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November 30 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the November 30 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: You keep mentioning December 13th as a date of some significance. Is this just because the number 13 is unlucky?

A: December 13th at 8:30 AM EST is when we get the next inflation report, and we could well get another 1% drop. Prices are slowing down absolutely across the board except for rent, which is still going up. Gasoline has come down substantially since the election (big surprise), which is a big help, and that could ignite the next leg up in the bull market for this year. So, that is why December 13 is important. And we could well flatline, do nothing, and take profits on all our positions before that happens, because whatever it is you will get a big move one way or another (and maybe both) on December 13.

Q: I’m a new subscriber, and I am intrigued by your structuring of options spreads. Why do you do debit spreads instead of credit spreads?

A: It’s really six of one and a half dozen of the other—the net profit is pretty much the same for either one. However, debit spreads are easier to understand than credit spreads. We have a lot of beginners coming into this service as well as a lot of seasoned old pros. And it’s easier to understand the concept of buying something and watching it go up than shorting something and watching it go down. Now, doing the credit spreads—shorting the put spread—gives you a slight advantage in that it creates cash which you can then use to meet margin requirements. However, it’s only a small amount of cash—only the potential profit in that position. And guess what? All the big hedge funds actually kind of like easy-to-understand trade alerts also, so that’s why we do them.

Q: I have a lot of exposure in NVIDIA (NVDA), so is it worth trading out of it and coming back in at a lower rate?

A: NVIDIA is one of the single most volatile stocks in the market—it’s just come up 50%. But it could well test the lower limits again because it is so volatile, and the chip industry itself is the most volatile business in the S&P 500. If your view is short-term, I would take profits now, and look to go back in next time we hit a low. If you’re long-term, don’t touch it, because NVIDIA will triple from here over the next 3 years. I should caution you that if you do try the short-term strategy, most people miss the bottom and end up paying more to get back into the stock; and that's the problem with all these highly volatility stocks like Tesla (TSLA), NVIDIA (NVDA) and Advanced Micro Devices (AMD) unless you’re a professional and you sit in front of a screen all day long.

Q: Would you buy now and step in to make it long-term?

A: I think we get a couple more runs at the lows myself. We won’t get to the old lows, but we may get close. Those are your big buying points for your favorite stocks and also for LEAPS. And I’m going to hold back on new LEAPS recommendations—we’ve done 12 in the last two months for the Concierge members, and maybe half of those went out to Global Trading Dispatch before they took off again. So, that would be my approach there.

Q: How much farther can the Fed raise interest rates until they reverse?

A: 1%-2%, unless they get taken over by the data—unless suddenly the economy starts to weaken so much that they panic and reverse like crazy. I think that's actually what’s going to happen, which is why we went hyper-aggressive in October on the long side, especially in bonds (TLT). You drop rates on the ten-year from 4.5% to 2.5% in six months—that’s an enormous move in the bond market. That is well worth running a triple long position in it; I think that’s what's going to happen. That’s where we will make out the first 30% in 2023.

Q: Should I short the cruise lines here, like Royal Caribbean (RCL)?

A: They do have their problems—they have massive debts they ran up to survive the pandemic when all the ships were mothballed, so it is an industry with its major issues. The stock has already doubled since the summer so I wouldn’t chase it up here. I’m not rushing to short anything here right now though unless it’s really liquid or has horrendous fundamentals like the oil industry, which everyone seems to love but I hate—right now the haters are winning for the short term, until December 16, which is all I care about.

Q: Is the diesel shortage going to affect farmers and all other industries like the chip?

A: As the economy slows down, you can expect shortages of everything to disappear, as well as all supply chain issues, which is a positive for the economy for the long term.

Q: What about the 2024 iShares 20 Plus Year Treasury Bond ETF (TLT) 95—is that not a trade?

A: That’s a one-year position with a 100% potential profit. That is worth running to expiration unless we get a huge 20-point move up in the next 3 months, which is possible, and then there won’t be anything left in the trade—you’ll have 95% of the profit in hand at which point you’ll want to sell it. So, with these one-year LEAPS or two-year LEAPS, run them one or two years unless the underlying suddenly goes up a lot, and then grab the money and run; that's what I always tell people to do. Because if you sell your position, they can’t take the money away from you with a market correction.

Q: Is the current US economy the best economy in the world?

A: It is. If you look at any other place in the world, it’s hard to find an economy that's in better shape, and it’s because we have the best management in the world and hyper-accelerating technology which everyone else begs and borrows. Or steals. People who are predicting zero return on stocks for 10 years are out of their minds. You don’t short the best economy in the world. If anything, technology is accelerating, and that will take the stock market with it in the next year or so.

Q: Do you see the Dow ($INDU) outperforming the other indexes until the Fed positive pivots?

