(ROM) Archives

The Market Outlook for the Week Ahead, or The Top Five Technology Stocks of 2023

The year 2022 has been driven by rising interest rates, a strong dollar, a weak economy, a bear market in stocks.

A massive reversal is about to take place. 2023 will gain the benefit of gale force macroeconomic tailwinds for the right stocks.

So far this year, Mad Hedge earned an astounding 77.20% profit cashing in on this year’s trends. We could earn the same return taking advantage of next year’s trends.

If you want to ride along on my coattails next year, that is fine with me. But it requires you to take a leap of faith.

I refer you to the motto of Britain’s Special Air Service: “Qui audet adipiscitur,” or “Who dares wins.”

For it only makes sense that the worst stocks of 2022 will be the best performers of 2023.

I have no doubt that tech stocks will bottom out sometime in 2023. Those who get in early will build some of the largest fortunes of this century. Those who miss the boat will spend their retirement years working at Taco Bell.

The reasons are very simple.

*Ultra-high interest rates will force a mild recession in early 2023. Then suddenly, inflation will plummet. We know this has already started because the largest element in the inflation calculation is housing costs, which are in free fall.

*The Fed will panic and deliver 2023 the sharpest DECLINE in interest rates in American history.

*Plunging interest rates will bring a crash in the US dollar.

*Foreign currencies like the Euro (FXE), the Japanese Yen (FXY), and the Australian dollar (FXA) will soar.

*And guess who gets the bulk of their earnings from abroad, sometimes up to two-thirds? The technology industry.

Kaching!

If you think I’m out of my mind, just look at the top performers of the historic stock market rally last week.

All the interest rate-sensitive sectors caught on fire. Technology stocks took off like a scalded cat, with Cathie Woods’ Ark Innovation Fund (ARKK) up an astounding 14% in a single day.

Bank shares soared. Homebuilders (LEN), (KBH), (DHI) caught a strong bid for the first time in ages. Junk bonds went bid only. US Treasury Bonds had their best day in 20 years (TLT), while the greenback (UUP) had its worst.

The bottom line here is so clear that I’ll write it on a wall for you. Falling interest rates will be the primary driver of stock prices for 2023 and 2024.

Of course, there is a better way to play this than buying the first technology index you stumble across.

So, let me boil this strategy down to just five names, close your eyes, and buy them.

Rivian (RIVN) – ($34) - Rivian is widely believed to be the next Tesla (TSLA). Some 25% owned by its largest customer, Amazon (AMZN), Rivian produces three types of EVs: the R1T pickup truck, the R1S SUV, and Amazon's EDV (electric delivery van). Its R1 vehicles start at under $70,000 and can travel more than 300 miles on a single charge. To learn more about Rivian, please click here.

To say that Rivian is the hot car of the day would be a vast understatement. New cars are trading for double list on the grey market. Owners complain of getting mobbed with gawkers whenever they hit the beach or the ski slopes. The buzz has led to an outstanding order book of an impressive 98,000, or four years of current production. The obvious cool factor allows enormous pricing power.

And here is the key to buying Rivian at this time. At 25,000, it is right at the mass production point where Tesla shares went ballistic all those years ago. And it already has an 80% decline in the price, in the rear-view mirror.

In 2024, Rivian plans to open its second plant in Georgia. After it fully expands its Illinois plant, it expects its annual production capacity to reach 600,000 vehicles.

Inflation Reduction Act passed this summer greatly accelerated rollout of the entire EV industry, which created a $7,500 per vehicle tax credit on top of state benefits.

Yes, this company offers venture capital-type risks. But it offers venture capital-type returns as well, up 10X-50X from here.

Ark Innovation Fund (ARKK) – ($40) – Cathie Woods’ high-tech fund was the proverbial red-headed stepchild of this bear market. It fell a gut-punching 80% from the 2021 top until last week. Just to get back to its old high, likely over the next five years, it has to rise by 400%. Its largest holdings are a real rollcall of the severely abused, Tesla (TSLA), Roku (ROKU), Exact Sciences (EXAS), Intellia (INTL), and Teladoc Health (TDOC), which Woods actively trades. But they are also a valuable insight into the future, EVs, CRISPR technology, robotic surgery, and molecular diagnostics. To learn more about the Ark Innovation Fund, please click here.

ProShares Ultra Technology ETF (ROM) – ($27) – This is a 2X long technology ETF that gives you an extremely aggressive position across the tech sector. It has 19% of its holdings in Apple (AAPL), 16% in Microsoft (MSFT), 10% in Alphabet (GOOGL) and Google (GOOG), at 3.5% in NVIDIA (NVDA), and 120 other smaller names. (ROM) shares are down a breathtaking 67% just in the past year. To learn more about the (ROM), please click here.

