a very strong argument for the stock going up and maybe what breaks it out of its current 6-month range. By the way, Amazon is wildly undervalued, and my long-term target is $5,000.
Q: Do you think that the spike in Apple (AAPL) MacBook purchases means that computers will overtake iPhones as the revenue driver for Apple in 2021, or is the phone business too big?
A: The phone business is too big, and 5G will cause iPhone sales to grow exponentially. Remember, the iPhones themselves are getting better. I just bought the 12G Pro, and the performance over the old phone is incredible. So yeah, iPhones get bigger and better, while laptops only grow to the extent that people need an actual laptop to work on in a fixed office. Is that a supercomputer in your pocket, or are you just glad to see me?
Q: Share buybacks dried up because of revenue headwinds; do you think they will come back in a massive wave, giving more life to equities?
A: Absolutely, yes. Banks, which have been banned from buybacks for the past year, are about to go back into the share buyback business. Netflix has also announced that they will go buy their shares for the first time in 10 years, and of course, Apple is still plodding away with about $100 or $200 million a year in share buybacks, so all of that accelerates. The only ones you won't see doing buybacks are airlines and Boeing (BA) because they have such a mountain of debt to crawl out from before they can get back into aggressive buybacks.
Q: Interest rates are at historic lows; the smartest thing we can do is act big.
A: That’s absolutely right; you want to go big now when we’re all suffering so we can go small later and run a balanced budget or even pay down national debt if the economy grows strong enough. The last person to do that was Bill Clinton, who paid down national debt in small quantities in ‘98 and ‘99.
Q: What do you think about General Motors (GM)?
A: They really seem to be making a big effort to get into electric cars. They said they're going to bring out 25 new electric car models by 2025, and the problem is that GM is your classic “hour late, dollar short” company; always behind the curve because they have this immense bureaucracy which operates as if it is stuck in a barrel of molasses. I don’t see them ever competing against Tesla (TSLA) because the whole business model there seems like it’s stuck in molasses, whereas Tesla is moving forward with new technology at warp speed. I think when Tesla brings out the solid-state battery, which could be in two years, they essentially wipe out the entire global car industry, and everybody will have to either make Tesla cars under license from Tesla—which they said they are happy to do—or go out of business. Having said that, you could get another double in (GM) before everyone figures out what the game is.
Q: Will you update the long-term portfolio?
A: Yes, I promise to update it next week, as long as you promise me that there won’t be another insurrection next week. It’s strictly a time issue. After last year being the most exhausting year in history, this year is proving to be even more exhausting!
Q: Do you see a February pullback?
A: Either a small pullback or a time correction sideways.
Q: Do you think the Zoom (ZM) selloff will continue, or is it done now that the pandemic is hopefully ending?
A: It’s natural for a tech stock to give up one third after a 10X move. It might sell off a little bit more, but like it or not, Zoom is here to stay; it’s now a permanent part of our lives. They’re trying to grow their business as fast as they can, they’re hiring like crazy, so they’re going to be a big factor in our lives. The stock will eventually reflect that.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 18, 2021
Fiat LuxFeatured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT WOULD KILL THIS MARKET?)
($INDU), (TLT), (TBT), (GLD), (GOLD), (WPM), (TESLA)
With the Dow Average now up 13,300 points, or 73.89%, since April, I’m getting besieged by questions from readers as to what could make the market go down. This is, after all, the sharpest move up in stocks in history.
With $20 trillion about to hit the US economy, $10 trillion in stimulus, $10 trillion in quantitative easing, and overnight interest rates remaining at zero for three years, there’s not much.
Still, even the most Teflon of bull markets eventually go down. Let’s explore the reasons why. I’m not intending to give you sleepless nights. But the best traders always believe that anything can happen to markets all the time.
1) The Pandemic Ends – If Covid-19 can take the market up 13,300 points in nine months, its disappearance may take it down. That’s because the all-clear on the disease may prompt investors to pull money out of stocks and put it in the real economy.
A lot of people are buying stocks because there is nothing else to do and you can execute trades in the safety of your own home without going outside. Still, this effect may be muted as there are at least 2 million fewer businesses today than before the pandemic.
2) Interest Rates Rise – The Fed has promised not to raise overnight rates for three years, or until the inflation rates top 2% for at least a year (it’s now 0.4%). That seems to give the most aggressive investors a green light for the foreseeable future.
