Global Market Comments
June 9, 2023
Fiat Lux
Featured Trades:
(JUNE 7 BIWEEKLY STRATEGY WEBINAR Q&A),
($VIX), (TSLA), (TLT), (FCX), (RUT), (COIN), (AAPL),
(ROM), (AMZN), (PYPL), (NVDA), (COPX), (FXI)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the June 7 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Lake Tahoe, NV.
Q: Do you ever trade the CBOE Volatility Index ($VIX)?
A: No, I used to, but I got hit a few times. That’s because 95% of the year is spent seeing the ($VIX) go down, and then the other 5% basically doubles overnight. It’s a short play only. With a long ($VIX), the time decay is enormous, and it’s just not worth owning. The only way to make money in ($VIX) is to buy it right before a giant VIX spike. And the floor traders in Chicago have a huge inside advantage in that market. So, I finally gave up and decided there's better things to do.
Q: Buy the price dip for Tesla (TSLA)?
A: I’d have to look at the charts, but if it gets back down to $200, I would start hoovering it up again. The fundamentals are really arriving for Tesla big time, as is the long-term bull case.
Q: With the debt crisis over, how low will the iShares 20 Plus Year Treasury Bond ETF (TLT) go in the short term?
A: Well, we know they have to issue a trillion dollars of 90-day T-bills in the next few weeks. The debt ceiling crisis stopped Treasury bill issuance for several months and now they have a lot of catch-up to do. So, best case scenario, the (TLT) drops to $95, then you load the boat for the rest of your life in (TLT) LEAPS, like a $95-$100 2024 LEAPS. And that should double about every year.
Q: Are you concerned about commodities given the weakness in the Chinese economy?
A: Yes, it’s definitely slowing the commodities recovery, but is also giving you a fantastic opportunity to get into things like Freeport McMoRan (FCX) at a cheaper price, where it was just a couple of weeks ago. All of the commodities look like they’re bottoming now, it’s time to buy them.
Q: It seems like you really love the Russell 2000 (RUT).
A: I hate the Russell. You only want to own big money stocks because that's where the big money goes first. Big money doesn’t go into the Russell, and as long as there's any doubt of a recession coming, they’ll perform poorly.
Q: Coinbase (COIN) is getting sued by the SEC, should I buy on the dip?
A: No, the whole crypto infrastructure is getting sued out of existence and disappearing. They went after Binance also. It seems like the SEC just doesn’t like crypto very much. That kind of shrinks the whole industry back down to hot wallets, where you slowly have direct control of your bitcoin on the network and you don't use any outside brokers to buy and sell it because there may not be any left shortly.
Q: Should we still hold the Apple (AAPL) bull call spread?
A: Yes, I think we have enough room on our call spread in the next 7 trading days to take max profit. However, if you have any doubts, no one ever gets fired for taking a profit.
Q: Is the ProShares Ultra Technology ETF (ROM) a buy at this time?
A: No, if anything, ROM is a sell. It almost had a near-double move. So no, wait for a 20% or 30% correction this summer in ROM and then go in. It has actually led most tech because it's a 2X long ETF. Sometimes I just want to shoot myself. You buy before stocks double, not afterwards.
Q: What will trigger a correction this summer?
A: The risk of a further rise in interest rates, which we may get. Other than that, the market is running out of negatives.
Q: What is the risk of US currency not being the world reserve?
A: Zero. I have been asked this question every day for the last 50 years and so far, I have been right. What would you rather keep your savings in Chinese Yuan, Russian rubles, or Euros? I would say none of those. And US currency will remain the reserve currency for this century, easily, until a digital US dollar comes out.
Q: Do you want to buy the cellphone companies?
A: No, not really. They weren’t very interesting before—it's a low margin, highly competitive cutthroat business—and now you have one of the world's largest companies, Amazon (AMZN), potentially offering phones for free? I think I'll pass on that one.
Q: Do you have any interest in pairs trading?
A: No, they blow up too often.
Q: Did you say you sent out a one-year LEAPS on Freeport McMoRan (FCX), the $35-$38?
A: Yes, if you didn’t get it, email customer support.
Q: Are investing in 90-day Treasury bills until the next one or two Fed meetings are over a good idea?
A: Yes, that is a good idea. Cash has a high-value night now. Remember, a dollar at a market top is worth $10 at a market bottom, and we now have a rare opportunity to get paid 5.2% or 5.3% while we wait. That hasn’t happened in almost 20 years.
Q: Will the new Apple VR headset be a boon to the stock price?