A: Absolutely yes, because the S&P 500 (SPY) has a very heavy technology weighting and technology absolutely sucks right now. That would probably be a good 3-month trade—buy the Dow, and short the S&P 500 in equal amounts. Easy to do—you might pick up 10% on a market-neutral trade like that.

Q: Do you see a Christmas rally this year?

A: Actually, I do, but it won’t start until we get the next inflation report on December 13, at which point I'm going 100% cash. I’ve made enough money this year, and this is a problem I had when I ran my hedge fund: when you make too much money, nobody believes it, so there's really no point in making more than 50% or 60% a year because people think it’s fake. This is true in the newsletter business as well. Markets also have a nasty habit of completely reversing in January; this year, we had one up day in January, and then it was bombs away and we just piled on the shorts like crazy, so you have to wait for the market to first give you the fake move for the year, and then the real one after that. The best way to take advantage of that is to be 100% cash, and that’s why I usually do.

Q: What indicators do you see that give you the most confidence that inflation has peaked?

A: There's one big one, and that’s real estate. Real estate is absolutely in a recession right now and has the heaviest weighting of any individual industry in the inflation calculation. If anybody thinks house prices are going up, please send me an email and tell me where, because I’d love to know. The general feeling is they’re down 10-15% over the last six months. New homes are only being sold with massive buydowns in interest rates and free giveaways on upgrades. It is an industry that is essentially shut down, with interest rates having gone from 2.75% to 7.5% in a year, so there’s your deflation, but unfortunately, real estate is also the slowest to price in in the Fed’s inflation calculation, so we have to go through six months of torture until the Fed finally sees proof that inflation is falling. So, welcome to the stock market because it's just one of those factors. Just for fun, I got a quote on financing an investment property. The monthly payment would have been double for half the house that I already have.

Q: Are LEAPS a buy with the CBOE Volatility Index (VIX) this low?

A: No, you want to look at stocks first, and then the VIX; and with all the stocks sitting on top of 30-50% rises, it’s a horrible place to do LEAPS. LEAPS were an October play—we bought the bottom in a dozen LEAPS in October, and those were great trades, except for Tesla (TSLA) and Rivian (RIVN) which still have two years left to run. Up here, you’re basically waiting on a big selloff before you go into these one to two-year options positions.

Q: Why does Biden keep extending student loans? Will this catch up at some point?

A: He’s going to take it to the Supreme Court, and if he loses at the Supreme Court, which is likely, then he’ll probably give up on any loan extensions. At this point, the loan extensions on student loans are something like 2 or 2.5 years. The reason he’s doing this is to get 26 million people back into the economy. As long as you have giant student loan balances, you can’t get credit, you can’t get a credit card, you can’t buy a house, you can’t get a home loan. Bringing that many new people into the economy is a huge positive for not only them but for everyone else because it strengthens the economy. That has always been the logic behind forgiving student loans—and by the way, the United States is virtually the only country in the world that makes students pay back their loans after 30 or 40 years. The rest give college educations away either for free or give some interest-free break on repayments until they can get a salary-paying job.

Q: Does the budget deficit drop impact the stock market?

A: Yes, but it impacts the bond market first and in a much bigger way. That’s one of the reasons that bonds have rallied $13 points in six weeks because less government borrowing means lower interest rates—it’s just a matter of supply and demand. This has been the fastest deficit reduction since WWII, and markets will discount that.

Q: Will the US dollar (UUP) crash?

A: Yes, it will. You get rid of those high interest rates and all of a sudden nobody wants to own the US dollar, so we have great trades setting up here against everything, except maybe the Yuan where the lockdowns are a major drag.

Q: Is silver (SLV) a buy now?

A: No, it’s just had a big 10% move; I would wait for any kind of dip in silver and gold (GOLD) before you go into those trades. And when/if you do, there are better ways to do it.

Q: How is the Ukraine war going?

A: It’ll be over next year after Ukraine retakes Crimea, which they’ve already started to do. Russia is running out of ammunition, and so are we, by the way. However, the United States, as everybody learned in WWII, has an almost infinite ability to ramp up weapons production, whereas Russia does not. Russia is literally using up leftover ammunition from WWII, and when that’s gone, they’ve got nothing left, nor the ability to produce it in any sizable way. All good reasons to sell short oil companies ahead of a tsunami of Russian oil hitting the market. By the way, oil is now down for 2022.

Q: What's the number one short in oil (USO)?

A: The most expensive one, that would be Exxon Mobile (XOM).

Q: What’s going to happen to the markets in January?

A: After this Christmas rally peters out, I’m looking for profit-taking in January.

Q: When is a good time to buy debit spreads on oil?

A: Now. Look at every short play you can find out there; I just don’t see a massive spike up in oil prices ahead of a recession. And by the way, if the war in Ukraine ends and Russian oil comes back on the market, then you’re looking at oil easily below $50.

