Global Market Comments
January 7, 2022
Fiat Lux
Featured Trades:
(JANUARY 5 BIWEEKLY STRATEGY WEBINAR Q&A),
(IWM), (RUA), (TSLA), (NVDA), (USO), (TBT), (ROM), (SDS), (ZM), (AAPL), (FCX), (HOOD), (BRKB)
Tag Archive for: (NVDA)
Below please find subscribers’ Q&A for the January 5 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, Nevada.
Q: What’s a good ETF to track the Russell 3,000 (RUA)?
A: I use the Russell 2,000 (IWM) which is really only about the Russell 1500 because 500 companies have been merged or gone bankrupt and they haven't adjusted the index yet. This is the year where value plays and small caps should do better, maybe even outperforming the S&P500. These are companies that do best in a strong economy.
Q: Should I focus on value dividends growth, or stick with the barbell?
A: I think you have to stick with the barbell if you’re a long-term investor. If you’re a short-term trader, try and catch the swings. Sell tech now, buy it back 10% lower. Keep financials; when they peak out you, dump them and go back into tech. It’ll be a trading year, but if a lot of you are just indexing the S&P500 or doubling up through a 2x ETF like the ProShares ultra S&P 500 (SSO), it may be the easiest way to go for this year.
Q: Will higher rates sabotage tech, particularly smaller companies?
A: They’ve already done so with PayPal (PYPL) down 44% in six months—I’d say that’s sabotaged. Same with Square (SQ) and a lot of the other smaller tech companies. So that has happened and will continue to happen a bit more, but we’re really getting into the extreme oversold levels on a lot of these companies.
Q: Should we cash out on the iShares 20 Plus Year Treasury Bond ETF (TLT) summer 150/155 put spread LEAPS?
A: No, because you haven't even realized half of the profit in that yet since there is so much time value left in those options. As long as you stay below $150 in the (TLT), which I'm pretty sure we will, you will get your full 100% profit on that position. On the six month and one year positions, they don’t really move very much because they have so much time value in them. Once you get into the accelerated time decay, which is during the last 3 months before expiration, they catch like a house on fire. So, if you're willing to keep a safe long-term position, this thing will write you a check every day for the next six months or a year to expiration. I know we have absolutely everybody in these deep in the money TLT puts; some people even did $165-$170’s—you know, my widows and orphans crowd—and they are doing well, but not as much as if you’d had a front month.
Q: What scares you most for the next 12 months?
A: Another variant that is more fatal than either Delta or Omicron. Unlikely, but not impossible.
Q: Do you expect Freeport McMoRan (FCX) to break out to the upside?
A: I do, I did the numbers over the vacation for copper production to meet current forecast demands for electric vehicle production. Global copper has to increase 11 times, and that can’t be done, so prices are going to have to go up a lot. One of my concerns with these lofty EV projections (that even I make) is that there aren’t enough commodities in the world to make all these cars with the current infrastructure. And you’re not going to find a replacement for copper—it's just too perfect of an electrical conductor. So, that means higher prices to me—you increase demand 11 times on a stable supply, and it takes 10 years to bring a new copper mine online.
Q: Do you have any open trades?
A: No, and one reason is that I figured they would probably crash the market on the last trading day of the year, which they did. If I had positions, they would have crushed them on the last year and my performance. And all hedge fund traders do this; they try to go 100% cash at the end of the year to avoid these things. And whatever you lost on Friday you made back on Monday morning at the expense of last year's performance. But you have to wait 15 months to get paid on today's performance, and, that is the reason I do that. So, looking for higher highs to sell, lower lows to buy.
Q: Should I be buying NVIDIA (NVDA) and Tesla (TSLA) on the dip?
A: Absolutely yes, but Tesla's prone to 45% corrections—we had one last year and the year before—and Nvidia tends to have 25% corrections. So yes, NVIDIA could well be the stock of the decade, but you don’t want to buy it right now. It’s starting to lose steam already.
Q: Will ProShares Ultra Technology (ROM) be under pressure?
A: Keep your position small now, take some profits, look to buy on a bigger dip. If the big techs drop 10%, (ROM) will drop 20% and get you below $100.
Q: Do you offer trade alerts on small caps for short term traders?
