Last month, I thrilled you with my aerobatics flying a WWII Spitfire over the White Cliffs of Dover (click here if you missed it).
This month, I one-upped myself.
In appreciation to the early buyers of Model S-1’s, Tesla invited me to submit a photo to be etched on the side of a satellite launch into space. Having purchased chassis no. 125, I certainly qualified. Those who referred 25 other buyers were allowed to send videos.
Of course, I had to send a picture of me piloting a 1929 Travelaire D4D biplane, which you can find below. The photo was inserted into the mosaic below. I sent the Spitfire video on an SD card and it’s in orbit as well.
The blast-off took place at Cape Canaveral, Florida on August 4, 2022.
You have to hand it to Tesla, they really know how to do PR, and their advertising budget is nearly zero. The Detroit Big 3 spend $50 billion a year on advertising and get a lesser result.
To watch a video of me blasting off into space on a Space X Falcon 9, or at least my laser etched image, please click here.
Oh, and buy (TSLA) on dips as well.
https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/tesla-mosaic-e1661438774428.png268450Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-25 10:02:102022-08-25 10:55:36About My Trip To Space
We are on the verge of seeing the greatest advancement in technology this century, the mass production of solid-state batteries. The only question is whether Tesla (TSLA) will do it, which is remaining extremely secretive, or whether one of the recent spates of startups pulls it off.
When it happens, battery efficiencies will improve 20-fold, battery weights will fall by 95%, and electric car ranges will improve by double. There isn’t much point in extending your battery range beyond your bladder range.
Car prices will collapse and the global economy will receive a huge boost.
With alternative energy sources growing by leaps and bounds, with a gale force tailwind provided by the Biden administration, it’s time to take another look at battery technologies.
I have been arguing for years that oil is on its way out. Today, I am going to tell you what will replace it.
Sony Corp. (SNE) invented the lithium-ion battery in 1991 to power its high-end consumer electronic products.
It is now looking like that was a discovery on par with Bell Labs’ invention of the transistor in 1947 and Intel’s creation of the microprocessor in 1971, although no one knew it at the time.
After all, Alexander Graham Bell invented the telephone as an aid for the deaf, and Thomas Edison invented records to replay telegraph messages. He had no idea there was a mass market for recorded music.
Until then, battery technology was essentially unchanged since it was invented by Alessandro Volta in 1800 and Gaston Plante upgraded it to the lead acid version in 1859. Not a lot of progress.
That is the same battery that starts your conventional gasoline-powered car every morning.
The Sony breakthrough proved to be the springboard for a revolution in battery power. It has fed into cheaper and ever more powerful iPhones, electric cars, laptops, and even large-scale utilities.
In 1995, the equivalent of today’s iPhone 13 battery cost $10. Today, it can be had for less than ten cents if you buy in bulk, which Apple does by the shipload. That’s a cost reduction of a mind-blowing 99%.
Electric car batteries have seen prices plunge from $1,000/kilowatt in 2009 to only $100 today.
Tesla (TSLA) expects that price to drop well under $100 with its new $6 billion “Gigafactory” in Sparks, Nevada. A second one is under construction. That is important as $100 has long been seen as the holy grail, where electric cars become cheaper than gasoline-powered ones on a day-to-day basis.
The facility is producing cookie cutter, off-the-shelf batteries made under contract by Japan’s Panasonic (Matsushita) that can fit into anything.
If you took existing battery technologies and applied them as widely as possible, it would have the effect of reducing American oil consumption from 22 to 16 million barrels a day.
That’s what the oil market seems to be telling us, with prices hovering just under $90 a barrel, less than a half of where they were a decade ago on an inflation-adjusted basis.
Improve battery capabilities just a little bit more and that oil consumption drops by half very quickly.
Both national and state governments are doing everything they can to make it happen.
The US now has a commanding technology lead over the rest of the world (I can’t believe the Germans fell so far behind on this one).
In 2009, President Obama chipped in $2.4 billion for battery and electric car development as part of his $787 billion stimulus package. He got a lot of bang for the buck.
So far, I have been the beneficiary of not one, but four $7,500 federal tax credits for my purchase of my Nissan Leaf and two Tesla S-1s, and a Model X. The Feds also chipped in another $75,000 for my new solar roof panels and six Powerwalls.
A reader told me yesterday that Sweden will ban the sales of gasoline and diesel-powered vehicles starting 2030. China and the UK will do the same. Japan wants electric and hybrids to account for half of its new car sales by 2030.
