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Tag Archive for: (OXY)

april@madhedgefundtrader.com

May 1 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the May 1 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley.

Q: I see the Bank of Japan bought $35 billion in the foreign exchange on the market. What's going on?

A: First of all, they didn’t buy dollars, they sold dollars and bought yen. Well, It's really very easy. Interest rates are the primary driver of foreign exchange rates. Japan has had the lowest interest rates in the world for 40 years, and the US has had the highest for the last two years. So it’s an easy hedge fund trade—short the Yen, and use the proceeds there to buy US dollar assets—you pick up an automatic spread of 4.7%. You then multiply that 10 times, that becomes 47%, and goes into the trillions of dollars in size. And of course, every hedge fund in the world is doing this trade. So that is a massive amount of Yen selling. They sold some of of their massive dollar reserves in an attempt to head off the collapse of the Japanese yen which hit some Y160, a 40-year low. So that's what's going on there.

Q: What's your updated view on TLT, and what's your yearend view?

A: I think we kind of chop sideways as long as there's indecision on interest rates, and then maybe 3 points of downside max; and then after that, we start another twenty-point rally. So we're all waiting for the bottom of this move on the (TLT), and then we're going to go pedal to the metal, so that's an easy one.

Q: Would you stay away from DJT?

A: Absolutely. This is the most manipulated stock in the market and the largest short interest in the market. More people would short it if they could get the stock, which now costs 550% a year to borrow and has a SPAC set up. I never touch SPACs because 95% of those turn out to be failures. So go express your support for the former president in other ways would be my advice.

Q: My son-in-law works in AI and says Apple (APPL) will be a better player than Tesla (TSLA).

A: No it won't. First of all, Tesla is 15 years ahead of everybody on AI; they actually started a major AI effort in 2014, and they have the data of all the miles driven by 6 million cars all over the world, and nobody can replicate it; so that gives them a huge head start. Tesla also has Elon Musk running it, who would beat the pants on aggressiveness and competitiveness off Tim Cook all day long, so I would vote for Elon Musk on this one. But the next big AI surprise is probably going to come from Apple. That's going to happen in June when they have their developer's conference. I've already had several kids and relatives invited to attend that conference, so I’ll have a really good read on what's happening.

Q: Where do you see inflation for the rest of the year?

A: Tiny up to sideways and then down more—we may hit the 2% target by the end of the year. The key here is you have to let AI kick in and start generating profits instead of promises, as employees start being replaced with AI.

Q: Would you return to Havana?

A: I would. I had a great time, and now I have the knowledge of experience of having gone there. I was actually looking at Airbnb condos on the beach in Havana which you can get for $70 a month. You can't beat the prices in Cuba; they're like a 10th of anywhere in the world. You can buy a two-bedroom condo in Havana for $30,000. Compare that to New York—it would probably cost you $3 million, and would certainly cost you that much in San Francisco.

Q: What is a substantial dip?

A: I always get this question. It's different for each stock. It could be 5% for a boring one like Apple (AAPL), or 20% for a really wild one like Nvidia (NVDA). You can see both of them are acting like that right now, so it's different according to the volatility of the individual stock. There's no fixed answer.

Q: Are there expatriates living in Cuba?

A: There are, incredibly; some of them are working in the tourist industry, some in the computer industry. Would you consider it safe? Probably, yes, as long as you don't engage in politics. That would be a really big mistake. It's even dangerous for Cubans to have a political opinion. Best to just shut up and do what the government says; that's what totalitarian regimes are like. I've been in a lot of them, and by the way, that may be what it's like in the United States in another year, so we'll have to wait and see. I felt relatively safe in Cuba. I wasn't followed by the secret police, which I always used to be. Maybe I'm just not as valuable as I used to be!

Q: Do you have a ballpark timeline for Freeport-McMoRan (FCX) to reach under?

A: Time is always difficult to call because there are just so many variables and black swans out there, but I easily could see a spike in (FCX) going up to $100 sometime in 2025 when the global economy starts to recover; and if you're doing LEAPs on any depth here, I would go out to end of 2025 just to be safe. If Chinese ever starts new home contraction again that becomes a chip shot.

Q: The Feds are moving marijuana stocks from a schedule 3 to a schedule 1. Are there any plays here?

A: Well, I've never been a big fan of pot stocks. The barriers to entry are very low from anybody to come in as a competitor. At the end of the day, it's a brand play, much like Coca-Cola (KO), and they still have huge competition from the black market, because the black market doesn't have to pay the 30-40% in sales taxes. And it's a fairly poorly managed business—guess why? Everybody is stoned all the time. So I'm going pass on marijuana, there's too many better fish to fry. Leave it to the potheads.

Q: Why has Nvidia (NVDA) gone flat?

