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May 15 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the May 15 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.

Q: Is it time to get out of the 94/97 (TLT) spread?

A: No. We're getting close to a stop, but I think markets will peak out in the next couple of days and we can get out with a small profit. The weak PPI/CPI/Nonfarm, payroll was a game changer. So watch carefully as always. I could have come out of that with 2/3 of the profit last week, but who knew the market would go up 10 out of 11 days?

Q: What are your thoughts on meme stocks? I see that GameStop (GME) is up 550% in a week.

A: This is not investment, it's pure gambling. And if you do want to gamble, there are much better games to play than meme stocks. For example, Blackjack gives you a 51-49% risk in your favor, and slot machines are not too far off at 55-45%. This is not the same meme stock run that we had three years ago. Back then, the short interest in (GME) was 125%, which is more than the outstanding shares that existed. People are still trying to figure out how that happened. Now, the short interest is only 20%, so this may peak out a lot quicker than last time. In any case, it’s a totally random movement. It's just for kids to do because if kids lose all their money, they can start over again and still have enough money to retire. Chances are if you lose all your money, you won't have enough money to retire, so just another reason to stay out of meme stocks.

Q: I'm noticing the REITs are beginning to make a comeback. Can you comment?

A: They've actually been on a terrific run the last several weeks. Some of my favorites like Crown Castle Inc. (CCI) have had really big moves, and this is just the beginning of a major upside; and not only REITs, but all interest rate plays, and it turns out almost everything is an interest rate play when you look at it. Utilities, secured loans, junk bonds—it's a huge universe. So that's why I say buy everything; everything that's going to go up at all is especially positively affected by lower rates, especially precious metals—gold and silver. And when things go up, the definition of a precious metal expands. It now includes copper, palladium, and platinum, which has had an enormous run.

Q: Can we expect a recession to hit in 2025?

A: Absolutely not. We're in the early stages of a golden age of a decade, of appreciating assets of all kinds; not only stocks and bonds, but real estate, collectibles, baseball teams—you name it. So don't leave the game after the first inning, to use a baseball metaphor. And for you foreigners out there who know nothing about baseball, that means don't leave too early.

Q: Is the housing market overvalued in the US?

A: Good question, you'd certainly think that if you're out there trying to buy a house (and I've been shopping myself lately). The answer is absolutely not. It may be overpriced in the most expensive US markets like Manhattan, Honolulu, Hawaii, or San Diego, but it's still a fraction of what you have to pay in Hong Kong, Australia, or Vancouver, Canada. So prices can go a lot higher. Remember, we have a structural shortage of 10 million homes in the US and they’re not building new ones fast enough. They could double in price from here, especially if the Fed starts to cut interest rates, which they have promised to do. I think we're on the verge of another big housing boom, which will create more home equity, and guess what happens to that home equity? It eventually ends up in the stock market. It becomes a virtual love fest with housing prices making stocks go up and stocks making housing prices go up.

Q: Would you consider Bitcoin now?

A: Absolutely not, especially when you can buy things like Wheaton Precious Metals (WPM) and Barrick Gold (GOLD), which will probably double in the next year and actually have real assets with real earnings flows. With Bitcoin, you're essentially buying ether, and the time to buy Bitcoin was at $6,000, not at $60,000. You don't buy stuff after it's gone up 10 times. So again, just from a market timing point of view, it's a terrible idea. So there are better things to do. You can buy high-quality stocks at reasonable multiples right now.

Q: Is Airbnb (ABNB) a buy here?

A: I would. It is the world's largest hotel in an economic recovery. There's a huge demand for hotels and revenge travel. They're also branching out into higher-margin items like experiences. So yes, I do love the company and the quality of its management for sure.

Q: Markets are all-time high. Should I sell in May and go away?

A: Only if you're a short-term trader. If you’re a long-term investor and you sell now, I guarantee you'll miss the next bottom to get back in. So for short-term traders, yes, take profits like crazy—markets are way overbought. They either need some kind of correction or flat-line move for a period of time.

Q: Is buying American farmland a good investment for buying an index fund?

A: Well, if you look at the big portfolios of the great wealthy names like the Rockefellers, the Duponts, and all of my former clients at Morgan Stanley basically; they have loads of farmland and loads of forests—lots of forests. In fact, forests are trading at a big premium right now. It's considered the world's safest long-term asset. And as long as you don't have debt on it, it always goes up in value over time. So yes, that is a good investment. US farmland is the most productive in the world, and the number of people in the world isn't shrinking. In fact, the main reason China will never start a war with the US is because they're dependent on the US for about half its total food supply. So that's why I can always ignore all these China or Taiwan invasion warnings.

Q: Should I take a look at defense stocks?

A: Absolutely, yes, thanks to the invasion of Ukraine. Virtually every country in the world that has any money is expanding defense spending. This is not a short-term thing. Defense is a very long-time lag industry. When countries like the US buy planes, it's often for ten or twenty years, and then you have the upgrades to follow that, and third-country sales. So the big stocks are Lockheed Martin (LMT) and Raytheon (RTX). I would buy both of those on the dips. They have already had good moves, but what hasn't? Though there are not a lot of bargains left in this market after a heroic six to seven-month run.

