Global Market Comments
January 25, 2021
Fiat LuxFeatured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HERE COMES THE SUPERHEATED ECONOMY),
(SPY), ($INDU), (TLT), (TBT), (TSLA)
Tag Archive for: (TLT)
The US economy is in the worst condition in a century. The U6 Unemployment rate stands at 20 million today. Main streets everywhere are boarded up. Millions of businesses have gone under. Some 4,500 people a day are dying from a dreaded virus.
All of this means that you should rush out and buy and stocks, as many as possible, with both hands, and by the bucket load. It’s time to take out that home equity loan and pour it into stocks, damn the torpedoes.
For things are about to get better for the US economy, a whole lot better, better beyond anyone’s wildest imagination, and for you individually.
Speaking to CEOs, fund managers, and hedge fund strategists, it is clear that most are wildly underestimating the strength of the 2021 recovery. People haven’t really added up all the stimulus and quantitative easing that is about the hit, which could reach $20 trillion. The total market value of US stock markets is only $51 trillion.
I hate to engage in some simplistic calculations here, but if you increase the amount of capital going into the economy by nearly 50% in two years, stocks just might go up by nearly 50% in two years. It’s no more complicated than that.
In fact, economic conditions are about to improve so fast that the Federal Reserve may have to break its promise about not raising interest rates for three years and instead start nudging them up by the end of 2021.
Needless to say, this is terrible news for the bond market (TLT), where I am lining up to go from a double to a triple short.
You are already starting to see other analysts ratchet up their overcautious yearend S&P 500 target. By November, they may reach my own outsized goal of 4,800, bringing in a total gain in stocks of 35%.
All of this explains why stocks just absolutely refuse to go down, even a little bit. Each one-day decline seems to be met with a wall of buying. The memo is out: you absolutely have to get into this market, whether you are an individual, hedge fund, institution, or outright bet the ranch gambler.
Of course, if you think I’m so bullish because I made 90% on my money since the April bottom, you’d be right.
Just keep your discipline and observe the basic rules of trading: 1) Don’t buy a position that is so big that it can’t handle a normal 10% correction, 2) Don’t accumulate a position that is so big that you can’t sleep at night, 3) No calling John Thomas in the middle of the night and asking “I have a 3X position in this and their trading down in Asia, what should I do?”
If you have to ask the question, your position is too big.
Biden’s economic plan boosts growth forecasts, according to Goldman Sachs. Prospects have jumped from 6.4% to 6.6%, the highest in a half-century, on the back of a massive Covid-19 package.
Treasury Secretary Janet Yellen says “GO BIG” or go home to the Senate Finance Committee. She was there to get confirmation and push for Biden’s $1.9 trillion stimulus package. Markets are underestimating the extent of the stimulus headed our way, which could reach $10 trillion in addition to another $10 trillion in quantitative easing. Buy dips.
Index Funds are getting trashed, substantially trailing the S&P 500, as single-story stocks dominate the market. It’s become a stock pickers market in the extreme, with no more obvious example that (TSLA), up 1,000% in 9 months. Small caps, IPOs, and cyclical are getting all the action, leaving the (SPX) in the dust.
Tesla delivered its first Chinese Model Y, which will add 250,000 units to sales in 2021. It’s all part of Elon’s quest to take over the global automobile market. He plans to boost sales from 500,000 last year to 20 million in a decade. If so, the stock today still looks cheap. But is the quality the same?
Tesla Q4 registrations soar by 63%, in California, its largest market. It’s due to the runaway success of the Model Y small SUV. The stock is taking a long-overdue rest with a sideways “time” correction. It’s still true that if you buy the stock, you get the car for free.
Weekly Jobless Claims are still sky-high at 900,000. It’s a decline on the week but still horrifically high. The stock market may be starting to notice, with stocks moving sideways for two weeks.
Existing Home Sales soared to a 15-year high, up an amazing 22% YOY in December to a seasonally adjusted 6.76 million units. In the meantime, inventories hit all-time lows at only 1.9 months as they can’t build them fast enough. Sales of $1 million-plus homes are up an incredible 94%. The hottest markets were in Austin, TX, Tampa, FL, and Phoenix, AZ. New York was the worst, followed by San Francisco. The market is on fire and could continue for another decade. Pending tax breaks from the new tax bill will give homeownership another big push.
US Housing Starts jump 5.8%, to 1.7 Million units. Single-family homes are up 12% YOY, driven by the pandemic. Notice the enormous supply/demand gap which assures that home prices will keep rising for years. Rising mortgage interest rates so far have had no effect.
US Manufacturing PMI hits 14-Year high, according to Markit, their index jumping from 57.1 to 59.1. The performance would have been better if it weren’t for rampant parts shortages nationwide. It’s another argument for the long-term bull case.
