Global Market Comments
April 8, 2022
Fiat Lux
Featured Trade:
(WEDNESDAY, JUNE 29, 2022 LONDON STRATEGY LUNCHEON)
(APRIL 6 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TSLA), (TLT), (TBT), (AAPL), (IBB), (GOOGL), (ADBE), (NVDA), (FXE), ($BTCUSD)
Tag Archive for: (NVDA)
Below please find subscribers’ Q&A for the April 6 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.
Q: The iShares Biotechnology ETF (IBB) is down quite a bit—do I wait a bit longer to put on a debit call spread LEAPS for the end of this year and possibly the end of 2024?
A: This is really one of the two most interesting parts of the market right now. The biotech stocks have been absolutely destroyed over the past year—down 70, 80, 90% in some cases; and at that level, the worst-case scenario is in the price. Maybe we bounce along the bottom for another year. In the best case, these things all double or triple or even go up 10 times. We’re very close to putting on a 2024 call spread in the best biotech names, and if you get the Mad Hedge Biotech Letter (Click here for the link), you already know what they are because the downside risk on these things is getting close to nil, and the upside is 10 times. I like that kind of math—when the upside versus the downside is 10 to 1 in your favor. When I see specific LEAPS opportunities, I’ll send them out to you, but the answer is: not yet. We’re getting very close on biotech, however.
Q: I sold about a third of my ProShares UltraShort 20+ Year Treasury (TBT) position at $22.00 for a nice 40% gain, thank you very much. Should I hold the rest for a while? And is there a significant upside for 2022?
A: I’ve been telling everyone: hold those shorts. I know those of you who put on the December $150-$155 vertical bear put spread or the December $145-$150 vertical bear put spread already have substantial profits, but the time value on these options is still large, so there is still quite a lot of these profits to be made hanging on to all of your put spreads in the ProShares UltraShort 20+ Year Treasury Bond ETF (TLT). And is there a substantial downside from here? I think yes! If the Fed goes to a half-point rate hike schedule for the next 4 meetings, the (TLT) is absolutely going down to a $105 or $110 level or so. So, keep those shorts and add to shorts on rallies. We came close. I said sell on a $6 point rally and we got a $5 point rally. I didn't pull the trigger, and of course, now we’re here at new lows.
Q: Are we close to buying LEAPS in tech?
A: Yes, I think that once this current meltdown finishes, I want to go back in there. But I want to go long-dated.
Q: What does rapid unwind of the Fed balance sheet mean for the markets?
A: It’s terrible! The Fed has a balance sheet close to $9 trillion dollars. Before the financial crisis of ‘07, it was $800 million dollars, and in fact, in the last 4 years, it has gone up from $20 trillion to $30 trillion. So these are just bubblicious levels for the Fed to own. And what is QT or quantitative tightening? They sell those bonds. And of course, everyone knows they’re going to sell, so they’re dropping bids for bonds like crazy right now—that's why you’re getting the meltdown in the (TLT). This is bad for the stock market; there’s no world in which the stock market goes up with sharply rising interest rates. The best case is that you give up 20% and then make some of it back, and then give up 20% and then make some of it back. So yeah, expect to hear a lot about QT. We only ended QE or quantitative easing about 3 weeks ago, and it looks like we may go straight into QT as soon as May. And boy, the bond market is sure reflecting that today.
Q: How long will wage inflation last? Can I count on 10% pay increases forever?
A: No, it will last until the next recession. I have a feeling that the unemployment rate will hit all-time lows next month—probably 3.2% or 3.3%. And we’re essentially at a full employment economy right now. What happens next? Recession probably in one or two years. Then those wage hikes disappear completely, and people start getting laid off, and goodbye to inflation of all kinds since 60% or 70% of the inflation calculation is wage cost.
Q: What is a good age to retire?
A: Never. I can’t tell you how many friends I’ve had who retire and die within a year. I had one friend retire and he died the next day. What you could do is keep your old job and cut your hours by half, or you could retire from your old job to go on to a new job that you love, like opening a restaurant or a job built around your lifetime hobby, whatever that is. As long as you stay engaged, you keep Alzheimer’s at bay and you’re an active contributing person to society. As soon as you stop doing that and just start doing something like golf, your days are numbered.
Q: What factors will create a recession in 2022?
