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July 28 Biweekly Strategy Webinar Q&A

July 28 Biweekly Strategy Webinar Q&A

Below please find subscribers’ Q&A for the July 28 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.

Q: What is your plan with the (SPY) $443-$448 and the $445/450 vertical bear put spreads?

A: I’m going to keep those until we hit the lower strike price on either one and then I’ll just stop out. If the market doesn’t go down in August, then we are going straight up for the rest of the year as the earnings power of big tech is now so overwhelming. Sorry, that’s my discipline and I’m sticking to it. Usually, what happens 90% of the time when we go through the strike, and then go back down again by expiration for a max profit. But the only way to guarantee that you'll keep your losses small is by stopping out of these things quickly. That’s easy to do when you know that 95% of the time the next trade alert you’ll get is a winner.

Q: Are you still expecting a 5% correction?

A: I am. I think once we get all these great earnings reports out of the way this week, we’re going to be in for a beating. I just don't see stocks going straight up all the way through August, so that’s another reason why I'm hanging on to my short positions in the S&P 500 (SPY).

Q: What’s the best way to play CRISPR Therapeutics (CRSP) right now?

A: That is with the $125-$130 vertical bull call spread LEAPS with any maturity in 2022. We had a run in (CRSP) from $100 up to $170 and I didn’t take the damn profit! And now we’ve gone all the way back down to $118 again. Welcome to the biotech space. You always take the ballistic moves. Someday I should read my own research and find out why I should be doing this. For those who missed (CRSP) the last time, we are one proprietary drug announcement, one joint venture announcement, or one more miracle cure away from another run to $170. So that will probably happen in the next year, you get the $125-$130 call spread, and you will double your money easily on that.

Q: I’m down 40% on the United States Treasury Bond Fund (TLT) January $130-$135 vertical bear put spread LEAPS. What would you do?

A: Number one, if you have any more cash I would double up. Number two, I would wait, because I would think that starting from the Fall, the Fed will start to taper; even if they do it just a little bit, that means we have a new trend, the end of the free lunch is upon us, and the (TLT) will drop from $150 down to $132 where it was in March so fast it will make your head spin. I'm hanging onto my own short position in (TLT). If you are new to the (TLT) space and you want some free money, put on the January 2020 $150-$155 vertical bear put spread now will generate about a 75% return by the January 21, 2022 options expiration. I just didn't figure on a 6.5% GDP growth rate generating a 1.1% bond yield, but that’s what we have. I'm sorry, it’s just not in the playbook. Historically, bonds yield exactly what the nominal GDP growth rate is; that means bonds should be yielding 6.50% now, instead of 1.1%. They will yield 6.5% in the future, but not right now. And that's the great thing about LEAPS—you have a whole year or 6 months for your thesis to play out and become right, so hang on to those bond shorts.

Q: Do you have any ideas about the target for Facebook (FB) by the end of the year?

A: I would say up about 20% from current levels. Not only from Facebook but all the other big tech FANGS too. Analysts are wildly underestimating the growth of these companies in the new post-pandemic world.

Q: Do you think the worst of the pandemic will be over by September?

A: Yes, we will be back on a downtrend by September at the latest and that will trigger the next leg up in the bull market. Delta with its great infectious and fatality rates is panicking people into getting shots. The US government is about to require vaccinations for all federal employees and that will get another 5 million vaccinated. Americans have the freedom to do whatever they want but they don’t have the freedom to kill their neighbors with fatal infections.

Q: What should I do with my China (BABA), (BIDU), (FXI) position? Should I be doubling down?

A: Not yet, and there’s no point in selling your positions now because you’ve already taken a big hit, and all the big names are down 50% from the February high. I wouldn't double down yet because you don’t know what's happening in China, nobody does, not even the Chinese. This is their way of addressing the concentration of the wealth in the top 1% as has happened here in the US as well. They’re targeting all the billionaire stocks and crushing them by restricting overseas flotations and so on, so it ends when it ends, and when that happens all the China stocks will double; but I have absolutely no idea when that's going to happen. That being said, I have been getting phone calls from hedge funds who aren’t in China asking if it's time to get in, so that's always an interesting precursor.

Q: What happened to the flu?

A: It got wiped out by all the Covid measures we took; all the mask-wearing, social distancing, all that stuff also eliminates transmission of flu viruses. Viruses are viruses, they’re all transmitted the same way, and we saw this in the Rite Aid (RAD) earnings and the 55% drop in its stock, which were down enormously because their sales of flu medicines went to zero, and that was a big part of their business. I didn’t get the flu last year either because I didn’t get Covid; I was extremely vigilant on defensive measures in the pandemic, all of which worked.

Q: Why would the Fed taper or do much of anything when Powell wants to be reappointed in February 2022?

A: I don’t think he is going to get reappointed when his four-year term is up in early 2022. His policies have been excellent, but never underestimate the desire of a president to have his own man in the office. I think Powell will go his way after doing an outstanding job, and they will appoint another hyper dove to the position when his job is up.

Q: What are your thoughts on the Chinese electric auto company Nio competing here in the U.S.?

A: They will never compete here in the U.S. China has actually been making electric cars longer than Tesla (TSLA) has but has never been able to get the quality up to U.S. standards. Look what happened to Nikola (NKLA) who’s founder was just indicted. Avoid (NIO) and all the other alternative startup electric car companies—they will never catch up with Tesla, and you will lose all your money. Can I be any clearer than that?

Q: You recently raised the ten-year price target up for the Dow Average from 120,000 to 240,000. What is Nasdaq's target 10 years out?