Palo Alto Networks (PANW) - $165 – Hacking is one of the fastest-growing sectors in technology, it is recession-proof and immune to the economic cycle. As a result, spending on the defense against hacking is absolutely exploding. Palo Alto Networks, Inc. is an American multinational cybersecurity company with headquarters in Santa Clara, California. Its core products are a platform that includes advanced firewalls and cloud-based offerings that extend those firewalls to cover other aspects of security. I have already earned a tenfold return over the past decade and expect to make another 10X in the coming years. You won’t find any dips in this stock as too many people are trying to get into it. To learn more about the Palo Alto Networks, please click here.

Salesforce (CRM) - $157 – The baby of tech genius Mark Benioff, this company is the dominant player in customer relationship management. If you want to do any business in the cloud, and almost all big companies do, you are up to your eyeballs in customer relationship management. Salesforce is the largest San Francisco-based cloud-oriented software company with virtually all of the Fortune 500 as its customer list. It provides customer relationship management software and applications focused on sales, customer service, marketing automation, analytics, and application development. Salesforce shares have been the target of a haymaker, down 55% in a year. To learn more about Salesforce, please click here.

You know what? I can do better than this.

I can create customized options LEAPS for you that will deliver a tenfold return on whatever performance these ultra-high beta stocks deliver. If the shares of one of my picks rise by 100%, you will make 1,000%.

This is an investment strategy that will enable you to retire early, real early. Tired of punching a time clock or logging into the next Zoom meeting on time?

Those will become a distant memory if you pursue my Mad Hedge Investment strategy for 2023.

As a result, my November month-to-date performance went off to the races, already achieving a hot +2.20%.

That leaves me with a very rare 100% cash position. With midterm election results out on Wednesday and the next report on the Consumer Price Index on Thursday, that sounds like a prudent place to be.

My 2022 year-to-date performance ballooned to +77.57%, a new high. The Dow Average is down -11.85% so far in 2022.

It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high +75.53%.

That brings my 14-year total return to +590.13%, some 2.86 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to +49.51%, easily the highest in the industry.

Bonds Clock Best Day in Years, taking the ten-year US Treasury bond fund up $3.64. All low interest rate plays had monster days. Junk bond ETFs (JNK) and (HYG) were up two points. 30-year fixed rate mortgages dropped 60 basis points to 6.60%, the biggest drop in history. Long bonds will be THE big trade of 2023.

US Dollar has Worst Day in 20 Years, driven by plunging interest rates. Big tech, which gets a major share from overseas sales, rocketed. Apple alone was up $12. Cathy Wood’s Ark Innovation Fund (ARKK) was up an incredible 14%. It vindicates my view that tech will turn when interest rates and the dollar fall.

Oil Companies (USO) Book Record $200 Million Profit this year, using the Ukraine War to double your cost of gasoline. If we have a recession next year, or the war ends, energy share prices should be peaking around here. Even if they don’t, the risk-reward here is terrible. It means we will have to pay a much higher price to decarbonize the economy at a later date.

Wells Fargo Gets Hit with $1 Billion Fine for its many regulatory transgressions over the last decade. Looting of customer accounts with bogus fees has been a recurring problem. Use any selloffs to buy (WFC) on dips.

Berkshire Hathaway's 20% Profit Increase YOY and buys back another $1 billion worth of stock. However, they did take a $10 billion loss on stocks in Q3 during the market meltdown. Keep buying (BRKB) stock and LEAPS on dips.

$1.5 trillion in Homeowners Equity Lost Since May, thanks to interest rates at 20-year high and a shrinking money supply. Since July, the median home price has dropped by $11,560. The average borrower has lost $30,000 in equity. It’s not a great time to rent either as prices there are soaring. Residential housing could remain weak for another 12-24 months, compared to the six-year drawdown we had from 2006.

Boeing Orders Rise in October, but deliveries fall. The company is finally out of the penalty box, up 40% since October 1. Don’t buy (BA) up here.

The Red Wave Fails to Show, with control of congress still too close to call. Republican House control has shrunk from an expected 60 seats six months ago to maybe two today. Donald Trump threw the election for his party, picking unelectable extremist candidates and campaigning where he wasn’t wanted. A pro-life Supreme Court brought out millions of women voters across the country. If the Republicans can’t win with inflation at 8.7%, they are toast in 2024 when it drops back down to 2%.

