With the price of Texas tea barely scratching $78 a barrel today it is time to revisit the doomed future of this ancient energy source.
With energy stocks now trading like they’re having a going out of business sale, you have to wonder if the sector will ever come back. The short answer is short-term yes, long term no.
A key part of my argument for a new Golden Age to take place during the current Roaring Twenties is that the price of energy is effectively going to zero.
It may not actually make it to zero. I’ll settle for down 90%-95%, which is good enough for me.
Take a look at the charts below.
The first one shows how the price of a watt of solar generated electricity has plunged by 99.03% since 1977, from $76.67 to $0.74.
Just in the past six years, retail prices for completed solar panels dropped by a staggering 80%. That is cheaper than electricity supplies generated by new natural gas plants
The potential price declines for natural gas from here are near zero. After all, it’s hard to improve on the near 100% burn rates you get with gas, and many producers are already losing money at current price levels of $1.61 per MM BTU.
Squeezing efficiencies out of our existing solar technology through improved software, production methods, chemistry, and design are nearly unlimited, are expected to drive solar costs by half down to 3 cents per kwh by 2035.
And here is the great shortcoming of all these wonderful predictions. Technology NEVER stays the same.
My own SunPower (SPWR) SPR A420 panels with their Maxeon solar cell technology deliver an efficiency of 20.1%, the best on the market available four years ago.
This means that they convert 22.5% of the solar energy they receive into electricity.
SunPower is now producing 25.1% efficiency panels in the lab. Another research lab in Germany, Fraunhofer, is getting 44.7%.
And my friends at the Defense Department tell me they have functioning solar cells delivering 70% efficiencies which they use in space. Whether they are economic and scalable is anyone’s guess.
(Warning: most cheap Chinese made solar cells have only lowly 15% efficiencies, so don’t be tricked by any great “deals”).
And this is how most long-term predictions fall short.
When I bought the system, I was warned the electricity production would fall 1% a year thanks to the natural degradation of the solar cells.
Instead, output has risen by 1% annually. Global warming is the only possibly explanation.
Not only do they assume that technology doesn’t change, they fail to account for dramatic improvements in other related fields.
EV technology is a classic example. Battery costs are currently falling off a cliff.
When I bought the first Nissan Leaf offered for sale in California in 2010, the battery cost $833 per kilowatt. In 2012, I purchased a high-performance Tesla (TSLA) P85 Model S-1 at $353 per kilowatt.
When the Tesla 3 became available in 2017, the 60-watt battery will ran at $250 per kilowatt. Efficiencies gained through the economies of scale from the Sparks, Nevada Gigafactory took that under $100.
However, that is not the end of the story.
The car industry will start to move towards carbon fiber in five years, which has ten times the strength of steel at one-tenth the weight. The only issue now is mass production cost.
Some 67% of the weight of a Tesla S-1 is in the body, with the four motors at 13%, and the 1,200-pound lithium ion battery at 20%.
What happens when the body weight falls by 90%, to only 6.7% of total weight? The battery weight, and cost declines by two thirds. That cuts the effective cost of the battery to $66/kilowatt.
Add up all of this, and it is easy to see how energy costs can plunge by 90% or more. And it will happen must faster than you expect.
This has been the experience with memory costs, processor speeds, and hundreds of other digital technologies over the past 70 years. The cost of cotton yarn fell by 1,000 times during the 17th and 18th century, wiping out hundreds of existing industries but creating thousands more.
I could go on and on.
This is why the State of California has mandated to get 50% of its energy from alternative sources by 2030, and to ban the new sale internal combustion engines by 2035.
Some researchers believe a 100% target could be achieved. And it is doing this while closing its last remaining nuclear power plants at Diablo Canyon by 2030.
It already hit that target on several days this year when winter filled up all the dams, producing excess hydroelectric power.
As a result, the wholesale price of electricity fell to zero on those days. The grid was producing more power than could be consumed.
To say that free energy would be a game changer is a huge understatement.
The elimination of energy as a cost has enormous consequences for all companies. You can start with the energy intensive ones in transportation, steel, and aluminum, and work your way down the list.
My bet is that you won’t recognize the car industry in 10 years.
At a $66/kilowatt effective battery cost it will make absolutely no sense to build internal combustion engines in new cars.
Too bad Detroit is a decade behind in this technology.
Lose transportation, and you lose 50% of US oil consumption, or about 10 million barrels a day. Guess what that does to oil prices?
Goodbye Middle East. Go blow yourself up.
The profitability and efficiency of the entire economy will take a great leap forward, much like we saw with the mass industrialization that was first made possible by electricity during the 1920’s.
Share prices of all kinds will go ballistic.
Since energy costs will eventually fall effectively to near zero, that wipes out the present business model of the entire electric power, coal, oil, and gas industries, about 10% of US GDP.