A: I would say they’re even higher. I think Nasdaq (NASD) could go up 10X in 10 years, from 14,000 to 140,000 because they are accounting for 50% of all earnings in the U.S. now, and that will increase going forward, so the stocks have to go ballistic.

Q: What do you think of Intel (INTC)?

A: I don’t like it. They had a huge rally when they fired their old CEO and brought in a new one. There was a lot of talk on reforming and restructuring the company and the stock rallied. Since then, the market has started insisting on performance which hasn’t happened yet so the stock gave up its gains. When it does happen, you’ll get a rally in the stock, not until then, and that could be years off. So I'd much rather own the companies that have wiped out Intel: (MU), (NVDA), (AMD), and (TSM).

Q: When you do recommend buying the Volatility Index (VIX), do you recommend buying the (VIX) or the (VXX)?

A: You can only buy the VIX in the futures market or through ETFs and ETNs, like the (VXX), the (XVZ), and the (SVXY), or options on these. I would be very careful in buying that because time decay is an absolute killer in that security, and that's why all the professionals only play it from the short side. That's also why these spikes in prices literally last only hours because you have professionals hammering (VIX). Somebody told me once that 50% of all the professional traders in the CME make their living shorting the (VIX) and the (VXX). So, if you think you’re better than the professionals, go for it. My guess is that you’re not and there are much better ways to make money like buying 6-to-12-month LEAPS on big tech stocks.

Q: Can the Delta variant get a bigger pullback?

A: Yes. I expect one in August, about 5%. But if Delta gets worse, the selloff gets worse. You saw what it did last year, down 40% in the (SPY) in only two months, so yes, it all depends on the Delta virus. I'm not really worrying about Delta, it's the next one, Epsilon or Lambda, which could be the real killer. That's when the fatality rate goes from 2% to 50%, and if you think I'm crazy, that's exactly what happened in 1919. Go read The Great Influenza book by John Barry that came out 20 years ago, which instantly became a best seller last year for some reason.

Q: Does the Matterhorn have enough flat space on the top to stand on it?

A: Actually, there is a 6’x6’ sort of level rock to stand on top of the Matterhorn. If you slip, it’s a 5000’ fall straight down on any side, and on a good weather day in the summer, there are 200 people climbing the Matterhorn. There's sometimes a one-hour line just to take your turn to get to the top to take your pictures, and then get down again to make space for the next person. So that's what it's like climbing the Matterhorn, it's kind of like climbing Mount Everest, but I still like to do it every year just to make sure I can do it, and one year I hope to win the prize for the oldest climber of the year to climb the Matterhorn. Every year this German guy beats me; he’s two years older than me.

Q: When will Freeport McMoRan (FCX) start going up? I have the 2023 LEAPS

A: Good thing you have the two-year LEAPS because that gives you two years for inflation to show its ugly face once again. You just have to be patient with these. I think we’ll get a rally in the Fall along with all the other interest rate plays like banks, industrials, money management companies, and so on. (FCX) will certainly participate in that. In the meantime, if we get all the way down to $30 in Freeport McMoRan, I would double up your position.

Q: Why is oil (USO) not a buy? Oil is the ultimate inflation hedge.

A: Yes, unless all of the cars in the United States become electric in the next 15 years, which they will, wiping out half of all demand from the largest oil consumer. The United States consumes about 20 million barrels of oil a day, half of that is for cars, and if you take that out of the demand picture you dump 10 million barrels a day on the market and oil goes back to negative numbers like we saw last year. Never do counter-trend trades unless you’re a professional in from of a screen 24 hours a day.

Q: Should I take profits on my ProShares Ultra Technology ETF (ROM) November $90-$95 vertical bull spread and then enter a new spread when tech sells off?

A: Absolutely! When you have that much leverage and you get these price spikes, you sell! The leverage on this position is 2X on the ETF and 10X on the options for a total of 20X! Well done, nice trade and nice profit, go out and buy yourself a new Tesla and wait for the next dip in tech, which may have already started, and which could power on for the rest of August.

Q: What’s the next move for REITs?

A: REITs came off of historic lows last year; a lot of people thought they were going to go bankrupt, and for companies like (SPG) it was a close-run thing. I would be inclined to take profits on REITs here. The next thing to happen is for interest rates to go up and REITs don’t do that great in a rising rate environment.

Q: When is the off-season in Incline Village?

A: It’s the Spring and the Fall, in between ski season and the summer season. That means there are four months a year here, May/June and September/October, where I’m the only one here and the parking lots are empty. There is no one on the trails, the weather is perfect, the leaves are changing colors, and the roads aren’t crowded, so that is the time to be here. It’s a mob scene in the winter and a worse mob scene in the summer!

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

July 26, 2021

Diary, Newsletter, Summary

Global Market Comments
July 26, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or GETTING INTO STUDIO 54),
(AAPL), (AMZN), (TSLA), (GOOGL), (FB), (NVDA), (TLT)

The Market Outlook for the Week Ahead, or Getting Into Studio 54

Diary, Newsletter

During the heyday of my Morgan Stanley career in the 1980s, back when I had an unlimited expense account, a favorite place to take clients was Studio 54.

The place was full of rock stars, the music was piercing, and strange things were happening in dark corners. It was all the perfect adventure for the impressible visitor from the sedentary Midwest.

Studio 54 was notoriously difficult to get into. There were these hefty doormen dressed in black with big gold chains who did the vetting. If you were famous or a free-spending investment banker, the red ropes were cast aside, and you glided right in. $100 tips spoke volumes too. The hoi polloi could only watch with envy, even after spending hours in line.