California has been the most ambitious, investing to obtain 100% of its power from alternative sources by 2030. Some one million homes here already have solar panels, and these are not even counted in the alternative’s equation.
Solar and wind are already taking over in much of Europe on a nonsubsidized, cost-competitive basis.
By 2030, a ten-pound battery in your glove compartment (glove box to you Brits in London) will be able to take your car 300 miles. The cost of energy will essentially be free.
And guess what?
I am able to use my solar panels to charge my 81-kilowatt Tesla battery during the day and then use it to power my home at night.
That is enough juice to keep the lights on forever, as the system recharges every day. Then, I will be totally off the grid for good, with utility bills of zero.
Want to know where I live? Just wait for the next power outage. I am the only one with lights. That’s when I charge my neighbors a bottle of chardonnay to charge their phones and laptops.
To say this will change the geopolitical landscape would be a huge understatement.
The one-liner here is that oil consumers will benefit enormously, like you, while the producers will get destroyed. I’m talking Armageddon, mass starvation levels of destruction.
In the Middle East, some 1 billion people with the world’s highest birth rates will lose their entire source of income.
Russia, which sees half its revenues come from oil, will cease to be a factor on the international stage, and may even undergo a third revolution. Take oil away, and all they have left is hacking, bots, borscht, and half an antiquated army.
Norwegians will have to start paying for their social services instead of getting them for free.
Venezuela, which couldn’t make it at $100 a barrel, will implode, destabilizing Latin America. It’s already started.
It's going to be an interesting decade for us geopolitical commentators.
Further improvements in battery power per dollar will change the US economy beyond all recognition.
This will be a big win for the 90% of the economy that consumes energy and an existential crisis for the 10% that produce it.
Public utilities will have to change their business models from power producers to distributors.
No less an authority than former Energy Secretary Dr. Steven Chu (another Berkeley grad) has warned the industry that they must change or get “FedExed”, much the same way that overnight delivery replaced the US Post Office.
US oil majors will suffer some very tough times but won’t disappear. My bet has always been that they will buy the entire alternatives industry the second it becomes profitable.
After all, they are not in the oil business, but in the profit-making business, and they certainly have the cash and the management and engineering expertise to pull this off. Exxon (XOM) will turn green out of necessity. It’s already talking as such.
As is always the case, there are very few publicly listed stock plays in a brand-new emerging technology like the battery sector.
Many of the early-stage entrants have already filed for bankruptcy and had their assets taken over for pennies on the dollar.
It’s a business you want to be in because Citibank expects that giant grid-scale batteries alone will be a $400 billion a year market by 2030.
When I visit friends at the oil majors in Houston, I chided them to be kind to that Birkenstock-wearing longhaired visitor.
He may be their future boss.
Tesla’s Solid-State Battery Design
Is that a Double Top?
https://www.madhedgefundtrader.com/wp-content/uploads/2018/01/wash-car-e1517279965252.jpg320580Arthur Henryhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngArthur Henry2022-08-23 10:02:502022-08-23 10:31:56Better Batteries Have Become Big Disrupters
If you thought prices couldn’t go any higher and a reversion to the mean is in store, you are painfully wrong.
Sure, maybe you might catch the low inventory 10% sale on the old model, but I can guarantee you that the next iteration will be aggressively pricing itself higher.
If you think your next iPhone will be cheaper than the last, then please give me a call, I would love to debate.
Let me just lay down this one caveat by saying even if inflation falls to 5-7% and the administration calls it deflation or what-not, the aggregate inflation over the past few years will be felt at the individual level, but at the algorithmic stock market trading level, 5-7% is better than 9.1% meaning the stock market will slingshot higher.
Remember that trading is controlled by the algos, it’s around 87% of trading in 2022.
Pulsating price increases are on the menu at EV bellwether Tesla (TSLA) and my best friend Elon Musk’s company.
Elon announced just over the weekend that the price of Tesla’s Full Self-Driving system (FSD) will increase by $3,000 next month, the second time it has risen in price this year.
I can almost guarantee you there will be a 3rd increase by Christmas and 4th increase early in 2023.
That’s just the word out there on the streets.
Tesla began rolling out its FSD Beta software update release version 10.69. Consumers will see the price rise as of Sept. 5.
Every new Tesla vehicle comes with a driver assistance package called Autopilot, which the company says aims to reduce the driver’s overall workload.
That package contains features such as “Traffic-Aware Cruise Control” through which Tesla vehicles can automatically detect stop signs and traffic lights and automatically slow the vehicle down, as well as “Autosteer.”