Q: Is the webinar recorded for replay?

A: Yes, just go to our website madhedgefundtrader.com. Log in, go to My Account, and you'll see the opportunity to review the video of this presentation.

Q: Is it time to buy Google (GOOG)?

A: Yes, I think we're on an uptrend that continues for the rest of the year, and Google will keep leaking out its advantage in AI in bits and pieces. I saw the video you were talking about; you just leave the phone’s video on all the time, and then you could say, “Where are my glasses?” and it'll tell you where your glasses are: “You left them on the table in the dining room.” That's one of the many millions of applications we will see.

Q: Thoughts on Tesla (TSLA)?

A: We're trying to put in a bottom here. Get ready for the buy alerts—I think on the next plunge down I may actually jump in. We still have a very high volatility, and you have plenty of great pickings in the options market with high implied volatilities.

Q: Where are we on refilling the strategic oil reserves (USO)?

A: Biden made no effort to refill them. They were about at half-full levels when we hit the bottom last time, so maybe he will next time. I think he's more interested in just getting out of the oil business altogether, moving to alternative energy, and getting rid of the strategic oil reserve since we are now a net energy producer, net oil exporter, the world's largest oil producer in the world. We don't really need emergency reserves like we did in 1970 when these were first set up.

Q: Sometime back, you said to avoid miners of precious metals. Is that still your opinion?

A: No, I think we're in a position now where the miners can start to catch up with the metals. In the beginning of the year, it was clear the metals were going to outperform the miners because the miners were seeing their margins cut by high inflation. That's still the case. My first choice is still the metal, but you could get a big catch-up trade in the silver and gold miners. So, as I keep saying, buy Barrick Gold (GOLD) and (WPM).

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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 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 20, 2023

Diary, Newsletter, Summary

Global Market Comments
October 20, 2023
Fiat Lux

Featured Trade:

(TESTIMONIAL)
(OCTOBER 18 BIWEEKLY STRATEGY WEBINAR Q&A),
(LMT), (MS), (GOOG), (NVDA), (TSLA), (MSFT), (AMZN), (APPL), (META), (FXI), (RIVN), (NFLX)

October 18 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the October 18 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from London England.

Q: Is Nvidia (NVDA) a buy at the current price?

A: Absolutely, if your view is more than, say, a month. This stock will easily be $1,000 in the next year or two. They have such a huge moat on their business, and the high-end chips that are banned in China are only a tiny fraction of their overall business—they’re still allowed to sell small and medium-sized chips.

Q: Where do you see bond yields peaking out?

A: My pet target is 5.2% on a spike. We may get there in a few weeks or months. The position we have breaks even at 5.15% in 21 trading days. So any kind of rally on that position becomes profitable—even a one-day rally.

Q: Are you hitting Israel next?

A: No, I covered the Middle Eastern wars for 10 years starting with the ‘73 Yom Kippur wars, and I got sick of it. They’re using the same arguments to justify their positions that they were 50 years ago. In fact, the disputes have been going on for hundreds of years. So, I moved on to other more interesting wars like Ukraine. There are plenty of newbies cutting their teeth as war correspondents in Gaza now—I'll leave it to them.

Q: Are the results for all of the newsletters or just for one?

A: Those alerts that I send out personally are the results for the Mad Hedge Global Trading Dispatch. All of the other services (we have six now) have their own trade histories which we don’t publish, as it’s too much of an account job effort to update six independent track records. People know whether they’re making money or not—that's good enough for me. That’s how we’re set up; we’re a staff-light operation so that we can keep the prices low.

Q: What do you expect for Tesla (TSLA) earnings today?

A: I never make same-day earnings calls, but I would expect they’d be good. They would be less than they were in the past because the price wars are cutting into margins, but they’re gaining market shares at everybody else’s expense, which makes (TSLA) a “BUY”. In fact, if you look at the charts, it seems to be moving sideways into an upside breakout.

Q: Is it too late to buy military?

A: No, I’d be buying any of the big military stocks like Lockheed Martin (LMT), because the increase in demand for weapons is not a short-term thing—it is a more or less permanent thing which will go out decades. Also, they all already have massive government contracts to rebuild our own weapons. Most people don't realize that almost every weapons system in the United States is more than 50 years old. The reason is we quit investing in conventional weapons because we all thought the next war would be cyber. Well, Russia got absolutely nowhere on cyber—they made a few weak attempts to shut down Ukraine and couldn't even break into Elon Musk’s Skylink system, which all of Ukraine is running on.

Q: Why is Morgan Stanley (MS) doing so poorly?

A: All the financials are getting hit because of the collapsing bond market. Once the bond market finds a bottom you want to be buying financials with both hands.

Q: When the market recovers, which sector will lead?

A: Technology. The Magnificent Seven will lead. There’s safety in size. Google/Alphabet (GOOG), Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Amazon (AMZN), Apple (APPL), Facebook/Meta (META). They’re already leading now, so if you have those positions, I’d keep them. If you don’t, you should start picking them up.

Q: Is Rivian (RIVN) a buy at this level?

A: Absolutely. Amazon, which owns 25% of the company, just hit 10,000 Rivian delivery vans. I’ve seen them in California, they’re completely silent—very interesting cars. It’s just a question of how quickly they can produce them.