A: No, because you can’t execute those trades. A lot of them are just so illiquid, you can’t even trade one share unless you want to pay a huge spread. Keep in mind, when I worked at Morgan Stanley (MS), I covered the Rockefeller Foundation, the Ford Foundation, George Soros, Paul Tudor Jones, the government of Abu Dhabi, California State Pension Fund, and a lot of other huge funds; and the last thing they’re interested in is short term trades for the small-cap stocks. So, I don't really know much about those, but they tend to change the names every year anyway. And it really is a beginner trader type area because the volatility is so enormous. You can get 10x moves one day going to zero the next. It is also an area full of scams, cons, and pump and dump schemes.
Q: What is your advice when it comes to the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Short term, take the profits—you just got a $14 point rally in your favor. Short term traders, take profits on bonds here, cover your shorts. Long term investors keep it, the cost of carry is only about 4% right now, not that high, so I would keep it for a great year-end move for 2.5% yields on the ten-year.
Q: I hate oil (USO) because it’s going to zero. Should I keep trading in it?
A: Very few are nimble enough to trade oil, it’s really an insider’s game. No new capital is moving into the oil industry and oil companies themselves won’t invest in their own businesses anymore.
Q: Would you put on a new position on the iShares 20 Plus Year Treasury Bond ETF (TLT) today?
A: No, you don’t sell short things after they move down $14 points. You put them on before that. If I were to do a short-term trade in (TLT) I would be a buyer, I’d maybe buy it for a countertrend rally of maybe $4 or $5 points.
Q: What should I do with my FCX 2023 LEAP?
A: There is enough time on it, so I would keep running it along as is—don’t get greedy. Keep the LEAPS you have and you should do well by it.
Q: Could the iShares 20 Plus Year Treasury Bond ETF (TLT) bottom out in the near term?
A: Yes, it could, on a short-term basis. $141 is the nine-month low for the (TLT), so a great place to take short term profits. (TLT) is right now at $142.56, so we’re approaching that $141 handle closely. Every technical trader on the market’s going to cover their shorts on the $141 or $142 handle, so just congratulate yourself going into this move short, and take the money and run. You take every $14 point move in your favor in the (TLT); and let it rally 5 points and then reestablish, that’s how you trade.
Q: Do you think there will be a delay in the first interest rate hike due to COVID?
A: Yes, Jay Powell is the ultra-dove—any excuse to delay rate hikes, he’ll do it. And the way you’ll know is he’ll delay the end of other things which you don’t see, like daily mortgage bond purchases, daily US Treasury purchases, and other backdoor forms of QE. We’ll know well in advance if he’s going to raise or not by March or even June. We watch this stuff every day, we talk to people at the Fed every week. And remember, the Treasury Secretary Janet Yellen is a good friend of mine, I get a good handle on these things; this is why 99% of my bond trades make money.
Q: What if I have the $135-$140 put spread in January?
A: Sell it now, take what you can, take the hit; because that’ll expire at zero unless we break down to new lows on the (TLT) in the next ten days or so. That's not a good bet, especially on top of a $14 point drop. Capture what you can on that one and keep the cash for a better entry point. That’s exactly what I did—I sold all my January positions yesterday no matter what they were, because when you get to two weeks to expiration the moves become random.
Q: Do you think inflation will last longer than expected?
A: No, I think it will last shorter than expected because I think at least half of the inflation rate, if not more, are caused by supply chain problems which will end within the next six months, and therefore lead to the over-order problem that I was talking about earlier.
Q: What’s your outlook on energy this year?
A: It could go higher. On the way to zero, you’re going to have several double, tripling’s, even 10x increases in the price of oil, like we saw in the last 18 months. We went from negative numbers to 80, and what happens is oil becomes more volatile as the supply becomes more variable, that's a natural function. But trading this is not for non-professionals.
Q: Since sector rotation is happening, do you think we should sell all tech positions?
A: Short term yes, long term no. Tech will still lead with earnings, and even if they have a bad five months coming, they have a terrific long-term view. For the last 30 years, every sale of tech has been a mistake, especially in Apple (AAPL). So if you’re a trader, yes, you should have been selling since November. If you’re a long-term investor, keep them all.
Q: Is the ProShares UltraShort S&P 500 (SDS) a good position to buy up when the market timing index goes into sell territory?
