(PLTR) Archives

February 7 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the February 7 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.

Q: Have you ever flown an ME-262?

A: There's only nine of the original German jet fighters left from WWII in museums. One hangs from the ceiling in the Deutsches Museum in Munich (click here for the link), I have been there and seen it and it is truly a thing of beauty. You would have to be out of your mind to fly that plane, because the engines only had a 10 hour life. That's because during WWII, the Germans couldn't get titanium to make jet engine blades and used steel instead, and those fell apart almost as soon as they took off. So, of the 1,443 ME-262’s made there’s only nine left. The Allies were so terrified of this plane, which could outfly our own Mustangs by 100 miles per hour, that they burned every one they found. That’s also why there are no Japanese Zeros.

Q: Thoughts on Palantir (PLTR) long term?

A: I love it, it’s a great data and security play. Right now, markets are revaluing all data plays, whatever they are. But it is also overvalued having almost doubled in a week.

Q: What do you make of all these layoffs in Silicon Valley? What does this mean for tech stocks?

A: It means tech stocks go up. The tech stocks for a long time have practiced over-employment. They were growing so fast, they always kept a reserve of about 10% of extra staff so they could be put them to work immediately when the demand came. Now they are switching to a new business model: fire everybody unless you absolutely have to have them right now, and make everybody you have work twice as hard. That greatly increases the profitability of these companies, as we saw with META (META), which had its profits triple—and that seems to be the new Silicon Valley business model. If you're one of the few 100,000 that have been laid off in Silicon Valley, eventually the economy will grow back to where they can absorb you. That's how it's going to play out. In the meantime, go take a vacation somewhere, because you're not going to get any vacations once you get a new job.

Q: I have had shares of Alibaba (BABA) since 2020 and the stock has been in free fall since. Should I take the 80% loss or hold?

A: Well, number one, you need to learn about risk control. Number two, you need to learn about stop losses. I stop out when things go 10% against me; that's a good level. At 80%, you might as well keep the stock. You've already taken the loss and who knows, China may recover someday. It's not recovering now because no foreigners want to invest in China with all the political risk and invasion risk of Taiwan. After all, look at what happened to Russia when they invaded Ukraine—that didn't work out so well for them.

Q: On the Chinese economy (FXI), is the poorer performance due to the decision to move to a war economy? The move in the economic front was described in Xi's speech to the CCP in January of 2023.

A: The real reason, which no one is talking about except me, is the one child policy, which China practiced for 40 years. What it has meant is you now have 40 years of missing consumers that were never born. And there is no solution to that, at least no short-term solution. They're trying to get Chinese people to have more kids now, and you're seeing three and four child families for the first time in 40 years in China. But there is no short-term fix. When you mess with demographics, you mess with economic growth. We warned the Chinese this would happen at the time, and they ignored us. They said if they hadn't done the one child policy, the population of China today would be 1.8 billion instead of 1.2 billion. Well, they’re kind of damned no matter what they do so there was no good solution for them. Of course, threatening to invade your neighbors is never good for attracting foreign investment for sure. Nobody here wants to touch China with a 10-foot pole until there’s a new leader who is more pacifist.

Q: What do you think of Eli Lilly (LLY)?

A: I absolutely love it. If there's a never-ending bull market in fat Americans, which is will go on forever, they're one of two companies that have the cure at $1,000 a month. On the other hand, the stock has tripled in the last 18 months, so it’s kind of late in the game to get in.

Q: Are there any stocks that become an attractive short in the event of a Taiwan invasion, such as Taiwan Semiconductor (TSM)?

A: All stocks become attractive shorts in the event of another war in China. You don't want to be anywhere near stocks and the semis will have the greatest downside beta as they always do. You don't want to be anywhere near bonds either, because the Chinese still own about a trillion dollars’ worth of our bonds. Cash and T-bills suddenly looks great in the event of a third war on top of the two that we already have in Gaza and Ukraine.

Q: What do you think about the prospects of the Japanese stock market now?