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 shot out of the gate with an immediate 7.25%so far in January. That is net of a 4% loss on a Tesla short which I added one day too soon. Given the great heights of the market, I have trimmed my book to just a long in Tesla and a Short in US Treasury bonds.
That brings my eleven-year total return to 430.30% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.80%. My trailing one-year return exploded to 74.44%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 90% since the March low.
The coming week will be a big one for big tech earnings.
We also need to keep an eye on the number of US Coronavirus cases at 25 million and deaths at 420,000, which you can find here. We are now running at a staggering 4,500 deaths a day.
When the market starts to focus on this, we may have a problem.
On Monday, January 25 at 9:30 AM EST, we get the Chicago Fed National Activity Index for December. Phillips (PSX) and Kimberly Clark (KMB) report.
On Tuesday, January 26 at 10:00 AM, we learned the new S&P Case Shiller National Home Price Index. Microsoft (MSFT), Johnson & Johnson (JNJ), and American Express (AMEX) report.
On Wednesday, January 27 at 10:00 AM, US Durable Goods for December are published. Apple (AAPL), Facebook (FB) and Tesla (TSLA) report.
On Thursday, January 28 at 9:30 AM, the first look at US GDP for Q4 is announced. McDonald’s (MCD), American Airlines (AA), and Visa (V) report.
On Friday, January 29 at 9:30 AM, US Personal Income and Spending for December is published. Ely Lilly (LLY) and Caterpillar (CAT) report. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I have never been big on the “meme” thing, but you have to love the one that has been circulating about Bernie Sanders. Suddenly, he showed up on every transit system in the country. Clearly, the country was dying for a laugh. I include several pictures below. Hopefully, I won’t end up like him someday.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 22, 2021
Fiat Lux
Featured Trade:
(JANUARY 20 BIWEEKLY STRATEGY WEBINAR Q&A),
(QQQ), (IWM), (SPY), (ROM), (BRK/A), (AMZN), NVDA), (MU), (AMD), (UNG), (USO), (SLV), (GLD), ($SOX), CHIX), (BIDU), (BABA), (NFLX), (CHIX), ($INDU), (SPY), (TLT)
Below please find subscribers’ Q&A for the January 20 Mad Hedge Fund Trader Global Strategy Webinar broadcast from Incline Village, NV.
Q: What will a significant rise in long term bond yields (TLT) do to PE ratios in general, and high tech specifically?
A: Well, the key question here is: what is “significant”. Is “significant” a move in a 10-year from 120 to 150, which may be only months off? I don’t think that will have any impact whatsoever on the stock market. I think to really give us a good scare on interest rates, you need to get the 10-year up to 3.0%, and that might be two years off. We’re also going to be testing some new ground here: how high can bond interest rates go while the Fed keeps overnight rates at 25 basis points? They can go up more, but not enough to hurt the stock market. So, I think we essentially have a free run on stocks for two more years.
Q: What about the Shiller price earnings ratio?
A: Currently, it’s 34.5X and you want to completely ignore anything from Shiller on stock prices. He’s been bearish on stocks for 6 years now and ignoring him is the best thing you can do for your portfolio. If you had listed to him, you would have missed the last 15,000 Dow ($INDU) points. Someday, he’ll be right, but it may be when the market goes from 50,000 to 40,000, so again, I haven't found the Shiller price earnings ratio to be useful. It’s one of those academic things that looks great on paper but is terrible in practice.
Q: Do you see any opportunity in China financials with the change of administration, like the (CHIX)?
A: I always avoid financials in China because everyone knows they have massive, defaulted loans on their books that the government refuses to force them to recognize like we do here. So, it’s one of those things where they look good on paper, but you dig deeper and find out why they’re really so cheap. Better to go with the big online companies like Baidu (BIDU) and Alibaba (BABA).
Q: Is it too late to enter copper?
A: No, the high in the last cycle for Freeport McMoRan (FCX) was $50 dollars and I think we’re only in the mid $ ’20s now, so you could get another double. Remember, these commodity stocks have discounted recovery that hasn’t even started yet. Once you do get an actual recovery, you could get another enormous move and that's what could take the Dow to 120,000.
Q: Do you see the FANGs coming back to life with the earnings results?
A: I think it'll take more than just Netflix to do that. By the way, Netflix (NFLX) is starting to look like the Tesla of the media industry, so I’d get into Netflix on the next dip. You could get a surprise, out-of-nowhere double out of that anytime. But yes, FANGs will come to life. They've been in a correction for five months now, and we’ll see—it may be the end of the pandemic that causes these stocks to really take off. So that's why I'm running the barbell portfolio and buying the FANGs on weakness.