These rely on eight external cameras fitted in the vehicle along with “powerful vision processing,” sensors, and various software to ensure the vehicle remains within a clearly marked lane and at the same speed as surrounding traffic.
Currently, Tesla’s FSD software costs $12,000 or consumers can purchase a subscription of $199 per month.
Since Tesla’s FSD system began rolling out in 2019 at a price of $5,000, Musk has regularly increased the price. In 2020 it jumped to $10,000 and in September 2021, it rose again to $12,000.
The strategic gambit sees no end.
Very much like the price of a dozen eggs at the grocery store, prices aren’t going down anytime soon.
Any short price reduction is met with a huge price increase in the future.
Technology is feeling many of the same headwinds such as supply chain headwinds, wage spirals for tech developers, stock compensation not logically based on lower stock prices, diminishing returns of technology, cash crunch on balance sheet, and explosive interest rates.
What does this all mean?
Technology, again like current Manhattan rental prices, becomes a luxury.
Your monthly broadband price will become more expensive upon signing the next contract.
Your iPhone and MacBook will get more expensive by the tune of 30%.
Your streaming subscriptions will become more expensive like Disney Plus and Hulu’s $4 per month price hike.
US tech companies producing these must-have items will pass 100% of cost increases to the end consumers knowing the end user cannot progress career and life without critical technologies.
Tech has checkmated us and more importantly, they bask in their strategic position.
Long-term they will still be very successful with much higher stock prices even if Google’s ad revenue tanks in the upcoming recession.
Tech will come back because it always does, and the US economy will not be in a never-ending recession once rates go back to 0.
Naturally, if this scenario plays out, only the Goliaths prosper, and everybody gets wiped out which is why we are seeing tech start-ups going to hell in a handbasket.
When observing the cream of the crop venture capitalist Marc Andreesen deliver $350 million to fantasist Adam Neumann to become a property manager, it’s clear that there are not enough good ideas in tech now and that interest rates are still way too low.
PREMIUM SOFTWARE FOR A PREMIUM CAR
https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/tsla-navigation.png7601510Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-22 16:02:442022-08-31 00:10:43Self-Drive to Higher Prices
Happy and newly enriched followers of the Mad Hedge Fund Trader Alert Service have a couple of good fortune to own a record ten deep in-the-money options positions that expire on Friday, February 18 at the stock market close in two days.
It is therefore time to explain to the newbies how to best maximize their profits.
These involve the:
(TSLA) 8/$500 put spread 10.00% (TLT) 8/123-$126 put spread
Provided that we don’t have another 2,000-point move down in the market this week, these positions should expire at their maximum profit points.
So far, so good.
I’ll do the math for you on our deepest in-the-money position, the United States US Treasury Bond Fund (TLT) $123-$126 vertical bear put debit spread. Since we are a massive $7.00 in the money with only three days left until expiration I will almost certainly will run into expiration.
Your profit can be calculated as follows:
Profit: $3.00 expiration value - $2.60 cost = $0.40 net profit
(40 contracts X 100 contracts per option X $0.40 profit per option)
= $1,600 or 15.38% in 21 trading days.
Many of you have already emailed me asking what to do with these winning positions.
The answer is very simple. You take your left hand, grab your right wrist, pull it behind your neck, and pat yourself on the back for a job well done.
You don’t have to do anything.
Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning, August 22 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
If you don’t see the cash show up in your account on Monday, get on the blower immediately and find it.
Although the expiration process is now supposed to be fully automated, occasionally machines do make mistakes. Better to sort out any confusion before losses ensue.
If you want to wimp out and close the position before the expiration, it may be expensive to do so. You can probably unload them pennies below their maximum expiration value.
Keep in mind that the liquidity in the options market understandably disappears, and the spreads substantially widen, when a security has only hours, or minutes until expiration on Friday, August 19. So, if you plan to exit, do so well before the final expiration at the Friday market close.
This is known in the trade as the “expiration risk.”
One way or the other, I’m sure you’ll do OK, as long as I am looking over your shoulder, as I will be, always. Think of me as your trading guardian angel.
I am going to hang back and wait for good entry points before jumping back in. It’s all about keeping that “Buy low, sell high” thing going.
I’m looking to cherry-pick my new positions going into the next month-end.
Take your winnings and go out and buy yourself a well-earned dinner. Just make sure it’s take-out. I want you to stick around.
Well done, and on to the next trade.