The stock market has become a lot like Studio 54. It’s not letting you in. I had ten trade alerts lined up to get into the market on Friday and Monday. I only got off four. After a scant 3.2% decline, stocks turned around so fast it made your head spin. There are strange things happening in dark corners too.

Next week is the first time in a decade when the top five tech companies report earnings. If history is any guide, they will sell off sharply on the reports, form a base in August, then begin their yearend ramp up. This is why I have been hanging on to my short positions.

I continue to belie that the major miss by the markets is how much they are underestimating tech earnings. Maybe they have fully discounted 2021 earnings, but what about 2022-2030?

Let me give you the example of Apple alone. 5G wireless technology is rolling out now which is improving performance by ten times. What about 6G, 7G, and 8G? The cumulative performance gains of a decade of technological improvement is 10,000 times at zero cost!

Do you think Apple will buy more of its own stock in anticipation of this? Do you think everyone else will too?

You bet!

The “Delta” Correction lasted a day, with deaths in some states up 100% in a week. It is a pandemic of the unvaccinated and of children. The stock market was already ripe for a 5% correction. That’s what happens when you double in 16 months. The bond market at a 1.10% yield thinks the recovery is over and we’re going below 1.00% for the ten year.

Facebook is killing people, says Biden, through enabling the spread of vaccine information. Right-wing website says the vaccine causes sterility, alters your DNA, and enables the government to track your location. (FB) says members have the right to lie to each other. This isn’t going away. (FB) shares hit a new all-time high, taking its market cap into the trillion-dollar club.

That was the shortest recession in history in 2020, lasting only two months. Straight down and then straight up, making it the shortest recession in history. But what two months it was, with an eye-popping 22 million jobs disappearing in March and April. We have since made more than half back.

The month-end selloff is back in play, with the 800-point bounce behind us. That’s when big tech reports. With trillions of dollars struggling to get into the market on any dip, a two-day, 3.2% correction is all we are going to get. I managed to strap on stock longs and bond shorts yesterday, but even I got left on the sidelines with my other trade alerts.

Bitcoin breaks $30,000, then bounces back up. It seems to be an inflation/rising interest rate play which does poorly when ten-year yields hit 1.12%. It’s almost trading 1:1 with Freeport McMoRan (FCX). That has to mean we’re soon entering “BUY” territory.

Rents are soaring, up 6.6% in May YOY, according to data collection firm Corelogic. It’s the biggest gain since 2005. Single-family homes, about half of the rental market, are leading the charge. Phoenix is delivering the biggest increases, up 14% YOY, followed by Dallas and Atlanta. What a great time to own!

Share buybacks are turbocharging this market, which could reach an eye-popping record $1 trillion in 2021 and another $550 billion in dividends. Q2 has already seen $350 billion in buybacks. Apple (AAPL) is leading the charge with a monster $250 billion in cash. Alphabet (GOOGL), Microsoft (MSFT), and Berkshire Hathaway (BRKB) follow. Even companies that have never bought the stock before may enter the fray, like Netflix (NFLX), which is a cash flow cow. My yearend target of an S&P 500 at 4,750, up 9.2% from here, is now looking totally attainable.

Existing Home Sales are up 1.4% in June to 5.86 million units, less than expected. Inventories are down 18.8% YOY to 1.25 million units to a 2.6-month supply. The Northeast was the leader, up 2.8%. Median home prices are still soaring to $363,000 and up an eye-popping 23.4% YOY. Sales of homes priced over $1 million are up 147%. No typo here. Some 14% of homes are now sold to investors, while 23% were to all-cash buyers.

GM recalls 69,000 bolts over recharging fire risk. The Ev's use will be severely restricted until fixed, citing “rare manufacturing defects.” Bolts use imported Korean batteries from LG. It’s what happens when you move into a new technology a decade late and rush to catch up. GM will never catch (TSLA). Avoid (GM) and buy (TSLA).

My Ten Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 240,000 here we come!

My Mad Hedge Global Trading Dispatch profit suffered a -1.65% loss so far in July. My 2021 year-to-date performance appreciated to 66.95%. The Dow Average is up 14.57% so far in 2021.

Two of my positions, a long in (JPM) and a short in the (TLT) did great. But I really took it on the nose with my short positions in the (SPY) when the market melted up on Friday. That should turn out OK when all five big tech companies report this week, which historically marks a market top. That leaves me 60% in cash. I’m keeping positions small as long as we are at extreme overbought conditions.

That brings my 11-year total return to 489.50%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.25%, easily the highest in the industry.

My trailing one-year return exploded to positively eye-popping 104.96%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Coronavirus cases at 34.4 million and rising quickly and deaths topping 611,000, which you can find here. Some 34.1 million Americans have contracted Covid-19.

The coming week will be a weak one on the data front.

On Monday, July 26 at 11:00 AM, New Homes Sales for June are released. Alphabet (GOOGL), Tesla (TSLA), and Amazon (AMZN) report.

On Tuesday, July 27 at 10:00 AM, the S&P Case Shiller National Home Price Index for May is published. Apple (AAPL) reports.

On Wednesday, July 28 at 9:30 AM, the Wholesale Price Index for June is disclosed. Facebook (FB) and Microsoft (MSFT) report.

On Thursday, July 29 at 8:30 AM, we get Weekly Jobless Claims. We also learn the first look at Q2 US GDP, which should be a blockbuster.

On Friday, July 30 at 8:30 PM, we get Personal Income & Spending for June.