A: Well I don't think that's going to happen; that would be like multiple 1% rate rises by the Fed, and the Fed completely panicking like we said, and causing a premature recession. But I do think that by 2024 rates will be so high that we will get a recession, probably a short one, maybe 6 months. A lot also depends on the war and if Europe can replace their Russian gas/oil fast enough or they go into an oil shock and recession there.
Q: Will the Fed destroy the economy in order to save it?
A: Yes, they will, if we get inflation up into the teens, which we saw in the 1980s, they absolutely will raise rates. And then I think the 10-year made it to 12% in the early 80s when Volcker was around, and the overnight rate got to 18%. And I know that because I bought a coop in New York City with a mortgage rate of 18%. I took out one of the first floating rate mortgages and by the time I sold the house, the mortgage rate had dropped down to 11% and the value of the home had doubled.
Q: Google (GOOG), Adobe (ADBE), and Apple (AAPL) spreads are treading water.
A: That is a sign that these are the stocks that will lead the next recovery. So, only 20% down, top to bottom, in Apple while all other stocks were getting hammered for 40% or more means Apple is going to lead any recovery in the market. Watch these big tech stocks carefully—they are the new leaders, they just don’t know it yet.
Q: What will inflation do to the housing market? Should I sell or hold my investment properties?
A: Keep them. Housing is one of the biggest beneficiaries of inflation. Not only do the house prices go up, so does everything that goes into the house, like the copper, steel, lumber, kitchen appliances, etc. You really have the best play on inflation, and I don’t think interest rates will kill the housing market. I think all that will happen is people will move from 30-year fixed to 5-year adjustables, as they have done in previous high interest rate cycles.
Q: Where is the buy territory on the Mad Hedge Market Timing Index?
A: Below 20. It’s almost impossible to lose money when you buy at a market timing index of 20. You may get a day or two visit down into the teens, but if you hang on, that’ll become a big moneymaker for you. That’s been working for me for 50 years—it should work for you too.
Q: Do the chips and transports breaking down worry you about the general market?
A: No, I think they’re discounting a recession that isn’t going to happen. Remember half of all the recessions discounted in the market don’t actually happen, and I think that these are one of those non-recessionary selloffs. But it may take them a couple of months to figure out that this bull market still has a couple of years of life to it and that it’s too early to sell. By the way, once people realize that they discounted the recession too early, what are they going to pour back into the fastest? The semiconductor stocks. That's why I’ve got a laser focus on NVIDIA (NVDA).
Q: If there is no recession coming, are the retailers getting too oversold?
A: Yes, but in the world that’s out there, where you really only want to own two or three of the best sectors and avoid the other 97, retailers are the ones you want to avoid—unless there's some specific single company story that you know about.
Q: Housing prices can’t fall when there's such enormous demand coming from millennials, right?
A: That’s true. In fact, the number of houses that need to be built to meet this demand is anywhere from one to five million, so this is a shortfall that will take at least a decade to address, and house prices don’t fall in that situation. They may appreciate at a slower rate, but they will appreciate, nonetheless.
Q: Is there any level where you would consider a call spread in the TLT?
A: Well, I had the April $127-$130 vertical bull call spread and I had my head handed to me. So somewhere, but clearly not yet—again, it depends a lot on what the Fed does and how fast.
Q: What’s the outlook for the Euro (FXE), (NVDA)?
A: Lower. Until the Ukraine War ends, they get an economic recovery, and they wean themselves off of Russian energy and move over to American energy. And that's at least a year down the road, so I’m not rushing into any European investment—stocks, bonds, or currencies.
Q: Are rising interest rates good for banks?
A: Yes, but right now those benefits are being offset by recession fears which will probably go away in a couple of months. So that kind of makes banks a strong buy right here.
Q: When the Shanghai lockdown ends, will it create another surge in commodity prices?
A: Absolutely, yes. China is the world's largest consumer of commodities, and the restoration of any of their purchasing power will certainly be great for all commodity prices—food, energy, metals, you name it.
Q: Is Tesla (TSLA) a LEAPS candidate?
A: Yes but wait for it to take a run at the $700 low that we saw last month. We probably won’t get there, but $800 this time around is probably a great LEAPS candidate for Tesla going forward. I expect them to meet all of their goals for production this year.