Their business models will be reduced to trying to sell something that is free, like air.
https://www.madhedgefundtrader.com/wp-content/uploads/2018/08/gas-production.png675899MHFTRhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMHFTR2024-02-21 09:02:172024-02-21 10:36:45How Free Energy Will Power the Coming Roaring Twenties
(MARKET OUTLOOK FOR THE WEEK AHEAD, or HOW THE CPI LIED),
(NVDA), (MSFT), (AMZN), (V), (PANW), (CCJ) (AAPL), (TSLA), (GOOGL), (MSFT), (AMZN), (META), (UBER), (UUP)
It’s pretty obvious that when the Consumer Price Index was released last Tuesday, the data point was lying through its teeth. The 0.4% increase in the Core CPI brought the YOY gain to a heart-palpitating 3.9%, much higher than expected. The stock market thought it was telling God’s home truth by plunging 740 points at its low.
Interest rate sensitives, like bonds, utilities, real estate, precious metals, energy, and foreign currencies were particularly hard hit.
I have been in the financial markets quite a long time now and as a result, am pretty used to being told porky pies (lies in London’s East End). Take the CPI for example. The reported number came in at a sizzling 3.3% for January. That is enough to kill off any hopes of a Fed interest rate cut in 2024, thus the ensuing wreckage in the market.
However, back out a single number, the 6.0% rise in housing rental costs, and the inflation rate drops all the way to 2.0%, bang on the Fed’s long-term inflation target. In other words, interest rates should be cut RIGHT NOW!
That is clearly the view that the markets came around to on Wednesday, which saw the Dow Average recover 151 points.
Unfortunately, lying is a fact of life in the stock market at every conceivable level. But learn to tolerate it and you can make millions of dollars. That works for me. Like my old college statistics professor used to tell me: “Statistics are like a bikini bathing suit; what they reveal is fascinating, but what they conceal is essential.”
In fact, we may see the stock market bouncing back and forth like a ping pong ball between big technology and the interest rate sectors, depending on what the bond market is doing that day driving traders nuts. After all, it was YOU who wanted to be in show business!
In the meantime, complacency rules all. Cash flows into stocks are near all-time highs. Market strategists have been ratcheting up their yearend targets on a daily basis, even me (I’m now at SPX 6,000). The option put/call ratio is about as low as it gets, meaning there is a universal belief that stocks will continue to appreciate. That’s with the S&P 500 earnings multiple trading at a rich 20.5.
I would be remiss in my duties as a financial advisor if I did not also warn you that these are all market-topping signals, at least for the short term.
Double Yikes, and Heavens to Betsy!
Of course, all eyes will be on the Q4 NVIDIA earnings this week, out after the close on Wednesday and probably the most important data release of the year. Everything else this week is essentially meaningless.
If earnings come in anything less than perfect, up 100% YOY, it could trigger a long overdue correction in the stock market in general and (NVDA) in particular. On the other hand, earnings just might come in more than perfect.
I have been covering (NVDA) for more than a decade back when it was just a video game play and I describe it today as a monopoly on the world’s most valuable product. Their top-end H100 graphics cards are now selling for a breathtaking $30,000 each and Meta (META) just ordered 450,000 of these babies, partly so their competitors can’t get their hands on them. For those who don’t have a calculator that is a single order worth a mind-blowing $13.5 billion.
That is why the stock is up 224% in a year and 50X since the first Mad Hedge trade alert on the company went out at a split-adjusted $2.00. Those who think they can clone (NVDA) and their products overnight can dream on. Most employees have golden handcuffs in the form of vested options at the same $2.00 strike price or lower.
The Magnificent Seven are still cheap relative to the rest of the market. Their price-to-growth ratio (PEG Ratio) is still only half the rest of the market. The Mag Seven will see earnings grow 20% this year with a price-earnings multiple of 30X giving you a PEG of 1.5X. The Unmagnificent 493 are selling at a PEG ratio of 3.0X, meaning they are twice as expensive.
Just thought you’d like to know.
So far in February, we are up +3.42%. My 2024 year-to-date performance is also at -0.86%.The S&P 500 (SPY) is up +4.72%so far in 2024. My trailing one-year return reached +59.62% versus +24.57%for the S&P 500.
That brings my 15-year total return to +675.77%. My average annualized return has retreated to +51.32%.
Some 63 of my 70 trades last year were profitable in 2023.
I am maintaining a double long in, you guessed it, (NVDA). My longs in (MSFT), (AMZN), (V), (PANW), and (CCJ) all expired at their maximum potential profits with the February option expiration.