A: I think the big move is done; it finally hit a new high after a 34-year wait. The next big move in Japan is when the Yen gets stronger, and that is bad for Japanese stocks, so I would be a little cautious here unless you have some great single name plays like Warren Buffett does with Mitsubishi Corp. (MSBHF). So that's my view on Japan—I'm not chasing it after being out for 34 years. Why return? The companies in the US are better anyway.

Q: What is the deal with Supermicro Computer (SMCI)? It went up 23 times in a year to $669 after not clear $30 for a decade.

A: The answer is artificial intelligence. It is basically creating immense demand for the entire chip ecosystem, including high end servers, which Supermicro makes. It also has the benefit of being a small company with a small float, hence the ballistic move. It was too small to show up on my radar. I’ll catch the next one. There are literally thousands of companies like (SMCI) in Silicon Valley.

Q: Will JP Morgan (JPM) bank shares keep rising, or will they fall when the Fed cuts rates?

A: (JPM) will keep rising because recovering economies create more loan demand, allow wider margins, and cause default rates to go down. It becomes a sort of best case scenario for banks, and JP Morgan is the best of the breed in the banking sector. It also benefits the most from the concentration of the US banking sector, which is on its way from 4,000 banks to 6 with help from the US government.

Q: Is India a good long-term play? Which of the two ETFs I recommend are the better ones?

A: Yes, India is a good long-term play. You buy both iShares India 50 (INDY) and the iShares MSCI India (INDA), which I helped create yonks ago. India is the new China, and the old China is going nowhere. So, yes, India definitely is a play, especially if the dollar starts to weaken.

Q: Do you expect to pull back in your market timing index?

A: Yes, probably this month. Have I ever seen it go sideways at the top for an extended period? No, I haven't. On the other hand, we’ve never had a new thing like artificial intelligence hit the market, nor have we seen five stocks dominate the entire market like we're seeing now. So, there are a lot of unprecedented factors in the market now which no one has ever seen before, therefore they don't know what to do. That is the difficulty.

Q: Does India have an in-country built EV, and what is their favorite EV in India?

A: No, but Tesla (TSLA) is talking about building a factory there. And I would have to say BYD Motors (BYDDF) because they have the world’s cheapest EV’s. There is essentially no car regulation in India except on imports. Car regulation and safety requirements is what keeps the BYDs out of the United States, and it's kept them out for the last 15 years. So that is the issue there.

Q: What do you think about META as a dividend play?

A: I think META will go higher, but like the rest of the AI 5, it is desperately in need of a pull back and a refresh to allow new traders to come in.

Q: Why does Netflix (NFLX) keep going up? I thought streaming was saturated—what gives?

A: Netflix won the streaming wars. They have the best content and the best business strategy; and they banned sharing of passwords, which hit my family big time since it seemed like the whole world was using my Netflix password. And no, I'm not going tell you what my password is. I’ve already paid for Griselda enough times. Seems there is a lot of demand for strong women in my family. Netflix they seem to be enjoying a near monopoly now on profits.

Q: Has the NASDAQ come too far too fast, and does it have more to run?

A: Well it does have more to run, but needs a pull back first. I'm thinking we'll get one this month, but I'm definitely not shorting it in the meantime.

Q: Have you ordered your Tesla (TSLA) Cybertruck?

A: I actually ordered it two years ago and it may be another two year wait; with my luck the order will come through when I'm in Europe and I'll miss it. Some of my friends have already gotten deliveries because they ordered on day one. They love it.

Q: What happened to United States Natural Gas (UNG)?

A: A super cold spell hit the Midwest, froze all the pipes, and nobody could deliver natural gas just when the power companies were screaming for more gas. That created the double in the price which you should have sold into! Usually, people don't need to be told to take a profit when something doubles in 2 weeks, but apparently there are some out there as I've been here getting emails from them. Further confusing matters further is that (UNG) did a 4:1 reverse split right at this time. They have to do this every few years or the 35% a year contango takes the price below $1.00 and shares can’t trade below $1.00 on the New York Stock Exchange.