Q: Are you recommending LEAPS on gold (GLD) and silver (SLV)?
A: Absolutely yes, go out two years with your maturity, you might buy 120% out of the money. That's where you get your leverage on the LEAPS. Something like a (GLD) January 2023 $210-$220 in-the-money vertical bull call spread and generate a 500% profit by expiration.
Q: Do you foresee a cool off for semiconductors ($SOX) even though there's been recent news of shortages?
A: No, not really. There are so many people trying to get into these it’s incredible. And again, we may get a time correction where we sideline at the top and then break out again to the upside. This is classic in liquidity-driven markets, which is what we have in spades right now. Thanks to 5G, the number of chips in your everyday devices is about to increase tenfold, and it takes at least two years to build a new chip factory. So, keep buying (NVDA), (MU), and (AMD) on dips.
Q: Where are the best LEAPS prospects (Long Term Equity Participation Securities)?
A: That would have to be in technology—that's where the earnings growth is. If you go 20% out of the money on just about any big tech LEAPs two years out, to 2023 those will be worth 500% more at expiration.
Q: What about SPACs (Special Purpose Acquisition Company) now, as we’re getting up to five new SPACs a day?
A: My belief is that a SPAC is a vehicle that allows a manager to take out a 20% a year management fee instead of only 1%. And it's another aspect of the current mania we’re in that a lot of these SPACs are doubling on the first day—especially the electric vehicle-related SPACs. Also, a lot of these SPACs will never invest in anything, but just take the money and give it back to you in two years with no return when they can't find any good investments…. If you’re lucky. There's not a lot of bargains to be found out there by anyone, including SPAC managers.
Q: Does natural gas (UNG) fall into the same “avoid energy” narrative as oil?
A: Absolutely, yes. The only benefit of natural gas is it produces 50% less carbon dioxide than oil. However, you can't get gas without also getting oil (USO), as the two come out of the pipe at the same time; so I would avoid natural gas also. Gas and oil are also about to lose a large chunk, if not all, of their tax incentives, like the oil depletion allowance, which has basically allowed the entire oil industry to operate tax-free since the 1930s.
Q: What about hydrogen cars?
A: I don't really believe in the technology myself, and when you burn hydrogen, that also produces CO2. The problem with hydrogen is that it’s not a scalable technology. It’s like gasoline—you have to build stations all over the US to fuel the cars. Of course, it produces far less carbon than gas or natural gas, but it is hard to compete against electric power, which is scalable and there's already a massive electric grid in place.
Q: If you inherited $4 million today, would you cost average into (QQQ), (IWM), or (SPY)?
A: I would go into the ProShares Ultra Technology ETF (ROM), which is double the (QQQ); and if you really want to be conservative, put half your money into (QQQ) or (ROM), and then half into Berkshire Hathaway (BRK/A), which is basically a call option on the industrial and recovery economy. I know plenty of smart people who are doing exactly that.
Q: Is it weird to see oil, as well as green energy stocks, moving up?
A: No, that's actually how it works. The higher oil and gas prices go, the more economical it is to switch over to green energy. So, they always move in sync with each other.
Q: I heard rumors that Amazon (AMZN) is likely to raise Prime’s annual fee by $10-20 a year in 2021. Will that be a catalyst for the stock to go higher?
A: Yes. For every $10 dollars per person in Prime revenue, Amazon makes $2 billion more in net profit. I would say that's a very strong argument for the stock going up and maybe what breaks it out of its current 6-month range. By the way, Amazon is wildly undervalued, and my long-term target is $5,000.
Q: Do you think that the spike in Apple (AAPL) MacBook purchases means that computers will overtake iPhones as the revenue driver for Apple in 2021, or is the phone business too big?
A: The phone business is too big, and 5G will cause iPhone sales to grow exponentially. Remember, the iPhones themselves are getting better. I just bought the 12G Pro, and the performance over the old phone is incredible. So yeah, iPhones get bigger and better, while laptops only grow to the extent that people need an actual laptop to work on in a fixed office. Is that a supercomputer in your pocket, or are you just glad to see me?
Q: Share buybacks dried up because of revenue headwinds; do you think they will come back in a massive wave, giving more life to equities?
A: Absolutely, yes. Banks, which have been banned from buybacks for the past year, are about to go back into the share buyback business. Netflix has also announced that they will go buy their shares for the first time in 10 years, and of course, Apple is still plodding away with about $100 or $200 million a year in share buybacks, so all of that accelerates. The only ones you won't see doing buybacks are airlines and Boeing (BA) because they have such a mountain of debt to crawl out from before they can get back into aggressive buybacks.