Market Dives 646 Points on Democratic Win, with technology stocks taking the biggest hit. The red wave no-show was a black swan traders were not looking for. Energy was the worst performing sector because they aren’t getting the air cover they paid for with a red wave. The result was much as I expected, which is why I went into November 8 with a rare 100% cash position waiting to buy the next low. It turns out that rights are more important than prices.

Elon Musk Sells More Tesla Shares and Warns of a Twitter Bankruptcy, some $3.9 billion worth, bringing this year’s total to $36 billion. Musk is raising money to head off a bankruptcy of Twitter now that major advertisers are fleeing en masse. This certainly is a distress sale. If Musk was looking to build a real business, re-tweeting fringe conspiracy theories was the worst thing he could have done. Endorsing the Republican party will cost him half of his customers. Is this Musk’s Waterloo, or his Dien Bien Phu?

Facebook to Lay Off 11,000, about 13% of its total employees. Zuckerberg admits the error of pushing the company into the metaverse too far too fast. With the stock down 77%, there are not a lot of happy campers at One Hacker Way. Avoid (META) for now, but it may be a 2023 play when we get closer to a new final product.

FTX Becomes an Epic Bankruptcy, with $9.5 billion missing from its balance sheet, in one of the biggest blowups of the crypto age. Losses are expected to reach $50-$60 billion, with the bankruptcy of 130 affiliated companies. It is also a potential Dept of Justice target. All affiliated tokens and coins have gone to zero. So, placing your money with a fresh-faced kid in the Bahamas wearing baggy shorts and with no financial background was not such a great idea after all. It’s amazing how many serious people were sucked in on this one. At least Sam Bankman-Fried said he was sorry.

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. With the economy decarbonizing and technology hyper-accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!

On Monday, November 14 at 8:00 AM, the Consumer Inflation Expectations for October are released.

On Tuesday, November 15 at 8:30 AM, the Producer Price Index for October is released.

On Wednesday, November 16 at 8:30 AM, Retail Sales for October are published.

On Thursday, November 17 at 8:30 AM, Weekly Jobless Claims are announced. Housing Starts and Permits for October are also out.

On Friday, November 18 at 10:00 AM, the Housing Starts for October are printed. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, I am often told that I am the most interesting man people ever met, sometimes daily. I had the good fortune to know someone far more interesting than myself.

When I was 14, I decided to start earning merit badges if I was ever going to become an Eagle Scout. I decided to start with an easy one, Reading Merit Badge, where you only had to read four books and write one review.

I was directed to Kent Cullers, a high school kid who had been blind since birth. During the late 1940s, the medical community thought it would be a great idea to give newborns pure oxygen. It was months before it was discovered that the procedure caused the clouding of corneas and total blindness. Kent was one of these kids.

It turned out that everyone in the troop already had Reading Merit Badge and that Kent had exhausted our supply of readers. Fresh meat was needed.

So, I rode my bicycle over to Kent’s house and started reading. It was all science fiction. America’s Space Program had ignited a science fiction boom and writers like Isaac Asimov, Jules Verne, Arthur C. Clark, and H.G. Welles were in huge demand. Star Trek came out the following year, in 1966. That was the year I became an Eagle Scout.

It only took a week for me to blow through the first four books. In the end, I read hundreds to Kent. Kent didn’t just listen to me read. He explained the implications of what I was reading (got to watch out for those non-carbon-based life forms).

Having listened to thousands of books on the subject, Kent gave me a first class education and I credit him with moving me towards a career in science. Kent is also the reason why I got an 800 SAT score in math.

When we got tired of reading, we played around with Kent’s radio. His dad was a physicist and had bought him a state-of-the-art high-powered short-wave radio. I always found Kent’s house from the 50-foot-tall radio antenna.

That led to another merit badge, one for Radio, where I had to transmit in Morse Code at five words a minute. Kent could do 50. On the badge below the Morse Code says “BSA.” In those days, when you made a new contact, you traded addresses and sent each other postcards.

Kent had postcards with colorful call signs from more than 100 countries plastered all over his wall. One of our regular correspondents was the president of the Palo Alto High School Radio Club, Steve Wozniak, who later went on to co-found Apple (AAPL) with Steve Jobs.

It was a sad day in 1999 when the US Navy retired Morse Code and replaced it with satellites. However, it is still used as beacon identifiers at US airfields.

Kent’s great ambition was to become an astronomer. I asked how he would become an astronomer when he couldn’t see anything. He responded that Galileo, the inventor of the telescope, was blind in his later years.

I replied, “good point”.

Kent went on to get a PhD in Physics from UC Berkely, no mean accomplishment. He lobbied heavily for the creation of SETI, or the Search for Extra Terrestrial Intelligence, once an arm of NASA. He became its first director in 1985 and worked there for 20 years.