Q: Won’t Bitcoin ($BTCUSD) keep falling if equity markets are lower?
A: Yes, but we don’t have that much lower to go in equity markets—maybe 10%. So just as we’re looking to buy equities and the smaller technology stocks on dips, we're also looking to buy Bitcoin on dips. If we can get back into the $30,000 handle, that might be a ripe buy territory for all the cryptocurrency plays.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
March 28, 2022
Fiat Lux
(SPECIAL WARTIME ISSUE)
Featured Trade:
(TESTIMONIAL),
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE UNBELIEVABLE MARKET),
(SPY), (TLT), (TBT), (TSLA), (NVDA)
Listening to the market commentary this week, the word “unbelievable” kept popping up.
It was “unbelievable” that the market crashed by 15% when Russia invaded Ukraine. It was equally “unbelievable” that it then melted up 7% over five trading days.
So has the market gone from discounting the outbreak of WWIII and complete Armageddon to a total victory by Ukraine, the resurgence of NATO, and the end of Russia….in a week?
Well, maybe they have done just that.
The only thing we can count on for sure is that volatility will continue for the indefinite future. The only certainty we have is that change will continue, and it is accelerating at a phenomenal rate.
Of course, it’s all amazing to me. I am a creature of the American 1950s who is now living 70 years in the future. Yes, even the Jetson-type flying cars have happened.
Let me update you on the war, since I know you’re all dying to know.
The Ukraine is winning. What once appeared to be a small, defenseless nation had in fact been preparing for a prolonged guerilla war for seven years, ever since Crimea was invaded.
Javelin and stinger missiles were stockpiled at every key intersection in the country. And the California National Guard has been training the army on how to use them for the last seven years. It was all a gigantic ambush in the making.
The Russian Army, which has seen no real combat experience for 30 years, believed their own propaganda and literally expected to be showered with roses on day one. As a result, they ran out of gasoline, food, and ammunition, and now precision weapons. Some 10% of the army has been killed and maybe 20% of their Air Force shot down. The war is essentially over, so Putin is desperately seeking a way to call it a victory and get out.
Putin himself is toast. At this point, he is the richest man in the world who can’t spend a single ruble of his money. What wealth he had overseas has been seized and will be used to finance the reconstruction of Ukraine. Putin can never leave Russia again without being arrested as a war criminal. But if he stays, he runs the constant risk of assassination. The guy has made a lot of enemies.
What about Putin’s nukes you may ask? Of the headline 7,000 such weapons mentioned in the SALT treaties, only 200 actually work. The rest are corroding empty shells. The math is very simple. Russia’s $1 trillion GDP can’t support any more of these wildly expensive weapons. By the way, China has the same number.
The logic of MAD (Mutually Assured Destruction) still applies, making nuclear weapons useless. If Putin fires off one nuke, his entire country vaporizes in 30 minutes. His generals know this. If ordered to use nukes, they would either ignore the order or depose him immediately.
As someone who has spent the last half-century contemplating the future of the universe, the consequences of this are absolutely mind-boggling.
Economic warfare has finally come into its own as a weapon more destructive than nuclear weapons. In a year, per capita income in Russia will have plunged from last year’s $10,000 to the Soviet-era $1,000. In weeks, Putin has written off 30 years of economic growth. A second Russian Revolution is a sure thing, but what form it will take should be interesting.
How did such a clever man as Putin end up in such a predicament? He surrounded himself with advisors who told him only what he wanted to hear. Such is the way of dictators who have been in power too long. A recent US president had the same problem, with similar results.
The US is the huge winner in all this. Biden announced on Friday that America will replace the missing Russian oil and gas, some 10% of the total world supply. This has already started a renaissance of the US energy industry, which only two years ago was on its heels and destinated to become the next buggy whip industry.
As I have been pointing out to the Joint Chiefs since all this started, strong support for Ukraine not only eliminates Russia as a threat, it puts the shackles on China with its own expansionist desires. You haven’t heard much about Taiwan lately. For America, it’s a twofer.
To say all of this is wildly positive for American stock markets is an understatement. It certainly keeps my $240,000 forecast for the Dow by 2030 on the table. How long it will take investors to figure all this out is anyone’s guess. But I think we are setting up for one hell of a second half.