A: Yes, adding 10% to your earnings is always good, but it won’t happen immediately. You need a few thousand third-party app developers to come through with services before the earnings really get going. That's what happened with iTunes when the iPhone came out. Growth was slow when Apple only allowed its in-house apps to be sold—when they opened to the public, the business went up 100 times. That's maybe what will happen with the virtual headset.
Q: PayPal (PYPL) has dropped a lot, should I buy it here?
A: No, cutthroat competition in the sector is destroying the share price. There are too many other better things to buy.
Q: Why do so many professional analysts say the market will go down this year, but it goes up every day?
A: Professional analysts are just that—they're analysts, not traders. And often these days, to save money, your professional analyst is 26 years old, so they don’t have much market experience. I like to think that 50 years of trading experience backed with algorithms helps.
Q: Do you think oil could hit $100 a barrel next year?
A: Yes, definitely. Especially if we get a decent economic recovery and Saudi Arabia doesn’t immediately bring back 3 million barrels a day that they’ve cut.
Q: Should I chase NVIDIA (NVDA) here?
A: No, better to own cash here than Nvidia. Buy Nvidia on the next dip, or another Nvidia wannabe company, which will almost certainly arrive shortly.
Q: When will we get peace in Ukraine?
A: Within a year, I would say. Russia has literally run out of ammunition, and Ukraine is getting more. Ukraine is also getting F16s, our older fighter planes, and many other advanced weapons and parts—those are a big help. They can beat anything the Russians throw up.
Q: Is Global X Copper Miners ETF (COPX) a good copper play?
A: Yes it is, but you don’t get the leverage that you do with an FCX LEAP. I don’t know how far the top will go, but that would be a great trade one to two years out.
Q: Can you explain why there is a short squeeze in copper?
A: There are 200 pounds of copper needed for each EV, and EV production is exploding both here and in China. Tesla is expected to make 2 million EVs this year, especially with the $33,000 price point. China manufactures this many EVs as well. Four million EVS and 200 pounds of copper per EV equals the entire annual production of copper right now. At some point, people will notice that and they’ll take copper as much as they took lithium up last year.
Q: What do you mean when you say LEAPS one or two years?
A: It really depends on your risk. When you buy a two-year LEAPS, you usually get the extra year for free or almost nothing, and if you get a rapid increase in the underlying share price, the two-year LEAP will go up almost as much as the one year. So for most people who don’t want to watch the market every day, the two-year LEAPS is probably a better choice.
Q: Why did you buy only one LEAPS contracts?
A: All of my LEAPS recommendations are only for one contract. It is up to you to decide what your risk tolerance and experience level is, whether you buy 1, 100, or 1,000 contracts, so I leave the size up to you because it can vary tremendously depending on the person. Also, one contract makes the math really easy for people to understand.
Q: At what point do you sell your LEAPS?
A: Well, if you get a rapid 500% profit, which happened with many of the LEAPS that we did in October as well as the ones we did in March, I would take it. However, the goal on these is to go for the 10 baggers, or the 100% return in a year, and you usually need to hold it for the full year to get that. But, if the stock takes off like a rocket, I would take the profit. How many times in your life do you get a 500% profit in a month or two? I would say none. So, when you get that with these LEAPS recommendations, take it and run like a madman, move to a different country, and change your name.
Q: With the ($VIX) this low and many great companies for the second half down, would you buy single LEAPS instead of spreads?
A: I would; the problem with the call spread strategy is that it’s not the best thing to do at big market bottoms, down 20%, 30%, and 40%. The better thing to do is the LEAPS, but the LEAPS is a one- or two-year position, and I have to be sending out trade alerts every day. At market bottoms, you definitely want to get the most market leverage possible on the upside, and LEAPS does that for you in spades. They essentially turn your stock into a synthetic futures contract with a 10x leverage.
Q: When do we expect China (FXI) to take over Taiwan?
A: Never, because if they invade Taiwan, China loses its food supply from the US, which cannot be replaced anywhere. They also lose their international trade, so they won’t have the profits with which to buy food elsewhere. I’ve been in China when millions died during a famine and let me tell you, there is NO substitute for food. Not all the money in the world can buy it when it just plain isn’t available. But China will keep threatening and bluffing as they have done for 74 years.
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
Sometimes the Market Can be Tough to Figure Out
Global Market Comments
May 12, 2023
Fiat Lux
Featured Trades:
(THURSDAY, MAY 16, 2023 KEY WEST, FLORIDA STRATEGY LUNCHEON)
(MAY 10 BIWEEKLY STRATEGY WEBINAR Q&A),
(SCHW), (AAPL), (TLT), (BITCOIN), (FXA), (USO), (FCX), (LLY), (PYPL)
CLICK HERE to download today's position sheet.