In the 1987 movie Contact written by Carl Sagan and starring Jodie Foster, Kent’s character is played by Matthew McConaughey. The movie was filmed at the Very Large Array in western New Mexico. The algorithms Kent developed there are still in widespread use today.

Out here in the west aliens are a big deal, ever since that weather balloon crashed in Roswell, New Mexico in 1947. In fact, it was a spy balloon meant to overfly and photograph Russia, but it blew back on the US, thus its top secret status.

When people learn I used to work at Area 51, I am constantly asked if I have seen any spaceships. The road there, Nevada State Route 375, is called the Extra Terrestrial Highway. Who says we don’t have a sense of humor in Nevada?

After devoting his entire life to searching, Kent gave me the inside story on searching for aliens. We will never meet them but we will talk to them. That’s because the acceleration needed to get to a high enough speed to reach outer space would tear apart a human body. On the other hand, radio waves travel effortlessly at the speed of light.

Sadly, Kent passed away in 2021 at the age of 72. Kent, ever the optimist, had his body cryogenically frozen in Hawaii where he will remain until the technology evolves to wake him up. Minor planet 35056 Cullers is named in his honor.

There are no movies being made about my life…. yet. But there are a couple of scripts out there under development.

Watch this space.

Stay healthy,

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

October 7, 2022

Diary, Newsletter, Summary

Global Market Comments
October 7, 2022
Fiat Lux

Featured Trade:

(OCTOBER 5 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (TSLA), (PLTR), (UUP), (ROM), (USO), (ARKK), (ROKU)

October 5 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the October 5 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: Is the final low in, or could we retest yet again (SPY)?

A: We could retest yet again, but it’s very important to notice that the marginal new lows are very small. The low we had on Friday, the last day of September and Q3, was only 800 points lower than the low we had in June—you had to work 4 months just to get a new low of only 800 points. So I think that's the way it's going to go. If we do get new lows, it’ll be incremental new lows—we’re not crashing to 3,000 or anything like that.

Q: What do you think Tesla (TSLA) will bottom at in the short term?

A: $200 or $210. The Tesla deal is a disaster for Elon Musk. It will amount to a huge diversion of management time; he’s going to be facing regulatory hurdles, and even though he said we’re going ahead for the deal, a lot of people still don’t believe it because the financing for the deal may have vaporized in the massive increase in interest rates that has occurred since February. So, there are still a lot of non-believers in this deal. I’d rather have him making solar panels, electric cars and launching rockets, not getting into the social media morass and taking over a broken company. The shareholders clearly don’t like it either, taking the shares down $30 in two days. By the way, if you look at the charts, you notice that people were front-running the Twitter deal by dumping Tesla stock the day before. So yes, it kind of peed on our Tesla parade for the short term; long term it keeps going up and the bad news is in the price.

Q: How do we get the concierge service?

A: Just contact customer support at support@madhedgefundtrader.com or call (347) 480-1034.

Q: Have you revised Tesla’s (TSLA) price target?

A: No, not the long-term ones, just the short-term ones.

Q: Is it possible that bonds are bottoming here, even if we expect further Fed rate rises?

A: Yes, the Fed only has control of overnight rates, and those are rising. In fact, overnight rates are now higher than 10-year rates, and could go much higher still—that's called inversion of the yield curve. We’re almost certainly getting another 150-basis point rise in overnight rates. 10-year bonds or 20-year bonds could well stay around this level, or maybe just a little bit lower. So yes, the bond short is gone. It worked great for us for 2.5 years, we caught a 43% decline in the TLT, but it’s game over. Time to find other trades, like buying stocks.

Q: Does Elon Musk have to sell more Tesla to buy more Twitter?

A: That is the big question being asked today because he already sold $16 billion worth of stock in Tesla to cover the Twitter purchase this year. With the debt markets having fundamentally changed in the last 6 months, the question is: does he have to raise more equity (i.e. sell more Tesla), or can he bring in other equity investors? Hopefully, if he does have to sell more Tesla, it’s not very much—it’s a $44 billion deal and he’s already put $16 billion into it, so maybe he raises another $6 billion to get up to a 50% control level, which the market can easily handle in a day or two. He’s handled all of his past Tesla share sales fairly easily, and he tends to do these at market tops when demand for the shares is overwhelming. Longer term, the much greater demand for selling Tesla shares will come from the equity raises he will need to do to build another six Tesla factories around the world. That could be anywhere from $400 billion to $800 billion, so that will be the much larger cash call, but those are years off at best.

Q: With so many big techs breaking down, how should we play the (ROM) (ProShares Ultra Technology ETF)?