CPI Smacks Market, coming in at 0.3% in January instead of the expected 0.2%. The highflyers took the biggest hit. Bonds were destroyed, taking ten-year US Treasury yields up to 4.30%. Is the falling interest rate story dead, or just resting? Rising rents were the big villain here.
US Retail Sales Dive 0.8% in January, a shocking decline from the blowout in December. Consumers didn’t bite on those New Year Sales because they actually started in November. Winter storms as well as technical factors had distorted the data.
Weekly Jobless Claims Dropped to 212,000, an improvement of 8,000 from the previous week. Continuing claims rose to 1,895,000. https://www.dol.gov/ui/data.pdf
Here are Dan Niles’ Tech Shorts, Apple (AAPL), (TSLA), and Alphabet (GOOGL). He is long Microsoft (MSFT), (AMZN), (META), and of course NVIDIA (NVDA). Sounds like a good call to me. Dan knows what he is doing.
Uber Announces First Ever Share Buy Back, some $7 billion. In the meantime, they have to cope with a driver strike. Buy (UBER) on dips.
$929 Billion in US Commercial Real Estate Loans are Due this Year or 20% of the total. Will there be widespread defaults or will borrowers get rescued by falling interest rates in the second half? Will they extend and pretend? Avoid regional banks like the plague, which lack the capital to cope with this.
US Dollar (UUP) Hits Three Month High, on the hot CPI. You need a falling CPI to get a weak buck. The Euro plunged to $1.07, the British pound to $1.25, the Australian dollar to 65 cents, and the Japanese yen to ¥151.
NVIDIA Now Tops Amazon in Market Value, at $1.2 trillion now the fourth most valuable company in the US. It could eventually top Microsoft’s (MSFT) market cap as it is growing much faster. Those (NVDA) LEAPS are looking pretty good. The shares are up 50% so far in 2024. Buy (NVDA) on dips.
Biden to Ban Chinese EV Car Imports.The measures would apply to electric vehicles and parts originating from China, no matter where they are assembled, in a bid to prevent Chinese makers from moving cars and components into the United States through third countries such as Mexico. Chinese cars will never meet US safety standards. Try driving in China.
My Ten-Year View
When we come out the other side of the recession, we will be perfectly poised to launch into my new American Golden Age or the next Roaring Twenties. The economy decarbonizing and technology hyper accelerating, creating enormous investment opportunities. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The new America will be far more efficient and profitable than the old.
Dow 240,000 here we come!
On Monday, February 19, the markets are closed for Presidents Day.
On Tuesday, February 20 no data of importanceis released.
On Wednesday, February 21 at 2:00 PM EST, the Minutes from the previous Federal Open Market Committee meetingare published. NVIDIA earnings are released after the market closes.
On Thursday, February 22 at 8:30 AM EST, the Weekly Jobless Claims are announced. Existing Home Sales are Released.
On Friday, February 23 at 2:30 PM the Baker Hughes Rig Count is printed.
As for me,the first thing I did when I received a big performance bonus from Morgan Stanley in London in 1988 was to run out and buy my own airplane.
By the early 1980s, I’d been flying for over a decade. But it was always in someone else’s plane: a friend’s, the government’s, a rental. And Heaven help you if you broke it!
I researched the market endlessly, as I do with everything, and concluded that what I really needed was a six-passenger Cessna 340 pressurized twin turbo parked in Santa Barbara, CA. After all, the British pound had just enjoyed a surge against the US dollar so American planes were suddenly a bargain. It had a maximum range of 1,448 miles and therefore was perfectfor flying around Europe.
The sensible thing to do would have been to hire a professional ferry company to fly it across the pond.But what’s the fun in that? So, I decided to do it myself with a copilot I knew to keep me company. Even more challenging was that I only had three days to make the trip, as I had to be at my trading desk at Morgan Stanley on Monday morning.
The trip proved eventful from the first night. I was asleep in the back seat over Grand Junction, Colorado, when I was suddenly awoken by the plane veering sharply left. My co-pilot had fallen asleep, running the port wing tanks dry and shutting down the engine. He used the emergency boost pump to get it restarted. I spent the rest of the night in the co-pilot’s seat trading airplane stories.
The stops at Kansas City, MO, Koshokton, OH, and Bangor, ME proved uneventful. Then we refueled at Goose Bay, Labrador in Canada, held our breath, and took off for our first Atlantic leg.
Flying the Atlantic in 1988 is not the same as it is today. There were no navigational aids and GPS was still top secret. There were only a handful of landing strips left over from the WWII summer ferry route, and Greenland was still littered with Mustangs, B-17s, B24s, and DC-3s. Many of these planes were later salvaged when they became immensely valuable. The weather was notoriously bad. And a compass was useless, as we flew so close to the magnetic North Pole the needle would spin in circles.
But we did have NORAD, or America’s early warning system against a Russian missile attack.