You see all this in the behavior of a single stock. After NVIDIA (NVDA), the best stock in the world, plunged 40% on fears of deglobalization, it rocketed by 47% in the past week, suggesting that deglobalization is coming back stronger than ever. It reiterates my argument that you use this correction to pick up the Cadillacs at a discount, not Volkswagens.
Bonds Crashed, on comments from Fed governor Jay Powell that if he has to raise interest rates by 50 basis points next month, he will. It’s nothing new but it certainly set the cat among the pigeons with bond longs. The (TLT) broke $130, triggering a round of stop losses before it bounced back. The double short (TBT) popped to $21.33. The good news is that this is more than covered by the seven other bond trades we have closed in 2022 that made money. Those who have bond put LEAPS, which is almost all of you, are making a fortune. It looks like my yearend target of a $2.50% ten-year yield may be hit imminently. Keep selling rallies in the (TLT).
Will the Fed Raise Interest Rates by a Full 1% in April? Our central banks could make such a move at their April 28 confab as they are so far behind the curve, especially if inflation data continues hot. Such a move, or the fear of us, might give us a second shot at a double bottom in stocks at the (SPY) $410 level. Such a move would make your sizeable bond shorts look pretty good.
Recession is Unavoidable Without Russian Oil, says the Dallas Fed. There isn’t enough time to bring alternatives on to the market. The scenario is similar to the invasion of Kuwait in 1991 when we lost 1.5 million barrels a day overnight. This time, it’s 9 million b/d. It all augers for higher oil prices and slower economic growth….unless you drive a Tesla!
Weekly Jobless Claims Lowest Since 1969 at 187,000, down an eye-popping 28,000 on the week. No problems with the economy here. The drop in claims is consistent with a labor market in which employers are desperately trying to hang onto workers and attract new ones.
Berkshire Hathaway Buys Alleghany Insurance for $11.6 billion, taking (BRKB) to yet another new all-time high. Warren Buffet definitely loves the insurance industry, which he uses as a cash cow to fund all his other investments. Alleghany Insurance is in effect a mini-Berkshire, starting out in railroads and evolving into a general investment holding company. Keep buying (BRKB) on dips, a long time Mad Hedge favorite
Tesla Delivers First German Made Model Y, which will enable the company to reach its 1.5 million vehicle target for 2022, up 50%. With an energy crisis in Europe, Tesla will sell these as fast as they can make them. There is currently a one-year wait to get a Model X in the US, and I can sell mine for more than I paid for it three years ago.
Jeffries Raises Tesla Target from $1,250 to $1,400. It cites a dramatically changed geopolitical environment which sent oil prices through the roof, greatly benefiting all makers of electric vehicles, of which Tesla is far and away the largest. The company is firing on all cylinders, which it actually doesn’t make. Maybe in five years, they will get to my own $10,000 target for Tesla. Buy (TSLA) on dips.
Alibaba Announces Monster Share $25 billion Buy Back, taking the shares up 11%. Could this spell the end of the Chinese stock market crash, with many companies down 80%-90%?
New Home Sales Dive, down 2% to 772,000 in February. Inventories are still very light at 6 months compared to a scant 2-month supply for existing homes. Interest rates are starting to bite, and prices are still soaring, taking the median national price to a new high of $406,600, up 10.6% YOY.
The US to Replace Russian Gas for Germany, some two-thirds by year-end and completely by 2027. It is already on track to supply a record 22 billion cubic feet last year and 50 billion cubic feet by 2030. But the US is at maximum capacity and only major investments will increase supply. More specialized LNG carriers will need to be built and Golar LNG (GLNG) and Flex LTD (FLEX) are the plays there. Buy Chenier Energy (LNG), Tellurian Inc. (TELL), and Sempra (SRE) on dips.
Pending Homes Sales Sink, down 4.1% in February, the fourth straight month of declines. The share of disposable income taken by monthly mortgage payments rose by an incredible 8.3% last month, shutting out buyers. It explains why homebuilder stocks like Lennar (LEN) and KB (KBH) are getting slaughtered.
My Ten-Year View
When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!
With near-record volatility, my March month-to-date performance retreated to a still blistering 12.60%. My 2022 year-to-date performance ended at a chest-beating 27.19%. The Dow Average is down -4.00% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago.