Q: Why is there a market drop today?

A: It’s the bond market. The first thing you look at every day is the bond market—if it's doing crappy, everything sells off.

Q: Do you still suggest 90-day T-bills at this point?

A: We may end up getting a stock buying opportunity into the year-end. Even if we have to wait for a yearend rally, you get paid every day for 90-day T-bills, and you can sell them at any time and get interest up to the day you sell them because they’re discount bonds that appreciate every day to reflect the yield. It’s a great way to park money, and most brokers will let you buy stocks against your 90-day T-bill position. So say you want to go fully invested in stocks—you could do that while selling your 90-day T-bills the same day. Most brokers will let you do that, worst case charging you one day of margin.

Q: Do you think China is using the Hamas attack on Israel to distract the US?

A: No, China wouldn’t want to get involved in this. Iran has its fingerprints all over it. Iran supplied all the missiles used to attack Israel, and if the Israelis turn around and attack Iran by destroying all of their nuclear and missile-making facilities, I would not be surprised one bit. That may be what Biden is really doing over there—trying to convince the Israelis not to escalate the war.

Q: What are the chances of a US default on November 17 (TLT)?

A: So far on all of these government shutdowns, the US Treasury has been able to come up with magic tricks to keep from defaulting; but if the default is long enough, even they will have to stop paying interest to bondholders, which will increase the debt burden of the US government because a lower credit rating will cause it to pay higher interest rates. Why people think this is a great strategy is beyond me.

Q: Gasoline is down and oil is up—what’s going on?

A: That’s usually driven by the crack spread—the availability of gasoline from refineries in the US, so I wouldn’t use that as any kind of indicator.

Q: Do you think China (FXI) is shifting priorities away from economic growth to military strength?

A: No I don’t, they would love to have economic growth if they could, and in fact, their central bank has been stimulating their economy, and it's working; that’s how this morning’s report got back up to 5%. At the end of the day, they just want peace. All this military stuff—they’re just bluffing and posturing, which is really all they’ve ever done, at least since the Korean War. They weren’t even big participants in the Vietnam War, so China doesn’t worry me at all; there are bigger things to worry about. But they definitely have hit a wall in economic growth, and a big part of that is Covid, and a big part of that is a shrinking population—a shortage of workers, and a shortage of workers who can support older parents.

Q: Will there be an oil embargo against Israel? The US and Europe by OPEC countries?

A: No. The Middle Eastern governments know what's really going on here, even though what they may say in public is completely different. The fact is that Hamas started this war, and none of these other countries want Hamas in their countries because they know that the first thing they'll do is overthrow the local government. Effectively, Hamas doesn’t exist anymore either—they've really all been killed, so you just have to give some time for things to cool down out there, and of course, the US is working overtime to keep the situation from escalating, but we can only try—we can’t enforce this thing. One question I've been getting from a lot of people lately is: will the US send troops to Israel or to Gaza? The answer is no—we were in Iraq and Afghanistan for 20 years! We’re in no hurry to get back into a new war, especially a new 20-year war, and that would not be in our own interest. By the way, Israel can amply defend itself; they have the best military in the Middle East by far, largely supported by the United States. For me, the big mystery is how intelligence in Israel missed this attack. They were just completely asleep at the switch, and some day in the future there will be an investigation about this, but don’t expect it from the current government.

Q: Why won’t Egypt and Jordan take the Palestinian refugees?

A: They are both poor countries. Neither of them is oil-rich, and Egypt especially has a horrendous population problem—they are in fact the world's second largest food importer after China. They have 110 million people to feed and not enough production locally to do that, so it isn’t easy to take in 2 million Palestinians. If you don't believe me, go to Cairo—it's just incredibly crowded. With a population of 10 million you can't go anywhere, so where are they going to put 2 million more people? So this is a difficult problem, there's no easy fix depending on what side you’re on.

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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Good Trading.

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

2021 Mount Rose Summit Nevada

October 10, 2023

Diary, Newsletter, Summary

Global Market Comments
October 10, 2023
Fiat Lux

Featured Trade:

(FRIDAY, OCTOBER 13 KIEV, UKRAINE GLOBAL STRATEGY LUNCHEON)
(WILL SPACEX BE YOUR NEXT TEN BAGGER?)
(EBAY), (TSLA), (SCTY), (BA), (LMT)

Will SpaceX Be Your Next Ten Bagger?

Diary, Newsletter, Research

I am constantly on the lookout for ten baggers, stocks that have the potential to rise tenfold over the long term.

Look at the great long-term track records compiled by the most outstanding money managers, and they always have a handful of these that account for the bulk of their outperformance, or alpha, as it is known in the industry.

I’ve found another live one for you.

News came out last week that Elon Musk’s SpaceX has just landed a $70 million contract with the Department of Defense for the creation of its military Star Shield satellite network.

Elon Musk’s SpaceX is so forcefully pushing forward rocket technology that he is setting up one of the great investment opportunities of the century.

In the past decade, his start-up has accomplished more breakthroughs in advanced rocket technology than seen in the last 60 years, since the golden age of the Apollo space program.