Q: What is the best way to invest in iShares Silver Trust (SLV) in the long term?

A: A two-year LEAP on the Silver (SLV) $25-$26 call spread—that gets you a 100%-200% return on that.

Q: Is lithium a good commodity trade?

A: Lithium will move in sync with the EV industry, which seems to have its own cycle of being popular and unpopular. We’re definitely in the unpopular phase right now. Long term demand for lithium will be increasing on literally hundreds of different fronts, so I would say yes, lithium is kind of the new copper. Look at Albemarle (ALB), Societe Chemica Y Minera de Chile (SQM), and FMC Corp. (FMC).

Q: If we do a LEAPS on Crown Castle Incorporated (CCI), you won’t get the dividend right?

A: No, you won’t, it’s a dividend-neutral trade because you’re long and short in a LEAPS. You have to buy the stock outright and become a registered shareholder to earn the dividend which, these days, is a hefty 4.50%. That said, if you’re looking for a high dividend stock-only play, buying the (CCI) down here is actually a great idea. For the stock-only players, this would be a really good one right now.

Q: Do you know people who are selling because of large capital gains?

A: The only people I know who are selling have giant tax bills to pay because of all the money they made trading options this year. I happen to know several thousand of those, as it turns out. So yes, I do know and that could affect the market in the next couple of weeks, which is why I went with the flatlined scenario for the next two weeks. Most tax-driven selling will be finished in the next two weeks, and after that, it kind of clears the decks for the markets to close on a high note at the end of the year.

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 or DISPATCH TECHNOLOGY LETTER as the case may be, then click on WEBINARS, and all the webinars from the last 12 years are there in all their glory.

Good Luck and Stay Healthy,

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

November 21, 2022

Diary, Newsletter, Summary

Global Market Comments
November 21, 2022
Fiat Lux

Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or SLOWING TO STALL SPEED),
(SPY), (TLT), (SLV), (WPH), (MAT), (NVDA), (MS), (GS)

The Market Outlook for the Week Ahead, or Slowing to Stall Speed

Diary, Newsletter, Research

I got a call from my daughter the other day, who is a Computer Science major at the University of California at Santa Cruz. The university was on strike and shut down, so she suddenly had a lot of free time on her hands.

The Teaching Assistants were only getting $12 an hour, which is not enough to live on in the San Francisco Bay Area by a mile. Some one-third were living in their cars, which can get chilly on the Northern California coast in winter.

Fast food workers in California will get $22 an hour from January, thanks to a bill passed in the recent election. The TAs, most of whom are working on master’s degrees and PhD’s in all kinds of advanced esoteric subjects, are simply asking to bring their pay in line with Taco Bell.

The entire UC system is on strike, affecting ten campuses, 17,000 TAs and 200,000 students. I have noticed that the most liberal universities often have the most draconian employment policies. It’s legalized slave labor. I speak from experience as a past victim, as I was once an impoverished work-study student at UCLA earning $1.00 an hour experimenting with highly radioactive chemicals.

What was my tuition for four years at the best public university in the world? Just $3,000, and I didn’t even pay that, as I was on a full scholarship, something about rocket engines I built when I was a kid. Werner Von Braun liked them. The 800 Math SAT score probably helped a tiny bit too.

UCSC is the feeder university for Silicon Valley. Graduates in Computer Science earn $150,000 a year out the door and $200,000 with a Master's degree. PhDs get offered founders’ stock in the hottest Silicon Valley startups.

I hope the TAs get their raise.

My daughter was calling me to apologize for her poor trading performance this year. I thought, “My goodness, did she just lose her entire college fund in some crypto scam?”

“How much did you lose,” I asked.

She answered that she didn’t lose anything and in fact was up 59% this year. She knew my performance was topping 78%, and that some subscribers had made up to 1,000%.

But she missed the October low because she had a midterm and was late on my (TLT) LEAPS because she was on a field trip. She promised to pay closer attention so she could earn the money to pay for her PhD.

My kids never ask me for money. If they need it, they just go into the markets and get it themselves. But then this is a family that discussed implied volatilities, chaos theory, and the merits of the Black Scholes equation over dinner every night. That’s what it’s like to have a hedge fund manager for a dad. Any extra money I have I give away to kids not as lucky as mine.

Then we talked about the most important issue of the day, how to cook the turkey this week. Brine, or no brine, with or without a T-shirt, or deep fat fry? She cautioned me to take it out of the freezer three days early to thaw. I bought my turkey a month ago because I knew prices would rise, and they have done so mightily. In case I get in over my head, I can always call the Butterball Thanksgiving Turkey Emergency Hotline at 844-877-3436.

But that’s just me.

Whenever making money gets too easy, I get nervous.