A: Yes it is, and that will probably work better this year than it did last year because narrow range volatile markets are much more technically oriented than straight-up markets or long term bull markets. Pay close attention to those markets, you could make a lot of money trading them.
Q: Do Teslas have good car heaters for climates up North in -25 or -30?
A: You plug them in. When it gets below zero you actually get a warning message on your Tesla app telling you to plug it in, and then the car heats itself off of the power input. Otherwise, if you get to below zero, the range on the car drops by half. If you have a 300-mile range car like I do and then you freeze it, it drops to like 150 miles. In Tahoe, I keep my car plugged in all the time when I'm not using it, just to keep it warm and friendly.
Q: Is Zoom (ZM) a good buy here?
A: No, I think they’re going to keep punishing these overpriced small cap techs like they have been. We’re a long way from value on small tech. That was a 2020 story.
Q: What about Berkshire Hathaway (BRKB)?
A: Berkshire Hathaway is doing a major breakout because they own financials up the wazoo and they’re all breaking out. And YOU should be long up the wazoo on these things because I’ve been recommending them for the last 4 months.
Q: What do you think of Robinhood (HOOD)?
A: Robinhood I like long term, but it is high risk, high volatility. It is down 78% from the IPO so it is busted. Kind of tempting down here, but again, all the non-earning overvalued stocks are getting their clocks cleaned right here; I'm not in a rush to get involved.
Q: When you enter a LEAP, is the straight call or call spread?
A: It’s a call spread. You finance the high cost of one-year options by selling short a call option against it further out of the money. And that way you can get enormous leverage for practically nothing, 10 or 20 times in some cases, depending on how you structure the strikes.
Q: Best stock to play Copper?
A: Freeport McMoRan (FCX). I’ve been recommending it since it was $4.00.
Q: Oil is the pain train until EVs actually take over.
A: That’s true, and they haven’t. EVs have about a 6% market share now of new car sales worldwide, but that could rapidly accelerate given all the subsidies that EVs are getting. Also, we have many future recessions to worry about, during which oil could easily drop 290% like it did last year. If you can hack that kind of volatility, go for it, but I find better things to do quite honestly. And I think my next oil trade will be a short, especially if we go over $100.
Q: What about Bitcoin?
A: It could go sideways in a range for a while. If we can’t hold the 200-day, we’re going back down to the high 30,000s, where we were at the start of the year—we could give up the entire year of 2021. Bitcoin also suffers from rising interest rates since they don’t yield anything.
Q: Is this recorded?
A: Yes, the webinar recording goes out in about 2 hours. Log into the madhedgefundtrader.com website and go to my account, where you’ll find it with all the different products you’ve purchased.
Q: I just closed out my (TLT) 150 put option for the biggest single trade profit in my life; I just made 20% of my annual salary alone today. Thank you, John!
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
Mad Hedge Technology Letter
December 17, 2021
Fiat Lux
Featured Trade:
(LOOKING FORWARD TO TECH IN 2022)
(FB), (NVDA), (AAPL), (MSFT), (AR), (VR)
Another pandemic year is on the verge of being in the books and we need to look yonder to 2022 and what it can offer.
Now that billions are being poured into the project, it’s not weird to say that advanced technology and the arteries and ventricles surrounding it, will all lead to developing this new world called the Metaverse.
The metaverse is a hypothesized iteration of the Internet, supporting persistent online 3-D virtual environments through conventional personal computing, as well as virtual and augmented reality headsets.
And I am not saying this is a new thing just to be cool, analyzing thousands of earnings reports, it’s clear that companies are deploying human capital around gaining a slice of this future Metaverse.
This idea is so prominent that Facebook (FB) changed its name to Meta to signal its commitment to this new technology.
Next year will be the year that we get closer to the real deal — a fully functioning Metaverse even if it might just be a beta version.
And it’s not just Facebook, Apple (AAPL), and Microsoft (MSFT) and the rest are in it too with Nvidia’s (NVDA) chips serving as a building block of the Metaverse.
Naturally, related technologies will be of great importance, and I can easily see a greater surge in augmented reality (AR) interest.
People should also keep a close eye on the introduction of Meta's internet-of-VR.
The idea of the metaverse and an advanced VR world must be seen through the prism of the pandemic which has forced us to become digital first even if many of us aren’t native digital users.
Many of us have had to learn on the go, for instance, download that Zoom video conferencing software or upgrade our home office.