The Options Expiration is Coming
https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/wristwatch.jpg331441Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-16 10:02:132022-08-16 17:24:03How to Handle the Friday, August 19 Options Expiration
After a half-century in the markets, I have noticed that it is the investors with the correct long-term views who make the biggest money. My favorite example is my friend, Warren Buffet, who doesn’t care if an investment turns good in five minutes or five years.
Buffet’s Berkshire Hathaway (BRKB) is the largest outside investor in Apple (AAPL). And guess what his cost has been? By the time you add up the compounded dividends he has collected since he started buying the stock in 2011, it's zero. The value today? $15.5 billion.
Buffet didn’t buy Apple for its hardware, iPhone, or iTunes. He bought it for the brand, which has improved astronomically. Look at Berkshire’s portfolio and it is packed with brands, like American Express (AXP), Coca-Cola (KO), and Exxon (XOM).
When did Buffet last buy Apple? In May when it hit $130.
That’s why Warren Buffet is Warren Buffet and you are you.
While the inflation news last week has been great and it is likely to get better, I believe that investors are missing the bigger, more important long-term picture.
The fact is that markets are now discounting an earlier than expected end to the Ukraine War, much earlier.
I get constant updates on the war from the Joint Chiefs of Staff, Britain’s Defense Committee, and NATO headquarters and I can tell you that the war has taken a dramatic turn in Ukraine’s favor just in the last two weeks.
Russian casualties have topped 80,000, nearly half the standing army. They have lost 2,200 of their 2,800 operational tanks. Some 120 front line aircraft have been destroyed. This week, Ukraine attacked the principal Russian air base in Crimea, leaving the smoking ruins of seven more aircraft there.
Russia is in effect fighting a modern digitized war with 50-year-old Cold War weapons and it isn’t working. Its generals have no experience fighting wars against determined opposition. Putin would do better listening to the retired generals on CNN for military advice.
America’s High HIMARS (the M142 High Mobility Artillery Rocket System) has become the Stinger missile of this war. The Lockheed Martin (LMT) factory in Camden, Arkansas that makes these missiles is running 24/7 on doubled orders.
The sanctions against Russia have been wildly successful. The Russian economy is utterly collapsing. What oil they are selling now is at half price. Aircraft are being cannibalized for parts to keep others flying. Much of the educated middle class has fled the country. Draft dodging is rampant.
What does all this mean for you and me?
The commodity price spike the war prompted has ended and most are now in steep downtrends. Gold (GLD), where the Russians were major buyers, has been flat as a pancake. This has put our inflation numbers into freefall. Interest rate fears peaked in June and are now in the rear-view mirror.
As is always the case, markets have seen these developments and correctly ascertained their consequences far before we humans did (except for maybe me). It has been no surprise that they have been tracking the Russian defeat day by day and have been on an absolute tear since June 15.
Even small techs suffering 18-month bear markets have now begun major recoveries, with companies like Snowflake (SNOW), up 50%, Netflix (NFLX), up 39%, and Cathie Wood’s Innovation Fund (ARKK) up 57%. Even crypto has returned from the grave, with Ethereum (ETHE) up an eye-popping 105%.
But don’t go gaga over stocks just yet.
The Fed ramps up quantitative tightening in September to $95 billion a month and will deliver another interest rate hike. That's why I am running a double short in the bond market (TLT), (TBT) once again.
We also have the midterms to worry about which, with recent developments, promise to be more contentious than ever. Look for another round of tiring new election fraud claims.
That’s great because these events will give us good entry points lower down for trade alerts, not the short-term top we are looking at right now.
It helps that with ten-year US Treasury yields at 2.80%, it has an effective price earning multiple of 37, while stocks growing earnings at 10% a year boast a price earnings multiple of only 16. That sets up a massive, long stock/short bond trade which Mad Hedge will be pushing well on into 2023.
And you know what?
The smart guys I know in the hedge fund community are starting to model for the next Fed interest rate CUT. Markets will love it and discount this far in advance.
If you want to get on the train with me before it leaves the station, just keep reading this newsletter.
Yes, markets are now being driven by rate cuts and peace prospects, not rate rises and war!
Your retirement fund will love it.
I just thought you’d like to know.
CPI Dives to 8.5%, down 0.6% in July. The peak is in, and stocks rallied 500. Look for another drop in August, with gasoline prices falling daily. The 800-pound gorilla in the room has exited.
The Producer Price Index Dives 0.5%, confirming last week’s weak CPI number. And many core prices are indicating that we will get another drop when the August numbers are reported in September. It was worth another 300-point rally in the Dow Average, which is getting seriously overbought.