Below please find subscribers’ Q&A for the May 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village, NV.
Q: Why is the market down on such great inflation data?
A: Yes, a 4.9% annualized inflation rate is a big improvement from 9.1% nine months ago. The market only cares about the debt ceiling debacle right now. I’ve been teaching people about the stock market for about 55 years, and I can tell you that all investors have one great fear, and it's not the fear of losing money—that they can handle. It’s the fear of looking stupid. And if they load the boat with stock now, and the US government defaults and the market drops 25%, they will look really stupid. This is not a black swan. It has probably been the most advertised market negative in history. We’ve known about the debt default since December when the Democrats chose not to raise the debt ceiling because they thought they could gain a political advantage by letting the Republicans fumble the issue, and they are reaping such advantages by the bucketload. So, even though everyone knows that this will be settled, it has settled 98 consecutive times in the last 106 years, and they don’t want to do anything before a deal. And by the way, this was only put into place during WWI to meter the rate of government borrowing during the war, so I would say it’s lost its purpose. However, it's hard to make any changes at all in the government these days. What that does do, is create big gaps up in the market when they are resolved, and big gaps down when they are not resolved. That’s why we’re doing nothing.
Q: Do you like regional banks here—are they a buy? And do you like the Schwab LEAPS?
A: Yes on the Charles Schwab LEAPS (SCHW), because you have two years for that to work out. With regional banks as a stock buy here, you’re really buying a lottery ticket because if they do get attacked by short sellers, you get wiped out practically overnight (as has happened 4 times.) On the other hand, if the US Treasury or the FCC makes selling bank shares or lending bank shares illegal, then you’ll have the regional banks just roar, because the sellers will be gone. There are too many better things to do than to make a high-risk trade on bank shares, especially after the debt ceiling is resolved.
Q: Is Apple (APPL) trade a long?
A: Yes, on any pullback. I think big tech leads for the next 10 years once we get out of our current quagmire. So it’s a question of how much pain you’re willing to take in the meantime. My target for Apple this year is $200.
Q: iShares 20 Plus Year Treasury Bond ETF (TLT) is up today; would it be worth selling out of the money call spreads with the same expiration date as our long position?
A: No, it is not. At $104, it’s not a great short, or otherwise, I’d do it myself. When we get up to $109, then you want to go short like with the $114 puts or $115 puts. But down here if you’re shorting say, the $109s, and we go to $109 the next day or week, then you get stopped out. Remember any shorts of bonds here is now a long-term counter-trend trade—you’re betting that your position expires in the money before a long-term trend to the upside reasserts itself. So no, that’s why I’m not doing any shorts right here. Also, we’re not low enough to buy it yet. You get down to $101 or $102, I’ll look at buying call spreads, but here in the middle is never a good place to trade.
Q: Are you still expecting a correction in May?
A: May isn’t over yet. When they say “Sell in May and go away,” they don’t tell you if it’s May 1st or May 30th, so I’m happy where I am. There’s no law that says you have to get every trade of the year. I think doing nothing is the best solution right now, especially with a 62% profit already in the bank this year.
Q: Is it too late for bank LEAPS?
A: I would say, on a two-year view, no. I’m looking for these shares to double in two years, so a bet that it’s unchanged or higher right now is a pretty good bet, I would say—especially if it gives you a 100% return in one or two years. So yes, all the big bank LEAPS are still good, and with small banks, too much is unknown right now for a highly leveraged bet in that sector.
Q: What do you mean when you say one-year LEAPS is a call spread?
A: When I say one year LEAP, I mean at the money, and then short the next strike higher, and that gives you the maximum leverage. Something like 20:1 leverage when you go that aggressive. But now is the time to be aggressive; that's when these LEAPS are all on sale.
Q: Near-term iShares 20 Plus Year Treasury Bond ETF (TLT) move?
A: Sorry to say, sideways. That's why I'm doing nothing. I’m waiting for the market to tell me what to do. If it goes down, I want to buy it, if it goes up, I want to sell it, if it goes sideways, I want to go on vacation—very simple trading strategy.
Q: What about commercial real estate?
A: I don’t want to touch it, and the Real Estate Investment Trusts (REITs) on those have been horrible. Maybe later in the year when the REITs are at bankruptcy levels, it might be worth a buy. But you have to be careful on your REITs; there are good REITs and there are bad REITs, and you don’t want to be anywhere near the commercial ones. With things like cell phone towers, assisted care living facilities—you know, dedicated LEAPS in safe areas would be a good place. And the yields, by the way, are very high, if they pay.