There’s a 90% chance we saw the bottom in this bear market on October 14. But how we proceed from here is the tricky part. Too much now depends on a single monthly data point, namely the Consumer Price Index, and that is a tough game to play. The next one is out on December 13.

The truth is that even with overnight interest rates at 4.75%-5.00% , the economy is holding up far better than anyone imagined possible. Some sectors, like financials, are positively booming. And while housing is weak, we really have not seen any major price falls that could threaten a financial crisis. Consumers are in good shape with savings near record levels.

There isn’t going to be a hard landing. There isn’t even going to be a soft landing. In fact, we may not have a landing at all, with the economy continuing to motor along, albeit at a slower rate just above stall speed.

Which begs me to repeat that the next new trend in interest rates will be down, and that this will be the principal driver of all your investment decisions going forward. Bonds may make the initial move up, as last week’s trade alerts suggested. But I have no doubt that equities will have a big move in 2023 as well.

Producer Price Index Fades, up only 0.2%, half of what was expected. That’s a big decline from 8.4% to 8.0% YOY. It’s another bell ringing that inflation has topped. Stocks rallied 500 on the news.

Bonds Continue on a Tear, with the (TLT) up a breathtaking eight points from the October low. It could reach $120 in 2023. Keep buying (TLT) calls, call spreads, and LEAPS on dips.

FTX Keeps Getting Worse, as it is looking like it’s a Bernie Madoff X 10, or an Enron X 20. A new CEO has been appointed by the bankruptcy court, John Ray, the former liquidator of Enron and a distant relative of mine. This will spoil investment in most digital coins and tokens for good, which are now worthless, and coins unless they are guaranteed by JP Morgan (JPM) or Goldman Sachs (GS). FTX never had a CFO, and Sam Bankman-Fried is blaming it all on his girlfriend, not exactly what creditors want to hear. In any case, Bitcoin has been replaced by Taylor Swift tickets.

A Massive Silver Shortage is Developing, with demand up 16% in 2023 to 1.21 million ounces. With EV production increasing from 1.5 million to 20 million units a year within the decade, its share of the market will rise from 5% to 75%. Solar panel demand is also rising. Buy (SLV) and (WPM) on dips. My next LEAPS will be for silver on the next dip.

NVIDIA Sales Rise, but profits dip, taking the stock up 3%. Games sales dropped a heartbreaking 50% and crypto took a big hit. The company expects $6 billion in sales in Q4 and is still operating at an incredible 53.6% gross margin. The company is creating a new line of dumbed-down products to comply with China export bans. Keep buying (NVDA) on dips. We caught a 50% move in the past month.

Retail Sales Rise 1.3% in October, causing analysts to raise Q4 GDP forecasts. Rising prices are a major factor. Where is that darn recession?

Who Has the World’s Worst Inflation? Not the US, where price gains have been relatively muted. Venezuela leads with 21,912%, followed by Zimbabwe at 2019%, Lebanon at 1071%, Argentina at 194%, Turkey at 124%. Even Russia is at 25%. Who has the lowest? Japan at 1.0%, but their currency has just collapsed by 40%.

The 60/40 Portfolio is Back, after a 15-year hiatus. JP Morgan Chase says that keeping 60% of your money in stocks and 40% in bonds should deliver a 7.2% annual return. I believe the balanced portfolio return will be much higher, as everything will go up in 2023 and fixed income is now yielding 5% or better. 2022 saw the worst 60/40 return in 100 years.

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 21 at 8:00 AM, the Chicago Fed National Activity Index for October is out.

On Tuesday, November 22 at 8:30 AM, the Richard Fed Manufacturing Index is released.

On Wednesday, November 23 at 8:30 AM, Durable Goods for October is published. At 11:00 AM, the FOMC minutes from the previous meeting are out. Weekly Jobless Claims are announced. New Homes Sales for October are out.

On Thursday, November 24, Markets are closed for Thanksgiving.

On Friday, November 25, stock markets close early at 1:00 PM. At 2:00 the Baker Hughes Oil Rig Count is out.

As for me, I have dated a lot of interesting women in my lifetime, but one who really stands out is Melody Knerr, the daughter of Richard Knerr, the founder of the famed novelty toy company Wham-O (click here). I dated her during my senior year in high school.

At six feet, she was the tallest girl in the school, and at 6’4” I was an obvious choice. After the senior prom and wearing my cheap rented tux, I took her to the Los Angeles opening night of the new musical Hair.

In the second act, the entire cast dropped their clothes onto the stage and stood there stark naked. The audience was stunned, shocked, embarrassed, and even gob-smacked. Fortunately, Melody never revealed the content of the play to her parents, or I would have been lynched.

In a recurring theme of my life, while Melody liked me, her mother liked me even more. That enabled me to learn the inside story of Wham-O, one of the great untold business stories of all time.