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

December 15, 2023

Tech Letter

Mad Hedge Technology Letter
December 15, 2023
Fiat Lux

Featured Trade:

(A TECH COMPANY MOST PEOPLE HAVEN’T HEARD OF)
(SMCI), (PLTR)

A Tech Company Most People Haven't Heard Of

Tech Letter

It won’t be the case that only 1 or 2 AI stocks hit pay dirt.

There will be more winners.

Most importantly, companies need to get a set at the table whether it be hardware, software, or chips.

There are different ways to play AI and for example, Palantir is a good bet through the software side of it as it gobbles up government contracts that are indeed lucrative, but also highly stable.

Palantir (PLTR) has become one of the top stocks mentioned in conversations I’ve had and I don’t believe it’s going away.

The company has long used AI in its Gotham and Foundry platforms, and its Artificial Intelligence Platform (AIP) has produced eye-popping productivity gains.

But Palantir is currently expensive and management likes to issue new stock like there is no tomorrow.

One stock that could garner attention is Super Micro Computer (SMCI).

It’s a dark horse AI stock that few know about.

Super Micro stands out as a "rack-scale" IT solutions provider, designing servers, switches, storage systems, and software with global support services.

Since this approach combines hardware and software, it provides a competitive advantage over peers who focus primarily on either hardware or software.

Despite a market cap of only $14 billion, Super Micro has built a customer base in more than 100 countries. And so large is its operation that it requires more than 6 million square feet of manufacturing space globally.

A demand surge led to more need to attract talent through stock-based compensation.

Thus, that expense came to $57 million in fiscal Q1, up from $11 million in the year-ago quarter.

Super Micro maintained its fiscal 2024 revenue guidance of $10 billion to $11 billion.

This amounts to a 47% increase which definitely bolsters this tech stock as a prototypical growth stock that investors love.

The stock has skyrocketed by 210% over the last 12 months. And despite that surge, the stock sells at a P/E ratio of 24.

Considering the rapid growth expected, Super Micro's gains are not likely to stop anytime soon.

Thanks to a lack of name recognition, investors are only now seeing the potential for this AI stock.

Consequently, investors can buy a fast-growing stock at a low price.

This means that if they missed the opportunity to buy Palantir more cheaply, Super Micro gives them a second chance. Moreover, with its ability to combine hardware and software, it appears to have a competitive advantage in the AI space.

I’m not saying that investing in something like Nvidia won’t work.

There is room for other chip suppliers and Super Micro Computer is one of them.

The stock has really surged in the past year, but I would be inclined to add on big drawdowns.

Entry points are few and far between for SMCI.

This is just the early stages of AI and to get into one of the better names at a cheaper price is a good long-term strategy.

June 23, 2023

Diary, Newsletter, Summary

Global Market Comments
June 23, 2023
Fiat Lux

Featured Trades:

(JUNE 21 BIWEEKLY STRATEGY WEBINAR Q&A),
(AAPL), (ABNB), (GLD), (BA), (CAT), (DE), (X), (PYPL), (SQ), (MSFT), (GD), (GE), (INDA), (META) (GOOGL), (CCI), (NVDA), (ABNB), (SNOW), (PLTR), (TSLA)

CLICK HERE to download today's position sheet.

June 21 Biweekly Strategy Webinar Q&A

Diary, Free Research, Newsletter

Below please find subscribers’ Q&A for the June 21 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, NV.

Q: When do we buy Nvidia (NVDA) and Tesla (TSLA)?

A: On at least a 20% dip. We have had ballistic moves—some of the sharpest up moves in the history of the stock market for large stocks—and certainly the greatest creation of market caps since the market was invented under the Buttonwood Tree in 1792 at 68 Wall Street. Tesla’s almost at a triple now. Tripling one of the world's largest companies in 6 months? You have to live as long as me to see that.

Q: Is it a good time to invest in Bitcoin?

A: No, absolutely not. You only want to invest in Bitcoin when we have an excess of cash and a shortage of assets. Right now, we have the opposite, a shortage of cash and an excess of assets, and that will probably continue for several years.

Q: Should I short Apple (APPL)?

A: Only if you’re a day trader. It’s hugely overbought for the short term, but still in a multiyear long-term uptrend. I think we could see Apple at $300 in the next one or two years.