The practice back then was to call a secret base somewhere in Northern Greenland called “Sob Story.” Why itwas called that I can only guess, but I think it has something to do with a shortage of women. An Air Force technician would mark your position on the radar. Then you called him again two hours later and he gave you the heading you needed to get to Iceland. At no time did he tell you where HE was.
It was a pretty sketchy system, but it usually worked.
To keep from falling asleep the solo pilots ferrying aircraft all chatted on a frequency of 123.45 MHz. Suddenly, we heard a mayday call. A female pilot had taken the backseat out of a Cessna 152 and put in a fuel bladder to make the transatlantic range. The problem was that the pump from the bladder to the main fuel tank didn’t work. With eight pilots chipping in ideas, she finally fixed it. But it was a hair-raising hour. There is no air-sea rescue in the Arctic Ocean.
I decided to play it safe and pick up extra fuel in Godthab, Greenland. Godthab has your worst nightmare of an approach, called a DME Arc. You fly a specific radial from the landing strip, keeping your distance constant. Then at an exact angle, you turn sharply right and begin a decent. If you go one degree further, you crash into a 5,000-foot cliff. Needless to say, this place is fogged 365 days a year.
I executed the arc perfectly, keeping a threatening mountain on my left while landing. The clouds mercifully parted at 1,000 feet and I landed. When I climbed out of the plane to clear Danish customs (yes, it’s theirs), I noticed a metallic scraping sound. The runway was covered with aircraft parts. I looked around and there were at least a dozen crashed airplanes along the runway. I realized then that the weather here was so dire that pilots would rather crash their planes than attempt a second go.
When I took off from Godthab, I was low enough to see the many things that Greenland is famous for polar bears, walruses, and natives paddling in deerskin kayaks. It was all fascinating.
I called into Sob Story a second time for my heading, did some rapid calculations, and thought “damn”. We didn’t have enough fuel to make Iceland. The wind had shifted from a 70 MPH tailwind to a 70 MPH headwind, not unusual in Greenland. I slowed down the plane and configured it for maximum range.
I put out my own mayday call saying we might have to ditch, and Reykjavik Control said they would send out an orange bedecked Westland Super Lynch rescue helicopter to follow me in. I spotted it 50 miles out. I completed a five-hour flight and had 15 minutes of fuel left, kissing the ground after landing.
I went over to Air Sea Rescue to thank them for a job well done and asked them what the survival rate for ditching in the North Atlantic was. They replied that even with a bright orange survival suit on, which I had, it was only about 50%.
Prestwick, Scotland was uneventful, just rain as usual. The hilarious thing about flying the full length of England was that when I reported my position, the accents changed every 20 miles. I put the plane down at my home base of Leavesden and parked the Cessna next to a Mustang owned by rock star Randy Newman.
I asked my ferry pilot if ferrying planes across the Atlantic was always so exciting. He dryly answered “Yes.” He told me in a normal year about 10% of the planes go missing.
I raced home, changed clothes, and strode into Morgan Stanley’s office in my pin-stripped suit right on time. I didn’t say a word about what I just accomplished.
The word slowly leaked out and at lunch, the team gathered around to congratulate me and listen to some war stories.
Good Luck and Good Trading,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
https://www.madhedgefundtrader.com/wp-content/uploads/2022/09/flying-1988-scaled.jpg15432560april@madhedgefundtrader.comhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngapril@madhedgefundtrader.com2024-02-20 09:02:342024-02-20 10:40:04The Market Outlook for the Week Ahead or How the CPI Lied
Below please find subscribers’ Q&A for the February 7 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Have you ever flown an ME-262?
A: There's only nine of the original German jet fighters left from WWII in museums. One hangs from the ceiling in the Deutsches Museum in Munich (click here for the link), I have been there and seen it and it is truly a thing of beauty. You would have to be out of your mind to fly that plane, because the engines only had a 10 hour life. That's because during WWII, the Germans couldn't get titanium to make jet engine blades and used steel instead, and those fell apart almost as soon as they took off. So, of the 1,443 ME-262’s made there’s only nine left. The Allies were so terrified of this plane, which could outfly our own Mustangs by 100 miles per hour, that they burned every one they found. That’s also why there are no Japanese Zeros.
Q: Thoughts on Palantir (PLTR) long term?
A: I love it, it’s a great data and security play. Right now, markets are revaluing all data plays, whatever they are. But it is also overvalued having almost doubled in a week.
Q: What do you make of all these layoffs in Silicon Valley? What does this mean for tech stocks?