A: From the long side is how you play it. But you really need these capitulation days, especially if you’re involved in 2X ETFs. There is a spectacular play setting up for the (ROM) because it’ll go from $24 (or whatever the final bottom is) to $100 in the next upcycle, so that is a great leverage play that you really want to get involved in.

Q: If I don’t have time to babysit my portfolio, am I better in LEAPS or physical stocks?

A: Well the LEAPS I’m putting out now have a 2 years 4 months expiration date, so you can literally just buy them and forget about them. On the other hand, if we don’t get an economic recovery in 2 years and 4 months, you’re better off buying stocks outright on 2:1 margin. You make less profit, but if we don’t get a recovery for 3, 4, 5 years, then you have no expiration problem with stocks, as opposed to with LEAPS. Now, there are ways to trade around your LEAPS, like financing the long and by shorting puts and getting in for zero, but that requires smaller positions because you have to maintain the margin for the short put side. So, if you want to play it safe, buy the stocks. You can even handle a lost decade with stocks, especially if their dividend pays. With LEAPS, you need a fairly immediate economic recovery, which we should get, especially if the Fed lowers interest rates next year, which it should.

Q: What is your view on the US dollar (UUP)?

A: The dollar seems close to peaking right around here. It will peak on the last day that the Fed raises interest rates, which could be on December 14th. In fact, they may not even wait until then. Depending on the inflation rate, they could only do a quarter or a half-point rate rise in December, thus giving the market their signal that way. Or not do it at all, and the sudden selloff that we had in the dollar, and the stabilization of bonds we had last week is telling you that’s on the table as a possibility. So, we saw really important moves for long-term trend considerations in the markets since last week.

Q: Time for Palantir (PLTR)?

A: No, because the CEO doesn’t give a damn about his stock, and the stock reacts accordingly. I gave up on Palantir for that reason.

Q: How do you see the Ukraine/Russia situation developing?

A: It drags on for another year, Russia keeps losing and throwing men into the meat grinder until Putin gets removed, which should happen next year at which point oil prices collapse. That may be why he blew up the Nordstream One pipeline, to tie the hands of a future Russian government.

Q: Is it safe to buy 30-day Treasury bills in November going into the next F1C meeting?

A: Yes, because they essentially have no risk—that’s basically a cash type investment. And if your broker goes bust you can just force them to hand over your Treasury bonds and not get tied up in any three-year bankruptcy proceeding. It’s an asset, not cash.

Q: Will it be time to buy LEAPS on the next market selloff?

A: Absolutely, yes.

Q: Do you believe Putin would use nukes?

A: No I don’t, because the radioactive cloud would fall back on him immediately. There are very few people who are both stock market experts and nuclear weapons experts; I happen to be one of those—probably the only one in the world in fact—because of my time spent with the atomic energy commission at the Nuclear Test Site in Nevada. The problem with bombing your next-door neighbor with nukes is that the nuclear fallout comes right back on you the next day. Most of Russia’s nukes don’t even work, they only have a handful that actually does, and if he does use one, I bet it would be a tiny one just to demonstrate that he has a working nuke—like just a one-megaton one as opposed to Hiroshima which was 20 kilotons. Or he could drop it in the Black Sea or do an above-ground test at their old nuclear test site that wouldn’t kill anyone, just to show that he has working nukes. I don’t think he will, because we would react in kind in twice the size.

Q: Time to buy ARK Innovation ETF (ARKK)?

A: You might start with a small starter position, just to get it into your portfolio so you remember to buy it on the next dip. Cathy Woods’s leverage in this fund is tremendous. You really want to own it at a market bottom, but picking the actual bottom is going to be tough. One way to achieve this is to just go out and buy Tesla—that way you don’t have to pay the management fee—or buy the top 5 holdings in ARK directly, which includes Roku (ROKU) among others. So yes, I’m watching it; I prefer buying things on the way up and missing the first 10% than to catch a falling knife, and boy has this thing been a falling knife this year.

Q: Do you like biotech here?

A: Absolutely; please subscribe to the Mad Hedge Biotech Letter for biotech recommendations plus LEAPS on biotech plays by clicking here.

Q: Energy is still the best sector now?

A: Yes, but for how long? You don’t want to be left standing when the music stops playing, and that is imminent in the oil industry. It will be illegal to sell gasoline cars in California after 2035, and gas makes up half the oil use in the US.

Q: Did you know that oil reserves (USO) are the lowest since 1984?

A: Yes, I think you may have read that in my newsletter, and that’s because of Biden’s efforts to reduce US gasoline prices through a million barrel per day release from the strategic petroleum reserves in Texas and Louisiana. If we are a net energy producer, why do we even have reserves? It’s an out-of-date holdover from the Cold War.