As for me, when I was shopping for a Norwegian Fiord cruise for next summer, each stop was familiar to me because a close friend had blown up bridges in every one of them.

During the 1970s at the height of the Cold War, my late wife Kyoko flew a monthly round trip from Moscow to Tokyo as a British Airways stewardess. As she was checking out of her Moscow hote, someone rushed at her and threw a bundled typed manuscript that hit her in the chest.

Seconds later, a half dozen KGB agents dog-piled on top of her. It turned out that a dissident was trying to get Kyoko to smuggle a banned book to the West and she was arrested as a co-conspirator and bundled away to Lubyanka Prison.

I learned of this when the senior KGB agent for Japan contacted me, who had attended my wedding the year before. He said he could get her released, but only if I turned over a top-secret CIA analysis of the Russian oil industry.

At a loss for what to do, I went to the US Embassy to meet with ambassador Mike Mansfield, who as The Economist correspondent in Tokyo I knew well. He said he couldn’t help me as Kyoko was a Japanese national, but he knew someone who could. Then in walked William Colby, head of the CIA.

Colby was a legend in intelligence circles. After leading the French resistance with the OSS, he was parachuted into Norway with orders to disable the railway system. Hiding in the mountains during the day, he led a team of Norwegian freedom fighters who laid waste to the entire rail system from Tromso all the way down to Oslo. He thus bottled up 300,000 German troops, preventing them from retreating home to defend themselves from an allied invasion.

During Vietnam, Colby became notorious for running the Phoenix assassination program.

I asked Colby what to do about the Soviet request. He replied, “give it to them.” Taken aback, I asked how. He replied, “I’ll give you a copy.” Mansfield was my witness so I could never be arrested for being a turncoat. Copy in hand, I turned it over to my KGB friend and Kyoko was released the next day and put on the next flight out of the country. She never took a Moscow flight again.

I learned that the report predicted that the Russian oil industry, its largest source of foreign exchange, was on the verge of collapse. Only massive investment in modern western drilling technology could save it. This prompted Russia to sign deals with American oil service companies worth hundreds of millions of dollars.

Ten years later, I ran into Colby at a Washington event and I reminded him of the incident. He confided in me, “You know that report was completely fake, don’t you?” I was stunned. The goal was to drive the Soviet Union to the bargaining table to dial down the Cold War. I was the unwitting middleman. It worked. That was Bill, always playing the long game.

After Colby retired, he campaigned for nuclear disarmament and gun control. He died in a canoe accident in the lake in from of his Maryland home in 1996.

Nobody believed it for a second.

Stay healthy.

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

July 16, 2021

Diary, Newsletter, Summary

Global Market Comments
July 16, 2021
Fiat Lux

Featured Trade:

(JULY 14 BIWEEKLY STRATEGY WEBINAR Q&A),
(JPM), (MS), (GS), (TLT), (TBT), (CRSP), (AAPL), (TSLA), (QS), (SPCE), (AMZN),
(FCX), (FEYE), (PANW), (HACK)

July 14 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the July 14 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.

Q: Which banks are best?

A: JP Morgan (JPM), Morgan Stanley (MS), and Goldman Sachs (GS). That's the trifecta. If you look at the charts, the brokers Morgan Stanley and Goldman Sachs are overwhelmingly outperforming everyone else. They will continue to do that, as the bull market in stocks is a money machine for them.

Q: What has caused interest rates to continue to drop so much in the last 1-2 months? Why are you confident you will see them rise from here on?

A: The reason they've dropped so much is there is a bond shortage (TLT). There is more demand for bonds and reach for yield around the world than the US government is able to supply. Therefore, the US government should do more borrowing and issue more bonds. That's what the market is telling them to do. When your 10-year yield goes to 1.2%, the message is that you're not borrowing enough, not that you're borrowing too much. How does this end? Eventually, the sheer volume of bond issuance will reach global demand. And we will also see some inflation, not much but some, and that will be enough to take us back up to the 1.75% yield that we had in March. I think we will see that by the end of the year, especially if the Fed tapers and cuts back at least the mortgage bond purchases, which is $40 billion/month. Why subsidize housing when there are nationwide bidding wars?

Q: Are you positive on CRISPR Technologies (CRSP)?

A: Yes, but it is a long-term play and I recommend the LEAPS on those that go out to 2023. That said, we did just have a big rally up to the 140s from the 100s so that 40% was pretty good. But that's the way these small biotech’s trade you get long periods of no movement and then sudden explosive moves to the upside when they make a breakthrough.

Q: Are we going to see inflation?

A: We will have some inflation; but the major component of inflation now is used cars and rental cars, which are up 100% year on year, and that is totally unsustainable. That means a year from now, increase in used car prices will be zero, and will actually be a big drag on inflation. So that's what the Fed means when they say that any inflation will be temporary as we go through these tremendous YOY comparisons when demand goes from zero to near infinite. And that's happening in many sectors of the economy right now. You never get rich betting against a 40-year trend, and for inflation that is down.

Q: Has the market peaked for the short term?

A: My bet on a short-term peak is the last week of July when all the big tech companies report. And then we classically get reasonable selloffs after that—buy the rumor, sell the news. That's our next entry point for long positions in this market. Since the presidential election, the index has been unable to drop more than 4.8% as there is so much money on the sidelines trying to get in.

Q: Should I be max long ProShares Ultra Short Treasury Bond Fund (TBT) LEAPS?

A: Just make sure they’re long-dated LEAPS—at least six months to a year or longer. That way you have plenty of time for them to work. The current return on the (TBT) June 2022 $17-$19 vertical bull call LEAPS at $0.75 is 166%.