Consumer Inflation Expectations dive to 6.2% for the coming year and only 3.2% for three years. according to a New York Fed Survey. Expectations for food costs saw the largest decline. The CPI is out on Wednesday. No doubt a media onslaught over a coming recession has a lot to do with it.
Elon Musk Sells $6.9 billion worth of Tesla (TSLA) Stock, explaining the $100 drop in the shares last week. Ostensibly, this is to pay for Twitter if he loses his court case. Musk clearing took advantage of a 60% rise in (TSLA) to head off distress sales in the future. Musk also opened the door to share buy backs in the future. Buy (TSLA) on dips.
85,000 IRS Agents are Headed Your Way, but only if the government can hire them and only if you are a billionaire or a profitable large oil company. The rest of us will be ignored by this unpublicized portion of the Biden inflation bill.
US Dollar (UUP) Takes a Hit on CPI Report, which effectively showed that the US saw deflation in July. The greenback is pulling back the 20-year highs which gave you the cheapest European vacation in your lives. The prospect of interest rates rising at a slower pace is dollar negative. Buy (FXA) and (FXC) on dips.
Boeing (BA) Delivered its First 787 Dreamliner in a year, after long-awaited regulatory approval. The monster 30% rise in the shares off the June low predicted as much. A global aircraft shortage helps. Airbus is going to have to start earnings its money again. Keep buying (BA) on dips.
Weekly Jobless Claims Pop 12,000 to 262,000, a new high for the year. It’s not at concerning levels yet but is definitely headed in the wrong direction. Maybe it’s just a summer slowdown? Maybe not.
Shipping Container Charges are Plunging Everywhere, except in the US, which currently has the world’s strongest economy. It’s a sign that global supply chain problems are easing. But the US leads the world in demurrage, or delays, with New York the worst, followed by Long Beach. Import Prices are Plunging, thanks to a super strong dollar, taking more pressure off of inflation. They fell 1.4% in July according to the Department of Labor. Easing supply chain problems are helping. Biden has had the run of the table for months now
My Ten-Year View
When we come out the other side of pandemic and the recession, we will be perfectly poised to launch into my new American Golden Age, or the next Roaring Twenties. With oil prices now rapidly declining, and technology hyper accelerating, there will be no reason not to. The Dow Average will rise by 800% to 240,000 or more in the coming decade. The America coming out the other side will be far more efficient and profitable than the old. Dow 240,000 here we come!
My August performance climbed to +2.14%. My 2022 year-to-date performance ballooned to +56.97%, a new high. The Dow Average is down -7.0% so far in 2022. It is the greatest outperformance on an index since Mad Hedge Fund Trader started 14 years ago. My trailing one-year return maintains a sky-high 74.76%.
That brings my 14-year total return to 569.53%, some 2.56 times the S&P 500 (SPX) over the same period and a new all-time high. My average annualized return has ratcheted up to 44.96%, easily the highest in the industry.
We need to keep an eye on the number of US Coronavirus cases at 93 million, up 300,000 in a week and deaths topping 1,037,000 and have only increased by 2,000 in the past week. You can find the data here.
On Monday, August 15 at 8:30 AM EDT, the New York Empire State Manufacturing Index for August is released.
On Tuesday, August 16 at 8:30 AM, the Housing Starts for July are out.
On Wednesday, August 17 at 8:30 AM, Retail Sales for July are published. At 11:00 AM the Fed Minutes from the last meeting are printed.
On Thursday, August 18 at 8:30 AM, Weekly Jobless Claims are announced. Existing Home Sales for July are announced. On Friday, August 19 at 2:00 the Baker Hughes Oil Rig Count is out.
As for me, while we’re all waiting for the dog days of August to end, it is time to reminisce about my old friend George Schultz who passed away last year at the age of 101.
My friend was having a hard time finding someone to attend a reception who was knowledgeable about financial markets, White House intrigue, international politics, and nuclear weapons.
I asked who was coming. She said Reagan’s Treasury Secretary George Shultz. I said I’d be there wearing my darkest suit, cleanest shirt, and would be on my best behavior, to boot.
It was a rare opportunity to grill a high-level official on a range of top-secret issues that I would have killed for during my days as a journalist for The Economist magazine. I guess arms control is not exactly a hot button issue these days.
I moved in for the kill.
I have known George Shultz for decades, back when he was the CEO of the San Francisco-based heavy engineering company, Bechtel Corp in the 1970s.
I saluted him as “Captain Schultz”, his WWII Marine Corp rank, which has been our inside joke for years. Now that I am a major, I guess I outrank him.
