Global Market Comments
September 3, 2021
Fiat Lux
Featured Trade:
(LOOKING AT THE LARGE NUMBERS)
(TLT), (TBT) (BITCOIN), (MSTR), (BLOK), (HUT)
Tag Archive for: (TLT)
Global Market Comments
August 30, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD,
or THE HIGHER WE GO THE CHEAPER WE GET),
(JPM), (BAC), (C), (GS), (MS), (BLK), (FCX), (X),
(WYNN), (MGM), (ALK), (LUV), (HAL), (SLB), (TLT)
I am sitting here holed up in my office in San Francisco.
Lake Tahoe is being evacuated as the Caldor fire is only ten miles away and the winds are blowing towards it. The visibility there is no more than 500 yards. The ski resorts are pointing their snow cannons towards their buildings to ward off flames.
Conditions are not much better here in Fog City. We are under a “stay at home” order due to intense smoke and heat. Even here, the fire engines are patrolling by once an hour.
The Boy Scout trip got cancelled this weekend, so the girls are having a cooking competition, chocolate chip waffles versus a German chocolate cake.
To make matters worse, I have been typing with only one finger all week, thanks to the elbow surgery I had on Tuesday. Next time, I’ll think twice before taking down a 300-pound steer. When I told the doctor how I incurred this injury, he laughed. “At your age?”
Which leaves me to contemplate this squirrelly stock market of ours. I have always been a numbers guy. But the higher the indexes rise, the cheaper stocks get. That’s not supposed to happen, but that is the fact.
We started out 2021 with an S&P 500 price earnings multiple of 25X. Now, we are down to a lowly 21X and the (SPY) is 20% higher, rising from $360 to $450.25.
The analyst community, ever the lagging indicator that they are, had S&P forward earnings for 2022 all the way down to $175. They have been steadily climbing ever since and are now touching $200 a share.
This is what 20/20 hindsight gets you. That and $5 will get you a cup of coffee at Starbucks. It takes a madman like me to go out on a limb with high numbers and then be right.
So what follows an ever-cheaper market? A more expensive one. That means stocks will continue to my set-in-stone target of $475 for the (SPY) for yearend, and (SPY) earnings of over $200 per share.
It gets better.
(SPY) earnings should hit $300 a share by 2025 and $1,400 a share by 2030. That makes possible my (SPY) target of $1,800 and my Dow Average target of 240,000 in a decade.
What are markets getting right that analysts and bears are getting wrong?
The future has arrived.
The pandemic brought forward business models and profitability by a decade. Technology is hyper-accelerating on all fronts.
Cycles are temporary but adoption is permanent. We are never going back to the old pre-pandemic economy. As a result, stocks are now worth a lot more than they were only two years ago.
So what do we buy now? There is a second reopening trade at hand, the post-delta kind. That means buying banks (JPM), (BAC), (C), brokers (GS), (MS), money managers (BLK), commodities (FCX), (X), hotels (WYNN), (MGM), airlines (ALK), (LUV), and energy (HAL), (SLB).
And what do we avoid like the plague? Bonds (TLT), which offer only confiscatory yields in the face of rising inflation with gigantic negative interest rates.
As for technology stocks, they will go sideways to up small in the aftermath of their ballistic moves of the past three months.
You all know that I am a history buff and there are particular periods of history that are starting to disturb me.
In August, we saw ten new intraday highs for the S&P 500 (SPY). That has not happened since 1987. Remember what happened in 1987?
We have not seen 11 new highs in August since 1929. The only negative three months seen since 1929 are August, September, and October. Remember what happened in 1929?
If that doesn’t scare the living daylights out of you, then nothing will. So, it seems we are in for some kind of correction, even if it’s just the 5% kind.
As for me, I’m looking forward to 2030.
The “Everything” Rally is on, according to my friend, Strategas founder Tom Lee. You can see it in the recent strength of epicenter stocks like energy, hotels, airlines, and casinos. It could run into 2022.
The Taper is this year and interest rate rises are later, said Jay Powell at Jackson Hole last week. Markets will be jumpy, especially bonds. Fed governor Jay Powell’s every word was parsed for meaning. Dove all the way. The larger focus will be on the August Nonfarm Payroll report out this week.