On the next capitulation selloff day, which might come with the April Q1 earnings reports, I’ll be adding more long positions in technology.
That brings my 13-year total return to 539.75%, some 2.10 times the S&P 500 (SPX) over the same period. My average annualized return has ratcheted up to 44.36%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 80 million and rising quickly and deaths topping 976,000 and have only increased by 7,000 in the past week. You can find the data here. Growth of the pandemic has virtually stopped, with new cases down 96% in a month.
On Monday, March 28 at 7:30 AM EST, the Dallas Fed Manufacturing Index is out.
On Tuesday, March 29 at 9:00 AM, The S&P Case Shiller National Home Price Index is published.
On Wednesday, March 30 at 8:15 AM, the ADP Private Employment Data is out.
On Thursday, March 31 at 7:30 AM, the Weekly Jobless Claims are printed.
On Friday, April 1 at 8:30 AM, the March Nonfarm Payroll Report is announced. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, I received calls from six readers last week saying I remind them of Ernest Hemingway. This, no doubt, was the result of Ken Burns’ excellent documentary about the Nobel prize-winning writer on PBS last week.
It is no accident.
My grandfather drove for the Italian Red Cross on the Alpine front during WWI, where Hemingway got his start, so we had a connection right there.
Since I read Hemingway’s books in my mid-teens, I decided I wanted to be him and became a war correspondent. In those days, you traveled by ship a lot, leaving ample time to finish off his complete works.
I visited his homes in Key West and Ketchum, Idaho. His Cuban residence is high on my list now that Castro is gone.
I used to stay in the Hemingway Suite at the Ritz Hotel on Place Vendome in Paris where he lived during WWII. I had drinks at the Hemingway Bar downstairs where war correspondent Ernest shot a German colonel in the face at point blank range. I still have the ashtrays.
Harry’s Bar in Venice, a Hemingway favorite, was a regular stopping off point for me. I have those ashtrays too.
I even dated his granddaughter from his first wife, Hadley, the movie star Mariel Hemingway, before she got married, and when she was still being pursued by Robert de Niro and Woody Allen. Some genes skip generations and she was a dead ringer for her grandfather. She was the only Playboy centerfold I ever went out with. We still keep in touch.
So, I’ll spend the weekend watching Farewell to Arms….again, after I finish my writing.
Oh, and if you visit the Ritz Hotel today, you’ll find the ashtrays are now glued to the tables.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
March 23, 2022
Fiat Lux
Featured Trade:
(NVDA STRENGTHENING INTO THE FUTURE)
(NVDA)
The growing meaning of the metaverse to Nvidia (NVDA) is something that could strengthen the long-term trajectory for a company that I have loved for years.
It’s really the best of breed in terms of artificial intelligence if you look at it through the lens of a semiconductor.
Nvidia shares have rebounded quickly from the earlier dip and the 19% uptick is something that many investors have come to expect.
The stock is extremely resilient, and investors expect incessant dip-buying.
Nvidia’s strategic importance at the cutting edge of multiple industries makes it hard to discard this company.
Yesterday they had an investor call to showcase their newest product – Omniverse.
NVIDIA Omniverse is an easily extensible, open platform built for virtual collaboration and real-time physically accurate simulation. Creators, designers, researchers, and engineers can connect major design tools, assets, and projects to collaborate and iterate in a shared virtual space.
This product will nudge NVDA headfirst into the omniverse so much so that accelerating revenue projections are already starting to reflect the outperformance of omniverse.
This division is just another notch in the belt for Nvidia who presides over many successful initiatives from gaming, data centers, crypto mining, AI, autonomous vehicles — they all offer significant growth potential for this company.
NVDA could be described as the jack of all trades, master of all.
Let me remind you that regarding the metaverse revenue of the expected growth to Nvidia’s existing market segments, the company could reach $140 billion in annual sales by 2040.
What Is the Metaverse?
The meaning and term “metaverse” has been liberally bandied around lately.
Despite what some companies might want you to believe, it’s not a single entity or platform.
It’s more of a shift toward interacting digitally instead of purely physically. This can include virtual reality (VR), or a mix between digital and physical in the form of augmented reality (AR).
There will be dedicated spaces such as games and virtual worlds, and a digital economy is springing up to serve these communities.
Interoperable digital worlds is the core of metaverse and it will become real very quickly.