However, the Fed has no control over long term rates, which are set by the bond market. Since January 1, the yield on the ten-year US Treasury bond has soared from 0.90% to an eye-popping $1.20%, and 1.50% is certainly within reach during the first half.
The markets could easily handle that. But if the ten-year yield jumps to 3.0%, which it could do in two years, stocks could suffer, especially if we are at much higher levels by then.
3) Stocks Go Down – A lot of new traders are buying stocks simply because they are going up, independent of the thought process. What if stocks go down? Scads of you are now promising to buy on the next 10% pullback. I guarantee you that when we ARE down 10%, the only thing on your mind will be selling. That’s the way it always works. Loss of upside momentum could easily turn into vicious downside momentum.
4) The Pandemic Gets a Lot Worse – The Teflon market (which was invented during the Manhattan Project to prevent the corrosion of the insides of steel pipes by uranium or plutonium) has matched rising share prices with increasing Corona deaths tic for tic since March. We are now at 4,000 deaths a day and many hospitals now have fleets of freezer trucks parked outside because they can’t bury the bodies fast enough.
Government health officials tell us the pandemic is peaking right now. What if they are wrong? What if in the coming months, deaths top 10,000 a day? That would definitely be worth a 10% correction, if not a 20% one.
Summary
It all sets up a continuing run for stocks that could last at least two years and take the Dow as high at 45,000, or up 50% from here.
Which leads me to a different subject.
What if I am wrong?
I know that many of you have invested in two-year call options (LEAPS, or long term equity participation securities) at the March-May bottom and are sitting on the biggest profits in your life. Lots of these are several thousand percent in the money and have turned into 10X leveraged long equity positions, essentially synthetic futures. As a result, you now have no downside protection whatsoever.
If you bought the 2022 $120-$130 call spread at $20, it is now worth $765, a gain of 38.25X, or 3,825%. You have essentially just won the lottery.
This is what you need to do right now: roll up your strikes.
I shall explain.
Let’s say that when Tesla was at $80 on a split-adjusted basis, I begged many of you to buy the 2022 $120-$130 call spread. Tesla shares then rose by a mind-boggling 1,006%.
Here’s what you do. Sell your 2022 $120-$130 call spread immediately. Lock in the profit. Then buy a 2023 $900-$950 call spread. If Tesla falls, it will be at a much slower rate than your existing position.
Long-dated out-of-the-money options fall at a much slower rate than stocks because they have immense time value. They demonstrate a downside “hockey stick” effect. Very roughly speaking and without doing any math, a 50% drop in the stock will deliver only a 25% drop in the options. However, if Tesla shares rise, you will still participate in the upside and get 95% of the gain.
It’s a classic “heads I win, tails you lose” set up.
This is what professional traders do automatically, without thinking about it as if it were second nature.
I just thought you’d like to know.
About Last Week
A second insurrection is in play for January 20 according to the FBI, with armed demonstrations planned in the capitols of all 50 states. Don’t plan on traveling that day. Public access to the capitol building has ceased for the foreseeable future. Washington is now an armed camp, with 25,000 National Guard called in. The FBI is attempting to arrest the ring leaders as fast as possible. Market will keep seeing this as a buying opportunity, the fires under the market are burning so hot.
The US budget deficit soared to $573 billion in Q4, up 61% YOY. For the full calendar year, the deficit reached a mind-boggling $3.3 trillion, triple the previous year. Almost all the increase went to spending on pandemic related benefits. It’s another nail in the coffin for the bond market. Keep selling the (TLT), even on small rallies. This could be the trade of the century.
The US has 3 million fewer jobs than when Trump took office four years ago. It’s the worst performance since Herbert Hoover took office in 1928. That’s exactly what I predicted back in 2016. Up to March 2020, we also had a zero return in the stock market under Trump, which only started to improve when Biden took the lead in the primaries in May. In the meantime, the National Debt soared from $20 trillion to $28 trillion and it is still soaring. Over 100% of US growth during the Trump administration has been borrowed from the future on credit. It’s not a way to run a country.
The semiconductor shortage is slowing the auto industry, with Toyota, Ford, and Fiat cutting back production. It’s a global problem. Modern cars use more than 100 chips each and are becoming more apps than hardware. I’ve been predicting this for a year, and the problem will continue as it takes billions of dollars and years to ramp up new production. Buy the daylights out of (NVDA), (AMD), and (MU).