Pfizer Covid vaccination gets full FDA approval, requiring millions more to get shots and bringing forward the end of the pandemic. All 5 million government employees will now get vaccinated, including the entire military. It’s the fastest drug approval in history. Some 37,000 new cases in one day. The stock market likes it. Take profits on (PFE)
Bitcoin tops $50,000 after breaking several key technical levels to the upside. Next stop is a double top at $66,000. It helps that Coinbase is buying $500 million worth of crypto for its own portfolio. Buy (COIN) on dips.
The US Dollar will crash in coming years, says Jeffry Gundlach and I think he is right. Emerging markets will become the next big play but not quite yet. Gold (GLD) will be a great hideout once it comes out of hibernation. China will soon return to outperforming the US. The dollars reserve currency status is at risk.
The lumber crash is saving $40,000 per home, says Toll Brothers (TOL) CEO, Doug Yearly. Last year, lumber prices surged from $300 per board foot to an insane $1,700, thanks to a Trump trade war with Canada and soaring demand. It all flows straight through the bottom line of the homebuilders which should rally from here. Buy (TOL) on dips.
China’s crackdown creates investment opportunities, says emerging investing legend Mark Mobius. He sees corporate governance improving over the long term. The gems are to be found among smaller companies not affected by Beijing’s hard-line. Mobius loves India too.
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 saw a healthy +7.62% gain in August. My 2021 year-to-date performance appreciated to 76.83%. The Dow Average was up 15.87% so far in 2021.
That leaves me 80% in cash at 20% in short (TLT) and long (SPY). I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 12-year total return to 499.38%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 42.80%, easily the highest in the industry.
My trailing one-year return popped back to positively eye-popping 116.67%. 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 39 million and rising quickly and deaths topping 638,000, which you can find here.
The coming week will bring our monthly blockbuster jobs reports on the data front.
On Monday, August 30 at 11:00 AM, Pending Home Sales are published. Zoom (ZM) reports.
On Tuesday, August 31, at 10:00 AM, S&P Case Shiller National Home Price Index for June is released. CrowdStrike (CRWD) reports.
On Wednesday, September 1 at 10:45 AM, the ADP Private Employment report is disclosed.
On Thursday, September 2 at 8:30 AM, Weekly Jobless Claims are announced. DocuSign (DOCU) reports.
On Friday, September 3 at 8:30 AM, the all-important August Nonfarm Payroll report is printed. At 2:00 PM, the Baker Hughes Oil Rig Count is disclosed.
Oh and the German chocolate cake won, but please don’t tell anyone.
As for me, given the losses in Afghanistan this week, I am reminded of my several attempts to get into this troubled country.
During the 1970s, Afghanistan was the place to go for hippies, adventurers, and world travelers, so of course, I made a beeline for straight for it.
It was the poorest country in the world, their only exports being heroin and the blue semiprecious stone lapis lazuli, and illegal export of lapis carried a death penalty.
Towns like Herat and Kandahar had colonies of westerners who spent their days high on hash and living life in the 14th century. The one cultural goal was to visit the giant 6th century stone Buddhas of Bamiyan 80 miles northwest of Kabul.
I made it as far as New Delhi in 1976 and was booked on the bus for Islamabad and Kabul ($25 one-way). Before I could leave, I was hit with amoebic dysentery.
Instead of Afghanistan, I flew to Sydney, Australia where I had friends and knew Medicare would take care of me for free. I spent two months in the Royal North Shore Hospital where I dropped 50 pounds, ending up at 125 pounds.
I tried to go to Afghanistan again in 2010 when I had a large number of followers of the Mad Hedge Fund Trader stationed there, thanks to the generous military high-speed broadband. The CIA waved me off, saying I wouldn’t last a day as I was such an obvious target.
So, alas, given the recent regime change, it looks like I’ll never make it to Afghanistan. I won’t live long enough to make it to the next regime change. It’s just one more concession I’ll have to make to my age. I’ll just have to content myself reading A One Thousand and One Nights at home instead. The Taliban blew up the stone Buddhas of Bamiyan in 2001.