Q: Interest rates are at historic lows; the smartest thing we can do is act big.
A: That’s absolutely right; you want to go big now when we’re all suffering so we can go small later and run a balanced budget or even pay down national debt if the economy grows strong enough. The last person to do that was Bill Clinton, who paid down national debt in small quantities in ‘98 and ‘99.
Q: What do you think about General Motors (GM)?
A: They really seem to be making a big effort to get into electric cars. They said they're going to bring out 25 new electric car models by 2025, and the problem is that GM is your classic “hour late, dollar short” company; always behind the curve because they have this immense bureaucracy which operates as if it is stuck in a barrel of molasses. I don’t see them ever competing against Tesla (TSLA) because the whole business model there seems like it’s stuck in molasses, whereas Tesla is moving forward with new technology at warp speed. I think when Tesla brings out the solid-state battery, which could be in two years, they essentially wipe out the entire global car industry, and everybody will have to either make Tesla cars under license from Tesla—which they said they are happy to do—or go out of business. Having said that, you could get another double in (GM) before everyone figures out what the game is.
Q: Will you update the long-term portfolio?
A: Yes, I promise to update it next week, as long as you promise me that there won’t be another insurrection next week. It’s strictly a time issue. After last year being the most exhausting year in history, this year is proving to be even more exhausting!
Q: Do you see a February pullback?
A: Either a small pullback or a time correction sideways.
Q: Do you think the Zoom (ZM) selloff will continue, or is it done now that the pandemic is hopefully ending?
A: It’s natural for a tech stock to give up one third after a 10X move. It might sell off a little bit more, but like it or not, Zoom is here to stay; it’s now a permanent part of our lives. They’re trying to grow their business as fast as they can, they’re hiring like crazy, so they’re going to be a big factor in our lives. The stock will eventually reflect that.
Good Luck and Stay Healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 18, 2021
Fiat LuxFeatured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT WOULD KILL THIS MARKET?)
($INDU), (TLT), (TBT), (GLD), (GOLD), (WPM), (TESLA)
With the Dow Average now up 13,300 points, or 73.89%, since April, I’m getting besieged by questions from readers as to what could make the market go down. This is, after all, the sharpest move up in stocks in history.
With $20 trillion about to hit the US economy, $10 trillion in stimulus, $10 trillion in quantitative easing, and overnight interest rates remaining at zero for three years, there’s not much.
Still, even the most Teflon of bull markets eventually go down. Let’s explore the reasons why. I’m not intending to give you sleepless nights. But the best traders always believe that anything can happen to markets all the time.
1) The Pandemic Ends – If Covid-19 can take the market up 13,300 points in nine months, its disappearance may take it down. That’s because the all-clear on the disease may prompt investors to pull money out of stocks and put it in the real economy.
A lot of people are buying stocks because there is nothing else to do and you can execute trades in the safety of your own home without going outside. Still, this effect may be muted as there are at least 2 million fewer businesses today than before the pandemic.
2) Interest Rates Rise – The Fed has promised not to raise overnight rates for three years, or until the inflation rates top 2% for at least a year (it’s now 0.4%). That seems to give the most aggressive investors a green light for the foreseeable future.
However, the Fed has no control over long term rates, which are set by the bond market. Since January 1, the yield on the ten-year US Treasury bond has soared from 0.90% to an eye-popping $1.20%, and 1.50% is certainly within reach during the first half.
The markets could easily handle that. But if the ten-year yield jumps to 3.0%, which it could do in two years, stocks could suffer, especially if we are at much higher levels by then.
3) Stocks Go Down – A lot of new traders are buying stocks simply because they are going up, independent of the thought process. What if stocks go down? Scads of you are now promising to buy on the next 10% pullback. I guarantee you that when we ARE down 10%, the only thing on your mind will be selling. That’s the way it always works. Loss of upside momentum could easily turn into vicious downside momentum.
4) The Pandemic Gets a Lot Worse – The Teflon market (which was invented during the Manhattan Project to prevent the corrosion of the insides of steel pipes by uranium or plutonium) has matched rising share prices with increasing Corona deaths tic for tic since March. We are now at 4,000 deaths a day and many hospitals now have fleets of freezer trucks parked outside because they can’t bury the bodies fast enough.
Government health officials tell us the pandemic is peaking right now. What if they are wrong? What if in the coming months, deaths top 10,000 a day? That would definitely be worth a 10% correction, if not a 20% one.
Summary
It all sets up a continuing run for stocks that could last at least two years and take the Dow as high at 45,000, or up 50% from here.
Which leads me to a different subject.
What if I am wrong?