Richard Knerr started Wham-O in a South Pasadena garage in 1948. His first product was a slingshot, hence the company name, the sound you make when firing at a target. Business grew slowly, with Knerr trying and discarding several different toys.

Then in 1957, he borrowed an idea from an Australian bamboo exercise hoop, converted it to plastic, and called it the “Hula Hoop.” It instantly became the biggest toy fad of the 20^th century, with Wham-O selling an eye-popping 25 million in just four months. By 1959, they had sold a staggering 100 million.

The Hula Hoop was an extremely simple toy to manufacture. You took a yard of cheap plastic tubing and stapled it together with an oak plug, and you were done. The markup was 1,000%. Knerr made tens of millions and bought a mansion in a Los Angeles suburb with a stuffed lion guarding his front door which he had shot in Africa.

The company made the decision to build another 50 million Hula Hoops. Then the bottom absolutely fell out of the Hula Hoop market. Midwestern ministers perceived a sexual connotation in the suggestive undulating motion to use it and decried it the work of the devil. Orders were cancelled en masse.

Whamo-O tried to stop their order for 50 million oak plugs, which were made in England, but to no avail. They had already shipped. So, to cut their losses Whamo-O ordered the entire shipment dumped overboard in the North Atlantic, where they still bob today. The company almost went bankrupt.

Knerr saved the company with another breakout toy, the Frisbee, a runaway success which is still sold today. Even Incline Village, Nevada has a Frisbee golf course. The US Army tested it as a potential flying hand grenade. That was followed by other monster hits like the Super Ball, the Slip N Slide, and the Slinky.

Richard Knerr sold his company to toy giant Mattel (MAT) for $80 million in 1994. He passed away in 2008 at the age of 82.

As for Melody, we lost touch over the years. The last I heard she was working at a dive bar in rural California. Apparently, I was the high point of her life. The last time I saw her I learned the harshest of all lessons, never go back and visit your old high school girlfriend. They never look that good again.

Stay healthy,

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

Hula Hoop Inventor Chuck Knerr

November 4, 2022

Diary, Newsletter, Summary

Global Market Comments
November 4, 2022
Fiat Lux

Featured Trade:

(NOVEMBER 2 BIWEEKLY STRATEGY WEBINAR Q&A),
(SPY), (LLY), (TSLA), (GOOG), (GOOGL), (JPM), (BAC), (C), (BRK), (V), (TQQQ), (CCJ), (BLK), (PHO), (GLD), (SLV), (UUP)

November 2 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the November 2 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley in California.

Q: The country is running out of diesel fuel this month. Should I be stocking up on food?

A: No, any shortages of any fuel type are all deliberately engineered by the refiners to get higher fuel prices and will go away soon. I think there was a major effort to get energy prices up before the election. If that's the case, then look for a major decline after the election. The US has an energy glut. We are a net energy exporter. We’re supplying enormous amounts of natural gas to Europe right now, and natural gas is close to a one-year low. Shortages are not the problem, intentions are. And this is the problem with the whole energy industry, and the reason I'm not investing in it. Any moves up are short-term. And the industry's goal is to keep prices as high as possible for the next few years while demand goes to zero for their biggest selling products, like gasoline. I would be very wary about doing anything in the energy industry here, as you could get gigantic moves one way or the other with no warning.

Q Is the SPDR S&P 500 ETF (SPY) put spread, correct?

A: Yes, we had the November $400-$410 vertical bear put spread, which we just sold for a nice profit.

Q: I missed the LEAPS on J.P. Morgan (JPM) which has already doubled in value since last month, will we get another shot to buy?

A: Well you will get another shot to buy especially if another major selloff develops, but we’re not going down to the old October lows in the financial sector. I believe that a major long-term bull move has started in financials and other sectors, like healthcare. You won’t get the October lows, but you might get close to them.

Q: I’m waiting for a dip to get into Eli Lilly (LLY), but there are no dips.

A: Buy a little bit every day and you’ll get a nice average in a rising market. By the way, I just added Eli Lilly to my Mad Hedge long-term model portfolio, which you received on Thursday.

Q: Any thoughts about the conclusion of the Twitter deal and how it will affect tech and social media?

A: So far all of the indications are terrible. Advertisers have been canceling left and right, hate speech is up 500%, and Elon Musk personally responded to the Pelosi assassination attempt by trotting out a bunch of conspiracy theories for the sole purpose of raising traffic and not bringing light to the issue. All indications are bad, but I've been with Elon Musk on several startups in the last 25 years and they always look like they’re going bust in the beginning. It’s not even a public stock anymore and it shouldn’t be affecting Tesla (TSLA) prices either, which is still growing 50% a year, but it is.

Q: In terms of food commodities for 2023, where are prices headed?