In the meantime, I am on call for grief counseling for the Marine Corps for widows and survivors. Business has been thankfully slow for the last several years. But I’ll be staying close to the phone this weekend just in case.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
India in 1976
Global Market Comments
August 27, 2021
Fiat Lux
Featured Trade:
(AUGUST 25 BIWEEKLY STRATEGY WEBINAR Q&A),
(ROM), (EEM), (FXI), (DIS), (AMZN), (NFLX), (CHPT), (TLT), (TBT), (AAPL),
(GOOG), (WPM), (GOLD), (NEM), (GDX), (X), (SLV), (FCX), (BA), (HOOD), (USO)
Below please find subscribers’ Q&A for the August 25 Mad Hedge Fund Trader Global Strategy Webinar broadcast from The Atlantis Casino Hotel in Reno, NV.
Q: How does a 2X ProShares Ultra Technology ETF (ROM) February 2022 vertical bull call spread on the ROM look? Would you do $110-$115 or $115-$120?
A: I would do nothing here at $112.50 because we’ve just gone up 10 points in a week. I’d wait for some kind of pullback, even just $5 or $10 points, and then I would do the $110-$115. I’m leaning towards more conservative LEAPS these days—bets that the market goes sideways to up small rather than going ballistic, which it has done for the last 18 months. Think at-the-money strikes, not deep out-of-the-money on your LEAPS from here on for the rest of this economic cycle. The potential profits are still enormous. The only problem with (ROM) is that the longest maturities on the options are only six months.
Q: How do you recommend entering your long-term portfolio?
A: I would use the one-third rule: you put on ⅓ now, ⅓ higher or lower later on, and ⅓ higher or lower again. That way you get a good average price. Long term, everything goes up until we hit the next recession, which is probably several years off.
Q: I keep reading that the Delta variant is a market risk, but I don’t think that investors will look through this. Is Delta already priced into the shares?
A: Yes, what is not priced into the shares is the end of Delta, the end of the pandemic—and that will lead to my “everything” rally that I’ve been talking about for a month now. And we have already seen the beginning of that, especially with the price action this week. So yes, Delta in: dead market; Delta out: roaring market.
Q: Do you think there will eventually be a rotation into emerging markets (EEM), or has the virus battered these markets too much to even consider it?
A: Sometime in our future—not yet—the emerging markets will be our core holding. And the trigger for that will be the collapse of the dollar, which is hitting an interim high right now. When the greenback rolls over and dies, you can expect emerging markets, especially China, to take off like a rocket. That’s going to be our next big trade. I don't know if it will be this year or next year but it’s coming, so start doing your emerging market research now, and keep reading my newsletter.
Q: Is the coming tax hike a problem for the stock market?
A: No, I don’t think so. First off, I don’t think they’re going to do a tax bill this year; they don’t want anything to interfere with the 2022 election, so it may be next year’s business. Also, any new taxes are going to be overwhelmingly focused on billionaires, carried interest, offshoring, and large corporations. The middle class, people who make less than $400,000 a year, will not see any tax hike at all, possibly even getting some tax cuts via restored SALT deductions. So, I don't really see it affecting the stock market at all.
Q: What do you think about Chinese stocks (FXI)?
A: Long-term they’re okay, short term possibly more downside. Interestingly, the bigger risk may not be China itself and how the government is beating up its own tech companies, but the SEC. It has indicated they don’t really like these offshore vehicles that have been listed on the New York Stock Exchange, and they may move to ban them. I’m not rushing into China right now, only because there are just so many better opportunities in the US stock market for the time being. I may go back in the future—it’s a case where I’d rather buy them on the way up than trying to catch a falling knife on China right now.
Q: Do you expect any market impact from the Jackson Hole meeting?
A: Yes, whatever J Powell says, even if he says nothing, will have a market impact. And it will have a bigger impact on the bond market than it will on the stock market, which is down a full point this morning. So yes, but not yet. I imagine we’ll hear something very soon.
Q: September and October tend to be volatile; do you see us having a 5% or 10% pullback in those months?
A: I don’t see any more than 5%, with the hyper liquidity that we have in the system now. There just aren’t any events out there that could trigger a pullback of 10%—no geopolitical events, and the economy will be getting stronger, not worse. So yes, an “everything rally” doesn’t give you many long side entry points, so I just don’t see 10% happening.
Q: What about a Walt Disney (DIS) January 2022 $180-$220 LEAPS?