I know that many of you have invested in two-year call options (LEAPS, or long term equity participation securities) at the March-May bottom and are sitting on the biggest profits in your life. Lots of these are several thousand percent in the money and have turned into 10X leveraged long equity positions, essentially synthetic futures. As a result, you now have no downside protection whatsoever.
If you bought the 2022 $120-$130 call spread at $20, it is now worth $765, a gain of 38.25X, or 3,825%. You have essentially just won the lottery.
This is what you need to do right now: roll up your strikes.
I shall explain.
Let’s say that when Tesla was at $80 on a split-adjusted basis, I begged many of you to buy the 2022 $120-$130 call spread. Tesla shares then rose by a mind-boggling 1,006%.
Here’s what you do. Sell your 2022 $120-$130 call spread immediately. Lock in the profit. Then buy a 2023 $900-$950 call spread. If Tesla falls, it will be at a much slower rate than your existing position.
Long-dated out-of-the-money options fall at a much slower rate than stocks because they have immense time value. They demonstrate a downside “hockey stick” effect. Very roughly speaking and without doing any math, a 50% drop in the stock will deliver only a 25% drop in the options. However, if Tesla shares rise, you will still participate in the upside and get 95% of the gain.
It’s a classic “heads I win, tails you lose” set up.
This is what professional traders do automatically, without thinking about it as if it were second nature.
I just thought you’d like to know.
About Last Week
A second insurrection is in play for January 20 according to the FBI, with armed demonstrations planned in the capitols of all 50 states. Don’t plan on traveling that day. Public access to the capitol building has ceased for the foreseeable future. Washington is now an armed camp, with 25,000 National Guard called in. The FBI is attempting to arrest the ring leaders as fast as possible. Market will keep seeing this as a buying opportunity, the fires under the market are burning so hot.
The US budget deficit soared to $573 billion in Q4, up 61% YOY. For the full calendar year, the deficit reached a mind-boggling $3.3 trillion, triple the previous year. Almost all the increase went to spending on pandemic related benefits. It’s another nail in the coffin for the bond market. Keep selling the (TLT), even on small rallies. This could be the trade of the century.
The US has 3 million fewer jobs than when Trump took office four years ago. It’s the worst performance since Herbert Hoover took office in 1928. That’s exactly what I predicted back in 2016. Up to March 2020, we also had a zero return in the stock market under Trump, which only started to improve when Biden took the lead in the primaries in May. In the meantime, the National Debt soared from $20 trillion to $28 trillion and it is still soaring. Over 100% of US growth during the Trump administration has been borrowed from the future on credit. It’s not a way to run a country.
The semiconductor shortage is slowing the auto industry, with Toyota, Ford, and Fiat cutting back production. It’s a global problem. Modern cars use more than 100 chips each and are becoming more apps than hardware. I’ve been predicting this for a year, and the problem will continue as it takes billions of dollars and years to ramp up new production. Buy the daylights out of (NVDA), (AMD), and (MU).
Technology is 2% of US employment but 27% of market capitalization and 38% of profits, says my old friend Jeffrey Gundlach of Double Line. Bitcoin is a bubble, inflation will be 3% by June, and bonds (TLT) are beyond terrible. Stocks are expensive but could run for a long time.
Weekly Jobless Claims delivered a horrific print, up 181,000 to 965,000, the worst since the spring. Covid-19 is clearly the reason. Stocks could care less and pushed on to new all-time highs, up eight days in a row. It really is a “Look Through” market.
No rate hike until 2% inflation for a year, said Fed Governor Clarida. It could be a long wait as indicated by the recent 0.4% report.
US air travel is down 61% in November YOY, and that includes the big Thanksgiving travel bump. A trend up will start later this year, but airlines will still emerge from the pandemic with tons of debt. Avoid.
Netflix is launching a movie a day, for all of 2021. It’s disrupting legacy Hollywood at Internet speed, which Covid-19 has brought to a screeching halt. The stock has seen a sideways correction since tech peaked in sideways. Buy at the bottom end of the recent range.
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 shot out of the gate with an immediate 6.25% profit for the first ten trading days of the year. That is net of a 4% loss on a Tesla short which I added one day too soon. I went pedal to the metal immediately, again going 100% invested with a 50% long/50% short market-neutral portfolio.
That brings my eleven-year total return to 428.80% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.63%, a new high. My trailing one-year return exploded to 72.34%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 90% since the March low.
I did bail on my precious metals positions on (GOLD), (NEM), and (WPM) for small profits. The metals hate rising interest rates and competition from Bitcoin. They have effectively gone into a long bond, short Bitcoin position and I am not interested in either.
The coming week will be a slow one on the data front with Q4 earnings reports coming out daily.