When that happens, expect Nvidia to be one of the biggest winners of metaverse economics.
Think of the metaverse today as the early days of the internet to get a visualization of how it is primed to explode in capabilities and importance.
Nvidia’s technology will be an important cog in the metaverse’s future development. The metaverse requires massive server infrastructure to host virtual worlds. Nvidia has leveraged the parallel processing capabilities of its GPUs to become a leader in GPU-accelerated data center solutions. The company’s data center revenue was up 71% year over year in its latest earnings report.
AI will be in high demand for an interactive metaverse experience — another strong point for NVDA.
Making the most of a PC-based metaverse will require the installation of high-powered graphics cards.
The creators who design metaverse experiences and populate them with virtual goods will also need high-powered GPUs and software tools.
Therefore, it makes sense that NVDA is rolling out the omniverse platform to facilitate the construction of the metaverse.
Investors should look forward to NVDA allocating the incremental resource to the metaverse in order to corner the market for its technology.
This is very much one of those situations where if NVDA is a critical element to the start-up phase, they won’t be kicked out of the next phase of development.
Readers should be adding this stock on any tech sell-off, it’s rare that NVDA is on discount.
Global Market Comments
February 18, 2022
Fiat Lux
Featured Trades:
(FEBRUARY 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (MSFT), (VIX), (ROM), (TSLA), (GOOGL), (TLT), (TBT), (IWM), (QQQ), (FCX)
Below please find subscribers’ Q&A for the February 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: Is it a mistake to try to be nimble with the ProShares UltraShort 20+ Year Treasury ETF (TBT), or is it better just to hold it through the rest of the year?
A: You should do both; have a core long position which you keep through the end of the year, and you also have a second position that you trade. A good example is how I just took profits on the short iShares 20+ Year Treasury bond ETF (TLT) even though it had a month to run because we had 91.67% of the profit in hand. So, when you get way in the money and still have a lot of time duration left, there’s no point in continuing with these put spreads to catch the last 5 or 10% in the position. The risk/reward is no good.
Q: The iShares 20+ Year Treasury bond ETF (TLT) seems washed out.
A: There is a risk of that, which is why I went long the (TLT) $127-$130 March vertical bull call spread. I think even if we get down to $130, it will take us at least a month to get down that far. There will be several short-covering rallies along the way that we can run out the clock with, and I think even my 3/$127-$130 should expire at max profit.
Q: Should we buy puts or spreads?
A: When you get the CBOE Volatility Index (VIX) over 30, it’s only because you get a very sharp collapse in stocks, and there you’re looking at very deep in the money call spreads— 10-20% in the money can still make you $1,000 or $2,000 a month. And if you get extreme selloffs with (VIX) up to $40, then you’re really looking for long-term LEAPS, one-year call spreads on your favorite stocks, like Tesla (TSLA), NVIDIA (NVDA), and Microsoft (MSFT), and so on.
Q: Is it time to enter Tesla (TSLA) now?
A: I’m waiting for one more final selloff—if we get that, we could get back into the low 800s or even the 700s in Tesla. That's the figure I’m hanging on for, and that's where you get into Tesla LEAPS because Tesla is clearly expanding beyond just the electric car business. SpaceX is now worth $100 billion dollars, and the boring company could be worth just as much if they get more contracts for building underground mass transit. There is also Solar City to consider plus some other stuff they haven’t even announced yet.
Q: What are your thoughts on Google (GOOGL)?
A: The 20 to 1 split is in the price already. But any selloff and I would go back into there with call spreads because Google is a fantastic company and a legal monopoly which I love owning.
Q: What about the ProShares Ultra Technology ETF (ROM)?
A: Yes, I’m watching very closely. It had a huge dive in January, then made back nearly half its losses. So again, I'm waiting for another dip to go back into (ROM) with lots of leverage.
Q: Do we get Volatility Index (VIX) over $30 within 2 months?
A: Yes, I think we probably will. We’re pretty close to it now; we got up to $26 this morning. So yes, I’d be a buyer of that.
Q: Is a (TLT) $128-$131 call spread for March still ok?
A: Yes, I kind of like that. I don’t think we’ll get down below $131 in four weeks, and at the very least we’ll get one rally of several points, and that’ll be your chance to get out of that position.