This torrent of internet usage has its pitfalls like explosive growth in cyberattacks, making cybersecurity more important than ever.
Cybersecurity will no longer be seen as an “added extra” by organizations and will be built into the DNA of any and every IT system, from supply chains to infrastructure and devices.
Our reliance on internet leads nicely into 2022 becoming the year when 5G became mainstream.
We are edging towards that point where we need that extra speed to harness our work devices and to wield them in the most efficient and optimal way.
Many of you have had to upgrade data packages, build robust infrastructure into your home office and I don’t mean just buying a better office chair.
This could see the rise of “digital cities” along with new smart mobility services such as autonomous vehicles and 5G connected bicycles. We could also see a rise in private 5G networks for businesses in manufacturing and logistic sectors.
A new era of private connection for businesses will be launched, enabling greater data-driven insights and real-time business decisions.
2022 will see businesses continue to neglect the traditional office and many companies will be at best — hybrid.
We might start seeing companies go bankrupt because they can’t convince any workers to show up in physical form.
It’s already happening to the workers I talk to where limited remote working opportunities when interviewing for new jobs is a deal-breaker.
Next year is also when we finally see artificial intelligence on steroids.
The explosion of AI-powered gadgets, apps, websites, and tools is here for 2022.
It'll become harder to differentiate chatbots from human customer support agents. Other products such as future content recommendations on social media and streaming websites are likely to come from an AI rather than traditional data analysis.
The Internet of Things, AI, and automation will aid businesses to fill gaps created by the labor shortage while optimizing staff. In retail and hospitality, this will take the form of self-serve kiosks, autonomous order fulfillment, and AI-enabled drive-thrus, all freeing people up for higher-skilled roles.
Ultimately, an explosion of data requirements will offer complex challenges to firms that must manage large amounts of data.
This goes triple for many companies still struggling to fully digitize.
Although it’s hard to visualize, our reliance on technology will keep growing and the winners will be the ones who can harness these new technologies to supercharge their financial profiles.
It’s not that I am boring, but the companies leading the new stage of digital technologies are the biggest and richest of Silicon Valley, and I would rather ride the bandwagon with them than try the sexy contrarian play, especially with higher interest rates hurting start-up culture.
Global Market Comments
November 29, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or NOW IT’S THE OMICRON VARIANT)
(TSLA), (NVDA), (VIX), (SPX), (JPM)
Rioting in Holland and Austria, protests in France, the new lockdowns prompted by the new Omicron Variant of the Covid virus had only one message for American Investors: SELL!
The end result was the biggest down day in 15 months, with the Dow exceeding a 1,000-point bruise at the lows, not bad for a half-day holiday session.
While the market was bidless for most stocks, that wasn’t true for the best quality fastest growers. Tesla (TSLA) gave up only 3%, Microsoft 2.4%., and NVIDIA (NVDA) 3.5%. I tried to buy several at the close and failed, even though I kept raising my bid.
We also saw one of the sharpest declines in the history of the Mad Hedge Market Timing Index, from an overbought 85 to a bargain basement 31 in mere days.
This is exactly what the market needed.
I went into last week 100% in cash because I was leery of a market that traded sideways on declining volume after a historic run. In fact, we needed some kind of selloff before the market could go higher.
As I never tire of telling followers, cash is a position and has option value. A dollar at a market top is worth $10 at a market bottom. I had to endure only 50 market corrections before I figured this out, wishing I had cash at the bottom.
At the Friday low, stocks had sold off 1,850 points, or exactly 5.0% from the November 8 high. Heard that number before?
Before stock could rise, they had to fall first. The fears over Omicron are complete nonsense. It will not affect the US economy or stock markets one iota. Some 90% of the US population is now immune to Covid. There is no evidence that Omicron can overcome vaccines. When the variant comes here, and you can’t stop it, it will only kill anti-vaxers, as it did in Europe.
The fact is that the US continues to grow at a prolific 7% rate, with no sign of slowing in sight. As the port congestion fades, supply chains will repair and the inflation that is incited will fade. US companies are making more money than ever.
We still have a second reopening trade on for 2022. In a year, the economy will be booming, we will be at full employment, inflation will have faded, the pandemic will be over, and stocks will be at new all-time highs.
While some of next year’s performance has been pulled forward into 2021, much of it remains in the future.