We also need to keep an eye on the number of US Coronavirus cases at 24 million and deaths at 400,000, which you can find here. We are now running at a staggering 4,000 deaths a day.
When the market starts to focus on this, we may have a problem.
On Monday, January 18 at 11:00 AM EST, the US Markets will be closed for Martin Luther King Day.
On Tuesday, January 19 at 4:30 PM, Bank of America (BAC), Goldman Sachs (GS), and Netflix (NFLX) report.
On Wednesday, January 20 at 10:00 AM, we get the NAHB Housing Market Index. Morgan Stanley (MS) and Proctor and Gamble (PG) report.
On Thursday, January 21 at 8:30 AM, December Housing Starts are printed. Intel (INTC) and Union Pacific (UNP) report.
On Friday, January 22 at 10:00 AM, Existing Home Sales for December are out. Schlumberger (SLB) reports. At 2:00 PM, we learn the Baker-Hughes Rig Count.
As for me, I’m still waiting for orders on where to report for my Pfizer Covid-19 vaccination. In the meantime, since I will still be locked up for months to come, I have been viewing precious old pictures and videos from my past travel extravaganzas.
In 2019, I took my girls around the world via New Zealand, Sydney, Brisbane, Melbourne, Perth, Manila, New Delhi, Dubai, Cairo, Athens, Venice, Budapest, Brussels, Zermatt, and then back to San Francisco. We don’t do anything small in my family. Click here for the link to my favorite video of us arriving in Venice.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 12, 2021
Fiat Lux
Featured Trade:
(MAD HEDGE 2020 PERFORMANCE ANALYSIS),
(SPY), (TLT), (TBT), (TSLA), (GLD),
(SLV), (V), (AAPL), (VIX), (VXX)
(TESTIMONIAL)
When a Marine combat pilot returns from a mission, he gets debriefed by an intelligence officer to glean whatever information can be obtained and lessons learned.
I know. I used to be one.
Big hedge funds do the same.
I know, I used to run one.
Even the best managers will follow home runs with some real clangors. Every loss is a learning experience. If it isn’t, investors will flee and you won’t last long in this business. McDonald’s beckons.
By subscribing to the Mad Hedge Fund Trader, you get to learn from my own half-century of mistakes, misplaced hubris, arrogance, overconfidence, and sheer stupidity.
So, let’s take a look at 2020.
It really was a perfect year for me during the most adverse conditions imaginable, a pandemic, Great Depression, and presidential election. I made good money in January, went net short when the pandemic hit in February, and played the big bounce in technology stocks that followed.
Right at the March crash bottom, I sent out lists of 25 two-year option LEAPS (Long Term Equity Participation Securities). Many of these were up ten times in months. I then used a Biden election win as a springboard for a big run with domestic recovery stocks and financials.
One client turned $3 million into $40 million last year. He owes me a dinner and my choice on the wine list. (Hmmmmm. Lafitte Rothschild 1952 Cabernet Sauvignon with a shot of Old Rip Van Winkle bourbon as a chaser?). I usually get a few of these every year.
See, that’s all you have to do to bring in a big year. Piece of cake. It’s like falling off a log. But then I’ve been practicing for 50 years.
In the end, I managed to bring in a net return of 66.5% for all of 2020. That compares to a net return for the Dow Average of 5.7%.
My equity trading in general brought in 71.94% in profits, with 216 trade alerts, and were far and away my top performing asset class. This was the best year for trading equities since the 1999 Dotcom bubble top.
Of course, the best single trade of the year was with Tesla (TSLA), with 18 trades bringing in a 10.55%. I dipped in and out during the 10-fold increase from the March low to yearend.
Readers were virtually buried with an onslaught of inside research about the disruptive electric car company. It’s still true if you buy the stock, you get the car for free, as I have done three times.
Some 26 trades in Apple (AAPL) brought in a net 5.94%. It did get stopped out a few times, hence the lower return.
The second most profitable asset class of the year was in the bond market, with 58 trades producing a 31.16% profit. Virtually all of these trades were on the short side.
I sold short the United States Treasury Bond Fund from $180 all the way down to $154. I called it my “rich uncle” trade of the year, writing me a check every month and sometimes several a month. This is the trade that keeps on giving in 2021. Eventually, I see the (TLT) falling all the way to $80.
I did OK with gold (GLD), making 4.88% with eight trades in the SPDR Gold Shares ETF. Gold rose steadily until August and then fell for the rest of the year. I picked up another 1.77% on two silver trades (SLV).
It was not all a bed of roses.
Easily my worst asset class of the year was with volatility, selling short the iPath Series B S&P 500 VIX Short Term Volatility ETN (VXX). I was dead right with the direction of the move, with the (VIX) falling from $80 to $20. But my timing was off, with time decay eating me up. I lost 7.29% on six trades.