Q: If the US defaults, what would you buy?
A: Everything, because everything will be at a low for the year; so that’s an easy one. By the way, when we got the banking crisis in March, I adopted an everything strategy then: buy all big banks and brokers—and it turned out to be the best trade of the year. The same is going to happen with the debt default.
Q: How long will it take for the regional bank construction to play out?
A: I think the regional banks have completely separated themselves out from the big banks. You only want to own the big banks because you get big returns on those, and the risk/reward ratio is overwhelmingly in favor of big banks, unlike with small banks. Therefore, you only buy the big banks in that situation. If you feel like buying a lottery ticket on your local bank because it’s down 80%, go ahead and do so, but remember that's what it is—a lottery ticket, with a big payoff if you win.
Q: Bitcoin has recently been weak off its top. Do you expect another leg up in Bitcoin prices?
A: I do not. Bitcoin was the perfect asset to have when we had a huge oversupply of cash and a shortage of assets. Now, is the opposite: we have an oversupply of assets and a shortage of cash, and that may remain true for another 10 years or so. So, if you have Bitcoin, I’d be unloading any positions you have now and falling down on your knees, thanking goodness you were able to recover this much of your loss. The other problem is you now have a lot of the intermediaries going bankrupt or shut down by the SEC or the US Treasury. So, that is an additional risk, which you don’t have buying JP Morgan (JPM), for example, or the Australian dollar (FXA), or oil (USO), or copper (FCX). It’s just so far out there on the risk/reward basis. Only large institutions and miners are in the market now—most individuals have been scared away for life.
Q: Would you buy PayPal (PYPL) on the dip? The earnings were terrible.
A: Yes, I would. It is now discounting a recession. If you don't get a recession, you get a big recovery in PayPal.
Q: Do you think that a Ukraine-Russia war will end soon?
A: I would doubt that the Russia-Ukraine war lasts more than a year, and when it ends, it will create the biggest global economic stimulus since the Marshall Plan. Also, American companies will be at the front of the line on the reconstruction deals because we supplied a lot of the weapons and intelligence. Looking at the Marshall Plan in modern terms: $17 billion in 1947 money would be on the order of a $1 trillion today—you basically have to rebuild an entire country. And guess who’s good at building countries? We are. We have all the big engineering companies to do it. Buy Caterpillar (CAT) for sure. By the way, I’ll be spending my summer vacation working on the Ukraine War for the US Marine Corps and NATO. At least the Belgians have better food.
Q: What do you think about pharmaceuticals like Eli Lilly (LLY)?
A: We’ve been recommending them in the Mad Hedge Biotech & Health Care letter for literally years. They’re absolutely kicking butt with their weight loss drug Mounjaro—to the extent that there are shortages of supplies, a black market, and big price increases coming, so it’s all about the weight loss boom. I hate to think of what the combined overweightness of America is, but it’s got to be somewhere in the millions of tons (and I am one of the guilty parties myself.)
Q: There's talk that EVs put out a lot of sulfur that increases climate change issues. What do you think?
A: Absolutely not true, as there is no sulfur in an EV. I don't know where they would come out of an electric engine running on a lithium battery. It’s just another bit of fake news coming out of the oil industry, which is pretty much around us all day, every day. You just have to get used to that. Conventional international combustion engines do emit a lot of sulfur in the form of sulfur dioxide and the big three have been sued over this for at least 50 years.
Q: When will the debt ceiling negotiations end?
A: There are two indicators you look for in predicting the end of a debt ceiling crisis (the last one of which was 12 years ago): #1. When the government announces it can’t send out social security checks anymore because they have no more money, and #2. A big drop in the stock market that scares all the billionaires, cuts their wealth, and makes them threaten to withdraw funding from the politicians who are blocking this thing. Another big indicator is when the Department of Defense announces they have no more money to pay military salaries. Almost all military presence in the United States is in red states and is a major support for economies. And the reason is that's where land was cheapest during WWI, which was when we did a very rapid buildup in the number of military bases. So, watch for those indicators and look for a massive rally when this happens. The US government is basically a giant recycling machine. It takes money off the coast, where all the wealth and taxes are paid, and spends it inland, where all the infrastructure and military have to be paid for. The only military spending on the coasts is in Hawaii, cyber warfare in California, and shipbuilding on the east coast. Anything that interferes with the process of moving money off the coasts and inland is doomed to fail for sure. That’s my one-minute analysis on the cash flows inside the US economy.
Q: I read that the clarity of Lake Tahoe is the best ever. Is this true?