A: I would do the $180-$200. I think you can afford to be tighter on your spread there, take some more risk because I think it’s just going to go nuts to the upside once we get a drop in COVID cases. By the way, Disney parks are only operating at 70% capacity, so if you go back up to 100% that's a near 50% increase in profits for the company. And it’s not just Disney, but Netflix (NFLX), Amazon (AMZN), and everybody else that’s about to have the greatest number of blockbuster movies released of all time. They’re holding back their big-ticket movies for the end of the pandemic when people can go back into theaters. We’ll start seeing those movies come out in the last quarter of this year, and I’m particularly looking forward to the next James Bond movie, a man after my own heart.
Q: Are EV car charging companies like ChargePoint Holdings (CHPT) going to do as well as the car companies?
A: No. They’re low margin business, so it’s not a business model for me. I like high-profit margins, huge barriers to entry, and very wide moats, which pretty much characterizes everything I own. The big profits in EVs are going to be in the cars themselves. Charging the cars is a very capital-intensive, highly regulated, and low-margin business.
Q: Would a Fed taper cause a 10% pullback?
A: Absolutely not; in fact, I think a taper would make the market go up because Jay Powell has been talking it into the market all year. And that’s his goal, is to minimize the impact of a taper so when they finally do it, they say ho-hum and “okay you can take that risk out of the market.” That’s the way these things work.
Q: What is your yearend target for United States Treasury Bond Fund (TLT)?
A: $132. Call it bold, but I'm all about bold. I think the first stop will be at $144, then $138, then bombs away!
Q: What will it take for (TLT) to dip below $130?
A: Another year of hot economic growth, which Congress seems hell-bent on delivering us.
Q: What are your ProShares Ultra Short 20+ Year Treasury ETF (TBT) targets?
A: When we were at 1.76% on the 10-year bond, the (TBT) made it all the way back to 22 ½. Next year we go higher, probably to $25, maybe even $30.
Q: What’s your 10-year view on the (TBT)?
A: $200. That’s when you get interest rates back to 10% in 10 years on the 10-year bond. So yes, that’s a great long-term play.
Q: How long can we hold (TBT)?
A: As long as you want. Ten years would be a good time frame if you want to catch that $17 to $200 move. The (TBT) is an ETF, not an option, therefore it doesn’t expire.
Q: Are you working on an electrification stock list?
A: I am not, because it’s such a fragmented sector. It’s tough to really nail down specific stocks. I think it’s safe to say that the electric power grid is going to change beyond all recognition, but they won’t necessarily be in high margin companies, and I tend to prefer high-profit-margin, large-moat companies which nobody else can get into, like Apple (AAPL) or Google (GOOG).
Q: What about gas pipelines with high yields?
A: They have a high yield for a reason; because they’re very high risk. If you're going to a carbon-free economy, you don’t necessarily want to own pipelines whose main job is moving carbon; it’s another buggy whip-type industry I would avoid. I’ve seen people get wiped out by these things more times than I could count. If you remember Master Limited Partnerships, quite a few of them went bankrupt last year with the oil crash, so I would avoid that area. These tend to be very highly leveraged and poorly managed instruments.
Q: Best play on silver (SLV)?
A: Wheaton Precious Metals (WPM) is the highest leveraged silver play out there, and a great LEAPS candidate. Go out 2 years and triple your money.
Q: Geopolitical oil (USO) risks?
A: No, nobody cares about oil anymore—that’s why we’re giving up on Afghanistan. China is buying 80% of the Persian Gulf oil right now. We don’t really need it at all, so why have our military over there to protect China’s oil supply?
Q: What about Freeport McMoRan (FCX)?
A: I absolutely love it. Any big economic recovery can’t happen without copper, and you have a huge tailwind there from electric cars which need 200 pounds of copper each, as opposed to 20 pounds in conventional cars.
Q: I see AMC Entertainment Holdings (AMC) is up 20% today; should everyone be chasing this stock?
A: No, absolutely not. (AMC) and all the meme stocks aren’t investments, they’re gambling, and there are better ways to gamble.
Q: Should I buy the lumber dip?
A: Yes. I think the slowdown on housing is temporary because it will take 10 years for supply and demand in the housing market to come back into balance because of all the millennials entering the housing market for the first time. So, that would be a yes on lumber and all the other commodities out there that go into housing like copper, steel, and aluminum.
Q: Should I put money into Canadian Junior Gold Miners (GDX)?