So, when next time we take another run at a Volatility Index (VIX) of $29, I’ll be in there with guns blazing picking up all the usual suspects.
Global Stock on Pandemic Fears Smashes Markets, with Dow futures down 800 and ten-year yields off 13 basis points. New mandatory lockdowns in Austria and Holland have triggered rioting. It’s just another less than 5% correction.
The farther we go down now, the more we can go up in December and January. America’s 90% immunity will hold at bay any variants. There is no evidence this new one can’t be stopped by vaccines. Africa is another story. I went into this 80% cash. Wait for the selling to burn out in a day or two then use the high volatility to add front-month call spreads and LEAPS in your favorites.
Biden Appoints Jay Powell for a second time in a major lurch to the middle by the president. It’s the opening shot in the 2022 mid-term elections. I’ll approve your Fed governor if you pass my social safety net. It turned out to be impossible to find anyone more dovish than Jay Powell. The stock market loves it, especially interest rate-sensitive financials. The yearend rally continues.
Another $1.75 trillion Social Spending Bill passes the House, but most won’t see the light of day in the Senate. At best, maybe a few hundred million in spending gets through. Expect to hear a lot about socialism and deficits. No market impact here.
New Home Sales lag, up only 0.8% in October versus 1.4% expected. Some 6.34 million units were shifted. Only 1.25 million homes are for sale, down 12% YOY, representing only a 2.4-month supply.
The median price for a home rose to $353,900, up 13.1% YOY, but local markets like Phoenix and Seattle are seeing far greater gains. Million-dollar homes are seeing the greatest gains, with institutional investors pouring into the market to lock in historic low-interest rates.
Rents soar by 36% in New York and Florida against a national average of 13% in October is another sign of reopening and a return to normal.
Biden Taps the SPR, releasing some 50 million barrels, or two days’ worth of consumption. The president is throwing the gauntlet down at OPEC. Oil rallied on the news, as it was not more. This is largely a symbolic gesture and will have a minimal impact on gasoline prices. Now that the US is a net energy exporter it should close down the SPR as it is simply a subsidy for a dying fuel source that is going to zero and a bribe for Texas and Louisiana voters.
Weekly Jobless Claims plunge to a 52-year low, to 199,000. People are finally coming out of hiding and going back to work. It makes the upcoming November Nonfarm Payroll Report pretty interesting. Mark it on your calendar.
Tesla sales are on fire in California, the largest market in the US. The newest small SUV Model Y is leading the charge. No other company is close to mass production of a competitor yet. Tesla has a 5% market share in the Golden State ranking it no five among all car sales. A $7,500 tax credit that started last week is a big tailwind, but you have to tax taxes to benefit. Buy (TSLA) on dips, a Mad Hedge 380 bagger. My target is $10,000, 8X from here.
The Ports Log Jam is breaking. 24-hour shifts at Los Angeles and Long Beach, which handle 40% of all US unloadings, are making a big difference. Once the supply chain problems go away, so will inflation.
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 the pandemic-driven meltdown on Friday, my November month-to-date performance plunged to -10.74%. My 2021 year-to-date performance took a haircut to 77.82%. The Dow Average is up 14.05% so far in 2021.
I used a spike on bond prices to add a 20% position in bonds and the Friday dive to go long JP Morgan (JPM), so I am 70% in cash. I will be using any further volatility spikes to add positions in the coming week.
That brings my 12-year total return to 500.37%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 41.69% easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 48.2 million and rising quickly and deaths topping 780,000, which you can find here.
The coming week will be all about the inflation numbers.
On Monday, November 29 at 7:00 AM, Pending Homes Sales for October are released.
On Tuesday, November 30 at 6.45 AM, the S&P Case Shiller National Home Price Index is announced.
On Wednesday, December 1 at 5:15 AM, the ADP Private Employment Report is printed.
On Thursday, December 2 at 8:30 AM, the Weekly Jobless Claims are disclosed.
On Friday, December 3 at 8:30 AM EST, the November Nonfarm Payroll Report is published. At 2:00 PM, the Baker Hughes Oil Rig Count is out.
As for me, with all the recent violence in the Middle East, I am reminded of my own stint in that troubled part of the world. I have been emptying sand out of my pockets since 1968, when I hitchhiked across the Sahara Desert, from Tunisia to Morocco.