A: It means tech stocks go up. The tech stocks for a long time have practiced over-employment. They were growing so fast, they always kept a reserve of about 10% of extra staff so they could be put them to work immediately when the demand came. Now they are switching to a new business model: fire everybody unless you absolutely have to have them right now, and make everybody you have work twice as hard. That greatly increases the profitability of these companies, as we saw with META (META), which had its profits triple—and that seems to be the new Silicon Valley business model. If you're one of the few 100,000 that have been laid off in Silicon Valley, eventually the economy will grow back to where they can absorb you. That's how it's going to play out. In the meantime, go take a vacation somewhere, because you're not going to get any vacations once you get a new job.
Q: I have had shares of Alibaba (BABA) since 2020 and the stock has been in free fall since. Should I take the 80% loss or hold?
A: Well, number one, you need to learn about risk control. Number two, you need to learn about stop losses. I stop out when things go 10% against me; that's a good level. At 80%, you might as well keep the stock. You've already taken the loss and who knows, China may recover someday. It's not recovering now because no foreigners want to invest in China with all the political risk and invasion risk of Taiwan. After all, look at what happened to Russia when they invaded Ukraine—that didn't work out so well for them.
Q: On the Chinese economy (FXI), is the poorer performance due to the decision to move to a war economy? The move in the economic front was described in Xi's speech to the CCP in January of 2023.
A: The real reason, which no one is talking about except me, is the one child policy, which China practiced for 40 years. What it has meant is you now have 40 years of missing consumers that were never born. And there is no solution to that, at least no short-term solution. They're trying to get Chinese people to have more kids now, and you're seeing three and four child families for the first time in 40 years in China. But there is no short-term fix. When you mess with demographics, you mess with economic growth. We warned the Chinese this would happen at the time, and they ignored us. They said if they hadn't done the one child policy, the population of China today would be 1.8 billion instead of 1.2 billion. Well, they’re kind of damned no matter what they do so there was no good solution for them. Of course, threatening to invade your neighbors is never good for attracting foreign investment for sure. Nobody here wants to touch China with a 10-foot pole until there’s a new leader who is more pacifist.
Q: What do you think of Eli Lilly (LLY)?
A: I absolutely love it. If there's a never-ending bull market in fat Americans, which is will go on forever, they're one of two companies that have the cure at $1,000 a month. On the other hand, the stock has tripled in the last 18 months, so it’s kind of late in the game to get in.
Q: Are there any stocks that become an attractive short in the event of a Taiwan invasion, such as Taiwan Semiconductor (TSM)?
A: All stocks become attractive shorts in the event of another war in China. You don't want to be anywhere near stocks and the semis will have the greatest downside beta as they always do. You don't want to be anywhere near bonds either, because the Chinese still own about a trillion dollars’ worth of our bonds. Cash and T-bills suddenly looks great in the event of a third war on top of the two that we already have in Gaza and Ukraine.
Q: What do you think about the prospects of the Japanese stock market now?
A: I think the big move is done; it finally hit a new high after a 34-year wait. The next big move in Japan is when the Yen gets stronger, and that is bad for Japanese stocks, so I would be a little cautious here unless you have some great single name plays like Warren Buffett does with Mitsubishi Corp. (MSBHF). So that's my view on Japan—I'm not chasing it after being out for 34 years. Why return? The companies in the US are better anyway.
Q: What is the deal with Supermicro Computer (SMCI)? It went up 23 times in a year to $669 after not clear $30 for a decade.
A: The answer is artificial intelligence. It is basically creating immense demand for the entire chip ecosystem, including high end servers, which Supermicro makes. It also has the benefit of being a small company with a small float, hence the ballistic move. It was too small to show up on my radar. I’ll catch the next one. There are literally thousands of companies like (SMCI) in Silicon Valley.
Q: Will JP Morgan (JPM) bank shares keep rising, or will they fall when the Fed cuts rates?
A: (JPM) will keep rising because recovering economies create more loan demand, allow wider margins, and cause default rates to go down. It becomes a sort of best case scenario for banks, and JP Morgan is the best of the breed in the banking sector. It also benefits the most from the concentration of the US banking sector, which is on its way from 4,000 banks to 6 with help from the US government.
Q: Is India a good long-term play? Which of the two ETFs I recommend are the better ones?
A: Yes, India is a good long-term play. You buy both iShares India 50 (INDY) and the iShares MSCI India (INDA), which I helped create yonks ago. India is the new China, and the old China is going nowhere. So, yes, India definitely is a play, especially if the dollar starts to weaken.
Q: Do you expect to pull back in your market timing index?
A: Yes, probably this month. Have I ever seen it go sideways at the top for an extended period? No, I haven't. On the other hand, we’ve never had a new thing like artificial intelligence hit the market, nor have we seen five stocks dominate the entire market like we're seeing now. So, there are a lot of unprecedented factors in the market now which no one has ever seen before, therefore they don't know what to do. That is the difficulty.