A: No, I would rather go out and take a long nap first. These are just so high risk, and they often go bankrupt. The liquidity is terrible, and the dealing spreads are wide. I would stick with the bigger precious metal plays like Newmont Mining (NEM), Barrick Gold (GOLD), and Wheaton Precious Metals (WPM).
Q: Is Boeing (BA) a buy here?
A: Yes, we’re back at the bottom end of the trading range for the stock. It’s just a matter of time before they get things right, and the 737 Max orders are rolling in like crazy now that there’s an airplane shortage.
Q: What do you think about Robinhood (HOOD)?
A: I like it quite a lot; I got flushed out of my long position on Friday with a 10% down move. Of course, 90% of my stop losses end up expiring at their maximum profit points, but I have to do it to keep the volatility of the portfolio down. So yes, I’ll try to buy it again on the next dip. The trouble is it’s kind of a quasi-meme stock in its own right, hence the volatility; so I would say on the next 10% down day, you go into Robinhood, and I probably will too.
Q: How are the wildfires around Tahoe?
A: They’re terrible and there are three of them. I did a hike two days ago there, and out of a parking lot with 100 spaces, I was the only one there. It’s the only time I’d ever seen Tahoe deserted in August. With visibility of 500 yards, it's just terrible. Fortunately, I was able to hike without coughing my guts out—it’s not so thick that you can’t breathe.
Q: What do you think of US Steel (X)?
A: I like it, I think the whole industrial commodity complex rallies like crazy going into the end of the year.
Q: As a new member, where is the best place to start? It’s just kind of like drinking from a fire hose.
A: Wait for the trade alerts; they only happen at sweet spots and you may have to wait a few days or weeks to get one since we only like to enter them at good points. That’s the best place to enter new positions for the first time. In the meantime, keep reading all the research, because when these trade alerts do come out, they’re not surprises because I’m pumping out research on them every day, across multiple fronts. Be patient— we are running a 93% success rate, but only because we take our time on entering good trades. The services that guarantee a trade alert every day lose money hand over fist.
Q: If they do delist Chinese stocks, will US investors be left holding the bag?
A: Yes, and that will be the only reason they don’t delist them, that they don’t want to wipe out all current US investors.
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 (whichever applies to you), then select 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
Global Market Comments
August 19, 2021
Fiat Lux
Featured Trade:
(MY NEWLY UPDATED LONG-TERM PORTFOLIO),
(PFE), (BMY), (AMGN), (CRSP), (FB), (PYPL), (GOOGL), (AAPL), (AMZN), (SQ), (JPM), (BAC), (MS), (GS), (BABA), (EEM), (FXA), (FCX), (GLD), (SLV), (TLT)
I am really happy with the performance of the Mad Hedge Long Term Portfolio since the last update on February 2, 2021. In fact, not only did we nail the best sectors to go heavily overweight, we also completely dodged the bullets in the worst-performing ones.
For new subscribers, the Mad Hedge Long Term Portfolio is a “buy and forget” portfolio of stocks and ETFs. If trading is not your thing and you don’t want to remain glued to a screen all day, these are the investments you can make. Then don’t touch them until you start drawing down your retirement funds at age 72.
For some of you, that is not for another 50 years. For others, it was yesterday.
There is only one thing you need to do now and that is to rebalance. Buy or sell what you need to reweight every position to its appropriate 5% or 10% weighting. Rebalancing is one of the only free lunches out there and always adds performance over time. You should follow the rules assiduously.
Despite the seismic changes that have taken place in the global economy over the past nine months, I only need to make minor changes to the portfolio, which I have highlighted in red on the spreadsheet.
To download the entire new portfolio in an excel spreadsheet, please go to www.madhedgefundtrader.com, log in, go “My Account”, then “Global Trading Dispatch”, the click on the “Long Term Portfolio” button, then “Download.”
Changes
Biotech
Pfizer (PFE) has nearly doubled in six months, while Crisper Therapeutics (CRSP) has almost halved. Since the pandemic, which Pfizer made fortunes on, is peaking and we are still at the dawn of the CRISPR gene editing revolution, the natural switch here is to take profits in (PFE) and double up on (CRSP).
Technology
I am maintaining my 20% in technology which are all close to all-time highs. I believe that Apple (AAPL), (Amazon (AMZN), Google (GOOGL), and Square (SQ) have a double or more over the next three years, so I am keeping all of them.