Q: Is it too early for (TLT) LEAPS?
A: No, it’s too late for TLT LEAPS. You should have been doing put LEAPS in November, and everybody who did that got profits of nearly 100% on that position. I don’t see a call side LEAPS in TLT for at least 5 to 10 years when interest rates get up over 6% on 10 year US Treasury bonds. We are a long way from a (TLT) call LEAP.
Q: Are we at a Bitcoin bottom?
A: Possibly, 50/50 chance we go back and retest the lows. We’ll just have to see how Bitcoin behaves in a rising interest rates scenario because ever since Bitcoin was invented, interest rates have been falling. Rising rates are a new thing for Bitcoin and no one knows what that will look like.
Q: When will you update your long-term portfolio?
A: Soon; things have been kind of busy issuing 30 trade alerts a month.
Q: How high will the ProShares UltraShort 20+ Year Treasury bond fund (TBT) go?
A: Looking for $26 from current levels, so yes, much higher to go. And we have a double in three months on (TBT) at the $28 level.
Q: If one believes in the war in Ukraine happening soon, what companies or sectors do you invest in for the short term?
A: None; if we actually do get a war, everything gets absolutely slaughtered, and then you’re looking for the buy. And that will be buys in tech especially. I don’t think there’s going to be a war in Ukraine, but the only things that go up in a Ukraine war scenario are energy stocks (USO), oil companies, and so on.
Q: Do you like China EV stocks?
A: No, I don’t. I visited BYD Motors 15 years ago and they just don’t have the technology, the battery lengths are poor, and they tend to catch on fire. They have never been able to reach American quality standards on any of their cars, not only the EVs but also the conventional internal combustion engines as well..
Q: Which index will outperform in the second half, the Invesco QQQ Trust (QQQ) or iShares Russell 2000 ETF (IWM)?
A: I vote (QQQ). I think we have a technology-led bull market in the second half, and the Russel will be lagging.
Q: What’s better, copper or copper miners?
A: You always go for the miners like Freeport McMoRan (FCX)—they will outperform the physical metal by at least three or four to one, to the upside. That’s also true with gold miners and other derivative plays; the miners always outperform the metals.
Q: What is a bond vigilante?
A: That is a term we heard from the ‘70s and ‘80s when you would get enormous selling of bonds on even the slightest negative piece of economic data or inflation data. They called the bond traders the bond vigilantes because they just crushed the bond market for the slightest transgression on the inflation/economic front. And they are back, by the way, hugely punishing the market as we have seen ($20 points in two months is a lot of punishment) on even the slightest increase in inflation.
Q: Do you have a yearend price for Freeport McMoRan (FCX)?
A: Over $50—just rallied from $30 in September.
Q: Isn’t inflation wildly understated?
A: Yes, you can find individual items that are up 30 or 50%, but the inflation calculation is actually based on 105 different items, and some of them are going down in price. For example, you had an enormous increase in used car prices in December, but they actually went down last month. So, whenever you get a basket this big, eight groups of 80,000 items, you get smaller moves. As anyone will tell you who trades baskets of stocks against the individual stocks, the same mathematical effect happens in the calculation. And while it is being wildly understated now, it’ll be wildly overstated in a few months when we get back to the 3% level, which I am expecting.
Q: What is your TLT prediction after the next 3 or 4 interest rate hikes?
A: Remember, the interest rate hikes only affect the overnight rate. TLT is a 10 to 20-year basket of bonds, so they don’t trade one for one. We may reach a bottom by the end of the year in the (TLT) somewhere in the $120s, but it’s not going to 100 this year and it’s not going to zero like some people are predicting.
Q: The inflation measure is a joke.
A: Yes, it has always been a joke. Any collection of data among 330 million people is going to be inaccurate, late, and have huge lags—but you trade the data you have, not what you wish you had, and that is the real world. I've been trading economic data for 50 years and that is my conclusion.
Q: Martial Law was declared in Canada— is there anything to trade off of that news?
A: No; even a major international event only gets a stock market reaction of usually one day or two at the most. Whatever’s happening on a bridge in Canada, nobody here really cares.
Q: Are you doing a cruise?
A: Yes, I’m doing a Norwegian cruise. Just go to the lunches section on the madhedgefundtrader.com website, and you can still buy tickets. We would love to have you for lunch on the Queen Victoria, a Norwegian Fjord cruise. We’re coming up to payment time on the tickets.