Since the Marine Corps didn’t know what to do with a PhD in economics from MIT, they put him in charge of an anti-aircraft unit in the South Pacific, as he was already familiar with ballistics, trajectories, and apogees.
I asked him why Reagan was so obsessed with Nicaragua, and if he really believed that if we didn’t fight them there, would we be fighting them in the streets of Los Angeles as the then-president claimed.
He replied that the socialist regime had granted the Soviets bases for listening posts that would be used to monitor US West Coast military movements in exchange for free arms supplies. Closing those bases was the true motivation for the entire Nicaragua policy.
To his credit, George was the only senior official to threaten resignation when he learned of the Iran-contra scandal.
I asked his reaction when he met Soviet premier Mikhail Gorbachev in Reykjavik in 1986 when he proposed total nuclear disarmament.
Shultz said he knew the breakthrough was coming because the KGB analyzed a Reagan speech in which he had made just such a proposal.
Reagan had in fact pursued this as a lifetime goal, wanting to return the world to the pre nuclear age he knew in the 1930s, although he never mentioned this in any election campaign. Reagan didn’t mention a lot of things.
As a result of the Reykjavik Treaty, the number of nuclear warheads in the world has dropped from 70,000 to under 10,000. The Soviets then sold their excess plutonium to the US, which has generated 20% of the total US electric power generation for two decades.
Shultz argued that nuclear weapons were not all they were cracked up to be. Despite the US being armed to the teeth, they did nothing to stop the invasions of Korea, Hungary, Vietnam, Afghanistan, and Kuwait.
Schultz told me that the world has been far closer to an accidental Armageddon than people realize.
Twice during his term as Secretary of State, he was awoken in the middle of the night by officers at the NORAD early warning system in Colorado to be told that there were 200 nuclear missiles inbound from the Soviet Union.
He was given five minutes to recommend to the president to launch a counterstrike. Four minutes later, they called back to tell him that there were no missiles, that it was just a computer glitch projecting ghost images on a screen.
When the US bombed Belgrade in 1989, Russian president Boris Yeltsin, in a drunken rage, ordered a full-scale nuclear alert, which would have triggered an immediate American counter-response. Fortunately, his generals ignored him.
I told Schultz that I doubted Iran had the depth of engineering talent needed to run a full-scale nuclear program of any substance.
He said that aid from North Korea and past contributions from the AQ Khan network in Pakistan had helped them address this shortfall.
Ever in search of the profitable trade, I asked Schultz if there was an opportunity in nuclear plays, like the Market Vectors Uranium and Nuclear Energy ETF (NLR) and Cameco Corp. (CCR), that have been severely beaten down by the Fukushima nuclear disaster.
He said there definitely was. In fact, he was personally going to lead efforts to restart the moribund US nuclear industry. The key here is to promote 5th generation technology that uses small, modular designs, and alternative low-risk fuels like thorium.
Schultz believed that the most likely nuclear war will occur between India and Pakistan. Islamic terrorists are planning another attack on Mumbai. This time, India will retaliate by invading Pakistan. The Pakistanis plan on wiping out this army by dropping an atomic bomb on their own territory, not expecting retaliation in kind.
But India will escalate and go nuclear too. Over 100 million would die from the initial exchange. But when you add in unforeseen factors, like the broader environmental effects and crop failures (CORN), (WEAT), (SOYB), (DBA), that number could rise to 1-2 billion. This could happen as early as 2023.
Schultz argued that further arms control talks with the Russians could be tough. They value these weapons more than we do because that’s all they have left.
Schultz delivered a stunner in telling me that Warren Buffet had contributed $50 million of his own money to enhance security at nuclear power plants in emerging markets.
I hadn’t heard that.
As the event ended, I returned to Secretary Shultz to grill him some more about the details of the Reykjavik conference held some 36 years ago.
He responded with incredible detail about names, numbers, and negotiating postures. I then asked him how old he was. He said he was 100.
I responded, “I want to be like you when I grow up”.
He answered that I was “a promising young man.” I took that as encouragement in the extreme.
Stay healthy,
John Thomas
CEO & Publisher
The Diary of a Mad Hedge Fund Trader
We’re Getting Pretty High
https://www.madhedgefundtrader.com/wp-content/uploads/2022/08/wristwatch.jpg331441Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2022-08-15 09:02:082022-08-15 13:26:22The Market Outlook for the Week Ahead, or What the Market is Really Discounting Now
Below please find subscribers’ Q&A for the August 10 Mad HedgeFund Trader Global Strategy Webinar broadcast from Silicon Valley in California.