Q: What’s the chance of Biden’s budget passing?

A: 100%. It’s just a question of how much will be in there—we’re at $597 billion on infrastructure and $3.5 trillion for the rest of spending. That gives you a $4.1 trillion budget for the next fiscal year starting October 30, which is the biggest in history and biggest since WWII on an inflation-adjusted basis. That will go through and keep the stock market percolating for several more years. Dow $240,000 here we come!

Q: Would you sell calls against Apple (AAPL) today?

A: I would, I would do something like the August $165’s. Even then, it’s a high-risk trade because Apple has been on such a parabolic move for the last 2 months. So do that at your own risk; notice I’m not putting out trade alerts telling you to short Apple in any way shape or form. My target for the yearend is $200.

Q: Will Tesla (TSLA) use QuantumScape (QS) batteries to make their own solid-state ones?

A: Tesla will make their own solid-state batteries They are far ahead of QuantumScape with their own technology and eventually, they will wipe them out. So, I am not recommending QuantumScape—they are 10 years behind Tesla. Sorry, I didn’t make that clearer in my research piece.

Q: When do you expect the 7% drop in the market?

A: August/September is usually when the market bottoms. Let’s see if we get it this time. Predicting down moves has been somewhat of a fool's errand in a market when you have infinite QE, infinite fiscal stimulus, infinite monetary stimulus, and the highest economic growth in history. And again, I am upgrading my 10-year forecast for the market; I’m not looking for a Dow 120,000 by 2030 anymore, I’m looking for a Dow 240,000, and when you’re still at only a measly 34,933, you don’t get many 7% drops. In fact, we’ve had none since the election.

Q: Could Tesla make an all-time high by the end of the year?

A: Yes, especially if they make progress on the solid-state batteries. Tesla (TSLA) tends to have sideways periods that can last years and then explosive moves to the upside. It almost trades like a biotech stock.

Q: Is Virgin Galactic (SPCE) a buy here off the back of their successful rocket launch last week?

A: No, any business dependent on retail sales of tickets at $250,000 each has absolutely no chance of ever making a profit in its life. As much as I like Richard Branson, who I used to fly with, the fact is that this business will never make money. It's more of a public relations vehicle for all of the hundreds of Virgin Brands. They’ll never get the cost low enough to make this economic for the average person. Spaceships aren’t cheap, and they don’t sell them at Costco. In fact, you notice that after the rocket launch, the stock dropped 20%. However, if they do drop the price to $100,000 even I might buy a ticket but only if they let me fly the thing.

Q: What is your favorite FANG stock other than Apple?

A: It is Amazon (AMZN). I think it hits $5,000 by the end of the year. If they try to break it up it’ll be worth $10,000, which it will get to eventually (in like 5 years) anyway. They just have absolutely everything working there.

Q: Why is Alaska the worst state to do business in?

A: Well, first of all, it’s only habitable for like 6 months of the year, and otherwise it’s too cold and heating bills are enormous. Also, nothing is produced in Alaska besides tourism and oil, which is subject to enormous volatility. They actually canceled the oil payouts for Alaskan citizens last year. Anything else you want to do in Alaska requires transportation costs from the US. So essentially there are 49 other better states to bring business ideas to.

Q: Will Amazon ever split their stock?

A: No, there's no reason or net benefit to it. Jeff Bezos has never been prone to financial engineering because he never needed to. Natural earnings growth was always so enormous he didn’t need to bother with any of these side games to jack the stock price. So, I would say “no” on a stock split.

Q: In a two-year LEAPS, you’re taking a long position, yes?

A: When you do a LEAPS spread, you're buying a 1-2 year call and you’re selling short a 1-2 year call against it. That cuts your price by ⅔ and increases your leverage by a factor of 3 and is a far greater risk/reward than just buying the 2-year call outright. If you want to learn more about LEAPS, send us an email about the Mad Hedge Concierge Service that is by application only.

Q: When is the recording up?

A: About two hours.

Q: Do you still love Freeport McMoRan (FCX)?

A: Yes, it’s taking the inflation vacation right now with the rest of the commodities, but I expect it to come roaring back by the end of the year. Electric vehicles need 200 pounds of copper compared to only 20 pounds for internal combustion cars.

Q: Thoughts on FireEye (FEYE)?

A: Yes, we love FireEye along with the rest of the cybersecurity plays, so buy on the dips. Hacking is a growth market and will never go out of fashion. BUY (PANW) and (HACK) on dips.

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 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

June 21, 2021

Diary, Newsletter, Summary

Global Market Comments
June 21, 2021
Fiat Lux

Featured Trade:

(MARKET OUTLOOK FOR THE WEEK AHEAD, or IT’S CORRECTION TIME),
(SPY), (TLT), (JPM), (BRKB), (AMZN), (ADBE), (NVDA)

The Market Outlook for the Week Ahead, or It’s Correction Time

Diary, Newsletter

OK, I’ll give it to you straight.

The market has just entered a correction that will take the Dow Average down precisely 7.81% from the recent 35,050 high down to 32,515. That just so happens to be the 150-day moving average.

During this time, interest rates will rise, possibly taking the ten-year US Treasury bond yield to 1.30% and the United States Treasury Bond Fund (TLT) to $151.

Technology stocks will take the lead this summer. After not moving for nearly a year, Amazon (AMZN) will take the lead, discounting last year’s 44% growth in sales. NVIDIA (NVDA) and Adobe will follow.

Bank stocks and other financials like JP Morgan Chase (JPM) and Berkshire Hathaway (BRKB) will suffer, dropping 10% so far and 20% before the crying is all over.