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

Tokyo 1975

August 31, 2022

Diary, Newsletter, Summary

Global Market Comments
August 31, 2022
Fiat Lux

Featured Trade:

(THE LAZY MAN’S GUIDE TO TRADING),
(ROM), (UXI), (BIB), (UYG),
(TESTIMONIAL)

August 12, 2022

Diary, Newsletter, Summary

Global Market Comments
August 12, 2022
Fiat Lux

Featured Trade:

(AUGUST 10 BIWEEKLY STRATEGY WEBINAR Q&A),
(NVDA), (TSLA), (GOOGL), (ROM), (FCX), (AMZN), (AAPL), (MSFT), (MU), (ARKK), (TSLA), (F), (GM)

August 10 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the August 10 Mad HedgeFund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: What are your yearend targets for Nvidia (NVDA), Tesla (TSLA), and Google (GOOGL)?

A: Higher for all but I can’t give you the exact date and time. Google has a special situation in that they might be hit with an anti-trust suit in September, so that could cap things. For Tesla, we have the Twitter overhang, and Elon Musk sold $6.9 billion worth of stock last week to fund that. And then Nvidia could have another dive, depending on how much of a glut in chips there is, but I'd be buying any chips from here on. By the way, if Tesla breaks the old high of $1,200, which I expect by the end of the year, we could get to $2,000 very rapidly on yet another massive short squeeze against the permanent Tesla haters, who’ve already been completely decimated by the last 60% move.

Q: How would I play Amazon (AMZN) going forward?

A: Buy the dips. I think they’re going to be the world's dominant retailer going forward and they’re doing the right things and going crazy.

Q: Which sectors?

A: Well, for ETFs, you can look at the ProShares Ultra Technology ETF (ROM). That’s 2x leveraged long tech. But only do that on dips because the volatility of the ROM is enormous since it’s 2x in the most volatile sector. Also, I think we can start taking a look at banks again, what with interest rates rising and a recovery on the horizon, banks could come back into play after sitting at the bottom for the last 3 or 4 months.

Q: I’m doing a LEAP on Freeport-McMoRan Inc. (FCX); should I go for January 2025 or 2024?

A: I’d go longer dated—that way you can get a bigger move and will almost certainly be on a full-on economic recovery, and massive electrification of the auto fleet by 2025, thanks to the climate bill that will be passed Friday. That means the demand for copper is about to go absolutely through the roof—I'm looking for (FCX) to go from $30 to $100 in the next 3 years.

Q: Thoughts on Disney (DIS)?

A: No one can believe how cheap Disney has gotten, it’s been a disaster. Obviously (DIS) took it on the nose with the recession and some of the parks still have limitations on the number of visitors. It should do better and I'm amazed it got this cheap. I would expect a move to the $200 level by the end of next year.

Q: What LEAPS do you recommend for January 2023?

A: Well it’s not really a LEAPS if you’re only going out 6 months; that’s just a long-dated call spread. LEAPS are usually a year or longer. I’d say pretty much anything in any sector will be higher except maybe energy by 2023. We’re not at LEAPS territory yet, but we’re getting close. The next major selloff I might start putting LEAPS out there.

Q: Is the Consumer Price Index (CPI) dropping from 9.1% YOY down to 8.5% meaning the top is in and deflation’s over?

A: I think so, because there are a lot of price declines that were not reflected in this July number that have yet to come. I'm talking about wheat, lumber, and energy. So yes, we could get another big move down in August, and if that’s the case, the Fed may only raise by 50 basis points in September. That's the hope. The things that aren’t going to go down are rental costs and labor costs. We may never get back to the inflation rate that we had 2 years ago of 2%. The long-term average for the last 100 years is 3% and certainly a move down to 4% is possible this year (and would be very welcome by the stock market as part of my long-term bull case).

Q: What are your thoughts on Elon Musk selling $6.9 billion worth of Tesla shares?

A: It’s amazing he sold that amount of stock last week and only went down $100. It does remove a big overhang on the stock and paves the way on a much bigger move up later in the year. By selling the $9 in January and $7 now, that’s $16 billion he sold this year. He could almost pay for Twitter with a little outside bank financing.

Q: How far above current prices should I place a LEAPS?

A: It depends on where the market is; if we’re having a cataclysmic selloff down 1,000-point days, then you can have the luxury of going 10%, 20%, or even 30% out-of-the-money; and that of course gets you a 100%, 200% and 300% returns. If we have a higher low, then you may want to go lower risk and go at the money, that might get you a 50% return. On LEAPS that are only slightly in-the-money, even those generate 25% returns one year out with the most conservative possible position.