As a result, we are now on the threshold of another great leap forward into space. Musk’s ultimate goal is to make mankind an “interplanetary species.”

There is only one catch.

SpaceX is not yet a public company, being owned by a handful of fortunate insiders and venture capital firms. But you should get a shot at the brass ring someday.

The rocket launch and satellite industry is the biggest business you have never heard of, accounting for $200 billion a year in sales globally. This is probably because there are no pure stock market plays.

Only two major companies are public, Boeing (BA) and Lockheed Martin (LMT), and their rocket businesses are overwhelmed by other aerospace lines.

The high value-added product here is satellite design and construction, with rocket launches completing the job.

Once dominated by the US, the market for launches has long since been ceded to foreign competitors. The business is now captured by Europe (the Arianne 5), and China (the Long March 5). Space business for Russia and its Angara A5 rocket abruptly ended with its invasion of Ukraine.

Until recently, American rocket makers were unable to compete because decades of generous government contracts enabled costs to spiral wildly out of control.

Whenever I move from the private to the governmental sphere, I am always horrified by the gross indifference to costs. This is the world of the $10,000 coffee maker and the $20,000 toilet seat.

Until 2010, there was only a single US company building rockets, the United Launch Alliance (ULA), a joint venture of Boeing and Lockheed Martin. ULA builds the aging Delta IV and Atlas V rockets.

The vehicles are launched from Cape Canaveral, Florida and Vandenberg Air Force Base in California, both of which I had the privilege to witness. They look like huge Roman candles that just keep on going until they disappear into the blackness of space.

Enter SpaceX.

Extreme entrepreneur Elon Musk has shown a keen interest in space travel throughout his life. The sale of his interest in PayPal, his invention, to eBay (EBAY) in 2002 for $165 million, gave him the means to do something about it.

He then discovered Tom Mueller, a childhood rocket genius from remote Idaho who built the largest ever amateur liquid-fueled vehicle, with 13,000 pounds of thrust. Musk teamed up with Mueller to found SpaceX in 2002.

Two decades of grinding hard work, bold experimentation, and heart-rending testing ensued, made vastly more difficult by the 2008 Great Recession.

SpaceX’s Falcon 9 first flew in June 2010 and successfully orbited Earth. In December 2010, it launched the Dragon space capsule and recovered it at sea. It was the first private company ever to accomplish this feat.

Dragon successfully docked with the International Space Station (ISS) in May 2012. NASA has since provided $440 million to SpaceX for further Dragon development.

The result was the launch of the Dragon V2 (no doubt another historical reference) in May 2014, large enough to carry seven astronauts.

The largest SpaceX rocket now in testing has Mars capability, the 27-engine, 394-foot-high Starship, the largest rocket ever built.

Commit all these names to memory. You are going to hear a lot about them.

Musk’s spectacular success with SpaceX can be traced to several different innovations.

He has taken the Silicon Valley hyper-competitive ethos and financial model and applied it to the aerospace industry, the home of the bloated bureaucracy, the no-bid contract, and the agonizingly long time frame.

For example, his initial avionics budget for the early Falcon 1 rocket was $10,000 and was spent on off-the-shelf consumer electronics. It turns out that their quality had improved so much in recent years they met military standards.

But no one ever bothered to test them. $10,000 wouldn’t have covered the food at the design meetings at Boeing or Lockheed Martin, which would have stretched over the years.

Similarly, Musk sent out the specs for a third-party valve actuator no more complicated than a garage door opener, and a $120,000, one-year bid came back. He ended up building it in-house for $3,000. Musk now tries to build as many parts in-house as possible, giving it additional design and competitive advantages.

This tightwad, full speed ahead and damn the torpedoes philosophy overrides every part that goes into SpaceX rockets.

Amazingly, the company is using 3D printers to make rocket parts, instead of having each one custom-made.

Machines guided by computers carve rocket engines out of a single block of Inconel nickel-chromium super alloy, foregoing the need for conventional welding, a frequent cause of engine failures.

SpaceX is using every launch to simultaneously test dozens of new parts on every flight, a huge cost saver that involves extra risks that NASA would never take. It also uses parts that are interchangeable for all its rocket types, another substantial cost saver.

SpaceX has effectively combined three nine-engine Falcon 9 rockets to create the 27-engine Falcon Heavy, the world’s largest operational rocket. It has a load capacity of a staggering 53 metric tons, the same as a fully loaded Boeing 737 can carry. It has half the thrust of the gargantuan Saturn V moon rocket that last flew in 1973.

Musk is able to capture synergies among his three companies not available to any competitor. SpaceX gets the manufacturing efficiencies of a mass-production carmaker.

Tesla Motors has access to the futuristic space-age technology of a rocket maker. Solar City (SCTY) provides cheap solar energy to all of the above.

And herein lies the play.

As a result of all these efforts, SpaceX today can deliver what ULA does for 73% less money with vastly superior technology and capability. Specifically, its Falcon Heavy can deliver a 116,600-pound payload into low earth orbit for only $90 million, compared to the $380 million price tag for a ULA Delta IV 57, 156-pound launch.

In other words, SpaceX can deliver cargo to space for $772 a pound, compared to the $7,515 a pound UAL charges the US government. That’s a hell of a price advantage.