Technology is 2% of US employment but 27% of market capitalization and 38% of profits, says my old friend Jeffrey Gundlach of Double Line. Bitcoin is a bubble, inflation will be 3% by June, and bonds (TLT) are beyond terrible. Stocks are expensive but could run for a long time.
Weekly Jobless Claims delivered a horrific print, up 181,000 to 965,000, the worst since the spring. Covid-19 is clearly the reason. Stocks could care less and pushed on to new all-time highs, up eight days in a row. It really is a “Look Through” market.
No rate hike until 2% inflation for a year, said Fed Governor Clarida. It could be a long wait as indicated by the recent 0.4% report.
US air travel is down 61% in November YOY, and that includes the big Thanksgiving travel bump. A trend up will start later this year, but airlines will still emerge from the pandemic with tons of debt. Avoid.
Netflix is launching a movie a day, for all of 2021. It’s disrupting legacy Hollywood at Internet speed, which Covid-19 has brought to a screeching halt. The stock has seen a sideways correction since tech peaked in sideways. Buy at the bottom end of the recent range.
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 400% to 120,000 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 120,000 here we come!
My Mad Hedge Global Trading Dispatch shot out of the gate with an immediate 6.25% profit for the first ten trading days of the year. That is net of a 4% loss on a Tesla short which I added one day too soon. I went pedal to the metal immediately, again going 100% invested with a 50% long/50% short market-neutral portfolio.
That brings my eleven-year total return to 428.80% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.63%, a new high. My trailing one-year return exploded to 72.34%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 90% since the March low.
I did bail on my precious metals positions on (GOLD), (NEM), and (WPM) for small profits. The metals hate rising interest rates and competition from Bitcoin. They have effectively gone into a long bond, short Bitcoin position and I am not interested in either.
The coming week will be a slow one on the data front with Q4 earnings reports coming out daily.
We also need to keep an eye on the number of US Coronavirus cases at 24 million and deaths at 400,000, which you can find here. We are now running at a staggering 4,000 deaths a day.
When the market starts to focus on this, we may have a problem.
On Monday, January 18 at 11:00 AM EST, the US Markets will be closed for Martin Luther King Day.
On Tuesday, January 19 at 4:30 PM, Bank of America (BAC), Goldman Sachs (GS), and Netflix (NFLX) report.
On Wednesday, January 20 at 10:00 AM, we get the NAHB Housing Market Index. Morgan Stanley (MS) and Proctor and Gamble (PG) report.
On Thursday, January 21 at 8:30 AM, December Housing Starts are printed. Intel (INTC) and Union Pacific (UNP) report.
On Friday, January 22 at 10:00 AM, Existing Home Sales for December are out. Schlumberger (SLB) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I’m still waiting for orders on where to report for my Pfizer Covid-19 vaccination. In the meantime, since I will still be locked up for months to come, I have been viewing precious old pictures and videos from my past travel extravaganzas.
In 2019, I took my girls around the world via New Zealand, Sydney, Brisbane, Melbourne, Perth, Manila, New Delhi, Dubai, Cairo, Athens, Venice, Budapest, Brussels, Zermatt, and then back to San Francisco. We don’t do anything small in my family. Click here for the link to my favorite video of us arriving in Venice.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 13, 2021
Fiat LuxFeatured Trade:
(MY RADICAL VIEW OF THE MARKETS),
(INDU), (SPY), (AAPL), (FB), (AMZN), (ROKU)
What if the consensus is wrong?
What if instead of being in the 12th year of a bull market, we are actually in the first year, which has another decade to run? It’s not only possible but also probable. Personally, I give it a greater than 90% chance.
There is a possibility that the bear market that everyone and his brother have been long predicting and that the talking heads assure you is imminent has already happened.
It took place during the first quarter of 2020 when the Dow Average plunged a heart-rending 40%. How could this be a bear market when historical ursine moves down lasted anywhere from six months to two years, not six weeks?
Blame it all on hyperactive algorithms, risk parity traders, Robin Hood traders, and hedge funds, which adjust portfolios with the speed of light. If this WAS a bear market and you blinked, then you missed it.
It certainly felt like a bear market at the time. Lead stocks like Amazon (AMZN), Apple (AAPL), Facebook (FB), and Alphabet (GOOGL) were all down close to 40% during the period. High beta stocks like Roku (ROKU), one of our favorites, were down 60% at the low. It has since risen by 600%.
It got so bad that I had to disconnect my phone at night to prevent nervous fellows from calling me all night.