Q: Will there be earnings disappointment in April?
A: Yes, the year-on-year comparisons are going to be difficult. That will be another problem for the market in the spring in addition to the Fed.
Q: What happens with the FOMC out today at 2:00?
A: It will show a heightened fear of inflation and a greater urgency to raise interest rates.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last ten years are there in all their glory.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
1932 De Havilland Tiger Moth
Mad Hedge Technology Letter
February 14, 2022
Fiat Lux
Featured Trade:
(THE STRATEGIC WINNER OF TECH)
(NVDA), (TDOC), (ZM)
Nvidia (NVDA) is one of the best buy-the-dip tech candidates after the pullback from around $350.
This is one of the premier tech stocks of our generation and readers shouldn’t be fooled by the recent weakness.
NVDA simply has been dragged down with the rest of the best as technology still tries to find some footing after a rough January that was sideswiped by exogenous shocks out of NVDA’s control.
Tech growth stocks have been pigeonholed as one broad category, and even though NVDA boasts a sterling balance sheet that achieved $4.33 billion in profits in 2021, they are penalized with the general category of growth stock.
The rotation into energy and commodities has been swift, but make no mistake, this company is no Teladoc (TDOC) or Zoom Video (ZM), unequivocally not.
NVDA sits at the heart of every cutting-edge technology today by its production of high-quality CPUs and GPUs that are required for businesses as broad as data centers to the metaverse which includes gaming to automotive driving.
NVDAs stock accelerated too fast too soon which made them vulnerable to significant headline risk.
So headlines like war with Ukraine and Russia don’t really have much bearing over the trajectory of Nvidia’s business at all, but since index funds contain NVDA, NVDA gets heaped into the risk-off moves.
The stock further sold off after news leaked of the dead acquisition between British chip company ARM due to antitrust concerns.
At a broader level, semiconductor chips have possibly never been in such high demand, yet supply is painfully constrained.
The U.S. Commerce Department has recently emphasized the precarious nature of the global semiconductor supply chain in 2022.
However, the agency also expressed the possibility of new manufacturing capacity coming online as early as the second half of 2022, which may help somewhat in reducing the chip shortages.
With Intel, Taiwan Semiconductor Manufacturing, and Samsung having already planned huge investments in capacity expansion, we may see increased pricing pressures in the semiconductor industry in the next few years.
Even with new supply coming to market, the world and the semiconductor industry will fail to satisfy the world’s insatiable demand for chips which has forced many end products to delay finishing products for the foreseeable future.
How well is NVDA really doing?
In one word, fantastic.
Nvidia's revenues and free cash flow have more than doubled while gross margin and operating margin are up big.
This terrific growth has been mainly driven by increasing demand for the company's graphics cards and artificial intelligence (AI) processors in gaming and data center segments.
Nvidia currently accounts for almost 80% of the gaming GPU market. The company's GeForce RTX-powered laptops are being increasingly used not only in gaming but also in areas such as esports, digital content creation, and streaming.
Many of my key employees are using PC-based NVDA GPUs to support and service the company.
Nvidia saw its gaming revenues jump 72% year over year to $9 billion last quarter.
In the first nine months of fiscal 2021, the company's data center revenues soared by 53% year over year to $7.4 billion. Increasing revenue exposure to the data center segment is also helping improve the company's gross margin profile.
The next big business could be the car business.
The company offers a complete platform solution, which includes hardware, software, and infrastructure (servers, computing power, and data centers) required to support autonomous vehicles.
Many car shoppers are quickly realizing that cars are starting to appear like an iPad on wheels.
Lastly, Nvidia is also well placed to secure a big portion of the evolving metaverse opportunity, estimated to be around $30 trillion.
The company's high-throughput GPU chips, data center CPU, and next-generation Bluefield data processing unit will play a major role as the hardware technology needed to support the metaverse.
No matter what anyone says, it is hard to construct a case in which NVDA is one of the losers of future and tech.
Not only do they boast the metrics of a growth company, but their brand recognition almost falls into the top tier of tech companies.
The real tech people will tell you this stock is a long-term keeper and despite the high volatility, don’t let that dissuade you from betting big on NVDA.