You would wonder when the free enterprise system is going to kick in and why SpaceX doesn’t already own this market.

But selling rockets is not the same as shifting iPhones, laptops, watches, or cars. There is a large overlap with the national defense of every country involved.

Many of the satellite launches are military in nature and top secret. As the cargoes are so valuable, costing tens of millions of dollars each, reliability and long track records are big issues.

Enter the wonderful world of Washington DC politics. UAL constructs its Delta IV rocket in Decatur, Alabama, the home state of Senator Richard Shelby, the powerful head of the Banking, Finance, and Urban Affairs Committee.

The first Delta rocket was launched in 1960, and much of its original ancient designs persist in the modern variants. It is a major job creator in the state.

ULA has no rocket engine of its own. So it bought engines from Russia, complete with blueprints, hardly a reliable supplier. Magically, the engines have so far been exempted from the economic and trade sanctions enforced by the US against Russia for its invasion of Ukraine.

ULA has since signed a contract with Amazon’s Jeff Bezos-owned Blue Origin, which is also attempting to develop a private rocket business but is miles behind SpaceX.

Musk testified in front of Congress in 2014 about the viability of SpaceX rockets as a financially attractive, cost-saving option. His goal is to break the ULA monopoly and get the US government to buy American. You wouldn’t think this is such a tough job, but it is.

Elon became a US citizen in 2002 primarily to qualify for bidding on government rocket contracts, addressing national security concerns.

NASA did hold open bidding to build a space capsule to ferry astronauts to the International Space Station. Boeing won a $4.2 billion contract, while SpaceX received only $2.6 billion, despite superior technology and a lower price.

It is all part of a 50-year plan that Musk confidently outlined to me 25 years ago. So far, everything has played out as predicted.

The Holy Grail for the space industry has long been the building of reusable rockets, thought by many industry veterans to be impossible.

Imagine what the economics of the airline business would be if you threw away the airplane after every flight. It would cost $1 million for one person to fly from San Francisco to Los Angeles.

This is how the launch business has been conducted since the inception of the industry in the 1950s.

SpaceX is on the verge of accomplishing exactly that. It will do so by using its Super Draco engines and thrusters to land rockets at a platform at sea. Then you just reload the propellant and relaunch.

What's coming down the line? A SpaceX cargo business where you can ship high value products like semiconductors from Silicon Value to Australia in 30 minutes, or to Europe in 20 minutes.

Talk about disruptive innovation with a turbocharger!

The company has built its own spaceport in Brownsville, Texas that will be able to launch multiple rockets a day.

The Hawthorne, CA factory (where I charge my own Tesla S-1 when in LA) now has the capacity to build 160 rockets a year. This will eventually be ramped up to hundreds.

SpaceX is the only organization that offers a launch price list on its website (click here for that link), as much as Amazon sells its books. The Falcon 9 will carry 28,930 pounds of cargo into low earth orbit for only $60.2 million. Sounds like a bargain to me.

This no doubt includes an assortment of tax breaks, which Musk has proven adept at harvesting. Elon has been a quick learner of the ways of Washington.

Customers have included the Thai telecommunications firm, Rupert Murdock’s Sky News Japan, an Israeli telecommunications group, and the US Air Force.

So when do we mere mortals get to buy the stock? Analysts now estimate that SpaceX is worth up to $200 billion.

The current exponential growth in broadband and SpaceX’s Starlink will lead to a similar growth in satellite orders, and therefore rocket launches. So the commercial future of the company looks especially bright.

However, Musk is in no rush to go public. A permanent, viable, and sustainable colony on Mars has always been a fundamental goal of SpaceX. It would be a huge distraction for a publicly managed company. That makes it a tough sell to investors in the public markets.

You can well imagine that the next recession would bring cries from shareholders for cost-cutting that would put the Mars program at the top of any list of projects to go on the chopping block. So Musk prefers to wait until the Mars project is well established before entertaining an IPO.

Musk expects to launch a trip to Mars by 2027 and establish a colony that will eventually grow to 80,000. Tickets will be sold for $500,000. Click here for the details.

There are other considerations. Many employees and early venture capital investors wish to realize their gains and move on. Public ownership would also give the company extra ammunition for cutting through Washington red tape. These factors point to an IPO that is earlier than later.

On the other hand, Musk may not care. The last net worth estimate I saw for his net worth was $300 billion. If his many companies increase in value by ten times over the next decade, as I expect, that would increase his wealth to $3 trillion, making him the richest person in the world by miles.

If an IPO does come, investors should jump in with both boots. While the value of the firm may have already increased tenfold by then, there may be another tenfold gain to come. Get on the Elon Musk train before it leaves the station.

To describe Elon as a larger-than-life figure would be something of an understatement. Musk is the person on which the fictional playboy/industrialist/technology genius, Tony Stark in the Iron Man movies, has been based.

Musk has said he wishes to die on Mars, but not on impact. Perhaps it would be the ideal retirement for him, say around 2045 when he will be 75.

To visit the SpaceX website, please click here. It offers very cool videos of rocket launches and a discussion with Elon Musk on the need for a Mars mission.