Banks
I am also keeping my weighting in banks at 20%. Interest rates are imminently going to rise, with a Fed taper just over the horizon, setting up a perfect storm in favor of bank earnings. Loan default rates are falling. Banks are overcapitalized, thanks to Dodd-Frank. And because of the trillions in government stimulus loans they are disbursing, they are now the most subsidized sector of the economy. So, keep Morgan Stanley (MS), Goldman Sachs (GS), JP Morgan (JPM), and Bank of America, which will profit enormously from a continuing bull market in stocks. They are also a key part of my” barbell” portfolio.
International
China has been a disaster this year, with Alibaba (BABA) dropping by half, while emerging markets (EEM) have gone nowhere. I am keeping my positions because it makes no sense to sell down here. There is a limit to how much the Middle Kingdom will destroy its technology crown jewels. Emerging markets are a call option on a global synchronized recovery which will take place next year.
Bonds
Along the same vein, I am keeping 10% of my portfolio in a short position in the United States Treasury Bond Fund (TLT) as I think bonds are about to go to hell in a handbasket. I rant on this sector on an almost daily basis so go read Global Trading Dispatch. Eventually, massive over-issuance of bonds by the US government will destroy this entire sector.
Foreign Exchange
I am also keeping my foreign currency exposure unchanged, maintaining a double long in the Australian dollar (FXA). Eventually, the US dollar will become toast and could be your next decade-long trade. The Aussie will be the best performing currency against the US dollar.
Australia will be a leveraged beneficiary of the synchronized global economic recovery through strong commodity prices which have already started to rise, and the post-pandemic return of Chinese tourism and investment. I argue that the Aussie will eventually make it to parity with the US dollar, or 1:1.
Precious Metals
As for precious metals, I’m keeping my 0% holding in gold (GLD). From here, it is having trouble keeping up with other alternative assets, like Bitcoin, and there are better fish to fry.
I am keeping a 5% weighting in the higher beta and more volatile iShares Silver Trust (SLV), which has far wider industrial uses in solar panels and electric vehicles. The arithmetic is simple. EV production will rocket from 700,000 in 2020 to 25 million in 2030 and each one needs two ounces of silver.
Energy
As for energy, I will keep my weighting at zero. Never confuse “gone down a lot” with “cheap”. I think the bankruptcies have only just started and will stretch on for a decade. Thanks to hyper-accelerating technology, the adoption of electric cars, and less movement overall in the new economy, energy is about to become free. You are looking at the next buggy whip industry.
The Economy
My ten-year assumption for the US and the global economy remains the same. I’m looking at 3%-5% a year growth for the next decade after this year’s superheated 7% performance.
When we come out the other side of this, 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 700% or more from 35,000 to 240,000 in the coming decade. The American coming out the other side of the pandemic will be far more efficient, productive, and profitable than the old.
You won’t believe what’s coming your way!
I hope you find this useful and I’ll be sending out another update in six months so you can rebalance once again. If I forget, please remind me.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
August 16, 2021
Fiat Lux9
(MARKET OUTLOOK FOR THE WEEK AHEAD, or MY REVOLUTIONARY NEW STRATEGY,
(SPY), (TLT), (NVDA), (ROKU), (HOOD), (GS), (JPM)
Friday saw the stock market’s lowest volume day of the year, and shares rose almost every day last week to new all-time highs.
The way this usually ends is that the slow grind explodes into a high-volume spike marking an interim market top. That makes new investment now extremely risky.
August usually markets the best buying opportunity of the year with a cataclysmic selloff. Remember the 2010 flash crash, down 1,100 points in two hours? So far, no cigar.
I have tons of people asking me what to buy right now. That is usually another market-topping indicator. I tell them to keep their cash. Cash is a position. A dollar at a market top is worth $10 at a market bottom.
Under an index that is making excruciatingly slow gains are constant sector rotations bring pretty dramatic moves. Play those dramatic moves.
May saw money suddenly shift into tech stocks, with the best, like NVIDIA (NVDA) leaping 56%.
The day the ten-year US Treasury yield (TLT) bottomed at 1.10%, tech went back to sleep. While big tech ground sideways, small tech brought more heart-rending downside moves, such as the 27% plunge in Roku (ROKU).