A: Trees don't grow to the sky. Nvidia was up 140% in 6 months, and you have to give time for the earnings to catch up with the stock. The earnings are growing at 40% a year, so they'll catch up pretty quickly. I'm thinking we could have a shot at $1,400 in Nvidia by the end of the year.

Q: McDonald's (MCD) just had a big sell-off on weak earnings, is it a buy-down here?

A: No. McDonald's has the highest exposure to sub $50,000/year earners of any of the fast food companies; they're the ones most affected by McDonald's high prices. Their margins are being crushed, and automation can't happen fast enough. And then there's the Ozempic effect: weight loss drugs are killing appetites, and eventually we'll have a hundred million people on weight loss drugs. And my bet is a lot of those are McDonald's customers, so avoid Mickey D.

Q: What about the silver trade?

A: Silver is actually starting to outperform gold on the upside as it has historically done, so you might go along with a pair of trades owning both gold (GLD) and silver (SLV). Gold just sold off at 5% and silver sold off at 10%, so maybe the old volatility of silver is returning. I'd look to buy Wheaton Precious Metals (WPM) LEAPs down here.

Q: Do you think Starbucks (SBUX) is in the same boat as McDonald's (MCD)?

A: After the similar earnings sell off, I'd say yes. Starbucks doesn't do well in recessions or economic slowdowns. It’s an easy product to economize on. And they don't do well with the sub $50,000/year crowd either. Plus, I think Starbucks in particular is being weighed down by weak China sales.

Q: What's your outlook on energy?

A: Buy the dip. We're all looking for economic recoveries worldwide next year—oil does really well in that situation. We just have to work off the current overbought situation that was given to us by the Gaza War.

Q: Why are the miners not keeping up with gold and silver?

A: The answer is inflation. Inflation in the mining industry is double or triple what it is in a regular economy because you have so many companies chasing so few production resources. For example, those giant tires that go on these huge Caterpillar trucks—those are $200,000 a tire, and there's a two-year waiting list to get one. So as more people try to mine, the cost of mining goes up. That feeds into the earnings of the mining companies. Also, miners are subject to the whims of the stock market, which the metals aren't. So that's why I've been recommending the metals first and then miners second.

Q: With the new Amazon (AMZN) earnings, will they someday pay out a dividend?

A: They just delivered their first substantial profit in the company's history that I'm sure is by design, and if they're willing to increase benefits to shareholders, can dividends and stock buybacks be far behind? If that happens, you can expect Amazon stock to double from here. So absolutely, yes.

Q: Is housing about to crash because of high-interest rates?

A: Absolutely not. It's about to take off like a rocket as interest rates fall. You'll never get a crash in housing as long as we have a shortage of 10 million houses. Housing shortages don't get crashes. We had a housing oversupply in 2007 and 2008, and that's what caused that housing crash; but half of the home builders went under then and they never came back, creating the current shortage. In the meantime, people are using 5/1 ARM loans to get lower interest rates and praying that rates fall by the time the first adjustment comes along. Then they'll move into much lower 30-year rate mortgages right around the 5% level. That is the plan of a lot of home buyers these days.

Q: How are technology companies going to cope with the margin squeeze?

A: They will fire people. They have fired 300,000 people in the Bay Area in the last 2 years, and as a result, the stocks have skyrocketed. The prime example is META (META), which fired 20% of the staff and saw the stock double. Once that happened, everybody else jumped on the bandwagon and started laying off people like crazy. It was actually Elon Musk that started the whole cost-cutting trend in Silicon Valley, so you have to thank him for that.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com, go to MY ACCOUNT, 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

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2024/05/POLICE.png 560 740 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-05-03 09:02:042024-05-03 10:19:10May 1 Biweekly Strategy Webinar Q&A
april@madhedgefundtrader.com

April 22, 2024

Diary, Newsletter, Summary

Global Market Comments
April 22, 2024
Fiat Lux

 

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or FACING HARSH REALITY)
($VIX), (FCX), (XOM), (WPM), (GLD), (TLT), (FCX), (NVDA), (JNK), (META), (MSFT), (TSLA), (HYG), (NFLX), (OXY), (XOM), (USO)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-04-22 09:04:042024-04-22 12:01:15April 22, 2024
april@madhedgefundtrader.com

The Market Outlook for the Week Ahead, or Facing Harsh Reality

Diary, Newsletter

There comes a time in every trader’s life when it’s time to face harsh reality and admit that you’re just dead wrong.

As much as I thought a I had strong case for the best stocks to move sideways before continuing their upward drive, the markets decided otherwise. One thing I have learned over my half-century of trading is that you never argue with Mr. Market. He is always right.

So it was with some dismay that on Friday, I watched NVIDIA (NVDA) shares slice through its 50-day moving average at $840 like a hot knife through butter putting the shares into a free-fall. Virtually the next print was the low of the day at $760, down 10% on the day.