Catching a Dragon by the Tail

This Could Be the Stock Performance

Is Mars the Next Hot Retirement Spot?

October 9, 2023

Tech Letter

Mad Hedge Technology Letter
October 9, 2023
Fiat Lux

Featured Trade:

(GLOBAL WAR THREATENS TECH RALLY)
(GOOGL), (MSFT), (LMT), (EV), (CHINA)

Global War Threatens Tech Rally

Tech Letter

Hot wars play a central role in accelerating inflation and the world’s newest kinetic war in the Middle East could prove toxic to the Fed’s quest to quell high inflation.

First, condolences to the atrocities that have occurred in the past 72 hours, the damage to families, society, and communities are hurtful and long-lasting.

Conflict in the Middle East means higher energy prices because a higher risk premium will be attached to the cost of logistics and production.

The Middle East has some of the highest outputs of oil and natural gas in the world with supply from Qatar, Saudi Arabia, and Iran flooding the world with cheap energy.

What does that mean for technology stocks?

I can tell you nothing good.

Physical wars rotate demand to certain goods that will deliver the consumer the best outcomes and in this case food and shelter. Running a supermarket during the lockdowns was a small gold mine. That means there is a high chance that money rotates out of Google and Microsoft and goes into defense and military stocks like Raytheon and Lockheed Martin (LMT).

Unless products are critical to survival, goods like EVs and Tesla’s (TSLA) are placed on the backburner.

Few will have the money to charge their EVs with another wave of price increases coming down the pipeline. I already hear Norwegians complaining about the cost of fueling EVs after cheap Russian energy was shut off to them.

Forget about an iPhone upgrade cycle.

Kids will just have to deal with the iPhone 14 for longer.

High inflation plays a leading role in wars and conflicts. But that doesn’t mean that economic policy doesn’t matter anymore. Less wars result in bigger tailwinds to deflation.

China also owns the rare metals industry and policy might dictate to hold back supply and earmark it for national and military industries instead of selling to foreigners.

Tesla’s might not be able to be produced anymore because they can’t secure the right materials like cobalt from China.

If a full-fledged regional war intensifies, then the US economy is almost guaranteed to lock in 4% as the new CPI low for this inflationary cycle. The next move would be higher.

The US has already pledge financial and military aid to Israel and that bill will be footed by the US taxpayer.

If this war begins to get expensive and the US starts shipping off $200 billion every few months to the Middle East then this fiscal spending will bring forward more inflation.

Ultimately, if a third war in the shape of Taiwan rears its ugly head, we could experience high 20% inflation like we did in the 1970’s, but this time around, we would do it with close to $34 trillion in US federal debt and those onerous debt interest payments.

The technology sector better hope and pray for a quick resolution to the Middle East conflict in order to stave off the threat of destroying the Santa Claus rally in the Nasdaq.

A third concurrent war in Taiwan would mean instant recession, spiking bond yields, $150 per barrel oil, and technology stocks experiencing a wild pullback.

In the meantime, the newest stresses will guarantee the Eurozone plus UK into a deep recession because they aren’t self-sufficient.

It also adds even more stress to the US economy which is the last man standing at this point because US tech earnings are still in the green.

Certain stocks do very well in times of geopolitics, but these multinational globalized companies have a lot to sacrifice if the world goes pear-shaped.

January 27, 2023

Diary, Newsletter, Summary

Global Market Comments
January 27, 2023
Fiat Lux

Featured Trade:

(JANUARY 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(RIVN), ($VIX), (SPX), (UUP), (NVDA), (TLT), (LLY), (AAPL), (RTX), (LMT), (USO), (OXY), (TSLA), (UNG), (MSFT)

CLICK HERE to download today's position sheet.

January 25 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the January 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: What do you think about LEAPS on Rivian (RIVN)?

A: Yes, I would do those, but a smaller position with closer strike prices. Go to the maximum maturity 2 years out and be conservative—bet on only a 50% rise in the stock. I’m sure it’ll double, but with the LEAPS you’ll have tremendous upside leverage, like 10 to 1, so don’t get greedy. Go for the 500% profit in 2 years rather than the 1,000%, because it is still a startup, and we need economic recovery for startups to get traction. If anything, Tesla (TSLA) will drag this stock back up as it dragged it down. They all move together.

Q: What’s the number of contracts on your $100,000 model portfolio?

A: Our model portfolio basically assumes we have 10 positions of $10,000 each totaling $100,000 in value. You can then change the number of contracts to suit your own private portfolio—take on as much or as little risk as you want. If you’re new. I recommend trading on paper first to make sure you can make money before you use the real thing.

Q: I’m new to this service. What’s the difference between the long-term portfolio and the short-term portfolio?

A: A long term portfolio is a buy-and-forget portfolio, with maybe a 5- or 10-year view. We only change it and make adjustments twice a year so we can average back into the new positions and take profits on the old ones. The main part of this service is usually front-month, and that’s where we take advantage of anomalies in the options market and market timing to make profits 95% of the time. And a big part of the short-term portfolio is cash; we often go 100% cash when there are no trades to be had. It’s actually more valuable knowing when not to trade than when to trade. If you have any more questions, just email customer support at support@madhedgefundtrader.com and we’ll address them individually.