In the meantime, financials and commodities have moved to the fore. Goldman Sachs (GS) melted up 20% off of blockbuster earnings, while Freeport McMoRan popped 26%, thanks to a Chilean copper union strike.
Let me propose a revolutionary new investment strategy to you. It’s called “buy low, sell high.” Everybody talks about it but actually executes the opposite.
I employ this money-making ploy through my “barbell” strategy, with equal weightings in technology and domestic recovery stocks like financials, industrials, and commodities.
It's quite simple. You just sell whatever has just delivered the most recent spectacular upside gains and roll that money into what has recently become ignored, cheap, and out of favor.
It is a market approach that is really devoid of the thought process.
All eyes will be on Jackson Hole, Wyoming next week, the annual meeting of the world’s top central bankers. That is when we get the next hint about the intentions of the Federal Reserve as to, not "if", but "when" they reduce quantitative easing.
You would think that a 6.5% GDP growth rate and a 5.4% inflation rate would do it, but these days, nothing is certain. A hot jobs report in September would do it for sure.
We may have to wait until then before we see any serious move in stocks and a return of volatility (VIX). In the meantime, catch up on reading your research, pay your bills, and work on your golf swing.
Bitcoin staged a recovery for the ages, rallying 55% in two weeks. The “battle of $30,000” is over and the cryptocurrency won. It really is becoming too big to fail. I might have to do something about that.
July Inflation Read at a hot 5.4%, but core inflation showed a small decline. In June, used car prices accounted for a third of the total price increases, but last month, it was zero. So far, there is no move in rents, but it’s coming. All Fed eyes will remain laser-focused on this number.
Taper talk is back! With the ballistic increase in the July Nonfarm Payroll report and the 2 ½ point dive in the bond market. I think the top is in for finds and the bottom for long term rates. It means tech stocks will lag from now, while interest rate sensitives like banks, brokers, and fund managers will lead. Buy (JPM), (MS), (V), and (GS) on dips.
US Budget Deficit hits a record $302 Billion in July. Covid benefits are remaining high, while tax revenues are lagging YOY. Keep selling those (TLT) rallies. The generational crash may have just begun.
Fed’s Rosengren Says QE is not creating jobs, causing bonds to drop a full point in the after-market. No kidding. I have been arguing that our nation’s central bank has been pushing on a string all year. Atlanta Fed governor Bostic couldn’t agree more. Time for more action than words?
Gold Hits four-month low, breaking key support. Bitcoin is clearly stealing its thunder, which has risen by 50% in two weeks. If you’re considering gold, go take a long nap first.
Oil dives on delta surge, off $9, or 12% in a week, the lowest in three weeks. Delta is now rampaging throughout China, the world’s largest consumer of Texas tea., putting $63 in play.
Weekly Jobless Claims hit 375,000, down 12,000 on the week. Moving in the right direction but still incredibly high.
Berkshire Hathaway announces solid earnings, but scales back share buybacks at these elevated levels. Oracle of Omaha Warren Buffett bought back $6 billion of his own stock in Q2, leaving him with a staggering $144 billion in cash. Almost no stocks meet Buffett’s value standards in the current environment. Buy (BRKB) on dips. It’s a high-class problem to have.
Ed Yardeni is bullish, along with David Kostin, and is the only manager who comes close to my own $475 target for the (SPY) by the end of the year. The U.S. economy will be in nominal terms around 8% higher this year than pre-pandemic 2019. Sales for the S&P 500 companies will be 15% higher and earnings will be 34% higher. That is a representation of the operating leverage that exists in so many companies. The Roaring Twenties lives!
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 saw a modest +4.86% in July. My 2021 year-to-date performance appreciated to 74.07%. The Dow Average was up 16.00% so far in 2021.
I stuck with three positions, a long in (JPM) and a double short in the (TLT), all of which expire on Friday. My double short in the (SPY) punched me in the nose, forcing me to stop out for losses when I hit the lowest strike prices.
I then jumped into a very deep in-the-money call spread in Robinhood (HOOD) made possible only by the stock’s astronomically high volatility. Its 44% drop helped too. I also added a third short in the bond market.
That leaves me 30% in cash. I’m keeping positions small as long as we are at extreme overbought conditions.