In other words, we just flipped from one half of the barbell to the other in a heartbeat. That will last until late summer to the fall. After that, we shift to the other side of the barbell.

That means the best opportunity to buy financials and sell short bonds in a year is setting up in the coming weeks, if not months.

That takes us until the end of 2021 when I expect another liquidity surge to take everything up. Then we all walk together hand in hand into the sunset signing glory halleluiah. It doesn’t get any easier than that.

I saw all of this coming at the beginning of the year, which is why I raced to rack up a 68.60% profit in the first half of the year and went 100% cash with the June 18 option expiration. I succeeded right on the money.

As for 2022, that is a different story entirely.

The big view here that the stock market is transitioning from an 80% gain to a 30% gain to a more normal average annualized 15% gain. The big game is how far in advance stocks will discount these smaller gains.

It will take a lot to get me off the bench and risk any of this hard-won profit. A Volatility Index (VIX) of over $35 would help (we closed at $20.70 on Friday). So would a Mad Hedge Market Timing Index under 20. So would JP Morgan under $127.

The Fed Takes a Turn, leaning towards more inflation. It is keeping interest rates unchanged at 0%-0.25% and continuing bond purchases at $120 billion a month. It is still sticking with the “transitory” argument on inflation but raised its full-year target from 2.4% to 3.4%, more than most expected. It went more specific on rate rises, predicting two 0.25% increases by the end of 2023. Bonds and technology stocks crashed, and inflation plays like banks, Bitcoin, and Berkshire Hathaway soared. The barbell strategy wins again!

The Big Rotation is On, with traders moving out of inflation plays and into big tech. That is the outcome of the shocking bond market spike that came out of last week’s 5% print for the Consumer Price Index. The Fed is telling the world that any inflation is temporary, and the world is believing them. It could give us a bond and tech rally that lasts a couple of months.

Commodities Crash, on a soaring US dollar and shrinking interest rates. The 15-month bull move is taking a summer vacation, unwinding 2X-10X moves racked up since the 2020 lows. Palladium took an 11% hit, with platinum off 7%, corn 6%, and copper 4%. Banks also sold off big as the whole inflation trade unwinds. Buy all of these on the next bottom for a rebound.

Shipping Costs are out of control for everything from everywhere to everywhere else. Transporting a 40-foot steel container of cargo by sea from Shanghai to Rotterdam now costs a record $10,522, up a whopping 547%. Tens of thousands of containers are on the wrong side of the Pacific. Shortages of truck drivers are extreme, with $50,000 signing bonuses rampant. It is one thing that could make continuing inflation pernicious.

If Copper sells off, it won’t be by much. Conventional internal combustion cars use 40 pounds of copper for wiring. EVs use 200 pounds for the heavy copper rotors in each wheel, in addition to two ounces of silver (SLV). EV production will rise from 700,000 units last year to 25 million by 2030. You do the math. There aren’t enough copper mines in the world to accommodate this demand and it takes five years to build a new one. Buy (FCX) on the next big dip. It’s going to $100 in five years.

Paul Tudor Jones says the Taper Tantrum is coming, despite last week’s perverse reaction by the bond market to the red hot 5% inflation rate. The Fed’s obsession with jobs only and not inflation will end in tears. My old client and legendary investor has 20% of his assets in inflation plays, including gold (GLD), Bitcoin, commodities, and short US Treasury bonds (TLT). When Paul is wrong, it’s usually not for very long.

Housing Starts up only 3.6% in May, to a seasonally adjusted 1.57 million units, with sky-high lumber and other materials prices a major drag. New Permits hit a seven-month low.

Weekly Jobless Claims jump to 412,000, the largest increase since March. Could the economy be slowing?

Tech Soars, getting a new lease on life with the collapse of interest rates last week. My favorite, Amazon (AMZN), picked up a healthy $80 yesterday on a 44% YOY gain in sales. Even Apple (AAPL) is coming back from the dead, up $2.00. I sent out long-term at-the-money LEAPS on these last week. It's hard to hold quality down for the long term.

Factory activity fell in June, for the second month in a row according to the Philly Fed, backing off from an all-time high in the spring. Parts and materials shortages are plaguing manufacturers everywhere as the economy struggles to escape from its pandemic torpor.

My Ten-Year View

When we come out the other side of pandemic, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With interest rates still at zero, oil cheap, there will be no reason not to. The Dow Average will rise by 400% to 120,000 or more in the coming decade. The American coming out the other side of the pandemic will be far more efficient and profitable than the old. Dow 120,000 here we come!

My Mad Hedge Global Trading Dispatch profit reached 0.71% gain so far in June on the heels of a spectacular 8.13% profit in May. That leaves me 100% in cash.

My 2021 year-to-date performance appreciated to 68.60%. The Dow Average is up 8.8% so far in 2021.

I spent the week taking profits on the 40% in remaining positions either by selling or running them into the Friday expiration. My goal was to go 100% before the market completely fell to pieces and I succeeded handily. It’s going to be a grim summer.

I rang the cash register on Berkshire Hathaway (BRKB) and the S&P 500 (SPY), and my short in the (SPY). Perhaps my best trade of the year was stopping out of my short in the (TLT) for an $800 loss when it topped $140.

That brings my 11-year total return to 491.15%, some 2.00 times the S&P 500 (SPX) over the same period. My 11-year average annualized return now stands at an unbelievable 42.70%, easily the highest in the industry.

My trailing one-year return exploded to positively eye-popping 126.07%. I truly have to pinch myself when I see numbers like this. I bet many of you are making the biggest money of your long lives.