Q: Does India have an in-country built EV, and what is their favorite EV in India?
A: No, but Tesla (TSLA) is talking about building a factory there. And I would have to say BYD Motors (BYDDF) because they have the world’s cheapest EV’s. There is essentially no car regulation in India except on imports. Car regulation and safety requirements is what keeps the BYDs out of the United States, and it's kept them out for the last 15 years. So that is the issue there.
Q: What do you think about META as a dividend play?
A: I think META will go higher, but like the rest of the AI 5, it is desperately in need of a pull back and a refresh to allow new traders to come in.
Q: Why does Netflix (NFLX) keep going up? I thought streaming was saturated—what gives?
A: Netflix won the streaming wars. They have the best content and the best business strategy; and they banned sharing of passwords, which hit my family big time since it seemed like the whole world was using my Netflix password. And no, I'm not going tell you what my password is. I’ve already paid for Griselda enough times. Seems there is a lot of demand for strong women in my family. Netflix they seem to be enjoying a near monopoly now on profits.
Q: Has the NASDAQ come too far too fast, and does it have more to run?
A: Well it does have more to run, but needs a pull back first. I'm thinking we'll get one this month, but I'm definitely not shorting it in the meantime.
Q: Have you ordered your Tesla (TSLA) Cybertruck?
A: I actually ordered it two years ago and it may be another two year wait; with my luck the order will come through when I'm in Europe and I'll miss it. Some of my friends have already gotten deliveries because they ordered on day one. They love it.
Q: What happened to United States Natural Gas (UNG)?
A: A super cold spell hit the Midwest, froze all the pipes, and nobody could deliver natural gas just when the power companies were screaming for more gas. That created the double in the price which you should have sold into! Usually, people don't need to be told to take a profit when something doubles in 2 weeks, but apparently there are some out there as I've been here getting emails from them. Further confusing matters further is that (UNG) did a 4:1 reverse split right at this time. They have to do this every few years or the 35% a year contango takes the price below $1.00 and shares can’t trade below $1.00 on the New York Stock Exchange.
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, select your subscription (GLOBAL TRADING DISPATCH, TECHNOLOGY LETTER, or Jacquie's Post), 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
Sometimes tech trends start and stop and then start again.
It certainly felt that way for the EV industry when the Chairman of Toyota Akio Toyoda threw a damp towel on the progress of EVs taking over the world.
The Japanese Chairman told the world that he thought EVs will never account for more than a third of the market and that consumers should not be forced to buy them.
These ideas definitely go against the grain of the liberal democratic order.
Listen to the bureaucrats in Brussels and the left-wing establishment in Washington and it almost seems as if they want to ban oil and gas products.
Of course, the ban is certainly hyperbole, but the green movement towards lithium battery-powered cars has become quite political and partisan.
Akio Toyoda, chairman of the world’s biggest carmaker by sales, said that electric vehicles (EVs) should not be developed to the exclusion of other technologies such as the hybrid and hydrogen-powered cars that his company has focused on.
He said he believed battery EVs will only secure a maximum of 30% of the market – less than double their current share in the UK – with the remaining 70% taken by fuel cell EVs, hybrids, and hydrogen cars.
Mr. Toyoda argued that electric cars’ appeal is limited because one billion people in the world still live without electricity, while they are also expensive and need charging infrastructure to operate.
The chairman also pointed to Toyota’s recent announcement that it was working on a new combustion engine, saying it was important to give engine factory workers a role in the green transition.
In recent weeks, that strategy has been partially vindicated after Toyota revealed it had produced a record 9.2 million vehicles in 2023 with one month of the year still to go. The annual total is expected to exceed 10m.
At the same time, sales for January to November increased 7% to 10.2 million vehicles.
Koji Sato, the car maker’s chief executive, last year promised Toyota would sell 1.5 million battery EVs a year by 2026, and 3.5 million by 2030.
Tesla, the world’s biggest EV producer on an annual basis, reported 1.8 million deliveries last year.
Mr. Toyoda’s two cents come after electric car sales have slowed in the western world towards the end of 2023.
I am of the notion that in the short term, all the low-hanging fruit has been plucked by the EV buyers.
To find the next incremental buyer, it won’t be impossible, but that same type of excitement won’t exist.
The truth is that many consumers are still tied to the combustible engine.
On a recent trip to Japan, almost no local drove an EV and I witnessed almost no charging points.
If one of the biggest economies in the world isn’t convinced, then there is still a lot of work to do and I don’t believe that the Japanese will give up gas-powered engines so quickly.
In the short term, the demand weakness in EVs bodes ill for EV stocks like Tesla or Rivian.
Throw in the fact that EVs aren’t cheap and the cost of living crisis is forcing consumers to migrate to necessities which unfortunately doesn’t include a brand new Tesla.