A: Yes, it is. It is an example of a major effort to save the environment that succeeded, but you had to live 70 years to see it. The biggest factor was improving gas mileage for cars. The average fuel economy for new model cars has increased from 12 miles per gallon in 1950 to 35 today. Notice that cars have gotten a lot smaller too. That cuts by two-thirds the carbon dioxide going into the atmosphere which can combine with nitrogen to make nitric acid which fell into the lake. Several big development projects were stopped in their tracks. So was a planned freeway around the lake. Some 17 golf courses are now banned from using fertilizer. Sewage is now piped out of the valley instead of into the lake. A record 70 inches of rainfall this year helped dilute the water. Finally, an ill-conceived freshwater shrimp farming industry ended when the shrimp all starved to death when the lake became too clear, eliminating their poop from the picture. There is now a campaign to clean garbage off the bottom which I help fund. We even found “Fredo’s” body from The Godfather! As a result, the lake clarity has improved from 50 feet in 1970 to 115 feet, the same as when Mark Twain first visited Lake Tahoe in 1861.
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
Want to Know What Happens Next?
Global Market Comments
February 17, 2023
Fiat Lux
Featured Trade:
(SOME BASIC TRICKS FOR TRADING OPTIONS)
CLICK HERE to download today's position sheet.
Global Market Comments
February 16, 2023
Fiat Lux
Featured Trade:
(IS AIRBNB YOUR NEXT TEN BAGGER?),
(ABNB), (WYNN), (H), (GOOG), (PYPL)
CLICK HERE to download today's position sheet.
Last summer, I stayed at an Airbnb in Long Beach, CA in order to pick up my kids from the Boy Scout Camp on Catalina Island. It was billed as a vintage 1920s residence with all the period finishes, was two blocks from the beach, and was a short drive to the Cataline ferry, so it seemed like the ideal place.
But the second I walked into the place I was overcome by a ghostly Twilight Zone type feeling. Everything seemed strangely familiar. What really freaked me out was that the grill on the electric wall heater exactly matched the scar on my sister’s hand. Even though the place was 100 years old, I had been here before.
When I returned home, I headed straight for a voluminous genealogy file that I maintained. After an hour of going through all the family records, I hit paydirt. The address of the Airbnb was listed as the home address of my grandmother when she was married in 1925.
When the pandemic hit in February 2020, I figured Airbnb (ABNB) was toast. Global travel had ground to a halt, and competitors like Wynn Resorts (WYNN) and Hyatt Hotels (H) saw their share prices plunge to near zero.
Instead, the opposite happened.
While the big hotels continue to roast in purgatory, Airbnb catapulted to a new golden age, and how they did it was amazing.
They turned all travel local. Instead of recommending that I visit Cairo, Tokyo, or Rio de Janeiro, they suggested Carmel, Monterey, or Mendocino, all destinations within driving distance.
It worked spectacularly well, and the company is now moving from strength to strength. Since the pandemic bottom, the shares have rocketed from $69 to $210.
My neighborhood in Incline Village, NV was almost always deserted outside of holidays. Now it is packed with Airbnber’s awkwardly moving in every Friday only to flee on Sunday.
How would you like to get an 80% discount on all of your luxury hotel accommodations?
During my recent trip to Dubrovnik in Croatia, I rented an 800-square-foot, two-bedroom, two-bath home inside the city walls for $300 a night.
A single, cramped 150-square-foot room in the nearest five-star hotel was $600 night.
All that was missing was room service, a handout for a big tip, and a surly attitude at the front desk.
Sounds like a massive, game-changing disruption to me.
Thank you, Airbnb!
The big question for you and me is: Will the valuation soar tenfold from the current $106 billion to $1 trillion?
Is (ABNB) your next ten bagger?
To answer that question, I spent six weeks traveling around the world as an Airbnb customer. This enabled me to understand their business model, their strengths and weaknesses, and analyze their long-term potential.
As a customer, the value you receive is nothing less than amazing.
I have been a five-star hotel guest for most of my life, with someone else picking up the tab much of the time (thank you Morgan Stanley!), so I have a pretty good idea on the true value of accommodations.
What you get from Airbnb is nothing less than spectacular. You get three or four times the floor space for one-third the price. That’s a disruption factor of 7:1.
The standards are often five-star and at the top end, depending on how much you spend. I found I could often get an entire three-bedroom house for the price of a single hotel room, with a better location.
Or, I could get an excellent abode in rural settings, where none other was to be had, whatsoever.
That’s a big deal for someone like me who spends so much of the year on the road.
You also get a new best friend in every city you visit.
On most occasions, the host greeted me on the doorsteps with the keys, and then introduced me to the mysteries of European kitchen appliances, heating, and air conditioning.