A: Up. Not only do you have the war in Ukraine boosting wheat, soybean, and sunflower prices, but every year, global warming is going to take an increasing toll on the food supply. I know last summer when it hit 121 degrees in the Central Valley, huge amounts of crops were lost due to heat. They were literally cooked on the vine. We now have a tomato shortage and people can’t make pasta sauce because the tomatoes were all destroyed by the heat. That’s going to become an increasingly common issue in the future as temperatures rise as fast as they have been.

Q: Do I trade options in Alphabet (GOOG) or Alphabet (GOOGL)?

A: The one with the L is the holding company, the one without the L is the advertising company and the stock movements are really identical over the long term, so there really isn’t much differentiation there.

Q: Why can’t inflation be brought down by increasing the supply of all goods?

A: Because the companies won’t make them. The companies these days very carefully manage output to keep prices as high as possible. It’s not only the energy industry that does that but also all industries. So those in the manufacturing sector don’t have an interest in lowering their prices—they want high prices. If they see the prices fall, they will cut back supply.

Q: What do you think about growth plays?

A: As long as interest rates are rising, growth will lag and value will lead, and that has been clear as day for the last month. This is why we have an overwhelming value tilt to our model portfolio and our recent trade alerts. They’ve all been banks—JP Morgan (JPM), Bank of America (BAC), Citigroup (C), plus Berkshire Hathaway (BRK) and Visa (V) and virtually nothing in tech.

Q: I don’t know how to execute spread trades in options so how do I take advantage of your service?

A: Every trade alert we send out has a link to a video that shows you exactly how to do the trade. I have to admit, I’m not as young as I was when I made the videos, but they’re still valid.

Q: Is the US housing market about to crash?

A: There is a shortage of 10 million houses in the US, with the Millennials trying to buy them. If you sell your house now, you may not be able to buy another one without your mortgage going from 2.75% to 7.75%—that tends to dissuade a lot of potential selling. We also have this massive demographic wave of 85 million millennials trying to buy homes from 65 million gen x-ers. That creates a shortage of 20 million right there. That's why rents are going up at a tremendous rate, and that's why house prices have barely fallen despite the highest interest rates in 20 years.

Q: If we get good news from the Fed, should we invest in 3X ETFs such as the ProShares UltraPro QQQ (TQQQ)?

A: No, I never invest in 3X ETFs, because they are structured to screw the investor for the benefit of the issuer. These reset at the close every day, so do 2 Xs and not more. If you're not making enough money on the 2Xs, maybe you should consider another line of business.

Q: Do you think BlackRock Corporate High Yield Fund (HYT) will show the pain of slights because of their green positioning?

A: No I don’t, if anything green investing is going to accelerate as the entire economy goes green. And you’ll notice even the oil companies in their advertising are trying to paint themselves as green. They are really wolves in sheep’s clothing. They’ll never be green, but they’ll pretend to be green to cover up the fact that they just doubled the cost of gasoline.

Q: Where do you find the yield on Blackrock?

A: Just go to Yahoo Finance, type in (BLK), and it will show the yield right there under the product description. That’s recalculated by algorithms constantly, depending on the price.

Q: Do you like Cameco (CCJ)?

A: Yes, for the long term. Nuclear reactors have been given an extra five years of life worldwide thanks to the Russian invasion of Ukraine. Even Japan is opening theirs.

Q: Should I short the US dollar (UUP) here?

A: The answer is definitely maybe. I would look for the dollar to try to take one more run at the highs. If that fails, we could be beginning a 10-year bear market in the dollar, and bull market in the Japanese yen, Australian dollar, British pound, and euro. This could be the next big trade.

Q: What is your outlook on Real Estate Investment Trusts (REITs) now?

A: I think it looks great. REITs are now commonly yielding 10%. The worst-case scenario on interest rates has been priced in—buying a REIT is essentially the same thing as buying a treasury bond, but with twice the leverage, because they have commercial credits and not government credits. We’ll be doing a lot more work on REITS. We also have tons of research on REITS from 12 years ago, the last time interest rates spiked. I'll go in and see who’s still around, and I'll be putting out some research on it.

Q: How do you see the price development of gold (GLD)?

A: Lower—the charts are saying overwhelmingly lower. Gold has no place in a rising interest rate world. At least silver (SLV) has solar panel demand.

Q: Do you have any fear of Korea going into IT?

A: Yes, they will always occupy the low end of mass manufacturing, and you can see that in the cellphone area; Samsung actually sells more phones than Apple, but they’re cheaper phones with lower-end lagging technology, and that’s the way it’s always going to be. They make practically no money on these.

Q: When can we get some more trade alerts?

A: We are dead in the middle of my market timing index, so it says do nothing. I’m looking for either a big move down or big move up to get back into the market. This is a terrible environment to chase trades when you're trading, so I'm going to wait for the market to come to me.