Q: What are your yearend targets for Nvidia (NVDA), Tesla (TSLA), and Google (GOOGL)?
A: Higher for all but I can’t give you the exact date and time. Google has a special situation in that they might be hit with an anti-trust suit in September, so that could cap things. For Tesla, we have the Twitter overhang, and Elon Musk sold $6.9 billion worth of stock last week to fund that. And then Nvidia could have another dive, depending on how much of a glut in chips there is, but I'd be buying any chips from here on. By the way, if Tesla breaks the old high of $1,200, which I expect by the end of the year, we could get to $2,000 very rapidly on yet another massive short squeeze against the permanent Tesla haters, who’ve already been completely decimated by the last 60% move.
Q: How would I play Amazon (AMZN) going forward?
A: Buy the dips. I think they’re going to be the world's dominant retailer going forward and they’re doing the right things and going crazy.
Q: Which sectors?
A: Well, for ETFs, you can look at the ProShares Ultra Technology ETF (ROM). That’s 2x leveraged long tech. But only do that on dips because the volatility of the ROM is enormous since it’s 2x in the most volatile sector. Also, I think we can start taking a look at banks again, what with interest rates rising and a recovery on the horizon, banks could come back into play after sitting at the bottom for the last 3 or 4 months.
Q: I’m doing a LEAP on Freeport-McMoRan Inc. (FCX); should I go for January 2025 or 2024?
A: I’d go longer dated—that way you can get a bigger move and will almost certainly be on a full-on economic recovery, and massive electrification of the auto fleet by 2025, thanks to the climate bill that will be passed Friday. That means the demand for copper is about to go absolutely through the roof—I'm looking for (FCX) to go from $30 to $100 in the next 3 years.
Q: Thoughts on Disney (DIS)?
A: No one can believe how cheap Disney has gotten, it’s been a disaster. Obviously (DIS) took it on the nose with the recession and some of the parks still have limitations on the number of visitors. It should do better and I'm amazed it got this cheap. I would expect a move to the $200 level by the end of next year.
Q: What LEAPS do you recommend for January 2023?
A: Well it’s not really a LEAPS if you’re only going out 6 months; that’s just a long-dated call spread. LEAPS are usually a year or longer. I’d say pretty much anything in any sector will be higher except maybe energy by 2023. We’re not at LEAPS territory yet, but we’re getting close. The next major selloff I might start putting LEAPS out there.
Q: Is the Consumer Price Index (CPI) dropping from 9.1% YOY down to 8.5% meaning the top is in and deflation’s over?
A: I think so, because there are a lot of price declines that were not reflected in this July number that have yet to come. I'm talking about wheat, lumber, and energy. So yes, we could get another big move down in August, and if that’s the case, the Fed may only raise by 50 basis points in September. That's the hope. The things that aren’t going to go down are rental costs and labor costs. We may never get back to the inflation rate that we had 2 years ago of 2%. The long-term average for the last 100 years is 3% and certainly a move down to 4% is possible this year (and would be very welcome by the stock market as part of my long-term bull case).
Q: What are your thoughts on Elon Musk selling $6.9 billion worth of Tesla shares?
A: It’s amazing he sold that amount of stock last week and only went down $100. It does remove a big overhang on the stock and paves the way on a much bigger move up later in the year. By selling the $9 in January and $7 now, that’s $16 billion he sold this year. He could almost pay for Twitter with a little outside bank financing.
Q: How far above current prices should I place a LEAPS?
A: It depends on where the market is; if we’re having a cataclysmic selloff down 1,000-point days, then you can have the luxury of going 10%, 20%, or even 30% out-of-the-money; and that of course gets you a 100%, 200% and 300% returns. If we have a higher low, then you may want to go lower risk and go at the money, that might get you a 50% return. On LEAPS that are only slightly in-the-money, even those generate 25% returns one year out with the most conservative possible position.
Q: Would you load the boat on dips?
A: I would but remember: a dip is not one hour or on down days, it’s like half of the recent gain, which would be down 1,500 Dow points, or all of the recent gain, which would be down 3,000 points. So be careful that you don’t get too aggressive just because you’ve gotten bullish.
Q: Do you think the semiconductor chips will lead the tech recovery in the second half of the year?