There was no new news about (NVDA). Its prospects look as bright as ever, and there are a series of conferences of earnings reports over the coming month to remind us of that. But sometimes, the market just doesn’t care.

(NVDA) has had a great run, up some 144% since October. During this time, I executed a dozen profitable long-side trades. But when you’re that aggressive you know in advance that the last trade is going to kill you and that is the case today. (NVDA) is falling because of the sheer weight of its price.

New flash: while (NVDA) is still the cheapest big tech stock in the market, cheap stocks can get cheaper as we all know.

With the advantage of 20/20 hindsight, I should have been paying more attention to the Magnificent Seven 50-day moving averages which have been falling like dominoes. First went Tesla (TSLA) in February and Apple in March. The S&P 500 (SPY) gave it up on Monday and Microsoft (MSFT) on Wednesday. Amazon (AMZN), (META), and (NVDA) were the last to go on Friday.

Sure you can blame the April 19 option expiration when traders were loaded to the hilt with expiring longs with all these stocks they had to dump. The dreaded month of May, when traders go to die, and the summer doldrums are just two weeks away. Algorithms poured gasoline on the fire exaggerating the moves, as they always do. But still, wrong is wrong.

And there’s my mea culpa for 2024. I am human after all. I’m not right all the time, I just act like it. If the horrific market action last week has one silver lining, it’s that it sets up the next great trades, for which there will be many. With my Mad Hedge AI Market Timing Index down to a lowly 31 that may not be far off.

Your next question is “How far down is down?” In the worst-case scenario, the 200-day moving average is in play for all of these. That is pegged at $463 for the S&P 500, $569 for (NVDA), $377 for (MSFT), $150 for (AMZN), and $308 for (META). (AAPL) and (TSLA) already lost their 200-days a long time ago. In other words, the market is in the process of giving up all its 2024 gains and then some.

Sure, the 200 days are all rising sharply so it's unlikely we’ll hit these dire numbers. Still, it's best to prepare your boss for the worst and then let serendipity work its magic.

Remarkably, my commodity and precious metal stocks, where I had eight of ten long positions, stuck to the script and moved sideways instead of down. If you throw bad news on a stock and it refuses to fall, you buy the hell out of it. So that will be my next move in the market, once I clean all the mud off my face and pull the arrows out of my rear.

Those of us who have been trading gold for a long time, I’ve been doing it for 50 years and 60 if you count the Kennedy silver dollars I collected, will tell you that this new bull market in the barbarous relic is a very strange one.

None of the traditional factors that drive gold up are present. Interest rates have lately been rising, not falling. ETF financial demand fell all last year, and much of that money was diverted to Bitcoin. Retail demand, especially from Asia, has also been falling off a cliff. Gold miners have in no way been leading the price of the yellow metal because of their excess leverage as they usually do. But gold has seen a 34% rally off the October low.

Go figure.

It turns out that central bank buying has increased dramatically, especially from China, enough to offset all the other no-shows. The conflict in the Middle East is also drawing in more flight to safety demand. The good news is that the Chinese buying will continue. The bad news is that this might be a precursor to the invasion of Taiwan as it flees the Western financial system.

What does all this mean? When the traditional demand for gold returns, interest rates, ETFs, and retail, the price of gold will move a lot higher. The barbarous relic can easily reach $2,800 this year and possibly $3,000. The miners will play catch up. Buy (GLD) on dips and silver (SLV) as well, which has a lot of catching up to do.

I just thought you’d like to know.

So far in April, we are down a heartbreaking -6.69%. My 2024 year-to-date performance is at +14.47%. The S&P 500 (SPY) is up +2.68% so far in 2024. My trailing one-year return reached +33.69% versus +29.71% for the S&P 500.

That brings my 16-year total return to +676.63%. My average annualized return has recovered to +50.94.

Some 63 of my 70 round trips were profitable in 2023. Some 20 of 28 trades have been profitable so far in 2024.

I stopped out of my long in Tesla last week at cost, expecting further downside, which happened. A week early the position had been at max profit. I let my April longs expire at a max profit on April 19 in Freeport McMoRan (FCX), Occidental Petroleum, ExxonMobile (XOM), Wheaton Precious Metals (WPM), and Gold (GLD).

That leaves me with my remaining May longs in (TLT) and (FCX) a double long in (NVDA) and 60% in cash.

Volatility Index ($VIX) Hits Six-Month High, on threats of a New Iran War, Oil Supply Cut-offs, and topping stocks. It’s been a long and dry desert crossing, but we are finally back to reach the $20 handle. The volatility trade is back. For a double bonus, the Mad Hedge Market Timing Index also dropped below 50 for the first time since October. Options traders will love it!

Junk Bonds See Biggest Outflows in a Year, as the Federal Reserve’s hawkish approach to inflation makes investors wary, sending yields soaring to 6.33%. Yields won’t peak until the Fed actually cuts rates. Buy (JNK) and (HYG) on dips.