Q: Is it time for a CBOE Volatility Index ($VIX) trade?

A: I hate trading ($VIX). I only do it from the short side; when you get down to these low levels it can flatline for several months, and the time decay eats you to death. I only do it from the short side, and then only the 5% of the time that we’re peaking in ($VIX). The big money is made on the short side, that’s how virtually the entire options trading industry trades this.

Q: Would you be loading up with LEAPS in February?

A: No, it’s the worst time to do LEAPS. You do LEAPS at long-term market bottoms like we had in October, and then we issued 12 different LEAPS. If you get a smaller pullback, there may be LEAPS opportunities, but only in sectors that are near all-time lows, like gold or silver. It depends on the industry and where we are in the market, but basically, you’re looking to do LEAPS at lows for the year because the leverage is so enormous, and so are the potential profits.

Q: Is the increasing good performance a result of your artificial intelligence? Learning from past mistakes?

A: Partly yes, and partly my own intelligence is improving. Believe it or not, when you go from year 54 to 55 in experience in the markets, you understand a lot more about the markets. Sometimes you just get lucky being on the right side of black swan events. Of course, knowing when the market is especially sensitive and prone to black swans is also a handy skill to have.

Q: Is it too late to get into Freeport McMoRan (FCX)?

A: Yes, I wouldn’t touch (FCX) until we get at least a $10 selloff, which we may get in February, so I think the long term target for (FCX) is $100. The stock has nearly doubled since the LEAPS went out in October from $25 a share to almost $50, so that train has left the station. Better off to wait for the next train or find another stock, there are a lot of them.

Q: Where do you park cash in the holding pattern?

A: Very professional hedge fund managers buy 90-day T-bills, because if you keep your cash in your brokerage account—their cash account—and they go bankrupt, it’ll take you 3 years to get your money back in a bankruptcy proceeding. If you own 90-day T-bills and your broker goes bankrupt, they’re required by law to just hand over the T-bills to you immediately. You take delivery of the T-bills, you park them at another brokerage house, and you keep them there. There is no loss of the use of funds.

Q: What about Long term US dollar (UUP)?

A: We go down for 10 years. Falling interest rates are poison for a currency; our rates are probably going to be falling for the next several years.

Q: Thoughts on Tesla (TSLA)?

A: Short term way overbought, we almost got up 60% from the low in weeks, but that’s Tesla, that’s just how it trades. It is the best performing major stock in the market this year. I wouldn’t be looking to go back into it until we drop back, give up half of that gain, get back down to about $135—then it would be a good options trade and a good LEAPS.

Q: Would you be taking profits in Nvidia (NVDA)?

A: I would take like half here and look to buy it back on the next dip because I think Nvidia’s got higher highs ahead of it.

Q: I can’t get a password for the website.

A: Please contact customer support on the homepage and they will set you up immediately. If not, you can call them at (347) 480-1034.

Q: Would you be selling long term positions?

A: No I would not, because if you sell a long term position they’re very hard to get back into; and I’m expecting $4,800 in the (SPX) by the end of the year. Everything goes up by the end of the year, even things you hate. So no, selling is what you did a year ago, now you’re basically looking for chances to get back in.

Q: Would you hold Tesla (TSLA) over this earnings report?

A: No, I sold my position yesterday, at 70% of its maximum potential profit. I don't need substantial selloff; I’m just going to go right back in again.

Q: Have you heard anything about Tesla silicon roof tiles tending to catch fire?

A: No I have not, but if your house got struck by lightning or if someone fired a bullet at it, that might do the trick. Otherwise, you need a huge input of energy to get silicon to catch on fire as it’s a pretty stable element. And if it was already happening on a large scale, you know the media would be absolutely all over it—the media loves to hate Tesla and loves to hate Elon Musk. That certainly would draw attention if it were happening; what's more likely is that fake news is spreading rumors that are not true. That's been a constant problem with Tesla from the very beginning.

Q: Would you open the occidental spread here today?

A: I would, but I would use strike prices $5 lower. I'd be doing the February $50-$55 vertical bull call spread to give yourself some extra protection, given that the general market itself is so high.

Q: Should I be shorting Apple (APPL) here?

A: No, but the smart thing to do is to sell the $160 calls because I don’t think we’ll get up to $160. You could take any extra premium income, and if you don’t get hit this month, keep doing it every month until you are hit, and then you can take in quite a lot of premium income by the time we get to new highs in Apple, possibly as much as $10 or $15. So, that would be a smart thing to do with Apple.

Q: What's your favorite in biotech and big pharma?

A: Eli Lilly (LLY), which just doesn't seem to let anybody in.

Q: If China were to shut down again, would it hurt the stock market?

A: Yes, but not much. The much bigger falls would be in Chinese stocks (which have already doubled since October) not ours.

Q: Thoughts on biotech?

A: Biotech is the new safety trade that will continue. Also, they’re having their secular ramp-up in technology and new drugs so that is also a good long-term bull call on biotech.

Q: What’s the dip in iShares 20+ Year Treasury Bond ETF (TLT)?

A: $4 points at a minimum, $5 is a nice one, $6 would be fantastic if you can get it.