During the mid-1970s, I was invited to a press conference given by Yasser Arafat, founder of the Al Fatah terrorist organization and leader of the Palestine Liberation Organization, at the Foreign Correspondents Club of Japan. His organization then rampaged throughout Europe, attacking Jewish targets everywhere.
Japan recognized the PLO to secure their oil supplies from the Persian Gulf, on which they were utterly dependent.
It was a packed room on the 20th floor of the Yurakucho Denki Building, and much of the world’s major press was represented, as the PLO had few contacts with the west.
Many placed cassette recorders on Arafat’s table in case he said anything quotable. Then Arafat ranted and raved about Israel in broken English.
Mid-sentence, one machine started beeping. A journalist jumped up to turn his tape over. Suddenly, four bodyguards pulled out Uzi machine guns and pointed them directly at us.
The room froze.
Then a bodyguard deftly set his Uzi down on the table flipped over the offending cassette, and the remaining men stowed their weapons. Everyone sighed in relief. I thought it was interesting that the PLO was using Israeli firearms.
The PLO was later kicked out of Jordan for undermining the government there. They fled Lebanon for Tunisia after an Israeli invasion. Arafat was always on the losing side, ever the martyr.
He later shared a Nobel Prize for cutting a deal with Israel engineered by Bill Clinton in 1993, recognizing its right to exist. He died in 2004.
Many speculated that he had been poisoned by the Israelis. My theory is that the Israelis deliberately kept Arafat alive because he was so incompetent. That is the only reason he made it until 75.
Stay Healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
U.S. President Joe Biden is doing all he can do to make sure that the US Central Bank stays accommodative to big tech investors.
He let the doves back in the driving seat which is highly positive for corporate America and terrible for penny-pinching savers.
Biden’s decision to re-elect incumbent Fed Chair Jerome Powell was cheered by the market locking in his ultra-low interest rate policies for yet another term.
Even more brazen was the appointment of Vice Chair, an even more pronounced dove Dr. Lael Brainard.
The second in command often helps signal Fed policy and gives it a dovish twist and clears the way for all systems go in 2022.
Any inclination that interest rates would rise faster than expected is now a non-starter, and the Fed will push its "lower for longer" mantra in the face of surging inflation for as long as they can make excuses for it.
Ostensibly, the path of easiest conjecture leads me to say that the five biggest stocks in the S&P 500 – Facebook, Apple, Amazon, Microsoft, and Google, which are around 30% of the market and growing, will do well in 2022.
Long-term, they have comprised an average of about 14% of the entire stock market, and 2022 should be the year they knock on the 35% threshold.
This essentially means that the stock market is techs to win or lose and everyone else is just a footnote.
And yeah I know…it’s been like that for quite a while now; but it’s more prevalent than ever.
We are rolling into a year where big tech will weaponize their cash horde to issue low-interest corporate bonds of their own company debt and then spin those cash harvests into higher rate corporate bonds that cheapen their cost of doing business because they pocket the higher interest payments as profits.
Industry leaders are able to borrow more cheaply and in greater quantities, and the size of their balance sheets also offers incredible optionality.
This also means they can buy back more shares and also leverage up their balance sheets.
Preferential access to cheap money also cheapens the process of expansion, or in buying rivals, more easily. In effect, lower rates give leading companies an unfair set of tools to accelerate their dominance and which no regulator dares to prevent.
What does this mean in practice for investors? If falling rates have spiced up valuations of the biggest tech stocks on the way up, it implies they may struggle if rates rise, particularly as this would mean investors place less of a premium on future earnings.
But since the expectations are lower for longer, the market will be comfortable with the nominal rate even in the face of surging inflation, meaning it’s a net positive for tech stocks in 2022.
Powell and Baird will move as slow as needed and anything faster than that will shock the tech market and we will get a 5% drop which will be a golden buying opportunity.
I have read many experts’ take on tech preaching that regulation is here and coming fast to take down big tech.
However, I am in the camp that Congress will do hardly anything, and any investigation will end with a slap on the wrist which is fine.
I don’t subscribe to this ridiculous idea that superstars eventually tend to fall to earth.
I believe the current climate has set up big tech to gain an even bigger market share, crush the little guy faster, and trigger EPS to grow uncontrollably.