In my experience, if it walks like a duck and quacks like a duck, then it is a bear. If true, then the implications for all of us are enormous.
If I’m right, then my 2030 target of a Dow Average of $120,000, an increase of 300% no longer looks like the mutterings of a mad man, nor the pie in the sky dreams of a permabull. It is in fact eminently doable, calling for a 15% annual gain until then, with dividends.
What have we done over the last 11 years? How about 13.08% annually with dividends reinvested for a total 313% gain.
For a start, from here on, we should be looking to buy every dip, not sell every rally. Institutional cash levels are way too high. Markets have gone up so fast, up 12,000 Dow points in eight months, that many slower investors were left on the sideline. Most waited for dips that never came.
It all brings into play my Golden Age scenario of the 2020s, a repeat of the Roaring Twenties, which I have been predicting for the last ten years. This calls for a generation of 85 million big spending Millennials to supercharge the economy. Anything you touch will turn to gold, as they did during the 1980s, the 1950s, and well, the 1920s. Making money will be like falling off a log.
If this is the case, you should be loading the boat with technology stocks, domestic recovery stocks, and biotech stocks at every opportunity. Although stocks look expensive now, they are still only at one fifth peak valuations of the 2000 market summit.
Let me put out another radical, out of consensus idea. It has become fashionable to take the current red-hot stock market as proof of a Trump handling of the economy.
I believe the opposite is true. I think stocks have traded at a 10%-20% discount to their true earnings potential for the past four years. Anti-business policies were announced and then reversed the next day. Companies were urged to reopen money-losing factories in the US. Capital investment plans were shelved.
Yes, the cut in corporate earnings was nice, but that only had value to the 50% of S&P 500 companies that actually pay taxes.
Now that Trump is gone, that burden and that discount are lifted from the shoulders of corporate America.
It makes economic sense. We will see an immediate end to our trade war with the world, which is currently costing us 1% a year in GDP growth. Take Trump out of the picture and our economy gets that 1% back immediately, leaping from 2% to 3% growth a year and more.
The last Roaring Twenties started with doubts and hand wringing similar to what we are seeing now. Everyone then was expecting a depression in the aftermath of WWI because big-time military spending was ending.
After a year of hesitation, massive reconstruction spending in Europe and a shift from military to consumer spending won out, leading to the beginning of the Jazz Age, flappers, and bathtub gin.
I know all this because my grandmother regaled me with these tales, an inveterate flapper herself, which she often demonstrated. This is the same grandmother who bought the land under the Bellagio Hotel in Las Vegas for $500 in 1945 and then sold it for $10 million in 1978.
And you wonder where I got my seed capital.
It all sets up another “Roaring Twenties” very nicely. You will all look like geniuses.
I just thought you’d like to know.
Global Market Comments
January 11, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or A WEEK FOR THE HISTORY BOOKS),
($INDU), (TSLA), (TBT), (TLT), (JPM), (WFC)
A man came at me with a crowbar last week.
I drove into Reno to buy some used backpacks for my Boy Scout troop and parked my Tesla in a nice residential neighborhood. Out of nowhere, a man ran down the street at me screaming profanities, crowbar in hand.
He shouted that I was from Antifa and that I had hired people to invade the Capitol Building to make President Trump look bad.
I reached into my car for my own crowbar. Then the local residents interceded, separating us. The man turned around and walked away, fuming.
“Who the heck was that?” I asked.
“He has mental issues,” said a neighbor. “We’ve had many problems with him before.”
Another said “He’s a Trump supporter. He saw your Tesla and thought you were a liberal.”
Wow! Looks like the nation has a very long way to heal.
Last year, the US defense budget amounted to $622 billion. When the greatest threat to congress in the nation’s history presented itself, it was antique chairs piled against the door that provided the best defense. Maybe we should ditch some big-ticket nuclear missiles and buy more chairs.
Of course, once the insurrection started on Wednesday, I was inundated with international calls from investors asking if they should pull all their money out of the US. I answered “NO” and that it was in fact time to double down. Those who did made a killing.
Ask any professional money manager what his reaction to a coup d’état in Washington would be, their response definitely would NOT be to run out and buy a ton of Tesla (TSLA). Yet, that was exactly the perfect thing to do, the stock soaring an astonishing $135, or 18% in two days. I have many followers who did exactly that and they made millions.
All I can say is that if a market gets hit with an insurrection, and exploding pandemic, and a crashing economy and only goes down 400 points and then bounces back the next day, you want to buy the hell out of it.