Netflix (NFLX) Adds 9.33 Million New Subscribers, nearly double analyst forecasts, including my five kids who aren’t allowed to share my password anymore. But the shares dropped on weak Q2 guidance. Netflix has rebounded from a slowdown in 2021 and 2022 to grow at its fastest rate since the early days of the coronavirus pandemic. That is due in large part to its crackdown on people who were using someone else’s account. The company estimated more than 100 million people were using an account for which they didn’t pay. 

Mortgage Rates
Top 7.0% for the first time in 2024, adding dead weight to the housing market. Most borrowers are now taking out adjustable 5/1 ARMS and then praying for a Fed rate cut later this year.

Existing Home Sales Dive by 4.3% in March to 4.19 million units on a sign-contract basis. Inventories rose 4.47% to a 3.2-month supply, up 14% YOY. The median price of an existing home sold in March was $393,500, up 4.8% from the year before. Regionally, sales fell everywhere except in the North, where they rose 4.2% month-to-month. Sales fell hardest in the West, down 8.2%. Prices are highest in the West.

Housing Starts Plunge, down 14.5% in March. Permits for future construction of single-family houses fell to a five-month low. Residential investment rebounded in the second half of 2023 after contracting for nine straight quarters, the longest such stretch since the housing market collapse in 2006. But the recovery appears to be losing steam.

China Surprises with Q1 GDP Growth at 5.3%, but who knows how real these numbers really are? They don’t line up with individual data like international trade. Peak China is behind us. Avoid (FXI).

Tariff Wars Heat Up, US President Joe Biden is threatening China again, and this time he wants to triple the China tariff rate on steel and aluminum imports. On Wednesday, the president will visit the United Steelworkers headquarters in Pittsburgh and has vowed his saber-rattling is not just empty threats. His rhetoric on China could make relations between the US and the Middle Kingdom that much frostier as we enter into the heart of the US election race.

Biden Boosts the Cost of Alaska Oil Drilling Leases, from $10,000 to $160,000, the first increase since 1920. There is also a bump in the royalty on extracted oil, from 12.25% to 16.27%. The government is no longer giving away oil found on its land for free. Coddling of the oil companies is over. Oil companies will no longer bid for cheap oil leases with the intention of sitting on them for decades. The US is currently the largest oil (USO) producing country in history at 13 million barrels/day and hardly needs any subsidies, which date back to the Great Depression. Buy energy stocks on dips, like (XOM) and (OXY), which are posting record profits.

My Ten-Year View

When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.

Dow 240,000 here we come!

On Monday, April 22, at 7:00 AM EST, the Chicago Fed National Activity Index is announced.

On Tuesday, April 23 at 8:30 AM, New Home Sales are released.

On Wednesday, April 24 at 2:00 PM, Mortgage applications come out.

On Thursday, April 25 at 8:30 AM, the Weekly Jobless Claims are announced.

On Friday, April 26 at 8:30 AM,  Consumer Expectations. At 2:00 PM, the Baker Hughes Rig Count is printed.

As for me, I spent a decade flying planes without a license in various remote war zones because nobody cared.

So, when I finally obtained my British Private Pilot’s License at the Elstree Aerodrome, home of the WWII Mosquito twin-engine bomber, in 1987, it was cause for celebration.

I decided to take on a great challenge to test my newly acquired skills. So, I looked at an aviation chart of Europe, researched the availability of 100LL aviation gasoline in Southern Europe, and concluded that the farthest I could go was the island nation of Malta.

Caution: new pilots with only 50 hours of flying time are the most dangerous people in the world!

Malta looms large in the history of aviation. At the onset of the Second World War, Malta was the only place that could interfere with the resupply of Rommel’s Africa Corps, situated halfway between Sicily and Tunisia. It was also crucial for the British defense of the Suez Canal.

So, Malta was mercilessly bombed, at first by Mussolini’s Regia Aeronautica, and later by the Luftwaffe. By April 1942, the port at Valletta became the single most bombed place on earth.

Initially, Malta had only three obsolete 1934 Gloster Gladiator biplanes to mount a defense, still in their original packing crates. Flown by volunteer pilots, they came to be known as “Faith, Hope, and Charity.”

The three planes held the Italians at bay, shooting down the slower bombers in droves. As my Italian grandmother constantly reminded me, “Italians are better lovers than fighters.” By the time the Germans showed up, the RAF had been able to resupply Malta with as many as 50 infinitely more powerful Spitfires a month, and the battle was won.

So Malta it was.

The flight school only had one plane they could lend me for ten days, a clapped-out, underpowered single-engine Grumman Tiger, which offered a cruising speed of only 160 miles per hour. I paid extra for an inflatable life raft.