Q: Would you load the boat on dips?

A: I would but remember: a dip is not one hour or on down days, it’s like half of the recent gain, which would be down 1,500 Dow points, or all of the recent gain, which would be down 3,000 points. So be careful that you don’t get too aggressive just because you’ve gotten bullish.

Q: Do you think the semiconductor chips will lead the tech recovery in the second half of the year?

A: I do, but we do have an inventory problem to digest first, and we have to figure out the implications of the CHIPS act that was signed this week which makes available a couple hundred billion dollars to build new chip factories in the US. Chip companies are particularly challenged right now because they have to provision for a recession which is going to cut chip demand, and they also have to provision for a potential oversupply created by the CHIPS Act. Remember that for the industry, creating safe supplies of chips means more lots of chips at lower prices for consumers. Great for us, great for the auto industry, not so great for chip companies. You have to be careful. On the other hand, on the bullish side, chips are being designed into more products faster and in larger numbers than ever before. This is the main reason why most investors underestimated the chip industry for the last 10 years. That also is a factor that’s accelerating. The average car now has 100 chips. 20 years ago they had maybe 10 chips, and 30 years ago they had none.

Q: Will the eventual big win of Ukraine against Russia result in inflation going back to 2%?

A: No, but it will result in it going back to 3% or 4%, which we could hit next year. You get oil back down below $50, gasoline down to $2/gallon, and the world's food supply opened up once again, and inflation will disappear in a heartbeat.

Q: What’s the deal with the 1% buyback tax in the inflation reduction package?

A: Well they had to get revenue somewhere, and 1% is so small it won’t inhibit anyone from buying back stock, especially if it makes the CEO a billionaire. That is a great incentive—even if you had a 50% tax, they would still be doing buybacks for things like Apple (AAPL), Microsoft (MSFT), and the other buyback players.

Q: What will high energy prices do to crypto?

A: It might actually make it go up because the cost of electricity feeds straight into the manufacturing/programming cost of crypto. And if you notice, Bitcoin bottomed at $17,000 per bitcoin. But that's exactly where the new mining cost is. Just like all of the commodities, when you hit cost of production, the supply suddenly dries up because nobody can make any money at it.

Q: Will US homebuyers buy the dip since mortgage rates have come down?

A: Yes, and we’re already seeing that in the statistics. The fact is we still have a huge housing shortage in the United States. You don’t get big price falls when you have a shortage of supply, and you have 10 million millennials who still need to trade up from their one and two-bedroom apartments all over the country. So, things may stall a bit in home buying, but I don’t think you get very big price drops.

Q: Do you think the US consumer is strong?

A: They never stopped being strong, even throughout recession fears. Never, ever bet against the propensity of Americans to spend money, both individuals and governments.

Q: What are the chances the US goes to war with China over Taiwan?

A: Zero. # 1 China doesn't have ships, #2 we have the 7th Fleet there, and #3 they have been threatening to invade Taiwan for 70 years and done nothing. The Taiwanese are used to this. Though there is the other side issue that most of the other private companies in Taiwan are already owned by the Chinese and have Chinese capital, so it’s unlikely they want to blow up their own facilities. So, the answer is no.

Q: What is the Long term outlook for gold and silver?

A: It’s been dead for so long that I’m not inclined to rush into gold. But you have to expect that when you get a recovery in the commodity boom, it’s going drag gold and silver along with it. I see upsides for both of these, especially silver.

Q: Should student loans be paid off by the federal government?

A: I think yes, because as long as these people have massive debts, they cannot borrow and they cannot enter the US economy as consumers. If you forgive all student debt, you unleash 10 million new customers onto the market who can now borrow, get credit cards, and take out home mortgages. As long as they have massive debts, they can’t do that.

Q: With all the major companies in the world moving to EVs, where are we going to get these commodities?

A: We’re not. Tesla (TSLA) has already locked up major supplies of commodities over the next 10 years, and everyone else will have to pay more money. Some of the weaker producers like Ford (F) and General Motors (GM), are being restrained on shortages of not just chips but also basic commodities like chromium for stainless steel. They’re going to have a real problem competing with Tesla, which is why you own Tesla.

Q: What do you think about the unprofitable tech companies like those in the ARK ETFs (ARKK)?

A: I would avoid those for now. Why take on additional risk buying a non-earning company when the highest quality companies are selling at the cheapest valuations in ten years? Maybe when the big companies like Apple get overvalued—go up another 100% — then you might look at the smaller companies if they’re still cheap. But the risk/reward on the nonearners right now is no good, while it’s fantastic in the large tech companies. That is my opinion and I’m sticking to it.