A: I do, but we do have an inventory problem to digest first, and we have to figure out the implications of the CHIPS act that was signed this week which makes available a couple hundred billion dollars to build new chip factories in the US. Chip companies are particularly challenged right now because they have to provision for a recession which is going to cut chip demand, and they also have to provision for a potential oversupply created by the CHIPS Act. Remember that for the industry, creating safe supplies of chips means more lots of chips at lower prices for consumers. Great for us, great for the auto industry, not so great for chip companies. You have to be careful. On the other hand, on the bullish side, chips are being designed into more products faster and in larger numbers than ever before. This is the main reason why most investors underestimated the chip industry for the last 10 years. That also is a factor that’s accelerating. The average car now has 100 chips. 20 years ago they had maybe 10 chips, and 30 years ago they had none.
Q: Will the eventual big win of Ukraine against Russia result in inflation going back to 2%?
A: No, but it will result in it going back to 3% or 4%, which we could hit next year. You get oil back down below $50, gasoline down to $2/gallon, and the world's food supply opened up once again, and inflation will disappear in a heartbeat.
Q: What’s the deal with the 1% buyback tax in the inflation reduction package?
A: Well they had to get revenue somewhere, and 1% is so small it won’t inhibit anyone from buying back stock, especially if it makes the CEO a billionaire. That is a great incentive—even if you had a 50% tax, they would still be doing buybacks for things like Apple (AAPL), Microsoft (MSFT), and the other buyback players.
Q: What will high energy prices do to crypto?
A: It might actually make it go up because the cost of electricity feeds straight into the manufacturing/programming cost of crypto. And if you notice, Bitcoin bottomed at $17,000 per bitcoin. But that's exactly where the new mining cost is. Just like all of the commodities, when you hit cost of production, the supply suddenly dries up because nobody can make any money at it.
Q: Will US homebuyers buy the dip since mortgage rates have come down?
A: Yes, and we’re already seeing that in the statistics. The fact is we still have a huge housing shortage in the United States. You don’t get big price falls when you have a shortage of supply, and you have 10 million millennials who still need to trade up from their one and two-bedroom apartments all over the country. So, things may stall a bit in home buying, but I don’t think you get very big price drops.
Q: Do you think the US consumer is strong?
A: They never stopped being strong, even throughout recession fears. Never, ever bet against the propensity of Americans to spend money, both individuals and governments.
Q: What are the chances the US goes to war with China over Taiwan?
A: Zero. # 1 China doesn't have ships, #2 we have the 7th Fleet there, and #3 they have been threatening to invade Taiwan for 70 years and done nothing. The Taiwanese are used to this. Though there is the other side issue that most of the other private companies in Taiwan are already owned by the Chinese and have Chinese capital, so it’s unlikely they want to blow up their own facilities. So, the answer is no.
Q: What is the Long term outlook for gold and silver?
A: It’s been dead for so long that I’m not inclined to rush into gold. But you have to expect that when you get a recovery in the commodity boom, it’s going drag gold and silver along with it. I see upsides for both of these, especially silver.
Q: Should student loans be paid off by the federal government?
A: I think yes, because as long as these people have massive debts, they cannot borrow and they cannot enter the US economy as consumers. If you forgive all student debt, you unleash 10 million new customers onto the market who can now borrow, get credit cards, and take out home mortgages. As long as they have massive debts, they can’t do that.
Q: With all the major companies in the world moving to EVs, where are we going to get these commodities?
A: We’re not. Tesla (TSLA) has already locked up major supplies of commodities over the next 10 years, and everyone else will have to pay more money. Some of the weaker producers like Ford (F) and General Motors (GM), are being restrained on shortages of not just chips but also basic commodities like chromium for stainless steel. They’re going to have a real problem competing with Tesla, which is why you own Tesla.
Q: What do you think about the unprofitable tech companies like those in the ARK ETFs (ARKK)?
A: I would avoid those for now. Why take on additional risk buying a non-earning company when the highest quality companies are selling at the cheapest valuations in ten years? Maybe when the big companies like Apple get overvalued—go up another 100% — then you might look at the smaller companies if they’re still cheap. But the risk/reward on the nonearners right now is no good, while it’s fantastic in the large tech companies. That is my opinion and I’m sticking to it.
Q: It seems Russia’s strategy has mirrored those of the Czars.
A: Actually, what they’re doing is repeating their WWII strategy, which worked in 1945— not so much in 2022; and that was massive artillery barrages against retreating Germans. Except this time Ukrainians are not retreating and have far more modern weapons than the Russians.
Q: Would you buy Micron Technology (MU) on bigger dips?
A: Absolutely yes; but again, wait for the down days. You have plenty of volatility in chip stocks, no need to pay up or chase higher prices.
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
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