Below please find subscribers’ Q&A for the July 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Incline Village NV.
Q: Is the Fed waiting too long to cut interest rates?
A: Yes, they are. We are on a recession track if the Fed doesn’t move soon. In other words, the light at the end of the tunnel isn’t daylight—it’s an oncoming train. So, I think a September rate cut is a certainty. They want to see tomorrow’s data and make sure it’s cool. They need several months of really cool inflation data to justify the first rate cut and we probably are going to get that, so next update is tomorrow with the latest CPI number is crucial. Everybody’s sitting on their hands until then.
Q: When will NVIDIA (NVDA) hit a $4 trillion market valuation?
A: By the end of the year. We’re currently at $3.3 trillion, so another $700 billion is nothing for NVIDIA—you could do that in a day if you really wanted to. But give it until the end of the year, just to be conservative. The fact is, they have a global monopoly on the highest-priced product that everybody in the world has to buy or go out of business. It’s not a bad place to be—it’s kind of like where John D. Rockefeller was in the oil industry around 1900.
Q: What do you think about copper (COPX)? Should I maintain my longs?
A: Yes, all we need is further proof of falling interest rates and the entire commodities/precious metals sectors will take off like a rocket. So just sit with your positions. I put out a piece yesterday on copper. All that shines is not Copper, and it’s not dead it’s just resting, like the proverbial John Cleese parrot.
Q: Do you think a 10% stock market correction is likely before the election?
A: No, the most we’ve been able to get this year is 4% or 5% pullbacks, but not much more. We have a world with a cash glut that is underinvested in the face of a global monetary easing. Investors have been net sellers of stocks all of last year, so we were ripe for a meltup, which has, in fact, happened every day so far in July. So no, my S&P 500 target of 6,000 for the end of the year is starting to look too conservative given the moves that we’ve made lately. I’m very positive about that.
Q: Is the real estate market about to crash?
A: Well, the Florida housing collapse that is being driven by the insurance industry feeing that state. Insurance companies don’t like the hurricane risk going forward, which can cost tens of billions of dollars per event. Nobody there can get insurance anymore unless they pay outrageous amounts of money. Some people are only buying fire insurance to save money and skipping the storm insurance and rolling the dice, hoping the storms hit somewhere else in Florida. The fact is, you can’t get a home mortgage without insurance. Banks aren't willing to take the environmental risk of a house without insurance. No insurance means no bank loans, which means the market shrinks to a cash-only market. And there is a cash-only market in Florida, but it’s not at the $500,000 level, it’s more at the $50 million level. So that is a problem unique to Florida. Could it spread to other areas? Yes. Texas is having another energy crisis, as it has twice every year, ever since the power system was privatized there. No reserves for emergencies, no contingency, nothing that costs money basically. And then California definitely has a wildfire problem, although we’ve been getting off pretty light last year and this year. But the insurance companies don’t think like that. They are the classic 20/20 hindsight type companies.
Q: What’s the impact of the election on the market?
A: Zero. But it will defer buying until after the election. So if you have a 50/50 split on polls, uncertainty is at a maximum. People don’t like investing in uncertainty, they like sure things. After the election, you can expect a massive melt-up in the market no matter who wins because the uncertainty will be gone, and tech stocks will lead once again.
Q: What should I do with Nvidia (NVDA)?
A: I put out a report on this on Monday. You keep your long and write calls against them. And you can get quite a lot of money for just the August calls. I think the August $140 calls were selling for $3.50—they’re higher than that now, so you could even go out to August $145, and just keep doing that every month. If Nvidia takes off and you get taken out of your stock, you’re selling it essentially at $143.50. So that is an excellent trade—a lot of the big institutions are doing that now.
Q: Tesla's (TSLA) been on a big rally for the past month; do you expect it to continue?
A: I expect it to take a break, but the long-term uptrend is now back for good, for lots of different reasons. The immediate headline reason was because the Chinese government allowed the buying of Teslas for the first time—they are made in China after all. Second, they had a good earnings beat, so this caused a massive short-covering rally. The shorts got crushed by Tesla once again, as they have been consistently doing for the last 15 years, really. I saw a number of cumulative losses on short positions on Tesla stock since inception: $100 billion. Most of those losses were incurred by oil companies trying to put Tesla out of business.
Q: What do you call a substantial dip?
A: It’s different for every stock—for some it’s 2%, for others like Tesla or Nvidia it’s 20%. It depends on the volatility of the stock; you just have to look at the charts and make your own call.
Q: What do you think for the next earnings season?
A: It’ll be great for technology stocks and not so great for domestics as their businesses cool off.
Q: Is there anything Europe and American EV producers can do to compete against the Chinese at these lower prices?
A: Yes: keep quality high, therefore profits high, therefore profit margins high. That was the Japanese strategy in the US from the 1980s onwards, and it was hugely successful. You can cede the money-losing part—the low-end part of the market, to the Chinese. The quality of the Chinese EVs is terrible, they start to fall apart after four years, and I learned this from several Chinese EV drivers in Ecuador where they have a substantial market share already. But at $15,000 plus the shipping, you don’t make a lot of money in EVs.
Q: Is it a good time to buy put LEAPS on the ProShares UltraShort 20+ Year Treasury (TBT)?
A: Yes, especially if you’re willing to do an at-the-money and bet that the interest rates stay here or lower for the next year. You’d probably get a 100% return on that, but why bother? Because on the TBT itself, you have a much wider trading spread than the (TLT), therefore the dealing costs are higher. You might as well just go and do the long (TLT) LEAP instead.
Q: Chipotle Mexican Grill (CMG) stock has been really successful for the last five years, but it just dropped 20%, should I get in?
A: It’s a very low-margin business—I avoid those. There’s not a lot of meat in the burrito business. It doesn’t have the key elements of success. (Not just Chipotle, but with the whole industry.) It's not like you’re designing 96 stock microprocessors.
Q: Are AI stocks overhyped at this point?
A: Absolutely yes, but they can stay overhyped for another three or four years, so I think we're just at the beginning of a very long-term run. And the people who have been involved so far are making the biggest money in their lives.
To watch a replay of this webinar with all the charts, bells, whistles, and classic rock music, just log in to www.madhedgefundtrader.com , go to MY ACCOUNT, click on GLOBAL TRADING DISPATCH, then WEBINARS, and all the webinars from the last 12 years are there in all their glory.
Good Luck and Stay Healthy
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