Flying over the length of France in good weather at 500 feet was a piece of cake, taking in endless views of castles, vineyards, and bright yellow rapeseed fields. Italy was a little trickier because only four airports offered avgas, Milan, Rome, Naples, and Palermo. Since Italy had lost the war, they never experienced a postwar aviation boom as we did.

I figured that if I filled up in Naples, I could make it all the way to Malta nonstop, a distance of 450 miles, and still have a modest reserve.

Flying the entire length of Italy at 500 feet along the east coast was grand. Genoa, Cinque Terra, the Vatican, and Mount Vesuvius gently passed by. There was a 1,000-foot-high cable connecting Sicily with the mainland that could have been a problem, as it wasn’t marked on the charts. But my US Air Force charts were pretty old, printed just after WWII. But I spotted them in time and flew over.

When I passed Cape Passero, the southeast corner of Sicily, I should have been able to see Malta, but I didn’t. I flew on, figuring a heading of 190 degrees would eventually get me there.

It didn’t.

My fuel was showing only a quarter tank left and my concern was rising. There was now no avgas anywhere within range. I tried triangulating VORs (very high-frequency omnidirectional radar ranging).

No luck.

I tried dead reckoning. No luck there either.

Then I remembered my WWII history. I recalled that returning American bombers with their instruments shot out used to tune in to the BBC AM frequency to find their way back to London. Picking up the Andrews Sisters was confirmation they had the right frequency.

It just so happened that buried in my pilot’s case was a handbook of all European broadcast frequencies. I looked up Malta, and sure enough, there was a high-powered BBC repeater station broadcasting on AM.

I excitedly tuned in to my Automatic Direction Finder.

Nothing. And now my fuel was down to one-eighth tanks and it was getting dark!

In an act of desperation, I kept playing with the ADF dial and eventually picked up a faint signal.

As I got closer, the signal got louder, and I recognized that old familiar clipped English accent. It was the BBC (I did work there for ten years as their Tokyo correspondent).

But the only thing I could see were the shadows of clouds on the Mediterranean below. Eventually, I noticed that one of the shadows wasn’t moving.

It was Malta.

As I was flying at 10,000 feet to extend my range, I cut my engines to conserve fuel and coasted the rest of the way. I landed right as the sun set over Africa.

While on the island, I set myself up in the historic Excelsior Grand Hotel. Malta is bone dry and has almost no beaches. It is surrounded by 100-foot cliffs. I paid homage to Faith, the last of the three historic biplanes, in the National War Museum in Valetta.

The other thing I remember about Malta is that CIA agents were everywhere. Muammar Khadafy’s Libya was a major investor in Malta, recycling their oil riches, and by the late 1980s owned practically everything. How do you spot a CIA agent? Crewcut and pressed, creased blue jeans. It’s like a uniform. What they were doing in Malta I can only imagine.

Before heading back to London, I had to refuel the plane. A truck from air services drove up and dropped a 50-gallon drum of avgas on the tarmac along with a pump. Then they drove off. It took me an hour to hand pump the plane full.

My route home took me directly to Palermo, Sicily to visit my ancestral origins. On takeoff to Sardinia, wind shear flipped my plane over, caused me to crash, and I lost a disk in my back.

But that is a story for another day.

Who says history doesn’t pay!

Stay Healthy,

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

 

“Faith”

 

The Andrews Sisters

 

Spitfire

 

Grumman Tiger

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2024/04/andrews-sisters.png 582 506 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-04-22 09:02:302024-04-22 12:00:50The Market Outlook for the Week Ahead, or Facing Harsh Reality
april@madhedgefundtrader.com

April 5, 2024

Diary, Newsletter, Summary

Global Market Comments
April 5, 2024
Fiat Lux

 

Featured Trade:

(APRIL 3 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (TLT), (GOLD), (GLD), (WPM), (NVDA), (OXY), (XOM)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-04-05 09:04:452024-04-05 10:16:04April 5, 2024
april@madhedgefundtrader.com

April 3 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the April 3 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Key West, Florida.

Q: What’s going on with gold (GLD)?

A: Well it’s simple; gold hasn’t moved in a year and people want to rotate out of big tech into something that hasn’t moved. Gold has a great long-term story if interest rates fall and if central banks continue to accumulate gold. We could go up quite a lot from here; my goal right now is 3,000/oz by the end of next year.

Q: Are ETFs or single stocks a better buy right now?

A: ETFs are baskets, tend to have high fees, and tend to move at half the rate of single stocks. Single stocks can go up a lot faster and have a lot more risk. So if I have a strong feeling about a particular asset class like gold or silver, I'll go ahead and buy single stock names directly like Barrick Gold (GOLD) and Wheaton Precious Metals (WPM) because I know I’ll get a multiple of the performance of a basket of gold companies.

Q: Ford Motor Co. (F) seems like a better play than Tesla (TSLA) this year. What is your opinion?