Two trades in credit card processor Visa (V) cost me 4.37%. I had a nice profit in hand. Then right before expiration, rumors of antitrust action from the administration emerged, a spate of bad economic data was printed, and an expensive acquisition took place.
I call this getting snakebit when unpredictable events come out of the blue to force you out of positions. Visa shares later rose by an impressive 22% in two months.
I lost another 0.99% on my one oil trade of the year with the United States Oil Fund (USO), buying when Texas tea was at negative -$5.00 and stopping out at negative $15.00. Oil eventually fell to negative -$37.00.
Go figure.
I didn’t offer any foreign exchange trades in 2020. I got the collapse of the US dollar absolutely right, but the moves were so small and so slow they could compete with what was going on in equities and bonds.
However, I played the weak dollar in other ways, with bullish calls in commodities and bearish ones in bonds. It always works.
Anyway, it’s a New Year and we work in the “You’re only as good as your last trade” business. 2021 looks better than ever, with a 5% profit straight out of the gate during the first five trading days.
It really is the perfect storm for equities, with $10 trillion about to hit the US economy, most of which will initially go into the stock market.
Good luck and good trading.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
Global Market Comments
January 11, 2021
Fiat Lux
Featured Trade:
(MARKET OUTLOOK FOR THE WEEK AHEAD, or A WEEK FOR THE HISTORY BOOKS),
($INDU), (TSLA), (TBT), (TLT), (JPM), (WFC)
A man came at me with a crowbar last week.
I drove into Reno to buy some used backpacks for my Boy Scout troop and parked my Tesla in a nice residential neighborhood. Out of nowhere, a man ran down the street at me screaming profanities, crowbar in hand.
He shouted that I was from Antifa and that I had hired people to invade the Capitol Building to make President Trump look bad.
I reached into my car for my own crowbar. Then the local residents interceded, separating us. The man turned around and walked away, fuming.
“Who the heck was that?” I asked.
“He has mental issues,” said a neighbor. “We’ve had many problems with him before.”
Another said “He’s a Trump supporter. He saw your Tesla and thought you were a liberal.”
Wow! Looks like the nation has a very long way to heal.
Last year, the US defense budget amounted to $622 billion. When the greatest threat to congress in the nation’s history presented itself, it was antique chairs piled against the door that provided the best defense. Maybe we should ditch some big-ticket nuclear missiles and buy more chairs.
Of course, once the insurrection started on Wednesday, I was inundated with international calls from investors asking if they should pull all their money out of the US. I answered “NO” and that it was in fact time to double down. Those who did made a killing.
Ask any professional money manager what his reaction to a coup d’état in Washington would be, their response definitely would NOT be to run out and buy a ton of Tesla (TSLA). Yet, that was exactly the perfect thing to do, the stock soaring an astonishing $135, or 18% in two days. I have many followers who did exactly that and they made millions.
All I can say is that if a market gets hit with an insurrection, and exploding pandemic, and a crashing economy and only goes down 400 points and then bounces back the next day, you want to buy the hell out of it.
I’m talking about going on margin and taking a second mortgage on your home and pouring it into stocks. You might even consider going to a loan shark and borrowing at 18% because you can easily make double that in the right stocks.
After the Biden win and the Georgia sweep, there is now more rocket fuel pouring into the stock market than ever. Call it the “Biden blank check”. Estimates of new spending and subsidies about to hit the market now go up to $10 trillion. Let me list some of them:
*$2 trillion in enforced savings by locked up American consumers.
*Credit card balances have collapsed to multi-year lows, making available hundreds of billions in spending power.
*Trillions of Money market balances sitting on the sidelines yielding zero
*$908 billion stimulus package passed in the closing days of 2020
*A further $2 trillion stimulus package to pass shortly, including $2,000 checks for all 150 million US taxpayers.
*Add another $2 trillion infrastructure budget
*$1 trillion in student loan forgiveness for 10 million borrowers at $10,000 each
*Enormous subsidies for any alternative energy companies and Tesla cars
*The return of the deductibility of $1 trillion worth of state and local real estate taxes (known as (SALT)).
MUCH OF THIS CASH MOUNTAIN IS GOING STRAIGHT INTO THE STOCK MARKET!
It all sets up a stock market that has the potential to have “extreme” moves to the upside, according to my friend, Fundstrat’s Tom Lee.
All you need to retire early is someone to point you in the right direction, into the right sectors and the right stocks. Actually, I happen to know just the right person who can do that and that would be me!