Stay away from EV stocks in the short term and pile into the AI narrative.
https://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.png00Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2024-01-24 18:02:412024-01-24 19:12:53The EV Reality Check
(MARKET OUTLOOK FOR THE WEEK AHEAD, or WHAT WILL KILL THIS MARKET)
(MSFT), (BA), (AMZN), (DAL), (V), (PANW), (CCJ), (TLT), (NVDA), (META), (TSLA), (GOOGL)
Below please find subscribers’ Q&A for the January 10 Mad Hedge Fund Trader Global Strategy Webinar, broadcast from Silicon Valley, CA.
Q: Would you sell Nvidia (NVDA) covered calls?
A: No, I would not. Nvidia could double at any time, or at least go up 50%. That is not a covered call writing situation, that is a long call situation, or at the very least a long call spread situation. Do not bet against Nvidia on pain of death—one of the seven-stop losses I had last year was a short in Nvidia.
Q: Do you recommend any brokers for executing my trades?
A: Yes, I recommend Tastytrade (click here) because I know the owner of the company, and they have the lightest code in the entire industry. It’s written to go very fast; that gives you a price advantage over other platforms. Plus they have very competitive margin rates and commissions. They only charge commissions on openings, not on closings.
Q: Why are you adding positions when the market timing index is so high? Aren't you supposed to be avoiding risk here?
A: The market timing index in the PowerPoint is for the S&P 500 only. If you look at the individual stocks that I've added in the last two days, they've all had 10-20% corrections. So you don't want to touch the main market up here. If anything it's a short, and I am looking at an S&P 500 (SPY) short, by the way, to hedge our other longs. Individual stocks have already corrected, and I've already started to add positions in the leaders for the year. Big tech is moving up; it’s leading the rally so that is what's happening there.
Q: Is it time to buy Tesla (TSLA)? It's a 200-day moving average.
A: I don't want to touch Tesla until the price war is over. Obviously, it's still continuing and Tesla itself is leading the charge on the price war, so I would hold off on that while the other tech stocks like Nvidia (NVDA) are so hot.
Q: I bought the UNG (United States Natural Gas Fund) LEAPS you put out over the Christmas vacation. They have since doubled in value in two weeks. Should I take profits?
A: Yes. Always take a profit in any option play when you get an immediate return because they have the tendency to give up those returns very quickly. They do call natural gas the “widow maker” in the commodities market because of the extreme volatility. So when you get a 50% move in natural gas or any commodity, take the money and run. Go to Las Vegas for a weekend, take your wife to Hawaii, pay off your kid's student loans, or buy yourself a new Rolex watch! Take the quick profit. You always get a chance to buy again on a dip, and there’s nothing like starting off 2024 with a double on a LEAP. For me, it's a matter of professional pride, not about the money. So way to go, John Thomas.
Q: Has crude oil reached the bottom?
A: $70 per barrel has been holding for a long time, but it's not acting like a bottom. I have to tell you, it's not getting any big dead cat bounces you see at real bottoms. So my guess is we have to move into the 60s, maybe all the way down to $62 before we get a turnaround. We need to see a turnaround in the global economy before we get a turnaround in the price of oil, and especially a turnaround in China, which is the world's largest importer of oil—and there is no sign of that happening anytime soon. So there is your answer; watch China.
Q: Will any Bitcoin ETFs be approved in the US?
A: Probably yes, but that also could mark a top of the market. Remember the insiders, the miners, have a huge trading advantage over us. Which is one reason why I'm avoiding this asset class this time around. I have a feeling we'll peak lower than the last high, and then we go back down into lows again. So avoid Bitcoin. There are too many other better things to buy now like Nvidia. During the last Bitcoin peak, all the techs were insanely expensive, and now they're not. We have better alternatives to crypto than we did two years ago.
Q: With China not improving, do you still like the US dollar to drop and the Australian dollar to increase?
A: I do expect the US dollar (UUP) to fall. I think it's peaked out and already dropped 10%, and I expect the Aussie (FXA) to rise. It's already risen by about 7%, but not because of China. It's happening because the US will cut interest rates anywhere from 3 to 6 times this year. And it could be either; it could be 3 quarter-point rate cuts, or it could be 6. I'm kind of leaning towards 6 myself. Which leads to the next question...
Q: Do you still like bonds?
A: Absolutely, yes. (TLT) is trading around $97 today. I'm looking for it to hit $110 to $120 by the end of the year, plus the interest payments. So the total return on (TLT) bonds will be between 18% and 28% on the year. Most people will take that.
Q: Do you still like uranium?