Q: Is it better to focus on single stocks or ETFs?

A: Single stocks always, because a single stock will outperform a basket that's in an ETF by 2 to 1 or even 3 to 1. That's always the case; whenever you add stocks to a basket, it diversifies risk and dilutes the performance. Better to just own Tesla, and if you want to diversify, diversify to Nvidia, but then I live next door to these two companies. That's what I tell my friends. You only diversify if you don’t know what is going to happen, which is most investors and financial advisors.

Q: Is the bottom of the housing market in, and are we due for a spike in home prices when interest rates can only go lower?

A: Yes, absolutely. In fact, we will enter a new 10-year bull leg for housing because we have a structural shortage of 10 million homes and 82 million millennials desperately trying to buy them at any price. I just got a call from my broker and she is panicking because she is running out of inventory. Even the lemons are starting to move.

Q: When do you think energy will rise?

A: Falling interest rates could be a good key because it sets the whole global economy on fire and increases energy demand.

Q: Outlook for the S&P 500 (SPY) second half of the year?

A: We hit 4,800 at least, maybe even higher. That's about a little more than 10% from here, so it’s not that much of a stretch, not like it was at the beginning of the year when it needed to rise 25% to reach my yearend target.

Q: Best time to invest from here on?

A: Either a 10% pullback in the market, or a sideways move of 3 months—that's called a time correction. It usually counts as a price correction because of course, over 3 months, earnings go up a lot, especially in tech.

Q: I’m seeing grains (WEAT) in rally mode.

A: Yes, that's true. They are commodities, and just like copper’s been rallying, and it’s yet another signal that we may get a much broader global commodity rally in everything: iron ore, coal, energy, gold, silver, you name it.

Q: Will inflation drop to 2%, causing stocks to go on another epic run?

A: The answer is yes, I do see inflation dropping to 2% —maybe not this year, but next year; not because of any action the Fed is doing, but because technology is hyper-accelerating, and technology is highly deflationary. The tech product you bought two years ago is now half the price, and they offer you twice as much functionality with an auto-renew for life. So, that is happening across the entire technology front and feeds into the inflation numbers big time, including labor. There's going to be a lot of labor replacement by machines and AI in the coming years.

Q: Is Airbnb (ABNB) a good stock to buy?

A: Well, if we’re going into the most perfect travel storm of all time, which is this summer, and which is why I’m going to remote places only like Cortina, Italy. Airbnb is the perfect stock to own. It’s a well-run company even in normal times.

Q: Should I buy gold here on the pullback?

A: Yes, you should. Gold is also highly sensitive to any decline in interest rates, and by the way: buy silver, it always moves 2.5x as much as the barbarous relic.

Q: How can inflation not go up if commodities and wage demands are going up due to state and federal unions? What about farm equipment and truck supplies? Costs keep rising, should we buy John Deere (DE)?

A: There are three questions here. Inflation will not go up because, though commodities will rise, they are only 0.6% of the $100 trillion global economy, or $660 billion in 2022. That will be more than offset by technology cutting prices, which is 30% of the stock market. You have to realize how important each individual element is in the global picture. And regarding wage demands going up caused by state and federal unions, less than 11.3% of the workforce is now unionized and that figure has been declining for 40 years. Most growth in the economy has been in non-unionized technology firms which largely depend on temporary workers, by design. What IS unionized is mostly teachers, the lowest paid workers in the economy, so incremental pay rises will be small. Unions were absolutely slaughtered when 25 million jobs were offshored to China during the Bush administration. Buy farm equipment and trucks? Absolutely, buy John Deere (DE) and buy Caterpillar (CAT) on the next dip. I was actually looking at Caterpillar for the next LEAPS the other day, but it’s already had a big run; I'm going to wait for a pullback before I get CAT and John Deere. So, again, people see headlines, see union wage headlines—I say focus on the 89% and not on the 11% if you want to make good decisions.

Q: Is Boeing (BA) a buy on the dip?

A: Yes, they got 1,000 new aircraft orders and the stock hasn't moved. So yes, if you get any kind of selloff down to $200, I'd be hoovering this thing up.