That brings my 11-year total return to 496.62%, some 2.00 times the S&P 500 (SPX) over the same period. My 12-year average annualized return now stands at an unbelievable 12.56%, easily the highest in the industry.
My trailing one-year return retreated to positively eye-popping 106.69%. 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 36.7 million and rising quickly and deaths topping 622,000, which you can find here at https://coronavirus.jhu.edu.
The coming week will bring our monthly blockbuster jobs reports on the data front.
On Monday, August 16 at 7:00 AM, the New York Empire State Manufacturing Index is out.
On Tuesday, August 17 at 7:30 AM, US Retail Sales for July are published.
On Wednesday, August 18 at 5:30 AM, the Housing Starts for July are printed. At 2:00 PM, the minutes from the last FOMC are released.
On Thursday, August 19 at 8:30 AM, Weekly Jobless Claims are announced. Square (SQ) reports.
On Friday, August 20 at 2:00 PM, the Baker Hughes Oil Rig Count are disclosed.
As for me, upon graduation from high school in 1970, I received a plethora of scholarships, one of which was for the then astronomical sum of $300 in cash from the Arc Foundation.
By age 18, I had hitchhiked in every country in Europe and North Africa, more than 50. The frozen wasteland of the North and the Land of Jack London beckoned.
After all, it was only 4,000 miles away. How hard could it be? Besides, oil had just been discovered on the North Slope and there were stories of abundant high-paying jobs.
I started hitching to the Northwest, using my grandfather’s 1892 30-40 Krag & Jorgenson rifle to prop up my pack and keeping a Smith & Wesson .38 revolver in my coat pocket. Hitchhikers with firearms were common in those days and they always got rides. Drivers wanted the extra protection.
No trouble crossing the Canadian border either. I was just another hunter.
The Alcan Highway started in Dawson Creek, British Columbia, and was built by an all-black construction crew during the summer of 1942 to prevent the Japanese from invading Alaska. It had not yet been paved and was considered the great driving challenge in North America.
The rain started almost immediately. The legendary size of the mosquitoes turned out to be true. Sometimes, it took a day to catch a ride. But the scenery was magnificent and pristine.
At one point, a Grizzley bear approached me. I let loose a shot over his head at 100 yards and he just turned around and lumbered away. It was too beautiful to kill.
I passed through historic Dawson City in the Yukon, the terminus of the 1898 Gold Rush. There, abandoned steamboats lie rotting away on the banks, being reclaimed by nature. The movie theater was closed but years later was found to have hundreds of rare turn-of-the-century nitrate movie prints frozen in the basement, a true gold mine.
Eventually, I got a ride with a family returning to Anchorage hauling a big RV. I started out in the back of the truck in the rain, but when I came down with pneumonia, they were kind enough to let me move inside. Their kids sang “Raindrops keep falling on my head” the entire way, driving me nuts. In Anchorage, they allowed me to camp out in their garage.
Once in Alaska, there were no jobs. The permits required to start the big pipeline project wouldn’t be granted for four more years. There were 10,000 unemployed.
The big event that year was the opening of the first McDonald’s in Alaska. To promote the event, the company said they would drop dollar bills from a helicopter. Thousands of homesick showed up and a riot broke out, causing the stand to burn down. It was rumored their burgers were made of moose meat anyway.
I made it all the way to Fairbanks to catch my first sighting of the wispy green contrails of the northern lights, impressive indeed. Then began the long trip back.
I lucked out catching an Alaska Airlines promotional truck headed for Seattle. That got me free ferry rides through the inside passage. The driver wanted the extra protection as well. The gaudy, polished tourist destinations of today were back then pretty rough ports inhabited by tough, deeply tanned commercial fishermen and loggers who were heavy drinkers always short of money. Alcohol features large in the history of Alaska.
From Seattle, it was just a quick 24-hour hop down to LA. I still treasure this trip. The Alaska of 1970 no longer exists, as it is now overrun with summer tourists. It now has more than one McDonald’s. And with runaway global warming, the climate is starting to resemble that of California than the polar experience it once was.
Good Luck and Good Trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
The Alcan Highway Midpoint
The Alaska-Yukon Border in 1970
Global Market Comments
August 12, 2021
Fiat Lux9
(A NOTE ON OPTIONS CALLED AWAY)
(SPY), (TLT), (V), (GS), (JPM)