We need to keep an eye on the number of US Coronavirus cases at 33.1 million and deaths topping 600,000, which you can find here. Some 33.1 million Americans have contracted Covid-19.

The coming week will be a weak one on the data front.

On Monday, June 21 at 8:30 AM, the Chicago Fed National Activity Index is out.

On Tuesday, June 22 at 10:00 AM, Existing Home Sales for May is released

On Wednesday, June 23 at 10:00 AM, New Home Sales for May is published.

On Thursday, June 24 at 8:30 AM, the Weekly Jobless Claims are published. We also get US Durable Goods Orders for May.

On Friday, June 25 at 8:30 AM, US Personal Income & Spending for May are disclosed. At 2:00 PM, we learn the Baker-Hughes Rig Count.

As for me, with all the recent violence in the Middle East, I am reminded of my own stint in that troubled part of the world. I have been emptying sand out of my pockets since 1968, when I hitchhiked across the Sahara Desert, from Tunisia to Morocco.

During the mid-1970s, I was invited to a press conference given by Yasser Arafat, founder of the Al Fatah terrorist organization and leader of the Palestine Liberation Organization, at the Foreign Correspondents Club of Japan. His organization then rampaging throughout Europe, attacking Jewish targets everywhere.

Japan recognized the PLO to secure their oil supplies from the Persian Gulf, on which they were utterly dependent.

It was a packed room on the 20^th floor of the Yurakucho Denki Building, and much of the world’s major press were represented, as the PLO had few contacts with the west.

Many placed cassette recorders on Arafat’s table in case he said anything quotable. Then Arafat ranted and raved about Israel in broken English.

Mid-sentence, one machine started beeping. A journalist jumped up to turn his tape over. Suddenly, four bodyguards pulled out Uzi machine guns and pointed them directly at us.

The room froze.

Then a bodyguard deftly set his Uzi down on the table, flipped over the offending cassette, and the remaining men stowed their weapons. Everyone sighed in relief. I thought it was interesting that the PLO was using Israeli firearms.

The PLO was later kicked out of Jordan for undermining the government there. They fled Lebanon for Tunisia after an Israeli invasion. Arafat was always on the losing side, ever the martyr.

He later shared a Nobel Prize for cutting a deal with Israel engineered by Bill Clinton in 1993, recognizing its right to exist. He died in 2004.

Many speculated that he had been poisoned by the Israelis. My theory is that the Israelis deliberately kept Arafat alive because he was so incompetent. That is the only reason he made it until 75.

Stay healthy.

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

The Middle East Does Have Some Advantages

June 18, 2021

Diary, Newsletter, Summary

Global Market Comments
June 18, 2021
Fiat Lux

Featured Trade:

(JUNE 16 BIWEEKLY STRATEGY WEBINAR Q&A),
(MS), (XOM), (FXI), (MSFT), (AMZN), (FB), (GOOGL), FCX), (CAT),
(GLD), (DIS), (GME), (AMC), (UBER), (LYFT), (TLT), (VIX)

June 16 Biweekly Strategy Webinar Q&A

Diary, Newsletter

Below please find subscribers’ Q&A for the June 16 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Lake Tahoe, NV.

Q: Does Copper (FCX) look like a buy now or wait for it to drop?

A: I would buy ⅓ now, ⅓ lower down, ⅓ lower down still. Worst case we get down to $30 in Freeport McMoRan (FCX) from $37 today. A new internal combustion engine requires 40 lbs. of copper for wiring, but new EVs require 200 lbs. per car, and the number of EV cars is about to go from 700,000 last year to 25 million in 10 years. So, you can do the math here. It's basically 24.3 million times 200 lbs., or 1.215 billion tons, and that's the annual increase in demand for copper over the next 10 years. There aren’t enough mines in the world to accommodate that, so the price has to go up. However, (FCX) has gone up 12 times from its 2020 low and was overdue for a major rest. So short term it's a sell, long term it's a double. That's why I put the LEAPS out on it.

Q: Lumber prices are dropping fast, should I bet the ranch that it’ll drop big?

A: No, I think the big drop has happened; we’re down 40% from the highs, the next move is probably up. And that is a commodity that will remain more or less permanently in short supply due to the structural impediments put into the lumber market by the Trump administration. They greatly increased import duties from Canada and all those Canadian mills shut down as a result. It’s going to take a long time to bring those back up to speed and get us the wood we need to build houses. Another interesting thing you’re seeing in the bay area for housing is people switching over to aluminum and steel for framing because it’s cheaper, and of course in an earthquake-prone fire zone, you’d much rather have steel or aluminum for framing than wood.

Q: I didn’t catch the (FCX) LEAP, can you reiterate?

A: With prices at today's level, you can buy the 35 calls in (FCX), sell short the 40 calls, and get nearly a 177% return by January 2022. That's an absolute screamer of a LEAPS.

Q: How do you see the working from home environment in the near future after Morgan Stanley (MS) asked everyone to return?

A: Well that’s just Morgan Stanley and that’s in New York. They have their own unique reasons to be in New York, mostly so they can meet and shake down all their customers in Manhattan—no offense to Morgan Stanley, but I used to work there. For the rest of the country, those in remote places already, a lot of companies prefer that people keep working from home because they are happier, more productive, and it’s cheaper. Who can beat that? That’s why a lot of these productivity gains from the pandemic are permanent.

Q: Is there a recording of the previous webinar?

A: Yes, all of the webinars for the last 13 years are on the website and can be accessed through your account.