Q: Can you please explain how the profit predictor works?

A: It’s a long story; just go to our website, log in and do a search for “profit predictor,” and you’ll get a full explanation of how it works. It’s actually where Mad Hedge has been using artificial intelligence for 11 years, which is why our performance has doubled. Just for fun, I'll run the piece next week.

Q: Gold (GLD) is having a hard time going up because Russia is being squeezed by other governments. Since they need cash, they may be either selling their gold or stop buying new gold.

A: That is a good point, but at the end of the day, interest rates are the number one driver of all precious metals—period, end of story. We’re long gold too, I’ve got lots of gold coins stashed around the world in various safe deposit boxes, and I'm keeping them. I’ve got even more silver coins, which take up a lot of space.

Q: Do you like India (INDA) long term?

A: Yes, it’s the next China. But as Apple is finding out it is very difficult to get anything done there. A radical reforming Prime Minster Modi may be changing things there with his recent Biden visit and (GE) contract to build jet engines.

Q: What do you think of General Dynamics Corp (GD)?

A: I like General Dynamics because I think defense spending is in a permanent long term upcycle as a result of the Ukraine war. And it won’t end with the Ukraine war—the threat will always be out there, and the buying is done by not only us but all the other countries that think Russia is a threat.

Q: Do you like MP Materials Corp (MP)?

A: Yes, I do. The whole commodities space is ready to take off and go on fire.

Q: What about Square (SQ)?

A: The only reason I’m not recommending Square right now is huge competition in the entire sector, where all the stocks including PayPal (PYPL) are getting crushed. I will pass on Square for now, especially when I can buy US Steel (X) at close to its low for the year.

Q: If you had to pick one: Nvidia (NVDA), Tesla (TSLA), Microsoft (MSFT), Meta (META), and Google (GOOGL), which is the best to buy for next year?

A: All of them. Diversify. If I have to pick the top performer, it’s going to be either Tesla or Nvidia, probably Nvidia. But you need at least a 10% correction before you do anything. Actually, the split-adjusted price for our first (NVDA) recommendation eight years ago was $2 a share.

Q: Do you like Crown Castle International (CCI)?

A: Yes, I like it very much—it has very high dividend yield at 5.5%. The reason it hasn’t moved yet is that as long as interest rates are high, any REIT structure will suffer, and (CCI) has a REIT structure. Sure, it’s in a great sector—5G cell towers—but it is still a REIT nonetheless, and those will start to recover when interest rates go down; that’s why we did a 2.5-year LEAPS on CCI. For sure interest rates are going to go down in the next 2.5 years, and you will double your money on (CCI). That’s why we put it out.

Q: Which mid cap will do best over the long term: Airbnb (ABNB), Snowflake (SNOW), or Palantir (PLTR)?

A: That’s easy: Snowflake. They have such an overwhelming technology on the database and security front; I would be buying Snowflake all day long. Even Warren Buffet owns Snowflake, so that’s good enough for me.

Q: Could you comment on the pace of EV adoption/potential for (TSLA) robot fleet acceleration and implications for oil investments in holding pattern till the eventual collapse to near 0?

A: Yes, oil may collapse to near zero, but it may take twenty years to do it—that’s how long it takes to transition an energy source. That’s how long it took the move from horses and hay to gasoline-powered cars at the beginning of the 20th century. A national robot fleet of taxis with no drivers at all is a couple of years off. There are about 1,000 of them working in San Francisco right now, but they still have more work to do on the software. When it gets foggy, they often congregate at intersections causing traffic jams. Suffice it to say that eventually Tesla shares go to $1,000 and after that, $10,000—that’s my bet. By the way, my Tesla January 2025 $595-$600 LEAPS are starting to look pretty good.

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

Good Luck and Stay Healthy,

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

2018 in Australia

January 18, 2023

Tech Letter

Mad Hedge Technology Letter
January 18, 2023
Fiat Lux

Featured Trade:

(FOLLOW THE MONEY)
(PLTR)

Follow The Money

Tech Letter

In an interview with CNBC’s Andrew Ross Sorkin, the CEO of Palantir (PLTR) Alex Karp pitched us why America should view his company Palantir as a force for global good and why investors should invest in this company.