Pre-stocking the refrigerator with fresh milk, coffee, tea, and jam seems to be a tradition the hosts pick up in their Airbnb orientation course.
One in Waterford, Ireland even left me a bottle of wine, plenty of beer, and a frozen pizza. She read my mind. She then took me on a one-hour tour of their city, divulging secrets about their favorite restaurants, city sights, and nightspots. Everyone proved golden. Thanks, Mary!
After you check out, Airbnb asks you to review the accommodation. These can be incredibly valuable in deciding your next pick.
I had one near miss with what I thought was a great deal in London, until I read, “The entire place reeks of Indian cooking.” Having caught amoebic dysentery in India once Indian cooking does not exactly bring back fond memories.
Similarly, the hosts rate you as a guest.
One hostess in Dingle, Ireland shared a story about picking up her clients from town after they got drunk and lost in the middle of the night. Then they threw up in the back of the car on the way home.
Guests forgetting to return keys is another common complaint.
Needless to say, I received top ratings from my hosts, as fixing their WIFI to boost performance became a regular and very popular habit of mine.
After my initial fabulous experience in London, I thought it might be a one-off, limited to only the largest cities. So, I started researching accommodations for my upcoming trips.
I couldn’t have been more wrong.
Just the Kona Coast on the big island of Hawaii had an incredible 300 offerings, including several bargain beachfront properties.
The center of Tokyo had over 300 listings. The historic district in Florence, Italy had a mind-blowing 351 properties. When I stayed there, six of seven floors of the building I stayed in were devoted to (ABNB) accommodations. The one full time resident was pissed and often slammed his door.
Fancy a retreat on the island of Bali in Indonesia and tune up your surfing? There are over 197 places to stay!
Airbnb has truly gone global.
Airbnb’s business model is almost too simple to be true, involving no more than a couple of popular applications. Call it an artful melding of Google Earth (GOOG), email, text, and PayPal (PYPL).
While no one was looking, it became the world’s largest hotel at a tiny fraction of the capital cost.
The company has 6 million hosts in 100,000 cities worldwide in 220 countries who so far have earned $150 billion, and 150 million users. The all-time number of guests is 1 billion. The company recently shut down all of its Russia listings.
That supply/demand imbalance shifts the burden of the cost to the renters, who usually have to fork out a 12% fee, plus the cost of the cleaning service.
Hosts only pay 3% to process the credit card fees for the payment.
To say that Airbnb has created controversy would be a huge understatement.
For a start, it has emerged as a major challenge to the hotel industry, which is still stuck with a 20th century business model. There’s no way hotels can compete on price.
One Airbnb “super host” in Manhattan managed 200 apartments, essentially, creating out of scratch, a medium-sized virtual “hotel” until the city caught on to them.
Taxes are another matter.
Some municipalities require hosts to pay levies of up to 20%, while others demand quarterly tax filings and withholding taxes. That is, if tax collectors can find them.
Airbnb may be the largest new source of tax evasion today.
In cities where housing is in short supply, Airbnb is seen as crowding out local residents. After all, an owner can make far more money subletting their residence nightly than with a long-term lease.
Several owners told me that Airbnb covered their entire mortgage and housing cost for the year while paying off the mortgage at the same time.
Owners in the primmest of areas, like mid-town Manhattan off of Central Park, or the old city center in Dubrovnik rent, their homes out as much as 180 days a year.
It is doing nothing less than changing lives.
That has forced local governments to clamp down.
San Francisco has severe, iron-clad planning and zoning restrictions that only allow 2,000 new residences a year to come on the market.
It is cracking down on Airbnb, as well as other home-sharing apps like FlipKey, VRBO, and HomeAway, by forcing hosts to register with the city or face brutal $1,000 a day fine.
Ratting out your neighbor as an off-the-grid Airbnb member has become a new cottage industry in the City of the Bay.
Airbnb is fighting back with multiple lawsuits, citing the federal Communications Decency Act, the Stored Communications Act, and the First Amendment covering the freedom of speech.
It is a safe bet that a $91 billion company can spend more on legal fees than a city the size of San Francisco.
The company has also become the largest contributor in San Francisco’s local elections. In 2015, it fought a successful campaign against Proposition “F”, meant to place severe restrictions on their services.
An Airbnb stayover is not without its problems.
The burden of truth in advertising is on the host, not the company, and inaccurate listings are withdrawn only after complaints.
A twenty-something-year-old guy’s idea of cleanliness may be a little lower than your own.
Long-time users learn the unspoken “code”.