I’m talking about going on margin and taking a second mortgage on your home and pouring it into stocks. You might even consider going to a loan shark and borrowing at 18% because you can easily make double that in the right stocks.
After the Biden win and the Georgia sweep, there is now more rocket fuel pouring into the stock market than ever. Call it the “Biden blank check”. Estimates of new spending and subsidies about to hit the market now go up to $10 trillion. Let me list some of them:
*$2 trillion in enforced savings by locked up American consumers.
*Credit card balances have collapsed to multi-year lows, making available hundreds of billions in spending power.
*Trillions of Money market balances sitting on the sidelines yielding zero
*$908 billion stimulus package passed in the closing days of 2020
*A further $2 trillion stimulus package to pass shortly, including $2,000 checks for all 150 million US taxpayers.
*Add another $2 trillion infrastructure budget
*$1 trillion in student loan forgiveness for 10 million borrowers at $10,000 each
*Enormous subsidies for any alternative energy companies and Tesla cars
*The return of the deductibility of $1 trillion worth of state and local real estate taxes (known as (SALT)).
MUCH OF THIS CASH MOUNTAIN IS GOING STRAIGHT INTO THE STOCK MARKET!
It all sets up a stock market that has the potential to have “extreme” moves to the upside, according to my friend, Fundstrat’s Tom Lee.
All you need to retire early is someone to point you in the right direction, into the right sectors and the right stocks. Actually, I happen to know just the right person who can do that and that would be me!
Storming of the Capital shut down markets. After the initial crash, markets flatlined as the entire country dropped what they were doing and glued themselves to a TV, their jaws hanging open. The Dow dove 400 points, bonds and the US dollar stabilized, Tesla and oil took big hits, and gold and silver took off. The electoral college vote has been suspended, gunfights broke out on the house floor, and several explosive devices placed. Trump incited his followers to attack the capitol and they did exactly that. Washington DC is now subject to a 6:00 PM curfew for two weeks. Is this the beginning of the 2024 presidential election? It’s the worst day in Washington since the British burned it in 1814.
Democrats took Georgia, giving them Senate control and a blank check on spending for at least two years. Trump clearly blew the election for his party. My 3X short in bonds soared as the market crashed. Banks rocketed on a 10-basis point leap in interest rates. Infrastructure plays went ballistic. The US dollar faded. Add another couple of percentage points of US GDP growth for 2021.
Tesla Shorts posted biggest loss in history, setting on fire a staggering $38 billion in short positions. Many of these were financed by big oil looking to put Tesla out of business. The short interest in the stock has plunged from 37% to 5%. Did I mention that Tesla was the biggest Mad Hedge long of 2020? I’ve been buying it since it was a split-adjusted $3.30 a share in 2010 against a Friday close of $880, a gain of 290X. Elon Musk is now the richest man in the world and he’s only just getting started!
Tesla met its 500,000-unit 2020 target, far in excess of analyst forecasts. Q4 came in at a surprise 180,570 units. The firm’s 2021 target is 1.1 million units. The market Cap is about to touch $1 trillion, more than all of the global car industry combined. The Model 3 is doing the heavy lifting. Model Y production in Shanghai is about to ramp up and Berlin is to follow. If Tesla can mass-produce their solid-state batteries, they’ll attain a global monopoly in the car industry with 25 million units a year and a share price of $10,000.
A Saudi surprise production cut, a million barrels a day, sent oil over $50. But with demand that weak, how long can the rally last? The market is entering short-selling territory. I bet you didn’t use much gas today commuting from your bedroom to your home office. Use the rally to unload what energy you have left. Sell the (XLE) on rallies.
Bitcoin topped $42,000, more than doubling in a month, and exceeded $1 trillion as an asset class. A Biden-run economy means more money creation which has to find a home. My friend’s pizza purchase for 8 Bitcoin a decade ago is now worth $320,000. I hope it was good!
The Nonfarm Payroll came in at a loss of 140,000, giving more credence to the Q1 double-dip scenario and far worse than expected. The headline Unemployment Rate came in unchanged at 6.7%, Leisure & Hospitality lost a mind-blowing 498,000 and an incredible 3.9 million since January. Private Education lost 63,000 and Government 45,000. Professional & Business Services gained 161,000. The real U-6 Unemployment Rate is a very high 11.6%.