A: You’re absolutely wrong, Tesla is a fantastic buy down here, once the EV nuclear winter ends. Tesla could rise a multiple from here—Ford probably not so much. Notice also that GM saw sales fall by 1.5% in the first quarter of this year. Tesla just has the technology; Ford and GM don’t. The long-term outlook for the ICE companies is grim. They have millions invested in internal combustion engine factories, which very soon will be worth nothing more than scrap metal.

Q: Do you have a long-term target on the downside for Tesla (TSLA)?

A: Well I’m currently long the April $140-$150 vertical bull call debit spread that expires in 10 days. To get a price lower than $140, you need to get drastically worse news, which I don't think we’ll get. I think we’re bottoming out right around here; Tesla’s already down 62% from an all-time high. During the pandemic, it dropped 80%.

Q: What is the chance that inflation returns, and what happens if it does?

A: Interest rates rise, and the Fed postpones interest rate cuts even further. However, I don’t think that’s going to happen, because technology and artificial intelligence are having such a huge deflationary impact on the economy that any bad news about inflation will be short-term, and we are in a long-term trend going down.

Q: How does falling Fed QT affect interest rates?

A: It causes them to go down because it means the Fed is selling less of its bond holdings into the market. This means they’re taking less money out of the financial system, meaning liquidity is increasing, which is good for all risk assets. I think the stock market has noticed this by going up almost every day so far this year. So, just as quantitative easing was great for the economy and the stock market, the quantitative tightening was terrible, and the fact that they’re ending it is good for all risk assets.

Q: Where do you see the price rising for iShares 20+ Year Treasury Bond ETF (TLT)?

A: 110 by the end of the year, but we might have another $1.00 or $2.00 of downside first. If you get down to $90 or so, I’ll be knocking out the trade alerts to buy call spreads as fast as I can write them. But first let’s let (TLT) find its new level, and interest rates find their new high.

Q: What is a barbell?

A: A barbell is where we have overweight sections in two parts of the market; one is technology and one is domestic recovery plays. We have nothing in most sectors in between. That’s what we’ve been doing for years, and it works pretty well because you always have something that’s going up. That’s why it’s called a barbell.

Q: If you were doing a new LEAP on Wheaton Precious Metals (WPM), what would you do?

A: I would do an at-the-money, which at this point would be June 2025 $50-$53 verticals bull call spread LEAPS, and I would go out at least a year, probably a year and a half because we’ve just had a very big run in Wheaton Precious Metals—about 25%. LEAPS are things you do at market bottoms, not at market tops. A reversal can be very expensive—they can literally go to zero on you.

Q: What do you think will be the next asset class investors will rotate into after commodities?

A: Big technology. We’re going to be going back and forth between the two sectors probably for years. So, I think tech needs a time correction of several months, where commodities and precious metals and energy will run free, and eventually, they’ll get overbought and want to take a rest, and then everyone rotates back into big tech. In the meantime, big tech and AI are moving forward with their technology.

Q: Why has Carnival Corp (CCL) had such a terrible stock performance, even though they’re having record sales and full ships?

A: They have huge amounts of debt leftover from the pandemic, which they got both from the government and the private sector. If they hadn’t done that, they’d have gone bankrupt, and it’s going to take a long time to pay off all that debt, even though it was at interest rates that were quite low. Plus, if they have to refinance any of that, that can get expensive too because the old loans are at zero or 1%, and the new loans are going to be like 6%, 7%, or 8%. So that has been a drag on Carnival Cruise Lines.

Q: What is a time correction?

A: A time correction is when the stock goes sideways for a period of time without going anywhere because nobody wants to sell it, everyone is bullish, and they’re willing to wait for the next leg up in the bull market. In the meantime, money rotates into other stocks that are moving, like commodities, precious metals, and energy.

Q: Should we take profits off of Barrick Gold (GOLD) after the recent runup, or does it have some more room to go into the upside?

A: Only if you’re a short-term trader do you want to take advantage of the recent run-up in Barrick Gold. I, however, think the stock could go up another $10 or $20 by the end of the year. I am quite happy to hold on. In fact, on any dips or weak days, I am adding to my position, not looking to run it down.

Q: What do you expect for oil prices?

A: I think we go to the top of the multi-year $62-$95 range and I’m going to run my longs in (XOM) and (OXY) until then.

Q: What do you think of Ken Griffin’s criticism of the US national debt growing at such a fast pace?

A: I’ve been hearing about the national debt for my entire life, since I was 3 years old and my grandfather would lecture me about the national debt, back when it was a pittance compared to what it is now. The fact is, growing national debt seems to have zero impact on any risk asset whatsoever. Stocks are at all-time highs, real estate is at all-time highs and rising, and the dollar is at all-time highs when rising debt was supposed to crush the dollar. The actual fact is that 80% of all the national debt was run up by Republican presidents, so to see Republicans complain about rising debt, especially our most recent president who increased it by $10 trillion is somewhat ironic. The fact s that the national debt is the result of four big tax cuts for billionaires that took place under Kennedy (1960), Reagan (1984), Bush (2002), and Trump (2017), so it’s also ironic that billionaires like Griffin and Paul Tudor Jones are complaining the loudest. They all sound like Cassandras—warning that the sky is falling, but it never seems to happen. In the meantime, I would buy bonds, because they’re not worried about national debt either.