“Cozy” can mean tiny, “as is” can be a dump, and “lively” can bring the drunken screaming of four-letter words all night long, especially if you are staying upstairs from a pub.
And that spectacular seaside view might come with relentlessly whining Vespa’s on the highway out front as I was once confronted with in coastal Italy. Always brings earplugs and blindfolds as backups.
Researching complaints, it seems that the worst of the abuses occur in shared accommodations. Learning new foreign cultures can be fascinating. But your new roommate may want to get to know you better than you want, especially if you are female.
In one notorious incident, a Madrid guest was raped and had to call customer service in San Francisco to get the local police to rescue her. The best way to guard against such unpleasantries is to rent the entire residence for your use only, as I do.
Another problem arises when properties are rented out for illegal purposes, such as prostitution or drug dealing. Near my San Francisco home five people were shot and killed in an illegal block party nearby in a Airbnb weekend rental that was supposed let out to a “quiet couple.”
More than once, an unsuspecting resident woke up one morning to discover they were living next door to a new bordello.
Coming out of the pandemic, my conclusion is that the travel industry is entering a hyper-growth phase. Blame the emerging middle-class Chinese, who are going to be everywhere.
The real shock came when I left Airbnb and stayed in a regular hotel. Include the fees and the cleaning charges, and the service is no longer competitive for a single-night stay. Total costs now regularly run double the posted one-night price posted on websites.
In any case, most hosts have two or three-night minimums to minimize hassle.
When I checked in at a Basel, Switzerland Five Star hotel, all I got was a set of keys and a blank stare. No great restaurant tips, no local secrets, no new best friend.
I spent that night surfing www.airbnb.com, planning my next adventure.
Grandparents at Future Airbnb in 1925
Global Market Comments
November 18, 2022
Fiat Lux
Featured Trade:
(NOVEMBER 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(TSLA), (JNK), (HYG) or (TLT), (UUP), (FXE), (FXC), (FXA), (ALB), (FCX), (PYPL), (FXI), (GLD), (CCJ), (BHP), (RCL)
Below please find subscribers’ Q&A for the November 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: What do you see Tesla (TSLA) moving to from here until next year?
A: Not much; I mean if you’re lucky, Tesla won’t move at all. The problem is Twitter is looking like a disaster of huge proportions—firing half the staff on day one? Never good for building a business. Tesla has also been tied to the rest of big tech, which has been in awful condition and may not see a continuous move upward until the Fed actually starts lowering interest rates in the second quarter of next year. Tesla could be dead money here for a while; eventually, a company growing at 50% a year will go up—especially when it’s just had a 50% decline in the share price. As to when that is, I don’t know, and asking me 15 more times will get you just the same answer.
Q: Should we start piling into iShares 20 Plus Year Treasury Bond ETF (TLT) longs now or wait?
A: You go now. Every day you waited meant paying one point more in TLT. I think the bottom is in; we have a 20-30 point move ahead of us. Everybody in the world is now trying to get into this trade, just like I spent all this year trying to get out of it. And if anything, November CPI could be a long term-term top in inflation, especially if we came in with another cold number. So, I would start scaling in now, even though we’re over $100 in the (TLT) today and I first recommended this around $95.
Q: If the Fed keeps raising interest rates, will the US Treasury market fall?
A: Probably not because the Fed only has control of overnight interest rates—the discount rate, the interbank rate—whereas the (TLT) is a 10-to-20-year maturity bond. No matter what short term rates do, the inversion will just keep getting bigger, but in fact, the bond market itself was yielding 4.46%, yielding 8% with junk, has bottomed and will probably start going up from here. So that is the difference between the Fed and what the actual market does.
Q: Do you prefer Junk (JNK), (HYG), or (TLT)?
A: I always go for the highest risk. Junk has about an 8% yield here compared to 3.75% for the TLT. By the way, if you want to do one trade and go to sleep, buy the junk on 2 to 1 margin, get your 16% yield next year, and just take a one-year vacation. That’s what some people do.
Q: When you say the dollar is going to go down what do you mean?
A: I mean the US dollar, while Canadian (FXC) and Australian dollars (FXA) will go up.
Q: What is the best time to buy US dollars?
A: Maybe in five years, as it could go down for five or 10 years from here, now that it’s going to imminently give up its yield advantage.
Q: What's the forecast for casinos?
A: I think casinos do better. Las Vegas was absolutely packed, you couldn’t get into the best hotels—people are spending money like crazy.
Q: What’s the best way to play (TLT)?
A: With a one-year LEAP. I put out the $95/$100 last week for my concierge members. Here, you probably want to do the $100/$105; that’ll still give you a one-year return of 100%.