Q: What makes Microsoft (MSFT) a perfect-looking chart?

A: Constant higher lows and higher highs. They also have a fabulous business which is trading relatively cheaply to the rest of tech and the rest of the main market. Of course, they were a huge pandemic winner with all the people rushing out to buy PCs and using Microsoft operating software. I expect those gains to improve. The new game now is the “wide moat” strategy, which is buying companies that have near monopolies and can’t be assailed by other companies trying to break into their businesses. The wide moat businesses are of course Microsoft (MSFT), Amazon (AMZN), Facebook (FB) and Alphabet (GOOGL). That's the new investment philosophy; that's why money has been pouring back into the FANGs for a month now.

Q: Do you have any concerns about Facebook’s (FB) advertising ability, given the recent reduction of tracking capabilities of IOS 4.5 users?

A: Well first of all, IOS 4.5 users, the Apple operating system, are only 15% of the market in desktops and 24% of mobile phones. Second, every time one of these roadblocks appears, Facebook finds a way around it, and they end up taking in even more advertising revenue. That’s been the 15-year trend and I'm sticking to it.

Q: Is Caterpillar (CAT) a LEAP candidate right now?

A: Not yet, but we’re getting there. Like many of these domestic recovery plays, it is up 200% from the March lows where we recommended it. The best time to do LEAPS is after these big capitulation selloffs, and all we’ve really seen in most sectors this year is a slow grind down because there's just too much money sitting under the market trying to get into these stocks. Let’s see if (CAT) drops to the 50-day moving average at $185 and then ask me again.

Q: If you have the (FCX) LEAPS, should you keep them?

A: I would keep them since I'm looking for the stock to double from here over the next year. If you have the existing $45-$50 LEAPS, I would expect that to expire at its max profit point in January. But you may need to take a little pain in the interim until it turns.

Q: Should I bet the ranch on meme stocks like (AMC) and GameStop GME)?

A: Absolutely not, I’m amazed you haven't lost everything already.

Q: Do you think Exxon-Mobile (XOM) could rise 30% from here?

A: Yes, if we get a 30% rise in oil. We are in a medium-term countertrend rally in oil which will eventually burn out and take us to new lows. Trade against the trend at your own peril.

Q: Disneyland (DIS) in Paris is set to open. Is Disneyland a buy here?

A: Yes, we’re getting simultaneous openings of Disneyland’s worldwide. I’ve been to all of them. So yes, that will be a huge shot in the arm. Their streaming business is also going from strength to strength.

Q: How long will the China (FXI) slowdown last?

A: Not long, the slowdown now is a reaction to the superheated growth they had last year once their epidemic ended. We should get normalized growth in China at around 6% a year, and I expect China to rally once that happens.

Q: Have you changed your outlook on inflation, real or imagined?

A: I don’t think we’re going to have inflation; I buy the Fed's argument that any hot inflation numbers are temporary because we’re coming off of a one-on-one comparisons from when the economy was closed and the prices of many things went to zero. If you look at that inflation number, it had trouble written all over it. Some one third of the increase was from rental cars. One of the hottest components was used cars. You’re not going to get 100% year on year increases next year in rental or used cars.

Q: When you issue a trade alert, it’s always in the form of a call spread like the Microsoft (MSFT) $340-$370 vertical bull call spread. What are the pros and cons of doing this trade on the put side, like shorting a vertical bear put spread?

A: It’s six of one, half a dozen of the other. There are algorithms that arbitrage between the two positions that make sure that they’re never out of line by more than a few cents. I put out call spreads because they’re easier for beginners to understand. People get buying something and watching it go up. They don’t get borrowing something, selling it short, and buying it back cheaper.

Q: Will gold (GLD) prices go up?

A: Yes, when inflation goes up for real.

Q: What is the future of the gig economy? How will that affect Uber (UBER) and Lyft (LYFT)?

A: I like both, because they just got a big exemption from California on part time workers, and that is very positive for their business models.

Q: Do you think the government doesn’t want to cancel student debt because it will unleash inflation?

A: It’s the exact opposite. The government wants to forgive student debt because it will unleash inflation. If you add 10 million new consumers to the economy, that is very positive. As long as former students have tons of debt, horrible credit ratings, and are unable to buy homes or get credit cards, they are shut out of the economy. They can’t participate in the main economy by buying homes, shopping, or getting credit. The fact that the US has so many college grads is why businesses succeed here and fail in every other country. That should be encouraged.

Q: Where is the United States US Treasury Bond Fund (TLT) headed?

A: Short term up, long term down.

Q: Options premiums are not melting away much today; I hope they start decaying after the Fed announcement.

A: In these elevated volatility periods—believe it or not, the (VIX) is still elevated compared to its historic levels—they hang on all the way to the very last day, before expiration, before they really melt the time value on options. It really does pay to run these into expiration now. When the VIX was down at like $9-$10, that was not the case.

Q: I bought a short term expiration going long the (TLT) to hedge my position; was this smart?

A: Yes, but only if you are a professional short-term trader. If you are in front of your screen all day and are able to catch these short term moves in (TLT), that is smart. My experience is that most individual investors don’t have the experience to do that, don’t want to sit in front of a screen all day, and would rather be playing golf. Such hedging strategies end up costing them money. Also, remember that half of the moves these days are at the opening; they’re overnight gap openings and you can’t catch that intraday trading—it’s not possible. So over time, the people who take the most risk make the most money. And that means the people who don’t hedge make the most money. But you have to be able to take the pain to do that. So that’s my philosophy talk on risk taking.

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 Trade