Q: It seems Russia’s strategy has mirrored those of the Czars.

A: Actually, what they’re doing is repeating their WWII strategy, which worked in 1945— not so much in 2022; and that was massive artillery barrages against retreating Germans. Except this time Ukrainians are not retreating and have far more modern weapons than the Russians.

Q: Would you buy Micron Technology (MU) on bigger dips?

A: Absolutely yes; but again, wait for the down days. You have plenty of volatility in chip stocks, no need to pay up or chase higher prices.

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

August 9, 2022

Diary, Newsletter, Summary

Global Market Comments
August 9, 2022
Fiat Lux

Featured Trade:

(THE CROOKS ARE GETTING SMARTER)
(ROM), (THO)

The Crooks are Getting Smarter

Diary, Newsletter

I sent out a trade alert for my Concierge members to buy LEAPS in the ProShares Ultra Technology Fund (ROM) a year ago to catch the yearend rally. Everyone got a great execution except those with a Tastyworks account, which unfortunately got hit with a hack attack that day.

I am passing on their detailed response which could have hit anyone. Unfortunately, the crooks are getting smarter.

“We have had to set a number of symbols to closing trades only due to fraudulent activity that has been taking place in those symbols. The simple answer on why we had to take about 1,500 symbols down only is that the criminals have dialed up their game to a new level.

Let me explain. Back in the day, a criminal would try to gain access to an account by brute force attack, key stroke logging, or buying credentials from other bad actors. They would then go into the account (never accessed by violating our security), liquidate the holdings, and then make losing trades in the compromised account with the winning side being their account at another firm.

It only happened a few times and if I remember correctly, the compromised account contacted us to ask why their account was being liquidated and we were able to stop the action.

Fast forward to today.

They have moved to a new level and that is identity theft. I have talked to friends at other firms, and they have all confirmed that they have seen the same action. They own someone as they have access to their SSN as well as most of the other information needed to open an account (they pass our security checks).

They also have bank information for the person whose identity they have stolen so they ACH money into tastyworks, wait for the funds to settle, and then gut the account within minutes. Look at how wide these markets are in (THO) for example:

The fraudsters would enter an order in their real account to pay $0.10 for the $110 puts and then put a sell order in the bogus account. Then within seconds, they put a sell order at $3.60 in their account, and in the bogus account they buy back at $3.60.

You can see that they have just cleaned $3,500 per 10 lot in seconds. If they do 100 contracts, that is $35,000, and so on. The problem does not end there.

The exchanges hide behind some horrible rules that say we have 30 min to file an obvious error objection and 60 min for catastrophic error. Clearly, it is basically impossible for us to hit either one of those targets. So, they throw their hands up and say not our issue and when the person who is the subject of the identity theft realizes that they have been attacked, they go to the bank and sign paperwork that allows the bank to pull the fund back with no questions asked.

We are left holding the bag and I could not allow that to continue. So, while we are doing a lot of things on the backend to limit someone’s ability to open a fraudulent account, we have to leave these symbols as closing only and ask you to call our desk 888-247-1963 to place a trade.

Please let us know if you have any further questions or concerns. We can be reached at 1-888-247-1963 or online via chat from 7am-5pm CT Monday-Thursday and 7am-4pm CT on Friday. We appreciate your business and happy trading!”

Regards,

Tastyworks

I am noticing an increasing pattern across many accounts. That’s to the rise of Bitcoin, there has been a huge increase in identity theft through phishing attacks. By simply getting access to your email account, they can obtain all the information they need to open a brokerage account in your name and commit the kind of fraud described above.

I’ll show you an example. I get hit with phishing attacks every day now. Today’s looked like this.

Looks pretty convincing, doesn’t it? Your natural instinct is to log in and see what’s going on, isn’t it? If you do, you just gave hackers your PayPal login ID and password. They can now go into your “my account” section and get all of your personal financial information.

One quick way to see if this request is legit is to hover your cursor over the sender’s address. This is what I found with this email:

Notice that the PayPal name shows up nowhere in this address. In fact, I had the FBI trace this address to a server in Russia where most of these attacks originate (it helps if you know the head of the FBI).

Here’s a better solution. Never respond to any email from a financial institution. If your bank is trying to contact you about an important issue, they will do so through their own internal email system. You can only see this message by first logging into your own personal account.

Here’s another tip.

Never access financial accounts through a free hotel WIFI. They don’t offer security anymore because they kept getting sued by guests who were hacked. If it is an emergency, then access your account only through your cell phone, but only through the cell phone network and not through the hotel WIFI. This provides an extra layer of security….for now.

I hope this helps.

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