The bond crash has only just begun, with the (TLT) down $8 on the week. The risk/reward is the worst of any financial asset anywhere. I am maintaining my triple short position. Massive government borrowing will be a death knell for fixed income investors.
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 400% to 120,000 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 120,000 here we come!
My Mad Hedge Global Trading Dispatch closed out a blockbuster 2020 with a blockbuster 10.20% in December, taking me up to an eye-popping 66.64% for the year. I’m up 81% since the March low. In 2021, I shot out of the gate with an immediate 5.93% profit for the first four trading days of the year.
That brings my eleven-year total return to 428.48% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.51%. My trailing one-year return exploded to 72.57%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 89% since the March low.
The coming week will be a slow one on the data front after last week's fireworks. We also need to keep an eye on the number of US Coronavirus cases at 22 million and deaths 370,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, January 11 at 11:00 AM EST, US Inflation Expectations are released, which will increasingly become an area of interest.
On Tuesday, January 12 at 4:30 PM, API Crude Inventories are published.
On Wednesday, January 13 at 8:30 AM, the US Inflation Rate for December is announced.
On Thursday, January 14 at 8:30 AM, the Weekly Jobless Claims are published. We also get November Housing Starts.
On Friday, December 15 at 8:30 AM, December Retail Sales are printed. Q4 earnings seasons starts, with JP Morgan Chase (JPM) and Wells Fargo (WFC) reporting. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, I’ll be taking my old Toyota Highlander down to the dealer in Reno. Squirrels moved into the engine and ate the wiring, knocking out the heater and the fan. All part of the cost of living in a mountain paradise. However, you have to share it with the critters.
I’ll also be investing in some pepper spray.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
December 14, 2020
Fiat Lux
FEATURED TRADE:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE GREAT ASSET SHORTAGE),
(INDU), (PFE), (MRNA), (PTON), (DOCU), (ETSY), (CAT), (JPM), (BABA), (TSLA), (TLT), (ABNB), (DIS)
Markets are wonderful arbiters of the laws of supply and demand.
When there is a shortage of a particular security, Wall Street has a magical ability to manufacture more by running the printing presses to meet supply, or in the modern incarnation, open the spreadsheets.
Except for this time.
The amount of new cash created by global quantitative easing and the prolific saving habits of locked up Americans are creating more demand than even this efficient highly process can accommodate.
Which means that prices can only go up.
How long and how far is anyone’s guess. My target for the Dow Average is 120,000 in ten years, but even I don’t expect that to take place in a straight line. So, we are all sitting on our hands waiting for the next pullback to buy into, which may….or may not ever happen.
A lot of Dotcom Bubble memories are rising up from the dead. Analysts in 1999 made outlandish forecasts of stocks rising 50% in a year, which then took place in four days. That happened to Tesla (TSLA) last month and Airbnb (ABNB) last week.
In the meantime, the smartest traders, call them the oldest traders, are taking profits on the best years of their careers.
Of course, the short-term direction of the market will be determined by the January 5 Georgia Senate election, where the polls are in a dead heat. The last time this happened, during the presidential election, the Democrats won by a microscopic 15,000 vote margin.
If history repeats itself, the Biden administration will get an extra $6 trillion to play with to restore the shattered US economy. Think $2 trillion for infrastructure spending in all 50 states, $2 trillion for the rescue of bankrupt states and municipalities, $1 trillion for alternative energy and EV subsidies, and another $1 trillion in odds and ends. Needless to say, much of this will end up in the stock market.
I am getting a lot of questions these days regarding what will end this once-in-a-generation runaway bull market. The pandemic created this bull market by accelerating technology, business evolution, and corporate profitability by ten years. I bet a year ago, you weren’t spending your day on Zoom meetings, as I was.
The great irony is that the Pfizer (PFE) and Moderna (MRNA) vaccines may not only kill Covid-19 but the bull market as well. That’s because money will then come out of stocks and go back to the real economy.
That makes pandemic darlings like Peloton (PTON), DocuSign (DOCU), and Etsy (ETSY) especially risky. But then 6% growing GDPs were never what stock market crashes were made of, so any declines will be modest.
As for my own positions, I have a rare 100% long portfolio, mostly Tesla, but also the (TLT), (CAT), (JPM), and (BABA), 80% of which expires with the option expiration on Friday, December 18.
After that, I’ll take it easy with 10% short (TLT) and 10% long (TSLA) and wait for the market, or Georgians to tell me what to do.