That’s what I am seeing on the ground with my own eyes, as opposed to baseless claims that big tech will revert back to the mean.
This sets the stage for big tech to benefit from such elevated rates of profitability next year, they will be happy to overpay for smaller companies to whom they will give an ultimatum to either sell up or get killed by them.
Numerous signs point to a devastatingly profitable and comically successful 2022 for the most recognizable and biggest tech firms who will refine their tech and harness their balance sheets in a systematically lethal way.
Unprofitable startups have a mountain climb as it relates to competing in their industries and they can thank President Joe Biden for that; they will be unduly penalized as a group that will result in lower share prices that force them to crawl on their knees to venture capitalists for capital injections.
Global Market Comments
November 22, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or THE WORST-CASE SCENARIO)
(BITO), (ETHE), (TLT), (TBT), (NVDA), (DE)
In the investment business, you’re only as good as your last trade. If that is the case, that makes me a pretty worthless person in the wake of a record four stop-losses at the November 19 option expiration.
Days before, the market closed with all ten of our positions profitable. But the pandemic lockdown in Austria on Friday morning shattered those plans. Fears of a new Covid wave and another mini-recession send bonds soaring and interest rates crashing. That trashed financial stocks, where I had a heavy exposure.
If you work in the business long enough, you see a black swan on an options expiration day every five or ten years. This was our turn. As a result, we traded a double-digit gain for November for a moderate loss. That still leaves us with a heroic 80% gain for 2021 and 15 consecutive profitable months.
There is nothing to do but pick yourself up, dust yourself off, and go on to the next trade. I wouldn’t be surprised to see all of the Friday losses reversed in the coming weeks. Banks are still outrageously profitable and the cheapest sector in the market. If you have a six-month to one-year view, the action on Friday changed nothing.
You live by the sword, you die by the sword.
There was a lot going on Friday than just another Covid wave. November option expirations used to be a snore. But this year, brokerage firms have stampeded so many retail investors into the options markets where they make the most money that they have become major events.
Some 70% of all options trading now takes place in securities with less than two weeks to expiration. In the meantime, professional traders limit their personal accounts to long term LEAPS which are the subject of the Mad Hedge Concierge Service. Instead of rolling the dice for a 10% profit in a month, you get a very safe 100% return in a year.
Of course, while financials were getting wrecked, falling interest rates were acting as a steroid for tech stocks. (MSFT) and Google (GOOG) hit new highs for the year. Concierge members in my (ROM) LEAPS were rolling in clover.
The barbell strategy wins again!
Infrastructure Bill is signed on Monday, injecting another $1.2 trillion into the economy today. This assured the economy will keep booming through 2024. The bond market hates it, down $6.00 in three days. It adds another 3% to GDP over the next five years. Keep selling (TLT) on rallies.
Bitcoin Forks for the first some since 2017, making it much more competitive with Ethereum. It enables the lead crypto to use defi and third party apps. Miner Marathon (MARA) is raising a $500 million bond issue to buy Bitcoin. Keep buying (BITO) and (ETHE) on dips.
US Retail Sales roar, up 1.7% in October compared to 0.8% in September, far more than expected. Receipts for all items are rising. Higher wages are immediately translating into increased spending.
Builder Sentiment jumps, up 3 points to 83, according to the National Association of Homebuilders. A decade-long structural shortage of housing is a huge tailwind. Good luck hiring a contractor right now. The Midwest and the south are the leaders in demand.
Dollar hits 16-Month High, on the strength of yesterday’s red hot Retail Sales. It means higher interest rates soon, which is great for the buck. Currencies with the fastest rising interest rates are always the strongest.
NVIDIA kills it, with revenues up 50% YOY and earnings up 60%. It’s well on the way to becoming the next trillion-dollar company. It’s another Mad Hedge 20 bagger. Buy (NVDA) on dips.
Biden may try an SPR Release to cap gasoline prices. There are 741 barrels in the Strategic Petroleum Reserve, enough for 21 days of US consumption. It’s sitting there costing money, essentially a government subsidiary for the energy industry. Why have it if the US is now a net energy exporter? The concern has been enough to drop oil prices by 10%.
Rents for single-family homes are up 10.2% YOY, and will continue to rise. Miami has the highest rent inflation in the country, and the highest-priced homes are seeing the fastest increases.