Q: Can Bitcoin go higher after the halving in April?

A: No, the halving is in the price. All of the Bitcoin marketers have been selling you Bitcoin based on that halving for a year now. So the actual halving is going to be a classic “buy the rumor, sell the news” type move.

Q: What do you consider a dip?

A: It’s different for every stock depending on its volatility. It could be 5% for a boring stock, or 20% for something like Nvidia (NVDA).

Q: Does commercial real estate present a systematic risk to the financial markets?

A: No, commercial real estate is only 5% of the loan portfolios of the big banks, and maybe 1% of that will go under. It’s just a normal year of losses for the banks. As for regional banks, they’re the ones that will get hit; they’ll have to do deals to get bought up by the big banks. This is why I think we’re in the process of going from 4,000 banks in the United States to only 6.

Q: Is $100/barrel for oil back in play?

A: No, but $95 is, which is why I went long ExxonMobil (XOM) and Occidental Petroleum (OXY). So, it’s kind of late to get involved here on this trade, but if you are long oil, I would keep it and squeeze the last bit of juice out of those lemons.

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 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

 

 

 

 

 

 

https://www.madhedgefundtrader.com/wp-content/uploads/2024/04/John-thomas-backpack.png 732 648 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-04-05 09:02:042024-04-05 10:14:19April 3 Biweekly Strategy Webinar Q&A
april@madhedgefundtrader.com

April 4, 2024

Diary, Newsletter, Summary

Global Market Comments
April 4, 2024
Fiat Lux

 

Featured Trade:

(A NOTE ON OPTIONS CALLED AWAY),
(FCX), (XOM), (OXY), (WPM), (TSLA)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-04-04 09:04:462024-04-04 10:04:15April 4, 2024
april@madhedgefundtrader.com

A Note on Assigned Options, or Options Called Away

Diary, Newsletter

Occasionally, I get a call from Concierge members asking what to do when their short position options are assigned or called away. The answer was very simple: fall down on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.

We have the good fortune to have SIX spreads that are deep in the money going into the APRIL 19 option expiration in 11 days. They include:

 

(FCX) 4/$37-$40 call spread

(XOM) 4/$100-$105 call spread

(OXY) 4/$59-$62 call spread

(WPM) 4/$39-$42 call spread

(TSLA) 4/$140-$150 call spread

(GLD) 4/$194-$197 call spread

 

In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options position you have may get assigned or called away.

Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.

The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.

You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.

Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the Freeport McMoRan (FCX) April 2024 $37-$40 in-the-money vertical BULL CALL debit spread.

For what the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 10 trading days before the April 19 expiration date. In other words, what you bought for $2.60 on March 4 is now $3.00!

All you have to do is call your broker and instruct them to exercise your long position in your (FCX) April 37 calls to close out your short position in the (FCX) April $40 calls.

This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.

Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.

To say it another way, you bought the (FCX) at $37 and sold it at $40, paid $2.60 for the right to do so, so your profit is $0.40 cents, or ($0.40 X 100 shares X 40 contracts) = $1,600. Not bad for a 30-day defined limited-risk play.

Sounds like a good trade to me.

Weird stuff like this happens in the run-up to options expirations like we have coming.

A call owner may need to buy a long (FCX) position after the close, and exercising his long April $40 call is the only way to execute it.

Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.

There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.

Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.

And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.

And here’s another possible outcome in this process.

Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.

Either that, or you can just sell your shares the following Monday and take on a ton of risk over the weekend. This generates a oodles of commission for the brokers but impoverishes you.

There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they really did train 50 years ago.

Avarice could have been an explanation here but I think stupidity, poor training, and low wages are much more likely.

Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.

This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.

Some may also send you a link to a video of what to do about all this.

If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.

Professionals do these things all day long and exercises become second nature, just another cost of doing business.

If you do this long enough, eventually you get hit. I bet you don’t.

 

 

Calling All Options!

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-04-04 09:02:362024-04-04 10:03:55A Note on Assigned Options, or Options Called Away
april@madhedgefundtrader.com

March 29, 2024

Diary, Newsletter, Summary

Global Market Comments
March 29, 2024
Fiat Lux

 

 Featured Trade:

(A NOTE ON OPTIONS CALLED AWAY),
(TLT), (FCX), (XOM), (OXY), (WPM), (TSLA) (FCX)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-03-29 09:04:052024-03-28 19:59:11March 29, 2024
april@madhedgefundtrader.com

A Note on Assigned Options, or Options Called Away

Diary, Newsletter

Occasionally I get a call from Concierge members asking what to do when their short positions options were assigned or called away. The answer was very simple: fall on your knees and thank your lucky stars. You have just made the maximum possible profit for your position instantly.