Q: Could we get a trade-up in oil (USO)?

A: Yes, maybe $5 or $10 a barrel. But it’s just that, a trade. Long term, oil still goes to zero. Short term, China recovery gives a move up in oil and that's why we went long (OXY).

Q: You talk about California NatGas being dead, but California gets 51% of its electricity from natural gas, up from 48% in 2018.

A: Yes, but that counts all of the natural gas that gets brought in from other states. In fact, if you look at the longer-term trend over the last 20 years, coal has gone to zero, nuclear is going to zero, hydro has remained the same at about 10%. NatGas has been falling and green sources like wind and solar, have been rising quite substantially. And now, approximately 25% of all the homes in California get solar energy, or 8.4 million homes, and it is now illegal to put gas piping into any new construction. New York is doing the same. That means it will be illegal to do new natural gas installations in a third of the country. So, I think that points to lower natural gas consumption, and in fact, the 22-year target is to take it to zero, which might be optimistic but you never know. All they need is a smallish improvement in solar technology, and that 100% from green sources is doable by 2045, not only for California but for everybody. All energy plays are a trade only, not an investment.

Q: Any thoughts on the implications for the US and Germany providing tanks to Ukraine?

A: You can throw Poland in there, which is also contributing a tank division—so a total of 58 M1 Abrams tanks are going to Ukraine. By the way, I did command a Marine Corps tank battalion for two weeks on my reserve duty, so I know them really well inside and out. They are powered by a turbine engine, have a suspension as soft as a Cadillac, a laser targeting system accurate to three miles even for beginners, and fire recycled uranium shells that can cut through anything like a knife through butter. The answer is the war gets prolonged, and eventually forces Russia into a retreat or a negotiation. Even though the M1 is an ancient 47-year-old design, its track record against the Russian T72 is pretty lopsided. In the first Gulf War, the US destroyed 5,000 T72s and the US lost one M1 tank because he parked on a horizon, which you should never do with a tank. And every driver of a T72 knows that track record. So that explains why Russian tanks have been running out of gas, sugaring their gas tanks, sabotaging their diesel engines, and doing everything they can to avoid combat because of massive fatal design flaws in the T72. We only need to provide about 50 or 60 of the M1 tanks as a symbolic gesture to basically scare the entire Russian tank force away.

Q: Why do you think Elon kept selling Tesla? Did he think it would go lower?

A: Elon thinks the stock’s going to $10,000, but he needed up-front cash to build out six remaining Tesla factories, and for that, he needed about $40 billion, which is why he sold $40 billion worth of stocks last year when it was peaking. He also is sensitive to selling at tops; it’s better to sell stock in with Tesla at an all-time high than at an all-time low, so he clearly times the market to meet his own cash flows.

Q: What about military contractors?

A: I know Raytheon (RTX) and Lockheed Martin (LMT) have a two-year backlog in orders for javelin missiles and stingers, which are now 47-year-old technology that has to be redesigned from scratch. The US just placed an order for a 600% increase in artillery shells for the 155 mm howitzer. I thought we’d never use these again, which is why US stocks for ammunition got so low. But it looks like we have more or less a long term or even permanent customer in Ukraine for everything we can produce, in old Vietnam-era style technologies. How about that? I’m telling the military to give them everything we’ve got because everything we’ve got is obsolete.

Q: When should we buy Microsoft (MSFT)?

A: On the next 10% dip. It’s the quality stock in the US.

Q: Do you place an order to close the spread at profit as soon as you have filled in the trade?

A: You can do that, but it’s kind of a waste of time. Wait until we get close to the strikes; most of the big companies we deal in, you don't get overnight 10% or 20% moves, although it does happen occasionally.

Q: Natural Gas (UNG) prices are collapsing.

A: Correct, because the winter energy crisis in Europe never showed and spring is just around the corner.

Q: On the Tesla (TSLA) LEAPS, what about the January 2025 $600-$610 vertical bull call spread

A: That is way too far out of the money now. I would write that off and go back into it but do something like a January 2025 $180-$190. It has a much higher probability of going in the money, and still an extremely high return. It would be something like 500% if you get in down at these levels.

Q: How do you see Bitcoin short term/long term?

A: I think the loss of confidence in the asset has been so damaging that it may not come back in my lifetime. It could be another Tokyo situation where it takes 30 years to recover, or only recovers when the entire sector gets taken over by the big banks. So, I don’t see any merit in the crypto trade, probably forever. Once you lose confidence in the financial markets, it’s impossible to get it back. And it turns out that every one of these mainline trading platforms was stealing from the customers. No one ever comes back from that in the financial markets.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH or TECHNOLOGY LETTER, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Stay Healthy,

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

At 29 Palms in my M1 Abrams Tank in 2000

January 13, 2023

Diary, Newsletter, Summary

Global Market Comments
January 13, 2023
Fiat Lux

Featured Trade:

(JANUARY 11 BIWEEKLY STRATEGY WEBINAR Q&A)
(ROM), (FCX), (QQQ), (VIX), (TSLA), (TLT), (MSFT), (RIVN), (VIX), (BRK/B), (RTX), (LMT), (FXI), (UNG), (GLD), (GDX), (SLV), (WPM)