A flood of money is to hit the stock market, says hedge fund legend Ray Dalio. The US is facing a perfect storm in favor of all risk assets. There is no reason why price earnings multiples for American stocks can’t reach 50X, double the current 25X. Buy what the central banks are buying. The funny thing is that I agree with Ray on everything. Buy risk on dips.
Stocks will keep soaring into 2021, says JP Morgan strategist Marko Kolanovik. The more risk the better. The Fed will keep interest rates low for at least another year, and ultra-low rates will force big institutions out of bonds and into stocks. Volatility (VIX) will decline. It all sounds like a great long stock/short bond trade to me. Hmmmmm.
Tesla completed a $5 Billion share issue, after a move to $650, up $142 from my November Mad Hedge BUY recommendation. The stock seems hell-bent on testing the Goldman Sachs $780 price recommendation before the December 18 S&P 500 entry. Elon Musk’s creation is now worth a staggering $608 billion. It’s the best recommendation in the 13-year history of the Mad Hedge Fund Trader.
San Francisco rents dive 35%, as tech workers flee to the suburbs. A lot of remote work is now permanent. Studio apartments are now a mere $2,100, and a one-bedroom can be had for $2,716. For a two-bedroom if you have to ask, you don’t need to know. Shocking!
Sales of million-dollar homes are soaring, as ultra-low interest rates persist and people spend much more time at home. So, bigger for your pod is better. Mortgages over $766,000 are up 57% YOY.
Jamie Diamond says he wouldn’t touch bonds with a ten-foot pole, and nor would I. A 91-basis point yield just doesn’t do it for the chairman of JP Morgan Chase (JPM), one of my recurring longs. Stocks are a much better choice, even if there is a bubble in progress. Keep selling every rally in fixed income, especially the (TLT).
Weekly Jobless Claims soar to 853,000, up a massive 153,000 from the previous week. To see this happen during the Christmas hiring season is heartbreaking. With 200,000 a day falling to Covid-19, I’m surprised it's not higher, which means it will be. This is what peaks look like. Washington has totally given up.
An $800 billion payday for the bay area. That is the amount of wealth created by just two companies, Tesla (TSLA) and Airbnb (ABNB), since March. And the great majority of shareholders live in the San Francisco Bay Area, including its venture capital and pension funds. No wonder home prices in the suburbs are up 20% YOY. The great irony is that (ABNB) received a massive government bailout only in March. I hope they repay the loans early.
Is Cuba the next big play? A Biden détente could lead to the emerging market investment opportunity of the decade with the $43 million Herzfeld Caribbean Basin Fund (CUBA). It just had its best month in 11 years (like many of us). With Fidel Castro long dead, what’s the point in continuing a 60-year-old cold war. A big market for American products and services beckons, not to mention the tourism and cruise opportunities. But can Biden afford to lose the Florida Cuban vote in the next election?
When we come out the other side of the 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 400% to 120,000 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 120,000 here we come!
My Global Trading Dispatch catapulted to another new all-time high. December is up 8.55%, taking my 2020 year-to-date up to a new high of 64.99%.
That brings my eleven-year total return to 420.90% or more than double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.26%. My trailing one-year return exploded to 66.30%, the highest in the 13-year history of the Mad Hedge Fund Trader.
The coming week will be a slow one on the data front. We also need to keep an eye on the number of US Coronavirus cases at 16 million and deaths 300,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, December 14 at 12:00 PM EST, US Consumer Inflation Expectations for November are released.
On Tuesday, December 15 at 11:00 AM, the New York Empire State Manufacturing Index for December are published.
On Wednesday, December 16 at 8:00 AM, US Retail Sales for November are printed.
On Thursday, December 17 at 8:30 AM, the Weekly Jobless Claims are published. We also get November Housing Starts.
On Friday, December 18, at 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I was stunned to learn that 84 million people are watching The Mandalorian, the latest Star Wars installment Disney (DIS) launched in its hugely successful streaming service a year ago.
It reminds me of when I first saw Star Wars in 1977. I was changing planes in Vancouver, Canada on the way to Tokyo and used a long layover to take a taxi to the nearest theater to catch a film I’d heard so much about.
I was amazed when I realized that the guy sitting in the next seat had memorized the entire script and was mouthing all the words. The only other time I have ever seen this happen was sitting on the benches at Shakespeare’s Globe Theater in London. At least then, they were reciting Romeo and Juliet.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