Q: How do you short the dollar?
A: There are loads of short dollar ETFs out there, or you can just sell short the Invesco DB US Dollar Index Bullish Fund (UUP), which is the dollar basket, or buy the (FXA) or (FXE).
Q: Freeport McMoRan (FCX) just went from 25 to 38; is it time to take a profit and re-enter at a lower point?
A: Short term yes, long term no. My long-term target for (FCX) is $100 because of the exponential growth of copper demand caused by EV production going from 1.5 million to 20 million a year in the next 10 years. Each EV needs 200 pounds of copper, so by 2030, annual copper demand for EVs only will be 20 billion pounds. In 2021, the total annual global copper production was 46.2 billion pounds. In order words, global copper production has to double in eight years just to accommodate EV growth only.
Q: Do you think there’ll be a rail worker strike?
A: I have no idea, but it will be a disaster if there is. There’s your recession scenario.
Q: What strike prices do you like for a Tesla LEAP?
A: Anything above here really. You could be cautious and do something like a $200/$210 two years out—that has a double in it. Or you could be more adventurous and go for a 400% return with like a $250/$260 in two years. I’m almost sure that we’ll have a major recovery in Tesla within two years.
Q: What’s your opinion on PayPal (PYPL) and Albemarle (ALB)?
A: I’m trying to stay away from the fintech area, partly because it’s tech and partly because the banks are recapturing a lot of the business they were losing to fintech a couple of years ago by moving into fintech themselves. That is the story and we’re clearly seeing that in the share prices of both banks and PayPal. I like Albemarle because the demand for lithium going forward is almost exponential.
Q: What’s your thought on the Australian dollar (AUD)?
A: Buy it with both hands as it is going to parity. Australia is a great indirect play on trade with China (FXI), gold (GLD), uranium (CCJ), and iron ore (BHP). It’s a great play on the recovery of the global economy, which will start next year.
Q: What do you think about Royal Caribbean Cruises Ltd (RCL)?
A: Probably a buy but remember all the cruise lines will be impaired to some extent by the massive debts they had to take on to survive two years of shutdown with the pandemic. I took the Queen Victoria last July on their Norwegian Fjord cruise, and it had not been operated for two years. None of the staff had any idea what to do. I had to show them.
Q: Will big tech have a good second half?
A: Probably, but it’s going to be a slow first quarter, and I think if we start getting actual cuts in interest rates, then it’s going to be off to the races for tech and they’ll all go to all-time highs as they always do.
Q: How come you haven’t issued any trade alerts yet on the currencies?
A: Calling a five-year turnaround is a big job. Now that we have the turnaround in play, we’re in dip-buying mode. So, you will see these in the future. But I also have to look at what currency trades are offering compared to other trades in other asset classes. And for the last year or two, the big opportunities have all been in stocks. You had volatility constantly visiting the mid $30s, you didn’t get that in the currencies, and more money was to be made in stock trades than foreign currency trades. That is changing now; let's see if we have a sustainable trend and if we get a good entry point. There’s a lot that goes into these trade alerts that you don’t always get to see. We only get a 95% success rate by being very careful in sending out trade alerts and that means long periods of doing nothing when the risk/reward is mediocre at best, which is right now. The services that guarantee you a trade alert every day all lose money.
Q: What is the recommended minimum portfolio size to amortize the cost of the concierge service?
A: I tell people to have a half a million in assets because we want people who are financially sophisticated to understand what we’re telling them. That said, we do have people with as little as 100,000 in the concierge service and they usually make the money back on the first trade. This is a very sophisticated high-return, very active service. You get my personal cell phone number and all that, plus your own dedicated website, and specific concierge-only research. It’s a much higher level of service. It’s by application only and we currently have no places available for new concierge members. However, if you’re interested, we can put you on the waitlist so that when another millionaire retires, we can open up a space.
Q: Despite recent moves, the algo looks bearish. There are lots of mixed signals.
A: Yes, it does. And yes, that’s often the case when the market timing index hangs around 50.
Q: Do concierges go for short term moves?
A: No, concierges are looking for the big, long-term trades that they can just buy and forget about. That is where the big money is made. At least 90% of the people that try day trading lose money but make all the brokers rich.
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
Global Market Comments
September 16, 2022
Fiat Lux
Featured Trade:
(TESTIMONIAL)
(LONG-TERM ECONOMIC EFFECTS OF THE CORONAVIRUS),
(ZM), (LOGM), (AMZN), (PYPL), (SQ), CNK), (AMC), (IMAX),
(CCL), (RCL), (NCLH), (CVS), (RAD), (WMT)