A: Yes. In fact, just last week, France announced it was building 14 new nuclear power plants. These are the big 1 to 4-megawatt old-style plants on top of their additional programs. So that creates more demand for yellow cake fuel and more demand for uranium, and it is getting a lot of push these days as a green fuel. Which it is—it is non-carbon producing. By the way, look at NuScale (SMR) if you're interested in uranium because they have the newest design that solves all the old nuclear problems. And the stock just had a big selloff because they lost a customer.
Q: Do you still like the banks?
A: Well, all four of the financial LEAPS that I recommended at the bottom of the banking crisis in March are all expiring this month at max profits anywhere over a hundred percent. So yes, I love the banks, but I don't especially like them right here, not on top of 30-35% gains. So wait for a pullback. These would be great candidates for any sell-off going into March; that's when we take another look at these. Oh, and if another bank goes bankrupt so much the better, that creates much better entry points.
Q: What's the best way to trade long-term dollar shorts (UUP)?
A: The answer is through futures contracts through banks, is the cheapest way to do it. You get a leverage of 10 to 100 times depending on the contract. You can do long or short. The dealing expenses are the cheapest, and that's how professionals trade for their own account, is through futures contracts through banks. It's not really an equity play. There are a number of short-dollar ETFs out there, but dealing with expenses wide, tracking errors is big so it is not an efficient way to do it. So, that would be my recommendation on long-term dollar shorts. The other way is to buy the Australian dollar, the (FXA).
Q: How are your stem cell knee injections working, John?
A: Fantastic. It completely cured my arthritis with my stem cell injections in my knees and lower back. And after I got shot in the hip in Ukraine, I had a Stem cell injection there too, and that worked. So the pain is completely gone from that bullet wound I got from the Russians in October. Yes, I'm one of the lucky people where everything stem cell-related seems to work, so I do all of them. Go ahead and try it, it’ll only cost you a thousand dollars or two per injection.
Q: When trading Google, do you use the (GOOGL) or just the (GOOG)?
A: One is the holding company, and one is the operating company for the search business. It's really six of one and half a dozen of the other. Both are liquid. The tracking between the two is almost nil, so I don't bother.
Q: Do you expect a recession or high unemployment this year?
A: No, you never get recessions or high unemployment in election years. And much of the spending that the administration obtained years ago has yet to be spent. You know, the lag time on government spending is in the years and it magically tends to happen the most in election years. Go figure. So after a slowdown in the first quarter, I'm expecting to speed up going into the rest of the year.
Q: How much can gold (GLD) go up this year?
A: At least 20 to 30%. Which means the Barrick Gold (GOLD) and Newmont Mining (NEM) could easily double this year. And what about silver? It should go up even more. Which means a Wheaton Precious Metals (WPM) leap at this level should go up 400%. Yes, you've heard it here first, 400% with fairly low risk. And if you want to know how to do that, just search for LEAPS on my website or become a concierge member and you can call me and I'll tell you how to do it. I'll guide your hand on how to do the trade.
Q: Is BYD in China a threat to Tesla (TSLA)?
A: No. BYD Motors (BYDDY) is taking over the low end of the market. Read the least profitable end of the market in China where they actually sell more cars than Tesla including hybrids, but Tesla still leads in EVs, and it's the question of would you rather own a Rolls Royce or a Volkswagen. That is the choice. In China, people buy EVs to show off their wealth, and a BYD car shows off your humility or at least your stinginess. So in some emerging markets where cost is the issue, BYD may take over the market, but they won't make very much money at it. And in other markets where quality is the issue like the US, like China, Tesla will dominate and you may end up with a situation like you have with Apple (APPL). Apple has only a 6% market share in the global cell phone business, but they account for 91% of global profits in the cell phone business, and Tesla could do the same. They could end up making all the money with a lesser market share ceding the bottom end or the money-losing end of the market to BYD, Ford (F), General Motors (GM), or anybody else down there.
Q: What do you think of a (TLT) February $90-$93 vertical bull call debit spread for February?
A: I like it. It’s a little close to the money—I usually try to go out $5 points on the TLT strikes when I'm setting these up. So that's a little aggressive, but you'll end up making more money. My bet is you could make 20% on this call spread right here. So many people are still trying to get into the bond market. They got left out, the move up was so fast since October. The institutional investors that dominate that market are not used to the idea of speed. So yes, I think we're looking at a sideways move before the next leg up. 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, TECHNOLOGY LETTER, or JACQUIE'S POST, 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
There is a very high degree of risk involved in trading. Past results are not indicative of future returns. MadHedgeFundTrader.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Information for futures trading observations are obtained from sources believed to be reliable, but we do not warrant its completeness or accuracy, or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness of the information. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein. Affiliates of MadHedgeFundTrader.com may have a position or effect transactions in the securities described herein (or options thereon) and/or otherwise employ trading strategies that may be consistent or inconsistent with the provided strategies.
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