Q: What about water as an investment? The Invesco Water Resources ETF (PHO)?

A: Long term I like it. There’s a chronic shortage of fresh water developing all over the world, and we, by the way, need major upgrades of a lot of water systems in the US, as we saw in Jackson, MS, and Flint, MI.

Q: Will REITs perform as well as buying rental properties over the next 10 to 20 years?

A: Yes, rental properties should do very well, as long as you’re not buying any city that has rent control. I have some rental properties in SF and dealing with rent control is a total nightmare, you’re basically waiting for your tenants to die before you raise the rent. I don’t think they have that in Nevada. But in Las Vegas, you have the other issue that is water. I think the shortage of water will start to drag on real estate prices in Las Vegas.

To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log on 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

It’s Been a Tough Market

November 3, 2022

Diary, Newsletter, Summary

Global Market Comments
November 3, 2022
Fiat Lux

Featured Trade:

(LONG TERM PORTFOLIO UPDATE)
(BMY), (AMGN), (CRSP), (LLY), (EEM), (BABA),
(GOOGL), (AAPL), (AMZN), (SQ), (TBT), (JNK), (JPM),
(BAC), (MS), (GS), (FXA), (FXC), (SLV)

July 27, 2022

Diary, Newsletter, Summary

Global Market Comments
July 27, 2022
Fiat Lux

Featured Trade:

(HOW TO GAIN AN ADVANTAGE WITH PARALLEL TRADING),
(GM), (F), (TM), (NSANY), (DDAIF), BMW (BMWYY), (VWAPY),
(PALL), (GS), (EZA), (CAT), (CMI), (KMTUY),
(KODK), (SLV), (AAPL)

March 25, 2022

Diary, Newsletter, Summary

Global Market Comments
March 25, 2022
Fiat Lux

Featured Trade:

(THE MAD HEDGE TRADERS & INVESTORS SUMMIT VIDEOS ARE UP!)
(MARCH 23 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (TSLA), (BA), (DEER), (CAT),
(AAPL), (SLV), (FCX), (TLT), (TBT)

March 23 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the March 23 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Silicon Valley.

Q: What is the best way to keep your money in cash?

A: That’s quite a complicated answer. If you leave cash in your brokerage account, they will give you nothing. If you move it to your bank account they will, again, give you nothing. But, if you keep the money in your brokerage account and then buy 2-year US Treasury bills, those are yielding 2.2% right now, and will probably be yielding over 3% in two years, so we’re actually being paid for cash for the first time in over ten years. And, as long as it’s in your brokerage account, you can then sell those Treasury bonds when you’re ready to go back into the market and buy your stock, same day, without having to perform any complicated wire transfers, which take a week to clear. Also, if your broker goes bankrupt and you hold Treasury bills, they are required by law to give you the Treasury bills. If you have your cash in a brokerage cash account, you lose all of it or at least the part above the SIPC-insured $250,000 per account. And believe me, I learned that the hard way when Bearings went bankrupt in the 1990s. People who had the Bearings securities lost everything, people who owned Treasury bills got their cashback in weeks.

Q: Is the pain over for growth stocks?

A: Probably yes, for the smaller ones; but they may flatline for a long time until a real earnings story returns for them. As for the banks, I think the pain is over and now it’s a question of just when we can get back in.

Q: Why did you initiate shorts on the Invesco QQQ Trust Series (QQQ) and SPDR S&P 500 ETF Trust (SPY) this week, instead of continuing with the iShares 20 Plus Year Treasury Bond ETF (TLT) shorts?

A: We are down 27 points in 10 weeks on the (TLT); that is the most in history. And every other country in the world is seeing the same thing. That is not shorting territory—you should have been shorting above $150 in the (TLT) when I was falling down on my knees and begging you to do so. Now it’s too late. If we get a 5-point rally, which we could get any time, that’s another story. It is so oversold that a bounce of some sort is inevitable. I’d rather be in cash going into that.

Q: Do you think Tesla (TSLA) has put in a bottom, or do you still see more downside? Is it time to buy?

A: The time to buy is not when it is up 50% in 3 weeks, which it has just done. The time to buy is when I sent out the last trade alert to buy it at $700. This was a complete layup as a long three weeks ago because I knew the German production was coming onstream very shortly; and that opens up a whole new continent, right when energy prices are going through the roof—the best-case scenario for Tesla. And the same is happening in the US—it’s a one-year wait now to get a new Model X in the US. In fact, I can sell my existing model X for the same price I paid for it 3 years ago, if I were happy to wait another year to get a replacement car.

Q: Will the Boeing (BA) crash in China damage the short-term prospects? And as a pilot, what do you think actually happened?