Storming of the Capital shut down markets. After the initial crash, markets flatlined as the entire country dropped what they were doing and glued themselves to a TV, their jaws hanging open. The Dow dove 400 points, bonds and the US dollar stabilized, Tesla and oil took big hits, and gold and silver took off. The electoral college vote has been suspended, gunfights broke out on the house floor, and several explosive devices placed. Trump incited his followers to attack the capitol and they did exactly that. Washington DC is now subject to a 6:00 PM curfew for two weeks. Is this the beginning of the 2024 presidential election? It’s the worst day in Washington since the British burned it in 1814.
Democrats took Georgia, giving them Senate control and a blank check on spending for at least two years. Trump clearly blew the election for his party. My 3X short in bonds soared as the market crashed. Banks rocketed on a 10-basis point leap in interest rates. Infrastructure plays went ballistic. The US dollar faded. Add another couple of percentage points of US GDP growth for 2021.
Tesla Shorts posted biggest loss in history, setting on fire a staggering $38 billion in short positions. Many of these were financed by big oil looking to put Tesla out of business. The short interest in the stock has plunged from 37% to 5%. Did I mention that Tesla was the biggest Mad Hedge long of 2020? I’ve been buying it since it was a split-adjusted $3.30 a share in 2010 against a Friday close of $880, a gain of 290X. Elon Musk is now the richest man in the world and he’s only just getting started!
Tesla met its 500,000-unit 2020 target, far in excess of analyst forecasts. Q4 came in at a surprise 180,570 units. The firm’s 2021 target is 1.1 million units. The market Cap is about to touch $1 trillion, more than all of the global car industry combined. The Model 3 is doing the heavy lifting. Model Y production in Shanghai is about to ramp up and Berlin is to follow. If Tesla can mass-produce their solid-state batteries, they’ll attain a global monopoly in the car industry with 25 million units a year and a share price of $10,000.
A Saudi surprise production cut, a million barrels a day, sent oil over $50. But with demand that weak, how long can the rally last? The market is entering short-selling territory. I bet you didn’t use much gas today commuting from your bedroom to your home office. Use the rally to unload what energy you have left. Sell the (XLE) on rallies.
Bitcoin topped $42,000, more than doubling in a month, and exceeded $1 trillion as an asset class. A Biden-run economy means more money creation which has to find a home. My friend’s pizza purchase for 8 Bitcoin a decade ago is now worth $320,000. I hope it was good!
The Nonfarm Payroll came in at a loss of 140,000, giving more credence to the Q1 double-dip scenario and far worse than expected. The headline Unemployment Rate came in unchanged at 6.7%, Leisure & Hospitality lost a mind-blowing 498,000 and an incredible 3.9 million since January. Private Education lost 63,000 and Government 45,000. Professional & Business Services gained 161,000. The real U-6 Unemployment Rate is a very high 11.6%.
The bond crash has only just begun, with the (TLT) down $8 on the week. The risk/reward is the worst of any financial asset anywhere. I am maintaining my triple short position. Massive government borrowing will be a death knell for fixed income investors.
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 closed out a blockbuster 2020 with a blockbuster 10.20% in December, taking me up to an eye-popping 66.64% for the year. I’m up 81% since the March low. In 2021, I shot out of the gate with an immediate 5.93% profit for the first four trading days of the year.
That brings my eleven-year total return to 428.48% double the S&P 500 over the same period. My 11-year average annualized return now stands at a nosebleed new high of 38.51%. My trailing one-year return exploded to 72.57%, the highest in the 13-year history of the Mad Hedge Fund Trader. We have earned 89% since the March low.
The coming week will be a slow one on the data front after last week's fireworks. We also need to keep an eye on the number of US Coronavirus cases at 22 million and deaths 370,000, which you can find here.
When the market starts to focus on this, we may have a problem.
On Monday, January 11 at 11:00 AM EST, US Inflation Expectations are released, which will increasingly become an area of interest.
On Tuesday, January 12 at 4:30 PM, API Crude Inventories are published.
On Wednesday, January 13 at 8:30 AM, the US Inflation Rate for December is announced.
On Thursday, January 14 at 8:30 AM, the Weekly Jobless Claims are published. We also get November Housing Starts.
On Friday, December 15 at 8:30 AM, December Retail Sales are printed. Q4 earnings seasons starts, with JP Morgan Chase (JPM) and Wells Fargo (WFC) reporting. At 2:00 PM we learn the Baker-Hughes Rig Count.
As for me, I’ll be taking my old Toyota Highlander down to the dealer in Reno. Squirrels moved into the engine and ate the wiring, knocking out the heater and the fan. All part of the cost of living in a mountain paradise. However, you have to share it with the critters.
I’ll also be investing in some pepper spray.
Stay healthy.
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