I wasn’t convinced after hearing his answer, and the dead giveaway was his avoidance of the question about why he continues to dilute the volume of shares in the software company.

On the revenue side of things, it’s been quite good, with the software business exploding in revenue from $560 million in 2018 to annual revenue of $1.54 billion in 2021.

His tech company overwhelmingly benefits from geopolitical catastrophes like kinetic wars ,which is why the military conflict in Eastern Europe is so lucrative for Palantir.

In the interview, he hyped his software as the great equalizer to Russia’s army, claiming that the reason a “small” country can fight toe to toe with Russia is with the help of the Palantir software.

That claim was a bit of a stretch, but why not use the global stage to hype up one's product and abilities?

Karp also took a victory lap on the brutal governmental lockdowns of 2020 and 2021 around the world, saying his company “saved millions of lives” by integrating Palantir with government services.

Basically, if the world is trending badly and the worse the better for the tech firm to the point of mass violence and anarchy, his company will ride those coattails to profits.

Yet the stock price has swan dived from $40 to $7.

You read that correctly.

Part of the problem of Karp’s software company is clearly the economic and financial backdrop that has forced interest rates higher and caused rampant inflation. I won’t discount that.

But the more important excuse for the appalling stock performance is because of Karp aggressively diluting shares.

The number of shares has increased by around 200% since the 2020 IPO and many of those shares have gone to upper management.

Karp and his friends have a habit of cashing out these diluted shares because they are still worth hundreds of millions even after the dilution, and Karp is still owed newly minted shares each year for around the next 10 years.

Sounds like a bad deal for the incremental investor.

In short, Palantir has served as the personal piggy bank for Alex Karp and his executive management team.

Instead of rewarding the shareholders, he has milked the company for profits while pouncing on public money to fund his software company.

In almost every interview I have seen him participate in, he doesn’t miss a chance to bash the Silicon Valley establishment either and almost calls them un-American.

Although he is highly forthright about his responsibility to be an American-first company, his shunning of external investors is why every reader should avoid this company.

If you invest hard-earned money into this firm, your money will be cashed out by Karp like his personal ATM.

It’s like an annual procession – rinse and repeat.

He’s just waiting until the end of 2023 for his new tranche of diluted shares to hit his account, and then he will sell them on the open market and withdrawal more fiat dollars.

Aside from the stock dilution circus, the company is actually quite solid with a competitive moat around its proprietary software.

The one negative I can think of is the lack of profitability with the firm losing half a billion dollars last year.

However, the company is growing too fast so that super growth justifies the loss-making.

Karp needs to stop running the company only for the purpose of his personal bank account and PLTR’s shares will never go up until he accommodates outside shareholders.

This is a $7 today, but because of Karp’s financial mismanagement of PLTR, it should be a $25-$30.

Until there is proof that Karp has changed strategies and incorporates a vision of prioritizing shareholder returns, readers will need to look elsewhere to make money in the tech sector.

karp

October 21, 2022

Diary, Newsletter, Summary

Global Market Comments
October 21, 2022
Fiat Lux

Featured Trade:

(OCTOBER 19 BIWEEKLY STRATEGY WEBINAR Q&A),
(BAC), (USO), (SPY), (TSLA), (NFLX), (TBT), (PLTR), (SNOW)

October 19 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the October 21 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: Bank of America (BAC) said the US consumer is strong and lending is robust. Does this mean no recession in 2023?

A: It could, because remember that while some sectors are clearly in recession, like real estate and automakers, and have been for a while, others are absolutely booming, like the airline business, and the banking business. There may not be a recession in here, or if there is one, it’s a very slight one. Count on the market to first discount a severe recession which would take the S&P 500 down to $3,000-$3,200 or so; and that’s what markets do, always overly pessimistic at the bottom and overly euphoric at tops. You can make your living off of this.

Q: What do you think about OPEC's behavior (USO) and its influence on the price of oil?