A: Boeing has been beat-up for so long that a mere crash in one of its safest planes isn’t going to do much. It could have been a maintenance issue in China, but the fact that there was no “mayday” call means only two or three possibilities. One is a bomb, which would explain there being no mayday call—the pilots were already dead when it went into freefall. Number two would be a complete structural failure, which is hard to believe because I’ve been flying Boeings my entire life, and these things are made out of steel girders—you can’t break them. And number three is a pilot suicide—there have been a couple of those over the years. The Malaysia flight that disappeared over the south Indian Ocean was almost certainly a pilot suicide, and there was another one in Germany and another in Japan about 20 years ago. So, if they come up with no answer, that's the answer. It’s not a Boeing issue, whatever it is.

Q: Is John Deer (DEER) or Caterpillar (CAT) a better trade right now?

A: It’s kind of six of one, half a dozen of the other. Caterpillar I’ve been following for 50 years, so I’m kind of partial to CAT, and Caterpillar has a much bigger international presence, but that could be a negative these days in a deglobalizing world.

Q: Apple (AAPL) has really caught fire past $170. Should I chase it here or wait until it’s too overbought?

A: I never liked chasing. Even a small dip, like we’re having today, is worth getting into. So always buy on the dips.

Q: Is Silver (SLV) still a good long-term play?

A: Yes, because we do expect EV production to ramp up as fast as they can possibly do it. Too bad the American companies don’t know how to make electric cars—they just haven’t been able to get their volumes up because of production problems that Tesla solved 12 years ago. So, long term, I think it will do better, but right now the risk-on move is definitely negative for the precious metals.

Q: How low will the iShares 20 Plus Year Treasury Bond ETF (TLT) go in April before the next Fed meeting?

A: I think we’re bottoming for the short term right around here. That’s why I had on that $127-$130 call spread in the (TLT) that I got stopped out of. And I may well end up being right, but with these call spreads, once you break your upper strike, the math goes against you dramatically. You go from like a 1-1 risk profile to like a 10-1 against you. So, you have to get out of those things when you break your upper strike, otherwise, you risk writing off the entire position with 100% loss. As long as Jay Powell keeps talking about successive half-point rate cuts, we will get lower lows, and my 2023 target for the TLT is $105, or about $20.00 points below here.

Q: Do you think we retest the bottoms?

A: Absolutely, yes; it just depends on where the test is successful—with a double bottom or with a retrace of half the recent moves. Keep in mind that stocks go up 80% of the time over the last 120 years, and that includes the Great Depression when they hardly went up at all for 10 years, so selling short is a professional’s game, and I wouldn’t attempt it unless you had somebody like me helping you. You're betting against the long-term trend with every short position. That said, if you’re quick you can make decent money. Most of the money we’ve made this year has been in short positions, both in stocks and in bonds.

Q: Where can we find this webinar?

A: The recording for this webinar will be posted on the website in about two hours. Just log into your account and you’ll find them all listed.

Q: When should I sell my tradable ProShares UltraShort 20+ Year Treasury ETF (TBT)?

A: You don’t have an options expiration to worry about, so I would just keep in until we hit $105 in the (TLT). If you do want to trade, I’d take a little bit off here and then try to re-buy it a couple of points lower, maybe 10% lower.

Q: What do you think of a Freeport McMoRan (FCX) $55-$60 vertical bull call spread?

A: The market has had such a massive move, that I’m reluctant to do out of the money call spreads from here unless we get a major dip. So, don’t reach for the marginal trade—that’s where you get your head handed to you.

Q: Will yield curve inversions matter this time and foretell a recession?

A: I think no, because corporate earnings are still growing, and by the summer, we probably will have a yield curve inversion.

Q: There seems to be some huge breakthrough in battery technology where batteries could be recharged within four minutes. I believe it’s the Chinese who have the tech, if so how will that impact on Tesla?

A: Every day of the year someone presents Tesla with a revolutionary new battery technology. It either doesn’t work, can’t be mass-produced, or is wildly uneconomical. So, I’ll confine my bet that Tesla will be able to eventually mass produce solid state batteries and get their 95% cost reduction that way.

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

Good Luck and Stay Healthy.

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

January 5, 2022

Diary, Newsletter, Summary

Global Market Comments
January 5, 2022
Fiat Lux

2022 Annual Asset Class Review
A Global Vision

FOR PAID SUBSCRIBERS ONLY

Featured Trades:
(SPX), (QQQ), (XLF), (XLE), (XLY),
(TLT), (TBT), (JNK), (PHB), (HYG), (PCY), (MUB), (HCP)
(FXE), (EUO), (FXC), (FXA), (YCS), (FXY), (CYB)
(BHP), (FCX), (VALE), (AMLP), (USO), (UNG),
(GLD), (GDX), (SLV), (ITB), (LEN), (KBH), (PHM)