We have the good fortune to have SEVEN spreads that are deep in the money going into the APRIL 19 option expiration. They include:

 

(TLT) 4/$87-$90 call spread

(FCX) 4/$37-$40 call spread

(XOM) 4/$100-$105 call spread

(OXY) 4/$59-$62 call spread

(WPM) 4/$39-$42 call spread

(TSLA) 4/$140-$150 calls spread

(FCX) 4/48-$51 put spread

 

In the run-up to every options expiration, which is the third Friday of every month, there is a possibility that any short options positions you have may get assigned or called away.

Most of you have short-option positions, although you may not realize it. For when you buy an in-the-money vertical option spread, it contains two elements: a long option and a short option.

The short options can get “assigned,” or “called away” at any time, as it is owned by a third party, the one you initially sold the put option to when you initiated the position.

You have to be careful here because the inexperienced can blow their newfound windfall if they take the wrong action, so here’s how to handle it correctly.

Let’s say you get an email from your broker telling you that your call options have been assigned away. I’ll use the example of the Freeport McMoRan (FCX) April 2024 $37-$40 in-the-money vertical BULL CALL debit spread.

What the broker had done in effect is allow you to get out of your call spread position at the maximum profit point 10 trading days before the April 19 expiration date. In other words, what you bought for $2.60 on March 4 is now $3.00!

All you have to do is call your broker and instruct them to exercise your long position in your (FCX) April 37 calls to close out your short position in the (FCX) April $40 calls.

This is a perfectly hedged position, with both options having the same expiration date, and the same amount of contracts in the same stock, so there is no risk. The name, number of shares, and number of contracts are all identical, so you have no exposure at all.

Calls are a right to buy shares at a fixed price before a fixed date, and one option contract is exercisable into 100 shares.

To say it another way, you bought the (FCX) at $37 and sold it at $40, paid $2.60 for the right to do so, so your profit is $0.40 cents, or ($0.40 X 100 shares X 40 contracts) = $1,600. Not bad for a 30-day defined limited-risk play.

Sounds like a good trade to me.

Weird stuff like this happens in the run-up to options expirations like we have coming.

A call owner may need to buy a long (FCX) position after the close, and exercising his long April $40 call is the only way to execute it.

Adequate shares may not be available in the market, or maybe a limit order didn’t get done by the market close.

There are thousands of algorithms out there that may arrive at some twisted logic that the calls need to be exercised.

Many require a rebalancing of hedges at the close every day which can be achieved through option exercises.

And yes, options even get exercised by accident. There are still a few humans left in this market to make mistakes.

And here’s another possible outcome in this process.

Your broker will call you to notify you of an option called away, and then give you the wrong advice on what to do about it. They’ll tell you to take delivery of your long stock and then most additional margin to cover the risk.

Either that, or you can just sell your shares on the following Monday and take on a ton of risk over the weekend. This generates oodles of commission for the brokers but impoverishes you.

There may not even be an evil motive behind the bad advice. Brokers are not investing a lot in training staff these days. It doesn’t pay. In fact, I think I’m the last one they did train 50 years ago.

Avarice could have been an explanation here but I think stupidity and poor training and low wages are much more likely.

Brokers have so many legal ways to steal money that they don’t need to resort to the illegal kind.

This exercise process is now fully automated at most brokers but it never hurts to follow up with a phone call if you get an exercise notice. Mistakes do happen.

Some may also send you a link to a video of what to do about all this.

If any of you are the slightest bit worried or confused by all of this, come out of your position RIGHT NOW at a small profit! You should never be worried or confused about any position tying up YOUR money.

Professionals do these things all day long and exercises become second nature, just another cost of doing business.

If you do this long enough, eventually you get hit. I bet you don’t.

 

Calling All Options!

https://www.madhedgefundtrader.com/wp-content/uploads/2018/11/Call-Options.png 345 522 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-03-29 09:02:062024-03-28 19:58:38A Note on Assigned Options, or Options Called Away
april@madhedgefundtrader.com

February 12, 2024

Diary, Newsletter, Summary

Global Market Comments
February 12, 2024
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or RAISING MY YEAREND TARGET TO (SPX) $6,000)
(AAPL), (GOOGL), (META) (MSFT), (AMZN), (V), (PANW), (CCJ), (ARM), (USO), (XOM), (OXY), (INDA), (INDY), (FXI), (BABA), (NVDA), (TSA), (RCL)

https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png 0 0 april@madhedgefundtrader.com https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png april@madhedgefundtrader.com2024-02-12 09:04:222024-02-12 11:12:05February 12, 2024
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