A: Clearly, they’re trying to influence the midterm elections and get an all-republican pro-oil Congress, which will be nicer to OPEC. That’s certainly what they got with the last administration and it’s safe to say that the pro-climate administration of Biden and the Saudis get along like oil and water. But long term, OPEC knows it’s going to zero, and in fact, Saudi Arabia has plans to turn their entire oil supply into hydrogen which can be exported and burned cleanly. I know the team here at UC Berkeley that’s working on that with the Saudi government. Cheap hydrogen also means airships come back, how about that? Hindenburg anyone?

Q: Will draining the Strategic Petroleum Oil Reserve (SPR) backfire, meaning deflation for the US economy and administration?

A: No, the SPR outlived its usefulness maybe 30 years ago—it’s essentially a government subsidy for Texas and Louisiana, and for the oil industry, that has taken on a life of its own. When we started the SPR in 1975, the US got more than half of its oil from the Middle East. Now, it’s almost zero. It goes to China instead. If we are a net energy producer and we have been for over 5 years, why do we even need a petroleum reserve? So no, I think we should shut it down and sell all the oil that’s in there. And it becomes even less relevant as more of the US economy turns over to alternatives.

Q: How do we operate our military with no oil?

A: The pentagon is working on a no-oil future, developing alternative fuels for all kinds of things that you wouldn’t imagine are possible. For example, instead of using diesel, jet fuel, or gasoline for our vehicles, you outfit them with electric batteries, and when the batteries go dead you just air drop new fully charged ones. It’s much better than trying to transport gasoline across the desert in a giant fuel bladder, which can be taken out by a single bullet and is what they do now. Take the pilots out of fighters and they become so light they can operate on battery power. So yes, the pentagon has actually been in the forefront of using every alternative technology they can get their hands on from the early days. Better they get them first before an enemy does.

Q: We will almost always need petroleum; far too many products use it as an ingredient.

A: That is absolutely right. Some will probably never be replaced, like asphalt, feedstock, or plastic. However, those represent less than 10% of the current oil demand. So yes, there always will be an oil industry, it just might be a heck of a lot smaller than it is now. You eliminate cars from the picture, and that’s half of all oil demand in the United States right there. And in most places in the United States, it will be illegal to sell a car that uses gasoline in 12 years. And do you make 30-year investments based on demand for your product dropping by half in 12 years? No, you don’t, which is why the oil companies themselves won’t invest in their own industries anymore. They’re only paying out profits as dividends and buying back shares, which they never used to do.

Q: Do you think the Standard & Poor’s 500 Index (SPX) $3,500 was the bottom?

A: No, we actually did get a little bit lower than that. We will be in a bottoming process over the next several months, but the pattern will be the same. Tiny marginal new bottoms, maybe 100 points lower than the last, and then these gigantic rallies. If we do make bottoms they will only be for seconds, so the way to deal with that is to only put in really low-limit orders to buy stuff, assuming 1,000 points down, and just keep entering the order every day. Eventually, you’ll get one of these throw-away fills when the algorithms panic and a bunch of market orders hit the market. That's the way to deal with that.

Q: I would say that Biden is trying to influence the elections by releasing oil reserves.

A: Absolutely he is, but then so is the oil industry, taking half of the refineries off stream 2 months before the elections, and spiking oil prices. So it’s a battle of the oil price going on here. No love lost between the oil industry and Biden, and US consumers for that matter. I don’t care if gasoline is $7 a barrel because I never buy it; I am all electric. But for a lot of working people, that’s definitely a lot of money.

Q: How concerned are you about the US going to a cashless currency?

A: I’m not worried because I pay my taxes and I don’t break any laws. If you don’t pay taxes and do break laws, like engaging in drug dealing or bribery, you should be extremely worried, as that would be the eventual goal of a cashless economy. That and the fact that the government has to spend $300 million a year printing paper money, which they’d love to get rid of. And of course, it’s cheaper for businesses to use digital currencies. Most countries in Europe don’t use physical currency anymore—it’s credit cards only.

Q: Do you expect Tesla (TSLA) to pop after earnings?