Weekly Jobless Claims drop to new post-pandemic low, to 268,000, just fractionally. There are 2 million continuing claims. The great resignation continues.
John Deere strike ends, with some of the best terms for workers in 40 years. It cost the company $2.5 billion. They get an immediate 10% raise and $7,500 bonus, larger out-year raises, and big performance bonuses. There is a lot of making up for 30 years of no real wage growth going on here. It points a loaded gun at the head of the “transitory” argument for inflation. Buy (DE) on dips.
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 the disastrous November options expiration, my November month-to-date performance plunged to -7.73%. My 2021 year-to-date performance took a haircut to 80.82%. The Dow Average is up 16.34% so far in 2021.
My entire portfolio expired on Friday, and I am 100% in cash. Of our ten positions, six made money and four lost. In addition, subscribers to the Mad Hedge Technology letter had another five winners, as tech stocks are still on a tear.
That brings my 12-year total return to 503.37%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return has ratcheted up to 42.24%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 96.56%. I bet many of you are making the biggest money of your long lives.
We need to keep an eye on the number of US Coronavirus cases at 48 million and rising quickly and deaths topping 772,000, which you can find here at https://coronavirus.jhu.edu.
The coming week will be all about the inflation numbers.
On Monday, November 22 at 7:00 AM, Existing Homes Sales for October are released.
On Tuesday, November 23 at 6.45 AM, the Flash Manufacturing PMI is announced.
On Wednesday, November 24 at 5:30 AM, US Q3 GDP second estimate is published. At 7:00 AM we get New Home Sales for October. Minutes from the last Fed meeting are printed at 2:00 PM.
On Thursday, November 25 markets are closed for Thanksgiving Day.
On Friday, November 26 at 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, when I was shopping for a Norwegian Fiord cruise for next summer, each stop was familiar to me because a close friend had blown up bridges in every one of them.
During the 1970s at the height of the Cold War, my late wife Kyoko flew a monthly round trip from Moscow to Tokyo as a British Airways stewardess. As she was checking out of her Moscow hotel, someone rushed at her and threw a bundled typed manuscript that hit her in the chest.
Seconds later a half dozen KGB agents dog-piled on top of her. It turned out that a dissident was trying to get Kyoko to smuggle a banned book to the West and she was arrested as a co-conspirator and bundled away to Lubyanka Prison.
I learned of this when the senior KGB agent for Japan contacted me, who had attended my wedding the year before. He said he could get her released, but only if I turned over a top-secret CIA analysis of the Russian oil industry.
At a loss for what to do, I went to the US Embassy to meet with ambassador Mike Mansfield, who as The Economist correspondent in Tokyo I knew well. He said he couldn’t help me as Kyoko was a Japanese national, but he knew someone who could. Then in walked William Colby, head of the CIA.
Colby was a legend in intelligence circles. After leading the French resistance with the OSS, he was parachuted into Norway with orders to disable the railway system. Hiding in the mountains during the day, he led a team of Norwegian freedom fighters who laid waste to the entire rail system from Tromso all the way down to Oslo. He thus bottled up 300,000 German troops, preventing them from retreating home to defend themselves from an allied invasion.
During the Vietnam war, Colby became notorious for running the Phoenix assassination program.
I asked Colby what to do about the Soviet request. He replied, “give it to them.” Taken aback, I asked how. He replied, “I’ll give you a copy.” Mansfield was my witness so I could never be arrested for being a turncoat. Copy in hand, I turned it over to my KGB friend, and Kyoko was released the next day and put on the next flight out of the country. She never took a Moscow flight again.
I learned that the report predicted that the Russian oil industry, its largest source of foreign exchange, was on the verge of collapse. Only massive investment in modern western drilling technology could save it. This prompted Russia to sign deals with American oil service companies worth hundreds of millions of dollars.
Ten years later, I ran into Colby at a Washington event, and I reminded him of the incident. He confided in me “You know that report was completely fake, don’t you?” I was stunned. The goal was to drive the Soviet Union to the bargaining table to dial down the Cold War. I was the unwitting middleman. It worked. That was Bill, always playing the long game.
After Colby retired, he campaigned for nuclear disarmament and gun control. He died in a canoe accident in the lake near his Maryland home in 1996.
Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Mad Hedge Technology Letter
November 19, 2021
Fiat Lux
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