A: I have no idea; it depends on what the report says but suffice it to say that Tesla is historically cheap. It has the lowest PE multiple now than it has in the entire 13-year history of the company. Scale in on the LEAPS with Tesla—that’s what I’d be doing down here.

Q: Could the US debt situation spiral into something that gets out of hand?

A: No, because the purchasing power of debt is now deflating at an 8.4% annual rate, which means that it goes to zero in about 8.57 years. This is how the government always wins when issuing debt. It’s been going on since the French first issued government debt 300 years ago. Who pays for that? Bond investors. Anybody who owns bonds now has seen their purchasing power go up in smoke. That’s why it’s been a one-way zero bid market for two and a half years—they’ve been dumping like crazy.

Q: Should I buy debt here or sell it?

A: We’re actually getting close to a bottom in the junk debt market, which means you’re going to be yielding around 10%. That means the value of your holding doubles in 6 years, and the default rates never reach the high levels predicted by analysts in junk bonds. That has always been the key to junk bonds in the whole 50 years that I've been following this market. My neighbor up in Tahoe, Mike Milliken, made billions off that assumption.

Q: What do you think about Netflix (NFLX)?

A: Well, my advice was to buy it, to a lot of people. They’re clearly changing their business model for the better—they’re going to start picking up ad revenues, they’re cracking down on password sharing, and they delivered a 20% return in stocks. Plus their share price has just dropped down from $700 to $165. Great LEAP candidate here.

Q: What kind of position is best if a recession hits?

A: Cash. Cash is now yielding 4.4%. The best cash alternative is 90-day T-bills issued by the US Treasury. Execution costs almost zero, and liquidity is essentially infinite; but, remember also that bull markets start 6 to 9 months before recessions end. You just have to watch your timing. Which means that if the recession ends in say July, you have to be buying stocks today. Just keep that in mind, ladies and gentleman.

Q: How do you see the futures of semis?

A: Anything you buy here now will triple in three years, but it becomes a question of how much pain you want to take in the meantime. Everyone in the investment management industry thinks the same, and it really is a classic “catch-a-falling-knife” situation— knowing that the payoff down the road is enormous. Virtually all companies are designing new semis into their products at an exponential rate.

Q: Are LEAPS part of the service?

A: Yes, they are. I will send you one tomorrow. But concierge customers get first priority because that’s what they’re paying for.

Q: How far out should we go?

A: On LEAPS, always take the maximum maturity, which is usually 2 years and 4 months. And the reason is that the second year is almost free—they charge you almost nothing for going out to maximum maturity. And if we have a recession that does last longer than people think, that extra year of maturity will be worth its weight in gold. It’ll be the difference between a zero return and a 10x return.

Q: Can we go back into the ProShares UltraShort 20+ Year Treasury (TBT)?

A: No, it would be a horrible idea to buy the (TBT) here after it just moved from $14 to $36. That’s what you buy before it goes from $14 to $36. We’re topping out in all of these short bond plays, so avoid them like the plague.

Q: How much is the Concierge Service?

A: It’s $12,000 a year—and a bargain price at that! Almost everybody ends up covering that on their first trade, and you get an entire portfolio of LEAPS and a dedicated LEAPS website with the service. You also get my personal cell phone number so you can call me while I'm either on the beach in Hawaii or on the ski slopes of Lake Tahoe. If anyone has questions about the concierge service, contact customer support at support@madhedgefundtrader.com.

Q: What are your thoughts on data analytics companies Snowflake (SNOW) and Palantir (PLTR)?

A: Love Snowflake, hate Palantir because the CEO isn’t interested in promoting a share price. With (SNOW), you have Warren Buffet as a major holder, so that’s all you need to know there. (SNOW) also has a 75% fall behind it.

Q: Thoughts on the Ukraine/Russia war?

A: It’ll drag on well into next year, and obviously the Iranian drones are the new factor here. I wouldn’t be surprised if there were suddenly an accident at a certain factory in Iran; that’s what happens when these things play out.

Q: Is Snowflake (SNOW) a buy right now?

A: It’s like all the rest of tech. High volatility, could have lower lows, but long-term gains are at least a triple from here. You know how much risk you can take.

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

Good Luck and Stay Healthy,

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